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<TITLE>FORM S-1</TITLE>
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<P align="center" style="font-size: 10pt"><B>As filed with the Securities and Exchange Commission on April&nbsp;23, 2004</B>



<P align="right" style="font-size: 10pt"><B>Registration No.&nbsp;333-</B>


<P align="center" style="font-size: 14pt"><B>SECURITIES AND EXCHANGE COMMISSION</B>

<DIV align="center" style="font-size: 12pt"><B>Washington, D.C. 20549</B>
</DIV>

<P align="center" style="font-size: 18pt"><HR size="1" width="30%" noshade>

<P align="center" style="font-size: 18pt"><B>FORM S-1</B>

<DIV align="center" style="font-size: 12pt"><B>REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933</B>
</DIV>

<P align="center" style="font-size: 18pt"><HR size="1" width="30%" noshade>

<P align="center" style="font-size: 24pt"><B>National Waterworks, Inc.</B>


<DIV align="center" style="font-size: 10pt">(Exact name of registrant as specified in its charter)
 </DIV>

<P align="center" style="font-size: 10pt"><B>Delaware</B><BR>
(State or other jurisdiction of incorporation or organization)



<P align="center" style="font-size: 10pt"><B>5099</B><BR>
(Primary Standard Industrial Classification Code Number)



<P align="center" style="font-size: 10pt"><B>05-532711</B><BR>
(I.R.S. Employer Identification No.)



<P align="center" style="font-size: 10pt"><B>200 West Highway 6, Suite&nbsp;620<BR>
Waco, Texas 76712<BR>
(254)&nbsp;772-5355</B><BR>
(Address, including zip code, and telephone number, including area code, of registrants&#146; principal executive offices)



<P align="center" style="font-size: 10pt"><B>Harry K. Hornish, Jr.<BR>
President and Chief Executive Officer<BR>
200 West Highway 6, Suite&nbsp;620<BR>
Waco, Texas 76712<BR>
(254)&nbsp;772-5355</B><BR>
(Name, address, including zip code, and telephone number, including area code, of agent for service or process)



<P align="center" style="font-size: 10pt">With a copy to:<BR>
<B>Cristopher Greer, Esq.<BR>
O&#146;Melveny &#038; Myers LLP<BR>
Times Square Tower<BR>
7 Times Square<BR>
New York, New York 10036<BR>
(212)&nbsp;408-2400</B>


<P align="center" style="font-size: 18pt"><HR size="1" width="30%" noshade>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Approximate date of commencement of proposed sale to the public: </B>As
promptly as practicable after the effective date of this Registration
Statement.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule&nbsp;415 under the Securities Act
of 1933, check the following box. <FONT face="Wingdings">&#120;</FONT>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. <FONT face="Wingdings">&#111;</FONT>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. <FONT face="Wingdings">&#111;</FONT>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. <FONT face="Wingdings">&#111;</FONT>


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If delivery of the prospectus is expected to be made pursuant to Rule&nbsp;434,
please check the following box. <FONT face="Wingdings">&#111;</FONT>


<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<P align="center" style="font-size: 10pt"><B>Calculation of Registration Fee</B>


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    <TD width="51%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Proposed Maximum</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Proposed Maximum</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount to be</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Offering Price Per</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Aggregate Offering</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount of</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Title of Each Class of Securities to be Registered</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Registered</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Note</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Price</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Registration Fee</B><HR size="1" noshade></TD>
</TR>

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    <TD><DIV style="margin-left:10px; text-indent:-10px">10.50% Senior Subordinated Notes, Series&nbsp;B, due
2012</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">200,000,000</TD>
    <TD nowrap>(1)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">200,000,000</TD>
    <TD nowrap>(1)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)(2)</TD>
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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Pursuant to Rule&nbsp;429 of the General Rules and Regulations under the
Securities Act of 1933, the prospectus that is a part of this registration
statement relates to $200,000,000 of Senior Subordinated Notes, Series&nbsp;B,
due 2012 of National Waterworks, Inc. that were previously registered
under the Registration Statement on Form S-4 (File No.&nbsp;333-102430), as
amended, that was declared effective by the Securities and Exchange
Commission on April&nbsp;18, 2003.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The prospectus that is part of this registration statement will only be
used by J.P. Morgan Securities Inc., which is an affiliate of National
Waterworks, Inc., in connection with offers and sales related to
market-making transactions of an indeterminate amount of 10.50% Senior
Subordinated Notes, Series&nbsp;B, due 2012. Pursuant to Rule 457(q) of the
General Rules and Regulations, no filing fee is required.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 18pt"><HR size="1" width="30%" noshade>

<P align="left" style="font-size: 10pt"><B>The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such dates as the Commission, acting pursuant to said Section
8(a), may determine.</B>




<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><B>Prospectus</B>
</DIV></TD>
    <TD align="center" valign="top"><B>Subject to completion, dated April&nbsp;23, 2004</B></TD>
    <TD>&nbsp;</TD>

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<P style="padding: 5px; border: 3px double #848284; font-size: 10pt; color: #FF0000">The information in this prospectus is not complete and may be changed. We
cannot sell these securities until the Securities and Exchange Commission
declares our Registration Statement effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.



<P align="left" style="font-size: 10pt"><B>National Waterworks, Inc.</B>



<P align="left" style="font-size: 10pt"><I>$200,000,000<BR>
10.50% Senior Subordinated Notes due 2012</I>



<P align="left" style="font-size: 10pt"><B><I>Interest payable June 1 and December 1</I></B>


<P align="left" style="font-size: 10pt">We issued $200,000,000 aggregate principal amount of 10.50% Senior
Subordinated Notes, Series&nbsp;B, due 2012, which have been registered under
the Securities Act of 1933, as amended, in exchange for our 10.50% Senior
Subordinated Notes, Series&nbsp;A, due 2012. We completed the exchange offer
on May&nbsp;23, 2003, and 100% of the notes were exchanged.


<P align="left" style="font-size: 10pt">The notes will mature on December&nbsp;1, 2012. Interest will accrue from the
most recent interest payment date.


<P align="left" style="font-size: 10pt">Before December&nbsp;1, 2005, we may redeem up to 35% of the aggregate
principal amount of the notes at the redemption price set forth in this
prospectus with the proceeds of certain equity offerings. We may redeem
all or a portion of the notes prior to December&nbsp;1, 2007 at a price equal
to 100% of the principal amount of the notes plus a &#147;make-whole&#148; premium.
In addition, we may redeem all or a portion of the notes at any time on
or after December&nbsp;1, 2007 at the redemption prices set forth in this
prospectus. The redemption prices are described on pages and. If
we sell certain of our assets or experience specific kinds of changes in
control, we must offer to purchase the notes.


<P align="left" style="font-size: 10pt">The notes are subordinated to all of our existing and future senior debt,
rank equally with any future senior subordinated debt, and rank senior to
all or our existing and future subordinated debt. The notes will be
guaranteed by all of our existing and future domestic subsidiaries, if
any.


<P align="left" style="font-size: 10pt">We prepared this prospectus for use by J.P. Morgan Securities Inc. in
connection with offers and sales related to market-making transactions in
the notes. J.P. Morgan Securities Inc. may act as principal or agent in
these transactions. These sales will be made at prices related to
prevailing market prices at the time of sale. We will not receive any of
the proceeds of these sales.


<P align="left" style="font-size: 10pt"><B>See &#147;Risk Factors&#148; beginning on page 8 for a discussion of certain risks
that you should consider before making an investment decision in the
notes.</B>


<P align="left" style="font-size: 10pt">Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon
the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.



<P align="center" style="font-size: 10pt">&nbsp;
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<DIV align="left">
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</DIV>
<DIV align="left">
<A name="tocpage"></A>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
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<TR valign="bottom">
    <TD width="94%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
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<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#101">Summary</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#102">Risk Factors</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#103">Disclosure Regarding Forward-Looking Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#104">Use of Proceeds</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#105">Capitalization</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#106">Selected Financial Data</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#107">Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#108">Business</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#109">Management</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#110">Security Ownership of Certain Beneficial Owners and Management</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#111">Certain Relationships and Related Party Transactions</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#112">Description of Certain Indebtedness</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#113">Description of Notes</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#114">Plan of Distribution</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#115">Legal Matters</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#116">Experts</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#117">Where You Can Find More Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">98</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><A href="#118">Financial Statements and Supplementary Data</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-1</TD>
    <TD>&nbsp;</TD>
</TR>

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<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y96440exv12w1.htm">COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y96440exv23w1.htm">REPORT OF CONSENT OF KPMG LLP</A></FONT></TD></TR>
</TABLE>
</DIV>


<DIV align="left">
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</DIV>
<P align="left" style="font-size: 10pt">We have not authorized anyone to give you any information or to make any
representations about us or the transactions we discuss in this prospectus
other than those contained in this prospectus. If you are given any information
or representations about these matters that is not discussed in this
prospectus, you must not rely on that information. This prospectus is not an
offer to sell or a solicitation of an offer to buy securities anywhere or to
anyone where or to whom we are not permitted to offer or sell securities under
applicable law. The delivery of this prospectus does not, under any
circumstances, mean that there has not been a change in our affairs since the
date of this prospectus. Subject to our obligation to amend or supplement this
prospectus as required by law and the rules of the Securities and Exchange
Commission, the information contained in this prospectus is correct only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or any sale of these securities.



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="101"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Summary</B>


<P align="left" style="font-size: 10pt"><I>This summary highlights all material information contained elsewhere in this
prospectus but may not contain all of the information that you should consider
before investing in the notes. We urge you to read this entire prospectus,
including the &#147;Risk Factors&#148; section and the financial statements and related
notes. Unless otherwise indicated in this prospectus, &#147;we,&#148; &#147;our,&#148; &#147;us&#148; and
&#147;National Waterworks&#148; refer to National Waterworks, Inc. after giving effect to
its acquisition on November&nbsp;22, 2002 of substantially all of the assets and
businesses of, and the assumption of certain of the liabilities and obligations
of, U.S. Filter Distribution Group, Inc. (&#147;U.S. Filter&#148;). References to
&#147;Holdings&#148; refer to our parent company, National Waterworks Holdings, Inc.,
which is not a guarantor or co-issuer of the notes.</I>



<P align="left" style="font-size: 10pt"><B>Our Company</B>


<P align="left" style="font-size: 10pt">We are a leading distributor of water and wastewater transmission products in
the United States with approximately a 20% share of the estimated $6&nbsp;billion
U.S. waterworks products distribution market. We distribute a full line of
products including pipe, fittings, valves, meters, service and repair products,
fire hydrants and other components that are used to transport clean water and
wastewater between reservoirs and treatment plants and residential and
commercial locations. In addition, we provide a broad array of value-added
services such as project estimation, project management and product advice. Our
products are integral to building, repairing and maintaining water and
wastewater (sewer)&nbsp;systems and serve as part of the basic municipal
infrastructure required to support population and economic growth and
residential and commercial construction. Through our network of 133 branches in
36 states, we sell to municipalities directly and contractors who serve
municipalities and also perform residential, commercial and industrial
waterworks projects. For the year ended December&nbsp;31, 2003, which we refer to
in this prospectus as &#147;fiscal 2003,&#148; we had net sales of approximately $1.3
billion and net income of approximately $33.6&nbsp;million.


<P align="left" style="font-size: 10pt">Our principal executive offices are located at 200 West Highway 6, Suite&nbsp;620,
Waco, Texas 76712. Our telephone number is (254)&nbsp;772-5355.



<P align="left" style="font-size: 10pt"><B>The Transactions</B>


<P align="left" style="font-size: 10pt">On November&nbsp;22, 2002, we consummated the purchase of substantially all of the
assets and businesses of, and assumed certain liabilities and obligations of,
U.S. Filter, a wholly-owned subsidiary of United States Filter Corporation,
which is an indirect wholly-owned subsidiary of Veolia Environnement S.A
(formerly Vivendi Environnement S.A.) (&#147;Veolia&#148;). We refer to the foregoing
transaction as the &#147;Acquisition.&#148; The total cost of the Acquisition, including
the payment of transaction fees and expenses incurred by us and our
stockholders, was approximately $662.2&nbsp;million, after giving effect to a
post-closing adjustment made in February&nbsp;2003 related to the level of our
working capital at the time of closing. We closed the Acquisition
simultaneously with the issuance of the notes and the closing of our senior
credit facility.



<P align="left" style="font-size: 10pt"><B>The Financings</B>


<P align="left" style="font-size: 10pt">The notes were issued as part of the financings to consummate the Acquisition.
The balance of the proceeds necessary to complete the Acquisition was funded by



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>borrowings under the term loan portion of our senior credit facility
which consisted of a $250.0&nbsp;million term loan facility and a $75.0
million revolving credit facility, and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a $211.0&nbsp;million cash equity investment in Holdings, of which an
aggregate of $206.0&nbsp;million was made equally by affiliates of each of
J.P. Morgan Partners, LLC and Thomas H. Lee Partners, L.P. and $5.0
million was made by certain members of our management and Holdings&#146;
board of directors.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">For convenience, J.P. Morgan Partners, LLC and Thomas H. Lee Partners, L.P. are
collectively referred to in this prospectus as the &#147;Sponsors.&#148; For a
description of our senior credit facility, see &#147;Description of Certain
Indebtedness.&#148;


<P align="left" style="font-size: 10pt">In addition, concurrent with the closing of the Acquisition, U.S. Filter used a
portion of the Acquisition consideration to repay and terminate its accounts
receivable securitization facility. The Acquisition, the offering of the notes,
the initial borrowings under our senior credit facility, the cash equity
investment described above, the repayment of the accounts receivable
securitization facility and the other related transactions are collectively
referred to in this prospectus as the &#147;Transactions.&#148;



<P align="center" style="font-size: 10pt">1
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="font-size: 10pt"><B>The Financial Sponsors</B>


<P align="left" style="font-size: 10pt">J.P. Morgan Partners, LLC (&#147;JPMP&#148;) is a global partnership with over $19
billion under management. Since its inception in 1984, JPMP has been a leading
provider of private equity and has closed over 1,300 individual transactions.
JPMP has more than 130 investment professionals in nine offices throughout the
world. JPMP is an affiliate of J.P. Morgan Chase &#038; Co., one of the largest
financial institutions in the United States.


<P align="left" style="font-size: 10pt">Thomas H. Lee Partners, L.P. (&#147;THL&#148;) is a Boston-based private equity firm that
currently manages approximately $12&nbsp;billion of committed capital. Founded in
1974, THL has invested in over 90 transactions and is currently investing from
the Thomas H. Lee Equity Fund V, a $6.1&nbsp;billion fund. THL has 22 investment
professionals, with offices in Boston and New York City.



<P align="center" style="font-size: 10pt">2
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>Summary of the Terms of the Notes</B>


<P align="left" style="font-size: 10pt"><I>The following is a summary of the material terms of the notes. For a more
detailed description of the notes, see &#147;Description of Notes.&#148;</I>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="75%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Issuer.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">National Waterworks, Inc.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Notes Outstanding.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$200,000,000 aggregate principal amount of 10.50% Senior Subordinated Notes, Series
B, due 2012.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Maturity Date.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">December&nbsp;1, 2012.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Interest Payment Dates.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June 1 and December 1 of each year.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Guarantees.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The notes will be guaranteed on a senior subordinated basis by all of our future
domestic subsidiaries, if any. We do not currently have any subsidiaries.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ranking.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The notes are our general unsecured senior subordinated obligations. They rank
behind all of our current and future indebtedness, other than trade payables, except
future indebtedness that expressly provides that it ranks equally with, or
subordinated in right of payment to, the notes. The notes rank equally with all of
our future senior subordinated indebtedness. The notes will be effectively
subordinated to all obligations of our subsidiaries that exist in the future and do
not guarantee the notes.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">As of December&nbsp;31, 2003:</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
 <TD width="25%">&nbsp;</TD>

    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>we had approximately $240.0&nbsp;million of senior indebtedness outstanding. This
amount does not include up to $75.0&nbsp;million of additional borrowings that are
available under the revolving credit portion of our senior credit facility, of which
$3.8&nbsp;million was used to support outstanding letters of credit at December&nbsp;31, 2003.
All borrowings under the senior credit facility are secured and senior to the notes;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD>&nbsp;</TD>

    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>we did not have any senior subordinated indebtedness other than the notes; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD>&nbsp;</TD>

    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>we did not have any subordinated indebtedness.</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="75%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Optional Redemption.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Before December&nbsp;1, 2005, we may redeem up to 35% of the notes with the net cash
proceeds of certain equity offerings at the redemption price listed in &#147;Description
of Notes&#151;Optional Redemption.&#148; In addition, we may redeem all or a portion of the
notes prior to December&nbsp;1, 2007 at a price equal to 100% of the principal amount of
the notes plus a &#147;make-whole&#148; premium. On or after December&nbsp;1, 2007, we may redeem
all or a portion of the notes at any time at the redemption prices listed in
&#147;Description of Notes&#151;Optional Redemption.&#148;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mandatory Offer to Repurchase
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">If we sell certain assets without applying the proceeds therefrom in a specified
manner, or experience specific kinds of changes of control, we must offer to
repurchase the notes at the price set forth in &#147;Description of Notes&#151;Repurchase at
the Option of Holders.&#148; Our senior credit facility restricts us from repurchasing
any of the notes, including upon any repurchase we may be required to make as a
result of a change of control or certain asset sales. See &#147;Risk Factors&#148; for a
description of the possible effects if we are unable to repurchase the notes upon a
change of control.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Certain Covenants.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">The indenture governing the notes contains covenants that impose significant
restrictions on our business. The restrictions that these covenants place on us and
our restricted subsidiaries include limitations on our ability and the ability of
our restricted subsidiaries to, among other things:</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">3
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="25%">&nbsp;</TD>
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>incur indebtedness or issue preferred shares;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD>&nbsp;</TD>

    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>pay dividends or make distributions in respect of our capital stock or to make
other restricted payments;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD>&nbsp;</TD>

    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>make investments;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD>&nbsp;</TD>

    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>sell assets;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD>&nbsp;</TD>

    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>create liens;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD>&nbsp;</TD>

    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>consolidate, merge, sell or otherwise dispose of all or substantially all of our
assets;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD>&nbsp;</TD>

    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>enter into transactions with our affiliates; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD>&nbsp;</TD>

    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>designate our subsidiaries as unrestricted subsidiaries.</TD>
</TR>

</TABLE>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="25">&nbsp;</TD>

    <TD width="75%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">These covenants are subject to important exceptions and qualifications, which are
described under &#147;Description of Notes&#151;Certain Covenants.&#148;</DIV></TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><B>Risk factors</B>


<P align="left" style="font-size: 10pt">You should carefully consider the information under the heading &#147;Risk Factors&#148;
beginning on page 8 and all other information in this prospectus before
investing in the notes.



<P align="center" style="font-size: 10pt">4
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>Summary Financial Data</B>


<P align="left" style="font-size: 10pt">The following table sets forth summary historical financial and other operating
data of:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>National Waterworks as of December&nbsp;31, 2003 and 2002, for the year
ended December&nbsp;31, 2003 and for the period from November&nbsp;22 to December
31, 2002. This information was derived from our audited financial
statements included elsewhere in this prospectus; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>U.S. Filter as of November&nbsp;21, 2002 and for the period from January 1
to November&nbsp;21, 2002, as of and for the years ended December&nbsp;31, 2001
and 2000, as of and for the eight months ended December&nbsp;31, 1999, as of
and for the one month ended April&nbsp;30, 1999. Information was derived
from U.S. Filter&#146;s audited financial statements; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>U.S. Filter as of and for the three months ended March&nbsp;31, 1999.
Information was derived from U.S. Filter&#146;s unaudited financial
statements.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">On April&nbsp;23, 1999, Veolia acquired United States Filter Corporation, the parent
of U.S. Filter. That acquisition was accounted for as a purchase and the
related purchase accounting adjustments have been reflected (&#147;pushed-down&#148;) in
the financial statements of U.S. Filter for periods subsequent to April&nbsp;30,
1999.


<P align="left" style="font-size: 10pt">In the opinion of management, the unaudited financial information referred to
above includes all adjustments, consisting of only normal non-recurring
adjustments, considered necessary for a fair presentation of this information.


<P align="left" style="font-size: 10pt">The information set forth below should be read in conjunction with the
information under &#147;Management&#146;s Discussion and Analysis of Financial Condition
and Results of Operations&#148; and the financial statements and related notes
included elsewhere in this prospectus.



<P align="center" style="font-size: 10pt">5
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="24%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Predecessor</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>Predecessor</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>U.S. Filter</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>U.S. Filter</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>(owned by United States</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>National Waterworks</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>(owned by Veolia)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Filter Corporation)</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Period from</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>12 Months</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>8 Months</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>12 Months</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>November</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Period from</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1 Month</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>3 Months</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Ended</B><BR>
<B>December</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>22 to</B><BR>
<B>December</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>January 1 to</B><BR>
<B>November</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>December 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>21,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>April 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(dollars in thousands)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2000</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1999</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1999</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1999</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Consolidated statements of
operations data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,278,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">94,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,058,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,120,330</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,173,323</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">830,449</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">66,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">228,839</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cost of goods sold (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,010,361</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82,005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">831,764</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">880,569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">936,502</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">665,196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,514</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182,930</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">267,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">227,004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">239,761</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">236,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165,253</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,909</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Selling, general and
administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">139,825</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">152,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">151,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102,456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,567</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,670</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Loss &#151; accounts receivable
securitization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,480</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">536</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income (loss)&nbsp;before
depreciation and
amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,492</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84,699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86,755</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,797</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,253</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,239</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,556</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">251</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,582</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">292</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">876</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Amortization of intangible
assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,043</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,779</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">462</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">98,274</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,744</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,568</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,161</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,705</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,901</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Stock option redemption (2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15,214</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Completion bonuses (3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,200</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Interest expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(41,333</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,826</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(36</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(79</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(86</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(120</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(87</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other income (expense)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">891</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income (loss)&nbsp;before income
taxes and cumulative
effect of a change in
accounting principle</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,582</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,074</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,476</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(14,423</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,905</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income tax expense (benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,688</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,238</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,237</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,539</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,500</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,495</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income (loss)&nbsp;before
cumulative effect of a
change in accounting
principle</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,894</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,153</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,937</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,923</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,410</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cumulative effect of a
change in accounting
principle (4)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(459,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(5,894</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(412,847</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20,937</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(8,923</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,410</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Other operating data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Ratio of earnings to fixed
charges (5)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.2x</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18.8x</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.7x</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.0x</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.6x</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.3x</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Balance sheet data (at period
end):</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">802,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">812,817</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,100,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,462,116</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,438,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,404,133</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,407,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">459,202</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">440,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">852</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,039</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total stockholder&#146;s equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">199,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">204,105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">937,469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,330,224</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,305,024</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,279,461</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,258,524</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">328,551</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In connection with the Acquisition, we recorded a $13.0&nbsp;million inventory
revaluation adjustment pursuant to Statement of Financial Accounting
Standards No.&nbsp;141, Business Combinations. Of this amount, $9.0&nbsp;million was
recognized in costs of goods sold for the period November&nbsp;22 to December
31, 2002. The remaining $4.0&nbsp;million was recognized in cost of goods sold
during the quarter ended March&nbsp;28, 2003.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On April&nbsp;23, 1999, the date of the United States Filter Corporation
acquisition by Veolia, U.S. Filter recognized approximately $15.2&nbsp;million
in compensation expense associated with settlement of outstanding stock
options of United States Filter Corporation held by certain of its
employees.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Reflects completion bonuses paid by United States Filter Corporation to
certain members of management and other key employees of U.S. Filter upon
consummation of the Acquisition.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">6
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Reflects an impairment charge relating to the adoption of Statement of
Financial Accounting Standard No.&nbsp;142, Goodwill and Other Intangible
Assets. See Note 4 to the audited financial statements included elsewhere
in this prospectus.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income before income taxes and cumulative effect of a
change in accounting principle and fixed charges. Fixed charges consist of
interest, whether expensed or capitalized; amortization of debt issuance
costs; and one-third of rent expense, which management believes to be
representative of the interest factor thereon. For the period from
November&nbsp;22, 2002 to December&nbsp;31, 2002, fixed charges exceeded earnings by
$2.4&nbsp;million. The deficiency in the period ended December&nbsp;31, 2002
included a $2.5&nbsp;million write-off of financing fees related to financing
the Acquisition which is included in interest expense, net, as well as the
effect of the inventory revaluation adjustment referred to in note (3)
above. For the one month ended April&nbsp;30, 1999, fixed charges exceeded
earnings by $14.1&nbsp;million. The deficiency in the one-month period ended
April&nbsp;30, 1999 included the $15.2&nbsp;million stock option redemption expense
discussed in note (1)&nbsp;above.</TD>
</TR>

</TABLE>

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<DIV align="left">
<A name="102"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Risk Factors</B>


<P align="left" style="font-size: 10pt"><I>You should carefully consider the risk factors set forth below as well as the
other information contained in this prospectus before investing in the notes.
Any of the following risks could materially adversely affect our business,
financial condition or results of operations. In such case, you may lose all or
part of your original investment.</I>



<P align="center" style="font-size: 10pt"><B>Risks Related to Our Business</B>


<P align="left" style="font-size: 10pt"><B>Downturns in the water and wastewater transmission products industry have in
the past and may in the future result in a decrease in our revenues and
operating results through reduced sales of our products to our contractor and
municipal customers.</B>


<P align="left" style="font-size: 10pt">The water and wastewater transmission products industry is affected by changes
in economic conditions, including national, regional and local slowdowns in
construction activity and the amount spent by municipalities on waterworks
infrastructure. Many of our products are distributed to waterworks contractors
in connection with residential, commercial, and industrial construction
projects. New housing starts serve as an indicator of the level of activity in
the residential housing market and are influenced by interest rates,
availability of financing, housing affordability, unemployment rates,
demographic trends, gross domestic product and consumer confidence.
Historically, new housing starts have decreased during economic slowdowns. The
level of activity in the commercial and industrial construction markets depends
on the general economic outlook, corporate profitability, interest rates and
existing plant capacity utilization. Economic downturns in any of our regional
markets could reduce the level of construction activity, and thus our level of
sales, in that region. In addition, water and wastewater transmission products
sales are subject to the availability of funding for municipal waterworks
projects and reduced municipal funding could adversely affect our sales. In
general, factors such as trends in the construction industry, changes in
municipal spending or other factors that influence waterworks transmission
products sales are not within our control and, as a result, may cause a
decrease in our sales and operating results and our financial condition to
deteriorate.


<P align="left" style="font-size: 10pt"><B>The sale of water and wastewater transmission products is subject to seasonal
and weather-related fluctuations which makes our operating results subject to
quarterly or annual fluctuations.</B>


<P align="left" style="font-size: 10pt">The sale of water and wastewater transmission products is subject to seasonal
and weather-related fluctuations. Coincident with annual construction
seasonality, our net sales are typically higher during the second and third
calendar quarters and lower during the first and fourth calendar quarters due
to reduced construction activity during the winter. Adverse weather conditions
in our markets may also decrease the level of construction activity and
therefore our sales. As a result of these factors, our sales and operating
results may be subject to quarterly or annual fluctuations.


<P align="left" style="font-size: 10pt"><B>Competition from our existing and new competitors could result in reduced sales
and profitability and a decrease in our market share.</B>


<P align="left" style="font-size: 10pt">The markets in which we compete are highly competitive and fragmented, with
numerous regional and local participants. Two national competitors are
divisions or subsidiaries of companies that have significantly greater
financial, marketing and other resources than we do. We compete with a large
number of distributors and a limited number of manufacturers who sell directly
to larger customers within our customer base. In addition, smaller, local
waterworks products distributors could form a distribution cooperative to
compete more effectively against larger, national waterworks product
distributors. The principal methods of competition include offering prompt
local service, fulfillment capability, local knowledge, breadth of product and
service offerings and price. If we are unable to compete effectively on these
and other factors, our inability could cause us to lose market share or sales,
the loss of either of which could result in a decrease in our operating results
and profitability.


<P align="left" style="font-size: 10pt">In addition, a portion of our sales is from contracts with municipalities.
These contracts are often awarded and renewed through periodic competitive
bidding. We may not be successful in obtaining or renewing these contracts. Our
inability to replace a significant number of contracts lost through competitive
bidding processes with other revenue sources within a reasonable time could be
harmful to our business and financial performance.


<P align="left" style="font-size: 10pt"><B>If we cannot successfully implement our business strategy, our business,
results of operations and potential for growth will be adversely affected.</B>


<P align="left" style="font-size: 10pt">Our ability to achieve our business and financial objectives is subject to a
variety of factors, many of which are beyond our control.

<P align="center" style="font-size: 10pt">8
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<P align="left" style="font-size: 10pt">For example, our business strategy contemplates that existing customers will
buy additional products from us in the future and that we will gain new
customers by leveraging our product, information and materials management
capabilities in order to improve our customer&#146;s efficiency and reduce their
administrative costs. Our business strategy further contemplates a growth in
sales through branch openings in contiguous markets and through selective
acquisitions of local and regional waterworks distributors in attractive and
growing markets. Similarly, we believe our revenues will increase as
municipalities currently face significant needs to replace and upgrade their
water infrastructures. If our assumptions regarding these trends and the needs
of our customers prove to be incorrect, we may not be successful in
implementing our strategy. In addition, the implementation of our strategy may
not improve our operating results. We may decide to alter or discontinue
aspects of our business strategy and may adopt alternative or additional
strategies due to business or competitive factors or factors not currently
expected, such as unforeseen costs and expenses or events beyond our control.
Any failure to successfully implement our business strategy may result in a
decrease in our revenues, operating margins and results of operations and could
limit or cause us to forego opportunities for growth.


<P align="left" style="font-size: 10pt"><B>We may not be able to complete any future acquisitions, which could restrict
our ability to grow our business; and if we fail to successfully integrate any
future acquisitions into our operations, our operating costs could increase and
our operating margins, operating results and profitability may decrease.</B>


<P align="left" style="font-size: 10pt">We have historically used acquisitions as a means of expanding our business.
Since the beginning of 2000, we have completed three acquisitions of water and
wastewater transmission products distributors. We may not be able to identify
and complete additional acquisitions in the future, and our failure to identify
and complete acquisitions could restrict our ability to grow our business. In
addition, we may require additional debt or equity financing for future
acquisitions. Such financing may not be available on favorable terms, if at
all. In addition, if we do not successfully integrate acquisitions, we may not
realize anticipated operating advantages and cost savings which would reduce
our operating margins, operating results and profitability. The acquisition and
integration of companies involves a number of risks, including:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>use of available cash or borrowings under our senior credit facility to consummate the acquisition;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>demands on management related to the increase in our size after an acquisition;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the diversion of management&#146;s attention from existing operations to the integration of acquired companies;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>difficulties in the assimilation and retention of employees; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>potential adverse effects on our operating results.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">We may not be able to maintain the levels of operating efficiency that acquired
companies achieved separately. Successful integration of acquired operations
will depend upon our ability to manage those operations and to eliminate
redundant and excess costs. We may not be able to achieve the cost savings and
other benefits that we would hope to achieve from acquisitions, which could
cause our financial condition to deteriorate or result in an increase in our
expenses or a reduction in our operating margins, thereby reducing our
operating results and profitability.


<P align="left" style="font-size: 10pt"><B>We depend on our senior management and the loss of any member of the team could
adversely affect our business or financial results to suffer.</B>


<P align="left" style="font-size: 10pt">Our operations are dependent on the continued efforts of our senior management,
listed under &#147;Management.&#148; We have entered into various agreements and
compensation arrangements with our senior executives designed to encourage
their retention, including with Harry Hornish as President and Chief Executive
Officer, Mechelle Slaughter as Chief Financial Officer and Terry Howell as
Chief Information Officer. Each member of our senior management team has
substantial experience and expertise in our industry and has made significant
contributions to our growth and success. Members of our senior management may
resign in the future and the loss of their services could limit our ability to
grow our business and cause disruptions in our operations and our financial
results.


<P align="left" style="font-size: 10pt"><B>Failure to retain and attract qualified branch managers and sales persons could
limit our growth and negatively impact our operations.</B>


<P align="left" style="font-size: 10pt">Our business results depend largely upon our branch managers and sales
personnel and their experience, knowledge of local market dynamics and
specifications and long-standing customer relationships. Our inability to
retain or hire qualified branch managers or

<P align="center" style="font-size: 10pt">9
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<P align="left" style="font-size: 10pt">sales persons at economically reasonable compensation levels would restrict our
ability to grow our business, limit our ability to continue to successfully
operate our business and result in lower operating results and profitability.


<P align="left" style="font-size: 10pt"><B>Our cost of PVC pipe is volatile and increases in the cost of PVC pipe or
unexpected PVC pipe shortages may cause our operating results to decrease.</B>


<P align="left" style="font-size: 10pt">The cost of the PVC pipe that we distribute can fluctuate due to supply and
demand dynamics in the PVC pipe and PVC resin markets. PVC pipe sales accounted
for approximately 21% of our net sales in 2003. Significant fluctuations in
these markets may adversely affect our results of operations and cause
volatility in our operating performance. While in the past we have been able to
pass through the majority of the price changes in PVC pipe to our customers,
our inability to do so in the future could cause our results of operations to
be reduced.


<P align="left" style="font-size: 10pt"><B>Loss of key suppliers or reduced product availability could decrease our sales
and earnings.</B>


<P align="left" style="font-size: 10pt">Our 10 largest suppliers in 2003 accounted for approximately 59% of our
purchases and our single largest supplier accounted for approximately 13% of
our purchases. The loss of any of these suppliers or a reduction in supplier
participation in our preferred vendor programs could result in a decrease in
our sales, operating results and earnings by decreasing the availability of
products to us, which could limit our ability to satisfy our customers&#146; product
needs. Such reduced product availability could put us at a competitive
disadvantage.


<P align="left" style="font-size: 10pt"><B>Reduction in product availability could decrease our sales and earnings and put
us at a competitive disadvantage.</B>


<P align="left" style="font-size: 10pt">Particular products or product lines may not be available to us, or available
in quantities sufficient to meet our customer demand. A substantial decrease in
the availability of these products or product lines could result in a decrease
in our sales, operating results and earnings as we might not be able to satisfy
our customer&#146;s product needs. Such reduced product availability could put us at
a competitive disadvantage.


<P align="left" style="font-size: 10pt"><B>We rely on our IT systems to manage numerous aspects of our business and
customer and supplier relationships and a disruption of these systems could
adversely affect our business.</B>


<P align="left" style="font-size: 10pt">Our IT system is an integral part of our business and growth strategies, and a
serious disruption of our IT system could significantly limit our ability to
manage and operate our business efficiently which in turn could cause our
business and competitive position to suffer and cause our results of operations
to be reduced. We depend on our IT system to process orders, track credit risk
and manage inventory and accounts receivable collections. Our system also
allows us to efficiently purchase products from our suppliers and ship products
to our customers on a timely basis, maintain cost-effective operations and
provide superior service to our customers. While we have contingency plans in
place in case of an emergency, we cannot assure you that the plans will allow
us to continue to operate at our current level of efficiency.


<P align="left" style="font-size: 10pt"><B>Our sales are predominately on credit and an inability to collect trade account
receivables on a timely basis would reduce our operating results and cash flow
and cause our financial condition to deteriorate.</B>


<P align="left" style="font-size: 10pt">Substantially all of our net sales are credit sales made primarily to
contractors, whose ability to pay depends in part on the economic strength of
the construction industry in their areas, or municipalities, whose ability to
pay depends in part on their local waterworks-related and tax revenues. Future
downturns in the regional or local economies that we serve, including
reductions in the revenue base of municipalities or the weak financial
performance of our customers, could lessen our ability to collect trade
accounts receivable on a timely basis and in turn cause our results of
operations and cash flow to be reduced and our financial condition to
deteriorate.


<P align="left" style="font-size: 10pt"><B>The development of alternatives to water and wastewater transmission products
distributors in the supply chain could cause a decrease in our sales and
operating results and limit our ability to grow our business.</B>


<P align="left" style="font-size: 10pt">Our customers could begin purchasing more of their product needs directly from
manufacturers, which could result in decreases in our sales and earnings. Our
suppliers could invest in infrastructure to expand their own local sales force
and sell more products directly to our customers. In addition, the continued
development of the Internet, e-businesses and other alternatives may allow
customers to purchase directly from manufacturers or other suppliers. Multiple
municipalities may outsource their entire waterworks systems to a single
company, thereby increasing such company&#146;s leverage in the marketplace and its
ability to buy directly from suppliers. Any

<P align="center" style="font-size: 10pt">10
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<P align="left" style="font-size: 10pt">future disintermediation from these or other causes may harm our competitive
position in the water and wastewater transmission products marketplace and
reduce our sales and earnings.


<P align="left" style="font-size: 10pt"><B>Loss of third-party transportation providers upon whom we depend could increase
our costs and cause a disruption in our operations.</B>


<P align="left" style="font-size: 10pt">We depend upon third-party transportation providers for delivery of products to
our branches, and, to a lesser extent, to our customers. Strikes, slowdowns,
transportation disruptions or other conditions in the transportation industry,
particularly those impacting United Parcel Service of America, Inc., could
increase our costs and disrupt our operations and our ability to service our
customers on a timely basis.


<P align="left" style="font-size: 10pt"><B>Our compliance with environmental and safety requirements may result in
increased costs to operate our business.</B>


<P align="left" style="font-size: 10pt">We are subject to federal, state and local environmental and occupational
health and safety laws and regulations. We cannot assure you that we have been
or will be at all times in complete compliance with all such requirements.
These requirements are complex and have tended to become more stringent over
time. We could become subject to new requirements in the future, or otherwise
become subject to environmental liabilities, which could result in increased
operating costs resulting in a material effect on our operating results and
business.


<P align="left" style="font-size: 10pt"><B>We may become subject to asbestos liabilities in the future to the extent we
are found to be a successor to U.S. Filter and to the extent U.S. Filter,
United States Filter Corporation and Veolia are unable to fulfill their
contractual obligations, in which event our financial condition and earnings
would deteriorate to the extent we are required to satisfy these asbestos
liabilities.</B>


<P align="left" style="font-size: 10pt">We could become subject to asbestos liabilities in the future to the extent we
are found to be a successor to U.S. Filter and to the extent U.S. Filter,
United States Filter Corporation and Veolia are unable to fulfill their
contractual obligations as described below. Certain of U.S. Filter&#146;s
predecessors distributed or may have distributed cement pipe containing
asbestos. Certain of these predecessors are or have been defendants in lawsuits
seeking to recover damages for alleged exposure to asbestos in these pipes. The
Acquisition was structured as an asset purchase, and we did not assume any
existing or future asbestos-related liabilities relating to U.S. Filter or its
predecessors. U.S. Filter and United States Filter Corporation retained these
liabilities and jointly and severally agreed to indemnify and defend us from
and against these liabilities on an unlimited basis with no termination date.
In addition, Veolia has guaranteed all obligations of United States Filter
Corporation and U.S. Filter under the asset purchase agreement, including the
indemnity discussed above, up to an aggregate of $50.0&nbsp;million for a period
ending November&nbsp;22, 2017. Historically, courts have not held the acquirer of an
entity&#146;s assets liable for liabilities that are not assumed as part of the
transaction unless the asset buyer is found to be a &#147;successor&#148; to the asset
seller. For more information, see &#147;Business&#151;Environmental Matters.&#148;


<P align="left" style="font-size: 10pt"><B>We are controlled by the Sponsors and their interests as equity holders may
conflict with yours as a creditor.</B>


<P align="left" style="font-size: 10pt">The Sponsors control approximately 86% of Holdings&#146; outstanding capital stock
on a fully diluted basis. Conflicts of interest could arise in connection with
potential acquisitions, the incurrence of additional indebtedness, the payment
of dividends and other matters or as a result of transactions or potential
transactions between the Sponsors or their affiliates, on the one hand, and us,
on the other. Our board of directors and the board of directors of Holdings are
controlled by the Sponsors and the interests of the Sponsors may not in all
cases be aligned with your interests as a holder of the notes.



<P align="center" style="font-size: 10pt"><B>Risks Related to the Notes</B>


<P align="left" style="font-size: 10pt"><B>Our substantial level of indebtedness could limit our ability to operate our
business, obtain additional financing, pursue other business opportunities and
fulfill our obligations under the notes.</B>


<P align="left" style="font-size: 10pt">As a result of the Transactions, we are highly leveraged and our total
indebtedness at December&nbsp;31, 2003 was approximately $440&nbsp;million. The following
table shows our level of indebtedness and certain other information at December
31, 2003.


<P align="left" style="font-size: 10pt">
<P align="center" style="font-size: 10pt">11
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<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>As of</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>(dollars in millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31, 2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Senior credit facility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">240.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Senior subordinated notes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">440.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Stockholder&#146;s equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199.5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total debt as a percentage of total capitalization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">69</TD>
    <TD nowrap>%</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">We may incur additional indebtedness from time to time to finance capital
expenditures, acquisitions, investments or for other purposes subject to the
restrictions contained in our senior credit facility and the indenture relating
to the notes. At December&nbsp;31, 2003, the revolving credit portion of our senior
credit facility provides for additional commitments of $75.0&nbsp;million, of which
$3.8&nbsp;million was used to support outstanding letters of credit at December&nbsp;31,
2003, and any such additional borrowings would be senior to the notes. At
December&nbsp;31, 2003, the maximum amount of additional indebtedness that we could
incur under the most restrictive covenants contained in our senior credit
facility and the indenture governing the notes was approximately $164.0&nbsp;million
which includes the unused availability under our revolving credit
facility at that date.


<P align="left" style="font-size: 10pt">Our high degree of leverage could have important consequences for us, including
the following:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>It may limit our ability to obtain additional financing for working
capital, capital expenditures, debt service requirements, acquisitions
and general corporate or other purposes;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A substantial portion of our cash flows from operations will be
dedicated to the payment of principal and interest on our indebtedness
and will not be available for other purposes, including our operations,
capital expenditures and future business opportunities;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The debt service requirements of our other indebtedness could make it
more difficult for us to make payments on the notes;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certain of our borrowings, including borrowings under our senior
credit facility, are at variable rates of interest, exposing us to the
risk of increased interest rates;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A substantial decrease in our net operating cash flows could make it
difficult for us to meet our debt service requirements and force us to
modify our operations;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our debt level reduces our flexibility in responding to changing
business and economic conditions including our ability to adjust to a
downturn in our business; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Our debt level may put us in a competitive disadvantage compared to
our competitors that have less debt.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt"><B>We may not be able to generate sufficient cash to service all of our
indebtedness, including the notes, and be forced to take other actions to
satisfy our obligations under our indebtedness, which may not be successful.</B>


<P align="left" style="font-size: 10pt">Our ability to pay principal and interest on the notes and to satisfy our other
obligations will depend upon, among other things:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our future financial and operating performance, which will be
affected by prevailing economic conditions and financial, business,
regulatory and other factors, many of which are beyond our control; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the future availability of borrowings under our senior credit
facility or any successor facility, the availability of which depends or
may depend on, among other things, our complying with the covenants in
our senior credit facility.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">We believe that, based on our current levels of operations, our cash flow from
operations, together with available borrowings under our senior credit
facility, will provide us with adequate cash for at least the next few years to
make scheduled amortization and interest payments on our indebtedness and to
fund anticipated capital expenditures and working capital requirements.
However, our business may not generate sufficient cash flow from operations and
future borrowings may not be available under our senior credit facility in an
amount sufficient to enable us to service our indebtedness or to fund our other
liquidity needs. In addition, we may incur additional

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<P align="left" style="font-size: 10pt">indebtedness in order to make acquisitions. If we cannot service our
indebtedness, we will be forced to take actions such as reducing or delaying
capital expenditures and/or acquisitions, selling assets, restructuring or
refinancing our indebtedness (which could include the notes), or seeking
additional equity capital or bankruptcy protection. We may not be able to
effect any of these remedies on satisfactory terms, if at all. In addition, the
terms of existing or future debt agreements, including our senior credit
facility and the indenture governing the notes, may restrict us from adopting
any of these alternatives.


<P align="left" style="font-size: 10pt"><B>Our debt agreements contain operating and financial covenants that may restrict
our business and financing activities.</B>


<P align="left" style="font-size: 10pt">The operating and financial restrictions and covenants in our senior credit
facility, the indenture and any future financing agreements may restrict our
ability to finance future operations, meet our capital needs or engage in
business activities. Our debt agreements restrict our ability to:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>redeem indebtedness that is subordinated in right of payment to the notes;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>make capital expenditures;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>incur additional debt or issue redeemable equity or preferred stock;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>create liens;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>enter into certain transactions with affiliates;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>make some types of investments;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>sell assets;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>pay dividends or make distributions, repurchase equity interests or make other restricted payments; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>consolidate or merge with or into, or sell substantially all of our assets to, another person.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">In addition, our senior credit facility contains restrictive covenants and
requires us to maintain specified financial ratios and satisfy other financial
condition tests. Our ability to meet those financial ratios and tests can be
affected by events beyond our control, and we may not be able to meet those
tests. A breach of any of these covenants could result in a default under our
senior credit facility and/or under the notes. Upon the occurrence of an event
of default under our senior credit facility, the lenders could elect to declare
all amounts outstanding under our senior credit facility to be immediately due
and payable and terminate all commitments to extend further credit. If the
lenders under our senior credit facility accelerate the repayment of
borrowings, we may not have sufficient assets to repay our senior credit
facility and our other indebtedness, including the notes. If we were unable to
repay those amounts, the lenders under our senior credit facility could proceed
against the collateral granted to them to secure that indebtedness. We have
pledged substantially all of our assets as collateral under our senior credit
facility.


<P align="left" style="font-size: 10pt"><B>If we default on our obligations to pay our indebtedness we may not be able to
make payments on the notes.</B>


<P align="left" style="font-size: 10pt">Any default under the agreements governing our indebtedness, including a
default under our senior credit facility that is not waived by the required
lenders, and the remedies sought by the holders of such indebtedness could make
us unable to pay principal, premium, if any, and interest on the notes and
substantially decrease the market value of the notes. If we are unable to
generate sufficient cash flow and are otherwise unable to obtain funds
necessary to meet required payments of principal, premium, if any, and interest
on our indebtedness, or if we otherwise fail to comply with the various
covenants, including financial and operating covenants, in the instruments
governing our indebtedness, including covenants in our indenture and our senior
credit facility, we could be in default under the terms of the agreements
governing such indebtedness, including our senior credit facility and our
indenture governing the notes. In the event of such default, the holders of
such indebtedness could elect to declare all the funds borrowed thereunder to
be due and payable, together with accrued and unpaid interest, the lenders
under our senior credit facility could elect to terminate their commitments
thereunder, cease making further loans and institute foreclosure proceedings
against our assets, and we could be forced into bankruptcy or liquidation. If
our operating performance declines, we may in the future need to obtain waivers
from the required lenders under our senior credit facility to avoid being in
default. If we breach our covenants under our senior credit facility and seek a
waiver, we may not be able to obtain a waiver from the required lenders. If
this occurs, we would be in default under our senior credit



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<P align="left" style="font-size: 10pt">facility, the lenders could exercise their rights, as described above, and we
could be forced into bankruptcy or liquidation.


<P align="left" style="font-size: 10pt"><B>The notes are, and guarantees by any of our future domestic subsidiaries will
be, effectively subordinated to all of our and any future subsidiaries&#146; senior
debt.</B>


<P align="left" style="font-size: 10pt">The notes are subordinated in right of payment to the prior payment in full of
all our existing and future senior indebtedness and the guarantee of the notes
by any future domestic subsidiaries will be effectively subordinated to all
senior debt of such entity. We do not currently have any subsidiaries. The
indenture governing the notes requires each of our future domestic subsidiaries
to guarantee the notes, unless we designate the subsidiary as an Unrestricted
Subsidiary, as defined in the indenture. As of December&nbsp;31, 2003, we had
approximately $240.0&nbsp;million of senior indebtedness outstanding, excluding
$75.0&nbsp;million available and unused (less $3.8&nbsp;million which was used to support
outstanding letters of credit at December&nbsp;31, 2003) under our senior credit
facility, all of which is secured. In addition, the indenture permits us and
any of our Restricted Subsidiaries, as defined in the indenture, to incur
additional senior indebtedness, including indebtedness under the senior credit
facility. We or the applicable guarantor may not pay principal, premium, if
any, interest or other amounts on account of the notes or the guarantees in the
event of a payment default on, or another default that has resulted in the
acceleration of debt under, the senior credit facility unless such indebtedness
has been paid in full or the default has been cured or waived. In the event of
certain other defaults with respect to certain senior indebtedness, we or the
applicable guarantor would not be permitted to pay any amount on account of the
notes for up to 179&nbsp;days in any 365-day period. In the event of a bankruptcy,
liquidation, dissolution, reorganization or similar proceeding with respect to
us or a guarantor, our assets or a guarantor&#146;s assets, as the case may be, will
be available to pay obligations on the notes or the guarantor&#146;s guarantee, as
applicable, only after our senior indebtedness or the senior indebtedness of
that guarantor has been paid in full, and we may not have sufficient assets
remaining to pay amounts due on all or any of the notes or any guarantee of the
notes.


<P align="left" style="font-size: 10pt"><B>Indebtedness under our senior credit facility is secured while our obligations
under the notes are not secured and if we default under our senior debt, our
senior lenders can foreclose on the assets we have pledged to secure payment of
the senior debt to your exclusion.</B>


<P align="left" style="font-size: 10pt">In addition to being contractually subordinated to all existing and future
senior indebtedness, our obligations under the notes, and any future subsidiary
guarantor&#146;s obligations under their guarantee of the notes, are unsecured. Our
obligations under our senior credit facility, and any future subsidiary&#146;s
obligations under its guarantee of our indebtedness under the senior credit
facility, are secured by a security interest in substantially all of our and
the guarantor&#146;s assets. If we are declared bankrupt or insolvent, or if we
default under our senior credit facility, the lenders could declare all of the
funds borrowed thereunder, together with accrued interest, immediately due and
payable. If we were unable to repay such indebtedness, the lenders could
foreclose on the pledged assets to the exclusion of holders of the notes, even
if an event of default exists under the indenture at such time. Furthermore, if
the lenders foreclose and sell the equity interests in any future subsidiary
guarantor of the notes, then that guarantor will be released from its guarantee
of the notes automatically and immediately upon such sale. In any such event,
because the notes will not be secured by any of our assets or the equity
interests or assets of any future subsidiary guarantor, it is possible that
there would be no assets remaining from which claims of the holders of notes
could be satisfied or, if any assets remained, they might be insufficient to
satisfy such claims fully.


<P align="left" style="font-size: 10pt"><B>If we are not able to repurchase the notes upon a change of control we would be
in default under the indenture and our senior credit facility, the lenders
under the senior credit facility could accelerate the maturity of the
borrowings thereunder and institute foreclosure proceedings against our assets,
and we could be forced to seek bankruptcy protection.</B>


<P align="left" style="font-size: 10pt">Unless we have exercised our option to redeem the notes at 100% of their
principal amount plus a &#147;make-whole&#148; premium, upon the occurrence of specific
kinds of change of control events, we will be required to offer to repurchase
all outstanding notes at 101% of their principal amount plus accrued interest,
if applicable. We may not be able to repurchase the notes upon a change of
control because we may not have sufficient funds to pay the purchase price for
the outstanding notes tendered. We expect that we would require third-party
financing, which we may not be able to obtain on favorable terms, if at all.
Further, the senior credit facility restricts our ability to repurchase notes,
including notes tendered by holders upon a change of control. Accordingly, we
may not be able to satisfy our obligations to purchase your notes unless we are
able to refinance or obtain waivers under our senior credit facility. Our
failure to repurchase the notes upon a change of control would cause a default
under the indenture and a cross-default under the senior credit facility. Our
senior credit facility also provides that a change of control will be a default
that permits lenders to accelerate the maturity of borrowings thereunder. Any
of our future debt agreements may contain similar provisions. In the event of
such a default, the Trustee under the indenture or the holders of the notes and
the lenders under the senior credit facility could accelerate the maturity of
the notes and the borrowings under the senior credit facility, respectively, to
be immediately due and payable, together with accrued and unpaid interest, the
lenders under the senior credit facility could elect to terminate their
commitments thereunder, cease making further loans and institute foreclosure
proceedings against our assets, and we could be forced into bankruptcy or

<P align="center" style="font-size: 10pt">14
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<P align="left" style="font-size: 10pt">liquidation.


<P align="left" style="font-size: 10pt">The change of control provision in the indenture will not necessarily afford
you protection in the event of a highly leveraged transaction, including a
reorganization, recapitalization, restructuring, merger or other similar
transaction involving us, that may adversely affect you. Such a transaction may
not involve a change in voting power or beneficial ownership, or, even if it
does, may not involve a change of the magnitude required under the definition
of change of control in the indenture to trigger this provision. If an event
occurs that does not constitute a &#147;Change of Control,&#148; we will not be required
to make an offer to repurchase the notes.


<P align="left" style="font-size: 10pt"><B>Federal and state fraudulent transfer laws permit a court to void the notes and
any guarantees, and, if that occurs, you may not receive any payments on the
notes.</B>


<P align="left" style="font-size: 10pt">We used the net proceeds from the offering of the notes, together with
borrowings under the term loan portion of our senior credit facility and the
proceeds of the equity investment Holdings contributed to us, to purchase
the assets and businesses of U.S. Filter. The obligations incurred under the
notes and the indenture may be subject to review under federal and state
fraudulent transfer and conveyance statutes in a bankruptcy or reorganization
case or lawsuit commenced by or on behalf of our or a guarantor&#146;s unpaid
creditors. While relevant laws may vary from state to state, under these laws,
if a court were to find that, at the time we issued the notes, we:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>incurred such indebtedness with the intent of hindering, delaying or defrauding present or future creditors, or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>received less than the reasonably equivalent value or fair consideration for incurring such indebtedness, and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>were insolvent or rendered insolvent by reason of the Transactions,</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>were engaged or about to engage in a business or transaction for
which our assets constituted unreasonably small capital to carry on such
business, or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>intended to incur, or did incur, or believed that we would incur,
debts beyond our ability to repay as they matured or became due</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt">then, such court might:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>subordinate the notes to our presently existing or future indebtedness,</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>void the issuance of the notes, or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>take other actions detrimental to holders of the notes.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">In the event of a finding that a fraudulent conveyance occurred, you may not
receive any repayment on the notes. Further, the voidance of the notes could
result in an event of default with respect to our other debt and that of our
subsidiaries that could result in acceleration of such debt.


<P align="left" style="font-size: 10pt">Generally, an entity would be considered insolvent if, at the time it incurred indebtedness:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the sum of its debts, including contingent liabilities, was greater than the fair salable value of all its assets;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the present fair salable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts and liabilities, including contingent liabilities, as
they become absolute and mature; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>it could not pay its debts as they become due.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">Additionally, under federal bankruptcy or applicable state insolvency law, if
certain bankruptcy or insolvency proceedings were initiated by or against us
within 90&nbsp;days after payment by us with respect to the notes, or if we
anticipated becoming insolvent at the time of such payment, all or a portion of
such payment could be avoided as a preferential transfer and the recipient of
such payment

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<P align="left" style="font-size: 10pt">could be required to return the payment.


<P align="left" style="font-size: 10pt">In the event there are any subsidiary guarantors in the future, the foregoing
would apply to their guarantees.


<P align="left" style="font-size: 10pt"><B>You cannot be sure that an active trading market will develop for the notes.</B>


<P align="left" style="font-size: 10pt">An active trading market may not develop for the notes. We do not intend to
apply for a listing of the notes on a securities exchange or any automated
dealer quotation system. We have been advised by J.P. Morgan Securities Inc.
that as of the date of this prospectus J.P. Morgan Securities Inc. intends to
make a market in the notes. J.P. Morgan Securities Inc. is not obligated to do
so, however, and any market-making activities with respect to the notes may be
discontinued at any time without notice. In addition, such market-making
activity will be subject to limits imposed by the Securities Act and the
Securities Exchange Act of 1934. Because J.P. Morgan Securities Inc. is our
affiliate, J.P. Morgan Securities Inc. is required to deliver a current
&#147;market-making&#148; prospectus and otherwise comply with the registration
requirements of the Securities Act in any secondary market sale of the notes.
Accordingly, the ability of J.P. Morgan Securities Inc. to make a market in the
notes may, in part, depend on our ability to maintain a current market-making
prospectus.


<P align="left" style="font-size: 10pt">In addition, the liquidity of the trading market in the notes, and the market
price quoted for the notes, may fluctuate as a result of changes in the overall
market for high yield securities and by changes in our financial performance or
prospects or in the prospects for companies in our industry generally.



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<DIV align="left">
<A name="103"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Disclosure Regarding Forward-Looking Statements</B>


<P align="left" style="font-size: 10pt">This prospectus contains &#147;forward-looking statements&#148; within the meaning of the
federal securities laws. Forward-looking statements include statements
concerning our plans, objectives, goals, strategies, future events, future
revenue or performance, financing needs, plans or intentions relating to
acquisitions, business trends and other information that is not historical
information. When used in this prospectus, the words &#147;estimates,&#148; &#147;expects,&#148;
&#147;anticipates,&#148; &#147;projects,&#148; &#147;forecasts,&#148; &#147;plans,&#148; &#147;intends,&#148; &#147;believes,&#148; &#147;may,&#148;
&#147;should&#148;, and variations of such words or similar expressions are intended to
identify forward-looking statements. All forward-looking statements, including
without limitation, management&#146;s examination of historical operating trends,
are based upon our current expectations and various assumptions. Our
expectations, beliefs and projections are expressed in good faith and we
believe there is a reasonable basis for them. However, there can be no
assurance that management&#146;s expectations, beliefs and projections will result
or be achieved.


<P align="left" style="font-size: 10pt">There are a number of risks and uncertainties that could cause our actual
results to differ materially from the forward-looking statements contained in
this prospectus. Important factors that could cause our actual results to
differ materially from the forward-looking statements we make in this
prospectus are set forth in this prospectus, including the factors set forth
under the heading &#147;Risk Factors.&#148;



<P align="center" style="font-size: 10pt">17
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<DIV align="left">
<A name="104"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Use of Proceeds</B>


<P align="left" style="font-size: 10pt">This prospectus is delivered in connection with the sale of the notes by J.P.
Morgan Securities Inc. in market-making transactions. We will not receive any
of the proceeds from these transactions.



<P align="center" style="font-size: 10pt">18
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<DIV align="left">
<A name="105"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Capitalization</B>


<P align="left" style="font-size: 10pt">The following table sets forth our capitalization as of December&nbsp;31, 2003. This
table should be read in conjunction with &#147;Management&#146;s Discussion and Analysis
of Financial Condition and Results of Operations&#148; and the financial statements
and related notes included elsewhere in this prospectus.


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="85%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(dollars in millions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31, 2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Revolving credit facility(1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Term loan (including current portion)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">240.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total senior credit facility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">240.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Senior Subordinated Notes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200.0</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">440.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total stockholder&#146;s equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199.5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total capitalization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">639.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$75.0&nbsp;million commitment amount. At December&nbsp;31, 2003, $3.8&nbsp;million of
availability under the revolving credit facility was used to support
outstanding letters of credit.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">19
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>

<DIV align="left">
<A name="106"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Selected Financial Data</B>


<P align="left" style="font-size: 10pt">The following table sets forth selected historical financial and other
operating data of:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>National Waterworks as of December&nbsp;31, 2003 and 2002, for the year
ended December&nbsp;31, 2003 and for the period from November&nbsp;22 to December
31, 2002. This information was derived from our audited financial
statements included elsewhere in this prospectus; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>U.S. Filter as of November&nbsp;21, 2002 and for the period from January 1
to November&nbsp;21, 2002, as of and for the years ended December&nbsp;31, 2001
and 2000, as of and for the eight months ended December&nbsp;31, 1999, as of
and for the one month ended April&nbsp;30, 1999. Information was derived
from U.S. Filter&#146;s audited financial statements; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>U.S. Filter as of and for the three months ended March&nbsp;31, 1999.
Information was derived from U.S. Filter&#146;s unaudited financial
statements.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">On April&nbsp;23, 1999, Veolia acquired United States Filter Corporation, the parent
of U.S. Filter. That acquisition was accounted for as a purchase and the
related purchase accounting adjustments have been reflected (&#147;pushed-down&#148;) in
the financial statements of U.S. Filter for periods subsequent to April&nbsp;30,
1999.


<P align="left" style="font-size: 10pt">In the opinion of management, the unaudited financial information referred to
above includes all adjustments, consisting of only normal non-recurring
adjustments, considered necessary for a fair presentation of this information.


<P align="left" style="font-size: 10pt">The information set forth below should be read in conjunction with the
information under &#147;Management&#146;s Discussion and Analysis of Financial Condition
and Results of Operations&#148; and the financial statements and related notes
included elsewhere in this prospectus.



<P align="center" style="font-size: 10pt">20
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="24%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Predecessor</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>Predecessor</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>U.S. Filter</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>U.S. Filter</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>(owned by United States</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>National Waterworks</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>(owned by Veolia)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Filter Corporation)</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>12 Months</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>12 Months</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Period from</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Period from</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>8 Months</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Ended</B><BR>
<B>December</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>November 22 to</B><BR>
<B>December</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>January 1 to</B><BR>
<B>November</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>December 31,</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Ended</B><BR>
<B>December</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1 Month</B><BR>
<B>Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>3 Months</B><BR>
<B>Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>21,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>April 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>(dollars in thousands)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2000</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1999</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1999</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>1999</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Consolidated statements of
operations data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,278,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">94,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,058,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,120,330</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,173,323</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">830,449</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">66,334</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">228,839</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cost of goods sold (1)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,010,361</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82,005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">831,764</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">880,569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">936,502</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">665,196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,514</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">182,930</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">267,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">227,004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">239,761</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">236,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165,253</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,909</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Selling, general and
administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">139,825</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">152,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">151,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102,456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,567</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,670</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Loss &#151; accounts receivable
securitization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,480</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">536</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income (loss)&nbsp;before
depreciation and
amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,492</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84,699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86,755</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">85,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">62,797</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,253</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,239</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,556</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">251</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,582</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,313</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">292</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">876</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Amortization of intangible
assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,043</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,779</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">165</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">462</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">98,274</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,744</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,568</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,161</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,705</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,901</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Stock option redemption (2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15,214</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Completion bonuses (3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,200</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Interest expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(41,333</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,826</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(36</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(79</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(86</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(120</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(87</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other income (expense)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">891</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income (loss)&nbsp;before income
taxes and cumulative
effect of a change in
accounting principle</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,582</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,074</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44,476</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(14,423</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,905</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income tax expense (benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,688</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,238</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,237</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,539</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,500</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,495</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income (loss)&nbsp;before
cumulative effect of a
change in accounting
principle</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,894</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,153</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,937</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,923</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,410</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cumulative effect of a
change in accounting
principle (4)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(459,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(5,894</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(412,847</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20,937</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(8,923</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,410</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Other operating data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Ratio of earnings to fixed
charges (5)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2.2x</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18.8x</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.7x</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.0x</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.6x</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.3x</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px"><B>Balance sheet data (at period
end):</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">802,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">812,817</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,100,948</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,462,116</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,438,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,404,133</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,407,460</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">459,202</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">440,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">852</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,039</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total stockholder&#146;s equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">199,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">204,105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">937,469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,330,224</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,305,024</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,279,461</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,258,524</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">328,551</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In connection with the Acquisition, we recorded a $13.0&nbsp;million inventory
revaluation adjustment pursuant to Statement of Financial Accounting
Standards No.&nbsp;141, Business Combinations. Of this amount, $9.0&nbsp;million was
recognized in costs of goods sold for the period November&nbsp;22 to December
31, 2002. The remaining $4.0&nbsp;million was recognized in cost of goods sold
during the quarter ended March&nbsp;28, 2003.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On April&nbsp;23, 1999, the date of the United States Filter Corporation
acquisition by Veolia, U.S. Filter recognized approximately $15.2&nbsp;million
in compensation expense associated with settlement of outstanding stock
options of United States Filter Corporation held by certain of its
employees.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Reflects completion bonuses paid by United States Filter Corporation to
certain members of management and other key employees of U.S. Filter upon
consummation of the Acquisition.</TD>
</TR>


</TABLE>

<P align="center" style="font-size: 10pt">21
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Reflects an impairment charge relating to the adoption of Statement of
Financial Accounting Standard No.&nbsp;142, Goodwill and Other Intangible
Assets. See Note 4 to the audited financial statements included elsewhere
in this prospectus.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income before income taxes and cumulative effect of a
change in accounting principle and fixed charges. Fixed charges consist of
interest, whether expensed or capitalized; amortization of debt issuance
costs; and one-third of rent expense, which management believes to be
representative of the interest factor thereon. For the period from
November&nbsp;22, 2002 to December&nbsp;31, 2002, fixed charges exceeded earnings by
$2.4&nbsp;million. The deficiency in the period ended December&nbsp;31, 2002
included a $2.5&nbsp;million write-off of financing fees related to financing
the Acquisition which is included in interest expense, net, as well as the
effect of the inventory revaluation adjustment referred to in note (3)
above. For the one month ended April&nbsp;30, 1999, fixed charges exceeded
earnings by $14.1&nbsp;million. The deficiency in the one-month period ended
April&nbsp;30, 1999 included the $15.2&nbsp;million stock option redemption expense
discussed in note (1)&nbsp;above.</TD>
</TR>

</TABLE>



<P align="center" style="font-size: 10pt">22
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="107"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Management&#146;s Discussion and Analysis of<BR>
Financial Condition and Results of Operations</B>


<P align="left" style="font-size: 10pt"><I>You should read the following discussion with the financial statements and
related notes included elsewhere in this prospectus. In this section, unless
the context otherwise requires, references to &#147;we,&#148; &#147;our,&#148; and &#147;us&#148; refer to
U.S. Filter and its consolidated subsidiary for periods prior to November&nbsp;22,
2002 and to National Waterworks for periods from and after November&nbsp;22, 2002.
This discussion contains forward-looking statements and involves numerous risks
and uncertainties, including, but not limited to, those described in the &#147;Risk
Factors&#148; section of this prospectus. Actual results may differ materially from
those contained in any forward-looking statements.</I>


<P align="left" style="font-size: 10pt"><B>Overview</B>


<P align="left" style="font-size: 10pt">We are a leading distributor of water and wastewater transmission products in
the United States with approximately a 20% share of the estimated $6&nbsp;billion
U.S. waterworks product distribution market. We began operations in 1996 when
United States Filter Corporation acquired Davis Water &#038; Waste Industries, Inc.
(which changed its name to U.S. Filter) with the goal of creating the first
nationwide waterworks products distribution network. Through the acquisition
and combination of four additional large-scale regional waterworks products
distributors in 1996 and 1997, we became a major participant in the sector. We
have continued to increase our revenues through organic growth, including
market share gains, new branch openings and selected strategic acquisitions.
In November, 2002, we purchased substantially all of the assets and businesses
of, and assumed certain liabilities and obligations of U.S. Filter, becoming a
stand alone company.


<P align="left" style="font-size: 10pt">We generate revenue by distributing a full line of products including pipe,
fittings, valves, meters, service and repair products, fire hydrants and other
components that are used to transport clean water and wastewater between
reservoirs and treatment plants and residential and commercial locations. In
addition, we provide a broad array of value-added services such as project
estimation, project management and product advice. We face a variety of
challenges and opportunities in responding to the dynamics of the water and
wastewater transmission industry characterized by evolving customer needs and
intense competition. Our products are integral to building, repairing and
maintaining water and wastewater (sewer)&nbsp;systems and serve as part of the basic
municipal infrastructure required to support population and economic growth and
residential and commercial construction. Through our network of 133 branches in
36 states, we sell to municipalities directly and to contractors who serve
municipalities and also perform residential, commercial and industrial
waterworks projects. In addition to significant customer and geographic
diversification, our 2003 net sales were split approximately evenly between
publicly-funded and privately-funded sales. The following table sets forth our
net sales by product category as a percentage of 2003 net sales:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="70%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="86%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Pipe</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">40</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Fittings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">15</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Valves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">12</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Meters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">9</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Service and repair products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">7</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Fire hydrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">6</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">11</TD>
    <TD nowrap>%</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">Our strategy revolves around expanding and strengthening our market presence
while focusing on customer service. Additionally, we partner with preferred
vendors, manage working capital, and work toward improved profitability to
improve our overall financial strength. Our financial strength and ability to
adapt to current economic conditions is dependent in part on our generation of
cash flow, effective working capital management, and growth in our business.
Additionally, we attempt to mitigate the effect of economic conditions through
a highly variable cost structure and low capital spending requirements.


<P align="left" style="font-size: 10pt">We generate cash primarily from our operations. During 2003 we generated $37.0
million in cash flow from operating activities while our cash and cash
equivalents decreased $21.2&nbsp;million. We paid a dividend of $39.3&nbsp;million and
reduced our long-term borrowings by $10.0&nbsp;million. We also paid $3.2&nbsp;million
in acquisition costs consisting primarily of the post-closing purchase price
adjustment related to the Acquisition, $6.0&nbsp;million of financing fees
principally related to the August&nbsp;2003 amendment to our senior credit facility
and $2.3&nbsp;million of financing fees principally related to the December&nbsp;2003
amendment to our senior credit facility.






<P align="center" style="font-size: 10pt">23
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B>Critical Accounting Policies and Estimates</B>



<P align="left" style="font-size: 10pt">Management&#146;s discussion and analysis of financial condition and results of
operations is based upon our financial statements, which have been prepared in
accordance with GAAP. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. Management bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Senior management has discussed the
development, selection and disclosure of these estimates with the Audit
Committee of our Board of Directors. Actual results may differ from these
estimates under different assumptions or conditions.


<P align="left" style="font-size: 10pt">An accounting policy is deemed to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly
uncertain at the time the estimate is made, and if different estimates that
reasonably could have been used, or changes in the accounting estimates that
are reasonably likely to occur periodically, could materially impact the
financial statements. Management believes the following critical accounting
policies reflect its more significant estimates and assumptions used in the
preparation of the financial statements.


<P align="left" style="font-size: 10pt"><I>Allowance for Doubtful Accounts. </I>Since the beginning of 2000, on average, our
bad debt expense has been only 0.08% of net sales. We evaluate the
collectibility of accounts receivable based on historical trends, customer
transaction history, accounts receivable aging and an evaluation of customer
credit worthiness. Initially, a monthly provision is made based on historical
experience. On a quarterly basis, we perform a detailed analysis of accounts
receivable and adjust the allowance for doubtful accounts when necessary. While
we have a large customer base that is geographically diverse, an economic
slowdown in the markets in which we operate may result in higher uncollected
accounts receivable and therefore the need to revise estimates for bad debts.
To the extent actual credit experience or other assumptions used by management
change, the allowance for doubtful accounts would be adjusted, which could
affect our operating results.


<P align="left" style="font-size: 10pt"><I>Inventories. </I>Since the beginning of 2000, our slow moving inventory has
averaged less than 2% of our total inventory. We periodically evaluate our
inventories to ensure they are recorded at the lower of cost or market value.
The inventory reserve is adjusted monthly based on a review of slow moving
inventories as well as other factors including potential adjustments from
physical inventory counts. Significant unusual events giving rise to changes in
our inventory valuation are reserved when appropriate. To the extent future
events impact, either favorably or unfavorably, the salability of our products,
our inventory reserves could differ significantly resulting in higher or lower
future inventory accruals.


<P align="left" style="font-size: 10pt"><I>Goodwill and Long-Lived Assets. </I>We review the carrying value of our goodwill
for impairment at least annually. To accomplish this, we utilize a third party
independent appraiser to assess the fair value of each of our reporting units.
The fair value of a reporting unit may be estimated using methods such as a
discounted cash flow analysis and market approaches. The Company compares the
fair value estimate to the unit&#146;s carrying value. If the carrying value of a
reporting unit exceeds its fair value estimate, an indication exists that
goodwill is impaired and we must perform additional analysis to determine the
extent of any impairment. Any such impairment would be reflected as a charge in
the statement of operations at that time. See &#147;-Recent Accounting
Pronouncements&#148; below for a discussion concerning our adoption of SFAS No.&nbsp;142,
<I>Goodwill and Other Intangible Assets</I>.


<P align="left" style="font-size: 10pt">Long-lived assets, including property and equipment, are reviewed for possible
impairment whenever events or other changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment loss is
recognized when the carrying amount of a long-lived asset exceeds the sum of
the undiscounted cash flows expected to result from the asset&#146;s use and
eventual disposition. An impairment loss is measured as the amount by which
the carrying amount of the asset exceeds the fair value of the asset.


<P align="left" style="font-size: 10pt"><I>Consideration Received From Vendors</I>. We enter into agreements with many of our
vendors providing for inventory purchase rebates (&#147;vendor rebates&#148;) upon
achievement of specified volume purchasing levels. We accrue the receipt of
vendor rebates as part of our cost of sales for products sold based on progress
towards earning the vendor rebates, taking into consideration cumulative
purchases of inventory to date and projected purchases through the end of the
year. An estimate of unearned vendor rebates is included in the carrying value
of inventory at a period end for vendor rebates received on products not yet
sold. While management believes that we will continue to recognize
consideration from vendors pursuant to underlying agreements, there can be no
assurance that vendors will continue to provide comparable amounts of vendor
rebates in the future, which could impact our operating results.


<P align="left" style="font-size: 10pt"><B>Results of Operations</B>


<P align="left" style="font-size: 10pt">The following table sets forth the percentage relationship that certain items
from our financial statements bear in relation to net sales:




<P align="center" style="font-size: 10pt">24
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Predecessor</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Successor</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>U.S. Filter</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>National Waterworks</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>and Subsidiary</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Period of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Period of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>November 22,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>January 1,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002 through</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002 through</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>November 21,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Statement of Operations Data</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cost of goods sold</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">79.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">87.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">78.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">78.6</TD>
    <TD nowrap>%</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">21.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">13.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">21.4</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">21.4</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Selling, general and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">13.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">15.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">13.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">13.6</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Loss - accounts receivable securitization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">.1</TD>
    <TD nowrap>%</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Income (loss)&nbsp;before depreciation
and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">7.9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.6</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">8.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">7.7</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.3</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Amortization of intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.2</TD>
    <TD nowrap>%</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Operating income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">7.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2.9</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">7.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5.2</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other income (expense):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Completion bonuses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(0.6</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Interest expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3.2</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7.2</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.0</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">0.0</TD>
    <TD nowrap>%</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Income (loss)&nbsp;before income
taxes, and cumulative effect of a
change in accounting principle</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10.1</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">7.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5.2</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income taxes expense (benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3.9</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.9</TD>
    <TD nowrap>%</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income (loss)&nbsp;before cumulative effect of
a change in accounting principle</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6.2</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.3</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cumulative effect of a change in
accounting principle</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(43.3</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
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    <TD><DIV style="margin-left:30px; text-indent:-10px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.7</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6.2</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">39.0</TD>
    <TD nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.3</TD>
    <TD nowrap>%</TD>
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    <TD>&nbsp;</TD>
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<P align="left" style="font-size: 10pt">The following discussions regarding the year ended December&nbsp;31, 2002 are based
on the combined results of operations of U. S. Filter for the period from
January 1 to November&nbsp;21, 2002 and of National Waterworks for the period from
November&nbsp;22 to December&nbsp;31, 2002. The Acquisition was accounted for as a
purchase in accordance with Statement of Financial Accounting Standards No.
141, Business Combinations, and the excess of the purchase consideration over
the historical basis of the net assets acquired has been applied to revalue the
assets acquired and liabilities assumed to their fair values at November&nbsp;22,
2002, the date of the Acquisition. Goodwill of $465.7&nbsp;million was recognized in
our financial statements as a result of the Acquisition. A $3.1&nbsp;million
post-closing purchase price adjustment made by National Waterworks in the first
quarter of 2003 was reflected as an adjustment to goodwill in our financial
statements for the quarter ended March&nbsp;28, 2003. The combined 2002 results
discussed below are not necessarily indicative of what the full year 2002 would
have been had the change in ownership resulting from the Acquisition not
occurred.


<P align="left" style="font-size: 10pt"><B><I>Year Ended December&nbsp;31, 2003 Compared to Combined Year Ended December&nbsp;31, 2002</I></B>


<P align="left" style="font-size: 10pt"><I>Certain Financial Statement Impacts of the Acquisition. </I>As more fully
discussed below, the revaluation of the net assets acquired in the Acquisition
did not affect our net sales. However, we recorded a $13.0&nbsp;million valuation
increase in inventory at November&nbsp;22, 2002 as a result of the asset
revaluation. While the increase in the value of our inventory had no cash
impact, it did increase our costs of goods sold, adversely impacting our gross
profit. We recognized $9.0&nbsp;million of the impact of the inventory revaluation
during the period of November&nbsp;22 to December&nbsp;31, 2002. The final $4.0&nbsp;million
of the inventory revaluation was recognized in the first quarter of 2003.



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<P align="left" style="font-size: 10pt"><I>Net Sales. </I>Net sales for the year ended December&nbsp;31, 2003 increased $125.4
million, or 10.9%, to $1,278.4&nbsp;million from $1,153.0&nbsp;million for the year ended
December&nbsp;31, 2002. The increase reflects the combined effects of a $6.0&nbsp;million
increase in net sales from our acquisition of Utility Piping Systems, Inc., a
regional waterworks distribution company operating in Pennsylvania, New Jersey
and Delaware, which we acquired on March&nbsp;29, 2002, and a $119.4&nbsp;million
increase in net sales of our historical operations. A portion of the increase
was attributable to an increase in net sales of PVC pipe of $29.3&nbsp;million
primarily resulting from the pass through of an approximate 13% increase in our
purchase price of PVC pipe products. The remaining increase in net sales of our
historical operations was attributable to increases recorded in all product
areas brought by continued favorable economic conditions.


<P align="left" style="font-size: 10pt"><I>Cost of Goods Sold. </I>Cost of goods sold for the year ended December&nbsp;31, 2003
increased $96.6&nbsp;million, or 10.6%, to $1,010.4&nbsp;million from $913.8&nbsp;million for
the year ended December&nbsp;31, 2002. The increase reflects an increase in cost of
goods sold of our historical operations which was primarily attributable to the
increase in cost of goods sold of PVC pipe products of $27.6&nbsp;million and
increased volume in all other product categories. Additionally the increase
reflects the combined effects of a $4.8&nbsp;million increase in cost of goods sold
associated with sales resulting from our acquisition of Utility Piping Systems,
Inc. and the recognition of the final $4.0&nbsp;million impact of the inventory
revaluation discussed above. As a percentage of net sales, cost of goods sold
decreased to 79.0% in 2003 compared to 79.3% in 2002.


<P align="left" style="font-size: 10pt"><I>Gross Profit. </I>As a result of the foregoing, gross profit for the year ended
December&nbsp;31, 2003 increased $28.8&nbsp;million, or 12.0%, to $268.0&nbsp;million from
$239.2&nbsp;million for the year ended December&nbsp;31, 2002. Gross profit increased as
a result of our acquisition of Utility Piping Systems, Inc. and increased
volume in our historical operations, and was partially offset by the adverse
impact of the inventory revaluation, representing 0.3% of net sales, recognized
during the 2003 period. Our gross profit margin increased to 21.0% in 2003
compared to 20.7% in 2002 as a result of the foregoing factors.


<P align="left" style="font-size: 10pt"><I>Selling, General and Administrative. </I>Selling, general and administrative
expenses for the year ended December&nbsp;31, 2003 increased $12.6&nbsp;million, or 8.2%,
to $167.2&nbsp;million from $154.6&nbsp;million for the year ended December&nbsp;31, 2002.
This increase is primarily related to the sales volume increases discussed
above and $0.9&nbsp;million of additional expenses resulting from our acquisition of
Utility Piping Systems, Inc. As a percentage of net sales, selling, general and
administrative expenses were 13.1% in 2003 compared to 13.4% in 2002.


<P align="left" style="font-size: 10pt"><I>Loss-Accounts Receivable Securitization</I>. Loss-accounts receivable
securitization was $2.5&nbsp;million for the year ended December&nbsp;31 2002. This loss
reflects the sale of a portion of our accounts receivable at a discount
relating to an accounts receivable securitization facility that we entered into
on December&nbsp;19, 2001. For more information, see &#151; Liquidity and Capital
Resources&#148; below. The facility was repaid and terminated in November&nbsp;2002.
Accordingly, there was no related activity in 2003.


<P align="left" style="font-size: 10pt"><I>Depreciation and Amortization</I>. Depreciation and amortization expenses for the
year ended December&nbsp;31, 2003 were $2.6&nbsp;million, compared to $3.4&nbsp;million for
the year ended December&nbsp;31, 2002. Depreciation includes depreciation of
property, plant and equipment.


<P align="left" style="font-size: 10pt"><I>Operating Income. </I>As a result of the foregoing, operating income for the year
ended December&nbsp;31, 2003 increased $19.5&nbsp;million, or 24.7%, to $98.3&nbsp;million
from $78.8&nbsp;million for the year ended December&nbsp;31, 2002. As a percentage of net
sales, operating income increased to 7.7% in 2003 from 6.8% in 2002.


<P align="left" style="font-size: 10pt"><I>Completion Bonuses</I>. In connection with the Acquisition, we recognized $6.2
million in non-recurring compensation expense in 2002 for payments made by U.
S. Filter to certain members of our management upon consummation of the
Acquisition.


<P align="left" style="font-size: 10pt"><I>Interest Expense, Net. </I>Interest expense, net for the year ended December&nbsp;31,
2003, was $41.3&nbsp;million, compared to $6.9&nbsp;million for the year ended December
31, 2002. The increase reflects interest related to the additional debt we
incurred on November&nbsp;22, 2002 to finance the Acquisition.


<P align="left" style="font-size: 10pt"><I>Income Taxes</I>. Our effective income tax rate for the year ended December&nbsp;31,
2003 was approximately 40.9% compared to 38.8% for the year ended December&nbsp;31,
2002.


<P align="left" style="font-size: 10pt"><I>Cumulative Effect of Change in Accounting Principle. </I>As a result of the
adoption of SFAS No.&nbsp;142 prior to the consummation of the Acquisition, U.S.
Filter completed an assessment of whether its goodwill was impaired at January
1, 2002, the date of adoption of SFAS No.&nbsp;142. As a result of this assessment,
U.S. Filter concluded that it was probable that the goodwill then assigned to
its reporting units was impaired based in part upon the anticipated sale price
of substantially all of its assets and liabilities to National Waterworks.
Accordingly, 2002 included a charge for the estimated goodwill impairment of
$459.0&nbsp;million.



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<P align="left" style="font-size: 10pt"><I>Net Income (Loss). </I>As a result of the foregoing, and excluding the cumulative
effect of a change in accounting principle in 2002, net income decreased $6.7
million to $33.6&nbsp;million from $40.3&nbsp;million for the year ended December&nbsp;31,
2003 and 2002, respectively.


<P align="left" style="font-size: 10pt"><B><I>Combined Year Ended December&nbsp;31, 2002 Compared to Year Ended December&nbsp;31, 2001</I></B>


<P align="left" style="font-size: 10pt"><I>Certain Financial Statement Impacts of the Acquisition</I>. As more fully
discussed below, the revaluation of the net assets acquired in the Acquisition
did not affect our net sales. However, we recorded a $13.0&nbsp;million increase in
inventory at November&nbsp;22, 2002 as a result of the asset revaluation. While the
increase in the value of our inventory had no cash impact, it did increase our
costs of goods sold in the November&nbsp;22 to December&nbsp;31, 2002 period, adversely
impacting our gross profit during this period. We recognized $9.0&nbsp;million of
the inventory revaluation during the period of November&nbsp;22 to December&nbsp;31, 2002
and the remaining $4.0&nbsp;million impact of the inventory revaluation in the first
quarter of 2003.


<P align="left" style="font-size: 10pt">Due to the short period between the consummation of the Acquisition on November
22, 2002 and December&nbsp;31, 2002, we recognized only a portion of the expected
$1.0&nbsp;million annual increase in our selling, general and administrative
expenses resulting from our now being an independent stand-alone entity. In
addition, the impact on interest expense resulting from the indebtedness
incurred under our senior credit facility and the senior subordinated notes to
finance the Acquisition was minimal and only reflected in the short November&nbsp;22
to December&nbsp;31, 2002 time period. Finally, during the period of November&nbsp;22 to
December&nbsp;31, 2002, we recognized a $2.5&nbsp;million charge relating to the
write-off of deferred financing fees related to the Acquisition.


<P align="left" style="font-size: 10pt"><I>Net Sales</I>. Net sales for the year ended December&nbsp;31, 2002 increased $32.7
million, or 2.9%, to $1,153.0&nbsp;million from $1,120.3&nbsp;million for the year ended
December&nbsp;31, 2001. The increase reflects the combined effects of a $30.8
million increase in net sales from our acquisition of Utility Piping Systems,
Inc. and a $1.9&nbsp;million increase in net sales of our historical operations. The
increase of $1.9&nbsp;million in net sales of our historical operations was
primarily attributable to an increase in our sales price of PVC pipe, which
primarily reflected an approximate 6% increase in our purchase price of PVC
pipe. The PVC price increase, combined with a volume increase in sales of
meters was partially offset by slightly weaker volume in other product areas.
Additionally, the closing of two under-performing branches in 2001 accounted
for a $2.6&nbsp;million decrease in net sales of our historical operations for the
period.


<P align="left" style="font-size: 10pt"><I>Cost of Goods Sold</I>. Cost of goods sold for the year ended December&nbsp;31, 2002
increased $33.2&nbsp;million, or 3.8%, to $913.8&nbsp;million from $880.6&nbsp;million for the
year ended December&nbsp;31, 2001. The increase reflects the combined effects of a
$24.0&nbsp;million increase in cost of goods sold associated with sales resulting
from our acquisition of Utility Piping Systems, Inc. and the recognition of
$9.0&nbsp;million of the impact of the inventory revaluation discussed above. As a
percentage of net sales, cost of goods sold increased to 79.3% for 2002
compared to 78.6% in 2001.


<P align="left" style="font-size: 10pt"><I>Gross Profit</I>. As a result of the foregoing, gross profit for the year ended
December&nbsp;31, 2002 decreased $0.6&nbsp;million, to $239.2&nbsp;million from $239.8&nbsp;million
for the year ended December&nbsp;31, 2001. Gross profit increases as a result of our
acquisition of Utility Piping Systems, Inc. and a higher proportion of sales
shipped from our inventory, which carry a higher gross margin than sales
shipped directly from our suppliers, were offset by the adverse impact of the
inventory revaluation recognized during the period of November&nbsp;22 to December
31, 2002. Our gross profit margin decreased to 20.7% in 2002 compared to 21.4%
in 2001 as a result of the foregoing factors.


<P align="left" style="font-size: 10pt"><I>Selling, General and Administrative</I>. Selling, general and administrative
expenses for the year ended December&nbsp;31, 2002 increased $2.1&nbsp;million, or 1.4%,
to $154.6&nbsp;million from $152.5&nbsp;million for the year ended December&nbsp;31, 2001.
This increase reflected additional expenses resulting from our acquisition of
Utility Piping Systems, Inc. and approximately $0.4&nbsp;million of incremental
costs of operating on a stand alone basis, principally related to auditing and
tax services, partially offset by the elimination of expenses associated with
the closing of the two branches discussed above. As a percentage of net sales,
selling, general and administrative expenses were 13.4% in 2002 compared to
13.6% in 2001.


<P align="left" style="font-size: 10pt"><I>Loss-Accounts Receivable Securitization</I>. Loss-accounts receivable
securitization was $2.5&nbsp;million and $0.5&nbsp;million for the years ended December
31, 2002 and 2001, respectively. This loss reflects the sale of a portion of
our accounts receivable at a discount relating to an accounts receivable
securitization facility that we entered into on December&nbsp;19, 2001. For more
information, see &#147;-Liquidity and Capital Resources&#148; below. The facility was
repaid and terminated in November&nbsp;2002.


<P align="left" style="font-size: 10pt"><I>Depreciation and Amortization</I>. Depreciation and amortization expenses for the
year ended December&nbsp;31, 2002 were $3.4&nbsp;million in the aggregate, compared to
$28.6&nbsp;million for the year ended December&nbsp;31, 2001. Depreciation includes
depreciation of property, plant and equipment. Historically, amortization was
comprised primarily of amortization of goodwill. In accordance with SFAS No.
142, Goodwill and Other Intangible Assets, we ceased amortizing goodwill as of
January&nbsp;1, 2002. Goodwill amortization was $25.0&nbsp;million



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<P align="left" style="font-size: 10pt">for the year ended December&nbsp;31, 2001. As a percentage of net sales,
depreciation and amortization for the period decreased to 0.3% in 2002 compared
to 2.6% in 2001.


<P align="left" style="font-size: 10pt"><I>Operating Income</I>. As a result of the foregoing, operating income for the year
ended December&nbsp;31, 2002 increased $20.6&nbsp;million, or 35.4%, to $78.8&nbsp;million
from $58.2&nbsp;million for the year ended December&nbsp;31, 2001. As a percentage of net
sales, operating income increased to 6.8% for 2002 from 5.2% for 2001, which is
primarily attributable to the adoption of SFAS No.&nbsp;142 discussed above.


<P align="left" style="font-size: 10pt"><I>Completion Bonuses</I>. In connection with the Acquisition, we recognized $6.2
million in non-recurring compensation expense in 2002 for payments made by U.
S. Filter to certain members of our management upon consummation of the
Acquisition.


<P align="left" style="font-size: 10pt"><I>Interest Expense, Net</I>. Interest expense, net for the year ended December&nbsp;31,
2002 was $6.9&nbsp;million compared to less than $0.1&nbsp;million in 2001. The increase
reflects the additional debt we incurred on November&nbsp;22, 2002 to finance the
Acquisition. Included in interest expense, net in 2002 is a $2.5&nbsp;million
write-off of deferred financing costs relating to an unutilized bridge
facility. During the 2001 period, we reduced our long-term debt outstanding
primarily as a result of the repayment of a $1.2&nbsp;million note payable that
matured in June&nbsp;2001.


<P align="left" style="font-size: 10pt"><I>Income Taxes</I>. Our effective income tax rate for the year ended December&nbsp;31,
2002 was approximately 38.8% compared to 55.0% for the year ended December&nbsp;31,
2001. The change resulted primarily from the elimination of goodwill
amortization described above. Our effective tax rate for the year ended
December&nbsp;31, 2001 exceeded statutory tax rates primarily due to the
non-deductibility for tax purposes of goodwill amortization.


<P align="left" style="font-size: 10pt"><I>Cumulative Effect of Change in Accounting Principle</I>. As a result of the
adoption of SFAS No.&nbsp;142 prior to the consummation of the Acquisition, U.S.
Filter completed an assessment of whether its goodwill at January&nbsp;1, 2002, the
date of adoption of SFAS No.&nbsp;142, was impaired. As a result of this assessment,
U.S. Filter concluded that it was probable that the goodwill then assigned to
its reporting units was impaired based in part upon the anticipated sale price
of substantially all of its assets and liabilities to National Waterworks.
Accordingly, the Acquisition period from January 1 to November&nbsp;21, 2002
included a charge for the estimated goodwill impairment of $459.0&nbsp;million. No
similar charges were recorded for the 2001 period. During this period, goodwill
was primarily comprised of amounts resulting from the purchase accounting
adjustments associated with the acquisition of United States Filter Corporation
by Veolia in 1997 and reflected, or &#147;pushed-down,&#148; in the financial statements,
and, to a lesser extent, amounts resulting from acquisitions since the date of
the Veolia acquisition.


<P align="left" style="font-size: 10pt"><I>Net Income (Loss). </I>As a result of the foregoing, we reported a net loss of
$418.7&nbsp;million for the year ended December&nbsp;31, 2002, compared to $26.2&nbsp;million
of net income for the year ended December&nbsp;31, 2001. Excluding the cumulative
effect of a change in accounting principle in 2002 and the goodwill
amortization in 2001, net income decreased $10.9&nbsp;million to $40.3&nbsp;million in
the 2002 period from $51.2&nbsp;million in the 2001 period.


<P align="left" style="font-size: 10pt"><B>Liquidity and Capital Resources</B>


<P align="left" style="font-size: 10pt">Prior to November&nbsp;2002, we participated in the centralized cash management
program of our former parent, United States Filter Corporation, whereby all of
our cash receipts were remitted to United States Filter Corporation and
substantially all of our cash disbursements were funded by United States Filter
Corporation. As a result of the Acquisition and our separation from United
States Filter Corporation, we no longer participate in such program.
Historically, our primary cash requirements were to fund our operations,
working capital and capital expenditures. Following the Acquisition, our
primary cash requirements are to make the interest and principal payments on
our debt and to fund our operations, working capital and capital expenditures.
We expect to fund these needs principally from cash flow from operations and,
if necessary, borrowings under the revolving credit portion of our senior
credit facility. In addition, since the Acquisition was structured as an asset
acquisition, we will be able to deduct for tax purposes, on a straight-line
basis over 15&nbsp;years, the related goodwill. We expect that this amortization
will result in significant cash tax savings.


<P align="left" style="font-size: 10pt">Net working capital is comprised of current assets, excluding cash and cash
equivalents, minus current liabilities. We had net working capital of $115.2
million at December&nbsp;31, 2003 compared to net working capital of $105.1&nbsp;million
at December&nbsp;31, 2002. The increase in net working capital is primarily
attributable to increased sales volume in the fourth quarter of 2003.


<P align="left" style="font-size: 10pt">Net cash provided by operating activities for the years ended December&nbsp;31,
2003, 2002 (combined)&nbsp;and 2001 was $37.0&nbsp;million, $95.3&nbsp;million, and $209.4
million, respectively. The change in net cash provided by operating activities
in 2003 compared to 2002 (combined)&nbsp;was primarily attributable to an
approximate $32.3&nbsp;million and $33.8&nbsp;million decrease in cash flows from trade
accounts receivable and trade accounts payable and accrued expenses,
respectively. The decrease in net cash provided by operating activities in



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<P align="left" style="font-size: 10pt">2002 (combined)&nbsp;compared to 2001 was primarily attributable to the change in
our accounts receivables related to the implementation in December&nbsp;2001 of the
accounts receivable securitization facility, which accounted for $140.0&nbsp;million
of net cash provided by operating activities in 2001. Excluding the effect of
the securitization facility, the increase in 2002 (combined)&nbsp;was due to cash
provided by trade accounts payable of $27.4&nbsp;million.


<P align="left" style="font-size: 10pt">Net cash used in investing activities for the years ended December&nbsp;31, 2003,
2002 (combined)&nbsp;and 2001 was $4.4&nbsp;million, $664.0&nbsp;million and $0.3&nbsp;million,
respectively. Net cash used in investing activities for the period ended
December&nbsp;31, 2003 reflected the post-closing cash adjustment of $3.1&nbsp;million
paid to United States Filter Corporation, related to the level of our working
capital at the time of closing of the Acquisition. Net cash used in investing
activities for the year ended December&nbsp;31, 2002 (combined)&nbsp;reflected the cash
purchase price of the Acquisition of $643.8&nbsp;million and the one operating
acquisition we completed in 2002 for a net consideration of $19.6&nbsp;million.
Capital expenditures for the years ended December&nbsp;31, 2003, 2002 (combined)&nbsp;and
2001 were $2.0&nbsp;million and $1.5&nbsp;million and $1.4&nbsp;million, respectively.


<P align="left" style="font-size: 10pt">Net cash provided by (used in) financing activities for the years ended
December&nbsp;31, 2003, 2002 (combined), and 2001 was ($53.8) million, $600.6
million, and ($205.1) million, respectively. Net cash used in financing
activities in the 2003 period reflects $10.0&nbsp;million in principal payments on
the term loan under our senior credit facility and a dividend distribution of
$39.3&nbsp;million. The 2003 period also reflects a $1.0&nbsp;million cash equity
investment in Holdings, by one of our and Holdings&#146; directors, who had not made
an investment in Holdings at the time the Acquisition was consummated. Holdings
made a concurrent $1.0&nbsp;million capital contribution to us. The net cash
provided by financing activities for the year ended December&nbsp;31, 2002
(combined), excluding the $644.7&nbsp;million provided to fund the Acquisition,
resulted in net cash used in financing activities of $44.1&nbsp;million. The $44.1
million reflects the excess of funds transferred to our former parent, United
States Filter Corporation, through the cash management program over investments
by, and expenditures funded by, United States Filter Corporation during the
period January 1 to November&nbsp;21, 2002.


<P align="left" style="font-size: 10pt">In December&nbsp;2003, we amended our senior credit facility in connection with a
dividend paid to the stockholders of Holdings. As a result of the amendment,
we can pay a dividend to Holdings from time to time, contingent upon meeting
certain financial covenants and ratios and other conditions, and Holdings can
use the amount of such dividend for any purpose not otherwise prohibited by the
terms of our senior credit facility, including, without limitation, to pay
dividends on our capital stock. The aggregate amount of dividends paid
pursuant to this amendment may not exceed $110.0&nbsp;million in total, and may not
exceed $45.0&nbsp;million for the fiscal year ended December&nbsp;31, 2003 and $40.0
million for any fiscal year thereafter, provided that any amount not paid in
the fiscal year for which it is permitted may be carried over to any succeeding
fiscal year. In connection with the amendment, we paid and recorded as
interest expense approximately $2.3&nbsp;million in financing fees.


<P align="left" style="font-size: 10pt">In August&nbsp;2003 we amended our senior credit facility in connection with the
refinancing of the outstanding term loan portion thereof. The amendment, among
other things, provided for lower applicable margins for both Eurodollar rate
and base rate term loans under the refinanced facility. In addition the
minimum Eurodollar rate of 2.50% for term loans that existed prior to the
amendment was removed. The amendment also permits us to issue, without the
consent of lenders under the senior credit facility, an incremental $50.0
million of credit facilities in addition to the $50.0&nbsp;million permitted prior
to the amendment, contingent upon meeting certain covenants. The amendment also
allows Holdings to issue one or more series of notes or redeemable equity
securities from time to time, upon the terms and conditions set forth in the
amendment and subject to our meeting certain financial covenants and ratios,
and to use the proceeds therefrom to pay dividends or make other distributions
on its capital stock. In connection with the amendment, we paid approximately
$6.0&nbsp;million of financing fees, including a $4.9&nbsp;million call premium. The
call premium was recorded as deferred financing fees with the remaining
financing fees recorded as interest expense.


<P align="left" style="font-size: 10pt">Our senior credit facility, as amended, consists of a $250.0&nbsp;million term loan
facility, of which $240.0&nbsp;million was outstanding at December&nbsp;31, 2003, and a
$75.0&nbsp;million revolving credit facility. No amount was outstanding under the
revolving credit facility at December&nbsp;31, 2003, but approximately $3.8&nbsp;million
of the availability under the revolving credit facility was used to support
outstanding letters of credit. The borrowings under the revolving credit
facility will be available until its maturity to fund our working capital
requirements, capital expenditures and other general corporate needs, subject
to the negative covenants set forth in our senior credit facility. The
revolving credit facility will mature on November&nbsp;22, 2008 and will have no
scheduled amortization or commitment reductions. The term loan facility will
mature on November&nbsp;22, 2009 and has quarterly scheduled amortization payments
of $3.75&nbsp;million in 2004 and 2005, $5.0&nbsp;million in 2006 and $6.25&nbsp;million in
2007 and 2008, with the balance of the facility to be repaid quarterly and at
maturity during 2009. In addition, we are required to make annual mandatory
prepayments of the term loans (or, if no term loans are outstanding, revolving
loans) under the senior credit facility in an amount equal to 75% of Excess
Cash Flow, as defined in our senior credit facility, and determined generally
as the amount by which our operating cash flow exceeds the sum of our capital
expenditures (including in respect of permitted acquisitions), repayments of
indebtedness and certain other amounts, or, 50% of Excess Cash Flow if our
ratio of consolidated total debt to consolidated EBITDA as of the last day of
the applicable fiscal year



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<P align="left" style="font-size: 10pt">is not greater than 4:0 to 1:0. The term loans (or, if no term loans are
outstanding, revolving loans) are also subject to mandatory prepayments in an
amount equal to (i)&nbsp;75% of the net cash proceeds from certain equity issuances
by us or our subsidiaries (or 50% if we meet the foregoing leverage ratio);
(ii)&nbsp;100% of the net cash proceeds of certain debt issuances; and (iii)&nbsp;100% of
the net cash proceeds of certain asset sales or other dispositions of property,
in each case subject to certain exceptions. Borrowings under the term loan
portion and revolving credit facility bear interest at a variable rate based
on, at our option, the Eurodollar rate plus an applicable margin, or a base
rate plus an applicable margin. The base rate is the higher of the prime rate
or the federal funds rate plus 0.5%. At December&nbsp;31, 2003 and 2002, the
interest rate on the term loan was 3.92% and 6.5% per annum, respectively. Our
senior credit facility permits us to issue up to an additional $100.0&nbsp;million
of credit facilities without the consent of the existing lenders thereunder, so
long as no default or event of default under the senior credit facility has
occurred and is continuing or would occur after giving effect to such issuance
and certain other conditions are satisfied, including pro forma compliance with
certain senior leverage ratios.


<P align="left" style="font-size: 10pt">Our $200.0&nbsp;million aggregate principal amount of senior subordinated notes due
2012 bear interest at 10.50% per annum, with interest due semi-annually on June
1 and December 1 of each year. Interest payments on the senior subordinated
notes and required principal and interest payments on borrowings under our
senior credit facility have substantially increased our liquidity requirements.
We may, from time to time and subject to the limitations in our senior credit
facility, purchase senior subordinated notes in the open market or in privately
negotiated transactions.


<P align="left" style="font-size: 10pt">The senior credit facility and the indenture governing the senior subordinated
notes impose certain restrictions on us, including restrictions on our ability
to incur indebtedness, pay dividends, make investments, grant liens, sell our
assets and engage in certain other activities. Our senior credit facility also
requires that we satisfy leverage and interest coverage ratios and contains a
capital expenditures limitation. We were in compliance with all covenants at
December&nbsp;31, 2003 and 2002. Indebtedness under the senior credit facility is
secured by substantially all of our and Holdings&#146; assets, including our real
and personal property, inventory, accounts receivable, intellectual property
and other intangibles. In addition, the senior credit facility is secured by
the stock and substantially all of the assets of our future domestic and, to
the extent that no material adverse tax consequences would result, foreign
subsidiaries, if any. We do not currently have any subsidiaries.


<P align="left" style="font-size: 10pt">Our ability to pay principal and interest on our indebtedness and to satisfy
our other obligations will depend upon, among other things:



<P>
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<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business,
regulatory and other factors, many of which are beyond our control;
and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the future availability of borrowings under our senior credit facility or any successor facility, the availability of which
depends or may depend on, among other things, our complying with the
covenants in our senior credit facility.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">We believe that, based on our current levels of operations, our cash flow from
operations, together with available borrowings under the senior credit
facility, will be adequate for at least the next few years to make scheduled
amortization and interest payments on our indebtedness and to fund anticipated
capital expenditures and for working capital requirements. We cannot assure
you, however, that our business will generate sufficient cash flow from
operations or that future borrowings will be available under the senior credit
facility in an amount sufficient to enable us to service our indebtedness or to
fund our other liquidity needs.


<P align="left" style="font-size: 10pt"><B>Related Party Transactions</B>


<P align="left" style="font-size: 10pt">In January&nbsp;2003, one of our and Holdings&#146; directors, who had not made an
investment in Holdings at the time of the Acquisition, made a $1.0&nbsp;million cash
equity investment in Holdings in exchange for the issuance of shares of common
stock of Holdings. Holdings made a concurrent $1.0&nbsp;million capital
contribution to us. The investment was made at the same price per share as the
original investment made by our principal equity sponsors and management on
November&nbsp;22, 2002.


<P align="left" style="font-size: 10pt">For a description of certain related party transactions with our Sponsors,
their affiliates and Holdings, see &#147;Certain Relationships and Related Party
Transactions.&#148;


<P align="left" style="font-size: 10pt"><B>Recent Accounting Pronouncements</B>


<P align="left" style="font-size: 10pt">In June&nbsp;2001, the Financial Accounting Standards Board (&#147;FASB&#148;) issued
Statement of Financial Accounting Standards (&#147;SFAS&#148;) No.&nbsp;143, <I>Accounting for
Asset Retirement Obligations</I>, which addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This statement applies to all
entities that have legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
or



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<P align="left" style="font-size: 10pt">normal use of the asset. SFAS No.&nbsp;143 is effective for fiscal years beginning
after June&nbsp;15, 2002. The adoption of SFAS No.&nbsp;143 as of January&nbsp;1, 2003 did not
have a significant impact on our financial condition or results of operations.


<P align="left" style="font-size: 10pt">In July&nbsp;2002, the FASB issued SFAS No.&nbsp;146, <I>Accounting for Costs Associated
with Exit or Disposal Activities, </I>which is effective for disposal activities
initiated after December&nbsp;31, 2002. This Statement nullifies Emerging Issues
Task Force Issue No.&nbsp;94-3, <I>Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)</I>. SFAS No.&nbsp;146 requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred as opposed to the date of the commitment of an exit plan.
The adoption of SFAS No.&nbsp;146 as of January&nbsp;1, 2003 did not have a significant
impact on our financial condition or results of operations.


<P align="left" style="font-size: 10pt">In November&nbsp;2002, the EITF reached consensus on Issue 02-16, <I>Accounting by a
Customer (Including a Reseller) for Certain Consideration Received from a
Vendor</I>. The consensus was reached that cash consideration received by a
customer from a vendor is presumed to be a reduction of the prices of the
vendor&#146;s products or services and should be treated as a reduction of cost of
sales when recognized in the customer&#146;s income statement. This presumption can
be overcome if the consideration can be shown to represent either a payment for
assets or services delivered to the vendor or a reimbursement of costs incurred
by the reseller to sell the vendor&#146;s products. It also reached consensus on
when a customer should recognize a rebate or refund that is payable only if the
customer completes a specified level of purchases. Recognition should occur
when the rebate or refund is probable and reasonably estimable and should be
based on a systematic and rational method. The Company has historically
accounted for such consideration as a reduction of cost of sales when the
vendor rebate is probable and reasonably estimable and based on a systematic
and rational allocation of the cash consideration to be received. The Company
estimated the adoption of this EITF increased net income by $1.4&nbsp;million for
the year ended December&nbsp;31, 2003.


<P align="left" style="font-size: 10pt">In January&nbsp;2003, the FASB issued Statement SFAS No.148, <I>Accounting for
Stock-Based Compensation &#151; Transition and Disclosure</I>. This statement amends
FASB SFAS No.&nbsp;123, <I>Accounting for Stock-Based Compensation </I>to provide
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. In addition,
SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent
disclosures in both annual and interim financial statements of the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. SFAS 148 is effective for fiscal years beginning
after December&nbsp;15, 2002. The adoption of SFAS 148 had no impact on the
Company&#146;s financial statements.


<P align="left" style="font-size: 10pt">In April&nbsp;2003 the FASB issued SFAS No.&nbsp;149, <I>Amendment of Statement 133 on
Derivative Instruments and Hedging Activities</I>. This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No.&nbsp;133, <I>Accounting for Derivative Instruments
and Hedging Activities</I>. SFAS No.&nbsp;149 provides greater clarification of the
characteristics of a derivative instrument so that contracts with similar
characteristics will be accounted for consistently. In general, SFAS No.&nbsp;149
is effective for contracts entered into or modified after June&nbsp;30, 2003, and
for hedging relationships designated after June&nbsp;30, 2003. As the Company does
not currently have any derivative financials instruments, the adoption of SFAS
No.&nbsp;149 had no impact on the Company&#146;s financial statements.


<P align="left" style="font-size: 10pt">In May&nbsp;2003, the FASB issued SFAS No.&nbsp;150, <I>Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity</I>. This
statement clarifies the accounting for certain financial instruments with
characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities in statements of financial position.
Previously, many of those financial instruments were classified as equity.
SFAS No.&nbsp;150 is effective for financial instruments entered into or modified
after May&nbsp;31, 2003 and otherwise is effective at the beginning of the first
interim period beginning after June&nbsp;15, 2003. As the Company does not have any
of these financial instruments, the adoption of SFAS No.&nbsp;150 had no impact on
the Company&#146;s financial statements.


<P align="left" style="font-size: 10pt"><B>Quantitative and Qualitative Disclosures About Market Risk</B>


<P align="left" style="font-size: 10pt">We are exposed to certain market risks as part of our on-going business
operations. Primary exposure includes changes in interest rates as borrowings
under our senior credit facility bear interest at floating rates based on the
London InterBank Offered Rate or the prime rate, in each case plus an
applicable borrowing margin. We manage our interest rate risk by balancing the
amount of fixed-rate and floating-rate debt. For fixed rate debt, interest rate
changes affect the fair market value but do not impact earnings or cash flows.
Conversely, for floating-rate debt, interest rate changes generally do not
affect the fair market value but do impact our earnings and cash flows,
assuming other factors are held constant. As of December&nbsp;31, 2003, we had $200
million principal amount of fixed-rate debt represented by the notes and $240
million of floating-rate debt represented by borrowings under the term loan
portion of the senior credit facility. In addition, up to $75&nbsp;million of
floating rate borrowings are available under the revolving credit portion of
the senior credit facility, of which $3.8&nbsp;million was used to support
outstanding letters of credit at December&nbsp;31, 2003. Based on the



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<P align="left" style="font-size: 10pt">amounts outstanding under the term loans, an immediate increase of one
percentage point in the applicable interest rate would cause an increase in
interest expense of approximately $2.4&nbsp;million on an annual basis. We may use
derivative financial instruments, where appropriate, to manage our interest
rate risks. However, as a matter of policy, we will not enter into derivative
or other financial investments for trading or speculative purposes. All of our
sales are denominated in U.S. dollars; thus our financial results are not
subject to foreign currency exchange risks or weak economic conditions in
foreign markets.



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<DIV align="left">
<A name="108"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Business</B>



<P align="left" style="font-size: 10pt"><B>General</B>


<P align="left" style="font-size: 10pt">We are a leading distributor of water and wastewater transmission products in
the United States with approximately a 20% share of the estimated $6&nbsp;billion
U.S. waterworks products distribution market. We distribute a full line of
products including pipe, fittings, valves, meters, service and repair products,
fire hydrants and other components that are used to transport clean water and
wastewater between reservoirs and treatment plants and residential and
commercial locations. In addition, we provide a broad array of value-added
services such as project estimation, project management and product advice. Our
products are integral to building, repairing and maintaining water and
wastewater (sewer)&nbsp;systems and serve as part of the basic municipal
infrastructure required to support population and economic growth and
residential and commercial construction. Through our network of 133 branches in
36 states, we sell to municipalities directly and contractors who serve
municipalities and also perform residential, commercial and industrial
waterworks projects.


<P align="left" style="font-size: 10pt">In 2003, we purchased products from over 3,800 suppliers and sold to over
27,000 customers. We offer both our suppliers and customers essential services
by providing customers with a single source for water and wastewater
transmission products, which substantially reduces their need to manage
inventory and multiple vendor relationships. None of our suppliers offers a
complete waterworks product line, and the majority lack the scale,
infrastructure, such as a large, local sales force, and expertise to service
the broad customer base directly. By aggregating the supply of our products, we
relieve our suppliers of the need to maintain a local inventory and a local
sales force and the related credit and accounts receivable functions.


<P align="left" style="font-size: 10pt">Our branches compete on a local basis and benefit from our large scale and
national coverage. We empower and create incentives for our branch managers to
customize product and service offerings in response to the needs of local
customers and to adapt to changing local market dynamics, within the pricing
and purchasing parameters established by senior management. We believe that
this strategy promotes an entrepreneurial approach at the branch level while
maintaining appropriate management control and pricing discipline through our
entire network. Our branches are operated by managers and sales personnel with
significant industry expertise, local knowledge and long-standing customer
relationships. Our customized IT system supports our sales personnel and
provides benefits to our customers, including expedited project estimation and
bid preparation; real-time pricing, availability and order status information;
on-line ordering and purchase processing; and material and project management.
At the same time, our single IT system provides detailed operating data on a
daily basis at the branch and customer levels which allows our branch and
senior management to closely monitor branch operating performance. Our
preferred vendor programs typically include volume purchase incentives and
other benefits, including cash discounts and extended payment terms. In 2003
over 80% of our purchases were under preferred vendor programs and we continue
to establish or enhance these relationships with new and existing suppliers.


<P align="left" style="font-size: 10pt"><B>Overview of Our Business</B>


<P align="left" style="font-size: 10pt"><B><I>History</I></B>


<P align="left" style="font-size: 10pt">In 1996, United States Filter Corporation acquired Davis Water &#038; Waste
Industries, Inc. (which changed its name to U.S. Filter) with the goal of
creating the first nationwide waterworks products distribution network. At that
time, no national waterworks distribution platform existed in the United
States, and the sector was primarily comprised of regional and local firms.
Through the acquisition and combination of four additional large-scale regional
waterworks products distributors in 1996 and 1997, U.S. Filter became a major
participant in the sector. Each of these regional acquisitions and the majority
of our other acquisitions had been in business for over 20&nbsp;years and were the
source of the majority of U.S. Filter&#146;s senior and branch management. In
November&nbsp;2002, we purchased substantially all of the assets and businesses of,
and assumed certain liabilities and obligations of U.S. Filter, which we refer
to herein as the &#147;Acquisition.&#148;


<P align="left" style="font-size: 10pt">We have continued to increase our revenues through organic growth, including
market share gains and new branch openings, as well as through selected
strategic acquisitions. Since the beginning of 2000, we have opened or acquired
13 new branches, while closing or consolidating 20 branches in order to
eliminate branch overlap due to acquisitions and to improve our profitability
and return on managed assets. We identify acquisition opportunities that allow
us to expand our local market positions, geographic coverage or local product
lines. As we expanded our branch network, we also broadened our product mix to
meet the demands of customers in our diverse local markets.



<P align="left" style="font-size: 10pt"><B>Business Operations</B>



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<P align="left" style="font-size: 10pt"><I>Regional Organization and Branch Network. </I>We are organized geographically into
six different regions in the United States (Midwest, Southwest, Pacific,
Southeast, Mid-South and Mid-Continent). While we are organized regionally, our
distribution network operates on a branch system. Each region has from 16 to
29 branches and a regional vice president responsible for overall sales and
operations. This regional structure enables us to address the specific
management, strategic, operational and other needs of each region. Our network
of 133 branches covers 36 states, the majority of which are located in regions
that have historically experienced population and economic growth.


<P align="left" style="font-size: 10pt"><I>Branch Management. </I>We believe that our branch network and management structure
brings many benefits, including entrepreneurship, flexibility, and long-term
customer relationships at the local level. Each branch is managed by a
district/branch manager, who is typically supported by a branch operations
manager. We believe that our branch managers are able to maximize their
branch&#146;s financial performance due to the flexibility with which they operate
within the company-wide management and control structure. This structure
enables a branch manager to tailor his or her branch&#146;s particular strategy,
marketing and product and service offerings to address the needs of customers
in the local market. Our senior management establishes pricing and purchasing
parameters, which branch managers are able to adjust within a specified range
to enhance their branch&#146;s results and address specific customer situations.


<P align="left" style="font-size: 10pt">Our compensation programs align our interests with those of our employees by
linking compensation levels to the achievement of branch or region specific
goals based on profitability and return on managed assets. These incentive
programs give managers, sales personnel and all other employees an opportunity
to personally benefit from improving these metrics, reducing costs, developing
local market niches and adapting to changing market conditions. We also benefit
from this program as a substantial portion of our employee-related costs is
variable based on financial performance.


<P align="left" style="font-size: 10pt">The majority of our district/branch managers have spent substantially all of
their careers in their local markets. Given our managers&#146; strong industry and
local expertise, they are empowered to manage their own customer relationships,
sales force, other personnel, pricing for product sales and purchases within
company-wide parameters, inventory and other activities. While branches benefit
from this expertise and entrepreneurship, they also benefit from being part of
our nationwide network. At the corporate level, we:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>set overall financial, operating and strategic goals and parameters, including guidelines for pricing and working capital
management;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>support our branches with services such as IT, credit, human resources, finance, accounting and legal, among others;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>negotiate preferred vendor purchasing programs;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>provide tools that support value-added customer services;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>provide training and operational support; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>help branches to meet their goals through management assistance and transferring best practices.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt"><I>Branch Operations. </I>A branch&#146;s organization varies depending on its size. Our
branches averaged over $9&nbsp;million of net sales in 2003. A typical branch
consists of 9-12 people, including a branch manager, a branch operations
manager, outside sales personnel, inside sales personnel and support/warehouse
personnel. In larger branches, the staff may also include a sales manager, a
purchasing manager and/or an estimator. When several branches are in close
proximity to each other, a district manager may oversee all such branches as
opposed to having individual managers at each branch. In these cases, the
branch operations managers in that district tend to be more senior and
experienced managers. Each branch customizes its product and service offerings
based on its local market. A typical branch offers 2,400 to 3,000 products and
stocks 1,000 to 1,600 items.


<P align="left" style="font-size: 10pt">We receive our orders from customers either directly or through negotiated or
competitive bids, which are typically evaluated based on service, availability,
reliability and price. A new order or bid is either generated by, or input
into, our IT system for scheduling, inventory management, ordering from a
supplier, if necessary, and billing. Products are delivered either from the
relevant branch&#146;s inventory, another branch&#146;s inventory or in the case of large
or long-lead time orders, directly from the manufacturer to the customer
(&#147;direct&#148; sales). Direct sales accounted for approximately 35% of our net sales
in 2003. Direct sales and the ability to access other branches&#146; inventory allow
our branches to reduce their inventory and the related holding and handling
costs. In addition, our IT system automatically generates recommended
purchasing reports to replenish our inventory as products are sold.



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<P align="left" style="font-size: 10pt"><B>Products and Service Overview</B>


<P align="left" style="font-size: 10pt"><B><I>Products.</I></B>


<P align="left" style="font-size: 10pt">A typical waterworks system is comprised of many components, including
reservoirs and other water sources, water treatment plants and pumping
stations, wastewater treatment plants and residential and commercial customers.
We distribute products that comprise the water and wastewater transmission
network within the waterworks system. Our primary products include pipe,
fittings, valves, meters and hydrants and service/repair products. We also
offer other complementary products for waterworks construction and
maintenance/repair.


<P align="left" style="font-size: 10pt"><I>Pipe. </I>Piping products are our primary waterworks product and generate the
greatest portion of our net sales, approximately 40% in 2003, but a smaller
portion of our gross profits. Given the relatively large size and weight of
pipe and typically large size of pipe orders, the majority of our pipe sales
are shipped directly from the manufacturer to the customer, which reduces our
handling costs, inventory and exposure to changes in raw material prices. We
distribute a broad range of pipe made from different materials, including
polyvinyl chloride, or PVC, ductile iron, copper, polyethylene and high-density
polyethylene, or HDPE. PVC pipe and ductile iron pipe are the most commonly
used and account for the majority of our pipe sales.


<P align="left" style="font-size: 10pt"><I>Fittings. </I>Fittings are used to connect pipe to other pipe sections, valves and
other devices. Fittings complement our broad pipe products line with high
customer overlap and generate higher gross margins. In 2003, fittings accounted
for approximately 15% of our net sales. We distribute a broad range of fittings
made from PVC, ductile iron, and to a lesser extent, copper, brass and HDPE.


<P align="left" style="font-size: 10pt"><I>Valves. </I>Valves are used to control the flow of water and wastewater within
transmission networks and, similar to fittings, complement our other product
offerings. In 2003, valves accounted for approximately 12% of our net sales.
Besides an array of standard valves, we also distribute backflow preventers,
which primarily prevent reverse flow of liquid in the water system.


<P align="left" style="font-size: 10pt"><I>Meters and Hydrants. </I>In 2003, meters and hydrants accounted for approximately
9% and 6% of our net sales, respectively. Meters typically are higher gross
margin products. Meters measure the amount of liquid that flows through pipes
and are critical to municipalities and other water and wastewater system
operators for billing purposes. New meter technology, such as the ability to
receive data electronically, and the importance of water-related revenues to
municipalities has led to growth in meter sales. Hydrants are important for
public safety for firefighting purposes.


<P align="left" style="font-size: 10pt"><I>Service/Repair Products. </I>Our service and repair products include water cut-off
devices, clamps, and other products. In 2003, these products accounted for
approximately 7% of our net sales. Local availability and timely delivery of
these products are key to meeting customer needs since many of these products
are generally used for emergency repairs.


<P align="left" style="font-size: 10pt"><I>Other Products. </I>We also offer other complementary products that are necessary
for water and wastewater systems or in order to be a full product supplier.
These products carry a relatively high gross margin and accounted for
approximately 11% of our net sales in 2003. Examples include access boxes that
protect valves and meters from theft, damage, or destruction; iron castings,
including grates and manhole covers, which fit into or on top of waterworks
structures; and tools specific to waterworks construction and maintenance, as
well as general hand tools.


<P align="left" style="font-size: 10pt">The sale of water and wastewater transmission products is subject to seasonal
and weather-related fluctuations. Coincident with annual construction
seasonality, our net sales are typically higher during the second and third
calendar quarters and lower during the first and fourth quarters due to reduced
construction activity during the winter. Adverse weather conditions in our
markets may also decrease the level of construction activity.


<P align="left" style="font-size: 10pt"><B><I>Customer Service. </I></B>We focus on offering our customers consistent, high quality
local service and a broad range of value-added services, which result in
long-term customer relationships. Initially, we assist contractor customers in
the preparation of their bids with product knowledge and advice, cost
estimates, inventory levels and product standardization. In addition, our sales
representatives maintain databases of local specifications and provide
customized databases for contractors. After a contractor begins a project, we
focus on reducing their total project cost by:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reducing their inventory cost;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>expediting the completion of the project through the timely and coordinated delivery of the necessary waterworks products; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reducing the related administrative burdens.</TD>
</TR>

</TABLE>


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<P align="left" style="font-size: 10pt">Through the combination of these services, we believe that we have been able to
reduce our contractor customers&#146; focus on product pricing by reducing their
overall costs and downtime and improving their project planning and execution.
We provide our municipal customers with similar services and benefits.


<P align="left" style="font-size: 10pt">We also leverage our sophisticated IT system to provide superior customer
service. The IT system is specifically designed to provide our customers and
our sales force with direct, quick, accurate and convenient access to data
(including product pricing and availability and past and current order
information) in a variety of electronic mediums (on-line, fax, email, EDI and
spreadsheet). Our sales representatives can access our IT system either from
their desktop computer or remotely from laptop computers, and transmit and
receive updated information on a real-time basis. Our customers have access to
their accounts and our product and service offerings over a secure and
real-time Internet system.


<P align="left" style="font-size: 10pt"><B>Customers</B>


<P align="left" style="font-size: 10pt">We have a diversified customer base, which minimizes our exposure to any
particular customer, customer type or region. Substantially all of our
customers are local in nature and include municipalities, public works
contractors who serve municipalities, private waterworks contractors who
perform residential, commercial and industrial construction projects and
industrial customers. Our 2003 revenues were split approximately evenly between
publicly-funded and privately-funded sales. These sectors are affected by
different macroeconomic variables, which we believe reduce our exposure to
adverse conditions in any particular sector. In 2003, we served over 9,000
municipal customers and over 18,000 contractor and industrial/other customers.
During 2003, approximately 86% of our net sales were from customers to whom we
sold products in each of the last three years, demonstrating the stability of
our customer base. We have established long-term relationships with the
majority of our customers, but no single customer accounts for a meaningful
share of our revenues. In 2003, our largest customer accounted for less than 1%
of our net sales and our largest region accounted for approximately 22% of our
net sales.


<P align="left" style="font-size: 10pt"><B>Suppliers and Preferred Vendor Programs</B>


<P align="left" style="font-size: 10pt">We purchase products from over 3,800 suppliers and substantially all of our
primary suppliers have supplied us for over ten years. We utilize multiple
suppliers for substantially all of our products. We purchase from both national
suppliers and local or regional suppliers, which allows our branch managers to
customize their product offering for their local market. Our largest supplier
accounted for approximately $135&nbsp;million or 13% of product purchases in 2003.
The products we purchase from this supplier are also sourced from other
suppliers.


<P align="left" style="font-size: 10pt">We have established preferred vendor programs to more effectively leverage our
purchasing power with suppliers. As part of this effort, we have significantly
reduced our supplier base, which has resulted in stronger, strategic
relationships with a core group of vendors and more reliable deliveries,
reduced errors and better purchasing terms. Our preferred vendor programs
typically include volume purchase incentives and other benefits, including cash
discounts and extended payment terms. Over 130 of our suppliers have attained
preferred vendor status, and we continue to establish or enhance these
relationships with new and existing suppliers. In 2003, we purchased over 80%
of our products from these preferred vendors.


<P align="left" style="font-size: 10pt"><B>Marketing and Sales</B>


<P align="left" style="font-size: 10pt">We have approximately 250 sales representatives experienced in the water and
wastewater transmission products distribution sector. These sales
representatives have in-depth product and technical knowledge, significant
local experience and long-term customer relationships, all of which are
critical to our success. In addition, we believe that our leading market
position, high-quality service offering and innovative compensation program
result in a low turnover among our sales force.


<P align="left" style="font-size: 10pt">Our field sales representatives are based at branches and are responsible for
generating sales, providing all of our basic and value-added services to
customers and establishing new customer relationships. These sales
representatives are highly qualified professionals and participate in ongoing
training programs. Our service-oriented philosophy and incentive compensation
program encourage our sales representatives to proactively participate in
product selection; provide product specifications, usage data, product
alternatives within required product specifications and project bids; and
participate in the collection of accounts receivable.


<P align="left" style="font-size: 10pt">We also have regionally based product specialists, who support the outside
sales representatives in their respective region. These specialists have
expertise with respect to specific product and service offerings. In addition,
we have customer service representatives which support the outside sales force.
These customer service representatives are responsible for entering and
tracking orders,



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<P align="left" style="font-size: 10pt">answering technical questions and sourcing products. The customer service
representatives provide us with additional depth to our customer relationships
and a pool of talent for future outside sales representatives.


<P align="left" style="font-size: 10pt"><I>Accounts Receivable. </I>We proactively manage our accounts receivable with
customers. We maintain detailed, up-to-date credit history and receivables
information on over 27,000 customers and conduct extensive credit checks on new
customers (including trade and banking references, independent credit reports
and financial statement analyses). Since the beginning of 2000, on average,
less than 9% of accounts receivable have been outstanding greater than 90&nbsp;days
and bad debt expense has averaged approximately .08% of net sales. Our credit
department, which includes national and regional professionals, is responsible
for approving customers&#146; credit, collecting receivables and ensuring that
appropriate state and local bond and lien statutes are followed.


<P align="left" style="font-size: 10pt">We maintain all of our credit and receivables information on our IT system,
allowing easy access by our credit department and branch managers. A customer&#146;s
status is automatically reviewed by the IT system during order entry and
product shipment to ensure that branches operate within credit guidelines. We
set a pre-determined credit limit for each customer in our IT system which
automatically prevents additional sales absent appropriate approvals if the
customer&#146;s credit limit is exceeded. We are also able to generate daily reports
that highlight any potential issues to our credit professionals and branch
managers. Customers can also track their outstanding balances online to
accelerate the payment process. Finally, our sales representatives are
typically incentivized to collect receivables and forfeit a portion of the
related sales commission if collection does not occur on a timely basis.


<P align="left" style="font-size: 10pt"><B>Management Information Systems</B>


<P align="left" style="font-size: 10pt">Our IT system is critical to our success and we believe it provides us with a
competitive advantage. We have developed a single infrastructure that
integrates our customer service, management, operational and financial
functions in a reliable, flexible and easy to operate system. The system is
easily scalable to support additional organic growth and acquisitions and
currently has unused capacity. We leverage our IT system to provide superior,
customized service, which reduces our customers&#146; costs and improves our
operating efficiency. Examples of customer service benefits include:


<P align="left" style="font-size: 10pt"><I>Material Management Online. </I>Our Internet interface allows our customers to
manage all aspects of their accounts on a secure, online and real-time basis.
Our customers can:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>access product pricing and availability and place orders, including using their own product numbers which are automatically
converted to our product numbers;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>access order information (including status, delivery schedule and past invoices);</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>release products for delivery;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>access account-specific catalogs, including account-specific pricing and past preferences; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>view local specifications and requirements.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt"><I>Project Management. </I>We offer numerous project management services to reduce
our customers&#146; cost and to allow them to bid on more projects. Through this
system, we provide over 10,000 project estimates monthly. We can either:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>integrate price-supported product databases into a contractor&#146;s estimating system;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>provide access to our own estimating system; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>generate the estimate ourselves in the format requested by the customer (e.g., spreadsheets via email).</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">Our estimating system is integrated with the rest of our IT system, allowing
for a seamless interface between sales and operations. During a project, our
customers can receive project-specific management reports and other information
(e.g., shipment and payment status, products released against the bid, change
orders and invoices) via the Internet, email, or fax, which result in more
efficient project management. Our customers can receive their invoices via
email on a daily basis to expedite billing their customers.


<P align="left" style="font-size: 10pt">From an internal point-of-view, our IT system improves our efficiency,
profitability and asset management. It integrates all of our locations and key
functions and provides easy access to detailed, up-to-date information.
Benefits include:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>nationwide and local real-time control of pricing for sales and purchases, including for individual customers;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the ability to monitor individual customer&#146;s profitability and accounts receivable, including preset credit limits which prevent
additional sales if exceeded;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>better inventory management and sharing across branches;</TD>
</TR>

</TABLE>


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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>expedited and automatic posting, matching and processing of orders, receivables and payables; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>integrated payroll and accounting, including the ability to quickly consolidate financial results from our branches.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">The system generates management reports that track key metrics on regional,
branch and customer basis, which allows us to monitor and more effectively
manage our business at all levels and to set sales strategies.


<P align="left" style="font-size: 10pt">We have established emergency contingencies to protect our IT system and test
our preparedness and contingency plan yearly. Such measures include automatic
re-establishment of a branch&#146;s connection to the system if it is lost and a
fully functional, secure back-up location provided by a third-party.


<P align="left" style="font-size: 10pt"><B>Raw Materials</B>


<P align="left" style="font-size: 10pt">We do not manufacture any products. However, our suppliers are susceptible to
fluctuations in certain raw material prices, which can impact our purchase and
sales prices for these products. PVC pipe accounted for approximately 21% of
our 2003 net sales, and is susceptible to price fluctuations. The purchase
price of PVC pipe ranged from $0.29 to $0.60 per pound between 1997 and 2003,
which we believe to be the most recent peak to trough period. Our average 2003
PVC purchase price was $0.41 per pound and ranged from a quarterly average of
$0.39 to $0.44 per pound. We believe that we take minimal raw material price
risk, based on our high inventory turns, sales shipped directly from
manufacturers to customers, ability to quickly pass price fluctuations on to
customers and our relatively small average project size and short timing. In
addition, when we enter into longer-term arrangements with our customers, we
typically enter into similar term arrangements with our suppliers.


<P align="left" style="font-size: 10pt"><B>Employees</B>


<P align="left" style="font-size: 10pt">As of December&nbsp;31, 2003, we had 1,447 employees, including 1,436 full-time
employees and 11 part-time employees. As of December&nbsp;31, 2003, approximately
220 of our employees were in managerial positions, 275 were in sales positions
and 952 were in warehouse/delivery and general administrative positions. In
addition, 12 of our employees at three branches were unionized pursuant to
collective bargaining agreements that expire in July&nbsp;2004 and December&nbsp;2006. We
believe that we have good relationships with our employees and low voluntary
turnover.


<P align="left" style="font-size: 10pt"><B>Competition</B>


<P align="left" style="font-size: 10pt">In each of our local markets, we typically compete with three to five other
distributors. Generally, local competition includes a branch of one or both of
the other two national distributors, Hughes Supply, Inc. and Wolseley PLC. We
also compete with other local and regional distributors. The principal methods
of competition include offering prompt local service, fulfillment capability,
local knowledge, breadth of product and service offerings, total cost to the
customer, and price. We believe we compete successfully in these areas.


<P align="left" style="font-size: 10pt"><B>Properties</B>


<P align="left" style="font-size: 10pt">We have 133 distribution branches in 36 states. We lease and own 105 and 28
branches, respectively. Our facilities are used for storing inventory and
maintaining office space and typically consist of a one-to-two acre lot
adjacent to a warehouse/office building. We typically enter into leases with
terms ranging from two to five years that include renewal options. In addition,
we lease our principal executive offices in Waco, Texas and own our two other
administrative centers.


<P align="left" style="font-size: 10pt"><B>Environmental matters</B>


<P align="left" style="font-size: 10pt">Our facilities and operations are subject to federal, state and local
environmental and workplace health and safety requirements, including those
relating to the handling, storage and disposal of hazardous materials and
wastes and the cleanup of properties affected by pollutants. Historically, we
have not had, nor do we currently anticipate, any material adverse effect on
our business or financial condition as a result of our efforts to comply with,
or our liability under, such requirements. Our operations consist of
distribution of water and wastewater transmission products rather than
manufacturing, so we are not significantly regulated from an environmental
standpoint.


<P align="left" style="font-size: 10pt">In the future, federal, state or local governments could enact new or more
stringent laws or regulations concerning environmental and workplace health and
safety matters that could affect our operations. We could be found to be in
violation of these or other



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<P align="left" style="font-size: 10pt">environmental laws and regulations and we could be held liable for
contamination that may be found at our facilities or off-site locations where
we have sent wastes. We are currently not aware of circumstances where a
violation of or a liability under environmental requirements could have a
material adverse effect on our business or financial condition.


<P align="left" style="font-size: 10pt">Certain of U.S. Filter&#146;s predecessors distributed or may have distributed
cement pipe containing asbestos. Certain of these predecessors are or have been
defendants in lawsuits seeking to recover personal injury and other damages for
alleged exposure to asbestos in these pipes, and at December&nbsp;31, 2003, 111
lawsuits remained outstanding. Total defense and settlement costs paid in these
settled actions through December&nbsp;31, 2003 by U.S. Filter have been
approximately $2.5&nbsp;million, the majority of which has been paid by insurance
companies. The Acquisition was structured as an asset purchase, and we did not
assume any existing or future asbestos-related liabilities relating to U.S.
Filter or its predecessors. U.S. Filter and United States Filter Corporation
retained these liabilities and jointly and severally agreed to indemnify and
defend us from and against these liabilities on an unlimited basis with no
termination date. United States Filter Corporation and U.S. Filter also agreed
that, until November&nbsp;22, 2012, U.S. Filter will, and United States Filter
Corporation will cause U.S. Filter to maintain U.S. Filter&#146;s corporate
existence and ensure that U.S. Filter has sufficient funds to pay any and all
of its debts and other obligations, including liabilities retained by U.S.
Filter and its indemnification obligations, as and when they become due. In
addition, Veolia Environnement (&#147;Veolia,&#148; formerly Vivendi Environnement S.A.)
has guaranteed all obligations of United States Filter Corporation and U.S.
Filter under the asset purchase agreement, including the indemnity discussed
above, up to an aggregate of $50.0&nbsp;million for a period ending November&nbsp;22,
2017. Historically, courts have not held the acquirer of an entity&#146;s assets
liable for liabilities that are not assumed as part of the transaction unless
the asset buyer is found to be a &#147;successor&#148; to the asset seller. Accordingly,
we could become subject to asbestos liabilities in the future to the extent we
are found to be a successor to U.S. Filter and to the extent U.S. Filter,
United States Filter Corporation and Veolia are unable to fulfill their
contractual obligations.


<P align="left" style="font-size: 10pt"><B>Legal Proceedings</B>


<P align="left" style="font-size: 10pt">In addition to those items disclosed under &#147;&#151;Environmental Matters,&#148; we are
from time to time involved in litigation incidental to the conduct of our
business. We believe that no litigation currently pending against us, if
adversely determined, would have a material adverse effect on our financial
position or results of operations.



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<DIV align="left">
<A name="109"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Management</B>


<P align="left" style="font-size: 10pt">The following table sets forth certain information with respect to persons who
are directors and executive officers of National Waterworks and certain other
key employees:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="37%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="50%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Age</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Position</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>Executive Officers</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Harry K. Hornish, Jr.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">58</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">President, Chief Executive Officer and
Director</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mechelle Slaughter
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">47</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Financial Officer</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Terry Howell
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">40</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Information Officer</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">J. L. Walker
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">57</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President &#151; Human Resources</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Phil Keipp
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">42</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President &#151; Controller</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>Other Key Employees</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Rob Hickson
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">56</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President &#151; Midwest Region</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ed Maczko
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">56</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President &#151; Southwest Region</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ron Hood
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">58</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President &#151; Pacific Region</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Jerry Webb
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">45</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President &#151; Southeast Region</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Irving Welchons III
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">55</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President &#151; Mid-South Region</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Jack Schaller
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">48</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Vice President &#151; Mid-Continent Region</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Jack Olson
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">53</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director &#151; IT</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px"><I>Non-Employee Directors</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Todd M. Abbrecht
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">35</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Anthony J. DiNovi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">41</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Stephen V. McKenna
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">35</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Paul M. Meister
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">51</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">C. Dean Metropoulos
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">57</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Stephen P. Murray
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">41</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kevin G. O&#146;Brien
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">38</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Soren L. Oberg
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">33</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Director</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt"><I>Harry K. Hornish, Jr. </I>has been National Waterworks&#146; President, Chief Executive
Officer and a director since November&nbsp;22, 2002. Prior thereto Mr.&nbsp;Hornish was
President and Chief Operating Officer of U.S. Filter since February&nbsp;1998.
Previously, Mr.&nbsp;Hornish served as U.S. Filter&#146;s Executive Vice President since
its inception in 1996. Prior to that, Mr.&nbsp;Hornish was President and Chief
Executive Officer of The Utility Supply Group, Inc., which was acquired by U.S.
Filter in 1996, after it was spun-off from CertainTeed Corporation in 1994. Mr.
Hornish was employed by CertainTeed Corporation from 1987 to 1994, where he
held executive positions in both the Building Materials and the Utility Supply
divisions. His early career included several sales, marketing, and senior
management positions with the distribution division of Owens Corning
Fiberglass. Mr.&nbsp;Hornish received a B.A. degree in political science from
Marshall University.


<P align="left" style="font-size: 10pt"><I>Mechelle Slaughter </I>has been National Waterworks&#146; Chief Financial Officer since
November&nbsp;22, 2002. Prior thereto, she held the same position with U.S. Filter
since 1996. Previously, Ms.&nbsp;Slaughter was CFO of The Utility Supply Group,
Inc., since its inception in 1994. U.S. Filter acquired The Utility Supply
Group, Inc. in 1996. Ms.&nbsp;Slaughter was employed by CertainTeed Corporation from
1980 to 1994, where she held various management positions in accounting and
auditing for both the Building Materials and the Utility Supply divisions. Ms.
Slaughter received a B.S. degree in accounting from Tarleton State University
and is a Certified Public Accountant.


<P align="left" style="font-size: 10pt"><I>Terry Howell </I>has been National Waterworks&#146; Chief Information Officer since
November&nbsp;22, 2002. Prior thereto, he served as Vice President of Marketing &#038;
System Operations with U.S. Filter since its inception in 1996. Mr.&nbsp;Howell
served in various staff positions with U.S. Filter&#146;s predecessor, Davis Water &#038;
Waste Industries, Inc. At that company, he served as Manager of Plant Sales,
Operations Analyst, IT Manager, and finally as Marketing Manager, where he was
part of a four person management team directly responsible for the operations
and sales of 25 branches. He joined Davis Water &#038; Waste, Industries, Inc. in
1991 after serving six



<P align="center" style="font-size: 10pt">40
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">years as a decorated Commissioned Officer in the U.S. Navy. Mr.&nbsp;Howell received
a degree from the US Naval Academy in 1985 in Applied Science &#151; Computer
Programming and training as a Gas Turbine Engineer.


<P align="left" style="font-size: 10pt"><I>J.L. Walker </I>has been National Waterworks&#146; Vice President of Human Resources
since November&nbsp;22, 2002. Prior thereto he held the same position with U.S.
Filter since its inception in 1996. Prior to that, Mr.&nbsp;Walker held the same
position with The Utility Supply Group, Inc. since its inception in 1994. Mr.
Walker was employed by CertainTeed Corporation from 1980 to 1994, where he held
various management positions in Human Resources for both the Building Materials
and the Utility Supply divisions. Mr.&nbsp;Walker&#146;s experience also includes ten
years in various manufacturing positions and service in the U.S. Navy. Mr.
Walker received a B.A. degree from Georgia State University.


<P align="left" style="font-size: 10pt"><I>Phil Keipp </I>has been National Waterworks&#146; Vice President&#151;Controller since
November&nbsp;22, 2002. Prior thereto, he held the same position with U.S. Filter
since 1998. Previously, Mr.&nbsp;Keipp was Chief Financial Officer with Sidener
Supply Company, which U.S. Filter acquired in 1997. Prior to that, Mr.&nbsp;Keipp
was with KPMG from 1986 to 1996 where he was a Senior Manager in the firm&#146;s
Manufacturing, Retail and Distribution Practice. Mr.&nbsp;Keipp received a B.S.
degree in Business Administration with an emphasis in accounting from
Lindenwood University. He also attended the University of Missouri in St. Louis
and is a Certified Public Accountant.


<P align="left" style="font-size: 10pt"><I>Rob Hickson </I>has been National Waterworks&#146; Vice President&#151;Midwest Region since
November&nbsp;22, 2002. Prior thereto, he held the same position with U.S. Filter
since 1996. Previously, Mr.&nbsp;Hickson held Regional Vice President positions with
WaterPro Supplies Corporation from 1990 until U.S. Filter acquired it in 1996.
Mr.&nbsp;Hickson has been employed in the waterworks industry since 1972. Mr.
Hickson attended Clemson University and Francis Marion University.


<P align="left" style="font-size: 10pt"><I>Edward E. Maczko, Jr. </I>has been National Waterworks&#146; Vice President&#151;Southwest
Region since November&nbsp;22, 2002. Prior thereto, he held the same position with
U.S. Filter since 1999. Prior to that, Mr.&nbsp;Maczko served as the District
Manager for Arizona. Mr.&nbsp;Maczko held a similar position with The Utility Supply
Group, Inc. from 1990 until U.S. Filter acquired it in 1996. He has been
employed in the waterworks industry since 1971 and received a B.S. degree in
business from Northeastern University.


<P align="left" style="font-size: 10pt"><I>Ron Hood </I>has been National Waterworks&#146; Vice President&#151;Pacific Region since
November&nbsp;22, 2002. Prior thereto, he held the same position with U.S. Filter
since 1996. Mr.&nbsp;Hood served in the same position with The Utility Supply Group,
Inc. until U.S. Filter acquired it in 1996. There he also held various branch
and district management positions from 1990 until 1995. Mr.&nbsp;Hood had been
employed by manufacturing and distribution companies in the waterworks industry
since 1966 and attended Fullerton Jr. College.


<P align="left" style="font-size: 10pt"><I>Jerry L. Webb </I>has been National Waterworks&#146; Vice President&#151;Southeast Region
since November&nbsp;22, 2002. Prior thereto, he held the same position with U.S.
Filter since 1997. Previously, Mr.&nbsp;Webb served as National Sales Manager of the
distribution division of U.S. Filter&#146;s predecessor, Davis Water &#038; Waste
Industries, Inc. since 1995. Mr.&nbsp;Webb previously held various management
positions with Davis companies from 1988 to 1995. He has been employed in the
waterworks industry since 1981 and received a B.B.A. degree in accounting from
Valdosta State University.


<P align="left" style="font-size: 10pt"><I>Irving B. Welchons III </I>has been National Waterworks&#146; Vice President&#151;Mid-South
Region since November&nbsp;22, 2002. Prior thereto, he held the same position with
U.S. Filter since 1996. Previously, Mr.&nbsp;Welchons served as Regional Manager of
WaterPro Supplies Corporation from 1991 until it was acquired by U.S. Filter in
1996. Prior to that, Mr.&nbsp;Welchons held various positions in the waterworks
distribution industry since 1972. Mr.&nbsp;Welchons attended Virginia Polytechnic
Institute and State University.


<P align="left" style="font-size: 10pt"><I>Jack Schaller </I>has been National Waterworks&#146; Vice President&#151;Mid-Continent Region
since November&nbsp;22, 2002. Prior thereto, he held the same position with U.S.
Filter since 1997. Previously, Mr.&nbsp;Schaller served as President of Sidener
Supply Company from 1996 until it was acquired by U.S. Filter in 1997. From
1984 to 1997, Mr.&nbsp;Schaller held numerous positions with Sidener Supply Company,
including branch manager of three locations and director of implementation for
a new computer system. Mr.&nbsp;Schaller has been employed in the waterworks
industry since 1979 and received a degree in Forest Management from the
University of Missouri and a Master&#146;s degree in Business Management from
Webster University.


<P align="left" style="font-size: 10pt"><I>Jack Olson </I>has been National Waterworks&#146; Director of Information Technology
since November&nbsp;22, 2002. Prior thereto, he held the same position with U.S.
Filter since 1996. From 1994 to 1996, Mr.&nbsp;Olson served as Director of
Information Technology of U.S. Filter&#146;s predecessor, Davis Water &#038; Waste
Industries, Inc. Prior to that, Mr.&nbsp;Olson held the position of Systems Engineer
and Instructor with IBM from 1977 to 1994. Mr.&nbsp;Olson received a B.A. degree in
Mathematics from Southwest Minnesota State University and a M.S. degree in
Mathematics from the University of Idaho.



<P align="center" style="font-size: 10pt">41
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt"><I>Todd M. Abbrecht </I>became a director of National Waterworks on November&nbsp;22, 2002.
Mr.&nbsp;Abbrecht is a Managing Director of Thomas H. Lee Partners, which he joined
in 1992. Prior to joining the firm, Mr.&nbsp;Abbrecht was in the mergers and
acquisitions department of Credit Suisse First Boston. Mr.&nbsp;Abbrecht is a
director of Affordable Residential Communities, Inc., Michael Foods, Inc., and
Simmons Company.


<P align="left" style="font-size: 10pt"><I>Anthony J. DiNovi </I>became a director of National Waterworks on November&nbsp;22,
2002. Mr.&nbsp;DiNovi has been employed by Thomas H. Lee Partners, L.P. and its
predecessor Thomas H. Lee Company since 1988 and currently serves as Managing
Director. Mr.&nbsp;DiNovi is currently a director of American Media, Inc., Endurance
Specialty Insurance, Ltd., Eye Care Centers of America, Inc., Fisher Scientific
International, Inc., FairPoint Communications, Inc., Michael Foods, Inc., US
LEC Corporation, Vertis, Inc., as well as several private companies.


<P align="left" style="font-size: 10pt"><I>Stephen V. McKenna </I>became a director of National Waterworks on November&nbsp;22,
2002. Mr.&nbsp;McKenna is a Principal of J.P. Morgan Partners, LLC. Prior to joining
J.P. Morgan Partners, LLC in 2000, Mr.&nbsp;McKenna worked in the Investment Banking
Division at Morgan Stanley &#038; Co. Prior to joining Morgan Stanley &#038; Co. in 1999,
Mr.&nbsp;McKenna worked in the Mergers &#038; Acquisitions Group at J.P. Morgan &#038; Co.
from 1996. Currently, he serves as a director of Interline Brands, Inc., as
well as several private companies.


<P align="left" style="font-size: 10pt"><I>Paul M. Meister </I>became a director of National Waterworks on November&nbsp;22, 2002.
Mr.&nbsp;Meister currently serves as Vice Chairman of the board of directors of
Fisher Scientific International, Inc. and General Chemical Inc. Mr.&nbsp;Meister is
also a Managing Director of Latona Associates, a merchant banking firm. Mr.
Meister also serves as a director of M&#038;F Worldwide Corp and Procure Net, Inc.


<P align="left" style="font-size: 10pt"><I>C. Dean Metropoulos </I>became a director of National Waterworks on November&nbsp;22,
2002. Mr.&nbsp;Metropoulos is Chairman and CEO of C. Dean Metropoulos &#038; Company, a
boutique acquisition and management firm with offices in New York, Greenwich,
Connecticut and London. C. Dean Metropoulos &#038; Co. has been involved in more
than 45 acquisitions involving over $12&nbsp;billion in invested capital over the
past 12&nbsp;years.


<P align="left" style="font-size: 10pt"><I>Stephen P. Murray </I>has been a director of National Waterworks since its
incorporation in September&nbsp;2002. Mr.&nbsp;Murray is a Partner of J.P. Morgan
Partners, LLC. Prior to joining J.P. Morgan Partners, LLC in 1984, Mr.&nbsp;Murray
was a Vice President with the Middle-Market Lending Division of Manufacturers
Hanover Trust Company. Currently, he serves as a director of Strongwood
Holdings, The International Cornerstone Group, La Petite Academy, Zoots,
Cabela&#146;s, Erisk, Risk Metrics Group, and Pinnacle Foods Holding Corp.


<P align="left" style="font-size: 10pt"><I>Kevin G. O&#146;Brien </I>became a director of National Waterworks on November&nbsp;22, 2002.
Mr.&nbsp;O&#146;Brien is a Principal of J.P. Morgan Partners, LLC. Prior to joining J.P.
Morgan Partners, LLC in 2000, Mr.&nbsp;O&#146;Brien was a Vice President in the High
Yield Capital Markets and High Yield Corporate Finance Groups at Chase
Securities Inc., (a predecessor of J.P. Morgan Securities, Inc.) since 1994.
Previously, he was an officer in the U.S. Navy. Currently, he serves as a
director of La Petite Academy and Pinnacle Foods Holding Corp.


<P align="left" style="font-size: 10pt"><I>Soren L. Oberg </I>became a director of National Waterworks on November&nbsp;22, 2002.
Mr.&nbsp;Oberg has been employed by Thomas H. Lee Partners, L.P. and its predecessor
Thomas H. Lee Company since 1993 and currently serves as Vice President. From
1992 to 1993, Mr.&nbsp;Oberg worked at Morgan Stanley &#038; Co., Inc. in the Merchant
Banking Division. Mr.&nbsp;Oberg is currently a director of Vertis Holdings, Inc.
and American Media, Inc., and also serves on the boards of several private
companies.


<P align="left" style="font-size: 10pt"><B>Committees of the Board of Directors</B>


<P align="left" style="font-size: 10pt">National Waterworks&#146; board of directors has a compensation committee and audit
committee. The compensation committee reviews and approves the compensation and
benefits for our employees, directors and consultants, administers our employee
benefit plans, authorizes and ratifies stock option grants and other incentive
arrangements and authorizes employment and related agreements. The members of
the compensation committee are Messrs.&nbsp;McKenna, Metropoulos and Oberg. The
audit committee is responsible for the annual appointment of our independent
auditors and reviews the scope of, and approves, all audit and non-audit
services and related fees of our independent auditors. The audit committee
also reviews with the independent auditors, among other matters, accounting
principles we will use in financial reporting, internal auditing procedures and
the adequacy of our internal auditing procedures. The members of our audit
committee are Messrs.&nbsp;Abbrecht, Meister and O&#146;Brien. Mr.&nbsp;Meister serves as the
audit committee&#146;s financial expert.


<P align="left" style="font-size: 10pt"><B>Compensation of Directors</B>




<P align="center" style="font-size: 10pt">42
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">National Waterworks&#146; directors who are also our employees or employees of our
principal stockholders will receive no additional compensation for their
service as directors. Compensation for other directors is $25,000 per annum for
collective Board and Committee service. Additionally, National Waterworks
provides payment of travel-related expenses incurred in connection with
attendance of Board and Committee meetings.


<P align="left" style="font-size: 10pt"><B>Code of Ethics</B>


<P align="left" style="font-size: 10pt">Our employee handbook contains certain standards for ethical conduct required
of our employees. We require all employees to meet our ethical standards which
include compliance with all laws while performing their job duties with high
integrity and professionalism.


<P align="left" style="font-size: 10pt">We have also adopted a Code of Ethics for our Chief Executive Officer, our
Chief Financial Officer, our Controller and all other executive officers and
other key employees. This Code of Ethics is intended to promote honest and
ethical conduct, full and accurate reporting, and compliance with all
applicable laws and regulations. A copy of our Code of Ethics is posted on our
website at www.nationalwaterworks.com.


<P align="left" style="font-size: 10pt"><B>Executive Compensation</B>


<P align="left" style="font-size: 10pt">The following table sets forth the compensation earned by National Waterworks&#146;
chief executive officer and its four other most highly compensated executive
officers during 2003 and 2002.


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="41%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Other Annual</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>All Other</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Name and Principal Position</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Salary</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Bonus</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Compensation(1)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Compensation(2)</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Harry K. Hornish, Jr.,</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">426,958</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">344,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Chief Executive Officer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">355,780</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">159,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,555,555</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Mechelle Slaughter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200,943</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">162,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Chief Financial Officer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">172,634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,510</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">935,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Terry Howell</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">150,712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">121,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Chief Information Officer</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">135,708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">563,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">J.L. Walker</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">130,589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,230</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">VP-Human Resources</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">104,512</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">129,550</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Phil Keipp</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">124,801</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,673</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">VP-Controller</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">112,698</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">129,550</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Excludes perquisites and other benefits the amount of which did
not exceed the greater of $50,000 or 10% of the employee&#146;s total
salary and bonus.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Consists of 401(k) contributions by United States Filter
Corporation and National Waterworks and the sale of company bonuses
paid by United States Filter Corporation. In April&nbsp;2002, United
States Filter Corporation entered into agreements with certain
members of management and other key employees of U.S. Filter,
including the persons listed in the executive compensation table, to
provide them with an opportunity to earn cash incentive &#147;completion
bonuses&#148; in connection with the anticipated sale of the business of
U.S. Filter. Completion bonus payments were made by United States
Filter Corporation following consummation of the Acquisition to each
employee with such an agreement, unless such individual&#146;s employment
was terminated voluntarily or for cause prior thereto. Payments by
United States Filter Corporation pursuant to these arrangements
totaled $6.2&nbsp;million, including $1,550,050, $558,050, $124,050,
$124,050 and $930,000 to Messrs.&nbsp;Hornish, Howell, Keipp and Walker,
and Ms.&nbsp;Slaughter, respectively.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt"><I>Employment Agreements. </I>National Waterworks is party to employment agreements
with Mr.&nbsp;Hornish, Ms.&nbsp;Slaughter and Mr.&nbsp;Howell providing for base salaries of
$425,000, $200,000 and $150,000, respectively, subject to annual adjustment as
determined by National Waterworks&#146; board of directors. Each of the employment
agreements provides for (i)&nbsp;a four (4)&nbsp;year term, (ii)&nbsp;a calendar year 2002
bonus equal to the amount scheduled to be paid to them under the 2002 Executive
Bonus Plan of U.S. Filter and (iii)&nbsp;in each calendar year commencing on or
after January&nbsp;1, 2003, a bonus, based on EBITDA, ranging from 10% to 100% of
base salary.


<P align="left" style="font-size: 10pt">Additionally, each of the employment agreements provides for certain severance
payments to be made if the executive&#146;s employment is terminated without
&#147;cause,&#148; due to a resignation for a &#147;good reason&#148; (each as defined in the
employment agreement), or



<P align="center" style="font-size: 10pt">43
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">involuntarily, such as a consequence of death or
disability. Following any of these events, each of Ms.&nbsp;Slaughter and Messrs.
Hornish and Howell would be entitled to receive their base salary over the
twelve (12)&nbsp;month period commencing on the date of termination, (ii)&nbsp;a pro rata
portion of any bonus earned during the calendar year in which the termination
occurs payable concurrently with other management bonuses and (iii)
reimbursement for any previously unreimbursed expenses.


<P align="left" style="font-size: 10pt">Each of the employment agreements contains a non-compete and non-solicitation
provision pursuant to which each executive agrees not to be affiliated with a
competing business during the term of the employment agreement and for a
one-year period thereafter, and not to solicit any of our employees,
consultants or customers during the term of the employment agreement and for a
three-year period thereafter.


<P align="left" style="font-size: 10pt"><I>Stock Sales and Restricted Stock Grants. </I>Mr.&nbsp;Hornish, Ms.&nbsp;Slaughter, Mr.
Howell, Mr.&nbsp;Keipp, Mr.&nbsp;Walker and certain of our other employees are parties to
executive subscription and stock purchase agreements with Holdings. Mr.&nbsp;Hornish
purchased 20,400 shares of Holdings&#146; Class&nbsp;B Common Stock, Ms.&nbsp;Slaughter
purchased 10,200 shares of Holdings&#146; Class&nbsp;B Common Stock, Mr.&nbsp;Howell purchased
2,700 shares of Holdings&#146; Class&nbsp;B Common Stock, Messrs.&nbsp;Keipp and Walker each
purchased 1,266 shares of Holdings&#146; Class&nbsp;B Common Stock, and other employees
purchased 25,266 shares of Holdings&#146; Class&nbsp;B Common Stock, in each case at a
purchase price of $50.00 per share of Class&nbsp;B Common Stock. Such shares of
Class&nbsp;B Common Stock represent, in the aggregate, 1.28% of Holdings&#146;
fully-diluted equity.


<P align="left" style="font-size: 10pt">In addition, each of Mr.&nbsp;Hornish, Ms.&nbsp;Slaughter, Mr.&nbsp;Howell, Mr.&nbsp;Keipp, Mr.
Walker and certain of our other employees purchased for nominal consideration
the conditional right to receive, in the aggregate, up to 11.75% of the
fully-diluted capital stock of Holdings, comprised of shares of Holdings&#146; Class
A Common Stock and entered into a restricted stock agreement with Holdings.
Under the restricted stock agreements, the shares of Class&nbsp;A Common Stock are
subject to three forms of vesting:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>time-based vesting over a four-year period, covering 50% of the applicable employee&#146;s shares;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>performance-based vesting based on EBITDA targets over a four-year period, covering 25% of the applicable employee&#146;s shares;
and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>performance-based vesting based on net working capital targets over a four-year period, covering 25% of the applicable
employee&#146;s shares.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">All time-based vesting shall immediately accelerate if the employee&#146;s
employment is terminated without cause within one year of a sale of Holdings or
National Waterworks and all performance-based vesting shall immediately
accelerate if Holdings or National Waterworks are sold or if there is a public
offering of equity securities of Holdings or National Waterworks, in each case,
in which the Sponsors realize a specified return on their original investment.


<P align="left" style="font-size: 10pt">In all other cases, upon termination of employment, all time-based and
performance-based vesting shall also immediately cease, subject to certain pro
rata vesting as of the date such employee is terminated, and all unvested
shares shall be subject to repurchase. In addition, all vested shares shall
also be subject to repurchase if an employee&#146;s employment is terminated for
cause. All shares subject to performance-based vesting shall automatically and
immediately vest on the eighth anniversary of the effective date of the
restricted stock agreement if the employee remains employed by us. Each
employee shall be obligated to vote unvested shares in the same manner and
proportions as the votes cast by the holders of Holdings&#146; voting capital stock
not subject to repurchase rights.


<P align="left" style="font-size: 10pt">The restricted stock agreements executed by Messrs.&nbsp;Keipp and Walker contain
non-compete and non-solicitation provisions substantially similar to those
contained in the employment agreements discussed above.


<P align="left" style="font-size: 10pt"><B>Compensation Committee Interlocks and Inside Participation</B>


<P align="left" style="font-size: 10pt">During fiscal 2003 no executive officer of National Waterworks served as a
member of the board of directors or compensation committee (or other board
committee performing similar functions) of another entity.


<P align="left" style="font-size: 10pt">The compensation committee is authorized to make recommendations to the Board
of Directors with respect to the general compensation and benefits for
executive officers. The compensation committee utilizes the same performance
appraisal form used for other National Waterworks employees to evaluate the
performance of executive officers on an annual basis. Certain executive
officers are parties to employment agreements with National Waterworks as
previously described in Employment Agreements in this section.



<P align="center" style="font-size: 10pt">44
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="110"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Security Ownership of Certain<BR>
Beneficial Owners and Management</B>


<P align="left" style="font-size: 10pt">Holdings owns 100% of our capital stock. The capital stock of Holdings is
comprised of Class&nbsp;A Common Stock and Class&nbsp;B Common Stock. The Class&nbsp;A Common
Stock and Class&nbsp;B Common Stock vote together as a single class on all matters
to be voted on by Holdings&#146; stockholders. Seventy-five percent of the holders
of Class&nbsp;B Common Stock have the right to prevent Holdings from taking certain
corporate actions, including creating, issuing or authorizing any shares of its
capital stock, redeeming any shares of its capital stock, or taking any action
that could result in its liquidation, sale or dissolution. The holders of Class
B Common Stock are entitled to receive a compounded return of 9% on the
original cost of such shares. In the event that Holdings makes a distribution,
the holders of Class&nbsp;B Common Stock have the right to receive such distribution
up to the amount of such compounded return and original cost prior to the
holders of Class&nbsp;A Common Stock receiving any part of such distribution.


<P align="left" style="font-size: 10pt">The following table sets forth information with respect to the ownership of the
capital stock of Holdings as of March&nbsp;2, 2004 by:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>each person known to own beneficially more than 5% of the common stock,</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>each of our directors,</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>each of the executive officers named in the summary compensation table above, and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all of our executive officers and directors as a group.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">Notwithstanding the beneficial ownership of common stock presented below, a
stockholders&#146; agreement governs the stockholders&#146; exercise of their voting
rights with respect to election of directors and certain other material events.
The parties to the stockholders&#146; agreement have agreed to vote their shares to
elect the board of directors as set forth therein.


<P align="left" style="font-size: 10pt">The amounts and percentages of shares beneficially owned are reported on the
basis of SEC regulations governing the determination of beneficial ownership of
securities. Under SEC rules, a person is deemed to be a &#147;beneficial owner&#148; of a
security if that person has or shares voting power or investment power, which
includes the power to dispose of or to direct the disposition of such security.
A person is also deemed to be a beneficial owner of any securities of which
that person has a right to acquire beneficial ownership within 60&nbsp;days.
Securities that can be so acquired are deemed to be outstanding for purposes of
computing such person&#146;s ownership percentage, but not for purposes of computing
any other person&#146;s percentage. Under these rules, more than one person may be
deemed to be a beneficial owner of the same securities and a person may be
deemed to be a beneficial owner of securities as to which such person has no
economic interest.


<P align="left" style="font-size: 10pt">Except as otherwise indicated in these footnotes, each of the beneficial owners
listed has, to our knowledge, sole voting and investment power with respect to
the indicated shares of common stock.


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="74%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Number of shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>of Class A and</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Class B Common</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Stock beneficially</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percent of</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name of beneficial owner</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>owned(1)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common Stock(1)</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">JPMP Capital Corp.(2)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,059,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">43.1</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Thomas H. Lee Equity Fund V, L.P. and
Co-Investment Entities(3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,059,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">43.1</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Todd M. Abbrecht(6)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,024,278</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">42.4</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Anthony J. DiNovi(6)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,024,278</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">42.4</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Paul M. Meister(7)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">C. Dean Metropoulos(8)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Stephen P. Murray(4)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,059,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">43.1</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Kevin G. O&#146;Brien(4)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,059,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">43.1</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Soren L. Oberg(5)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,020,248</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">42.3</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Stephen V. McKenna(4)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,059,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">43.1</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Harry K. Hornish, Jr.(9)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">210,759</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">4.4</TD>
    <TD nowrap>%</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">45
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="74%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Mechelle Slaughter(9)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">105,380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.2</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Terry Howell(9)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,290</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1.1</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Phil Keipp(9)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,163</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">J.L. Walker(9)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,163</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">All directors and executive officers as a group</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,516,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">94.5</TD>
    <TD nowrap>%</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="right">*</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Less than 1%</TD>
</TR>

</TABLE>



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Represents the aggregate ownership of the Class&nbsp;A and Class&nbsp;B Common
Stock of Holdings. The Class&nbsp;A Common Stock is owned only by certain
members of our senior management.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Includes 1,622,232.59 shares, 257,062.33 shares, 35,042.82 shares,
130,472.86 shares and 14,540.40 shares of Class&nbsp;B Common Stock owned by
J.P. Morgan Partners (BHCA), L.P., J.P. Morgan Partners Global Investors,
L.P., J.P. Morgan Partners Global Investors A, L.P., J.P. Morgan Partners
Global Investors (Cayman), L.P. and J.P. Morgan Partners Global Investors
(Cayman) II, L.P., respectively. JPMP Capital Corp. is the direct or
indirect general partner of each of these entities. JPMP Capital Corp. and
each of the foregoing entities is an affiliate of J.P. Morgan Partners,
LLC and has an address c/o J.P. Morgan Partners, LLC, 1221 Avenue of the
Americas, 39th Floor, New York, New York 10020.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Includes 1,586,701 shares, 411,684 shares, 21,863 shares, 12,398 shares,
10,656 shares, 9,516 shares, 2,503 shares and 4,030 shares of Class&nbsp;B
Common Stock owned by each of Thomas H. Lee Equity Fund V, L.P., Thomas H.
Lee Parallel Fund V, L.P., Thomas H. Lee Cayman Fund V, L.P.
(collectively, the &#147;THL Funds&#148;), Putnam Investments Holdings, LLC, Putnam
Investments Employees&#146; Securities Company I LLC, Putnam Investments
Employees&#146; Securities Company II LLC (collectively, the &#147;Putnam Funds&#148;),
1997 Thomas H. Lee Nominee Trust (the &#147;Lee Trust&#148;) and Thomas H. Lee
Investors Limited Partnership (&#147;Investors&#148;), respectively. The shares held
by the THL Funds may be deemed to be beneficially owned by THL Equity
Advisors V, LLC (&#147;Advisors&#148;), the general partner of each of the THL
Funds. Advisors disclaims beneficial ownership of such shares. The Putnam
Funds, the Lee Trust and Investors are co-investment entities of the THL
Funds and each disclaims beneficial ownership of any shares other than
those shares held directly by such entity. Each of the THL Funds,
Advisors, Investors and the Lee Trust has an address c/o Thomas H. Lee
Partners, L.P., 75 State Street, Suite&nbsp;2600, Boston, Massachusetts 02109.
The Putnam Funds have an address c/o Putnam Investment, Inc., 1 Post
Office Square, Boston, Massachusetts 02109.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Each of Messrs.&nbsp;Murray, McKenna and O&#146;Brien may be deemed the beneficial
owner of the shares of common stock owned by affiliates of J.P. Morgan
Partners, LLC set forth in note (2)&nbsp;due to their status as a partner or
principal of J.P. Morgan Partners, LLC, which controls such entity. Each
such person disclaims beneficial ownership of any such shares, except to
the extent of his pecuniary interest.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Mr.&nbsp;Oberg may be deemed the beneficial owner of the shares of common
stock owned by the THL Funds due to his status as an officer of Thomas H.
Lee Partners, L.P. Mr.&nbsp;Oberg disclaims beneficial ownership of
any such shares.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Each of Messrs.&nbsp;Abbrecht and DiNovi may be deemed the beneficial owner of
the shares of common stock owned by the THL Funds and Investors in their
capacity as a managing director of Thomas H. Lee Partners, L.P. Each of
Messrs.&nbsp;Abbrecht and DiNovi disclaim beneficial ownership of such shares.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Shares are owned by a limited liability company of which Mr.&nbsp;Meister is
manager.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(8)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Shares are owned by a trust for the benefit of the children of Mr.
Metropoulos.</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(9)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Each of Mr.&nbsp;Hornish, Ms.&nbsp;Slaughter, and Messrs.&nbsp;Howell, Keipp and Walker
holds 190,359 shares, 95,180 shares, 47,590 shares, 11,897 shares and
11,897 shares of Class&nbsp;A Common Stock, respectively, and 20,400 shares,
10,200 shares, 2,700 shares, 1,266 shares and 1,266 shares of Class&nbsp;B
Common Stock, respectively.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">46
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="111"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Certain Relationships and Related Party Transactions</B>



<P align="left" style="font-size: 10pt"><B>Stockholders&#146; Agreement</B>


<P align="left" style="font-size: 10pt">In connection with the Transactions, Holdings entered into a stockholders&#146;
agreement with all of its stockholders. The stockholders&#146; agreement, among
other matters:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>restricts the transfer of Holdings&#146; shares, subject to certain exceptions, and provides that all transferees must become a party to the
stockholders&#146; agreement;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>establishes a board of directors of Holdings and us consisting of nine directors, of which:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>three will be nominated by the stockholders affiliated with J.P. Morgan Partners, LLC (the &#147;JPM Directors&#148;) so long as they own
at least 25% of Holdings&#146; common stock on a fully diluted basis; or
two persons if they own less than 25% but 10% or more of Holdings&#146;
common stock, and one person if they own more than 0% but less than
10% of Holdings&#146; common stock,</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>three will be nominated by the stockholders affiliated with Thomas H. Lee Partners, L.P. (the &#147;THL Directors&#148;) so long as they
own at least 25% of Holdings&#146; common stock on a fully diluted basis;
or two persons if they own less than 25% but 10% or more of Holdings&#146;
common stock, and one person if they own more than 0% but less than
10% of Holdings&#146; common stock,</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>one will be our chief executive officer; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>two shall be nominated by the other directors including a majority of each of the JPM Directors and the THL Directors so long
as the affiliates of J.P. Morgan Partners, LLC or Thomas H. Lee
Partners, L.P., respectively, own at least 10% of Holdings&#146; common
stock on a fully-diluted basis;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>requires each stockholder of Holdings to vote all their shares for the election of the persons nominated as directors as provided above;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>prohibits Holdings from taking the following actions without the prior approval of the stockholders affiliated with each of J.P. Morgan
Partners, LLC and Thomas H. Lee Partners, L.P. so long as in each case
the stockholders affiliated with the applicable Sponsor owns at least
10% of Holdings&#146; outstanding capital stock:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>materially changing the duties of or terminating our chief executive officer, chief financial officer, chief operating officer
or chief information officer, amending or revising any employment
agreement with any such officer, or, if any such officer is
terminated, hiring a replacement for such officer;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>incurring indebtedness outside of the ordinary course of business;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>entering into agreements to acquire a controlling interest in, or all or substantially all of the assets of, another entity;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>making investments or capital expenditures, in each case in excess of $250,000 that are not included in the annual operating
budget approved by the board;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>disposing of assets outside the ordinary course of business and other than sales of fully depreciated or obsolete or surplus tangible
personal property;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>entering into transactions with affiliates subject to specified exceptions; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>effecting any changes in our strategic direction not specified in our annual strategic plan;</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">47
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>contains rights of the Class&nbsp;B stockholders and, under certain circumstances, the Class&nbsp;A stockholders to participate in transfers of
Holdings&#146; shares by stockholders to third parties;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>requires the stockholders to participate in and cooperate in consummating a sale of Holdings that is approved by stockholders holding
at least 75% of the outstanding Class&nbsp;B shares;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>grants Holdings and the stockholders affiliated with the Sponsors, including certain of their affiliates, certain rights of first refusal
with respect to transfers of Holdings&#146; Class&nbsp;B shares to third parties
by Class&nbsp;B stockholders other than those affiliated with the Sponsors
and grants the stockholders affiliated with a Sponsor certain rights of
first refusal with respect to transfers of Holdings&#146; shares to third
parties by the other Sponsor;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>grants the holders of Class&nbsp;B Common Stock certain preemptive rights; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>requires each stockholder of Holdings (other than stockholders affiliated with the Sponsors) to grant an irrevocable proxy to our chief
executive officer, to vote all such stockholder&#146;s shares in order to
effectuate the provisions of the stockholders agreement.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">Prior to an initial public offering of capital stock of Holdings, the
stockholders&#146; agreement provides that Holdings will be required to redeem each
issued and outstanding share of its Class&nbsp;B Common Stock for:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the unreturned original cost and unpaid yield upon such shares to the date of the closing of the initial public offering, which may be paid in
cash, to the extent contractually permitted, or short-term securities,
or a combination thereof, as may be reasonably acceptable to holders of
75% of the Class&nbsp;B Common Stock then outstanding plus;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>one share of its Class&nbsp;A Common Stock.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">The stockholders&#146; agreement will terminate upon the sale, dissolution or
liquidation of Holdings.


<P align="left" style="font-size: 10pt"><B>Registration Rights Agreement</B>


<P align="left" style="font-size: 10pt">In connection with the Transactions, Holdings entered into a registration
rights agreement with the holders of Class&nbsp;B Common Stock. The registration
rights agreement, among other matters, provides for the following, subject to
certain customary limitations:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Demand registration. </I>At any time following the effective date of a registration statement filed by Holdings with respect to an initial
public offering of its capital stock, at the request of stockholders of
Holdings affiliated with a Sponsor, Holdings will be required to use its
best efforts to register the common shares, including shares convertible
or exercisable for common shares, of Holdings held by such requesting
stockholders under the Securities Act provided that the anticipated
aggregate offering price to the public is at least $25&nbsp;million. The
registration rights agreement provides for up to three demand registrations on Form S-1 for each Sponsor and its affiliates who are
stockholders of Holdings.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Piggyback registration. </I>If Holdings proposes to register any of its shares for its own account or otherwise, it must give written notice to
each of its Class&nbsp;B stockholders of its intention to register and upon
written request, Holdings must use its best efforts to cause all requested shares to be included in such registration on the same terms
and conditions as the securities otherwise being sold, subject to
standard cutback and other customary restrictions.</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Registration on </I><I>Form S-3</I><I>. </I>If Holdings will have qualified for the use of Form S-3, the stockholders affiliated with a Sponsor will have the
unlimited right to request that Holdings effect a registration under the
Securities Act using Form S-3. Holdings will not be obligated to effect
any such registration if the anticipated gross offering price of all shares to be registered would be less than $10,000,000 or if Holdings
will have effected four or more registration statements on Form S-3
during the 12-month period prior to the date of such request for
registration.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">In addition, the registration rights agreement provides for the payment by
Holdings of all of the fees and expenses of any registration provided for in
such agreement, including the attorney&#146;s fees for the selling stockholders but
excluding underwriting discounts and selling commissions which shall be borne
by the selling stockholders on a pro rata basis. The registration rights
agreement also contains standard indemnification provisions customary in an
agreement of this type from Holdings to the selling stockholders.



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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="font-size: 10pt"><B>Arrangement with Sponsors</B>


<P align="left" style="font-size: 10pt">In connection with the Transactions, we entered into a management agreement
with the Sponsors. Under this agreement, the Sponsors agreed to provide us with
financial advisory and other services. We will pay each Sponsor an annual
management fee in the amount of $0.5&nbsp;million, or $1.0&nbsp;million in the aggregate,
commencing July&nbsp;1, 2004. We will pay this fee quarterly in advance. We will
also reimburse the Sponsors for all expenses incurred by them in connection
with the agreement. The management agreement also contains standard
indemnification provisions for agreements of this type. The management
agreement may be terminated by a Sponsor with respect to that Sponsor only, or
by mutual consent of the Sponsors, at any time on 30&nbsp;days notice, and will
terminate with respect to a Sponsor on the date such Sponsor owns less than 5%
of the capital stock of Holdings that it purchased on the closing date of the
Acquisition. In addition, the management agreement may be terminated with
respect to a Sponsor in connection with an IPO or a change in law, occurrence
or event which causes the existence of the management agreement to render any
of the directors designated by a Sponsor an &#147;interested&#148; or not otherwise
independent director or adversely affects such Sponsor&#146;s right to designate a
director or such director&#146;s ability to perform his duties as director. In such
event, such Sponsor will be entitled to receive a termination fee equal to the
net present value of the fees which would have been paid to the Sponsor for the
10&nbsp;year period commencing on the date of termination.


<P align="left" style="font-size: 10pt">In addition, upon consummation of the Transactions, we paid each Sponsor a
transaction fee in the amount of $8.0&nbsp;million ($16.0&nbsp;million in the aggregate).
We also paid all expenses of the Sponsors and their controlled affiliates,
including the fees and expenses of their respective counsel and other advisors
and consultants, in connection with the Acquisition. These arrangements with
the Sponsors also contain standard indemnification provisions by us of the
Sponsors.


<P align="left" style="font-size: 10pt"><B>Arrangements with Affiliates of J.P. Morgan Partners, LLC</B>


<P align="left" style="font-size: 10pt">In connection with the Transactions, we entered into the senior credit facility
with J.P. Morgan Securities Inc. as a co-syndication agent and as a joint lead
arranger and Chase Lincoln First Commercial Corp., an affiliate of JPMorgan
Chase Bank, as a lender. J.P. Morgan Securities Inc. was also an initial
purchaser of the notes. Both J.P. Morgan Securities Inc. and Chase Lincoln
First Commercial Corp. are affiliates of J.P. Morgan Partners, LLC. In
connection with the senior credit facility and amendments thereto, J.P. Morgan
Securities Inc. and Chase Lincoln First Commercial Corp. received customary
fees for acting in such capacities. J.P. Morgan Securities Inc. was also paid
customary underwriting fees in connection with the offering of the notes.


<P align="left" style="font-size: 10pt"><B>Tax Allocation Agreement with Holdings</B>


<P align="left" style="font-size: 10pt">We will file Federal income tax returns with Holdings on a consolidated basis.
At closing of the Transactions, we entered into a tax allocation agreement with
Holdings which provides that we will make distributions to Holdings, and it
will make contributions to us, such that we will incur the expense for taxes
generated by our business on the same basis as if we did not file consolidated
tax returns.



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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="112"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Description of Certain Indebtedness</B>



<P align="left" style="font-size: 10pt"><B>General</B>


<P align="left" style="font-size: 10pt">On the closing date of the Transactions, Holdings and National Waterworks
entered into a senior credit facility with J.P. Morgan Securities Inc. and
Goldman Sachs Credit Partners L.P. as joint lead arrangers, joint bookrunners
and co-syndication agents, UBS AG, Stamford Branch, as administrative agent,
and certain banks and financial institutions as lenders. On August&nbsp;7, 2003 and
December&nbsp;2, 2003 the senior credit facility was amended, and the description
set forth below describes the senior credit facility as so amended.


<P align="left" style="font-size: 10pt">The senior credit facility consists of



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a $75.0&nbsp;million senior secured revolving credit facility that matures on November&nbsp;22, 2008; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a $250.0&nbsp;million senior secured term loan facility that matures on November&nbsp;22, 2009, all of which was borrowed to finance the Acquisition
(and was subsequently refinanced pursuant in August&nbsp;2003).</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">Our senior credit facility permits us to issue up to an additional $100.0
million of credit facilities without the consent of the existing lenders
thereunder, so long as no default or event of default under the senior credit
facility has occurred and is continuing or would occur after giving effect to
such issuance and certain other conditions are satisfied, including pro forma
compliance with certain senior leverage ratios.



<P align="left" style="font-size: 10pt"><B>Security and Guarantees</B>


<P align="left" style="font-size: 10pt">Our obligations under the senior credit facility are unconditionally and
irrevocably guaranteed jointly and severally by Holdings and each of Holdings&#146;
and our respective future domestic and, to the extent no material adverse tax
consequences would result, foreign subsidiaries, if any. We do not currently
have any subsidiaries.


<P align="left" style="font-size: 10pt">Our obligations under the senior credit facility, and the guarantees of those
obligations, are secured by substantially all of our and Holdings&#146; assets and
substantially all of the assets of each of Holdings&#146; and our future domestic
and, to the extent no material adverse tax consequences would result, foreign
subsidiaries, if any, including but not limited to:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a first priority pledge of 100% of our capital stock and 100% of the capital stock of each of Holdings&#146; and our future domestic and, to the
extent no material adverse tax consequences would result, foreign
subsidiaries, if any; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a perfected first-priority security interest in substantially all tangible and intangible assets of Holdings, us and each of Holdings&#146; and
our future domestic and, to the extent no material adverse tax
consequences would result, foreign subsidiaries, if any.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt"><B>Interest Rates and Fees</B>


<P align="left" style="font-size: 10pt">Borrowings under the senior credit facility bear interest as follows:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Revolving credit facility: </I>(a)&nbsp;in the case of loans with an interest rate based on the ABR rate, an applicable margin of 2.00% per annum plus
the higher of (1)&nbsp;UBS AG, Stamford Branch&#146;s prime rate and (2)&nbsp;the
federal funds effective rate plus 0.5% or (b)&nbsp;in the case of loans with
an interest rate based on the Eurodollar rate, the Eurodollar rate plus
an applicable margin of 3.00% per annum. Such applicable margins are
currently subject to reduction if we attain certain leverage ratios; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>Term loan facility: </I>(a)&nbsp;in the case of loans with an interest rate based on the ABR rate, an applicable margin of 1.75% per annum plus the
higher of (1)&nbsp;UBS AG, Stamford Branch&#146;s prime rate and (2)&nbsp;the federal
funds effective rate plus 0.5% or (b)&nbsp;in the case of loans with an
interest rate based on the Eurodollar rate, the Eurodollar rate plus an
applicable margin of 2.75% per annum.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">The senior credit facility provides for the payment to the lenders of a
commitment fee on average unused commitments under the revolving credit
facility initially equal to 0.5% per annum. Such commitment fee is currently
subject to reduction if we attain certain leverage ratios.



<P align="center" style="font-size: 10pt">50
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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="font-size: 10pt"><B>Scheduled Amortization Payments and Mandatory Prepayments</B>


<P align="left" style="font-size: 10pt">The term loan facility provides for quarterly amortization payments of $3.75
million in 2004 and 2005, $5.0&nbsp;million in 2006, $6.25&nbsp;million in 2007 and 2008,
with the balance of the facility to be repaid quarterly and at maturity during
2009.


<P align="left" style="font-size: 10pt">In addition, the senior credit facility requires us to prepay outstanding term
loans and, after the term loans have been repaid in full, to prepay outstanding
revolving credit loans, subject to certain exceptions, with:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>100% of the net cash proceeds of certain asset dispositions or insurance recoveries by us, Holdings or our and Holdings&#146; respective
subsidiaries which are not reinvested in our business within twelve
months of the disposition or recovery, as applicable;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>75% of the net cash proceeds of equity issued by us or our subsidiaries in a public offering or in a private placement that is
underwritten, placed or initially purchased by one or more investment
banks;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>75% of Excess Cash Flow (as defined in the Credit Agreement), determined generally as the amount by which our operating cash flow
exceeds the sum of our capital expenditures (including in respect of
permitted acquisitions), repayments of indebtedness and certain other
amounts; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>100% of the net cash proceeds of debt issuances by us, Holdings or Holdings&#146; and our respective subsidiaries other than debt permitted to
be incurred by us, Holdings or Holdings&#146; and our respective subsidiaries
under the limitation on debt covenant of the senior credit facility.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">The prepayment percentage above with respect to equity issuances and excess
cash flow will be reduced to 50% if our ratio of consolidated total debt to
consolidated EBITDA as of the last day of the applicable fiscal year is not
greater than 4.0 to 1.0.



<P align="left" style="font-size: 10pt"><B>Voluntary Prepayments</B>


<P align="left" style="font-size: 10pt">The senior credit facility provides for voluntary prepayments of the loans and
voluntary reductions of the unutilized portion of the commitments under the
revolving credit facility, subject to certain conditions and without premium or
penalty, subject to customary breakage costs in the case of Eurodollar loans.


<P align="left" style="font-size: 10pt"><B>Covenants</B>


<P align="left" style="font-size: 10pt">Our senior credit facility contains financial, affirmative and negative
covenants that we believe are usual and customary for a senior secured credit
agreement. The negative covenants in the senior credit facility include, among
other things, limitations, each of which are subject to standard and customary
exceptions for financings of this type and certain other exceptions, on
Holdings&#146;, our and Holdings&#146; and our respective subsidiaries&#146;, if any, ability
to:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>declare dividends and make other distributions;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>redeem and repurchase our capital stock;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>prepay, redeem and repurchase certain of our indebtedness, including the notes;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>make loans and investments, including acquisitions;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>incur additional indebtedness;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>grant liens;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>enter into sale-leaseback transactions;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>modify the terms of the notes or certain capital stock;</TD>
</TR>

</TABLE>


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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>restrict dividends from our subsidiaries;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>enter into new lines of business;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>recapitalize, merge, consolidate or enter into acquisitions;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>sell our assets; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>enter into transactions with our affiliates.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">Our senior credit facility also requires that we maintain:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a ratio of consolidated total debt to consolidated EBITDA of not more than (i)&nbsp;5.75 to 1.0 as of the last day of any period of four
consecutive fiscal quarters ending on or prior to September&nbsp;30, 2004 and
(ii)&nbsp;5.0 to 1.0 as of the last day of any period of four consecutive
fiscal quarters ending after September&nbsp;30, 2004 and on or prior to
September&nbsp;30, 2005, which 5.0 to 1.0 maximum leverage ratio shall be
decreased to 4.75 to 1.0 on December&nbsp;31, 2005 and by 0.25 on December&nbsp;31
of each year thereafter; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a ratio of consolidated EBITDA to consolidated interest expense of not less than (i)&nbsp;2.0 to 1.0 for any period of four consecutive fiscal
quarters ending on or prior to September&nbsp;30, 2004 (ii)&nbsp;2.15 to 1.0 for
any period of four consecutive fiscal quarters ending after September
30, 2004 and on or prior to September&nbsp;30, 2005, (iii)&nbsp;2.25 to 1.0 for
any period of four consecutive fiscal quarters ending after September
30, 2005 and on or prior to September&nbsp;30, 2006, (iv)&nbsp;2.35 to 1.0 for any
period of four consecutive fiscal quarters ending after September&nbsp;30,
2006 and on or prior to September&nbsp;30, 2007 and (v)&nbsp;2.50 to 1.0 for any
period of four consecutive fiscal quarters ending thereafter.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">In addition, the senior credit facility prohibits us from making capital
expenditures in excess of $5&nbsp;million in the ordinary course of business in any
fiscal year, except that amounts not expended in any fiscal year may be carried
over to the next succeeding fiscal year only. In the event we make specified
permitted acquisitions, the foregoing amount will be increased by an amount
equal to 1% of the net sales of the acquired business for the four quarters
immediately preceding the date of acquisition.



<P align="left" style="font-size: 10pt"><B>Events of Default</B>


<P align="left" style="font-size: 10pt">Our senior credit facility contains certain customary events of default with
respect to Holdings, us and each of our subsidiaries, including, among others:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>nonpayment of principal or interest under the senior credit facility;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>breach of the affirmative or negative covenants;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>material breach of the representations or warranties;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>cross-default and cross-acceleration to other material indebtedness;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>bankruptcy or insolvency;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>material judgments entered against Holdings, us or any of our subsidiaries;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>certain ERISA violations;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>actual or asserted invalidity of the security documents or guarantees associated with the senior credit facility;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a change in control, as described in the senior credit facility;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>engagement by Holdings, in any activity other than that associated with being a passive holding company; and</TD>
</TR>

</TABLE>


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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>if the notes cease to be validly subordinated to the senior credit facility.</TD>
</TR>

</TABLE>


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<DIV align="left">
<A name="113"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Description of Notes</B>


<P align="left" style="font-size: 10pt">You can find the definitions of certain terms used in this description under
the subheading &#147;&#151;Certain Definitions.&#148; In this description, &#147;National
Waterworks&#148; refers only to National Waterworks, Inc. and not to any of its
Subsidiaries.


<P align="left" style="font-size: 10pt">On November&nbsp;22, 2002, we issued $200,000,000 aggregate principal amount of
notes under an indenture dated as of November&nbsp;22, 2002, by and among National
Waterworks and Wells Fargo Bank Minnesota, National Association, as trustee. A
copy of the indenture has been filed as an exhibit to the registration
statement of which this prospectus forms a part. The terms of the notes include
those stated in the indenture and those made part of the indenture by reference
to the Trust Indenture Act of 1939, as amended.


<P align="left" style="font-size: 10pt">The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders of the notes. A copy of the indenture has been filed as an exhibit to
the registration statement of which this prospectus forms a part. Certain
defined terms used in this description but not defined below under &#147;&#151;Certain
Definitions&#148; have the meanings assigned to them in the indenture.


<P align="left" style="font-size: 10pt">The registered Holder of a note will be treated as the owner of it for all
purposes. Only registered Holders will have rights under the indenture.


<P align="left" style="font-size: 10pt"><B>Brief Description of the Notes and the Guarantees</B>


<P align="left" style="font-size: 10pt"><B>The Notes</B>


<P align="left" style="font-size: 10pt">The notes are:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>general unsecured obligations of National Waterworks;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>subordinated in right of payment to all existing and future Senior Debt of National Waterworks;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>pari passu </I>in right of payment with any future senior subordinated Indebtedness of National Waterworks; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>senior in right of payment to any future subordinated Indebtedness of National Waterworks.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt"><B>The Guarantees</B>


<P align="left" style="font-size: 10pt">The notes will be guaranteed by all of National Waterworks&#146; Domestic
Subsidiaries. As of the date of this prospectus, National Waterworks does not
have any Subsidiaries.


<P align="left" style="font-size: 10pt">Each guarantee of the notes will be:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a general unsecured obligation of the Guarantor;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>subordinated in right of payment to all existing and future Senior Debt of that Guarantor;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><I>pari passu </I>in right of payment with any future senior subordinated Indebtedness of that Guarantor; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>senior in right of payment to any future subordinated Indebtedness of the Guarantor.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">As of December&nbsp;31, 2003, National Waterworks had total debt outstanding,
excluding the notes, of approximately $240.0&nbsp;million, and approximately $75.0
million was available to National Waterworks for additional borrowings under
its credit facility, all of which would constitute Senior Debt ranking ahead of
the notes. A portion of the revolving credit facility was also used to support
outstanding letters of credit. As indicated above and as discussed in detail
below under the caption &#147;&#151;Subordination,&#148; payments on the notes and under the
guarantees will be subordinated to the payment of Senior Debt. The indenture
will permit both National Waterworks and the Guarantors to incur additional
Senior Debt.



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<P align="left" style="font-size: 10pt">As of the date of this prospectus, National Waterworks does not have any
Subsidiaries. All of National Waterworks&#146; future Subsidiaries will be
&#147;Restricted subsidiaries,&#148; except that under the circumstances described below
under the subheading &#147;&#151;Certain covenants&#151;Designation of restricted and
unrestricted subsidiaries,&#148; National Waterworks will be permitted to designate
certain of its Subsidiaries as &#147;Unrestricted Subsidiaries.&#148; National
Waterworks&#146; Unrestricted Subsidiaries, if any exist in the future, will not be
subject to many of the restrictive covenants in the indenture, and they will
not guarantee the notes.



<P align="left" style="font-size: 10pt"><B>Principal, Maturity and Interest</B>


<P align="left" style="font-size: 10pt">$200.0&nbsp;million aggregate principal amount of notes are outstanding under the
indenture. National Waterworks may issue additional notes from time to time.
Any issuance of additional notes will be subject to the covenant described
below under the caption &#147;&#151;Certain covenants&#151; Incurrence of Indebtedness and
Issuance of Preferred Stock.&#148; The notes, together with any additional notes
subsequently issued under the indenture rank equally and shall be treated as a
single class for all purposes under the indenture, including, without
limitation, waivers, amendments, redemptions and offers to purchase. National
Waterworks will issue notes in denominations of $1,000 and integral multiples
of $1,000. The notes will mature on December&nbsp;1, 2012.


<P align="left" style="font-size: 10pt">Interest on the notes accrues at the rate of 10.50% per annum and is payable
semi-annually in arrears on June 1 and December 1. National Waterworks will
make each interest payment to the Holders of record on the immediately
preceding May&nbsp;15 and November&nbsp;15. Interest on the notes accrues from the date
it was most recently paid. Interest is computed on the basis of a 360-day year
comprised of twelve 30-day months.



<P align="left" style="font-size: 10pt"><B>Methods of Receiving Payments on the Notes</B>


<P align="left" style="font-size: 10pt">If a Holder owning at least $5.0&nbsp;million in principal amount of notes has given
wire transfer instructions to National Waterworks, National Waterworks will pay
all principal, interest and premium, if any, on that Holder&#146;s notes in
accordance with those instructions. All other payments on notes will be made at
the office or agency of the paying agent and registrar within the City and
State of New York (which will initially be the corporate trust office of the
trustee) unless National Waterworks elects to make interest payments by check
mailed to the Holders at their address set forth in the register of Holders.



<P align="left" style="font-size: 10pt"><B>Paying Agent and Registrar for the Notes</B>


<P align="left" style="font-size: 10pt">The trustee will initially act as paying agent and registrar for the notes.
National Waterworks may change the paying agent or registrar without prior
notice to the Holders of the notes, and National Waterworks or any of its
Restricted Subsidiaries may act as paying agent or registrar.



<P align="left" style="font-size: 10pt"><B>Transfer and Exchange</B>


<P align="left" style="font-size: 10pt">A Holder may transfer or exchange notes in accordance with the indenture. The
registrar and the trustee may require a Holder to furnish appropriate
endorsements and transfer documents in connection with a transfer of notes.
Holders will be required to pay all taxes or similar government charges due on
transfer or exchange. National Waterworks is not required to transfer or
exchange any note selected for redemption except the unredeemed portion of any
note being redeemed in part. Also, National Waterworks is not required to
transfer or exchange any note for a period of 15&nbsp;days before a selection of
notes to be redeemed or between a record date and the next succeeding interest
payment date.



<P align="left" style="font-size: 10pt"><B>Subsidiary Guarantees</B>


<P align="left" style="font-size: 10pt">The notes will be guaranteed by each of National Waterworks&#146; Domestic
Subsidiaries, if any. As of the date of this prospectus, National Waterworks
does not have any Subsidiaries. Subject to the conditions described below, the
Guarantors will, jointly and severally, unconditionally guarantee on a senior
subordinated basis the performance and punctual payment when due, whether at
stated maturity, by acceleration or otherwise, of all obligations of National
Waterworks under the indenture and the notes, whether for principal, or
premium, if any, or interest on the notes or otherwise. The Guarantors will
also pay, on a senior subordinated basis and in addition to the amount stated
above, any and all expenses (including counsel fees and expenses) incurred by
the trustee under the indenture in enforcing any rights under a subsidiary
guarantee with respect to a Guarantor. Each subsidiary guarantee will be
subordinated to the prior payment in full of all Senior Debt of that Guarantor
on the same basis as the notes are subordinated to the Senior Debt of National
Waterworks. The obligations of each Guarantor under its subsidiary guarantee
will be limited as necessary to prevent that guarantee from constituting a
fraudulent conveyance under applicable law. See &#147;Risk Factors&#151; Risks Related to
the



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<P align="left" style="font-size: 10pt">Notes&#151;Federal and state fraudulent transfer laws permit a court to void the
notes and any guarantees, and, if that occurs, you may not receive any payment
on the notes.&#148;


<P align="left" style="font-size: 10pt">A Guarantor may not sell or otherwise dispose of all or substantially all of
its assets to, or consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person), another Person, other than National
Waterworks or another Guarantor, unless:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>immediately after giving effect to that transaction, no Default or
Event of Default exists; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>either:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="right">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Person acquiring the property in any such sale or
disposition or the Person formed by or surviving any such
consolidation or merger, if other than such Guarantor, assumes all
the obligations of that Guarantor under the indenture, its subsidiary
guarantee and the Exchange and Registration Rights Agreement pursuant
to a supplemental indenture satisfactory to the trustee and completes
all other required documentation; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="right">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the case of a sale or disposition constituting an Asset
Sale, the Net Proceeds of such sale or other disposition are applied
in accordance with the applicable provisions of the indenture.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">Notwithstanding the foregoing, a Restricted Subsidiary may consolidate with,
merge into or transfer all or part of its assets and properties to National
Waterworks or a Subsidiary of National Waterworks that is a Guarantor.


<P align="left" style="font-size: 10pt">The subsidiary guarantee of a Guarantor will be released:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor (including by way of
merger or consolidation or otherwise) to a Person that is not (either
before or after giving effect to such transaction) a Subsidiary of
National Waterworks, if the sale or other disposition complies with the
&#147;Asset Sale&#148; provisions of the indenture;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in connection with any sale of all of the Capital Stock of a
Guarantor to a Person that is not (either before or after giving effect
to such transaction) a Subsidiary of National Waterworks, if the sale
complies with the &#147;Asset sale&#148; provisions of the indenture;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>if National Waterworks designates any Restricted Subsidiary that is a
Guarantor as an Unrestricted Subsidiary in accordance with the
applicable provisions of the indenture;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>upon any legal defeasance in accordance with the terms of the
indenture; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>if such Guarantor is or becomes a Receivables Subsidiary.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">See &#147;&#151;Repurchase at the Option of Holders&#151;Asset Sales,&#148; &#147;&#151;Certain
Covenants&#151;Designation of Restricted and Unrestricted Subsidiaries,&#148; and &#147;&#151;Legal
Defeasance and Covenant Defeasance.&#148;



<P align="left" style="font-size: 10pt"><B>Subordination</B>


<P align="left" style="font-size: 10pt">The payment of principal, interest and premium, if any, on the notes is
subordinated to the prior payment in full of all Senior Debt of National
Waterworks, including Senior Debt incurred after the date of the indenture.


<P align="left" style="font-size: 10pt">The holders of Senior Debt will be entitled to receive payment in full of all
Obligations due in respect of Senior Debt (including interest after the
commencement of any bankruptcy proceeding at the rate specified in the
applicable Senior Debt whether or not such interest is an allowed claim in any
such proceeding) before the Holders of notes will be entitled to receive any
payment or distribution with respect to the notes (except that Holders of notes
may receive and retain Permitted Junior Securities and payments made from the
trust, if any, as described under &#147;&#151;Legal Defeasance and Covenant Defeasance&#148;),
in the event of any distribution to creditors of National Waterworks:



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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in a liquidation or dissolution of National Waterworks;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to National Waterworks or its property;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in an assignment for the benefit of creditors; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in any marshaling of National Waterworks&#146; assets and liabilities.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">National Waterworks also may not make any payment or distribution in respect of
the notes (except in the form of Permitted Junior Securities or from the trust
described under &#147;&#151;Legal Defeasance and Covenant Defeasance&#148;) and may not make
any deposits with the trustee as described under &#147;&#151;Legal Defeasance and
Covenant Defeasance&#148; if:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a payment default on Designated Senior Debt occurs and is continuing;
or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any other default occurs and is continuing on any series of
Designated Senior Debt that permits holders of that series of Designated
Senior Debt to accelerate its maturity, and the trustee receives a
notice of such default (a &#147;Payment Blockage Notice&#148;) from National
Waterworks or the Representative of any Designated Senior Debt.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">Payments on the notes may and will be resumed at the first to occur of the
following:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the case of a payment default on Designated Senior Debt, upon the
date on which such default is cured or waived; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the case of a nonpayment default on Designated Senior Debt, upon
the earlier of the date on which such nonpayment default is cured or
waived or 179&nbsp;days after the date on which the applicable Payment
Blockage Notice is received, unless the maturity of any Designated
Senior Debt has been accelerated.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">Notwithstanding the foregoing, National Waterworks may make payment on the
notes if National Waterworks and the trustee receive written notice approving
such payment from the Representative of the Designated Senior Debt with respect
to which either of the events set forth in clause (1)&nbsp;and (2)&nbsp;of this paragraph
has occurred and is continuing.


<P align="left" style="font-size: 10pt">No new Payment Blockage Notice may be delivered unless and until:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>365&nbsp;days have elapsed since the delivery of the immediately prior
Payment Blockage Notice; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all scheduled payments of principal, interest and premium, if any, on
the notes that have come due have been paid in full in cash.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">Not more than one Payment Blockage Notice may be given in any consecutive
365-day period, irrespective of the number of defaults with respect to all
Designated Senior Debt during such period, <I>provided </I>that if any Payment
Blockage Notice is delivered to the trustee by or on behalf of the holders of
Designated Senior Debt of National Waterworks (other than the holders of
Indebtedness under the Credit Agreement), a Representative of holders of
Indebtedness under the Credit Agreement may give another Payment Blockage
Notice within such period. However, in no event may the total number of days
during which any payment blockage period or periods on the notes is in effect
exceed 179&nbsp;days in the aggregate during any consecutive 365-day period, and
there must be at least 186&nbsp;days during any consecutive 365-day period during
which no payment blockage period is in effect.


<P align="left" style="font-size: 10pt">The failure to make any payment on the notes by reason of the subordination
provisions of the indenture will not be construed as preventing the occurrence
of an Event of Default with respect to the notes by reason of the failure to
make a required payment. Upon termination of any period of payment blockage,
National Waterworks will be required to resume making any and all required
payments under the notes, including any missed payments. No nonpayment default
that existed or was continuing on the date of delivery of any Payment Blockage
Notice to the trustee will be, or be made, the basis for a subsequent Payment
Blockage Notice.


<P align="left" style="font-size: 10pt">If the trustee or any Holder of the notes receives a payment in respect of the
notes (except in Permitted Junior Securities or from the trust described under
"&#151;Legal Defeasance and Covenant Defeasance&#148;) when:



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<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the payment is prohibited by these subordination provisions; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the trustee or the Holder has actual knowledge that the payment is
prohibited;</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">the trustee or the Holder, as the case may be, will hold the payment in trust
for the benefit of the holders of Senior Debt. Upon the proper written request
of the holders of Senior Debt, the trustee or the Holder, as the case may be,
will deliver the amounts in trust to the holders of Senior Debt or their proper
representative.


<P align="left" style="font-size: 10pt">National Waterworks must promptly notify the Representative of Designated
Senior Debt if payment of the notes is accelerated because of an Event of
Default.


<P align="left" style="font-size: 10pt">As a result of the subordination provisions described above, in the event of a
bankruptcy, liquidation or reorganization of National Waterworks, Holders of
notes may recover less ratably than creditors of National Waterworks who are
holders of Senior Debt. See &#147;Risk Factors&#151;Risks Related to the Notes&#151;The notes
are, and guarantees by any of our future domestic subsidiaries will be,
effectively subordinated to all of our and any future subsidiaries&#146; senior
debt.&#148;



<P align="left" style="font-size: 10pt"><B>Optional Redemption</B>


<P align="left" style="font-size: 10pt">At any time prior to December&nbsp;1, 2005, National Waterworks may on any one or
more occasions redeem up to 35% of the aggregate principal amount of notes
issued under the indenture at a redemption price of 110.50% of the principal
amount, plus accrued and unpaid interest, if any, to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date), with the Net Cash
Proceeds from one or more Equity Offerings by National Waterworks or Holdings
(so long as such Net Cash Proceeds are contributed by Holdings to National
Waterworks as common equity); <I>provided </I>that:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>at least 65% of the aggregate principal amount of notes issued under
the indenture remains outstanding immediately after the redemption
(excluding any notes held by National Waterworks and its Subsidiaries);
and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the redemption occurs within 60&nbsp;days of the date of the closing of
such Equity Offering.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">The notes may be redeemed, in whole or in part, at any time prior to December
1, 2007, at the option of National Waterworks upon not less than 30 nor more
than 60&nbsp;days prior notice mailed by first-class mail to each Holder&#146;s
registered address, at a redemption price equal to 100% of the principal amount
of the notes redeemed plus the Applicable Premium as of, and accrued and unpaid
interest, if any, to, the applicable redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date).


<P align="left" style="font-size: 10pt">Except as described in the two preceding paragraphs, the notes will not be
redeemable at National Waterworks&#146; option prior to December&nbsp;1, 2007.


<P align="left" style="font-size: 10pt">On or after December&nbsp;1, 2007, National Waterworks may redeem all or a part of
the notes upon not less than 30 nor more than 60&nbsp;days&#146; notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest, if any, on the notes redeemed, to the
applicable redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date), if redeemed during the twelve-month period beginning on December 1 of
the years indicated below:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="80%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="71%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="12%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Year</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percentage</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">105.25</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">103.50</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">101.75</TD>
    <TD nowrap>%</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2010 and thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">100.00</TD>
    <TD nowrap>%</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">Unless National Waterworks defaults in payment of the redemption price, on and
after the redemption date, interest will cease to accrue on the notes or
portions thereof called for redemption.


<P align="left" style="font-size: 10pt">If less than all of the notes are to be redeemed, the procedures described
below under &#147;&#151;Selection and notice&#148; will apply.



<P align="center" style="font-size: 10pt">58
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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="font-size: 10pt"><B>No Mandatory Redemption or Sinking Fund</B>


<P align="left" style="font-size: 10pt">National Waterworks is not required to make mandatory redemption or sinking
fund payments with respect to the notes.



<P align="left" style="font-size: 10pt"><B>Repurchase at the Option of Holders</B>



<P align="left" style="font-size: 10pt"><B>Change of Control</B>


<P align="left" style="font-size: 10pt">If a Change of Control occurs and National Waterworks does not exercise its
option to redeem the notes, each Holder of notes will have the right to require
National Waterworks to repurchase all or any part (equal to $1,000 or an
integral multiple of $1,000) of that Holder&#146;s notes pursuant to a Change of
Control offer on the terms set forth in the indenture (a &#147;Change of Control
Offer&#148;). In the Change of Control Offer, National Waterworks will offer a
Change of Control Payment in cash equal to 101% of the aggregate principal
amount of notes repurchased plus accrued and unpaid interest, if any, on the
notes repurchased, to the date of purchase (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date). Within 30&nbsp;days following any Change of Control,
National Waterworks will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase notes on the Change of Control Payment Date specified in the
notice, which date will be no earlier than 30&nbsp;days and no later than 60&nbsp;days
from the date such notice is mailed, pursuant to the procedures required by the
indenture and described in such notice. National Waterworks will comply with
the requirements of Section 14(e) of and Rule&nbsp;14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent those laws
and regulations are applicable in connection with the repurchase of the notes
as a result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the Change of Control provisions
of the indenture, National Waterworks will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Change of Control provisions of the indenture by virtue
of such conflict.


<P align="left" style="font-size: 10pt">On the Change of Control Payment Date, National Waterworks will, to the extent
lawful:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>accept for payment all notes or portions of notes properly tendered
pursuant to the Change of Control Offer;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all notes or portions of notes properly
tendered; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>deliver or cause to be delivered to the trustee the notes properly
accepted together with an officers&#146; certificate stating the aggregate
principal amount of notes or portions of notes being purchased by
National Waterworks.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">The paying agent will promptly mail to each Holder of notes properly tendered
the Change of Control Payment for such notes, and the trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; <I>provided </I>that each new note will be in a principal amount
of $1,000 or an integral multiple of $1,000.


<P align="left" style="font-size: 10pt">In the event that at the time of the Change of Control the terms of any
agreement governing Senior Debt of National Waterworks or its Subsidiaries
restrict or prohibit the repurchase of notes pursuant to this covenant, then
prior to the mailing of notice to Holders of notes provided for above, but in
any event within 60&nbsp;days following a Change of Control, National Waterworks
will either:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>repay all outstanding Senior Debt or offer to repay all such Senior
Debt and repay the Indebtedness of each lender who has accepted the
offer or,</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>obtain the requisite consents, if any, under all agreements governing
outstanding Senior Debt to permit the repurchase of notes required by
this covenant.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">National Waterworks will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.


<P align="left" style="font-size: 10pt">If National Waterworks does not obtain such consents or repay such
Indebtedness, National Waterworks will remain prohibited from purchasing the
notes pursuant to this covenant. In such event, National Waterworks&#146; failure to
make the offer to purchase pursuant to this covenant would constitute an Event
of Default under the indenture which in turn would constitute a default under
the Credit



<P align="center" style="font-size: 10pt">59
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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">Agreement. In such circumstances, the subordination provisions of the indenture
would likely prohibit payments to the Holders of the notes.


<P align="left" style="font-size: 10pt">The provisions described above that require National Waterworks to make a
Change of Control Offer following a Change of Control will be applicable
whether or not any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the Holders of the notes to require that
National Waterworks repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.


<P align="left" style="font-size: 10pt">National Waterworks will not be required to make a Change of Control Offer upon
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the indenture applicable to a Change of Control Offer made by National
Waterworks and purchases all notes properly tendered and not withdrawn under
the Change of Control Offer.


<P align="left" style="font-size: 10pt">The definition of Change of Control includes a phrase relating to the direct or
indirect sale, lease, transfer, conveyance or other disposition of &#147;all or
substantially all&#148; of the properties or assets of National Waterworks and its
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase &#147;substantially all,&#148; there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of notes to require National Waterworks to repurchase its notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of National Waterworks and its Subsidiaries taken as a whole
to another Person or group may be uncertain.


<P align="left" style="font-size: 10pt">The Change of Control provisions described above may deter certain mergers,
tender offers and other takeover attempts involving National Waterworks and
Holdings by increasing the capital required to effectuate such transactions.



<P align="left" style="font-size: 10pt"><B>Asset Sales</B>


<P align="left" style="font-size: 10pt">National Waterworks will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>National Waterworks (or the Restricted Subsidiary, as the case may
be) receives consideration (including by way of relief from, or by any
other person assuming sole responsibility for, any liabilities,
contingent or otherwise) at the time of the Asset Sale at least equal to
the fair market value of the assets or Equity Interests issued or sold
or otherwise disposed of;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the case of Asset Sales involving consideration in excess of $10.0
million, the fair market value is determined by National Waterworks&#146;
Board of Directors and evidenced by a resolution of the Board of
Directors set forth in an officers&#146; certificate delivered to the trustee
promptly after the consummation of such Asset Sale; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>at least 75% of the consideration received in the Asset Sale by
National Waterworks or such Restricted Subsidiary is in the form of (A)
cash or Cash Equivalents, (B)&nbsp;all or substantially all of the assets of
one or more Permitted Business Units, (C)&nbsp;Capital Stock in one or more
Persons engaged in a Permitted Business that are or thereby become
Restricted Subsidiaries of National Waterworks, or (D)&nbsp;any combination
of the items referred to in clauses (A)&nbsp;through (C)&nbsp;above. For purposes
of this provision, each of the following will be deemed to be cash:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="right">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any liabilities, as shown on National Waterworks&#146; or such
Restricted Subsidiary&#146;s most recent balance sheet, of National
Waterworks or any Restricted Subsidiary (other than liabilities that
are by their terms subordinated to the notes or any subsidiary
guarantee) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases National
Waterworks or such Restricted Subsidiary from further liability;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="right">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any securities, notes or other obligations received by National
Waterworks or any such Restricted Subsidiary from such transferee
that are promptly converted by National Waterworks or such Restricted
Subsidiary into cash, to the extent of the cash received in that
conversion; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" style="background: transparent">&nbsp;</TD>
    <TD width="4%" nowrap align="right">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any Designated Non-cash Consideration received by National
Waterworks or any of its Restricted Subsidiaries in the Asset Sale
having an aggregate fair market value, taken together with all other
Designated Non-cash Consideration received pursuant to this clause
(c)&nbsp;that is at the time outstanding, not to exceed $5.0&nbsp;million (with
the fair market value of each item of Designated Non-cash
Consideration being measured at the time received and without giving
effect to subsequent changes in value).</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">60
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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">Within 365&nbsp;days after the receipt of any Net Proceeds from an Asset Sale,
National Waterworks (or such Restricted Subsidiary, as the case may be) may
apply those Net Proceeds at its option:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to repay Senior Debt and, if the Senior Debt repaid is revolving
credit Indebtedness, to correspondingly reduce commitments with respect
thereto;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to acquire all or substantially all of the assets of, or a majority
of the Voting Stock of, another Permitted Business;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to acquire all or substantially all of the assets of one or more
Permitted Business Units;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to make a capital expenditure; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to acquire other long-term assets that are used or useful in a
Permitted Business;</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">it being understood that National Waterworks may apply Net Proceeds received by
any of its Restricted Subsidiaries in any of the foregoing manners and any
Restricted Subsidiary of National Waterworks may apply Net Proceeds received by
National Waterworks or another Restricted Subsidiary of National Waterworks in
any of the foregoing manners.


<P align="left" style="font-size: 10pt">Pending the final application of any Net Proceeds, National Waterworks may
temporarily reduce revolving credit borrowings or otherwise invest the Net
Proceeds in any manner that is not prohibited by the indenture.


<P align="left" style="font-size: 10pt">Any Net Proceeds from Asset Sales that are not applied or invested as provided
in the preceding paragraph will constitute &#147;Excess Proceeds.&#148; On the 366th day
after an Asset Sale, if the aggregate amount of Excess Proceeds exceeds $15.0
million, National Waterworks will make an Asset Sale offer to all Holders of
notes and all holders of any other Indebtedness that is <I>pari passu </I>with the
notes containing provisions similar to those set forth in the indenture with
respect to offers to purchase or redeem such indebtedness with the proceeds of
sales of assets to purchase the maximum principal amount of notes and such
other <I>pari passu </I>Indebtedness that may be purchased out of the Excess Proceeds
(an &#147;Asset Sale Offer&#148;). National Waterworks will be required to complete the
Asset Sale Offer no earlier than 30&nbsp;days and no later than 60&nbsp;days after notice
of the Asset Sale Offer is provided to the Holders, or such later date as may
be required under applicable law. The offer price in any Asset Sale Offer will
be equal to 100% of principal amount plus accrued and unpaid interest, if any,
to the date of purchase, and will be payable in cash. If any Excess Proceeds
remain after consummation of an Asset Sale Offer, National Waterworks may use
those Excess Proceeds for any purpose not otherwise prohibited by the
indenture. If the aggregate principal amount of notes and other <I>pari passu</I>
Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess
Proceeds, the trustee will select the notes and such other <I>pari passu</I>
Indebtedness to be purchased on a pro rata basis on the basis of the aggregate
principal amount of tendered notes and <I>pari passu </I>Indebtedness, if any. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds will be
reset at zero.


<P align="left" style="font-size: 10pt">National Waterworks will comply with the requirements of Section 14(e) of and
Rule&nbsp;14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent those laws and regulations are applicable in
connection with each repurchase of notes pursuant to an Asset Sale Offer. To
the extent that the provisions of any securities laws or regulations conflict
with the Asset Sale provisions of the indenture, National Waterworks will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under the Asset Sale provisions of the
indenture by virtue of such conflict.


<P align="left" style="font-size: 10pt">The agreements governing all of National Waterworks&#146; outstanding Senior Debt
currently restrict National Waterworks from purchasing notes, and also provide
that certain change of control or asset sale events with respect to National
Waterworks would constitute a default under these agreements. Any future credit
agreements or other agreements relating to Senior Debt to which National
Waterworks becomes a party may contain similar restrictions and provisions. In
the event a Change of Control or Asset Sale occurs at a time when National
Waterworks is prohibited from purchasing notes, National Waterworks could seek
the consent of its senior lenders to the purchase of notes or could attempt to
refinance the borrowings that contain such prohibition, neither of which may be
possible. If National Waterworks does not obtain such a consent or repay such
borrowings, National Waterworks will remain prohibited from purchasing notes.
In such case, National Waterworks&#146; failure to purchase tendered notes would
constitute an Event of Default under the indenture which would, in turn, likely
constitute a default under such Senior Debt. See &#147;Risk Factors&#151;Risks Related to
the Notes&#151;We may not be able to repurchase the notes upon a change of control.&#148;
In such circumstances, the subordination provisions in the indenture would
likely restrict payments to the Holders of notes.



<P align="left" style="font-size: 10pt"><B>Selection and Notice</B>



<P align="center" style="font-size: 10pt">61
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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">If less than all of the notes are to be redeemed in connection with any
redemption, the trustee will select notes (or portions of notes) for redemption
as follows:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>if the notes are listed on any national securities exchange, in
compliance with the requirements of the principal national securities
exchange on which the notes are listed; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>if the notes are not listed on any national securities exchange, on a
pro rata basis, by lot or by such method as the trustee deems fair and
appropriate.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">No notes of $1,000 or less can be redeemed in part. Notices of redemption will
be mailed by first class mail at least 30 but not more than 60&nbsp;days before the
redemption date to each Holder of notes to be redeemed at its registered
address, except that redemption notices may be mailed more than 60&nbsp;days prior
to a redemption date if the notice is issued in connection with a defeasance of
the notes or a satisfaction and discharge of the indenture. Notices of
redemption may not be conditional.


<P align="left" style="font-size: 10pt">If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount of that
note that is to be redeemed. A new note in principal amount equal to the
unredeemed portion of the original note will be issued in the name of the
Holder of notes upon cancellation of the original note. Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest will cease to accrue on notes or portions of them
called for redemption.



<P align="left" style="font-size: 10pt"><B>Certain Covenants</B>



<P align="left" style="font-size: 10pt"><B>Restricted Payments</B>


<P align="left" style="font-size: 10pt">National Waterworks will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>declare or pay any dividend on, or make any other payment or
distribution on account of, National Waterworks&#146; or any of its
Restricted Subsidiaries&#146; Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation
involving National Waterworks or any of its Restricted Subsidiaries) or
to the direct or indirect holders of National Waterworks&#146; or any of its
Restricted Subsidiaries&#146; Equity Interests in their capacity as such (in
each case, other than dividends or distributions payable (a)&nbsp;in Equity
Interests (other than Disqualified Stock) of National Waterworks or (b)
to National Waterworks or a Restricted Subsidiary of National
Waterworks);</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving National Waterworks) any Equity Interests of National
Waterworks or any direct or indirect parent of National Waterworks held
by Persons other than National Waterworks or a Restricted Subsidiary of
National Waterworks;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is
subordinated to the notes or the subsidiary guarantees, except a payment
of interest or principal at the Stated Maturity thereof (other than:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the purchase, repurchase or other acquisition of any such
subordinated Indebtedness purchased in anticipation of satisfying a
sinking fund obligation, principal installment or final maturity, in
each case due within one year of the date of acquisition, and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>intercompany Indebtedness described in clause (6)&nbsp;of the second
paragraph of the covenant described under &#147;&#151;Incurrence of
Indebtedness and Issuance of Preferred Stock&#148;); or</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>make any Restricted Investment (all such payments and other actions
set forth in these clauses (1)&nbsp;through (4)&nbsp;being collectively referred
to as &#147;Restricted Payments&#148;),</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">unless, at the time of and after giving effect to such Restricted Payment:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>no Default or Event of Default has occurred and is continuing or
would occur as a consequence of such Restricted Payment;</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">62
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>National Waterworks would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described below under the caption &#147;&#151;Incurrence
of Indebtedness and Issuance of preferred stock;&#148; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by National Waterworks and its Restricted
Subsidiaries after the date of the indenture (excluding Restricted
Payments permitted by clauses (2), (3), (4), (6), (7), (9), (10)&nbsp;and
(11)&nbsp;of the next succeeding paragraph), is less than the sum, without
duplication, of:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>50% of the Consolidated Net Income of National Waterworks for
the period (taken as one accounting period) from the beginning of the
first fiscal quarter commencing after the date of the indenture to
the end of National Waterworks&#146; most recently ended fiscal quarter
for which consolidated financial statements of National Waterworks
are publicly available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100%
of such deficit), <I>plus</I></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>100% of the aggregate Net Cash Proceeds received by National
Waterworks subsequent to the date of the indenture (i)&nbsp;as a
contribution to its common equity capital or (ii)&nbsp;from the issue or
sale of Equity Interests of National Waterworks (other than
Disqualified Stock) or (iii)&nbsp;as a result of the issue or sale of
convertible or exchangeable Disqualified Stock or convertible or
exchangeable debt securities of National Waterworks or any Restricted
Subsidiary of National Waterworks that have been converted into or
exchanged for such Equity Interests (other than Equity Interests (or
Disqualified Stock or debt securities) sold to a Subsidiary of
National Waterworks), except any Net Cash Proceeds that have been
utilized for any other purpose under this covenant (other than
pursuant to clause (12)&nbsp;below), <I>plus</I></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>100% of the fair market value, as determined in good faith by
the Board of Directors of National Waterworks, such determination to
be conclusive and evidenced by an Officer&#146;s Certificate delivered to
the trustee, of any Permitted Business (including Capital Stock of a
Permitted Business that is or becomes a Restricted Subsidiary)
received by National Waterworks or a Restricted Subsidiary of
National Waterworks as consideration for the issuance by National
Waterworks subsequent to the date of the indenture of Capital Stock
(other than Disqualified Stock) of National Waterworks or as a
contribution to the common equity capital of National Waterworks,
<I>plus</I></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(d)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to the extent that National Waterworks or a Restricted
Subsidiary of National Waterworks receives cash in respect of any
Restricted Investment that was made subsequent to the date of the
indenture, the lesser of (i)&nbsp;the amount of cash received with respect
to such Restricted Investment (less the cost of disposition, if any)
and (ii)&nbsp;the initial amount of such Restricted Investment, <I>plus</I></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(e)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to the extent that any Unrestricted Subsidiary of National
Waterworks is redesignated as a Restricted Subsidiary after the date
of the indenture, the lesser of (i)&nbsp;the fair market value of National
Waterworks&#146; Investment in such Subsidiary as of the date of such
redesignation and (ii)&nbsp;such fair market value as of the date on which
such Subsidiary was originally designated as an Unrestricted
Subsidiary.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">The preceding provisions will not prohibit:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the payment of any dividend or other distribution within 60&nbsp;days
after the date of declaration thereof, if at the date of declaration the
dividend payment or other distribution would have complied with the
provisions of the indenture;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>so long as no Default has occurred and is continuing or would be
caused thereby, the making of any Restricted Payment with the Net Cash
Proceeds of a substantially concurrent sale (other than to a Restricted
Subsidiary of National Waterworks) of Equity Interests of National
Waterworks (other than Disqualified Stock) or contribution to the common
equity capital of National Waterworks to the extent not previously
utilized for any other purpose under this covenant;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>so long as no Default has occurred and is continuing or would be
caused thereby, the redemption, repurchase, defeasance or other
acquisition of subordinated Indebtedness of National Waterworks or any
Restricted Subsidiary of National Waterworks, in exchange for, or with
the net cash proceeds from a substantially concurrent issuance or sale
of, Permitted Refinancing Indebtedness;</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">63
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the payment of any dividend by a Restricted Subsidiary of National
Waterworks to the holders of its Equity Interests on a pro rata basis;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>so long as no Default has occurred and is continuing or would be
caused thereby, the payment of dividends, other distributions or amounts
to Holdings in amounts equal to the amounts expended by Holdings to
purchase, repurchase, retire or otherwise acquire for value Equity
Interests of Holdings owned by employees, former employees, directors,
former directors, consultants or former consultants of Holdings,
National Waterworks or any of its Subsidiaries (or permitted
transferees, assigns, estates or heirs of such employees, former
employees, directors, former directors, consultants or former
consultants); <I>provided, however</I>, that the aggregate amount paid, loaned
or advanced to Holdings pursuant to this clause (5)&nbsp;will not, in the
aggregate, exceed $3.0&nbsp;million per fiscal year of National Waterworks
(with amounts not used in any fiscal year carried forward to the next
fiscal year and no further), plus the net proceeds of any key person
life insurance received by National Waterworks after the date of the
indenture, plus amounts contributed by Holdings to the common equity
capital of National Waterworks after the closing date as a result of the
sale of Capital Stock (other than Disqualified Stock) to employees,
officers, directors and consultants to the extent not previously
utilized for any other purpose under this covenant;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the payment of any dividends, distributions or other advances by
National Waterworks to Holdings to permit Holdings to pay franchise
taxes and other fees and expenses required to maintain its existence and
to provide for all other actual operating costs of Holdings, including,
without limitation, in respect of director fees and expenses,
administrative, legal and accounting services, of up to $1.0&nbsp;million per
fiscal year;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the repurchase of Capital Stock deemed to occur upon exercise of
stock options, warrants or other convertible securities to the extent
the shares of such Capital Stock represent a portion of the exercise
price of such options, warrants or convertible securities;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(8)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>so long as no Default has occurred and is continuing or would be
caused thereby, the declaration and payment of dividends or
distributions to holders of any class or series of Disqualified Stock of
National Waterworks or preferred stock of its Restricted Subsidiaries
issued after the date of the indenture pursuant to the covenant
described below under the caption &#147;&#151;Incurrence of Indebtedness and
Issuance of Preferred Stock;&#148;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(9)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any payments made, or the performance of any of the transactions
contemplated, in connection with the Acquisition and the financing
thereof and described in this prospectus under the headings &#147;Management&#148;
and &#147;Certain Relationships and Related Party Transactions;&#148;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(10)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>so long as no Default has occurred and is continuing or would be
caused thereby, any redemption, repurchase, retirement, defeasance or
other acquisition for value of Disqualified Stock of National Waterworks
or a Restricted Subsidiary made by exchange for, or out of the net cash
proceeds of the substantially concurrent sale of, Disqualified Stock of
National Waterworks or such Restricted Subsidiary, as the case may be;
<I>provided </I>that any such new Disqualified Stock is issued by the issuer of
the Disqualified Stock being redeemed, repurchased, retired, defeased or
otherwise acquired for value and that such new Disqualified Stock is
issued pursuant to the covenant described below under the caption
&#147;&#151;Incurrence of Indebtedness and Issuance of Preferred Stock;&#148;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(11)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>so long as no Default has occurred and is continuing or would be
caused thereby, other Restricted Payments in an aggregate amount not to
exceed $15.0&nbsp;million since the date of the indenture; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(12)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>so long as no Default has occurred and is continuing or would be
caused thereby, the payment of dividends on National Waterworks&#146; common
stock (or dividends, distributions or advances to Holdings or any other
direct or indirect parent of National Waterworks to allow Holdings or
such other direct or indirect parent to pay dividends on its common
stock), following the first public offering of National Waterworks&#146;
common stock (or of Holding&#146;s or such other direct or indirect parent&#146;s
common stock, as the case may be) after the date of the indenture, of,
whichever is earlier, (i)&nbsp;in the case of the first public offering of
National Waterworks&#146; common stock, up to 6% per annum of the Net Cash
Proceeds received by National Waterworks in such public offering or (ii)
in the case of the first public offering of Holdings&#146; or such other
direct of indirect parent&#146;s common stock, up to 6% per annum of the
amount contributed by Holdings (or contributed directly or indirectly by
such other direct or indirect parent, as the case may be) to National
Waterworks from the Net Cash Proceeds received by Holdings or such other
direct or indirect parent in such public offering.</TD>
</TR>

</TABLE>



<P align="center" style="font-size: 10pt">64
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">The amount of all Restricted Payments (other than cash) will be the fair market
value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by National Waterworks or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant will be determined by National Waterworks&#146; Board of Directors, whose
determination with respect thereto shall be conclusive, and evidenced by a
resolution to be delivered to the trustee. For the avoidance of doubt, the
transactions consummated pursuant to the Acquisition Agreement, the Credit
Agreement, the Purchase Agreement, the Exchange and Registration Rights
Agreement, the Stockholders Agreement, the Tax Sharing Agreement, the
Registration Rights Agreement, the Management Agreement, the Subscription and
Stock Purchase Agreement and the Fee Agreement will be addressed under the
covenant below described under the caption &#147;&#151;Transactions with Affiliates&#148; and
will not be considered to be Restricted Payments.



<P align="left" style="font-size: 10pt"><B>Incurrence of Indebtedness and Issuance of Preferred Stock</B>


<P align="left" style="font-size: 10pt">National Waterworks will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, &#147;incur&#148;) any Indebtedness (including
Acquired Debt), and National Waterworks will not issue any Disqualified Stock
and will not permit any of its Restricted Subsidiaries to issue any shares of
preferred stock; <I>provided, </I>however, that National Waterworks or any Guarantor
may incur Indebtedness (including Acquired Debt), National Waterworks may issue
Disqualified Stock and any Guarantor may issue preferred stock, if the Fixed
Charge Coverage Ratio for National Waterworks&#146; most recently ended four full
fiscal quarters for which consolidated financial statements are publicly
available immediately preceding the date on which such additional Indebtedness
is incurred or such Disqualified Stock or preferred stock is issued would have
been at least 2.0 to 1, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred or the preferred stock or Disqualified Stock had been issued,
as the case may be, at the beginning of such four-quarter period.


<P align="left" style="font-size: 10pt">The first paragraph of this covenant will not prohibit the incurrence of any of
the following items of Indebtedness (collectively, &#147;Permitted Debt&#148;):



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the incurrence by National Waterworks or any Guarantor of
Indebtedness and letters of credit under Credit Facilities, in an
aggregate principal amount at any one time outstanding under this clause
(1) (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of National Waterworks and the
Guarantors thereunder) not to exceed the $325.0&nbsp;million <I>less</I></TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the aggregate amount of all Net Proceeds of Asset Sales applied
by National Waterworks or any of its Restricted Subsidiaries since
the date of the indenture to repay term Indebtedness under a Credit
Facility or to repay revolving credit Indebtedness and effect a
corresponding commitment reduction thereunder, in each case, pursuant
to the covenant described above under the caption &#147;&#151;Repurchase at the
option of holders&#151;Asset sales&#148; and <I>less</I></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the amount of Indebtedness incurred and outstanding in
connection with a Qualified Receivables Transaction pursuant to
clause (13)&nbsp;of this paragraph;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the incurrence by National Waterworks of Existing Indebtedness;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the incurrence by National Waterworks of Indebtedness represented by
the notes to be issued on the date of the indenture and the Exchange
Notes to be issued pursuant to the registration rights agreement and the
incurrence by any Guarantor of Indebtedness represented by any
subsidiary guarantee related to the notes or the Exchange Notes;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the incurrence by National Waterworks or any Guarantor of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations (including borrowings under a
Credit Facility) or Acquired Debt, in each case, incurred for the
purpose of financing all or any part of the purchase price or cost of
construction, development, maintenance, upgrade or improvement of
property, plant, equipment or assets (in each case whether through the
direct purchase of assets or through the purchase of Capital Stock of
the Person owning such assets) used in the business of National
Waterworks or such Restricted Subsidiary, in an aggregate principal
amount, including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any Indebtedness incurred pursuant to this
clause (4), not to exceed, at any time outstanding, $15&nbsp;million;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the incurrence by National Waterworks or any Guarantor of Permitted
Refinancing Indebtedness in exchange for, or the net</TD>
</TR>


</TABLE>

<P align="center" style="font-size: 10pt">65
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>proceeds of which are used to refund, refinance or replace Indebtedness
(other than intercompany Indebtedness) that was permitted by the indenture
to be incurred under the first paragraph of this covenant or clauses (2),
(3), (4), (5), or (15)&nbsp;of this paragraph;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the incurrence by National Waterworks or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among National
Waterworks and any of its Restricted Subsidiaries (other than a
Receivables Subsidiary); <I>provided, however</I>, that:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>if National Waterworks or any Guarantor is the obligor on such
Indebtedness, such Indebtedness must be expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the
notes, in the case of National Waterworks, or the subsidiary
guarantee, in the case of a Guarantor; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(i)&nbsp;any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other
than National Waterworks or a Restricted Subsidiary of National
Waterworks and (ii)&nbsp;any sale or other transfer of any such
Indebtedness to a Person that is not either National Waterworks or a
Restricted Subsidiary of National Waterworks; will be deemed, in each
case, to constitute an incurrence of such Indebtedness by National
Waterworks or such Restricted Subsidiary, as the case may be, that
was not permitted by this clause (6);</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>shares of preferred stock of a Restricted Subsidiary issued to
National Waterworks or another Restricted Subsidiary; <I>provided </I>that any
subsequent transfer of any Equity Interests or any other event which
results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any other subsequent transfer of any such shares of
preferred stock (except to National Waterworks or any another Restricted
Subsidiary) shall be deemed, in each case, to be an issuance of
preferred stock;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(8)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the incurrence by National Waterworks or any Guarantor of Hedging
Obligations in the ordinary course of business or as may be required in
connection with any Senior Debt and not for speculative purposes;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(9)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the guarantee by National Waterworks or any Guarantor of Indebtedness
of National Waterworks or a Guarantor that was permitted to be incurred
by another provision of this covenant;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(10)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Indebtedness of National Waterworks or any of its Restricted
Subsidiaries in respect of workers&#146; compensation claims, self-insurance
obligations, indemnities, performance bonds, bankers&#146; acceptances,
letters of credit and surety, appeal or similar bonds provided by
National Waterworks or any of its Restricted Subsidiaries in the
ordinary course of business and, in any such case, any reimbursement
obligations in connection therewith;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(11)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Indebtedness of National Waterworks or any Restricted Subsidiary to
the extent the net proceeds thereof are promptly deposited to defease
all outstanding notes in full as described below under the covenant
&#147;&#151;Legal Defeasance and Covenant defeasance;&#148;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(12)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>contingent liabilities arising out of endorsements of checks and
other negotiable instruments for deposit or collection or overdraft
protection in the ordinary course of business;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(13)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the incurrence by a Receivables Subsidiary of Indebtedness in a
Qualified Receivables Transaction; <I>provided </I>that such Indebtedness is
non-recourse to National Waterworks or any of its Restricted
Subsidiaries (except to the extent of customary representations,
warranties, covenants and indemnities entered into in connection with a
Qualified Receivables Transaction);</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(14)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>obligations of National Waterworks and its Restricted Subsidiaries
arising from agreements of National Waterworks or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price
or similar obligations, in each case incurred or assumed in connection
with the disposition of any business, assets or a Subsidiary of National
Waterworks in accordance with the terms of the indenture, other than
Guarantees by National Waterworks or any Restricted Subsidiary of
National Waterworks of Indebtedness incurred by any Person acquiring all
or any portion of such business, assets or a Subsidiary of National
Waterworks for the purpose of financing such acquisition; <I>provided,
however, </I>that the maximum aggregate liability in respect of all such
obligations shall not exceed the gross proceeds, including the fair
market value as determined in good faith by a majority of the Board of
Directors of National Waterworks of non-cash proceeds (the fair market
value of such non-cash proceeds being measured at the time it is
received and without giving effect to any subsequent changes in value),
actually received by National Waterworks and its Restricted Subsidiaries
in connection with such</TD>
</TR>


</TABLE>

<P align="center" style="font-size: 10pt">66
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>disposition; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(15)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the incurrence by National Waterworks or any of its Restricted
Subsidiaries of additional Indebtedness, the issuance by National
Waterworks of Disqualified Stock or the issuance by a Restricted
Subsidiary of preferred stock in an aggregate principal amount or
liquidation preference at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness, Disqualified Stock or preferred stock incurred pursuant to
this clause (15), not to exceed $30.0&nbsp;million.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">For purposes of determining compliance with this &#147;Incurrence of Indebtedness
and Issuance of Preferred Stock&#148; covenant, in the event that an item of
proposed Indebtedness meets the criteria of more than one of the categories of
Permitted Debt described in clauses (1)&nbsp;through (15)&nbsp;above, or is entitled to
be incurred pursuant to the first paragraph of this covenant, National
Waterworks will be permitted to classify such item of Indebtedness on the date
of its incurrence, or later reclassify all or a portion of such item of
Indebtedness, in any manner that complies with this covenant. Indebtedness
under Credit Facilities outstanding on November&nbsp;22, 2002, the date on which
notes were first issued and authenticated under the indenture, will initially
be deemed to have been incurred pursuant to clause (1)&nbsp;of the definition of
Permitted Debt. Indebtedness permitted by this covenant need not be permitted
by reference to one provision permitting such Indebtedness but may be permitted
in part by one such provision and in part by one or more other provisions of
this covenant permitting such Indebtedness.


<P align="left" style="font-size: 10pt">The accrual of interest, the accretion or amortization of original issue
discount, the payment of interest and dividends on any Indebtedness in the form
of additional Indebtedness with the same terms, and the payment or accrual of
dividends on Disqualified Stock or preferred stock in the form of additional
shares of the same class of Disqualified Stock or preferred stock will not be
deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock
or preferred stock for purposes of this covenant.


<P align="left" style="font-size: 10pt"><B>No Senior Subordinated Debt</B>


<P align="left" style="font-size: 10pt">National Waterworks will not incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Senior Debt of National Waterworks and senior in right
of payment to the notes. No Guarantor will incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinate
or junior in right of payment to the Senior Debt of such Guarantor and senior
in right of payment to such Guarantor&#146;s subsidiary guarantee.


<P align="left" style="font-size: 10pt"><B>Liens</B>


<P align="left" style="font-size: 10pt">National Waterworks will not and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien of any kind securing Indebtedness (other than
Permitted Liens) upon any of their property or assets, now owned or hereafter
acquired, unless all payments due under the indenture and the notes are secured
on an equal and ratable basis with the obligations so secured until such time
as such obligations are no longer secured by a Lien.


<P align="left" style="font-size: 10pt"><B>Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries</B>


<P align="left" style="font-size: 10pt">National Waterworks will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>pay dividends or make any other distributions on its Capital Stock to
National Waterworks or any of its Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its
profits, or pay any indebtedness owed to National Waterworks or any of
its Restricted Subsidiaries;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>make loans or advances to National Waterworks or any of its
Restricted Subsidiaries; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>transfer any of its properties or assets to National Waterworks or
any of its Restricted Subsidiaries.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>agreements governing Existing Indebtedness and Credit Facilities as
in effect on the date of the indenture and any amendments,
modifications, restatements, renewals, increases, extensions,
supplements, refundings, replacements or refinancings of any of the
foregoing, provided that the amendments, modifications, restatements,
renewals, increases,</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">67
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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>extensions, supplements, refundings, replacement or refinancings of such
instrument are not materially more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than those
contained in such agreement on the date of the indenture;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the indenture, the notes and the subsidiary guarantees;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>applicable law or any applicable rule or regulation;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any instrument governing Indebtedness or Capital Stock of a Person
acquired by National Waterworks or any of its Restricted Subsidiaries as
in effect at the time of such acquisition (except to the extent such
Indebtedness or Capital Stock was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so
acquired, <I>provided </I>that, in the case of Indebtedness, such Indebtedness
was permitted by the terms of the indenture to be incurred;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>customary non-assignment provisions in leases, licenses or similar
contracts entered into in the ordinary course of business or that
restrict the subletting, assignment or transfer of any property or asset
that is subject to a lease, license or similar contract;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>purchase money obligations for property acquired in the ordinary
course of business that restrict the transfer of such property; <I>provided</I>
that any such encumbrance or restriction is released to the extent the
underlying Lien is released or the related Indebtedness is repaid;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any agreement for the sale or other disposition of a Restricted
Subsidiary or the assets of a Restricted Subsidiary pending the sale or
other disposition of such assets or Restricted Subsidiary;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(8)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are not materially more restrictive, taken as a whole, than
those contained in the agreements governing the Indebtedness being
refinanced;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(9)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Liens securing Indebtedness otherwise permitted to be incurred under
the provisions of the covenants described above under the caption
&#147;&#151;Liens&#148; and &#147;&#151;Incurrence of Indebtedness and Issuance of preferred
stock&#148; that limit the right of the debtor to dispose of or transfer the
assets subject to such Liens;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(10)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any transfer of, agreement to transfer, or option or right with
respect to, any property or assets of National Waterworks or any
Restricted Subsidiary not otherwise prohibited by the indenture;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(11)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>provisions with respect to the disposition or distribution of assets
or property and other customary provisions in joint venture agreements,
asset sale agreements, stock sale agreements and other similar
agreements entered into in the ordinary course of business;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(12)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(13)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Indebtedness permitted to be incurred pursuant to clause (4)&nbsp;of the
second paragraph of the covenant described under &#147;&#151;Incurrence of
Indebtedness and Issuance of Preferred Stock&#148; for property acquired in
the ordinary course of business that only imposes encumbrances or
restrictions on the property so acquired;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(14)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>net worth provisions in leases and other agreements entered into by
National Waterworks or any Restricted Subsidiary in the ordinary course
of business;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(15)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Indebtedness or other contractual requirements of a Receivables
Subsidiary in connection with a Qualified Receivables Transaction,
provided that such restrictions apply only to such Receivables
Subsidiary; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(16)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>agreements governing Indebtedness permitted to be incurred pursuant
to the covenant described under &#147;&#151;Incurrence of Indebtedness and
Issuance of Preferred Stock,&#148; provided that the provisions relating to
such encumbrance or restriction contained in such Indebtedness, taken as
a whole, are not materially more restrictive to National Waterworks, as
determined</TD>
</TR>


</TABLE>

<P align="center" style="font-size: 10pt">68
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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>by the Board of Directors of National Waterworks in their reasonable and
good faith judgment, than the provisions contained in the Credit Agreement
or the indenture as in effect on the date of the indenture.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt"><B>Merger, Consolidation or Sale of Assets</B>


<P align="left" style="font-size: 10pt">National Waterworks may not, directly or indirectly: (1)&nbsp;consolidate or merge
with or into another Person (whether or not National Waterworks is the
surviving corporation); or (2)&nbsp;sell, assign, transfer, convey or otherwise
dispose of all or substantially all of the properties or assets of National
Waterworks and its Restricted Subsidiaries taken as a whole, in one or more
related transactions, to another Person; unless:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>either: (a)&nbsp;National Waterworks is the surviving corporation; or (b)
the Person formed by or surviving any such consolidation or merger (if
other than National Waterworks) or to which such sale, assignment,
transfer, conveyance or other disposition has been made is either (i)&nbsp;a
corporation organized or existing under the laws of the United States,
any state of the United States or the District of Columbia or (ii)&nbsp;a
partnership or limited liability company organized or existing under the
laws of the United States, any state thereof or the District of Columbia
that has at least one Restricted Subsidiary that is a corporation
organized or existing under the laws of the United Sates, any state
thereof or the District of Columbia, which corporation becomes a
co-issuer of the notes pursuant to a supplemental indenture duly and
validly executed by the trustee;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Person formed by or surviving any such consolidation or merger
(if other than National Waterworks) or the Person to which such sale,
assignment, transfer, conveyance or other disposition has been made
assumes all the obligations of National Waterworks under the notes, the
indenture and the Exchange and Registration Rights Agreement pursuant to
agreements reasonably satisfactory to the trustee;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>immediately after such transaction no Default or Event of Default
exists; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>National Waterworks or the Person formed by or surviving any such
consolidation or merger (if other than National Waterworks), or to which
such sale, assignment, transfer, conveyance or other disposition has
been made will, on the date of such transaction after giving pro forma
effect thereto and any related financing transactions as if the same had
occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described above under the caption &#147;&#151;Incurrence of
Indebtedness and Issuance of Preferred Stock.&#148;</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">Notwithstanding clauses (3)&nbsp;and (4)&nbsp;of the preceding paragraph, National
Waterworks may merge or consolidate with a Restricted Subsidiary incorporated
solely for the purpose of organizing National Waterworks in another
jurisdiction.


<P align="left" style="font-size: 10pt">In addition, National Waterworks may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This &#147;Merger, Consolidation or Sale of
Assets&#148; covenant will not apply to a sale, assignment, transfer, conveyance or
other disposition of assets between or among National Waterworks and any of its
Restricted Subsidiaries.


<P align="left" style="font-size: 10pt"><B>Designation of Restricted and Unrestricted Subsidiaries</B>


<P align="left" style="font-size: 10pt">The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if no Default has occurred and is continuing at the
time of the designation and if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the
aggregate fair market value of all outstanding Investments owned by National
Waterworks and its Restricted Subsidiaries in the Subsidiary properly
designated will be deemed to be an Investment made as of the time of the
designation and will reduce the amount available for Restricted Payments under
the first paragraph of the covenant described above under the caption
"&#151;Restricted Payments&#148; or Permitted Investments, as determined by National
Waterworks. That designation will only be permitted if the Investment would be
permitted at that time and if the Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary. In addition, no such designation may
be made unless the proposed Unrestricted Subsidiary does not own any Capital
Stock in any Restricted Subsidiary that is not simultaneously subject to
designation as an Unrestricted Subsidiary. The Board of Directors may
redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if the
redesignation would not cause a Default.


<P align="left" style="font-size: 10pt"><B>Transactions with Affiliates</B>



<P align="center" style="font-size: 10pt">69
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">National Waterworks will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an &#147;Affiliate Transaction&#148;), unless:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Affiliate Transaction is on terms that are no less favorable to
National Waterworks or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by National
Waterworks or such Restricted Subsidiary with an unrelated Person; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>National Waterworks delivers to the trustee:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0&nbsp;million, a resolution of the Board of Directors set forth in an
officers&#146; certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board
of Directors in good faith; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$20.0&nbsp;million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national
standing.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any employment agreement entered into by National Waterworks or any
of its Restricted Subsidiaries in the ordinary course of business;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>transactions between or among National Waterworks and/or its
Restricted Subsidiaries;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>transactions with a Person that is an Affiliate of National
Waterworks solely because National Waterworks owns an Equity Interest
in, or controls, such Person;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>payment of reasonable directors fees to Persons who are not employees
of Holdings, National Waterworks or its Subsidiaries and other
reasonable fees, compensation, benefits and indemnities paid or entered
into by National Waterworks or its Restricted Subsidiaries in the
ordinary course of business to or with the officers, directors or
employees of National Waterworks and its Restricted Subsidiaries;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>sales, grants, awards or issuances of Equity Interests (other than
Disqualified Stock), including the exercise of options and warrants, to
Affiliates, officers, directors or employees of National Waterworks or
any contribution to the common equity capital of National Waterworks by
Affiliates of National Waterworks;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>transactions involving National Waterworks or any of its Restricted
Subsidiaries, on the one hand, and JPMorgan Securities Inc., JPMorgan
Chase Bank or Chase Lincoln First Commercial Corp. on the other hand, in
connection with the offering of the notes, the Acquisition and
transactions related thereto, the Credit Agreement and any amendment,
modification, supplement, extension, refinancing, replacement, work-out,
restructuring and other transactions related thereto, or any management,
financial advisory, financing, underwriting or placement services or any
other investment banking, banking or similar services, which payments
are approved by a majority of the disinterested members of the Board of
Directors in good faith;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>as long as National Waterworks is a member of a consolidated (or
combined) group filing a consolidated (or combined) return of which
Holdings is the parent, payments pursuant to the tax allocation
agreement as in effect on the date of the indenture (or as the same may
be amended, modified or replaced from time to time so long as any such
amendment, modification or replacement, taken as a whole, is no less
favorable to the Holders than the contract or agreement as in effect on
the date of the indenture) to permit Holdings to pay taxes that are then
due and owing and are attributable to the operations of National
Waterworks;</TD>
</TR>


</TABLE>

<P align="center" style="font-size: 10pt">70
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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(8)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Restricted Payments and Permitted Investments (other than Permitted
Investments contemplated by clause (15)&nbsp;of the definition of &#147;Permitted
Investments&#148;) that are permitted by the provisions of the indenture
described above under the caption &#147;&#151;Restricted payments;&#148;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(9)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>transactions effected as part of a Qualified Securitization
Transaction permitted under the covenant described above under the
caption &#147;&#151;Incurrence of Indebtedness and Issuance of Preferred Stock;&#148;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(10)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the existence or performance by National Waterworks or any of its
Restricted Subsidiaries of the provisions of the Acquisition Agreement,
the Credit Agreement, the Purchase Agreement, the Exchange and
Registration Rights Agreement, the Stockholders Agreement, the
Registration Rights Agreement, the Subscription and Stock Purchase
Agreement, the Fee Agreement and any other agreements (other than the
Management Agreement, which is addressed in clause (11)&nbsp;below) described
under the caption &#147;Management&#148; or &#147;Certain Relationships and Related
Party Transactions&#148; or any amendment thereto or replacement agreement
therefor or any transaction contemplated thereby so long as such
amendment or replacement is not more disadvantageous to the Holders of
the notes in any material respect than the original agreement as in
effect on the date of the indenture; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(11)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>so long as no Default has occurred and is continuing or would be
caused thereby, the existence or performance by National Waterworks or
any of its Restricted Subsidiaries of the provisions of the Management
Agreement described under &#147;Certain Relationships and Related Party
Transactions&#148; or any amendment thereto or replacement agreement therefor
or any transaction contemplated thereby so long as such amendment or
replacement is not more disadvantageous to the Holders of the notes in
any material respect than the original agreement as in effect on the
date of the indenture.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt"><B>Future Subsidiary Guarantees</B>


<P align="left" style="font-size: 10pt">If National Waterworks or any of its Restricted Subsidiaries acquires or
creates another Domestic Subsidiary or if any Restricted Subsidiary becomes a
Domestic Subsidiary after the date of the indenture, then that newly acquired
or created Domestic Subsidiary (other than a Receivables Subsidiary) will
become a Guarantor and execute a supplemental indenture and deliver an opinion
of counsel satisfactory to the trustee within 20 Business Days of the date on
which it was acquired or created or became a Domestic Subsidiary, <I>provided,
however</I>, that all Subsidiaries that have properly been designated as
Unrestricted Subsidiaries in accordance with the indenture for so long as they
continue to constitute Unrestricted Subsidiaries will not have to comply with
the requirements of this covenant. Each subsidiary guarantee will be limited to
an amount not to exceed the maximum amount that can be guaranteed by that
Domestic Subsidiary without rendering the subsidiary guarantee, as it relates
to such Domestic Subsidiary, void or voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally.



<P align="left" style="font-size: 10pt"><B>Business Activities</B>


<P align="left" style="font-size: 10pt">National Waterworks will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent
as would not be material to National Waterworks and its Restricted Subsidiaries
taken as a whole.



<P align="left" style="font-size: 10pt"><B>Reports</B>


<P align="left" style="font-size: 10pt">Whether or not required by the Securities and Exchange Commission (the &#147;SEC&#148;),
so long as any notes are outstanding, National Waterworks will furnish to the
Holders of notes, within the time periods specified in the SEC&#146;s rules and
regulations:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all quarterly and annual financial information that would be required
to be contained in a filing with the SEC on Forms 10-Q and 10-K if
National Waterworks were required to file such Forms, including a
&#147;Management&#146;s Discussion and Analysis of Financial Condition and Results
of Operations&#148; and, with respect to the annual information only, a
report on the annual financial statements by National Waterworks&#146;
certified independent accountants; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="5%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all current reports that would be required to be filed with the SEC
on Form 8-K if National Waterworks were required to file such reports;</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt"><I>provided, however</I>, if the registration statement of which this prospectus is a
part, as declared effective by the SEC, includes audited financial statements
of National Waterworks for the year ending December&nbsp;31, 2002, then the first
such reports required to be filed and furnished to the Holders of the notes by
National Waterworks following the issue date of the notes shall be the Form
10-Q for the




<P align="center" style="font-size: 10pt">71
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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">quarter ending March&nbsp;31, 2003. In addition, if at any time Holdings becomes
a Guarantor of the notes (there being no obligation of Holdings to do so) and
complies with the requirements of Rule&nbsp;3-10 of Regulation&nbsp;S-X promulgated by
the SEC (or any successor provision), the reports, information and other
documents required to be filed and furnished to Holders of the notes pursuant
to this covenant may, at the option of National Waterworks, be filed by and be
those of Holdings rather than National Waterworks.


<P align="left" style="font-size: 10pt">In addition, whether or not required by the SEC, National Waterworks will file
a copy of all of the information and reports referred to in clauses (1)&nbsp;and (2)
above with the SEC for public availability within the time periods specified in
the SEC&#146;s rules and regulations (unless the SEC will not accept such a filing)
and make such information available to securities analysts and prospective
investors upon request. In addition, National Waterworks and its Restricted
Subsidiaries have agreed that, for so long as any notes remain outstanding,
they will furnish to the Holders of the notes and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule&nbsp;144A(d)(4) under the Securities Act.



<P align="left" style="font-size: 10pt"><B>Events of Default and Remedies</B>



<P align="left" style="font-size: 10pt">Each of the following is an Event of Default:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>default for 30&nbsp;days in the payment when due of interest on the notes,
whether or not prohibited by the subordination provisions of the
indenture;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>default in payment when due of the principal of, or premium, if any,
on the notes, including in connection with an Asset Sale Offer or a
Change of Control Offer, whether or not prohibited by the subordination
provisions of the indenture;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>failure by National Waterworks or any of its Restricted Subsidiaries
to comply with the provisions described under the caption &#147;&#151;Certain
covenants&#151;Merger, Consolidation or Sale of Assets;&#148;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>failure by National Waterworks or any of its Restricted Subsidiaries
to comply for 30&nbsp;days after written notice (specifying the default and
demanding that the same be remedied) with any obligations under the
covenants described under &#147;&#151;Repurchase at Option of Holders&#151; Change of
Control&#148; and &#147;&#151;Repurchase at Option of Holders&#151;Asset Sales&#148; (in each
case, other than a failure to purchase notes, which is covered by clause
(2)&nbsp;above), &#147;&#151;Certain covenants&#151; Restricted payments&#148; and &#147;&#151;Certain
Covenants&#151;Incurrence of Indebtedness and Issuance of Preferred Stock&#148;
above;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>failure by National Waterworks or any of its Restricted Subsidiaries
for 60&nbsp;days after written notice (specifying the default and demanding
that the same be remedied) to comply with any of the other agreements in
the notes, the indenture or the subsidiary guarantees;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by National Waterworks, any of its
Significant Subsidiaries or any group of Restricted Subsidiaries of
National Waterworks that, taken together, would constitute a Significant
Subsidiary (or the payment of which is guaranteed by National
Waterworks, any of its Significant Subsidiaries or any group of
Restricted Subsidiaries of National Waterworks that, taken together,
would constitute a Significant Subsidiary) whether such Indebtedness or
guarantee now exists, or is created after the date of the indenture, if
that default:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>is caused by a failure to pay principal of, or interest or
premium, if any, on such Indebtedness within any applicable grace
period provided in such Indebtedness (a &#147;Payment Default&#148;); or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>results in the acceleration of such Indebtedness prior to its
expressed maturity, and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other
Indebtedness contemplated by clause (a)&nbsp;or (b)&nbsp;above, aggregates
$15.0&nbsp;million or more and such default continues for 10&nbsp;days after
receipt of the written notice (specifying the default and demanding
that the same be remedied) referred to below;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>failure by National Waterworks, any of its Significant Subsidiaries
or any group of Restricted Subsidiaries of National Waterworks that,
taken together, would constitute a Significant Subsidiary, to pay final
judgments aggregating in excess of $15.0&nbsp;million (net of any amounts
covered by insurance or pursuant to which National Waterworks is
indemnified or for which payments are guaranteed in accordance with the
Acquisition Agreement, to the extent that the third party under such
agreement honors its obligations thereunder), which judgments are not
paid, discharged or stayed for a period of 60&nbsp;days;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">72
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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(8)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>except as permitted by the indenture, any guarantee of a Guarantor
that is a Significant Subsidiary or the guarantees of any group of
Guarantors that, taken together, would constitute a Significant
Subsidiary shall be held in any judicial proceeding to be unenforceable

or invalid or shall cease for any reason to be in full force and effect
or any Guarantor that is a Significant Subsidiary, any group of
Guarantors that, taken together, would constitute a Significant
Subsidiary or any Person acting on behalf of any such Guarantor or
group, shall deny or disaffirm its obligations under its subsidiary
guarantee and such default continues for ten days after receipt of the
notice specified in the indenture; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(9)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>certain events of bankruptcy, insolvency or reorganization with
respect to National Waterworks, any of its Significant Subsidiaries or
any group of Restricted Subsidiaries of National Waterworks that, taken
together, would constitute a Significant Subsidiary.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">In the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to National Waterworks, any Significant Subsidiary or
any group of Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding notes will become due and payable
immediately without further action or notice. If any other Event of Default
occurs and is continuing, the trustee or the Holders of at least 25% in
aggregate principal amount of the then outstanding notes may declare all the
notes to be due and payable immediately; <I>provided </I>that so long as any
Indebtedness permitted to be incurred pursuant to the Credit Agreement shall be
outstanding, such acceleration shall not be effective until the earlier of (1)
the acceleration of any Indebtedness under the Credit Agreement or (2)&nbsp;five
business days after receipt by National Waterworks of written notice of such
acceleration. A default under clauses (4), (5), (6)&nbsp;or (8)&nbsp;will not constitute
an Event of Default until the trustee notifies National Waterworks or the
Holders of at least 25% in aggregate principal amount of the outstanding notes
notify National Waterworks and the trustee of the default and National
Waterworks or its Subsidiary, as applicable, does not cure such default within
the time specified in clauses (4), (5), (6)&nbsp;or (8)&nbsp;after receipt of such
notice.


<P align="left" style="font-size: 10pt">Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding notes may direct the
trustee in its exercise of any trust or power. The trustee may withhold from
Holders of the notes notice of any continuing Default or Event of Default if it
determines that withholding notice is in their interest, except a Default or
Event of Default relating to the payment of principal or interest.


<P align="left" style="font-size: 10pt">The Holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the Holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest or premium, if any, on, or the principal of, the notes.


<P align="left" style="font-size: 10pt">National Waterworks is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, National Waterworks is required to deliver to the trustee a
statement specifying such Default or Event of Default.



<P align="left" style="font-size: 10pt"><B>No Personal Liability Of Directors, Officers, Employees and Stockholders</B>


<P align="left" style="font-size: 10pt">No director, officer, employee, incorporator or stockholder of National
Waterworks or any Guarantor, as such, will have any liability for any
obligations of National Waterworks or the Guarantors under the notes, the
indenture, the subsidiary guarantees, or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of notes by
accepting a note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the notes. The waiver may not be
effective to waive liabilities under the federal securities laws.



<P align="left" style="font-size: 10pt"><B>Legal Defeasance and Covenant Defeasance</B>


<P align="left" style="font-size: 10pt">National Waterworks may, at its option and at any time, elect to have all of
its obligations discharged with respect to the outstanding notes and all
obligations of the Guarantors discharged with respect to their subsidiary
guarantees (&#147;Legal Defeasance&#148;) except for:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the rights of Holders of outstanding notes to receive payments in
respect of the principal of, or interest or premium, if any, on such
notes when such payments are due from the trust referred to below;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>National Waterworks&#146; obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed,
lost or stolen notes and the maintenance of an office or agency for
payment and money for security payments held in trust;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">73
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the rights, powers, trusts, duties and immunities of the trustee, and
the related obligations of National Waterworks and the Guarantors; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Legal Defeasance provisions of the indenture.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">In addition, National Waterworks may, at its option and at any time, elect to
have the obligations of National Waterworks and the Guarantors released with
respect to:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the covenants described under &#147;&#151;Certain Covenants&#148; (other than
&#147;&#151;Merger, Consolidation or Sale of Assets&#148;) and &#147;&#151;Repurchase at Option
of Holders;&#148; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the operation of the default provisions specified in clauses (3)
(with respect to an Asset Sale Offer or a Change of Control Offer only),
(4), (5), (6), (7)&nbsp;and, with respect to Significant Subsidiaries only,
clause (9)&nbsp;described above under &#147;&#151;Events of Defaults and Remedies&#148; and
the limitations contained in clause (4)&nbsp;under the first paragraph of
&#147;&#151;Merger, Consolidation or Sale of Assets&#148; above (collectively,
&#147;Covenant Defeasance&#148;).</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">National Waterworks may exercise its legal defeasance option notwithstanding
its prior exercise of its covenant defeasance option. If National Waterworks
exercises its legal defeasance option, payment of the notes may not be
accelerated because of an Event of Default with respect to the notes. If
National Waterworks exercises its covenant defeasance option, payment of the
notes may not be accelerated because of an Event of Default specified in clause
(3) (with respect to an Asset Sale Offer or a Change of Control Offer only),
(4), (5), (6), (7)&nbsp;or (9) (with respect to Significant Subsidiaries or a group
which constitutes a Significant Subsidiary only) under &#147;Events of Default&#148;
above or because of the failure of National Waterworks to comply with clause
(4)&nbsp;under &#147;Certain Covenants&#151;Merger and Consolidation&#148; above.



<P align="left" style="font-size: 10pt">In order to exercise either Legal Defeasance or Covenant Defeasance:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>National Waterworks must irrevocably deposit with the trustee, in
trust, for the benefit of the Holders of the notes, cash in U.S.
dollars, non-callable Government Securities, or a combination of cash in
U.S. dollars and non-callable Government Securities, in amounts as will
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, or interest and
premium, if any, on the outstanding notes on the stated maturity or on
the applicable redemption date, as the case may be, and National
Waterworks must specify whether the notes are being defeased to maturity
or to a particular redemption date;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the case of Legal Defeasance, National Waterworks must deliver to
the trustee an opinion of counsel reasonably acceptable to the trustee
confirming that (a)&nbsp;National Waterworks has received from, or there has
been published by, the Internal Revenue Service a ruling or (b)&nbsp;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 will confirm that, the Holders of the
outstanding notes 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;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the case of Covenant Defeasance, National Waterworks must deliver
to the trustee an opinion of counsel reasonably acceptable to the
trustee to the effect that the Holders of the outstanding notes 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;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>no Default or Event of Default may have occurred and be continuing on
the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit);</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which National
Waterworks or any of its Subsidiaries is a party or by which National
Waterworks or any of its Subsidiaries is bound;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>National Waterworks must deliver to the trustee an officers&#146;
certificate stating that the deposit was not made by National</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">74
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<P align="left" style="margin-left: 2%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Waterworks with the intent of preferring the Holders of notes over the
other creditors of National Waterworks with the intent of defeating,
hindering, delaying or defrauding creditors of National Waterworks or
others; and


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>National Waterworks must deliver to the trustee an officers&#146;
certificate and an opinion of counsel, each stating that all conditions
precedent relating to the Legal Defeasance or the Covenant Defeasance
have been complied with.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt"><B>Amendment, Supplement and Waiver</B>


<P align="left" style="font-size: 10pt">Except as provided in the next three succeeding paragraphs, the indenture, the
notes and the subsidiary guarantees may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the notes
(including any Additional Notes, if any) then outstanding voting as a single
class (including, without limitation, consents obtained in connection with a
purchase of, or tender offer or exchange offer for, notes), and any existing
default or Event of Default or compliance with any provision of the indenture
or the notes or the subsidiary guarantees may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding notes voting
as a single class (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes).


<P align="left" style="font-size: 10pt">Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting Holder):



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reduce the principal amount of notes whose Holders must consent to an
amendment, supplement or waiver;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reduce the principal of or change the fixed maturity of any note or
alter or waive the provisions with respect to the redemption of the
notes (other than provisions relating to the covenants described above
under the caption &#147;&#151;Repurchase at the Option of Holders&#148;);</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>reduce the rate of or change the time for payment of interest on any
note;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>waive a Default or Event of Default in the payment of principal of,
or interest or premium, if any, on the notes (except a rescission of
acceleration of the notes by the Holders of at least a majority in
aggregate principal amount of the notes and a waiver of the payment
default that resulted from such acceleration);</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>make any note payable in money other than that stated in the notes;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of Holders of notes to receive
payments of principal of, or interest or premium, if any, on the notes;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the
caption &#147;&#151;Repurchase at the Option of Holders&#148;);</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(8)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>release any Guarantor from any of its obligations under its
subsidiary guarantee or the indenture, except in accordance with the
terms of the indenture;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(9)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>make any change in the preceding amendment and waiver provisions; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(10)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>impair the right of any Holder to receive payment of principal of,
and interest on, such Holder&#146;s notes on or after the due dates therefor
or to institute suit for the enforcement of any payment on or with
respect to such Holder&#146;s notes.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">In addition, any amendment to, or waiver of, the provisions of the indenture
relating to subordination that adversely affects the rights of the Holders of
the notes will require the consent of the Holders of at least 75% in aggregate
principal amount of notes then outstanding.


<P align="left" style="font-size: 10pt">Notwithstanding the preceding, without the consent of any Holder of notes,
National Waterworks, the Guarantors and the trustee may amend or supplement the
indenture or the notes or the subsidiary guarantees:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to cure any ambiguity, defect or inconsistency;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">75
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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to provide for uncertificated notes in addition to or in place of
certificated notes;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to provide for the assumption of National Waterworks&#146; or any
Guarantor&#146;s obligations to Holders of notes in the case of a merger or
consolidation or sale of all or substantially all of National
Waterworks&#146; or a Guarantor&#146;s assets;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to make any change that would provide any additional rights or
benefits to the Holders of notes or that does not adversely affect the
legal rights under the indenture of any such Holder;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to add a Guarantor;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to comply with requirements of the SEC in order to effect or maintain
the qualification of the indenture under the Trust Indenture Act;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to make any change in the subordination provisions of the indenture
that would limit or terminate the benefits available to any holder of
Senior Debt of National Waterworks (or any representative thereof) under
such subordination provisions;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(8)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to secure the notes and the subsidiary guarantees; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(9)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>to provide for the issuance of Additional Notes in accordance with
the terms of the indenture.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">However, no amendment may be made to the subordination provisions of the
indenture that adversely affects the rights of any holder of Senior Debt of
National Waterworks or any Guarantor then outstanding unless the holders of
such Senior Debt (or any group or representative thereof authorized to give a
consent) consent to such change.



<P align="left" style="font-size: 10pt"><B>Satisfaction and Discharge</B>


<P align="left" style="font-size: 10pt">The indenture will be discharged and will cease to be of further effect as to
all notes and the subsidiary guarantees issued thereunder, when:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>either:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all notes that have been authenticated, except lost, stolen or
destroyed notes that have been replaced or paid and notes for whose
payment money has been deposited in trust and thereafter repaid to
National Waterworks, have been delivered to the trustee for
cancellation; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all notes that have not been delivered to the trustee for
cancellation have become due and payable by reason of the mailing of
a notice of redemption or otherwise or will become due and payable
within one year and National Waterworks or any Guarantor has
irrevocably deposited or caused to be deposited with the trustee as
trust funds in trust solely for the benefit of the Holders, cash in
U.S. dollars, non-callable Government Securities, or a combination of
cash in U.S. dollars and non-callable Government Securities, in
amounts as will be sufficient without consideration of any
reinvestment of interest, to pay and discharge the entire
indebtedness on the notes not delivered to the trustee for
cancellation for principal, premium, if any, and accrued interest to
the date of maturity or redemption;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>no Default or Event of Default has occurred and is continuing on the
date of the deposit or will occur as a result of the deposit and the
deposit will not result in a breach or violation of, or constitute a
default under, any other instrument to which National Waterworks or any
Guarantor is a party or by which National Waterworks or any Guarantor is
bound;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>National Waterworks or any Guarantor has paid or caused to be paid
all sums payable by it under the indenture; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>National Waterworks has delivered irrevocable instructions to the
trustee under the indenture to apply the deposited money toward the
payment of the notes at maturity or the redemption date, as the case may
be.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">In addition, National Waterworks must deliver an officers&#146; certificate and an
opinion of counsel to the trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.



<P align="left" style="font-size: 10pt"><B>Concerning the Trustee</B>


<P align="left" style="font-size: 10pt">If the trustee becomes a creditor of National Waterworks or any Guarantor, the
indenture limits its right to obtain payment of claims in



<P align="center" style="font-size: 10pt">76
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90&nbsp;days, apply to the SEC for permission to
continue or resign.

<P align="left" style="font-size: 10pt">The Holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
occurs and is continuing, the trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
Holder of notes, unless such Holder has offered to the trustee security and
indemnity satisfactory to it against any loss, liability or expense.



<P align="left" style="font-size: 10pt"><B>Additional Information</B>


<P align="left" style="font-size: 10pt">Anyone who receives this prospectus may obtain a copy of the indenture and the
exchange and registration rights agreement without charge by writing to
National Waterworks, Inc., 200 West Highway 6, Suite&nbsp;620, Waco, Texas 76712,
Attention: Chief Financial Officer; telephone number (254)&nbsp;772-5355.



<P align="left" style="font-size: 10pt"><B>Book-Entry, Delivery and Form</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Global notes</B>

<P align="left" style="font-size: 10pt">The notes are represented by one or more permanent definitive registered notes
in global form, without interest coupons, and are deposited with the trustee as
custodian for The Depository Trust Company (&#147;DTC&#148;) and registered in the name
of Cede &#038; Co., as nominee of DTC, or for the accounts of Euroclear and
Clearstream, as the case may be.


<P align="left" style="font-size: 10pt">Ownership of beneficial interests in each global note are limited to persons
who have accounts with DTC (&#147;DTC participants&#148;) or persons who hold interests
through DTC participants. We understand that under procedures established by
DTC:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>DTC credits portions of the principal amount of the global notes to
the accounts of the DTC participants; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>ownership of beneficial interests in each global note is shown on,
and transfer of ownership of those interests will be effected only
through, records maintained by DTC (with respect to interests of DTC
participants) and the records of DTC participants (with respect to other
owners of beneficial interests in the global notes).</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">Except as set forth below, the global notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the global notes may not be exchanged for
notes in physical, certificated form except in the limited circumstances
described below.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Book-Entry Procedures for the Global Notes</B>

<P align="left" style="font-size: 10pt">All interests in the global notes are subject to the operations and procedures
of DTC, including those held through Euroclear and Clearstream. We provide the
following summaries of those operations and procedures solely for the
convenience of investors. The operations and procedures of each settlement
system are controlled by that settlement system and may be changed at any time.
We are not responsible for those operations or procedures.



<P align="left" style="font-size: 10pt">DTC has advised us that it is:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a limited purpose trust company organized under the laws of the State of New York,</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a &#147;banking organization&#148; within the meaning of New York Banking law,</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a member of the Federal Reserve System,</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a &#147;clearing corporation&#148; within the meaning of the Uniform Commercial Code, as amended, and</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">77
</DIV>

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<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a &#147;clearing agency&#148; registered pursuant to the provisions of Section&nbsp;17A of the Exchange Act.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">DTC was created to hold securities for its participants and facilitates the
clearance and settlement of securities transactions between its participants
through electronic book-entry changes to the accounts of its participants.
DTC&#146;s participants include securities brokers and dealers; banks and trust
companies; clearing corporations and other organizations. Indirect access to
DTC&#146;s system is also available to others such as banks, brokers, dealers and
trust companies; these indirect participants clear through or maintain a
custodial relationship with a DTC participant, either directly or indirectly.
Investors who are not DTC participants may beneficially own securities held by
or on behalf of DTC only through DTC participants or indirect participants in
DTC.


<P align="left" style="font-size: 10pt">The laws of some states require that certain persons take physical delivery in
definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a global note to such persons may be limited
to that extent. Because DTC can act only on behalf of participants, which in
turn act on behalf of indirect participants and certain banks, the ability of a
person having beneficial interests in a global note to pledge such interests to
persons or entities that do not participate in the DTC system, or otherwise
take action in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests.


<P align="left" style="font-size: 10pt">So long as DTC or its nominee is the registered owner of a global note, DTC or
such nominee, as the case may be, will be considered the sole owner or holder
of the notes represented by that global note for all purposes under the
indenture. Except as provided below, owners of beneficial interests in a global
note:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>will not be entitled to have notes represented by the global note registered in their names;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>will not receive or be entitled to receive physical delivery of certificated notes; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>will not be considered the owners or holders of the notes under the
indenture for any purpose, including with respect to the giving of any
direction, instruction or approval to the trustee under the indenture.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">As a result, each holder owning a beneficial interest in a global note must
rely on the procedures of DTC to exercise any rights of a holder of notes under
the indenture (and, if the investor is not a participant or an indirect
participant in DTC, on the procedures of the DTC participant through which the
investor owns its interest). We understand that under existing industry
practice, in the event that we request any action of holders of notes, or a
holder that is an owner of a beneficial interest in a global note desires to
take any action that DTC, as the holder of such global note, is entitled to
take, DTC would authorize the participants to take such action and the
participants would authorize holders owning through such participants to take
such action or would otherwise act upon the instruction of such holders.
Neither us nor the trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of notes by DTC,
or for maintaining, supervising or reviewing any records of DTC relating to
such new notes.


<P align="left" style="font-size: 10pt">Payments of principal, premium (if any) and interest with respect to the notes
represented by a global note will be made by the trustee to DTC&#146;s nominee as
the registered holder of the global note. Neither we nor the trustee will have
any responsibility or liability for the payment of amounts to owners of
beneficial interests in a global note, for any aspect of the records relating
to or payments made on account of those interests by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to those interests.


<P align="left" style="font-size: 10pt">Payments by participants and indirect participants in DTC to the owners of
beneficial interests in a global note will be governed by standing instructions
and customary industry practice and will be the responsibility of those
participants or indirect participants and DTC.


<P align="left" style="font-size: 10pt">Transfers between participants in DTC will be effected under DTC&#146;s procedures
and will be settled in same-day funds. Transfers between participants in
Euroclear and Clearstream will be effected in the ordinary way in accordance
with their respective rules and operating procedures.


<P align="left" style="font-size: 10pt">Cross-market transfers between DTC participants, on the one hand, and Euroclear
or Clearstream participants on the other hand, will be effected by DTC in
accordance with DTC rules on behalf of Euroclear or Clearstream, as the case
may be, by its respective depositary; however, such cross-market transactions
will require delivery of instructions to Euroclear or Clearstream, as the case
may be, by the counterparty in such system in accordance with the rules and
procedures and within the established deadlines (Brussels time) of such system.
Euroclear or Clearstream, as the case may be, will if the transaction meets its
settlement requirements, deliver instructions to its respective depositary to
take action to effect final settlement on its behalf by delivering or receiving
interests in the relevant global note in DTC, and making or receiving payment
in accordance with normal procedures for same day funds settlement



<P align="center" style="font-size: 10pt">78
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt">applicable to DTC. Euroclear participants and Clearstream participants may not
deliver instructions directly to the depositaries for Euroclear or Clearstream.


<P align="left" style="font-size: 10pt">Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a global note from a DTC
participant will be credited, and any such crediting will be reported to the
relevant Euroclear or Clearstream participant, during the securities settlement
processing day (which must be a business day for Euroclear and Clearstream)
immediately following the DTC settlement date. Cash received on Euroclear or
Clearstream as a result of sales of interests in a global note by or through a
Euroclear or Clearstream participants to a DTC participant will be received
with value on the DTC settlement date but will be available in the relevant
Euroclear or Clearstream cash account only as of the business day for Euroclear
or Clearstream following the DTC settlement date.


<P align="left" style="font-size: 10pt">Although DTC, Euroclear and Clearstream have agreed to the foregoing procedures
in order to facilitate transfers of beneficial ownership interests in the
global notes among participants of DTC, Euroclear and Clearstream, they are
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued or modified at any time. None of National
Waterworks, the trustee nor any of their respective agents will have any
responsibility for the performance by DTC, Euroclear and Clearstream, their
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations, including maintaining,
supervising or reviewing the records relating to, or payments made on account
of, beneficial ownership interests in global notes.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<B>Certificated Notes</B>

<P align="left" style="font-size: 10pt">Notes in physical, certificated form will be issued and delivered to each
person that DTC identifies as a beneficial owner of the related notes only if:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>DTC notifies National Waterworks at any time that it is unwilling or
unable to continue as depositary for the global notes and a successor
depositary is not appointed within 120&nbsp;days;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>DTC ceases to be registered as a clearing agency under the Securities
Exchange Act of 1934 and a successor depositary is not appointed within
120&nbsp;days;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the case of a note held for an account of Euroclear or
Clearstream, Euroclear or Clearstream, as the case may be, is closed for
business for a continuous period of 14&nbsp;days, other than by reason of
statutory or other holidays, or announces an intention permanently to
cease business or does in fact do so; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&#149;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>there shall have occurred and be continuing an Event of Default with
respect to the notes.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">In all cases, certificated notes delivered in exchange for any global note or
beneficial interests therein will be registered in the names, and issued in
approved denominations, requested by or on behalf of DTC (in accordance with
its customary procedures). Any such exchange will be effected only through the
DWAC System and an appropriate adjustment will be made in the records of the
Security Register to reflect a decrease in the principal amount of the relevant
global note.



<P align="left" style="font-size: 10pt"><B>Certain Definitions</B>


<P align="left" style="font-size: 10pt">Set forth below are certain defined terms used in the indenture. Reference is
made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.


<P align="left" style="font-size: 10pt"><I>&#147;Acquired </I>Debt<I>&#148; </I>means, with respect to any specified Person:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Indebtedness of any other Person existing at the time such other
Person is merged with or into, or became a Subsidiary of, such specified
Person, whether or not such Indebtedness is incurred in connection with,
or in contemplation of, such other Person merging with or into, or
becoming a Subsidiary of, such specified Person; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt"><I>&#147;Acquisition&#148; </I>means the purchase by National Waterworks of substantially all of
the assets and businesses of, and the assumption of



<P align="center" style="font-size: 10pt">79
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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">certain liabilities and obligations of, U.S. Filter which occurred on the date
of the indenture.


<P align="left" style="font-size: 10pt"><I>&#147;Acquisition Agreement&#148; </I>means that certain Asset Purchase Agreement, dated as
of September&nbsp;12, 2002, by and among United States Filter Corporation, U.S.
Filter Distribution Group, Inc. and Blue Acquisition Corp. (which has
subsequently changed its name to National Waterworks, Inc.).


<P align="left" style="font-size: 10pt"><I>&#147;Affiliate&#148; </I>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 purposes of this definition, &#147;control,&#148;
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; <I>provided </I>that beneficial ownership of 10% or more of
the Voting Stock of a Person will be deemed to be control. For purposes of this
definition, the terms &#147;controlling,&#148; &#147;controlled by&#148; and &#147;under common control
with&#148; have correlative meanings. No Person (other than National Waterworks or
any Subsidiary of National Waterworks) in whom a Receivables Subsidiary makes
an Investment in connection with a Qualified Receivables Transaction will be
deemed to be an Affiliate of National Waterworks or any of its Subsidiaries
solely by reason of such Investment.


<P align="left" style="font-size: 10pt"><I>&#147;Applicable Premium&#148; </I>means, with respect to any note on any applicable
redemption date, the greater of:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>1.0% of the then outstanding principal amount of the note; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the excess of:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the present value at such redemption date of (i)&nbsp;the redemption
price of the note at December&nbsp;1, 2007 (such redemption price being
set forth in the table appearing above under the caption &#147;&#151;Optional
Redemption&#148;) plus (ii)&nbsp;all required interest payments due on the note
through December&nbsp;1, 2007 (excluding accrued but unpaid interest),
computed using a discount rate equal to the Treasury Rate as of such
redemption date plus 50 basis points; over</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the then outstanding principal amount of the note.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt"><I>&#147;Asset Sale&#148; </I>means:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the sale, lease (other than an operating lease entered into in the
ordinary course of business), conveyance or other disposition of any
assets or rights of National Waterworks or any Restricted Subsidiary;
provided that the sale, conveyance or other disposition of all or
substantially all of the assets of National Waterworks and its
Restricted Subsidiaries taken as a whole will be governed by the
provisions of the indenture described above under the caption
&#147;&#151;Repurchase at the Option of Holders&#151;Change of Control&#148; and/or the
provisions described above under the caption &#147;&#151;Certain Covenants&#151;Merger,
Consolidation or Sale of Assets&#148; and not by the provisions of the Asset
Sale covenant; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the issuance of Equity Interests in any of National Waterworks&#146;
Restricted Subsidiaries or the sale of Equity Interests in any of its
Subsidiaries (in each case other than directors&#146; qualifying Equity
Interests or Equity Interests required by applicable law to be held by a
Person other than National Waterworks or a Restricted Subsidiary).</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">Notwithstanding the preceding, the following items will not be deemed to be
Asset Sales:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any single transaction or series of related transactions that
involves assets or rights having a fair market value of less than $2.0
million;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a transfer of assets between or among National Waterworks and its
Restricted Subsidiaries,</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>an issuance of Equity Interests by a Restricted Subsidiary to
National Waterworks or to another Restricted Subsidiary;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the sale or lease of inventory or accounts receivable in the ordinary
course of business or accounts receivable in connection with the
compromise, settlement or collection thereof;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the sale or disposition of obsolete, damaged or worn out equipment or
property in the ordinary course of business or any other property that
is uneconomic or no longer useful to the conduct of National Waterworks&#146;
business;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">80
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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the sale or other disposition of cash or Cash Equivalents;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>sales of accounts receivable and related assets of the type specified
in the definition of &#147;Qualified Receivables Transaction&#148; to a
Receivables Subsidiary for the fair market value thereof, including cash
in an amount at least equal to 75% of the book value thereof as
determined in accordance with GAAP, it being understood that, for the
purposes of this clause (7), notes received in exchange for the transfer
of accounts receivable and related assets will be deemed cash if the
Receivables Subsidiary or other payor is required to repay said notes as
soon as practicable from available cash collections less amounts
required to be established as reserves pursuant to contractual
agreements with entities that are not Affiliates of National Waterworks
entered into as part of a Qualified Receivables Transaction; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(8)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a Restricted Payment or Permitted Investment that is permitted by the
covenant described above under the caption &#147;&#151;Certain
Covenants&#151;Restricted Payments.&#148;</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt"><I>&#147;Beneficial Owner&#148; </I>has the meaning assigned to such term in Rule&nbsp;13d-3 and Rule
13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular &#147;person&#148; (as that term is used in Section&nbsp;13(d)(3)
of the Exchange Act), such &#147;person&#148; will be deemed to have beneficial ownership
of all securities that such &#147;person&#148; has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
&#147;Beneficially Owns&#148; and &#147;Beneficially Owned&#148; have a corresponding meaning.


<P align="left" style="font-size: 10pt"><I>&#147;Board of Directors&#148; </I>means:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>with respect to a corporation, the board of directors of the
corporation;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>with respect to a partnership or limited liability company, the
managing general partner or partners or the managing member or members
or any controlling committee of partners or members, as applicable; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>with respect to any other Person, any similar governing body.</TD>
</TR>

</TABLE>


<P align="left" style="margin-left: 2%; text-indent: -2%; margin-right: 0%; font-size: 10pt"><I>&#147;Capital Lease Obligation&#148; </I>means, at the time any determination is to be made,
the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance
with GAAP, and the stated maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be prepaid by the lessee without
payment of a penalty.

<P align="left" style="font-size: 10pt"><I>&#147;Capital Stock&#148; </I>means:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the case of a corporation, corporate stock;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions
of assets of, the issuing Person.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt"><I>&#147;Cash Equivalents&#148; </I>means:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>United States dollars;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality of the United
States government (<I>provided </I>that the full faith and credit of the United
States is pledged in support of those securities) having maturities of
not more than six months from the date of acquisition;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>marketable general obligations issued by any state of the United
States or any political subdivision of any such state or any</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">81
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>public instrumentality thereof maturing within one year of the date of
acquisition and at the time of acquisition rated &#147;A&#148; or better from either
of Moody&#146;s Investors Service Inc. or Standard &#038; Poor&#146;s Rating Services;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>certificates of deposit, time deposits and Eurodollar time deposits
or bankers acceptances&#146; with maturities of one year or less from the
date of acquisition, and overnight bank deposits, in each case, with any
lender party to the Credit Agreement or with any commercial bank having
capital and surplus in excess of $500.0&nbsp;million;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>repurchase obligations with a term of not more than six months for
underlying securities of the types described in clauses (2), (3)&nbsp;and (4)
above entered into with any financial institution meeting the
qualifications specified in clause (4)&nbsp;above;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>commercial paper rated at the time of acquisition thereof at least
A-1 or the equivalent by Moody&#146;s Investors Service, Inc. or at least P-1
or the equivalent by Standard &#038; Poor&#146;s Rating Services (or carrying an
equivalent rating by a nationally recognized rating agency if both the
two named agencies cease publishing ratings of investments) and in each
case maturing within one year after the date of acquisition; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>interests in investment companies or money market funds at least 95%
of the assets of which constitute cash and Cash Equivalents of the kinds
described in clauses (1)&nbsp;through (7)&nbsp;of this definition.</TD>
</TR>

</TABLE>


<P align="left" style="font-size: 10pt"><I>&#147;Change of Control&#148; </I>means the occurrence of any of the following:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(A)&nbsp;prior to the first public offering of Capital Stock of either
Holdings or National Waterworks, the first day on which Holdings ceases
to own 100% of the outstanding Voting Stock of National Waterworks, and
(B)&nbsp;after the first public offering of Capital Stock of either Holdings
or National Waterworks, (i)&nbsp;if such public offering is of Holdings&#146;
Capital Stock, the first day on which Holdings ceases to own 100% of the
outstanding Voting Stock of National Waterworks or (ii)&nbsp;if such public
offering is of National Waterworks&#146; Capital Stock, the date on which any
person (as defined in clause (2)&nbsp;below), other than the Permitted
Holders or a Permitted Group, becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the Voting Stock of National Waterworks,
measured by voting power rather than number of shares;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the
properties or assets of National Waterworks and its Restricted
Subsidiaries, taken as a whole, to any &#147;person&#148; (as that term is used in
Section&nbsp;13(d)(3) of the Exchange Act) other than a Permitted Holder or a
Permitted Group;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the adoption of a plan relating to the liquidation or dissolution of
Holdings or National Waterworks;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(A)&nbsp;prior to the first public offering of Capital Stock of either</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Holdings or National Waterworks, the consummation of any transaction
(including, without limitation, any merger or consolidation) the result
of which is that any person (as defined above), other than a Permitted
Holder or a Permitted Group, becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the Voting Stock of Holdings, measured
by voting power rather than number of shares, and (B)&nbsp;after the first
public offering of Capital Stock of either Holdings or National
Waterworks, (i)&nbsp;if such public offering is of Holdings&#146; Capital Stock,
the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any person (as
defined above), other than a Permitted Holder or a Permitted Group,
becomes the Beneficial Owner, directly or indirectly, of more than 50%
of the Voting Stock of Holdings, measured by voting power rather than
number of shares, or (ii)&nbsp;if such public offering is of National
Waterworks&#146; Capital Stock, the consummation of any transaction
(including, without limitation, any merger or consolidation) the result
of which is that any person (as defined above), other than a Permitted
Holder or a Permitted Group, becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the Voting Stock of Holdings or National
Waterworks, as the case may be, in each case measured by voting power
rather than number of shares;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(A)&nbsp;prior to the first public offering of Capital Stock of either
Holdings or National Waterworks, the first day on which a majority of
the members of the Board of Directors of Holdings are not Continuing
Directors and (B)&nbsp;after the first public offering of Capital Stock of
either Holdings or National Waterworks, (i)&nbsp;if such public offering is
of Holdings&#146; Capital Stock, the first day on which a majority of the
members of the Board of Directors of Holdings are not Continuing
Directors, or (ii)&nbsp;if such public offering is of National Waterworks&#146;
Capital Stock, the first day on which a majority of the members of the
Board of Directors of National Waterworks are not Continuing Directors;
or</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">82
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(A)&nbsp;prior to the first public offering of Capital Stock of either
Holdings or National Waterworks, Holdings consolidates with, or merges
with or into, any Person, or any Person consolidates with, or merges
with or into, Holdings, in any such event pursuant to a transaction in
which any of the outstanding Voting Stock of Holdings or such other
Person is converted into or exchanged for cash, securities or other
property, other than any such transaction where the Voting Stock of
Holdings outstanding immediately prior to such transaction is converted
into or exchanged for Voting Stock (other than Disqualified Stock) of
the surviving or transferee Person constituting a majority of the
outstanding shares of such Voting Stock of such surviving or transferee
Person (immediately after giving effect to such issuance) and (B)&nbsp;after
the first public offering of Capital Stock of either Holdings or
National Waterworks, (i)&nbsp;if such public offering is of Holdings&#146; Capital
Stock, Holdings consolidates with, or merges with or into, any Person,
or any Person consolidates with, or merges with or into, Holdings, in
any such event pursuant to a transaction in which any of the outstanding
Voting Stock of Holdings or such other Person is converted into or
exchanged for cash, securities or other property, other than any such
transaction where the Voting Stock of Holdings outstanding immediately
prior to such transaction is converted into or exchanged for Voting
Stock (other than Disqualified Stock) of the surviving or transferee
Person constituting a majority of the outstanding shares of such Voting
Stock of such surviving or transferee Person (immediately after giving
effect to such issuance), or (ii)&nbsp;if such public offering is of National
Waterworks&#146; Capital Stock, National Waterworks consolidates with, or
merges with or into, any Person, or any Person consolidates with, or
merges with or into, National Waterworks, in any such event pursuant to
a transaction in which any of the outstanding Voting Stock of National
Waterworks or such other Person is converted into or exchanged for cash,
securities or other property, other than any such transaction where the
Voting Stock of National Waterworks outstanding immediately prior to
such transaction is converted into or exchanged for Voting Stock (other
than Disqualified Stock) of the surviving or transferee Person
constituting a majority of the outstanding shares of such Voting Stock
of such surviving or transferee Person (immediately after giving effect
to such issuance).</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt"><I>&#147;Clearstream&#148; </I>means Clearstream Banking, <I>Societe Anonyme </I>(formerly known as
Cedelbank).


<P align="left" style="font-size: 10pt"><I>&#147;Commodity Price Protection Agreement&#148; </I>means with respect to any Person any
forward contract, commodity swap, commodity option or other similar agreement
or arrangement relating to, or the value of which is dependent upon or which is
designed to protect such Person against, fluctuations in commodity prices.


<P align="left" style="font-size: 10pt"><I>&#147;Consolidated Cash Flow&#148; </I>means, with respect to any specified Person for any
period, the Consolidated Net Income of such Person for such period <I>plus</I>:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income; <I>plus</I></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
imputed interest with respect to commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers&#146;
acceptance financings, and net of the effect of all payments made or
received pursuant to Hedging Obligations), to the extent that any such
expense was deducted in computing such Consolidated Net Income; <I>plus</I></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period) and other non-cash expenses (excluding
any such non-cash expense to the extent that it represents an accrual of
or reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of such Person and
its Restricted Subsidiaries for such period, to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income; <I>minus</I></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>non-cash items increasing such Consolidated Net Income for such
period, other than the accrual of revenue in the ordinary course of
business,</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">in each case, on a consolidated basis and determined in accordance with GAAP.


<P align="left" style="font-size: 10pt"><I>&#147;Consolidated Net Income&#148; </I>means, with respect to any specified Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; <I>provided </I>that:



<P align="center" style="font-size: 10pt">83
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Net Income of any Person that is not a Restricted Subsidiary or
that is accounted for by the equity method of accounting will be
included only to the extent of the amount of dividends or distributions
paid in cash to the specified Person or a Restricted Subsidiary of the
Person (and if such Net Income is a loss will be included only to the
extent that such loss has been funded with cash by the specified Person
or a Restricted Subsidiary of the specified Person);</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Net Income of any Restricted Subsidiary will be excluded to the
extent that the declaration or payment of dividends or similar
distributions or the making of loans or intercompany advances by that
Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any net gain or loss realized upon the sale or other disposition of
any asset of such Person or its Restricted Subsidiaries (including
pursuant to a Sale/Leaseback Transaction) that is not sold or otherwise
disposed of in the ordinary course of business and any net gain or loss
realized upon the sale or other disposition of any Equity Interest of
any Person will be excluded;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any extraordinary gain or loss will be excluded;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any noncash compensation charges or other non-cash expenses or
charges arising from the grant of or issuance or repricing of stock,
stock options or other equity-based awards or any amendment,
modification, substitution or change of any such stock, stock options or
other equity-based awards will be excluded;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any non-recurring fees, charges or other expenses made or incurred in
connection with the Acquisition and the transactions contemplated
thereby within 180&nbsp;days of the date of the indenture will be excluded;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the cumulative effect of a change in accounting principles will be
excluded;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(8)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>for purposes of the covenant described under the caption &#147;&#151;Restricted
payments&#148; only, the total amount of cash tax savings generated during
the applicable period attributable to the depreciation and amortization
resulting from the step-up in the basis for tax purposes of the assets
acquired in the Acquisition (including, without limitation, intangible
assets such as goodwill) will be added to &#147;Consolidated Net Income&#148; so
long as such addition will not result in double-counting; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(9)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any non-cash goodwill impairment charges subsequent to the date of
the Indenture resulting from the application of SFAS No.&nbsp;142 will be
excluded.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt"><I>&#147;Continuing Directors&#148; </I>means, as of any date of determination, any member of
the Board of Directors of Holdings who:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>was a member of such Board of Directors on the date of the indenture;
or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were members
of such Board at the time of such nomination or election; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>was nominated for election or appointed to such Board of Directors by
a Permitted Holder or a Permitted Group.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt"><I>&#147;Credit Agreement&#148; </I>means that certain Credit Agreement, dated as of November
22, 2002 by and among National Waterworks, Holdings, UBS AG, Stamford Branch,
JPMorgan Securities Inc., Goldman Sachs Credit Partners L.P. and the lenders
from time to time thereunder, providing for up to $250.0&nbsp;million of term loans
and $75.0&nbsp;million of revolving credit borrowings, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, supplemented,
renewed, refunded, replaced, restructured, restated or refinanced from time to
time (including any agreement extending the maturity thereof or increasing the
amount of available borrowings thereunder or adding Restricted Subsidiaries of
National Waterworks as additional borrowers or guarantors thereunder) whether
with the original agents and lenders or otherwise and whether provided under
the original credit agreement or other credit agreements or otherwise.


<P align="left" style="font-size: 10pt"><I>&#147;Credit Facilities&#148; </I>means, one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing



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<P align="left" style="font-size: 10pt">(including through the sale of receivables to such lenders or to special
purpose entities formed to borrow from such lenders against such receivables)
or letters of credit, in each case, as amended, restated, modified,
supplemented, renewed, refunded, replaced, restructured or refinanced in whole
or in part from time to time (including any agreement extending the maturity
thereof or increasing the amount of available borrowings thereunder or adding
Restricted Subsidiaries of National Waterworks as additional borrowers or
guarantors thereunder).


<P align="left" style="font-size: 10pt"><I>&#147;Currency Agreement&#148; </I>means with respect to any Person any foreign exchange
contract, currency swap agreements, futures contract, options contract,
synthetic cap or other similar agreement or arrangement to which such Person is
a party or of which it is a beneficiary for the purpose of hedging foreign
currency risk.


<P align="left" style="font-size: 10pt"><I>&#147;Default&#148; </I>means any event that is, or with the passage of time or the giving of
notice or both would be, an Event of Default.


<P align="left" style="font-size: 10pt"><I>&#147;Designated Noncash Consideration&#148; </I>means the fair market value of noncash
consideration received by National Waterworks or one or more of its Restricted
Subsidiaries in connection with an Asset Sale that is so designated as
Designated Noncash Consideration pursuant to an Officers&#146; Certificate setting
forth the basis of valuation.


<P align="left" style="font-size: 10pt"><I>&#147;Designated Senior Debt&#148; </I>means:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any Indebtedness outstanding under the Credit Agreement; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any other Senior Debt permitted under the indenture, the principal
amount of which is $25.0&nbsp;million or more and that has been designated by
National Waterworks as &#147;Designated Senior Debt.&#148;</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt"><I>&#147;Disqualified Stock&#148; </I>means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable or exercisable, in each case at the option of the holder of the
Capital Stock), or upon the happening of any event (other than an event solely
within the control of the issuer thereof), matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the holder of the Capital Stock, in whole or in part, on or
prior to the date that is 91&nbsp;days after the date on which the notes mature;
<I>provided, however, </I>that any class of Capital Stock that, by its terms,
authorizes the issuer thereof to satisfy in full its obligations with respect
to payment of dividends or upon maturity, redemption (pursuant to a sinking
fund or otherwise) or repurchase thereof or otherwise by delivery of Capital
Stock that is not Disqualified Stock, and that is not convertible, puttable or
exchangeable for Disqualified Stock or Indebtedness, shall not be deemed
Disqualified Stock so long as such issuer satisfies its obligations with
respect thereto solely by the delivery of Capital Stock that is not
Disqualified Stock. Notwithstanding the preceding sentence, any Capital Stock
that would constitute Disqualified Stock solely because the holders of the
Capital Stock have the right to require National Waterworks to repurchase such
Capital Stock upon the occurrence of a change of control or an asset sale will
not constitute Disqualified Stock if the terms of such Capital Stock provide
that National Waterworks may not repurchase or redeem any such Capital Stock
pursuant to such provisions unless National Waterworks has first complied with
the provisions described above under the caption &#147;&#151;Repurchase at option of
holders.&#148;


<P align="left" style="font-size: 10pt"><I>&#147;Domestic Subsidiary&#148; </I>means any Restricted Subsidiary of National Waterworks
that was formed under the laws of the United States or any state of the United
States or the District of Columbia or that guarantees or otherwise provides
direct credit support for any Indebtedness of National Waterworks.


<P align="left" style="font-size: 10pt"><I>&#147;Equity Interests&#148; </I>means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).


<P align="left" style="font-size: 10pt"><I>&#147;Equity Offering&#148; </I>means a public or private sale for cash of Capital Stock
(other than Disqualified Stock).


<P align="left" style="font-size: 10pt"><I>&#147;Euroclear&#148; </I>means Euroclear Banking S.A./N.V.


<P align="left" style="font-size: 10pt"><I>&#147;Exchange and Registration Rights Agreement&#148; </I>means the Exchange and
Registration Rights Agreement, dated as of November&nbsp;22, 2002 among National
Waterworks and the other parties named on the signature pages thereof, as such
agreement may be amended, modified or supplemented from time to time, and, with
respect to any additional notes, one or more registration rights agreements
among the Company and the other parties thereto, as such agreement(s) may be
amended, modified or supplemented from time to time, relating to rights given
by National Waterworks to the purchasers of additional notes to register such
additional notes under the Securities Act.



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<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt"><I>&#147;Existing Indebtedness&#148; </I>means the Indebtedness of National Waterworks (other
than Indebtedness under the Credit Agreement) in existence on the date of the
indenture.


<P align="left" style="font-size: 10pt"><I>&#147;Fee Agreement&#148; </I>means that certain Fee Agreement, dated as of September&nbsp;30,
2002, by and among National Waterworks, THL Managers V, LLC and J.P. Morgan
Partners, LLC.


<P align="left" style="font-size: 10pt"><I>&#147;Fixed Charges&#148; </I>means, with respect to any specified Person and its Restricted
Subsidiaries for any period, the sum, without duplication, of:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including,
without limitation, amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect
to commissions, discounts and other fees and charges incurred in respect
of letter of credit or bankers&#146; acceptance financings, and net of the
effect of all payments made or received pursuant to Hedging Obligations;
<I>plus</I></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period; <I>plus</I></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries, whether or not such Guarantee or Lien is called upon; <I>plus</I></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>commissions, discounts, yield and other financing fees and financing
charges incurred in connection with any transaction (including, without
limitation, a Qualified Receivables Transaction) pursuant to which such
Person or any of its Restricted Subsidiaries may sell, convey or
otherwise transfer or grant a security interest in any accounts
receivable or related assets of the type specified in the definition of
&#147;Qualified Receivables Transaction;&#148; <I>plus</I></TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the product of (a)&nbsp;all dividends, whether paid or accrued and whether
or not in cash, on any series of Disqualified Stock of such Person or
preferred stock of any of its Restricted Subsidiaries, other than
dividends on Equity Interests payable solely in Equity Interests of
National Waterworks (other than Disqualified Stock) or to National
Waterworks or a Restricted Subsidiary of National Waterworks, times (b)
a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt"><I>&#147;Fixed Charge Coverage Ratio&#148; </I>means with respect to any specified Person for
any period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the specified
Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees,
repays, repurchases or redeems any Indebtedness (other than ordinary working
capital borrowings) or issues, repurchases or redeems Disqualified Stock of
such Person or preferred stock of a Restricted Subsidiary of such Person
subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated and on or prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
&#147;Calculation Date&#148;), then the Fixed Charge Coverage Ratio will be calculated
giving pro forma effect to such incurrence, assumption, Guarantee, repayment,
repurchase or redemption of Indebtedness, or such issuance, repurchase or
redemption of preferred stock, and the use of the proceeds therefrom as if the
same had occurred at the beginning of the applicable four-quarter reference
period.


<P align="left" style="font-size: 10pt">In addition, for purposes of calculating the Fixed Charge Coverage Ratio:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>acquisitions that have been made by the specified Person or any of
its Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and
on or prior to the Calculation Date will be given pro forma effect as if
they had occurred on the first day of the four-quarter reference period
and Consolidated Cash Flow for such reference period will be calculated
on a pro forma basis in accordance with Regulation&nbsp;S-X under the
Securities Act and may include operating expense reductions (net of
continuing associated expenses but excluding non-recurring associated
expenses) for such period resulting from the acquisition which is being
given pro forma effect to that either (a)&nbsp;would be permitted pursuant to
Rule&nbsp;11-02 of Regulation&nbsp;S-X under the Securities Act or (b)&nbsp;have been
realized or for which substantially all the steps necessary for
realization have</TD>
</TR>

</TABLE>

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<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>been taken or at the time of determination are reasonably expected to be
taken within six months following any such acquisition, including, but not
limited to, the execution or termination of any contracts, the termination
of any personnel or the closing of any facility, as applicable, provided
that such adjustments shall be calculated on an annualized basis and will
be set forth in an Officers&#146; Certificate signed by National Waterworks&#146;
chief financial officer and another Officer which states in detail (i)&nbsp;the
amount of such adjustment or adjustments, (ii)&nbsp;that such adjustment or
adjustments are based on the reasonable good faith beliefs of the officers
executing such Officers&#146; Certificate at the time of such execution and
(iii)&nbsp;that such adjustment or adjustments and the plan or plans related
thereto have been reviewed and approved by the Board of Directors. Any
such Officer&#146;s Certificate will be provided to the trustee if National
Waterworks incurs any Indebtedness or takes any other action under the
indenture in reliance thereon;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, will be excluded; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, will be excluded, but only to
the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the specified Person or any of its Restricted
Subsidiaries following the Calculation Date.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">In addition, to the extent not covered by the foregoing, if the Acquisition has
occurred in the four-quarter period used to determine the Fixed Charge Coverage
Ratio, then the Fixed Charge Coverage Ratio shall be determined giving pro
forma effect to the Acquisition on the same basis given in the Offering
Circular dated November&nbsp;14, 2002 for the notes.


<P align="left" style="font-size: 10pt">If any Indebtedness bears a floating rate of interest, the interest expense on
such Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Hedging Obligation applicable to such Indebtedness if such Hedging
Obligation has a remaining term as at the date of determination in excess of 12
months).


<P align="left" style="font-size: 10pt"><I>&#147;GAAP&#148; </I>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 in such other statements by such other
entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.


<P align="left" style="font-size: 10pt"><I>&#147;Guarantee&#148; </I>means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.


<P align="left" style="font-size: 10pt"><I>&#147;Guarantors&#148; </I>means:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>each of National Waterworks&#146; Domestic Subsidiaries, if any; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any other Subsidiary that executes a subsidiary guarantee in
accordance with the provisions of the indenture and their respective
successors and assigns.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt"><I>&#147;Hedging Obligations&#148; </I>means, with respect to any specified Person, the
obligations of such Person under:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any Currency Agreement or Commodity Price Protection Agreement; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>other agreements or arrangements of a similar character designed to
protect such Person against fluctuations in interest rates.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt"><I>&#147;Holdings&#148; </I>means National Waterworks Holdings, Inc.


<P align="left" style="font-size: 10pt"><I>&#147;Indebtedness&#148; </I>means, with respect to any specified Person, any indebtedness of
such Person, whether or not contingent:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in respect of borrowed money;</TD>
</TR>

</TABLE>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>in respect of banker&#146;s acceptances;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>representing Capital Lease Obligations;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>representing the deferred and unpaid balance of the purchase price of
any property, except any such balance that constitutes an accrued
expense or trade payable;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>amounts outstanding and other obligations of such Person in respect
of a Qualified Receivables Transaction; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>representing any Hedging Obligations,</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
the specified Person prepared in accordance with GAAP. In addition, the term
&#147;Indebtedness&#148; includes (i)&nbsp;all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person); <I>provided, however</I>, that the amount of Indebtedness of
such Person shall be the lesser of (A)&nbsp;the fair market value of such asset at
such date of determination and (B)&nbsp;the amount of such Indebtedness of such
other Persons; and (ii)&nbsp;to the extent not otherwise included, the Guarantee by
the specified Person of any indebtedness of any other Person.


<P align="left" style="font-size: 10pt">The amount of any Indebtedness outstanding as of any date will be:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the accreted value of the Indebtedness, in the case of any
Indebtedness issued with original issue discount; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the principal amount of the Indebtedness, together with any interest
on the Indebtedness that is more than 30&nbsp;days past due, in the case of
any other Indebtedness.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt">In addition, for purposes of determining the outstanding principal amount of
any particular Indebtedness incurred pursuant to the covenant described above
under &#147;&#151;Certain covenants&#151; Incurrence of Indebtedness and Issuance of preferred
stock&#148;:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Guarantees or obligations in respect of letters of credit relating to
Indebtedness which is otherwise included in the determination of a
particular amount of Indebtedness shall not be double-counted;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the principal amount of any Disqualified Stock of National Waterworks
or preferred stock of a Restricted Subsidiary of National Waterworks
shall be the greater of the maximum mandatory redemption or purchase
price (not including, in either case, any redemption or purchase
premium) or the maximum liquidation preference; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the principal amount of Indebtedness, Disqualified Stock of National
Waterworks or preferred stock of a Restricted Subsidiary of National
Waterworks issued at a price less than the principal amount thereof,
maximum fixed redemption or repurchase price thereof or liquidation
preference thereof, as applicable, will be equal to the amount of the
liability or obligation in respect thereof determined in accordance with
GAAP.</TD>
</TR>

</TABLE>

<P align="left" style="font-size: 10pt"><I>&#147;Investments&#148; </I>means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding payroll, travel and similar advances to officers and
employees to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP. If National Waterworks or any
Restricted Subsidiary of National Waterworks sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of National
Waterworks such that, after giving effect to any such sale or disposition, such
Person is no longer a Subsidiary of National Waterworks, National Waterworks
will be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption &#147;&#151;Certain Covenants&#151; Restricted Payments.&#148;




<P align="center" style="font-size: 10pt">88
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Lien&#148; </I>means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and, except in connection with any Qualified Receivables
Transaction, any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Management Agreement&#148; </I>means that certain Management Agreement dated as of
November&nbsp;22, 2002, by and among National Waterworks, THL Managers V, LLC, and
J.P. Morgan Partners, LLC.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Net Cash Proceeds&#148; </I>with respect to any issuance or sale of Equity Interests,
means the cash proceeds of such issuance or sale net of attorneys&#146; fees,
accountants&#146; fees, underwriters or placement agents&#146; fees, discounts or
commissions and brokerage, consultant and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Net Income&#148; </I>means, with respect to any specified Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Net Proceeds&#148; </I>means the aggregate cash proceeds received by National
Waterworks or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any Designated Non-cash Consideration or other non-cash
consideration received in any Asset Sale), net of the direct costs, fees and
expenses relating to such Asset Sale, including, without limitation:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>legal, accounting and investment banking fees and all other
professionals&#146; and advisors&#146; fees;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>sales commissions, title and recording expenses and any relocation
expenses incurred as a result of the Asset Sale;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>taxes paid or payable or required to be accrued as a result of the
Asset Sale, in each case, after taking into account any available tax
credits or deductions and any tax sharing arrangements;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>amounts required to be applied to the repayment of Indebtedness
(including all interest, premium, penalties, breakage, indemnities and
fees in connection therewith), other than Indebtedness under a Credit
Facility, secured by a Lien on the asset or assets that were the subject
of such Asset Sale;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such
Asset Sale; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the
property or other assets disposed of in such Asset Sale and retained by
National Waterworks or any of its Restricted Subsidiaries after such
Asset Sale or as a reserve established in accordance with GAAP, for
adjustment in the sales prices of the asset or assets but only for so
long as such reserve is required in accordance with GAAP.</TD>
</TR>

</TABLE>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Non-Recourse Debt&#148; </I>means Indebtedness:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>as to which neither National Waterworks nor any of its Restricted
Subsidiaries (a)&nbsp;provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute
Indebtedness), (b)&nbsp;is directly or indirectly liable as a guarantor or
otherwise, or (c)&nbsp;constitutes the lender;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>no default with respect to which (including any rights that the
holders of the Indebtedness may have to take enforcement action against
an Unrestricted Subsidiary) would permit upon notice, lapse of time or
both any holder of any other Indebtedness of National Waterworks or any
of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment of the Indebtedness to be accelerated
or payable prior to its stated maturity; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>as to which the lenders have been notified or acknowledged in writing
that they will not have any recourse to the stock (other than the stock
of an Unrestricted Subsidiary pledged by National Waterworks or any of
its Restricted Subsidiaries) or assets of National Waterworks or any of
its Restricted Subsidiaries.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">89
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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Obligations&#148; </I>means any principal, interest, penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Permitted Business&#148; </I>means any business that derives a majority of its revenues
from the businesses engaged in by National Waterworks and its Restricted
Subsidiaries on the date of original issuance of the notes and/or activities
that are reasonably similar, ancillary, complementary or related to, or a
reasonable extension, development or expansion of, the businesses in which
National Waterworks and its Restricted Subsidiaries are engaged on the date of
original issuance of the notes, including without limitation, acting as a
distributor for industrial, electric, utility or similar products.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Permitted Business Unit&#148; </I>means a store, branch, distribution center, region or
other similar unit of a Permitted Business or the operations and assets of any
of the foregoing.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Permitted Group&#148; </I>means the group of investors that is party to the
Stockholders Agreement, as the same may be amended, modified or supplemented
from time to time, <I>provided </I>that no single Person together with its Affiliates
(other than Permitted Holders referred to in clauses (1)&nbsp;and (2)&nbsp;of the
definition of Permitted Holders) Beneficially Owns more of the Voting Stock of
National Waterworks or Holdings (as applicable) that is Beneficially Owned by
such group of investors than is then collectively Beneficially Owned by the
Permitted Holders referred to in clauses (1)&nbsp;and (2)&nbsp;of the definition of
Permitted Holders.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Permitted Holder&#148; </I>means:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>J.P. Morgan Partners, LLC and its Affiliates (without giving effect
to the proviso in the second sentence of the definition of Affiliate);</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Thomas H. Lee Partners, L.P. and its Affiliates (without giving
effect to the proviso in the second sentence of the definition of
Affiliate); and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any Person acting in the capacity of underwriter in connection with a
public or private offering of National Waterworks&#146; or Holdings&#146; Equity
Interests.</TD>
</TR>

</TABLE>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Permitted Investments&#148; </I>means:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any Investment in National Waterworks or in a Restricted Subsidiary
of National Waterworks;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any Investment in Cash Equivalents;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any Investment by National Waterworks or any Restricted Subsidiary of
National Waterworks in a Person, if as a result of such Investment:</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>such Person becomes a Restricted Subsidiary of National Waterworks;
or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, National Waterworks or a Restricted Subsidiary of
National Waterworks;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
&#147;&#151;Repurchase at the Option of Holders&#151;Asset Sales;&#148;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any acquisition of assets or Equity Interests solely in exchange for
the issuance of Equity Interests (other than Disqualified Stock) of
National Waterworks;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any Investments received in compromise of obligations of such persons
incurred in the ordinary course of trade creditors or customers that
were incurred in the ordinary course of business, including pursuant to
any plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of any trade creditor or customer;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Hedging Obligations;</TD>
</TR>

</TABLE>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(8)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>receivables owing to National Waterworks or any Restricted Subsidiary
and prepaid expenses if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade
terms; <I>provided, however</I>, that such trade terms may include such
concessionary trade terms as National Waterworks or any such Restricted
Subsidiary deems reasonable under the circumstances;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(9)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>advances, loans or extensions of credit to suppliers and vendors in
the ordinary course of business;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(10)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>deposits, bid bonds and performance bonds with governmental
authorities made in the ordinary course of business;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(11)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Investments existing on the date of the indenture and Investments
contributed to the common equity capital of National Waterworks
subsequent to the date of the indenture;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(12)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>endorsements of negotiable instruments and documents in the ordinary
course of business;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(13)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Investments of a Person or any of its Subsidiaries existing at the
time such Person becomes a Restricted Subsidiary of National Waterworks
or at the time such Person merges or consolidates with National
Waterworks or any of its Restricted Subsidiaries, in either case in
compliance with the indenture, provided that such Investments were not
made by such Person in connection with, or in anticipation or
contemplation of, such Person becoming a Restricted Subsidiary of
National Waterworks or such merger or consolidation;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(14)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the acquisition by a Receivables Subsidiary in connection with a
Qualified Receivables Transaction of Equity Interests of a trust or
other Person established by such Receivables Subsidiary to effect such
Qualified Receivables Transaction, and any other Investment by National
Waterworks or a Restricted Subsidiary of National Waterworks in a
Receivables Subsidiary or any Investment by a Receivables Subsidiary in
any other Person in connection with a Qualified Receivables Transaction;
<I>provided</I>, that such other Investment is in the form of a note or other
instrument that the Receivables Subsidiary or other Person is required
to repay as soon as practicable from available cash collections less
amounts required to be established as reserves pursuant to contractual
agreements with entities that are not Affiliates of National Waterworks
entered into as part of a Qualified Receivables Transaction;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(15)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (15)&nbsp;since the date of
the indenture, not to exceed $20.0&nbsp;million; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(16)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>repurchases of the notes as long as the repurchased notes are
cancelled promptly after purchase.</TD>
</TR>

</TABLE>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Permitted Junior Securities&#148; </I>means:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Equity Interests in National Waterworks or any Guarantor; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>debt securities that are subordinated to all Senior Debt (and any
debt securities issued in exchange for Senior Debt) to substantially the
same extent as, or to a greater extent than, the notes and the
subsidiary guarantees are subordinated to Senior Debt under the
indenture;</TD>
</TR>

</TABLE>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>provided </I>that the term &#147;Permitted Junior Securities&#148; shall not include any
securities distributed pursuant to a plan of reorganization if the Indebtedness
under the Credit Agreement is treated as part of the same class as the notes
for purposes of such plan of reorganization.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Permitted Liens&#148; </I>means:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Liens on assets of National Waterworks or any Guarantor securing
Senior Debt that was permitted by the terms of the indenture to be
incurred;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Liens in favor of National Waterworks or the Guarantors;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Liens on property or assets of a Person existing at the time such
Person is merged with or into or consolidated with National</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">91
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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Waterworks or any Subsidiary of National Waterworks; <I>provided </I>that such
Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with National Waterworks or the
Subsidiary;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Liens on property existing at the time of acquisition of the property
by National Waterworks or any Subsidiary of National Waterworks,
<I>provided </I>that such Liens were in existence prior to the contemplation of
such acquisition;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds, supply bonds, construction bonds or
other obligations of a like nature incurred in the ordinary course of
business;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(6)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4)&nbsp;of the second paragraph of the covenant entitled
&#147;&#151;Certain Covenants&#151; Incurrence of Indebtedness and Issuance of
Preferred Stock&#148; covering only the assets acquired with such
Indebtedness;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(7)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Liens existing on the date of the indenture;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(8)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
<I>provided </I>that any reserve or other appropriate provision as is required
in conformity with GAAP has been made therefor;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(9)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Liens on assets of a Receivables Subsidiary incurred in connection
with a Qualified Receivables Transaction;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(10)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Liens incurred in the ordinary course of business of National
Waterworks or any Restricted Subsidiary of National Waterworks with
respect to obligations that do not exceed $10.0&nbsp;million at any one time
outstanding;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(11)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>judgment Liens not giving rise to an Event of Default so long as such
Liens are adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment have not
been finally terminated or the period within which such proceedings may
be initiated has not expired;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(12)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Liens arising solely by virtue of any statutory or common law
provisions relating to banker&#146;s Liens, rights of set-off or similar
rights and remedies as to deposit accounts or other funds maintained
with a depositary institution; <I>provided </I>that:</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>such deposit account is not a dedicated cash collateral account
and is not subject to restrictions against access by National
Waterworks in excess of those set forth by regulations promulgated by
the Federal Reserve Board, and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>such deposit account is not intended by National Waterworks or
any of its Restricted Subsidiaries to provide collateral to the
depository institution;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(13)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Liens securing the notes and any note guarantees; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(14)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any interest or title of a lessor under any Capital Lease Obligation
or operating lease.</TD>
</TR>

</TABLE>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Permitted Refinancing Indebtedness&#148; </I>means any Indebtedness of National
Waterworks or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of National Waterworks or any of its Restricted
Subsidiaries (other than intercompany Indebtedness); <I>provided </I>that:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the principal amount (or if issued with original discount, the
aggregate issue price) of such Permitted Refinancing Indebtedness does
not exceed the principal amount (or accreted value, if applicable) of
the Indebtedness extended, refinanced, renewed, replaced, defeased or
refunded (plus all accrued interest on the Indebtedness and the amount
of all expenses, premiums and defeasance costs incurred in connection
therewith);</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>such Permitted Refinancing Indebtedness has a final maturity date no
earlier than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded;</TD>
</TR>

</TABLE>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes or
the subsidiary guarantees, such Permitted Refinancing Indebtedness is
subordinated in right of payment to, the notes or the subsidiary
guarantees, as the case may be, on terms at least as favorable to the
Holders of notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>such Indebtedness is incurred either by National Waterworks or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.</TD>
</TR>

</TABLE>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Person&#148; </I>means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Purchase Agreement&#148; </I>means that certain Purchase Agreement, dated as of
November&nbsp;14, 2002, among National Waterworks and the initial purchasers parties
thereto.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Qualified Receivables Transaction&#148; </I>means any transaction or series of
transactions entered into by National Waterworks or any of its Restricted
Subsidiaries pursuant to which National Waterworks or any of its Restricted
Subsidiaries sells, conveys or otherwise transfers to (i)&nbsp;a Receivables
Subsidiary (in the case of a transfer by National Waterworks or any of its
Restricted Subsidiaries) and (ii)&nbsp;any other Person (in the case of a transfer
by a Receivables Subsidiary), or grants a security interest in, any accounts
receivable (whether now existing or arising in the future) of National
Waterworks or any of its Restricted Subsidiaries, and any assets related
thereto including, without limitation, all collateral securing such accounts
receivable, all contracts and all guarantees or other obligations in respect of
such accounts receivable, proceeds of such accounts receivable and other assets
which are customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Receivables Subsidiary&#148; </I>means a Subsidiary of National Waterworks which
engages in no activities other than in connection with the financing of
accounts receivable and which is designated by the Board of Directors of
National Waterworks (as provided below) as a Receivables Subsidiary (a)&nbsp;no
portion of the Indebtedness or any other Obligations (contingent or otherwise)
of which (i)&nbsp;is guaranteed by National Waterworks or any Restricted Subsidiary
of National Waterworks (excluding guarantees of Obligations (other than the
principal of, and interest on, Indebtedness) pursuant to representations,
warranties, covenants and indemnities entered into in the ordinary course of
business in connection with a Qualified Receivables Transaction), (ii)&nbsp;is
recourse to or obligates National Waterworks or any Restricted Subsidiary of
National Waterworks in any way other than pursuant to customary
representations, warranties, covenants and indemnities entered into in
connection with a Qualified Receivables Transaction or (iii)&nbsp;subjects any
property or asset of National Waterworks or any Restricted Subsidiary of
National Waterworks (other than accounts receivable and related assets as
provided in the definition of &#147;Qualified Receivables Transaction&#148;), directly or
indirectly, contingently or otherwise, to the satisfaction thereof, other than
pursuant to representations, warranties, covenants and indemnities entered into
in the ordinary course of business in connection with a Qualified Receivables
Transaction, (b)&nbsp;with which neither National Waterworks nor any Restricted
Subsidiary of National Waterworks has any material contract, agreement,
arrangement or understanding other than on terms no less favorable to National
Waterworks or such Restricted Subsidiary than those that might be obtained at
the time from Persons who are not Affiliates of National Waterworks, other than
fees payable in the ordinary course of business in connection with servicing
accounts receivable and (c)&nbsp;with which neither National Waterworks nor any
Restricted Subsidiary of National Waterworks has any obligation to maintain or
preserve such Subsidiary&#146;s financial condition or cause such Subsidiary to
achieve certain levels of operating results. Any such designation by the Board
of Directors of National Waterworks will be evidenced to the trustee by filing
with the trustee a certified copy of the resolution of the Board of Directors
of National Waterworks giving effect to such designation and an Officers&#146;
Certificate certifying that such designation complied with the foregoing
conditions.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Registration Rights Agreement&#148; </I>means that certain Registration Rights
Agreement, dated as of November&nbsp;22, 2002, by and among Holdings and the
stockholders parties thereto.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Representative&#148; </I>means the trustee, agent or representative (if any) for an
issuer of Senior Debt.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Restricted Investment&#148; </I>means an Investment other than a Permitted Investment.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Restricted Subsidiary&#148; </I>of a Person means any Subsidiary of such Person that is
not an Unrestricted Subsidiary.


<P align="center" style="font-size: 10pt">93
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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Sale/Leaseback Transaction&#148; </I>means an arrangement relating to property now
owned or hereafter acquired by National Waterworks or a Restricted Subsidiary
whereby National Waterworks or a Restricted Subsidiary transfers such property
to a Person and National Waterworks or such Restricted Subsidiary leases it
from such Person, other than leases between National Waterworks and a Wholly
Owned Restricted Subsidiary or between Wholly Owned Restricted Subsidiaries.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Senior Debt&#148; </I>means:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all Indebtedness of National Waterworks or any Guarantor outstanding
under Credit Facilities (including interest accruing on or after the
filing of any petition in bankruptcy or for reorganization of National
Waterworks or any Guarantor, regardless of whether or not a claim for
post-filing interest is allowed in such proceedings);</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all Hedging Obligations permitted to be incurred under the terms of
the indenture;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any other Indebtedness of National Waterworks or any Guarantor
permitted to be incurred under the terms of the indenture, unless the
instrument under which such Indebtedness is incurred expressly provides
that it is on a parity with or subordinated in right of payment to the
notes or any subsidiary guarantee; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>all Obligations with respect to the items listed in the preceding
clauses (1), (2)&nbsp;and (3).</TD>
</TR>

</TABLE>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Notwithstanding anything to the contrary in the preceding, Senior Debt will not
include:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any liability for federal, state, local or other taxes owed or owing
by National Waterworks;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any intercompany Indebtedness of National Waterworks or any of its
Subsidiaries to National Waterworks or any of its Affiliates;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any trade payables; or</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the portion of any Indebtedness that is incurred in violation of the
indenture.</TD>
</TR>

</TABLE>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Significant Subsidiary&#148; </I>means any Subsidiary that would be a &#147;significant
subsidiary&#148; as defined in Article&nbsp;1, Rule&nbsp;1-02 of Regulation&nbsp;S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date of
the indenture.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Stated Maturity&#148; </I>means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and will not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Stockholders&#146; Agreement&#148; </I>means that certain Stockholders&#146; Agreement, dated as
of November&nbsp;22, 2002, by and among Holdings and the stockholders and investors
that are party thereto.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Subscription and Stock Purchase Agreement&#148; </I>means those certain Executive
Subscription and Stock Purchase Agreements each dated as of November&nbsp;22, 2002,
by and between Holdings and the executives that are party thereto.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Subsidiary&#148; </I>means, with respect to any specified Person:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any corporation, association, partnership, limited liability company
or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
managers or trustees of the corporation, association or other business
entity is at the time owned or controlled, directly or indirectly, by
that Person or one or more of the other Subsidiaries of that Person (or
a combination thereof); and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>any partnership (a)&nbsp;the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are that Person or one or more
Subsidiaries of that Person (or any combination thereof).</TD>
</TR>

</TABLE>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Tax Sharing Agreement&#148; </I>means that certain Tax Sharing Agreement, dated as of
November&nbsp;22, 2002, by and among Holdings and those direct or indirect domestic
subsidiaries of Holdings that are parties thereto.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Transactions&#148; </I>has the meaning set forth under &#147;Summary&#151;The Transactions.&#148;


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Treasury Rate&#148; </I>means, as of the applicable redemption date, the yield to
maturity as of such redemption date of United States Treasury securities with a
constant maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519)&nbsp;that has become publicly available at least two
Business Days prior to such redemption date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data))
most nearly equal to the period from such redemption date to December&nbsp;1, 2007;
<I>provided, however</I>, that if the period from such redemption date to December&nbsp;1,
2007 is less than one year, the weekly average yield on actually traded United
States Treasury securities adjusted to a constant maturity of one year will be
used.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Unrestricted Subsidiary&#148; </I>means any Subsidiary of National Waterworks that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to
a Board Resolution, but only to the extent that such Subsidiary:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>has no Indebtedness other than Non-Recourse Debt;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>is not party to any agreement, contract, arrangement or understanding
with National Waterworks or any Restricted Subsidiary of National
Waterworks unless the terms of any such agreement, contract, arrangement
or understanding are no less favorable to National Waterworks or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of National Waterworks;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(3)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>is a Person with respect to which neither National Waterworks nor any
of its Restricted Subsidiaries has any direct or indirect obligation (a)
to subscribe for additional Equity Interests or (b)&nbsp;to maintain or
preserve such Person&#146;s financial condition or to cause such Person to
achieve any specified levels of operating results;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(4)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of National Waterworks or any of its
Restricted Subsidiaries; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(5)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>either (a)&nbsp;has at least one director on its Board of Directors that
is not a director or executive officer of National Waterworks or any of
its Restricted Subsidiaries or (b)&nbsp;has at least one executive officer
that is not a director or executive officer of National Waterworks or
any of its Restricted Subsidiaries.</TD>
</TR>

</TABLE>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt">Any designation of a Subsidiary of National Waterworks as an Unrestricted
Subsidiary will be evidenced to the trustee by filing with the trustee a
certified copy of the Board Resolution giving effect to such designation and an
officers&#146; certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described above under
the caption &#147;&#151;Certain Covenants&#151;Restricted Payments.&#148; If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted
Subsidiary for purposes of the indenture and any Indebtedness of such
Subsidiary will be deemed to be incurred by a Restricted Subsidiary of National
Waterworks as of such date and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"&#151;Certain covenants&#151;Incurrence of Indebtedness and Issuance of preferred
stock,&#148; National Waterworks will be in default of such covenant. The Board of
Directors of National Waterworks may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; <I>provided </I>that such designation will
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of
National Waterworks of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation will only be permitted if (1)&nbsp;such Indebtedness
is permitted under the covenant described under the caption &#147;&#151;Certain
Covenants&#151;Incurrence of Indebtedness and Issuance of Preferred Stock,&#148;
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period; and (2)&nbsp;no Default or Event of
Default would be in existence following such designation.


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Voting Stock&#148; </I>of any Person as of any date means the Capital Stock of such
Person that is at the time, entitled generally to vote in the election of the
Board of Directors of such Person (without regard to the occurrence of any
contingency).


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Weighted Average Life to Maturity&#148; </I>means, when applied to any Indebtedness at
any date, the number of years obtained by dividing:


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(1)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the sum of the products obtained by multiplying (a)&nbsp;the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect of the Indebtedness, by (b)</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">95
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the number of years (calculated to the nearest one-twelfth) that will
elapse between such date and the making of such payment; by</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">(2)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the then outstanding principal amount of such Indebtedness.</TD>
</TR>

</TABLE>


<P align="left" style="margin-left: 0%; text-indent: 0%; margin-right: 0%; font-size: 10pt"><I>&#147;Wholly Owned Restricted Subsidiary&#148; </I>of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors&#146; qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.



<P align="center" style="font-size: 10pt">96
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="114"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Plan of Distribution</B>


<P align="left" style="font-size: 10pt">This prospectus has been prepared for use by J.P. Morgan Securities Inc. in
connection with offers and sales of the notes in market-making transactions
effected from time to time. J.P. Morgan Securities Inc. may act as a principal
or agent in these transactions. These sales will be made at prevailing market
prices at the time of sale.
We will not receive any of the proceeds of these sales. We have agreed to
indemnify J.P. Morgan Securities Inc. against certain liabilities, including
liabilities under the Securities Act, and to contribute payments which J.P.
Morgan Securities Inc. might be required to make in respect thereof.


<P align="left" style="font-size: 10pt">As of the date of this prospectus, affiliates of J.P. Morgan Securities Inc.
beneficially own approximately 43% of our Holdings&#146; common stock and certain of
our directors are employed by an affiliate of J.P. Morgan Securities Inc. For
more information, see &#147;Management,&#148; &#147;Security Ownership of Certain Beneficial
Owners and Management&#148; and &#147;Certain Relationships and Related Party
Transactions&#148; for a summary of certain relationships between us and affiliates
of J.P. Morgan Securities Inc.


<P align="left" style="font-size: 10pt">We have been advised by J.P. Morgan Securities Inc. that, subject to applicable
laws and regulations, J.P. Morgan Securities Inc. currently intends to make a
market in the notes. However, J.P.
Morgan Securities Inc. is not obligated to do so and J.P. Morgan Securities
Inc. may discontinue its market-making activities at any time without notice.
In addition, such market-making activity will be subject to the limits imposed
by the Securities Act and the Exchange Act. An active trading market may not
develop or be sustained. For more information, see &#147;Risk Factors&#151;You Cannot be
Sure that an Active Trading Market Will Develop for the Notes.&#148;


<DIV align="left">
<A name="115"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Legal Matters</B>


<P align="left" style="font-size: 10pt">The validity of the notes has been passed upon for us by O&#146;Melveny &#038; Myers LLP,
New York, New York.


<DIV align="left">
<A name="116"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Experts</B>


<P align="left" style="font-size: 10pt">The financial statements of National Waterworks, Inc. as of December&nbsp;31, 2003
and 2002, and for the year ended December&nbsp;31, 2003 and for the period from
November&nbsp;22, 2002 to December&nbsp;31, 2002, and the consolidated financial
statements of U.S. Filter Distribution Group, Inc. for the period from January
1, 2002 to November&nbsp;21, 2002 and for the year ended
December&nbsp;31, 2001, have been
included in this prospectus in reliance on the report of KPMG LLP, independent
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in auditing and accounting. The audit report covering such financial
statements refers to a change in the method of accounting for
goodwill in 2002.



<P align="center" style="font-size: 10pt">97
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="117"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Where You Can Find More Information</B>


<P align="left" style="font-size: 10pt">We file annual, quarterly and current reports and other information with the
Securities and Exchange Commission (the &#147;SEC&#148; or the &#147;Commission&#148;). You can
inspect and copy these materials at the SEC&#146;s Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of these materials can also
be obtained by mail at prescribed rates from the SEC&#146;s Public Reference Room at
the above address. You can obtain information about the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of the
SEC&#146;s Internet site is www.sec.gov.


<P align="left" style="font-size: 10pt">We provide copies to the holders of the notes of the annual, quarterly and
current reports that we file with the SEC. The annual reports contain financial
information that has been examined and reported on, with an opinion expressed,
by an independent public accountant.


<P align="left" style="font-size: 10pt">We have filed a Registration Statement on Form S-1 to register with the
Commission offers and sales of the Notes made by J.P. Morgan Securities Inc. in
market-making transactions effected from time to time. This prospectus is part
of that Registration Statement. As allowed by the Commission&#146;s rules, this
prospectus does not contain all of the information you can find in the
Registration Statement or the exhibits to the Registration Statement.


<P align="left" style="font-size: 10pt">We have not authorized anyone to give you any information or to make any
representations about us or the transactions we discuss in this prospectus
other than those contained in this prospectus. If you are given any information
or representations about these matters that is not discussed in this
prospectus, you must not rely on that information. This prospectus is not an
offer to sell or a solicitation of an offer to buy securities anywhere or to
anyone where or to whom we are not permitted to offer or sell securities under
applicable law. Subject to our obligation to amend or supplement this
prospectus as required by law and the rules and regulations of the Commission,
the information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus.



<P align="center" style="font-size: 10pt">98
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left">
<A name="118"></A>
</DIV>

<P align="center" style="font-size: 10pt"><B>Financial Statements And Supplementary Data</B>



<P align="center" style="font-size: 10pt"><B>NATIONAL WATERWORKS, INC.</B>



<P align="center" style="font-size: 10pt"><B>U.S. FILTER DISTRIBUTION GROUP, INC. AND SUBSIDIARY</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="92%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Page</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Independent Auditors&#146; Report</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">As of December&nbsp;31, 2003 and 2002:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Balance Sheets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">For the year ended December&nbsp;31, 2003, the period of November&nbsp;22, 2002
through December&nbsp;31, 2002, the period of January&nbsp;1, 2002 through
November&nbsp;21, 2002, and the year ended December&nbsp;31, 2001:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Statements of Operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Statements of Stockholder&#146;s Equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Statements of Cash Flows</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Notes to Financial Statements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">F-7</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-1
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>INDEPENDENT AUDITORS&#146; REPORT</B>


<P align="left" style="font-size: 10pt">The Board of Directors<BR>
National Waterworks, Inc.:



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have audited the accompanying balance sheets of National Waterworks,
Inc. (Successor), a wholly owned subsidiary of National Waterworks Holdings,
Inc., as of December&nbsp;31, 2003 and 2002, and the related statements of
operations, stockholder&#146;s equity, and cash flows for the year ended December
31, 2003 and the period of November&nbsp;22, 2002 through December&nbsp;31, 2002. We have
also audited the accompanying consolidated statements of operations,
stockholder&#146;s equity and cash flows of U.S. Filter Distribution Group, Inc.
(Predecessor) and subsidiary, a wholly owned subsidiary of United States Filter
Corporation, for the period of January&nbsp;1, 2002 through November&nbsp;21, 2002 and
year ended December&nbsp;31, 2001. These financial statements are the responsibility
of the management of National Waterworks, Inc. and U.S. Filter Distribution
Group, Inc. Our responsibility is to express an opinion on these financial
statements based on our audits.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of National Waterworks, Inc.
as of December&nbsp;31, 2003 and 2002, and the results of its operations and its
cash flows for the year ended December&nbsp;31, 2003 and the period of November&nbsp;22,
2002 through December&nbsp;31, 2002, and the results of U.S. Filter Distribution
Group, Inc. operations and their cash flows for the period of January&nbsp;1, 2002
through November&nbsp;21, 2002 and year ended December&nbsp;31, 2001, in conformity with
accounting principles generally accepted in the United States of America.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As discussed in Note 2 to the financial statements, U.S. Filter
Distribution Group, Inc. changed its method of accounting for goodwill in 2002.


<P align="center" style="font-size: 10pt">/s/ KPMG LLP



<P align="left" style="font-size: 10pt">KPMG LLP


<P align="left" style="font-size: 10pt">February&nbsp;11, 2004<BR>
(except note 17 as to which the date is March&nbsp;2, 2004)<BR>
St. Louis, Missouri



<P align="center" style="font-size: 10pt">F-2
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>BALANCE SHEETS</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>National Waterworks, Inc.</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>- Note 1</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>(In thousands, except share and per share amounts)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD align="center"><DIV style="margin-left:40px; text-indent:-10px"><B>Assets</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">18,702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">39,888</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Trade accounts receivable, less allowance for doubtful
accounts of $3,213 in 2003 and $3,394 in 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">188,476</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">174,012</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90,739</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">91,619</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Deferred income taxes (note 9)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,713</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,689</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,402</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">300,606</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">312,634</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Property and equipment, net (note 6)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,523</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,805</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Goodwill (note 4)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">456,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">465,662</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred financing fees, less accumulated amortization
of $3,060 in 2003 and $133 in 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,141</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,667</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,607</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">802,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">812,817</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD align="center"><DIV style="margin-left:30px; text-indent:-10px"><B>Liabilities and Stockholder&#146;s Equity</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Trade accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">115,038</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">126,662</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Current installments of long-term debt (note 8)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accrued compensation and benefits</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27,036</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,036</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,677</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,989</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">166,751</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167,687</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Long-term debt, excluding current installments (note 8)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">425,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">440,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred income taxes (note 9)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,059</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,025</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other long-term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">603,484</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">608,712</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Commitments and contingencies (note 12)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">
Common stock &#151; $.01 par value; 100 shares authorized,
issued, and outstanding at 2003 and 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">209,999</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Retained earnings (accumulated deficit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,894</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total stockholder&#146;s equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">199,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">204,105</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">802,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">812,817</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">See accompanying notes to financial statements.



<P align="center" style="font-size: 10pt">F-3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>STATEMENTS OF OPERATIONS</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Successor</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Predecessor</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>National Waterworks, Inc.</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>U.S. Filter Distribution Group, Inc.</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>- Note 1</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>and Subsidiary - Note 1</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Period of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Period of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>November 22,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>January 1,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002 through</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002 through</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>November 21,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>(In thousands)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,278,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">94,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,058,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,120,330</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cost of goods sold (note 3)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,010,361</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82,005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">831,764</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">880,569</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">267,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">227,004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">239,761</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Operating expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Selling, general and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">139,825</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">152,470</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Loss &#151; accounts receivable
securitization (note 13)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,480</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">536</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Income (loss)&nbsp;before depreciation
and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,492</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84,699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86,755</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Depreciation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,556</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">251</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,586</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Amortization of intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,008</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Operating income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">98,274</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,744</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">81,568</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,161</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other income (expense):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Completion bonuses (note 10)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,200</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Interest expense, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(41,333</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,826</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(36</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(79</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(12</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Income (loss)&nbsp;before income
taxes, and cumulative effect of a
change in accounting principle</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(9,582</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,074</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income taxes expense (benefit) (note 9)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,688</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,238</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,924</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income (loss)&nbsp;before cumulative effect of
a change in accounting principle</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,894</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,153</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,150</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cumulative effect of a change in
accounting principle (note 4)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(459,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(5,894</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(412,847</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26,150</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">See accompanying notes to financial statements



<P align="center" style="font-size: 10pt">F-4
</DIV>
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>STATEMENTS OF STOCKHOLDER&#146;S EQUITY</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="45%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Common Stock</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Additional</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Retained<BR>Earnings</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6"><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Paid-in</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>(In thousands, except share data)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Amount</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Capital</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Deficit)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B><HR size="1" noshade></TD>
</TR>



<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">U.S. Filter Distribution Group, Inc. and
subsidiary (Predecessor) &#151; Note 1:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance at December&nbsp;31, 2000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,258,524</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">46,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,305,024</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Distribution to U.S. Filter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,650</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,650</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Investment by U.S. Filter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,700</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,150</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance at December&nbsp;31, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,257,574</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72,650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,330,224</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Investment by U.S. Filter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,093</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,093</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(412,847</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(412,847</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance at November&nbsp;21, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,277,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(340,197</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">937,470</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">National Waterworks, Inc. (Successor) &#150;
Note 1:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Investment by National Waterworks
Holdings, Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">209,999</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">209,999</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,894</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,894</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance at December&nbsp;31, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">209,999</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,894</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">204,105</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Investment by National Waterworks
Holdings, Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Dividend distribution</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11,526</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(27,747</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(39,273</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,641</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance at December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">199,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">199,473</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">See accompanying notes to financial statements.



<P align="center" style="font-size: 10pt">F-5
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>STATEMENTS OF CASH FLOWS</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="47%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Successor</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Predecessor</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>National Waterworks, Inc.</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>U.S. Filter Distribution Group, Inc. and</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Note 1</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7"><B>Subsidiary - Note 1</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Period of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Period of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>November 22,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>January 1,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002 through</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002 through</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>November 21,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>(In thousands)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31, 2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash flows from operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(5,894</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(412,847</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26,150</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,093</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,688</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">339</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Financing fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Amortization of deferred financing fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">133</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">252</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,131</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,594</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Loss on goodwill impairment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">459,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Gain (loss)&nbsp;on disposal of equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(55</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(72</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Provision (reduction)&nbsp;for doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(119</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,239</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Changes in operating assets and liabilities
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Trade accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15,417</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(22,557</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">149,199</TD>
    <TD>&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Inventory</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,651</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,769</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,662</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Other current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(287</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,401</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">673</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(689</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,566</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,306</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Trade accounts payable and accrued expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,396</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,221</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,108</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Other long term liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Net cash provided by operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,012</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,044</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">209,399</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash flows from investing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,022</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(102</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,442</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,415</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Acquisitions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,224</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(643,753</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(19,595</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,700</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Proceeds from sale of assets and liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,650</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Proceeds from sales of property and
equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">803</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">874</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">200</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Net cash used in investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,443</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(643,855</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20,163</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(265</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash flows from financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Proceeds from long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Financing fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,482</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(15,300</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Equity investment by Parent</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">209,999</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Principal payments on long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(222</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,324</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Dividend distribution</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(39,273</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Investment by U.S. Filter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,093</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,700</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Distribution to U.S. Filter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,650</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Funds transferred to U.S. Filter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,103,045</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,327,934</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Expenditures funded by U.S. Filter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">994,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,073,133</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Allocation of expenses from U.S. Filter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">45,103</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,976</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Net cash provided by (used in)
financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(53,755</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">644,699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(44,061</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(205,099</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Net increase (decrease)&nbsp;in cash and
cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(21,186</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,984</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,035</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash and cash equivalents at beginning
of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,288</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,253</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash and cash equivalents at end of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">18,702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">39,888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,304</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,288</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash paid for interest</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">40,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">997</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">37</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">90</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Cash paid for income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,136</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">27,088</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">31,585</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">See accompanying notes to financial statements.



<P align="center" style="font-size: 10pt">F-6
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>NOTES TO FINANCIAL STATEMENTS</B>



<P align="center" style="font-size: 10pt"><B>NATIONAL WATERWORKS, INC.<BR>
As of December&nbsp;31, 2003 and 2002 and for<BR>
the year ended December&nbsp;31, 2003 and the<BR>
period of November&nbsp;22, 2002 through December&nbsp;31, 2002</B>



<P align="center" style="font-size: 10pt"><B>U.S. FILTER DISTRIBUTION GROUP, INC. AND SUBSIDIARY<BR>
For the period of January&nbsp;1, 2002 through November&nbsp;21, 2002 and<BR>
for the year ended December&nbsp;31, 2001</B>



<P align="left" style="font-size: 10pt"><B>(1)&nbsp;Description of Business</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;National Waterworks, Inc. (&#147;NWW&#148;, &#147;Company&#148;, or &#147;Successor&#148;), a wholly
owned subsidiary of National Waterworks Holdings, Inc. (&#147;Parent&#148;), was
incorporated in September&nbsp;2002 for the purpose of acquiring substantially all
of the assets and assuming certain obligations of U.S. Filter Distribution
Group, Inc. (&#147;USFDG&#148;, &#147;Predecessor&#148; or the &#147;Group&#148;), a wholly owned subsidiary
of United States Filter Corporation (&#147;U.S. Filter&#148;), which is an
indirect-wholly owned subsidiary of Veolia Environnement (&#147;Veolia&#148;, formerly
Vivendi Environnement S.A.). The acquisition was consummated on November&nbsp;22,
2002, (see note 3). NWW is a distributor of water and wastewater transmission
products including pipe, fittings, valves, meters, service and repair products,
fire hydrants and other components that are used to transport clean water and
wastewater between reservoirs and treatment plants and residential and
commercial locations. NWW has 133 branch locations operating in 35 states.
Principal customers served are in the contractor and municipal markets in the
United States. Prior to the acquisition, USFDG conducted such business
activities.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of the NWW acquisition, the balance sheets as of December&nbsp;31,
2003 and 2002, and the statements of operations, stockholder&#146;s equity and cash
flows for the year ended December&nbsp;31, 2003 and for the period from November&nbsp;22,
2002 through December&nbsp;31, 2002 represent NWW&#146;s financial position and the
results of its operations and cash flows as of those dates and for those
periods. The statements of operations, stockholder&#146;s equity and cash flows for
the period of January&nbsp;1, 2002 through November&nbsp;21, 2002 and for the year ended
December&nbsp;31, 2001 represent USFDG&#146;s consolidated results of their operations
and cash flows for those periods.


<P align="left" style="font-size: 10pt"><B>(2)&nbsp;Summary of Significant Accounting Policies</B>



<P align="left" style="font-size: 10pt"><B><I>(a)&nbsp;Principles of Consolidation and Basis of Presentation</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The financial statements of USFDG include the financial statements of
USFDG and its wholly owned subsidiary, United States Filter Receivables
Corporation (&#147;USFRC&#148;), collectively the Group. USFRC was incorporated in 2001
in the state of Delaware. All significant intercompany balances and
transactions have been eliminated in consolidation. NWW has no subsidiaries.


<P align="left" style="font-size: 10pt"><B><I>(b)&nbsp;Cash Equivalents</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All highly liquid investments with maturities at date of purchase of three
months or less are considered to be cash equivalents.


<P align="left" style="font-size: 10pt"><B><I>(c)&nbsp;Inventories</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories are stated at the lower of cost or market. Cost is determined
using the weighted average cost method for all inventories.


<P align="center" style="font-size: 10pt">F-7
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B><I>(d)&nbsp;Property and Equipment</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment are stated at cost. Depreciation on property and
equipment is calculated on the straight-line method over the estimated useful
lives of the assets as follows:

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="78%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="17%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Buildings and improvements
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">5 to 30&nbsp;years</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Office furniture, fixtures and equipment
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">3 to 5&nbsp;years</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Transportation equipment
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">1 to 5&nbsp;years</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Machinery and equipment
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">5&nbsp;years</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Maintenance and repair costs are charged to expense as incurred.
Additions, renewals and improvements are capitalized. Upon the sale or
retirement of an asset, the related cost and accumulated depreciation are
removed from the accounts and any gain or loss is recognized.


<P align="left" style="font-size: 10pt"><B><I>(e)&nbsp;Impairment of Long-Lived Assets Other than Goodwill</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-lived assets, including property and equipment, are reviewed for
possible impairment whenever events or other changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment
loss is recognized when the carrying amount of a long-lived asset exceeds the
sum of the undiscounted cash flows expected to result from the asset&#146;s use and
eventual disposition. An impairment loss is measured as the amount by which
the carrying amount of the asset exceeds the fair value of the asset.


<P align="left" style="font-size: 10pt"><B><I>(f)&nbsp;Income Taxes</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NWW files a consolidated return with its parent. For the purpose of the
financial statements of NWW presented herein, NWW provides for income taxes as
if it was a taxable entity filing a separate return.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group filed as part of U.S. Filter&#146;s consolidated Federal income tax
return. U.S. Filter implemented certain tax planning strategies and the related
impact is not reflected in these separate financial statements of the Group.
For the purpose of the consolidated financial statements presented herein, the Group
provided for income taxes as if it were a taxable entity filing a separate
return.


<P align="left" style="font-size: 10pt"><B><I>(g)&nbsp;Segments of an Enterprise and Related Information</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Management has implemented the provisions of Statement of Financial
Accounting Standards (&#147;SFAS&#148;) No.&nbsp;131, <I>Disclosure about Segments of an
Enterprise and Related Information</I>. Management has determined the six
geographic regions, to which substantially all income and expenses are
allocated for purposes of allocating resources by the chief operating decision
maker, meet all of the aggregation criteria of SFAS No.&nbsp;131, including similar
economic characteristics. Accordingly, there is one reportable segment.


<P align="center" style="font-size: 10pt">F-8
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Products include pipe, fire hydrants, meters, valves, fittings and other
complementary products for waterworks construction and maintenance/repair. The
following table sets forth net sales by product category (in thousands):

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="39%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Period of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Period of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>November 22,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>January 1,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>through</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>through</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>November 21,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Product Category</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Pipe</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">510,852</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">38,256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">424,544</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">440,499</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Fittings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">195,720</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">162,932</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">173,992</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Valves</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">160,654</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">131,208</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">145,128</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Meters</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">110,675</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94,905</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94,241</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Fire hydrants</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,046</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,248</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Service and repair products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">86,298</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,336</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,515</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">74,334</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">134,521</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,356</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">109,618</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">122,888</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,278,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">94,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,058,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,120,330</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All revenues are derived from customers domiciled in the United States and
there are no long-lived assets located outside of the United States, and no
single customer, as defined in SFAS No.&nbsp;131, represents ten percent or more of
revenues for any period presented.


<P align="left" style="font-size: 10pt"><B><I>(h)&nbsp;Use of Estimates</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
these estimates.


<P align="left" style="font-size: 10pt"><B><I>(i)&nbsp;Revenue Recognition</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Revenue on sales is recognized when products are shipped and the customer
takes ownership and assumes risk of loss. Shipping and handling costs incurred
are included as a component of cost of goods sold.


<P align="left" style="font-size: 10pt"><B><I>(j)&nbsp;Goodwill</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goodwill represents the excess of the purchase price for an acquired
business over the allocated fair value of the related net assets. Through 2001,
goodwill was amortized on a straight-line basis over a 40-year life. The
carrying value of goodwill was reviewed for impairment at the enterprise level,
in connection with impaired long-lived assets, whenever events or changes in
circumstances indicated that the carrying amount of the acquired assets may not
be recoverable. If the sum of the estimated future cash flows (undiscounted)
expected to result from the use and eventual disposition of an asset was less
than the carrying amount of the asset, an impairment loss was recognized.
Measurement of an impairment loss was based on the fair value of the asset. For
enterprise level goodwill, fair value was determined using a discounted cash
flows approach.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2001, the Financial Accounting Standards Board (FASB)&nbsp;issued SFAS
No.&nbsp;141, <I>Business Combinations</I>, and SFAS No.&nbsp;142, <I>Goodwill and Other Intangible
Assets</I>. SFAS No.&nbsp;141 requires that the purchase method of accounting be used
for all business combinations initiated after June&nbsp;30, 2001. SFAS No.&nbsp;141 also
specifies criteria that intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. SFAS No.&nbsp;142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS No.&nbsp;142.
SFAS No.&nbsp;142 also requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with the SFAS No.
144, <I>Accounting for the Impairment or Disposal of Long-Lived Assets</I>. On July&nbsp;1,
2001, the Group adopted the provisions of SFAS No.&nbsp;141 and certain provisions
of SFAS No.&nbsp;142 as required for goodwill and intangible assets resulting from
business combinations after June&nbsp;30, 2001, which had no effect on the Group&#146;s
consolidated financial statements.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group adopted the remaining provisions of SFAS No.&nbsp;142 as of January
1, 2002 and no longer amortized goodwill related to business combinations
consummated before July&nbsp;1, 2001. As of the date of adoption, the Group had
unamortized goodwill in the


<P align="center" style="font-size: 10pt">F-9
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">amount of $933.4&nbsp;million, all of which was subject to the transition
provisions of SFAS No.&nbsp;141 and No.&nbsp;142. Amortization expense related to
goodwill that will no longer be amortized was $25.0&nbsp;million for the year ended
December&nbsp;31, 2001. As described in Note 4, an impairment loss of approximately
$459.0&nbsp;million was recognized under the transitional provisions of SFAS No.&nbsp;142
as of January&nbsp;1, 2002.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective with the acquisition of the Group, the Company adopted the
provisions of SFAS No.&nbsp;141 and No.&nbsp;142. In accordance with SFAS No.&nbsp;142, the
Company reviews goodwill for impairment annually at the beginning of the fourth
quarter, and whenever events or changes in circumstances indicate that the
carrying value may not be recoverable.


<P align="left" style="font-size: 10pt"><B><I>(k)&nbsp;Recent Accounting Pronouncements</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2001, the Financial Accounting Standards Board (&#147;FASB&#148;) issued
Statement of Financial Accounting Standards (&#147;SFAS&#148;) No.&nbsp;143, <I>Accounting for
Asset Retirement Obligations</I>, which addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This statement applies to all
entities that have legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
or normal use of the asset. SFAS No.&nbsp;143 is effective for fiscal years
beginning after June&nbsp;15, 2002. The adoption of SFAS No.&nbsp;143 as of January&nbsp;1,
2003 did not have a significant impact on our financial condition or results of
operations.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2002, the FASB issued SFAS No.&nbsp;146, <I>Accounting for Costs
Associated with Exit or Disposal Activities, </I>which is effective for disposal
activities initiated after December&nbsp;31, 2002. This Statement nullifies
Emerging Issues Task Force Issue No.&nbsp;94-3, <I>Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)</I>. SFAS No.&nbsp;146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred as opposed to the date of the commitment of an
exit plan. The adoption of SFAS No.&nbsp;146 as of January&nbsp;1, 2003 did not have a
significant impact on our financial condition or results of operations.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2002, the EITF reached consensus on Issue 02-16, <I>Accounting by
a Customer (Including a Reseller) for Certain Consideration Received from a
Vendor</I>. The consensus was reached that cash consideration received by a
customer from a vendor is presumed to be a reduction of the prices of the
vendor&#146;s products or services and should be treated as a reduction of cost of
sales when recognized in the customer&#146;s income statement. This presumption can
be overcome if the consideration can be shown to represent either a payment for
assets or services delivered to the vendor or a reimbursement of costs incurred
by the reseller to sell the vendor&#146;s products. It also reached consensus on
when a customer should recognize a rebate or refund that is payable only if the
customer completes a specified level of purchases. Recognition should occur
when the rebate or refund is probable and reasonably estimable and should be
based on a systematic and rational method. The Company has historically
accounted for such consideration as a reduction of cost of sales when the
vendor rebate is probable and reasonably estimable and based on a systematic
and rational allocation of the cash consideration to be received. The Company
estimated the adoption of this EITF increased net income by $1.4&nbsp;million for
the year ended December&nbsp;31, 2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2003, the FASB issued Statement SFAS No.148, <I>Accounting for
Stock-Based Compensation &#151; Transition and Disclosure</I>. This statement amends
FASB SFAS No.&nbsp;123, <I>Accounting for Stock-Based Compensation </I>to provide
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. In addition,
SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent
disclosures in both annual and interim financial statements of the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. SFAS 148 is effective for fiscal years beginning
after December&nbsp;15, 2002. The adoption of SFAS 148 had no impact on the
Company&#146;s financial statements.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2003 the FASB issued SFAS No.&nbsp;149, <I>Amendment of Statement 133 on
Derivative Instruments and Hedging Activities</I>. This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No.&nbsp;133, <I>Accounting for Derivative Instruments
and Hedging Activities</I>. SFAS No.&nbsp;149 provides greater clarification of the
characteristics of a derivative instrument so that contracts with similar
characteristics will be accounted for consistently. In general, SFAS No.&nbsp;149
is effective for contracts entered into or modified after June&nbsp;30, 2003, and
for hedging relationships designated after June&nbsp;30, 2003. As the Company does
not currently have any derivative financials instruments, the adoption of SFAS
No.&nbsp;149 had no impact on the Company&#146;s financial statements.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2003, the FASB issued SFAS No.&nbsp;150, <I>Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity</I>.
This statement clarifies the accounting for certain financial instruments with
characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities in statements of financial position.
Previously, many of those


<P align="center" style="font-size: 10pt">F-10
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">financial instruments were classified as equity. SFAS No.&nbsp;150 is
effective for financial instruments entered into or modified after May&nbsp;31, 2003
and otherwise is effective at the beginning of the first interim period
beginning after June&nbsp;15, 2003. As the Company does not have any of these
financial instruments, the adoption of SFAS No.&nbsp;150 had no impact on the
Company&#146;s financial statements.



<P align="left" style="font-size: 10pt"><B>(3)&nbsp;Acquisitions and Divestitures</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On November&nbsp;22, 2002, NWW acquired substantially all of the assets and
certain liabilities of the Group. The acquisition was accounted for as a
business combination under SFAS No.&nbsp;141 and as a taxable transaction for
federal and state income tax purposes.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The aggregate purchase price, prior to post-closing purchase price
adjustments, was $643.8&nbsp;million. In addition, NWW incurred $15.3&nbsp;million in
financing fees of which $12.8&nbsp;million was capitalized as deferred financing
fees and $2.5&nbsp;million expensed as interest expense. During 2003, the Company
recorded additional deferred financing fees of $8.9&nbsp;million which were
initially considered direct costs of the acquisition. These fees will be
amortized over the remaining life of the related debt.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table summarizes the estimated fair value of the assets
acquired and the liabilities assumed as of the date of acquisition (in
thousands):

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="72%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">312,684</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Property and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,953</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">465,662</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">800,299</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">156,546</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">156,546</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:40px; text-indent:-10px">Net assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">643,753</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The goodwill acquired is deductible for income tax purposes.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Current assets includes a $13.0&nbsp;million inventory valuation adjustment
pursuant to SFAS No.&nbsp;141 of which $4.0&nbsp;million and $9.0&nbsp;million has been
recognized as an increase in cost of goods sold for the year ended December&nbsp;31,
2003 and the period of November&nbsp;22, 2002 through December&nbsp;31, 2002,
respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The acquisition agreement provided for a post-closing purchase price
adjustment based on working capital at the closing date. The purchase price
adjustment was finalized and resulted in an additional cash payment of $3.1
million paid in the first quarter of 2003. The $3.1&nbsp;million payment was
recorded as an adjustment to goodwill.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The pro forma results of operations for 2002 (in thousands) as though the
business combination had been completed as of January&nbsp;1, 2002 would have
resulted in revenue of $1,153,018 and net income of $25,259.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;29, 2002 the Group acquired substantially all of the assets and
certain liabilities of Utility Piping Systems, Inc. for an aggregate purchase
price of $19.6&nbsp;million. This acquisition was accounted for by the purchase
method, and accordingly, the purchase price was allocated to the net assets
acquired based upon their estimated fair values as of the date of acquisition.
The allocation of purchase price resulted in approximately $14.3&nbsp;million of
goodwill acquired.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On May&nbsp;31, 2001, the Group acquired substantially all of the assets and
certain liabilities of Utility Supply Division of North American Pipe
Corporation (NAPCO)&nbsp;for an aggregate purchase price of $2.7&nbsp;million. This
acquisition was accounted for by the purchase method, and accordingly, the
purchase price was allocated to the net assets acquired based upon their
estimated fair values as of the date of acquisition. The allocation of purchase
price resulted in approximately $0.4&nbsp;million of goodwill acquired, which was
being amortized over 40&nbsp;years through January&nbsp;1, 2002, the date of the adoption
of SFAS No.&nbsp;142.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As
these acquisitions are immaterial to the Group&#146;s consolidated financial statements,
pro forma results of operations are not presented.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;1, 2001, the Group sold certain assets and liabilities acquired
in 1997 for an aggregate sale price of $3.7&nbsp;million. The carrying values of the
assets divested, including goodwill, and liabilities disposed were
approximately $4.1&nbsp;million and $0.4&nbsp;million,


<P align="center" style="font-size: 10pt">F-11
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">respectively.



<P align="left" style="font-size: 10pt"><B>(4)&nbsp;Goodwill</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The changes in the carrying amount of goodwill for the year ended December
31, 2003 are as follows (in thousands):

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="86%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance at beginning of period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">465,662</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Additional goodwill related to the NWW acquisition of
USFDG:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Additional transaction costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Working capital purchase price adjustment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,140</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Purchase accounting adjustment-change in tax basis
of assets acquired</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,886</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Additional financing fees initially considered direct
costs of the acquisition</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,920</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Balance at the end of the period</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">456,080</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2003, the Company recorded additional deferred financing fees of
$8.9&nbsp;million that will be amortized over the remaining life of the related
debt. Also, additional deferred tax assets of $3.9&nbsp;million were recorded based
on management&#146;s best estimate of the acquired assets that will ultimately be
accepted by the taxing authorities.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effective with the acquisition of the Group, the Company adopted the
provisions of SFAS No.&nbsp;142 which requires goodwill be tested for impairment on
an annual basis at the reporting unit level. The Company identified and
assigned goodwill to its six reporting units as described in note 2. As part
of this review, a third party independent appraiser assessed the fair value of
the reporting units utilizing a combination of discounted cash flows and market
approaches. The Company reviewed goodwill for impairment at the beginning of
fourth quarter 2003. Based on the results of the impairment test, the Company
determined there was no impairment of goodwill to any of the reporting units.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with SFAS No.&nbsp;142, the Group completed the transition
assessment of whether there was an indication that goodwill was impaired at
January&nbsp;1, 2002 and concluded that it was probable that goodwill assigned to
its reporting units was impaired. The fair value of the Group&#146;s reporting units
was estimated using, among other factors, the sales price included in the sale
agreement by U.S. Filter and USFDG to sell substantially all of the Group&#146;s
assets, net of certain liabilities, for a cash purchase price of $620.0
million. The Group&#146;s management estimated an impairment loss of approximately
$459.0&nbsp;million. The goodwill impairment was reported as a cumulative effect of
a change in accounting principle.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization expense related to goodwill was $25.0&nbsp;million for the year
ended December&nbsp;31, 2001. The following table reconciles previously reported
net income as if the provision of SFAS No.&nbsp;142 were in effect in 2001 (in
thousands):

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="85%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="38%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" ></TD>
<TD></TD>
<TD></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Period of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Period of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" ></TD>
<TD></TD>
<TD></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>November 22,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>January 1,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" ></TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
<TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>through</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>through</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year Ended</B></TD>

</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>November 21,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>

</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Reported net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(5,894</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(412,847</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26,150</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Add back:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Goodwill amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Adjusted net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(5,894</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(412,847</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">51,150</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>(5)&nbsp;Allocations and Other Services</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group participated in certain services provided by U.S. Filter as
described below:


<P align="center" style="font-size: 10pt">F-12
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="left" style="font-size: 10pt"><B><I>(a)&nbsp;Cash Management</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to November&nbsp;2002, the Group participated in U.S. Filter&#146;s
centralized cash management system and, as such, the Group&#146;s cash funding
requirements including interest and tax obligations were met by U.S. Filter,
and cash received by the Group was transferred to U.S. Filter on a daily basis.


<P align="left" style="font-size: 10pt"><B><I>(b)&nbsp;Allocations</I></B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The statements of operations for the period of January&nbsp;1, 2002 through
November&nbsp;21, 2002 and year ended December&nbsp;31, 2001 include all direct costs of
the Group as well as certain corporate costs directly identified with the Group
and allocated to the Group by U.S. Filter. The Group was allocated $45.1
million and $52.0&nbsp;million for the period of January&nbsp;1, 2002 through November
21, 2002 and year ended December&nbsp;31, 2001, respectively. Allocated costs
included general liability insurance, worker&#146;s compensation insurance, employee
health and dental insurance, 401(k) plan matching expense, legal fees, income
taxes, and certain other costs. These costs were allocated to the Group based
on information specifically identified with the activities of the Group and
were settled through intercompany transactions. In the opinion of Group&#146;s
management, these allocations were made on a basis which is believed to be
reasonable for the Group as it operated within the structure of a larger parent
organization. However, the allocations are not necessarily indicative of the
level of expenses which might have been incurred by the Group if it had
operated as a stand-alone entity.


<P align="left" style="font-size: 10pt"><B>(6)&nbsp;Property and Equipment</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment consists of the following (in thousands):

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="74%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Land</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,295</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,306</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Buildings and improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,694</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,349</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Office furniture, fixtures and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,852</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Transportation equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,420</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,206</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Machinery and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">830</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,343</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,060</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,056</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Less accumulated depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,537</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(251</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20,523</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">21,805</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>(7)&nbsp;Leases</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NWW has certain noncancelable operating leases primarily for
transportation equipment and office space. These leases generally contain
automatic renewal options until terminated by either party and require the
lessee to pay all executory costs such as maintenance and insurance. Rental
expense for operating leases was $14.6&nbsp;million, $1.2&nbsp;million, $12.6&nbsp;million,
and $13.5&nbsp;million for the year ended December&nbsp;31, 2003, the period of November
22, 2002 through December&nbsp;31, 2002, the period of January&nbsp;1, 2002 through
November&nbsp;21, 2002, and year ended December&nbsp;31, 2001, respectively.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December&nbsp;31, 2003
are (in thousands):

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="78%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Operating</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Year Ending December 31</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Leases</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,859</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,212</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,577</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,436</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,727</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,922</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Total minimum lease payments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">22,733</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>(8)&nbsp;Long-Term Debt</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-term debt at December&nbsp;31, 2003 consists of the following (in
thousands):



<P align="center" style="font-size: 10pt">F-13
</DIV>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Unsecured 10.5% Senior Subordinated Notes due December&nbsp;1, 2012
interest payable semi-annually</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">200,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Secured borrowings under financing agreement; for 2003,LIBOR interest (no
floor) plus a spread of 2.75%; for 2002, LIBOR interest at 2.5% floor plus a
spread of 4.0%; interest rates were 3.92% and 6.5% at December&nbsp;31, 2003
and 2002, respectively; principal payments due quarterly plus annual
payments based on excess cash flow provisions as defined in the agreement;
matures November&nbsp;22, 2009; secured by the assets of the Company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">240,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">250,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">440,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">450,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Less current installments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Long-term debt, excluding current installments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">425,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">440,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2002, NWW issued $200.0&nbsp;million principal amount of 10.5%
Senior Subordinated Notes pursuant to Rule&nbsp;144A of the Securities Act of 1933.
Before December&nbsp;1, 2005, 35% of the Senior Subordinated Notes can be redeemed
with net cash proceeds of certain equity offerings at a redemption price of
110.50%. In addition, prior to December&nbsp;1, 2007, all or a portion of the notes
may be redeemed at a price equal to 100% of the principal amount plus a make
whole premium. On or after December 1 of the years indicated, NWW may redeem
the notes at the following redemption prices (expressed in percentages):
105.25% in 2007, 103.50% in 2008, 101.75% in 2009, and 100% in 2010 and
thereafter.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2002, NWW entered into a financing agreement with a syndicate
of lenders under which NWW borrowed $250.0&nbsp;million of term loans bearing an
interest rate of LIBOR (floor of 2.5%) plus 4% or alternatively Prime plus 3%.
The spread decreased upon attaining certain financial targets and ratios. The
financing agreement allows for additional revolver borrowings through November
22, 2008 in the amount of $75.0&nbsp;million. The revolver had an interest rate of
LIBOR (floor 2.5%) plus 3% or alternatively Prime plus 2%. NWW has the option
to elect 30, 60, 90, or 180&nbsp;day interest periods and must pay an annual
commitment fee of 1/2 of 1% on the unused portion of the commitment. The
spread and commitment fee decrease based on attaining certain financial targets
and ratios. The agreement allows NWW to utilize up to $35.0&nbsp;million of the
$75.0&nbsp;million revolver borrowings for letters of credit, bearing an interest
rate of 3% and upfront fees of .25%. The Company utilized $3.8&nbsp;million and
$3.1&nbsp;million of the revolver borrowings to cover outstanding letters of credit
at December&nbsp;31, 2003 and 2002, respectively. The $75.0&nbsp;million revolver
capacity was reduced accordingly at these dates.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;2003 the Company amended the senior credit facility in
connection with the refinancing of the outstanding term loan portion thereof.
The amendment, among other things, provided for lower applicable margins for
both LIBOR rate and Prime rate term loans under the refinanced facility. In
addition the minimum LIBOR rate of 2.50% for term loans that existed prior to
the amendment was removed. The amendment also permits us to issue, without the
consent of lenders under the senior credit facility, an incremental $50.0
million of credit facilities in addition to the $50.0&nbsp;million permitted prior
to the amendment, contingent upon meeting certain covenants. In connection
with the amendment, we paid approximately $6.0&nbsp;million of financing fees,
including a $4.9&nbsp;million call premium. The call premium was recorded as
deferred financing fees. The remaining finance fees were charged to interest
expense.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2003, the Company executed a Second Amendment to the senior
credit facility in connection with a dividend paid to the shareholders of the
Parent. The amendment permits NWW to pay a dividend to its parent from time to
time, contingent upon meeting certain financial covenants and ratios. In
addition, the aggregate amount of dividends paid pursuant to this amendment may
not exceed $110.0&nbsp;million in total, and may not exceed $45.0&nbsp;million for the
year ended December&nbsp;31, 2003 and $40.0&nbsp;million for any year thereafter,
provided that any amount not paid in the year for which it is permitted may be
carried over to any succeeding year. In connection with the amendment, the
Company paid approximately $2.3&nbsp;million in financing fees which were charged to
interest expense.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The financing agreement and the indenture related to the Senior
Subordinated Notes contain various covenants including limitations on
additional indebtedness, restricted payments, the incurrence of liens,
transactions with affiliates and sales of assets. In addition, the financing
agreement requires NWW to satisfy certain financial covenants, including
leverage and interest coverage ratios


<P align="center" style="font-size: 10pt">F-14
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">and capital expenditure limitations. NWW was in compliance with all of
the covenants of the financing agreement and the indenture at December&nbsp;31, 2003
and 2002.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The aggregate maturities of long-term debt for each of the five years
subsequent to December&nbsp;31, 2003 are: $15.0&nbsp;million in 2004, $15.0&nbsp;million in
2005, $20.0&nbsp;million in 2006, $25.0&nbsp;million in 2007, and $25.0&nbsp;million in 2008.
In addition, NWW is required to repay the term loans under the financing
agreement in an amount equal to 75% of excess cash flow (as defined in the
financing agreement) each fiscal year and with 100% of the net proceeds of
certain asset dispositions and debt issuances and 75% of the net proceeds of
certain equity issuances. The prepayment percentages with respect to excess
cash flow and equity issuances shall be reduced to 50% after December&nbsp;31, 2003
if NWW attains certain financial ratios. NWW did not have an excess cash flow
payment due for the year ended December&nbsp;31, 2003.


<P align="center" style="font-size: 10pt">F-15
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt"><B>(9)&nbsp;Income Taxes</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income tax expense (benefit)&nbsp;attributable to income (loss)&nbsp;from continuing
operations for each of the periods presented consists of the following (in
thousands):

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="57%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Current</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Deferred</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Year ended December&nbsp;31, 2003:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">U.S. Federal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,547</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15,831</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20,378</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">State and local</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,262</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,911</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">18,093</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">23,289</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Period of November&nbsp;22, 2002 through
December&nbsp;31, 2002:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">U.S. Federal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(3,098</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(3,098</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">State and local</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(590</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(590</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(3,688</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(3,688</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Period of January&nbsp;1, 2002 through
November&nbsp;21, 2002:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">U.S. Federal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">23,547</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,869</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">25,416</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">State and local</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">281</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,822</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">27,088</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">29,238</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Year ended December&nbsp;31, 2001:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">U.S. Federal</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">27,456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">295</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">27,751</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">State and local</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,129</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,173</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">31,585</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">339</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">31,924</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:20px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income tax expense (benefit)&nbsp;attributable to income (loss)&nbsp;from continuing
operations differed from the amounts computed by applying the U.S. federal
income tax rate of 35% to pretax income from continuing operations as a result
of the following (in thousands):

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Period of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Period of</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>November</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>January 1,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>22, 2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>through</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>through</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>November</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>21,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Computed &#147;expected&#148; tax
expense
(benefit)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">19,925</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(3,354</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">26,387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20,326</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Increase (reduction)&nbsp;in income
taxes resulting from:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Permanent differences:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Amortization of goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,288</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Meals and entertainment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">511</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">364</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">400</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Officer&#146;s life insurance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">196</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">State and local taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(384</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,484</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,714</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">23,289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(3,688</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">29,238</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">31,924</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-16
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 2003 and 2002 are presented below (in thousands):

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="65%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="69%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred tax assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Net operating loss</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,094</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Inventory</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">759</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other accruals</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">89</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Deferred financing fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,339</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Start up costs</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,886</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total deferred tax assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,017</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,239</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Deferred tax liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,235</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,213</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Prepaid expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,252</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">828</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Allowance for doubtful accounts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">510</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Total deferred tax liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,536</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,551</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-10px">Net deferred tax assets (liabilities)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(10,519</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,688</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Current deferred tax liability of $0.5&nbsp;million and current income tax
payable of $2.1&nbsp;million are included in other accrued expenses at December&nbsp;31,
2003. These balances were $0.0&nbsp;million at December&nbsp;31, 2002.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections for future taxable
income over the periods which the deferred tax assets are deductible,
management believes it is more likely than not the benefits of these deductible
differences will be realized at December&nbsp;31, 2003 and 2002. The amount of the
deferred tax assets considered realizable; however, could be reduced in the
near term if estimates of future taxable income during the carryforward period
are reduced.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At December&nbsp;31, 2002, NWW had a net operating loss carryforward for
federal and state income tax purposes of approximately $15.6&nbsp;million which was
available to offset federal taxable income through 2022 and future taxable
income in various states through, 2007. The entire net operating loss
carryforward was utilized in the year ending December&nbsp;31, 2003 for both federal
and state income tax purposes.

<P align="left" style="font-size: 10pt"><B>(10)&nbsp;Completion Bonus, Employment Agreements and Restricted Stock Agreements</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2002, U.S. Filter entered into agreements with certain members of
management and other key employees of USFDG, to provide them with an
opportunity to earn cash incentive &#147;completion bonuses&#148; in connection with the
anticipated sale of the business of USFDG. Completion bonus payments were made
by U.S. Filter following consummation of the acquisition to each employee with
such an agreement, unless such individual&#146;s employment was terminated
voluntarily or for cause prior thereto. Payments by U.S. Filter pursuant to
these arrangements totaled $6.2&nbsp;million for the period of January 1 through
November&nbsp;21, 2002.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2002, the Group entered into employment agreements with certain
members of management. These agreements provided for certain severance
payments as defined in the employment agreement. These employment agreements
were terminated in connection with the acquisition of the Group by NWW.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2002, NWW entered into new employment agreements with certain
members of management. Each of the employment agreements provides for annual
compensation, certain severance payments and non-compete and non-solicitation
provisions, as defined in the employment agreement.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2002, certain employees of NWW purchased, at fair value,
shares of the Parent&#146;s Class&nbsp;A Common Stock and entered into a restricted stock
agreement with the Parent. Under the terms of the restricted stock agreement,
the Parent has the option to repurchase the shares at the lower of the then
current fair value of the stock or the employees&#146; purchase price. Certain
shares subject to repurchase by the Parent are reduced over a four-year period
(&#147;time based shares&#148;) with the remaining shares being reduced over a four-year
period if certain financial measures, as defined in the restricted stock
agreement, are met by NWW (&#147;performance


<P align="center" style="font-size: 10pt">F-17
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">based shares&#148;). If the employee remains employed by NWW, and if the
performance based targets are not met, the Parent ceases to have the right to
repurchase such shares on the eighth anniversary of the date of the restricted
stock agreement.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the event the employee ceases employment with NWW, there is no further
reduction in the shares then subject to repurchase. If an employee is
terminated without cause within one year of a sale of NWW or the Parent, the
Parent ceases to have the right to repurchase any time-based shares then
subject to repurchase. In addition, if there is a sale of NWW or the Parent or
a public offering of the equity securities of NWW or the Parent, the Parent
ceases to have the right to repurchase any performance based shares then
subject to repurchase if J.P. Morgan Partners, LLC and Thomas H. Lee Partners,
L.P. and their affiliates realize a specified return on their original
investments as defined in the restricted stock agreement. In the event the
employee is terminated for cause, all shares purchased by the employee are
subject to repurchase by the Parent.


<P align="left" style="font-size: 10pt"><B>(11)&nbsp;Employee Benefit Plans</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Retirement Savings Plan. </I>The Company adopted a 401(k) retirement savings
plan on January&nbsp;1, 2003 which is available to full time and full time
equivalent employees. The plan allows employees to contribute a portion of
their compensation on a pretax basis, subject to statutory limits. The Company
matches 50% of up to 7% of participant contributions. Expense charged to
operations related to this plan was $1.9&nbsp;million for the year ended December
31, 2003.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Management Deferred Compensation Plan. </I>The Company established a
non-qualified management deferred compensation plan on January&nbsp;1, 2003. The
plan allows eligible employees to defer up to 50% of their regular taxable
earnings and up to 100% of their annual bonus as described in the plan. The
participants&#146; contributions are not matched by the Company. Although there are
no specific funding requirements under the plan, the Company has elected to
fund the plan through contributions to a rabbi trust. The fair value of the
assets held in the rabbi trust was $1.6&nbsp;million at December&nbsp;31, 2003 and is
included in other assets. The fair value of the participants&#146; accounts was
$1.7&nbsp;million at December&nbsp;31, 2003 and is included in other long-term
liabilities.


<P align="left" style="font-size: 10pt"><B>(12)&nbsp;Commitments and Contingencies</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain of the Group&#146;s predecessors distributed or may have distributed
cement pipe containing asbestos. Except for one predecessor, the cement pipe
distributed was primarily used in water and sewage application where the pipe
was typically buried underground. Management believes that the nature of the
asbestos-containing pipe distributed by the predecessors and the uses of such
pipe makes it unlikely that a large number of plaintiffs would be exposed to
friable asbestos emanating from the pipe. Management is not aware of any
predecessor manufacturing or fabricating asbestos containing products of any
type or assuming any product liability for such products.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As discussed in Note 3, U.S. Filter and USFDG completed an agreement to
sell substantially all of the Group&#146;s assets, net of certain liabilities as
defined in the sales agreement, to NWW. The November&nbsp;2002 acquisition was
structured as an asset purchase, and we did not assume any existing or future
asbestos-related liabilities relating to U.S. Filter or its predecessors. U.S.
Filter and USFDG retained these liabilities and jointly and severally agreed to
indemnify and defend us from and against these liabilities on an unlimited
basis with no termination date. U.S. Filter and USFDG also agreed that, until
November&nbsp;22, 2012, U.S. Filter will cause USFDG to maintain USFDG&#146;s corporate
existence and ensure that USFDG has sufficient funds to pay any and all of its
debts and other obligations, including liabilities retained by USFDG and its
indemnification obligations, as and when they become due. In addition, Veolia
has guaranteed all obligations of U.S. Filter and USFDG under the asset
purchase agreement, including the indemnity discussed above, up to an aggregate
of $50.0&nbsp;million through the period ending November&nbsp;22, 2017. Historically,
courts have not held the acquirer of an entity&#146;s assets liable for liabilities
that are not assumed as part of the transaction unless the asset buyer is found
to be a &#147;successor&#148; to the asset seller. Accordingly, we could become subject
to asbestos liabilities in the future to the extent we are found to be a
successor to USFDG and to the extent USFDG, U.S. Filter and Veolia are unable
to fulfill their contractual obligations. As the asbestos claims were retained
by USFDG and U.S. Filter and in view of the indemnity by USFDG and U.S. Filter
with respect to retained liabilities and the Veolia guarantee, discussed above,
management of NWW believes that it has no liability related to asbestos claims
at December&nbsp;31, 2003 and 2002.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group and one of the Group&#146;s predecessors have been named as
defendants in 1,148 asbestos related lawsuits in which the asbestos pipe was
used in buildings. As of December&nbsp;31, 2003, 910 lawsuits have been dismissed,
130 lawsuits have been settled and 108 lawsuits remain open. The predecessor&#146;s
insurance carriers entered into a cost sharing agreement for the coverage of
these lawsuits, which provides for 100% coverage of the related defense and
settlement costs. Subsequently one of the insurance carriers determined that
its policies do not cover asbestos liabilities and dropped out of the cost
sharing agreement. The Group has elected to cover the 42% share that this
insurance carrier had been contributing. Total related aggregate settlement
costs through December&nbsp;31,


<P align="center" style="font-size: 10pt">F-18
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<P align="left" style="font-size: 10pt">2003 are $0.3&nbsp;million and total related aggregate defense costs are $0.8
million, with the Group paying its share of $0.1&nbsp;million and $0.4&nbsp;million,
respectively.



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group and its predecessor companies have been named as defendant in 22
other asbestos related lawsuits. As of December&nbsp;31, 2003, 9 lawsuits have been
dismissed, 10 lawsuits have been settled and 3 lawsuits remain open. Total
settlement costs through December&nbsp;31, 2003 are $0.9&nbsp;million and total defense
costs are $0.5&nbsp;million, substantially all of which has been covered by the
Group&#146;s or predecessors&#146; insurance carriers.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;NWW and the Group are involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect
on NWW or the Group&#146;s consolidated financial position, results of operations or liquidity.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2002, NWW entered into a management agreement with J.P. Morgan
Partners, LLC and Thomas A. Lee Partners, L.P. (&#147;Sponsors&#148;). Each Sponsor and
its affiliates own 43.3% of the outstanding common stock of the Parent. Under
the agreement, the Sponsors agreed to provide NWW with financial advisory and
other services. NWW will pay each Sponsor an annual management fee in the
amount of $0.5&nbsp;million, commencing July&nbsp;1, 2004. The management agreement
continues until terminated by a Sponsor as provided in the management
agreement. Upon termination under certain conditions, each Sponsor will be
entitled to receive a termination fee equal to the net present value of the
fees, which would have been paid to the Sponsor for the 10-year period
commencing on the date of termination.


<P align="left" style="font-size: 10pt"><B>(13)&nbsp;Accounts Receivable Securitization</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Group utilized a standard third-party receivables sale program, to
provide low-cost funding based upon a securitization agreement entered into on
December&nbsp;19, 2001. Under this maximum $170.0&nbsp;million program, the Group sold
monthly, on a revolving basis, all of its rights, title and interest in, to and
under these eligible accounts receivable to a third party, a bankruptcy-remote
special purpose limited liability company. This company in turn transferred the
eligible accounts receivable to a master trust which issues undivided interests
in eligible accounts receivable to a third-party, multi-seller asset-backed
commercial paper program, existing solely for the purpose of issuing commercial
paper. Concurrent with the sale of USFDG assets to NWW, the accounts receivable
securitization facility was terminated using proceeds from the sale.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The sales of receivables under this Receivables Securitization Program
were accounted for as a sale in accordance with SFAS No.&nbsp;140, <I>Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.</I>
The Group formed a master trust for purposes of pooling its eligible accounts
receivable. Accounts receivable sold under these arrangements were excluded
from accounts receivable. Losses recognized on the sale of accounts receivable
totaled $2.5&nbsp;million and $0.5&nbsp;million during the period of January&nbsp;1, 2002
through November&nbsp;21, 2002 and the period ended December&nbsp;31, 2001, respectively.
These costs are included in the accompanying statements of operations under the
caption &#147;Loss-accounts receivable securitization&#148;.


<P align="left" style="font-size: 10pt"><B>(14)&nbsp;Fair Value of Financial Instruments</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Financial instruments consist of cash and cash equivalents and long-term
debt as of December&nbsp;31, 2003 and 2002. The carrying amount of cash and cash
equivalents approximate the fair value because of the short-term nature of
these instruments. The fair value of the Senior Subordinated Notes long-term
debt is estimated at $228.0&nbsp;million and $208.8&nbsp;million at December&nbsp;31, 2003 and
2002, respectively, based on quoted market prices as of those dates compared to
a carrying value of $200.0&nbsp;million. The carrying value of the term loan under
the Company&#146;s financing agreement approximates the fair value as the interest
rates float with the market interest rates.


<P align="left" style="font-size: 10pt"><B>(15)&nbsp;Related Party Transactions</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2003, one of our and our Parent&#146;s directors, who had not made
an investment in the Parent at the time the NWW acquisition was consummated,
made a $1.0&nbsp;million cash equity investment in the Parent in exchange for the
issuance of shares of common stock of the Parent. The Parent made a concurrent
$1.0&nbsp;million capital contribution to the Company. The investment was made at
the same price per share as the original investment made by the Sponsors and
management on November&nbsp;22, 2002.


<P align="left" style="font-size: 10pt"><B>(16)&nbsp;Quarterly Financial Information (unaudited)</B>



<P align="center" style="font-size: 10pt">F-19
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following is a summary of the unaudited results of operations for each
quarter in calendar 2003 and 2002 (in thousands):

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="21%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Calendar 2003</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15"><B>National Waterworks, Inc.</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>First</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Second</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Third</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Fourth</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net Sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">269,779</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">329,715</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">357,781</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">321,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,278,351</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gross Profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,467</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,572</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,364</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">69,587</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">267,990</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net Income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,718</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,486</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,182</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">33,641</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="95%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="22%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>National</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Waterworks,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Calendar 2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>U.S. Filter Distribution Group, Inc.</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Inc.</B><HR size="1" noshade></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Period of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Period of</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>January 1,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>November</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>22, 2002</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>through</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>through</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>November</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>First</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Second</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Third</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>21, 2002</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>31, 2002</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net Sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">226,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">312,012</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">329,997</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">190,092</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,058,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">94,250</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Gross Profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">65,677</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,772</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,843</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">227,004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,245</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Income (loss)
before cumulative
effect of a change
in accounting
principle</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,227</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,347</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,201</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,378</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,153</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,894</TD>
    <TD nowrap>)</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Net Income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(449,773</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">15,347</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">16,201</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,378</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(412,847</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(5,894</TD>
    <TD nowrap>)</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-20
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>(17)&nbsp;Subsequent Events</B>



<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February&nbsp;9, 2004, NWW acquired substantially all of the assets and
certain liabilities of Midstate Utility Supply, Inc. for an aggregate purchase
price of approximately $2.0&nbsp;million, subject to post-closing purchase price
adjustments as stated in the Asset Purchase Agreement.


<P align="left" style="font-size: 10pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;2, 2004 the Company&#146;s Board of Directors declared a cash dividend
in the aggregate amount of $6.1&nbsp;million. The dividend, payable on March&nbsp;3,
2004, will be paid to the Company&#146;s Parent. Contemporaneously with the
declaration of the dividend, the Company&#146;s Parent declared a dividend in the
aggregate amount of $6.1&nbsp;million to the holders of its class B common stock,
payable March&nbsp;3, 2004.


<P align="center" style="font-size: 10pt">F-21
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<P align="center" style="font-size: 10pt"><B>National Waterworks, Inc.</B>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">




<P align="center" style="font-size: 10pt"><B>Part II</B>



<P align="center" style="font-size: 10pt"><B>Information Not Required in Prospectus</B>



<P align="left" style="font-size: 10pt"><B>Item&nbsp;13. Other Expenses of Issuance and Distribution</B>


<P align="left" style="font-size: 10pt">The following table sets forth the costs and expenses payable by National
Waterworks, Inc. in connection with the offer and sale of the securities being
registered. All amounts are estimates.


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="55%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="80%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Printing and engraving expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Legal fees and expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Accounting fees and expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="1" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">50,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:10px; text-indent:-10px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right"><HR size="4" noshade>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

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</TABLE>
</DIV>



<P align="left" style="font-size: 10pt"><B>Item&nbsp;14. Indemnification of Directors and Officers</B>


<P align="left" style="font-size: 10pt">Section&nbsp;145 of the Delaware General Corporation Law (&#147;DGCL&#148;) provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal or investigative (other than an action by or
in the fight of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys&#146; fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section&nbsp;145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the fight of the
corporation to procure a judgment in its favor, against expenses (including
attorneys&#146; fees) actually and reasonably incurred in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the corporation unless and only to the extent that the Delaware
Court of Chancery or such other court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.


<P align="left" style="font-size: 10pt">Section&nbsp;102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i)&nbsp;for any
breach of the director&#146;s duty of loyalty to the corporation or its
stockholders, (ii)&nbsp;for acts or omission not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii)&nbsp;under Section&nbsp;174
of the DGCL (relating to unlawful payment of dividends and unlawful stock
purchase and redemption) or (iv)&nbsp;for any transaction from which the director
derived an improper personal benefit.


<P align="left" style="font-size: 10pt">The Restated Certificate of Incorporation of National Waterworks, Inc. provides
that its directors shall not be liable to National Waterworks, Inc. or its
stockholders for monetary damages for breach of fiduciary duty as a director
provided, however, that such exculpation from liabilities is not permitted with
respect to liability arising from items described in clauses (i)&nbsp;through (iv)
in the preceding paragraph. The Amended and Restated By-laws of National
Waterworks, Inc. further provide that National Waterworks, Inc. shall indemnify
its directors to the fullest extent permitted by the DGCL. The Restated
Certificate of Incorporation of National Waterworks, Inc. provides that if the
DGCL is amended after the date of incorporation of National Waterworks, Inc. to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of National
Waterworks, Inc shall be eliminated or limited to the fullest extent permitted
by the DGCL, as so amended.


<P align="left" style="font-size: 10pt">The directors and officers of National Waterworks, Inc. are covered under
directors&#146; and officers&#146; liability insurance policies maintained by National
Waterworks, Inc.



<P align="center" style="font-size: 10pt">II-1
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="left" style="font-size: 10pt"><B>Item&nbsp;15. Recent Sales of Unregistered Securities</B>



<P align="left" style="font-size: 10pt">None.



<P align="left" style="font-size: 10pt"><B>Item&nbsp;16. Exhibits and Financial Statement Schedules</B>



<P align="left" style="font-size: 10pt"><B>(a)&nbsp;Exhibits</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="87%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit Number</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Exhibit</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Asset Purchase Agreement dated September&nbsp;12, 2002 by and among United
States Filter Corporation, U.S. Filter Distribution Group, Inc. and
National Waterworks, Inc. (Incorporated by reference to Exhibit&nbsp;2.1 to the
Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restated Certificate of Incorporation of National Waterworks, Inc.
(Incorporated by Reference to Exhibit&nbsp;3.1 to the Registrant&#146;s Registration
Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated By-laws of National Waterworks, Inc. (Incorporated
by Reference to Exhibit&nbsp;3.2 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Indenture, dated as of November&nbsp;22, 2002, among National Waterworks, Inc.
and Wells Fargo Bank, Minnesota, National Association, as Trustee
(Incorporated by Reference to Exhibit&nbsp;4.1 to the Registrant&#146;s Registration
Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Senior Subordinated Note, Series&nbsp;B, due 2012 (a form of which is
incorporated by reference to an exhibit to the Indenture filed as Exhibit
4.1 to the Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.
333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exchange and Registration Rights Agreement, dated as of November&nbsp;22,
2002, among National Waterworks, Inc., Goldman, Sachs &#038; Co., J.P. Morgan
Securities Inc. and UBS Warburg LLC (Incorporated by reference to Exhibit
4.3 of the Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.
333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">5.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Opinion of O&#146;Melveny &#038; Myers LLP (Incorporated by reference to Exhibit
5.1 of the Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.
333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Credit Agreement, dated as of November&nbsp;22, 2002, among National
Waterworks Holdings, Inc., National Waterworks, Inc., as Borrower, the
several lenders from time to time parties thereto, JPMorgan Securities
Inc., as Co-Syndication Agent, Goldman Sachs Credit Partners L.P., as
Co-Syndication Agent, General Electric Capital Corporation, as
Co-Documentation Agent, Antares Capital Corporation, as Co-Documentation
Agent and UBS AG, Stamford Branch, as Administrative Agent (Incorporated
by Reference to Exhibit&nbsp;10.1 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Guarantee and Collateral Agreement, dated as of November&nbsp;22, 2002, among
National Waterworks Holdings, Inc., and National Waterworks, Inc. as
Borrower in favor of UBS AG, Stamford branch, as Administrative Agent
(Incorporated by Reference to Exhibit&nbsp;10.2 to the Registrant&#146;s
Registration Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Deed of Trust, Assignment of Rents and Leases and Security Agreement,
dated as of November&nbsp;22, 2002, made by National Waterworks, Inc for the
use and benefit of UBS AG, Stamford Branch, as</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">II-2
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="87%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit Number</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Exhibit</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Administrative Agent. (St. Louis, MO) (Incorporated by Reference
to Exhibit&nbsp;10.3 to the Registrant&#146;s Registration Statement on Form
S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.4
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Deed of Trust, Assignment of Rents and Leases, Fixture Filing and
Security Agreement, dated as of November&nbsp;22, 2002, made by National
Waterworks, Inc for the use and benefit of UBS AG, Stamford Branch, as
Administrative Agent (Puyallup, WA) (Incorporated by Reference to Exhibit
10.4 to the Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.
333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.5
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employee Leasing Agreement between United States Filter Corporation, U.S.
Filter Distribution Group, Inc. and National Waterworks, Inc., dated as of
November&nbsp;22, 2002 (Incorporated by Reference to Exhibit&nbsp;10.5 to the
Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.6
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Reimbursement Agreement between United States Filter Corporation and
National Waterworks, Inc., dated as of November&nbsp;22, 2002 (Incorporated by
Reference to Exhibit&nbsp;10.6 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Stockholders Agreement among National Waterworks Holdings, Inc., THL
Managers V, LLC and certain of its affiliates, J.P. Morgan Partners, LLC
and certain of its affiliates, and the other parties thereto, dated as of
November&nbsp;22, 2002 (Incorporated by Reference to Exhibit&nbsp;10.7 to the
Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Registration Rights Agreement among National Waterworks Holdings, Inc.
and its stockholders, dated as of November&nbsp;22, 2002 (Incorporated by
Reference to Exhibit&nbsp;10.8 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.9
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subscription and Stock Purchase Agreement by and among National
Waterworks Holdings, Inc. and each of Thomas H. Lee Equity Fund V, L.P.,
Thomas H. Lee Parallel Fund V, L.P., Thomas H. Lee Equity (Cayman) Fund V,
L.P., Putnam Investments Holdings, LLC, Putnam Investments Employees&#146;
Securities Company I LLC, Putnam Investments Employees&#146; Securities Company
II LLC, 1997 Thomas H. Lee Nominee Trust, Thomas H. Lee Investors Limited
Partnership, J.P. Morgan Partners (BHCA), L.P., J.P. Morgan Partners
Global Investors, L.P., J.P. Morgan Partners Global Investors (Cayman),
L.P., J.P. Morgan Partners Global Investors A, L.P., J.P. Morgan Partners
Global Investors (Cayman) II, L.P. and Latona NW Investment, LLC, dated as
of November&nbsp;22, 2002 (Incorporated by Reference to Exhibit&nbsp;10.9 to the
Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.10
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subscription and Stock Purchase Agreement by and among National
Waterworks Holdings, Inc. and each of Harry Hornish, Mechelle Slaughter,
Terry Howell, Rob Hickson, Ed Maczko, Ron Hood, Jerry Webb, Irving
Welchons, Jack Schaller, Joe Walker, Phil Keipp and Jack Olson, dated as
of November&nbsp;22, 2002 (Incorporated by Reference to Exhibit&nbsp;10.10 to the
Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.11
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Harry Hornish, dated as of November&nbsp;22, 2002 (Incorporated by
Reference to Exhibit&nbsp;10.11 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.12
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Mechelle Slaughter, dated as of November&nbsp;22, 2002 (Incorporated by
Reference to Exhibit&nbsp;10.12 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">II-3
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="87%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit Number</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Exhibit</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.13
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Terry Howell, dated as of November&nbsp;22, 2002 (Incorporated by Reference
to Exhibit&nbsp;10.13 to the Registrant&#146;s Registration Statement on Form&nbsp;S-4,
File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.14
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Rob Hickson, dated as of November&nbsp;22, 2002 (Incorporated by Reference
to Exhibit&nbsp;10.14 to the Registrant&#146;s Registration Statement on Form&nbsp;S-4,
File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.15
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Ed Maczko dated as of November&nbsp;22, 2002 (Incorporated by Reference to
Exhibit&nbsp;10.15 to the Registrant&#146;s Registration Statement on Form&nbsp;S-4, File
No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.16
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Ron Hood, dated as of November&nbsp;22, 2002 (Incorporated by Reference to
Exhibit&nbsp;10.16 to the Registrant&#146;s Registration Statement on Form&nbsp;S-4, File
No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.17
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Jerry Webb, dated as of November&nbsp;22, 2002 (Incorporated by Reference
to Exhibit&nbsp;10.17 to the Registrant&#146;s Registration Statement on Form&nbsp;S-4,
File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.18
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Irving Welchons, dated as of November&nbsp;22, 2002 (Incorporated by
Reference to Exhibit&nbsp;10.18 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.19
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Jack Schaller, dated as of November&nbsp;22, 2002 (Incorporated by
Reference to Exhibit&nbsp;10.19 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.20
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Joe Walker, dated as of November&nbsp;22, 2002 (Incorporated by Reference
to Exhibit&nbsp;10.20 to the Registrant&#146;s Registration Statement on Form&nbsp;S-4,
File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.21
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Phil Keipp, dated as of November&nbsp;22, 2002 (Incorporated by Reference
to Exhibit&nbsp;10.21 to the Registrant&#146;s Registration Statement on Form&nbsp;S-4,
File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.22
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Jack Olson, dated as of November&nbsp;22, 2002 (Incorporated by Reference
to Exhibit&nbsp;10.22 to the Registrant&#146;s Registration Statement on Form&nbsp;S-4,
File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.23*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Employment Agreements between National Waterworks,
Inc. and Harry Hornish, dated as of November&nbsp;22, 2002 (Incorporated by
Reference to Exhibit&nbsp;10.23 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.24*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Employment Agreements between National Waterworks,
Inc. and Mechelle Slaughter, dated as of November&nbsp;22, 2002 (Incorporated
by Reference to Exhibit&nbsp;10.24 to the Registrant&#146;s Registration Statement
on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.25*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Employment Agreements between National Waterworks,
Inc. and Terry Howell, dated as of November&nbsp;22, 2002 (Incorporated by
Reference to Exhibit&nbsp;10.25 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">II-4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="87%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit Number</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Exhibit</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.26
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Management Agreement between National Waterworks, Inc., THL Managers V,
LLC and certain of its affiliates and J.P. Morgan Partners, LLC and
certain of its affiliates, dated as of November&nbsp;22, 2002 (Incorporated by
Reference to Exhibit&nbsp;10.26 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.27
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Fee Agreement between National Waterworks, Inc., THL Managers V, LLC and
certain of its affiliates and J.P. Morgan Partners, LLC and certain of its
affiliates, dated September&nbsp;30, 2002 (Incorporated by Reference to Exhibit
10.27 to the Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.
333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.28
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Tax Sharing Agreement between National Waterworks, Inc. and National
Waterworks Holdings, Inc., dated as of November&nbsp;22, 2002 (Incorporated by
Reference to Exhibit&nbsp;10.28 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.29
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Real property lease covering premises located at 200 Highway 6 West,
Suite&nbsp;620, Waco, TX (Incorporated by Reference to Exhibit&nbsp;10.29 to the
Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.30
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">First Amendment to the Credit Agreement (dated November&nbsp;22, 2002)
entered into by and between the Company and the syndication of lenders
dated August&nbsp;7, 2003 (Incorporated by Reference to Exhibit&nbsp;10.32 to the
Registrant&#146;s Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;27,
2003).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.31
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Second Amendment to the Credit Agreement (dated November&nbsp;22, 2002)
entered into by and between the Company and the syndication of lenders
dated December&nbsp;2, 2003 (Incorporated by Reference to Exhibit&nbsp;10.31 to the
Registrant&#146;s Annual Report on Form&nbsp;10-K for the fiscal year ended December
31, 2003).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">12.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Statement re: computation of ratios of earnings to fixed charges.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">21.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">List of Subsidiaries (Incorporated by Reference to Exhibit&nbsp;21.1 to the
Registrant&#146;s Annual Report on Form&nbsp;10-K for the fiscal year ended December
31, 2003).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of KPMG LLP.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of O&#146;Melveny &#038; Myers LLP (included in Exhibit&nbsp;5.1).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">24.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Power of Attorney (included on signature page).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">25.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form&nbsp;T-1 Statement of Eligibility and Qualifications under the Trust
Indenture Act of 1939 of Wells Fargo Bank Minnesota, National Association,
as Trustee (Incorporated by Reference to Exhibit&nbsp;25.1 to the Registrant&#146;s
Registration Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>




<P>
<HR size="1" width="18%" align="left" noshade>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top">
    <TD width="1%" nowrap align="right">*</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Management contract or compensatory plan or arrangement</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">II-5
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">






<P align="left" style="font-size: 10pt"><B>(b)&nbsp;Financial Statement Schedules</B>



<P align="left" style="font-size: 10pt"><B>Schedule&nbsp;II Valuation and Qualifying Accounts (In thousands)</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="75%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="60%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Additions</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>&nbsp;</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Beginning</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Reversals)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Deductions</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Ending</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Description</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Balance</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>and Expenses</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>(Additions)</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Balance</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Year ended December&nbsp;31, 2001</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accounts receivable allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,239</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,098</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,941</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Inventory allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,655</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,830</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Period of January&nbsp;1, 2002 through
November&nbsp;21, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accounts receivable allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,941</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,252</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,559</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Inventory allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,830</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">389</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,219</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Period of November&nbsp;22, 2002 through
December&nbsp;31, 2002</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accounts receivable allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,441</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,394</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #eeeeee">
    <TD><DIV style="margin-left:10px; text-indent:-10px">Year ended December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:20px; text-indent:-10px">Accounts receivable allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,394</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,213</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<P align="left" style="font-size: 10pt">Schedules other than the above have been omitted because they are either not
applicable or the required information has been disclosed in the financial
statements or notes thereto.


<P align="left" style="font-size: 10pt"><B>Item&nbsp;17. Undertakings</B>


<P align="left" style="font-size: 10pt">Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of their counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.


<P align="left" style="font-size: 10pt">The undersigned Registrant hereby undertakes:



<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;</TD>
</TR>

</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(a)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(b)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in the
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price
set forth in the &#147;Calculation of Registration Fee&#148; table in the
effective registration statement; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" nowrap align="right">(c)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">II-6
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<P>
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof; and</TD>
</TR>

<TR>
    <TD colspan="5">&nbsp;</TD>
</TR>

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" nowrap align="right">3.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt">II-7
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>


<P align="center" style="font-size: 10pt"><B>Signatures</B>


<P align="left" style="font-size: 10pt">Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Waco, State of Texas, on
the 23&nbsp;day of April, 2004.


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="50%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="5" valign="top" align="left"><B>NATIONAL WATERWORKS, INC.</B></TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ Harry K. Hornish, Jr.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Harry K. Hornish, Jr.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt"><B>Power of Attorney</B>


<P align="left" style="font-size: 10pt">KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
hereby severally constitutes and appoints HARRY K. HORNISH, JR. and MECHELLE
SLAUGHTER, or either of them, his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution for him or her and in
his or her name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to the registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, and each of them, full power and
authority to do and perform each and every act and thing requisite or necessary
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that each said attorney-in-fact and agent or any
of them or their or his or her substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.


<P align="left" style="font-size: 10pt">Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="33%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="43%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Signature</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Title</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Date</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Harry K. Hornish, Jr.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">President, Chief Executive Officer
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">April&nbsp;23, 2004</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">and Director</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Harry K. Hornish, Jr.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">(Principal Executive Officer)</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Mechelle Slaughter
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Chief Financial Officer (Principal
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">April&nbsp;23, 2004</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade>
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Financial and Accounting Officer)</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mechelle Slaughter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Todd M. Abbrecht
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">April&nbsp;23, 2004</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Todd M. Abbrecht</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Anthony J. DiNovi
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">April&nbsp;23, 2004</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Anthony J. DiNovi</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Stephen V. McKenna
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">April&nbsp;23, 2004</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Stephen V. McKenna</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Paul M. Meister
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">April&nbsp;23, 2004</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Paul M. Meister</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ C. Dean Metropoulos
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">April&nbsp;23, 2004</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">C. Dean Metropoulos</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Stephen P. Murray
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">April&nbsp;23, 2004</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Stephen P. Murray</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">II-8
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="33%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="43%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Signature</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Title</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Date</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Kevin G. O&#146;Brien
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">April&nbsp;23, 2004</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kevin G. O&#146;Brien</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">/s/ Soren L. Oberg
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Director
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">April&nbsp;23, 2004</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px"><HR size="1" noshade></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="center" valign="top"><DIV style="margin-left:0px; text-indent:-0px">Soren L. Oberg</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">II-9
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<P align="center" style="font-size: 10pt"><B>Exhibit&nbsp;Index</B>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="87%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit Number</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Exhibit</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">2.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Asset Purchase Agreement dated September&nbsp;12, 2002 by and among United
States Filter Corporation, U.S. Filter Distribution Group, Inc. and
National Waterworks, Inc. (Incorporated by reference to Exhibit&nbsp;2.1 to the
Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restated Certificate of Incorporation of National Waterworks, Inc.
(Incorporated by Reference to Exhibit&nbsp;3.1 to the Registrant&#146;s Registration
Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">3.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated By-laws of National Waterworks, Inc. (Incorporated
by Reference to Exhibit&nbsp;3.2 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Indenture, dated as of November&nbsp;22, 2002, among National Waterworks, Inc.
and Wells Fargo Bank, Minnesota, National Association, as Trustee
(Incorporated by Reference to Exhibit&nbsp;4.1 to the Registrant&#146;s Registration
Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form of Senior Subordinated Note, Series&nbsp;B, due 2012 (a form of which is
incorporated by reference to an exhibit to the Indenture filed as Exhibit
4.1 to the Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.
333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">4.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Exchange and Registration Rights Agreement, dated as of November&nbsp;22,
2002, among National Waterworks, Inc., Goldman, Sachs &#038; Co., J.P. Morgan
Securities Inc. and UBS Warburg LLC (Incorporated by reference to Exhibit
4.3 of the Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.
333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">5.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Opinion of O&#146;Melveny &#038; Myers LLP (Incorporated by reference to Exhibit
5.1 of the Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.
333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Credit Agreement, dated as of November&nbsp;22, 2002, among National
Waterworks Holdings, Inc., National Waterworks, Inc., as Borrower, the
several lenders from time to time parties thereto, JPMorgan Securities
Inc., as Co-Syndication Agent, Goldman Sachs Credit Partners L.P., as
Co-Syndication Agent, General Electric Capital Corporation, as
Co-Documentation Agent, Antares Capital Corporation, as Co-Documentation
Agent and UBS AG, Stamford Branch, as Administrative Agent (Incorporated
by Reference to Exhibit&nbsp;10.1 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Guarantee and Collateral Agreement, dated as of November&nbsp;22, 2002, among
National Waterworks Holdings, Inc., and National Waterworks, Inc. as
Borrower in favor of UBS AG, Stamford branch, as Administrative Agent
(Incorporated by Reference to Exhibit&nbsp;10.2 to the Registrant&#146;s
Registration Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.3
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Deed of Trust, Assignment of Rents and Leases and Security Agreement,
dated as of November&nbsp;22, 2002, made by National Waterworks, Inc for the
use and benefit of UBS AG, Stamford Branch, as Administrative Agent. (St.
Louis, MO) (Incorporated by Reference to Exhibit&nbsp;10.3 to the Registrant&#146;s
Registration Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.4
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Deed of Trust, Assignment of Rents and Leases, Fixture Filing and
Security Agreement, dated as of November&nbsp;22, 2002, made by National
Waterworks, Inc for the use and benefit of UBS AG, Stamford Branch, as
Administrative Agent (Puyallup, WA) (Incorporated by Reference to Exhibit
10.4 to the</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="87%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit Number</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Exhibit</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.
333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.5
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Employee Leasing Agreement between United States Filter Corporation, U.S.
Filter Distribution Group, Inc. and National Waterworks, Inc., dated as of
November&nbsp;22, 2002 (Incorporated by Reference to Exhibit&nbsp;10.5 to the
Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.6
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Reimbursement Agreement between United States Filter Corporation and
National Waterworks, Inc., dated as of November&nbsp;22, 2002 (Incorporated by
Reference to Exhibit&nbsp;10.6 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.7
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Stockholders Agreement among National Waterworks Holdings, Inc., THL
Managers V, LLC and certain of its affiliates, J.P. Morgan Partners, LLC
and certain of its affiliates, and the other parties thereto, dated as of
November&nbsp;22, 2002 (Incorporated by Reference to Exhibit&nbsp;10.7 to the
Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.8
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Registration Rights Agreement among National Waterworks Holdings, Inc.
and its stockholders, dated as of November&nbsp;22, 2002 (Incorporated by
Reference to Exhibit&nbsp;10.8 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.9
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subscription and Stock Purchase Agreement by and among National
Waterworks Holdings, Inc. and each of Thomas H. Lee Equity Fund V, L.P.,
Thomas H. Lee Parallel Fund V, L.P., Thomas H. Lee Equity (Cayman) Fund V,
L.P., Putnam Investments Holdings, LLC, Putnam Investments Employees&#146;
Securities Company I LLC, Putnam Investments Employees&#146; Securities Company
II LLC, 1997 Thomas H. Lee Nominee Trust, Thomas H. Lee Investors Limited
Partnership, J.P. Morgan Partners (BHCA), L.P., J.P. Morgan Partners
Global Investors, L.P., J.P. Morgan Partners Global Investors (Cayman),
L.P., J.P. Morgan Partners Global Investors A, L.P., J.P. Morgan Partners
Global Investors (Cayman) II, L.P. and Latona NW Investment, LLC, dated as
of November&nbsp;22, 2002 (Incorporated by Reference to Exhibit&nbsp;10.9 to the
Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.10
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Subscription and Stock Purchase Agreement by and among National
Waterworks Holdings, Inc. and each of Harry Hornish, Mechelle Slaughter,
Terry Howell, Rob Hickson, Ed Maczko, Ron Hood, Jerry Webb, Irving
Welchons, Jack Schaller, Joe Walker, Phil Keipp and Jack Olson, dated as
of November&nbsp;22, 2002 (Incorporated by Reference to Exhibit&nbsp;10.10 to the
Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.11
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Harry Hornish, dated as of November&nbsp;22, 2002 (Incorporated by
Reference to Exhibit&nbsp;10.11 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.12
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Mechelle Slaughter, dated as of November&nbsp;22, 2002 (Incorporated by
Reference to Exhibit&nbsp;10.12 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.13
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Terry Howell, dated as of November&nbsp;22, 2002 (Incorporated by Reference
to Exhibit&nbsp;10.13 to the Registrant&#146;s Registration Statement on Form&nbsp;S-4,
File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.14
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Rob Hickson, dated as of November&nbsp;22, 2002 (Incorporated by Reference
to Exhibit&nbsp;10.14 to the Registrant&#146;s Registration</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">&nbsp;
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="87%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit Number</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Exhibit</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.15
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Ed Maczko dated as of November&nbsp;22, 2002 (Incorporated by Reference to
Exhibit&nbsp;10.15 to the Registrant&#146;s Registration Statement on Form&nbsp;S-4, File
No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.16
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Ron Hood, dated as of November&nbsp;22, 2002 (Incorporated by Reference to
Exhibit&nbsp;10.16 to the Registrant&#146;s Registration Statement on Form&nbsp;S-4, File
No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.17
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Jerry Webb, dated as of November&nbsp;22, 2002 (Incorporated by Reference
to Exhibit&nbsp;10.17 to the Registrant&#146;s Registration Statement on Form&nbsp;S-4,
File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.18
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Irving Welchons, dated as of November&nbsp;22, 2002 (Incorporated by
Reference to Exhibit&nbsp;10.18 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.19
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Jack Schaller, dated as of November&nbsp;22, 2002 (Incorporated by
Reference to Exhibit&nbsp;10.19 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.20
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Joe Walker, dated as of November&nbsp;22, 2002 (Incorporated by Reference
to Exhibit&nbsp;10.20 to the Registrant&#146;s Registration Statement on Form&nbsp;S-4,
File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.21
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Phil Keipp, dated as of November&nbsp;22, 2002 (Incorporated by Reference
to Exhibit&nbsp;10.21 to the Registrant&#146;s Registration Statement on Form&nbsp;S-4,
File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.22
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Jack Olson, dated as of November&nbsp;22, 2002 (Incorporated by Reference
to Exhibit&nbsp;10.22 to the Registrant&#146;s Registration Statement on Form&nbsp;S-4,
File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.23*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Employment Agreements between National Waterworks,
Inc. and Harry Hornish, dated as of November&nbsp;22, 2002 (Incorporated by
Reference to Exhibit&nbsp;10.23 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.24*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Employment Agreements between National Waterworks,
Inc. and Mechelle Slaughter, dated as of November&nbsp;22, 2002 (Incorporated
by Reference to Exhibit&nbsp;10.24 to the Registrant&#146;s Registration Statement
on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.25*
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Amended and Restated Employment Agreements between National Waterworks,
Inc. and Terry Howell, dated as of November&nbsp;22, 2002 (Incorporated by
Reference to Exhibit&nbsp;10.25 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.26
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Management Agreement between National Waterworks, Inc., THL Managers V,
LLC and certain of its affiliates and J.P. Morgan Partners, LLC and
certain of its affiliates, dated as of November&nbsp;22, 2002 (Incorporated by
Reference to Exhibit&nbsp;10.26 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

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</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="87%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Exhibit Number</B><HR size="1" noshade></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Exhibit</B><HR size="1" noshade></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.27
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Fee Agreement between National Waterworks, Inc., THL Managers V, LLC and
certain of its affiliates and J.P. Morgan Partners, LLC and certain of its
affiliates, dated September&nbsp;30, 2002 (Incorporated by Reference to Exhibit
10.27 to the Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.
333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.28
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Tax Sharing Agreement between National Waterworks, Inc. and National
Waterworks Holdings, Inc., dated as of November&nbsp;22, 2002 (Incorporated by
Reference to Exhibit&nbsp;10.28 to the Registrant&#146;s Registration Statement on
Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.29
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Real property lease covering premises located at 200 Highway 6 West,
Suite&nbsp;620, Waco, TX (Incorporated by Reference to Exhibit&nbsp;10.29 to the
Registrant&#146;s Registration Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.30
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">First Amendment to the Credit Agreement (dated November&nbsp;22, 2002)
entered into by and between the Company and the syndication of lenders
dated August&nbsp;7, 2003 (Incorporated by Reference to Exhibit&nbsp;10.32 to the
Registrant&#146;s Quarterly Report on Form&nbsp;10-Q for the quarter ended June&nbsp;27,
2003).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">10.31
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Second Amendment to the Credit Agreement (dated November&nbsp;22, 2002)
entered into by and between the Company and the syndication of lenders
dated December&nbsp;2, 2003 (Incorporated by Reference to Exhibit&nbsp;10.31 to the
Registrant&#146;s Annual Report on Form&nbsp;10-K for the fiscal year ended December
31, 2003).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">12.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Statement re: computation of ratios of earnings to fixed charges.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">21.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">List of Subsidiaries (Incorporated by Reference to Exhibit&nbsp;21.1 to the
Registrant&#146;s Annual Report on Form&nbsp;10-K for the fiscal year ended December
31, 2003).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of KPMG LLP.</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">23.2
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Consent of O&#146;Melveny &#038; Myers LLP (included in Exhibit&nbsp;5.1).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">24.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Power of Attorney (included on signature page).</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">25.1
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Form&nbsp;T-1 Statement of Eligibility and Qualifications under the Trust
Indenture Act of 1939 of Wells Fargo Bank Minnesota, National Association,
as Trustee (Incorporated by reference to Exhibit&nbsp;4.3 of the Registrant&#146;s
Registration Statement on Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

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<TR valign="top">
    <TD width="1%" nowrap align="right">*</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="96%">Management contract or compensatory plan or arrangement.</TD>
</TR>

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</BODY>
</HTML>
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{"company-data": {"conformed-name": "NATIONAL WATERWORKS INC", "cik": "0001211010", "assigned-sic": "5070"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-114790", "film-number": "04751659"}, "mail-address": {"street1": "200 WEST HIGHWAY 6", "street2": "SUITE 620", "city": "WACO", "state": "TX", "zip": "76712"}}
FORM S-1
Table of Contents
As filed with the Securities and Exchange Commission on April 23, 2004
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
National Waterworks, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
5099
(Primary Standard Industrial Classification Code Number)
05-532711
(I.R.S. Employer Identification No.)
200 West Highway 6, Suite 620
Waco, Texas 76712
(254) 772-5355
(Address, including zip code, and telephone number, including area code, of registrants' principal executive offices)
Harry K. Hornish, Jr.
President and Chief Executive Officer
200 West Highway 6, Suite 620
Waco, Texas 76712
(254) 772-5355
(Name, address, including zip code, and telephone number, including area code, of agent for service or process)
With a copy to:
Cristopher Greer, Esq.
O'Melveny & Myers LLP
Times Square Tower
7 Times Square
New York, New York 10036
(212) 408-2400
Approximate date of commencement of proposed sale to the public:
As
promptly as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box.
x
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
o
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
o
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
o
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
o
Table of Contents
Calculation of Registration Fee
Proposed Maximum
Proposed Maximum
Amount to be
Offering Price Per
Aggregate Offering
Amount of
Title of Each Class of Securities to be Registered
Registered
Note
Price
Registration Fee
10.50% Senior Subordinated Notes, Series B, due
2012
$
200,000,000
(1)
100
%
$
200,000,000
(1)
(1
)(2)
(1)
Pursuant to Rule 429 of the General Rules and Regulations under the
Securities Act of 1933, the prospectus that is a part of this registration
statement relates to $200,000,000 of Senior Subordinated Notes, Series B,
due 2012 of National Waterworks, Inc. that were previously registered
under the Registration Statement on Form S-4 (File No. 333-102430), as
amended, that was declared effective by the Securities and Exchange
Commission on April 18, 2003.
(2)
The prospectus that is part of this registration statement will only be
used by J.P. Morgan Securities Inc., which is an affiliate of National
Waterworks, Inc., in connection with offers and sales related to
market-making transactions of an indeterminate amount of 10.50% Senior
Subordinated Notes, Series B, due 2012. Pursuant to Rule 457(q) of the
General Rules and Regulations, no filing fee is required.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such dates as the Commission, acting pursuant to said Section
8(a), may determine.
Table of Contents
Prospectus
Subject to completion, dated April 23, 2004
The information in this prospectus is not complete and may be changed. We
cannot sell these securities until the Securities and Exchange Commission
declares our Registration Statement effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
National Waterworks, Inc.
$200,000,000
10.50% Senior Subordinated Notes due 2012
Interest payable June 1 and December 1
We issued $200,000,000 aggregate principal amount of 10.50% Senior
Subordinated Notes, Series B, due 2012, which have been registered under
the Securities Act of 1933, as amended, in exchange for our 10.50% Senior
Subordinated Notes, Series A, due 2012. We completed the exchange offer
on May 23, 2003, and 100% of the notes were exchanged.
The notes will mature on December 1, 2012. Interest will accrue from the
most recent interest payment date.
Before December 1, 2005, we may redeem up to 35% of the aggregate
principal amount of the notes at the redemption price set forth in this
prospectus with the proceeds of certain equity offerings. We may redeem
all or a portion of the notes prior to December 1, 2007 at a price equal
to 100% of the principal amount of the notes plus a "make-whole" premium.
In addition, we may redeem all or a portion of the notes at any time on
or after December 1, 2007 at the redemption prices set forth in this
prospectus. The redemption prices are described on pages and. If
we sell certain of our assets or experience specific kinds of changes in
control, we must offer to purchase the notes.
The notes are subordinated to all of our existing and future senior debt,
rank equally with any future senior subordinated debt, and rank senior to
all or our existing and future subordinated debt. The notes will be
guaranteed by all of our existing and future domestic subsidiaries, if
any.
We prepared this prospectus for use by J.P. Morgan Securities Inc. in
connection with offers and sales related to market-making transactions in
the notes. J.P. Morgan Securities Inc. may act as principal or agent in
these transactions. These sales will be made at prices related to
prevailing market prices at the time of sale. We will not receive any of
the proceeds of these sales.
See "Risk Factors" beginning on page 8 for a discussion of certain risks
that you should consider before making an investment decision in the
notes.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon
the adequacy or accuracy of this prospectus. Any representation to the
contrary is a criminal offense.
Summary
1
Risk Factors
8
Disclosure Regarding Forward-Looking Statements
17
Use of Proceeds
18
Capitalization
19
Selected Financial Data
20
Management's Discussion and Analysis of Financial Condition and Results of Operations
23
Business
33
Management
40
Security Ownership of Certain Beneficial Owners and Management
45
Certain Relationships and Related Party Transactions
47
Description of Certain Indebtedness
50
Description of Notes
54
Plan of Distribution
97
Legal Matters
97
Experts
97
Where You Can Find More Information
98
Financial Statements and Supplementary Data
F-1
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
REPORT OF CONSENT OF KPMG LLP
We have not authorized anyone to give you any information or to make any
representations about us or the transactions we discuss in this prospectus
other than those contained in this prospectus. If you are given any information
or representations about these matters that is not discussed in this
prospectus, you must not rely on that information. This prospectus is not an
offer to sell or a solicitation of an offer to buy securities anywhere or to
anyone where or to whom we are not permitted to offer or sell securities under
applicable law. The delivery of this prospectus does not, under any
circumstances, mean that there has not been a change in our affairs since the
date of this prospectus. Subject to our obligation to amend or supplement this
prospectus as required by law and the rules of the Securities and Exchange
Commission, the information contained in this prospectus is correct only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or any sale of these securities.
Table of Contents
Summary
This summary highlights all material information contained elsewhere in this
prospectus but may not contain all of the information that you should consider
before investing in the notes. We urge you to read this entire prospectus,
including the "Risk Factors" section and the financial statements and related
notes. Unless otherwise indicated in this prospectus, "we," "our," "us" and
"National Waterworks" refer to National Waterworks, Inc. after giving effect to
its acquisition on November 22, 2002 of substantially all of the assets and
businesses of, and the assumption of certain of the liabilities and obligations
of, U.S. Filter Distribution Group, Inc. ("U.S. Filter"). References to
"Holdings" refer to our parent company, National Waterworks Holdings, Inc.,
which is not a guarantor or co-issuer of the notes.
Our Company
We are a leading distributor of water and wastewater transmission products in
the United States with approximately a 20% share of the estimated $6 billion
U.S. waterworks products distribution market. We distribute a full line of
products including pipe, fittings, valves, meters, service and repair products,
fire hydrants and other components that are used to transport clean water and
wastewater between reservoirs and treatment plants and residential and
commercial locations. In addition, we provide a broad array of value-added
services such as project estimation, project management and product advice. Our
products are integral to building, repairing and maintaining water and
wastewater (sewer) systems and serve as part of the basic municipal
infrastructure required to support population and economic growth and
residential and commercial construction. Through our network of 133 branches in
36 states, we sell to municipalities directly and contractors who serve
municipalities and also perform residential, commercial and industrial
waterworks projects. For the year ended December 31, 2003, which we refer to
in this prospectus as "fiscal 2003," we had net sales of approximately $1.3
billion and net income of approximately $33.6 million.
Our principal executive offices are located at 200 West Highway 6, Suite 620,
Waco, Texas 76712. Our telephone number is (254) 772-5355.
The Transactions
On November 22, 2002, we consummated the purchase of substantially all of the
assets and businesses of, and assumed certain liabilities and obligations of,
U.S. Filter, a wholly-owned subsidiary of United States Filter Corporation,
which is an indirect wholly-owned subsidiary of Veolia Environnement S.A
(formerly Vivendi Environnement S.A.) ("Veolia"). We refer to the foregoing
transaction as the "Acquisition." The total cost of the Acquisition, including
the payment of transaction fees and expenses incurred by us and our
stockholders, was approximately $662.2 million, after giving effect to a
post-closing adjustment made in February 2003 related to the level of our
working capital at the time of closing. We closed the Acquisition
simultaneously with the issuance of the notes and the closing of our senior
credit facility.
The Financings
The notes were issued as part of the financings to consummate the Acquisition.
The balance of the proceeds necessary to complete the Acquisition was funded by
•
borrowings under the term loan portion of our senior credit facility
which consisted of a $250.0 million term loan facility and a $75.0
million revolving credit facility, and
•
a $211.0 million cash equity investment in Holdings, of which an
aggregate of $206.0 million was made equally by affiliates of each of
J.P. Morgan Partners, LLC and Thomas H. Lee Partners, L.P. and $5.0
million was made by certain members of our management and Holdings'
board of directors.
For convenience, J.P. Morgan Partners, LLC and Thomas H. Lee Partners, L.P. are
collectively referred to in this prospectus as the "Sponsors." For a
description of our senior credit facility, see "Description of Certain
Indebtedness."
In addition, concurrent with the closing of the Acquisition, U.S. Filter used a
portion of the Acquisition consideration to repay and terminate its accounts
receivable securitization facility. The Acquisition, the offering of the notes,
the initial borrowings under our senior credit facility, the cash equity
investment described above, the repayment of the accounts receivable
securitization facility and the other related transactions are collectively
referred to in this prospectus as the "Transactions."
1
Table of Contents
The Financial Sponsors
J.P. Morgan Partners, LLC ("JPMP") is a global partnership with over $19
billion under management. Since its inception in 1984, JPMP has been a leading
provider of private equity and has closed over 1,300 individual transactions.
JPMP has more than 130 investment professionals in nine offices throughout the
world. JPMP is an affiliate of J.P. Morgan Chase & Co., one of the largest
financial institutions in the United States.
Thomas H. Lee Partners, L.P. ("THL") is a Boston-based private equity firm that
currently manages approximately $12 billion of committed capital. Founded in
1974, THL has invested in over 90 transactions and is currently investing from
the Thomas H. Lee Equity Fund V, a $6.1 billion fund. THL has 22 investment
professionals, with offices in Boston and New York City.
2
Table of Contents
Summary of the Terms of the Notes
The following is a summary of the material terms of the notes. For a more
detailed description of the notes, see "Description of Notes."
Issuer.
National Waterworks, Inc.
Notes Outstanding.
$200,000,000 aggregate principal amount of 10.50% Senior Subordinated Notes, Series
B, due 2012.
Maturity Date.
December 1, 2012.
Interest Payment Dates.
June 1 and December 1 of each year.
Guarantees.
The notes will be guaranteed on a senior subordinated basis by all of our future
domestic subsidiaries, if any. We do not currently have any subsidiaries.
Ranking.
The notes are our general unsecured senior subordinated obligations. They rank
behind all of our current and future indebtedness, other than trade payables, except
future indebtedness that expressly provides that it ranks equally with, or
subordinated in right of payment to, the notes. The notes rank equally with all of
our future senior subordinated indebtedness. The notes will be effectively
subordinated to all obligations of our subsidiaries that exist in the future and do
not guarantee the notes.
As of December 31, 2003:
•
we had approximately $240.0 million of senior indebtedness outstanding. This
amount does not include up to $75.0 million of additional borrowings that are
available under the revolving credit portion of our senior credit facility, of which
$3.8 million was used to support outstanding letters of credit at December 31, 2003.
All borrowings under the senior credit facility are secured and senior to the notes;
•
we did not have any senior subordinated indebtedness other than the notes; and
•
we did not have any subordinated indebtedness.
Optional Redemption.
Before December 1, 2005, we may redeem up to 35% of the notes with the net cash
proceeds of certain equity offerings at the redemption price listed in "Description
of Notes—Optional Redemption." In addition, we may redeem all or a portion of the
notes prior to December 1, 2007 at a price equal to 100% of the principal amount of
the notes plus a "make-whole" premium. On or after December 1, 2007, we may redeem
all or a portion of the notes at any time at the redemption prices listed in
"Description of Notes—Optional Redemption."
Mandatory Offer to Repurchase
If we sell certain assets without applying the proceeds therefrom in a specified
manner, or experience specific kinds of changes of control, we must offer to
repurchase the notes at the price set forth in "Description of Notes—Repurchase at
the Option of Holders." Our senior credit facility restricts us from repurchasing
any of the notes, including upon any repurchase we may be required to make as a
result of a change of control or certain asset sales. See "Risk Factors" for a
description of the possible effects if we are unable to repurchase the notes upon a
change of control.
Certain Covenants.
The indenture governing the notes contains covenants that impose significant
restrictions on our business. The restrictions that these covenants place on us and
our restricted subsidiaries include limitations on our ability and the ability of
our restricted subsidiaries to, among other things:
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•
incur indebtedness or issue preferred shares;
•
pay dividends or make distributions in respect of our capital stock or to make
other restricted payments;
•
make investments;
•
sell assets;
•
create liens;
•
consolidate, merge, sell or otherwise dispose of all or substantially all of our
assets;
•
enter into transactions with our affiliates; and
•
designate our subsidiaries as unrestricted subsidiaries.
These covenants are subject to important exceptions and qualifications, which are
described under "Description of Notes—Certain Covenants."
Risk factors
You should carefully consider the information under the heading "Risk Factors"
beginning on page 8 and all other information in this prospectus before
investing in the notes.
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Summary Financial Data
The following table sets forth summary historical financial and other operating
data of:
•
National Waterworks as of December 31, 2003 and 2002, for the year
ended December 31, 2003 and for the period from November 22 to December
31, 2002. This information was derived from our audited financial
statements included elsewhere in this prospectus; and
•
U.S. Filter as of November 21, 2002 and for the period from January 1
to November 21, 2002, as of and for the years ended December 31, 2001
and 2000, as of and for the eight months ended December 31, 1999, as of
and for the one month ended April 30, 1999. Information was derived
from U.S. Filter's audited financial statements; and
•
U.S. Filter as of and for the three months ended March 31, 1999.
Information was derived from U.S. Filter's unaudited financial
statements.
On April 23, 1999, Veolia acquired United States Filter Corporation, the parent
of U.S. Filter. That acquisition was accounted for as a purchase and the
related purchase accounting adjustments have been reflected ("pushed-down") in
the financial statements of U.S. Filter for periods subsequent to April 30,
1999.
In the opinion of management, the unaudited financial information referred to
above includes all adjustments, consisting of only normal non-recurring
adjustments, considered necessary for a fair presentation of this information.
The information set forth below should be read in conjunction with the
information under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes
included elsewhere in this prospectus.
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Predecessor
Predecessor
U.S. Filter
U.S. Filter
(owned by United States
National Waterworks
(owned by Veolia)
Filter Corporation)
Period from
12 Months
8 Months
12 Months
November
Period from
Ended
Ended
1 Month
3 Months
Ended
December
22 to
December
January 1 to
November
December 31,
December
Ended
Ended
31,
31,
21,
31,
April 30,
March 31,
(dollars in thousands)
2003
2002
2002
2001
2000
1999
1999
1999
Consolidated statements of
operations data:
Net sales
$
1,278,351
$
94,250
$
1,058,768
$
1,120,330
$
1,173,323
$
830,449
$
66,334
$
228,839
Cost of goods sold (1)
1,010,361
82,005
831,764
880,569
936,502
665,196
54,514
182,930
Gross profit
267,990
12,245
227,004
239,761
236,821
165,253
11,820
45,909
Selling, general and
administrative
167,152
14,737
139,825
152,470
151,488
102,456
10,567
35,670
Loss — accounts receivable
securitization
—
—
2,480
536
—
—
—
—
Income (loss) before
depreciation and
amortization
100,838
(2,492
)
84,699
86,755
85,333
62,797
1,253
10,239
Depreciation
2,556
251
3,123
3,586
3,582
2,313
292
876
Amortization of intangible
assets
8
1
8
25,008
25,043
16,779
165
462
Operating income (loss)
98,274
(2,744
)
81,568
58,161
56,708
43,705
796
8,901
Stock option redemption (2)
—
—
—
—
—
—
(15,214
)
—
Completion bonuses (3)
—
—
(6,200
)
—
—
—
—
—
Interest expense, net
(41,333
)
(6,826
)
(36
)
(79
)
(86
)
(120
)
(19
)
(87
)
Other income (expense)
(11
)
(12
)
59
(8
)
178
891
14
91
Income (loss) before income
taxes and cumulative
effect of a change in
accounting principle
56,930
(9,582
)
75,391
58,074
56,800
44,476
(14,423
)
8,905
Income tax expense (benefit)
23,289
(3,688
)
29,238
31,924
31,237
23,539
(5,500
)
3,495
Income (loss) before
cumulative effect of a
change in accounting
principle
33,641
(5,894
)
46,153
26,150
25,563
20,937
(8,923
)
5,410
Cumulative effect of a
change in accounting
principle (4)
—
—
(459,000
)
—
—
—
—
—
Net income (loss)
$
33,641
$
(5,894
)
$
(412,847
)
$
26,150
$
25,563
$
20,937
$
(8,923
)
$
5,410
Other operating data:
Ratio of earnings to fixed
charges (5)
2.2x
—
18.8x
13.7x
14.0x
16.6x
—
10.3x
Balance sheet data (at period
end):
Total assets
$
802,957
$
812,817
$
1,100,948
$
1,462,116
$
1,438,949
$
1,404,133
$
1,407,460
$
459,202
Total debt
$
440,000
$
450,000
$
631
$
852
$
2,176
$
3,010
$
4,018
$
4,039
Total stockholder's equity
$
199,473
$
204,105
$
937,469
$
1,330,224
$
1,305,024
$
1,279,461
$
1,258,524
$
328,551
(1)
In connection with the Acquisition, we recorded a $13.0 million inventory
revaluation adjustment pursuant to Statement of Financial Accounting
Standards No. 141, Business Combinations. Of this amount, $9.0 million was
recognized in costs of goods sold for the period November 22 to December
31, 2002. The remaining $4.0 million was recognized in cost of goods sold
during the quarter ended March 28, 2003.
(2)
On April 23, 1999, the date of the United States Filter Corporation
acquisition by Veolia, U.S. Filter recognized approximately $15.2 million
in compensation expense associated with settlement of outstanding stock
options of United States Filter Corporation held by certain of its
employees.
(3)
Reflects completion bonuses paid by United States Filter Corporation to
certain members of management and other key employees of U.S. Filter upon
consummation of the Acquisition.
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(4)
Reflects an impairment charge relating to the adoption of Statement of
Financial Accounting Standard No. 142, Goodwill and Other Intangible
Assets. See Note 4 to the audited financial statements included elsewhere
in this prospectus.
(5)
For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income before income taxes and cumulative effect of a
change in accounting principle and fixed charges. Fixed charges consist of
interest, whether expensed or capitalized; amortization of debt issuance
costs; and one-third of rent expense, which management believes to be
representative of the interest factor thereon. For the period from
November 22, 2002 to December 31, 2002, fixed charges exceeded earnings by
$2.4 million. The deficiency in the period ended December 31, 2002
included a $2.5 million write-off of financing fees related to financing
the Acquisition which is included in interest expense, net, as well as the
effect of the inventory revaluation adjustment referred to in note (3)
above. For the one month ended April 30, 1999, fixed charges exceeded
earnings by $14.1 million. The deficiency in the one-month period ended
April 30, 1999 included the $15.2 million stock option redemption expense
discussed in note (1) above.
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Risk Factors
You should carefully consider the risk factors set forth below as well as the
other information contained in this prospectus before investing in the notes.
Any of the following risks could materially adversely affect our business,
financial condition or results of operations. In such case, you may lose all or
part of your original investment.
Risks Related to Our Business
Downturns in the water and wastewater transmission products industry have in
the past and may in the future result in a decrease in our revenues and
operating results through reduced sales of our products to our contractor and
municipal customers.
The water and wastewater transmission products industry is affected by changes
in economic conditions, including national, regional and local slowdowns in
construction activity and the amount spent by municipalities on waterworks
infrastructure. Many of our products are distributed to waterworks contractors
in connection with residential, commercial, and industrial construction
projects. New housing starts serve as an indicator of the level of activity in
the residential housing market and are influenced by interest rates,
availability of financing, housing affordability, unemployment rates,
demographic trends, gross domestic product and consumer confidence.
Historically, new housing starts have decreased during economic slowdowns. The
level of activity in the commercial and industrial construction markets depends
on the general economic outlook, corporate profitability, interest rates and
existing plant capacity utilization. Economic downturns in any of our regional
markets could reduce the level of construction activity, and thus our level of
sales, in that region. In addition, water and wastewater transmission products
sales are subject to the availability of funding for municipal waterworks
projects and reduced municipal funding could adversely affect our sales. In
general, factors such as trends in the construction industry, changes in
municipal spending or other factors that influence waterworks transmission
products sales are not within our control and, as a result, may cause a
decrease in our sales and operating results and our financial condition to
deteriorate.
The sale of water and wastewater transmission products is subject to seasonal
and weather-related fluctuations which makes our operating results subject to
quarterly or annual fluctuations.
The sale of water and wastewater transmission products is subject to seasonal
and weather-related fluctuations. Coincident with annual construction
seasonality, our net sales are typically higher during the second and third
calendar quarters and lower during the first and fourth calendar quarters due
to reduced construction activity during the winter. Adverse weather conditions
in our markets may also decrease the level of construction activity and
therefore our sales. As a result of these factors, our sales and operating
results may be subject to quarterly or annual fluctuations.
Competition from our existing and new competitors could result in reduced sales
and profitability and a decrease in our market share.
The markets in which we compete are highly competitive and fragmented, with
numerous regional and local participants. Two national competitors are
divisions or subsidiaries of companies that have significantly greater
financial, marketing and other resources than we do. We compete with a large
number of distributors and a limited number of manufacturers who sell directly
to larger customers within our customer base. In addition, smaller, local
waterworks products distributors could form a distribution cooperative to
compete more effectively against larger, national waterworks product
distributors. The principal methods of competition include offering prompt
local service, fulfillment capability, local knowledge, breadth of product and
service offerings and price. If we are unable to compete effectively on these
and other factors, our inability could cause us to lose market share or sales,
the loss of either of which could result in a decrease in our operating results
and profitability.
In addition, a portion of our sales is from contracts with municipalities.
These contracts are often awarded and renewed through periodic competitive
bidding. We may not be successful in obtaining or renewing these contracts. Our
inability to replace a significant number of contracts lost through competitive
bidding processes with other revenue sources within a reasonable time could be
harmful to our business and financial performance.
If we cannot successfully implement our business strategy, our business,
results of operations and potential for growth will be adversely affected.
Our ability to achieve our business and financial objectives is subject to a
variety of factors, many of which are beyond our control.
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For example, our business strategy contemplates that existing customers will
buy additional products from us in the future and that we will gain new
customers by leveraging our product, information and materials management
capabilities in order to improve our customer's efficiency and reduce their
administrative costs. Our business strategy further contemplates a growth in
sales through branch openings in contiguous markets and through selective
acquisitions of local and regional waterworks distributors in attractive and
growing markets. Similarly, we believe our revenues will increase as
municipalities currently face significant needs to replace and upgrade their
water infrastructures. If our assumptions regarding these trends and the needs
of our customers prove to be incorrect, we may not be successful in
implementing our strategy. In addition, the implementation of our strategy may
not improve our operating results. We may decide to alter or discontinue
aspects of our business strategy and may adopt alternative or additional
strategies due to business or competitive factors or factors not currently
expected, such as unforeseen costs and expenses or events beyond our control.
Any failure to successfully implement our business strategy may result in a
decrease in our revenues, operating margins and results of operations and could
limit or cause us to forego opportunities for growth.
We may not be able to complete any future acquisitions, which could restrict
our ability to grow our business; and if we fail to successfully integrate any
future acquisitions into our operations, our operating costs could increase and
our operating margins, operating results and profitability may decrease.
We have historically used acquisitions as a means of expanding our business.
Since the beginning of 2000, we have completed three acquisitions of water and
wastewater transmission products distributors. We may not be able to identify
and complete additional acquisitions in the future, and our failure to identify
and complete acquisitions could restrict our ability to grow our business. In
addition, we may require additional debt or equity financing for future
acquisitions. Such financing may not be available on favorable terms, if at
all. In addition, if we do not successfully integrate acquisitions, we may not
realize anticipated operating advantages and cost savings which would reduce
our operating margins, operating results and profitability. The acquisition and
integration of companies involves a number of risks, including:
•
use of available cash or borrowings under our senior credit facility to consummate the acquisition;
•
demands on management related to the increase in our size after an acquisition;
•
the diversion of management's attention from existing operations to the integration of acquired companies;
•
difficulties in the assimilation and retention of employees; and
•
potential adverse effects on our operating results.
We may not be able to maintain the levels of operating efficiency that acquired
companies achieved separately. Successful integration of acquired operations
will depend upon our ability to manage those operations and to eliminate
redundant and excess costs. We may not be able to achieve the cost savings and
other benefits that we would hope to achieve from acquisitions, which could
cause our financial condition to deteriorate or result in an increase in our
expenses or a reduction in our operating margins, thereby reducing our
operating results and profitability.
We depend on our senior management and the loss of any member of the team could
adversely affect our business or financial results to suffer.
Our operations are dependent on the continued efforts of our senior management,
listed under "Management." We have entered into various agreements and
compensation arrangements with our senior executives designed to encourage
their retention, including with Harry Hornish as President and Chief Executive
Officer, Mechelle Slaughter as Chief Financial Officer and Terry Howell as
Chief Information Officer. Each member of our senior management team has
substantial experience and expertise in our industry and has made significant
contributions to our growth and success. Members of our senior management may
resign in the future and the loss of their services could limit our ability to
grow our business and cause disruptions in our operations and our financial
results.
Failure to retain and attract qualified branch managers and sales persons could
limit our growth and negatively impact our operations.
Our business results depend largely upon our branch managers and sales
personnel and their experience, knowledge of local market dynamics and
specifications and long-standing customer relationships. Our inability to
retain or hire qualified branch managers or
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sales persons at economically reasonable compensation levels would restrict our
ability to grow our business, limit our ability to continue to successfully
operate our business and result in lower operating results and profitability.
Our cost of PVC pipe is volatile and increases in the cost of PVC pipe or
unexpected PVC pipe shortages may cause our operating results to decrease.
The cost of the PVC pipe that we distribute can fluctuate due to supply and
demand dynamics in the PVC pipe and PVC resin markets. PVC pipe sales accounted
for approximately 21% of our net sales in 2003. Significant fluctuations in
these markets may adversely affect our results of operations and cause
volatility in our operating performance. While in the past we have been able to
pass through the majority of the price changes in PVC pipe to our customers,
our inability to do so in the future could cause our results of operations to
be reduced.
Loss of key suppliers or reduced product availability could decrease our sales
and earnings.
Our 10 largest suppliers in 2003 accounted for approximately 59% of our
purchases and our single largest supplier accounted for approximately 13% of
our purchases. The loss of any of these suppliers or a reduction in supplier
participation in our preferred vendor programs could result in a decrease in
our sales, operating results and earnings by decreasing the availability of
products to us, which could limit our ability to satisfy our customers' product
needs. Such reduced product availability could put us at a competitive
disadvantage.
Reduction in product availability could decrease our sales and earnings and put
us at a competitive disadvantage.
Particular products or product lines may not be available to us, or available
in quantities sufficient to meet our customer demand. A substantial decrease in
the availability of these products or product lines could result in a decrease
in our sales, operating results and earnings as we might not be able to satisfy
our customer's product needs. Such reduced product availability could put us at
a competitive disadvantage.
We rely on our IT systems to manage numerous aspects of our business and
customer and supplier relationships and a disruption of these systems could
adversely affect our business.
Our IT system is an integral part of our business and growth strategies, and a
serious disruption of our IT system could significantly limit our ability to
manage and operate our business efficiently which in turn could cause our
business and competitive position to suffer and cause our results of operations
to be reduced. We depend on our IT system to process orders, track credit risk
and manage inventory and accounts receivable collections. Our system also
allows us to efficiently purchase products from our suppliers and ship products
to our customers on a timely basis, maintain cost-effective operations and
provide superior service to our customers. While we have contingency plans in
place in case of an emergency, we cannot assure you that the plans will allow
us to continue to operate at our current level of efficiency.
Our sales are predominately on credit and an inability to collect trade account
receivables on a timely basis would reduce our operating results and cash flow
and cause our financial condition to deteriorate.
Substantially all of our net sales are credit sales made primarily to
contractors, whose ability to pay depends in part on the economic strength of
the construction industry in their areas, or municipalities, whose ability to
pay depends in part on their local waterworks-related and tax revenues. Future
downturns in the regional or local economies that we serve, including
reductions in the revenue base of municipalities or the weak financial
performance of our customers, could lessen our ability to collect trade
accounts receivable on a timely basis and in turn cause our results of
operations and cash flow to be reduced and our financial condition to
deteriorate.
The development of alternatives to water and wastewater transmission products
distributors in the supply chain could cause a decrease in our sales and
operating results and limit our ability to grow our business.
Our customers could begin purchasing more of their product needs directly from
manufacturers, which could result in decreases in our sales and earnings. Our
suppliers could invest in infrastructure to expand their own local sales force
and sell more products directly to our customers. In addition, the continued
development of the Internet, e-businesses and other alternatives may allow
customers to purchase directly from manufacturers or other suppliers. Multiple
municipalities may outsource their entire waterworks systems to a single
company, thereby increasing such company's leverage in the marketplace and its
ability to buy directly from suppliers. Any
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future disintermediation from these or other causes may harm our competitive
position in the water and wastewater transmission products marketplace and
reduce our sales and earnings.
Loss of third-party transportation providers upon whom we depend could increase
our costs and cause a disruption in our operations.
We depend upon third-party transportation providers for delivery of products to
our branches, and, to a lesser extent, to our customers. Strikes, slowdowns,
transportation disruptions or other conditions in the transportation industry,
particularly those impacting United Parcel Service of America, Inc., could
increase our costs and disrupt our operations and our ability to service our
customers on a timely basis.
Our compliance with environmental and safety requirements may result in
increased costs to operate our business.
We are subject to federal, state and local environmental and occupational
health and safety laws and regulations. We cannot assure you that we have been
or will be at all times in complete compliance with all such requirements.
These requirements are complex and have tended to become more stringent over
time. We could become subject to new requirements in the future, or otherwise
become subject to environmental liabilities, which could result in increased
operating costs resulting in a material effect on our operating results and
business.
We may become subject to asbestos liabilities in the future to the extent we
are found to be a successor to U.S. Filter and to the extent U.S. Filter,
United States Filter Corporation and Veolia are unable to fulfill their
contractual obligations, in which event our financial condition and earnings
would deteriorate to the extent we are required to satisfy these asbestos
liabilities.
We could become subject to asbestos liabilities in the future to the extent we
are found to be a successor to U.S. Filter and to the extent U.S. Filter,
United States Filter Corporation and Veolia are unable to fulfill their
contractual obligations as described below. Certain of U.S. Filter's
predecessors distributed or may have distributed cement pipe containing
asbestos. Certain of these predecessors are or have been defendants in lawsuits
seeking to recover damages for alleged exposure to asbestos in these pipes. The
Acquisition was structured as an asset purchase, and we did not assume any
existing or future asbestos-related liabilities relating to U.S. Filter or its
predecessors. U.S. Filter and United States Filter Corporation retained these
liabilities and jointly and severally agreed to indemnify and defend us from
and against these liabilities on an unlimited basis with no termination date.
In addition, Veolia has guaranteed all obligations of United States Filter
Corporation and U.S. Filter under the asset purchase agreement, including the
indemnity discussed above, up to an aggregate of $50.0 million for a period
ending November 22, 2017. Historically, courts have not held the acquirer of an
entity's assets liable for liabilities that are not assumed as part of the
transaction unless the asset buyer is found to be a "successor" to the asset
seller. For more information, see "Business—Environmental Matters."
We are controlled by the Sponsors and their interests as equity holders may
conflict with yours as a creditor.
The Sponsors control approximately 86% of Holdings' outstanding capital stock
on a fully diluted basis. Conflicts of interest could arise in connection with
potential acquisitions, the incurrence of additional indebtedness, the payment
of dividends and other matters or as a result of transactions or potential
transactions between the Sponsors or their affiliates, on the one hand, and us,
on the other. Our board of directors and the board of directors of Holdings are
controlled by the Sponsors and the interests of the Sponsors may not in all
cases be aligned with your interests as a holder of the notes.
Risks Related to the Notes
Our substantial level of indebtedness could limit our ability to operate our
business, obtain additional financing, pursue other business opportunities and
fulfill our obligations under the notes.
As a result of the Transactions, we are highly leveraged and our total
indebtedness at December 31, 2003 was approximately $440 million. The following
table shows our level of indebtedness and certain other information at December
31, 2003.
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As of
(dollars in millions)
December 31, 2003
Senior credit facility
$
240.0
Senior subordinated notes
200.0
Total debt
440.0
Stockholder's equity
199.5
Total debt as a percentage of total capitalization
69
%
We may incur additional indebtedness from time to time to finance capital
expenditures, acquisitions, investments or for other purposes subject to the
restrictions contained in our senior credit facility and the indenture relating
to the notes. At December 31, 2003, the revolving credit portion of our senior
credit facility provides for additional commitments of $75.0 million, of which
$3.8 million was used to support outstanding letters of credit at December 31,
2003, and any such additional borrowings would be senior to the notes. At
December 31, 2003, the maximum amount of additional indebtedness that we could
incur under the most restrictive covenants contained in our senior credit
facility and the indenture governing the notes was approximately $164.0 million
which includes the unused availability under our revolving credit
facility at that date.
Our high degree of leverage could have important consequences for us, including
the following:
•
It may limit our ability to obtain additional financing for working
capital, capital expenditures, debt service requirements, acquisitions
and general corporate or other purposes;
•
A substantial portion of our cash flows from operations will be
dedicated to the payment of principal and interest on our indebtedness
and will not be available for other purposes, including our operations,
capital expenditures and future business opportunities;
•
The debt service requirements of our other indebtedness could make it
more difficult for us to make payments on the notes;
•
Certain of our borrowings, including borrowings under our senior
credit facility, are at variable rates of interest, exposing us to the
risk of increased interest rates;
•
A substantial decrease in our net operating cash flows could make it
difficult for us to meet our debt service requirements and force us to
modify our operations;
•
Our debt level reduces our flexibility in responding to changing
business and economic conditions including our ability to adjust to a
downturn in our business; and
•
Our debt level may put us in a competitive disadvantage compared to
our competitors that have less debt.
We may not be able to generate sufficient cash to service all of our
indebtedness, including the notes, and be forced to take other actions to
satisfy our obligations under our indebtedness, which may not be successful.
Our ability to pay principal and interest on the notes and to satisfy our other
obligations will depend upon, among other things:
•
our future financial and operating performance, which will be
affected by prevailing economic conditions and financial, business,
regulatory and other factors, many of which are beyond our control; and
•
the future availability of borrowings under our senior credit
facility or any successor facility, the availability of which depends or
may depend on, among other things, our complying with the covenants in
our senior credit facility.
We believe that, based on our current levels of operations, our cash flow from
operations, together with available borrowings under our senior credit
facility, will provide us with adequate cash for at least the next few years to
make scheduled amortization and interest payments on our indebtedness and to
fund anticipated capital expenditures and working capital requirements.
However, our business may not generate sufficient cash flow from operations and
future borrowings may not be available under our senior credit facility in an
amount sufficient to enable us to service our indebtedness or to fund our other
liquidity needs. In addition, we may incur additional
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indebtedness in order to make acquisitions. If we cannot service our
indebtedness, we will be forced to take actions such as reducing or delaying
capital expenditures and/or acquisitions, selling assets, restructuring or
refinancing our indebtedness (which could include the notes), or seeking
additional equity capital or bankruptcy protection. We may not be able to
effect any of these remedies on satisfactory terms, if at all. In addition, the
terms of existing or future debt agreements, including our senior credit
facility and the indenture governing the notes, may restrict us from adopting
any of these alternatives.
Our debt agreements contain operating and financial covenants that may restrict
our business and financing activities.
The operating and financial restrictions and covenants in our senior credit
facility, the indenture and any future financing agreements may restrict our
ability to finance future operations, meet our capital needs or engage in
business activities. Our debt agreements restrict our ability to:
•
redeem indebtedness that is subordinated in right of payment to the notes;
•
make capital expenditures;
•
incur additional debt or issue redeemable equity or preferred stock;
•
create liens;
•
enter into certain transactions with affiliates;
•
make some types of investments;
•
sell assets;
•
pay dividends or make distributions, repurchase equity interests or make other restricted payments; or
•
consolidate or merge with or into, or sell substantially all of our assets to, another person.
In addition, our senior credit facility contains restrictive covenants and
requires us to maintain specified financial ratios and satisfy other financial
condition tests. Our ability to meet those financial ratios and tests can be
affected by events beyond our control, and we may not be able to meet those
tests. A breach of any of these covenants could result in a default under our
senior credit facility and/or under the notes. Upon the occurrence of an event
of default under our senior credit facility, the lenders could elect to declare
all amounts outstanding under our senior credit facility to be immediately due
and payable and terminate all commitments to extend further credit. If the
lenders under our senior credit facility accelerate the repayment of
borrowings, we may not have sufficient assets to repay our senior credit
facility and our other indebtedness, including the notes. If we were unable to
repay those amounts, the lenders under our senior credit facility could proceed
against the collateral granted to them to secure that indebtedness. We have
pledged substantially all of our assets as collateral under our senior credit
facility.
If we default on our obligations to pay our indebtedness we may not be able to
make payments on the notes.
Any default under the agreements governing our indebtedness, including a
default under our senior credit facility that is not waived by the required
lenders, and the remedies sought by the holders of such indebtedness could make
us unable to pay principal, premium, if any, and interest on the notes and
substantially decrease the market value of the notes. If we are unable to
generate sufficient cash flow and are otherwise unable to obtain funds
necessary to meet required payments of principal, premium, if any, and interest
on our indebtedness, or if we otherwise fail to comply with the various
covenants, including financial and operating covenants, in the instruments
governing our indebtedness, including covenants in our indenture and our senior
credit facility, we could be in default under the terms of the agreements
governing such indebtedness, including our senior credit facility and our
indenture governing the notes. In the event of such default, the holders of
such indebtedness could elect to declare all the funds borrowed thereunder to
be due and payable, together with accrued and unpaid interest, the lenders
under our senior credit facility could elect to terminate their commitments
thereunder, cease making further loans and institute foreclosure proceedings
against our assets, and we could be forced into bankruptcy or liquidation. If
our operating performance declines, we may in the future need to obtain waivers
from the required lenders under our senior credit facility to avoid being in
default. If we breach our covenants under our senior credit facility and seek a
waiver, we may not be able to obtain a waiver from the required lenders. If
this occurs, we would be in default under our senior credit
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facility, the lenders could exercise their rights, as described above, and we
could be forced into bankruptcy or liquidation.
The notes are, and guarantees by any of our future domestic subsidiaries will
be, effectively subordinated to all of our and any future subsidiaries' senior
debt.
The notes are subordinated in right of payment to the prior payment in full of
all our existing and future senior indebtedness and the guarantee of the notes
by any future domestic subsidiaries will be effectively subordinated to all
senior debt of such entity. We do not currently have any subsidiaries. The
indenture governing the notes requires each of our future domestic subsidiaries
to guarantee the notes, unless we designate the subsidiary as an Unrestricted
Subsidiary, as defined in the indenture. As of December 31, 2003, we had
approximately $240.0 million of senior indebtedness outstanding, excluding
$75.0 million available and unused (less $3.8 million which was used to support
outstanding letters of credit at December 31, 2003) under our senior credit
facility, all of which is secured. In addition, the indenture permits us and
any of our Restricted Subsidiaries, as defined in the indenture, to incur
additional senior indebtedness, including indebtedness under the senior credit
facility. We or the applicable guarantor may not pay principal, premium, if
any, interest or other amounts on account of the notes or the guarantees in the
event of a payment default on, or another default that has resulted in the
acceleration of debt under, the senior credit facility unless such indebtedness
has been paid in full or the default has been cured or waived. In the event of
certain other defaults with respect to certain senior indebtedness, we or the
applicable guarantor would not be permitted to pay any amount on account of the
notes for up to 179 days in any 365-day period. In the event of a bankruptcy,
liquidation, dissolution, reorganization or similar proceeding with respect to
us or a guarantor, our assets or a guarantor's assets, as the case may be, will
be available to pay obligations on the notes or the guarantor's guarantee, as
applicable, only after our senior indebtedness or the senior indebtedness of
that guarantor has been paid in full, and we may not have sufficient assets
remaining to pay amounts due on all or any of the notes or any guarantee of the
notes.
Indebtedness under our senior credit facility is secured while our obligations
under the notes are not secured and if we default under our senior debt, our
senior lenders can foreclose on the assets we have pledged to secure payment of
the senior debt to your exclusion.
In addition to being contractually subordinated to all existing and future
senior indebtedness, our obligations under the notes, and any future subsidiary
guarantor's obligations under their guarantee of the notes, are unsecured. Our
obligations under our senior credit facility, and any future subsidiary's
obligations under its guarantee of our indebtedness under the senior credit
facility, are secured by a security interest in substantially all of our and
the guarantor's assets. If we are declared bankrupt or insolvent, or if we
default under our senior credit facility, the lenders could declare all of the
funds borrowed thereunder, together with accrued interest, immediately due and
payable. If we were unable to repay such indebtedness, the lenders could
foreclose on the pledged assets to the exclusion of holders of the notes, even
if an event of default exists under the indenture at such time. Furthermore, if
the lenders foreclose and sell the equity interests in any future subsidiary
guarantor of the notes, then that guarantor will be released from its guarantee
of the notes automatically and immediately upon such sale. In any such event,
because the notes will not be secured by any of our assets or the equity
interests or assets of any future subsidiary guarantor, it is possible that
there would be no assets remaining from which claims of the holders of notes
could be satisfied or, if any assets remained, they might be insufficient to
satisfy such claims fully.
If we are not able to repurchase the notes upon a change of control we would be
in default under the indenture and our senior credit facility, the lenders
under the senior credit facility could accelerate the maturity of the
borrowings thereunder and institute foreclosure proceedings against our assets,
and we could be forced to seek bankruptcy protection.
Unless we have exercised our option to redeem the notes at 100% of their
principal amount plus a "make-whole" premium, upon the occurrence of specific
kinds of change of control events, we will be required to offer to repurchase
all outstanding notes at 101% of their principal amount plus accrued interest,
if applicable. We may not be able to repurchase the notes upon a change of
control because we may not have sufficient funds to pay the purchase price for
the outstanding notes tendered. We expect that we would require third-party
financing, which we may not be able to obtain on favorable terms, if at all.
Further, the senior credit facility restricts our ability to repurchase notes,
including notes tendered by holders upon a change of control. Accordingly, we
may not be able to satisfy our obligations to purchase your notes unless we are
able to refinance or obtain waivers under our senior credit facility. Our
failure to repurchase the notes upon a change of control would cause a default
under the indenture and a cross-default under the senior credit facility. Our
senior credit facility also provides that a change of control will be a default
that permits lenders to accelerate the maturity of borrowings thereunder. Any
of our future debt agreements may contain similar provisions. In the event of
such a default, the Trustee under the indenture or the holders of the notes and
the lenders under the senior credit facility could accelerate the maturity of
the notes and the borrowings under the senior credit facility, respectively, to
be immediately due and payable, together with accrued and unpaid interest, the
lenders under the senior credit facility could elect to terminate their
commitments thereunder, cease making further loans and institute foreclosure
proceedings against our assets, and we could be forced into bankruptcy or
14
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liquidation.
The change of control provision in the indenture will not necessarily afford
you protection in the event of a highly leveraged transaction, including a
reorganization, recapitalization, restructuring, merger or other similar
transaction involving us, that may adversely affect you. Such a transaction may
not involve a change in voting power or beneficial ownership, or, even if it
does, may not involve a change of the magnitude required under the definition
of change of control in the indenture to trigger this provision. If an event
occurs that does not constitute a "Change of Control," we will not be required
to make an offer to repurchase the notes.
Federal and state fraudulent transfer laws permit a court to void the notes and
any guarantees, and, if that occurs, you may not receive any payments on the
notes.
We used the net proceeds from the offering of the notes, together with
borrowings under the term loan portion of our senior credit facility and the
proceeds of the equity investment Holdings contributed to us, to purchase
the assets and businesses of U.S. Filter. The obligations incurred under the
notes and the indenture may be subject to review under federal and state
fraudulent transfer and conveyance statutes in a bankruptcy or reorganization
case or lawsuit commenced by or on behalf of our or a guarantor's unpaid
creditors. While relevant laws may vary from state to state, under these laws,
if a court were to find that, at the time we issued the notes, we:
•
incurred such indebtedness with the intent of hindering, delaying or defrauding present or future creditors, or
•
received less than the reasonably equivalent value or fair consideration for incurring such indebtedness, and
•
were insolvent or rendered insolvent by reason of the Transactions,
•
were engaged or about to engage in a business or transaction for
which our assets constituted unreasonably small capital to carry on such
business, or
•
intended to incur, or did incur, or believed that we would incur,
debts beyond our ability to repay as they matured or became due
then, such court might:
•
subordinate the notes to our presently existing or future indebtedness,
•
void the issuance of the notes, or
•
take other actions detrimental to holders of the notes.
In the event of a finding that a fraudulent conveyance occurred, you may not
receive any repayment on the notes. Further, the voidance of the notes could
result in an event of default with respect to our other debt and that of our
subsidiaries that could result in acceleration of such debt.
Generally, an entity would be considered insolvent if, at the time it incurred indebtedness:
•
the sum of its debts, including contingent liabilities, was greater than the fair salable value of all its assets;
•
the present fair salable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts and liabilities, including contingent liabilities, as
they become absolute and mature; or
•
it could not pay its debts as they become due.
Additionally, under federal bankruptcy or applicable state insolvency law, if
certain bankruptcy or insolvency proceedings were initiated by or against us
within 90 days after payment by us with respect to the notes, or if we
anticipated becoming insolvent at the time of such payment, all or a portion of
such payment could be avoided as a preferential transfer and the recipient of
such payment
15
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could be required to return the payment.
In the event there are any subsidiary guarantors in the future, the foregoing
would apply to their guarantees.
You cannot be sure that an active trading market will develop for the notes.
An active trading market may not develop for the notes. We do not intend to
apply for a listing of the notes on a securities exchange or any automated
dealer quotation system. We have been advised by J.P. Morgan Securities Inc.
that as of the date of this prospectus J.P. Morgan Securities Inc. intends to
make a market in the notes. J.P. Morgan Securities Inc. is not obligated to do
so, however, and any market-making activities with respect to the notes may be
discontinued at any time without notice. In addition, such market-making
activity will be subject to limits imposed by the Securities Act and the
Securities Exchange Act of 1934. Because J.P. Morgan Securities Inc. is our
affiliate, J.P. Morgan Securities Inc. is required to deliver a current
"market-making" prospectus and otherwise comply with the registration
requirements of the Securities Act in any secondary market sale of the notes.
Accordingly, the ability of J.P. Morgan Securities Inc. to make a market in the
notes may, in part, depend on our ability to maintain a current market-making
prospectus.
In addition, the liquidity of the trading market in the notes, and the market
price quoted for the notes, may fluctuate as a result of changes in the overall
market for high yield securities and by changes in our financial performance or
prospects or in the prospects for companies in our industry generally.
16
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Disclosure Regarding Forward-Looking Statements
This prospectus contains "forward-looking statements" within the meaning of the
federal securities laws. Forward-looking statements include statements
concerning our plans, objectives, goals, strategies, future events, future
revenue or performance, financing needs, plans or intentions relating to
acquisitions, business trends and other information that is not historical
information. When used in this prospectus, the words "estimates," "expects,"
"anticipates," "projects," "forecasts," "plans," "intends," "believes," "may,"
"should", and variations of such words or similar expressions are intended to
identify forward-looking statements. All forward-looking statements, including
without limitation, management's examination of historical operating trends,
are based upon our current expectations and various assumptions. Our
expectations, beliefs and projections are expressed in good faith and we
believe there is a reasonable basis for them. However, there can be no
assurance that management's expectations, beliefs and projections will result
or be achieved.
There are a number of risks and uncertainties that could cause our actual
results to differ materially from the forward-looking statements contained in
this prospectus. Important factors that could cause our actual results to
differ materially from the forward-looking statements we make in this
prospectus are set forth in this prospectus, including the factors set forth
under the heading "Risk Factors."
17
Table of Contents
Use of Proceeds
This prospectus is delivered in connection with the sale of the notes by J.P.
Morgan Securities Inc. in market-making transactions. We will not receive any
of the proceeds from these transactions.
18
Table of Contents
Capitalization
The following table sets forth our capitalization as of December 31, 2003. This
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and related notes included elsewhere in this prospectus.
(dollars in millions)
December 31, 2003
Revolving credit facility(1)
$
—
Term loan (including current portion)
240.0
Total senior credit facility
240.0
Senior Subordinated Notes
200.0
Total debt
440.0
Total stockholder's equity
199.5
Total capitalization
$
639.5
(1)
$75.0 million commitment amount. At December 31, 2003, $3.8 million of
availability under the revolving credit facility was used to support
outstanding letters of credit.
19
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Selected Financial Data
The following table sets forth selected historical financial and other
operating data of:
•
National Waterworks as of December 31, 2003 and 2002, for the year
ended December 31, 2003 and for the period from November 22 to December
31, 2002. This information was derived from our audited financial
statements included elsewhere in this prospectus; and
•
U.S. Filter as of November 21, 2002 and for the period from January 1
to November 21, 2002, as of and for the years ended December 31, 2001
and 2000, as of and for the eight months ended December 31, 1999, as of
and for the one month ended April 30, 1999. Information was derived
from U.S. Filter's audited financial statements; and
•
U.S. Filter as of and for the three months ended March 31, 1999.
Information was derived from U.S. Filter's unaudited financial
statements.
On April 23, 1999, Veolia acquired United States Filter Corporation, the parent
of U.S. Filter. That acquisition was accounted for as a purchase and the
related purchase accounting adjustments have been reflected ("pushed-down") in
the financial statements of U.S. Filter for periods subsequent to April 30,
1999.
In the opinion of management, the unaudited financial information referred to
above includes all adjustments, consisting of only normal non-recurring
adjustments, considered necessary for a fair presentation of this information.
The information set forth below should be read in conjunction with the
information under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements and related notes
included elsewhere in this prospectus.
20
Table of Contents
Predecessor
Predecessor
U.S. Filter
U.S. Filter
(owned by United States
National Waterworks
(owned by Veolia)
Filter Corporation)
12 Months
12 Months
Period from
Period from
Ended
8 Months
Ended
December
November 22 to
December
January 1 to
November
December 31,
Ended
December
1 Month
Ended
3 Months
Ended
31,
31,
21,
31,
April 30,
March 31,
(dollars in thousands)
2003
2002
2002
2001
2000
1999
1999
1999
Consolidated statements of
operations data:
Net sales
$
1,278,351
$
94,250
$
1,058,768
$
1,120,330
$
1,173,323
$
830,449
$
66,334
$
228,839
Cost of goods sold (1)
1,010,361
82,005
831,764
880,569
936,502
665,196
54,514
182,930
Gross profit
267,990
12,245
227,004
239,761
236,821
165,253
11,820
45,909
Selling, general and
administrative
167,152
14,737
139,825
152,470
151,488
102,456
10,567
35,670
Loss — accounts receivable
securitization
—
—
2,480
536
—
—
—
—
Income (loss) before
depreciation and
amortization
100,838
(2,492
)
84,699
86,755
85,333
62,797
1,253
10,239
Depreciation
2,556
251
3,123
3,586
3,582
2,313
292
876
Amortization of intangible
assets
8
1
8
25,008
25,043
16,779
165
462
Operating income (loss)
98,274
(2,744
)
81,568
58,161
56,708
43,705
796
8,901
Stock option redemption (2)
—
—
—
—
—
—
(15,214
)
—
Completion bonuses (3)
—
—
(6,200
)
—
—
—
—
—
Interest expense, net
(41,333
)
(6,826
)
(36
)
(79
)
(86
)
(120
)
(19
)
(87
)
Other income (expense)
(11
)
(12
)
59
(8
)
178
891
14
91
Income (loss) before income
taxes and cumulative
effect of a change in
accounting principle
56,930
(9,582
)
75,391
58,074
56,800
44,476
(14,423
)
8,905
Income tax expense (benefit)
23,289
(3,688
)
29,238
31,924
31,237
23,539
(5,500
)
3,495
Income (loss) before
cumulative effect of a
change in accounting
principle
33,641
(5,894
)
46,153
26,150
25,563
20,937
(8,923
)
5,410
Cumulative effect of a
change in accounting
principle (4)
—
—
(459,000
)
—
—
—
—
—
Net income (loss)
$
33,641
$
(5,894
)
$
(412,847
)
$
26,150
$
25,563
$
20,937
$
(8,923
)
$
5,410
Other operating data:
Ratio of earnings to fixed
charges (5)
2.2x
—
18.8x
13.7x
14.0x
16.6x
—
10.3x
Balance sheet data (at period
end):
Total assets
$
802,957
$
812,817
$
1,100,948
$
1,462,116
$
1,438,949
$
1,404,133
$
1,407,460
$
459,202
Total debt
$
440,000
$
450,000
$
631
$
852
$
2,176
$
3,010
$
4,018
$
4,039
Total stockholder's equity
$
199,473
$
204,105
$
937,469
$
1,330,224
$
1,305,024
$
1,279,461
$
1,258,524
$
328,551
(1)
In connection with the Acquisition, we recorded a $13.0 million inventory
revaluation adjustment pursuant to Statement of Financial Accounting
Standards No. 141, Business Combinations. Of this amount, $9.0 million was
recognized in costs of goods sold for the period November 22 to December
31, 2002. The remaining $4.0 million was recognized in cost of goods sold
during the quarter ended March 28, 2003.
(2)
On April 23, 1999, the date of the United States Filter Corporation
acquisition by Veolia, U.S. Filter recognized approximately $15.2 million
in compensation expense associated with settlement of outstanding stock
options of United States Filter Corporation held by certain of its
employees.
(3)
Reflects completion bonuses paid by United States Filter Corporation to
certain members of management and other key employees of U.S. Filter upon
consummation of the Acquisition.
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(4)
Reflects an impairment charge relating to the adoption of Statement of
Financial Accounting Standard No. 142, Goodwill and Other Intangible
Assets. See Note 4 to the audited financial statements included elsewhere
in this prospectus.
(5)
For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income before income taxes and cumulative effect of a
change in accounting principle and fixed charges. Fixed charges consist of
interest, whether expensed or capitalized; amortization of debt issuance
costs; and one-third of rent expense, which management believes to be
representative of the interest factor thereon. For the period from
November 22, 2002 to December 31, 2002, fixed charges exceeded earnings by
$2.4 million. The deficiency in the period ended December 31, 2002
included a $2.5 million write-off of financing fees related to financing
the Acquisition which is included in interest expense, net, as well as the
effect of the inventory revaluation adjustment referred to in note (3)
above. For the one month ended April 30, 1999, fixed charges exceeded
earnings by $14.1 million. The deficiency in the one-month period ended
April 30, 1999 included the $15.2 million stock option redemption expense
discussed in note (1) above.
22
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Management's Discussion and Analysis of
Financial Condition and Results of Operations
You should read the following discussion with the financial statements and
related notes included elsewhere in this prospectus. In this section, unless
the context otherwise requires, references to "we," "our," and "us" refer to
U.S. Filter and its consolidated subsidiary for periods prior to November 22,
2002 and to National Waterworks for periods from and after November 22, 2002.
This discussion contains forward-looking statements and involves numerous risks
and uncertainties, including, but not limited to, those described in the "Risk
Factors" section of this prospectus. Actual results may differ materially from
those contained in any forward-looking statements.
Overview
We are a leading distributor of water and wastewater transmission products in
the United States with approximately a 20% share of the estimated $6 billion
U.S. waterworks product distribution market. We began operations in 1996 when
United States Filter Corporation acquired Davis Water & Waste Industries, Inc.
(which changed its name to U.S. Filter) with the goal of creating the first
nationwide waterworks products distribution network. Through the acquisition
and combination of four additional large-scale regional waterworks products
distributors in 1996 and 1997, we became a major participant in the sector. We
have continued to increase our revenues through organic growth, including
market share gains, new branch openings and selected strategic acquisitions.
In November, 2002, we purchased substantially all of the assets and businesses
of, and assumed certain liabilities and obligations of U.S. Filter, becoming a
stand alone company.
We generate revenue by distributing a full line of products including pipe,
fittings, valves, meters, service and repair products, fire hydrants and other
components that are used to transport clean water and wastewater between
reservoirs and treatment plants and residential and commercial locations. In
addition, we provide a broad array of value-added services such as project
estimation, project management and product advice. We face a variety of
challenges and opportunities in responding to the dynamics of the water and
wastewater transmission industry characterized by evolving customer needs and
intense competition. Our products are integral to building, repairing and
maintaining water and wastewater (sewer) systems and serve as part of the basic
municipal infrastructure required to support population and economic growth and
residential and commercial construction. Through our network of 133 branches in
36 states, we sell to municipalities directly and to contractors who serve
municipalities and also perform residential, commercial and industrial
waterworks projects. In addition to significant customer and geographic
diversification, our 2003 net sales were split approximately evenly between
publicly-funded and privately-funded sales. The following table sets forth our
net sales by product category as a percentage of 2003 net sales:
Pipe
40
%
Fittings
15
%
Valves
12
%
Meters
9
%
Service and repair products
7
%
Fire hydrants
6
%
Other
11
%
Total
100
%
Our strategy revolves around expanding and strengthening our market presence
while focusing on customer service. Additionally, we partner with preferred
vendors, manage working capital, and work toward improved profitability to
improve our overall financial strength. Our financial strength and ability to
adapt to current economic conditions is dependent in part on our generation of
cash flow, effective working capital management, and growth in our business.
Additionally, we attempt to mitigate the effect of economic conditions through
a highly variable cost structure and low capital spending requirements.
We generate cash primarily from our operations. During 2003 we generated $37.0
million in cash flow from operating activities while our cash and cash
equivalents decreased $21.2 million. We paid a dividend of $39.3 million and
reduced our long-term borrowings by $10.0 million. We also paid $3.2 million
in acquisition costs consisting primarily of the post-closing purchase price
adjustment related to the Acquisition, $6.0 million of financing fees
principally related to the August 2003 amendment to our senior credit facility
and $2.3 million of financing fees principally related to the December 2003
amendment to our senior credit facility.
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Critical Accounting Policies and Estimates
Management's discussion and analysis of financial condition and results of
operations is based upon our financial statements, which have been prepared in
accordance with GAAP. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts
of assets, liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. Management bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Senior management has discussed the
development, selection and disclosure of these estimates with the Audit
Committee of our Board of Directors. Actual results may differ from these
estimates under different assumptions or conditions.
An accounting policy is deemed to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly
uncertain at the time the estimate is made, and if different estimates that
reasonably could have been used, or changes in the accounting estimates that
are reasonably likely to occur periodically, could materially impact the
financial statements. Management believes the following critical accounting
policies reflect its more significant estimates and assumptions used in the
preparation of the financial statements.
Allowance for Doubtful Accounts.
Since the beginning of 2000, on average, our
bad debt expense has been only 0.08% of net sales. We evaluate the
collectibility of accounts receivable based on historical trends, customer
transaction history, accounts receivable aging and an evaluation of customer
credit worthiness. Initially, a monthly provision is made based on historical
experience. On a quarterly basis, we perform a detailed analysis of accounts
receivable and adjust the allowance for doubtful accounts when necessary. While
we have a large customer base that is geographically diverse, an economic
slowdown in the markets in which we operate may result in higher uncollected
accounts receivable and therefore the need to revise estimates for bad debts.
To the extent actual credit experience or other assumptions used by management
change, the allowance for doubtful accounts would be adjusted, which could
affect our operating results.
Inventories.
Since the beginning of 2000, our slow moving inventory has
averaged less than 2% of our total inventory. We periodically evaluate our
inventories to ensure they are recorded at the lower of cost or market value.
The inventory reserve is adjusted monthly based on a review of slow moving
inventories as well as other factors including potential adjustments from
physical inventory counts. Significant unusual events giving rise to changes in
our inventory valuation are reserved when appropriate. To the extent future
events impact, either favorably or unfavorably, the salability of our products,
our inventory reserves could differ significantly resulting in higher or lower
future inventory accruals.
Goodwill and Long-Lived Assets.
We review the carrying value of our goodwill
for impairment at least annually. To accomplish this, we utilize a third party
independent appraiser to assess the fair value of each of our reporting units.
The fair value of a reporting unit may be estimated using methods such as a
discounted cash flow analysis and market approaches. The Company compares the
fair value estimate to the unit's carrying value. If the carrying value of a
reporting unit exceeds its fair value estimate, an indication exists that
goodwill is impaired and we must perform additional analysis to determine the
extent of any impairment. Any such impairment would be reflected as a charge in
the statement of operations at that time. See "-Recent Accounting
Pronouncements" below for a discussion concerning our adoption of SFAS No. 142,
Goodwill and Other Intangible Assets
.
Long-lived assets, including property and equipment, are reviewed for possible
impairment whenever events or other changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An impairment loss is
recognized when the carrying amount of a long-lived asset exceeds the sum of
the undiscounted cash flows expected to result from the asset's use and
eventual disposition. An impairment loss is measured as the amount by which
the carrying amount of the asset exceeds the fair value of the asset.
Consideration Received From Vendors
. We enter into agreements with many of our
vendors providing for inventory purchase rebates ("vendor rebates") upon
achievement of specified volume purchasing levels. We accrue the receipt of
vendor rebates as part of our cost of sales for products sold based on progress
towards earning the vendor rebates, taking into consideration cumulative
purchases of inventory to date and projected purchases through the end of the
year. An estimate of unearned vendor rebates is included in the carrying value
of inventory at a period end for vendor rebates received on products not yet
sold. While management believes that we will continue to recognize
consideration from vendors pursuant to underlying agreements, there can be no
assurance that vendors will continue to provide comparable amounts of vendor
rebates in the future, which could impact our operating results.
Results of Operations
The following table sets forth the percentage relationship that certain items
from our financial statements bear in relation to net sales:
24
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Predecessor
Successor
U.S. Filter
National Waterworks
and Subsidiary
Period of
Period of
November 22,
January 1,
Year Ended
2002 through
2002 through
Year Ended
December 31,
December 31,
November 21,
December 31,
Statement of Operations Data
2003
2002
2002
2001
Net sales
100.0
%
100.0
%
100.0
%
100.0
%
Cost of goods sold
79.0
%
87.0
%
78.6
%
78.6
%
Gross profit
21.0
%
13.0
%
21.4
%
21.4
%
Operating expenses:
Selling, general and administrative
13.1
%
15.6
%
13.2
%
13.6
%
Loss - accounts receivable securitization
—
—
.2
%
.1
%
Income (loss) before depreciation
and amortization
7.9
%
(2.6
)%
8.0
%
7.7
%
Depreciation
0.2
%
0.3
%
0.3
%
0.3
%
Amortization of intangible assets
0.0
%
0.0
%
0.0
%
2.2
%
Operating income (loss)
7.7
%
(2.9
)%
7.7
%
5.2
%
Other income (expense):
Completion bonuses
—
—
(0.6
)%
—
Interest expense, net
(3.2
)%
(7.2
)%
0.0
%
0.0
%
Other
0.0
%
0.0
%
0.0
%
0.0
%
Income (loss) before income
taxes, and cumulative effect of a
change in accounting principle
4.5
%
(10.1
)%
7.1
%
5.2
%
Income taxes expense (benefit)
1.8
%
(3.9
)%
2.8
%
2.9
%
Income (loss) before cumulative effect of
a change in accounting principle
2.7
%
(6.2
)%
4.3
%
2.3
%
Cumulative effect of a change in
accounting principle
—
—
(43.3
)%
—
Net income (loss)
2.7
%
(6.2
)%
39.0
)%
2.3
%
The following discussions regarding the year ended December 31, 2002 are based
on the combined results of operations of U. S. Filter for the period from
January 1 to November 21, 2002 and of National Waterworks for the period from
November 22 to December 31, 2002. The Acquisition was accounted for as a
purchase in accordance with Statement of Financial Accounting Standards No.
141, Business Combinations, and the excess of the purchase consideration over
the historical basis of the net assets acquired has been applied to revalue the
assets acquired and liabilities assumed to their fair values at November 22,
2002, the date of the Acquisition. Goodwill of $465.7 million was recognized in
our financial statements as a result of the Acquisition. A $3.1 million
post-closing purchase price adjustment made by National Waterworks in the first
quarter of 2003 was reflected as an adjustment to goodwill in our financial
statements for the quarter ended March 28, 2003. The combined 2002 results
discussed below are not necessarily indicative of what the full year 2002 would
have been had the change in ownership resulting from the Acquisition not
occurred.
Year Ended December 31, 2003 Compared to Combined Year Ended December 31, 2002
Certain Financial Statement Impacts of the Acquisition.
As more fully
discussed below, the revaluation of the net assets acquired in the Acquisition
did not affect our net sales. However, we recorded a $13.0 million valuation
increase in inventory at November 22, 2002 as a result of the asset
revaluation. While the increase in the value of our inventory had no cash
impact, it did increase our costs of goods sold, adversely impacting our gross
profit. We recognized $9.0 million of the impact of the inventory revaluation
during the period of November 22 to December 31, 2002. The final $4.0 million
of the inventory revaluation was recognized in the first quarter of 2003.
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Table of Contents
Net Sales.
Net sales for the year ended December 31, 2003 increased $125.4
million, or 10.9%, to $1,278.4 million from $1,153.0 million for the year ended
December 31, 2002. The increase reflects the combined effects of a $6.0 million
increase in net sales from our acquisition of Utility Piping Systems, Inc., a
regional waterworks distribution company operating in Pennsylvania, New Jersey
and Delaware, which we acquired on March 29, 2002, and a $119.4 million
increase in net sales of our historical operations. A portion of the increase
was attributable to an increase in net sales of PVC pipe of $29.3 million
primarily resulting from the pass through of an approximate 13% increase in our
purchase price of PVC pipe products. The remaining increase in net sales of our
historical operations was attributable to increases recorded in all product
areas brought by continued favorable economic conditions.
Cost of Goods Sold.
Cost of goods sold for the year ended December 31, 2003
increased $96.6 million, or 10.6%, to $1,010.4 million from $913.8 million for
the year ended December 31, 2002. The increase reflects an increase in cost of
goods sold of our historical operations which was primarily attributable to the
increase in cost of goods sold of PVC pipe products of $27.6 million and
increased volume in all other product categories. Additionally the increase
reflects the combined effects of a $4.8 million increase in cost of goods sold
associated with sales resulting from our acquisition of Utility Piping Systems,
Inc. and the recognition of the final $4.0 million impact of the inventory
revaluation discussed above. As a percentage of net sales, cost of goods sold
decreased to 79.0% in 2003 compared to 79.3% in 2002.
Gross Profit.
As a result of the foregoing, gross profit for the year ended
December 31, 2003 increased $28.8 million, or 12.0%, to $268.0 million from
$239.2 million for the year ended December 31, 2002. Gross profit increased as
a result of our acquisition of Utility Piping Systems, Inc. and increased
volume in our historical operations, and was partially offset by the adverse
impact of the inventory revaluation, representing 0.3% of net sales, recognized
during the 2003 period. Our gross profit margin increased to 21.0% in 2003
compared to 20.7% in 2002 as a result of the foregoing factors.
Selling, General and Administrative.
Selling, general and administrative
expenses for the year ended December 31, 2003 increased $12.6 million, or 8.2%,
to $167.2 million from $154.6 million for the year ended December 31, 2002.
This increase is primarily related to the sales volume increases discussed
above and $0.9 million of additional expenses resulting from our acquisition of
Utility Piping Systems, Inc. As a percentage of net sales, selling, general and
administrative expenses were 13.1% in 2003 compared to 13.4% in 2002.
Loss-Accounts Receivable Securitization
. Loss-accounts receivable
securitization was $2.5 million for the year ended December 31 2002. This loss
reflects the sale of a portion of our accounts receivable at a discount
relating to an accounts receivable securitization facility that we entered into
on December 19, 2001. For more information, see — Liquidity and Capital
Resources" below. The facility was repaid and terminated in November 2002.
Accordingly, there was no related activity in 2003.
Depreciation and Amortization
. Depreciation and amortization expenses for the
year ended December 31, 2003 were $2.6 million, compared to $3.4 million for
the year ended December 31, 2002. Depreciation includes depreciation of
property, plant and equipment.
Operating Income.
As a result of the foregoing, operating income for the year
ended December 31, 2003 increased $19.5 million, or 24.7%, to $98.3 million
from $78.8 million for the year ended December 31, 2002. As a percentage of net
sales, operating income increased to 7.7% in 2003 from 6.8% in 2002.
Completion Bonuses
. In connection with the Acquisition, we recognized $6.2
million in non-recurring compensation expense in 2002 for payments made by U.
S. Filter to certain members of our management upon consummation of the
Acquisition.
Interest Expense, Net.
Interest expense, net for the year ended December 31,
2003, was $41.3 million, compared to $6.9 million for the year ended December
31, 2002. The increase reflects interest related to the additional debt we
incurred on November 22, 2002 to finance the Acquisition.
Income Taxes
. Our effective income tax rate for the year ended December 31,
2003 was approximately 40.9% compared to 38.8% for the year ended December 31,
2002.
Cumulative Effect of Change in Accounting Principle.
As a result of the
adoption of SFAS No. 142 prior to the consummation of the Acquisition, U.S.
Filter completed an assessment of whether its goodwill was impaired at January
1, 2002, the date of adoption of SFAS No. 142. As a result of this assessment,
U.S. Filter concluded that it was probable that the goodwill then assigned to
its reporting units was impaired based in part upon the anticipated sale price
of substantially all of its assets and liabilities to National Waterworks.
Accordingly, 2002 included a charge for the estimated goodwill impairment of
$459.0 million.
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Table of Contents
Net Income (Loss).
As a result of the foregoing, and excluding the cumulative
effect of a change in accounting principle in 2002, net income decreased $6.7
million to $33.6 million from $40.3 million for the year ended December 31,
2003 and 2002, respectively.
Combined Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Certain Financial Statement Impacts of the Acquisition
. As more fully
discussed below, the revaluation of the net assets acquired in the Acquisition
did not affect our net sales. However, we recorded a $13.0 million increase in
inventory at November 22, 2002 as a result of the asset revaluation. While the
increase in the value of our inventory had no cash impact, it did increase our
costs of goods sold in the November 22 to December 31, 2002 period, adversely
impacting our gross profit during this period. We recognized $9.0 million of
the inventory revaluation during the period of November 22 to December 31, 2002
and the remaining $4.0 million impact of the inventory revaluation in the first
quarter of 2003.
Due to the short period between the consummation of the Acquisition on November
22, 2002 and December 31, 2002, we recognized only a portion of the expected
$1.0 million annual increase in our selling, general and administrative
expenses resulting from our now being an independent stand-alone entity. In
addition, the impact on interest expense resulting from the indebtedness
incurred under our senior credit facility and the senior subordinated notes to
finance the Acquisition was minimal and only reflected in the short November 22
to December 31, 2002 time period. Finally, during the period of November 22 to
December 31, 2002, we recognized a $2.5 million charge relating to the
write-off of deferred financing fees related to the Acquisition.
Net Sales
. Net sales for the year ended December 31, 2002 increased $32.7
million, or 2.9%, to $1,153.0 million from $1,120.3 million for the year ended
December 31, 2001. The increase reflects the combined effects of a $30.8
million increase in net sales from our acquisition of Utility Piping Systems,
Inc. and a $1.9 million increase in net sales of our historical operations. The
increase of $1.9 million in net sales of our historical operations was
primarily attributable to an increase in our sales price of PVC pipe, which
primarily reflected an approximate 6% increase in our purchase price of PVC
pipe. The PVC price increase, combined with a volume increase in sales of
meters was partially offset by slightly weaker volume in other product areas.
Additionally, the closing of two under-performing branches in 2001 accounted
for a $2.6 million decrease in net sales of our historical operations for the
period.
Cost of Goods Sold
. Cost of goods sold for the year ended December 31, 2002
increased $33.2 million, or 3.8%, to $913.8 million from $880.6 million for the
year ended December 31, 2001. The increase reflects the combined effects of a
$24.0 million increase in cost of goods sold associated with sales resulting
from our acquisition of Utility Piping Systems, Inc. and the recognition of
$9.0 million of the impact of the inventory revaluation discussed above. As a
percentage of net sales, cost of goods sold increased to 79.3% for 2002
compared to 78.6% in 2001.
Gross Profit
. As a result of the foregoing, gross profit for the year ended
December 31, 2002 decreased $0.6 million, to $239.2 million from $239.8 million
for the year ended December 31, 2001. Gross profit increases as a result of our
acquisition of Utility Piping Systems, Inc. and a higher proportion of sales
shipped from our inventory, which carry a higher gross margin than sales
shipped directly from our suppliers, were offset by the adverse impact of the
inventory revaluation recognized during the period of November 22 to December
31, 2002. Our gross profit margin decreased to 20.7% in 2002 compared to 21.4%
in 2001 as a result of the foregoing factors.
Selling, General and Administrative
. Selling, general and administrative
expenses for the year ended December 31, 2002 increased $2.1 million, or 1.4%,
to $154.6 million from $152.5 million for the year ended December 31, 2001.
This increase reflected additional expenses resulting from our acquisition of
Utility Piping Systems, Inc. and approximately $0.4 million of incremental
costs of operating on a stand alone basis, principally related to auditing and
tax services, partially offset by the elimination of expenses associated with
the closing of the two branches discussed above. As a percentage of net sales,
selling, general and administrative expenses were 13.4% in 2002 compared to
13.6% in 2001.
Loss-Accounts Receivable Securitization
. Loss-accounts receivable
securitization was $2.5 million and $0.5 million for the years ended December
31, 2002 and 2001, respectively. This loss reflects the sale of a portion of
our accounts receivable at a discount relating to an accounts receivable
securitization facility that we entered into on December 19, 2001. For more
information, see "-Liquidity and Capital Resources" below. The facility was
repaid and terminated in November 2002.
Depreciation and Amortization
. Depreciation and amortization expenses for the
year ended December 31, 2002 were $3.4 million in the aggregate, compared to
$28.6 million for the year ended December 31, 2001. Depreciation includes
depreciation of property, plant and equipment. Historically, amortization was
comprised primarily of amortization of goodwill. In accordance with SFAS No.
142, Goodwill and Other Intangible Assets, we ceased amortizing goodwill as of
January 1, 2002. Goodwill amortization was $25.0 million
27
Table of Contents
for the year ended December 31, 2001. As a percentage of net sales,
depreciation and amortization for the period decreased to 0.3% in 2002 compared
to 2.6% in 2001.
Operating Income
. As a result of the foregoing, operating income for the year
ended December 31, 2002 increased $20.6 million, or 35.4%, to $78.8 million
from $58.2 million for the year ended December 31, 2001. As a percentage of net
sales, operating income increased to 6.8% for 2002 from 5.2% for 2001, which is
primarily attributable to the adoption of SFAS No. 142 discussed above.
Completion Bonuses
. In connection with the Acquisition, we recognized $6.2
million in non-recurring compensation expense in 2002 for payments made by U.
S. Filter to certain members of our management upon consummation of the
Acquisition.
Interest Expense, Net
. Interest expense, net for the year ended December 31,
2002 was $6.9 million compared to less than $0.1 million in 2001. The increase
reflects the additional debt we incurred on November 22, 2002 to finance the
Acquisition. Included in interest expense, net in 2002 is a $2.5 million
write-off of deferred financing costs relating to an unutilized bridge
facility. During the 2001 period, we reduced our long-term debt outstanding
primarily as a result of the repayment of a $1.2 million note payable that
matured in June 2001.
Income Taxes
. Our effective income tax rate for the year ended December 31,
2002 was approximately 38.8% compared to 55.0% for the year ended December 31,
2001. The change resulted primarily from the elimination of goodwill
amortization described above. Our effective tax rate for the year ended
December 31, 2001 exceeded statutory tax rates primarily due to the
non-deductibility for tax purposes of goodwill amortization.
Cumulative Effect of Change in Accounting Principle
. As a result of the
adoption of SFAS No. 142 prior to the consummation of the Acquisition, U.S.
Filter completed an assessment of whether its goodwill at January 1, 2002, the
date of adoption of SFAS No. 142, was impaired. As a result of this assessment,
U.S. Filter concluded that it was probable that the goodwill then assigned to
its reporting units was impaired based in part upon the anticipated sale price
of substantially all of its assets and liabilities to National Waterworks.
Accordingly, the Acquisition period from January 1 to November 21, 2002
included a charge for the estimated goodwill impairment of $459.0 million. No
similar charges were recorded for the 2001 period. During this period, goodwill
was primarily comprised of amounts resulting from the purchase accounting
adjustments associated with the acquisition of United States Filter Corporation
by Veolia in 1997 and reflected, or "pushed-down," in the financial statements,
and, to a lesser extent, amounts resulting from acquisitions since the date of
the Veolia acquisition.
Net Income (Loss).
As a result of the foregoing, we reported a net loss of
$418.7 million for the year ended December 31, 2002, compared to $26.2 million
of net income for the year ended December 31, 2001. Excluding the cumulative
effect of a change in accounting principle in 2002 and the goodwill
amortization in 2001, net income decreased $10.9 million to $40.3 million in
the 2002 period from $51.2 million in the 2001 period.
Liquidity and Capital Resources
Prior to November 2002, we participated in the centralized cash management
program of our former parent, United States Filter Corporation, whereby all of
our cash receipts were remitted to United States Filter Corporation and
substantially all of our cash disbursements were funded by United States Filter
Corporation. As a result of the Acquisition and our separation from United
States Filter Corporation, we no longer participate in such program.
Historically, our primary cash requirements were to fund our operations,
working capital and capital expenditures. Following the Acquisition, our
primary cash requirements are to make the interest and principal payments on
our debt and to fund our operations, working capital and capital expenditures.
We expect to fund these needs principally from cash flow from operations and,
if necessary, borrowings under the revolving credit portion of our senior
credit facility. In addition, since the Acquisition was structured as an asset
acquisition, we will be able to deduct for tax purposes, on a straight-line
basis over 15 years, the related goodwill. We expect that this amortization
will result in significant cash tax savings.
Net working capital is comprised of current assets, excluding cash and cash
equivalents, minus current liabilities. We had net working capital of $115.2
million at December 31, 2003 compared to net working capital of $105.1 million
at December 31, 2002. The increase in net working capital is primarily
attributable to increased sales volume in the fourth quarter of 2003.
Net cash provided by operating activities for the years ended December 31,
2003, 2002 (combined) and 2001 was $37.0 million, $95.3 million, and $209.4
million, respectively. The change in net cash provided by operating activities
in 2003 compared to 2002 (combined) was primarily attributable to an
approximate $32.3 million and $33.8 million decrease in cash flows from trade
accounts receivable and trade accounts payable and accrued expenses,
respectively. The decrease in net cash provided by operating activities in
28
Table of Contents
2002 (combined) compared to 2001 was primarily attributable to the change in
our accounts receivables related to the implementation in December 2001 of the
accounts receivable securitization facility, which accounted for $140.0 million
of net cash provided by operating activities in 2001. Excluding the effect of
the securitization facility, the increase in 2002 (combined) was due to cash
provided by trade accounts payable of $27.4 million.
Net cash used in investing activities for the years ended December 31, 2003,
2002 (combined) and 2001 was $4.4 million, $664.0 million and $0.3 million,
respectively. Net cash used in investing activities for the period ended
December 31, 2003 reflected the post-closing cash adjustment of $3.1 million
paid to United States Filter Corporation, related to the level of our working
capital at the time of closing of the Acquisition. Net cash used in investing
activities for the year ended December 31, 2002 (combined) reflected the cash
purchase price of the Acquisition of $643.8 million and the one operating
acquisition we completed in 2002 for a net consideration of $19.6 million.
Capital expenditures for the years ended December 31, 2003, 2002 (combined) and
2001 were $2.0 million and $1.5 million and $1.4 million, respectively.
Net cash provided by (used in) financing activities for the years ended
December 31, 2003, 2002 (combined), and 2001 was ($53.8) million, $600.6
million, and ($205.1) million, respectively. Net cash used in financing
activities in the 2003 period reflects $10.0 million in principal payments on
the term loan under our senior credit facility and a dividend distribution of
$39.3 million. The 2003 period also reflects a $1.0 million cash equity
investment in Holdings, by one of our and Holdings' directors, who had not made
an investment in Holdings at the time the Acquisition was consummated. Holdings
made a concurrent $1.0 million capital contribution to us. The net cash
provided by financing activities for the year ended December 31, 2002
(combined), excluding the $644.7 million provided to fund the Acquisition,
resulted in net cash used in financing activities of $44.1 million. The $44.1
million reflects the excess of funds transferred to our former parent, United
States Filter Corporation, through the cash management program over investments
by, and expenditures funded by, United States Filter Corporation during the
period January 1 to November 21, 2002.
In December 2003, we amended our senior credit facility in connection with a
dividend paid to the stockholders of Holdings. As a result of the amendment,
we can pay a dividend to Holdings from time to time, contingent upon meeting
certain financial covenants and ratios and other conditions, and Holdings can
use the amount of such dividend for any purpose not otherwise prohibited by the
terms of our senior credit facility, including, without limitation, to pay
dividends on our capital stock. The aggregate amount of dividends paid
pursuant to this amendment may not exceed $110.0 million in total, and may not
exceed $45.0 million for the fiscal year ended December 31, 2003 and $40.0
million for any fiscal year thereafter, provided that any amount not paid in
the fiscal year for which it is permitted may be carried over to any succeeding
fiscal year. In connection with the amendment, we paid and recorded as
interest expense approximately $2.3 million in financing fees.
In August 2003 we amended our senior credit facility in connection with the
refinancing of the outstanding term loan portion thereof. The amendment, among
other things, provided for lower applicable margins for both Eurodollar rate
and base rate term loans under the refinanced facility. In addition the
minimum Eurodollar rate of 2.50% for term loans that existed prior to the
amendment was removed. The amendment also permits us to issue, without the
consent of lenders under the senior credit facility, an incremental $50.0
million of credit facilities in addition to the $50.0 million permitted prior
to the amendment, contingent upon meeting certain covenants. The amendment also
allows Holdings to issue one or more series of notes or redeemable equity
securities from time to time, upon the terms and conditions set forth in the
amendment and subject to our meeting certain financial covenants and ratios,
and to use the proceeds therefrom to pay dividends or make other distributions
on its capital stock. In connection with the amendment, we paid approximately
$6.0 million of financing fees, including a $4.9 million call premium. The
call premium was recorded as deferred financing fees with the remaining
financing fees recorded as interest expense.
Our senior credit facility, as amended, consists of a $250.0 million term loan
facility, of which $240.0 million was outstanding at December 31, 2003, and a
$75.0 million revolving credit facility. No amount was outstanding under the
revolving credit facility at December 31, 2003, but approximately $3.8 million
of the availability under the revolving credit facility was used to support
outstanding letters of credit. The borrowings under the revolving credit
facility will be available until its maturity to fund our working capital
requirements, capital expenditures and other general corporate needs, subject
to the negative covenants set forth in our senior credit facility. The
revolving credit facility will mature on November 22, 2008 and will have no
scheduled amortization or commitment reductions. The term loan facility will
mature on November 22, 2009 and has quarterly scheduled amortization payments
of $3.75 million in 2004 and 2005, $5.0 million in 2006 and $6.25 million in
2007 and 2008, with the balance of the facility to be repaid quarterly and at
maturity during 2009. In addition, we are required to make annual mandatory
prepayments of the term loans (or, if no term loans are outstanding, revolving
loans) under the senior credit facility in an amount equal to 75% of Excess
Cash Flow, as defined in our senior credit facility, and determined generally
as the amount by which our operating cash flow exceeds the sum of our capital
expenditures (including in respect of permitted acquisitions), repayments of
indebtedness and certain other amounts, or, 50% of Excess Cash Flow if our
ratio of consolidated total debt to consolidated EBITDA as of the last day of
the applicable fiscal year
29
Table of Contents
is not greater than 4:0 to 1:0. The term loans (or, if no term loans are
outstanding, revolving loans) are also subject to mandatory prepayments in an
amount equal to (i) 75% of the net cash proceeds from certain equity issuances
by us or our subsidiaries (or 50% if we meet the foregoing leverage ratio);
(ii) 100% of the net cash proceeds of certain debt issuances; and (iii) 100% of
the net cash proceeds of certain asset sales or other dispositions of property,
in each case subject to certain exceptions. Borrowings under the term loan
portion and revolving credit facility bear interest at a variable rate based
on, at our option, the Eurodollar rate plus an applicable margin, or a base
rate plus an applicable margin. The base rate is the higher of the prime rate
or the federal funds rate plus 0.5%. At December 31, 2003 and 2002, the
interest rate on the term loan was 3.92% and 6.5% per annum, respectively. Our
senior credit facility permits us to issue up to an additional $100.0 million
of credit facilities without the consent of the existing lenders thereunder, so
long as no default or event of default under the senior credit facility has
occurred and is continuing or would occur after giving effect to such issuance
and certain other conditions are satisfied, including pro forma compliance with
certain senior leverage ratios.
Our $200.0 million aggregate principal amount of senior subordinated notes due
2012 bear interest at 10.50% per annum, with interest due semi-annually on June
1 and December 1 of each year. Interest payments on the senior subordinated
notes and required principal and interest payments on borrowings under our
senior credit facility have substantially increased our liquidity requirements.
We may, from time to time and subject to the limitations in our senior credit
facility, purchase senior subordinated notes in the open market or in privately
negotiated transactions.
The senior credit facility and the indenture governing the senior subordinated
notes impose certain restrictions on us, including restrictions on our ability
to incur indebtedness, pay dividends, make investments, grant liens, sell our
assets and engage in certain other activities. Our senior credit facility also
requires that we satisfy leverage and interest coverage ratios and contains a
capital expenditures limitation. We were in compliance with all covenants at
December 31, 2003 and 2002. Indebtedness under the senior credit facility is
secured by substantially all of our and Holdings' assets, including our real
and personal property, inventory, accounts receivable, intellectual property
and other intangibles. In addition, the senior credit facility is secured by
the stock and substantially all of the assets of our future domestic and, to
the extent that no material adverse tax consequences would result, foreign
subsidiaries, if any. We do not currently have any subsidiaries.
Our ability to pay principal and interest on our indebtedness and to satisfy
our other obligations will depend upon, among other things:
•
our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business,
regulatory and other factors, many of which are beyond our control;
and
•
the future availability of borrowings under our senior credit facility or any successor facility, the availability of which
depends or may depend on, among other things, our complying with the
covenants in our senior credit facility.
We believe that, based on our current levels of operations, our cash flow from
operations, together with available borrowings under the senior credit
facility, will be adequate for at least the next few years to make scheduled
amortization and interest payments on our indebtedness and to fund anticipated
capital expenditures and for working capital requirements. We cannot assure
you, however, that our business will generate sufficient cash flow from
operations or that future borrowings will be available under the senior credit
facility in an amount sufficient to enable us to service our indebtedness or to
fund our other liquidity needs.
Related Party Transactions
In January 2003, one of our and Holdings' directors, who had not made an
investment in Holdings at the time of the Acquisition, made a $1.0 million cash
equity investment in Holdings in exchange for the issuance of shares of common
stock of Holdings. Holdings made a concurrent $1.0 million capital
contribution to us. The investment was made at the same price per share as the
original investment made by our principal equity sponsors and management on
November 22, 2002.
For a description of certain related party transactions with our Sponsors,
their affiliates and Holdings, see "Certain Relationships and Related Party
Transactions."
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143,
Accounting for
Asset Retirement Obligations
, which addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This statement applies to all
entities that have legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
or
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normal use of the asset. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002. The adoption of SFAS No. 143 as of January 1, 2003 did not
have a significant impact on our financial condition or results of operations.
In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated
with Exit or Disposal Activities,
which is effective for disposal activities
initiated after December 31, 2002. This Statement nullifies Emerging Issues
Task Force Issue No. 94-3,
Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)
. SFAS No. 146 requires that a liability for
a cost associated with an exit or disposal activity be recognized when the
liability is incurred as opposed to the date of the commitment of an exit plan.
The adoption of SFAS No. 146 as of January 1, 2003 did not have a significant
impact on our financial condition or results of operations.
In November 2002, the EITF reached consensus on Issue 02-16,
Accounting by a
Customer (Including a Reseller) for Certain Consideration Received from a
Vendor
. The consensus was reached that cash consideration received by a
customer from a vendor is presumed to be a reduction of the prices of the
vendor's products or services and should be treated as a reduction of cost of
sales when recognized in the customer's income statement. This presumption can
be overcome if the consideration can be shown to represent either a payment for
assets or services delivered to the vendor or a reimbursement of costs incurred
by the reseller to sell the vendor's products. It also reached consensus on
when a customer should recognize a rebate or refund that is payable only if the
customer completes a specified level of purchases. Recognition should occur
when the rebate or refund is probable and reasonably estimable and should be
based on a systematic and rational method. The Company has historically
accounted for such consideration as a reduction of cost of sales when the
vendor rebate is probable and reasonably estimable and based on a systematic
and rational allocation of the cash consideration to be received. The Company
estimated the adoption of this EITF increased net income by $1.4 million for
the year ended December 31, 2003.
In January 2003, the FASB issued Statement SFAS No.148,
Accounting for
Stock-Based Compensation — Transition and Disclosure
. This statement amends
FASB SFAS No. 123,
Accounting for Stock-Based Compensation
to provide
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. In addition,
SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent
disclosures in both annual and interim financial statements of the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. SFAS 148 is effective for fiscal years beginning
after December 15, 2002. The adoption of SFAS 148 had no impact on the
Company's financial statements.
In April 2003 the FASB issued SFAS No. 149,
Amendment of Statement 133 on
Derivative Instruments and Hedging Activities
. This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133,
Accounting for Derivative Instruments
and Hedging Activities
. SFAS No. 149 provides greater clarification of the
characteristics of a derivative instrument so that contracts with similar
characteristics will be accounted for consistently. In general, SFAS No. 149
is effective for contracts entered into or modified after June 30, 2003, and
for hedging relationships designated after June 30, 2003. As the Company does
not currently have any derivative financials instruments, the adoption of SFAS
No. 149 had no impact on the Company's financial statements.
In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity
. This
statement clarifies the accounting for certain financial instruments with
characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities in statements of financial position.
Previously, many of those financial instruments were classified as equity.
SFAS No. 150 is effective for financial instruments entered into or modified
after May 31, 2003 and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. As the Company does not have any
of these financial instruments, the adoption of SFAS No. 150 had no impact on
the Company's financial statements.
Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks as part of our on-going business
operations. Primary exposure includes changes in interest rates as borrowings
under our senior credit facility bear interest at floating rates based on the
London InterBank Offered Rate or the prime rate, in each case plus an
applicable borrowing margin. We manage our interest rate risk by balancing the
amount of fixed-rate and floating-rate debt. For fixed rate debt, interest rate
changes affect the fair market value but do not impact earnings or cash flows.
Conversely, for floating-rate debt, interest rate changes generally do not
affect the fair market value but do impact our earnings and cash flows,
assuming other factors are held constant. As of December 31, 2003, we had $200
million principal amount of fixed-rate debt represented by the notes and $240
million of floating-rate debt represented by borrowings under the term loan
portion of the senior credit facility. In addition, up to $75 million of
floating rate borrowings are available under the revolving credit portion of
the senior credit facility, of which $3.8 million was used to support
outstanding letters of credit at December 31, 2003. Based on the
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amounts outstanding under the term loans, an immediate increase of one
percentage point in the applicable interest rate would cause an increase in
interest expense of approximately $2.4 million on an annual basis. We may use
derivative financial instruments, where appropriate, to manage our interest
rate risks. However, as a matter of policy, we will not enter into derivative
or other financial investments for trading or speculative purposes. All of our
sales are denominated in U.S. dollars; thus our financial results are not
subject to foreign currency exchange risks or weak economic conditions in
foreign markets.
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Business
General
We are a leading distributor of water and wastewater transmission products in
the United States with approximately a 20% share of the estimated $6 billion
U.S. waterworks products distribution market. We distribute a full line of
products including pipe, fittings, valves, meters, service and repair products,
fire hydrants and other components that are used to transport clean water and
wastewater between reservoirs and treatment plants and residential and
commercial locations. In addition, we provide a broad array of value-added
services such as project estimation, project management and product advice. Our
products are integral to building, repairing and maintaining water and
wastewater (sewer) systems and serve as part of the basic municipal
infrastructure required to support population and economic growth and
residential and commercial construction. Through our network of 133 branches in
36 states, we sell to municipalities directly and contractors who serve
municipalities and also perform residential, commercial and industrial
waterworks projects.
In 2003, we purchased products from over 3,800 suppliers and sold to over
27,000 customers. We offer both our suppliers and customers essential services
by providing customers with a single source for water and wastewater
transmission products, which substantially reduces their need to manage
inventory and multiple vendor relationships. None of our suppliers offers a
complete waterworks product line, and the majority lack the scale,
infrastructure, such as a large, local sales force, and expertise to service
the broad customer base directly. By aggregating the supply of our products, we
relieve our suppliers of the need to maintain a local inventory and a local
sales force and the related credit and accounts receivable functions.
Our branches compete on a local basis and benefit from our large scale and
national coverage. We empower and create incentives for our branch managers to
customize product and service offerings in response to the needs of local
customers and to adapt to changing local market dynamics, within the pricing
and purchasing parameters established by senior management. We believe that
this strategy promotes an entrepreneurial approach at the branch level while
maintaining appropriate management control and pricing discipline through our
entire network. Our branches are operated by managers and sales personnel with
significant industry expertise, local knowledge and long-standing customer
relationships. Our customized IT system supports our sales personnel and
provides benefits to our customers, including expedited project estimation and
bid preparation; real-time pricing, availability and order status information;
on-line ordering and purchase processing; and material and project management.
At the same time, our single IT system provides detailed operating data on a
daily basis at the branch and customer levels which allows our branch and
senior management to closely monitor branch operating performance. Our
preferred vendor programs typically include volume purchase incentives and
other benefits, including cash discounts and extended payment terms. In 2003
over 80% of our purchases were under preferred vendor programs and we continue
to establish or enhance these relationships with new and existing suppliers.
Overview of Our Business
History
In 1996, United States Filter Corporation acquired Davis Water & Waste
Industries, Inc. (which changed its name to U.S. Filter) with the goal of
creating the first nationwide waterworks products distribution network. At that
time, no national waterworks distribution platform existed in the United
States, and the sector was primarily comprised of regional and local firms.
Through the acquisition and combination of four additional large-scale regional
waterworks products distributors in 1996 and 1997, U.S. Filter became a major
participant in the sector. Each of these regional acquisitions and the majority
of our other acquisitions had been in business for over 20 years and were the
source of the majority of U.S. Filter's senior and branch management. In
November 2002, we purchased substantially all of the assets and businesses of,
and assumed certain liabilities and obligations of U.S. Filter, which we refer
to herein as the "Acquisition."
We have continued to increase our revenues through organic growth, including
market share gains and new branch openings, as well as through selected
strategic acquisitions. Since the beginning of 2000, we have opened or acquired
13 new branches, while closing or consolidating 20 branches in order to
eliminate branch overlap due to acquisitions and to improve our profitability
and return on managed assets. We identify acquisition opportunities that allow
us to expand our local market positions, geographic coverage or local product
lines. As we expanded our branch network, we also broadened our product mix to
meet the demands of customers in our diverse local markets.
Business Operations
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Regional Organization and Branch Network.
We are organized geographically into
six different regions in the United States (Midwest, Southwest, Pacific,
Southeast, Mid-South and Mid-Continent). While we are organized regionally, our
distribution network operates on a branch system. Each region has from 16 to
29 branches and a regional vice president responsible for overall sales and
operations. This regional structure enables us to address the specific
management, strategic, operational and other needs of each region. Our network
of 133 branches covers 36 states, the majority of which are located in regions
that have historically experienced population and economic growth.
Branch Management.
We believe that our branch network and management structure
brings many benefits, including entrepreneurship, flexibility, and long-term
customer relationships at the local level. Each branch is managed by a
district/branch manager, who is typically supported by a branch operations
manager. We believe that our branch managers are able to maximize their
branch's financial performance due to the flexibility with which they operate
within the company-wide management and control structure. This structure
enables a branch manager to tailor his or her branch's particular strategy,
marketing and product and service offerings to address the needs of customers
in the local market. Our senior management establishes pricing and purchasing
parameters, which branch managers are able to adjust within a specified range
to enhance their branch's results and address specific customer situations.
Our compensation programs align our interests with those of our employees by
linking compensation levels to the achievement of branch or region specific
goals based on profitability and return on managed assets. These incentive
programs give managers, sales personnel and all other employees an opportunity
to personally benefit from improving these metrics, reducing costs, developing
local market niches and adapting to changing market conditions. We also benefit
from this program as a substantial portion of our employee-related costs is
variable based on financial performance.
The majority of our district/branch managers have spent substantially all of
their careers in their local markets. Given our managers' strong industry and
local expertise, they are empowered to manage their own customer relationships,
sales force, other personnel, pricing for product sales and purchases within
company-wide parameters, inventory and other activities. While branches benefit
from this expertise and entrepreneurship, they also benefit from being part of
our nationwide network. At the corporate level, we:
•
set overall financial, operating and strategic goals and parameters, including guidelines for pricing and working capital
management;
•
support our branches with services such as IT, credit, human resources, finance, accounting and legal, among others;
•
negotiate preferred vendor purchasing programs;
•
provide tools that support value-added customer services;
•
provide training and operational support; and
•
help branches to meet their goals through management assistance and transferring best practices.
Branch Operations.
A branch's organization varies depending on its size. Our
branches averaged over $9 million of net sales in 2003. A typical branch
consists of 9-12 people, including a branch manager, a branch operations
manager, outside sales personnel, inside sales personnel and support/warehouse
personnel. In larger branches, the staff may also include a sales manager, a
purchasing manager and/or an estimator. When several branches are in close
proximity to each other, a district manager may oversee all such branches as
opposed to having individual managers at each branch. In these cases, the
branch operations managers in that district tend to be more senior and
experienced managers. Each branch customizes its product and service offerings
based on its local market. A typical branch offers 2,400 to 3,000 products and
stocks 1,000 to 1,600 items.
We receive our orders from customers either directly or through negotiated or
competitive bids, which are typically evaluated based on service, availability,
reliability and price. A new order or bid is either generated by, or input
into, our IT system for scheduling, inventory management, ordering from a
supplier, if necessary, and billing. Products are delivered either from the
relevant branch's inventory, another branch's inventory or in the case of large
or long-lead time orders, directly from the manufacturer to the customer
("direct" sales). Direct sales accounted for approximately 35% of our net sales
in 2003. Direct sales and the ability to access other branches' inventory allow
our branches to reduce their inventory and the related holding and handling
costs. In addition, our IT system automatically generates recommended
purchasing reports to replenish our inventory as products are sold.
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Products and Service Overview
Products.
A typical waterworks system is comprised of many components, including
reservoirs and other water sources, water treatment plants and pumping
stations, wastewater treatment plants and residential and commercial customers.
We distribute products that comprise the water and wastewater transmission
network within the waterworks system. Our primary products include pipe,
fittings, valves, meters and hydrants and service/repair products. We also
offer other complementary products for waterworks construction and
maintenance/repair.
Pipe.
Piping products are our primary waterworks product and generate the
greatest portion of our net sales, approximately 40% in 2003, but a smaller
portion of our gross profits. Given the relatively large size and weight of
pipe and typically large size of pipe orders, the majority of our pipe sales
are shipped directly from the manufacturer to the customer, which reduces our
handling costs, inventory and exposure to changes in raw material prices. We
distribute a broad range of pipe made from different materials, including
polyvinyl chloride, or PVC, ductile iron, copper, polyethylene and high-density
polyethylene, or HDPE. PVC pipe and ductile iron pipe are the most commonly
used and account for the majority of our pipe sales.
Fittings.
Fittings are used to connect pipe to other pipe sections, valves and
other devices. Fittings complement our broad pipe products line with high
customer overlap and generate higher gross margins. In 2003, fittings accounted
for approximately 15% of our net sales. We distribute a broad range of fittings
made from PVC, ductile iron, and to a lesser extent, copper, brass and HDPE.
Valves.
Valves are used to control the flow of water and wastewater within
transmission networks and, similar to fittings, complement our other product
offerings. In 2003, valves accounted for approximately 12% of our net sales.
Besides an array of standard valves, we also distribute backflow preventers,
which primarily prevent reverse flow of liquid in the water system.
Meters and Hydrants.
In 2003, meters and hydrants accounted for approximately
9% and 6% of our net sales, respectively. Meters typically are higher gross
margin products. Meters measure the amount of liquid that flows through pipes
and are critical to municipalities and other water and wastewater system
operators for billing purposes. New meter technology, such as the ability to
receive data electronically, and the importance of water-related revenues to
municipalities has led to growth in meter sales. Hydrants are important for
public safety for firefighting purposes.
Service/Repair Products.
Our service and repair products include water cut-off
devices, clamps, and other products. In 2003, these products accounted for
approximately 7% of our net sales. Local availability and timely delivery of
these products are key to meeting customer needs since many of these products
are generally used for emergency repairs.
Other Products.
We also offer other complementary products that are necessary
for water and wastewater systems or in order to be a full product supplier.
These products carry a relatively high gross margin and accounted for
approximately 11% of our net sales in 2003. Examples include access boxes that
protect valves and meters from theft, damage, or destruction; iron castings,
including grates and manhole covers, which fit into or on top of waterworks
structures; and tools specific to waterworks construction and maintenance, as
well as general hand tools.
The sale of water and wastewater transmission products is subject to seasonal
and weather-related fluctuations. Coincident with annual construction
seasonality, our net sales are typically higher during the second and third
calendar quarters and lower during the first and fourth quarters due to reduced
construction activity during the winter. Adverse weather conditions in our
markets may also decrease the level of construction activity.
Customer Service.
We focus on offering our customers consistent, high quality
local service and a broad range of value-added services, which result in
long-term customer relationships. Initially, we assist contractor customers in
the preparation of their bids with product knowledge and advice, cost
estimates, inventory levels and product standardization. In addition, our sales
representatives maintain databases of local specifications and provide
customized databases for contractors. After a contractor begins a project, we
focus on reducing their total project cost by:
•
reducing their inventory cost;
•
expediting the completion of the project through the timely and coordinated delivery of the necessary waterworks products; and
•
reducing the related administrative burdens.
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Through the combination of these services, we believe that we have been able to
reduce our contractor customers' focus on product pricing by reducing their
overall costs and downtime and improving their project planning and execution.
We provide our municipal customers with similar services and benefits.
We also leverage our sophisticated IT system to provide superior customer
service. The IT system is specifically designed to provide our customers and
our sales force with direct, quick, accurate and convenient access to data
(including product pricing and availability and past and current order
information) in a variety of electronic mediums (on-line, fax, email, EDI and
spreadsheet). Our sales representatives can access our IT system either from
their desktop computer or remotely from laptop computers, and transmit and
receive updated information on a real-time basis. Our customers have access to
their accounts and our product and service offerings over a secure and
real-time Internet system.
Customers
We have a diversified customer base, which minimizes our exposure to any
particular customer, customer type or region. Substantially all of our
customers are local in nature and include municipalities, public works
contractors who serve municipalities, private waterworks contractors who
perform residential, commercial and industrial construction projects and
industrial customers. Our 2003 revenues were split approximately evenly between
publicly-funded and privately-funded sales. These sectors are affected by
different macroeconomic variables, which we believe reduce our exposure to
adverse conditions in any particular sector. In 2003, we served over 9,000
municipal customers and over 18,000 contractor and industrial/other customers.
During 2003, approximately 86% of our net sales were from customers to whom we
sold products in each of the last three years, demonstrating the stability of
our customer base. We have established long-term relationships with the
majority of our customers, but no single customer accounts for a meaningful
share of our revenues. In 2003, our largest customer accounted for less than 1%
of our net sales and our largest region accounted for approximately 22% of our
net sales.
Suppliers and Preferred Vendor Programs
We purchase products from over 3,800 suppliers and substantially all of our
primary suppliers have supplied us for over ten years. We utilize multiple
suppliers for substantially all of our products. We purchase from both national
suppliers and local or regional suppliers, which allows our branch managers to
customize their product offering for their local market. Our largest supplier
accounted for approximately $135 million or 13% of product purchases in 2003.
The products we purchase from this supplier are also sourced from other
suppliers.
We have established preferred vendor programs to more effectively leverage our
purchasing power with suppliers. As part of this effort, we have significantly
reduced our supplier base, which has resulted in stronger, strategic
relationships with a core group of vendors and more reliable deliveries,
reduced errors and better purchasing terms. Our preferred vendor programs
typically include volume purchase incentives and other benefits, including cash
discounts and extended payment terms. Over 130 of our suppliers have attained
preferred vendor status, and we continue to establish or enhance these
relationships with new and existing suppliers. In 2003, we purchased over 80%
of our products from these preferred vendors.
Marketing and Sales
We have approximately 250 sales representatives experienced in the water and
wastewater transmission products distribution sector. These sales
representatives have in-depth product and technical knowledge, significant
local experience and long-term customer relationships, all of which are
critical to our success. In addition, we believe that our leading market
position, high-quality service offering and innovative compensation program
result in a low turnover among our sales force.
Our field sales representatives are based at branches and are responsible for
generating sales, providing all of our basic and value-added services to
customers and establishing new customer relationships. These sales
representatives are highly qualified professionals and participate in ongoing
training programs. Our service-oriented philosophy and incentive compensation
program encourage our sales representatives to proactively participate in
product selection; provide product specifications, usage data, product
alternatives within required product specifications and project bids; and
participate in the collection of accounts receivable.
We also have regionally based product specialists, who support the outside
sales representatives in their respective region. These specialists have
expertise with respect to specific product and service offerings. In addition,
we have customer service representatives which support the outside sales force.
These customer service representatives are responsible for entering and
tracking orders,
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answering technical questions and sourcing products. The customer service
representatives provide us with additional depth to our customer relationships
and a pool of talent for future outside sales representatives.
Accounts Receivable.
We proactively manage our accounts receivable with
customers. We maintain detailed, up-to-date credit history and receivables
information on over 27,000 customers and conduct extensive credit checks on new
customers (including trade and banking references, independent credit reports
and financial statement analyses). Since the beginning of 2000, on average,
less than 9% of accounts receivable have been outstanding greater than 90 days
and bad debt expense has averaged approximately .08% of net sales. Our credit
department, which includes national and regional professionals, is responsible
for approving customers' credit, collecting receivables and ensuring that
appropriate state and local bond and lien statutes are followed.
We maintain all of our credit and receivables information on our IT system,
allowing easy access by our credit department and branch managers. A customer's
status is automatically reviewed by the IT system during order entry and
product shipment to ensure that branches operate within credit guidelines. We
set a pre-determined credit limit for each customer in our IT system which
automatically prevents additional sales absent appropriate approvals if the
customer's credit limit is exceeded. We are also able to generate daily reports
that highlight any potential issues to our credit professionals and branch
managers. Customers can also track their outstanding balances online to
accelerate the payment process. Finally, our sales representatives are
typically incentivized to collect receivables and forfeit a portion of the
related sales commission if collection does not occur on a timely basis.
Management Information Systems
Our IT system is critical to our success and we believe it provides us with a
competitive advantage. We have developed a single infrastructure that
integrates our customer service, management, operational and financial
functions in a reliable, flexible and easy to operate system. The system is
easily scalable to support additional organic growth and acquisitions and
currently has unused capacity. We leverage our IT system to provide superior,
customized service, which reduces our customers' costs and improves our
operating efficiency. Examples of customer service benefits include:
Material Management Online.
Our Internet interface allows our customers to
manage all aspects of their accounts on a secure, online and real-time basis.
Our customers can:
•
access product pricing and availability and place orders, including using their own product numbers which are automatically
converted to our product numbers;
•
access order information (including status, delivery schedule and past invoices);
•
release products for delivery;
•
access account-specific catalogs, including account-specific pricing and past preferences; and
•
view local specifications and requirements.
Project Management.
We offer numerous project management services to reduce
our customers' cost and to allow them to bid on more projects. Through this
system, we provide over 10,000 project estimates monthly. We can either:
•
integrate price-supported product databases into a contractor's estimating system;
•
provide access to our own estimating system; or
•
generate the estimate ourselves in the format requested by the customer (e.g., spreadsheets via email).
Our estimating system is integrated with the rest of our IT system, allowing
for a seamless interface between sales and operations. During a project, our
customers can receive project-specific management reports and other information
(e.g., shipment and payment status, products released against the bid, change
orders and invoices) via the Internet, email, or fax, which result in more
efficient project management. Our customers can receive their invoices via
email on a daily basis to expedite billing their customers.
From an internal point-of-view, our IT system improves our efficiency,
profitability and asset management. It integrates all of our locations and key
functions and provides easy access to detailed, up-to-date information.
Benefits include:
•
nationwide and local real-time control of pricing for sales and purchases, including for individual customers;
•
the ability to monitor individual customer's profitability and accounts receivable, including preset credit limits which prevent
additional sales if exceeded;
•
better inventory management and sharing across branches;
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•
expedited and automatic posting, matching and processing of orders, receivables and payables; and
•
integrated payroll and accounting, including the ability to quickly consolidate financial results from our branches.
The system generates management reports that track key metrics on regional,
branch and customer basis, which allows us to monitor and more effectively
manage our business at all levels and to set sales strategies.
We have established emergency contingencies to protect our IT system and test
our preparedness and contingency plan yearly. Such measures include automatic
re-establishment of a branch's connection to the system if it is lost and a
fully functional, secure back-up location provided by a third-party.
Raw Materials
We do not manufacture any products. However, our suppliers are susceptible to
fluctuations in certain raw material prices, which can impact our purchase and
sales prices for these products. PVC pipe accounted for approximately 21% of
our 2003 net sales, and is susceptible to price fluctuations. The purchase
price of PVC pipe ranged from $0.29 to $0.60 per pound between 1997 and 2003,
which we believe to be the most recent peak to trough period. Our average 2003
PVC purchase price was $0.41 per pound and ranged from a quarterly average of
$0.39 to $0.44 per pound. We believe that we take minimal raw material price
risk, based on our high inventory turns, sales shipped directly from
manufacturers to customers, ability to quickly pass price fluctuations on to
customers and our relatively small average project size and short timing. In
addition, when we enter into longer-term arrangements with our customers, we
typically enter into similar term arrangements with our suppliers.
Employees
As of December 31, 2003, we had 1,447 employees, including 1,436 full-time
employees and 11 part-time employees. As of December 31, 2003, approximately
220 of our employees were in managerial positions, 275 were in sales positions
and 952 were in warehouse/delivery and general administrative positions. In
addition, 12 of our employees at three branches were unionized pursuant to
collective bargaining agreements that expire in July 2004 and December 2006. We
believe that we have good relationships with our employees and low voluntary
turnover.
Competition
In each of our local markets, we typically compete with three to five other
distributors. Generally, local competition includes a branch of one or both of
the other two national distributors, Hughes Supply, Inc. and Wolseley PLC. We
also compete with other local and regional distributors. The principal methods
of competition include offering prompt local service, fulfillment capability,
local knowledge, breadth of product and service offerings, total cost to the
customer, and price. We believe we compete successfully in these areas.
Properties
We have 133 distribution branches in 36 states. We lease and own 105 and 28
branches, respectively. Our facilities are used for storing inventory and
maintaining office space and typically consist of a one-to-two acre lot
adjacent to a warehouse/office building. We typically enter into leases with
terms ranging from two to five years that include renewal options. In addition,
we lease our principal executive offices in Waco, Texas and own our two other
administrative centers.
Environmental matters
Our facilities and operations are subject to federal, state and local
environmental and workplace health and safety requirements, including those
relating to the handling, storage and disposal of hazardous materials and
wastes and the cleanup of properties affected by pollutants. Historically, we
have not had, nor do we currently anticipate, any material adverse effect on
our business or financial condition as a result of our efforts to comply with,
or our liability under, such requirements. Our operations consist of
distribution of water and wastewater transmission products rather than
manufacturing, so we are not significantly regulated from an environmental
standpoint.
In the future, federal, state or local governments could enact new or more
stringent laws or regulations concerning environmental and workplace health and
safety matters that could affect our operations. We could be found to be in
violation of these or other
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environmental laws and regulations and we could be held liable for
contamination that may be found at our facilities or off-site locations where
we have sent wastes. We are currently not aware of circumstances where a
violation of or a liability under environmental requirements could have a
material adverse effect on our business or financial condition.
Certain of U.S. Filter's predecessors distributed or may have distributed
cement pipe containing asbestos. Certain of these predecessors are or have been
defendants in lawsuits seeking to recover personal injury and other damages for
alleged exposure to asbestos in these pipes, and at December 31, 2003, 111
lawsuits remained outstanding. Total defense and settlement costs paid in these
settled actions through December 31, 2003 by U.S. Filter have been
approximately $2.5 million, the majority of which has been paid by insurance
companies. The Acquisition was structured as an asset purchase, and we did not
assume any existing or future asbestos-related liabilities relating to U.S.
Filter or its predecessors. U.S. Filter and United States Filter Corporation
retained these liabilities and jointly and severally agreed to indemnify and
defend us from and against these liabilities on an unlimited basis with no
termination date. United States Filter Corporation and U.S. Filter also agreed
that, until November 22, 2012, U.S. Filter will, and United States Filter
Corporation will cause U.S. Filter to maintain U.S. Filter's corporate
existence and ensure that U.S. Filter has sufficient funds to pay any and all
of its debts and other obligations, including liabilities retained by U.S.
Filter and its indemnification obligations, as and when they become due. In
addition, Veolia Environnement ("Veolia," formerly Vivendi Environnement S.A.)
has guaranteed all obligations of United States Filter Corporation and U.S.
Filter under the asset purchase agreement, including the indemnity discussed
above, up to an aggregate of $50.0 million for a period ending November 22,
2017. Historically, courts have not held the acquirer of an entity's assets
liable for liabilities that are not assumed as part of the transaction unless
the asset buyer is found to be a "successor" to the asset seller. Accordingly,
we could become subject to asbestos liabilities in the future to the extent we
are found to be a successor to U.S. Filter and to the extent U.S. Filter,
United States Filter Corporation and Veolia are unable to fulfill their
contractual obligations.
Legal Proceedings
In addition to those items disclosed under "—Environmental Matters," we are
from time to time involved in litigation incidental to the conduct of our
business. We believe that no litigation currently pending against us, if
adversely determined, would have a material adverse effect on our financial
position or results of operations.
39
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Management
The following table sets forth certain information with respect to persons who
are directors and executive officers of National Waterworks and certain other
key employees:
Name
Age
Position
Executive Officers
Harry K. Hornish, Jr.
58
President, Chief Executive Officer and
Director
Mechelle Slaughter
47
Chief Financial Officer
Terry Howell
40
Chief Information Officer
J. L. Walker
57
Vice President — Human Resources
Phil Keipp
42
Vice President — Controller
Other Key Employees
Rob Hickson
56
Vice President — Midwest Region
Ed Maczko
56
Vice President — Southwest Region
Ron Hood
58
Vice President — Pacific Region
Jerry Webb
45
Vice President — Southeast Region
Irving Welchons III
55
Vice President — Mid-South Region
Jack Schaller
48
Vice President — Mid-Continent Region
Jack Olson
53
Director — IT
Non-Employee Directors
Todd M. Abbrecht
35
Director
Anthony J. DiNovi
41
Director
Stephen V. McKenna
35
Director
Paul M. Meister
51
Director
C. Dean Metropoulos
57
Director
Stephen P. Murray
41
Director
Kevin G. O'Brien
38
Director
Soren L. Oberg
33
Director
Harry K. Hornish, Jr.
has been National Waterworks' President, Chief Executive
Officer and a director since November 22, 2002. Prior thereto Mr. Hornish was
President and Chief Operating Officer of U.S. Filter since February 1998.
Previously, Mr. Hornish served as U.S. Filter's Executive Vice President since
its inception in 1996. Prior to that, Mr. Hornish was President and Chief
Executive Officer of The Utility Supply Group, Inc., which was acquired by U.S.
Filter in 1996, after it was spun-off from CertainTeed Corporation in 1994. Mr.
Hornish was employed by CertainTeed Corporation from 1987 to 1994, where he
held executive positions in both the Building Materials and the Utility Supply
divisions. His early career included several sales, marketing, and senior
management positions with the distribution division of Owens Corning
Fiberglass. Mr. Hornish received a B.A. degree in political science from
Marshall University.
Mechelle Slaughter
has been National Waterworks' Chief Financial Officer since
November 22, 2002. Prior thereto, she held the same position with U.S. Filter
since 1996. Previously, Ms. Slaughter was CFO of The Utility Supply Group,
Inc., since its inception in 1994. U.S. Filter acquired The Utility Supply
Group, Inc. in 1996. Ms. Slaughter was employed by CertainTeed Corporation from
1980 to 1994, where she held various management positions in accounting and
auditing for both the Building Materials and the Utility Supply divisions. Ms.
Slaughter received a B.S. degree in accounting from Tarleton State University
and is a Certified Public Accountant.
Terry Howell
has been National Waterworks' Chief Information Officer since
November 22, 2002. Prior thereto, he served as Vice President of Marketing &
System Operations with U.S. Filter since its inception in 1996. Mr. Howell
served in various staff positions with U.S. Filter's predecessor, Davis Water &
Waste Industries, Inc. At that company, he served as Manager of Plant Sales,
Operations Analyst, IT Manager, and finally as Marketing Manager, where he was
part of a four person management team directly responsible for the operations
and sales of 25 branches. He joined Davis Water & Waste, Industries, Inc. in
1991 after serving six
40
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years as a decorated Commissioned Officer in the U.S. Navy. Mr. Howell received
a degree from the US Naval Academy in 1985 in Applied Science — Computer
Programming and training as a Gas Turbine Engineer.
J.L. Walker
has been National Waterworks' Vice President of Human Resources
since November 22, 2002. Prior thereto he held the same position with U.S.
Filter since its inception in 1996. Prior to that, Mr. Walker held the same
position with The Utility Supply Group, Inc. since its inception in 1994. Mr.
Walker was employed by CertainTeed Corporation from 1980 to 1994, where he held
various management positions in Human Resources for both the Building Materials
and the Utility Supply divisions. Mr. Walker's experience also includes ten
years in various manufacturing positions and service in the U.S. Navy. Mr.
Walker received a B.A. degree from Georgia State University.
Phil Keipp
has been National Waterworks' Vice President—Controller since
November 22, 2002. Prior thereto, he held the same position with U.S. Filter
since 1998. Previously, Mr. Keipp was Chief Financial Officer with Sidener
Supply Company, which U.S. Filter acquired in 1997. Prior to that, Mr. Keipp
was with KPMG from 1986 to 1996 where he was a Senior Manager in the firm's
Manufacturing, Retail and Distribution Practice. Mr. Keipp received a B.S.
degree in Business Administration with an emphasis in accounting from
Lindenwood University. He also attended the University of Missouri in St. Louis
and is a Certified Public Accountant.
Rob Hickson
has been National Waterworks' Vice President—Midwest Region since
November 22, 2002. Prior thereto, he held the same position with U.S. Filter
since 1996. Previously, Mr. Hickson held Regional Vice President positions with
WaterPro Supplies Corporation from 1990 until U.S. Filter acquired it in 1996.
Mr. Hickson has been employed in the waterworks industry since 1972. Mr.
Hickson attended Clemson University and Francis Marion University.
Edward E. Maczko, Jr.
has been National Waterworks' Vice President—Southwest
Region since November 22, 2002. Prior thereto, he held the same position with
U.S. Filter since 1999. Prior to that, Mr. Maczko served as the District
Manager for Arizona. Mr. Maczko held a similar position with The Utility Supply
Group, Inc. from 1990 until U.S. Filter acquired it in 1996. He has been
employed in the waterworks industry since 1971 and received a B.S. degree in
business from Northeastern University.
Ron Hood
has been National Waterworks' Vice President—Pacific Region since
November 22, 2002. Prior thereto, he held the same position with U.S. Filter
since 1996. Mr. Hood served in the same position with The Utility Supply Group,
Inc. until U.S. Filter acquired it in 1996. There he also held various branch
and district management positions from 1990 until 1995. Mr. Hood had been
employed by manufacturing and distribution companies in the waterworks industry
since 1966 and attended Fullerton Jr. College.
Jerry L. Webb
has been National Waterworks' Vice President—Southeast Region
since November 22, 2002. Prior thereto, he held the same position with U.S.
Filter since 1997. Previously, Mr. Webb served as National Sales Manager of the
distribution division of U.S. Filter's predecessor, Davis Water & Waste
Industries, Inc. since 1995. Mr. Webb previously held various management
positions with Davis companies from 1988 to 1995. He has been employed in the
waterworks industry since 1981 and received a B.B.A. degree in accounting from
Valdosta State University.
Irving B. Welchons III
has been National Waterworks' Vice President—Mid-South
Region since November 22, 2002. Prior thereto, he held the same position with
U.S. Filter since 1996. Previously, Mr. Welchons served as Regional Manager of
WaterPro Supplies Corporation from 1991 until it was acquired by U.S. Filter in
1996. Prior to that, Mr. Welchons held various positions in the waterworks
distribution industry since 1972. Mr. Welchons attended Virginia Polytechnic
Institute and State University.
Jack Schaller
has been National Waterworks' Vice President—Mid-Continent Region
since November 22, 2002. Prior thereto, he held the same position with U.S.
Filter since 1997. Previously, Mr. Schaller served as President of Sidener
Supply Company from 1996 until it was acquired by U.S. Filter in 1997. From
1984 to 1997, Mr. Schaller held numerous positions with Sidener Supply Company,
including branch manager of three locations and director of implementation for
a new computer system. Mr. Schaller has been employed in the waterworks
industry since 1979 and received a degree in Forest Management from the
University of Missouri and a Master's degree in Business Management from
Webster University.
Jack Olson
has been National Waterworks' Director of Information Technology
since November 22, 2002. Prior thereto, he held the same position with U.S.
Filter since 1996. From 1994 to 1996, Mr. Olson served as Director of
Information Technology of U.S. Filter's predecessor, Davis Water & Waste
Industries, Inc. Prior to that, Mr. Olson held the position of Systems Engineer
and Instructor with IBM from 1977 to 1994. Mr. Olson received a B.A. degree in
Mathematics from Southwest Minnesota State University and a M.S. degree in
Mathematics from the University of Idaho.
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Todd M. Abbrecht
became a director of National Waterworks on November 22, 2002.
Mr. Abbrecht is a Managing Director of Thomas H. Lee Partners, which he joined
in 1992. Prior to joining the firm, Mr. Abbrecht was in the mergers and
acquisitions department of Credit Suisse First Boston. Mr. Abbrecht is a
director of Affordable Residential Communities, Inc., Michael Foods, Inc., and
Simmons Company.
Anthony J. DiNovi
became a director of National Waterworks on November 22,
2002. Mr. DiNovi has been employed by Thomas H. Lee Partners, L.P. and its
predecessor Thomas H. Lee Company since 1988 and currently serves as Managing
Director. Mr. DiNovi is currently a director of American Media, Inc., Endurance
Specialty Insurance, Ltd., Eye Care Centers of America, Inc., Fisher Scientific
International, Inc., FairPoint Communications, Inc., Michael Foods, Inc., US
LEC Corporation, Vertis, Inc., as well as several private companies.
Stephen V. McKenna
became a director of National Waterworks on November 22,
2002. Mr. McKenna is a Principal of J.P. Morgan Partners, LLC. Prior to joining
J.P. Morgan Partners, LLC in 2000, Mr. McKenna worked in the Investment Banking
Division at Morgan Stanley & Co. Prior to joining Morgan Stanley & Co. in 1999,
Mr. McKenna worked in the Mergers & Acquisitions Group at J.P. Morgan & Co.
from 1996. Currently, he serves as a director of Interline Brands, Inc., as
well as several private companies.
Paul M. Meister
became a director of National Waterworks on November 22, 2002.
Mr. Meister currently serves as Vice Chairman of the board of directors of
Fisher Scientific International, Inc. and General Chemical Inc. Mr. Meister is
also a Managing Director of Latona Associates, a merchant banking firm. Mr.
Meister also serves as a director of M&F Worldwide Corp and Procure Net, Inc.
C. Dean Metropoulos
became a director of National Waterworks on November 22,
2002. Mr. Metropoulos is Chairman and CEO of C. Dean Metropoulos & Company, a
boutique acquisition and management firm with offices in New York, Greenwich,
Connecticut and London. C. Dean Metropoulos & Co. has been involved in more
than 45 acquisitions involving over $12 billion in invested capital over the
past 12 years.
Stephen P. Murray
has been a director of National Waterworks since its
incorporation in September 2002. Mr. Murray is a Partner of J.P. Morgan
Partners, LLC. Prior to joining J.P. Morgan Partners, LLC in 1984, Mr. Murray
was a Vice President with the Middle-Market Lending Division of Manufacturers
Hanover Trust Company. Currently, he serves as a director of Strongwood
Holdings, The International Cornerstone Group, La Petite Academy, Zoots,
Cabela's, Erisk, Risk Metrics Group, and Pinnacle Foods Holding Corp.
Kevin G. O'Brien
became a director of National Waterworks on November 22, 2002.
Mr. O'Brien is a Principal of J.P. Morgan Partners, LLC. Prior to joining J.P.
Morgan Partners, LLC in 2000, Mr. O'Brien was a Vice President in the High
Yield Capital Markets and High Yield Corporate Finance Groups at Chase
Securities Inc., (a predecessor of J.P. Morgan Securities, Inc.) since 1994.
Previously, he was an officer in the U.S. Navy. Currently, he serves as a
director of La Petite Academy and Pinnacle Foods Holding Corp.
Soren L. Oberg
became a director of National Waterworks on November 22, 2002.
Mr. Oberg has been employed by Thomas H. Lee Partners, L.P. and its predecessor
Thomas H. Lee Company since 1993 and currently serves as Vice President. From
1992 to 1993, Mr. Oberg worked at Morgan Stanley & Co., Inc. in the Merchant
Banking Division. Mr. Oberg is currently a director of Vertis Holdings, Inc.
and American Media, Inc., and also serves on the boards of several private
companies.
Committees of the Board of Directors
National Waterworks' board of directors has a compensation committee and audit
committee. The compensation committee reviews and approves the compensation and
benefits for our employees, directors and consultants, administers our employee
benefit plans, authorizes and ratifies stock option grants and other incentive
arrangements and authorizes employment and related agreements. The members of
the compensation committee are Messrs. McKenna, Metropoulos and Oberg. The
audit committee is responsible for the annual appointment of our independent
auditors and reviews the scope of, and approves, all audit and non-audit
services and related fees of our independent auditors. The audit committee
also reviews with the independent auditors, among other matters, accounting
principles we will use in financial reporting, internal auditing procedures and
the adequacy of our internal auditing procedures. The members of our audit
committee are Messrs. Abbrecht, Meister and O'Brien. Mr. Meister serves as the
audit committee's financial expert.
Compensation of Directors
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Table of Contents
National Waterworks' directors who are also our employees or employees of our
principal stockholders will receive no additional compensation for their
service as directors. Compensation for other directors is $25,000 per annum for
collective Board and Committee service. Additionally, National Waterworks
provides payment of travel-related expenses incurred in connection with
attendance of Board and Committee meetings.
Code of Ethics
Our employee handbook contains certain standards for ethical conduct required
of our employees. We require all employees to meet our ethical standards which
include compliance with all laws while performing their job duties with high
integrity and professionalism.
We have also adopted a Code of Ethics for our Chief Executive Officer, our
Chief Financial Officer, our Controller and all other executive officers and
other key employees. This Code of Ethics is intended to promote honest and
ethical conduct, full and accurate reporting, and compliance with all
applicable laws and regulations. A copy of our Code of Ethics is posted on our
website at www.nationalwaterworks.com.
Executive Compensation
The following table sets forth the compensation earned by National Waterworks'
chief executive officer and its four other most highly compensated executive
officers during 2003 and 2002.
Other Annual
All Other
Name and Principal Position
Salary
Bonus
Compensation(1)
Compensation(2)
Harry K. Hornish, Jr.,
2003
$
426,958
$
344,250
—
$
6,000
Chief Executive Officer
2002
355,780
159,255
—
1,555,555
Mechelle Slaughter
2003
200,943
162,000
—
6,000
Chief Financial Officer
2002
172,634
77,510
—
935,500
Terry Howell
2003
150,712
121,500
—
6,000
Chief Information Officer
2002
135,708
43,240
—
563,500
J.L. Walker
2003
130,589
48,230
—
6,000
VP-Human Resources
2002
104,512
32,703
—
129,550
Phil Keipp
2003
124,801
46,200
—
3,673
VP-Controller
2002
112,698
36,431
—
129,550
(1)
Excludes perquisites and other benefits the amount of which did
not exceed the greater of $50,000 or 10% of the employee's total
salary and bonus.
(2)
Consists of 401(k) contributions by United States Filter
Corporation and National Waterworks and the sale of company bonuses
paid by United States Filter Corporation. In April 2002, United
States Filter Corporation entered into agreements with certain
members of management and other key employees of U.S. Filter,
including the persons listed in the executive compensation table, to
provide them with an opportunity to earn cash incentive "completion
bonuses" in connection with the anticipated sale of the business of
U.S. Filter. Completion bonus payments were made by United States
Filter Corporation following consummation of the Acquisition to each
employee with such an agreement, unless such individual's employment
was terminated voluntarily or for cause prior thereto. Payments by
United States Filter Corporation pursuant to these arrangements
totaled $6.2 million, including $1,550,050, $558,050, $124,050,
$124,050 and $930,000 to Messrs. Hornish, Howell, Keipp and Walker,
and Ms. Slaughter, respectively.
Employment Agreements.
National Waterworks is party to employment agreements
with Mr. Hornish, Ms. Slaughter and Mr. Howell providing for base salaries of
$425,000, $200,000 and $150,000, respectively, subject to annual adjustment as
determined by National Waterworks' board of directors. Each of the employment
agreements provides for (i) a four (4) year term, (ii) a calendar year 2002
bonus equal to the amount scheduled to be paid to them under the 2002 Executive
Bonus Plan of U.S. Filter and (iii) in each calendar year commencing on or
after January 1, 2003, a bonus, based on EBITDA, ranging from 10% to 100% of
base salary.
Additionally, each of the employment agreements provides for certain severance
payments to be made if the executive's employment is terminated without
"cause," due to a resignation for a "good reason" (each as defined in the
employment agreement), or
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involuntarily, such as a consequence of death or
disability. Following any of these events, each of Ms. Slaughter and Messrs.
Hornish and Howell would be entitled to receive their base salary over the
twelve (12) month period commencing on the date of termination, (ii) a pro rata
portion of any bonus earned during the calendar year in which the termination
occurs payable concurrently with other management bonuses and (iii)
reimbursement for any previously unreimbursed expenses.
Each of the employment agreements contains a non-compete and non-solicitation
provision pursuant to which each executive agrees not to be affiliated with a
competing business during the term of the employment agreement and for a
one-year period thereafter, and not to solicit any of our employees,
consultants or customers during the term of the employment agreement and for a
three-year period thereafter.
Stock Sales and Restricted Stock Grants.
Mr. Hornish, Ms. Slaughter, Mr.
Howell, Mr. Keipp, Mr. Walker and certain of our other employees are parties to
executive subscription and stock purchase agreements with Holdings. Mr. Hornish
purchased 20,400 shares of Holdings' Class B Common Stock, Ms. Slaughter
purchased 10,200 shares of Holdings' Class B Common Stock, Mr. Howell purchased
2,700 shares of Holdings' Class B Common Stock, Messrs. Keipp and Walker each
purchased 1,266 shares of Holdings' Class B Common Stock, and other employees
purchased 25,266 shares of Holdings' Class B Common Stock, in each case at a
purchase price of $50.00 per share of Class B Common Stock. Such shares of
Class B Common Stock represent, in the aggregate, 1.28% of Holdings'
fully-diluted equity.
In addition, each of Mr. Hornish, Ms. Slaughter, Mr. Howell, Mr. Keipp, Mr.
Walker and certain of our other employees purchased for nominal consideration
the conditional right to receive, in the aggregate, up to 11.75% of the
fully-diluted capital stock of Holdings, comprised of shares of Holdings' Class
A Common Stock and entered into a restricted stock agreement with Holdings.
Under the restricted stock agreements, the shares of Class A Common Stock are
subject to three forms of vesting:
•
time-based vesting over a four-year period, covering 50% of the applicable employee's shares;
•
performance-based vesting based on EBITDA targets over a four-year period, covering 25% of the applicable employee's shares;
and
•
performance-based vesting based on net working capital targets over a four-year period, covering 25% of the applicable
employee's shares.
All time-based vesting shall immediately accelerate if the employee's
employment is terminated without cause within one year of a sale of Holdings or
National Waterworks and all performance-based vesting shall immediately
accelerate if Holdings or National Waterworks are sold or if there is a public
offering of equity securities of Holdings or National Waterworks, in each case,
in which the Sponsors realize a specified return on their original investment.
In all other cases, upon termination of employment, all time-based and
performance-based vesting shall also immediately cease, subject to certain pro
rata vesting as of the date such employee is terminated, and all unvested
shares shall be subject to repurchase. In addition, all vested shares shall
also be subject to repurchase if an employee's employment is terminated for
cause. All shares subject to performance-based vesting shall automatically and
immediately vest on the eighth anniversary of the effective date of the
restricted stock agreement if the employee remains employed by us. Each
employee shall be obligated to vote unvested shares in the same manner and
proportions as the votes cast by the holders of Holdings' voting capital stock
not subject to repurchase rights.
The restricted stock agreements executed by Messrs. Keipp and Walker contain
non-compete and non-solicitation provisions substantially similar to those
contained in the employment agreements discussed above.
Compensation Committee Interlocks and Inside Participation
During fiscal 2003 no executive officer of National Waterworks served as a
member of the board of directors or compensation committee (or other board
committee performing similar functions) of another entity.
The compensation committee is authorized to make recommendations to the Board
of Directors with respect to the general compensation and benefits for
executive officers. The compensation committee utilizes the same performance
appraisal form used for other National Waterworks employees to evaluate the
performance of executive officers on an annual basis. Certain executive
officers are parties to employment agreements with National Waterworks as
previously described in Employment Agreements in this section.
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Security Ownership of Certain
Beneficial Owners and Management
Holdings owns 100% of our capital stock. The capital stock of Holdings is
comprised of Class A Common Stock and Class B Common Stock. The Class A Common
Stock and Class B Common Stock vote together as a single class on all matters
to be voted on by Holdings' stockholders. Seventy-five percent of the holders
of Class B Common Stock have the right to prevent Holdings from taking certain
corporate actions, including creating, issuing or authorizing any shares of its
capital stock, redeeming any shares of its capital stock, or taking any action
that could result in its liquidation, sale or dissolution. The holders of Class
B Common Stock are entitled to receive a compounded return of 9% on the
original cost of such shares. In the event that Holdings makes a distribution,
the holders of Class B Common Stock have the right to receive such distribution
up to the amount of such compounded return and original cost prior to the
holders of Class A Common Stock receiving any part of such distribution.
The following table sets forth information with respect to the ownership of the
capital stock of Holdings as of March 2, 2004 by:
•
each person known to own beneficially more than 5% of the common stock,
•
each of our directors,
•
each of the executive officers named in the summary compensation table above, and
•
all of our executive officers and directors as a group.
Notwithstanding the beneficial ownership of common stock presented below, a
stockholders' agreement governs the stockholders' exercise of their voting
rights with respect to election of directors and certain other material events.
The parties to the stockholders' agreement have agreed to vote their shares to
elect the board of directors as set forth therein.
The amounts and percentages of shares beneficially owned are reported on the
basis of SEC regulations governing the determination of beneficial ownership of
securities. Under SEC rules, a person is deemed to be a "beneficial owner" of a
security if that person has or shares voting power or investment power, which
includes the power to dispose of or to direct the disposition of such security.
A person is also deemed to be a beneficial owner of any securities of which
that person has a right to acquire beneficial ownership within 60 days.
Securities that can be so acquired are deemed to be outstanding for purposes of
computing such person's ownership percentage, but not for purposes of computing
any other person's percentage. Under these rules, more than one person may be
deemed to be a beneficial owner of the same securities and a person may be
deemed to be a beneficial owner of securities as to which such person has no
economic interest.
Except as otherwise indicated in these footnotes, each of the beneficial owners
listed has, to our knowledge, sole voting and investment power with respect to
the indicated shares of common stock.
Number of shares
of Class A and
Class B Common
Stock beneficially
Percent of
Name of beneficial owner
owned(1)
Common Stock(1)
JPMP Capital Corp.(2)
2,059,351
43.1
%
Thomas H. Lee Equity Fund V, L.P. and
Co-Investment Entities(3)
2,059,351
43.1
%
Todd M. Abbrecht(6)
2,024,278
42.4
%
Anthony J. DiNovi(6)
2,024,278
42.4
%
Paul M. Meister(7)
20,000
*
C. Dean Metropoulos(8)
20,000
*
Stephen P. Murray(4)
2,059,351
43.1
%
Kevin G. O'Brien(4)
2,059,351
43.1
%
Soren L. Oberg(5)
2,020,248
42.3
%
Stephen V. McKenna(4)
2,059,351
43.1
%
Harry K. Hornish, Jr.(9)
210,759
4.4
%
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Mechelle Slaughter(9)
105,380
2.2
%
Terry Howell(9)
50,290
1.1
%
Phil Keipp(9)
13,163
*
J.L. Walker(9)
13,163
*
All directors and executive officers as a group
4,516,385
94.5
%
*
Less than 1%
(1)
Represents the aggregate ownership of the Class A and Class B Common
Stock of Holdings. The Class A Common Stock is owned only by certain
members of our senior management.
(2)
Includes 1,622,232.59 shares, 257,062.33 shares, 35,042.82 shares,
130,472.86 shares and 14,540.40 shares of Class B Common Stock owned by
J.P. Morgan Partners (BHCA), L.P., J.P. Morgan Partners Global Investors,
L.P., J.P. Morgan Partners Global Investors A, L.P., J.P. Morgan Partners
Global Investors (Cayman), L.P. and J.P. Morgan Partners Global Investors
(Cayman) II, L.P., respectively. JPMP Capital Corp. is the direct or
indirect general partner of each of these entities. JPMP Capital Corp. and
each of the foregoing entities is an affiliate of J.P. Morgan Partners,
LLC and has an address c/o J.P. Morgan Partners, LLC, 1221 Avenue of the
Americas, 39th Floor, New York, New York 10020.
(3)
Includes 1,586,701 shares, 411,684 shares, 21,863 shares, 12,398 shares,
10,656 shares, 9,516 shares, 2,503 shares and 4,030 shares of Class B
Common Stock owned by each of Thomas H. Lee Equity Fund V, L.P., Thomas H.
Lee Parallel Fund V, L.P., Thomas H. Lee Cayman Fund V, L.P.
(collectively, the "THL Funds"), Putnam Investments Holdings, LLC, Putnam
Investments Employees' Securities Company I LLC, Putnam Investments
Employees' Securities Company II LLC (collectively, the "Putnam Funds"),
1997 Thomas H. Lee Nominee Trust (the "Lee Trust") and Thomas H. Lee
Investors Limited Partnership ("Investors"), respectively. The shares held
by the THL Funds may be deemed to be beneficially owned by THL Equity
Advisors V, LLC ("Advisors"), the general partner of each of the THL
Funds. Advisors disclaims beneficial ownership of such shares. The Putnam
Funds, the Lee Trust and Investors are co-investment entities of the THL
Funds and each disclaims beneficial ownership of any shares other than
those shares held directly by such entity. Each of the THL Funds,
Advisors, Investors and the Lee Trust has an address c/o Thomas H. Lee
Partners, L.P., 75 State Street, Suite 2600, Boston, Massachusetts 02109.
The Putnam Funds have an address c/o Putnam Investment, Inc., 1 Post
Office Square, Boston, Massachusetts 02109.
(4)
Each of Messrs. Murray, McKenna and O'Brien may be deemed the beneficial
owner of the shares of common stock owned by affiliates of J.P. Morgan
Partners, LLC set forth in note (2) due to their status as a partner or
principal of J.P. Morgan Partners, LLC, which controls such entity. Each
such person disclaims beneficial ownership of any such shares, except to
the extent of his pecuniary interest.
(5)
Mr. Oberg may be deemed the beneficial owner of the shares of common
stock owned by the THL Funds due to his status as an officer of Thomas H.
Lee Partners, L.P. Mr. Oberg disclaims beneficial ownership of
any such shares.
(6)
Each of Messrs. Abbrecht and DiNovi may be deemed the beneficial owner of
the shares of common stock owned by the THL Funds and Investors in their
capacity as a managing director of Thomas H. Lee Partners, L.P. Each of
Messrs. Abbrecht and DiNovi disclaim beneficial ownership of such shares.
(7)
Shares are owned by a limited liability company of which Mr. Meister is
manager.
(8)
Shares are owned by a trust for the benefit of the children of Mr.
Metropoulos.
(9)
Each of Mr. Hornish, Ms. Slaughter, and Messrs. Howell, Keipp and Walker
holds 190,359 shares, 95,180 shares, 47,590 shares, 11,897 shares and
11,897 shares of Class A Common Stock, respectively, and 20,400 shares,
10,200 shares, 2,700 shares, 1,266 shares and 1,266 shares of Class B
Common Stock, respectively.
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Certain Relationships and Related Party Transactions
Stockholders' Agreement
In connection with the Transactions, Holdings entered into a stockholders'
agreement with all of its stockholders. The stockholders' agreement, among
other matters:
•
restricts the transfer of Holdings' shares, subject to certain exceptions, and provides that all transferees must become a party to the
stockholders' agreement;
•
establishes a board of directors of Holdings and us consisting of nine directors, of which:
•
three will be nominated by the stockholders affiliated with J.P. Morgan Partners, LLC (the "JPM Directors") so long as they own
at least 25% of Holdings' common stock on a fully diluted basis; or
two persons if they own less than 25% but 10% or more of Holdings'
common stock, and one person if they own more than 0% but less than
10% of Holdings' common stock,
•
three will be nominated by the stockholders affiliated with Thomas H. Lee Partners, L.P. (the "THL Directors") so long as they
own at least 25% of Holdings' common stock on a fully diluted basis;
or two persons if they own less than 25% but 10% or more of Holdings'
common stock, and one person if they own more than 0% but less than
10% of Holdings' common stock,
•
one will be our chief executive officer; and
•
two shall be nominated by the other directors including a majority of each of the JPM Directors and the THL Directors so long
as the affiliates of J.P. Morgan Partners, LLC or Thomas H. Lee
Partners, L.P., respectively, own at least 10% of Holdings' common
stock on a fully-diluted basis;
•
requires each stockholder of Holdings to vote all their shares for the election of the persons nominated as directors as provided above;
•
prohibits Holdings from taking the following actions without the prior approval of the stockholders affiliated with each of J.P. Morgan
Partners, LLC and Thomas H. Lee Partners, L.P. so long as in each case
the stockholders affiliated with the applicable Sponsor owns at least
10% of Holdings' outstanding capital stock:
•
materially changing the duties of or terminating our chief executive officer, chief financial officer, chief operating officer
or chief information officer, amending or revising any employment
agreement with any such officer, or, if any such officer is
terminated, hiring a replacement for such officer;
•
incurring indebtedness outside of the ordinary course of business;
•
entering into agreements to acquire a controlling interest in, or all or substantially all of the assets of, another entity;
•
making investments or capital expenditures, in each case in excess of $250,000 that are not included in the annual operating
budget approved by the board;
•
disposing of assets outside the ordinary course of business and other than sales of fully depreciated or obsolete or surplus tangible
personal property;
•
entering into transactions with affiliates subject to specified exceptions; or
•
effecting any changes in our strategic direction not specified in our annual strategic plan;
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•
contains rights of the Class B stockholders and, under certain circumstances, the Class A stockholders to participate in transfers of
Holdings' shares by stockholders to third parties;
•
requires the stockholders to participate in and cooperate in consummating a sale of Holdings that is approved by stockholders holding
at least 75% of the outstanding Class B shares;
•
grants Holdings and the stockholders affiliated with the Sponsors, including certain of their affiliates, certain rights of first refusal
with respect to transfers of Holdings' Class B shares to third parties
by Class B stockholders other than those affiliated with the Sponsors
and grants the stockholders affiliated with a Sponsor certain rights of
first refusal with respect to transfers of Holdings' shares to third
parties by the other Sponsor;
•
grants the holders of Class B Common Stock certain preemptive rights; and
•
requires each stockholder of Holdings (other than stockholders affiliated with the Sponsors) to grant an irrevocable proxy to our chief
executive officer, to vote all such stockholder's shares in order to
effectuate the provisions of the stockholders agreement.
Prior to an initial public offering of capital stock of Holdings, the
stockholders' agreement provides that Holdings will be required to redeem each
issued and outstanding share of its Class B Common Stock for:
•
the unreturned original cost and unpaid yield upon such shares to the date of the closing of the initial public offering, which may be paid in
cash, to the extent contractually permitted, or short-term securities,
or a combination thereof, as may be reasonably acceptable to holders of
75% of the Class B Common Stock then outstanding plus;
•
one share of its Class A Common Stock.
The stockholders' agreement will terminate upon the sale, dissolution or
liquidation of Holdings.
Registration Rights Agreement
In connection with the Transactions, Holdings entered into a registration
rights agreement with the holders of Class B Common Stock. The registration
rights agreement, among other matters, provides for the following, subject to
certain customary limitations:
•
Demand registration.
At any time following the effective date of a registration statement filed by Holdings with respect to an initial
public offering of its capital stock, at the request of stockholders of
Holdings affiliated with a Sponsor, Holdings will be required to use its
best efforts to register the common shares, including shares convertible
or exercisable for common shares, of Holdings held by such requesting
stockholders under the Securities Act provided that the anticipated
aggregate offering price to the public is at least $25 million. The
registration rights agreement provides for up to three demand registrations on Form S-1 for each Sponsor and its affiliates who are
stockholders of Holdings.
•
Piggyback registration.
If Holdings proposes to register any of its shares for its own account or otherwise, it must give written notice to
each of its Class B stockholders of its intention to register and upon
written request, Holdings must use its best efforts to cause all requested shares to be included in such registration on the same terms
and conditions as the securities otherwise being sold, subject to
standard cutback and other customary restrictions.
•
Registration on
Form S-3
.
If Holdings will have qualified for the use of Form S-3, the stockholders affiliated with a Sponsor will have the
unlimited right to request that Holdings effect a registration under the
Securities Act using Form S-3. Holdings will not be obligated to effect
any such registration if the anticipated gross offering price of all shares to be registered would be less than $10,000,000 or if Holdings
will have effected four or more registration statements on Form S-3
during the 12-month period prior to the date of such request for
registration.
In addition, the registration rights agreement provides for the payment by
Holdings of all of the fees and expenses of any registration provided for in
such agreement, including the attorney's fees for the selling stockholders but
excluding underwriting discounts and selling commissions which shall be borne
by the selling stockholders on a pro rata basis. The registration rights
agreement also contains standard indemnification provisions customary in an
agreement of this type from Holdings to the selling stockholders.
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Arrangement with Sponsors
In connection with the Transactions, we entered into a management agreement
with the Sponsors. Under this agreement, the Sponsors agreed to provide us with
financial advisory and other services. We will pay each Sponsor an annual
management fee in the amount of $0.5 million, or $1.0 million in the aggregate,
commencing July 1, 2004. We will pay this fee quarterly in advance. We will
also reimburse the Sponsors for all expenses incurred by them in connection
with the agreement. The management agreement also contains standard
indemnification provisions for agreements of this type. The management
agreement may be terminated by a Sponsor with respect to that Sponsor only, or
by mutual consent of the Sponsors, at any time on 30 days notice, and will
terminate with respect to a Sponsor on the date such Sponsor owns less than 5%
of the capital stock of Holdings that it purchased on the closing date of the
Acquisition. In addition, the management agreement may be terminated with
respect to a Sponsor in connection with an IPO or a change in law, occurrence
or event which causes the existence of the management agreement to render any
of the directors designated by a Sponsor an "interested" or not otherwise
independent director or adversely affects such Sponsor's right to designate a
director or such director's ability to perform his duties as director. In such
event, such Sponsor will be entitled to receive a termination fee equal to the
net present value of the fees which would have been paid to the Sponsor for the
10 year period commencing on the date of termination.
In addition, upon consummation of the Transactions, we paid each Sponsor a
transaction fee in the amount of $8.0 million ($16.0 million in the aggregate).
We also paid all expenses of the Sponsors and their controlled affiliates,
including the fees and expenses of their respective counsel and other advisors
and consultants, in connection with the Acquisition. These arrangements with
the Sponsors also contain standard indemnification provisions by us of the
Sponsors.
Arrangements with Affiliates of J.P. Morgan Partners, LLC
In connection with the Transactions, we entered into the senior credit facility
with J.P. Morgan Securities Inc. as a co-syndication agent and as a joint lead
arranger and Chase Lincoln First Commercial Corp., an affiliate of JPMorgan
Chase Bank, as a lender. J.P. Morgan Securities Inc. was also an initial
purchaser of the notes. Both J.P. Morgan Securities Inc. and Chase Lincoln
First Commercial Corp. are affiliates of J.P. Morgan Partners, LLC. In
connection with the senior credit facility and amendments thereto, J.P. Morgan
Securities Inc. and Chase Lincoln First Commercial Corp. received customary
fees for acting in such capacities. J.P. Morgan Securities Inc. was also paid
customary underwriting fees in connection with the offering of the notes.
Tax Allocation Agreement with Holdings
We will file Federal income tax returns with Holdings on a consolidated basis.
At closing of the Transactions, we entered into a tax allocation agreement with
Holdings which provides that we will make distributions to Holdings, and it
will make contributions to us, such that we will incur the expense for taxes
generated by our business on the same basis as if we did not file consolidated
tax returns.
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Description of Certain Indebtedness
General
On the closing date of the Transactions, Holdings and National Waterworks
entered into a senior credit facility with J.P. Morgan Securities Inc. and
Goldman Sachs Credit Partners L.P. as joint lead arrangers, joint bookrunners
and co-syndication agents, UBS AG, Stamford Branch, as administrative agent,
and certain banks and financial institutions as lenders. On August 7, 2003 and
December 2, 2003 the senior credit facility was amended, and the description
set forth below describes the senior credit facility as so amended.
The senior credit facility consists of
•
a $75.0 million senior secured revolving credit facility that matures on November 22, 2008; and
•
a $250.0 million senior secured term loan facility that matures on November 22, 2009, all of which was borrowed to finance the Acquisition
(and was subsequently refinanced pursuant in August 2003).
Our senior credit facility permits us to issue up to an additional $100.0
million of credit facilities without the consent of the existing lenders
thereunder, so long as no default or event of default under the senior credit
facility has occurred and is continuing or would occur after giving effect to
such issuance and certain other conditions are satisfied, including pro forma
compliance with certain senior leverage ratios.
Security and Guarantees
Our obligations under the senior credit facility are unconditionally and
irrevocably guaranteed jointly and severally by Holdings and each of Holdings'
and our respective future domestic and, to the extent no material adverse tax
consequences would result, foreign subsidiaries, if any. We do not currently
have any subsidiaries.
Our obligations under the senior credit facility, and the guarantees of those
obligations, are secured by substantially all of our and Holdings' assets and
substantially all of the assets of each of Holdings' and our future domestic
and, to the extent no material adverse tax consequences would result, foreign
subsidiaries, if any, including but not limited to:
•
a first priority pledge of 100% of our capital stock and 100% of the capital stock of each of Holdings' and our future domestic and, to the
extent no material adverse tax consequences would result, foreign
subsidiaries, if any; and
•
a perfected first-priority security interest in substantially all tangible and intangible assets of Holdings, us and each of Holdings' and
our future domestic and, to the extent no material adverse tax
consequences would result, foreign subsidiaries, if any.
Interest Rates and Fees
Borrowings under the senior credit facility bear interest as follows:
•
Revolving credit facility:
(a) in the case of loans with an interest rate based on the ABR rate, an applicable margin of 2.00% per annum plus
the higher of (1) UBS AG, Stamford Branch's prime rate and (2) the
federal funds effective rate plus 0.5% or (b) in the case of loans with
an interest rate based on the Eurodollar rate, the Eurodollar rate plus
an applicable margin of 3.00% per annum. Such applicable margins are
currently subject to reduction if we attain certain leverage ratios; and
•
Term loan facility:
(a) in the case of loans with an interest rate based on the ABR rate, an applicable margin of 1.75% per annum plus the
higher of (1) UBS AG, Stamford Branch's prime rate and (2) the federal
funds effective rate plus 0.5% or (b) in the case of loans with an
interest rate based on the Eurodollar rate, the Eurodollar rate plus an
applicable margin of 2.75% per annum.
The senior credit facility provides for the payment to the lenders of a
commitment fee on average unused commitments under the revolving credit
facility initially equal to 0.5% per annum. Such commitment fee is currently
subject to reduction if we attain certain leverage ratios.
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Scheduled Amortization Payments and Mandatory Prepayments
The term loan facility provides for quarterly amortization payments of $3.75
million in 2004 and 2005, $5.0 million in 2006, $6.25 million in 2007 and 2008,
with the balance of the facility to be repaid quarterly and at maturity during
2009.
In addition, the senior credit facility requires us to prepay outstanding term
loans and, after the term loans have been repaid in full, to prepay outstanding
revolving credit loans, subject to certain exceptions, with:
•
100% of the net cash proceeds of certain asset dispositions or insurance recoveries by us, Holdings or our and Holdings' respective
subsidiaries which are not reinvested in our business within twelve
months of the disposition or recovery, as applicable;
•
75% of the net cash proceeds of equity issued by us or our subsidiaries in a public offering or in a private placement that is
underwritten, placed or initially purchased by one or more investment
banks;
•
75% of Excess Cash Flow (as defined in the Credit Agreement), determined generally as the amount by which our operating cash flow
exceeds the sum of our capital expenditures (including in respect of
permitted acquisitions), repayments of indebtedness and certain other
amounts; and
•
100% of the net cash proceeds of debt issuances by us, Holdings or Holdings' and our respective subsidiaries other than debt permitted to
be incurred by us, Holdings or Holdings' and our respective subsidiaries
under the limitation on debt covenant of the senior credit facility.
The prepayment percentage above with respect to equity issuances and excess
cash flow will be reduced to 50% if our ratio of consolidated total debt to
consolidated EBITDA as of the last day of the applicable fiscal year is not
greater than 4.0 to 1.0.
Voluntary Prepayments
The senior credit facility provides for voluntary prepayments of the loans and
voluntary reductions of the unutilized portion of the commitments under the
revolving credit facility, subject to certain conditions and without premium or
penalty, subject to customary breakage costs in the case of Eurodollar loans.
Covenants
Our senior credit facility contains financial, affirmative and negative
covenants that we believe are usual and customary for a senior secured credit
agreement. The negative covenants in the senior credit facility include, among
other things, limitations, each of which are subject to standard and customary
exceptions for financings of this type and certain other exceptions, on
Holdings', our and Holdings' and our respective subsidiaries', if any, ability
to:
•
declare dividends and make other distributions;
•
redeem and repurchase our capital stock;
•
prepay, redeem and repurchase certain of our indebtedness, including the notes;
•
make loans and investments, including acquisitions;
•
incur additional indebtedness;
•
grant liens;
•
enter into sale-leaseback transactions;
•
modify the terms of the notes or certain capital stock;
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•
restrict dividends from our subsidiaries;
•
enter into new lines of business;
•
recapitalize, merge, consolidate or enter into acquisitions;
•
sell our assets; and
•
enter into transactions with our affiliates.
Our senior credit facility also requires that we maintain:
•
a ratio of consolidated total debt to consolidated EBITDA of not more than (i) 5.75 to 1.0 as of the last day of any period of four
consecutive fiscal quarters ending on or prior to September 30, 2004 and
(ii) 5.0 to 1.0 as of the last day of any period of four consecutive
fiscal quarters ending after September 30, 2004 and on or prior to
September 30, 2005, which 5.0 to 1.0 maximum leverage ratio shall be
decreased to 4.75 to 1.0 on December 31, 2005 and by 0.25 on December 31
of each year thereafter; and
•
a ratio of consolidated EBITDA to consolidated interest expense of not less than (i) 2.0 to 1.0 for any period of four consecutive fiscal
quarters ending on or prior to September 30, 2004 (ii) 2.15 to 1.0 for
any period of four consecutive fiscal quarters ending after September
30, 2004 and on or prior to September 30, 2005, (iii) 2.25 to 1.0 for
any period of four consecutive fiscal quarters ending after September
30, 2005 and on or prior to September 30, 2006, (iv) 2.35 to 1.0 for any
period of four consecutive fiscal quarters ending after September 30,
2006 and on or prior to September 30, 2007 and (v) 2.50 to 1.0 for any
period of four consecutive fiscal quarters ending thereafter.
In addition, the senior credit facility prohibits us from making capital
expenditures in excess of $5 million in the ordinary course of business in any
fiscal year, except that amounts not expended in any fiscal year may be carried
over to the next succeeding fiscal year only. In the event we make specified
permitted acquisitions, the foregoing amount will be increased by an amount
equal to 1% of the net sales of the acquired business for the four quarters
immediately preceding the date of acquisition.
Events of Default
Our senior credit facility contains certain customary events of default with
respect to Holdings, us and each of our subsidiaries, including, among others:
•
nonpayment of principal or interest under the senior credit facility;
•
breach of the affirmative or negative covenants;
•
material breach of the representations or warranties;
•
cross-default and cross-acceleration to other material indebtedness;
•
bankruptcy or insolvency;
•
material judgments entered against Holdings, us or any of our subsidiaries;
•
certain ERISA violations;
•
actual or asserted invalidity of the security documents or guarantees associated with the senior credit facility;
•
a change in control, as described in the senior credit facility;
•
engagement by Holdings, in any activity other than that associated with being a passive holding company; and
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•
if the notes cease to be validly subordinated to the senior credit facility.
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Description of Notes
You can find the definitions of certain terms used in this description under
the subheading "—Certain Definitions." In this description, "National
Waterworks" refers only to National Waterworks, Inc. and not to any of its
Subsidiaries.
On November 22, 2002, we issued $200,000,000 aggregate principal amount of
notes under an indenture dated as of November 22, 2002, by and among National
Waterworks and Wells Fargo Bank Minnesota, National Association, as trustee. A
copy of the indenture has been filed as an exhibit to the registration
statement of which this prospectus forms a part. The terms of the notes include
those stated in the indenture and those made part of the indenture by reference
to the Trust Indenture Act of 1939, as amended.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders of the notes. A copy of the indenture has been filed as an exhibit to
the registration statement of which this prospectus forms a part. Certain
defined terms used in this description but not defined below under "—Certain
Definitions" have the meanings assigned to them in the indenture.
The registered Holder of a note will be treated as the owner of it for all
purposes. Only registered Holders will have rights under the indenture.
Brief Description of the Notes and the Guarantees
The Notes
The notes are:
•
general unsecured obligations of National Waterworks;
•
subordinated in right of payment to all existing and future Senior Debt of National Waterworks;
•
pari passu
in right of payment with any future senior subordinated Indebtedness of National Waterworks; and
•
senior in right of payment to any future subordinated Indebtedness of National Waterworks.
The Guarantees
The notes will be guaranteed by all of National Waterworks' Domestic
Subsidiaries. As of the date of this prospectus, National Waterworks does not
have any Subsidiaries.
Each guarantee of the notes will be:
•
a general unsecured obligation of the Guarantor;
•
subordinated in right of payment to all existing and future Senior Debt of that Guarantor;
•
pari passu
in right of payment with any future senior subordinated Indebtedness of that Guarantor; and
•
senior in right of payment to any future subordinated Indebtedness of the Guarantor.
As of December 31, 2003, National Waterworks had total debt outstanding,
excluding the notes, of approximately $240.0 million, and approximately $75.0
million was available to National Waterworks for additional borrowings under
its credit facility, all of which would constitute Senior Debt ranking ahead of
the notes. A portion of the revolving credit facility was also used to support
outstanding letters of credit. As indicated above and as discussed in detail
below under the caption "—Subordination," payments on the notes and under the
guarantees will be subordinated to the payment of Senior Debt. The indenture
will permit both National Waterworks and the Guarantors to incur additional
Senior Debt.
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As of the date of this prospectus, National Waterworks does not have any
Subsidiaries. All of National Waterworks' future Subsidiaries will be
"Restricted subsidiaries," except that under the circumstances described below
under the subheading "—Certain covenants—Designation of restricted and
unrestricted subsidiaries," National Waterworks will be permitted to designate
certain of its Subsidiaries as "Unrestricted Subsidiaries." National
Waterworks' Unrestricted Subsidiaries, if any exist in the future, will not be
subject to many of the restrictive covenants in the indenture, and they will
not guarantee the notes.
Principal, Maturity and Interest
$200.0 million aggregate principal amount of notes are outstanding under the
indenture. National Waterworks may issue additional notes from time to time.
Any issuance of additional notes will be subject to the covenant described
below under the caption "—Certain covenants— Incurrence of Indebtedness and
Issuance of Preferred Stock." The notes, together with any additional notes
subsequently issued under the indenture rank equally and shall be treated as a
single class for all purposes under the indenture, including, without
limitation, waivers, amendments, redemptions and offers to purchase. National
Waterworks will issue notes in denominations of $1,000 and integral multiples
of $1,000. The notes will mature on December 1, 2012.
Interest on the notes accrues at the rate of 10.50% per annum and is payable
semi-annually in arrears on June 1 and December 1. National Waterworks will
make each interest payment to the Holders of record on the immediately
preceding May 15 and November 15. Interest on the notes accrues from the date
it was most recently paid. Interest is computed on the basis of a 360-day year
comprised of twelve 30-day months.
Methods of Receiving Payments on the Notes
If a Holder owning at least $5.0 million in principal amount of notes has given
wire transfer instructions to National Waterworks, National Waterworks will pay
all principal, interest and premium, if any, on that Holder's notes in
accordance with those instructions. All other payments on notes will be made at
the office or agency of the paying agent and registrar within the City and
State of New York (which will initially be the corporate trust office of the
trustee) unless National Waterworks elects to make interest payments by check
mailed to the Holders at their address set forth in the register of Holders.
Paying Agent and Registrar for the Notes
The trustee will initially act as paying agent and registrar for the notes.
National Waterworks may change the paying agent or registrar without prior
notice to the Holders of the notes, and National Waterworks or any of its
Restricted Subsidiaries may act as paying agent or registrar.
Transfer and Exchange
A Holder may transfer or exchange notes in accordance with the indenture. The
registrar and the trustee may require a Holder to furnish appropriate
endorsements and transfer documents in connection with a transfer of notes.
Holders will be required to pay all taxes or similar government charges due on
transfer or exchange. National Waterworks is not required to transfer or
exchange any note selected for redemption except the unredeemed portion of any
note being redeemed in part. Also, National Waterworks is not required to
transfer or exchange any note for a period of 15 days before a selection of
notes to be redeemed or between a record date and the next succeeding interest
payment date.
Subsidiary Guarantees
The notes will be guaranteed by each of National Waterworks' Domestic
Subsidiaries, if any. As of the date of this prospectus, National Waterworks
does not have any Subsidiaries. Subject to the conditions described below, the
Guarantors will, jointly and severally, unconditionally guarantee on a senior
subordinated basis the performance and punctual payment when due, whether at
stated maturity, by acceleration or otherwise, of all obligations of National
Waterworks under the indenture and the notes, whether for principal, or
premium, if any, or interest on the notes or otherwise. The Guarantors will
also pay, on a senior subordinated basis and in addition to the amount stated
above, any and all expenses (including counsel fees and expenses) incurred by
the trustee under the indenture in enforcing any rights under a subsidiary
guarantee with respect to a Guarantor. Each subsidiary guarantee will be
subordinated to the prior payment in full of all Senior Debt of that Guarantor
on the same basis as the notes are subordinated to the Senior Debt of National
Waterworks. The obligations of each Guarantor under its subsidiary guarantee
will be limited as necessary to prevent that guarantee from constituting a
fraudulent conveyance under applicable law. See "Risk Factors— Risks Related to
the
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Notes—Federal and state fraudulent transfer laws permit a court to void the
notes and any guarantees, and, if that occurs, you may not receive any payment
on the notes."
A Guarantor may not sell or otherwise dispose of all or substantially all of
its assets to, or consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person), another Person, other than National
Waterworks or another Guarantor, unless:
(1)
immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(2)
either:
(a)
the Person acquiring the property in any such sale or
disposition or the Person formed by or surviving any such
consolidation or merger, if other than such Guarantor, assumes all
the obligations of that Guarantor under the indenture, its subsidiary
guarantee and the Exchange and Registration Rights Agreement pursuant
to a supplemental indenture satisfactory to the trustee and completes
all other required documentation; or
(b)
in the case of a sale or disposition constituting an Asset
Sale, the Net Proceeds of such sale or other disposition are applied
in accordance with the applicable provisions of the indenture.
Notwithstanding the foregoing, a Restricted Subsidiary may consolidate with,
merge into or transfer all or part of its assets and properties to National
Waterworks or a Subsidiary of National Waterworks that is a Guarantor.
The subsidiary guarantee of a Guarantor will be released:
(1)
in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor (including by way of
merger or consolidation or otherwise) to a Person that is not (either
before or after giving effect to such transaction) a Subsidiary of
National Waterworks, if the sale or other disposition complies with the
"Asset Sale" provisions of the indenture;
(2)
in connection with any sale of all of the Capital Stock of a
Guarantor to a Person that is not (either before or after giving effect
to such transaction) a Subsidiary of National Waterworks, if the sale
complies with the "Asset sale" provisions of the indenture;
(3)
if National Waterworks designates any Restricted Subsidiary that is a
Guarantor as an Unrestricted Subsidiary in accordance with the
applicable provisions of the indenture;
(4)
upon any legal defeasance in accordance with the terms of the
indenture; or
(5)
if such Guarantor is or becomes a Receivables Subsidiary.
See "—Repurchase at the Option of Holders—Asset Sales," "—Certain
Covenants—Designation of Restricted and Unrestricted Subsidiaries," and "—Legal
Defeasance and Covenant Defeasance."
Subordination
The payment of principal, interest and premium, if any, on the notes is
subordinated to the prior payment in full of all Senior Debt of National
Waterworks, including Senior Debt incurred after the date of the indenture.
The holders of Senior Debt will be entitled to receive payment in full of all
Obligations due in respect of Senior Debt (including interest after the
commencement of any bankruptcy proceeding at the rate specified in the
applicable Senior Debt whether or not such interest is an allowed claim in any
such proceeding) before the Holders of notes will be entitled to receive any
payment or distribution with respect to the notes (except that Holders of notes
may receive and retain Permitted Junior Securities and payments made from the
trust, if any, as described under "—Legal Defeasance and Covenant Defeasance"),
in the event of any distribution to creditors of National Waterworks:
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(1)
in a liquidation or dissolution of National Waterworks;
(2)
in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to National Waterworks or its property;
(3)
in an assignment for the benefit of creditors; or
(4)
in any marshaling of National Waterworks' assets and liabilities.
National Waterworks also may not make any payment or distribution in respect of
the notes (except in the form of Permitted Junior Securities or from the trust
described under "—Legal Defeasance and Covenant Defeasance") and may not make
any deposits with the trustee as described under "—Legal Defeasance and
Covenant Defeasance" if:
(1)
a payment default on Designated Senior Debt occurs and is continuing;
or
(2)
any other default occurs and is continuing on any series of
Designated Senior Debt that permits holders of that series of Designated
Senior Debt to accelerate its maturity, and the trustee receives a
notice of such default (a "Payment Blockage Notice") from National
Waterworks or the Representative of any Designated Senior Debt.
Payments on the notes may and will be resumed at the first to occur of the
following:
(1)
in the case of a payment default on Designated Senior Debt, upon the
date on which such default is cured or waived; and
(2)
in the case of a nonpayment default on Designated Senior Debt, upon
the earlier of the date on which such nonpayment default is cured or
waived or 179 days after the date on which the applicable Payment
Blockage Notice is received, unless the maturity of any Designated
Senior Debt has been accelerated.
Notwithstanding the foregoing, National Waterworks may make payment on the
notes if National Waterworks and the trustee receive written notice approving
such payment from the Representative of the Designated Senior Debt with respect
to which either of the events set forth in clause (1) and (2) of this paragraph
has occurred and is continuing.
No new Payment Blockage Notice may be delivered unless and until:
(1)
365 days have elapsed since the delivery of the immediately prior
Payment Blockage Notice; and
(2)
all scheduled payments of principal, interest and premium, if any, on
the notes that have come due have been paid in full in cash.
Not more than one Payment Blockage Notice may be given in any consecutive
365-day period, irrespective of the number of defaults with respect to all
Designated Senior Debt during such period,
provided
that if any Payment
Blockage Notice is delivered to the trustee by or on behalf of the holders of
Designated Senior Debt of National Waterworks (other than the holders of
Indebtedness under the Credit Agreement), a Representative of holders of
Indebtedness under the Credit Agreement may give another Payment Blockage
Notice within such period. However, in no event may the total number of days
during which any payment blockage period or periods on the notes is in effect
exceed 179 days in the aggregate during any consecutive 365-day period, and
there must be at least 186 days during any consecutive 365-day period during
which no payment blockage period is in effect.
The failure to make any payment on the notes by reason of the subordination
provisions of the indenture will not be construed as preventing the occurrence
of an Event of Default with respect to the notes by reason of the failure to
make a required payment. Upon termination of any period of payment blockage,
National Waterworks will be required to resume making any and all required
payments under the notes, including any missed payments. No nonpayment default
that existed or was continuing on the date of delivery of any Payment Blockage
Notice to the trustee will be, or be made, the basis for a subsequent Payment
Blockage Notice.
If the trustee or any Holder of the notes receives a payment in respect of the
notes (except in Permitted Junior Securities or from the trust described under
"—Legal Defeasance and Covenant Defeasance") when:
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(1)
the payment is prohibited by these subordination provisions; and
(2)
the trustee or the Holder has actual knowledge that the payment is
prohibited;
the trustee or the Holder, as the case may be, will hold the payment in trust
for the benefit of the holders of Senior Debt. Upon the proper written request
of the holders of Senior Debt, the trustee or the Holder, as the case may be,
will deliver the amounts in trust to the holders of Senior Debt or their proper
representative.
National Waterworks must promptly notify the Representative of Designated
Senior Debt if payment of the notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event of a
bankruptcy, liquidation or reorganization of National Waterworks, Holders of
notes may recover less ratably than creditors of National Waterworks who are
holders of Senior Debt. See "Risk Factors—Risks Related to the Notes—The notes
are, and guarantees by any of our future domestic subsidiaries will be,
effectively subordinated to all of our and any future subsidiaries' senior
debt."
Optional Redemption
At any time prior to December 1, 2005, National Waterworks may on any one or
more occasions redeem up to 35% of the aggregate principal amount of notes
issued under the indenture at a redemption price of 110.50% of the principal
amount, plus accrued and unpaid interest, if any, to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date), with the Net Cash
Proceeds from one or more Equity Offerings by National Waterworks or Holdings
(so long as such Net Cash Proceeds are contributed by Holdings to National
Waterworks as common equity);
provided
that:
(1)
at least 65% of the aggregate principal amount of notes issued under
the indenture remains outstanding immediately after the redemption
(excluding any notes held by National Waterworks and its Subsidiaries);
and
(2)
the redemption occurs within 60 days of the date of the closing of
such Equity Offering.
The notes may be redeemed, in whole or in part, at any time prior to December
1, 2007, at the option of National Waterworks upon not less than 30 nor more
than 60 days prior notice mailed by first-class mail to each Holder's
registered address, at a redemption price equal to 100% of the principal amount
of the notes redeemed plus the Applicable Premium as of, and accrued and unpaid
interest, if any, to, the applicable redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date).
Except as described in the two preceding paragraphs, the notes will not be
redeemable at National Waterworks' option prior to December 1, 2007.
On or after December 1, 2007, National Waterworks may redeem all or a part of
the notes upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest, if any, on the notes redeemed, to the
applicable redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date), if redeemed during the twelve-month period beginning on December 1 of
the years indicated below:
Year
Percentage
2007
105.25
%
2008
103.50
%
2009
101.75
%
2010 and thereafter
100.00
%
Unless National Waterworks defaults in payment of the redemption price, on and
after the redemption date, interest will cease to accrue on the notes or
portions thereof called for redemption.
If less than all of the notes are to be redeemed, the procedures described
below under "—Selection and notice" will apply.
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No Mandatory Redemption or Sinking Fund
National Waterworks is not required to make mandatory redemption or sinking
fund payments with respect to the notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs and National Waterworks does not exercise its
option to redeem the notes, each Holder of notes will have the right to require
National Waterworks to repurchase all or any part (equal to $1,000 or an
integral multiple of $1,000) of that Holder's notes pursuant to a Change of
Control offer on the terms set forth in the indenture (a "Change of Control
Offer"). In the Change of Control Offer, National Waterworks will offer a
Change of Control Payment in cash equal to 101% of the aggregate principal
amount of notes repurchased plus accrued and unpaid interest, if any, on the
notes repurchased, to the date of purchase (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date). Within 30 days following any Change of Control,
National Waterworks will mail a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase notes on the Change of Control Payment Date specified in the
notice, which date will be no earlier than 30 days and no later than 60 days
from the date such notice is mailed, pursuant to the procedures required by the
indenture and described in such notice. National Waterworks will comply with
the requirements of Section 14(e) of and Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent those laws
and regulations are applicable in connection with the repurchase of the notes
as a result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the Change of Control provisions
of the indenture, National Waterworks will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Change of Control provisions of the indenture by virtue
of such conflict.
On the Change of Control Payment Date, National Waterworks will, to the extent
lawful:
(1)
accept for payment all notes or portions of notes properly tendered
pursuant to the Change of Control Offer;
(2)
deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all notes or portions of notes properly
tendered; and
(3)
deliver or cause to be delivered to the trustee the notes properly
accepted together with an officers' certificate stating the aggregate
principal amount of notes or portions of notes being purchased by
National Waterworks.
The paying agent will promptly mail to each Holder of notes properly tendered
the Change of Control Payment for such notes, and the trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any;
provided
that each new note will be in a principal amount
of $1,000 or an integral multiple of $1,000.
In the event that at the time of the Change of Control the terms of any
agreement governing Senior Debt of National Waterworks or its Subsidiaries
restrict or prohibit the repurchase of notes pursuant to this covenant, then
prior to the mailing of notice to Holders of notes provided for above, but in
any event within 60 days following a Change of Control, National Waterworks
will either:
(1)
repay all outstanding Senior Debt or offer to repay all such Senior
Debt and repay the Indebtedness of each lender who has accepted the
offer or,
(2)
obtain the requisite consents, if any, under all agreements governing
outstanding Senior Debt to permit the repurchase of notes required by
this covenant.
National Waterworks will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
If National Waterworks does not obtain such consents or repay such
Indebtedness, National Waterworks will remain prohibited from purchasing the
notes pursuant to this covenant. In such event, National Waterworks' failure to
make the offer to purchase pursuant to this covenant would constitute an Event
of Default under the indenture which in turn would constitute a default under
the Credit
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Agreement. In such circumstances, the subordination provisions of the indenture
would likely prohibit payments to the Holders of the notes.
The provisions described above that require National Waterworks to make a
Change of Control Offer following a Change of Control will be applicable
whether or not any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the Holders of the notes to require that
National Waterworks repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.
National Waterworks will not be required to make a Change of Control Offer upon
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the indenture applicable to a Change of Control Offer made by National
Waterworks and purchases all notes properly tendered and not withdrawn under
the Change of Control Offer.
The definition of Change of Control includes a phrase relating to the direct or
indirect sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the properties or assets of National Waterworks and its
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of notes to require National Waterworks to repurchase its notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of National Waterworks and its Subsidiaries taken as a whole
to another Person or group may be uncertain.
The Change of Control provisions described above may deter certain mergers,
tender offers and other takeover attempts involving National Waterworks and
Holdings by increasing the capital required to effectuate such transactions.
Asset Sales
National Waterworks will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1)
National Waterworks (or the Restricted Subsidiary, as the case may
be) receives consideration (including by way of relief from, or by any
other person assuming sole responsibility for, any liabilities,
contingent or otherwise) at the time of the Asset Sale at least equal to
the fair market value of the assets or Equity Interests issued or sold
or otherwise disposed of;
(2)
in the case of Asset Sales involving consideration in excess of $10.0
million, the fair market value is determined by National Waterworks'
Board of Directors and evidenced by a resolution of the Board of
Directors set forth in an officers' certificate delivered to the trustee
promptly after the consummation of such Asset Sale; and
(3)
at least 75% of the consideration received in the Asset Sale by
National Waterworks or such Restricted Subsidiary is in the form of (A)
cash or Cash Equivalents, (B) all or substantially all of the assets of
one or more Permitted Business Units, (C) Capital Stock in one or more
Persons engaged in a Permitted Business that are or thereby become
Restricted Subsidiaries of National Waterworks, or (D) any combination
of the items referred to in clauses (A) through (C) above. For purposes
of this provision, each of the following will be deemed to be cash:
(a)
any liabilities, as shown on National Waterworks' or such
Restricted Subsidiary's most recent balance sheet, of National
Waterworks or any Restricted Subsidiary (other than liabilities that
are by their terms subordinated to the notes or any subsidiary
guarantee) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases National
Waterworks or such Restricted Subsidiary from further liability;
(b)
any securities, notes or other obligations received by National
Waterworks or any such Restricted Subsidiary from such transferee
that are promptly converted by National Waterworks or such Restricted
Subsidiary into cash, to the extent of the cash received in that
conversion; and
(c)
any Designated Non-cash Consideration received by National
Waterworks or any of its Restricted Subsidiaries in the Asset Sale
having an aggregate fair market value, taken together with all other
Designated Non-cash Consideration received pursuant to this clause
(c) that is at the time outstanding, not to exceed $5.0 million (with
the fair market value of each item of Designated Non-cash
Consideration being measured at the time received and without giving
effect to subsequent changes in value).
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Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
National Waterworks (or such Restricted Subsidiary, as the case may be) may
apply those Net Proceeds at its option:
(1)
to repay Senior Debt and, if the Senior Debt repaid is revolving
credit Indebtedness, to correspondingly reduce commitments with respect
thereto;
(2)
to acquire all or substantially all of the assets of, or a majority
of the Voting Stock of, another Permitted Business;
(3)
to acquire all or substantially all of the assets of one or more
Permitted Business Units;
(4)
to make a capital expenditure; or
(5)
to acquire other long-term assets that are used or useful in a
Permitted Business;
it being understood that National Waterworks may apply Net Proceeds received by
any of its Restricted Subsidiaries in any of the foregoing manners and any
Restricted Subsidiary of National Waterworks may apply Net Proceeds received by
National Waterworks or another Restricted Subsidiary of National Waterworks in
any of the foregoing manners.
Pending the final application of any Net Proceeds, National Waterworks may
temporarily reduce revolving credit borrowings or otherwise invest the Net
Proceeds in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as provided
in the preceding paragraph will constitute "Excess Proceeds." On the 366th day
after an Asset Sale, if the aggregate amount of Excess Proceeds exceeds $15.0
million, National Waterworks will make an Asset Sale offer to all Holders of
notes and all holders of any other Indebtedness that is
pari passu
with the
notes containing provisions similar to those set forth in the indenture with
respect to offers to purchase or redeem such indebtedness with the proceeds of
sales of assets to purchase the maximum principal amount of notes and such
other
pari passu
Indebtedness that may be purchased out of the Excess Proceeds
(an "Asset Sale Offer"). National Waterworks will be required to complete the
Asset Sale Offer no earlier than 30 days and no later than 60 days after notice
of the Asset Sale Offer is provided to the Holders, or such later date as may
be required under applicable law. The offer price in any Asset Sale Offer will
be equal to 100% of principal amount plus accrued and unpaid interest, if any,
to the date of purchase, and will be payable in cash. If any Excess Proceeds
remain after consummation of an Asset Sale Offer, National Waterworks may use
those Excess Proceeds for any purpose not otherwise prohibited by the
indenture. If the aggregate principal amount of notes and other
pari passu
Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess
Proceeds, the trustee will select the notes and such other
pari passu
Indebtedness to be purchased on a pro rata basis on the basis of the aggregate
principal amount of tendered notes and
pari passu
Indebtedness, if any. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds will be
reset at zero.
National Waterworks will comply with the requirements of Section 14(e) of and
Rule 14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent those laws and regulations are applicable in
connection with each repurchase of notes pursuant to an Asset Sale Offer. To
the extent that the provisions of any securities laws or regulations conflict
with the Asset Sale provisions of the indenture, National Waterworks will
comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under the Asset Sale provisions of the
indenture by virtue of such conflict.
The agreements governing all of National Waterworks' outstanding Senior Debt
currently restrict National Waterworks from purchasing notes, and also provide
that certain change of control or asset sale events with respect to National
Waterworks would constitute a default under these agreements. Any future credit
agreements or other agreements relating to Senior Debt to which National
Waterworks becomes a party may contain similar restrictions and provisions. In
the event a Change of Control or Asset Sale occurs at a time when National
Waterworks is prohibited from purchasing notes, National Waterworks could seek
the consent of its senior lenders to the purchase of notes or could attempt to
refinance the borrowings that contain such prohibition, neither of which may be
possible. If National Waterworks does not obtain such a consent or repay such
borrowings, National Waterworks will remain prohibited from purchasing notes.
In such case, National Waterworks' failure to purchase tendered notes would
constitute an Event of Default under the indenture which would, in turn, likely
constitute a default under such Senior Debt. See "Risk Factors—Risks Related to
the Notes—We may not be able to repurchase the notes upon a change of control."
In such circumstances, the subordination provisions in the indenture would
likely restrict payments to the Holders of notes.
Selection and Notice
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If less than all of the notes are to be redeemed in connection with any
redemption, the trustee will select notes (or portions of notes) for redemption
as follows:
(1)
if the notes are listed on any national securities exchange, in
compliance with the requirements of the principal national securities
exchange on which the notes are listed; or
(2)
if the notes are not listed on any national securities exchange, on a
pro rata basis, by lot or by such method as the trustee deems fair and
appropriate.
No notes of $1,000 or less can be redeemed in part. Notices of redemption will
be mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each Holder of notes to be redeemed at its registered
address, except that redemption notices may be mailed more than 60 days prior
to a redemption date if the notice is issued in connection with a defeasance of
the notes or a satisfaction and discharge of the indenture. Notices of
redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount of that
note that is to be redeemed. A new note in principal amount equal to the
unredeemed portion of the original note will be issued in the name of the
Holder of notes upon cancellation of the original note. Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest will cease to accrue on notes or portions of them
called for redemption.
Certain Covenants
Restricted Payments
National Waterworks will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1)
declare or pay any dividend on, or make any other payment or
distribution on account of, National Waterworks' or any of its
Restricted Subsidiaries' Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation
involving National Waterworks or any of its Restricted Subsidiaries) or
to the direct or indirect holders of National Waterworks' or any of its
Restricted Subsidiaries' Equity Interests in their capacity as such (in
each case, other than dividends or distributions payable (a) in Equity
Interests (other than Disqualified Stock) of National Waterworks or (b)
to National Waterworks or a Restricted Subsidiary of National
Waterworks);
(2)
purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving National Waterworks) any Equity Interests of National
Waterworks or any direct or indirect parent of National Waterworks held
by Persons other than National Waterworks or a Restricted Subsidiary of
National Waterworks;
(3)
make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is
subordinated to the notes or the subsidiary guarantees, except a payment
of interest or principal at the Stated Maturity thereof (other than:
(a)
the purchase, repurchase or other acquisition of any such
subordinated Indebtedness purchased in anticipation of satisfying a
sinking fund obligation, principal installment or final maturity, in
each case due within one year of the date of acquisition, and
(b)
intercompany Indebtedness described in clause (6) of the second
paragraph of the covenant described under "—Incurrence of
Indebtedness and Issuance of Preferred Stock"); or
(4)
make any Restricted Investment (all such payments and other actions
set forth in these clauses (1) through (4) being collectively referred
to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1)
no Default or Event of Default has occurred and is continuing or
would occur as a consequence of such Restricted Payment;
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(2)
National Waterworks would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have
been permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described below under the caption "—Incurrence
of Indebtedness and Issuance of preferred stock;" and
(3)
such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by National Waterworks and its Restricted
Subsidiaries after the date of the indenture (excluding Restricted
Payments permitted by clauses (2), (3), (4), (6), (7), (9), (10) and
(11) of the next succeeding paragraph), is less than the sum, without
duplication, of:
(a)
50% of the Consolidated Net Income of National Waterworks for
the period (taken as one accounting period) from the beginning of the
first fiscal quarter commencing after the date of the indenture to
the end of National Waterworks' most recently ended fiscal quarter
for which consolidated financial statements of National Waterworks
are publicly available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100%
of such deficit),
plus
(b)
100% of the aggregate Net Cash Proceeds received by National
Waterworks subsequent to the date of the indenture (i) as a
contribution to its common equity capital or (ii) from the issue or
sale of Equity Interests of National Waterworks (other than
Disqualified Stock) or (iii) as a result of the issue or sale of
convertible or exchangeable Disqualified Stock or convertible or
exchangeable debt securities of National Waterworks or any Restricted
Subsidiary of National Waterworks that have been converted into or
exchanged for such Equity Interests (other than Equity Interests (or
Disqualified Stock or debt securities) sold to a Subsidiary of
National Waterworks), except any Net Cash Proceeds that have been
utilized for any other purpose under this covenant (other than
pursuant to clause (12) below),
plus
(c)
100% of the fair market value, as determined in good faith by
the Board of Directors of National Waterworks, such determination to
be conclusive and evidenced by an Officer's Certificate delivered to
the trustee, of any Permitted Business (including Capital Stock of a
Permitted Business that is or becomes a Restricted Subsidiary)
received by National Waterworks or a Restricted Subsidiary of
National Waterworks as consideration for the issuance by National
Waterworks subsequent to the date of the indenture of Capital Stock
(other than Disqualified Stock) of National Waterworks or as a
contribution to the common equity capital of National Waterworks,
plus
(d)
to the extent that National Waterworks or a Restricted
Subsidiary of National Waterworks receives cash in respect of any
Restricted Investment that was made subsequent to the date of the
indenture, the lesser of (i) the amount of cash received with respect
to such Restricted Investment (less the cost of disposition, if any)
and (ii) the initial amount of such Restricted Investment,
plus
(e)
to the extent that any Unrestricted Subsidiary of National
Waterworks is redesignated as a Restricted Subsidiary after the date
of the indenture, the lesser of (i) the fair market value of National
Waterworks' Investment in such Subsidiary as of the date of such
redesignation and (ii) such fair market value as of the date on which
such Subsidiary was originally designated as an Unrestricted
Subsidiary.
The preceding provisions will not prohibit:
(1)
the payment of any dividend or other distribution within 60 days
after the date of declaration thereof, if at the date of declaration the
dividend payment or other distribution would have complied with the
provisions of the indenture;
(2)
so long as no Default has occurred and is continuing or would be
caused thereby, the making of any Restricted Payment with the Net Cash
Proceeds of a substantially concurrent sale (other than to a Restricted
Subsidiary of National Waterworks) of Equity Interests of National
Waterworks (other than Disqualified Stock) or contribution to the common
equity capital of National Waterworks to the extent not previously
utilized for any other purpose under this covenant;
(3)
so long as no Default has occurred and is continuing or would be
caused thereby, the redemption, repurchase, defeasance or other
acquisition of subordinated Indebtedness of National Waterworks or any
Restricted Subsidiary of National Waterworks, in exchange for, or with
the net cash proceeds from a substantially concurrent issuance or sale
of, Permitted Refinancing Indebtedness;
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(4)
the payment of any dividend by a Restricted Subsidiary of National
Waterworks to the holders of its Equity Interests on a pro rata basis;
(5)
so long as no Default has occurred and is continuing or would be
caused thereby, the payment of dividends, other distributions or amounts
to Holdings in amounts equal to the amounts expended by Holdings to
purchase, repurchase, retire or otherwise acquire for value Equity
Interests of Holdings owned by employees, former employees, directors,
former directors, consultants or former consultants of Holdings,
National Waterworks or any of its Subsidiaries (or permitted
transferees, assigns, estates or heirs of such employees, former
employees, directors, former directors, consultants or former
consultants);
provided, however
, that the aggregate amount paid, loaned
or advanced to Holdings pursuant to this clause (5) will not, in the
aggregate, exceed $3.0 million per fiscal year of National Waterworks
(with amounts not used in any fiscal year carried forward to the next
fiscal year and no further), plus the net proceeds of any key person
life insurance received by National Waterworks after the date of the
indenture, plus amounts contributed by Holdings to the common equity
capital of National Waterworks after the closing date as a result of the
sale of Capital Stock (other than Disqualified Stock) to employees,
officers, directors and consultants to the extent not previously
utilized for any other purpose under this covenant;
(6)
the payment of any dividends, distributions or other advances by
National Waterworks to Holdings to permit Holdings to pay franchise
taxes and other fees and expenses required to maintain its existence and
to provide for all other actual operating costs of Holdings, including,
without limitation, in respect of director fees and expenses,
administrative, legal and accounting services, of up to $1.0 million per
fiscal year;
(7)
the repurchase of Capital Stock deemed to occur upon exercise of
stock options, warrants or other convertible securities to the extent
the shares of such Capital Stock represent a portion of the exercise
price of such options, warrants or convertible securities;
(8)
so long as no Default has occurred and is continuing or would be
caused thereby, the declaration and payment of dividends or
distributions to holders of any class or series of Disqualified Stock of
National Waterworks or preferred stock of its Restricted Subsidiaries
issued after the date of the indenture pursuant to the covenant
described below under the caption "—Incurrence of Indebtedness and
Issuance of Preferred Stock;"
(9)
any payments made, or the performance of any of the transactions
contemplated, in connection with the Acquisition and the financing
thereof and described in this prospectus under the headings "Management"
and "Certain Relationships and Related Party Transactions;"
(10)
so long as no Default has occurred and is continuing or would be
caused thereby, any redemption, repurchase, retirement, defeasance or
other acquisition for value of Disqualified Stock of National Waterworks
or a Restricted Subsidiary made by exchange for, or out of the net cash
proceeds of the substantially concurrent sale of, Disqualified Stock of
National Waterworks or such Restricted Subsidiary, as the case may be;
provided
that any such new Disqualified Stock is issued by the issuer of
the Disqualified Stock being redeemed, repurchased, retired, defeased or
otherwise acquired for value and that such new Disqualified Stock is
issued pursuant to the covenant described below under the caption
"—Incurrence of Indebtedness and Issuance of Preferred Stock;"
(11)
so long as no Default has occurred and is continuing or would be
caused thereby, other Restricted Payments in an aggregate amount not to
exceed $15.0 million since the date of the indenture; or
(12)
so long as no Default has occurred and is continuing or would be
caused thereby, the payment of dividends on National Waterworks' common
stock (or dividends, distributions or advances to Holdings or any other
direct or indirect parent of National Waterworks to allow Holdings or
such other direct or indirect parent to pay dividends on its common
stock), following the first public offering of National Waterworks'
common stock (or of Holding's or such other direct or indirect parent's
common stock, as the case may be) after the date of the indenture, of,
whichever is earlier, (i) in the case of the first public offering of
National Waterworks' common stock, up to 6% per annum of the Net Cash
Proceeds received by National Waterworks in such public offering or (ii)
in the case of the first public offering of Holdings' or such other
direct of indirect parent's common stock, up to 6% per annum of the
amount contributed by Holdings (or contributed directly or indirectly by
such other direct or indirect parent, as the case may be) to National
Waterworks from the Net Cash Proceeds received by Holdings or such other
direct or indirect parent in such public offering.
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The amount of all Restricted Payments (other than cash) will be the fair market
value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by National Waterworks or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant will be determined by National Waterworks' Board of Directors, whose
determination with respect thereto shall be conclusive, and evidenced by a
resolution to be delivered to the trustee. For the avoidance of doubt, the
transactions consummated pursuant to the Acquisition Agreement, the Credit
Agreement, the Purchase Agreement, the Exchange and Registration Rights
Agreement, the Stockholders Agreement, the Tax Sharing Agreement, the
Registration Rights Agreement, the Management Agreement, the Subscription and
Stock Purchase Agreement and the Fee Agreement will be addressed under the
covenant below described under the caption "—Transactions with Affiliates" and
will not be considered to be Restricted Payments.
Incurrence of Indebtedness and Issuance of Preferred Stock
National Waterworks will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt), and National Waterworks will not issue any Disqualified Stock
and will not permit any of its Restricted Subsidiaries to issue any shares of
preferred stock;
provided,
however, that National Waterworks or any Guarantor
may incur Indebtedness (including Acquired Debt), National Waterworks may issue
Disqualified Stock and any Guarantor may issue preferred stock, if the Fixed
Charge Coverage Ratio for National Waterworks' most recently ended four full
fiscal quarters for which consolidated financial statements are publicly
available immediately preceding the date on which such additional Indebtedness
is incurred or such Disqualified Stock or preferred stock is issued would have
been at least 2.0 to 1, determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as if the additional Indebtedness
had been incurred or the preferred stock or Disqualified Stock had been issued,
as the case may be, at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of any of
the following items of Indebtedness (collectively, "Permitted Debt"):
(1)
the incurrence by National Waterworks or any Guarantor of
Indebtedness and letters of credit under Credit Facilities, in an
aggregate principal amount at any one time outstanding under this clause
(1) (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of National Waterworks and the
Guarantors thereunder) not to exceed the $325.0 million
less
(a)
the aggregate amount of all Net Proceeds of Asset Sales applied
by National Waterworks or any of its Restricted Subsidiaries since
the date of the indenture to repay term Indebtedness under a Credit
Facility or to repay revolving credit Indebtedness and effect a
corresponding commitment reduction thereunder, in each case, pursuant
to the covenant described above under the caption "—Repurchase at the
option of holders—Asset sales" and
less
(b)
the amount of Indebtedness incurred and outstanding in
connection with a Qualified Receivables Transaction pursuant to
clause (13) of this paragraph;
(2)
the incurrence by National Waterworks of Existing Indebtedness;
(3)
the incurrence by National Waterworks of Indebtedness represented by
the notes to be issued on the date of the indenture and the Exchange
Notes to be issued pursuant to the registration rights agreement and the
incurrence by any Guarantor of Indebtedness represented by any
subsidiary guarantee related to the notes or the Exchange Notes;
(4)
the incurrence by National Waterworks or any Guarantor of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations (including borrowings under a
Credit Facility) or Acquired Debt, in each case, incurred for the
purpose of financing all or any part of the purchase price or cost of
construction, development, maintenance, upgrade or improvement of
property, plant, equipment or assets (in each case whether through the
direct purchase of assets or through the purchase of Capital Stock of
the Person owning such assets) used in the business of National
Waterworks or such Restricted Subsidiary, in an aggregate principal
amount, including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any Indebtedness incurred pursuant to this
clause (4), not to exceed, at any time outstanding, $15 million;
(5)
the incurrence by National Waterworks or any Guarantor of Permitted
Refinancing Indebtedness in exchange for, or the net
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proceeds of which are used to refund, refinance or replace Indebtedness
(other than intercompany Indebtedness) that was permitted by the indenture
to be incurred under the first paragraph of this covenant or clauses (2),
(3), (4), (5), or (15) of this paragraph;
(6)
the incurrence by National Waterworks or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among National
Waterworks and any of its Restricted Subsidiaries (other than a
Receivables Subsidiary);
provided, however
, that:
(a)
if National Waterworks or any Guarantor is the obligor on such
Indebtedness, such Indebtedness must be expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the
notes, in the case of National Waterworks, or the subsidiary
guarantee, in the case of a Guarantor; and
(b)
(i) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other
than National Waterworks or a Restricted Subsidiary of National
Waterworks and (ii) any sale or other transfer of any such
Indebtedness to a Person that is not either National Waterworks or a
Restricted Subsidiary of National Waterworks; will be deemed, in each
case, to constitute an incurrence of such Indebtedness by National
Waterworks or such Restricted Subsidiary, as the case may be, that
was not permitted by this clause (6);
(7)
shares of preferred stock of a Restricted Subsidiary issued to
National Waterworks or another Restricted Subsidiary;
provided
that any
subsequent transfer of any Equity Interests or any other event which
results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any other subsequent transfer of any such shares of
preferred stock (except to National Waterworks or any another Restricted
Subsidiary) shall be deemed, in each case, to be an issuance of
preferred stock;
(8)
the incurrence by National Waterworks or any Guarantor of Hedging
Obligations in the ordinary course of business or as may be required in
connection with any Senior Debt and not for speculative purposes;
(9)
the guarantee by National Waterworks or any Guarantor of Indebtedness
of National Waterworks or a Guarantor that was permitted to be incurred
by another provision of this covenant;
(10)
Indebtedness of National Waterworks or any of its Restricted
Subsidiaries in respect of workers' compensation claims, self-insurance
obligations, indemnities, performance bonds, bankers' acceptances,
letters of credit and surety, appeal or similar bonds provided by
National Waterworks or any of its Restricted Subsidiaries in the
ordinary course of business and, in any such case, any reimbursement
obligations in connection therewith;
(11)
Indebtedness of National Waterworks or any Restricted Subsidiary to
the extent the net proceeds thereof are promptly deposited to defease
all outstanding notes in full as described below under the covenant
"—Legal Defeasance and Covenant defeasance;"
(12)
contingent liabilities arising out of endorsements of checks and
other negotiable instruments for deposit or collection or overdraft
protection in the ordinary course of business;
(13)
the incurrence by a Receivables Subsidiary of Indebtedness in a
Qualified Receivables Transaction;
provided
that such Indebtedness is
non-recourse to National Waterworks or any of its Restricted
Subsidiaries (except to the extent of customary representations,
warranties, covenants and indemnities entered into in connection with a
Qualified Receivables Transaction);
(14)
obligations of National Waterworks and its Restricted Subsidiaries
arising from agreements of National Waterworks or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price
or similar obligations, in each case incurred or assumed in connection
with the disposition of any business, assets or a Subsidiary of National
Waterworks in accordance with the terms of the indenture, other than
Guarantees by National Waterworks or any Restricted Subsidiary of
National Waterworks of Indebtedness incurred by any Person acquiring all
or any portion of such business, assets or a Subsidiary of National
Waterworks for the purpose of financing such acquisition;
provided,
however,
that the maximum aggregate liability in respect of all such
obligations shall not exceed the gross proceeds, including the fair
market value as determined in good faith by a majority of the Board of
Directors of National Waterworks of non-cash proceeds (the fair market
value of such non-cash proceeds being measured at the time it is
received and without giving effect to any subsequent changes in value),
actually received by National Waterworks and its Restricted Subsidiaries
in connection with such
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disposition; and
(15)
the incurrence by National Waterworks or any of its Restricted
Subsidiaries of additional Indebtedness, the issuance by National
Waterworks of Disqualified Stock or the issuance by a Restricted
Subsidiary of preferred stock in an aggregate principal amount or
liquidation preference at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness, Disqualified Stock or preferred stock incurred pursuant to
this clause (15), not to exceed $30.0 million.
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, in the event that an item of
proposed Indebtedness meets the criteria of more than one of the categories of
Permitted Debt described in clauses (1) through (15) above, or is entitled to
be incurred pursuant to the first paragraph of this covenant, National
Waterworks will be permitted to classify such item of Indebtedness on the date
of its incurrence, or later reclassify all or a portion of such item of
Indebtedness, in any manner that complies with this covenant. Indebtedness
under Credit Facilities outstanding on November 22, 2002, the date on which
notes were first issued and authenticated under the indenture, will initially
be deemed to have been incurred pursuant to clause (1) of the definition of
Permitted Debt. Indebtedness permitted by this covenant need not be permitted
by reference to one provision permitting such Indebtedness but may be permitted
in part by one such provision and in part by one or more other provisions of
this covenant permitting such Indebtedness.
The accrual of interest, the accretion or amortization of original issue
discount, the payment of interest and dividends on any Indebtedness in the form
of additional Indebtedness with the same terms, and the payment or accrual of
dividends on Disqualified Stock or preferred stock in the form of additional
shares of the same class of Disqualified Stock or preferred stock will not be
deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock
or preferred stock for purposes of this covenant.
No Senior Subordinated Debt
National Waterworks will not incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Senior Debt of National Waterworks and senior in right
of payment to the notes. No Guarantor will incur, create, issue, assume,
guarantee or otherwise become liable for any Indebtedness that is subordinate
or junior in right of payment to the Senior Debt of such Guarantor and senior
in right of payment to such Guarantor's subsidiary guarantee.
Liens
National Waterworks will not and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien of any kind securing Indebtedness (other than
Permitted Liens) upon any of their property or assets, now owned or hereafter
acquired, unless all payments due under the indenture and the notes are secured
on an equal and ratable basis with the obligations so secured until such time
as such obligations are no longer secured by a Lien.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
National Waterworks will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to:
(1)
pay dividends or make any other distributions on its Capital Stock to
National Waterworks or any of its Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its
profits, or pay any indebtedness owed to National Waterworks or any of
its Restricted Subsidiaries;
(2)
make loans or advances to National Waterworks or any of its
Restricted Subsidiaries; or
(3)
transfer any of its properties or assets to National Waterworks or
any of its Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1)
agreements governing Existing Indebtedness and Credit Facilities as
in effect on the date of the indenture and any amendments,
modifications, restatements, renewals, increases, extensions,
supplements, refundings, replacements or refinancings of any of the
foregoing, provided that the amendments, modifications, restatements,
renewals, increases,
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extensions, supplements, refundings, replacement or refinancings of such
instrument are not materially more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than those
contained in such agreement on the date of the indenture;
(2)
the indenture, the notes and the subsidiary guarantees;
(3)
applicable law or any applicable rule or regulation;
(4)
any instrument governing Indebtedness or Capital Stock of a Person
acquired by National Waterworks or any of its Restricted Subsidiaries as
in effect at the time of such acquisition (except to the extent such
Indebtedness or Capital Stock was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so
acquired,
provided
that, in the case of Indebtedness, such Indebtedness
was permitted by the terms of the indenture to be incurred;
(5)
customary non-assignment provisions in leases, licenses or similar
contracts entered into in the ordinary course of business or that
restrict the subletting, assignment or transfer of any property or asset
that is subject to a lease, license or similar contract;
(6)
purchase money obligations for property acquired in the ordinary
course of business that restrict the transfer of such property;
provided
that any such encumbrance or restriction is released to the extent the
underlying Lien is released or the related Indebtedness is repaid;
(7)
any agreement for the sale or other disposition of a Restricted
Subsidiary or the assets of a Restricted Subsidiary pending the sale or
other disposition of such assets or Restricted Subsidiary;
(8)
Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are not materially more restrictive, taken as a whole, than
those contained in the agreements governing the Indebtedness being
refinanced;
(9)
Liens securing Indebtedness otherwise permitted to be incurred under
the provisions of the covenants described above under the caption
"—Liens" and "—Incurrence of Indebtedness and Issuance of preferred
stock" that limit the right of the debtor to dispose of or transfer the
assets subject to such Liens;
(10)
any transfer of, agreement to transfer, or option or right with
respect to, any property or assets of National Waterworks or any
Restricted Subsidiary not otherwise prohibited by the indenture;
(11)
provisions with respect to the disposition or distribution of assets
or property and other customary provisions in joint venture agreements,
asset sale agreements, stock sale agreements and other similar
agreements entered into in the ordinary course of business;
(12)
restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business;
(13)
Indebtedness permitted to be incurred pursuant to clause (4) of the
second paragraph of the covenant described under "—Incurrence of
Indebtedness and Issuance of Preferred Stock" for property acquired in
the ordinary course of business that only imposes encumbrances or
restrictions on the property so acquired;
(14)
net worth provisions in leases and other agreements entered into by
National Waterworks or any Restricted Subsidiary in the ordinary course
of business;
(15)
Indebtedness or other contractual requirements of a Receivables
Subsidiary in connection with a Qualified Receivables Transaction,
provided that such restrictions apply only to such Receivables
Subsidiary; and
(16)
agreements governing Indebtedness permitted to be incurred pursuant
to the covenant described under "—Incurrence of Indebtedness and
Issuance of Preferred Stock," provided that the provisions relating to
such encumbrance or restriction contained in such Indebtedness, taken as
a whole, are not materially more restrictive to National Waterworks, as
determined
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by the Board of Directors of National Waterworks in their reasonable and
good faith judgment, than the provisions contained in the Credit Agreement
or the indenture as in effect on the date of the indenture.
Merger, Consolidation or Sale of Assets
National Waterworks may not, directly or indirectly: (1) consolidate or merge
with or into another Person (whether or not National Waterworks is the
surviving corporation); or (2) sell, assign, transfer, convey or otherwise
dispose of all or substantially all of the properties or assets of National
Waterworks and its Restricted Subsidiaries taken as a whole, in one or more
related transactions, to another Person; unless:
(1)
either: (a) National Waterworks is the surviving corporation; or (b)
the Person formed by or surviving any such consolidation or merger (if
other than National Waterworks) or to which such sale, assignment,
transfer, conveyance or other disposition has been made is either (i) a
corporation organized or existing under the laws of the United States,
any state of the United States or the District of Columbia or (ii) a
partnership or limited liability company organized or existing under the
laws of the United States, any state thereof or the District of Columbia
that has at least one Restricted Subsidiary that is a corporation
organized or existing under the laws of the United Sates, any state
thereof or the District of Columbia, which corporation becomes a
co-issuer of the notes pursuant to a supplemental indenture duly and
validly executed by the trustee;
(2)
the Person formed by or surviving any such consolidation or merger
(if other than National Waterworks) or the Person to which such sale,
assignment, transfer, conveyance or other disposition has been made
assumes all the obligations of National Waterworks under the notes, the
indenture and the Exchange and Registration Rights Agreement pursuant to
agreements reasonably satisfactory to the trustee;
(3)
immediately after such transaction no Default or Event of Default
exists; and
(4)
National Waterworks or the Person formed by or surviving any such
consolidation or merger (if other than National Waterworks), or to which
such sale, assignment, transfer, conveyance or other disposition has
been made will, on the date of such transaction after giving pro forma
effect thereto and any related financing transactions as if the same had
occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described above under the caption "—Incurrence of
Indebtedness and Issuance of Preferred Stock."
Notwithstanding clauses (3) and (4) of the preceding paragraph, National
Waterworks may merge or consolidate with a Restricted Subsidiary incorporated
solely for the purpose of organizing National Waterworks in another
jurisdiction.
In addition, National Waterworks may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This "Merger, Consolidation or Sale of
Assets" covenant will not apply to a sale, assignment, transfer, conveyance or
other disposition of assets between or among National Waterworks and any of its
Restricted Subsidiaries.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if no Default has occurred and is continuing at the
time of the designation and if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the
aggregate fair market value of all outstanding Investments owned by National
Waterworks and its Restricted Subsidiaries in the Subsidiary properly
designated will be deemed to be an Investment made as of the time of the
designation and will reduce the amount available for Restricted Payments under
the first paragraph of the covenant described above under the caption
"—Restricted Payments" or Permitted Investments, as determined by National
Waterworks. That designation will only be permitted if the Investment would be
permitted at that time and if the Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary. In addition, no such designation may
be made unless the proposed Unrestricted Subsidiary does not own any Capital
Stock in any Restricted Subsidiary that is not simultaneously subject to
designation as an Unrestricted Subsidiary. The Board of Directors may
redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if the
redesignation would not cause a Default.
Transactions with Affiliates
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National Waterworks will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1)
the Affiliate Transaction is on terms that are no less favorable to
National Waterworks or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by National
Waterworks or such Restricted Subsidiary with an unrelated Person; and
(2)
National Waterworks delivers to the trustee:
(a)
with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, a resolution of the Board of Directors set forth in an
officers' certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board
of Directors in good faith; and
(b)
with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$20.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national
standing.
The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1)
any employment agreement entered into by National Waterworks or any
of its Restricted Subsidiaries in the ordinary course of business;
(2)
transactions between or among National Waterworks and/or its
Restricted Subsidiaries;
(3)
transactions with a Person that is an Affiliate of National
Waterworks solely because National Waterworks owns an Equity Interest
in, or controls, such Person;
(4)
payment of reasonable directors fees to Persons who are not employees
of Holdings, National Waterworks or its Subsidiaries and other
reasonable fees, compensation, benefits and indemnities paid or entered
into by National Waterworks or its Restricted Subsidiaries in the
ordinary course of business to or with the officers, directors or
employees of National Waterworks and its Restricted Subsidiaries;
(5)
sales, grants, awards or issuances of Equity Interests (other than
Disqualified Stock), including the exercise of options and warrants, to
Affiliates, officers, directors or employees of National Waterworks or
any contribution to the common equity capital of National Waterworks by
Affiliates of National Waterworks;
(6)
transactions involving National Waterworks or any of its Restricted
Subsidiaries, on the one hand, and JPMorgan Securities Inc., JPMorgan
Chase Bank or Chase Lincoln First Commercial Corp. on the other hand, in
connection with the offering of the notes, the Acquisition and
transactions related thereto, the Credit Agreement and any amendment,
modification, supplement, extension, refinancing, replacement, work-out,
restructuring and other transactions related thereto, or any management,
financial advisory, financing, underwriting or placement services or any
other investment banking, banking or similar services, which payments
are approved by a majority of the disinterested members of the Board of
Directors in good faith;
(7)
as long as National Waterworks is a member of a consolidated (or
combined) group filing a consolidated (or combined) return of which
Holdings is the parent, payments pursuant to the tax allocation
agreement as in effect on the date of the indenture (or as the same may
be amended, modified or replaced from time to time so long as any such
amendment, modification or replacement, taken as a whole, is no less
favorable to the Holders than the contract or agreement as in effect on
the date of the indenture) to permit Holdings to pay taxes that are then
due and owing and are attributable to the operations of National
Waterworks;
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(8)
Restricted Payments and Permitted Investments (other than Permitted
Investments contemplated by clause (15) of the definition of "Permitted
Investments") that are permitted by the provisions of the indenture
described above under the caption "—Restricted payments;"
(9)
transactions effected as part of a Qualified Securitization
Transaction permitted under the covenant described above under the
caption "—Incurrence of Indebtedness and Issuance of Preferred Stock;"
(10)
the existence or performance by National Waterworks or any of its
Restricted Subsidiaries of the provisions of the Acquisition Agreement,
the Credit Agreement, the Purchase Agreement, the Exchange and
Registration Rights Agreement, the Stockholders Agreement, the
Registration Rights Agreement, the Subscription and Stock Purchase
Agreement, the Fee Agreement and any other agreements (other than the
Management Agreement, which is addressed in clause (11) below) described
under the caption "Management" or "Certain Relationships and Related
Party Transactions" or any amendment thereto or replacement agreement
therefor or any transaction contemplated thereby so long as such
amendment or replacement is not more disadvantageous to the Holders of
the notes in any material respect than the original agreement as in
effect on the date of the indenture; and
(11)
so long as no Default has occurred and is continuing or would be
caused thereby, the existence or performance by National Waterworks or
any of its Restricted Subsidiaries of the provisions of the Management
Agreement described under "Certain Relationships and Related Party
Transactions" or any amendment thereto or replacement agreement therefor
or any transaction contemplated thereby so long as such amendment or
replacement is not more disadvantageous to the Holders of the notes in
any material respect than the original agreement as in effect on the
date of the indenture.
Future Subsidiary Guarantees
If National Waterworks or any of its Restricted Subsidiaries acquires or
creates another Domestic Subsidiary or if any Restricted Subsidiary becomes a
Domestic Subsidiary after the date of the indenture, then that newly acquired
or created Domestic Subsidiary (other than a Receivables Subsidiary) will
become a Guarantor and execute a supplemental indenture and deliver an opinion
of counsel satisfactory to the trustee within 20 Business Days of the date on
which it was acquired or created or became a Domestic Subsidiary,
provided,
however
, that all Subsidiaries that have properly been designated as
Unrestricted Subsidiaries in accordance with the indenture for so long as they
continue to constitute Unrestricted Subsidiaries will not have to comply with
the requirements of this covenant. Each subsidiary guarantee will be limited to
an amount not to exceed the maximum amount that can be guaranteed by that
Domestic Subsidiary without rendering the subsidiary guarantee, as it relates
to such Domestic Subsidiary, void or voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally.
Business Activities
National Waterworks will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent
as would not be material to National Waterworks and its Restricted Subsidiaries
taken as a whole.
Reports
Whether or not required by the Securities and Exchange Commission (the "SEC"),
so long as any notes are outstanding, National Waterworks will furnish to the
Holders of notes, within the time periods specified in the SEC's rules and
regulations:
(1)
all quarterly and annual financial information that would be required
to be contained in a filing with the SEC on Forms 10-Q and 10-K if
National Waterworks were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and, with respect to the annual information only, a
report on the annual financial statements by National Waterworks'
certified independent accountants; and
(2)
all current reports that would be required to be filed with the SEC
on Form 8-K if National Waterworks were required to file such reports;
provided, however
, if the registration statement of which this prospectus is a
part, as declared effective by the SEC, includes audited financial statements
of National Waterworks for the year ending December 31, 2002, then the first
such reports required to be filed and furnished to the Holders of the notes by
National Waterworks following the issue date of the notes shall be the Form
10-Q for the
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quarter ending March 31, 2003. In addition, if at any time Holdings becomes
a Guarantor of the notes (there being no obligation of Holdings to do so) and
complies with the requirements of Rule 3-10 of Regulation S-X promulgated by
the SEC (or any successor provision), the reports, information and other
documents required to be filed and furnished to Holders of the notes pursuant
to this covenant may, at the option of National Waterworks, be filed by and be
those of Holdings rather than National Waterworks.
In addition, whether or not required by the SEC, National Waterworks will file
a copy of all of the information and reports referred to in clauses (1) and (2)
above with the SEC for public availability within the time periods specified in
the SEC's rules and regulations (unless the SEC will not accept such a filing)
and make such information available to securities analysts and prospective
investors upon request. In addition, National Waterworks and its Restricted
Subsidiaries have agreed that, for so long as any notes remain outstanding,
they will furnish to the Holders of the notes and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Events of Default and Remedies
Each of the following is an Event of Default:
(1)
default for 30 days in the payment when due of interest on the notes,
whether or not prohibited by the subordination provisions of the
indenture;
(2)
default in payment when due of the principal of, or premium, if any,
on the notes, including in connection with an Asset Sale Offer or a
Change of Control Offer, whether or not prohibited by the subordination
provisions of the indenture;
(3)
failure by National Waterworks or any of its Restricted Subsidiaries
to comply with the provisions described under the caption "—Certain
covenants—Merger, Consolidation or Sale of Assets;"
(4)
failure by National Waterworks or any of its Restricted Subsidiaries
to comply for 30 days after written notice (specifying the default and
demanding that the same be remedied) with any obligations under the
covenants described under "—Repurchase at Option of Holders— Change of
Control" and "—Repurchase at Option of Holders—Asset Sales" (in each
case, other than a failure to purchase notes, which is covered by clause
(2) above), "—Certain covenants— Restricted payments" and "—Certain
Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock"
above;
(5)
failure by National Waterworks or any of its Restricted Subsidiaries
for 60 days after written notice (specifying the default and demanding
that the same be remedied) to comply with any of the other agreements in
the notes, the indenture or the subsidiary guarantees;
(6)
default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by National Waterworks, any of its
Significant Subsidiaries or any group of Restricted Subsidiaries of
National Waterworks that, taken together, would constitute a Significant
Subsidiary (or the payment of which is guaranteed by National
Waterworks, any of its Significant Subsidiaries or any group of
Restricted Subsidiaries of National Waterworks that, taken together,
would constitute a Significant Subsidiary) whether such Indebtedness or
guarantee now exists, or is created after the date of the indenture, if
that default:
(a)
is caused by a failure to pay principal of, or interest or
premium, if any, on such Indebtedness within any applicable grace
period provided in such Indebtedness (a "Payment Default"); or
(b)
results in the acceleration of such Indebtedness prior to its
expressed maturity, and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other
Indebtedness contemplated by clause (a) or (b) above, aggregates
$15.0 million or more and such default continues for 10 days after
receipt of the written notice (specifying the default and demanding
that the same be remedied) referred to below;
(7)
failure by National Waterworks, any of its Significant Subsidiaries
or any group of Restricted Subsidiaries of National Waterworks that,
taken together, would constitute a Significant Subsidiary, to pay final
judgments aggregating in excess of $15.0 million (net of any amounts
covered by insurance or pursuant to which National Waterworks is
indemnified or for which payments are guaranteed in accordance with the
Acquisition Agreement, to the extent that the third party under such
agreement honors its obligations thereunder), which judgments are not
paid, discharged or stayed for a period of 60 days;
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(8)
except as permitted by the indenture, any guarantee of a Guarantor
that is a Significant Subsidiary or the guarantees of any group of
Guarantors that, taken together, would constitute a Significant
Subsidiary shall be held in any judicial proceeding to be unenforceable

or invalid or shall cease for any reason to be in full force and effect
or any Guarantor that is a Significant Subsidiary, any group of
Guarantors that, taken together, would constitute a Significant
Subsidiary or any Person acting on behalf of any such Guarantor or
group, shall deny or disaffirm its obligations under its subsidiary
guarantee and such default continues for ten days after receipt of the
notice specified in the indenture; and
(9)
certain events of bankruptcy, insolvency or reorganization with
respect to National Waterworks, any of its Significant Subsidiaries or
any group of Restricted Subsidiaries of National Waterworks that, taken
together, would constitute a Significant Subsidiary.
In the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to National Waterworks, any Significant Subsidiary or
any group of Restricted Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding notes will become due and payable
immediately without further action or notice. If any other Event of Default
occurs and is continuing, the trustee or the Holders of at least 25% in
aggregate principal amount of the then outstanding notes may declare all the
notes to be due and payable immediately;
provided
that so long as any
Indebtedness permitted to be incurred pursuant to the Credit Agreement shall be
outstanding, such acceleration shall not be effective until the earlier of (1)
the acceleration of any Indebtedness under the Credit Agreement or (2) five
business days after receipt by National Waterworks of written notice of such
acceleration. A default under clauses (4), (5), (6) or (8) will not constitute
an Event of Default until the trustee notifies National Waterworks or the
Holders of at least 25% in aggregate principal amount of the outstanding notes
notify National Waterworks and the trustee of the default and National
Waterworks or its Subsidiary, as applicable, does not cure such default within
the time specified in clauses (4), (5), (6) or (8) after receipt of such
notice.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding notes may direct the
trustee in its exercise of any trust or power. The trustee may withhold from
Holders of the notes notice of any continuing Default or Event of Default if it
determines that withholding notice is in their interest, except a Default or
Event of Default relating to the payment of principal or interest.
The Holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the Holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest or premium, if any, on, or the principal of, the notes.
National Waterworks is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, National Waterworks is required to deliver to the trustee a
statement specifying such Default or Event of Default.
No Personal Liability Of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of National
Waterworks or any Guarantor, as such, will have any liability for any
obligations of National Waterworks or the Guarantors under the notes, the
indenture, the subsidiary guarantees, or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder of notes by
accepting a note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the notes. The waiver may not be
effective to waive liabilities under the federal securities laws.
Legal Defeasance and Covenant Defeasance
National Waterworks may, at its option and at any time, elect to have all of
its obligations discharged with respect to the outstanding notes and all
obligations of the Guarantors discharged with respect to their subsidiary
guarantees ("Legal Defeasance") except for:
(1)
the rights of Holders of outstanding notes to receive payments in
respect of the principal of, or interest or premium, if any, on such
notes when such payments are due from the trust referred to below;
(2)
National Waterworks' obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed,
lost or stolen notes and the maintenance of an office or agency for
payment and money for security payments held in trust;
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(3)
the rights, powers, trusts, duties and immunities of the trustee, and
the related obligations of National Waterworks and the Guarantors; and
(4)
the Legal Defeasance provisions of the indenture.
In addition, National Waterworks may, at its option and at any time, elect to
have the obligations of National Waterworks and the Guarantors released with
respect to:
(1)
the covenants described under "—Certain Covenants" (other than
"—Merger, Consolidation or Sale of Assets") and "—Repurchase at Option
of Holders;" and
(2)
the operation of the default provisions specified in clauses (3)
(with respect to an Asset Sale Offer or a Change of Control Offer only),
(4), (5), (6), (7) and, with respect to Significant Subsidiaries only,
clause (9) described above under "—Events of Defaults and Remedies" and
the limitations contained in clause (4) under the first paragraph of
"—Merger, Consolidation or Sale of Assets" above (collectively,
"Covenant Defeasance").
National Waterworks may exercise its legal defeasance option notwithstanding
its prior exercise of its covenant defeasance option. If National Waterworks
exercises its legal defeasance option, payment of the notes may not be
accelerated because of an Event of Default with respect to the notes. If
National Waterworks exercises its covenant defeasance option, payment of the
notes may not be accelerated because of an Event of Default specified in clause
(3) (with respect to an Asset Sale Offer or a Change of Control Offer only),
(4), (5), (6), (7) or (9) (with respect to Significant Subsidiaries or a group
which constitutes a Significant Subsidiary only) under "Events of Default"
above or because of the failure of National Waterworks to comply with clause
(4) under "Certain Covenants—Merger and Consolidation" above.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1)
National Waterworks must irrevocably deposit with the trustee, in
trust, for the benefit of the Holders of the notes, cash in U.S.
dollars, non-callable Government Securities, or a combination of cash in
U.S. dollars and non-callable Government Securities, in amounts as will
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, or interest and
premium, if any, on the outstanding notes on the stated maturity or on
the applicable redemption date, as the case may be, and National
Waterworks must specify whether the notes are being defeased to maturity
or to a particular redemption date;
(2)
in the case of Legal Defeasance, National Waterworks must deliver to
the trustee an opinion of counsel reasonably acceptable to the trustee
confirming that (a) National Waterworks has received from, or there has
been published by, the 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 will confirm that, the Holders of the
outstanding notes 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;
(3)
in the case of Covenant Defeasance, National Waterworks must deliver
to the trustee an opinion of counsel reasonably acceptable to the
trustee to the effect that the Holders of the outstanding notes 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;
(4)
no Default or Event of Default may have occurred and be continuing on
the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit);
(5)
such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which National
Waterworks or any of its Subsidiaries is a party or by which National
Waterworks or any of its Subsidiaries is bound;
(6)
National Waterworks must deliver to the trustee an officers'
certificate stating that the deposit was not made by National
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Waterworks with the intent of preferring the Holders of notes over the
other creditors of National Waterworks with the intent of defeating,
hindering, delaying or defrauding creditors of National Waterworks or
others; and
(7)
National Waterworks must deliver to the trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent relating to the Legal Defeasance or the Covenant Defeasance
have been complied with.
Amendment, Supplement and Waiver
Except as provided in the next three succeeding paragraphs, the indenture, the
notes and the subsidiary guarantees may be amended or supplemented with the
consent of the Holders of at least a majority in principal amount of the notes
(including any Additional Notes, if any) then outstanding voting as a single
class (including, without limitation, consents obtained in connection with a
purchase of, or tender offer or exchange offer for, notes), and any existing
default or Event of Default or compliance with any provision of the indenture
or the notes or the subsidiary guarantees may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding notes voting
as a single class (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting Holder):
(1)
reduce the principal amount of notes whose Holders must consent to an
amendment, supplement or waiver;
(2)
reduce the principal of or change the fixed maturity of any note or
alter or waive the provisions with respect to the redemption of the
notes (other than provisions relating to the covenants described above
under the caption "—Repurchase at the Option of Holders");
(3)
reduce the rate of or change the time for payment of interest on any
note;
(4)
waive a Default or Event of Default in the payment of principal of,
or interest or premium, if any, on the notes (except a rescission of
acceleration of the notes by the Holders of at least a majority in
aggregate principal amount of the notes and a waiver of the payment
default that resulted from such acceleration);
(5)
make any note payable in money other than that stated in the notes;
(6)
make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of Holders of notes to receive
payments of principal of, or interest or premium, if any, on the notes;
(7)
waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the
caption "—Repurchase at the Option of Holders");
(8)
release any Guarantor from any of its obligations under its
subsidiary guarantee or the indenture, except in accordance with the
terms of the indenture;
(9)
make any change in the preceding amendment and waiver provisions; or
(10)
impair the right of any Holder to receive payment of principal of,
and interest on, such Holder's notes on or after the due dates therefor
or to institute suit for the enforcement of any payment on or with
respect to such Holder's notes.
In addition, any amendment to, or waiver of, the provisions of the indenture
relating to subordination that adversely affects the rights of the Holders of
the notes will require the consent of the Holders of at least 75% in aggregate
principal amount of notes then outstanding.
Notwithstanding the preceding, without the consent of any Holder of notes,
National Waterworks, the Guarantors and the trustee may amend or supplement the
indenture or the notes or the subsidiary guarantees:
(1)
to cure any ambiguity, defect or inconsistency;
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(2)
to provide for uncertificated notes in addition to or in place of
certificated notes;
(3)
to provide for the assumption of National Waterworks' or any
Guarantor's obligations to Holders of notes in the case of a merger or
consolidation or sale of all or substantially all of National
Waterworks' or a Guarantor's assets;
(4)
to make any change that would provide any additional rights or
benefits to the Holders of notes or that does not adversely affect the
legal rights under the indenture of any such Holder;
(5)
to add a Guarantor;
(6)
to comply with requirements of the SEC in order to effect or maintain
the qualification of the indenture under the Trust Indenture Act;
(7)
to make any change in the subordination provisions of the indenture
that would limit or terminate the benefits available to any holder of
Senior Debt of National Waterworks (or any representative thereof) under
such subordination provisions;
(8)
to secure the notes and the subsidiary guarantees; or
(9)
to provide for the issuance of Additional Notes in accordance with
the terms of the indenture.
However, no amendment may be made to the subordination provisions of the
indenture that adversely affects the rights of any holder of Senior Debt of
National Waterworks or any Guarantor then outstanding unless the holders of
such Senior Debt (or any group or representative thereof authorized to give a
consent) consent to such change.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect as to
all notes and the subsidiary guarantees issued thereunder, when:
(1)
either:
(a)
all notes that have been authenticated, except lost, stolen or
destroyed notes that have been replaced or paid and notes for whose
payment money has been deposited in trust and thereafter repaid to
National Waterworks, have been delivered to the trustee for
cancellation; or
(b)
all notes that have not been delivered to the trustee for
cancellation have become due and payable by reason of the mailing of
a notice of redemption or otherwise or will become due and payable
within one year and National Waterworks or any Guarantor has
irrevocably deposited or caused to be deposited with the trustee as
trust funds in trust solely for the benefit of the Holders, cash in
U.S. dollars, non-callable Government Securities, or a combination of
cash in U.S. dollars and non-callable Government Securities, in
amounts as will be sufficient without consideration of any
reinvestment of interest, to pay and discharge the entire
indebtedness on the notes not delivered to the trustee for
cancellation for principal, premium, if any, and accrued interest to
the date of maturity or redemption;
(2)
no Default or Event of Default has occurred and is continuing on the
date of the deposit or will occur as a result of the deposit and the
deposit will not result in a breach or violation of, or constitute a
default under, any other instrument to which National Waterworks or any
Guarantor is a party or by which National Waterworks or any Guarantor is
bound;
(3)
National Waterworks or any Guarantor has paid or caused to be paid
all sums payable by it under the indenture; and
(4)
National Waterworks has delivered irrevocable instructions to the
trustee under the indenture to apply the deposited money toward the
payment of the notes at maturity or the redemption date, as the case may
be.
In addition, National Waterworks must deliver an officers' certificate and an
opinion of counsel to the trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
Concerning the Trustee
If the trustee becomes a creditor of National Waterworks or any Guarantor, the
indenture limits its right to obtain payment of claims in
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certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the SEC for permission to
continue or resign.
The Holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
occurs and is continuing, the trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
Holder of notes, unless such Holder has offered to the trustee security and
indemnity satisfactory to it against any loss, liability or expense.
Additional Information
Anyone who receives this prospectus may obtain a copy of the indenture and the
exchange and registration rights agreement without charge by writing to
National Waterworks, Inc., 200 West Highway 6, Suite 620, Waco, Texas 76712,
Attention: Chief Financial Officer; telephone number (254) 772-5355.
Book-Entry, Delivery and Form
Global notes
The notes are represented by one or more permanent definitive registered notes
in global form, without interest coupons, and are deposited with the trustee as
custodian for The Depository Trust Company ("DTC") and registered in the name
of Cede & Co., as nominee of DTC, or for the accounts of Euroclear and
Clearstream, as the case may be.
Ownership of beneficial interests in each global note are limited to persons
who have accounts with DTC ("DTC participants") or persons who hold interests
through DTC participants. We understand that under procedures established by
DTC:
•
DTC credits portions of the principal amount of the global notes to
the accounts of the DTC participants; and
•
ownership of beneficial interests in each global note is shown on,
and transfer of ownership of those interests will be effected only
through, records maintained by DTC (with respect to interests of DTC
participants) and the records of DTC participants (with respect to other
owners of beneficial interests in the global notes).
Except as set forth below, the global notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the global notes may not be exchanged for
notes in physical, certificated form except in the limited circumstances
described below.
Book-Entry Procedures for the Global Notes
All interests in the global notes are subject to the operations and procedures
of DTC, including those held through Euroclear and Clearstream. We provide the
following summaries of those operations and procedures solely for the
convenience of investors. The operations and procedures of each settlement
system are controlled by that settlement system and may be changed at any time.
We are not responsible for those operations or procedures.
DTC has advised us that it is:
•
a limited purpose trust company organized under the laws of the State of New York,
•
a "banking organization" within the meaning of New York Banking law,
•
a member of the Federal Reserve System,
•
a "clearing corporation" within the meaning of the Uniform Commercial Code, as amended, and
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•
a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act.
DTC was created to hold securities for its participants and facilitates the
clearance and settlement of securities transactions between its participants
through electronic book-entry changes to the accounts of its participants.
DTC's participants include securities brokers and dealers; banks and trust
companies; clearing corporations and other organizations. Indirect access to
DTC's system is also available to others such as banks, brokers, dealers and
trust companies; these indirect participants clear through or maintain a
custodial relationship with a DTC participant, either directly or indirectly.
Investors who are not DTC participants may beneficially own securities held by
or on behalf of DTC only through DTC participants or indirect participants in
DTC.
The laws of some states require that certain persons take physical delivery in
definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a global note to such persons may be limited
to that extent. Because DTC can act only on behalf of participants, which in
turn act on behalf of indirect participants and certain banks, the ability of a
person having beneficial interests in a global note to pledge such interests to
persons or entities that do not participate in the DTC system, or otherwise
take action in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests.
So long as DTC or its nominee is the registered owner of a global note, DTC or
such nominee, as the case may be, will be considered the sole owner or holder
of the notes represented by that global note for all purposes under the
indenture. Except as provided below, owners of beneficial interests in a global
note:
•
will not be entitled to have notes represented by the global note registered in their names;
•
will not receive or be entitled to receive physical delivery of certificated notes; and
•
will not be considered the owners or holders of the notes under the
indenture for any purpose, including with respect to the giving of any
direction, instruction or approval to the trustee under the indenture.
As a result, each holder owning a beneficial interest in a global note must
rely on the procedures of DTC to exercise any rights of a holder of notes under
the indenture (and, if the investor is not a participant or an indirect
participant in DTC, on the procedures of the DTC participant through which the
investor owns its interest). We understand that under existing industry
practice, in the event that we request any action of holders of notes, or a
holder that is an owner of a beneficial interest in a global note desires to
take any action that DTC, as the holder of such global note, is entitled to
take, DTC would authorize the participants to take such action and the
participants would authorize holders owning through such participants to take
such action or would otherwise act upon the instruction of such holders.
Neither us nor the trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of notes by DTC,
or for maintaining, supervising or reviewing any records of DTC relating to
such new notes.
Payments of principal, premium (if any) and interest with respect to the notes
represented by a global note will be made by the trustee to DTC's nominee as
the registered holder of the global note. Neither we nor the trustee will have
any responsibility or liability for the payment of amounts to owners of
beneficial interests in a global note, for any aspect of the records relating
to or payments made on account of those interests by DTC, or for maintaining,
supervising or reviewing any records of DTC relating to those interests.
Payments by participants and indirect participants in DTC to the owners of
beneficial interests in a global note will be governed by standing instructions
and customary industry practice and will be the responsibility of those
participants or indirect participants and DTC.
Transfers between participants in DTC will be effected under DTC's procedures
and will be settled in same-day funds. Transfers between participants in
Euroclear and Clearstream will be effected in the ordinary way in accordance
with their respective rules and operating procedures.
Cross-market transfers between DTC participants, on the one hand, and Euroclear
or Clearstream participants on the other hand, will be effected by DTC in
accordance with DTC rules on behalf of Euroclear or Clearstream, as the case
may be, by its respective depositary; however, such cross-market transactions
will require delivery of instructions to Euroclear or Clearstream, as the case
may be, by the counterparty in such system in accordance with the rules and
procedures and within the established deadlines (Brussels time) of such system.
Euroclear or Clearstream, as the case may be, will if the transaction meets its
settlement requirements, deliver instructions to its respective depositary to
take action to effect final settlement on its behalf by delivering or receiving
interests in the relevant global note in DTC, and making or receiving payment
in accordance with normal procedures for same day funds settlement
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applicable to DTC. Euroclear participants and Clearstream participants may not
deliver instructions directly to the depositaries for Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a global note from a DTC
participant will be credited, and any such crediting will be reported to the
relevant Euroclear or Clearstream participant, during the securities settlement
processing day (which must be a business day for Euroclear and Clearstream)
immediately following the DTC settlement date. Cash received on Euroclear or
Clearstream as a result of sales of interests in a global note by or through a
Euroclear or Clearstream participants to a DTC participant will be received
with value on the DTC settlement date but will be available in the relevant
Euroclear or Clearstream cash account only as of the business day for Euroclear
or Clearstream following the DTC settlement date.
Although DTC, Euroclear and Clearstream have agreed to the foregoing procedures
in order to facilitate transfers of beneficial ownership interests in the
global notes among participants of DTC, Euroclear and Clearstream, they are
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued or modified at any time. None of National
Waterworks, the trustee nor any of their respective agents will have any
responsibility for the performance by DTC, Euroclear and Clearstream, their
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations, including maintaining,
supervising or reviewing the records relating to, or payments made on account
of, beneficial ownership interests in global notes.
Certificated Notes
Notes in physical, certificated form will be issued and delivered to each
person that DTC identifies as a beneficial owner of the related notes only if:
•
DTC notifies National Waterworks at any time that it is unwilling or
unable to continue as depositary for the global notes and a successor
depositary is not appointed within 120 days;
•
DTC ceases to be registered as a clearing agency under the Securities
Exchange Act of 1934 and a successor depositary is not appointed within
120 days;
•
in the case of a note held for an account of Euroclear or
Clearstream, Euroclear or Clearstream, as the case may be, is closed for
business for a continuous period of 14 days, other than by reason of
statutory or other holidays, or announces an intention permanently to
cease business or does in fact do so; or
•
there shall have occurred and be continuing an Event of Default with
respect to the notes.
In all cases, certificated notes delivered in exchange for any global note or
beneficial interests therein will be registered in the names, and issued in
approved denominations, requested by or on behalf of DTC (in accordance with
its customary procedures). Any such exchange will be effected only through the
DWAC System and an appropriate adjustment will be made in the records of the
Security Register to reflect a decrease in the principal amount of the relevant
global note.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference is
made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired
Debt
"
means, with respect to any specified Person:
(1)
Indebtedness of any other Person existing at the time such other
Person is merged with or into, or became a Subsidiary of, such specified
Person, whether or not such Indebtedness is incurred in connection with,
or in contemplation of, such other Person merging with or into, or
becoming a Subsidiary of, such specified Person; and
(2)
Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Acquisition"
means the purchase by National Waterworks of substantially all of
the assets and businesses of, and the assumption of
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certain liabilities and obligations of, U.S. Filter which occurred on the date
of the indenture.
"Acquisition Agreement"
means that certain Asset Purchase Agreement, dated as
of September 12, 2002, by and among United States Filter Corporation, U.S.
Filter Distribution Group, Inc. and Blue Acquisition Corp. (which has
subsequently changed its name to National Waterworks, Inc.).
"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 purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise;
provided
that beneficial ownership of 10% or more of
the Voting Stock of a Person will be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings. No Person (other than National Waterworks or
any Subsidiary of National Waterworks) in whom a Receivables Subsidiary makes
an Investment in connection with a Qualified Receivables Transaction will be
deemed to be an Affiliate of National Waterworks or any of its Subsidiaries
solely by reason of such Investment.
"Applicable Premium"
means, with respect to any note on any applicable
redemption date, the greater of:
(1)
1.0% of the then outstanding principal amount of the note; and
(2)
the excess of:
(a)
the present value at such redemption date of (i) the redemption
price of the note at December 1, 2007 (such redemption price being
set forth in the table appearing above under the caption "—Optional
Redemption") plus (ii) all required interest payments due on the note
through December 1, 2007 (excluding accrued but unpaid interest),
computed using a discount rate equal to the Treasury Rate as of such
redemption date plus 50 basis points; over
(b)
the then outstanding principal amount of the note.
"Asset Sale"
means:
(1)
the sale, lease (other than an operating lease entered into in the
ordinary course of business), conveyance or other disposition of any
assets or rights of National Waterworks or any Restricted Subsidiary;
provided that the sale, conveyance or other disposition of all or
substantially all of the assets of National Waterworks and its
Restricted Subsidiaries taken as a whole will be governed by the
provisions of the indenture described above under the caption
"—Repurchase at the Option of Holders—Change of Control" and/or the
provisions described above under the caption "—Certain Covenants—Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset
Sale covenant; and
(2)
the issuance of Equity Interests in any of National Waterworks'
Restricted Subsidiaries or the sale of Equity Interests in any of its
Subsidiaries (in each case other than directors' qualifying Equity
Interests or Equity Interests required by applicable law to be held by a
Person other than National Waterworks or a Restricted Subsidiary).
Notwithstanding the preceding, the following items will not be deemed to be
Asset Sales:
(1)
any single transaction or series of related transactions that
involves assets or rights having a fair market value of less than $2.0
million;
(2)
a transfer of assets between or among National Waterworks and its
Restricted Subsidiaries,
(3)
an issuance of Equity Interests by a Restricted Subsidiary to
National Waterworks or to another Restricted Subsidiary;
(4)
the sale or lease of inventory or accounts receivable in the ordinary
course of business or accounts receivable in connection with the
compromise, settlement or collection thereof;
(5)
the sale or disposition of obsolete, damaged or worn out equipment or
property in the ordinary course of business or any other property that
is uneconomic or no longer useful to the conduct of National Waterworks'
business;
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(6)
the sale or other disposition of cash or Cash Equivalents;
(7)
sales of accounts receivable and related assets of the type specified
in the definition of "Qualified Receivables Transaction" to a
Receivables Subsidiary for the fair market value thereof, including cash
in an amount at least equal to 75% of the book value thereof as
determined in accordance with GAAP, it being understood that, for the
purposes of this clause (7), notes received in exchange for the transfer
of accounts receivable and related assets will be deemed cash if the
Receivables Subsidiary or other payor is required to repay said notes as
soon as practicable from available cash collections less amounts
required to be established as reserves pursuant to contractual
agreements with entities that are not Affiliates of National Waterworks
entered into as part of a Qualified Receivables Transaction; or
(8)
a Restricted Payment or Permitted Investment that is permitted by the
covenant described above under the caption "—Certain
Covenants—Restricted Payments."
"Beneficial Owner"
has the meaning assigned to such term in Rule 13d-3 and Rule
13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" will be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.
"Board of Directors"
means:
(1)
with respect to a corporation, the board of directors of the
corporation;
(2)
with respect to a partnership or limited liability company, the
managing general partner or partners or the managing member or members
or any controlling committee of partners or members, as applicable; and
(3)
with respect to any other Person, any similar governing body.
"Capital Lease Obligation"
means, at the time any determination is to be made,
the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance
with GAAP, and the stated maturity thereof shall be the date of the last
payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be prepaid by the lessee without
payment of a penalty.
"Capital Stock"
means:
(1)
in the case of a corporation, corporate stock;
(2)
in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3)
in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4)
any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions
of assets of, the issuing Person.
"Cash Equivalents"
means:
(1)
United States dollars;
(2)
securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality of the United
States government (
provided
that the full faith and credit of the United
States is pledged in support of those securities) having maturities of
not more than six months from the date of acquisition;
(3)
marketable general obligations issued by any state of the United
States or any political subdivision of any such state or any
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public instrumentality thereof maturing within one year of the date of
acquisition and at the time of acquisition rated "A" or better from either
of Moody's Investors Service Inc. or Standard & Poor's Rating Services;
(4)
certificates of deposit, time deposits and Eurodollar time deposits
or bankers acceptances' with maturities of one year or less from the
date of acquisition, and overnight bank deposits, in each case, with any
lender party to the Credit Agreement or with any commercial bank having
capital and surplus in excess of $500.0 million;
(5)
repurchase obligations with a term of not more than six months for
underlying securities of the types described in clauses (2), (3) and (4)
above entered into with any financial institution meeting the
qualifications specified in clause (4) above;
(6)
commercial paper rated at the time of acquisition thereof at least
A-1 or the equivalent by Moody's Investors Service, Inc. or at least P-1
or the equivalent by Standard & Poor's Rating Services (or carrying an
equivalent rating by a nationally recognized rating agency if both the
two named agencies cease publishing ratings of investments) and in each
case maturing within one year after the date of acquisition; and
(7)
interests in investment companies or money market funds at least 95%
of the assets of which constitute cash and Cash Equivalents of the kinds
described in clauses (1) through (7) of this definition.
"Change of Control"
means the occurrence of any of the following:
(1)
(A) prior to the first public offering of Capital Stock of either
Holdings or National Waterworks, the first day on which Holdings ceases
to own 100% of the outstanding Voting Stock of National Waterworks, and
(B) after the first public offering of Capital Stock of either Holdings
or National Waterworks, (i) if such public offering is of Holdings'
Capital Stock, the first day on which Holdings ceases to own 100% of the
outstanding Voting Stock of National Waterworks or (ii) if such public
offering is of National Waterworks' Capital Stock, the date on which any
person (as defined in clause (2) below), other than the Permitted
Holders or a Permitted Group, becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the Voting Stock of National Waterworks,
measured by voting power rather than number of shares;
(2)
the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the
properties or assets of National Waterworks and its Restricted
Subsidiaries, taken as a whole, to any "person" (as that term is used in
Section 13(d)(3) of the Exchange Act) other than a Permitted Holder or a
Permitted Group;
(3)
the adoption of a plan relating to the liquidation or dissolution of
Holdings or National Waterworks;
(4)
(A) prior to the first public offering of Capital Stock of either
Holdings or National Waterworks, the consummation of any transaction
(including, without limitation, any merger or consolidation) the result
of which is that any person (as defined above), other than a Permitted
Holder or a Permitted Group, becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the Voting Stock of Holdings, measured
by voting power rather than number of shares, and (B) after the first
public offering of Capital Stock of either Holdings or National
Waterworks, (i) if such public offering is of Holdings' Capital Stock,
the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any person (as
defined above), other than a Permitted Holder or a Permitted Group,
becomes the Beneficial Owner, directly or indirectly, of more than 50%
of the Voting Stock of Holdings, measured by voting power rather than
number of shares, or (ii) if such public offering is of National
Waterworks' Capital Stock, the consummation of any transaction
(including, without limitation, any merger or consolidation) the result
of which is that any person (as defined above), other than a Permitted
Holder or a Permitted Group, becomes the Beneficial Owner, directly or
indirectly, of more than 50% of the Voting Stock of Holdings or National
Waterworks, as the case may be, in each case measured by voting power
rather than number of shares;
(5)
(A) prior to the first public offering of Capital Stock of either
Holdings or National Waterworks, the first day on which a majority of
the members of the Board of Directors of Holdings are not Continuing
Directors and (B) after the first public offering of Capital Stock of
either Holdings or National Waterworks, (i) if such public offering is
of Holdings' Capital Stock, the first day on which a majority of the
members of the Board of Directors of Holdings are not Continuing
Directors, or (ii) if such public offering is of National Waterworks'
Capital Stock, the first day on which a majority of the members of the
Board of Directors of National Waterworks are not Continuing Directors;
or
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(6)
(A) prior to the first public offering of Capital Stock of either
Holdings or National Waterworks, Holdings consolidates with, or merges
with or into, any Person, or any Person consolidates with, or merges
with or into, Holdings, in any such event pursuant to a transaction in
which any of the outstanding Voting Stock of Holdings or such other
Person is converted into or exchanged for cash, securities or other
property, other than any such transaction where the Voting Stock of
Holdings outstanding immediately prior to such transaction is converted
into or exchanged for Voting Stock (other than Disqualified Stock) of
the surviving or transferee Person constituting a majority of the
outstanding shares of such Voting Stock of such surviving or transferee
Person (immediately after giving effect to such issuance) and (B) after
the first public offering of Capital Stock of either Holdings or
National Waterworks, (i) if such public offering is of Holdings' Capital
Stock, Holdings consolidates with, or merges with or into, any Person,
or any Person consolidates with, or merges with or into, Holdings, in
any such event pursuant to a transaction in which any of the outstanding
Voting Stock of Holdings or such other Person is converted into or
exchanged for cash, securities or other property, other than any such
transaction where the Voting Stock of Holdings outstanding immediately
prior to such transaction is converted into or exchanged for Voting
Stock (other than Disqualified Stock) of the surviving or transferee
Person constituting a majority of the outstanding shares of such Voting
Stock of such surviving or transferee Person (immediately after giving
effect to such issuance), or (ii) if such public offering is of National
Waterworks' Capital Stock, National Waterworks consolidates with, or
merges with or into, any Person, or any Person consolidates with, or
merges with or into, National Waterworks, in any such event pursuant to
a transaction in which any of the outstanding Voting Stock of National
Waterworks or such other Person is converted into or exchanged for cash,
securities or other property, other than any such transaction where the
Voting Stock of National Waterworks outstanding immediately prior to
such transaction is converted into or exchanged for Voting Stock (other
than Disqualified Stock) of the surviving or transferee Person
constituting a majority of the outstanding shares of such Voting Stock
of such surviving or transferee Person (immediately after giving effect
to such issuance).
"Clearstream"
means Clearstream Banking,
Societe Anonyme
(formerly known as
Cedelbank).
"Commodity Price Protection Agreement"
means with respect to any Person any
forward contract, commodity swap, commodity option or other similar agreement
or arrangement relating to, or the value of which is dependent upon or which is
designed to protect such Person against, fluctuations in commodity prices.
"Consolidated Cash Flow"
means, with respect to any specified Person for any
period, the Consolidated Net Income of such Person for such period
plus
:
(1)
provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income;
plus
(2)
consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt
issuance costs and original issue discount, non-cash interest payments,
the interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
imputed interest with respect to commissions, discounts and other fees
and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net of the effect of all payments made or
received pursuant to Hedging Obligations), to the extent that any such
expense was deducted in computing such Consolidated Net Income;
plus
(3)
depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period) and other non-cash expenses (excluding
any such non-cash expense to the extent that it represents an accrual of
or reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of such Person and
its Restricted Subsidiaries for such period, to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income;
minus
(4)
non-cash items increasing such Consolidated Net Income for such
period, other than the accrual of revenue in the ordinary course of
business,
in each case, on a consolidated basis and determined in accordance with GAAP.
"Consolidated Net Income"
means, with respect to any specified Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP;
provided
that:
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(1)
the Net Income of any Person that is not a Restricted Subsidiary or
that is accounted for by the equity method of accounting will be
included only to the extent of the amount of dividends or distributions
paid in cash to the specified Person or a Restricted Subsidiary of the
Person (and if such Net Income is a loss will be included only to the
extent that such loss has been funded with cash by the specified Person
or a Restricted Subsidiary of the specified Person);
(2)
the Net Income of any Restricted Subsidiary will be excluded to the
extent that the declaration or payment of dividends or similar
distributions or the making of loans or intercompany advances by that
Restricted Subsidiary of that Net Income is not at the date of
determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders;
(3)
any net gain or loss realized upon the sale or other disposition of
any asset of such Person or its Restricted Subsidiaries (including
pursuant to a Sale/Leaseback Transaction) that is not sold or otherwise
disposed of in the ordinary course of business and any net gain or loss
realized upon the sale or other disposition of any Equity Interest of
any Person will be excluded;
(4)
any extraordinary gain or loss will be excluded;
(5)
any noncash compensation charges or other non-cash expenses or
charges arising from the grant of or issuance or repricing of stock,
stock options or other equity-based awards or any amendment,
modification, substitution or change of any such stock, stock options or
other equity-based awards will be excluded;
(6)
any non-recurring fees, charges or other expenses made or incurred in
connection with the Acquisition and the transactions contemplated
thereby within 180 days of the date of the indenture will be excluded;
(7)
the cumulative effect of a change in accounting principles will be
excluded;
(8)
for purposes of the covenant described under the caption "—Restricted
payments" only, the total amount of cash tax savings generated during
the applicable period attributable to the depreciation and amortization
resulting from the step-up in the basis for tax purposes of the assets
acquired in the Acquisition (including, without limitation, intangible
assets such as goodwill) will be added to "Consolidated Net Income" so
long as such addition will not result in double-counting; and
(9)
any non-cash goodwill impairment charges subsequent to the date of
the Indenture resulting from the application of SFAS No. 142 will be
excluded.
"Continuing Directors"
means, as of any date of determination, any member of
the Board of Directors of Holdings who:
(1)
was a member of such Board of Directors on the date of the indenture;
or
(2)
was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were members
of such Board at the time of such nomination or election; or
(3)
was nominated for election or appointed to such Board of Directors by
a Permitted Holder or a Permitted Group.
"Credit Agreement"
means that certain Credit Agreement, dated as of November
22, 2002 by and among National Waterworks, Holdings, UBS AG, Stamford Branch,
JPMorgan Securities Inc., Goldman Sachs Credit Partners L.P. and the lenders
from time to time thereunder, providing for up to $250.0 million of term loans
and $75.0 million of revolving credit borrowings, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, supplemented,
renewed, refunded, replaced, restructured, restated or refinanced from time to
time (including any agreement extending the maturity thereof or increasing the
amount of available borrowings thereunder or adding Restricted Subsidiaries of
National Waterworks as additional borrowers or guarantors thereunder) whether
with the original agents and lenders or otherwise and whether provided under
the original credit agreement or other credit agreements or otherwise.
"Credit Facilities"
means, one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit loans,
term loans, receivables financing
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(including through the sale of receivables to such lenders or to special
purpose entities formed to borrow from such lenders against such receivables)
or letters of credit, in each case, as amended, restated, modified,
supplemented, renewed, refunded, replaced, restructured or refinanced in whole
or in part from time to time (including any agreement extending the maturity
thereof or increasing the amount of available borrowings thereunder or adding
Restricted Subsidiaries of National Waterworks as additional borrowers or
guarantors thereunder).
"Currency Agreement"
means with respect to any Person any foreign exchange
contract, currency swap agreements, futures contract, options contract,
synthetic cap or other similar agreement or arrangement to which such Person is
a party or of which it is a beneficiary for the purpose of hedging foreign
currency risk.
"Default"
means any event that is, or with the passage of time or the giving of
notice or both would be, an Event of Default.
"Designated Noncash Consideration"
means the fair market value of noncash
consideration received by National Waterworks or one or more of its Restricted
Subsidiaries in connection with an Asset Sale that is so designated as
Designated Noncash Consideration pursuant to an Officers' Certificate setting
forth the basis of valuation.
"Designated Senior Debt"
means:
(1)
any Indebtedness outstanding under the Credit Agreement; and
(2)
any other Senior Debt permitted under the indenture, the principal
amount of which is $25.0 million or more and that has been designated by
National Waterworks as "Designated Senior Debt."
"Disqualified Stock"
means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable or exercisable, in each case at the option of the holder of the
Capital Stock), or upon the happening of any event (other than an event solely
within the control of the issuer thereof), matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the holder of the Capital Stock, in whole or in part, on or
prior to the date that is 91 days after the date on which the notes mature;
provided, however,
that any class of Capital Stock that, by its terms,
authorizes the issuer thereof to satisfy in full its obligations with respect
to payment of dividends or upon maturity, redemption (pursuant to a sinking
fund or otherwise) or repurchase thereof or otherwise by delivery of Capital
Stock that is not Disqualified Stock, and that is not convertible, puttable or
exchangeable for Disqualified Stock or Indebtedness, shall not be deemed
Disqualified Stock so long as such issuer satisfies its obligations with
respect thereto solely by the delivery of Capital Stock that is not
Disqualified Stock. Notwithstanding the preceding sentence, any Capital Stock
that would constitute Disqualified Stock solely because the holders of the
Capital Stock have the right to require National Waterworks to repurchase such
Capital Stock upon the occurrence of a change of control or an asset sale will
not constitute Disqualified Stock if the terms of such Capital Stock provide
that National Waterworks may not repurchase or redeem any such Capital Stock
pursuant to such provisions unless National Waterworks has first complied with
the provisions described above under the caption "—Repurchase at option of
holders."
"Domestic Subsidiary"
means any Restricted Subsidiary of National Waterworks
that was formed under the laws of the United States or any state of the United
States or the District of Columbia or that guarantees or otherwise provides
direct credit support for any Indebtedness of National Waterworks.
"Equity Interests"
means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering"
means a public or private sale for cash of Capital Stock
(other than Disqualified Stock).
"Euroclear"
means Euroclear Banking S.A./N.V.
"Exchange and Registration Rights Agreement"
means the Exchange and
Registration Rights Agreement, dated as of November 22, 2002 among National
Waterworks and the other parties named on the signature pages thereof, as such
agreement may be amended, modified or supplemented from time to time, and, with
respect to any additional notes, one or more registration rights agreements
among the Company and the other parties thereto, as such agreement(s) may be
amended, modified or supplemented from time to time, relating to rights given
by National Waterworks to the purchasers of additional notes to register such
additional notes under the Securities Act.
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"Existing Indebtedness"
means the Indebtedness of National Waterworks (other
than Indebtedness under the Credit Agreement) in existence on the date of the
indenture.
"Fee Agreement"
means that certain Fee Agreement, dated as of September 30,
2002, by and among National Waterworks, THL Managers V, LLC and J.P. Morgan
Partners, LLC.
"Fixed Charges"
means, with respect to any specified Person and its Restricted
Subsidiaries for any period, the sum, without duplication, of:
(1)
the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including,
without limitation, amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect
to commissions, discounts and other fees and charges incurred in respect
of letter of credit or bankers' acceptance financings, and net of the
effect of all payments made or received pursuant to Hedging Obligations;
plus
(2)
the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period;
plus
(3)
any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries, whether or not such Guarantee or Lien is called upon;
plus
(4)
commissions, discounts, yield and other financing fees and financing
charges incurred in connection with any transaction (including, without
limitation, a Qualified Receivables Transaction) pursuant to which such
Person or any of its Restricted Subsidiaries may sell, convey or
otherwise transfer or grant a security interest in any accounts
receivable or related assets of the type specified in the definition of
"Qualified Receivables Transaction;"
plus
(5)
the product of (a) all dividends, whether paid or accrued and whether
or not in cash, on any series of Disqualified Stock of such Person or
preferred stock of any of its Restricted Subsidiaries, other than
dividends on Equity Interests payable solely in Equity Interests of
National Waterworks (other than Disqualified Stock) or to National
Waterworks or a Restricted Subsidiary of National Waterworks, times (b)
a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio"
means with respect to any specified Person for
any period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the specified
Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees,
repays, repurchases or redeems any Indebtedness (other than ordinary working
capital borrowings) or issues, repurchases or redeems Disqualified Stock of
such Person or preferred stock of a Restricted Subsidiary of such Person
subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated and on or prior to the date on which the
event for which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio will be calculated
giving pro forma effect to such incurrence, assumption, Guarantee, repayment,
repurchase or redemption of Indebtedness, or such issuance, repurchase or
redemption of preferred stock, and the use of the proceeds therefrom as if the
same had occurred at the beginning of the applicable four-quarter reference
period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1)
acquisitions that have been made by the specified Person or any of
its Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and
on or prior to the Calculation Date will be given pro forma effect as if
they had occurred on the first day of the four-quarter reference period
and Consolidated Cash Flow for such reference period will be calculated
on a pro forma basis in accordance with Regulation S-X under the
Securities Act and may include operating expense reductions (net of
continuing associated expenses but excluding non-recurring associated
expenses) for such period resulting from the acquisition which is being
given pro forma effect to that either (a) would be permitted pursuant to
Rule 11-02 of Regulation S-X under the Securities Act or (b) have been
realized or for which substantially all the steps necessary for
realization have
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been taken or at the time of determination are reasonably expected to be
taken within six months following any such acquisition, including, but not
limited to, the execution or termination of any contracts, the termination
of any personnel or the closing of any facility, as applicable, provided
that such adjustments shall be calculated on an annualized basis and will
be set forth in an Officers' Certificate signed by National Waterworks'
chief financial officer and another Officer which states in detail (i) the
amount of such adjustment or adjustments, (ii) that such adjustment or
adjustments are based on the reasonable good faith beliefs of the officers
executing such Officers' Certificate at the time of such execution and
(iii) that such adjustment or adjustments and the plan or plans related
thereto have been reviewed and approved by the Board of Directors. Any
such Officer's Certificate will be provided to the trustee if National
Waterworks incurs any Indebtedness or takes any other action under the
indenture in reliance thereon;
(2)
the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, will be excluded; and
(3)
the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, will be excluded, but only to
the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the specified Person or any of its Restricted
Subsidiaries following the Calculation Date.
In addition, to the extent not covered by the foregoing, if the Acquisition has
occurred in the four-quarter period used to determine the Fixed Charge Coverage
Ratio, then the Fixed Charge Coverage Ratio shall be determined giving pro
forma effect to the Acquisition on the same basis given in the Offering
Circular dated November 14, 2002 for the notes.
If any Indebtedness bears a floating rate of interest, the interest expense on
such Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Hedging Obligation applicable to such Indebtedness if such Hedging
Obligation has a remaining term as at the date of determination in excess of 12
months).
"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 in such other statements by such other
entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"Guarantee"
means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Guarantors"
means:
(1)
each of National Waterworks' Domestic Subsidiaries, if any; and
(2)
any other Subsidiary that executes a subsidiary guarantee in
accordance with the provisions of the indenture and their respective
successors and assigns.
"Hedging Obligations"
means, with respect to any specified Person, the
obligations of such Person under:
(1)
interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements;
(2)
any Currency Agreement or Commodity Price Protection Agreement; and
(3)
other agreements or arrangements of a similar character designed to
protect such Person against fluctuations in interest rates.
"Holdings"
means National Waterworks Holdings, Inc.
"Indebtedness"
means, with respect to any specified Person, any indebtedness of
such Person, whether or not contingent:
(1)
in respect of borrowed money;
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(2)
evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3)
in respect of banker's acceptances;
(4)
representing Capital Lease Obligations;
(5)
representing the deferred and unpaid balance of the purchase price of
any property, except any such balance that constitutes an accrued
expense or trade payable;
(6)
amounts outstanding and other obligations of such Person in respect
of a Qualified Receivables Transaction; or
(7)
representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
the specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes (i) all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person);
provided, however
, that the amount of Indebtedness of
such Person shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness of such
other Persons; and (ii) to the extent not otherwise included, the Guarantee by
the specified Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will be:
(1)
the accreted value of the Indebtedness, in the case of any
Indebtedness issued with original issue discount; and
(2)
the principal amount of the Indebtedness, together with any interest
on the Indebtedness that is more than 30 days past due, in the case of
any other Indebtedness.
In addition, for purposes of determining the outstanding principal amount of
any particular Indebtedness incurred pursuant to the covenant described above
under "—Certain covenants— Incurrence of Indebtedness and Issuance of preferred
stock":
(1)
Guarantees or obligations in respect of letters of credit relating to
Indebtedness which is otherwise included in the determination of a
particular amount of Indebtedness shall not be double-counted;
(2)
the principal amount of any Disqualified Stock of National Waterworks
or preferred stock of a Restricted Subsidiary of National Waterworks
shall be the greater of the maximum mandatory redemption or purchase
price (not including, in either case, any redemption or purchase
premium) or the maximum liquidation preference; and
(3)
the principal amount of Indebtedness, Disqualified Stock of National
Waterworks or preferred stock of a Restricted Subsidiary of National
Waterworks issued at a price less than the principal amount thereof,
maximum fixed redemption or repurchase price thereof or liquidation
preference thereof, as applicable, will be equal to the amount of the
liability or obligation in respect thereof determined in accordance with
GAAP.
"Investments"
means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding payroll, travel and similar advances to officers and
employees to cover matters that are expected at the time of such advances
ultimately to be treated as expenses for accounting purposes and that are made
in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP. If National Waterworks or any
Restricted Subsidiary of National Waterworks sells or otherwise disposes of any
Equity Interests of any direct or indirect Restricted Subsidiary of National
Waterworks such that, after giving effect to any such sale or disposition, such
Person is no longer a Subsidiary of National Waterworks, National Waterworks
will be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of the covenant described above under the
caption "—Certain Covenants— Restricted Payments."
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"Lien"
means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and, except in connection with any Qualified Receivables
Transaction, any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Management Agreement"
means that certain Management Agreement dated as of
November 22, 2002, by and among National Waterworks, THL Managers V, LLC, and
J.P. Morgan Partners, LLC.
"Net Cash Proceeds"
with respect to any issuance or sale of Equity Interests,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Net Income"
means, with respect to any specified Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends.
"Net Proceeds"
means the aggregate cash proceeds received by National
Waterworks or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any Designated Non-cash Consideration or other non-cash
consideration received in any Asset Sale), net of the direct costs, fees and
expenses relating to such Asset Sale, including, without limitation:
(1)
legal, accounting and investment banking fees and all other
professionals' and advisors' fees;
(2)
sales commissions, title and recording expenses and any relocation
expenses incurred as a result of the Asset Sale;
(3)
taxes paid or payable or required to be accrued as a result of the
Asset Sale, in each case, after taking into account any available tax
credits or deductions and any tax sharing arrangements;
(4)
amounts required to be applied to the repayment of Indebtedness
(including all interest, premium, penalties, breakage, indemnities and
fees in connection therewith), other than Indebtedness under a Credit
Facility, secured by a Lien on the asset or assets that were the subject
of such Asset Sale;
(5)
all distributions and other payments required to be made to minority
interest holders in Subsidiaries or joint ventures as a result of such
Asset Sale; and
(6)
any appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the
property or other assets disposed of in such Asset Sale and retained by
National Waterworks or any of its Restricted Subsidiaries after such
Asset Sale or as a reserve established in accordance with GAAP, for
adjustment in the sales prices of the asset or assets but only for so
long as such reserve is required in accordance with GAAP.
"Non-Recourse Debt"
means Indebtedness:
(1)
as to which neither National Waterworks nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable as a guarantor or
otherwise, or (c) constitutes the lender;
(2)
no default with respect to which (including any rights that the
holders of the Indebtedness may have to take enforcement action against
an Unrestricted Subsidiary) would permit upon notice, lapse of time or
both any holder of any other Indebtedness of National Waterworks or any
of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment of the Indebtedness to be accelerated
or payable prior to its stated maturity; and
(3)
as to which the lenders have been notified or acknowledged in writing
that they will not have any recourse to the stock (other than the stock
of an Unrestricted Subsidiary pledged by National Waterworks or any of
its Restricted Subsidiaries) or assets of National Waterworks or any of
its Restricted Subsidiaries.
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"Obligations"
means any principal, interest, penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Permitted Business"
means any business that derives a majority of its revenues
from the businesses engaged in by National Waterworks and its Restricted
Subsidiaries on the date of original issuance of the notes and/or activities
that are reasonably similar, ancillary, complementary or related to, or a
reasonable extension, development or expansion of, the businesses in which
National Waterworks and its Restricted Subsidiaries are engaged on the date of
original issuance of the notes, including without limitation, acting as a
distributor for industrial, electric, utility or similar products.
"Permitted Business Unit"
means a store, branch, distribution center, region or
other similar unit of a Permitted Business or the operations and assets of any
of the foregoing.
"Permitted Group"
means the group of investors that is party to the
Stockholders Agreement, as the same may be amended, modified or supplemented
from time to time,
provided
that no single Person together with its Affiliates
(other than Permitted Holders referred to in clauses (1) and (2) of the
definition of Permitted Holders) Beneficially Owns more of the Voting Stock of
National Waterworks or Holdings (as applicable) that is Beneficially Owned by
such group of investors than is then collectively Beneficially Owned by the
Permitted Holders referred to in clauses (1) and (2) of the definition of
Permitted Holders.
"Permitted Holder"
means:
(1)
J.P. Morgan Partners, LLC and its Affiliates (without giving effect
to the proviso in the second sentence of the definition of Affiliate);
(2)
Thomas H. Lee Partners, L.P. and its Affiliates (without giving
effect to the proviso in the second sentence of the definition of
Affiliate); and
(3)
any Person acting in the capacity of underwriter in connection with a
public or private offering of National Waterworks' or Holdings' Equity
Interests.
"Permitted Investments"
means:
(1)
any Investment in National Waterworks or in a Restricted Subsidiary
of National Waterworks;
(2)
any Investment in Cash Equivalents;
(3)
any Investment by National Waterworks or any Restricted Subsidiary of
National Waterworks in a Person, if as a result of such Investment:
(a)
such Person becomes a Restricted Subsidiary of National Waterworks;
or
(b)
such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, National Waterworks or a Restricted Subsidiary of
National Waterworks;
(4)
any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"—Repurchase at the Option of Holders—Asset Sales;"
(5)
any acquisition of assets or Equity Interests solely in exchange for
the issuance of Equity Interests (other than Disqualified Stock) of
National Waterworks;
(6)
any Investments received in compromise of obligations of such persons
incurred in the ordinary course of trade creditors or customers that
were incurred in the ordinary course of business, including pursuant to
any plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of any trade creditor or customer;
(7)
Hedging Obligations;
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(8)
receivables owing to National Waterworks or any Restricted Subsidiary
and prepaid expenses if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade
terms;
provided, however
, that such trade terms may include such
concessionary trade terms as National Waterworks or any such Restricted
Subsidiary deems reasonable under the circumstances;
(9)
advances, loans or extensions of credit to suppliers and vendors in
the ordinary course of business;
(10)
deposits, bid bonds and performance bonds with governmental
authorities made in the ordinary course of business;
(11)
Investments existing on the date of the indenture and Investments
contributed to the common equity capital of National Waterworks
subsequent to the date of the indenture;
(12)
endorsements of negotiable instruments and documents in the ordinary
course of business;
(13)
Investments of a Person or any of its Subsidiaries existing at the
time such Person becomes a Restricted Subsidiary of National Waterworks
or at the time such Person merges or consolidates with National
Waterworks or any of its Restricted Subsidiaries, in either case in
compliance with the indenture, provided that such Investments were not
made by such Person in connection with, or in anticipation or
contemplation of, such Person becoming a Restricted Subsidiary of
National Waterworks or such merger or consolidation;
(14)
the acquisition by a Receivables Subsidiary in connection with a
Qualified Receivables Transaction of Equity Interests of a trust or
other Person established by such Receivables Subsidiary to effect such
Qualified Receivables Transaction, and any other Investment by National
Waterworks or a Restricted Subsidiary of National Waterworks in a
Receivables Subsidiary or any Investment by a Receivables Subsidiary in
any other Person in connection with a Qualified Receivables Transaction;
provided
, that such other Investment is in the form of a note or other
instrument that the Receivables Subsidiary or other Person is required
to repay as soon as practicable from available cash collections less
amounts required to be established as reserves pursuant to contractual
agreements with entities that are not Affiliates of National Waterworks
entered into as part of a Qualified Receivables Transaction;
(15)
other Investments in any Person having an aggregate fair market value
(measured on the date each such Investment was made and without giving
effect to subsequent changes in value), when taken together with all
other Investments made pursuant to this clause (15) since the date of
the indenture, not to exceed $20.0 million; and
(16)
repurchases of the notes as long as the repurchased notes are
cancelled promptly after purchase.
"Permitted Junior Securities"
means:
(1)
Equity Interests in National Waterworks or any Guarantor; or
(2)
debt securities that are subordinated to all Senior Debt (and any
debt securities issued in exchange for Senior Debt) to substantially the
same extent as, or to a greater extent than, the notes and the
subsidiary guarantees are subordinated to Senior Debt under the
indenture;
provided
that the term "Permitted Junior Securities" shall not include any
securities distributed pursuant to a plan of reorganization if the Indebtedness
under the Credit Agreement is treated as part of the same class as the notes
for purposes of such plan of reorganization.
"Permitted Liens"
means:
(1)
Liens on assets of National Waterworks or any Guarantor securing
Senior Debt that was permitted by the terms of the indenture to be
incurred;
(2)
Liens in favor of National Waterworks or the Guarantors;
(3)
Liens on property or assets of a Person existing at the time such
Person is merged with or into or consolidated with National
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Waterworks or any Subsidiary of National Waterworks;
provided
that such
Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with National Waterworks or the
Subsidiary;
(4)
Liens on property existing at the time of acquisition of the property
by National Waterworks or any Subsidiary of National Waterworks,
provided
that such Liens were in existence prior to the contemplation of
such acquisition;
(5)
Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds, supply bonds, construction bonds or
other obligations of a like nature incurred in the ordinary course of
business;
(6)
Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant entitled
"—Certain Covenants— Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with such
Indebtedness;
(7)
Liens existing on the date of the indenture;
(8)
Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided
that any reserve or other appropriate provision as is required
in conformity with GAAP has been made therefor;
(9)
Liens on assets of a Receivables Subsidiary incurred in connection
with a Qualified Receivables Transaction;
(10)
Liens incurred in the ordinary course of business of National
Waterworks or any Restricted Subsidiary of National Waterworks with
respect to obligations that do not exceed $10.0 million at any one time
outstanding;
(11)
judgment Liens not giving rise to an Event of Default so long as such
Liens are adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment have not
been finally terminated or the period within which such proceedings may
be initiated has not expired;
(12)
Liens arising solely by virtue of any statutory or common law
provisions relating to banker's Liens, rights of set-off or similar
rights and remedies as to deposit accounts or other funds maintained
with a depositary institution;
provided
that:
(a)
such deposit account is not a dedicated cash collateral account
and is not subject to restrictions against access by National
Waterworks in excess of those set forth by regulations promulgated by
the Federal Reserve Board, and
(b)
such deposit account is not intended by National Waterworks or
any of its Restricted Subsidiaries to provide collateral to the
depository institution;
(13)
Liens securing the notes and any note guarantees; and
(14)
any interest or title of a lessor under any Capital Lease Obligation
or operating lease.
"Permitted Refinancing Indebtedness"
means any Indebtedness of National
Waterworks or any of its Restricted Subsidiaries issued in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of National Waterworks or any of its Restricted
Subsidiaries (other than intercompany Indebtedness);
provided
that:
(1)
the principal amount (or if issued with original discount, the
aggregate issue price) of such Permitted Refinancing Indebtedness does
not exceed the principal amount (or accreted value, if applicable) of
the Indebtedness extended, refinanced, renewed, replaced, defeased or
refunded (plus all accrued interest on the Indebtedness and the amount
of all expenses, premiums and defeasance costs incurred in connection
therewith);
(2)
such Permitted Refinancing Indebtedness has a final maturity date no
earlier than the final maturity date of, and has a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded;
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(3)
if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes or
the subsidiary guarantees, such Permitted Refinancing Indebtedness is
subordinated in right of payment to, the notes or the subsidiary
guarantees, as the case may be, on terms at least as favorable to the
Holders of notes as those contained in the documentation governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and
(4)
such Indebtedness is incurred either by National Waterworks or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person"
means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Purchase Agreement"
means that certain Purchase Agreement, dated as of
November 14, 2002, among National Waterworks and the initial purchasers parties
thereto.
"Qualified Receivables Transaction"
means any transaction or series of
transactions entered into by National Waterworks or any of its Restricted
Subsidiaries pursuant to which National Waterworks or any of its Restricted
Subsidiaries sells, conveys or otherwise transfers to (i) a Receivables
Subsidiary (in the case of a transfer by National Waterworks or any of its
Restricted Subsidiaries) and (ii) any other Person (in the case of a transfer
by a Receivables Subsidiary), or grants a security interest in, any accounts
receivable (whether now existing or arising in the future) of National
Waterworks or any of its Restricted Subsidiaries, and any assets related
thereto including, without limitation, all collateral securing such accounts
receivable, all contracts and all guarantees or other obligations in respect of
such accounts receivable, proceeds of such accounts receivable and other assets
which are customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable.
"Receivables Subsidiary"
means a Subsidiary of National Waterworks which
engages in no activities other than in connection with the financing of
accounts receivable and which is designated by the Board of Directors of
National Waterworks (as provided below) as a Receivables Subsidiary (a) no
portion of the Indebtedness or any other Obligations (contingent or otherwise)
of which (i) is guaranteed by National Waterworks or any Restricted Subsidiary
of National Waterworks (excluding guarantees of Obligations (other than the
principal of, and interest on, Indebtedness) pursuant to representations,
warranties, covenants and indemnities entered into in the ordinary course of
business in connection with a Qualified Receivables Transaction), (ii) is
recourse to or obligates National Waterworks or any Restricted Subsidiary of
National Waterworks in any way other than pursuant to customary
representations, warranties, covenants and indemnities entered into in
connection with a Qualified Receivables Transaction or (iii) subjects any
property or asset of National Waterworks or any Restricted Subsidiary of
National Waterworks (other than accounts receivable and related assets as
provided in the definition of "Qualified Receivables Transaction"), directly or
indirectly, contingently or otherwise, to the satisfaction thereof, other than
pursuant to representations, warranties, covenants and indemnities entered into
in the ordinary course of business in connection with a Qualified Receivables
Transaction, (b) with which neither National Waterworks nor any Restricted
Subsidiary of National Waterworks has any material contract, agreement,
arrangement or understanding other than on terms no less favorable to National
Waterworks or such Restricted Subsidiary than those that might be obtained at
the time from Persons who are not Affiliates of National Waterworks, other than
fees payable in the ordinary course of business in connection with servicing
accounts receivable and (c) with which neither National Waterworks nor any
Restricted Subsidiary of National Waterworks has any obligation to maintain or
preserve such Subsidiary's financial condition or cause such Subsidiary to
achieve certain levels of operating results. Any such designation by the Board
of Directors of National Waterworks will be evidenced to the trustee by filing
with the trustee a certified copy of the resolution of the Board of Directors
of National Waterworks giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions.
"Registration Rights Agreement"
means that certain Registration Rights
Agreement, dated as of November 22, 2002, by and among Holdings and the
stockholders parties thereto.
"Representative"
means the trustee, agent or representative (if any) for an
issuer of Senior Debt.
"Restricted Investment"
means an Investment other than a Permitted Investment.
"Restricted Subsidiary"
of a Person means any Subsidiary of such Person that is
not an Unrestricted Subsidiary.
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"Sale/Leaseback Transaction"
means an arrangement relating to property now
owned or hereafter acquired by National Waterworks or a Restricted Subsidiary
whereby National Waterworks or a Restricted Subsidiary transfers such property
to a Person and National Waterworks or such Restricted Subsidiary leases it
from such Person, other than leases between National Waterworks and a Wholly
Owned Restricted Subsidiary or between Wholly Owned Restricted Subsidiaries.
"Senior Debt"
means:
(1)
all Indebtedness of National Waterworks or any Guarantor outstanding
under Credit Facilities (including interest accruing on or after the
filing of any petition in bankruptcy or for reorganization of National
Waterworks or any Guarantor, regardless of whether or not a claim for
post-filing interest is allowed in such proceedings);
(2)
all Hedging Obligations permitted to be incurred under the terms of
the indenture;
(3)
any other Indebtedness of National Waterworks or any Guarantor
permitted to be incurred under the terms of the indenture, unless the
instrument under which such Indebtedness is incurred expressly provides
that it is on a parity with or subordinated in right of payment to the
notes or any subsidiary guarantee; and
(4)
all Obligations with respect to the items listed in the preceding
clauses (1), (2) and (3).
Notwithstanding anything to the contrary in the preceding, Senior Debt will not
include:
(1)
any liability for federal, state, local or other taxes owed or owing
by National Waterworks;
(2)
any intercompany Indebtedness of National Waterworks or any of its
Subsidiaries to National Waterworks or any of its Affiliates;
(3)
any trade payables; or
(4)
the portion of any Indebtedness that is incurred in violation of the
indenture.
"Significant Subsidiary"
means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date of
the indenture.
"Stated Maturity"
means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and will not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Stockholders' Agreement"
means that certain Stockholders' Agreement, dated as
of November 22, 2002, by and among Holdings and the stockholders and investors
that are party thereto.
"Subscription and Stock Purchase Agreement"
means those certain Executive
Subscription and Stock Purchase Agreements each dated as of November 22, 2002,
by and between Holdings and the executives that are party thereto.
"Subsidiary"
means, with respect to any specified Person:
(1)
any corporation, association, partnership, limited liability company
or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
managers or trustees of the corporation, association or other business
entity is at the time owned or controlled, directly or indirectly, by
that Person or one or more of the other Subsidiaries of that Person (or
a combination thereof); and
(2)
any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are that Person or one or more
Subsidiaries of that Person (or any combination thereof).
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"Tax Sharing Agreement"
means that certain Tax Sharing Agreement, dated as of
November 22, 2002, by and among Holdings and those direct or indirect domestic
subsidiaries of Holdings that are parties thereto.
"Transactions"
has the meaning set forth under "Summary—The Transactions."
"Treasury Rate"
means, as of the applicable redemption date, the yield to
maturity as of such redemption date of United States Treasury securities with a
constant maturity (as compiled and published in the most recent Federal Reserve
Statistical Release H.15 (519) that has become publicly available at least two
Business Days prior to such redemption date (or, if such Statistical Release is
no longer published, any publicly available source of similar market data))
most nearly equal to the period from such redemption date to December 1, 2007;
provided, however
, that if the period from such redemption date to December 1,
2007 is less than one year, the weekly average yield on actually traded United
States Treasury securities adjusted to a constant maturity of one year will be
used.
"Unrestricted Subsidiary"
means any Subsidiary of National Waterworks that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to
a Board Resolution, but only to the extent that such Subsidiary:
(1)
has no Indebtedness other than Non-Recourse Debt;
(2)
is not party to any agreement, contract, arrangement or understanding
with National Waterworks or any Restricted Subsidiary of National
Waterworks unless the terms of any such agreement, contract, arrangement
or understanding are no less favorable to National Waterworks or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of National Waterworks;
(3)
is a Person with respect to which neither National Waterworks nor any
of its Restricted Subsidiaries has any direct or indirect obligation (a)
to subscribe for additional Equity Interests or (b) to maintain or
preserve such Person's financial condition or to cause such Person to
achieve any specified levels of operating results;
(4)
has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of National Waterworks or any of its
Restricted Subsidiaries; and
(5)
either (a) has at least one director on its Board of Directors that
is not a director or executive officer of National Waterworks or any of
its Restricted Subsidiaries or (b) has at least one executive officer
that is not a director or executive officer of National Waterworks or
any of its Restricted Subsidiaries.
Any designation of a Subsidiary of National Waterworks as an Unrestricted
Subsidiary will be evidenced to the trustee by filing with the trustee a
certified copy of the Board Resolution giving effect to such designation and an
officers' certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described above under
the caption "—Certain Covenants—Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted
Subsidiary for purposes of the indenture and any Indebtedness of such
Subsidiary will be deemed to be incurred by a Restricted Subsidiary of National
Waterworks as of such date and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"—Certain covenants—Incurrence of Indebtedness and Issuance of preferred
stock," National Waterworks will be in default of such covenant. The Board of
Directors of National Waterworks may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary;
provided
that such designation will
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of
National Waterworks of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation will only be permitted if (1) such Indebtedness
is permitted under the covenant described under the caption "—Certain
Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock,"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period; and (2) no Default or Event of
Default would be in existence following such designation.
"Voting Stock"
of any Person as of any date means the Capital Stock of such
Person that is at the time, entitled generally to vote in the election of the
Board of Directors of such Person (without regard to the occurrence of any
contingency).
"Weighted Average Life to Maturity"
means, when applied to any Indebtedness at
any date, the number of years obtained by dividing:
(1)
the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect of the Indebtedness, by (b)
95
Table of Contents
the number of years (calculated to the nearest one-twelfth) that will
elapse between such date and the making of such payment; by
(2)
the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary"
of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
96
Table of Contents
Plan of Distribution
This prospectus has been prepared for use by J.P. Morgan Securities Inc. in
connection with offers and sales of the notes in market-making transactions
effected from time to time. J.P. Morgan Securities Inc. may act as a principal
or agent in these transactions. These sales will be made at prevailing market
prices at the time of sale.
We will not receive any of the proceeds of these sales. We have agreed to
indemnify J.P. Morgan Securities Inc. against certain liabilities, including
liabilities under the Securities Act, and to contribute payments which J.P.
Morgan Securities Inc. might be required to make in respect thereof.
As of the date of this prospectus, affiliates of J.P. Morgan Securities Inc.
beneficially own approximately 43% of our Holdings' common stock and certain of
our directors are employed by an affiliate of J.P. Morgan Securities Inc. For
more information, see "Management," "Security Ownership of Certain Beneficial
Owners and Management" and "Certain Relationships and Related Party
Transactions" for a summary of certain relationships between us and affiliates
of J.P. Morgan Securities Inc.
We have been advised by J.P. Morgan Securities Inc. that, subject to applicable
laws and regulations, J.P. Morgan Securities Inc. currently intends to make a
market in the notes. However, J.P.
Morgan Securities Inc. is not obligated to do so and J.P. Morgan Securities
Inc. may discontinue its market-making activities at any time without notice.
In addition, such market-making activity will be subject to the limits imposed
by the Securities Act and the Exchange Act. An active trading market may not
develop or be sustained. For more information, see "Risk Factors—You Cannot be
Sure that an Active Trading Market Will Develop for the Notes."
Legal Matters
The validity of the notes has been passed upon for us by O'Melveny & Myers LLP,
New York, New York.
Experts
The financial statements of National Waterworks, Inc. as of December 31, 2003
and 2002, and for the year ended December 31, 2003 and for the period from
November 22, 2002 to December 31, 2002, and the consolidated financial
statements of U.S. Filter Distribution Group, Inc. for the period from January
1, 2002 to November 21, 2002 and for the year ended
December 31, 2001, have been
included in this prospectus in reliance on the report of KPMG LLP, independent
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in auditing and accounting. The audit report covering such financial
statements refers to a change in the method of accounting for
goodwill in 2002.
97
Table of Contents
Where You Can Find More Information
We file annual, quarterly and current reports and other information with the
Securities and Exchange Commission (the "SEC" or the "Commission"). You can
inspect and copy these materials at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of these materials can also
be obtained by mail at prescribed rates from the SEC's Public Reference Room at
the above address. You can obtain information about the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of the
SEC's Internet site is www.sec.gov.
We provide copies to the holders of the notes of the annual, quarterly and
current reports that we file with the SEC. The annual reports contain financial
information that has been examined and reported on, with an opinion expressed,
by an independent public accountant.
We have filed a Registration Statement on Form S-1 to register with the
Commission offers and sales of the Notes made by J.P. Morgan Securities Inc. in
market-making transactions effected from time to time. This prospectus is part
of that Registration Statement. As allowed by the Commission's rules, this
prospectus does not contain all of the information you can find in the
Registration Statement or the exhibits to the Registration Statement.
We have not authorized anyone to give you any information or to make any
representations about us or the transactions we discuss in this prospectus
other than those contained in this prospectus. If you are given any information
or representations about these matters that is not discussed in this
prospectus, you must not rely on that information. This prospectus is not an
offer to sell or a solicitation of an offer to buy securities anywhere or to
anyone where or to whom we are not permitted to offer or sell securities under
applicable law. Subject to our obligation to amend or supplement this
prospectus as required by law and the rules and regulations of the Commission,
the information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus.
98
Table of Contents
Financial Statements And Supplementary Data
NATIONAL WATERWORKS, INC.
U.S. FILTER DISTRIBUTION GROUP, INC. AND SUBSIDIARY
Page
Independent Auditors' Report
F-2
As of December 31, 2003 and 2002:
Balance Sheets
F-3
For the year ended December 31, 2003, the period of November 22, 2002
through December 31, 2002, the period of January 1, 2002 through
November 21, 2002, and the year ended December 31, 2001:
Statements of Operations
F-4
Statements of Stockholder's Equity
F-5
Statements of Cash Flows
F-6
Notes to Financial Statements
F-7
F-1
Table of Contents
INDEPENDENT AUDITORS' REPORT
The Board of Directors
National Waterworks, Inc.:
We have audited the accompanying balance sheets of National Waterworks,
Inc. (Successor), a wholly owned subsidiary of National Waterworks Holdings,
Inc., as of December 31, 2003 and 2002, and the related statements of
operations, stockholder's equity, and cash flows for the year ended December
31, 2003 and the period of November 22, 2002 through December 31, 2002. We have
also audited the accompanying consolidated statements of operations,
stockholder's equity and cash flows of U.S. Filter Distribution Group, Inc.
(Predecessor) and subsidiary, a wholly owned subsidiary of United States Filter
Corporation, for the period of January 1, 2002 through November 21, 2002 and
year ended December 31, 2001. These financial statements are the responsibility
of the management of National Waterworks, Inc. and U.S. Filter Distribution
Group, Inc. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of National Waterworks, Inc.
as of December 31, 2003 and 2002, and the results of its operations and its
cash flows for the year ended December 31, 2003 and the period of November 22,
2002 through December 31, 2002, and the results of U.S. Filter Distribution
Group, Inc. operations and their cash flows for the period of January 1, 2002
through November 21, 2002 and year ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 2 to the financial statements, U.S. Filter
Distribution Group, Inc. changed its method of accounting for goodwill in 2002.
/s/ KPMG LLP
KPMG LLP
February 11, 2004
(except note 17 as to which the date is March 2, 2004)
St. Louis, Missouri
F-2
Table of Contents
BALANCE SHEETS
National Waterworks, Inc.
- Note 1
December 31,
December 31,
(In thousands, except share and per share amounts)
2003
2002
Assets
Current assets:
Cash and cash equivalents
$
18,702
$
39,888
Trade accounts receivable, less allowance for doubtful
accounts of $3,213 in 2003 and $3,394 in 2002
188,476
174,012
Inventories
90,739
91,619
Deferred income taxes (note 9)
—
4,713
Other current assets
2,689
2,402
Total current assets
300,606
312,634
Property and equipment, net (note 6)
20,523
21,805
Goodwill (note 4)
456,080
465,662
Deferred financing fees, less accumulated amortization
of $3,060 in 2003 and $133 in 2002
24,141
12,667
Other assets
1,607
49
$
802,957
$
812,817
Liabilities and Stockholder's Equity
Current liabilities:
Trade accounts payable
$
115,038
$
126,662
Current installments of long-term debt (note 8)
15,000
10,000
Accrued compensation and benefits
27,036
22,036
Other accrued expenses
9,677
8,989
Total current liabilities
166,751
167,687
Long-term debt, excluding current installments (note 8)
425,000
440,000
Deferred income taxes (note 9)
10,059
1,025
Other long-term liabilities
1,674
—
Total liabilities
603,484
608,712
Commitments and contingencies (note 12)
Common stock — $.01 par value; 100 shares authorized,
issued, and outstanding at 2003 and 2002
—
—
Additional paid-in capital
199,473
209,999
Retained earnings (accumulated deficit)
—
(5,894
)
Total stockholder's equity
199,473
204,105
$
802,957
$
812,817
See accompanying notes to financial statements.
F-3
Table of Contents
STATEMENTS OF OPERATIONS
Successor
Predecessor
National Waterworks, Inc.
U.S. Filter Distribution Group, Inc.
- Note 1
and Subsidiary - Note 1
Period of
Period of
November 22,
January 1,
Year Ended
2002 through
2002 through
Year Ended
December 31,
December 31,
November 21,
December 31,
(In thousands)
2003
2002
2002
2001
Net sales
$
1,278,351
$
94,250
$
1,058,768
$
1,120,330
Cost of goods sold (note 3)
1,010,361
82,005
831,764
880,569
Gross profit
267,990
12,245
227,004
239,761
Operating expenses:
Selling, general and administrative
167,152
14,737
139,825
152,470
Loss — accounts receivable
securitization (note 13)
—
—
2,480
536
Income (loss) before depreciation
and amortization
100,838
(2,492
)
84,699
86,755
Depreciation
2,556
251
3,123
3,586
Amortization of intangible assets
8
1
8
25,008
Operating income (loss)
98,274
(2,744
)
81,568
58,161
Other income (expense):
Completion bonuses (note 10)
—
—
(6,200
)
—
Interest expense, net
(41,333
)
(6,826
)
(36
)
(79
)
Other
(11
)
(12
)
59
(8
)
Income (loss) before income
taxes, and cumulative effect of a
change in accounting principle
56,930
(9,582
)
75,391
58,074
Income taxes expense (benefit) (note 9)
23,289
(3,688
)
29,238
31,924
Income (loss) before cumulative effect of
a change in accounting principle
33,641
(5,894
)
46,153
26,150
Cumulative effect of a change in
accounting principle (note 4)
—
—
(459,000
)
—
Net income (loss)
$
33,641
$
(5,894
)
$
(412,847
)
$
26,150
See accompanying notes to financial statements
F-4
Table of Contents
STATEMENTS OF STOCKHOLDER'S EQUITY
Common Stock
Additional
Retained
Earnings
Paid-in
(Accumulated
(In thousands, except share data)
Shares
Amount
Capital
Deficit)
Total
U.S. Filter Distribution Group, Inc. and
subsidiary (Predecessor) — Note 1:
Balance at December 31, 2000
1,000
$
—
$
1,258,524
$
46,500
$
1,305,024
Distribution to U.S. Filter
—
—
(3,650
)
—
(3,650
)
Investment by U.S. Filter
—
—
2,700
—
2,700
Net income
—
—
—
26,150
26,150
Balance at December 31, 2001
1,000
—
1,257,574
72,650
1,330,224
Investment by U.S. Filter
—
—
20,093
—
20,093
Net income
—
—
—
(412,847
)
(412,847
)
Balance at November 21, 2002
1,000
$
—
$
1,277,667
$
(340,197
)
$
937,470
National Waterworks, Inc. (Successor) –
Note 1:
Investment by National Waterworks
Holdings, Inc.
100
$
—
$
209,999
$
—
$
209,999
Net loss
—
—
—
(5,894
)
(5,894
)
Balance at December 31, 2002
100
—
209,999
(5,894
)
204,105
Investment by National Waterworks
Holdings, Inc.
—
—
1,000
—
1,000
Dividend distribution
—
—
(11,526
)
(27,747
)
(39,273
)
Net income
—
—
33,641
33,641
Balance at December 31, 2003
100
$
—
$
199,473
$
—
$
199,473
See accompanying notes to financial statements.
F-5
Table of Contents
STATEMENTS OF CASH FLOWS
Successor
Predecessor
National Waterworks, Inc.
U.S. Filter Distribution Group, Inc. and
Note 1
Subsidiary - Note 1
Period of
Period of
November 22,
January 1,
Year Ended
2002 through
2002 through
December 31,
December 31,
November 21,
Year Ended
(In thousands)
2003
2002
2002
December 31, 2001
Cash flows from operating activities:
Net income (loss)
$
33,641
$
(5,894
)
$
(412,847
)
$
26,150
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Deferred income taxes
18,093
(3,688
)
2,150
339
Financing fees
—
2,500
—
—
Amortization of deferred financing fees
2,928
133
—
—
Depreciation and amortization
2,564
252
3,131
28,594
Loss on goodwill impairment
—
—
459,000
—
Gain (loss) on disposal of equipment
(55
)
—
(72
)
10
Provision (reduction) for doubtful accounts
953
(119
)
1,004
1,239
Changes in operating assets and liabilities
Trade accounts receivable
(15,417
)
39,470
(22,557
)
149,199
Inventory
880
6,651
(4,769
)
6,662
Other current assets
(287
)
(1,401
)
673
(689
)
Other assets
(1,566
)
—
4,306
3
Trade accounts payable and accrued expenses
(6,396
)
1,140
26,221
(2,108
)
Other long term liabilities
1,674
—
—
—
Net cash provided by operating activities
37,012
39,044
56,240
209,399
Cash flows from investing activities:
Capital expenditures
(2,022
)
(102
)
(1,442
)
(1,415
)
Acquisitions
(3,224
)
(643,753
)
(19,595
)
(2,700
)
Proceeds from sale of assets and liabilities
—
—
—
3,650
Proceeds from sales of property and
equipment
803
—
874
200
Net cash used in investing activities
(4,443
)
(643,855
)
(20,163
)
(265
)
Cash flows from financing activities:
Proceeds from long-term debt
—
450,000
—
—
Financing fees
(5,482
)
(15,300
)
—
—
Equity investment by Parent
1,000
209,999
—
—
Principal payments on long-term debt
(10,000
)
—
(222
)
(1,324
)
Dividend distribution
(39,273
)
—
—
—
Investment by U.S. Filter
—
—
20,093
2,700
Distribution to U.S. Filter
—
—
—
(3,650
)
Funds transferred to U.S. Filter
—
—
(1,103,045
)
(1,327,934
)
Expenditures funded by U.S. Filter
—
—
994,010
1,073,133
Allocation of expenses from U.S. Filter
—
—
45,103
51,976
Net cash provided by (used in)
financing activities
(53,755
)
644,699
(44,061
)
(205,099
)
Net increase (decrease) in cash and
cash equivalents
(21,186
)
39,888
(7,984
)
4,035
Cash and cash equivalents at beginning
of period
39,888
—
13,288
9,253
Cash and cash equivalents at end of period
$
18,702
$
39,888
$
5,304
$
13,288
Cash paid for interest
$
40,176
$
997
$
37
$
90
Cash paid for income taxes
$
3,136
$
—
$
27,088
$
31,585
See accompanying notes to financial statements.
F-6
Table of Contents
NOTES TO FINANCIAL STATEMENTS
NATIONAL WATERWORKS, INC.
As of December 31, 2003 and 2002 and for
the year ended December 31, 2003 and the
period of November 22, 2002 through December 31, 2002
U.S. FILTER DISTRIBUTION GROUP, INC. AND SUBSIDIARY
For the period of January 1, 2002 through November 21, 2002 and
for the year ended December 31, 2001
(1) Description of Business
National Waterworks, Inc. ("NWW", "Company", or "Successor"), a wholly
owned subsidiary of National Waterworks Holdings, Inc. ("Parent"), was
incorporated in September 2002 for the purpose of acquiring substantially all
of the assets and assuming certain obligations of U.S. Filter Distribution
Group, Inc. ("USFDG", "Predecessor" or the "Group"), a wholly owned subsidiary
of United States Filter Corporation ("U.S. Filter"), which is an
indirect-wholly owned subsidiary of Veolia Environnement ("Veolia", formerly
Vivendi Environnement S.A.). The acquisition was consummated on November 22,
2002, (see note 3). NWW is a distributor of water and wastewater transmission
products including pipe, fittings, valves, meters, service and repair products,
fire hydrants and other components that are used to transport clean water and
wastewater between reservoirs and treatment plants and residential and
commercial locations. NWW has 133 branch locations operating in 35 states.
Principal customers served are in the contractor and municipal markets in the
United States. Prior to the acquisition, USFDG conducted such business
activities.
As a result of the NWW acquisition, the balance sheets as of December 31,
2003 and 2002, and the statements of operations, stockholder's equity and cash
flows for the year ended December 31, 2003 and for the period from November 22,
2002 through December 31, 2002 represent NWW's financial position and the
results of its operations and cash flows as of those dates and for those
periods. The statements of operations, stockholder's equity and cash flows for
the period of January 1, 2002 through November 21, 2002 and for the year ended
December 31, 2001 represent USFDG's consolidated results of their operations
and cash flows for those periods.
(2) Summary of Significant Accounting Policies
(a) Principles of Consolidation and Basis of Presentation
The financial statements of USFDG include the financial statements of
USFDG and its wholly owned subsidiary, United States Filter Receivables
Corporation ("USFRC"), collectively the Group. USFRC was incorporated in 2001
in the state of Delaware. All significant intercompany balances and
transactions have been eliminated in consolidation. NWW has no subsidiaries.
(b) Cash Equivalents
All highly liquid investments with maturities at date of purchase of three
months or less are considered to be cash equivalents.
(c) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the weighted average cost method for all inventories.
F-7
Table of Contents
(d) Property and Equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is calculated on the straight-line method over the estimated useful
lives of the assets as follows:
Buildings and improvements
5 to 30 years
Office furniture, fixtures and equipment
3 to 5 years
Transportation equipment
1 to 5 years
Machinery and equipment
5 years
Maintenance and repair costs are charged to expense as incurred.
Additions, renewals and improvements are capitalized. Upon the sale or
retirement of an asset, the related cost and accumulated depreciation are
removed from the accounts and any gain or loss is recognized.
(e) Impairment of Long-Lived Assets Other than Goodwill
Long-lived assets, including property and equipment, are reviewed for
possible impairment whenever events or other changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. An impairment
loss is recognized when the carrying amount of a long-lived asset exceeds the
sum of the undiscounted cash flows expected to result from the asset's use and
eventual disposition. An impairment loss is measured as the amount by which
the carrying amount of the asset exceeds the fair value of the asset.
(f) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
NWW files a consolidated return with its parent. For the purpose of the
financial statements of NWW presented herein, NWW provides for income taxes as
if it was a taxable entity filing a separate return.
The Group filed as part of U.S. Filter's consolidated Federal income tax
return. U.S. Filter implemented certain tax planning strategies and the related
impact is not reflected in these separate financial statements of the Group.
For the purpose of the consolidated financial statements presented herein, the Group
provided for income taxes as if it were a taxable entity filing a separate
return.
(g) Segments of an Enterprise and Related Information
Management has implemented the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 131,
Disclosure about Segments of an
Enterprise and Related Information
. Management has determined the six
geographic regions, to which substantially all income and expenses are
allocated for purposes of allocating resources by the chief operating decision
maker, meet all of the aggregation criteria of SFAS No. 131, including similar
economic characteristics. Accordingly, there is one reportable segment.
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Products include pipe, fire hydrants, meters, valves, fittings and other
complementary products for waterworks construction and maintenance/repair. The
following table sets forth net sales by product category (in thousands):
Period of
Period of
November 22,
January 1,
2002
2002
Year Ended
through
through
Year Ended
December 31,
December 31,
November 21,
December 31,
Product Category
2003
2002
2002
2001
Pipe
$
510,852
$
38,256
$
424,544
$
440,499
Fittings
195,720
14,735
162,932
173,992
Valves
160,654
11,396
131,208
145,128
Meters
110,675
7,827
94,905
94,241
Fire hydrants
79,631
5,344
66,046
69,248
Service and repair products
86,298
6,336
69,515
74,334
Other
134,521
10,356
109,618
122,888
$
1,278,351
$
94,250
$
1,058,768
$
1,120,330
All revenues are derived from customers domiciled in the United States and
there are no long-lived assets located outside of the United States, and no
single customer, as defined in SFAS No. 131, represents ten percent or more of
revenues for any period presented.
(h) Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
these estimates.
(i) Revenue Recognition
Revenue on sales is recognized when products are shipped and the customer
takes ownership and assumes risk of loss. Shipping and handling costs incurred
are included as a component of cost of goods sold.
(j) Goodwill
Goodwill represents the excess of the purchase price for an acquired
business over the allocated fair value of the related net assets. Through 2001,
goodwill was amortized on a straight-line basis over a 40-year life. The
carrying value of goodwill was reviewed for impairment at the enterprise level,
in connection with impaired long-lived assets, whenever events or changes in
circumstances indicated that the carrying amount of the acquired assets may not
be recoverable. If the sum of the estimated future cash flows (undiscounted)
expected to result from the use and eventual disposition of an asset was less
than the carrying amount of the asset, an impairment loss was recognized.
Measurement of an impairment loss was based on the fair value of the asset. For
enterprise level goodwill, fair value was determined using a discounted cash
flows approach.
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141,
Business Combinations
, and SFAS No. 142,
Goodwill and Other Intangible
Assets
. SFAS No. 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. SFAS No. 141 also
specifies criteria that intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from
goodwill. SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS No. 142.
SFAS No. 142 also requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with the SFAS No.
144,
Accounting for the Impairment or Disposal of Long-Lived Assets
. On July 1,
2001, the Group adopted the provisions of SFAS No. 141 and certain provisions
of SFAS No. 142 as required for goodwill and intangible assets resulting from
business combinations after June 30, 2001, which had no effect on the Group's
consolidated financial statements.
The Group adopted the remaining provisions of SFAS No. 142 as of January
1, 2002 and no longer amortized goodwill related to business combinations
consummated before July 1, 2001. As of the date of adoption, the Group had
unamortized goodwill in the
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amount of $933.4 million, all of which was subject to the transition
provisions of SFAS No. 141 and No. 142. Amortization expense related to
goodwill that will no longer be amortized was $25.0 million for the year ended
December 31, 2001. As described in Note 4, an impairment loss of approximately
$459.0 million was recognized under the transitional provisions of SFAS No. 142
as of January 1, 2002.
Effective with the acquisition of the Group, the Company adopted the
provisions of SFAS No. 141 and No. 142. In accordance with SFAS No. 142, the
Company reviews goodwill for impairment annually at the beginning of the fourth
quarter, and whenever events or changes in circumstances indicate that the
carrying value may not be recoverable.
(k) Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 143,
Accounting for
Asset Retirement Obligations
, which addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. This statement applies to all
entities that have legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
or normal use of the asset. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. The adoption of SFAS No. 143 as of January 1,
2003 did not have a significant impact on our financial condition or results of
operations.
In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs
Associated with Exit or Disposal Activities,
which is effective for disposal
activities initiated after December 31, 2002. This Statement nullifies
Emerging Issues Task Force Issue No. 94-3,
Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)
. SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
when the liability is incurred as opposed to the date of the commitment of an
exit plan. The adoption of SFAS No. 146 as of January 1, 2003 did not have a
significant impact on our financial condition or results of operations.
In November 2002, the EITF reached consensus on Issue 02-16,
Accounting by
a Customer (Including a Reseller) for Certain Consideration Received from a
Vendor
. The consensus was reached that cash consideration received by a
customer from a vendor is presumed to be a reduction of the prices of the
vendor's products or services and should be treated as a reduction of cost of
sales when recognized in the customer's income statement. This presumption can
be overcome if the consideration can be shown to represent either a payment for
assets or services delivered to the vendor or a reimbursement of costs incurred
by the reseller to sell the vendor's products. It also reached consensus on
when a customer should recognize a rebate or refund that is payable only if the
customer completes a specified level of purchases. Recognition should occur
when the rebate or refund is probable and reasonably estimable and should be
based on a systematic and rational method. The Company has historically
accounted for such consideration as a reduction of cost of sales when the
vendor rebate is probable and reasonably estimable and based on a systematic
and rational allocation of the cash consideration to be received. The Company
estimated the adoption of this EITF increased net income by $1.4 million for
the year ended December 31, 2003.
In January 2003, the FASB issued Statement SFAS No.148,
Accounting for
Stock-Based Compensation — Transition and Disclosure
. This statement amends
FASB SFAS No. 123,
Accounting for Stock-Based Compensation
to provide
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. In addition,
SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent
disclosures in both annual and interim financial statements of the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. SFAS 148 is effective for fiscal years beginning
after December 15, 2002. The adoption of SFAS 148 had no impact on the
Company's financial statements.
In April 2003 the FASB issued SFAS No. 149,
Amendment of Statement 133 on
Derivative Instruments and Hedging Activities
. This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133,
Accounting for Derivative Instruments
and Hedging Activities
. SFAS No. 149 provides greater clarification of the
characteristics of a derivative instrument so that contracts with similar
characteristics will be accounted for consistently. In general, SFAS No. 149
is effective for contracts entered into or modified after June 30, 2003, and
for hedging relationships designated after June 30, 2003. As the Company does
not currently have any derivative financials instruments, the adoption of SFAS
No. 149 had no impact on the Company's financial statements.
In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity
.
This statement clarifies the accounting for certain financial instruments with
characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities in statements of financial position.
Previously, many of those
F-10
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financial instruments were classified as equity. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. As the Company does not have any of these
financial instruments, the adoption of SFAS No. 150 had no impact on the
Company's financial statements.
(3) Acquisitions and Divestitures
On November 22, 2002, NWW acquired substantially all of the assets and
certain liabilities of the Group. The acquisition was accounted for as a
business combination under SFAS No. 141 and as a taxable transaction for
federal and state income tax purposes.
The aggregate purchase price, prior to post-closing purchase price
adjustments, was $643.8 million. In addition, NWW incurred $15.3 million in
financing fees of which $12.8 million was capitalized as deferred financing
fees and $2.5 million expensed as interest expense. During 2003, the Company
recorded additional deferred financing fees of $8.9 million which were
initially considered direct costs of the acquisition. These fees will be
amortized over the remaining life of the related debt.
The following table summarizes the estimated fair value of the assets
acquired and the liabilities assumed as of the date of acquisition (in
thousands):
Assets
Current assets
$
312,684
Property and equipment
21,953
Goodwill
465,662
Total assets acquired
800,299
Liabilities
Current liabilities
156,546
Total liabilities
156,546
Net assets acquired
$
643,753
The goodwill acquired is deductible for income tax purposes.
Current assets includes a $13.0 million inventory valuation adjustment
pursuant to SFAS No. 141 of which $4.0 million and $9.0 million has been
recognized as an increase in cost of goods sold for the year ended December 31,
2003 and the period of November 22, 2002 through December 31, 2002,
respectively.
The acquisition agreement provided for a post-closing purchase price
adjustment based on working capital at the closing date. The purchase price
adjustment was finalized and resulted in an additional cash payment of $3.1
million paid in the first quarter of 2003. The $3.1 million payment was
recorded as an adjustment to goodwill.
The pro forma results of operations for 2002 (in thousands) as though the
business combination had been completed as of January 1, 2002 would have
resulted in revenue of $1,153,018 and net income of $25,259.
On March 29, 2002 the Group acquired substantially all of the assets and
certain liabilities of Utility Piping Systems, Inc. for an aggregate purchase
price of $19.6 million. This acquisition was accounted for by the purchase
method, and accordingly, the purchase price was allocated to the net assets
acquired based upon their estimated fair values as of the date of acquisition.
The allocation of purchase price resulted in approximately $14.3 million of
goodwill acquired.
On May 31, 2001, the Group acquired substantially all of the assets and
certain liabilities of Utility Supply Division of North American Pipe
Corporation (NAPCO) for an aggregate purchase price of $2.7 million. This
acquisition was accounted for by the purchase method, and accordingly, the
purchase price was allocated to the net assets acquired based upon their
estimated fair values as of the date of acquisition. The allocation of purchase
price resulted in approximately $0.4 million of goodwill acquired, which was
being amortized over 40 years through January 1, 2002, the date of the adoption
of SFAS No. 142.
As
these acquisitions are immaterial to the Group's consolidated financial statements,
pro forma results of operations are not presented.
On January 1, 2001, the Group sold certain assets and liabilities acquired
in 1997 for an aggregate sale price of $3.7 million. The carrying values of the
assets divested, including goodwill, and liabilities disposed were
approximately $4.1 million and $0.4 million,
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respectively.
(4) Goodwill
The changes in the carrying amount of goodwill for the year ended December
31, 2003 are as follows (in thousands):
Year ended
December 31,
2003
Balance at beginning of period
$
465,662
Additional goodwill related to the NWW acquisition of
USFDG:
Additional transaction costs
84
Working capital purchase price adjustment
3,140
Purchase accounting adjustment-change in tax basis
of assets acquired
(3,886
)
Additional financing fees initially considered direct
costs of the acquisition
(8,920
)
Balance at the end of the period
$
456,080
During 2003, the Company recorded additional deferred financing fees of
$8.9 million that will be amortized over the remaining life of the related
debt. Also, additional deferred tax assets of $3.9 million were recorded based
on management's best estimate of the acquired assets that will ultimately be
accepted by the taxing authorities.
Effective with the acquisition of the Group, the Company adopted the
provisions of SFAS No. 142 which requires goodwill be tested for impairment on
an annual basis at the reporting unit level. The Company identified and
assigned goodwill to its six reporting units as described in note 2. As part
of this review, a third party independent appraiser assessed the fair value of
the reporting units utilizing a combination of discounted cash flows and market
approaches. The Company reviewed goodwill for impairment at the beginning of
fourth quarter 2003. Based on the results of the impairment test, the Company
determined there was no impairment of goodwill to any of the reporting units.
In accordance with SFAS No. 142, the Group completed the transition
assessment of whether there was an indication that goodwill was impaired at
January 1, 2002 and concluded that it was probable that goodwill assigned to
its reporting units was impaired. The fair value of the Group's reporting units
was estimated using, among other factors, the sales price included in the sale
agreement by U.S. Filter and USFDG to sell substantially all of the Group's
assets, net of certain liabilities, for a cash purchase price of $620.0
million. The Group's management estimated an impairment loss of approximately
$459.0 million. The goodwill impairment was reported as a cumulative effect of
a change in accounting principle.
Amortization expense related to goodwill was $25.0 million for the year
ended December 31, 2001. The following table reconciles previously reported
net income as if the provision of SFAS No. 142 were in effect in 2001 (in
thousands):
Period of
Period of
November 22,
January 1,
2002
2002
Year Ended
through
through
Year Ended
December 31,
December 31,
November 21,
December 31,
2003
2002
2002
2001
Reported net income (loss)
$
33,641
$
(5,894
)
$
(412,847
)
$
26,150
Add back:
Goodwill amortization
—
—
—
25,000
Adjusted net income
$
33,641
$
(5,894
)
$
(412,847
)
$
51,150
(5) Allocations and Other Services
The Group participated in certain services provided by U.S. Filter as
described below:
F-12
Table of Contents
(a) Cash Management
Prior to November 2002, the Group participated in U.S. Filter's
centralized cash management system and, as such, the Group's cash funding
requirements including interest and tax obligations were met by U.S. Filter,
and cash received by the Group was transferred to U.S. Filter on a daily basis.
(b) Allocations
The statements of operations for the period of January 1, 2002 through
November 21, 2002 and year ended December 31, 2001 include all direct costs of
the Group as well as certain corporate costs directly identified with the Group
and allocated to the Group by U.S. Filter. The Group was allocated $45.1
million and $52.0 million for the period of January 1, 2002 through November
21, 2002 and year ended December 31, 2001, respectively. Allocated costs
included general liability insurance, worker's compensation insurance, employee
health and dental insurance, 401(k) plan matching expense, legal fees, income
taxes, and certain other costs. These costs were allocated to the Group based
on information specifically identified with the activities of the Group and
were settled through intercompany transactions. In the opinion of Group's
management, these allocations were made on a basis which is believed to be
reasonable for the Group as it operated within the structure of a larger parent
organization. However, the allocations are not necessarily indicative of the
level of expenses which might have been incurred by the Group if it had
operated as a stand-alone entity.
(6) Property and Equipment
Property and equipment consists of the following (in thousands):
2003
2002
Land
$
6,295
$
6,306
Buildings and improvements
9,694
9,349
Office furniture, fixtures and equipment
2,821
1,852
Transportation equipment
3,420
3,206
Machinery and equipment
830
1,343
23,060
22,056
Less accumulated depreciation and amortization
(2,537
)
(251
)
$
20,523
$
21,805
(7) Leases
NWW has certain noncancelable operating leases primarily for
transportation equipment and office space. These leases generally contain
automatic renewal options until terminated by either party and require the
lessee to pay all executory costs such as maintenance and insurance. Rental
expense for operating leases was $14.6 million, $1.2 million, $12.6 million,
and $13.5 million for the year ended December 31, 2003, the period of November
22, 2002 through December 31, 2002, the period of January 1, 2002 through
November 21, 2002, and year ended December 31, 2001, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December 31, 2003
are (in thousands):
Operating
Year Ending December 31
Leases
2004
$
6,859
2005
5,212
2006
3,577
2007
2,436
2008
1,727
Thereafter
2,922
Total minimum lease payments
$
22,733
(8) Long-Term Debt
Long-term debt at December 31, 2003 consists of the following (in
thousands):
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Table of Contents
2003
2002
Unsecured 10.5% Senior Subordinated Notes due December 1, 2012
interest payable semi-annually
$
200,000
$
200,000
Secured borrowings under financing agreement; for 2003,LIBOR interest (no
floor) plus a spread of 2.75%; for 2002, LIBOR interest at 2.5% floor plus a
spread of 4.0%; interest rates were 3.92% and 6.5% at December 31, 2003
and 2002, respectively; principal payments due quarterly plus annual
payments based on excess cash flow provisions as defined in the agreement;
matures November 22, 2009; secured by the assets of the Company
240,000
250,000
Total long-term debt
440,000
450,000
Less current installments
15,000
10,000
Long-term debt, excluding current installments
$
425,000
$
440,000
In November 2002, NWW issued $200.0 million principal amount of 10.5%
Senior Subordinated Notes pursuant to Rule 144A of the Securities Act of 1933.
Before December 1, 2005, 35% of the Senior Subordinated Notes can be redeemed
with net cash proceeds of certain equity offerings at a redemption price of
110.50%. In addition, prior to December 1, 2007, all or a portion of the notes
may be redeemed at a price equal to 100% of the principal amount plus a make
whole premium. On or after December 1 of the years indicated, NWW may redeem
the notes at the following redemption prices (expressed in percentages):
105.25% in 2007, 103.50% in 2008, 101.75% in 2009, and 100% in 2010 and
thereafter.
In November 2002, NWW entered into a financing agreement with a syndicate
of lenders under which NWW borrowed $250.0 million of term loans bearing an
interest rate of LIBOR (floor of 2.5%) plus 4% or alternatively Prime plus 3%.
The spread decreased upon attaining certain financial targets and ratios. The
financing agreement allows for additional revolver borrowings through November
22, 2008 in the amount of $75.0 million. The revolver had an interest rate of
LIBOR (floor 2.5%) plus 3% or alternatively Prime plus 2%. NWW has the option
to elect 30, 60, 90, or 180 day interest periods and must pay an annual
commitment fee of 1/2 of 1% on the unused portion of the commitment. The
spread and commitment fee decrease based on attaining certain financial targets
and ratios. The agreement allows NWW to utilize up to $35.0 million of the
$75.0 million revolver borrowings for letters of credit, bearing an interest
rate of 3% and upfront fees of .25%. The Company utilized $3.8 million and
$3.1 million of the revolver borrowings to cover outstanding letters of credit
at December 31, 2003 and 2002, respectively. The $75.0 million revolver
capacity was reduced accordingly at these dates.
In August 2003 the Company amended the senior credit facility in
connection with the refinancing of the outstanding term loan portion thereof.
The amendment, among other things, provided for lower applicable margins for
both LIBOR rate and Prime rate term loans under the refinanced facility. In
addition the minimum LIBOR rate of 2.50% for term loans that existed prior to
the amendment was removed. The amendment also permits us to issue, without the
consent of lenders under the senior credit facility, an incremental $50.0
million of credit facilities in addition to the $50.0 million permitted prior
to the amendment, contingent upon meeting certain covenants. In connection
with the amendment, we paid approximately $6.0 million of financing fees,
including a $4.9 million call premium. The call premium was recorded as
deferred financing fees. The remaining finance fees were charged to interest
expense.
In December 2003, the Company executed a Second Amendment to the senior
credit facility in connection with a dividend paid to the shareholders of the
Parent. The amendment permits NWW to pay a dividend to its parent from time to
time, contingent upon meeting certain financial covenants and ratios. In
addition, the aggregate amount of dividends paid pursuant to this amendment may
not exceed $110.0 million in total, and may not exceed $45.0 million for the
year ended December 31, 2003 and $40.0 million for any year thereafter,
provided that any amount not paid in the year for which it is permitted may be
carried over to any succeeding year. In connection with the amendment, the
Company paid approximately $2.3 million in financing fees which were charged to
interest expense.
The financing agreement and the indenture related to the Senior
Subordinated Notes contain various covenants including limitations on
additional indebtedness, restricted payments, the incurrence of liens,
transactions with affiliates and sales of assets. In addition, the financing
agreement requires NWW to satisfy certain financial covenants, including
leverage and interest coverage ratios
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and capital expenditure limitations. NWW was in compliance with all of
the covenants of the financing agreement and the indenture at December 31, 2003
and 2002.
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 2003 are: $15.0 million in 2004, $15.0 million in
2005, $20.0 million in 2006, $25.0 million in 2007, and $25.0 million in 2008.
In addition, NWW is required to repay the term loans under the financing
agreement in an amount equal to 75% of excess cash flow (as defined in the
financing agreement) each fiscal year and with 100% of the net proceeds of
certain asset dispositions and debt issuances and 75% of the net proceeds of
certain equity issuances. The prepayment percentages with respect to excess
cash flow and equity issuances shall be reduced to 50% after December 31, 2003
if NWW attains certain financial ratios. NWW did not have an excess cash flow
payment due for the year ended December 31, 2003.
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Table of Contents
(9) Income Taxes
Income tax expense (benefit) attributable to income (loss) from continuing
operations for each of the periods presented consists of the following (in
thousands):
Current
Deferred
Total
Year ended December 31, 2003:
U.S. Federal
$
4,547
$
15,831
$
20,378
State and local
649
2,262
2,911
$
5,196
$
18,093
$
23,289
Period of November 22, 2002 through
December 31, 2002:
U.S. Federal
$
—
$
(3,098
)
$
(3,098
)
State and local
—
(590
)
(590
)
$
—
$
(3,688
)
$
(3,688
)
Period of January 1, 2002 through
November 21, 2002:
U.S. Federal
$
23,547
$
1,869
$
25,416
State and local
3,541
281
3,822
$
27,088
$
2,150
$
29,238
Year ended December 31, 2001:
U.S. Federal
$
27,456
$
295
$
27,751
State and local
4,129
44
4,173
$
31,585
$
339
$
31,924
Income tax expense (benefit) attributable to income (loss) from continuing
operations differed from the amounts computed by applying the U.S. federal
income tax rate of 35% to pretax income from continuing operations as a result
of the following (in thousands):
Period of
Period of
November
January 1,
Year
22, 2002
2002
Year
Ended
through
through
Ended
December
December
November
December
31,
31,
21,
31,
2003
2002
2002
2001
Computed "expected" tax
expense
(benefit)
$
19,925
$
(3,354
)
$
26,387
$
20,326
Increase (reduction) in income
taxes resulting from:
Permanent differences:
Amortization of goodwill
—
—
—
8,288
Meals and entertainment
511
50
364
400
Officer's life insurance
7
—
—
—
Other
—
—
3
196
State and local taxes
2,846
(384
)
2,484
2,714
$
23,289
$
(3,688
)
$
29,238
$
31,924
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Table of Contents
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 2003 and 2002 are presented below (in thousands):
2003
2002
Deferred tax assets:
Net operating loss
$
—
$
6,094
Inventory
759
56
Other accruals
33
89
Deferred financing fees
1,339
—
Start up costs
3,886
—
Total deferred tax assets, net
6,017
6,239
Deferred tax liabilities:
Depreciation and amortization
15,235
1,213
Prepaid expenses
1,252
828
Allowance for doubtful accounts
—
510
Other
49
—
Total deferred tax liabilities
16,536
2,551
Net deferred tax assets (liabilities)
$
(10,519
)
$
3,688
Current deferred tax liability of $0.5 million and current income tax
payable of $2.1 million are included in other accrued expenses at December 31,
2003. These balances were $0.0 million at December 31, 2002.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections for future taxable
income over the periods which the deferred tax assets are deductible,
management believes it is more likely than not the benefits of these deductible
differences will be realized at December 31, 2003 and 2002. The amount of the
deferred tax assets considered realizable; however, could be reduced in the
near term if estimates of future taxable income during the carryforward period
are reduced.
At December 31, 2002, NWW had a net operating loss carryforward for
federal and state income tax purposes of approximately $15.6 million which was
available to offset federal taxable income through 2022 and future taxable
income in various states through, 2007. The entire net operating loss
carryforward was utilized in the year ending December 31, 2003 for both federal
and state income tax purposes.
(10) Completion Bonus, Employment Agreements and Restricted Stock Agreements
In April 2002, U.S. Filter entered into agreements with certain members of
management and other key employees of USFDG, to provide them with an
opportunity to earn cash incentive "completion bonuses" in connection with the
anticipated sale of the business of USFDG. Completion bonus payments were made
by U.S. Filter following consummation of the acquisition to each employee with
such an agreement, unless such individual's employment was terminated
voluntarily or for cause prior thereto. Payments by U.S. Filter pursuant to
these arrangements totaled $6.2 million for the period of January 1 through
November 21, 2002.
In April 2002, the Group entered into employment agreements with certain
members of management. These agreements provided for certain severance
payments as defined in the employment agreement. These employment agreements
were terminated in connection with the acquisition of the Group by NWW.
In November 2002, NWW entered into new employment agreements with certain
members of management. Each of the employment agreements provides for annual
compensation, certain severance payments and non-compete and non-solicitation
provisions, as defined in the employment agreement.
In November 2002, certain employees of NWW purchased, at fair value,
shares of the Parent's Class A Common Stock and entered into a restricted stock
agreement with the Parent. Under the terms of the restricted stock agreement,
the Parent has the option to repurchase the shares at the lower of the then
current fair value of the stock or the employees' purchase price. Certain
shares subject to repurchase by the Parent are reduced over a four-year period
("time based shares") with the remaining shares being reduced over a four-year
period if certain financial measures, as defined in the restricted stock
agreement, are met by NWW ("performance
F-17
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based shares"). If the employee remains employed by NWW, and if the
performance based targets are not met, the Parent ceases to have the right to
repurchase such shares on the eighth anniversary of the date of the restricted
stock agreement.
In the event the employee ceases employment with NWW, there is no further
reduction in the shares then subject to repurchase. If an employee is
terminated without cause within one year of a sale of NWW or the Parent, the
Parent ceases to have the right to repurchase any time-based shares then
subject to repurchase. In addition, if there is a sale of NWW or the Parent or
a public offering of the equity securities of NWW or the Parent, the Parent
ceases to have the right to repurchase any performance based shares then
subject to repurchase if J.P. Morgan Partners, LLC and Thomas H. Lee Partners,
L.P. and their affiliates realize a specified return on their original
investments as defined in the restricted stock agreement. In the event the
employee is terminated for cause, all shares purchased by the employee are
subject to repurchase by the Parent.
(11) Employee Benefit Plans
Retirement Savings Plan.
The Company adopted a 401(k) retirement savings
plan on January 1, 2003 which is available to full time and full time
equivalent employees. The plan allows employees to contribute a portion of
their compensation on a pretax basis, subject to statutory limits. The Company
matches 50% of up to 7% of participant contributions. Expense charged to
operations related to this plan was $1.9 million for the year ended December
31, 2003.
Management Deferred Compensation Plan.
The Company established a
non-qualified management deferred compensation plan on January 1, 2003. The
plan allows eligible employees to defer up to 50% of their regular taxable
earnings and up to 100% of their annual bonus as described in the plan. The
participants' contributions are not matched by the Company. Although there are
no specific funding requirements under the plan, the Company has elected to
fund the plan through contributions to a rabbi trust. The fair value of the
assets held in the rabbi trust was $1.6 million at December 31, 2003 and is
included in other assets. The fair value of the participants' accounts was
$1.7 million at December 31, 2003 and is included in other long-term
liabilities.
(12) Commitments and Contingencies
Certain of the Group's predecessors distributed or may have distributed
cement pipe containing asbestos. Except for one predecessor, the cement pipe
distributed was primarily used in water and sewage application where the pipe
was typically buried underground. Management believes that the nature of the
asbestos-containing pipe distributed by the predecessors and the uses of such
pipe makes it unlikely that a large number of plaintiffs would be exposed to
friable asbestos emanating from the pipe. Management is not aware of any
predecessor manufacturing or fabricating asbestos containing products of any
type or assuming any product liability for such products.
As discussed in Note 3, U.S. Filter and USFDG completed an agreement to
sell substantially all of the Group's assets, net of certain liabilities as
defined in the sales agreement, to NWW. The November 2002 acquisition was
structured as an asset purchase, and we did not assume any existing or future
asbestos-related liabilities relating to U.S. Filter or its predecessors. U.S.
Filter and USFDG retained these liabilities and jointly and severally agreed to
indemnify and defend us from and against these liabilities on an unlimited
basis with no termination date. U.S. Filter and USFDG also agreed that, until
November 22, 2012, U.S. Filter will cause USFDG to maintain USFDG's corporate
existence and ensure that USFDG has sufficient funds to pay any and all of its
debts and other obligations, including liabilities retained by USFDG and its
indemnification obligations, as and when they become due. In addition, Veolia
has guaranteed all obligations of U.S. Filter and USFDG under the asset
purchase agreement, including the indemnity discussed above, up to an aggregate
of $50.0 million through the period ending November 22, 2017. Historically,
courts have not held the acquirer of an entity's assets liable for liabilities
that are not assumed as part of the transaction unless the asset buyer is found
to be a "successor" to the asset seller. Accordingly, we could become subject
to asbestos liabilities in the future to the extent we are found to be a
successor to USFDG and to the extent USFDG, U.S. Filter and Veolia are unable
to fulfill their contractual obligations. As the asbestos claims were retained
by USFDG and U.S. Filter and in view of the indemnity by USFDG and U.S. Filter
with respect to retained liabilities and the Veolia guarantee, discussed above,
management of NWW believes that it has no liability related to asbestos claims
at December 31, 2003 and 2002.
The Group and one of the Group's predecessors have been named as
defendants in 1,148 asbestos related lawsuits in which the asbestos pipe was
used in buildings. As of December 31, 2003, 910 lawsuits have been dismissed,
130 lawsuits have been settled and 108 lawsuits remain open. The predecessor's
insurance carriers entered into a cost sharing agreement for the coverage of
these lawsuits, which provides for 100% coverage of the related defense and
settlement costs. Subsequently one of the insurance carriers determined that
its policies do not cover asbestos liabilities and dropped out of the cost
sharing agreement. The Group has elected to cover the 42% share that this
insurance carrier had been contributing. Total related aggregate settlement
costs through December 31,
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2003 are $0.3 million and total related aggregate defense costs are $0.8
million, with the Group paying its share of $0.1 million and $0.4 million,
respectively.
The Group and its predecessor companies have been named as defendant in 22
other asbestos related lawsuits. As of December 31, 2003, 9 lawsuits have been
dismissed, 10 lawsuits have been settled and 3 lawsuits remain open. Total
settlement costs through December 31, 2003 are $0.9 million and total defense
costs are $0.5 million, substantially all of which has been covered by the
Group's or predecessors' insurance carriers.
NWW and the Group are involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect
on NWW or the Group's consolidated financial position, results of operations or liquidity.
In November 2002, NWW entered into a management agreement with J.P. Morgan
Partners, LLC and Thomas A. Lee Partners, L.P. ("Sponsors"). Each Sponsor and
its affiliates own 43.3% of the outstanding common stock of the Parent. Under
the agreement, the Sponsors agreed to provide NWW with financial advisory and
other services. NWW will pay each Sponsor an annual management fee in the
amount of $0.5 million, commencing July 1, 2004. The management agreement
continues until terminated by a Sponsor as provided in the management
agreement. Upon termination under certain conditions, each Sponsor will be
entitled to receive a termination fee equal to the net present value of the
fees, which would have been paid to the Sponsor for the 10-year period
commencing on the date of termination.
(13) Accounts Receivable Securitization
The Group utilized a standard third-party receivables sale program, to
provide low-cost funding based upon a securitization agreement entered into on
December 19, 2001. Under this maximum $170.0 million program, the Group sold
monthly, on a revolving basis, all of its rights, title and interest in, to and
under these eligible accounts receivable to a third party, a bankruptcy-remote
special purpose limited liability company. This company in turn transferred the
eligible accounts receivable to a master trust which issues undivided interests
in eligible accounts receivable to a third-party, multi-seller asset-backed
commercial paper program, existing solely for the purpose of issuing commercial
paper. Concurrent with the sale of USFDG assets to NWW, the accounts receivable
securitization facility was terminated using proceeds from the sale.
The sales of receivables under this Receivables Securitization Program
were accounted for as a sale in accordance with SFAS No. 140,
Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
The Group formed a master trust for purposes of pooling its eligible accounts
receivable. Accounts receivable sold under these arrangements were excluded
from accounts receivable. Losses recognized on the sale of accounts receivable
totaled $2.5 million and $0.5 million during the period of January 1, 2002
through November 21, 2002 and the period ended December 31, 2001, respectively.
These costs are included in the accompanying statements of operations under the
caption "Loss-accounts receivable securitization".
(14) Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents and long-term
debt as of December 31, 2003 and 2002. The carrying amount of cash and cash
equivalents approximate the fair value because of the short-term nature of
these instruments. The fair value of the Senior Subordinated Notes long-term
debt is estimated at $228.0 million and $208.8 million at December 31, 2003 and
2002, respectively, based on quoted market prices as of those dates compared to
a carrying value of $200.0 million. The carrying value of the term loan under
the Company's financing agreement approximates the fair value as the interest
rates float with the market interest rates.
(15) Related Party Transactions
In January 2003, one of our and our Parent's directors, who had not made
an investment in the Parent at the time the NWW acquisition was consummated,
made a $1.0 million cash equity investment in the Parent in exchange for the
issuance of shares of common stock of the Parent. The Parent made a concurrent
$1.0 million capital contribution to the Company. The investment was made at
the same price per share as the original investment made by the Sponsors and
management on November 22, 2002.
(16) Quarterly Financial Information (unaudited)
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The following is a summary of the unaudited results of operations for each
quarter in calendar 2003 and 2002 (in thousands):
Calendar 2003
National Waterworks, Inc.
First
Second
Third
Fourth
Total
Net Sales
$
269,779
$
329,715
$
357,781
$
321,076
$
1,278,351
Gross Profit
53,467
69,572
75,364
69,587
267,990
Net Income
$
2,718
$
10,255
$
12,486
$
8,182
$
33,641
National
Waterworks,
Calendar 2002
U.S. Filter Distribution Group, Inc.
Inc.
Period of
Period of
January 1,
November
2002
22, 2002
through
through
November
December
First
Second
Third
21, 2002
Total
31, 2002
Net Sales
$
226,667
$
312,012
$
329,997
$
190,092
$
1,058,768
$
94,250
Gross Profit
50,712
65,677
68,772
41,843
227,004
12,245
Income (loss)
before cumulative
effect of a change
in accounting
principle
9,227
15,347
16,201
5,378
46,153
(5,894
)
Net Income (loss)
$
(449,773
)
$
15,347
$
16,201
$
5,378
$
(412,847
)
$
(5,894
)
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(17) Subsequent Events
On February 9, 2004, NWW acquired substantially all of the assets and
certain liabilities of Midstate Utility Supply, Inc. for an aggregate purchase
price of approximately $2.0 million, subject to post-closing purchase price
adjustments as stated in the Asset Purchase Agreement.
On March 2, 2004 the Company's Board of Directors declared a cash dividend
in the aggregate amount of $6.1 million. The dividend, payable on March 3,
2004, will be paid to the Company's Parent. Contemporaneously with the
declaration of the dividend, the Company's Parent declared a dividend in the
aggregate amount of $6.1 million to the holders of its class B common stock,
payable March 3, 2004.
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Table of Contents
National Waterworks, Inc.
Table of Contents
Part II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses payable by National
Waterworks, Inc. in connection with the offer and sale of the securities being
registered. All amounts are estimates.
Printing and engraving expenses
$
5,000
Legal fees and expenses
25,000
Accounting fees and expenses
20,000
Total
$
50,000
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law ("DGCL") provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal or investigative (other than an action by or
in the fight of the corporation) by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the fight of the
corporation to procure a judgment in its favor, against expenses (including
attorneys' fees) actually and reasonably incurred in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation and except that no indemnification shall be made in respect of
any claim, issue or matter as to which such person shall have been adjudged to
be liable to the corporation unless and only to the extent that the Delaware
Court of Chancery or such other court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to include in its
certificate of incorporation a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omission not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL (relating to unlawful payment of dividends and unlawful stock
purchase and redemption) or (iv) for any transaction from which the director
derived an improper personal benefit.
The Restated Certificate of Incorporation of National Waterworks, Inc. provides
that its directors shall not be liable to National Waterworks, Inc. or its
stockholders for monetary damages for breach of fiduciary duty as a director
provided, however, that such exculpation from liabilities is not permitted with
respect to liability arising from items described in clauses (i) through (iv)
in the preceding paragraph. The Amended and Restated By-laws of National
Waterworks, Inc. further provide that National Waterworks, Inc. shall indemnify
its directors to the fullest extent permitted by the DGCL. The Restated
Certificate of Incorporation of National Waterworks, Inc. provides that if the
DGCL is amended after the date of incorporation of National Waterworks, Inc. to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of National
Waterworks, Inc shall be eliminated or limited to the fullest extent permitted
by the DGCL, as so amended.
The directors and officers of National Waterworks, Inc. are covered under
directors' and officers' liability insurance policies maintained by National
Waterworks, Inc.
II-1
Table of Contents
Item 15. Recent Sales of Unregistered Securities
None.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit Number
Exhibit
2.1
Asset Purchase Agreement dated September 12, 2002 by and among United
States Filter Corporation, U.S. Filter Distribution Group, Inc. and
National Waterworks, Inc. (Incorporated by reference to Exhibit 2.1 to the
Registrant's Registration Statement on Form S-4, File No. 333-102430).
3.1
Restated Certificate of Incorporation of National Waterworks, Inc.
(Incorporated by Reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-4, File No. 333-102430).
3.2
Amended and Restated By-laws of National Waterworks, Inc. (Incorporated
by Reference to Exhibit 3.2 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
4.1
Indenture, dated as of November 22, 2002, among National Waterworks, Inc.
and Wells Fargo Bank, Minnesota, National Association, as Trustee
(Incorporated by Reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-4, File No. 333-102430).
4.2
Form of Senior Subordinated Note, Series B, due 2012 (a form of which is
incorporated by reference to an exhibit to the Indenture filed as Exhibit
4.1 to the Registrant's Registration Statement on Form S-4, File No.
333-102430).
4.3
Exchange and Registration Rights Agreement, dated as of November 22,
2002, among National Waterworks, Inc., Goldman, Sachs & Co., J.P. Morgan
Securities Inc. and UBS Warburg LLC (Incorporated by reference to Exhibit
4.3 of the Registrant's Registration Statement on Form S-4, File No.
333-102430).
5.1
Opinion of O'Melveny & Myers LLP (Incorporated by reference to Exhibit
5.1 of the Registrant's Registration Statement on Form S-4, File No.
333-102430).
10.1
Credit Agreement, dated as of November 22, 2002, among National
Waterworks Holdings, Inc., National Waterworks, Inc., as Borrower, the
several lenders from time to time parties thereto, JPMorgan Securities
Inc., as Co-Syndication Agent, Goldman Sachs Credit Partners L.P., as
Co-Syndication Agent, General Electric Capital Corporation, as
Co-Documentation Agent, Antares Capital Corporation, as Co-Documentation
Agent and UBS AG, Stamford Branch, as Administrative Agent (Incorporated
by Reference to Exhibit 10.1 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
10.2
Guarantee and Collateral Agreement, dated as of November 22, 2002, among
National Waterworks Holdings, Inc., and National Waterworks, Inc. as
Borrower in favor of UBS AG, Stamford branch, as Administrative Agent
(Incorporated by Reference to Exhibit 10.2 to the Registrant's
Registration Statement on Form S-4, File No. 333-102430).
10.3
Deed of Trust, Assignment of Rents and Leases and Security Agreement,
dated as of November 22, 2002, made by National Waterworks, Inc for the
use and benefit of UBS AG, Stamford Branch, as
II-2
Table of Contents
Exhibit Number
Exhibit
Administrative Agent. (St. Louis, MO) (Incorporated by Reference
to Exhibit 10.3 to the Registrant's Registration Statement on Form
S-4, File No. 333-102430).
10.4
Deed of Trust, Assignment of Rents and Leases, Fixture Filing and
Security Agreement, dated as of November 22, 2002, made by National
Waterworks, Inc for the use and benefit of UBS AG, Stamford Branch, as
Administrative Agent (Puyallup, WA) (Incorporated by Reference to Exhibit
10.4 to the Registrant's Registration Statement on Form S-4, File No.
333-102430).
10.5
Employee Leasing Agreement between United States Filter Corporation, U.S.
Filter Distribution Group, Inc. and National Waterworks, Inc., dated as of
November 22, 2002 (Incorporated by Reference to Exhibit 10.5 to the
Registrant's Registration Statement on Form S-4, File No. 333-102430).
10.6
Reimbursement Agreement between United States Filter Corporation and
National Waterworks, Inc., dated as of November 22, 2002 (Incorporated by
Reference to Exhibit 10.6 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
10.7
Stockholders Agreement among National Waterworks Holdings, Inc., THL
Managers V, LLC and certain of its affiliates, J.P. Morgan Partners, LLC
and certain of its affiliates, and the other parties thereto, dated as of
November 22, 2002 (Incorporated by Reference to Exhibit 10.7 to the
Registrant's Registration Statement on Form S-4, File No. 333-102430).
10.8
Registration Rights Agreement among National Waterworks Holdings, Inc.
and its stockholders, dated as of November 22, 2002 (Incorporated by
Reference to Exhibit 10.8 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
10.9
Subscription and Stock Purchase Agreement by and among National
Waterworks Holdings, Inc. and each of Thomas H. Lee Equity Fund V, L.P.,
Thomas H. Lee Parallel Fund V, L.P., Thomas H. Lee Equity (Cayman) Fund V,
L.P., Putnam Investments Holdings, LLC, Putnam Investments Employees'
Securities Company I LLC, Putnam Investments Employees' Securities Company
II LLC, 1997 Thomas H. Lee Nominee Trust, Thomas H. Lee Investors Limited
Partnership, J.P. Morgan Partners (BHCA), L.P., J.P. Morgan Partners
Global Investors, L.P., J.P. Morgan Partners Global Investors (Cayman),
L.P., J.P. Morgan Partners Global Investors A, L.P., J.P. Morgan Partners
Global Investors (Cayman) II, L.P. and Latona NW Investment, LLC, dated as
of November 22, 2002 (Incorporated by Reference to Exhibit 10.9 to the
Registrant's Registration Statement on Form S-4, File No. 333-102430).
10.10
Subscription and Stock Purchase Agreement by and among National
Waterworks Holdings, Inc. and each of Harry Hornish, Mechelle Slaughter,
Terry Howell, Rob Hickson, Ed Maczko, Ron Hood, Jerry Webb, Irving
Welchons, Jack Schaller, Joe Walker, Phil Keipp and Jack Olson, dated as
of November 22, 2002 (Incorporated by Reference to Exhibit 10.10 to the
Registrant's Registration Statement on Form S-4, File No. 333-102430).
10.11
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Harry Hornish, dated as of November 22, 2002 (Incorporated by
Reference to Exhibit 10.11 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
10.12
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Mechelle Slaughter, dated as of November 22, 2002 (Incorporated by
Reference to Exhibit 10.12 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
II-3
Table of Contents
Exhibit Number
Exhibit
10.13
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Terry Howell, dated as of November 22, 2002 (Incorporated by Reference
to Exhibit 10.13 to the Registrant's Registration Statement on Form S-4,
File No. 333-102430).
10.14
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Rob Hickson, dated as of November 22, 2002 (Incorporated by Reference
to Exhibit 10.14 to the Registrant's Registration Statement on Form S-4,
File No. 333-102430).
10.15
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Ed Maczko dated as of November 22, 2002 (Incorporated by Reference to
Exhibit 10.15 to the Registrant's Registration Statement on Form S-4, File
No. 333-102430).
10.16
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Ron Hood, dated as of November 22, 2002 (Incorporated by Reference to
Exhibit 10.16 to the Registrant's Registration Statement on Form S-4, File
No. 333-102430).
10.17
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Jerry Webb, dated as of November 22, 2002 (Incorporated by Reference
to Exhibit 10.17 to the Registrant's Registration Statement on Form S-4,
File No. 333-102430).
10.18
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Irving Welchons, dated as of November 22, 2002 (Incorporated by
Reference to Exhibit 10.18 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
10.19
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Jack Schaller, dated as of November 22, 2002 (Incorporated by
Reference to Exhibit 10.19 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
10.20
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Joe Walker, dated as of November 22, 2002 (Incorporated by Reference
to Exhibit 10.20 to the Registrant's Registration Statement on Form S-4,
File No. 333-102430).
10.21
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Phil Keipp, dated as of November 22, 2002 (Incorporated by Reference
to Exhibit 10.21 to the Registrant's Registration Statement on Form S-4,
File No. 333-102430).
10.22
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Jack Olson, dated as of November 22, 2002 (Incorporated by Reference
to Exhibit 10.22 to the Registrant's Registration Statement on Form S-4,
File No. 333-102430).
10.23*
Amended and Restated Employment Agreements between National Waterworks,
Inc. and Harry Hornish, dated as of November 22, 2002 (Incorporated by
Reference to Exhibit 10.23 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
10.24*
Amended and Restated Employment Agreements between National Waterworks,
Inc. and Mechelle Slaughter, dated as of November 22, 2002 (Incorporated
by Reference to Exhibit 10.24 to the Registrant's Registration Statement
on Form S-4, File No. 333-102430).
10.25*
Amended and Restated Employment Agreements between National Waterworks,
Inc. and Terry Howell, dated as of November 22, 2002 (Incorporated by
Reference to Exhibit 10.25 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
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Table of Contents
Exhibit Number
Exhibit
10.26
Management Agreement between National Waterworks, Inc., THL Managers V,
LLC and certain of its affiliates and J.P. Morgan Partners, LLC and
certain of its affiliates, dated as of November 22, 2002 (Incorporated by
Reference to Exhibit 10.26 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
10.27
Fee Agreement between National Waterworks, Inc., THL Managers V, LLC and
certain of its affiliates and J.P. Morgan Partners, LLC and certain of its
affiliates, dated September 30, 2002 (Incorporated by Reference to Exhibit
10.27 to the Registrant's Registration Statement on Form S-4, File No.
333-102430).
10.28
Tax Sharing Agreement between National Waterworks, Inc. and National
Waterworks Holdings, Inc., dated as of November 22, 2002 (Incorporated by
Reference to Exhibit 10.28 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
10.29
Real property lease covering premises located at 200 Highway 6 West,
Suite 620, Waco, TX (Incorporated by Reference to Exhibit 10.29 to the
Registrant's Registration Statement on Form S-4, File No. 333-102430).
10.30
First Amendment to the Credit Agreement (dated November 22, 2002)
entered into by and between the Company and the syndication of lenders
dated August 7, 2003 (Incorporated by Reference to Exhibit 10.32 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 27,
2003).
10.31
Second Amendment to the Credit Agreement (dated November 22, 2002)
entered into by and between the Company and the syndication of lenders
dated December 2, 2003 (Incorporated by Reference to Exhibit 10.31 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 2003).
12.1
Statement re: computation of ratios of earnings to fixed charges.
21.1
List of Subsidiaries (Incorporated by Reference to Exhibit 21.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 2003).
23.1
Consent of KPMG LLP.
23.2
Consent of O'Melveny & Myers LLP (included in Exhibit 5.1).
24.1
Power of Attorney (included on signature page).
25.1
Form T-1 Statement of Eligibility and Qualifications under the Trust
Indenture Act of 1939 of Wells Fargo Bank Minnesota, National Association,
as Trustee (Incorporated by Reference to Exhibit 25.1 to the Registrant's
Registration Statement on Form S-4, File No. 333-102430).
*
Management contract or compensatory plan or arrangement
II-5
Table of Contents
(b) Financial Statement Schedules
Schedule II Valuation and Qualifying Accounts (In thousands)
Additions
Beginning
(Reversals)
Deductions
Ending
Description
Balance
and Expenses
(Additions)
Balance
Year ended December 31, 2001
Accounts receivable allowance
3,800
1,239
1,098
3,941
Inventory allowance
3,782
703
1,655
2,830
Period of January 1, 2002 through
November 21, 2002
Accounts receivable allowance
3,941
1,252
1,634
3,559
Inventory allowance
2,830
389
3,219
—
Period of November 22, 2002 through
December 31, 2002
Accounts receivable allowance
—
3,441
47
3,394
Year ended December 31, 2003
Accounts receivable allowance
3,394
953
1,134
3,213
Schedules other than the above have been omitted because they are either not
applicable or the required information has been disclosed in the financial
statements or notes thereto.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of their counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
1.
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(a)
To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(b)
To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in the
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(c)
To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
II-6
Table of Contents
2.
That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof; and
3.
To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-7
Table of Contents
Signatures
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Waco, State of Texas, on
the 23 day of April, 2004.
NATIONAL WATERWORKS, INC.
By:
/s/ Harry K. Hornish, Jr.
Harry K. Hornish, Jr.
Chief Executive Officer
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
hereby severally constitutes and appoints HARRY K. HORNISH, JR. and MECHELLE
SLAUGHTER, or either of them, his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution for him or her and in
his or her name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to the registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, and each of them, full power and
authority to do and perform each and every act and thing requisite or necessary
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that each said attorney-in-fact and agent or any
of them or their or his or her substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
Signature
Title
Date
/s/ Harry K. Hornish, Jr.
President, Chief Executive Officer
April 23, 2004
and Director
Harry K. Hornish, Jr.
(Principal Executive Officer)
/s/ Mechelle Slaughter
Chief Financial Officer (Principal
April 23, 2004
Financial and Accounting Officer)
Mechelle Slaughter
/s/ Todd M. Abbrecht
Director
April 23, 2004
Todd M. Abbrecht
/s/ Anthony J. DiNovi
Director
April 23, 2004
Anthony J. DiNovi
/s/ Stephen V. McKenna
Director
April 23, 2004
Stephen V. McKenna
/s/ Paul M. Meister
Director
April 23, 2004
Paul M. Meister
/s/ C. Dean Metropoulos
Director
April 23, 2004
C. Dean Metropoulos
/s/ Stephen P. Murray
Director
April 23, 2004
Stephen P. Murray
II-8
Table of Contents
Signature
Title
Date
/s/ Kevin G. O'Brien
Director
April 23, 2004
Kevin G. O'Brien
/s/ Soren L. Oberg
Director
April 23, 2004
Soren L. Oberg
II-9
Table of Contents
Exhibit Index
Exhibit Number
Exhibit
2.1
Asset Purchase Agreement dated September 12, 2002 by and among United
States Filter Corporation, U.S. Filter Distribution Group, Inc. and
National Waterworks, Inc. (Incorporated by reference to Exhibit 2.1 to the
Registrant's Registration Statement on Form S-4, File No. 333-102430).
3.1
Restated Certificate of Incorporation of National Waterworks, Inc.
(Incorporated by Reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-4, File No. 333-102430).
3.2
Amended and Restated By-laws of National Waterworks, Inc. (Incorporated
by Reference to Exhibit 3.2 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
4.1
Indenture, dated as of November 22, 2002, among National Waterworks, Inc.
and Wells Fargo Bank, Minnesota, National Association, as Trustee
(Incorporated by Reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-4, File No. 333-102430).
4.2
Form of Senior Subordinated Note, Series B, due 2012 (a form of which is
incorporated by reference to an exhibit to the Indenture filed as Exhibit
4.1 to the Registrant's Registration Statement on Form S-4, File No.
333-102430).
4.3
Exchange and Registration Rights Agreement, dated as of November 22,
2002, among National Waterworks, Inc., Goldman, Sachs & Co., J.P. Morgan
Securities Inc. and UBS Warburg LLC (Incorporated by reference to Exhibit
4.3 of the Registrant's Registration Statement on Form S-4, File No.
333-102430).
5.1
Opinion of O'Melveny & Myers LLP (Incorporated by reference to Exhibit
5.1 of the Registrant's Registration Statement on Form S-4, File No.
333-102430).
10.1
Credit Agreement, dated as of November 22, 2002, among National
Waterworks Holdings, Inc., National Waterworks, Inc., as Borrower, the
several lenders from time to time parties thereto, JPMorgan Securities
Inc., as Co-Syndication Agent, Goldman Sachs Credit Partners L.P., as
Co-Syndication Agent, General Electric Capital Corporation, as
Co-Documentation Agent, Antares Capital Corporation, as Co-Documentation
Agent and UBS AG, Stamford Branch, as Administrative Agent (Incorporated
by Reference to Exhibit 10.1 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
10.2
Guarantee and Collateral Agreement, dated as of November 22, 2002, among
National Waterworks Holdings, Inc., and National Waterworks, Inc. as
Borrower in favor of UBS AG, Stamford branch, as Administrative Agent
(Incorporated by Reference to Exhibit 10.2 to the Registrant's
Registration Statement on Form S-4, File No. 333-102430).
10.3
Deed of Trust, Assignment of Rents and Leases and Security Agreement,
dated as of November 22, 2002, made by National Waterworks, Inc for the
use and benefit of UBS AG, Stamford Branch, as Administrative Agent. (St.
Louis, MO) (Incorporated by Reference to Exhibit 10.3 to the Registrant's
Registration Statement on Form S-4, File No. 333-102430).
10.4
Deed of Trust, Assignment of Rents and Leases, Fixture Filing and
Security Agreement, dated as of November 22, 2002, made by National
Waterworks, Inc for the use and benefit of UBS AG, Stamford Branch, as
Administrative Agent (Puyallup, WA) (Incorporated by Reference to Exhibit
10.4 to the
Table of Contents
Exhibit Number
Exhibit
Registrant's Registration Statement on Form S-4, File No.
333-102430).
10.5
Employee Leasing Agreement between United States Filter Corporation, U.S.
Filter Distribution Group, Inc. and National Waterworks, Inc., dated as of
November 22, 2002 (Incorporated by Reference to Exhibit 10.5 to the
Registrant's Registration Statement on Form S-4, File No. 333-102430).
10.6
Reimbursement Agreement between United States Filter Corporation and
National Waterworks, Inc., dated as of November 22, 2002 (Incorporated by
Reference to Exhibit 10.6 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
10.7
Stockholders Agreement among National Waterworks Holdings, Inc., THL
Managers V, LLC and certain of its affiliates, J.P. Morgan Partners, LLC
and certain of its affiliates, and the other parties thereto, dated as of
November 22, 2002 (Incorporated by Reference to Exhibit 10.7 to the
Registrant's Registration Statement on Form S-4, File No. 333-102430).
10.8
Registration Rights Agreement among National Waterworks Holdings, Inc.
and its stockholders, dated as of November 22, 2002 (Incorporated by
Reference to Exhibit 10.8 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
10.9
Subscription and Stock Purchase Agreement by and among National
Waterworks Holdings, Inc. and each of Thomas H. Lee Equity Fund V, L.P.,
Thomas H. Lee Parallel Fund V, L.P., Thomas H. Lee Equity (Cayman) Fund V,
L.P., Putnam Investments Holdings, LLC, Putnam Investments Employees'
Securities Company I LLC, Putnam Investments Employees' Securities Company
II LLC, 1997 Thomas H. Lee Nominee Trust, Thomas H. Lee Investors Limited
Partnership, J.P. Morgan Partners (BHCA), L.P., J.P. Morgan Partners
Global Investors, L.P., J.P. Morgan Partners Global Investors (Cayman),
L.P., J.P. Morgan Partners Global Investors A, L.P., J.P. Morgan Partners
Global Investors (Cayman) II, L.P. and Latona NW Investment, LLC, dated as
of November 22, 2002 (Incorporated by Reference to Exhibit 10.9 to the
Registrant's Registration Statement on Form S-4, File No. 333-102430).
10.10
Subscription and Stock Purchase Agreement by and among National
Waterworks Holdings, Inc. and each of Harry Hornish, Mechelle Slaughter,
Terry Howell, Rob Hickson, Ed Maczko, Ron Hood, Jerry Webb, Irving
Welchons, Jack Schaller, Joe Walker, Phil Keipp and Jack Olson, dated as
of November 22, 2002 (Incorporated by Reference to Exhibit 10.10 to the
Registrant's Registration Statement on Form S-4, File No. 333-102430).
10.11
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Harry Hornish, dated as of November 22, 2002 (Incorporated by
Reference to Exhibit 10.11 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
10.12
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Mechelle Slaughter, dated as of November 22, 2002 (Incorporated by
Reference to Exhibit 10.12 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
10.13
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Terry Howell, dated as of November 22, 2002 (Incorporated by Reference
to Exhibit 10.13 to the Registrant's Registration Statement on Form S-4,
File No. 333-102430).
10.14
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Rob Hickson, dated as of November 22, 2002 (Incorporated by Reference
to Exhibit 10.14 to the Registrant's Registration
Table of Contents
Exhibit Number
Exhibit
Statement on Form S-4, File No. 333-102430).
10.15
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Ed Maczko dated as of November 22, 2002 (Incorporated by Reference to
Exhibit 10.15 to the Registrant's Registration Statement on Form S-4, File
No. 333-102430).
10.16
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Ron Hood, dated as of November 22, 2002 (Incorporated by Reference to
Exhibit 10.16 to the Registrant's Registration Statement on Form S-4, File
No. 333-102430).
10.17
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Jerry Webb, dated as of November 22, 2002 (Incorporated by Reference
to Exhibit 10.17 to the Registrant's Registration Statement on Form S-4,
File No. 333-102430).
10.18
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Irving Welchons, dated as of November 22, 2002 (Incorporated by
Reference to Exhibit 10.18 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
10.19
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Jack Schaller, dated as of November 22, 2002 (Incorporated by
Reference to Exhibit 10.19 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
10.20
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Joe Walker, dated as of November 22, 2002 (Incorporated by Reference
to Exhibit 10.20 to the Registrant's Registration Statement on Form S-4,
File No. 333-102430).
10.21
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Phil Keipp, dated as of November 22, 2002 (Incorporated by Reference
to Exhibit 10.21 to the Registrant's Registration Statement on Form S-4,
File No. 333-102430).
10.22
Restricted Stock Agreement between National Waterworks Holdings, Inc.
and Jack Olson, dated as of November 22, 2002 (Incorporated by Reference
to Exhibit 10.22 to the Registrant's Registration Statement on Form S-4,
File No. 333-102430).
10.23*
Amended and Restated Employment Agreements between National Waterworks,
Inc. and Harry Hornish, dated as of November 22, 2002 (Incorporated by
Reference to Exhibit 10.23 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
10.24*
Amended and Restated Employment Agreements between National Waterworks,
Inc. and Mechelle Slaughter, dated as of November 22, 2002 (Incorporated
by Reference to Exhibit 10.24 to the Registrant's Registration Statement
on Form S-4, File No. 333-102430).
10.25*
Amended and Restated Employment Agreements between National Waterworks,
Inc. and Terry Howell, dated as of November 22, 2002 (Incorporated by
Reference to Exhibit 10.25 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
10.26
Management Agreement between National Waterworks, Inc., THL Managers V,
LLC and certain of its affiliates and J.P. Morgan Partners, LLC and
certain of its affiliates, dated as of November 22, 2002 (Incorporated by
Reference to Exhibit 10.26 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
Table of Contents
Exhibit Number
Exhibit
10.27
Fee Agreement between National Waterworks, Inc., THL Managers V, LLC and
certain of its affiliates and J.P. Morgan Partners, LLC and certain of its
affiliates, dated September 30, 2002 (Incorporated by Reference to Exhibit
10.27 to the Registrant's Registration Statement on Form S-4, File No.
333-102430).
10.28
Tax Sharing Agreement between National Waterworks, Inc. and National
Waterworks Holdings, Inc., dated as of November 22, 2002 (Incorporated by
Reference to Exhibit 10.28 to the Registrant's Registration Statement on
Form S-4, File No. 333-102430).
10.29
Real property lease covering premises located at 200 Highway 6 West,
Suite 620, Waco, TX (Incorporated by Reference to Exhibit 10.29 to the
Registrant's Registration Statement on Form S-4, File No. 333-102430).
10.30
First Amendment to the Credit Agreement (dated November 22, 2002)
entered into by and between the Company and the syndication of lenders
dated August 7, 2003 (Incorporated by Reference to Exhibit 10.32 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 27,
2003).
10.31
Second Amendment to the Credit Agreement (dated November 22, 2002)
entered into by and between the Company and the syndication of lenders
dated December 2, 2003 (Incorporated by Reference to Exhibit 10.31 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 2003).
12.1
Statement re: computation of ratios of earnings to fixed charges.
21.1
List of Subsidiaries (Incorporated by Reference to Exhibit 21.1 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 2003).
23.1
Consent of KPMG LLP.
23.2
Consent of O'Melveny & Myers LLP (included in Exhibit 5.1).
24.1
Power of Attorney (included on signature page).
25.1
Form T-1 Statement of Eligibility and Qualifications under the Trust
Indenture Act of 1939 of Wells Fargo Bank Minnesota, National Association,
as Trustee (Incorporated by reference to Exhibit 4.3 of the Registrant's
Registration Statement on Form S-4, File No. 333-102430).
*
Management contract or compensatory plan or arrangement.