As filed with the Securities and Exchange Commission on November 10, 1997
Registration No. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
CHICAGO BRIDGE & IRON COMPANY N.V.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
The Netherlands 1798 None
(State or other jurisdiction of Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number Identification Number)
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Koningslaan 34
1075 AD Amsterdam
The Netherlands
31-20-578-9588
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Robert H. Wolfe, Esq.
CHICAGO BRIDGE & IRON COMPANY
1501 North Division Street
Plainfield, Illinois 60544
(815) 439-6000
(Address, including zip code, and telephone number,
including area code, of registrant's agent for service)
Copies of communications to:
Geoffrey E. Liebmann, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
(212) 701-3000
Approximate date of commencement of proposed sale
to the public: From time to time after the effective
date of this Registration Statement.
If any of the securities being registered on this Form are being 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
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. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Amount Maximum Maximum Amount of
Title of each class of to be Offering Price Aggregate Registration Fee
securities to be registered Registered Per Share (1) Offering Price (1)
- ------------------------------------------------------------------------------------------------------------------------------
Common Shares, par value NLG .01 per share 545,941 Shares $16.53 $9,024,405 $2,734.67
==============================================================================================================================
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(1) Estimated solely for the purposes of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended on the
basis of the average high and low prices of the registrant's Common Shares
on the New York Stock Exchange Composite Tape on November 7, 1997.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
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Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any jurisdiction in which such offer, solicitation or sale would be unlawful
prior to registration or qualification under the securities laws of any such
jurisdiction.
SUBJECT TO COMPLETION, DATED NOVEMBER 10, 1997
545,941 Shares
CHICAGO BRIDGE & IRON COMPANY N.V.
(A company incorporated in The Netherlands
with its registered seat in Amsterdam)
Common Shares
(NLG 0.01 par value)
All of the Common Shares, NLG 0.01 par value (the "Common Shares"), of
Chicago Bridge & Iron Company N.V. (the "Issuer") covered hereby may be offered
and sold (the "Common Share Offering") by Praxair, Inc. (the "Selling
Shareholder") separately or together, in amounts, at prices and on terms to be
set forth, to the extent required, in an accompanying prospectus supplement (a
"Prospectus Supplement"). See "Principal and Selling Shareholders" and "Plan of
Distribution." The Issuer will not receive any of the proceeds from the sale of
shares offered hereby. As of the date of this Prospectus, the 545,941 Common
Shares owned by the Selling Shareholder represented approximately 4.4% of the
outstanding Common Shares. If all of the Common Shares covered hereby are sold,
the Selling Shareholder would own no Common Shares.
The Common Shares may be offered by or for the account of the Selling
Shareholder from time to time on the New York Stock Exchange ("NYSE"), the
Official Market of the AEX-Effectenbeurs nv (the "Amsterdam Stock Exchange") or
in negotiated transactions, or a combination of such methods of sale, at fixed
prices that may be changed, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, or at negotiated prices. See
"Plan of Distribution."
The Common Shares commenced trading on the NYSE and the Amsterdam Stock
Exchange on March 27, 1997 under the symbol "CBI." On November 7, 1997 the last
reported sale price for the Common Shares on the NYSE was $16.56 per Common
Share and on the Amsterdam Stock Exchange was NLG 32 per Common Share.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE COMMON SHARES, SEE "RISK FACTORS" BEGINNING
ON PAGE 12.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Prospectus dated , 1997.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
The information contained herein includes certain forward-looking statements,
including statements relating to certain of the Company's expectations with
respect to revenue growth, contract volume, profitability and funding of working
capital and capital expenditure needs, that involve a number of risks and
uncertainties. Actual events or results may differ materially from the Company's
expectations. In addition to matters described herein, operating risks, risks
associated with fixed price contracts, risks associated with percentage of
completion accounting methods, fluctuating revenues and cash flow and
competitive pressures as well as other risk factors described herein under "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" as well as other factors listed from time to time in the
Company's reports filed with the Securities and Exchange Commission (the
"Commission"), may affect the actual results achieved by the Company.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE
READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS THE CONTEXT
OTHERWISE REQUIRES, ALL REFERENCES TO THE "ISSUER" HEREIN REFER TO CHICAGO
BRIDGE & IRON COMPANY N.V., A CORPORATION ORGANIZED UNDER THE LAWS OF THE
NETHERLANDS, ALL REFERENCES TO THE "COMPANY" OR "CB&I" HEREIN REFER TO THE
ISSUER, TOGETHER WITH ITS PREDECESSORS AND SUBSIDIARIES, IN EACH CASE AFTER
GIVING EFFECT TO THE REORGANIZATION (AS DEFINED BELOW), ALL REFERENCES TO
"PRAXAIR" HEREIN REFER TO PRAXAIR, INC. AND ITS SUBSIDIARIES AND ALL REFERENCES
TO THE "SELLING SHAREHOLDER" HEREIN REFER TO PRAXAIR, INC. IN THIS PROSPECTUS,
REFERENCES TO "GUILDERS" AND "NLG" ARE TO DUTCH GUILDERS, AND REFERENCES TO
"DOLLARS," "U.S. $" AND "$" ARE TO UNITED STATES DOLLARS.
THE COMPANY
CB&I is a global engineering and construction company specializing in
the engineering, design, fabrication, erection and repair of petroleum
terminals, steel tanks, refinery pressure vessels, low temperature and cryogenic
storage facilities and other steel plate structures and their associated
systems. Based on its knowledge of and experience in its industry, the Company
believes it is the leading provider of field erected steel tanks and other steel
plate structures, associated systems and related services in North America and
one of the leading providers of these specialized products and services in the
world. CB&I seeks to maintain its leading industry position by focusing on its
technological expertise in design, metallurgy and welding, along with its
ability to complete logistically and technically complex metal plate projects
virtually anywhere in the world. CB&I has been continuously engaged in the
engineering and construction industry since its founding in 1889. In 1996, the
Company was involved in over 500 projects for over 250 customers in 34
countries.
In the first nine months of 1997 and in fiscal year 1996, the Company
generated revenues of $477.5 and $663.7 million, respectively, and its project
backlog as of September 30, 1997 was $559.0 million. The Company had operating
income of $14.3 million in the first nine months of 1997, excluding the effect
of a one-time, non-cash charge associated with the Company's Management Plan (as
defined below), and had operating income of $31.3 million in fiscal year 1996.
CB&I primarily serves customers in the petroleum, petrochemical, chemical,
electric and gas utility, pulp and paper, and metals and mining industries, both
directly and through other companies which service these customers.
Approximately 60% of the Company's revenues in 1996 were attributable to
petroleum and petrochemical industry-related projects. The Company operates on a
global basis and has the supporting infrastructure to compete in key geographic
markets worldwide. In the first nine months of 1997 and in fiscal year 1996,
CB&I derived approximately 55% and 50%, respectively, of its revenues from
operations outside of North America. Demand for the Company's products and
services depends primarily on its clients' capital expenditures for
construction. The Company seeks to benefit from recently higher levels of
current and projected capital expenditures by its primary customer base in the
petroleum and petrochemical industries, which it believes have resulted from
increases in worldwide crude oil prices during 1996.
In the first quarter of 1996, Praxair acquired CBI Industries, Inc.
("Industries"), then the parent company of CB&I, for the purpose of owning its
industrial gas operations. At that time, Praxair announced its intention to
divest those businesses of Industries which were not strategic to Praxair,
including the Company. Praxair undertook to strategically reposition the Company
and, as part of this process, a new management team was assembled for the
Company, headed by Gerald M. Glenn as President and Chief Executive Officer. Mr.
Glenn has over 30 years of combined experience with Fluor Corporation, the
world's largest publicly owned engineering and construction company, and Daniel
International Corporation, and from 1986 to 1994 served as Group President of
Fluor Corporation's principal operating subsidiary, Fluor Daniel, Inc. The new
management team has focused its efforts on (i) redirecting and accelerating a
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restructuring program designed to increase the Company's base profitability;
(ii) implementing a new compensation program linking management incentives to
improvements in shareholder value; and (iii) developing a business strategy to
enhance CB&I's future growth and profitability.
Recent Developments
On October 30, 1997, the Company released the following news release.
Chicago Bridge & Iron Company N.V. (NYSE & ASE:CBI) today
reported . . . [f]or the nine months ended September 30, 1997,
net income was $9.0 million or $0.72 per share, excluding the
effect of the previously announced one-time, non-cash special
charge of $16.7 million ($10.1 million after tax). This
one-time, non-cash special charge related to the contribution
of common shares to a management compensation program in
connection with the Company's initial public offering.
Including the one-time, non-cash special charge, the Company
reported a net loss of ($1.1) million or ($0.09) per share for
the nine-month period ended September 30, 1997, compared with
net income of $10.9 million for the same period of 1996.
As previously announced, third quarter income from
operations was affected by start-up problems associated with
the expansion of the Houston fabricating facility and
implementation of new integrated computerized systems being
piloted at Houston. These factors have resulted in additional
costs and delays in some materials reaching construction
sites, thereby postponing the recognition of revenue and
resulting in lower operating income. Based on September
results and a more in-depth examination of contracts, the
Company recognized it will incur additional costs to complete
existing contracts. . . .
New business taken remained strong in what has normally
been a weak third quarter. . . . For the nine months ended
September 30, 1997, new business taken of $561.1 million was
18% greater than the $474.3 million reported in the first nine
months of 1996. Over 60% of the new business taken during the
nine months was for contracts awarded outside of North
America. Backlog at September 30, 1997, increased $102.4
million or 22.4% to $559.0 million, compared with a backlog of
$456.6 million at September 30, 1996, and was $73.3 million or
15.1% higher than the $485.7 million backlog reported at
December 31, 1996. . . .
For the first nine months of 1997, revenues of $477.5
million were 1.2% lower than the $483.5 million earned in the
first nine months of 1996. . . For the nine-month period,
gross profit decreased by $9.6 million to $43.4 million or
9.1% of revenues compared with $53.0 million or 11.0% for the
nine months ended September 30, 1996.
Also as previously announced, income from operations for
the three months ended September 30, 1997 was favorably
impacted by non-recurring income of approximately $4.1 million
from the resolution of disputed liabilities and recognition of
income related to a favorable appeals court decision. The
third quarter was also positively impacted by an $0.8 million
reduction in the cost of revenues for the capitalization of
tools previously expensed during the first half of 1997. . . .
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On April 2, 1997 the Company consummated the Initial Common Share
Offering. As part of the Initial Common Share Offering, the Selling Shareholder
sold 11,045,941 Common Shares representing approximately 88% of the Common
Shares outstanding on the date of such sale. As of the date of this Prospectus,
the 545,941 Common Shares owned by the Selling Shareholder represent
approximately 4.4% of the outstanding Common Shares. If all of the Common Shares
covered hereby are sold, the Selling Shareholder would own no Common Shares.
RESTRUCTURING PROGRAM
The comprehensive restructuring program (the "Restructuring Program")
currently being implemented by the Company's new management team achieved
estimated cost savings of approximately $10 million in 1996, and is expected to
result in estimated annual cost savings of approximately $21 million in 1997 and
approximately $23 million in 1998, relative to the Company's 1995 cost base.
The Restructuring Program is based on initiatives begun in 1994, and
was significantly refocused and accelerated in 1996 following the appointment of
the new management team. The program is expected to be fully implemented by the
end of 1997. The Restructuring Program initially focused on consolidating the
Company's organizational structure from six separate, decentralized business
units into a single global business operation. On-going enhancements in
connection with such consolidation include centralization of procurement,
equipment and personnel mobilization, and certain financial functions, as well
as streamlining and consolidating administrative and engineering support. As
part of the program, eight fabrication plants or warehouses have been closed and
three administrative office sites have been downsized or relocated, including
the headquarters of the Company's United States operations. The Company also has
targeted a reduction of approximately 160 salaried positions, all of which had
been eliminated as of September 30, 1997.
COMPENSATION PROGRAM
In order to more closely align the interests of the Company's
management and employees with those of its shareholders, CB&I has redesigned its
compensation program to include long-term, equity-based incentives. In addition,
Praxair and the Company agreed to compensate approximately 70 officers and key
management employees of the Company for their services in connection with the
further development and implementation of the Restructuring Program and the
Company's initial public offering (the "Initial Common Share Offering"), which
was consummated in April 1997. As a result, the Company adopted the CB&I
Management Defined Contribution Plan (the "Management Plan") and upon
consummation of the Initial Common Share Offering, contributed to the Management
Plan 925,670 Common Shares (the "Management Plan Shares"), representing
approximately 7% of the total number of Common Shares outstanding upon
consummation of the Initial Common Share Offering. The Management Plan Shares
will vest three years (and, with respect to one participant, two years) after
the date of the Initial Common Share Offering.
BUSINESS STRATEGY
The Company is committed to increasing shareholder value by seeking to
build on the success established in 1996 and growing its business in the global
marketplace through a combination of strategic initiatives including the
following:
* FOCUS ON CORE BUSINESS. The Company seeks to leverage its
perceived competitive advantages in design engineering,
metallurgy and welding, and its ability to execute projects
virtually anywhere in the world, to actively pursue growth
opportunities in its core business. Prior management of the
Company's former parent pursued a diversification strategy during
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the 1980s and 1990s, which included acquisitions of significant
unrelated businesses. Under CB&I's new management team, the
Company is committed to focusing on its core activities of
engineering and design, fabrication, erection, repair and
modification of steel tanks and other steel plate structures.
* CONTINUE COST REDUCTIONS AND PRODUCTIVITY IMPROVEMENTS. CB&I's
management believes that the Company's Restructuring Program
represents the foundation for a long-term strategy of reducing
the costs of its products and services, with the goal of
establishing and maintaining a position as a low cost provider in
its markets. All key functions of the organization--engineering,
procurement, construction, project management, finance and
administrative support--will be required to demonstrate
improvements in productivity, and will be provided compensation
incentives for achieving such goals.
* TARGET GLOBAL GROWTH MARKETS. The Company intends to
aggressively pursue business opportunities in selected key growth
markets, such as China, India, Mexico and the former Soviet
Union, on which prior management placed relatively low priority.
CB&I intends to leverage its significant international experience
and technological strengths to expand into these new geographic
areas, where it believes that its ability to rapidly mobilize
project management and skilled craft personnel, combined with its
global material supply and equipment logistics capabilities,
provides a key competitive advantage.
* IMPROVE FINANCIAL CONTROLS AND MANAGEMENT. The Company believes
it will improve the management of project profitability through
the on-going implementation of new systems which enhance cost
estimating, bidding, capital utilization and project execution.
Under the new systems, project economics will be evaluated on a
centralized basis under various risk and costing assumptions,
using global software systems tailored specifically for the
Company's operations.
* PURSUE PARTNERING AND STRATEGIC ALLIANCES. The Company intends
to expand its use of partnering and strategic alliances with
customers and vendors. These relationships can serve as a vehicle
for improvements in quality, productivity and profitability for
both parties. CB&I's existing partnering relationships include
several with major international oil companies. The Company
believes that such customers recognize CB&I's ability to deliver
high quality, on-time projects and select CB&I as a preferred
supplier to achieve significant cost savings in building and
operating tankage and related systems.
CORPORATE STRUCTURE
Since the Company's reorganization in March 1997 (the
"Reorganization"), the Company's operations have been conducted through
subsidiaries of Chicago Bridge & Iron Company ("CBIC"), a wholly owned Delaware
subsidiary of the Issuer and the primary holding company for the Company's
United States subsidiaries, and through subsidiaries of Chicago Bridge & Iron
Company B.V. ("CBICBV"), a wholly owned subsidiary of the Issuer organized under
the laws of The Netherlands with its registered seat in Amsterdam and the
Company's primary holding company for non-United States subsidiaries. Prior to
the Reorganization, the Company's operations were conducted by subsidiaries of a
company then known as Chicago Bridge & Iron Company ("Old CBIC") which is
currently not affiliated with the Company.
The Issuer, with its corporate seat in Amsterdam, The Netherlands,
maintains its registered office and the principal office of CBICBV at
Koningslaan 34, 1075 AD Amsterdam, The Netherlands, and their mailing address is
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P.O. Box 74658, 1070 BR Amsterdam, The Netherlands, and their telephone number
at such address is 31-20-578-9588. The executive office of CBIC is located at
1501 North Division Street, Plainfield, Illinois 60544, and its telephone number
at that address is (815) 439-6000.
THE OFFERING
Use of Proceeds .................. The Company will not receive any of
the proceeds from the sale of shares
offered hereby.
Listing of Shares................. The Common Shares of New York
Registry ("New York Shares") are
listed on the New York Stock
Exchange (the "NYSE"). The Common
Shares in bearer form (the "Bearer
Shares") are listed on the Amsterdam
Stock Exchange.
New York Stock Exchange Symbol.... CBI
Amsterdam Stock Exchange Symbol... CBI
Payment and Delivery.............. Delivery of any New York Shares
offered pursuant hereto will be made
to purchasers' book-entry accounts
at The Depository Trust Company
("DTC"), against payment in U.S.
dollars in same-day funds. Any
Bearer Shares offered pursuant
hereto will also be delivered to
purchasers' book entry accounts at
Nederlands Centraal Instituut voor
Giraal Effectenverkeer B.V.
("NECIGEF"), Morgan Guaranty Trust
Company of New York, Brussels
office, as operator of the Euroclear
System ("Euroclear"), and Cedel
Bank, societe anonyme ("Cedel")
against payment in Dutch guilders in
same-day funds. Thereafter, trading
of New York Shares effected at the
NYSE will be settled in dollars and
trading of Bearer Shares effected on
the Amsterdam Stock Exchange
generally will be settled in
guilders, in each case in accordance
with the normal settlement practices
of those markets. A fee of $0.05 per
share will be charged to
shareholders for the exchange of New
York Shares for Bearer Shares (and
for the reverse). See "Share
Certificates and Transfer."
Price Range of Common Shares and
Dividend Policy................... Subject to restrictions contained in
the agreements governing the
Company's indebtedness, the Issuer
currently expects to continue to pay
a quarterly dividend of $0.06 per
share. The Issuer's first quarterly
dividend was paid on June 30, 1997
to shareholders of record at the
close of business on June 20, 1997.
In addition, a quarterly dividend
was paid on September 30, 1997 to
shareholders of record at the close
of business on September 19, 1997.
The declaration of any dividend,
including the amount thereof,
generally will be at the discretion
of the Issuer's supervisory and
management boards and, in the case
of annual dividends, the general
shareholders meeting, and will
depend on the Issuer's then
financial condition, results of
operations and capital requirements,
and such other factors as such
boards or the general shareholders
meeting deems relevant. See "Price
Range of Common Shares and Dividend
Policy."
RISK FACTORS
Prospective purchasers of the Common Shares should consider carefully
all of the information set forth in this Prospectus and, in particular, should
evaluate the specific factors set forth under the caption "Risk Factors,"
beginning on page 11, which provides a discussion of the risks involved in an
investment in the Common Shares.
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SUMMARY HISTORICAL
CONSOLIDATED FINANCIAL AND OTHER DATA
(dollars in thousands, except share data)
The summary historical consolidated financial and other data set forth
below should be read in conjunction with, and are qualified by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and
accompanying notes thereto and other financial information included elsewhere in
this Prospectus.
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Pre-Reorganization(1) Post-
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Pre-Praxair Acquisition(2) Post-Praxair Acquisition (2) ation(1)
--------------------------------- ---------------------------------- --------
Nine Months Ended
Year Ended December 31, September 30,
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1992 1993 1994 1995 1996 1996 1997
-------------- ------------- --------- ----------- ----------- ----------- --------
Income Statement Data:
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Revenues.................. $ 799,196 $ 680,541 $ 762,803 $ 621,938 $ 663,721 $ 483,531 $ 477,500
Cost of revenues.......... 678,129 630,978 692,266 614,230 590,030 430,523 434,082
---------- ---------- ---------- ---------- ---------- ---------- -----------
Gross profit............ 121,067 49,563 70,537 7,708 73,691 53,008 43,418
Selling and administrative
expenses............... 44,006 44,193 45,503 43,023 42,921 32,248 33,436
Special charges........... -- 22,900(3) 16,990(4) 5,230(5) -- -- --
Management plan charge.... -- -- -- -- -- -- 16,662(6)
Other operating income(7). (1,062) (118) (11,360) (10,030) (493) (381) (4,356)
---------- ---------- ---------- ---------- ---------- ---------- -----------
Income (loss) from
operations............. 78,123 (17,412) 19,404 (30,515) 31,263 21,141 (2,324)
Interest expense.......... (1,275) (298) (180) (799) (5,002) (3,787) (3,131)
Other income.............. 4,405 3,056 1,652 1,191 990 581 1,233
---------- ---------- ---------- ---------- ---------- ---------- -----------
Income (loss) before taxes
and minority interest.. 81,253 (14,654) 20,876 (30,123) 27,251 17,935 (4,222)
Income tax expense
(benefit).............. 21,882 (6,080) 3,074 (8,093) 7,789 4,674 (2,990)
---------- ---------- ---------- ---------- ---------- ---------- -----------
Income (loss) before
minority interest...... 59,371 (8574) 17,802 (22,030) 19,462 13,261 (1,232)
Minority interest in
(income)loss........... (2,041) (1,247) (1,359) (3,576) (2,900) 2,331 (143)
---------- ---------- ---------- ---------- ---------- ---------- -----------
Net income (loss)....... $ 57,330 $ (9,821) $ 16,443 $ (25,606) $ 16,562 $ 10,930 $ (1,089)
========== ========== ========== ========== ========== ========== ===========
Income (loss) per common
share(1)............... N/A N/A N/A N/A N/A N/A $ (0.09)
==========
Weighted average number of
common shares outstanding N/A N/A N/A N/A N/A N/A 12,517,552
==========
Balance Sheet Data:
Total assets.............. $ 410,492 $ 408,936 $ 359,912 $ 356,125 $ 351,496 $ 359,538 $ 372,489
Total long-term debt...... 1,000 -- -- -- 53,907 55,000 42,000
Total shareholder's equity 222,027 217,231 183,101 186,507 90,746 92,314 100,597
Cash Flow Data:
Cash flow from operating
activities............... $ 37,571 $ (357) $ 38,447 $ (39,151) $ 25,159 $ 22,186 $ 42,813
Cash flow from investing
activities............... (37,438) (11,764) 14,051 3,899 (11,348) (1,492) (15,687)
Cash flow from financing
activities............... 1,030 2,662 (49,742) 32,012 (14,797) (13,531) (21,239)
Other Financial Data:
Depreciation and
amortization............ $ 12,821 $ 16,178 $ 15,569 $ 16,077 $ 17,281 $ 12,605 $ 12,882
EBITDA(8)................ 89,882 21,548 40,603 (19,238) 48,051 33,365 22,864
Capital expenditures..... 44,465 19,232 18,772 14,880 20,425 8,075 26,717
Other Data:
Number of employees:
Salaried.................. 2,036 1,861 1,800 1,663 1,516 1,540 1,464
Hourly and craft.......... 5,227 4,408 4,852 3,483 4,432 4,549 4,916
New business taken(9)..... $ 732,415 $ 782,606 $ 648,082 $ 782,878 $ 687,227 $ 474,255 $ 561,090
Backlog(9)................ 364,326 449,303 323,343 470,174 485,704 456,599 559,014
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(footnotes on next page)
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(continued from previous page)
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(1) The Reorganization did not materially affect the carrying amounts of
the Company's assets and liabilities. See "Certain Transactions;
Relationship with Praxair -- Corporate Reorganization" for a further
discussion of the Reorganization. The Reorganization is reflected in
the Company's financial statements as of January 1, 1997.
(2) Prior to the first quarter of 1996, the Company was a subsidiary of
Industries. During the first quarter of 1996, pursuant to a merger
agreement dated December 22, 1995, Industries became a subsidiary of
Praxair. This merger transaction was reflected in the consolidated
financial statements of the Company as a purchase effective January 1,
1996. The application of purchase accounting resulted in changes to the
historical basis of various assets. Accordingly, the information
provided for periods prior to January 1, 1996 is not comparable to
subsequent financial information.
(3) In 1993, a special charge of $22.9 million was recorded to recognize
the expense of two major legal claims totalling $15.0 million as well
as a $7.9 million write-down of non-performing assets.
(4) In 1994, the Company recorded a special charge of $17.0 million to
recognize the expenses of a major litigation settlement. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations."
(5) In 1995, the Company recorded a special charge of $5.2 million
comprised of $0.8 million for work force reduction and $4.4 million for
the write-down of an idle facility and other related costs.
(6) Upon consummation of the Initial Common Share Offering, the Company
made a contribution to the Management Plan in the form of Common Shares
having a value of $16.7 million (925,670 Common Shares, representing
approximately 7% of the total number of Common Shares outstanding upon
consummation of the Initial Common Share Offering).
(7) Other operating income generally represents gains on the sale of
property, plant and equipment. The nine months ended September 30,
1997 was favorably impacted by non-recurring income of approximately
$4.1 million from the resolution of disputed liabilities and
recognition of income related to a favorable appeals court decision. In
addition, nine-months 1997 other operating income includes a $1.1
million gain from the sale of assets, primarily from the sale of
Cordova, Alabama, manufacturing facility, partially offset by $0.8
million increase in litigation reserves. The gain recorded in 1995
primarily relates to the sale of certain underutilized facilities sold
as a result of the Restructuring Program. The gain recorded in 1994
includes gains from affiliated entity transactions primarily from the
sale of the Company's minority interest in a terminal and the sale of
the Company's interest in a fabrication facility.
(8) EBITDA is defined as income (loss) from operations less other operating
income, plus special charges, plus Management Plan charge, plus
depreciation and amortization expenses. While EBITDA should not be
construed as a substitute for operating income (loss) or a better
measure of liquidity than cash flow from operating activities, which
are determined in accordance with United States GAAP, it is included
herein to provide additional information regarding the ability of the
Company to meet its capital expenditures, working capital requirements
and any future debt service. EBITDA is not necessarily a measure of the
Company's ability to fund its cash needs, particularly because it does
not include capital expenditures. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources."
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(9) New business taken represents the value of new project commitments
received by the Company during a given period. Such commitments are
included in backlog until work is performed and revenue recognized or
until cancellation. Backlog may also fluctuate with currency movements.
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RISK FACTORS
Prior to making an investment in the Common Shares, prospective
purchasers should carefully consider all the information set forth in this
Prospectus and, in particular, should evaluate the following risk factors:
Operating Risks
Construction and heavy equipment involve a high degree of operational
risk. Natural disasters, adverse weather conditions and operator error can cause
personal injury or loss of life, severe damage to and destruction of property,
equipment and the environment and suspension of operations. The occurrence of
any such event could result in revenue and casualty loss, increased costs and
significant liability to third parties. Litigation arising from such an
occurrence may result in the Company being named as a defendant in lawsuits
asserting substantial claims.
Although the Company maintains risk management, insurance and safety
programs intended to mitigate the effects of loss or damage, there can be no
assurance that any such programs will be sufficient or effective under all
circumstances or against all hazards to which the Company may be subject. An
enforceable claim for which the Company is not fully insured could have a
material adverse effect on the Company's business, financial condition and
results of operations. Moreover, no assurance can be given that the Company will
be able to maintain adequate insurance in the future at rates that it considers
reasonable. See "Business--Legal Proceedings and Insurance."
Risk Associated with Fixed Price Contracts
A substantial portion of the Company's projects are currently performed
on a fixed price or lump sum basis, although some projects are performed on a
cost reimbursable or day rate basis or some combination of the foregoing. The
Company attempts to cover increased costs of changes in labor, material and
service costs of its long term contracts (which typically extend from one to
three years) either through an estimation of such changes, which is reflected in
the original price, or through price adjustment clauses. Despite these attempts,
however, the revenue, cost and gross profit realized on a fixed price or lump
sum contract will often vary from the estimated amounts because of unforeseen
conditions or changes in job conditions and variations in labor and equipment
productivity over the term of the contract. These variations and the risks
generally inherent in construction may result in gross profits realized by the
Company being different from those originally estimated and may result in the
Company experiencing reduced profitability or losses on projects. Depending on
the size of a project, these variations from estimated contract performance
could have a material adverse effect on the Company's business, financial
condition and results of operations for any period. See "Management's Discussion
and Analysis of Financial Condition and Results of
Operations--Overview--Contracts" and "Business--Contracting--Methods."
Risk Associated with Percentage of Completion Accounting
The Company's contract revenues are recognized using the percentage of
completion method. Under this method, estimated contract revenues are accrued
based generally on the percentage that costs to date bear to total estimated
costs. Estimated contract losses are recognized in full when determined.
Accordingly, contract revenues and total cost estimates are reviewed and revised
periodically as the work progresses and as change orders are approved, and
adjustments based upon the percentage of completion are reflected in contract
revenues in the period when such estimates are revised. Such estimates are based
on management's reasonable assumptions and experience, and are only estimates.
Variation of actual results from such assumptions or the Company's historical
experience could be material. To the extent that these adjustments result in a
reduction
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or an elimination of previously reported contract revenues, the Company would
recognize a charge against current earnings, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview--Revenue--Recognition."
Fluctuating Revenues and Cash Flow
The Company is dependent upon major construction projects in cyclical
industries, including the petroleum, petrochemical, chemical, pulp and paper,
electric and gas utility, and water and wastewater industries, for its revenues
and cash flow. In the petroleum and petrochemical industry, which in recent
years has accounted for the largest component of the Company's revenues,
numerous factors influence capital expenditure decisions, including current and
projected oil and gas prices; exploration, extraction, production and
transportation costs; the discovery rate of new oil and gas reserves; the sale
and expiration dates of leases and concessions; local and international
political and economic conditions; technological advances; and the abilities of
oil and gas companies to generate capital. These factors are beyond the control
of the Company. The selection of, timing of or failure to obtain projects, the
delay in awards of projects, the cancellation of projects or delays in
completion of contracts could result in the under-utilization of the Company's
resources which could have a material adverse impact on the Company's business,
financial condition, results of operations and cash flows. In addition,
construction projects for which the Company's services are contracted may
require significant expenditures by the Company prior to receipt of relevant
payments by a customer. Such expenditures could have a material adverse impact
on the Company's cash flows. In addition, quarterly results may fluctuate
depending on factors including those described above which may affect the
realization by the Company of its backlog. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Business--Recent Developments."
Substantial Liquidity Requirements
The Company's operations require significant amounts of working capital
for acquisitions of and improvements to heavy-duty equipment and for the
procurement of materials for contracts to be performed over relatively long
periods of time. Capital expenditures for the acquisitions of and improvements
to heavy-duty equipment are generally part of the Company's normal annual
capital expenditure program. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
In addition, the Company's contract arrangements with customers frequently
require the Company to provide bid and performance bonds or letters of credit to
partially secure the Company's obligations under its bids and/or contracts as
well as requiring significant expenditures prior to receipt of payments.
Furthermore, the Company's customers will often retain a portion (generally
about 10%) of amounts otherwise payable to the Company during the course of a
project as a guarantee of completion of such project. See "--Fluctuating
Revenues and Cash Flow."
Risks Associated with Holding Company Structure
The Issuer is a holding company and conducts no business operations of
its own. The principal asset of the Issuer is the outstanding stock of its
subsidiaries. The Company conducts all of its operations through subsidiaries of
the Issuer and joint ventures between such subsidiaries and third parties.
Accordingly, a substantial amount of the Issuer's consolidated assets are held
by, and a substantial part of the Issuer's consolidated earnings and cash flows
are attributable to, such subsidiaries and joint ventures. As a result, the
Issuer's liquidity, and its ability to pay its expenses and meet its obligations
and to pay cash dividends on the Common Shares, are substantially dependent upon
its ability to obtain a flow of funds from such subsidiaries and joint ventures.
There can be no assurance that such subsidiaries and joint ventures will
generate sufficient earnings and cash flows to pay dividends or otherwise
distribute funds to the Issuer to enable the Issuer to meet its obli
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gations and pay its expenses and dividends. Certain subsidiaries and joint
ventures may incur substantial indebtedness to third parties, the terms of which
may restrict the ability of the Issuer to obtain funds from the applicable
subsidiaries and/or joint ventures. In addition, the arrangements governing
certain of the Company's joint ventures require approval of the other parties to
those joint ventures before distribution can be made to the parties. These
restrictions, along with restrictions imposed by the terms of the Company's
Revolving Credit Facility (as defined under the caption "Description of
Revolving Credit Facility") and other credit arrangements entered into by the
Company, could constrain the Issuer's liquidity and, as a result, the Issuer's
ability to pay dividends or the Company's ability to secure future financings
and could have a material adverse effect on the Company's business, financial
condition and results of operations.
Risks of International Operations
The Company is a global contractor, with approximately 63% and 61% of
its new business taken in the first nine months of 1997 and taken in fiscal year
1996, respectively, relating to projects outside North America, including in
regions which may experience political instability. Since the operations of the
Company are carried out internationally, they are subject to certain political,
economic and other uncertainties, including, among others, risks of war,
expropriation or nationalization of assets, renegotiation or nullification of
existing contracts, changing political conditions, changing laws and policies
affecting trade and investment, overlap of different tax structures, and the
general hazards associated with the assertion of sovereignty over certain areas
in which operations are conducted. Additionally, various jurisdictions have laws
limiting the right and ability of subsidiaries and joint ventures to pay
dividends and remit earnings to affiliated companies, unless specified
conditions precedent are met.
Many aspects of the Company's operations are subject to governmental
regulations in the countries in which the Company operates, including those
relating to currency conversion and repatriation, taxation of its earnings and
earnings of its personnel, and its use of local employees and suppliers. The
Company's operations are also subject to the risk of changes in laws and
policies in the various jurisdictions in which the Company operates which may
impose restrictions on the Company, including trade restrictions, that could
have a material adverse effect on the Company's business, financial condition
and results of operations. Other types of government regulation which could, if
enacted or implemented, materially and adversely affect the Company's operations
include expropriation or nationalization decrees, confiscatory tax systems,
primary or secondary boycotts directed at specific countries or companies,
embargoes, import restrictions or other trade barriers, mandatory sourcing
rules, high labor rates and fuel price regulation. The Company cannot determine
to what extent future operations and earnings of the Company may be affected by
new legislation, new regulations or changes in or new interpretations of
existing regulations. See "Business--Governmental Regulations--General."
Currency Risks
As the Company's functional currency is the United States dollar, its
non-U.S. operations sometimes face the additional risks of fluctuating currency
values and exchange rates, hard currency shortages and controls on currency
exchange. Through its contracts with its customers, the Company attempts to
limit its exposure to currency and exchange rate fluctuations by attempting to
match anticipated non-U.S. currency contract receipts with anticipated like
non-U.S. currency disbursements. To the extent that it is unable to match the
anticipated non-U.S. currency receipts and disbursements related to its
contracts, the Company may enter, if the Company believes it is warranted under
the circumstances, into forward exchange contracts, to the extent available, to
hedge non-U.S. currency transactions on a continuing basis for periods
consistent with its committed exposures. Because the Company generally does not
hedge beyond its contract exposure, the Company believes this practice minimizes
the impact of non-U.S. exchange rate movements on the Company's results of
operations. There can be no assurance, however, that the attempted matching of
non-U.S. currency receipts
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<PAGE>
with disbursements or hedging activity will adequately moderate the risk of
currency or exchange rate fluctuations which could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, since the Company generates revenues in countries around the world,
there can be no assurance that forward exchange contracts will be available with
respect to any given currency in which the Company generates revenues. See
"Business--Geographic Markets."
Potential Environmental Liability
The Company's operations and properties are affected by numerous
national, federal, state and local environmental protection laws and
regulations, such as those governing discharges to air and water, as well as the
handling and disposal of solid and hazardous wastes in each of the countries
where the Company operates. The requirements of these laws and regulations have
tended to become increasingly stringent, complex and costly to comply with. This
is true for the Company's United States operations and for its non-U.S.
operations, which operations historically have been conducted generally pursuant
to less stringent environmental laws and regulations than exist in the United
States. While the Company has an environmental compliance program in place, it
cannot guarantee that any non-compliance, if it exists, would not have a
material adverse effect on the Company. There also can be no assurance that
environmental laws and regulations or their interpretation will not change in
the future in a manner that could materially and adversely affect the Company.
In addition, the Company may be subject to claims alleging personal injury or
property damage as a result of alleged exposure to toxic and hazardous
substances.
Certain environmental laws, such as the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA" or "Superfund") in the United
States, provide for strict and joint and several liability for investigation and
remediation of spills and other releases of toxic and hazardous substances. Such
laws may apply to conditions at properties currently or formerly owned or
operated by an entity or its predecessors, as well as to conditions at
properties at which wastes or other contamination attributable to an entity or
its predecessors come to be located. The Company can give no assurance that it,
or entities for which it may be responsible, will not incur such liability in
connection with the investigation and remediation of facilities it currently
owns or operates (or formerly owned or operated) or other locations in a manner
that could materially and adversely affect the Company.
The Company's business sometimes involves working around and with
volatile, toxic and hazardous substances, which exposes it to risks of liability
for personal injury or property damage caused by any release, spill, or other
accident involving such substances that occurs as a result of the conduct of its
business. The Company has been (and may continue to be) unable to obtain
adequate environmental damage or pollution insurance at a reasonable cost.
Although the Company maintains general liability insurance, this insurance is
subject to coverage limitations, deductibles and exclusions and may exclude
coverage for losses or liabilities relating to pollution damage. Therefore,
there can be no assurance that liabilities that may be incurred by the Company
will be covered by its insurance policies, or, if covered, that the dollar
amount of such liabilities will not exceed the Company's policy limits. Even a
partially uninsured claim, if successful and of significant magnitude, could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Governmental
Regulations--Environmental," "Business--Legal Proceedings and Insurance" and
"Certain Transactions; Relationship with Praxair."
Dependence on Petroleum and Petrochemical Industry
In recent years, demand from the worldwide petroleum and petrochemical
industry has been the largest component of the Company's revenues, and accounted
for approximately 60% of revenues in 1996. Therefore, no assurance can be given
that the Company's business, financial condition and results of operations will
not be materially adversely affected because of reduced activity in the oil and
gas industry. In addition, the
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Company may be materially adversely affected by changing taxes, price controls
and laws and regulations relating to the petroleum and petrochemical industries
generally. See "--Fluctuating Revenues and Cash Flow" and "Business--Customers."
Competition
Several large companies offer metal plate products and services that
compete with some, but not all, of those of the Company. Local and regional
companies offer competition in one or more geographical areas and in certain
product lines. Although the Company believes customers consider, among other
things, the availability and technical capabilities of equipment and personnel,
efficiency, condition of equipment, safety record and reputation, price
competition is currently a principal factor in determining which qualified
contractor is awarded a contract.
In recent years, competition has resulted in substantial pressure on
pricing and operating margins. The Company expects overcapacity and other
competitive pressures in the industry to continue for the foreseeable future.
Several of the Company's competitors may have substantially greater capital
resources, experience, sales and marketing capabilities and broader product and
service offerings than the Company and are well established in their respective
markets. The Company's competitors, either alone or together with competitors
having sufficient resources, could engage in a variety of actions, including
aggressive price competition, increased commitment of resources to compete,
offering a higher level of customer service and efforts to recruit the Company's
customers, which may have the effect of delaying or preventing the
implementation of the Company's business strategy or adversely affecting the
Company's ability to compete profitably. Given the nature of the construction
industry, certain of the Company's costs, including construction equipment and
personnel, are essentially fixed over the short term. In order to avoid
additional expenses associated with temporarily idling equipment and personnel,
the Company may from time to time choose to bid its, and its competitors may bid
their, services out for hire at less than attractive rates, depending on the
prevailing contractual rates in a given region. See "Business--Competition."
Reliance on Key Personnel
The Company's success depends to a significant extent upon the
performance of its key employees, the loss of one or more of whom could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company carries no key-man life insurance. The
Company believes that its future success will also depend in large part on its
ability to attract and retain highly skilled managerial, supervisory, technical,
sales and marketing personnel, who are in great demand. There can be no
assurance that the Company will be successful in attracting or retaining such
personnel, and the failure to attract or retain such personnel could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Uncertainty in Enforcing United States Judgments Against Netherlands
Corporations, Directors and Others
The Issuer is a Netherlands company and a substantial portion of its
assets are located outside the United States. In addition, certain members of
the Issuer's management and supervisory boards may be residents of countries
other than the United States. As a result, judgments of United States courts,
including judgments against the Issuer or members of its management or
supervisory boards predicated on the civil liability provisions of the federal
or state securities laws of the United States, may be difficult to enforce in
The Netherlands. See "Service of Process and Enforcement of Civil Liabilities."
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Possible Antitakeover Effects
The Issuer's Articles of Association and the applicable law of The
Netherlands contain provisions that may be deemed to have anti-takeover effects.
Among other things, these provisions provide for a staggered board of
supervisory directors and a binding nomination process. Such provisions may
delay, defer or prevent a takeover attempt that a shareholder might consider in
the best interest of the Company's shareholders. See "Description of Share
Capital." In addition, certain United States tax laws may discourage third
parties from accumulating significant blocks of the Common Shares. See
"Taxation--United States Federal Income Taxes-Foreign Personal Holding Company
Classification" and "Taxation--United States Federal Income Taxes--Controlled
Foreign Corporation Classification."
Other Matters Related to Companies Incorporated in The Netherlands
As a Netherlands "naamloze vennootschap" (N.V.), the Issuer will be
subject to certain requirements not generally applicable to corporations
organized in United States jurisdictions. Among other things, the issuance of
shares by an N.V. must be submitted for resolution of the general meeting of
shareholders, except to the extent such authority to issue shares has been
delegated by the general meeting of shareholders to another corporate body. The
Issuer's shareholders authorized, prior to the Initial Common Share Offering,
the Issuer's Supervisory Board (as defined below under "Management") to issue
such additional authorized but unissued Common Shares as the Supervisory Board
shall determine. Under the law of The Netherlands, such authorization can only
be granted for a maximum period of five years and the above-mentioned
authorization expires on March 26, 2002, subject to future extension(s).
In addition, the issuance of the shares is generally subject to
shareholder preemptive rights, except to the extent that such preemptive rights
have been excluded or limited by the general meeting of shareholders (subject to
a qualified majority of two-thirds of the votes if less than 50% of the
outstanding share capital is present or represented) or by the corporate body
empowered to do so by the general meeting of shareholders or the articles of
association. Shareholders do not have preemptive rights with respect to, inter
alia, Common Shares which are issued against payment other than in cash nor with
respect to shares issued to employees of the Issuer and its subsidiaries. On
March 26, 1997, prior to the consummation of the Initial Common Share Offering,
the Issuer's shareholders adopted a resolution providing the Supervisory Board
with an irrevocable five-year authorization to exclude or limit shareholder
preemptive rights. See "Description of Share Capital--Summary of Certain
Provisions of the Articles of Association and Other Matters--Issue of Shares;
Preemptive Rights."
Status as Independent Entity
Prior to the Initial Common Share Offering, the Issuer was a wholly
owned subsidiary of Praxair, and prior thereto a wholly owned subsidiary of
Industries, and the Company has depended upon Praxair and Industries for certain
financial and administrative support. Since completion of the Initial Common
Share Offering, the Company has been responsible for its own financing and
administering its own treasury, cash management, accounting, legal, tax,
insurance, human resources and other services (except to the extent Praxair
continues to provide certain credit guarantees which were outstanding at the
time of the Initial Common Share Offering during an interim transition period
and certain pension-related services for specified fees). Praxair currently
provides certain benefits-related services to the Company and may continue to do
so in the future. The Company is expected to incur additional general and
administrative expenses estimated to be approximately $1.9 million annually in
connection with the Company's status as an independent publicly traded company.
Prior to the consummation of the Initial Common Share Offering, certain stand-by
letters of credit required in connection with the Company's insurance
requirements and guarantees required in connection with performance bonds were
provided by Praxair. As of September 30, 1997 such letters of credit and
guarantees on performance bonds totalled approximately 58 million.
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The Company will be required to obtain new letters of credit and indemnify and
compensate Praxair with respect to letters of credit and guarantees provided by
Praxair which are not replaced by those obtained by the Company. Furthermore, in
the past the Company generated significant revenue from services provided to
Praxair, Industries and their affiliates. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Certain Transactions; Relationship with Praxair."
Risks of Joint Ventures and Less Than 100% Owned Operations
The Company conducts a significant portion of its operations through
joint ventures and less than 100% owned affiliates, all of which the Company
manages. In fiscal year 1996 and in the first nine months of 1997, the Company
recorded $0.5 million and less than $0.1 million, respectively, in income from
unconsolidated affiliates, and $112.6 million and $72.2 million, respectively,
in revenues from consolidated entities less than 100% owned by the Company,
which represented approximately 18% and 15% of the Company's total consolidated
revenues in fiscal year 1996 and in the first nine months of 1997, respectively.
At any given time, the revenues or new business taken of a particular joint
venture or less than 100% owned affiliate could be significant. The Company's
joint venture partners and the minority owners of such affiliates may from time
to time have economic or business interests or goals which are inconsistent with
the business interests or goals of the Company. The Company may not have control
over the operations or assets of a joint venture or affiliate if the joint
venture, other agreements or governing law so provide. Although the Company
generally manages the operations of its joint ventures and less than 100% owned
affiliates in the same manner as it manages the operations of its wholly owned
affiliates, the Company may be required to consider the interests of its joint
venture partners and the minority owners of such affiliates in connection with
decisions concerning the operations of the joint ventures and affiliates. The
expenses of managing the operation of each joint venture and affiliate are
allocated to such joint venture or affiliate. All such joint ventures and
affiliates are organized as corporate entities, and the equity holders of such
entities, as shareholders, generally are not subject to liability with respect
to the activities of the joint ventures and affiliates. The Company generally is
not liable to any joint venture or affiliate for activities undertaken on behalf
of such joint venture or affiliate in accordance with authority granted by the
joint venture or affiliate. Although each joint venture and affiliate also
maintains insurance coverages required by law as well as additional coverages,
there can be no assurance that such coverage will be adequate. The Company also
faces the risk that a joint venture partner or minority owner of an affiliate
may be unable to meet its economic or other obligations and that the Company may
be required or choose to fulfill those obligations. See also "--Risks Associated
with Holding Company Structure."
Possible Volatility of Share Price
The market price of the Common Shares could be subject to significant
fluctuations in response to various factors, including variations in quarterly
operating results, future announcements concerning the Company or its
competitors, interest rates, foreign exchange rates, the depth and liquidity of
the market for the Common Shares, investor perceptions of the Company and
general economic, market and other conditions.
Risk of U.S. Taxation of Foreign Operations
The Issuer and its non-U.S. subsidiaries carry out their activities in
a manner which the Company believes does not constitute the conduct of a trade
or business in the United States. Accordingly, although the Company reports
taxable income and pays taxes in the countries where it operates, the Company
believes that income earned by the Issuer and its non-U.S. subsidiaries from
operations outside the United States is not reportable in the United States for
tax purposes and is not subject to U.S. income tax. If income earned by the
Issuer or its non-U.S. subsidiaries from operations outside the United States is
determined to be income effectively connected to a United States trade or
business and as a result becomes taxable in the United States, the
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Company could be subject to U.S. taxes on a basis significantly more adverse
than generally would apply to such business operations. If the Company were to
be deemed to be subject to such taxes, there can be no assurance that the
Company's business, financial condition and results of operations will not be
materially and adversely affected.
Risk of Being Classified as a Foreign Personal Holding Company
If certain events occur, the Issuer or any of its non-U.S. subsidiaries
may be classified, for U.S. tax purposes, as a foreign personal holding company
("FPHC"). The events which would trigger the classification as an FPHC are, in
part, beyond the control of the Company. The Issuer would be classified as an
FPHC if in any taxable year (i) five or fewer individuals who are U.S. citizens
or residents own (directly or constructively through certain attribution rules)
more than 50% of the voting power or the value of the outstanding Common Shares
and (ii) at least 60% of its gross income is "foreign personal holding company
income," which is defined under Section 553 of the Internal Revenue Code of
1986, as amended (the "Code"), to include, among other things, dividends,
interest, rent and royalties. If the Issuer were to be classified as an FPHC,
this would generally require each U.S. shareholder who held Common Shares on the
last day of the Company's taxable year to include in such shareholder's gross
income as a dividend that shareholder's pro rata portion of undistributed income
of the Issuer and of any non-U.S. subsidiaries that are also FPHCs. The Issuer
believes that it is not an FPHC as of the date of this Prospectus but undertakes
no obligation to determine if it is an FPHC at any time. There can be no
assurance that the Issuer or any of its non-U.S. subsidiaries will not be
classified as FPHCs in the future. See "Taxation --United States Federal Income
Taxes--Foreign Personal Holding Company Classification."
Risk of Being Classified as a Controlled Foreign Corporation
The Issuer is incorporated in The Netherlands and as of the date of
this Prospectus believes that it is not a "controlled foreign corporation" for
purposes of U.S. tax law. However, the Company would be classified as a
controlled foreign corporation if any United States person acquires 10% or more
of the shares of the Issuer (including ownership through the attribution rules
of Section 958 of the Code) and the sum of the percentage ownership by all such
persons exceeds 50% (by voting power or value) of the Issuer's stock. There is
no assurance that the Issuer will not be determined to be a controlled foreign
corporation in the future. In the event that such a determination were made, all
U.S. holders of 10% or more of the shares of the Issuer will be subject to
taxation under Subpart F of the Code. The ultimate consequences of this
determination are fact-specific to each 10% or greater (including ownership
through the attribution rules of Section 958 of the Code) U.S. shareholder but
could include possible taxation of such U.S. shareholder on income of the Issuer
even in the absence of distribution by the Issuer of such income. See
"Taxation--United States Federal Income Taxes--Controlled Foreign Corporation
Classification."
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THE COMPANY
CB&I is a global engineering and construction company specializing in
the engineering, design, fabrication, erection and repair of petroleum
terminals, steel tanks, refinery pressure vessels, low temperature and cryogenic
storage facilities and other steel plate structures and their associated
systems. Based on its knowledge of and experience in its industry, the Company
believes it is the leading provider of field erected steel tanks and other steel
plate structures, associated systems and related services in North America and
one of the leading providers of these specialized products and services in the
world. CB&I seeks to maintain its leading industry position by focusing on its
technological expertise in design, metallurgy and welding, along with its
ability to complete logistically and technically complex metal plate projects
virtually anywhere in the world. CB&I has been continuously engaged in the
engineering and construction industry since its founding in 1889. In 1996, the
Company was involved in over 500 projects for over 250 customers in 34
countries.
The Issuer, with its corporate seat at Amsterdam, The Netherlands, is a
corporation organized under the laws of The Netherlands, was incorporated in
November 1996 and maintains its registered office and the principal office of
CBICBV at Koningslaan 34, 1075 AD Amsterdam, The Netherlands. The Issuer's
telephone number at such address is 31-20-578-9588. The executive office of CBIC
is located at 1501 North Division Street, Plainfield, Illinois 60544, and its
telephone number at that address is (815) 439-6000. The Issuer is registered in
the trade register of the Chamber of Commerce of Amsterdam under No. 286.441.
The Issuer's objects clause as contained in its Articles of Association
is formulated in a broad manner, enabling the Issuer to do all such things as
may be in the broadest sense in furtherance of the business of the Company as
described herein (see "Business"), including, among other things, to:
incorporate, own, participate in, manage and promote businesses; perform
industrial, financial and commercial activities; design, develop, manufacture,
market, sell and service products of any nature; and to borrow, lend and raise
funds and render guarantees.
PRICE RANGE OF COMMON SHARES AND DIVIDEND POLICY
The Common Shares commenced trading on the NYSE and on the Amsterdam
Stock Exchange under the symbol "CBI" on March 27, 1997.
<TABLE>
<CAPTION>
Amsterdam Stock
NYSE Exchange
---------------------- ---------------------
High Low High Low
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1997 First Quarter (commencing March 27) $18 1/8 $17 5/8 NLG 34 NLG 34
Second Quarter 23 1/8 16 1/8 42.3 31
Third Quarter 23 5/8 19 7/8 48.9 41
Fourth Quarter (through November 7) 23 16 7/16 43.2 32
</TABLE>
The reported last sale price of the Common Shares on the NYSE Composite
Tape and on the Amsterdam Stock Exchange on November 7, 1997 was $16.56 and NLG
32 per share, respectively. On November 1, 1997, there were approximately 225
holders of record of Common Shares.
The Issuer currently expects to pay quarterly cash dividends which, on
an annual basis, will aggregate $0.24 per Common Share and which may be changed
over time as its earnings and prospects warrant. However, no annual dividend has
been declared and the declaration and payment of dividends will be a business
decision to be made by the Management Board (as defined below under
"Management") and the Supervisory
20
<PAGE>
Board of the Issuer from time to time, subject to, in the case of annual
dividends, the determination by shareholders at a general meeting and subject to
applicable mandatory provisions of Dutch law, and based on a variety of factors
including, among others, the Company's earnings, financial position, capital
needs and such other considerations as such boards or the general meeting of
shareholders deems relevant as well as any restrictions under the Issuer's debt
instruments. See "Description of Share Capital--Summary of Certain Provisions of
the Articles of Association and Other Matters--Dividends." The Issuer's first
quarterly dividend was paid on June 30, 1997 to shareholders of record at the
close of business on June 20, 1997. In addition, a quarterly dividend was paid
on September 30, 1997 to shareholders of record at the close of business on
September 19, 1997. Although under Dutch law dividends generally are paid
annually after being approved at a general meeting of shareholders, quarterly
dividends in anticipation of an annual dividend may be distributed by a
company's management board, in the case of the Issuer, with the approval of its
Supervisory Board. See "Description of Share Capital--Summary of Certain
Provisions of the Articles of Association and Other Matters--Dividends."
It is expected that cash dividends, if any, will be declared in
dollars. For a description of the basis on which dividends may be converted into
Dutch guilders, see "Description of Share Capital--Summary of Certain Provisions
of the Articles of Association and Other Matters--Dividends." As regards cash
payments, the rights to dividends and distributions shall lapse if such
dividends or distributions are not claimed within five years following the day
after the date on which they were made available.
There are no legislative or other legal provisions currently in force
in The Netherlands or arising under the Issuer's Articles of Association
restricting dividends to holders of the Common Shares not resident in The
Netherlands. Insofar as the law of The Netherlands is concerned, cash dividends
paid in any currency may be transferred from The Netherlands and converted into
any other convertible currency. Dividends payable by the Issuer are subject to
Dutch withholding tax at the current rate of 25%. The withholding tax on
dividends paid to holders of Common Shares who are not residents of The
Netherlands may be reduced by virtue of an applicable income tax convention in
effect between The Netherlands and the country of residence of the recipient of
the dividends. See "Taxation--Netherlands Taxes--Netherlands Dividend
Withholding Tax."
The Issuer is a newly formed corporation with no accumulated earnings
and profits for U.S. federal income tax purposes. If the Issuer declares
dividends in the Issuer's first taxable year after the Initial Common Share
Offering in excess of the Issuer's current earnings and profits for such year,
the excess of the dividend paid with respect to a particular class of the
Issuer's shares over the earnings and profits allocable to such class of shares
shall be treated for United States federal income tax purposes as a return of
capital to the extent of the shareholder's basis in the shares, and a capital
gain to the extent of any amount of such excess distributed to the shareholder
in excess of such basis.
The Issuer is a holding company that derives all of its cash flow from
its subsidiaries. Consequently, the Issuer's ability to pay dividends is
dependent on the earnings of its subsidiaries and the receipt by the Issuer of
distributions from such subsidiaries. In addition, the Revolving Credit Facility
limits, and any other credit arrangements which the Company may enter into may
limit, the Issuer's ability to pay dividends. See "Risk Factors--Substantial
Liquidity Requirements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Description of Revolving Credit Facility."
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of
Common Shares in the Common Share Offering.
21
<PAGE>
CAPITALIZATION
(dollars in thousands, except share data)
The following table sets forth the cash, consolidated short-term debt
and capitalization of the Company at September 30, 1997 and as adjusted to give
effect to the impact of the estimated costs to the Issuer of the sales of all of
the Common Shares covered hereby. This table should be read in conjunction with
the consolidated financial statements and notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
As of September 30, 1997
--------------------------
Actual As Adjusted(1)
------ --------------
<S> <C> <C>
Cash and cash equivalents ............................ $ 17,751 $ 17,471
Short-term notes payable ............................. 1,292 1,292
Long-term debt ....................................... 42,000 42,000
Shareholders' equity:
Common stock, NLG .01 par value, 50,000,000
authorized, 12,517,552 actual and as adjusted shares
issued and outstanding (2) ......................... 74 74
Additional paid-in capital ........................... 326 94,326
Retained earnings .................................... 8,971 8,971
Cumulative translation adjustment .................... (3,054) (3,054)
--------- ---------
Total shareholders' equity ........................... 100,597 100,317
Total capitalization ................................. $ 143,889 $ 143,609
========= =========
</TABLE>
(1) Reflects amounts after giving effect to the estimated costs to the
Company of the Common Share Offering. The Issuer will not receive any
proceeds from the Common Share Offering but will pay a portion of the
offering costs, which portion will not exceed $2.0 million. The $0.3
million net decrease in Total shareholders' equity and Total
capitalization reflects the $0.3 million of estimated offering costs to
be paid by the Issuer.
(2) Excludes Common Shares issuable upon exercise of options granted under
the Company's stock option plan.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(dollars in thousands)
The following table sets forth Selected Consolidated Financial and
Other Data for the periods and as of the dates indicated. The selected
consolidated income statement data for each of the years in the three-year
period ended December 31, 1996 and the selected consolidated balance sheet data
as of December 31, 1996, 1995 and 1994 have been derived from, and are qualified
by reference to, the Audited Consolidated Financial Statements of the Company
included elsewhere in this Prospectus. The selected consolidated income
statement data for the year ended December 31, 1993 have been derived from the
Company's audited financial statements. The selected consolidated income
statement data for the year ended December 31, 1992 and the selected
consolidated balance sheet data as of December 31, 1993 and 1992 have been
derived from the Company's unaudited financial statements. The selected income
statement and balance sheet data for the nine months ended September 30, 1997
and 1996 are derived from the Company's unaudited consolidated financial
statements, which, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information set forth therein. The results of operations for
the interim periods presented are not indicative of the results that may be
expected for the full year.
The selected consolidated financial and other data set forth below
should be read in conjunction with, and are qualified by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and
accompanying notes thereto and other financial information included elsewhere in
this Prospectus.
23
<PAGE>
<TABLE>
<CAPTION>
Post-
Pre-Reorganization(1) Reorganiz-
------------------------------------------------------------------------------ ation(1)
------------
Pre-Praxair Acquisition(2) Post-Praxair Acquisition(2)
------------------------------------------------------- -----------------------------------
Nine Months Ended
Year Ended December 31, September,
1992 1993 1994 1995 1996 1996 1997
------------ --------- ---------- ---------- ----------- -------- -------
Income Statement Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues .................... $ 799,196 $ 680,541 $ 762,803 $ 621,938 $ 663,721 $ 483,531 $ 477,500
Cost of revenues ............ 678,129 630,978 692,266 614,230 590,030 430,523 434,082
---------- ----------- ------------ ------------ ------------ ------------ ------------
Gross profit ............. 121,067 49,563 70,537 7,708 73,691 53,008 43,418
Selling and administrative
expenses ................. 44,006 44,193 45,503 43,023 42,921 32,248 33,436
Special charges ............. -- 22,900(3) 16,990(4) 5,230(5) -- -- --
Management plan charge ...... -- -- -- -- -- -- 16,662(6)
Other operating income(7) ... (1,062) (118) (11,360) (10,030) (493) (381) (4,356)
---------- ----------- ------------ ------------ ------------ ------------ ------------
Income (loss) from
operations ............... 78,123 (17,412) 19,404 (30,515) 31,263 21,141 (2,324)
Interest expense ............ (1,275) (298) (180) (799) (5,002) (3,787) (3,131)
Other income ................ 4,405 3,056 1,652 1,191 990 581 1,233
---------- ----------- ------------ ------------ ------------ ------------ ------------
Income (loss) before
taxes and minority
interest ................. 81,253 (14,654) 20,876 (30,123) 27,251 17,935 (4,222)
Income tax expense
(benefit) ............... 21,882 (6,080) 3,074 (8,093) 7,789 4,674 (2,990)
---------- ----------- ------------ ------------ ------------ ------------ ------------
Income (loss) before
minority interest ........ 59,371 (8,574) 17,802 (22,030) 19,462 13,261 (1,232)
Minority interest in
(income)loss ............. (2,041) (1,247) (1,359) (3,576) (2,900) 2,331 (143)
---------- ----------- ------------ ------------ ------------ ------------ ------------
Net income
(loss) ................... $ 57,330 $ (9,821) $ 16,443 $ (25,606) $ 16,562 $ 10,930 $ (1,089)
============ ============ ============ ============ ============ ============ ============
Income (loss) per common
share(1) ................. N/A N/A N/A N/A N/A N/A $ (0.09)
===========
Weighted average number of
common shares outstanding N/A N/A N/A N/A N/A N/A 12,517,552
===========
Balance Sheet Data:
Total
assets ................... $ 410,492 $ 408,936 $ 359,912 $ 356,125 $ 351,496 $ 359,538 $ 372,489
Total long-term
debt ..................... 1,000 -- -- -- 53,907 55,000 42,000
Total shareholder's
equity ................... 222,027 217,231 183,101 186,507 90,746 92,314 100,597
Cash Flow Data:
Cash flow from operating
activities ............... $ 37,571 $ (357) $ 38,447 $ (39,151) $ 25,159 $ 22,186 $ 42,813
Cash flow from investing
activities ............... (37,438) (11,764) 14,051 3,899 (11,348) (1,492) (15,687)
Cash flow from financing
activities ............... 1,030 2,662 (49,742) 32,012 (14,797) (13,531) (21,239)
Other Financial Data:
Depreciation and
amortization ............. $ 12,821 $ 16,178 $ 15,569 $ 16,077 $ 17,281 $ 12,605 $ 12,882
EBITDA(8) ................... 89,882 21,548 40,603 (19,238) 48,051 33,365 22,864
Capital
expenditures ............. 44,465 19,232 18,772 14,880 20,425 8,075 26,717
Other Data:
Number of employees:
Salaried .................... 2,036 1,861 1,800 1,663 1,516 1,540 1,464
Hourly and
craft .................... 5,227 4,408 4,852 3,483 4,432 4,549 4,916
New business
taken(9) ................. $ 732,415 $ 782,606 $ 648,082 $ 782,878 $ 687,227 $ 474,255 $ 561,090
Backlog(9) .................. 364,326 449,303 323,343 470,174 485,704 456,599 559,014
</TABLE>
(footnotes on next page)
24
<PAGE>
(continued from previous page)
- --------------------
(1) The Reorganization did not materially affect the carrying amounts of
the Company's assets and liabilities. See "Certain Transactions;
Relationship with Praxair -- Corporate Reorganization" for a further
discussion of the Reorganization. The Reorganization is reflected in
the Company's financial statements as of January 1, 1997.
(2) Prior to the first quarter of 1996, the Company was a subsidiary of
Industries. During the first quarter of 1996, pursuant to a merger
agreement dated December 22, 1995, Industries became a subsidiary of
Praxair. This merger transaction was reflected in the consolidated
financial statements of the Company as a purchase effective January 1,
1996. The application of purchase accounting resulted in changes to the
historical basis of various assets. Accordingly, the information
provided for periods prior to January 1, 1996 is not comparable to
subsequent financial information.
(3) In 1993, a special charge of $22.9 million was recorded to recognize
the expense of two major legal claims totalling $15.0 million as well
as a $7.9 million write-down of non-performing assets.
(4) In 1994, the Company recorded a special charge of $17.0 million to
recognize the expenses of a major litigation settlement. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations."
(5) In 1995, the Company recorded a special charge of $5.2 million
comprised of $0.8 million for work force reduction and $4.4 million for
the write-down of an idle facility and other related costs.
(6) Upon consummation of the Initial Common Share Offering, the Company
made a contribution to the Management Plan in the form of Common Shares
having a value of $16.7 million (925,670 Common Shares, representing
approximately 7% of the total number of Common Shares outstanding upon
consummation of the Initial Common Share Offering).
(7) Other operating income generally represents gains on the sale of
property, plant and equipment. The nine months ended September 30, 1997
was favorably impacted by non-recurring income of approximately $4.1
million from the resolution of disputed liabilities and recognition of
income related to a favorable appeals court decision. In addition,
nine-months 1997 other operating income includes a $1.1 million gain
from the sale of assets, primarily from the sale of Cordova, Alabama,
manufacturing facility, partially offset by $0.8 million increase in
litigation reserves. The gain recorded in 1995 primarily relates to the
sale of certain underutilized facilities sold as a result of the
Restructuring Program. The gain recorded in 1994 includes gains from
affiliated entity transactions primarily from the sale of the Company's
minority interest in a terminal and the sale of the Company's interest
in a fabrication facility.
(8) EBITDA is defined as income (loss) from operations less other operating
income, plus special charges, plus Management Plan charge, plus
depreciation and amortization expenses. While EBITDA should not be
construed as a substitute for operating income (loss) or a better
measure of liquidity than cash flow from operating activities, which
are determined in accordance with United States GAAP, it is included
herein to provide additional information regarding the ability of the
Company to meet its capital expenditures, working capital requirements
and any future debt service. EBITDA is not necessarily a measure of the
Company's ability to fund its cash needs, particularly because it does
not include capital expenditures. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity
and Capital Resources."
25
<PAGE>
(9) New business taken represents the value of new project commitments
received by the Company during a given period. Such commitments are
included in backlog until work is performed and revenue recognized or
until cancellation. Backlog may also fluctuate with currency movements.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and accompanying notes.
Overview
Recent Developments. The Company announced in a news release on October
30, 1997, and in its Form 10-Q filed on November 10, 1997, that net income and
earnings per share had decreased for the nine month period ended September 30,
1997 as compared with the same period in 1996. In addition, CB&I reported that
third quarter income from operations was affected by start-up problems
associated with the expansion of the Houston fabricating facility and
implementation of new integrated computerized systems being piloted at Houston.
These factors have resulted in additional costs and delays in some materials
reaching construction sites, thereby postponing the recognition of revenue and
resulting in lower operating income. However, the Company announced that new
business taken remained strong for the quarter ended September 30, 1997 in what
has normally been a weak third quarter. In addition, (i) income from operations
for the three month period ended September 30, 1997 was favorably impacted by
non-recurring income of approximately $4.1 million from the resolution of
disputed liabilities and recognition of income related to a favorable appeals
court decision and (ii) the third quarter was also positively impacted by an
$0.8 million reduction in the cost of revenues for the capitalization of tools
previously expensed during the first half of 1997. See "Prospectus Supplement -
Recent Developments."
On April 2, 1997 the Company consummated the Initial Common Share
Offering. As part of the Initial Common Share Offering, the Selling Shareholder
sold 11,045,941 Common Shares, representing approximately 88% of the Common
Shares owned by the Selling Shareholder. As of the date of this Prospectus, the
545,941 Common Shares owned by the Selling Shareholder represent approximately
4.4% of the outstanding Common Shares. If all of the Common Shares covered
hereby are sold, the Selling Shareholder would own no Common Shares.
Background. In the first quarter of 1996, Praxair acquired all of the
outstanding common stock of Industries, which was then the parent company of Old
CBIC. At that time, Praxair announced its intention to divest the businesses of
Industries that were not strategic to Praxair, including the Company. The
acquisition of Industries by Praxair was reflected in the Company's consolidated
financial statements as a purchase effective January 1, 1996 and resulted in
changes to the capitalization and historical basis of various assets of the
Company. Accordingly, the historical information provided herein, for periods
prior to January 1, 1996, is not comparable to subsequent financial information.
Restructuring Program. Following the Praxair acquisition, a new
management team was assembled for the Company which has concentrated its initial
efforts on redirecting and accelerating the Restructuring Program. The
Restructuring Program initially focused on consolidating the Company's
organizational structure from six separate, decentralized business units into a
single global business operation. On-going enhancements in connection with such
consolidation include centralization of procurement, equipment and personnel
mobilization, and certain financial functions, as well as streamlining and
consolidating administrative and engineering support. As part of the program,
eight fabrication plants or warehouses have been closed and three administrative
office sites have been downsized or relocated, including the headquarters of the
Company's U.S. operations. The Company also has targeted a reduction of
approximately 160 salaried positions, all of which had been eliminated as of
September 30, 1997. The Company believes that the benefits of the Restructuring
Program contributed significantly to the improvement in operating profitability
in 1996 relative to 1995.
27
<PAGE>
Management Plan. Praxair and the Company agreed to compensate certain
members of the Company's management for their services in connection with the
further development and implementation of the Restructuring Program and the
Company's initial public offering. Upon consummation of the Initial Common Share
Offering, the Company contributed to the Management Plan in the form of Common
Shares having a value of $16.7 million (925,670 Common Shares, representing
approximately 7% of the total number of Common Shares outstanding upon
consummation of the Initial Common Share Offering). This initial contribution of
Management Plan Shares will vest three years (and with respect to one
participant, two years) after the date of the Initial Common Share Offering.
Accordingly, the Company recorded a pretax charge of $16.7 million at the time
of the contribution to the Management Plan. See "Management--Compensation and
Benefits--Special Stock-Based, Long-Term Compensation Related to the Initial
Common Share Offering."
Operations. Historically, changing market conditions have dictated that
the Company shift product mix and geographic revenue mix in order to maximize
operating results. The Company has also reduced its fixed costs from time to
time to reflect changes in demand for its products and services. Due to a
significant reduction in new business obtained by the Company outside the U.S.
and decreases in government and nuclear repair work in the U.S., revenues in
1993 were sharply lower than the level in 1992. While revenues and operating
results improved somewhat in 1994, they remained below targeted levels. Actions
by the Company to adjust its support infrastructure were generally insufficient
to offset the declining revenue trend. During the period of declining
performance from 1992 through 1995, the Company became increasingly internally
focused. Experienced employees were assigned full-time to the Restructuring
Program (during 1996, most of these employees returned to operating duties). In
1995, Industries had also become involved in defending itself against the
ultimately successful takeover by Praxair. These factors along with contract
execution issues (such as maintaining costs in line with initial estimates, and
equipment and personnel mobilization difficulties) and unabsorbed overhead costs
contributed to a significant operating loss in 1995.
Although the Company believes that continued implementation of the
Restructuring Program has already resulted in and will continue to result in
savings, there can be no assurance that the Company's estimates of results
already achieved accurately reflect cost savings associated with the
Restructuring Program, that targeted reductions and goals can be achieved or
will continue and that part or all of the Restructuring Program can successfully
be implemented.
Contracts. The Company obtains contracts primarily through competitive
bidding, negotiations or partnering agreements with long-standing customers.
Project duration typically lasts from a few weeks to several years. Typically,
over 75% of the Company's work is performed on a fixed price or lump sum basis.
The balance of projects primarily are performed on variations of cost
reimbursable and target fixed or lump sum price approaches.
New Business Taken/Backlog. New business taken represents the value of
new project commitments received by the Company during a given period. Such
commitments are included in backlog until work is performed and revenue
recognized or until cancellation. The variability of the timing of new project
commitments, the size of the project and other factors beyond the Company's
control can cause significant fluctuation in the new business taken in any given
period or backlog outstanding at any given date. Backlog may also fluctuate with
currency movements.
Revenue Recognition. Revenues are recognized using the percentage of
completion method. Contract revenues are accrued based generally on the
percentage that costs to date bear to total estimated costs. The cumulative
impact of revisions in total cost estimates during the progress of work is
reflected in the period in which these changes become known.
28
<PAGE>
Results of Operations
The following table summarizes the consolidated results of operations
and the related percentages of revenues for the years ended December 31, 1994,
1995 and 1996 and the nine months ended September 30, 1997:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30
1994 1995 1996 1997
Income Statement Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues..................... $762.8 100.0% $621.9 100.0% $663.7 100.0% $477.5 100.0%
Cost of revenues............. 692.3 90.8% 614.2 98.8% 590.0 88.9% 434.1 90.9%
----- ---- ----- ---- ----- ---- ----- ----
Gross profit............... 70.5 9.2% 7.7 1.2% 73.7 11.1% 43.4 9.1%
Selling and administrative
expenses..................... 45.5 6.0% 43.0 6.9% 42.9 6.5% 33.4 7.0%
Special charges.............. 17.0 2.2% 5.2 0.8% - - - -
Management plan charge....... - - - - - - 16.7 3.5%
Other operating income....... (11.4) (1.5%) (10.0) (1.6%) (0.5) (0.1%) (4.4) (0.9%)
----- ---- ----- ---- ----- ---- ----- ----
Income (loss) from
operations................... 19.4 2.5% (30.5) (4.9%) 31.3 4.7% (2.3) (0.5%)
Interest expense............. (0.2) (0.0%) (0.8) (0.1%) (5.0) (0.8%) (3.1) (0.6%)
Other income................. 1.7 0.2% 1.2 0.2% 1.0 0.2% 1.2 0.3%
----- ---- ----- ---- ----- ---- ----- ----
Income (loss) before taxes
and minority interest...... 20.9 2.7% (30.1) (4.8%) 27.3 4.1% (4.2) (0.8%)
Income tax expense (benefit). 3.1 0.4% (8.1) (1.3%) 7.8 1.2% (3.0) (0.6%)
Income (loss) before
minority interest............ 17.8 2.3% (22.0) (3.5%) 19.5 2.9% (1.2) (0.2%)
Minority interest in
(income) loss................ (1.4) (0.2%) (3.6) (0.6%) (2.9) (0.4%) (0.1) (0.0%)
----- ---- ----- ---- ----- ---- ----- ----
Net income (loss).......... $16.4 2.1% $(25.6) (4.1%) $16.6 2.5% $(1.1) (0.2%)
===== === ====== ==== ===== === ===== ====
Backlog at period end........ $323.3 $470.2 $485.7 $559.0
====== ====== ====== ======
</TABLE>
The following tables indicate revenues and new business taken by
product line for the years ended December 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1995 1996
---- ---- ----
(dollars in millions)
Revenues by Product Line
<S> <C> <C> <C>
Flat Bottom Tanks................................................. $303 $253 $248
Pressure Vessels.................................................. 83 85 82
Low Temperature/Cyrogenic Tanks and Systems....................... 23 28 60
Elevated Tanks.................................................... 55 60 42
Specialty and Other Structures.................................... 133 73 117
Repairs and Modifications......................................... 82 68 70
Turnarounds....................................................... 84 55 45
---- ---- ----
Total............................................................. $763 $622 $664
==== ==== ====
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1995 1996
---- ---- ----
(dollars in millions)
New Business Taken by Product Line
<S> <C> <C> <C>
Flat Bottom Tanks...................................... $207 $196 $278
Pressure Vessels....................................... 80 86 67
Low Temperature/Cyrogenic Tanks and Systems............ 62 204 91
Elevated Tanks......................................... 38 44 46
Specialty and Other Structures......................... 88 122 107
Repairs and Modifications.............................. 76 63 57
Turnarounds............................................ 97 68 41
---- ---- ----
Total.................................................. $648 $783 $687
==== ==== ====
</TABLE>
Nine months ended September 30, 1997 versus nine months ended September 30, 1996
Revenues. For the first nine months of 1997, revenues of $477.5 million
were 1.2% lower than the $483.5 million earned in the first nine months of 1996.
Revenues for the nine months of 1997 were lower than the comparable period of
1996 due to a decline in volume at CB&I Constructors (headquartered in Houston)
and CBI Services. This decline was substantially offset by higher earned
revenues in the Asia Pacific, and Europe, Africa and Middle East areas. Revenues
earned outside North America for the first nine months of 1997 were
approximately 55% of the total revenues in such period, compared with 48% for
the comparable period of 1996.
World-wide new business taken during the third quarter of 1997 was
$173.1 million, a 24% increase over the comparable period in 1996. For the nine
months ended September 30, 1997, new business taken of $561.1 million was 18%
greater than the $474.3 million reported in the first nine months of 1996. Over
60% of the new business taken during the nine months ended September 30, 1997
was for contracts awarded outside of North America.
Backlog at September 30, 1997, increased $102.4 million to $559.0
million compared with a backlog of $456.6 million at September 30, 1996 and was
$73.3 million or 15.1% higher than the $485.7 million backlog reported at
December 31, 1996. At September 30, 1997, over 55% of backlog was for work to be
performed outside of North America.
Gross Profit. For the nine months ended September 30, 1997, gross
profit decreased by $9.6 million to $43.4 million or 9.1% of revenues compared
with $53.0 million or 11.0% of revenues for the comparable period of 1996.
Selling and administrative expenses for the nine months ended September
30, 1997 increased to $33.4 million (7.0% of revenues) from $32.2 million (6.7%
of revenues) in the first nine months of 1996. The increase in selling and
administrative expense is a result of increased administrative expenses required
as an independent company.
As reported earlier this year, the Company recorded a one-time,
non-cash Management Plan charge of $16.7 million ($10.1 million net of tax)
related to the contribution of Common Shares to the Management Plan in
connection with the Company's recent initial public offering. The objective of
the Management Plan is
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<PAGE>
to align executive compensation with shareholder value. Other operating income
for the nine months ended September 30, 1997, was favorably impacted by
non-recurring income of approximately $4.1 million from the resolution of
disputed liabilities and recognition of income related to a favorable appeals
court decision. The period ended September 30, 1997 was also positively impacted
by an $0.8 million reduction in the cost of revenues for the capitalization of
tools previously expensed during the first half of 1997. Other operating income
for the nine months ended September 30, 1997 includes a $1.1 million gain from
the sale of assets, primarily from the sale of the Cordova, Alabama
manufacturing facility, partially offset by $0.8 million increase in litigation
reserves.
Income from Operations. For the first nine months of 1997, the loss
from operations was $2.3 million. Excluding the one-time, non-cash Management
Plan charge, income from operations was $14.3 million for the nine months ended
September 30, 1997, compared with $21.1 million in the nine months ended
September 30, 1996.
Third quarter 1997 income from operations was negatively impacted by an
operating loss at CB&I Constructors. This loss resulted from start-up problems
associated with the expansion of the Houston fabricating facility and
implementation of new integrated computerized systems being piloted at Houston.
These factors have resulted in additional costs and delays in some materials
reaching construction sites, thereby resulting in lower operating income and
postponing the recognition of revenue. Based on third quarter 1997 results and
more in-depth examination of contracts, the Company recognized it will incur
additional costs to complete existing contracts. The Company anticipates CB&I
Constructors' will operate near break-even in the fourth quarter 1997. In light
of the third quarter 1997 results and considering the increasingly competitive
market conditions in North America, the Company expects U.S. operations will be
less profitable for 1998 than originally anticipated.
Interest expense was $3.1 million for the first nine months of 1997
compared with $3.8 million in the comparable period of 1996. This decrease is
due to lower debt levels, lower interest rates and $0.3 million of capitalized
interest costs. Other income consists primarily of interest earned on cash
balances at foreign subsidiaries.
For the nine months ended September 30, 1997, income tax expense
decreased $7.7 million to a net income tax benefit of $3.0 million compared with
income tax expense of $4.7 million in the comparable period of the prior year.
The decrease in income tax expense between periods is mostly attributable to the
decrease in the taxable income as a result of the one-time, non-cash Management
Plan charge. Excluding the Management Plan charge, income tax expense would have
been $3.6 million for the first nine months of 1997.
Minority interest in income decreased for the first nine months of 1997
compared with the comparable period of fiscal year 1996. This was mainly due to
lower contract volume and profitability of the Company's less than 100% owned
consolidated entities operating in Asia and the Middle East. See "Risk Factors".
The net income for the nine months ended September 30, 1997 was $9.0
million or $0.72 per share, excluding the effect of the one-time, non-cash
Management Plan charge. Including the Management Plan charge, the Company
reported a net loss of $1.1 million or $0.09 per share for the nine month period
ended September 30, 1997, compared with net income of $10.9 million for the
comparable period of fiscal year 1996. Giving effect to the Initial Common Share
Offering and the Reorganization as if each had occurred at the first day of the
year, net income per share for the nine months ended September 30, 1996 would
have been $0.87.
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<PAGE>
1996 versus 1995
Revenues. Revenues increased $41.8 million, or 6.7%, to $663.7 million
in 1996 from $621.9 million in 1995. This increase reflects improvement in
contract activity, primarily in the United States and Central and South America.
Revenues for low temperature and specialty product lines increased, reflecting
contracts for several liquid natural gas ("LNG") storage facilities and other
significant contracts for a wastewater project and a government research
facility. To improve profitability of the Company, during 1996 management
focused on improving contract execution and cost reductions. As a result,
management was more selective in pursuing contract opportunities, which is
reflected in the level of new business taken and in the moderate revenue growth
in 1996, and is expected to be reflected in the Company's 1997 results. However,
the Company expects to more actively pursue new business prospects in its
principal markets as its Restructuring Program nears completion.
Backlog at December 31, 1996 increased by approximately $15.5 million
to $485.7 million compared to the backlog at December 31, 1995 of $470.2
million. New business taken during 1996 decreased by 12.2% to $687.2 million
compared to $782.9 million in 1995 which included approximately $150 million for
three LNG storage facility contracts. During 1996, new contract awards increased
significantly internationally in Asia, the Middle East and South America while
awards decreased in the U.S.
Gross Profit. Gross profit increased $66.0 million to $73.7 million
during 1996 from $7.7 million in 1995. Gross profit as a percentage of revenues
("gross margin") increased to 11.1% for 1996 from 1.2% in 1995. The improvement
in gross profit and gross margin in 1996 reflects the results of the
Restructuring Program initiatives which have achieved cost savings of
approximately $10 million, reduced unabsorbed overhead costs by $10.6 million,
improved contract estimation and associated construction performance and reduced
benefit costs, as discussed below. Prospectively, the Restructuring Program is
expected to result in estimated annual cost savings of approximately $21 million
in 1997 and approximately $23 million in 1998, relative to the Company's 1995
cost base. In addition, gross profit increased with higher revenues. Gross
profit for 1995 was negatively impacted by approximately $19 million due to the
effect of significant losses on a few contracts, as discussed below.
Income from Operations. Income from operations was $31.3 million in
1996, or 4.7% of revenues, versus a loss of $30.5 million in 1995. The
improvement in income from operations was primarily attributable to the
improvement in gross profit and gross margin described above. Selling and
administrative expenses decreased slightly to $42.9 million from $43.0 million
in 1995. Selling and administrative expenses included higher expenses relating
to the Company's upgrading of its information technology systems and increased
incentive compensation due to improved results, offset by a reduction in benefit
costs and other cost savings. Benefit cost reductions of approximately $4
million and pension curtailment gains of approximately $1.9 million reduced 1996
cost of revenues sold and selling and administrative expenses by $4.9 million
and $1.0 million, respectively. The decrease in the Company's benefit costs
during 1996 as compared to 1995 is the result of the transition from the
Industries' benefit plans to new benefit plans being established by the Company.
The Company's new benefit plans are expected to be in place for 1997, and the
level of 1997 benefit costs (excluding one-time costs related to the Management
Plan) is expected to be consistent with the 1995 benefit costs. Income from
operations in 1995 was also impacted by gains from the sale of assets of $10.0
million and a special charge of $5.2 million.
Interest expense increased $4.2 million, to $5.0 million during 1996
from $0.8 million in 1995. The increase is primarily a result of $55.0 million
of long-term debt assumed by the Company on January 1, 1996 as part of the
Praxair acquisition.
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<PAGE>
Income tax expense increased $15.9 million to $7.8 million during 1996
from an income tax benefit of $8.1 million during 1995. This increase results
from the return to profitable operations in the U.S. and increased profitability
in non-U.S. jurisdictions.
Net income for 1996 was $16.6 million compared to a net loss of $25.6
million in 1995.
1995 versus 1994
Revenues. Revenues decreased $140.9 million, or 18.5%, to $621.9
million in 1995 from $762.8 million in 1994. Decreased revenues reflect the
lower level of new business awarded to the Company in 1994 and the relatively
low backlog at December 31, 1994. As a result of the completion of a large
contract in late 1994, revenues from construction of flat bottom tanks declined
by approximately $50 million to $253 million in 1995 from $303 million in 1994.
Revenues from specialty contracts also declined during 1995.
Backlog at December 31, 1995 increased by $146.9 million to $470.2
million compared to backlog of $323.3 million at December 31, 1994. New business
taken during 1995 increased by 20.8% to $782.9 million compared to 1994. The
increase in new business was primarily attributable to the award of three LNG
storage facility contracts in the U.S. and a significant contract to supply
components to a government research facility.
Gross Profit. Gross profit decreased by $62.8 million to $7.7 million
in 1995 from $70.5 million in 1994. Gross margin decreased to 1.2% in 1995 from
9.2% in 1994. Gross profit was reduced by approximately $17 million due to lower
revenues and was adversely impacted by $23.6 million of underabsorbed overhead.
In addition, gross profit in 1995 was negatively impacted by approximately $19
million due to significant losses on a few contracts. These contract losses were
a result of inaccurate estimates related to the scope of work to be performed
and contract specifications and unforeseen weather and logistical
considerations.
Income from Operations. The Company incurred a loss from operations of
$30.5 million in 1995 compared to income from operations of $19.4 million in
1994. The decline was primarily attributable to the significant decrease in
gross profit described above. Selling and administrative expenses decreased $2.5
million, or 5.5%, to $43.0 million in 1995 from $45.5 million in 1994. The
decrease in selling and administrative expense resulted from cost reductions
initiated in early 1995.
In the fourth quarter of 1995, the Company recorded a special charge of
$5.2 million comprised of $0.8 million for workforce reduction and $4.4 million
for the write-down of an idle facility. The Company recorded a gain on sale of
assets in 1995 of $10.0 million, which included gains of $5.9 million from the
sale of two facilities and $4.1 million from the sale of other excess property,
plant and equipment.
Interest expense increased $0.6 million, to $0.8 million during 1995
from $0.2 million during 1994. The increase resulted from interest on a portion
of the litigation settlement which was included in the 1994 special charge
described below and higher international debt.
Income tax expense decreased by $11.2 million in 1995 to a net tax
benefit of $8.1 million primarily as a result of an operating loss in the U.S.,
which was utilized in the Industries consolidated return.
The Company reported a net loss of $25.6 million in 1995 compared to
$16.4 million of net income in 1994.
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<PAGE>
Liquidity and Capital Resources
For the nine months ended September 30, 1997, the Company generated
cash from operations of $42.8 million. For the year ended December 31, 1996, the
Company generated cash from operations of $25.2 million. The Company's
operations used cash of $39.2 million for the year ended December 31, 1995. In
the first nine months of 1997, a significant contributor to this positive
operating cash flow was $29.9 million reduction of contract working capital
(accounts receivable plus net contracts in progress less accounts payable). In
1996, cash generated was primarily the result of increased net income and
reduced working capital requirements. Lower working capital requirements were
due to decreases in accounts receivable during such period, partly offset by
increased cash requirements of contracts in progress resulting from the timing
of contract billings. In 1995, cash requirements of the operations were largely
attributable to a net loss and increased working capital requirements caused by
a major litigation settlement and satisfaction of income tax liabilities. For
the year ended December 31, 1994, the Company generated cash from operations of
$38.4 million which includes a reduction in accounts receivable due to a large
payment received in 1994.
Capital expenditures for the nine months ended September 30, 1997 were
$26.7 million. Such capital expenditures included $15.4 million for the
expansion and improvement of facilities, $7.4 million for field equipment, and
$3.9 million for information systems and other capital expenditures. During the
nine months ended September 30, 1997, the Company realized $11.0 million in
proceeds from the sale of assets, primarily from the sale of excess
manufacturing facilities.
Capital expenditures for the year ended December 31, 1996 were $20.4
million. Such capital expenditures were used primarily for field equipment
(approximately $11 million), information technology and systems development
(approximately $4 million), shop and other equipment (approximately $2 million)
and the remainder for environmental and other capital expenditures. During the
period from 1993 through 1995, the Company had annual capital spending of
approximately one times annual depreciation expense to maintain its competitive
position. The Company anticipates that capital expenditures in the near future
will remain at approximately the level of depreciation, except for certain one
time incremental additions related to the Restructuring Program, although there
can be no assurance that such levels will not increase.
The Company was a subsidiary of Industries when Industries was acquired
by Praxair during the first quarter of 1996. On December 19, 1996, Industries
merged into Praxair. As a subsidiary of both Industries and Praxair, the Company
has participated in corporate cash management systems. Liquidity required for or
generated from the business was handled through this system. The resultant cash
generated or used by the Company was netted against the advances to parent
company account. In 1996, the Company transferred $16.1 million net cash to
Praxair. In 1995, the Company received $31.0 million net cash from Industries.
Since consummation of the Initial Common Share Offering, the Company has not
participated in Praxair's cash management system.
As part of the Praxair acquisition of Industries, $55.0 million of
acquisition related indebtedness was assumed by the Company. During 1996 and
throughout the first quarter of 1997, Praxair advanced additional funds to the
Company to fund its working capital and capital expenditure requirements. In
early 1997, the Company entered into a revolving credit facility with a
syndicate of banks which has a maximum availability of $100 million for three
years, to be reduced to $50 million for two years thereafter (including up to
$35 million for letters of credit). In April, 1997, the Company borrowed $75
million under this credit facility to refinance its long-term debt to Praxair
and to fund its own corporate cash management system. During the second and
third quarters of 1997, the Company made substantial progress in generating cash
from operating activities, ending the third quarter with $18 million in cash and
$42 million of long-term debt. The terms of the facility include various
covenants, including financial covenants that require the Company to maintain
minimum
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<PAGE>
levels of tangible net worth, establish interest coverage and debt
coverage ratios and limit capital expenditures. See "Description of Revolving
Credit Facility."
Furthermore, in the ordinary course of business, the Company obtains
performance bonds and letters of credit from insurance companies and banks,
which support the Company's performance obligations under contracts to
customers. As of September 30, 1997 and December 31, 1996, approximately $69.4
million and $72.7 million of contingent letters of credit or bank guarantees,
and $134.0 million and $212.3 million of performance bonds were outstanding,
respectively. Prior to the Initial Common Share Offering these obligations were
guaranteed by Industries or Praxair. Since the Initial Common Share Offering,
the Company has obtained such instruments without credit support from Praxair,
although Praxair continues to support obligations entered into prior to the
Initial Common Share Offering. At September 30, 1997, Praxair supports the
Company through $22.5 million of letter of credit relating to the Company's
insurance program and $36 million of guarantees relating to performance bonds.
It is expected that the Company will replace these letters of credit with new
letters of credit issued on its own behalf. To the extent Praxair continues to
be obligated to financial institutions under the letters of credit and
guarantees of performance bonds, the Company will indemnify Praxair and
compensate it in the form of a guarantee fee. See "Certain Transactions;
Relationship with Praxair."
In addition to liquidity generated through the Revolving Credit
Facility, the Company intends to focus on improving its working capital position
through aggressive management of the individual components of working capital,
including programs to reduce excess cash, accounts receivable and unbilled
contracts in progress and to maximize available terms from trade suppliers. The
Company is also actively marketing the properties which comprise assets held for
sale in an amount equal to $4.5 million as of September 30, 1997.
Management anticipates that by utilizing cash generated from operations
and funds provided under the Revolving Credit Facility, the Company will be able
to meet its working capital and capital expenditure needs for at least the 24
months after the date of this Prospectus.
The Company expects to incur additional general and administrative
expenses estimated to be $1.9 million annually in connection with the Company's
status as an independent publicly traded company. In addition, the Company
estimates that its expenses related to employee benefit costs in 1997 will
exceed those incurred in 1996 by approximately $4 million (excluding costs
relating to the Management Plan). The decrease in the Company's benefit costs
during 1996 as compared to 1995 is the result of the transition from the
Industries benefit plans to the new benefit plans being established by the
Company. The Company's new benefit plans are in place for 1997 and the level of
1997 benefit costs is expected to be consistent with the 1995 benefit costs.
Other than as disclosed herein, there has been no material adverse
change in the financial position or results of operations of the Company since
December 31, 1996. Statements in this discussion and analysis contain
forward-looking information and involve known and unknown risks and
uncertainties which may cause the Company's actual results in future periods to
be materially different from any future performance suggested herein. See
"Disclosure Regarding Forward-Looking Statements."
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<PAGE>
BUSINESS
General
CB&I is a global engineering and construction company specializing in
the engineering, design, fabrication, erection and repair of petroleum
terminals, steel tanks, refinery pressure vessels, low temperature and cryogenic
storage facilities and other steel plate structures and their associated
systems. Based on its knowledge of and experience in its industry, the Company
believes it is the leading provider of field erected steel tanks and other steel
plate structures, associated systems and related services in North America and
one of the leading providers of these specialized products and services in the
world. CB&I seeks to maintain its leading industry position by focusing on its
technological expertise in design, metallurgy and welding, along with its
ability to complete logistically and technically complex metal plate projects
virtually anywhere in the world. CB&I has been continuously engaged in the
engineering and construction industry since its founding in 1889.
Restructuring Program
The Restructuring Program is based on initiatives begun in 1994 and was
significantly refocused and accelerated in 1996 following the assembly of the
Company's new management team. The Restructuring Program was established to
clarify the Company's vision, streamline processes and workflow, establish
meaningful performance measures and develop a more appropriate infrastructure,
including significantly reducing the Company's fixed costs. A central theme of
the Restructuring Program is to apply the Company's core competencies across all
of the Company's operations, to operate as a single global business and to
establish a consistent interface with global customers and improve marketing of
product lines across all geographic areas where the Company offers its products
and services. In the past, the Company had operated as six separate,
decentralized and relatively self-contained business units. The Restructuring
Program is aimed at, among other things, significantly reducing the Company's
fixed costs from levels incurred in 1995 and 1994 and improving operating
results.
During 1996, implementation of the Restructuring Program resulted in
several organizational changes, including the centralization of key functions
such as procurement, equipment and personnel mobilization, and certain financial
functions, while maintaining the ability to perform field construction using the
labor approach best suited for each project. Moreover, several of the Company's
offices and facilities were closed and the number of employees was reduced.
Equipment supply and warehousing costs also have been reduced and administrative
and engineering support have been streamlined and consolidated. The Company had
set a target to reduce salaried workforce by approximately 160 positions and as
of June 30, 1997 all such positions had been eliminated.
The following table outlines actions taken in connection with the
Restructuring Program with respect to various facilities:
<TABLE>
<CAPTION>
Location Facility Action Taken
-------- -------- ------------
<S> <C> <C>
Fort Erie, Canada............... Fabrication plant and warehouse Closed (1)
Kankakee, Illinois (2).......... Fabrication plant, warehouse and office Fabrication plant closed
Blacktown, Australia............ Fabrication plant Closed
Cordova, Alabama................ Fabrication plant Closed (1)
Fontana, California............. Fabrication plant Closed (1)
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Location Facility Action Taken
-------- -------- ------------
<S> <C> <C>
New Castle, Delaware............ Warehouse Closed (1)
Fremont, California............. Warehouse Closed (1)
Singapore....................... Warehouse Closed
London, England................. Area office Downsized
Singapore....................... Area office Downsized
Oak Brook, Illinois............. Old CBIC headquarters Closed and moved
to Plainfield, Illinois
</TABLE>
- ------------
(1) Facility has been sold.
(2) The Company discontinued fabrication operations at the Kankakee facility
during the first half of 1997. The benefits of this discontinuance are
included as part of the Restructuring Program.
Although the Company believes that continued implementation of the
Restructuring Program has already resulted in and will continue to result in
savings, there can be no assurance that the Company's estimates of results
already achieved accurately reflect cost savings associated with the
Restructuring Program, that targeted reductions and goals can be achieved or
will continue and that part or all of the Restructuring Program can successfully
be implemented.
Business Strategy
The Company is committed to increasing shareholder value by seeking to
build on the success established in 1996 and growing its business in the global
marketplace through a combination of strategic initiatives including the
following:
Focus on Core Business
The Company seeks to leverage its perceived competitive advantages in
design engineering, metallurgy and welding, and its ability to execute projects
virtually anywhere in the world, to actively pursue growth opportunities in its
core business. Prior management of the Company's former parent pursued a
diversification strategy during the 1980s and 1990s, which included acquisitions
of significant, unrelated businesses. CB&I's new management team is committed to
focusing on its core activities of engineering and design, fabrication,
erection, repair and modification of steel tanks and other steel plate
structures. The Company believes that its ongoing Restructuring Program already
has made it more competitive and will allow it to bid successfully on a broader
scope of projects.
For more than 65 years, the Company has been able to complete
logistically and technically complex metal plate projects in some of the most
remote areas of the world. This ability to mobilize a technically capable team
of engineers, supervisors and craftsmen and to apply the Company's extensive
know-how anywhere in the world differentiates the Company from its competitors
and illustrates the depth and quality of the Company's technical resources which
support its global operations.
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Continue Cost Reductions and Productivity Improvements
CB&I's management believes that the Restructuring Program represents
the foundation for a long-term strategy of reducing the costs of its products
and services, with the goal of establishing and maintaining a position as a low
cost provider in its markets. All functions of the organization-engineering,
procurement, construction, project management, finance and administrative
support-will be required to demonstrate improvements in productivity, and will
be provided compensation incentives for achieving such goals. The Company is
focusing on initiatives such as:
- - the reorganization of the Company's multiple procurement departments into
a single function, focusing the Company's considerable worldwide expertise
in pursuing economies of scale in purchasing raw materials and in
leveraging supplier relationships;
- - the redesign of the Company's employee compensation and benefit packages
to reward productivity improvements and provide incentives which align
employee interests with those of shareholders;
- - the implementation of interactive computer aided design ("ICAD")
technology, aimed at improving design, procurement and fabrication
efficiency; and
- - the centralized management of the Company's worldwide equipment fleet,
aimed at both operating cost reductions and capital savings for the
Company.
Target Global Growth Markets
The Company intends to aggressively pursue business opportunities in
selected key growth markets, such as China, India, Mexico and the former Soviet
Union, on which prior management placed relatively low priority. CB&I intends to
leverage its significant international experience and technological strengths to
expand into these new geographic areas, where it believes that its ability to
rapidly mobilize project management and skilled craft personnel, combined with
its global material supply and equipment logistics capabilities, provides a key
competitive advantage. The developing world is expected to have growing demand
for the type of products and services offered by the Company as energy
development, refining and storage become increasingly important to their
economic progress. The Company is implementing strategic initiatives to seek to
take advantage of these opportunities and aggressively pursue business in both
existing and new geographic markets. The Company believes that its ability to
provide consistent products and services on a timely basis in a global
marketplace will continue to provide it with a competitive advantage.
Improve Financial Controls and Management
Optimizing the Company's resources will require superior controls and
systems, including those which support cost estimating, bidding and project
execution, all of which are key factors in the financial performance of the
Company. The Company believes that successful implementation of new systems,
which are part of the Restructuring Program, will improve the management of
project profitability. The new systems will allow for project economics to be
evaluated on a centralized basis and under various risk and costing assumptions
using global software systems tailored specifically for the Company's
operations. Management intends for nearly all fixed costs to be allocated to
projects and believes that the new systems provide the capabilities to achieve
this goal.
In addition, the Company believes that the development of new financial
controls will improve cash management, return on invested capital, and its
ability to assess risk and returns on contract opportunities.
38
<PAGE>
Pursue Partnering and Strategic Alliances
The Company intends to expand its use of partnering and strategic
alliances with customers and vendors. These relationships can serve as a vehicle
for improvements in quality, productivity and profitability for both parties,
and the Company believes such relationships enhance the predictability of the
Company's revenues. CB&I's existing partnering relationships include several
with major international oil companies. The Company believes that such customers
select CB&I as a preferred supplier to achieve significant cost savings in
building and operating tankage and related systems. The Company seeks to develop
those key strategic alliances in the global marketplace where both parties will
benefit as a result of the alliance.
Industry Overview
The Company competes in the field erected steel plate structures and
related services industry. The primary industries served by the Company and its
competitors are petroleum, petrochemical, chemical, electric and gas utilities,
pulp and paper, and metals and mining, and the major customers include private
owners in these industries as well as governmental entities; engineering,
materials procurement and construction companies servicing these owners and
entities; and other service companies operating in these industries. The
Company's level of activity, as well as the industry's as a whole, depends
primarily on the capital expenditures of its customers for construction. These
capital expenditures are influenced by a variety of factors outside the control
of construction industry participants. For example, in the petroleum and
petrochemical industry, influential factors include current and projected oil
and gas prices; exploration, extraction, production and transportation costs;
the discovery rate of new oil and gas reserves; the sale and expiration dates of
leases and concessions; and local and international political and economic
conditions. The Company believes that the following trends, among others, will
influence the industry in the near and long term:
- the continued industrialization of developing countries is creating
demand for storage facilities for crude oil, refined products and
petrochemicals. Accordingly, many significant terminal and refinery
projects, together with ancillary construction and other associated
projects, are being undertaken in developing countries or regions with
growing energy infrastructure requirements;
- refineries and petrochemical plants built prior to 1985 typically
require more frequent maintenance and modification, and certain of them
are expected to be replaced; and
- recently, relatively high crude oil prices have resulted in
correspondingly strong levels of current and projected capital
expenditures by petroleum and petrochemical companies to explore for,
produce, transport and refine oil and related products.
The Company believes that certain of these trends will result in
projects that meet its bidding criteria and that the Company's global experience
places it in an advantageous position to compete for such projects.
Core Competencies
The Company's core competencies are technological expertise, project
management, global field erection, global procurement relationships and safety
performance. The Company believes that these core competencies enable CB&I to
compete effectively on a global basis.
Technological Expertise
The Company has a history of leadership in technological development
and continues its technology focus in the following areas:
39
<PAGE>
Design Engineering. The Company's design engineers have thorough
knowledge of a broad range of technical standards involving the design, forming
and joining of metal plate structures and their related systems, including
standards established by the American Petroleum Institute, the American National
Standards Institute, the American Society of Testing and Materials, the American
Water Works Association and British Standards. Senior engineers of the Company
serve on numerous code committees where industry standards are developed. Such
engineers have extensive knowledge of and expertise in materials evaluation,
emissions control from storage tanks, fracture mechanics, buckling and fatigue
analysis, product testing and the design of stable structures that can be safely
erected. For its low temperature and cryogenic and flat bottom tank turnkey
terminal projects, the Company uses sophisticated computerized design packages
to optimize plant layouts and process flows. These packages deal with integrated
plant modeling, three-dimensional computer-aided design, pipe network flow,
interactive piping stress and structural analysis, site works and scheduling.
In 1996, the Company implemented an ICAD rules-based design system
which has brought significant cost benefits to the engineering of and
procurement for elevated tanks and is also expected to bring significant
corresponding cost benefits to flat bottom tanks, the Company's largest product
line. The Rules Based Product Definition System is a tool which produces designs
and technical documents for the Company's storage tank and elevated water tank
products. It is based on industry and Company-established proprietary rules
programmed into the system by the Company's senior estimating, product and
technical experts.
Construction. Inherent in the Company's competency in field erection is
its longtime experience in constructability of steel plate structures. Sequences
of erection to maintain structural stability, welding sequences to minimize
stresses and distortion and techniques to optimize crew efficiency are all key
to safe and quality construction of the Company's product lines. Rigging and
heavy lifting are also skill-based activities that enable the Company to perform
complex, heavy work in congested work areas.
In many of its projects, the Company utilizes specially designed custom
erection equipment, such as the S-70 derrick, for constructing the Company's
various products. The Company has extensive knowledge of and expertise in heavy
lift planning and rigging, a core skill in performing refinery turnarounds and
in the construction of field erected pressure vessels.
Metallurgy. The Company has actively participated in the development of
low carbon and alloy steels for metal plate applications throughout its history.
Working with steel suppliers and customer technical groups, steel plate
specifications have been developed, tested and implemented for specific
applications which include: fracture toughness for low temperature storage,
hydrogen cracking resistance for refinery pressure vessels, low hardness
corrosion resistance for storage of petroleum products with sulfur content and
improved weldability under field conditions.
Welding and Quality Assurance. The Company operates an advanced welding
laboratory whose mission has been to insure that welding procedures and
materials provide the proper fusion and hardness for the structures it
constructs. Laboratory studies also enable the Company to design structures
using the latest high-strength and corrosion resistant steels that are suitable
for use in the Company's product lines. The Company is also involved in welding
material evaluation and testing, welding procedure qualification, welding
process evaluation and testing, non-destructive examination, post-weld heat
treatment of both shop-constructed and field-erected structures, and welding
supervisor training.
A corporate quality assurance group oversees internal and external
audits, industry authorizations, ISO 9001 programs, welder certification to the
American Society of Mechanical Engineers ("ASME") Section IX, Non-Destructive
Examination Inspector Certification to Society Non-Destructive Testing TC-IA
Standards, and development of project-specific as well as Company-wide quality
assurance and quality control programs.
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Project Management
A key factor in the Company's success has been its ability to rapidly
mobilize project management and craft personnel, materials, supplies and
equipment virtually anywhere in the world. The Company's strategically located
subsidiaries and regional offices enable it to effectively manage the logistics
of getting equipment, materials, and skilled personnel to a project. Generally,
a high percentage of the Company's skilled craft personnel is local to the
project. The Company manages its work with advanced scheduling tools and is
currently implementing new project management software on a worldwide basis for
further improvement of project cost management and controls.
Global Field Erection
Based on its knowledge of and experience in its industry, the Company
believes it is a leader in global field erection of steel tanks and other steel
plate structures because of its project management and technological expertise.
In addition, the Company believes that its success in this area is enhanced by
its experienced field supervision. The Company recruits, develops and maintains
ongoing training programs for field supervision personnel of many nationalities
around the world. Supervisory personnel generally travel to the Company's
project locations around the world and are kept regularly employed, thus aiding
the Company in achieving its goal of consistent and high quality performance on
all of its projects. Additionally, a high percentage of the Company's skilled
craft personnel are local to the project location and the Company seeks to draw
its pool of future supervisory personnel from its local pools.
Global Procurement Relationships
The Company has established relationships with suppliers throughout the
world. The Company's operating units engage in the global sourcing and
management of job site delivery of the key components in its products, including
fabricated steel plate, piping and valves, welding materials and rotating
equipment.
Safety
The Company's senior management places a high priority on safety, with
numerous accident prevention programs designed and managed by its corporate
safety group. For each of the last seven fiscal years, the Company has improved
its total recordable incident rate from the previous year, as measured by
standards established by the Occupation Safety and Health Administration. These
records have been achieved through prevention-based programs, risk evaluation,
job specific safety training, employee behavior management, incident
investigation and job site safety audits, and supervisory incentive programs
which include accident prevention goals.
Product Lines
The Company offers various product lines within its geographic regions.
These product lines are:
Flat Bottom Tanks. The Company has been designing and constructing flat
bottom tanks since the late 1890s. During 1996, flat bottom tanks accounted for
approximately 37% of the Company's revenues. Some of the Company's first tanks
were built of riveted carbon steel ranging in size from 20 feet to 100 feet in
diameter. Today, welded tanks have been constructed by the Company up to 410
feet in diameter, with a capacity of 1.5 million barrels. These above-ground
storage tanks continue to be sold primarily to customers operating in the
petroleum, petrochemical and chemical industries around the world. This
industrial customer group includes nearly all the major oil and chemical
companies on every continent. In addition, depending on the
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industry and application, flat bottom tanks can be used for storage of crude
oil, refined products such as gasoline, raw water, potable water, chemicals and
a large variety of feedstocks for the manufacturing industry.
The international, industrial marketplace for flat bottom tanks
provides a continued source of sales opportunities for the Company in areas such
as the Middle East, Southeast Asia, the Pacific Rim and Central and South
America. The worldwide storage tank market was estimated by the Company, based
upon a recent report by Hydrocarbon Processing Magazine (the "Hydrocarbon
Report"), to be approximately $1.5 billion per year. The Company believes that
additional market opportunities exist for products of such nature in China,
India, Mexico and the former Soviet Union and other developing nations
throughout the world.
Pressure Vessels. The Company has constructed over 3,500 spheres
including the world's largest sphere at 225 feet in diameter. During 1996,
pressure vessels accounted for approximately 12% of the Company's revenues.
Pressure vessels are built primarily from high strength carbon steel plates
which have been shaped and formed in a fabrication shop to be welded together at
a job site. Pressure vessels, other than spheres, come in a variety of
cylindrical, hemispherical and conical shapes and sizes, some weighing in excess
of 700 tons, with thicknesses in excess of six inches. A number of technological
issues such as design, analysis, welding capabilities, metallurgy, complex
fabrication and specialty erection methods all figure prominently into the
marketing of this product line. Existing customers represent a cross-section of
the petroleum, petrochemical and chemical industries, where process applications
of high pressure and/or temperature are required. Pressure vessels are used in
refineries as storage containers (spheres) as well as process vessels used to
transform crude oil and its various components. They are also used in the
production of synthetic oil from methane gas. The Company has built and tested
vessels in North and South America, Africa, Asia, the Middle East and the
Pacific Rim, and the Company believes that opportunity for growth remains in the
Middle East, Southeast Asia, Central/South America and the Pacific Rim.
Low Temperature and Cryogenic Structures and Systems. The Company is
recognized as a highly capable designer and contractor of low temperature
cryogenic structures and systems. During 1996, low temperature and cryogenic
structures and systems accounted for approximately 9% of the Company's revenues.
These structures are used primarily for the storage of refrigerated gas. The
Company specializes in providing turnkey tanks and systems built from alloy
steel or aluminum with special characteristics to withstand cold temperatures.
Applications extend from low temperature (+30(degree) F to -100(degree) F) to
cryogenic (-100(degree) F to -423(degree) F). Customers in the petroleum,
chemical, petrochemical, natural gas, power generation and agricultural
industries use these systems to store and handle liquid petroleum gas ("LPG"),
propane, propylene, butane, butadiene, anhydrous ammonia, LNG, methane,
ethylene, ethane, oxygen, nitrogen and hydrogen.
Although data on the global market is difficult to obtain, the Company
believes, based on the Hydrocarbon Report, that projects around the world will
provide growth opportunities for sales of low temperature and cryogenic
structures and systems and related products in 1997. The report indicates that
growth in the chemical, petrochemical and gas processing projects should
continue with development especially active in areas such as the Asia/Pacific
region.
Elevated Tanks. The Company has been constructing elevated water
storage tanks since 1894. During 1996, elevated tanks accounted for
approximately 6% of the Company's revenues. Elevated water storage tanks are
constructed primarily of bent, formed and shaped carbon steel plates welded
together on site. They range in size from 25 thousand gallons to three million
gallons in capacity. The Company's estimated share of the U.S. municipal potable
water utilities market, over the three-year period ended December 31, 1996, was
an aggregate of approximately 33%, and the market size is estimated by the
Company to have been approximately $120 million in each of such years.
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The Company's improved designs and automatic welding capabilities
present additional opportunities for this product line's growth. Shifting
population centers throughout the U.S. as well as increases in global population
present additional growth opportunities for the Company with this product line.
See "--Research and Development."
Specialty and Other Structures. Since the Company's inception, it has
been designing and fabricating special plate structures. During 1996, specialty
and other structures accounted for approximately 18% of the Company's revenues.
Examples of these special plate structures include research and test facilities
for testing prototype spacecraft and rocket engines and vacuum testing
satellites before launch; hydro-electric structures such as penstocks; spiral
cases and draft tubes; ship components; and offshore oil storage structures.
These structures are typically made from bent and formed plate materials (carbon
steel, stainless and exotic steel and aluminum) and are shipped as fabricated
components to their final location for field welding and assembly. The Company
has performed design, constructability analysis, complex fabrication, welding
and specialized erection in supplying these special projects for industrial,
utility and governmental customers throughout the world, including customers in
the United States, South Africa and Saudi Arabia.
Repairs and Modifications. Repair, maintenance and modification
services are performed primarily on flat bottom tanks and pressure vessels.
During 1996, repairs and modifications accounted for approximately 11% of the
Company's revenues. Demand for repair, maintenance and modification services is
driven primarily by the natural aging of tanks and the need to comply with
environmental regulations. Pressure vessels and their associated systems
function in conditions and environments where they must be serviced on a more
routine basis. This work is often performed as part of a turnaround and is
handled as a different product/service line due to its unique requirements.
Other product lines occasionally require this type of work as well. The Company
has focused on providing these services primarily in the U.S. As other
structures throughout the world age and require repair services, the Company
believes it will have additional growth opportunities in areas that have a large
concentration of steel storage tanks and pressure vessels, such as South
America, the Middle East, Australia, and Asia Pacific.
Customers in the petroleum, chemical, petrochemical and water
industries generally require these types of services. Since the Company has
built a large number of the original structures requiring standard
service/repair, the Company believes it has an advantage over its competitors to
obtain this service and repair work when it becomes available.
Turnarounds. The Company has provided this service since the early
1950s. During 1996, turnarounds accounted for approximately 7% of the Company's
revenues. A turnaround is a logistically planned shut down of a refinery or
other process unit for repair and maintenance of its equipment and associated
systems. The work is usually scheduled on a multi-shift, seven day per work week
basis. Personnel, materials, and equipment must come together at precisely the
right time to accomplish this manpower intensive operation. The product line
depends upon low cycle time and unique construction procedures. The Company
currently offers this service to its customers in the petroleum, petrochemical
and chemical industries located in North and South America and the Caribbean.
In the international marketplace, areas of growth for this product line
have been identified in South America, Southeast Asia, Africa and the Middle
East.
Geographic Markets
The Company operates in diverse global markets. Approximately 49%, 50%
and 55% of its revenues for fiscal years 1995 and 1996 and for the first nine
months of 1997, respectively, and 37%, 61% and 63% of new business taken for the
same periods, were derived from operations outside of North America. The
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Company's operations are conducted through regional sales and operations
offices, fabrication facilities, and warehouses. The Company also owns and
leases a number of field construction offices and equipment maintenance centers
located throughout the world. The Company believes that it is viewed as a local
contractor in a number of the regions it services by virtue of its long-term
presence and participation in those markets, including Venezuela, Canada, Saudi
Arabia, South Africa and Indonesia. Historical revenue contributions from the
four major geographic regions where the Company operates have been as follows:
Revenues 1994 1995 1996
---- ---- ----
(dollars in millions)
North America $416 $318 $329
Central and South America 119 54 91
Europe, Africa, Middle East 113 111 110
Asia Pacific Area 115 139 134
---- ---- ----
$763 $622 $664
==== ==== ====
For a discussion of certain risks associated with international
operations and with currency fluctuations, see "Risk Factors--Risks of
International Operations."
Customers
The Company serves a wide range of industries where product and service
needs match well with the Company's core competencies in metal plate forming and
joining. The Company believes that its metallurgy and welding expertise, field
erection capability and highly-skilled mobile work force differentiate the
Company from its competitors. These industries include petroleum, petrochemical,
chemical, electric and gas utilities, pulp and paper, and metals and mining. The
Company's customers include private industrial owners as well as governmental
entities; engineering, procurement and construction companies servicing these
owners and entities; and other service companies operating in these industries.
New business taken by industry category for the year ended December 31, 1996 was
as follows:
Percentage of
Industry New business taken total
- -------- ------------------ ----------
(dollars in millions)
Petroleum................................ $362.7 52.8%
Petrochemical............................ 108.3 15.8
Governmental entities.................... 65.1 9.5
Chemical................................. 51.1 7.4
Metals and mining........................ 49.6 7.2
Electric and gas utilities............... 9.6 1.4
Pulp and paper........................... 3.4 0.5
Other.................................... 37.4 5.4
----- ----
Total.................................... $687.2 100.0%
====== ======
The Company is not dependent on any single customer on an ongoing basis
and the loss of any single customer would not have a material adverse effect on
the business; however, from time to time a particular contract or customer may
account for a significant portion of the Company's backlog.
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Contracting Methods
The Company generally uses one of three types of contracting approaches
depending upon the type of work, the degree of workscope definition and the
degree of risk in the project. These methods may be used for competitive
situations or negotiated contracts.
Fixed or Lump Sum Pricing. The Company's expertise in performing its
design and construction services enables it to typically contract over 75% of
its work on a fixed price or lump sum basis, using price adjustment clauses and
where appropriate, cost escalation and contingency factors in its pricing.
Cost Reimbursable Pricing. In instances where the degree of definition
of the workscope, schedule requirements or the evaluation of risk does not allow
for the use of fixed or lump sum pricing, the Company may choose to contract
only on a cost reimbursable basis. Contracts of this nature may have cost
incentive provisions.
Target Fixed or Lump Sum Pricing. This approach is often used in
connection with partnering arrangements. The Company and the customer establish
a target, based on the parties' estimate of the total installed cost of a
project. Cost savings or overruns are then shared by the Company and the
customer, thereby encouraging total alignment of both parties with respect to
cost-effective completion of the project.
Backlog
New business taken represents the value of new project commitments
received by the Company during a given period. Such commitments are included in
backlog until work is performed and revenue recognized or until cancellation.
Backlog may also fluctuate with currency movements. The Company's backlog was
approximately $559.0 million at September 30, 1997, approximately $485.7 million
at December 31, 1996, approximately $470.2 million at December 31, 1995 and
approximately $323.3 million at December 31, 1994. Approximately 70% of the
backlog as of December 31, 1995 was forecasted to be completed during 1996.
Approximately 78% of the backlog as of December 31, 1996 currently is forecasted
to be completed during 1997. For the three months ended September 30, 1997 new
business taken was $173.1 million, a 24% increase over the third quarter of
1996. New business taken for the nine months ended September 30, 1997 was $561.1
million as compared to $474.3 million as of September 30, 1996.
Competition
Management believes the Company can compete effectively for new
construction projects around the world and that it is a leading competitor in
its markets. Competition is based primarily on performance and the ability to
provide the design, engineering, fabrication, project management and
construction capabilities required to complete projects in a timely and
cost-efficient manner. Contracts are usually awarded on a competitive bid basis.
Price, quality, reputation and timeliness of completion are the principal
competitive factors within the industry, with price being one of the most
important factors. In addition, the Company believes that it is viewed as a
local contractor in a number of the regions it services by virtue of its
long-term presence and participation in those markets, including Venezuela,
Canada, Saudi Arabia, South Africa and Indonesia. This may translate into a
competitive advantage through knowledge of local vendors and suppliers, as well
as of local labor markets and supervisory personnel. Several large companies
offer metal plate products which compete with some, but not all, of those
offered by the Company. Some companies compete with some of the Company's
product lines while also offering other product lines. Local and regional
companies offer competition in one or more geographical areas but not in other
areas where the Company operates. The Company generally does not compete with
major providers of general engineering, procurement and construction services,
such as Fluor Corporation and Bechtel Corporation. Because reliable market share
data are not available, it is
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<PAGE>
difficult to estimate the Company's exact position in the industry, although the
Company believes it ranks among the leaders in the field.
Research and Development
Throughout its history, the Company has conducted extensive research
programs in a wide variety of areas. The Company has studied stability and
buckling of shell structures, emission control methods for aboveground storage
tanks, advanced automated techniques for the application of polyurethane foam
insulation to storage tanks, and extensive testing of the physical properties of
the non-metallic insulating materials used on low temperature and cyrogenic
storage tanks. In addition, the Company has studied water and wastewater
treatment systems and advanced mixing systems for waste treatment digesters. The
Company's physical research activities have led to patented systems for the
removal of carbon dioxide during liquefaction of liquefied natural gas and also
for unique freeze processes for juice concentration, wastewater treatment,
air-conditioning load management, and desalinization.
The Company continues to develop an in-depth knowledge of the many
materials it uses. The Company has acquired knowledge and expertise about the
effects that manufacturing processes, such as forming, welding, heat treating
and machining, have on the properties of metals. This activity has helped to
enhance the Company's ability to design, manufacture and provide field
construction of steel plate structures and related process facilities. The
Company has an ongoing program to develop and improve technically advanced metal
plate welding and erection equipment. This specialized equipment and systems
improves product quality and construction efficiencies.
Expenditures for research and development activities amounted to
approximately $0.7 million, $2.5 million and $3.6 million in 1996, 1995 and
1994, respectively.
Raw Materials
The principal raw materials used by the Company are metal plate and
structural steel. These materials are available from numerous U.S. and
international suppliers. The Company does not anticipate having difficulty in
obtaining adequate amounts of raw materials in the forseeable future.
Employees
As of September 30, 1997, the Company employed approximately 6,400
people. Approximately 50% of the Company's employees are not U.S. citizens,
reflecting the global nature of the Company's business. The Company believes
that as of December 31, 1997, approximately 430 of its employees were union
members. The total number of employees of the Company (and the number of union
members in such group) varies significantly based on the scope, nature and
volume of the work flow at any given time. Included in this group are
approximately 1,500 salaried personnel located around the world who are
primarily engaged in sales, engineering, construction and administrative
activities. Also included are approximately 800 skilled craftsmen in the U.S.
who, while engaged on a job by job basis, tend to build a career with CB&I by
moving from project to project. The remainder of the Company's workforce
consists of hourly personnel, whose number fluctuates directly in relation to
the amount of business performed by the Company.
Facilities
The Company owns or leases the properties used to conduct its business.
The capacities of these facilities depend upon the composition of products being
fabricated and constructed. As the product composition is constantly changing,
the extent of utilization of these facilities cannot be accurately stated. The
Company
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<PAGE>
believes these facilities are adequate to meet its current requirements. The
following list summarizes the principal properties:
<TABLE>
<CAPTION>
Location Type of Facility Interest
- -------- ---------------- --------
<S> <C> <C>
Fabrication plant, warehouse, engineering,
Houston, Texas.......................................operations and administrative office Owned
Engineering, operations and
Plainfield, Illinois.................................administrative office Owned
Kankakee, Illinois (1)...............................Fabrication plant, warehouse and office Owned
Warehouse and operations and
Fort Saskatchewan, Canada............................administrative office Owned
Engineering, operations and
Dubai, United Arab Emirates..........................administrative office Leased
Puerto Ordaz, Venezuela..............................Fabrication facility and warehouse Leased
Kwinana, Australia...................................Fabrication facility, warehouse, and office Leased
Ao Udom, Thailand....................................Fabrication facility Leased
Batangas, Philippines................................Fabrication facility and warehouse Leased
Cilegon, Indonesia...................................Fabrication plant and warehouse Leased
Al Aujam, Saudi Arabia...............................Fabrication plant and warehouse Leased
Jebel Ali, United Arab Emirates......................Warehouse Leased
Secunda, South Africa................................Fabrication plant and warehouse Leased
</TABLE>
- -----------------
(1) The Company discontinued fabrication operations at the Kankakee facility
during the first half of 1997. The benefits of this discontinuance are
included as part of the Restructuring Program.
The Company also owns or leases a number of sales, administrative and
field construction offices, warehouses and equipment maintenance centers
strategically located throughout the world.
History
The Company was founded in 1889 as a midwestern bridge building
company. The Company followed the paths of the railroads as new communities
required special structures such as elevated steel water storage tanks.
During the early 1920s, the Company quickly established itself as a
leading supplier to the petroleum industry, building large storage tanks and
special purpose structures. The first floating roof tank, designed to
47
<PAGE>
conserve vapors and to eliminate fire hazards, was successfully tested and
introduced by the Company to the oil industry in 1923. Since 1923, the Company
has constructed over 20,000 floating roof tanks throughout the world. The
Company promoted the use of larger tanks, wider plates, and better joint
designs. The Company's Hortonspheres, designed for the storage of volatile
liquids under high pressure, were first built by the Company during 1923 and
were patented in 1924.
By the early 1930s, the Company had begun to focus on the design and
engineering of formed, steel plate structures and on innovative construction
equipment and procedures. Field welding of large tanks was successfully
pioneered by the Company and the Company extended its expertise to other steel
plate products such as penstocks, stacks and pressure vessels. In 1930, the
Company's first fractionating columns were built. The first all-welded steel
penstock in the U.S. was constructed by the Company in 1935.
In the 1940s the Company constructed its first Watersphere, an elevated
tank that stored 100,000 gallons of water. Structures for the aluminum and
chemical industries, for blast furnaces and for high octane gasoline and
synthetic rubber plants were being built by the Company. The Company's welding
lab, founded in 1945, has worked closely with Company engineers to ensure that
the Company maintains its technical performance levels.
Internationally, the Company began operations shortly after World War
I. Contracts were taken in Canada and Japan in 1919; China in 1921; Venezuela,
Indonesia and Australia in 1927; and in multiple European locations throughout
the 1920s. By the late 1940s, the Company was operating throughout Europe, the
Middle East, Asia and Latin America.
By the mid 1950s, the Company had built the world's largest
Hortonsphere, a vessel weighing seven million pounds with a diameter of 225
feet. The Company built its first double-walled liquid natural gas tank. The
Company also announced a technological breakthrough with its development of the
Hortonclad, a composite metal having an integral and continuous bond as a result
of research and development in the field of vacuum metallurgy. It was also in
the early 1950s that the Company developed its first automatic girth welding
equipment.
By 1960, the Company had established a process engineering capability
for the design and installation of systems associated with turnkey refrigeration
and storage of ammonia, liquid petroleum gas, liquid natural gas, and other
products requiring storage at low or cyrogenic temperatures. Techniques
developed by the Company in field automatic welding, field stress relieving,
field machining and ultrasonic testing, as applied to the onsite assembly of
heavy wall petroleum processing vessels and nuclear reactors, allowed the
Company's customers to avoid shipping restrictions on size and weight which had
limited plant designs in both industries. The Company actively built vacuum and
testing chambers for the space industry during this decade.
Fabrication and construction projects for the burgeoning nuclear
industry dominated the marketplace of the mid 1970s. Additionally, Saudi Arabia
and the Middle East provided growth opportunity for the Company. In the U.S.,
the Company's first application of horizontal foamed-in-place insulation on a
low-temperature tank was completed, and the Company completed a substantial
amount of tankage for the Trans-Alaskan Pipeline Project. During the late 1970s,
the Company built the two largest oil tanks in the U.S. each with an 800,000
barrel capacity. The Company's largest petroleum storage tank, at 1.5 million
barrels and 410 feet in diameter, is in Yanbu, Saudi Arabia, which the Company
believes to be the largest such tank in the world.
By 1980, the Company had fabricated and erected its first cryogenic,
transonic wind tunnel for a U.S. military facility. In that decade, the Company
also built the support tower for the largest (to date) wind powered generator. A
roof insulating machine, developed at the Company's research and development
facility,
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<PAGE>
was introduced. During this time frame, the Company also erected its first two
million gallon Waterspheroid. Internationally, the Company built a 55,000 gallon
per-day solar energy water desalination test facility in Saudi Arabia. This
project marked the first use of the Company's indirect freeze desalination
system.
During the 1990s, the Company has continued to expand its global
presence. The Company established formal partnering agreements and closer
alliances with many customers. The construction of turnkey low temperature and
cryogenic facilities for the liquefaction, storing and send out of liquid
natural gas, ethylene, ammonia, butane, propane and similar products continued
to be a source of projects. The Company completed various special structures,
including a facility for testing solid fuel rocket motors and a large cavitation
channel for testing the propulsor power and acoustics of large ship models.
Governmental Regulations
General
Many aspects of the Company's operations are subject to government
regulations in the countries in which the Company operates, including those
relating to currency conversion and repatriation, taxation of its earnings and
earnings of its personnel, and its use of local employees and suppliers. In
recent years demand from the worldwide petroleum and petrochemical industry has
been the largest component of the Company's revenues, and the Company is
therefore affected by changing taxes, price controls and laws and regulations
relating to the petroleum and petrochemical industries generally. The Company's
operations are also subject to the risk of changes in national, federal, state
and local laws and policies which may impose restrictions on the Company,
including trade restrictions, which could have a material adverse effect on the
Company's business, financial condition and results of operations. Other types
of government regulation which could, if enacted or implemented, materially and
adversely affect the Company's operations include expropriation or
nationalization decrees, confiscatory tax systems, primary or secondary boycotts
directed at specific countries or companies, embargoes, import restrictions or
other trade barriers, mandatory sourcing rules and high labor rate and fuel
price regulation. The Company cannot determine to what extent future operations
and earnings of the Company may be affected by new legislation, new regulations
or changes in or new interpretations of existing regulations.
Environmental
The Company's operations and properties are affected by numerous
national, federal, state and local environmental protection laws and
regulations, such as those governing discharges into air and water, as well as
handling and disposal of solid and hazardous wastes. The requirements of these
laws and regulations have tended to become increasingly stringent, complex and
costly to comply with. This is true for both the Company's United States
operations and its non-U.S. facilities, at which operations historically have
been conducted generally pursuant to less stringent environmental laws and
regulations than exist in the United States. In addition, the Company may be
subject to claims alleging personal injury or property damage as a result of
alleged exposure to hazardous substances. The Company is not aware of any
non-compliance with environmental laws that could have a material adverse effect
on the Company's business or operations. However, while the Company has an
environmental compliance program in place, it cannot guarantee that any
non-compliance, if it exists, would not have a material adverse effect on the
Company. In addition, there can be no assurance that environmental laws,
regulations or their interpretation will not change in the future in a manner
that could materially and adversely affect the Company.
Certain environmental laws, such as CERCLA, provide for strict and
joint and several liability for investigation and remediation of spills and
other releases of hazardous substances. Such laws may apply to conditions at
properties presently or formerly owned or operated by an entity or its
predecessors, as well as to
49
<PAGE>
conditions at properties at which wastes or other contamination attributable to
an entity or its predecessors come to be located. The Company's facilities have
operated for many years, and substances which are or might be considered
hazardous were used and disposed of at some locations, which will or may require
the Company to make expenditures for remediation. In addition, the Company has
agreed to indemnify parties to whom it has sold facilities for certain
environmental liabilities arising from acts occurring before the dates on which
those facilities were transferred. However, the Company does not anticipate
incurring material capital expenditures for environmental controls or for
investigation or remediation of environmental conditions during the current or
succeeding fiscal year. Nevertheless, the Company can give no assurance that it,
or entities for which it may be responsible, will not incur liability in
connection with the investigation and remediation of facilities it currently
owns or operates (or formerly owned or operated) or other locations in a manner
that could materially and adversely affect the Company.
Along with multiple other parties, a subsidiary of the Company is
currently identified as a potentially responsible party (a "PRP") under CERCLA
and analogous state laws at several sites as a generator of wastes disposed of
at such sites. While CERCLA imposes joint and several liability on responsible
parties, liability for each site is likely to be apportioned among the parties.
In addition, a subsidiary of the Company is currently identified as a PRP at
several sites in connection with its position as a former corporate shareholder
of a wood treating company. The Company believes that an estimate of the
possible loss or range of possible loss relating to such matters cannot be made.
While it is impossible at this time to determine with certainty the outcome of
such matters and although no assurance can be given with respect thereto, based
on information currently available to the Company and based on the Company's
belief as to the reasonable likelihood of the outcomes of such matters, the
Company does not believe that its liability, if any, in connection with these
sites, either individually or in the aggregate, will have a material adverse
effect on the Company's business, financial condition and results of operations.
See "--Legal Proceedings and Insurance."
The Company's business sometimes involves working around and with
volatile and hazardous substances, which exposes it to risks of liability for
personal injury or property damage caused by any release, spill, or other
accident involving such substances that occur as a result of the conduct of its
business. The Company has been and may continue to be unable to obtain adequate
environmental damage or pollution insurance at a reasonable cost. Although the
Company maintains general liability insurance, this insurance is subject to
coverage limitations, deductibles and exclusions and may exclude coverage for
losses or liabilities relating to pollution damage. Therefore, there can be no
assurance that liabilities that may be incurred by the Company will be covered
by its insurance policies, or if covered, that the dollar amount of such
liabilities will not exceed the Company's policy limits. Even a partially
uninsured claim, if successful and of significant magnitude, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
It is possible that environmental liabilities in addition to those
described above may arise in the future. Although the Company's facilities in
the United States and certain other jurisdictions operate under stringent
environmental laws, certain of its other operations, including those in the
Middle East, South America, and Southeast Asia, have not been so regulated. As a
result, the Company could incur significant future liability should the laws of
the jurisdictions in which the Company operates change to impose additional
environmental remedial obligations. The precise costs associated with these or
other future environmental liabilities are difficult to predict at this time.
The Company believes that in recent years it has taken a proactive
approach to management of environmental liabilities and minimization of
environmental impacts. The Company's program includes, among other things,
formal environmental training for employees and an auditing program to assist
the Company's facilities in complying with environmental regulations and
identifying potential environmental liabilities. Furthermore, the Company has
implemented management procedures designed to reduce the generation of hazardous
waste and the on-site use and storage of hazardous chemicals and to prevent
exposure to such
50
<PAGE>
substances. The Company believes the continued development and maintenance of
its environmental program will continue to reduce the potential for
unanticipated expenditures for environmental remediation and compliance.
Legal Proceedings and Insurance
A subsidiary of the Company was a minority shareholder from 1934 to
1954 in a company which owned or operated at various times several wood treating
facilities at sites in the United States, some of which are currently under
investigation, monitoring or remediation under various environmental laws. With
respect to some of these sites, the Company has been named a PRP under CERCLA
and similar state laws. Without admitting any liability, the Company has entered
into a consent decree with the federal government regarding one of these sites
and has had an administrative order issued against it that could impose cleanup
obligations on the Company with respect to another. There can be no assurance
that the Company will not be required to clean up one or more of these sites
pursuant to agency directives or court orders. The Company has been involved in
litigation concerning environmental liabilities, which are currently
undeterminable, in connection with certain of those sites. The Company denies
any liability for each site and believes that the successors to the wood
treating business are responsible for the costs of remediation of the sites.
Without admitting any liability, the Company has reached settlements for
environmental clean-up at most of the sites. In July 1996, a judgment in favor
of the Company was entered in the suit Aluminum Company of America v. Beazer
East, Inc. v. Chicago Bridge & Iron Company, instituted in January 1991 before
the U.S. District Court for the Western District of Pennsylvania. On September
2, 1997, the U.S. Court of Appeals for the Third Circuit affirmed the judgment
in favor of the Company. The Company believes that it is unlikely that there
will be any further appeals, but f so, it is reasonably likely that it will be
successful in any further appeal and that the costs associated with settlements
and any remaining potential liability will not be material, and that other
responsible parties will be available to pay their share of remediation costs
and settlement obligations with respect to the sites. However, there can be no
assurance that the Company will be successful in upholding the judgment in its
favor, that other parties will fulfill their remediation and settlement
obligations, or that such settlements and any remaining potential liability will
not have a materially adverse effect on its business, financial condition and
results of operations. The Company believes that an estimate of the possible
loss or range of possible loss relating to such matters cannot be made.
In 1991, CBI Na-Con, Inc. ("CBI Na-Con"), a subsidiary of the Company,
installed a catalyst cooler bundle at Fina Oil & Chemical Company's ("Fina")
Port Arthur, Texas refinery. In July of 1991, Fina determined that the catalyst
cooler bundle was defective and had it replaced. Fina is seeking approximately
$20 million in damages for loss of use of Fina's catalyst cracking unit and the
cost of replacement of the catalyst cooler bundle. On June 28, 1993, Fina filed
a complaint against CBI Na-Con before the District Court of Harris County, Texas
in Fina Oil & Chemical Company v. CBI Na-Con, Inc. et al. The Company denies
that it is liable. The Company believes that an estimate of the possible loss or
range of possible loss cannot be made. While the Company believes that the
claims are without merit and/or the Company has valid defenses to such claims
and that it is reasonably likely to prevail in defending against such claims,
there can be no assurance that if the Company is finally determined to be liable
for all or a portion of any damages payable, that such liability will not have a
materially adverse effect on the Company's business, financial condition and
results of operations.
In addition to the above lawsuits, the Company is a defendant in other
lawsuits arising in the normal course of its business. The Company believes that
an estimate of the possible loss or range of possible loss relating to such
matters cannot be made. While it is impossible at this time to determine with
certainty the ultimate outcome of these other lawsuits, and although no
assurance can be given with respect thereto, based on information currently
available to the Company and based on the Company's belief as to the reasonable
likelihood of the outcomes of such matters, the Company's management believes
that adequate provisions have been made for probable losses with respect thereto
as best as can be determined at this time and that the ultimate
51
<PAGE>
outcome, after provisions therefor, will not have a material adverse effect,
either individually or in the aggregate, on the Company's business, financial
condition and results of operations. The adequacy of reserves applicable to the
potential costs of being engaged in litigation and potential liabilities
resulting from litigation are reviewed as developments in the litigation
warrant. See Note 7 to each of the audited Consolidated Financial Statements
included elsewhere in this Prospectus.
Furthermore, construction and heavy equipment involve a high degree of
operational risk. Natural disasters, adverse weather conditions and operator
error can cause personal injury or loss of life, severe damage to and
destruction of property and equipment and suspension of operations. Litigation
arising from such an occurrence may result in the Company being named as a
defendant in lawsuits asserting substantial claims. The Company maintains risk
management, insurance and safety programs that seek to mitigate the effects of
loss or damage. Such programs have generally resulted in favorable loss ratios
and cost savings.
See "Risk Factors--Operating Risks."
52
<PAGE>
CERTAIN TRANSACTIONS; RELATIONSHIP WITH PRAXAIR
In the first quarter of 1996 Praxair acquired all of the outstanding
common stock of Industries in order to acquire the business of Liquid Carbonic
Industries Corporation. At that time, Praxair announced its intention to divest
the businesses of Industries that were not strategic to Praxair, including the
Company. Industries merged into Praxair on December 19, 1996. In April 1997,
Praxair sold 11,045,941 Common Shares, representing approximately 88% of the
Common Shares outstanding on the date of such sale, in the Initial Common Share
Offering. As of the date of this Prospectus, the 545,941 Common Shares owned by
the Selling Shareholder represented approximately 4.4% of the outstanding Common
Shares. If all of the Common Shares covered hereby are sold, the Selling
Shareholder would own no Common Shares.
Separation Agreement
The Company has entered into agreements (collectively, the "Separation
Agreement") with Praxair fixing the Company's on-going responsibility for
employee benefit matters, goods and services, access and retention of records,
technology and intellectual property rights, certain indemnification
arrangements and other miscellaneous matters and providing that Praxair may
continue to provide certain credit guarantees and letters of credit which
benefit the Company and will provide certain pension related services and the
Company will provide Praxair with certain environmental and pension related
services. Pursuant to the Separation Agreement, subject to certain exceptions,
the Company assumed and became solely responsible for all known and unknown
past, present and future claims and liabilities of any nature, including without
limitation relating to environmental, health, safety, personal injury,
contractual and product liability matters (collectively, "Liabilities") arising
out of the operations of the Company, its subsidiaries, any other entities in
which any of them hold or held any ownership interest and, as to liabilities
arising prior to the Reorganization, Old CBIC (the "CBI Companies"), and the
Company agreed to indemnify Praxair and its subsidiaries and affiliates from all
such Liabilities. Pursuant to the Separation Agreement, subject to certain
exceptions, Praxair assumed and became solely responsible for all Liabilities
arising out of the operations of Praxair, its subsidiaries and any other
entities in which any of them hold or held any ownership interest (other than
the CBI Companies), and Praxair agreed to indemnify the Company and its
subsidiaries and affiliates from all such Liabilities.
Under the Separation Agreement, the Company retained certain potential
liabilities with respect to the operations of three former subsidiaries, with
respect to periods when such entities were subsidiaries of the Company through
January 31, 1997, up to the Company's self-retained portion of its insurance
policies during such periods. In addition, the Separation Agreement placed
financial responsibility with the Company for the engineering and construction
businesses of Liquid Carbonic Industries Corporation in Argentina upon its
transfer to the Company.
Under the Separation Agreement, the Company has agreed to use its best efforts
to eliminate, on or before December 31, 1997, Praxair's obligations under the
credit guarantees given by Praxair and letters of credit obtained by Praxair
which benefit the Company. Until December 31, 1997, the Company will pay Praxair
a fee of 1% per annum of the amount of such guarantees outstanding. Effective
January 1, 1998, such fee will equal 2% per annum of such amount. As of
September 30, 1997, guarantees subject to this arrangement in the amount of $58
million were outstanding. Also, approximately $22.5 million letters of credit
provided by Praxair were outstanding at September 30, 1997 relating to the
Company's insurance program and $36 million of performance bonds are guaranteed
by Praxair.
Corporate Services
Industries and Praxair have provided in the past certain support
services to the Company including legal, finance, tax, human resources,
information services and risk management. Charges for these services were
allocated by Industries and Praxair to the Company based on various methods
which the Company believes reasonably approximate the actual costs incurred. The
allocations recorded by the Company for these
53
<PAGE>
corporate services in the accompanying consolidated income statements were $4.7
million for the year ended December 31, 1996. The amounts allocated by
Industries or Praxair are not necessarily indicative of the actual costs which
may have been incurred had the Company operated as an entity unaffiliated with
Industries or Praxair. However, the Company believes that the allocation is
reasonable and in accordance with the Securities and Exchange Commission's Staff
Accounting Bulletin No. 55. See "Risk Factors--Status as Independent Entity" and
"--Separation Agreement."
Corporate Reorganization
Prior to the consummation of the Initial Common Share Offering, the
Selling Shareholder and certain of its subsidiaries effected the Reorganization
whereby (i) the shares of substantially all of Old CBIC's non-U.S. subsidiaries
were transferred by dividend to its parent corporation, Bridge Holdings, and
contributed to CBICBV in exchange for newly issued common shares of CBICBV; (ii)
the shares of substantially all of Old CBIC's U.S. subsidiaries were transferred
by dividend to Bridge Holdings and contributed to CBIC in exchange for newly
issued common stock of CBIC; (iii) Bridge Holdings contributed the shares held
by it of each of CBIC and CBICBV to the Issuer in exchange for additional Common
Shares of the Issuer; and (iv) CBIC assumed any remaining assets and liabilities
of Old CBIC. After the Reorganization and prior to the consummation of the
Initial Common Share Offering, Bridge Holdings was merged into the Selling
Shareholder such that the Selling Shareholder became the direct owner of all of
the then outstanding Common Shares of the Issuer.
Tax Disaffiliation Agreement
The Company and Praxair have entered into a tax disaffiliation
agreement (the "Tax Disaffiliation Agreement") relating to various tax matters
including the allocation of liabilities and credits relating to periods before
the completion of the Reorganization. In particular, the Company will indemnify
Praxair for its allocable share of liabilities for non-income taxes arising with
respect to periods prior to the Reorganization and income taxes arising with
respect to periods prior to the Reorganization based on, among other things, the
subsequent disallowance of research and development credits claimed by the
Company for past periods or of other tax benefit items of the Company for past
periods to the extent that such other tax benefit items are available to reduce
the taxes of the Company for any period after the Reorganization.
Benefits Disaffiliation Agreement
The Company and Praxair have entered into an employee benefits
disaffiliation agreement (the "Benefits Agreement") which became effective upon
consummation of the Initial Common Share Offering, relating to various employee
benefits matters including the allocation and assumption by the parties of
existing liabilities, and cross-indemnifications relating to such allocation and
assumption of liabilities. Among other matters, the Benefits Agreement relates
to defined benefit pension plan and retiree health care and life insurance
obligations. The principal non-contributory tax qualified defined benefit
pension plan in which employees of the Company participated prior to the Initial
Common Share Offering (the "CBI Pension Plan") covered most U.S. salaried
employees. Old CBIC's portion of the net pension cost for the CBI Pension Plan
was $4.4 million in 1996. Regular benefit accruals under the CBI Pension Plan
for current Company employees were discontinued as of December 31, 1996, except
for certain increases described under "Management -- Compensation and Benefits
- -- Other Executive Compensation Programs." The Company's obligations with
respect to various CBI Pension Plan funding requirements and expenses were fixed
at $17.3 million as of December 31, 1996, by agreement between the Company and
Praxair. This obligation is payable by the Company ratably to Praxair over a
twelve-year period beginning December 1, 1997, with interest at 7.5%.
54
<PAGE>
Effective January 1, 1997, the Company terminated its participation in
the post retirement health care and life insurance benefit plans sponsored by
Praxair. The Company's obligations with respect to existing retirees under these
plans was fixed at $21.4 million as of December 31, 1996, by agreement between
the Company and Praxair. This obligation is payable ratably to Praxair over a
twelve-year period beginning December 1, 1997, with interest at 7.5%. The future
obligation for active Company employees under these plans, which amounted to
$8.5 million as of December 31, 1996, has been assumed by the Company.
Registration Rights Agreement
Praxair has the right under a registration rights agreement (the
"Registration Rights Agreement") to request an unspecified number of additional
registrations under the Securities Act for the sale of all or a portion of the
Common Shares held by the Selling Shareholder or its transferees (the
"Registrable Securities"), as well as the right to include such shares in all
registration statements filed by the Issuer under the Securities Act for the
sale of shares solely for cash by the Issuer (other than certain registration
statements relating to the registration of shares for employee plans (other than
the Management Plan) or for dividend reinvestment plans). The Common Shares
registered pursuant to the Registration Statement of which this Prospectus is a
part are being registered pursuant to the Registration Rights Agreement. In the
Registration Rights Agreement, the Issuer has agreed to indemnify Praxair and
any transferee in respect of certain liabilities, including liabilities under
the federal securities laws. Requests for additional registrations of
Registrable Securities must cover Registrable Securities in the amount of 5% of
the Common Shares then outstanding which are not Management Plan Shares or any
lesser percentage if such percentage represents all outstanding Registrable
Securities.
Loans to Executive Officers and Other Transactions with Management
On January 7, 1993, an affiliate of the Company made a loan to Thomas
L. Aldinger. The loan was fully repaid on February 26, 1996. The loan bore
interest at 4.75%. The largest amount outstanding at any time during 1996
(including principal and interest) was $153,310. The loan was a home mortgage
loan made in connection with Mr. Aldinger's transfer from the Company's London,
England office to Illinois.
Glenn Group LLC, a consulting company in which Gerald M. Glenn is a
principal, received fees of $172,500 from Praxair in 1996 for consulting
services rendered prior to his employment by the Company.
55
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table furnishes information, as of November 1, 1997 and
immediately following the consummation of the Common Share Offering (assuming
that all of the Common Shares covered hereby are sold in such offering), with
respect to the number and percentage of Common Shares beneficially owned by (i)
each supervisory director of the Issuer and each executive officer of CBIC and
CBICBV (the Issuer has no executive officers), (ii) the Selling Shareholder and
(iii) all supervisory directors of the Issuer and all executive officers of CBIC
and CBICBV as a group. The Company is not aware of any beneficial owner of more
than 5% of the outstanding Common Shares who has filed a report with the
Commission.
<TABLE>
<CAPTION>
Before the Offering of All After the Offering of All
Common Shares Covered Hereby Common Shares Covered Hereby
------------------------------------- --------------------------------
Shares Shares
Name and Address of Beneficially Percent of Shares Beneficially Percent of Shares
Beneficial Owner Owned Outstanding Owned(1) Outstanding(1)
- ---------------------------------- ---------------- -------------------- -------------- -------------------
<S> <C> <C> <C> <C>
Praxair, Inc................... 545,941 4.4% 0 0%
39 Old Ridgebury Road
Danbury, CT 06810-5113
Gerald M. Glenn................ 463,035 3.7% 463,035 3.7%
Chairman of the Supervisory
Board of the Issuer, President
and Chief Executive Officer of
CBIC, Managing Director of
CBICBV
Thomas L. Aldinger............. 110,298 * 110,298 *
Vice President of CBIC,
Managing Director of CBICBV
Stephen M. Duffy............... 18,383 * 18,383 *
Vice President of CBIC
Timothy J. Wiggins............. 110,298 * 110,298 *
Vice President of CBIC,
Managing Director of CBICBV
Robert H. Wolfe................ 36,766 * 36,766 *
Secretary of the Issuer, Vice
President, General Counsel and
Secretary of CBIC
Jerry H. Ballengee............. 0 0% 0 0%
Supervisory Director of the
Issuer
J. Dennis Bonney............... 4,000 * 4,000 *
Supervisory Director of the
Issuer
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Before the Offering of All After the Offering of All
Common Shares Covered Hereby Common Shares Covered Hereby
------------------------------------- --------------------------------
Shares Shares
Name and Address of Beneficially Percent of Shares Beneficially Percent of Shares
Beneficial Owner Owned Outstanding Owned(1) Outstanding(1)
- ---------------------------------- ---------------- -------------------- -------------- -------------------
<S> <C> <C> <C> <C>
J. Charles Jennett............. 1,000 * 4,000 *
Supervisory Director of the
Issuer
Vincent L. Kontny.............. 1,000 * 1,000 *
Supervisory Director of the
Issuer
Gary L. Neale.................. 1,000 * 1,000 *
Supervisory Director of the
Issuer
L. Donald Simpson.............. 1,000 * 1,000 *
Supervisory Director of the
Issuer
Marsha C. Williams............. 0 0% 0 0%
Supervisory Director of the
Issuer
All supervisory directors listed
above and all executive
officers as a group
(14 persons)................ 771,163 6.1% 771,163 6.1%
</TABLE>
- ---------
* Less than 1%
(1) Excludes Common Shares issuable upon exercise of options granted under the
Company's stock option plans, none of which options are exercisable within
60 days of November 1, 1997. Includes Common Shares allocated to the
executive officers' individual accounts under the Management Plan.
57
<PAGE>
MANAGEMENT
Supervisory Board
The general affairs and business of the Issuer and the board which
manages the Issuer (the "Management Board") are supervised by a board appointed
by the general meeting of shareholders (the "Supervisory Board").
The Issuer's Articles of Association (the "Articles of Association")
provide for at least six and no more than 12 directors ("Supervisory Directors")
to serve on the Supervisory Board. Under the law of The Netherlands, a
Supervisory Director cannot be a member of the Management Board ("Managing
Directors") of the Issuer. The members of the Supervisory Board are elected at
the general shareholders' meeting by a majority of the votes cast at the
meeting. The Supervisory Board is authorized to make binding nominations of two
candidates for each position, with the candidate receiving the greater number of
votes being elected. The general meeting of shareholders may override the
binding nomination of the Supervisory Board by vote of two-thirds of the votes
cast at the meeting if such two-thirds vote constitutes more than one-half of
the outstanding share capital of the Issuer (a "Two-thirds Majority of Quorum").
The members of the Supervisory Board appoint a chairman of the Supervisory Board
from among the members of the Supervisory Board. Resolutions of the Supervisory
Board generally require the approval of a majority of the votes cast. The
Supervisory Board meets upon the request of its Chairman or two or more of its
members or upon the request of the Management Board.
Members of the Supervisory Board must retire no later than at the
ordinary general meeting of shareholders held after a period of three years
following their appointment, but may be re-elected. Members of the Supervisory
Board are elected to serve three-year terms, with approximately one-third of
such members' terms expiring each year. Pursuant to the Articles of Association,
members of the Supervisory Board may be suspended or dismissed by the general
meeting of shareholders. The Supervisory Board may make a proposal to the
general meeting of shareholders for the suspension or dismissal of one or more
of its members. If such a proposal is made by the Supervisory Board, a simple
majority vote of the shareholders is required to effect a suspension or
dismissal. If no such proposal is made, a Two-thirds Majority of Quorum vote is
required to effect a suspension or dismissal. The members of the Supervisory
Board may receive such compensation as may be authorized by the general meeting
of shareholders.
Management Board
The management of the Issuer is entrusted to the Management Board under
the supervision of the Supervisory Board. Under the Articles of Association, the
Supervisory Board may specify by resolution certain actions by the Management
Board that require the prior approval of the Supervisory Board. No such
resolution has yet been passed. Under the Articles of Association, both
proposals to amend the Articles of Association, and proposals to legally merge
or dissolve the Issuer require the prior approval of the Supervisory Board.
The Articles of Association provide that the Management Board shall
consist of one or more members. The members of the Management Board are elected
for terms of indefinite duration upon a binding nomination of the Supervisory
Board and election at the general shareholders' meeting by a majority of the
votes cast at the meeting. The shareholders may override the binding nomination
of the Supervisory Board by a Two-thirds Majority of Quorum vote.
The general meeting of shareholders may suspend or dismiss one or more
members of the Management Board by a Two-thirds Majority of Quorum vote. The
Supervisory Board may suspend members of the Management Board. Such suspension
may be discontinued by the general meeting of shareholders at any time.
58
<PAGE>
If within three months after such suspension no decision has been taken on
termination of the suspension or on dismissal of the relevant member, the
suspension will cease. The Articles of Association provide that the Supervisory
Board shall, in the event of absence or inability to act of all the members of
the Management Board, be temporarily responsible for the management of the
Issuer. The Supervisory Board determines the compensation and other terms and
conditions of employment of the members of the Management Board.
Currently, the sole member of the Issuer's Management Board is CBICBV,
a Netherlands private company. CBICBV is the Company's principal holding company
subsidiary for its non-U.S. operations. Under Netherlands law, shareholder
action is required in order to appoint or dismiss a management board member. A
corporate subsidiary of the Issuer serves as the sole member of the Issuer's
Management Board in order to avoid the necessity of shareholder action on
appointment and removal of management personnel and to implement a management
structure similar to that of a United States corporation. Pursuant to CBICBV's
Articles of Association, the members of its management board or holders of a
power of attorney have the authority to act on behalf of CBICBV. The managing
directors of CBICBV, each of whom is an employee or an officer of the Company or
its affiliates, have the authority to act on behalf of CBICBV.
The business address of the members of the Supervisory Board and the
Management Board of the Issuer is Koningslaan 34, 1075 AD, Amsterdam, The
Netherlands and the mailing address is P.O. Box 74658, 1070 BR Amsterdam, The
Netherlands.
Directors of the Issuer and Executive Officers of the Company
The following table sets forth certain information regarding the
Issuer's supervisory directors and the executive officers of CBIC and CBICBV. As
permitted under the law of The Netherlands, the Issuer does not currently have
executive officers. CBICBV serves as the Issuer's Management Board.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Gerald M. Glenn (1)............................... 54 Chairman of the Supervisory Board of the Issuer;
President and Chief Executive Officer of CBIC;
Managing Director of CBICBV
Thomas L. Aldinger................................ 45 Vice President-Business Development and
Operations of CBIC; Managing Director of CBICBV
Stephen M. Duffy.................................. 47 Vice President-Human Resources and Administration
of CBIC
Timothy J. Wiggins............................... 41 Vice President and Chief Financial Officer of
CBIC; Managing Director of CBICBV
Robert H. Wolfe.................................. 47 Secretary of the Issuer; Vice President, General
Counsel and Secretary of CBIC; Secretary of CBICBV
Jerry H. Ballengee (1), (4) ..................... 59 Supervisory Director of the Issuer
J. Dennis Bonney (2), (3), (4).................... 66 Supervisory Director of the Issuer
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
J. Charles Jennett (1), (4)....................... 56 Supervisory Director of the Issuer
Vincent L. Kontny (2), (3), (4).................. 59 Supervisory Director of the Issuer
Gary L. Neale (3), (4)........................... 57 Supervisory Director of the Issuer
L. Donald Simpson (2), (4)........................ 61 Supervisory Director of the Issuer
Marsha C. Williams (2), (4)....................... 45 Supervisory Director of the Issuer
</TABLE>
- -------------------------
(1) Member of the Issuer's Nominating Committee. Mr. Ballengee is the Chairman
.
(2) Member of the Issuer's Audit Committee. Mr. Bonney is the Chairman.
(3) Member of the Issuer's Organization and Compensation Committee. Mr. Kontny
is the Chairman.
(4) Member of the Issuer's Corporate Governance Committee. Mr. Neale is the
Chairman.
Gerald M. Glenn has been the President and Chief Executive Officer of
CBIC since April 1997, held the same position at Old CBIC from May 1996 to April
1997 and has been a Managing Director of CBICBV since its inception. Mr. Glenn
has served as Chairman of the Supervisory Board of the Issuer since April 1997.
From April 1994 to present Mr. Glenn has been a principal in The Glenn Group
LLC. From November 1986 to April 1994, Mr. Glenn served as Group President-Fluor
Daniel, Inc. Mr. Glenn's term as a Supervisory Director will expire in 2000.
Thomas L. Aldinger has been the Vice President-Business Development and
Operations of CBIC since April 1997, held the same position at Old CBIC from
January 1995 to April 1997 and has been a Managing Director of CBICBV since its
inception. Prior to that time from January 1993 to January 1995 Mr. Aldinger
served as President of CBI Services, Inc. and from January 1991 to January 1993
Mr. Aldinger served as Vice President and Area General Manager for Europe,
Africa and the Middle East of Old CBIC. Mr. Aldinger has been continuously
employed by the Company since 1974.
Stephen M. Duffy has been Vice President-Human Resources and
Administration of CBIC since April 1997 and held the same position at Old CBIC
from June 1996 to April 1997. Mr. Duffy was Vice President-Human Resources and
Administration of Industries from November 1991 through May 1996.
Timothy J. Wiggins has been Vice President and Chief Financial Officer
of CBIC since April 1997, held the same position at Old CBIC from September 1996
to April 1997 and has been a Managing Director of CBICBV since its inception.
From August 1993 to September 1996, Mr. Wiggins was Executive Vice
President-Finance and Administration, Chief Financial Officer and Secretary and
a director of Fruehauf Trailer Corporation ("Fruehauf"), a publicly-held
manufacturer of truck trailers. Fruehauf filed a petition under the Federal
bankruptcy laws in October 1996. From May 1993 to August 1993, Mr. Wiggins was
employed by Glass & Associates, Inc., a turnaround and management consulting
firm. From 1988 to March 1993, Mr. Wiggins served Autodie Corporation, a
publicly-held manufacturer of large-scale stamping dies and molds primarily for
the automotive industry, in various executive positions. Mr. Wiggins was
promoted to Chief Executive Officer of Autodie Corporation shortly after Autodie
Corporation filed a petition under the Federal bankruptcy laws.
60
<PAGE>
Robert H. Wolfe has been the Vice President, General Counsel and
Secretary of CBIC since April 1997, held the same position at Old CBIC from
November 1996 to April 1997 and has been the Secretary of the Issuer since June
1997. Before that time, from June 1996 to November 1996, Mr. Wolfe served as a
private consultant to Rust Engineering & Construction Inc. ("Rust"). He served
as Vice President, General Counsel and Secretary to Rust from November 1993 to
June 1996 and as Associate General Counsel for that company from July 1988 to
November 1993.
Jerry H. Ballengee has served as a Supervisory Director of the Issuer
since April 1997. He has served as President and Chief Operating Officer of
Union Camp Corporation since July 1994 and has served in various other executive
capacities and as a member of the Board of Directors of Union Camp Corporation
since 1988. He is also a member of the Boards of Directors of Goulds Pumps, Inc.
and United Cities Gas Company. Mr.
Ballengee's term as a Supervisory Director will expire in 1998.
J. Dennis Bonney has served as a Supervisory Director of the Issuer
since April 1997. He served as Vice Chairman of the Board of Chevron Corporation
from 1987 to 1995. He currently serves as Chairman of the Board of Aeromovel
USA, and has also been a Director since 1996 of Alumax Inc. and United Meridian
Corporation. Mr. Bonney's term as a Supervisory Director will expire in 2000.
J. Charles Jennett has served as a Supervisory Director of the Issuer
since April 1997. He has served as President of Texas A&M International
University since 1996. He was Provost and Vice President of Academic Affairs at
Clemson University from 1992 through 1996. Mr. Jennett's term as Supervisory
Director will expire in 1999.
Vincent L. Kontny has served as a Supervisory Director of the Issuer
since April 1997. Mr. Kontny was President and Chief Operating Officer of Fluor
Corporation from 1992 until September 1994. Mr. Kontny is currently the owner
and CEO of the Double Shoe Cattle Company. He has held this position at Double
Shoe Cattle Company since 1992. Mr. Kontny's term as a Supervisory Director will
expire in 2000.
Gary L. Neale has served as a Supervisory Director of the Issuer since
April 1997. He is currently President, CEO and Chairman of the Board of NIPSCO
Industries, Inc., whose primary business is the operation of Northern Indiana
Public Service Company, a gas and electric utility company. Mr. Neale has served
as a director of NIPSCO Industries, Inc. since 1991, a director of Northern
Indiana Public Service Company since 1989, and a director of Modine
Manufacturing Company since 1977. Mr. Neale's term as a Supervisory Director
will expire in 1999.
L. Donald Simpson has served as a Supervisory Director of the Issuer
since April 1997. Since December 1996 Mr. Simpson has served as Executive Vice
President of Great Lakes Chemical Corporation. Prior thereto, beginning in 1992,
Mr. Simpson served in various executive capacities at Great Lakes Chemical
Corporation. Mr. Simpson's term as a Supervisory Director will expire in 1998.
Marsha C. Williams has served as a Supervisory Director of the Issuer
since April 1997. Since October 1993, she has served as Treasurer of Amoco
Corporation, where she was in the Mergers, Acquisitions and Negotiations
Department from December 1992 through September 1993 and was a Senior Financial
Manager in the Treasurer's Department from November 1989 through December 1992.
Ms. Williams' term as Supervisory Director will expire in 1999.
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1996 Executive Officer Compensation
The following table sets forth certain information regarding
compensation paid to Old CBIC's Chief Executive Officer and to each of the four
other most highly compensated executive officers of Old CBIC (the "named
executive officers"). Neither the Issuer nor CBICBV paid compensation to
executive officers in 1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Principal All Other
Position Year Salary(1) Bonus(2) Compensation(3)
- -------------------------------------------- ---------- ------------- -------------- --------------------
<S> <C> <C> <C> <C>
Gerald M. Glenn...................... 1996 $230,770 $469,500 $26,094
President and Chief Executive Officer
Lewis E. Akin........................ 1996 $43,750 -- $957,635(4)
Former President and Chief Executive
Officer
Thomas L. Aldinger................... 1996 $166,200 $315,075 $261,258(4)
Vice President-Business Development and
Operations
Timothy J. Wiggins................... 1996 $59,230 $50,000 $55,026
Vice President-Treasurer and Chief
Financial Officer
Stephen M. Duffy..................... 1996 $89,230 $219,129 $10,362(4)
Vice President-Human Resources and
Administration
Robert H. Wolfe...................... 1996 $16,827 $25,000 --
Vice President, General Counsel and
Secretary
</TABLE>
- ------------------
(1) Salary paid in 1996 for actual period of employment by the Company. Mr.
Akin terminated employment on January 12, 1996. Mr. Aldinger was employed
in his position during all of 1996. Messrs. Glenn, Wiggins, Duffy and Wolfe
commenced employment with the Company on the following respective dates:
Mr. Glenn-May 27, 1996; Mr. Wiggins-September 16, 1996; Mr. Duffy-June 1,
1996; and Mr. Wolfe-November 18, 1996.
(2) Bonus amounts include payments under the Company's Senior Management
Incentive Program effective only during 1996 and under the Company's 1996
Management Incentive Compensation Program which was replaced by the Bonus
Plan (as defined below).
(3) The compensation reported includes items such as excess group life
insurance, auto and moving expenses and club dues paid by the Company and
for Messrs. Aldinger and Duffy also includes the dollar value of "split
dollar" life insurance benefits provided by CB&I with respect to Mr.
Aldinger and by a subsidiary of Praxair which is not a subsidiary of the
Issuer with respect to Mr. Duffy.
(4) The compensation reported includes payments under various compensation
plans and other employment arrangements in effect at the time Industries
was acquired by Praxair which became payable because of such acquisition
totalling $954,816, $240,619 and $7,586 for Messrs. Akin, Aldinger and
Duffy, respectively.
Compensation and Benefits
The Company's overall compensation and benefit strategy is to provide
programs which are competitive within its industry. The Company believes that
this strategy will give the Company the opportunity to
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attract and retain the highly-skilled managerial, supervisory, technical, sales
and marketing personnel that are key to the Company's success. The overall
compensation and benefit packages offered by the Company are intended to link
the interests of executive officers and employees with those of shareholders
through the use of equity-based plans with a long-term perspective, as well as
short-term programs which allow employees and executive officers to share in the
rewards of improved performance. The following is a brief description of the
components of the Company's compensation and benefits program.
Executive Compensation
The Company's executive compensation program is designed to support the
achievement of corporate performance goals; to attract, retain and motivate key
executives; and to enhance shareholder value. The program utilizes a combination
of competitive base salaries, short term cash incentives (annual bonuses),
long-term stock-based incentives and other competitive benefit plans.
Annual Incentive Compensation. The Company has adopted an Annual
Incentive Compensation Plan (the "Bonus Plan"), which took effect in fiscal
1997. The Bonus Plan is an annual short-term incentive plan covering a group
consisting of the executive officers of the Company and its principal operating
subsidiaries and other designated key management employees. The Bonus Plan is
based on the annual operating plan of the Company, arrived at as a result of
discussion and analysis of the business plans within the major divisions of the
Company. Payment of bonuses is based on attaining a specific goal of operating
income and other specified financial and operational goals, and is payable
following the end of the fiscal year. The operating income goal would be set
from year to year, at the beginning of each year (subject to modifications
relating to extraordinary events), upon management's recommendation and approval
by the Issuer's Supervisory Board.
A target bonus will be established for each participating employee at
the beginning of each year based on position, responsibilities and grade level.
The bonus may be earned from two sources-achievement of the corporate operating
income goal and a discretionary portion. A percentage of target bonus
opportunity is allocated to each bonus source. The discretionary bonus is
determined by the management's evaluation of individual performance and, in the
case of the CEO, the Organization and Compensation Committee of the Supervisory
Board of the Issuer.
Long-Term Compensation. CBIC has a long-term incentive compensation
plan (the "Incentive Plan") for its executive officers, other management
employees and Supervisory Directors which is a so-called "omnibus" plan. The
Company believes that through the use of long-term, stock-based incentive
compensation plans it is possible to create alignment between executive
compensation and long-term improvements in shareholder value. The objective of
the Incentive Plan is to provide an opportunity and incentive to a group of
management employees and non-employee directors to achieve above market levels
of compensation based on long-term growth in the value of the Company, which at
the same time is aligned with the financial interests of shareholders.
The Incentive Plan offers the flexibility to the Company to provide the
incentive of such long-term compensation in any of the following forms:
non-qualified options to purchase Common Shares; qualified "incentive" options
to purchase Common Shares; restricted Common Shares; "performance shares,"
paying out a variable number of Common Shares depending on goal achievement, and
"performance units," which would be cash payments based on either the value of
the Common Shares or appreciation in the price of the Common Shares upon
achievement of specific financial goals. In addition, the Incentive Plan will
specifically provide that only non-qualified options will be granted from it
during the Incentive Plan's first year. Selection of participating employees and
the number of options to be granted are subject to the approval of the
Organization and Compensation Committee of the Issuer's Supervisory Board.
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The exercise price of all options granted under the Incentive Plan
shall not be less than one hundred percent (100%) of the fair market value (as
defined in the Incentive Plan) of the stock subject to the option on the date
the option is granted. An option shall be exercisable in accordance with the
terms set forth in the individual award agreement, provided that, no option
shall be exercisable prior to the third anniversary of the date of the grant.
The expiration date of each option shall be established by the Organization and
Compensation Committee, but shall not exceed 10 years from the date of the
grant.
Awards of restricted stock shall be subject to a period of restriction
during which the transfer of such shares of restricted stock shall be limited.
Such restrictions shall lapse based on the passage of time, the achievement of
performance goals, or the occurrence of other events as determined by the
Organization and Compensation Committee, in accordance with the terms of each
restricted stock award agreement.
Each performance unit shall have an initial value that is established
by the Organization and Compensation Committee at the time of grant, and each
performance share shall have an initial value equal to the fair market value (as
defined in the Incentive Plan) of a Common Share on the date the award is
granted. Holders of performance units and shares shall be entitled to receive a
payout on the number and value of performance units and shares, based on the
achievement during the performance period of specified performance goals.
In the event of a change in control (as defined in the Incentive Plan),
unless otherwise prohibited under applicable law, all options shall become
immediately exercisable, the restriction period imposed on any restricted stock
award shall lapse and the payout opportunities attainable under all outstanding
awards of restricted stock, performance units and performance shares shall be
deemed to have been fully earned for the entire performance period.
The number of options granted to participants would be targeted to an
appropriate percentage of such participant's compensation by his or her position
or grade level, as determined by comparative market data.
The Issuer has reserved Common Shares of the Company for the Incentive
Plan equal to 10% of the number of Common Shares issued and outstanding at the
time of the Initial Common Share Offering. Options exercisable for approximately
4% of the number of Common Shares outstanding were granted at the time of the
Initial Common Share Offering. Such initial options granted are exercisable
after 1999 subject to achievement of a cumulative earnings per share for the
three year period from 1997 through 1999 of at least $6.25 per Common Share
(excluding the pretax charge of $16.7 million relating to the implementation of
the Management Plan). The Issuer expects that all of such options which have not
previously vested would vest automatically nine years from their date of grant.
The Incentive Plan would have a life of five years for the purpose of making
grants or awards, unless the number of shares reserved for such plan are used up
before the expiration of that period, in which case shareholder approval would
be required in order to reserve additional Common Shares for the Incentive Plan.
The vesting and exercise periods for options granted would be in addition to
such five year period.
Special Stock-Based, Long-Term Compensation Related to the Initial Common
Share Offering
The Company established the Management Plan prior to the consummation
of the Initial Common Share Offering. The Management Plan is not qualified under
Section 401(a) of the Code and each participant's account is treated as a
separate account under Section 404(a)(5) of the Code. The designation of the
Management Plan's participants, the amount of Company contributions to the
Management Plan and the amount allocated to the individual participants was
determined by the Issuer's Supervisory Board. The allocation to the
participant's individual accounts occurred concurrently with the Company's
contributions. Management Plan Shares vest as determined by the Issuer's
Supervisory Board. Upon vesting, the distribution of the balance held in the
individual participant's account can be distributed at the election of the
participant. Forfeitures of
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Management Plan Shares under the provisions of the Management Plan will be
reallocated to the other Management Plan participants. The number of initial
participants is 71.
As an incentive to increasing the long-term value of the Company, Mr.
Glenn has an agreement with Praxair, and Messrs. Wiggins, Aldinger, Wolfe and
Duffy have agreements with CB&I, whereby each respectively received special
compensation related to the sale of the Common Shares pursuant to the Initial
Common Share Offering, in the amounts of approximately 462,835, 110,298,
110,298, 36,766 and 18,383 Common Shares, respectively. Each of such officers,
along with a group of 65 other key management employees, currently are
participants in the Management Plan. In fulfillment of Praxair's commitment,
upon consummation of the Initial Common Share Offering, the Company made a
contribution to the Management Plan in the form of Common Shares having a value
of $16.7 million (925,670 Common Shares). Accordingly, the Company recorded a
pretax charge of $16.7 million at the time of the contribution to the Management
Plan. This initial contribution of Management Plan Shares will vest three years
(and with respect to one participant, two years) after the date of the Initial
Common Share Offering.
Other Executive Compensation Programs
In addition to the annual short-term incentive compensation programs
and long-term incentive compensation programs described above, CBIC sponsors the
following additional compensation programs in which management employees,
including all of the named executive officers are eligible to participate.
CBIC has a restated tax-qualified defined contribution pension plan for
eligible employees (the "New 401(k) Plan"), including, but not limited to, the
named executive officers. Such plan consists of a typical voluntary pretax
salary deferral feature under Section 401(k) of the Code; a dollar-for-dollar
Company matching contribution applicable to such employee deferrals, up to 3% of
a participating employee's considered earnings; a basic additional Company
contribution of 5% of each participating employee's considered earnings; and an
additional discretionary Company profit-sharing contribution.
The New 401(k) Plan substantially replaces the former 401(k) plan (the
"CBI 401(k) Pay Deferral Plan") and the CBI Pension Plan. The New 401(k) Plan
provides that the Company may, at the discretion of management, make certain of
its matching contributions or additional discretionary profit sharing
contributions in a uniform manner in the form of either cash or Common Shares.
Since December 31, 1996, no employees of the Company participate in the
CBI Pension Plan who were not already participants as of December 31, 1996. No
further benefits will accrue under the provisions of the CBI Pension Plan's
normal benefit formulas for employees participating as of December 31, 1996.
Instead, benefits accrued as of that date will be computed and increased at a
rate of 5% per year (not compounded) or fraction thereof of continuing service,
to a maximum of three additional years. The number of years of credited service,
as of December 31, 1996, for the following named executive officers, who are the
only such officers who have or will have benefits accrued under the CBI Pension
Plan, are: Thomas L. Aldinger, 22.9 years; and Stephen M. Duffy, 5.1 years.
The following table shows approximate annual pensions payable to
salaried employees, including participating executive officers, assuming normal
retirement at age 65 and that the current social security tax base remains
unchanged:
65
<PAGE>
<TABLE>
<CAPTION>
PENSION PLAN TABLE(1)
Average Years of Service at Retirement
------------------------------------------------------------------------------
Annual
Earnings 15 20 25 30 35 40
- ------------ ----------- ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 $ 21,540 $ 28,720 $ 35,900 $ 43,080 $ 50,260 $ 57,440
200,000 42,540 56,720 70,900 85,080 99,260 113,440
300,000 63,540 84,720 105,900 127,080 148,260 169,440
400,000 84,540 112,720 140,900 169,080 197,260 225,440
500,000 105,540 140,720 175,900 211,080 246,260 281,440
600,000 126,540 168,720 210,900 253,080 295,260 337,440
700,000 147,540 196,720 245,900 295,080 344,260 393,440
800,000 168,540 224,720 280,900 337,080 393,260 449,440
900,000 189,540 252,720 315,900 379,080 442,260 505,440
1,000,000 210,540 280,720 350,900 421,080 491,260 561,440
</TABLE>
- ----------------------
(1) The pension amounts indicated are subject to an offset adjustment for each
individual for primary social security benefits and a portion of the value
of benefits under the now terminated CBI Salaried Employee Stock Ownership
Plan (1987) previously sponsored by Industries.
In conjunction with the adoption of the New 401(k) Plan, an "excess"
benefit plan was also adopted. Under such a plan, the Company determines the
amount of matching and discretionary contributions which it would have
contributed to the New 401(k) Plan on behalf of designated management employees,
except as limited by the Code. Under the excess benefit plan, retirement
benefits in excess of the amounts permitted under the limitations on
contributions under the Code will be paid. It also allows affected participants
to elect to voluntarily defer more than the $9,500 limitation on employee
contributions under the New 401(k) Plan. Such benefits are payable to a
participant upon retirement, other specified terminations of employment, or upon
other specified events. The amount of such benefits payable will be determined
by attributing an imputed rate of interest or earnings on the equivalent amount
of excess plan contributions not made to the qualified plan. The obligations to
provide such benefits will constitute general obligations of CBIC.
Supplemental Executive Death Benefits Plan. CBIC has a plan for
selected management employees to provide additional benefits upon pre- or
post-retirement death to a participant's named beneficiary. Such plan is in
addition to any group life insurance plan provided generally to all employees,
and may be provided through CBIC's general assets, CBIC-owned insurance
policies, or "split-dollar" life insurance policies. The amount of such benefits
provided is significantly greater than that provided under such group life
insurance plan. The taxability of such benefits, or payments on premiums
therefor, to a participant or his or her beneficiaries, and the tax
deductibility of such amounts by the Company, will be determined by the
selection of the actual means by which the Company pays such benefits, which has
not been determined at this time.
Employee Stock Purchase Plan
The Issuer believes that a key element of its future success will be
broad-based stock ownership by all its employees, and providing incentives to
become and remain shareholders. The Issuer has adopted a broad-based employee
share purchase plan (the "Stock Purchase Plan") effective as of January 1, 1998,
in which certain employees of the Company, including the named executive
officers, will be eligible to participate.
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<PAGE>
Pursuant to the Stock Purchase Plan, each employee electing to participate would
be granted an option to purchase common shares of the Issuer upon a specified
future date at 85% of the fair market value of such shares on the date of
purchase. During specified periods preceding such purchase date, a percentage of
the participating employee's base pay, as such employee elects, will be withheld
to apply to the purchase of as many shares as such funds allow at the discounted
purchase price. Common Shares so purchased will be registered in the name of the
employee participant.
Pursuant to the Code, the Stock Purchase Plan does not permit any
participant to purchase Common Shares under the plan and all other share
purchase plans (if any) in excess of $25,000 of market value per year,
determined at the time each option to purchase is granted. The Stock Purchase
Plan is intended to qualify under Section 423 of the Code.
The Company anticipates that it will reserve a total of 250,000 Common
Shares for purchase pursuant to the Stock Purchase Plan, with such plan to
expire no later than June 30, 2002.
Termination and Employment Agreements
Messrs. Wiggins, Wolfe, Aldinger and Duffy have change of control
severance agreements with the Company, each providing that, in the event of a
termination of their respective employment with the Company (other than by
reason of the employee's willful misconduct or gross negligence) or a
significant reduction in their respective responsibilities, salary or benefits
or a substantive change in the respective location of their employment, within
the two-year period following a change of control of the Company, each will
receive a special lump-sum payment following separation equal to $1,000,000,
$750,000, $1,500,000, and $240,000, respectively. In addition, upon a
termination for any reason (other than by reason of the employee's willful
misconduct or gross negligence) during the six month period prior to a change of
control, each employee will be entitled to receive a special lump-sum payment
(in the amount previously set forth) minus the gross amount of any severance
payments otherwise paid to such employee, within ten days following a change of
control. Each employee who receives a special lump-sum payment is also entitled
to receive outplacement services at the expense of the Company. The agreements
provide that the Company will pay an amount necessary to reimburse each
employee, on an after-tax basis, for any excise tax due under Section 4999 of
the Code, as a result of any such payment being treated as a "parachute payment"
under Section 280G of the Code. The receipt by each employee of any of the
amounts payable pursuant to the agreements is contingent upon the employee's
execution of a release of claims in favor of the Company. A change of control
for purposes of such agreements is deemed to occur if, other than in connection
with the Initial Common Share Offering, (i) any person or group of persons other
than Praxair, Inc. or one of its subsidiaries becomes the beneficial owner of
25% or more of the total voting power of the Company's or any such subsidiary's
outstanding securities, (ii) upon consummation of any merger or other business
combination of the Company or any such subsidiary with or into another person
pursuant to which the shareholders of the Company or such subsidiary do not own,
upon consummation of such combination, more than 50% of the voting power and
value of the stock of the surviving person or (iii) if, during any period of two
years or less, a majority of the members of the Issuer's Supervisory Board
changes and new members were not nominated by at least 75% of the directors then
still in office who were directors at the beginning of such period.
In addition, the Company has entered into employment arrangements with
Messrs. Glenn, Wiggins and Wolfe to serve the Company as President and Chief
Executive Officer, Vice President and Chief Financial Officer, and Vice
President-General Counsel and Secretary, respectively. Pursuant to these
arrangements, Mr. Glenn's base salary is $400,000 per year, Mr. Wiggins' base
salary is $220,000 per year, and Mr. Wolfe's base salary is $175,000 per year.
Such arrangements do not establish any required term of employment. The
arrangements provide for, among other things, participation in Company bonus and
incentive compensation programs, lump sum payments in the event of termination
(or a significant reduction in levels of responsibility)
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within two years of a sale of the Company and for a special stock-based
compensation award relating to an initial public offering of Common Shares. See
"--Compensation and Benefits--Special Stock-Based, Long-Term Compensation
Related to the Initial Common Share Offering." Each such employee is also
entitled to participate in the Company's relocation program and to receive
either an automobile allowance of $500 per month or the use of a Company-owned
vehicle.
Compensation of Directors
The Issuer intends to compensate Supervisory Directors who are not
officers of the Company by an annual retainer of $20,000 per year, paid in
quarterly installments, and $1,500 for attendance at each Board meeting as well
as an annual grant of options to purchase 500 Common Shares at an exercise price
equal to the fair market value of the Common Shares at the time of grant.
Directors who are chairpersons of committees shall receive an additional
retainer of $3,000. Those who serve on Board Committees shall receive $1,000 for
each committee meeting attended. Supervisory Directors may elect to receive
their compensation in Common Shares and may elect to defer their compensation.
Compensation Committee Interlocks and Insider Participation
For 1996, compensation decisions were made by or in accordance with the
entire Board of Directors of Old CBIC, the members of which were E.G. Hotard,
G.M. Glenn, T.J. Wiggins, R.F.X. Fusaro, J.S. Sawyer, B.A. Harris, J.R. Vipond,
S.C. Cunningham and W.F. McClure, Jr. For 1997, compensation decisions for
employees of CBIC have been made by the Board of Directors of CBIC and for
employees of CBICBV by its management board.
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DESCRIPTION OF REVOLVING CREDIT FACILITY
The Company, The Chase Manhattan Bank ("Chase") and a syndicate of
other banks have entered into a five year senior, unsecured competitive advance
and revolving credit facility (the "Revolving Credit Facility"). Maximum
availability under the Revolving Credit Facility is $100.0 million for the first
three years and $50.0 million thereafter. The borrowers include the Issuer and
certain wholly owned subsidiaries, and substantially all material subsidiaries
will unconditionally guarantee (to the extent not prohibited by applicable law)
the borrowers' obligations thereunder. Concurrently with the consummation of the
Initial Common Share Offering, the Company borrowed funds under the Revolving
Credit Facility necessary to repay long-term indebtedness owed to Praxair on the
date the Initial Common Share Offering. As of September 30, 1997, the amount of
indebtedness outstanding under the Revolving Credit Facility was approximately
$42.0 million.
The unused available committed amounts under the Revolving Credit
Facility will be available for general corporate purposes, including working
capital, letter of credit and other requirements of the Company. Amounts may be
borrowed, repaid and reborrowed, subject to availability and applicable
conditions to borrowing. Revolving credit loans would be available at interest
rates based upon the lenders' alternate base rate or a spread ranging from
0.325% to 0.875% (based on the Company's debt coverage ratio) over LIBOR or on a
competitive bid basis. Letters of credit may be issued, subject to a $35.0
million sublimit, on either a committed or competitive bid basis and expire one
year after issuance unless otherwise provided. The Revolving Credit Facility
will terminate on the fifth anniversary of the date of its execution unless
terminated sooner.
The Revolving Credit Facility contains various covenants, including
financial covenants (the terms of which are set out in the credit agreement
governing such facility) that, among other things, (1) require the Company to
maintain a minimum level of consolidated tangible net worth equal to its
consolidated net worth as of December 31, 1996 minus $10.0 million plus 50% of
its consolidated net income for each fiscal year during which its consolidated
net income is positive, a consolidated EBITDA to interest expense ratio of at
least 5.00 to 1 for any period of four consecutive fiscal quarters and a
consolidated leverage ratio (a) for any period of four consecutive fiscal
quarters ending on or prior to March 31, 1998 not greater than 2.75 to 1 and (b)
for any period of four consecutive fiscal quarters ending thereafter not greater
than 2.50 to 1 and (2) restrict the Company's capital expenditures to $33.0
million in 1997 and $20.0 million (plus the lesser of (x) the difference between
the amount permitted to be expended in the prior year and the amount actually
expended and (y) $5.0 million), in each fiscal year thereafter, and other
covenants that limit mergers, certain asset sales, the incurrence of
indebtedness by subsidiaries (excluding letters of credit and performance
bonds), the granting of liens, dividends and other payments in respect of
capital stock and indebtedness, the making of investments, the issuance of stock
by subsidiaries and future transactions with affiliates. The restriction on
dividends permits, so long as no default is continuing at the time thereof or
giving effect thereto, the payment of cash dividends in an aggregate amount not
to exceed (a) prior to December 31, 1997, $5.0 million and (b) during any fiscal
year of the Company thereafter, $5.0 million plus 10% of the Company's
consolidated net income for the immediately preceding fiscal year.
The Revolving Credit Facility contains customary events of default,
including failure to pay principal or interest, any breach of representations
when made, any default under covenants (subject to grace periods), bankruptcy
events, cross defaults to other indebtedness exceeding a specified amount, a
change of control of the Issuer, CBIC or CBICBV, unsatisfied judgments, ERISA
events or the invalidity of the subsidiary guarantees.
DESCRIPTION OF SHARE CAPITAL
The Issuer was organized under the law of The Netherlands as a public
company with limited liability ("naamloze vennootschap") by Deed of
Incorporation dated November 22, 1996. The Issuer is registered in the
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trade register of Amsterdam under No. 286.441. Set forth below is a summary of
certain provisions, including all material provisions relating to the Common
Shares, contained in the Articles of Association and the law of The Netherlands.
Such summary does not purport to be a complete statement of the Articles of
Association and the law of The Netherlands and is qualified in its entirety by
reference to the Articles of Association which are filed as an exhibit to the
Registration Statement of which this Prospectus forms a part.
The authorized share capital of the Issuer is NLG 500,000 consisting of
50,000,000 Common Shares, each with a par value of NLG .01. As of September 30,
1997, 12,517,552 Common Shares were outstanding. Common Shares may be issued
either in registered or bearer form, except that New York Shares may only be
issued in registered form.
Harris Trust and Savings Bank will maintain the New York Registry and
act as transfer agent and registrar for the New York Shares (the "New York
Transfer Agent and Registrar"). Kas-Associatie N.V. will act as transfer agent
and paying agent for the Bearer Shares and the Common Shares in the Amsterdam
Register (as defined below) and as registrar for the Common Shares in the
Amsterdam Register (the "Dutch Transfer and Paying Agent").
Unless otherwise set forth in a Prospectus Supplement, all of the New
York Shares sold in the Common Share Offering will initially be represented by a
single global certificate held through the Depository Trust Company ("DTC") and
registered in the name of Cede & Co., the nominee of DTC. Beneficial interests
in the New York Shares represented by the global certificate or otherwise held
through DTC will be represented, and transfers of such beneficial interests will
be effected, through accounts of financial institutions acting on behalf of
beneficial owners as direct and indirect participants in DTC. Investors may hold
beneficial interests in New York Shares directly through DTC if they are a
participant in such system, or indirectly through organizations that are
participants in such system.
The Bearer Shares, at the discretion of the Management Board, subject
to the approval of the Supervisory Board, may be represented either by share
certificates issued in the form of a main part with a dividend sheet consisting
of a set of dividend coupons ("K-certificates") or by share certificates in the
form of a main part with a simplified dividend sheet ("CF-certificates"). The
CF-certificates may only be transferred through the book-entry transfer system
maintained by NECIGEF (Nederlands Centraal Instituut voor Giraal
Effectenverkeer, the Netherlands Central Institute for Giro Securities). For the
time being, the Issuer intends only to issue CF-certificates. Investors may hold
interests in the Bearer Shares through NECIGEF, Euroclear and Cedel, if they are
participants in such systems, or indirectly through organizations that are
participants in such systems. Common Shares may also be registered in the
shareholders' register kept in Amsterdam, The Netherlands ("Amsterdam Register")
for any number of Common Shares.
Common Shares
As of September 30, 1997, there were 12,517,552 Common Shares
outstanding. Each shareholder of record (or if applicable, a beneficiary of a
life interest to whom the voting rights have been transferred) is entitled to
one vote for each Common Share held on every matter submitted to a vote of
shareholders. In the event of the dissolution and liquidation of the Issuer,
holders of Common Shares are entitled to receive, on a pro rata basis, all
assets of the Issuer remaining available for distribution to the holders of
Common Shares. The Articles of Association make no provision for cumulative
voting and, as a result, the holders of a majority of the Issuer's voting power
will have the power, subject to the Supervisory Board's right to make binding
nominations, to elect all members of the Supervisory Board and the Management
Board. See "-Summary of Certain Provisions of the Articles of Association and
Other Matters-Election and Tenure of Managing Directors and Supervising
Directors; Power to Represent and Bind the Issuer."
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Summary of Certain Provisions of the Articles of Association and Other Matters
Dividends
Pursuant to the Articles of Association, the Management Board, with the
approval of the Supervisory Board, may establish reserves out of the Issuer's
annual profits. The portion of the Issuer's annual profits that remains after
the establishment of reserves is at the disposal of the general meeting of
shareholders. Out of the Issuer's share premium reserve and other reserves
available for shareholder distributions under the law of The Netherlands, the
general meeting of shareholders may declare distributions upon the proposal of
the Management Board (after approval by the Supervisory Board). Pursuant to a
resolution of the Supervisory Board (provided that the Supervisory Board is
authorized to issue such shares), distributions approved by the general meeting
of shareholders may be fully or partially made in the form of Common Shares. The
Issuer may not pay dividends if the payment would reduce shareholders' equity
below the aggregate par value of the Common Shares outstanding, plus the
reserves statutorily required to be maintained. Although under Dutch law,
dividends are generally paid annually, the Management Board, with the approval
of the Supervisory Board, may, subject to certain statutory provisions,
distribute one or more quarterly dividends before the accounts for any year have
been approved and adopted at a general meeting of shareholders in anticipation
of the final dividend. Rights to cash dividends and distributions that have not
been collected within five years after the date on which they became due and
payable shall revert to the Issuer.
The Issuer's first dividend was paid on June 30, 1997. In addition, a
quarterly dividend was paid on September 30, 1997 to shareholders of record at
the close of business on September 19, 1997. The Issuer currently anticipates
that it will continue to declare a $0.06 quarterly cash dividend on each
outstanding Common Share. The Issuer currently intends to declare regular
quarterly cash dividends; however, there can be no assurance that any such
dividends will be declared or paid. The payment of dividends in the future will
be subject to the discretion of the Issuer's shareholders (in the case of annual
dividends), its Management Board and its Supervisory Board and will depend upon
general business conditions, legal restrictions on the payment of dividends and
other factors. The Issuer expects that it would pay any such dividends in U.S.
dollars. Cash dividends to holders of New York Shares will be paid to the New
York Transfer Agent and Registrar, who will, if necessary, convert such
dividends into U.S. dollars at the rate of exchange on the date such dividends
are paid, for disbursement to such holders. Cash dividends payable to holders of
Bearer Shares will be paid to the Dutch Transfer and Paying Agent, who will, if
necessary, convert such dividends into Dutch guilders, for disbursement to such
holders. See "Price Range of Common Shares and Dividend Policy." In certain
cases, however, cash dividends may be paid directly to the holders of
K-certificates.
Shareholder Meetings and Voting Rights
Each holder of Bearer Shares and each other shareholder has the right
to attend general meetings of shareholders, either in person or represented by a
person holding a written proxy, to address shareholder meetings, and to exercise
voting rights, subject to the provisions of the Articles of Association.
Ordinary general meetings of shareholders of the Issuer will be held in The
Netherlands at least annually, within six months after the close of each
financial year. Extraordinary general meetings of shareholders may be held as
often as the Management Board or the Supervisory Board deem necessary, or as
otherwise provided for pursuant to the law of The Netherlands.
Unless otherwise required by the Articles of Association or the law of
The Netherlands, resolutions of general meetings of shareholders occurring in
The Netherlands require the approval of a majority of the votes cast at a
meeting. Resolutions of general meetings of shareholders occurring outside The
Netherlands are valid if the entire share capital is present or represented
(unless voting rights have been transferred to holders of life
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interests). There are no laws currently in effect in The Netherlands or
provisions in the Articles of Association of the Issuer limiting the rights of
nonresident investors to hold or vote Common Shares.
The Issuer will give notice by mail to registered holders of Common
Shares of each meeting of shareholders. Such notice will be given no later than
the fifteenth day prior to the day of the meeting and will include a statement
of the business to be considered. The New York Transfer Agent and Registrar will
provide notice of general meetings of shareholders to, and compile voting
instructions from, holders of Common Shares held directly or indirectly through
the New York Transfer Agent and Registrar. The Issuer also will give notice of
each meeting of shareholders by notice published by advertisement, which shall
be published in at least one national daily newspaper distributed throughout The
Netherlands and in the Officiele Prijscourant of the Amsterdam Stock Exchange
(the official newspaper of the Amsterdam Stock Exchange), and, if required,
elsewhere.
Election and Tenure of Managing Directors and Supervising Directors;
Power to Represent and Bind the Issuer
The Management Board is entrusted with the management of the Issuer.
The Supervisory Board supervises the Management Board. The Management Board will
have one or more members and the Supervisory Board will have at least six and no
more than 12 members. Supervisory Board and Management Board vacancies will be
filled by a vote of shareholders at the first general meeting after such vacancy
occurs or is created. The Supervisory Board and the Management Board members are
elected from binding nominations made by the Supervisory Board. At least two
persons must be nominated for each vacancy. Under the law of The Netherlands and
the Articles of Association, the shareholders may deprive the nominations of
their binding effect by a resolution passed by Two-thirds Majority of Quorum
vote.
Supervisory Directors and Managing Directors serve until the expiration
of their respective terms of office or their resignation, death or removal, with
or without cause, by the shareholders or, in the case of Supervisory Directors,
upon reaching the mandatory retirement age of 72.
The executive power of the Issuer resides in the members of the
Management Board acting together and in each member acting individually. Each
managing director, acting alone, is authorized to represent the Issuer. The
Issuer may execute (i) a power of attorney granting certain officers of the
Issuer the power to bind the Issuer individually on certain administrative
day-to-day matters and (ii) a power of attorney to the Issuer's transfer agent
and registrar to acknowledge transfers of the Common Shares.
Approval of Annual Accounts and Discharge of Management Liability
Each year, the Management Board is responsible for the preparation of
annual accounts. The annual accounts must be approved and signed by the
Supervisory Board and then submitted to a general meeting of shareholders for
adoption within five months after the end of the Issuer's financial year, unless
the general meeting of shareholders has extended this period due to special
circumstances.
Adoption of the Issuer's annual accounts by the general meeting of
shareholders discharges the members of the Management Board and the Supervisory
Board from liability in respect of the exercise of their duties during the
financial year concerned, unless an explicit reservation is made by the general
meeting of shareholders and without prejudice to the provisions of the law of
The Netherlands relating to liability of members of supervisory boards and
management boards upon bankruptcy of a company pursuant to Articles 138 and 149
of Book 2 of the Civil Code of The Netherlands. Under the law of The
Netherlands, this discharge from liability does not extend to matters not
disclosed to shareholders.
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Liquidation Rights
In the event of the dissolution and liquidation of the Issuer, the
assets remaining after payment of all debts and liquidation expenses will be
distributed among holders of Common Shares on a pro rata basis.
Issue of Shares; Preemptive Rights
Prior to the Initial Common Share Offering, the Issuer's shareholders
approved the issuance of up to an aggregate of 1,501,755 authorized but unissued
Common Shares upon exercise of options or otherwise in connection with the
Company's benefit plans. The Issuer's shareholders also authorized, prior to the
Initial Common Share Offering, the Supervisory Board to issue such additional
authorized but unissued Common Shares as the Supervisory Board shall determine.
Under the law of The Netherlands, such authorization can only be granted for a
maximum period of five years and the above-mentioned authorization is expected
to expire on March 26, 2002, subject to future extension(s). Under the Articles
of Association, each holder of Common Shares shall generally have a preemptive
right to subscribe with regard to any issue of Common Shares pro rata to the
shareholder's existing holdings of Common Shares, except for certain issuances
to employees, issuances for noncash consideration, issuances to persons who
exercise a previously acquired right to subscribe for Common Shares and
issuances exempted from such requirement by the Supervisory Board when the
Supervisory Board is so empowered by shareholders. A resolution was adopted by
shareholders on March 26, 1997, providing the Supervisory Board with an
irrevocable five-year authorization to limit or exclude preemptive rights.
Repurchase of Common Shares
The shareholders, prior to the consummation of the Initial Common Share
Offering, delegated to the Management Board the authority, subject to certain
restrictions contained in the law of The Netherlands and the Articles of
Association, to cause the Issuer to acquire its own fully paid Common Shares in
an amount not to exceed 10% of the outstanding shares at any time in open market
purchases. Such authorization, which may not be granted for more than 18 months,
has been adopted through September 26, 1998.
Capital Reduction
Upon proposal by the Management Board (after approval by the
Supervisory Board) the general meeting of shareholders may reduce the issued
share capital by cancellation of Common Shares held by the Issuer, subject to
certain statutory provisions.
Amendment of the Articles of Association
The Articles of Association may be amended at a general meeting of
shareholders if the proposal is stated in the convocation notice for the general
meeting and a complete copy of the proposed amendment is filed at the Issuer's
office so that it may be inspected prior to the meeting and the amendment is
approved by a majority of the votes cast at a general meeting of shareholders.
Proposals to amend the Articles of Association, to legally merge the Issuer, or
to dissolve the Issuer require prior approval by the Supervisory Board.
Notwithstanding the foregoing, no such amendment shall become effective until
approved by the Ministry of Justice of The Netherlands.
Disclosure of Holdings
Under the law of The Netherlands, if Common Shares are admitted to
official quotation or listing on the Amsterdam Stock Exchange or on any other
stock exchange in the European Economic Area, holders and
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certain beneficial owners of Common Shares must promptly notify the Issuer and
the Securities Board of The Netherlands if their shareholding in the Company
reaches, exceeds or falls below 5%, 10%, 25%, 50% or 66 2/3% of the outstanding
Common Shares. For this purpose shareholding includes either or both of economic
interests or voting rights. Failure to comply constitutes a criminal offense and
could result in civil sanctions, including suspension of voting rights.
Transfer Agent, Registrar and Paying Agent
The New York Transfer Agent and Registrar for the Common Shares is
Harris Trust and Savings Bank. The Dutch Transfer and Paying Agent for the
Common Shares is Kas-Associatie N.V.
Liability of Directors and Officers
Certain of the Issuer's directors and executive officers have entered
into indemnity agreements with the Issuer. The agreements provide, to the
fullest extent permitted by the law of The Netherlands, that the Issuer will
indemnify the directors and executive officers against any costs and expenses,
judgments, settlements and fines incurred in connection with any claim involving
a director or an executive officer by reason of his or her position as director
or officer. A form of indemnity agreement containing such standards of conduct
is included as an exhibit to the Company's Registration Statement on Form S-1
(the "Registration Statement") of which this Prospectus is a part.
The Articles of Association provide that the Issuer will, to the
fullest extent permitted by the law of The Netherlands, as amended from time to
time, indemnify, and may advance expenses to, each of its now acting and former
board members, officers, employees and agents, whenever any such person is made
a party, or threatened to be made a party, in any action, suit or proceeding by
reason of his or her service with the Issuer. The Articles of Association also
provide that the Issuer may purchase and maintain directors' and officers'
liability insurance.
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SHARE CERTIFICATES AND TRANSFER
General
The Common Shares are available in either registered or bearer form
except that the New York Shares are available in registered form only. Share
Registers are maintained in New York, New York (the "New York Registry") by the
New York Transfer Agent and Registrar and in The Netherlands by or on behalf of
the Issuer. Unless otherwise set forth in a Prospectus Supplement, all of the
New York Shares to be sold in the Common Share Offering will be initially
represented by a single global certificate held through DTC and registered with
the New York Transfer Agent and Registrar in the name of Cede & Co., the nominee
of DTC. The Common Shares trade on the New York Stock Exchange; however, only
New York Shares may be traded on such exchange. The Common Shares also trade on
the Amsterdam Stock Exchange but only in the form of Bearer Shares.
Persons who are not DTC participants may beneficially own New York
Shares held by DTC only through direct or indirect participants in DTC. So long
as Cede & Co., as the nominee of DTC, is the registered owner of New York
Shares, Cede & Co. for all purposes will be considered the shareholder of such
New York Shares. Accordingly, any person owning a beneficial interest in New
York Shares must rely on the procedures of DTC and, if such person is not a
participant, on the procedures of the participant through which such person owns
its interest, to exercise any rights of a shareholder. The Issuer understands
that, under existing industry practice, in the event that an owner of a
beneficial interest in New York Shares desires to take any action that Cede &
Co., as the shareholder, is entitled to take, Cede & Co. would authorize the
participants to take such action, and the participants would authorize
beneficial owners holding interests through such participants to take such
action or would otherwise act upon the instructions of beneficial owners holding
interests through them. New York Shares may be transferred on the books of the
Issuer at the office of the New York Transfer Agent and Registrar. Certificates
representing New York Shares may be exchanged at such office for certificates
representing New York Shares of other authorized denominations. Under Dutch law,
the transfer of registered shares requires a written instrument of transfer and
written acknowledgment by the Issuer of such transfer.
Common Shares registered in The Netherlands are booked in the Amsterdam
Register for any number of Common Shares. Bearer Shares, at the discretion of
the Management Board, subject to the approval of the Supervisory Board, will be
represented by K-certificates or CF-certificates. CF-certificates must remain
deposited with an authorized custodian and may only be transferred through the
book-entry transfer system maintained by NECIGEF. For the time being, the Issuer
intends only to issue CF-certificates. The Common Shares trade on the Amsterdam
Stock Exchange under the symbol "CBI". Only Bearer Shares may be traded on the
Amsterdam Stock Exchange. Common Shares booked in the Amsterdam Register may be
converted into Bearer Shares or into New York Shares in accordance with the
procedures more fully described below.
Global Clearance and Settlement
Although DTC, Euroclear and Cedel have agreed to the procedures
provided below in order to facilitate transfers of Common Shares among
participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
modified or discontinued at any time. The Issuer will not have any
responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
DTC, Euroclear and Cedel have advised the Issuer as follows:
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DTC
DTC is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code and 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 facilitate
the clearance and settlement of securities transactions between participants
through electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. DTC participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and may include certain other organizations such as the
Underwriters. Indirect access to the DTC system also is available to indirect
DTC participants such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a DTC participant, either
directly or indirectly.
Because DTC can only act on behalf of DTC participants, who in turn act
on behalf of indirect DTC participants and certain banks, the ability of an
owner of a beneficial interest in the New York Shares to pledge such interest to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such interest, may be limited by the lack of a definitive
certificate for such interest. The laws of some jurisdictions require that
certain persons take physical delivery of securities in definitive form.
Consequently, the ability to transfer beneficial interests in the New York
Shares to such persons may be limited. In addition, beneficial owners of New
York Shares through the DTC system will receive dividend payments only through
DTC participants.
NECIGEF
NECIGEF is an independent central institution whose objects are the
safekeeping and administration of securities and the operation of a security
giro on behalf of its participants. NECIGEF was established following the Wet
Giraal Effectenverkeer (Securities Giro Administration and Transfer Act)
published in The Netherlands in 1977, and is under the supervision of the Dutch
Minister of Finance. Participants in NECIGEF are banks and brokers registered as
credit institutions. Under the operation of the Securities Giro Administration
and Transfer Act, book-entry transfers are made between the collective
securities deposits held by NECIGEF (immobilized).
EUROCLEAR AND CEDEL
Euroclear and Cedel hold securities for participating organizations and
facilitate the clearance and settlement of securities transactions between their
respective participants through electronic book-entry changes in accounts of
such participants. Euroclear and Cedel provide to their participants, among
other things, services for safekeeping, administration, clearance and settlement
of internationally traded securities and securities lending and borrowing.
Euroclear and Cedel interface with United States domestic securities markets.
Euroclear and Cedel participants are financial institutions such as
underwriters, securities brokers and dealers, banks, trust companies and certain
other organizations and include certain of the Underwriters. Indirect access to
Euroclear or Cedel is also available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Euroclear or Cedel participant either directly or indirectly.
INITIAL SETTLEMENT
Investors electing to hold their New York Shares through DTC will
follow the settlement practices applicable to U.S. corporate common shares. The
securities custody accounts of investors will be credited with their holdings
against payment of U.S. dollars in same-day funds on the settlement date.
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Investors electing to hold their Bearer Shares through an account with
NECIGEF ("NECIGEF Holders"), Euroclear accounts ("Euroclear Holders") or Cedel
accounts ("Cedel Holders") will follow the settlement procedures applicable to
settlement of common shares in the respective clearing system. Such Bearer
Shares will be credited to the securities custody accounts of NECIGEF Holders on
the settlement date against payment in same-day funds, of Euroclear Holders on
the business day following the settlement date against payment for value on the
settlement date and of Cedel Holders on the settlement date against payment in
same-day funds. Unless otherwise set forth in a Prospectus Supplement, all such
payments will be made in Dutch guilders.
SECONDARY MARKET TRADING
For purposes of secondary market trading, the Common Shares will be
priced in dollars on the New York Stock Exchange and in guilders on the
Amsterdam Stock Exchange.
Because the purchaser determines the place of delivery, it is important
to establish at the time of trading of any New York Shares where both the
purchaser's and seller's accounts are located to ensure that settlement can be
made on the desired value date.
Trading between DTC participants. Secondary market trading between DTC
participants is settled using the procedures applicable to U.S. corporate common
shares in same-day funds.
Trading between Euroclear and/or Cedel participants. Secondary market
trading between Euroclear participants and/or Cedel participants is settled
using the procedures applicable to common shares in same-day funds.
Trading between NECIGEF participants. Secondary market trading between
NECIGEF participants is settled using the procedures applicable to Bearer Shares
in same-day funds.
Transfers of Shares from DTC to NECIGEF (including Euroclear and
Cedel). Upon a request to the New York Transfer Agent and Registrar to transfer
or exchange New York Shares for Bearer Shares or Common Shares booked on the
Amsterdam Register, the New York Transfer Agent and Registrar will cancel
certificates representing the appropriate number of New York Shares (including
New York Shares registered in the name of Cede & Co. if such New York Shares are
held in DTC) and appropriately adjust its register. The New York Transfer Agent
and Registrar will then instruct the Dutch Transfer and Paying Agent to deliver
a Bearer Share certificate representing the same number of Common Shares or to
cause the Common Shares to be booked in the Amsterdam Register. Bearer Share
certificates in the form of CF-certificates must remain deposited with an
authorized custodian and may only be transferred through the book-entry system
of NECIGEF. If the transferee/owner elects to hold directly through NECIGEF or
indirectly through Euroclear and Cedel, the Dutch Transfer and Paying Agent will
notify the respective custodians of NECIGEF, Euroclear or Cedel, as the case may
be. Participants of NECIGEF, Euroclear and Cedel should submit instructions
accordingly to receive delivery of Bearer Shares in accordance with the
respective systems' procedures.
Transfers from NECIGEF (including Euroclear and Cedel) to DTC. Upon a
request to the Dutch Transfer and Paying Agent to transfer or exchange Bearer
Shares for New York Shares, the Dutch Transfer and Paying Agent will cancel
certificates representing the appropriate number of Bearer Shares (including
shares held by the custodian through NECIGEF and indirectly Euroclear or Cedel
if such shares are held in the clearing systems). Holders should instruct their
custodian in NECIGEF to deliver Bearer Shares to the Dutch Transfer and Paying
Agent. If the transferor or exchanging holder holds directly through a
participant in NECIGEF or through Euroclear and Cedel, as the case may be, such
participant should submit instructions to effect transfer of the shares in
accordance with their procedures and the Dutch Transfer and Paying Agent will
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instruct the New York Transfer Agent and Registrar to issue a certificate
representing New York Shares to the appropriate transferee/registered owner. The
New York Transfer Agent and Registrar will then issue a new certificate
registered in the name of the transferee/registered owner or Cede & Co., if the
transferee/registered owner elects to hold through DTC and to appropriately
adjust its register. If the transferee/registered owner elects to hold through
DTC, the New York Transfer Agent will also notify DTC of the increase of the
number of New York Shares held through DTC and instruct DTC to have the
exchanged or transferred Common Shares credited to the appropriate account.
Under Dutch law, the transfer of registered Common Shares requires a
written instrument of transfer and written acknowledgment by the Issuer of such
transfer. In order to facilitate such transfers, the Issuer has provided the New
York Transfer Agent and Registrar and the Dutch Transfer and Paying Agent with
powers of attorney to enable execution and acknowledgment of the appropriate
documents to comply with Dutch law.
Because of time-zone differences, the mechanics of registering
exchanges and transfers between the New York Transfer Agent and Registrar and
the Dutch Transfer Agent described above as well as the need for DTC, NECIGEF
and Euroclear and Cedel accountholders to comply with the respective systems'
rules and procedures, including their established deadlines, exchanges and
transfers of Common Shares between the New York Transfer Agent and Registrar and
the Dutch Transfer and Paying Agent may not be credited to the relevant account
at DTC, NECIGEF or Euroclear and Cedel, as the case may be, until two business
days following delivery of the instructions to transfer the Common Shares to the
respective system. Settlement between a holder of New York Shares transferred to
a transferee who will hold Bearer Shares or Common Shares booked on the
Amsterdam Register or a holder of Bearer Shares or Common Shares booked on the
Amsterdam Register transferred to a transferee who will hold New York Shares
cannot be made on a delivery versus payments basis. The arrangements for
transfer of payments must be established separately from the arrangements for
transfer of securities, the latter being effected on a free delivery basis. The
customary arrangements for delivery versus payments between DTC participants,
NECIGEF participants and Euroclear and Cedel accountholders are not affected.
Persons wishing to obtain physical delivery of share certificates in
respect of their Common Shares must make arrangements with the NECIGEF,
Euroclear or Cedel participant through which Bearer Shares are held or with
NECIGEF, Euroclear or Cedel, as the case may be, and pay all related costs and
taxes incurred. Similar arrangements will also need to be made with DTC or DTC
participants through which New York Shares are held and all related costs and
taxes incurred paid to obtain physical delivery of share certificates for New
York Shares. Delivery of share certificates in either case normally takes
between 30 and 45 days after the settlement date.
A fee of $.05 per share will be charged by the New York Transfer Agent
and Registrar for the exchange of New York Shares for Bearer Shares or for
Common Shares booked on the Amsterdam Register (and for the reverse).
Bearer Shares have been accepted for clearance through Euroclear and
Cedel under common code number 007512759. The International Securities
Identification Number ("ISIN") for the Bearer Shares is NL0000344554. The CUSIP
number and the ISIN for New York Shares are N19808 10 9 and USN19808 10 93,
respectively.
TAXATION
The following is a summary of certain tax consequences in the United
States and in The Netherlands of the acquisition, ownership and disposition of
Common Shares under current law. It does not, however, discuss every aspect of
such taxation that may be relevant to a particular taxpayer under special
circumstances or
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who is subject to special treatment under applicable law, nor does it address
the income taxes imposed by any political subdivision of the United States or
The Netherlands or any tax imposed by any other jurisdiction. Such discussion
assumes that the Company is organized and its business is conducted in the
manner outlined in this Prospectus. The laws upon which such discussion is based
are subject to change, perhaps with retroactive effect. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE TAX CONSEQUENCES TO THEM OF
ACQUIRING, OWNING AND DISPOSING OF THE COMMON SHARES.
NETHERLANDS TAXES
The following is a summary of the material Netherlands tax consequences
to an owner of Common Shares who is not, or is not deemed to be, a resident of
The Netherlands for purposes of the relevant tax codes (a "nonresident
shareholder"). This discussion is based upon the advice of Loeff Claeys Verbeke,
Netherlands tax advisors of the Company. No assurance can be given that tax
authorities or courts in The Netherlands will agree with the conclusions
expressed herein.
NETHERLANDS DIVIDEND WITHHOLDING TAX
Dividend distributions by the Issuer are generally subject to dividend
withholding tax at a rate of 25%. These dividend distributions include dividends
in cash or in kind, constructive dividends, certain repayments of capital
qualified as dividends and liquidation proceeds in excess of, according to
Netherlands tax law, recognized paid-in capital. Stock dividends are also
subject to Netherlands dividend withholding tax unless they are distributed out
of the Issuer's paid-in capital as recognized for Netherlands tax purposes.
A nonresident shareholder may be eligible, however, for a reduction or
a refund of Netherlands dividend withholding tax under a tax convention, which
is in effect between the country of residence of the shareholder and The
Netherlands or based upon international conventions or regulations (e.g.,
European Community directives), provided certain conditions are met. The
Netherlands has concluded such tax conventions with, among others, most European
countries (including the United Kingdom), the United States, Canada and Japan.
Under most of these conventions (including the tax convention with the
United States) the recipient nonresident shareholder may benefit from a reduced
dividend withholding rate of 15% or less, unless the recipient nonresident
shareholder has a permanent establishment or a permanent representative or a
fixed base in The Netherlands to which or to whom the Common Shares are
attributable (in which case varying rates may apply).
Under the Tax Convention of December 18, 1992, concluded between The
Netherlands and the United States (the "U.S. Tax Treaty"), dividends paid by the
Issuer to a resident of the United States (other than an exempt organization or
exempt pension trust, as discussed below, or an individual who performs
independent personal services from a fixed base situated in The Netherlands if
the holding in respect of which the dividends are paid pertains to such fixed
base) are generally eligible for a reduction of the 25% Netherlands dividend
withholding tax to 15% or, in the case of certain U.S. corporate shareholders
beneficially owning the dividends and directly owning at least 10% of the voting
power of the Issuer, 5%, provided that such shareholder does not have an
enterprise or an interest in an enterprise that is, in whole or in part, carried
on through a permanent establishment or permanent representative in The
Netherlands and to which enterprise or part of an enterprise the Common Shares
are attributable. The U.S. Tax Treaty provides for a complete exemption for
dividends received by exempt pension trusts and exempt organizations, as defined
therein. Except in the case of exempt organizations, such reduced dividend
withholding rate (or exemption from withholding) can be applied at the source
upon payment of the dividends, provided that the proper forms have been filed in
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advance of the payment. Exempt organizations remain subject to the statutory
withholding rate of 25% and are required to file for a refund of such
withholding.
A person may not claim the benefits of the U.S. Tax Treaty unless (i)
it is a resident of the United States, as defined therein and (ii) such person's
entitlement to such benefits is not limited by the provisions of article 26
("limitation on benefits") of the U.S. Tax Treaty.
No Netherlands dividend withholding tax applies on the sale or other
disposition of Common Shares to persons other than the Company or its direct and
indirect subsidiaries.
NETHERLANDS INCOME TAX AND CORPORATE INCOME TAX
In general, a nonresident shareholder will not be subject to
Netherlands income tax (other than the dividend withholding tax described above)
with respect to dividends distributed by the Issuer on the Common Shares or with
respect to any gain derived from the sale or other disposition of Common Shares,
provided that:
(i) such shareholder is neither resident nor deemed to be resident in
The Netherlands;
(ii) such shareholder does not carry on a business in The Netherlands
through a permanent establishment or a permanent representative or a fixed base
to which or to whom the Common Shares are attributable; and
(iii) such shareholder does not have a substantial interest or a deemed
substantial interest, as defined under the laws of The Netherlands, in the
Issuer, or if such shareholder does have such an interest, it forms part of the
assets of a business.
In general, a nonresident shareholder has a substantial interest in the
Issuer if such shareholder, alone or together with his or her spouse, owns,
directly or indirectly, at least 5% of the issued capital of any class of shares
in the capital of the Issuer. There are various situations in which a
nonresident shareholder may have a deemed substantial interest in the Issuer,
e.g., a deemed substantial interest may exist if the nonresident person has
option rights over at least 5% of the issued capital of any class of shares in
the capital of the Issuer. The above does not cover all possible situations
where a substantial interest or a deemed substantial interest may exist. If
there is any doubt whether the "substantial interest" regulations may apply,
each prospective investor should consult his or her tax advisor regarding the
tax consequences.
As a general rule, under a tax convention which is in effect between
the country of residence of the nonresident shareholder and The Netherlands,
such nonresident shareholder may benefit from treaty protection against
Netherlands income tax under the "substantial interest" regulations on any gains
from the alienation of Common Shares, depending on the contents of the specific
tax convention and provided that certain conditions are met.
NETHERLANDS NET WEALTH TAX
A nonresident shareholder who is an individual is not subject to
Netherlands net wealth tax with respect to the Common Shares, provided that the
nonresident shareholder does not carry on a business in The Netherlands through
a permanent establishment or a permanent representative to which or to whom the
shares are attributable. Corporations are not subject to Netherlands net wealth
tax.
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NETHERLANDS GIFT AND INHERITANCE TAX
No Netherlands gift or inheritance tax arises as a result of a gift of
the Common Shares by, or the transfer of the Common Shares at the death of, a
shareholder who is neither resident nor deemed to be resident of The
Netherlands, unless the Common Shares are attributable to a permanent
establishment or a permanent representative of the shareholder in The
Netherlands. An individual of Netherlands nationality is deemed to be a resident
of The Netherlands, for the purposes of Netherlands gift and inheritance tax, if
he or she has been a Netherlands resident at any time during the ten years
preceding the time of the gift or death. A person not possessing Netherlands
nationality is deemed to be a resident of The Netherlands, only for the purposes
of Netherlands gift tax, if he or she has been residing in The Netherlands at
any time during the 12 months preceding the time of the gift.
UNITED STATES FEDERAL INCOME TAXES
The following is a summary of the material United States federal income
tax consequences of the acquisition, ownership and disposition of Common Shares
under present United States law which is expected to be generally applicable. It
does not, however, discuss every aspect of United States federal income taxation
that may be relevant to a particular taxpayer under special circumstances or who
is subject to special treatment under United States federal income tax laws.
Except as specifically mentioned below, it is not addressed to persons who are
not U.S. Holders (as defined below). Except as noted to the contrary, statements
of legal conclusion regarding tax effects in this section are based upon an
opinion which the Company has received from Cahill Gordon & Reindel, United
States counsel to the Company. No assurance can be given that the Internal
Revenue Service or the courts in the United States will agree with the
conclusions expressed herein.
DIVIDENDS
The gross amount of distributions (including any Netherlands
withholding tax thereon) received with respect to one or more Common Shares by a
citizen or resident of the United States, by a corporation which is organized in
the United States or by a person who is otherwise subject to United States
federal income tax on a net income basis with respect to such Common Shares (a
"U.S. Holder") are dividends taxable in the United States as ordinary income to
the extent of the current and accumulated earnings and profits of the Issuer, as
determined under U.S. federal income tax principles. These dividends are not
eligible for the dividends received deduction which is generally allowed to
United States corporate shareholders on dividends which are received from a U.S.
corporation.
Distributions in excess of the current and accumulated earnings and
profits of the Issuer will be treated first as nontaxable returns of capital to
the extent of such U.S. Holder's adjusted tax basis in the Common Shares, and
any such distribution in excess of such basis will constitute gain, which gain
will be capital gain if the Common Shares are held as capital assets.
The amount of income recognized upon the receipt of guilders as a
dividend will be the U.S. dollar value of the guilders on the date of
distribution, regardless of whether the U.S. Holder converts the payment into
U.S. dollars. Gain or loss, if any, recognized by a U.S. Holder on the sale or
disposition of guilders will be ordinary income or loss but an individual U.S.
Holder may be entitled to nonrecognition of gains not exceeding $200 realized on
dispositions of guilders in personal transactions in tax years commencing after
December 31, 1997.
Subject to certain conditions and limitations, Netherlands taxes
withheld in accordance with the U.S. Tax Treaty will be treated as a foreign tax
that U.S. Holders may elect to deduct in computing their U.S. federal taxable
income or credit against their U.S. federal income tax liability. Additional
withholding tax, if any,
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in excess of the rate applicable under the U.S. Tax Treaty generally will not be
eligible for credit against the U.S. Holder's U.S. federal income tax liability.
For foreign tax credit purposes, dividends paid by the Issuer (except in very
limited situations) will be foreign source "passive income" or, in the case of
certain U.S. Holders, "financial services income."
For foreign tax credit purposes, it is likely that, following the
Initial Common Share Offering, 50% or more of the Common Shares will be treated
as directly or indirectly owned by U.S. persons. If so and if ten percent or
more of the Issuer's earnings and profits, as calculated under U.S. federal
income tax principles, for any taxable year were attributable to sources within
the United States, a portion of any dividends paid by the Issuer could be
recharacterized as U.S. source income for foreign tax credit purposes. In such a
case, it may not be possible for U.S. Holders to claim the full amount of any
Netherlands withholding tax as a credit against their U.S. federal income tax
liability.
SALE OR OTHER DISPOSITION OF COMMON SHARES
A U.S. Holder will generally recognize gain or loss for United States
federal income tax purposes upon the sale or other disposition of Common Shares
in an amount equal to the difference between the amount realized from such sale
or other disposition and the U.S. Holder's tax basis for such Common Shares.
Such gain or loss will be a capital gain or loss if the Common Shares are held
as a capital asset. Under recently enacted tax legislation, income tax rates
generally applicable to gains recognized by individuals on assets held more than
eighteen months have been reduced to 20% or below. Under most circumstances, any
gain from the sale or other disposition of the Common Shares will be treated as
U.S. source income for foreign tax credit purposes.
Gain that is recognized upon a sale or other disposition of Common
Shares by a person who is not a U.S. Holder with respect to such Common Shares
will not be subject to income tax in the United States unless such person is an
individual who is present in the United States for 183 days or more during his
or her taxable year in which such sale or other disposition occurred and either
the income from the disposition is attributable to an office or other fixed
place of business maintained by such individual in the United States or such
individual has a tax home, as defined in Section 911(d)(3) of the Code, in the
United States during such taxable year.
FOREIGN PERSONAL HOLDING COMPANY CLASSIFICATION
The Issuer or any of its non-U.S. subsidiaries could be classified as a
foreign personal holding company ("FPHC") if in any taxable year five or fewer
individuals who are U.S. citizens or residents own (directly or constructively
through certain attribution rules) more than 50% of the voting power or the
value of the outstanding Common Shares. Classification as an FPHC would
generally result in each U.S. shareholder who held Common Shares on the last day
of the taxable year of the Issuer having to include in gross income as a
dividend such shareholder's pro rata portion of undistributed income of the
Issuer and of any non-U.S. subsidiaries that are also FPHCs. Based on the fact
that no person has filed a report with the Commission as of the date of this
Prospectus indicating that it holds 5% or more of the Common Shares, the Issuer
believes that, as of the date of this Prospectus, it is not an FPHC.
CONTROLLED FOREIGN CORPORATION CLASSIFICATION
The Company would be classified as a controlled foreign corporation if
any United States person (as defined in Section 957(c) of the Code) acquires 10%
or more of the shares of the Issuer (including ownership through the attribution
rules of Section 958 of the Code) and the sum of the percentage ownership by all
such persons exceeds 50% (by voting power or value) of the Issuer's stock. In
that event, all U.S. Holders of 10% or more of the Common Shares will be subject
to taxation under Subpart F of the Code, including possible
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taxation of such U.S. Holders based on certain income of the Issuer even in the
absence of distributions of such income by the Issuer.
BACK-UP WITHHOLDING AND INFORMATION REPORTING
Information reporting may apply to certain dividends on the Common
Shares and to the proceeds of sale of the Common Shares paid to U.S. Holders
other than certain exempt recipients (such as corporations). A 31% back-up
withholding tax (which is a refundable credit against the otherwise applicable
tax) may apply to such payments if the U.S. Holder fails to provide an accurate
taxpayer identification number or certification of exempt status.
SHARES ELIGIBLE FOR FUTURE SALE
As of September 30, 1997, the Issuer had 12,517,552 outstanding Common
Shares, including 545,941 Common Shares owned by the Selling Shareholder and
excluding 513,348 shares reserved for issuance upon exercise of outstanding
stock options. Of these shares, any Common Shares sold in the Common Share
Offering will be freely tradeable without restrictions or further registration
under the Securities Act, except for any shares purchased by an "affiliate" (as
that term is defined in Rule 144 under the Securities Act ("Rule 144") of the
Company, which will be subject to the resale limitations of Rule 144 under the
Securities Act.
Any Common Shares that the Selling Shareholder will hold upon
completion of the Common Share Offering, up to 1,251,755 Common Shares that may
be issuable to directors of the Issuer or employees of the Company under the
Incentive Plan, the 925,670 Management Plan Shares as described under
"Management-Compensation and Benefits-Special Stock-Based, Long-Term
Compensation Related to the Initial Common Share Offering" and any Common Shares
purchased by affiliates may be sold by the respective holders thereof only
pursuant to an effective registration statement under the Securities Act,
pursuant to Rule 144 under the Securities Act or in accordance with an exemption
under the Securities Act.
In general, under Rule 144, a person (including the "affiliate") who
beneficially owns shares that are "restricted securities" as to which at least
one year has elapsed since the later of the date of acquisition of such
securities from the issuer or the acquisition from an affiliate of the issuer,
and any affiliate who owns shares that are not "restricted securities," is
entitled to sell, within any three-month period, a number of shares that does
not exceed (together with sale by other persons required to be aggregated) the
greater of 1% of the then outstanding Common Shares (approximately 125,176
shares as of September 30, 1997) or the average weekly trading volume in the
Common Shares in composite trading on all exchanges during the four calendar
weeks preceding such sale. A person (or persons whose shares are aggregated) who
is not deemed an "affiliate" of the Company and who has beneficially owned
restricted securities as to which at least two years have elapsed since the
later of the date of the acquisition of such securities from the issuer or the
acquisition from an affiliate of the issuer is entitled to sell such shares
under Rule 144 without regard to the volume limitations described above. The
foregoing summary of Rule 144 is not intended to be a complete description
thereof.
The Issuer has granted registration rights to Praxair pursuant to which
Praxair has certain rights to demand registrations of the Common Shares held by
the Selling Shareholder (or its transferee) at the Issuer's expense as well as
the right to include such shares in registration statements filed by the Issuer.
No prediction can be made as to the effect, if any, that market sales
of Common Shares, or the availability of such shares for sale, will have on the
market price of the Common Shares prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Shares in the public market, or the
perception that such sales could occur, could adversely affect prevailing market
prices for the Common Shares. In connection with any underwritten offering made
hereunder, the Issuer, the Selling Shareholder and certain of its
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directors and executive officers may be prohibited, pursuant to an underwriting
agreement, from selling, granting any option to sell or otherwise disposing of,
directly or indirectly, any Common Shares or securities convertible into or
exercisable for Common Shares or warrants or other rights to purchase Common
Shares or permitting the registration of Common Shares for a period after the
date of this Prospectus or any Prospectus Supplement without the prior consent
of the underwriters.
PLAN OF DISTRIBUTION
The Company has been advised that the Selling Shareholder may offer and
sell Common Shares covered by this Prospectus in any of the following ways: (1)
through underwriters or dealers; (2) directly to one or more purchasers; or (3)
through agents. Any Prospectus Supplement, if required, with respect to the
Common Shares being offered hereunder will set forth the terms of the offering
of such Common Shares, including the name or names of any underwriters or
agents, the purchase price of such Common Shares and the proceeds to the Selling
Shareholder from such sale, any underwriting discounts, commissions and other
items constituting underwriters' compensation, any initial public offering price
and any discounts or concessions allowed or reallowed or paid to dealers and, if
other than the NYSE and the Amsterdam Stock Exchange, any securities exchanges
on which such Common Shares may be listed. Any underwriter or agent may be
deemed to be an underwriter as that term is defined in the Securities Act. In
connection with the Offering, the Company has agreed to pay up to $2 million for
expenses in respect of the Offering.
If underwriters are used in the sale of Common Shares, such Common
Shares will be acquired by the underwriters for their own account and may be
resold from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Common Shares may be offered to the public either through
underwriting syndicates (which may be represented by managing underwriters
designated by the Selling Shareholder), or directly by one or more underwriters
acting alone. Unless otherwise set forth in a Prospectus Supplement, the
obligations of the underwriters to purchase the Common Shares offered thereby
will be subject to certain conditions precedent, and the underwriters will be
obligated to purchase all such Common Shares if any are purchased. Any initial
public offering price and any discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time.
The Common Shares may be sold directly by the Selling Shareholder or
through agents designated by the Selling Shareholder from time to time. Any
Prospectus Supplement, if required, with respect to any Common Shares sold in
this manner will set forth the name of any agent involved in the offer or sale
of the Common Shares as well as any commissions payable by the Selling
Shareholder to such agent. Unless otherwise indicated in any such Prospectus
Supplement, any such agent is acting on a best efforts basis for the period of
its appointment.
If dealers are utilized in the sale of any Common Shares, the Selling
Shareholders will sell the Common Shares to the dealers, as principals. Any
dealer may then resell the Common Shares to the public at varying prices to be
determined by the dealer at the time of resale. The name of any dealer and the
terms of the transaction will be set forth in a Prospectus Supplement, if
required, with respect to the Common Shares being offered hereunder.
If so indicated in a Prospectus Supplement, the Selling Shareholder
will authorize agents, underwriters or dealers to solicit offers by certain
specified institutions to purchase Common Shares from the Selling Shareholder at
the public offering price set forth in such Prospectus Supplement pursuant to
delayed delivery contracts providing for payment and delivery on a specified
date in the future. Such contracts will be subject only to those conditions set
forth in any such Prospectus Supplement and any such Prospectus Supplement will
set forth the commission payable for the solicitation of such contracts.
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As of the date of this Prospectus, the Common Shares are listed on the
NYSE and the Amsterdam Stock Exchange. Any underwriters will not be obligated to
make a market in any Common Shares. The Company cannot predict the activity of
trading in, or liquidity of, any Common Shares.
Agents, underwriters and dealers may be entitled, under agreements
entered into with the Company and the Selling Shareholder, to indemnification by
the Company and the Selling Shareholder against certain civil liabilities,
including liabilities under the Securities Act or to contribution with respect
to payments which the agents, underwriters or dealers may be required to make in
respect thereof. Agents, underwriters and dealers may be customers of, engage in
transactions with, or perform services for the Company or the Selling
Shareholder or both in the ordinary course of business.
LEGAL MATTERS
Certain legal matters in connection with certain offerings made
hereunder will be passed upon for the Issuer by Cahill Gordon & Reindel, a
partnership including a professional corporation, New York, New York. The
validity of the Common Shares offered hereby is being passed upon for the Issuer
by Loeff Claeys Verbeke, Amsterdam, The Netherlands. Certain legal matters in
connection with certain offerings made hereunder will be passed upon for any
agents, underwriters or dealers by Dewey Ballantine, New York, New York. Both
Cahill Gordon & Reindel and Loeff Claeys Verbeke have also provided certain
legal services to Praxair and its affiliates in connection with the Common Share
Offering and have represented and will continue to represent Praxair and its
affiliates in various other matters.
EXPERTS
The financial statements of the Company, as of December 31, 1996, 1995
and 1994 and for each of the three fiscal years in the period ended December 31,
1996, included in this Prospectus and elsewhere in the Registration Statement
have been audited by Arthur Andersen LLP, independent public accountants, and
the balance sheet of Chicago Bridge & Iron Company N.V. as of December 31, 1996,
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen & Co., independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
Arthur Andersen LLP's address is 33 West Monroe Street, Chicago, IL
60603 in the United States and Arthur Andersen & Co.'s address is P.O. Box
75381, 1070 AJ Amsterdam, The Netherlands.
AVAILABLE INFORMATION
The Issuer has filed with the Commission a Registration Statement on
Form S-1 under the Securities Act, with respect to the Common Shares offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all the information set forth in the Registration Statement and
the exhibits and schedules thereto, to which reference is hereby made.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document are not necessarily complete; with respect to each such
contract, agreement or other document filed as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description of
the matter involved.
The Issuer is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and, in accordance therewith, will
file reports, proxy and information statements and other information with the
Commission. Such reports, proxy and information statements and other information
and the Registration Statement and exhibits and schedules thereto filed by the
Issuer with the Commission can be inspected and copied at the Public Reference
section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
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Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at 7 World Trade Center, 15th Floor, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained from the Public Reference section
of the Commission, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission maintains an Internet web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission (http://www.sec.gov).
The Issuer will also comply with its obligations under the law of The
Netherlands to prepare annual financial statements complying with Netherlands
corporate law and deposit the same at the Commercial Register of the Chamber of
Commerce and Industry in Amsterdam, The Netherlands.
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SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES
The Issuer is a Netherlands company and a substantial portion of its
assets are located outside the United States. In addition, certain members of
the Management and Supervisory Boards of the Issuer are residents of countries
other than the United States. The Company has been advised by its Netherlands
counsel, Loeff Claeys Verbeke, that as a result, it may not be possible for
investors to effect service of process within the United States upon such
persons or to enforce against such persons or the Issuer judgments of courts of
the United States predicated upon civil liabilities under the United States
federal securities laws. Since there is no treaty between the United States and
The Netherlands providing for the reciprocal recognition and enforcement of
judgments, United States judgments are not enforceable in The Netherlands.
However, a final judgment for the payment of money obtained in a United States
court, which is not subject to appeal or any other means of contestation and is
enforceable in the United States, would in principle be upheld and be regarded
by a Netherlands court of competent jurisdiction as conclusive evidence when
asked to render a judgment in accordance with such final judgment by a United
States court, without substantive re-examination or relitigation on the merits
of the subject matter thereof, provided that such judgment has been rendered by
a court of competent jurisdiction, in accordance with rules of proper procedure,
that it has not been rendered in proceedings of a penal or revenue nature and
that its content and possible enforcement are not contrary to public policy or
public order of The Netherlands. Notwithstanding the foregoing, there can be no
assurance that United States investors will be able to enforce against the
Issuer, or members of the Management or Supervisory Boards, or certain experts
named herein who are residents of The Netherlands or other countries outside the
United States, any judgments in civil and commercial matters, including
judgments under the federal securities laws. In addition, there is doubt as to
whether a Netherlands court would impose civil liability on the Issuer or on the
members of the Management or Supervisory Boards in an original action predicated
solely upon the federal securities laws of the United States brought in a court
of competent jurisdiction in The Netherlands against the Issuer or such members.
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INDEX TO FINANCIAL STATEMENTS
CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
PAGE
----
CONSOLIDATED FINANCIAL STATEMENTS (POST-REORGANIZATION) - UNAUDITED:
Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996.F-2
Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 1997 and 1996............................................F-3
Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 1997 and 1996......................................................F-4
Notes to Consolidated Financial Statements.................................F-5
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS (POST-PRAXAIR ACQUISITION):
Report of Independent Public Accountants...................................F-8
Consolidated Balance Sheet as of December 31, 1996.........................F-9
Consolidated Income Statement for the Year Ended December 31, 1996.........F-10
Consolidated Statement of Changes in Shareholder's Equity for the Year
Ended December 31, 1996................................................F-11
Consolidated Statement of Cash Flows for the Year Ended December 31, 1996..F-12
Notes to Consolidated Financial Statements.................................F-13
Consolidated Financial Statements (Pre-Praxair Acquisition):
Report of Independent Public Accountants...................................F-30
Consolidated Balance Sheets as of December 31, 1995 and 1994...............F-31
Consolidated Income Statements for the Years Ended December 31, 1995 and
1994...................................................................F-32
Consolidated Statements of Changes in Shareholder's Equity for the Years
Ended December 31, 1995 and 1994.......................................F-33
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995
and 1994..............................................................F-34
Notes to Consolidated Financial Statements.................................F-35
CHICAGO BRIDGE & IRON COMPANY N.V.
Report of Independent Public Accountants...................................F-52
Balance Sheet as of December 31, 1996......................................F-53
Notes to Balance Sheet.....................................................F-54
F-1
<PAGE>
CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 17,751 $ 11,864
Accounts receivable, net of allowance for doubtful
accounts of $2,273 in 1997 and $3,047 in 1996 131,925 101,675
Contracts in progress with earned revenues
exceeding related progress billings 56,646 79,782
Assets held for sale 4,522 5,374
Other current assets 7,176 7,364
--------- ---------
Total current assets 218,020 206,059
Assets held for sale -- 5,118
Property and equipment 121,598 107,875
Goodwill 18,661 19,027
Other non-current assets 14,210 13,417
--------- ---------
Total assets $ 372,489 $ 351,496
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 1,292 $ 3,114
Accounts payable 38,041 24,804
Accrued liabilities 45,620 44,513
Contracts in progress with progress billings
exceeding related earned revenues 58,532 34,727
Payable to former Parent Company -- 6,008
Income taxes payable 2,892 4,440
--------- ---------
Total current liabilities 146,377 117,606
--------- ---------
Long-term debt 42,000 53,907
Minority interest in subsidiaries 5,642 7,428
Other non-current liabilities 77,873 81,809
--------- ---------
Total liabilities 271,892 260,750
--------- ---------
Shareholders' equity
Common stock; NLG .01 par value, 50,000,000 authorized
shares; 12,517,552 issued and outstanding shares 74 --
Common stock; $1 par value, 1,000 authorized shares;
1,000 issued and outstanding shares -- 1
Additional paid-in capital 94,606 79,958
Retained earnings 8,971 11,562
Cumulative translation adjustment (3,054) (775)
--------- ---------
Total shareholders' equity 100,597 90,746
--------- ---------
Total liabilities and shareholders' equity $ 372,489 $ 351,496
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
F-2
<PAGE>
CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 166,755 $ 183,021 $ 477,500 $ 483,531
Cost of revenues 158,204 163,436 434,082 430,523
------------ ------------ ------------ ------------
Gross profit 8,551 19,585 43,418 53,008
Selling and administrative expenses 11,096 10,748 33,436 32,248
Management Plan charge -- -- 16,662 --
Other operating (income) expense (4,053) 298 (4,356) (381)
------------ ------------ ------------ ------------
Income (loss) from operations 1,508 8,539 (2,324) 21,141
Interest expense (506) (1,235) (3,131) (3,787)
Other income 369 433 1,233 581
------------ ------------ ------------ ------------
Income (loss) before taxes and minority interest 1,371 7,737 (4,222) 17,935
Income tax expense (benefit) 384 2,016 (2,990) 4,674
------------ ------------ ------------ ------------
Income (loss) before minority interest 987 5,721 (1,232) 13,261
Minority interest in income (loss) (125) 348 (143) 2,331
------------ ------------ ------------ ------------
Net income (loss) $ 1,112 $ 5,373 $ (1,089) $ 10,930
============ ============ ============ ============
Net income (loss) per common share (1) $ 0.09 N/A(2) $ (0.09) N/A(2)
Weighted average common shares outstanding(1) 12,517,552 N/A 12,517,552 N/A
Dividends on common shares
Amount $ 751 N/A $ 1,502 N/A
Per share $ 0.06 N/A $ 0.12 N/A
</TABLE>
(1) Net income (loss) per common share and the average weighted common shares
outstanding for 1997 are presented as if the Offering and the
Reorganization, hereinafter defined, had occurred at the beginning of the
year.
(2) Net income (loss) per common share is not presented for 1996 as the
Reorganization had not taken place. Giving effect to the Offering and the
Reorganization as if each had occurred at the first day of the year, net
income per common share would have been $0.43 for the three months ended
September 30, 1996 and $0.87 for the nine months ended September 30,
1996.
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
F-3
<PAGE>
CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (1,089) $ 10,930
Adjustments to reconcile net income to net cash provided by
operating activities
Management Plan charge 16,662 --
Depreciation and amortization 12,882 12,605
Increase in prepaid income taxes (7,061) --
(Gain)/loss on sale of fixed assets (1,095) 354
Change in operating assets and liabilities (see below) 22,514 (1,703)
-------- --------
Net cash provided by operating activities 42,813 22,186
-------- --------
Cash flows from capital investment activities
Proceeds from sale of fixed assets and assets held for sale 11,030 6,583
Capital expenditures (26,717) (8,075)
-------- --------
Net cash used in capital investment activities (15,687) (1,492)
-------- --------
Cash flows from financing and shareholder activities
Payment to former Parent Company (6,008) (12,972)
Decrease in notes payable (1,822) (559)
Net repayment of long-term debt to former Parent Company (53,907) --
Net borrowing under Revolving Credit Facility 42,000 --
Dividends paid (1,502) --
-------- --------
Net cash used in financing and shareholder activities (21,239) (13,531)
-------- --------
Increase in cash and cash equivalents 5,887 7,163
Cash and cash equivalents, beginning of the period 11,864 12,850
-------- --------
Cash and cash equivalents, end of the period $ 17,751 $ 20,013
======== ========
Change in operating assets and liabilities
(Increase)/decrease in receivables, net $(30,250) $ 14,421
(Increase)/decrease in contracts in progress, net 46,941 (23,369)
Decrease in other current assets 188 4,435
Increase in accounts payable & accrued liabilities 11,419 780
Decrease in income taxes payable (1,548) --
Other, net (4,236) 2,030
-------- --------
Total $ 22,514 $ (1,703)
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
F-4
<PAGE>
CHICAGO BRIDGE & IRON COMPANY N.V. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
1. ORGANIZATION AND INITIAL PUBLIC OFFERING
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements for
Chicago Bridge & Iron Company N.V. and Subsidiaries (the "Company") have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. The accompanying unaudited
interim consolidated financial statements should be read in conjunction with the
full year consolidated financial statements and notes thereto included in the
Company's Registration Statement, filed on Form S-1, as amended (SEC File No.
333-18065).
In the opinion of the Company, all adjustments necessary to present
fairly the financial position of the Company and the results of its operations
and cash flows for the period then ended have been included. The results of
operations for such interim periods are not necessarily indicative of the
results for the full year.
COMMON SHARE OFFERING
In December 1996, the Company filed a registration statement with the
Securities and Exchange Commission for an initial public offering of a majority
of the Company's common shares (the "Offering"). In March 1997, the Company
completed the Offering of 11,045,941 shares of Common Stock at $18.00 per share.
The Company did not receive any proceeds from the Initial Common Share Offering,
but incurred $2,000 of the offering costs. These shares of Common Stock are
traded on the New York and Amsterdam stock exchanges.
REORGANIZATION
At December 31, 1996, Chicago Bridge & Iron Company and Subsidiaries
("CB&I") was a wholly owned subsidiary of Chi Bridge Holdings, Inc.
("Holdings"), which in turn was a wholly owned subsidiary of Praxair, Inc.
("Praxair"). In March 1997, Holdings effected a reorganization (the
"Reorganization") whereby Holdings transferred the business of CB&I to Chicago
Bridge & Iron N.V. ("CB&I N.V."), a corporation organized under the laws of The
Netherlands. This Reorganization did not affect the carrying amounts of CB&I's
assets and liabilities, nor result in any distribution of their cash or other
assets to Praxair. The consolidated balance sheet as of September 30, 1997
reflects the Reorganization. CB&I N.V.'s only transaction for the year ended
December 31, 1996 was a $59 original investment in exchange for common shares
and additional paid-in capital. The consolidated balance sheet as of December
31, 1996 and the consolidated income statement and statement of cash flows for
the period ended September 30, 1996 include the amounts of CB&I prior to the
Reorganization.
F-5
<PAGE>
2. LONG-TERM DEBT
Through April 2, 1997, the Company's cash requirements were funded by
Praxair through the long-term debt account. Interest was payable to Praxair at
7% per annum. Also, approximately $22,000 of letters of credit were outstanding
at September 30, 1997 related to the Company's insurance program, and are
guaranteed by Praxair. In addition, the Company had $3,075 of letters of credit
outstanding related to the Company's insurance program.
On April 2, 1997, the Company, The Chase Manhattan Bank and a syndicate
of other banks entered into a five year senior, unsecured competitive advance
and revolving credit facility (the "New Revolving Credit Facility"). Maximum
availability under the New Revolving Credit Facility is $100,000 for the first
three years and $50,000 thereafter. The Company initially borrowed $75,000
thereunder to repay the long-term debt to Praxair as of April 2, 1997. The
unused available committed amounts under the New Revolving Credit Facility is
available for general corporate purposes, including working capital, letters of
credit and other requirements of the Company. Revolving credit loans are
available at interest rates based upon the lenders' alternate base rate or a
spread ranging from 0.325% to 0.875% (based on the Company's debt coverage
ratio) over LIBOR or on a competitive bid basis. At September 30, 1997 the
weighted average interest rate was 6.31%. Letters of credit may be issued,
subject to a $35,000 sublimit, on either a committed or competitive bid basis
and expire one year after issuance, unless otherwise provided. The New Revolving
Credit Facility will terminate on April 2, 2002.
The New Revolving Credit Facility contains certain restrictive
covenants regarding tangible net worth, interest coverage, leverage ratios and
capital expenditures, among other restrictions. The New Revolving Credit
Facility was amended to increase the restriction on capital expenditures for
1997 from $22.5 million to $33.0 million.
On September 30, 1997, the Company deposited $11,000 in an irrevocable
trust. These funds were invested in a U.S. Treasury Fund maturing on October 3,
1997 to be applied to borrowings under the New Revolving Credit Facility on that
date; accordingly, long-term debt at September 30, 1997 was reduced by this
amount to $42,000.
3. INCOME TAXES
Prior to the Reorganization, the consolidated amount of current and
deferred tax expense was allocated among the members of the Praxair group using
the pro-rata method, which assumed the Company's taxes would be filed as part of
Praxair's consolidated return. In conjunction with the Offering, the Company
became a stand alone entity and, therefore, subsequent to March 26, 1997 the
consolidated amount of current and deferred tax expense will be calculated using
a separate return approach. The separate return approach is not expected to
result in significant adjustments to the tax accounts.
The Company had a net deferred tax asset before valuation allowance of
$33,902 and $27,544 at September 30, 1997 and December 31, 1996, respectively.
The increase in the deferred tax assets is a result of the tax benefit
associated with the Management Plan charge (Note 4). The net deferred tax assets
at September 30, 1997 and December 31, 1996 were reduced by a valuation
allowance of $27,155.
4. THE MANAGEMENT PLAN
The Company established the Chicago Bridge & Iron Management Defined
Contribution Plan (the "Management Plan") in early 1997. The Management Plan is
not qualified under Section 401(a) of the Internal Revenue Code (the "Code") and
each participant's account shall be treated as a separate account under Section
404(a)(5) of the Code. The number of initial participants is seventy-one. The
designation of the Management Plan's participants, the amount of Company
F06
<PAGE>
contributions to the Management Plan and the amount allocated to the individual
participants were determined by the Company's Management Board. The allocation
to the participant's individual accounts occurs concurrently with the Company's
contributions. Management Plan shares will vest as determined by the vesting
provisions of the plan. Upon vesting, the distribution of the balance held in
the individual participant's account can be distributed at the election of the
participant. Forfeitures of Management Plan shares under the provisions of the
Management Plan will be reallocated to the other Management Plan participants.
Upon consummation of the Offering, the Company made a contribution to
the Management Plan in the form of 925,670 Common Shares having a value of
$16,662. Accordingly, the Company recorded expenses of $16,662 ("Management Plan
Charge") in the three months ended March 31, 1997.
5. Stock Options
In conjunction with the Offering, the Company reserved 1,251,755 Common
Shares for issuance under the long-term incentive compensation plan (the
"Incentive Plan") adopted by the Company's Delaware subsidiary, Chicago Bridge &
Iron Company ("Bridge"). In conjunction with the Offering, Bridge granted
513,348 options to purchase Common Shares (the "Options") at an exercise price
equal to the initial offering price of $18.00 per common share. The Options are
exercisable after April 2, 2000 at the earliest subject to achievement of a
cumulative earnings per share for the three year period from 1997 through 1999
of at least $6.25 per Common Share (excluding the $16,662 Management Plan charge
discussed in Note 4 above), or if not achieved, on any succeeding April 2 if
such goal, compounded an additional 15% per year, is achieved as of the end of
the fiscal year then ended preceding such April 2 date, and if never so
achieved, then automatically after nine years from their date of grant. The
Incentive Plan has a life of five years for the purpose of making grants or
awards. As of September 30, 1997, net of forfeitures, 746,102 Common Shares
remained available for issuance under the Incentive Plan.
To value the Options, the Company applied the intrinsic value approach
under Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees." The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock Based Compensation." Accordingly, no compensation expense has been
recognized for the stock option plans.
6. Commitments & Contingent Liabilities
See Legal Proceedings and Insurance for an update of Aluminum Company
of America v. Beezer East, Inc. v. Chicago Bridge & Iron Company. As a result of
the September 2, 1997 favorable judgment, the Company recognized $3.4 million of
other operating income for the three month period ended September 30, 1997.
F-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of
Chicago Bridge & Iron Company:
We have audited the accompanying consolidated balance sheet of CHICAGO
BRIDGE & IRON COMPANY (a Delaware corporation) AND SUBSIDIARIES as of December
31, 1996 and the related consolidated statements of income, changes in
shareholder's equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Chicago Bridge & Iron
Company and Subsidiaries as of December 31, 1996 and the results of its
operations and cash flows for the year then ended in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
February 7, 1997
F-8
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
December 31,
1996
ASSETS
Current Assets:
Cash and cash equivalents................... $ 11,864
Accounts receivable......................... 96,782
Receivable from Affiliates.................. 4,893
Contracts in progress with earned revenues
exceeding related progress billings....... 79,782
Assets held for sale........................ 5,374
Other current assets........................ 7,364
--------
Total current assets. 206,059
--------
Assets held for sale............................ 5,118
Property and equipment.......................... 107,875
Goodwill........................................ 19,027
Other non-current assets........................ 13,417
--------
Total assets......... $351,496
========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Notes payable............................... $ 3,114
Accounts payable............................ 24,804
Accrued liabilities......................... 44,513
Contracts in progress with progress billings
exceeding related earned revenues............ 34,727
Payable to Parent Company................... 6,008
Income taxes payable........................ 4,440
--------
Total current liabilities......... 117,606
========
Debt to Parent Company.......................... 53,907
Minority interest in subsidiaries............... 7,428
Other non-current liabilities................... 81,809
--------
Total liabilities................. 260,750
========
SHAREHOLDER'S EQUITY:
Common Stock, $1 par value, 1,000 authorized shares;
1,000 issued and outstanding in 1996................... 1
Additional paid-in capital.................. 79,958
Retained earnings........................... 11,562
Cumulative translation adjustment........... (775)
--------
Total shareholder's equity........ 90,746
--------
Total liabilities and
shareholder's equity............ $351,496
========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
F-9
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT
(in thousands)
Year Ended
December 31,
1996
Revenues
Third party customers........................................ $650,337
Affiliates of Praxair........................................ 13,384
--------
Total revenues................................ 663,721
Cost of revenues
Third party customers........................................ $578,933
Affiliates of Praxair........................................ 11,097
--------
Total cost of revenues........................ 590,030
--------
Gross profit.................................. 73,691
Selling and administrative expenses.............................. 42,921
Gain on sale of assets........................................... (493)
--------
Income from operations........................ 31,263
Interest expense................................................. (5,002)
Other income..................................................... 990
--------
Income before taxes and minority interest..... 27,251
Income tax expense........................................... 7,789
--------
Income before minority interest............... 19,462
Minority interest in income.................................. (2,900)
--------
Net income.................................... $16,562
========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
F-10
<PAGE>
<TABLE>
<CAPTION>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
(in thousands)
Additional Advances Cumulative Total
Common Paid-in Retained to Parent Translation Shareholder's
Stock Capital Earnings Company Adjustment Equity
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995..... $ 1 $185,493 $159,672 $(142,786) $(15,873) $186,507
Praxair acquisition adjustments.. - 52,292 (159,672) - 15,873 (91,507)
------ -------- -------- --------- -------- --------
Balance at January 1, 1996....... 1 237,785 - (142,786) - 95,000
Net Income....................... - - 16,562 - - 16,562
Advances to Parent Company....... - - - (15,041) - (15,041)
Return of capital dividend to
Parent Company................... - (157,827) - 157,827 - -
-
Cash dividend payable to Parent
Company.......................... - - (5,000) - - (5,000)
Translation adjustment........... - - - - (775) (775)
------ -------- -------- --------- -------- --------
Balance at December 31, 1996..... $ 1 $79,958 $11,562 $ - $ (775) $ 90,746
====== ======= ======= ======== ======== =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
F-11
<PAGE>
<TABLE>
<CAPTION>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year ended
December 31, 1996
-----------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income...................................................................... $16,562
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 17,281
Decrease in deferred income taxes............................................... 4,251
Gain on sale of fixed assets.................................................... (493)
Change in operating assets and liabilities (see below).......................... (12,442)
-------
Net Cash Provided by Operating Activities....................................... 25,159
------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets and investments.............................. 9,077
Capital expenditures............................................................ (20,425)
-------
Net Cash used in Investing Activities........................................... (11,348)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance to Parent Company....................................................... (15,041)
Increase in notes payable....................................................... 1,337
Repayment of Debt to Parent Company............................................. (1,093)
------
Net Cash Used in Financing Activities........................................... (14,797)
-------
Decrease in cash and cash equivalents........................................... (986)
Cash and cash equivalents, beginning of the year................................ 12,850
------
Cash and cash equivalents, end of the year...................................... $11,864
=======
CHANGE IN OPERATING ASSETS AND LIABILITIES:
Decrease in receivables, net.................................................... $9,213
Increase in contracts in progress, net.......................................... (24,950)
Decrease in other current assets................................................ 8,689
Decrease in accounts payable & accrued liabilities.............................. (5,740)
Increase in payable to Parent Company........................................... 1,088
Increase in income tax payable.................................................. 404
Increase other.................................................................. (1,146)
------
Total........................................................................... $(12,442)
========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest.......................................................... $3,902
Cash paid for income taxes...................................................... $3,536
SUPPLEMENTAL NON-CASH DISCLOSURE:
Return of capital dividend to Parent Company.................................... $157,827
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
</TABLE>
F-12
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
(in thousands)
1. Organization and Nature of Operations:
Chicago Bridge & Iron Company and Subsidiaries ("the Company") is a global
engineering and construction company specializing in the engineering and design,
materials procurement, fabrication, erection, repair and modification of steel
tanks, other steel plate structures and associated systems such as petroleum
terminals, refinery pressure vessels, low temperature and cryogenic storage
facilities and elevated water storage tanks. Based on its knowledge of and
experience in its industry, the Company believes it is the leading provider of
field erected steel tanks and other steel plate structures, associated systems
and related services in North America and one of the leading providers of these
specialized products and services in the world. The Company seeks to maintain
its leading industry position by focusing on using its technological expertise
in design, metallurgy and welding, along with its ability to complete
logistically and technically complex metal plate projects virtually anywhere in
the world. The Company has been continuously engaged in the engineering and
construction industry since its founding in 1889.
The worldwide petroleum and petrochemical industry has been the largest
sector of the Company's revenues, accounting for approximately 60% of revenues
in 1996. Numerous factors influence capital expenditure decisions in this
industry which are beyond the control of the Company. Therefore, no assurance
can be given that the Company's business, financial condition and results of
operations will not be adversely effected because of reduced activity or
changing taxes, price controls and laws and regulations related to the petroleum
and petrochemical industry.
During the periods and as of the dates for which the financial statements
are presented, the Company was a wholly owned subsidiary of Chi Bridge Holdings,
Inc., which in turn was a wholly owned subsidiary of CBI Industries, Inc.
("Industries"). On January 12, 1996, pursuant to the merger agreement dated
December 22, 1995, Industries became a subsidiary of Praxair, Inc. ("Praxair").
This merger transaction was reflected in the Company's consolidated financial
statements as a purchase effective to January 1, 1996 ("Merger Date").
Accordingly, the historical information provided for the periods prior to
January 1, 1996 ("Pre-Praxair Acquisition") will not be comparable to subsequent
financial information ("Post-Praxair Acquisition"). Effective December 19, 1996,
Industries was merged with and into Praxair, with no consequences to the
Company's financial statements.
The fair value assigned to the Company as of the Merger Date was $150,000,
excluding any bank or assumed debt ("Merger Value"). This Merger Value
approximates the portion of the total Industries purchase price that relates to
the Company. The allocation of this Merger Value to the fair value of individual
assets and liabilities is based on the respective fair values. The allocation of
this fair value resulted in the following opening balance sheet:
F-13
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
December 31, 1996
(in thousands)
<TABLE>
<CAPTION>
Purchase
Historical Accounting Opening
Balance Sheet Adjustments Balance Sheet
December 31, 1995 Increase/ January 1, 1996
(Pre-Praxair (Decrease) (Post-Praxair)
------------ ---------- --------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents......................... $ 12,850 $ - $ 12,850
Accounts receivable............................... 106,634 4,095 (A) 110,729
Contracts in progress............................. 70,918 - 70,918
Assets held for sale.............................. 5,157 4,374 (B) 9,531
Deferred income taxes............................. 7,369 (5,507)(C) 1,862
Other current assets.............................. 14,617 (192)(A) 14,425
-------- --------- ---------
Total current assets 217,545 2,770 220,315
Property and equipment............................ 100,496 4,307 (B) 104,803
Assets held for sale.............................. 2,235 7,527 (B) 9,762
Deferred income taxes............................. 28,405 (28,405)(C) -
Goodwill.......................................... - 19,515 (D) 19,515
Other non-current assets.......................... 7,444 3,238 (A) 10,682
-------- --------- ---------
Total assets...................................... $356,125 $ 8,952 $ 365,077
-------- --------- ---------
LIABILITIES & SHAREHOLDER'S EQUITY LIABILITIES
Contracts in progress............................. $47,660 $ 3,153 (A) $50,813
Other current liabilities......................... 59,545 5,048 (E) 64,593
-------- --------- ---------
Total current liabilities......................... 107,205 8,201 115,406
Long-term debt to Parent Company.................. 55,000 (F) 55,000
Other non-current liabilities..................... 62,413 37,258 (E) 99,671
-------- --------- ---------
Total liabilities................................. 169,618 100,459 270,077
SHAREHOLDER'S EQUITY
Common stock...................................... 1 - 1
Additional paid-in capital........................ 185,493 52,292 (A) 237,785
Retained earnings................................. 159,672 (159,672)(G) -
Advances to Parent Company........................ (142,786) - (142,786)
Cumulative translation adjustment................. (15,873) 15,873 (G) -
-------- ---------- ---------
Total shareholder's equity........................ 186,507 (91,507) 95,000
Total liabilities & shareholder's equity.......... $356,125 $ 8,952 $ 365,077
======== ========== =========
</TABLE>
- -------------------
Description of Purchase Accounting Adjustments:
(A) To record other estimated fair value and purchase accounting adjustments.
(B) To record estimated fair value of property, equipment and assets held for
sale and to reclassify certain assets from property to assets held for
sale.
F-14
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
December 31, 1996
(in thousands)
(C) To write off $36,231 of U.S. deferred tax assets which may not be
realizable on a stand-alone company basis and to reclassify $2,319 of
foreign deferred tax liabilities.
(D) To record goodwill which will be amortized over 40 years.
(E) Relates primarily to recognition of the unamortized portion of actuarial
gains and losses and other adjustments relating to the Company's defined
benefit and postretirement plans, and the recognition of severance for
personnel reductions.
(F) To record the assumption of Praxair acquisition related debt in the
Company's financial statements. (G) To eliminate historical retained
earnings and cumulative translation adjustment.
2. Significant Accounting Policies:
Basis of Consolidation
The consolidated financial statements include all significant subsidiaries
where control exists and are attributable to the Company's continuing
operations. Significant intercompany balances and transactions are eliminated in
consolidation. Investments in non-majority owned affiliates are accounted for by
the equity method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities.
Management is also required to make judgments regarding the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
Revenues are recognized using the percentage of completion method. Contract
revenues are accrued based generally on the percentage that costs-to-date bear
to total estimated costs. The cumulative impact of revisions in total cost
estimates during the progress of work is reflected in the period in which these
changes become known. Contract revenue reflects the original contract price
adjusted for agreed upon claim and change order revenue, if any. Losses expected
to be incurred on jobs in process, after consideration of estimated minimum
recoveries from claims and change orders, are charged to income as soon as such
losses are known. A significant portion of the Company's work is performed on a
fixed price or lump sum basis. The balance of projects primarily are performed
on variations of cost reimbursable and target, fixed or lump sum price
approaches. Progress billings in accounts receivable are currently due and
exclude retentions until such amounts are due in accordance with contract terms.
Cost of revenues include direct contract costs such as material and construction
labor, and indirect costs which are attributable to contract activity.
F-15
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
December 31, 1996
(in thousands)
Foreign Currency Translation and Exchange
The primary effects of foreign currency translation adjustments are
recognized in shareholder's equity as cumulative translation adjustment. Charges
for foreign currency exchange losses are included in the determination of
income, and were $587 in 1996.
Cash Equivalents
Cash equivalents are considered to be all highly liquid securities with
original maturities of three months or less.
Property and Equipment
Property and equipment are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives: buildings and
improvements, 10 to 40 years; plant and field equipment, 3 to 20 years. Renewals
and betterments which substantially extend the useful life of an asset are
capitalized and depreciated. Depreciation expense was $16,793 for the year ended
December 31, 1996.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." This adoption did not cause
a material effect on the Company's financial position or results of operations.
Goodwill
The excess of cost over the fair value of tangible net assets of the
Company is recorded as goodwill on the balance sheet and is amortized on a
straight-line basis over 40 years. Amortization expense and accumulated
amortization was $488 in 1996. The carrying value of goodwill is reviewed
periodically based on the undiscounted cash flows of the entity acquired over
the remaining amortization period. If this review indicates that goodwill is not
recoverable, the Company's carrying value of the goodwill is reduced by the
estimated shortfall of undiscounted cash flows.
Assets Held for Sale
The Company separately classified several assets held for sale as of
December 31, 1996. These assets are valued at estimated realizable value and
were classified as current and non-current based on their expected selling date.
Financial Instruments
The Company uses various methods and assumptions to estimate the fair value
of each class of financial instrument. Due to their nature, the carrying value
of cash and temporary cash investments, accounts receivable and accounts payable
approximates fair value. The Company's other financial instruments are not
significant. For the year ended December 31, 1996, the Company recorded interest
expense on the Debt to Parent Company, notes payable and certain other interest
bearing obligations.
F-16
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
December 31, 1996
(in thousands)
Forward Contracts
The Company periodically uses forward contracts to hedge foreign currency
assets and foreign currency payments that the Company is committed to make in
connection with the normal course of its business. Gains or losses on forward
contracts designated to hedge a foreign currency transaction are included in the
measurement of income. At December 31, 1996, the Company had a forward contract,
which will mature in 1997, for foreign currencies totaling $4,005. The fair
value of the forward contract approximated its carrying value in the financial
statements at December 31, 1996. The counterparties to the Company's forward
contracts are major financial institutions, which the Company continually
evaluates as to their creditworthiness. The Company has never experienced, nor
does it anticipate, nonperformance by any of its counterparties.
Research and Development
Expenditures for research and development activities, which are charged to
income as incurred, amounted to $730 in 1996.
3. Transactions with Parent Company:
Related-party transactions with Industries or Praxair (the "Parent
Company") not disclosed elsewhere in the financial statements are as follows:
Revenues from Affiliates
The Company provides services to affiliates of the Parent Company for the
construction and expansion of facilities and for certain repair and maintenance
work. The balance due for these services is reflected as Receivable from
Affiliates. During the year ended December 31, 1996, the Company recorded
revenues from affiliates of $13,384. Gross profit, net of overhead costs, was
$2,287 for the year ended December 31, 1996. The Company believes these revenues
and gross profits approximate those of similar services provided to independent
third parties.
Advances to Parent Company
Advances to Parent Company represent advances to the Parent Company and its
affiliates from operating cash flows generated by the Company, net of cash
received from the Parent Company and its affiliates to fund operating and
investing activities. On December 31, 1996, the Company declared a dividend to
Praxair for the September 30, 1996 balance of the Advance to Parent Company.
Advance activity subsequent to September 30, 1996 was included in the Debt to
Parent Company account.
Debt to Parent Company
In conjunction with Praxair's acquisition of Industries effective January
1, 1996, the Company assumed $55,000 of acquisition related debt payable to
Praxair. Subsequent to September 30, 1996, the Company's long-term debt balance
increases when the Company requires cash and decreases when a cash surplus is
available to reduce the long-term debt balance. The debt matures no earlier than
January 1, 1998 and the
F-17
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
December 31, 1996
(in thousands)
Company pays interest at 7% per annum on a quarterly basis. Interest expense for
the year ended December 31, 1996 was $3,850. In addition, approximately $22,000
of letters of credit were outstanding on behalf of Praxair at December 31, 1996
relating to the Company's insurance program.
In contemplation of the public equity offering, the Company expects to
enter into a long-term credit agreement with a financial institution (or group
of financial institutions) in order to repay the Debt to Parent Company and to
provide liquidity to support letters of credit and working capital requirements.
Payable to Parent Company
Payable to Parent Company includes a $5,000 dividend to Praxair payable in
the first quarter of 1997 and interest accrued on the Debt to Parent Company,
net of an income tax receivable from the Parent Company.
Corporate Services
The Parent Company provided certain support services to the Company through
June 30, 1996, including legal, finance, tax, human resources, information
services and risk management. Charges for these services were allocated by the
Parent Company to the Company based on various methods which reasonably
approximate the actual costs incurred. The allocations recorded by the Company
for these corporate services in the accompanying consolidated income statements
were approximately $4,732 for the year ended December 31, 1996. Subsequent to
June 30, 1996, the Company performed substantially all of these support services
internally. The amounts allocated by the Parent Company are not necessarily
indicative of the actual costs which may have been incurred had the Company
operated as an entity unaffiliated with the Parent Company. However, the Company
believes that the allocation is reasonable and in accordance with the Securities
and Exchange Commission's Staff Accounting Bulletin No. 55.
4. Uncompleted Contracts:
Contract terms generally provide for progress billings based on completion
of certain phases of the work. The excess of revenues recognized for
construction contracts over progress billings on uncompleted contracts is
reported as a current asset and the excess of progress billings over revenues
recognized on uncompleted contracts is reported as a current liability as
follows:
<TABLE>
<CAPTION>
1996
<S> <C>
Revenues recognized on uncompleted contracts.............................................. $680,223
Billings on uncompleted contracts......................................................... 635,168
--------
$ 45,055
Shown on balance sheet as
Contracts in progress with earned revenues exceeding related progress billings............ $ 79,782
Contracts in progress with progress billings exceeding related earned revenues............ (34,727)
--------
$ 45,055
========
</TABLE>
F-18
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
December 31, 1996
(in thousands)
5. Leases:
Certain facilities and equipment are rented under operating leases that
expire at various dates through 2006. Rental expense on operating leases was
$3,372 in 1996. Future rental commitments during the years ending in 1997
through 2001 and thereafter are $3,731, $1,817, $1,554, $1,209, $937, and
$2,578, respectively.
6. Supplemental Balance Sheet Detail:
The activity recorded in the allowance for doubtful accounts was as
follows:
<TABLE>
<CAPTION>
Deductions-
write-off of
Balance, Purchase Balance at Charges trade Balance,
beginning Accounting January 1, to receivables, end of
of the year Adjustments 1996 Expense recoveries the year
----------- ----------- ---- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
For the year ended December
31, 1996 $6,343 $(2,000) $4,343 $2,313 $(3,609) $3,047
</TABLE>
F-19
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
December 31, 1996
(in thousands)
The components of property and equipment are:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Land and improvements..................................................................... $11,954
Buildings and improvements................................................................ 30,460
Plant and field equipment................................................................. 81,159
------
123,573
Total property and equipment..............................................................
Accumulated depreciation.................................................................. (15,698)
-------
Net property and equipment................................................................ $107,875
========
The components of accrued liabilities are:
1996
----
Payroll, vacation and bonuses............................................................. $11,533
Self-insurance reserves................................................................... 10,000
Postretirement benefit obligation......................................................... 1,783
Pension obligation........................................................................ 1,439
Other..................................................................................... 19,758
------
$44,513
=======
The components of non-current liabilities are:
1996
----
Self-insurance reserves................................................................... $27,608
Postretirement benefit obligation......................................................... 28,148
Pension obligation........................................................................ 15,831
Other..................................................................................... 10,222
------
$81,809
=======
</TABLE>
7. Commitments and Contingent Liabilities:
Environmental Matters
A subsidiary of the Company was a minority shareholder from 1934 to 1954 in
a company which owned or operated at various times several wood treating
facilities at sites in the United States, some of which are currently under
investigation, monitoring or remediation under various environmental laws. With
respect to some of these sites, the Company has been named a potentially
responsible party ("PRP") under CERCLA and similar state laws. Without admitting
any liability, the Company has entered into a consent decree with the federal
government regarding one of these sites and has had an administrative order
issued against it with re-
F-20
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
December 31, 1996
(in thousands)
spect to another. There can be no assurance that the Company will not be
required to clean up one or more of these sites pursuant to agency directives or
court orders. The Company has been involved in litigation concerning
environmental liabilities, which are currently indeterminable, in connection
with certain of those sites. The Company denies any liability for each site and
believes that the successors to the wood treating business are responsible for
the costs of remediation of the sites. Without admitting any liability, the
Company has reached settlements for environmental clean-up at most of the sites.
In July 1996, a judgment in favor of the Company was entered in the suit
Aluminum Company of America v. Beazer East, Inc. v. Chicago Bridge & Iron
Company, instituted in January 1991, before the U.S. District Court for the
Western District of Pennsylvania. In July 1996, Beazer East, Inc. filed an
appeal which is currently pending before the United States Court of Appeals for
the Third Circuit. The Company believes that an estimate of the possible loss or
range of possible loss relating to such matters cannot be made. Although the
Company believes that it is reasonably likely that it will be successful in such
appeal and that such settlements and any remaining potential liability will not
be material, there can be no assurance that the Company will be successful in
upholding the judgment in its favor or that such settlements and any remaining
potential liability will not have a materially adverse effect on its business,
financial condition or results of operations.
The Company's facilities have operated for many years and substances which
currently are or might be considered hazardous were used and disposed of at some
locations, which will or may require the Company to make expenditures for
remediation. In addition, the Company has agreed to indemnify parties to whom it
has sold facilities for certain environmental liabilities arising from acts
occurring before the dates those facilities were transferred. The Company is
aware of no manifestation by a potential claimant of awareness by such claimant
of a possible claim or assessment and does not consider it to be probable that a
claim will be asserted which claim is reasonably possible to have an unfavorable
outcome, in each case, which would be material to the Company with respect to
the matters addressed in this paragraph. The Company believes that any potential
liability for these matters will not have a materially adverse effect on its
business, financial condition or results of operations.
Along with multiple other parties, a subsidiary of the Company is currently
a PRP under CERCLA and analogous state laws at several sites as a generator of
wastes disposed of at such sites. While CERCLA imposes joint and several
liability on responsible parties, liability for each site is likely to be
apportioned among the parties. The Company believes that an estimate of the
possible loss or range of possible loss relating to such matters cannot be made.
While it is impossible at this time to determine with certainty the outcome of
such matters and although no assurance can be given with respect thereto, based
on information currently available to the Company and based on the Company's
belief as to the reasonable likelihood of the outcomes of such matters, the
Company does not believe that its potential liability in connection with these
sites, either individually or in the aggregate, will have a material adverse
effect on its business, financial condition or results of operations.
The Company does not anticipate incurring material capital expenditures for
environmental controls or for investigation or remediation of environmental
conditions during the current or succeeding fiscal year. Nevertheless, the
Company can give no assurance that it, or entities for which it may be
responsible, will not incur liability in connection with the investigation and
remediation of facilities it currently (or formerly) owns or operates or other
locations in a manner that could materially and adversely affect the Company.
F-21
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
December 31, 1996
(in thousands)
Other Contingencies
In 1991, CBI Na-Con, Inc. ("CBI Na-Con"), a subsidiary of the Company,
installed a catalyst cooler bundle at Fina Oil & Chemical Company's ("Fina")
Port Arthur, Texas Refinery. In July 1991, Fina determined that the catalyst
cooler bundle was defective and had it replaced. Fina is seeking approximately
$20,000 in damages for loss of use of Fina's catalyst cracking unit and the cost
of replacement of the catalyst cooler bundle. On June 28, 1993, Fina filed a
complaint against CBI Na-Con before the District Court of Harris County, Texas
in Fina Oil & Chemical Company v. CBI Na-Con, Inc. et al. The Company denies
that it is liable. The Company believes that an estimate of the possible loss or
range of possible loss cannot be made. While the Company believes that the
claims are without merit and/or the Company has valid defenses to such claims
and that it is reasonably likely to prevail in defending against such claims,
there can be no assurance that if the Company is finally determined to be liable
for all or a portion of any damages payable, that such liability will not have a
materially adverse effect on the Company's business, financial condition and
results of operations.
The Company is a defendant in a number of other lawsuits arising in the
normal course of its business. The Company believes that an estimate of the
possible loss or range of possible loss relating to such matters cannot be made.
While it is impossible at this time to determine with certainty the ultimate
outcome of these lawsuits and although no assurance can be given with respect
thereto, based on information currently available to the Company and based on
the Company's belief as to the reasonable likelihood of the outcomes of such
matters, the Company's management believes that adequate provision has been made
for probable losses with respect thereto as best as can be determined at this
time and that the ultimate outcome, after provisions therefor, will not have a
material adverse effect, either individually or in the aggregate, on the
Company's business, financial condition and results of operations. The adequacy
of reserves applicable to the potential costs of being engaged in litigation and
potential liabilities resulting from litigation are reviewed as developments in
the litigation warrant.
The Company is jointly and severally liable for certain liabilities of
partnerships and joint ventures. The Company has also given certain performance
guarantees arising in the ordinary course of business for its subsidiaries and
unconsolidated affiliates.
The Company has elected to retain portions of anticipated losses through
the use of deductibles and self-insured retentions for its exposures related to
third party liability and workers' compensation. Liabilities in excess of these
amounts are the responsibilities of an insurance carrier. To the extent the
Company selfinsures for these exposures, reserves have been provided for based
on management's best estimates with input from the Company's legal and insurance
advisors. Changes in assumptions, as well as changes in actual experience, could
cause these estimates to change in the near term. The Company's management
believes that the reasonably possible losses, if any, for these matters, to the
extent not otherwise disclosed and net of recorded reserves, will not be
material to its financial position or its results of operations.
F-22
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
December 31, 1996
(in thousands)
8. Employee Benefit Programs:
Health and Welfare Programs
The Company participated in various health and welfare programs for active
employees that were sponsored by the Parent Company. These programs include
medical, life insurance and disability. The Company reimbursed the Parent
Company for its proportionate cost of these programs based on historical
experience and relative headcount. The Company recorded expense related to the
reimbursement of these costs of approximately $8,349 for the year ended December
31, 1996. The costs were charged to cost of revenues and selling and
administrative expense based on the number of employees in each of these
categories. The Company believes its allocation of the proportionate cost is
reasonable. Subsequent to December 31, 1996, the Company terminated its
participation in the Parent Company-sponsored plans and initiated its own plans.
Pension and Defined Contribution Plans
The Company participates in a defined benefit plan sponsored by the Parent
Company (the "CBI Pension Plan"), three defined benefit plans sponsored by the
Company's Canadian subsidiary, and makes contributions to union sponsored
multi-employer pension plans.
The CBI Pension Plan, which is the principal non-contributory tax qualified
defined benefit plan, covered most U.S. salaried employees. The Company's
portion of the net pension cost for the CBI Pension Plan was $4,414 in 1996.
Benefit accruals under the CBI Pension Plan for current Company employees were
discontinued as of December 31, 1996. The Company's obligation to fund its
portion of the accumulated benefit obligation for its participants in excess of
plan assets was fixed at $17,270 as of December 31, 1996, as agreed to by the
Company and Praxair. This obligation is payable ratably to Praxair over a
twelve-year period beginning December 1, 1997 with interest at 7.5%.
The Company's three Canadian pension plans cover field, hourly, and
salaried employees. The following tables reflect the components of net pension
cost and the funded status of the Company's Canadian pension plans:
1996
Net Pension Cost
Service cost.................................................. $ 301
Interest cost................................................. 1,287
Actual return on assets....................................... (1,840)
Net amortization and deferral................................. 0
Curtailment gain.............................................. (1,899)
------
Net defined benefit pension plans income...................... $ (2,151)
========
F-23
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
December 31, 1996
(in thousands)
1996
Funded Status
Accumulated benefit obligation (including vested benefits
of $14,056)................................................ $(14,172)
Additional benefits based on projected salary levels.......... (2,563)
------
Projected benefit obligation.................................. (16,735)
Market value of plan assets................................... 28,091
------
Plan assets over projected benefit obligation................. 11,356
Unrecognized gains............................................ (1,075)
------
Pension asset................................................. $ 10,281
========
The principal defined benefit plan assets consist of long-term investments,
including equity and fixed income securities and cash. The significant
assumptions used in determining the 1996 pension expense and the related pension
obligations were: discount rate of 7.5%; increase in compensation levels of
6.0%; and long-term rate of return on plan assets of 7.5%. Of these three
Canadian plans, one was terminated in December, 1994. Since that time, all
members who elected to transfer their balance have been paid out, while the
remaining members continue to have benefits under the plan. The second plan is
in the process of being terminated. The Company recorded $1,899 in curtailment
gains related to the termination of these plans.
The Company made contributions of $2,467 in the year ended December 31,
1996 to the union sponsored multi-employer pension plans. Benefits under these
defined benefit plans are based on years of service and compensation levels.
The Company is the sponsor for several defined contribution plans which
cover salaried and hourly employees for which the Company does not provide
matching contributions. The cost of these plans to the Company was insignificant
in 1996.
Effective January 1, 1997, the Company adopted a new tax-qualified defined
contribution plan ("New 401(k) Plan") for eligible employees. The New 401(k)
Plan consists of a voluntary pre-tax salary deferral feature under Sections
401(k) of the Internal Revenue Code, a Company matching contribution, and an
additional Company profit-sharing contribution to be determined annually by the
Company. The New 401(k) Plan substantially replaces the current Parent
Company-sponsored pension and 401(k) plans.
Postretirement Health Care and Life Insurance Benefits
The Company participates in a health care and life insurance benefit
program sponsored by the Parent Company. This program provides certain separate
health care and life insurance benefits for employees retiring under the
principal non-contributory defined benefit pension plan of the Parent Company.
Retiree health
F-24
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
December 31, 1996
(in thousands)
care benefits are provided under an established formula which limits costs based
on prior years of service of retired employees. This plan may be changed or
terminated by the Parent Company at any time.
The Company reimbursed the Parent Company for its proportionate cost of
this program. The following table reflects the components of the net cost of
postretirement benefits allocated to the Company:
1996 1996
Actives Retirees
Net Periodic Postretirement Benefit Cost -
Service cost.................................................. $375 $ -
Interest cost................................................. 582 1,318
Actual return on assets....................................... - -
----- -------
Postretirement health care and life insurance benefits cost... $957 $ 1,318
==== =======
The significant assumption used in determining the 1996 other
postretirement benefit expense was a discount rate of 7.0%.
Effective January 1, 1997, the Company terminated its participation in the
program sponsored by the Parent Company. The Company's obligation with respect
to existing retirees under the program was fixed at $21,400 as of December 31,
1996, as agreed to by the Company and Praxair. This obligation is payable
ratably to Praxair over a twelve-year period beginning December 1, 1997 with
interest at 7.5%. The future obligation for the Company's active employees under
this program, which amounted to $8,531 as of December 31, 1996, has been assumed
by the Company. The following table reflects the funded status allocated to the
Company for active employees:
1996
Net Postretirement Liability
Accumulated postretirement benefit obligation-Active employees....... $(7,781)
Unrecognized gain.................................................... (750)
-------
Postretirement health care and life insurance benefits (liability).. $(8,531)
=======
9. Income Taxes:
The consolidated amount of current and deferred tax expense was allocated
among the members of the Parent Company group using the pro-rata method, which
assumed the Company's taxes would be filed as a part of Parent Company's
consolidated return.
F-25
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
December 31, 1996
(in thousands)
The sources of income before income taxes and minority interest are:
U.S................................................................... $2,919
Non-U.S............................................................... 24,332
------
$27,251
=======
The provision for income taxes consisted of:
Current income taxes-
U.S................................................................... $(1,295)
Non-U.S............................................................... 4,833
-------
3,538
-------
Deferred income taxes-
U.S................................................................... 3,087
Non-U.S............................................................... 1,164
-------
4,251
-------
Total provision....................................................... $ 7,789
=======
A reconciliation of income taxes at the U.S. statutory rate and the
provision for income taxes follows:
Tax provision at U.S. statutory rate.................................. $9,538
State income taxes.................................................... 50
Non-U.S. tax rate differential........................................ (2,519)
Other, net............................................................ 720
------
Provision for income taxes............................................ $7,789
------
Effective tax rate.................................................... 28.6%
======
F-26
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
December 31, 1996
(in thousands)
The principal temporary differences included in deferred income taxes
reported on the December 31, 1996 balance sheet are:
Current Deferred Taxes
Insurance................................................. $4,070
Employee Benefits......................................... 2,162
Contracts................................................. 1,378
Other..................................................... 865
---
8,475
Valuation Allowance....................................... (8,475)
Non-current Deferred Taxes
Employee Benefits......................................... 8,722
Insurance................................................. 11,417
Other..................................................... 2,342
-----
22,481
Valuation Allowance....................................... (18,680)
Depreciation.............................................. (8,749)
------
Net Deferred Tax Liabilities.............................. $(4,948)
=======
The Company has established a valuation allowance of $27,155 for its
domestic deferred tax assets as realization is dependent on sustained U.S.
taxable income. The Company has not recorded any additional U.S. deferred income
taxes on indefinitely reinvested undistributed earnings of non-U.S. subsidiaries
and affiliates at December 31, 1996. If any such undistributed earnings were
distributed, foreign tax credits should become available under current law to
significantly reduce or eliminate any resulting U.S. income tax liability.
10. Operations by Geographic Segment:
The Company operates in four major geographic business segments: North
America; Central and South America; Europe, Africa, the Middle East; and the
Asia Pacific Area. No customer accounted for more than 10% of revenues. Export
sales, to unrelated customers outside of the United States, were less than 10%
of revenues. Transfers between geographic areas are not material. Corporate
costs were allocated to the segments based on their relative revenues, assets or
work force.
F-27
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
December 31, 1996
(in thousands)
Revenues, income from operations and assets by geographic area are:
1996
Revenues
North America.............................................. $328,836
Central and South America.................................. 90,877
Europe, Africa, Middle East................................ 109,522
Asia Pacific Area.......................................... 134,486
-------
$663,721
========
Income from operations
North America.............................................. $9,469
Central and South America.................................. 6,530
Europe, Africa, Middle East................................ 4,298
Asia Pacific Area.......................................... 10,966
------
$31,263
=======
Assets
North America.............................................. $165,651
Central and South America.................................. 31,756
Europe, Africa, Middle East................................ 90,389
Asia Pacific Area.......................................... 63,700
------
$351,496
========
11. Subsequent Events:
In November 1996, Chi Bridge Holdings, Inc. ("Bridge Holdings"), a
subsidiary of Praxair, formed its wholly owned subsidiary, Chicago Bridge & Iron
Company N.V. (the "Issuer"), a corporation organized under the laws of the
Netherlands. In December 1996, the Issuer filed a registration statement with
the Securities and Exchange Commission for an initial public offering of a
majority of the Issuer's common shares (the "Offering"). Praxair and its
affiliates will own the balance of the Issuer's shares. The net proceeds of the
Offering will remain with Praxair or its affiliates and the Issuer will not
receive any of the proceeds from the sale of its common shares.
Prior to the consummation of the Offering, Bridge Holdings and certain of
its subsidiaries will consummate a reorganization. Pursuant to the
reorganization, (i) the shares of substantially all of Chicago Bridge & Iron
Company's ("Old CBIC") non-U.S. subsidiaries will be transferred by dividend to
its parent corporation, Bridge Holdings, and contributed to Chicago Bridge &
Iron Company B.V. ("CBICBV") in exchange for newly issued common shares of
CBICBV; (ii) the shares of substantially all of Old CBIC's U.S. subsidiaries
will be transferred by dividend to Bridge Holdings and contributed to a wholly
owned subsidiary of Bridge Holdings ("CBIC"), which will become a wholly owned
subsidiary of the Issuer after the reorganization, in exchange for newly issued
common stock of CBIC; (iii) Bridge Holdings will contribute the shares held by
it of each of CBIC and CBICBV to the Issuer in exchange for additional Common
Shares of the Issuer; and (iv)
F-28
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
December 31, 1996
(in thousands)
CBIC will assume any remaining assets and liabilities of Old CBIC. After the
reorganization and prior to the consummation of the Initial Common Share
Offering, Bridge Holdings will be merged into Praxair such that Praxair will
then directly own all of the then outstanding Common Shares of the Issuer. This
Reorganization will not affect the carrying amounts of the Company's assets and
liabilities, nor result in any distribution of the Company's cash or other
assets to Praxair.
CB&I Management Plan
The Company established the CB&I Management Plan ("the Management Plan") in
early 1997. The Management Plan is not qualified under Section 401(a) of the
Internal Revenue Code ("the Code") and each participant's account shall be
treated as a separate account under Section 404(a)(5) of the Code. The
designation of the Management Plan's participants, the amount of Company
contributions to the Management Plan and the amount allocated to the individual
participants will be determined by the Issuer's Supervisory Board. The
allocation to the participant's individual accounts will occur concurrently with
the Company's contributions. Management Plan shares will vest as determined by
the Issuer's Supervisory Board. Upon vesting, the distribution of the balance
held in the individual participant's account can be distributed at the election
of the participant. Forfeitures of Management Plan shares under the provisions
of the Management Plan will be reallocated to the other Management Plan
participants. The number of initial participants is expected to be 40 to 60.
Upon consummation of the Offering, the Company will make a contribution to
the Management Plan in the form of common shares having a value of approximately
$16,700. Accordingly, the Company will record a pretax charge of approximately
$16,700 at the time of the contribution to the Management Plan.
Impact of Operating as a Stand-Alone Entity
The accompanying financial statements reflect the Company's costs of doing
business, including expenses incurred by the Parent Company on the Company's
behalf in accordance with SEC Staff Accounting Bulletin No. 55. However, the
Company estimates it would have incurred increased expenses as a stand-alone
company as well as other incremental public company expenses. These additional
costs would have decreased pretax income by approximately $1,900 for the year
ended December 31, 1996.
12. Quarterly Operating Results (unaudited):
The following table sets forth selected unaudited consolidated income
statement information for the Company on a quarterly basis for the year ended
December 31, 1996:
<TABLE>
<CAPTION>
Three Months Ended
March 31 June 30 Sept 30 Dec 31
-------- ------- ------- ------
<S> <C> <C> <C> <C>
Revenues.............................. $139,721 $160,789 $183,021 $180,190
Gross profit.......................... 15,733 17,690 19,585 20,683
Income from operations................ 5,647 6,955 8,539 10,122
Net income............................ 2,370 3,187 5,373 5,632
</TABLE>
F-29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of
Chicago Bridge & Iron Company:
We have audited the accompanying consolidated balance sheets of CHICAGO
BRIDGE & IRON COMPANY (a Delaware corporation) AND SUBSIDIARIES as of December
31, 1995 and 1994, and the related consolidated statements of income, changes in
shareholder's equity and cash flows for each of the two years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 Chicago Bridge & Iron
Company and Subsidiaries as of December 31, 1995 and 1994, and the results of
its operations and cash flows for each of the two years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
December 16, 1996
F-30
<PAGE>
<TABLE>
<CAPTION>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31,
1995 1994
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents....................................... $ 12,850 $ 16,090
Accounts receivable............................................. 106,634 101,966
Contracts in progress with earned revenues exceeding related
progress billings............................................. 70,918 64,624
Assets held for sale............................................ 5,157 -
Deferred income taxes........................................... 7,369 14,003
Other current assets............................................ 14,617 13,300
------ ------
Total current assets............................................ 217,545 209,983
------- -------
Property and equipment.......................................... 100,496 116,676
Assets held for sale............................................ 2,235 2,103
Deferred income taxes........................................... 28,405 22,903
Other non-current assets........................................ 7,444 8,247
----- -----
Total assets.................................................... $356,125 $359,912
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Notes payable................................................... $1,777 $776
Accounts payable 20,389 23,948
Accrued liabilities............................................. 37,379 37,595
Contracts in progress with progress billings exceeding related
earned revenues .............................................. 47,660 41,579
Income taxes payable............................................ - 7,272
-------- --------
Total current liabilities....................................... 107,205 111,170
------- -------
Non-current liabilities......................................... 56,811 59,346
Minority interest in subsidiaries............................... 5,602 6,295
----- -----
Total liabilities............................................... 169,618 176,811
------- -------
SHAREHOLDER'S EQUITY:
Common stock, $1 par value, 1,000 authorized shares; 1,000
issued and outstanding in 1995 and 1994 1 1
Additional paid-in capital...................................... 185,493 185,493
Retained earnings............................................... 159,672 185,278
Advances to Parent Company...................................... (142,786) (173,797)
Cumulative translation adjustment............................... (15,873) (13,874)
------- -------
Total shareholder's equity...................................... 186,507 183,101
------- -------
Total liabilities and shareholder's equity...................... $356,125 $359,912
======== ========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
</TABLE>
F-31
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
CONSOLIDATED INCOME STATEMENTS
(in thousands)
Year Ended
December 31,
1995 1994
Revenues
Third party customers............................. $581,564 $658,758
Affiliates of Praxair............................. 40,374 104,045
------ -------
Total revenues.................................... 621,938 762,803
Cost of revenues
Third party customers............................. $579,372 $597,643
Affiliates of Praxair............................. 34,858 94,623
------ ------
Total cost of revenues............................ 614,230 692,266
------- -------
Gross profit...................................... 7,708 70,537
Selling and administrative expenses............... 43,023 45,503
Special charges................................... 5,230 16,990
Gain on sale of assets............................ (10,030) (11,360)
------- -------
Income (loss) from operations (30,515) 19,404
Interest expense.................................. (799) (180)
Other income...................................... 1,191 1,652
----- -----
Income (loss) before taxes and minority interest.. (30,123) 20,876
Income tax expense (benefit)...................... (8,093) 3,074
------ -----
Income (loss) before minority interest............ (22,030) 17,802
Minority interest in income....................... (3,576) (1,359)
------ ------
Net income (loss)................................. $(25,606) $16,443
======== =======
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
F-32
<PAGE>
<TABLE>
<CAPTION>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
(in thousands)
Additional Advances Cumulative Total
Common Paid-in Retained to Parent Translation Shareholder's
Stock Capital Earnings Company Adjustment Equity
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993... $1 $185,493 $168,845 $(124,293) $(12,805) $217,241
Net income..................... - - 16,433 - - 16,433
Translation adjustment......... - - - - (1,069) (1,069)
Advances to Parent Company..... - - - (49,504) - (49,504)
------- -------- -------- --------- -------- -------
Balance at December 31, 1994... 1 185,493 185,278 (173,797) (13,874) 183,101
Net loss....................... - - (25,606) - - (25,606)
Translation adjustment......... - - - - (1,999) (1,999)
Advances from Parent Company... - - - 31,011 - 31,011
------- -------- -------- --------- -------- --------
Balance at December 31, 1995.. $1 $185,493 $159,672 $(142,786) $(15,873) $186,507
======= ======== ======== ========= ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
F-33
<PAGE>
<TABLE>
<CAPTION>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income...................................................... $(25,606) $16,443
Adjustments to reconcile net income to net cash provided by
operating activities:
Special Charge.................................................. 1,850 --
Depreciation.................................................... 16,077 15,569
Decrease in deferred income taxes............................... 1,132 1,079
Gain on sale of fixed assets.................................... (10,030) (4,360)
Change in operating assets and liabilities (see below).......... (22,574) 9,716
------- -----
Net Cash Provided by/(Used in) Operating Activities............. (39,151) 38,447
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets and investments.............. 16,434 29,889
Capital expenditures............................................ (14,880) (18,772)
Increase/(decrease) in equity in unconsolidated affiliates...... 1,352 (2,720)
Increase in other............................................... 993 5,654
--- -----
Net Cash Provided by Investing Activities....................... 3,899 14,051
----- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advance (to)/from Parent Company................................ 31,011 (49,504)
Increase/(decrease) in notes payable............................ 1,001 (238)
----- ----
Net Cash Provided by/(Used in) Financing Activities............. 32,012 (49,742)
------ -------
Increase/(decrease) in cash & cash equivalents.................. (3,240) 2,756
Cash and cash equivalents, beginning of the year................ 16,090 13,334
------ ------
Cash and cash equivalents, end of the year...................... $12,850 $16,090
CHANGE IN OPERATING ASSETS AND LIABILITIES:
Increase in receivables, net.................................... $(4,770) $27,628
Increase in contracts in progress, net.......................... (213) (10,416)
(Increase)/decrease in other current assets..................... 1,731 (2,259)
Decrease in accounts payable & accrued liabilities.............. (6,310) (1,753)
Increase/(decrease) in income tax payable/prepaid income taxes.. (10,320) 2,535
Decrease other.................................................. (2,692) (6,019)
------ ------
Total........................................................... $(22,574) $9,716
======== ======
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest.......................................... $ 829 $ 30
Cash paid for income taxes...................................... $2,936 $7,137
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.
F-34
<PAGE>
CHICAGO BRIDGE & IRON COMPANY AND SUBSIDIARIES
(PRE-PRAXAIR ACQUISITION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995 and 1994
(in thousands)
1. Organization and Nature of Operations:
Chicago Bridge & Iron Company and Subsidiaries ("the Company") is a global
engineering and construction company specializing in the engineering and design,
materials procurement, fabrication, erection, repair and modification of steel
tanks, other steel plate structures and associated systems such as petroleum
terminals, refinery pressure vessels, low temperature and cryogenic storage
facilities and elevated water storage tanks. Based on its knowledge of and
experience in its industry, the Company believes it is the leading provider of
field erected steel tanks and other steel plate structures, associated systems
and related services in North America and one of the leading providers of these
specialized products and services in the world. The Company seeks to maintain
its leading industry position by focusing on using its technological expertise
in design, metallurgy and welding, along with its ability to complete
logistically and technically complex metal plate projects virtually anywhere in
the world. The Company has been continuously engaged in the engineering and
construction industry since its founding in 1889.
The worldwide petroleum and petrochemical industry has been the largest
sector of the Company's revenues. Numerous factors influence capital expenditure
decisions in this industry which are beyond the control of the Company.
Therefore, no assurance can be given that the Company's business, financial
condition and results of operations will not be adversely affected because of
reduced activity or changing taxes, price controls and laws and regulations
related to the petroleum and petrochemical industry.
During the periods and as of the dates for which the financial statements
are presented, the Company was a wholly owned subsidiary of Chi Bridge Holdings,
Inc., which in turn was a wholly owned subsidiary of CBI Industries, Inc.
("Industries"). On January 12, 1996, pursuant to the merger agreement dated
December 22, 1995, Industries became a subsidiary of Praxair, Inc. ("Praxair").
This merger transaction was reflected in the Company's consolidated financial
statements as a purchase effective to January 1, 1996 ("Merger Date").
Accordingly, the historical information provided for the periods prior to
January 1, 1996 ("Pre-Praxair Acquisition") will not be comparable to subsequent
financial information ("Post-Praxair Acquisition"). In December 1996, Praxair
intends to merge Industries into and with Praxair, with no consequences to the
Company's financial statements.
The accompanying financial statements include selected entities which are
involved in the engineering and construction specialties of the Company and do
not include certain service related subsidiaries which are involved in unrelated
businesses. The assets, liabilities, revenues and expenses attributable to these
entities are recorded net in the Advance to Parent Company caption of
shareholder's equity. These service related subsidiaries are being held for sale
by Praxair.
2. Significant Accounting Policies:
Basis of Consolidation
The consolidated financial statements include all significant subsidiaries
where control exists and are attributable to the Company's continuing
operations. Significant intercompany balances and transactions are
F-35
<PAGE>
eliminated in consolidation. Investments in non-majority owned affiliates are
accounted for by the equity method.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities.
Management is also required to make judgments regarding the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenue Recognition
Revenues are recognized using the percentage of completion method. Contract
revenues are accrued based generally on the percentage that costs-to-date bear
to total estimated costs. The cumulative impact of revisions in total cost
estimates during the progress of work is reflected in the period in which these
changes become known. Contract revenue reflects the original contract price
adjusted for agreed upon claim and change order revenue, if any. Losses expected
to be incurred on jobs in process, after consideration of estimated minimum
recoveries from claims and change orders, are charged to income as soon as such
losses are known. A significant portion of the Company's work is performed on a
lump sum or fixed price basis. The balance of projects primarily are performed
on variations of cost reimbursable and target, fixed or lump sum price
approaches. Progress billings in accounts receivable are currently due and
exclude retentions until such amounts are due in accordance with contract terms.
Cost of revenues include direct contract costs such as material and construction
labor, and indirect costs which are attributable to contract activity.
Foreign Currency Translation and Exchange
The primary effects of foreign currency translation adjustments are
recognized in shareholder's equity as cumulative translation adjustment. Charges
for foreign currency exchange losses are included in the determination of
income, and were $974 and $674 in 1995 and 1994, respectively.
Cash Equivalents
Cash equivalents are considered to be all highly liquid securities with
original maturities of three months or less.
Property and Equipment
Property and equipment are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives: buildings and
improvements, 10 to 40 years; plant and field equipment, 3 to 20 years. Renewals
and betterments which substantially extend the useful life of an asset are
capitalized and depreciated. Depreciation expense was $16,077 and $15,569 for
the years ended December 31, 1995 and 1994, respectively.
The Company expects that there will be no material effect on its financial
position or results of operations resulting from the January 1, 1996 adoption of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
F-36
<PAGE>
Assets Held for Sale
The Company separately classified several assets held for sale as of
December 31, 1995 and 1994. These assets are valued at estimated realizable
value and were classified as current and non-current based on their expected
selling date.
Financial Instruments
The Company uses various methods and assumptions to estimate the fair value
of each class of financial instrument. Due to their nature, the carrying value
of cash and temporary cash investments, accounts receivable and accounts payable
approximates fair value. The Company's other financial instruments are not
significant. For the years ended December 31, 1995 and 1994, the Company
recorded interest expense on notes payable and certain other interest bearing
obligations.
Forward Contracts
The Company periodically uses forward contracts to hedge foreign currency
assets and foreign currency payments that the Company is committed to make in
connection with the normal course of its business. Gains or losses on forward
contracts designated to hedge a foreign currency transaction are included in the
measurement of income. At December 31, 1995, the Company had forward contracts,
which mature throughout 1996, for foreign currencies totaling $4,900. The fair
value of forward contracts approximated their carrying value in the financial
statements at December 31, 1995. The counterparties to the Company's forward
contracts are major financial institutions, which the Company continually
evaluates as to their creditworthiness. The Company has never experienced, nor
does it anticipate, nonperformance by any of its counterparties.
Research and Development
Expenditures for research and development activities, which are charged to
income as incurred, amounted to $2,474 and $3,624 in 1995 and 1994,
respectively.
Pending Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation," which encourages, but does
not require, companies to recognize compensation expense for grants of common
stock, stock options and other equity instruments to employees based on new fair
value accounting rules. The Company does not expect to adopt the new rules and
will continue to apply the existing accounting rules contained in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Statement No. 123 requires companies to comply with certain disclosures about
stock-based employee compensation arrangements regardless of the method used to
account for them.
3. Transactions with Industries:
Related-party transactions with Industries not disclosed elsewhere in the
financial statements are as follows:
Revenues from Affiliates
The Company provides services to affiliates of Industries for the
construction and expansion of facilities and for certain repair and maintenance
work. During the years ended December 31, 1995 and 1994, the
F-37
<PAGE>
Company recorded revenues from affiliates of $40,374 and $104,045, respectively.
Gross profit, net of overhead costs, were $5,516 and $9,422 for the years ended
December 31, 1995 and 1994, respectively. The Company believes these revenues
and gross profits approximate those of similar services provided to independent
third parties.
Advances to Parent Company
Advances to Parent Company represent advances to Industries and its
affiliates from operating cash flows generated by the Company, net of cash
received from Industries and its affiliates to fund operating and investing
activities.
The Advances to Parent Company have been included as a component of
shareholder's equity as such amounts are generally not due and payable, and as
the Advances to Parent Company will be eliminated as a part of the Company's
reorganization, as discussed in Note 12.
Corporate Services
Industries provided certain support services to the Company including
legal, finance, tax, human resources, information services and risk management.
Charges for these services were allocated by Industries to the Company based on
various methods which reasonably approximate the actual costs incurred. The
allocations recorded by the Company for these corporate services in the
accompanying consolidated income statements were approximately $10,008 and
$11,599 for the years ended December 31, 1995 and 1994, respectively. The
amounts allocated by Industries are not necessarily indicative of the actual
costs which may have been incurred had the Company operated as an entity
unaffiliated with Industries. However, the Company believes that the allocation
is reasonable and in accordance with the Securities and Exchange Commission's
Staff Accounting Bulletin No. 55.
4. Uncompleted Contracts:
Contract terms generally provide for progress billings based on completion
of certain phases of the work. The excess of revenues recognized for
construction contracts over progress billings on uncompleted contracts is
reported as a current asset and the excess of progress billings over revenues
recognized on uncompleted contracts is reported as a current liability as
follows:
F-38
<PAGE>
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Revenues recognized on uncompleted contracts.................... $654,619 $785,703
Billings on uncompleted contracts............................... 631,361 762,658
------- -------
$23,258 $23,045
======= =======
Shown on balance sheet as:
Contracts in progress with earned revenues exceeding related
progress billings.................................. $70,918 $64,624
Contracts in progress with progress billings exceeding related
earned revenues.................................... 47,660 41,579
------ ------
$23,258 $23,045
======= =======
</TABLE>
5. Leases:
Certain facilities and equipment are rented under operating leases that
expire at various dates through 2006. Rental expense on operating leases was
$3,589 and $3,472 in 1995 and 1994, respectively. Future rental commitments
during the years ending in 1996 through 2000 and thereafter are $3,476, $1,873,
$1,122, $885, $597 and $1,061, respectively.
6. Supplemental Balance Sheet Detail:
The activity recorded in the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
Deductions-
write-off of
Balance, trade Balance,
beginning of Charges to receivables, net end of
the year Expense of recoveries the year
<S> <C> <C> <C> <C>
For the year ended December 31,1995......... $2,862 $5,656 $(2,175) $6,343
For the year ended December 31, 1994........ 3,039 2,071 (2,248) 2,862
</TABLE>
F-39
<PAGE>
The components of property and equipment are:
1995 1994
Land and improvements.............................. $10,373 $21,739
Buildings and improvements......................... 39,704 46,367
Plant and field equipment.......................... 164,964 189,057
------- -------
Total property and equipment.................. 215,041 257,163
Accumulated depreciation........................... (114,545) (140,487)
-------- --------
Net property and equipment.................... $100,496 $116,676
======== ========
The components of accrued liabilities are:
1995 1994
Self-insurance reserves............................ $11,700 $11,356
Payroll, vacation and bonsuses..................... 9,461 7,133
Accrued accounts payable........................... 6,182 5,406
Other.............................................. 10,036 13,700
------ ------
$37,379 $37,595
======= =======
F-30
<PAGE>
The components of non-current liabilities are:
1995 1994
Self-insurance reserves......................... $27,403 $25,504
Postretirement benefit obligation............... 22,583 24,986
Other........................................... 6,825 8,856
----- -----
$56,811 $59,346
======= =======
7. Commitments and Contingent Liabilities:
Environmental Matters
A subsidiary of the Company was a minority shareholder from 1934 to 1954 in
a company which owned or operated at various times several wood treating
facilities at sites in the United States, some of which are currently under
investigation, monitoring or remediation under various environmental laws. With
respect to some of these sites, the Company has been named a potentially
responsible party ("PRP") under CERCLA and similar state laws. Without admitting
any liability, the Company has entered into a consent decree with the federal
government regarding one of these sites and has had an administrative order
issued against it with respect to another. There can be no assurance that the
Company will not be required to clean up one or more of these sites pursuant to
agency directives or court orders. The Company has been involved in litigation
concerning environmental liabilities, which are currently indeterminable, in
connection with certain of those sites. The Company denies any liability for
each site and believes that the successors to the wood treating business are
responsible for the costs of remediation of the sites. Without admitting any
liability, the Company has reached settlements for environmental clean-up at
most of the sites. In July 1996, a judgment in favor of the Company was entered
in the suit Aluminum Company of America v. Beazer East, Inc. v. Chicago Bridge &
Iron Company, instituted in January 1991 before the U.S. District Court for the
Western District of Pennsylvania. In July 1996, Beazer East, Inc. filed an
appeal which is currently pending before the United States Court of Appeals for
the Third Circuit. The Company believes that an estimate of the possible loss or
range of possible loss relating to such matters cannot be made. Although the
Company believes that it is reasonably likely that it will be successful in such
appeal and that such settlements and any remaining potential liability will not
be material, there can be no assurance that the Company will be successful in
upholding the judgment in its favor or that such settlements and any remaining
potential liability will not have a materially adverse effect on its business,
financial condition or results of operations.
The Company's facilities have operated for many years and substances which
currently are or might be considered hazardous were used and disposed of at some
locations, which will or may require the Company to make expenditures for
remediation. In addition, the Company has agreed to indemnify parties to whom it
has sold facilities for certain environmental liabilities arising from acts
occurring before the dates those facilities were transferred. The Company is
aware of no manifestation by a potential claimant of an awareness by such
claimant of a possible claim or assessment and does not consider it to be
probable that a claim will be asserted which claim is reasonably possible to
have an unfavorable outcome, in each case, which would be material to the
Company with respect to the matters addressed in this paragraph. The Company
believes that any potential liability for these matters will not have a
materially adverse effect on its business, financial condition or results of
operations.
Along with multiple other parties, a subsidiary of the Company is currently
a PRP under CERCLA and analogous state laws at several sites as a generator of
wastes disposed of at such sites. While CERCLA imposes joint and several
liability on responsible parties, liability for each site is likely to be
apportioned
F-41
<PAGE>
among the parties. The Company believes that an estimate of the possible loss or
range of possible loss relating to such matters cannot be made. While it is
impossible at this time to determine with certainty the outcome of such matters,
and although no assurance can be given with respect thereto, based on
information currently available to the Company and based on the Company's belief
as to the reasonable likelihood of the outcomes of such matters, the Company
does not believe that its liability, if any, in connection with these sites,
either individually or in the aggregate, will have a material adverse effect on
its business, financial condition or results of operations.
The Company does not anticipate incurring material capital expenditures for
environmental controls or for investigation or remediation of environmental
conditions during the current or succeeding fiscal year. Nevertheless, the
Company can give no assurance that it, or entities for which it may be
responsible, will not incur liability in connection with the investigation and
remediation of facilities it currently (or formerly) owns or operates or other
locations in a manner that could materially and adversely affect the Company.
Other Contingencies
In 1991, CBI Na-Con, Inc. ("CBI Na-Con"), a subsidiary of the Company,
installed a catalyst cooler bundle at Fina Oil & Chemical Company's ("Fina")
Port Arthur, Texas Refinery. In July 1991, Fina determined that the catalyst
cooler bundle was defective and had it replaced. Fina is seeking approximately
$20,000 in damages for loss of use of Fina's catalyst cracking unit and the cost
of replacement of the catalyst cooler bundle. On June 28, 1993, Fina filed a
complaint against CBI Na-Con before the District Court of Harris County, Texas
in Fina Oil & Chemical Company v. CBI Na-Con, Inc. et al. The Company denies
that it is liable. The Company believes that an estimate of the possible loss or
range of possible loss cannot be made. While the Company believes that the
claims are without merit and/or the Company has valid defenses to such claims
and that it is reasonably likely to prevail in defending against such claims,
there can be no assurance that if the Company is finally determined to be liable
for all or a portion of any damages payable, that such liability will not have a
materially adverse effect on the Company's business, financial condition and
results of operations.
The Company is a defendant in a number of other lawsuits arising in the
normal course of its business. The Company believes that an estimate of the
possible loss or range of possible loss relating to such matters cannot be made.
While it is impossible at this time to determine with certainty the ultimate
outcome of these lawsuits, and although no assurance can be given with respect
thereto, based on information currently available to the Company and based on
the Company's belief as to the reasonable likelihood of the outcomes of such
matters, the Company's management believes that adequate provision has been made
for probable losses with respect thereto as best as can be determined at this
time and that the ultimate outcome, after provisions therefor will not have a
material adverse effect, either individually or in the aggregate, on the
Company's business, financial condition and results of operations. The adequacy
of reserves applicable to the potential costs of being engaged in litigation and
potential liabilities resulting from litigation are reviewed as developments in
the litigation warrant.
The Company is jointly and severally liable for certain liabilities of
partnerships and joint ventures. The Company has also given certain performance
guarantees, arising from the ordinary course of business for its subsidiaries
and unconsolidated affiliates.
The Company has elected to retain portions of anticipated losses through
the use of deductibles and self-insured retentions for its exposures related to
third party liability and workers' compensation. Liabilities in excess of these
amounts are the responsibilities of an insurance carrier. To the extent the
Company selfinsures for these exposures, reserves have been provided for based
on management's best estimates with input from the Company's legal and insurance
advisors. Changes in assumptions, as well as changes in actual experience,
F-42
<PAGE>
could cause these estimates to change in the near term. The Company's management
believes that the reasonably possible losses, if any, for these matters, to the
extent not otherwise disclosed and net of recorded reserves will not be material
to its financial position or its results of operations.
8. Employee Benefit Programs:
Health and Welfare Programs
The Company participated in various health and welfare programs for active
employees that were sponsored by Industries. These programs include medical,
life insurance and disability. The Company reimbursed Industries for its
proportionate cost of these programs based on historical experience and relative
headcount. The Company recorded expense related to the reimbursement of these
costs of approximately $8,585 and $9,048 in the years ended December 31, 1995
and 1994, respectively. The costs were charged to cost of revenues and selling
and administrative expenses based on the number of employees in each of these
categories. The Company believes its allocation of the proportionate cost is
reasonable. Effective January 1, 1997, the Company intends to terminate
participation in the Industries-sponsored plans and initiate its own plans.
Stock Benefit Programs
The Company participated in an employee stock ownership plan, a restricted
stock award plan, employee stock purchase plans and a stock option plan
sponsored by Industries. The Company reimbursed Industries for its proportionate
cost of these programs based on an estimate of the proportionate costs
attributable to its employees. The Company recorded expense related to the
reimbursement of these costs of approximately $7,296 and $6,400 in the years
ended December 31, 1995 and 1994, respectively. The Company believes its
allocation of the proportionate cost was reasonable. As a result of the
acquisition of Industries by Praxair, these stock programs were terminated.
Pension and Defined Contribution Plans
The Company participates in a defined benefit plan sponsored by Industries
(the "CBI Pension Plan"), three defined benefit plans sponsored by the Company's
Canadian subsidiary, and makes contributions to union sponsored multi-employer
pension plans. The CBI Pension Plan, which is the principal non-contributory tax
qualified defined benefit plan, covers most U.S. salaried employees. The
Company's Canadian pension plans cover field, hourly, and salaried employees.
The Company made contributions of $2,863 and $4,641 in the years ended December
31, 1995 and 1994, respectively, to the union sponsored multi-employer pension
plans. Benefits under these defined benefit plans are based on years of service
and compensation levels.
The Company's net pension expense amounted to $2,692, and $3,575 in 1995
and 1994, respectively. The Company reimburses Industries for its proportionate
cost of these programs and funds pension costs as required. Separate
calculations for the Company of the components of net pension cost and funded
status are not available for the U.S. plan. The following tables reflect the
components of net pension cost and the funded status of the Industries pension
plans, which include the Company and the Company's Canadian pension plans:
<TABLE>
<CAPTION>
1995 1994
US Canada US Canada
<S> <C> <C> <C> <C>
Net Pension Cost
Service cost................................. $4,326 $291 $5,096 $368
Interest cost................................ 6,803 1,218 6,467 1,223
Actual return on assets...................... (15,420) (1,515) (1,262) (1,742)
</TABLE>
F-43
<PAGE>
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C> <C>
Net amortization and deferral................ 9,523 (239) (2,961) (472)
----- ---- ------ ----
Net defined benefit pension plans expense.... $5,232 $(245) $7,340 $(623)
Amount allocated to Company.................. $2,937 $(245) $4,198 $(623)
====== ===== ====== =====
</TABLE>
<TABLE>
<CAPTION>
1995 1994
US Canada US Canada
<S> <C> <C> <C> <C>
Funded Status
Accumulated benefit obligation including vested benefits of
$85,378 in 1995 and $68,378 in 1994......................... $(80,495) $(15,611) $(63,112) $(14,083)
Additional benefits based on projected salary levels........ (24,867) (2,682) (19,266) (3,085)
------- ------ ------- ------
Projected benefit obligation................................ (105,362) (18,293) (82,378) (17,168)
Market value of plan assets................................. 73,622 23,718 52,012 24,612
------ ------ ------ ------
Projected benefit obligation over plan assets............... (31,740) 5,425 (30,366) 7,444
Unrecognized loss........................................... 24,648 3,042 18,511 1,818
Unrecognized net transition asset........................... (545) (3,622) (606) (4,887)
Unrecognized prior service cost............................. 4,516 495 4,940 545
Additional minimum liability................................ (3,753) - (3,579) -
------- -------- ------- --------
Pension asset/(liability)................................... $ (6,874) $ 5,340 $(11,100) $ 4,920
========= ======== ======== =========
Amount allocated to Company................................. $ (3,003) $ 5,340 $ (3,173) $ 4,920
========= ======== ========= =========
</TABLE>
The principal defined benefit plan assets consist of long-term investments,
including equity and fixed income securities and cash. The significant
assumptions used in determining pension expense and the related pension
obligations were: discount rate of 7.25% and 8.5% in 1995 and 1994,
respectively; increase in compensation levels of 4.5% in 1995 and 1994; and
long-term rate of return on plan assets of 9.0% in 1995 and 1994.
The Company is the sponsor for several defined contribution plans which
cover salaried and hourly employees for which the Company does not provide
matching contributions. The cost of these plans to the Company was insignificant
in 1995 and 1994.
Effective January 1, 1997, the Company adopted a new tax-qualified defined
contribution plan ("New 401(k) Plan") for eligible employees. The New 401(k)
Plan consists of a voluntary pre-tax salary deferral feature under Sections
401(k) of the Internal Revenue Code, a Company matching contribution, and an
additional Company profit-sharing contribution to be determined annually by the
Company. The New 401(k) Plan substantially replaces the current
Industries-sponsored pension and 401(k) plans.
Benefit accruals under the CBI Pension Plan for current Company employees
were discontinued as of December 31, 1996. The Company's obligation to fund its
portion of the accumulated benefit obligation for its participants in excess of
plan assets was fixed at $17,270 as of December 31, 1996, as agreed to by the
Com-
F-44
<PAGE>
pany and Praxair. This obligation is payable ratably to Praxair over a
twelve-year period beginning December 1, 1997 with interest at 7.5%.
Of the three previously mentioned Canadian plans, one was terminated in
December 1994. Since that time, all members who elected to transfer their
balance have been paid out, while the remaining members continue to have
benefits under the plan. The second plan is in the process of being terminated.
Curtailment gains and losses for these plans were insignificant.
Postretirement Health Care and Life Insurance Benefits
The Company participates in a health care and life insurance benefit
program sponsored by Industries. This program provides certain separate health
care and life insurance benefits for employees retiring under the principal
non-contributory defined benefit pension plan of Industries. Retiree health care
benefits are provided under an established formula which limits costs based on
prior years of service of retired employees. This plan may be changed or
terminated by Industries at any time.
The Company's net cost of providing postretirement benefits was $2,258 and
$2,326 in 1995 and 1994, respectively. The Company reimbursed Industries for its
proportionate cost of this program. Separate calculations of the components of
the net postretirement benefit cost for the Company and the Company's funded
status are not available. The following tables reflect the components of the net
cost of postretirement benefits and the funded status for the entire Industries
plan, which includes the Company:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Net Periodic Postretirement Benefit Cost
Service cost......................................................... $ 563 $ 683
Interest cost........................................................ 2,572 2,582
Actual return on assets.............................................. 46 -
Net amortization and deferral........................................ - (23)
-------- --------
Postretirement health care and life insurance benefits cost.......... $3,181 $3,242
======== ========
Amount allocated to the Company...................................... $2,258 $2,326
======== ========
1995 1994
Net Postretirement Liability
Accumulated postretirement benefit obligation applicable to:
Retirees............................................................. $(25,136) $(24,553)
Active employees..................................................... (11,042) (11,535)
-------- --------
Projected benefit obligation......................................... (36,178) (36,088)
Plan assets.......................................................... - -
Unrecognized (gain)/loss............................................. 2,757 (1,272)
Unrecognized prior service costs..................................... 530 577
-------- --------
Postretirement health care and life insurance liability.............. $(32,891) $(36,783)
======== ========
Amount allocated to the Company...................................... $(24,069) $(27,367)
======== ========
</TABLE>
F-45
<PAGE>
The significant assumptions used in determining other postretirement
benefit expense were: discount rate of 7.25% and 8.5% in 1995 and 1994,
respectively; and long-term rate of return on plan assets of 9.0% in 1995 and
1994.
Effective January 1, 1997, the Company terminated its participation in the
program sponsored by Industries. The Company's obligation with respect to
existing retirees under the program was fixed at $21,400 as of December 31,
1996, as agreed to by the Company and Praxair. This obligation is payable
ratably to Praxair over a twelve-year period beginning December 1, 1997 with
interest at 7.5%. The future obligation for the Company's active employees under
this program has been assumed by the Company.
9. Income Taxes:
The Company's results are included in the consolidated Federal income tax
return filed by Industries. The consolidated amount of current and deferred tax
expense is allocated among the members of the Industries group using the
pro-rata method, which assumes the Company's taxes would be filed as a part of
Industries' consolidated return.
The sources of income/(loss) before income taxes and minority interest are:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
U.S.......................................................... $(25,387) $ (395)
Non-U.S...................................................... (4,376) 21,271
------ ------
$(30,123) $20,876
======== =======
The provision/(benefit) for income taxes consisted of:
1995 1994
---- ----
Current income taxes-
U.S.......................................................... $(6,678) $ (913)
Non-U.S...................................................... 1,586 6,399
----- -----
(5,092) 5,486
====== =====
Deferred income taxes-
U.S.......................................................... (1,469) (1,109)
Non-U.S...................................................... (1,532) (1,303)
------ ------
(3,001) (2,412)
------ ------
Total provision/(benefit)............................................. $(8,093) $3,074
======= ======
</TABLE>
F-46
<PAGE>
The components of the deferred income tax provision/(benefit) are:
1995 1994
Depreciation expense............................. $(586) $(1,225)
Non-U.S. activity................................ (619) (1,966)
Employee and retiree benefits.................... (255) (540)
Special charges.................................. 250 4,069
Insurance........................................ (2,583) (909)
Other, net....................................... 792 (1,841)
--- ------
$(3,001) $(2,412)
======= =======
A reconciliation of income taxes at the U.S. statutory rate and the
provision/(benefit) for income taxes follows:
1995 1994
Income/(loss) before income and minority interest....... $(30,123) $20,876
Tax provision/(benefit) at U.S. statutory rate.......... $(10,543) $7,307
State income taxes...................................... 82 389
Non-U.S. tax rate differential and losses without
tax benefit......................................... 1,610 (4,933)
Other, net.............................................. 758 311
--- ---
Provision/(benefit) for income taxes.................... $(8,093) $3,074
======= ======
Effective tax rates..................................... (26.9)% 14.7%
======= ======
The principal temporary differences included in non-current deferred income
taxes reported on the balance sheets are:
1995 1994 Depreciation expense.................... $(8,810) $(9,595)
Non-U.S. activity................................. 10,541 8,652
Employee and retiree benefits..................... 9,384 9,901
Special charges................................... 2,781 2,520
Insurance......................................... 10,654 7,922
Other, net........................................ 3,855 3,503
----- -----
$28,405 $22,903
======= =======
Current deferred tax assets at December 31, 1995 of $7,369 consist of
temporary differences resulting from insurance, $4,089; employee and retiree
benefits, $2,141; and other items, net $1,139.
Realization of recognized tax assets is dependent on generating sufficient
future taxable income. Although realization is not assured, management believes
it is more likely than not that all of the tax assets will be realized on a
consolidated Industries basis. The amount of the tax asset considered
realizable, however, could be reduced in the near term if estimates of future
taxable income are reduced. The Company has not
F-47
<PAGE>
recorded any additional U.S. deferred income taxes on indefinitely reinvested
undistributed earnings of non-U.S. subsidiaries and affiliates at December 31,
1995. If any such undistributed earnings were distributed, foreign tax credits
should become available under current law to significantly reduce or eliminate
any resulting U.S. income tax liability.
10. Operations by Geographic Segment:
The Company operates in four major geographic business segments: North
America; Central and South America; Europe, Africa, the Middle East; and the
Asia Pacific Area. No customer accounted for more than 10% of revenues. Export
sales, to unrelated customers outside of the United States, were less than 10%
of revenues in each period reported. Transfers between geographic areas are not
material. Corporate costs were allocated to the segments based on their relative
revenues, assets or work force.
Revenues, income/(loss) from operations and assets by geographic area are:
1995 1994
Revenues
North America................................... $317,698 $416,138
Central and South America....................... 54,605 118,616
Europe, Africa, Middle East..................... 110,775 112,973
Asia Pacific Area............................... 138,860 115,076
------- -------
$621,938 $762,803
======== ========
Income/(loss) from operations
North America................................... $(37,623) $(11,579)
Central and South America....................... 8,511 11,368
Europe, Africa, Middle East..................... (5,527) 856
Asia Pacific Area............................... 4,124 18,759
----- ------
$(30,515) $19,404
======== =======
Assets
North America................................... $190,187 $216,584
Central and South America....................... 14,997 21,332
Europe, Africa, Middle East..................... 73,322 63,677
Asia Pacific Area............................... 77,619 58,319
------ ------
$356,125 $359,912
======== ========
11. Special Charges and Gain on Sale of Assets:
Special Charges
1995 1994
Litigation...................................... $ - $16,990
Restructuring................................... 5,230 -
-------- -------
Total........................................... $ 5,230 $16,990
======== =======
In the fourth quarter of 1995, the Company recorded a special charge of
$5,230 for restructuring costs, including $1,850 in non-cash provisions for the
write-down of a facility which has been closed and
F-48
<PAGE>
$3,380 in cash provisions for workforce reductions of $750 and idle facility
costs of $2,630. The closed facility has been classified as assets held for sale
at December 31, 1995. Workforce reductions consisted of approximately 80 hourly
and salaried personnel from a manufacturing facility. Substantially all of the
cash portion of the reserves established for these restructuring costs was
expended during 1996.
In 1994, the Company recorded a special charge of $16,990 to recognize
expense related to a major litigation settlement against the Company.
Approximately $12,500 of the litigation settlement costs were paid in 1994 with
the balance of $4,500 payable over 5 years together with 8% interest thereon.
F-49
<PAGE>
Gain on Sale of Asset
1995 1994
Gain on sale of property, plant and equipment........... $10,030 $4,360
Gain from affiliated entity transactions................ - 7,000
------- -------
Total................................................... $10,030 $11,360
The gain on the sale of property, plant and equipment recorded in 1995
includes the gain on certain under-utilized facilities sold as a result of the
Company's restructuring program.
In 1994, the Company recognized $7,000 in gains from affiliated entity
transactions. These gains primarily represent the gains from the sale of the
Company's minority interest in a terminal in which the Company participated in
the construction thereof and also the sale of the Company's interest in a
fabrication facility.
12. Subsequent Events:
In November 1996, Chi Bridge Holdings, Inc. ("Bridge Holdings"), a
subsidiary of Praxair, formed its wholly owned subsidiary, Chicago Bridge & Iron
Company N.V. (the "Issuer"), a corporation organized under the laws of the
Netherlands. In December 1996, the Issuer filed a registration statement with
the Securities and Exchange Commission for an initial public offering of a
majority of the Issuer's common shares (the "Offering"). Praxair and its
affiliates will own the balance of the Issuer's shares. The net proceeds of the
Offering will remain with Praxair or its affiliates and the Issuer will not
receive any of the proceeds from the sale of its common shares.
Prior to the consummation of the Offering, Bridge Holdings and certain of
its subsidiaries will consummate a reorganization. Pursuant to the
reorganization (i) the shares of substantially all of Chicago Bridge & Iron
Company's ("Old CBIC") non-U.S. subsidiaries will be transferred by dividend to
its parent corporation, Bridge Holdings, and contributed to Chicago Bridge &
Iron Company B.V. ("CBICBV") in exchange for newly issued common shares of
CBICBV; (ii) the shares of substantially all of Old CBIC's U.S. subsidiaries
will be transferred by dividend to Bridge Holdings and contributed to a wholly
owned subsidiary of Bridge Holdings ("CBIC"), which will become a wholly owned
subsidiary of the Issuer in the reorganization, in exchange for newly issued
common stock of CBIC; (iii) Bridge Holdings will contribute the shares held by
it of each of CBIC and CBICBV to the Issuer in exchange for additional Common
Shares of the Issuer; and (iv) CBIC will assume any remaining assets and
liabilities of Old CBIC. After the reorganization and prior to the consummation
of the Initial Common Share Offering, Bridge Holdings will be merged into
Praxair such that Praxair will then directly own all of the then outstanding
Common Shares of the Issuer. This Reorganization will not affect the carrying
amounts of the Company's assets and liabilities, nor result in any distribution
of the Company's cash or other assets to Praxair.
Impact of Operating as a Stand-Alone Entity
The accompanying financial statements reflect the Company's costs of doing
business, including expenses incurred by Industries on the Company's behalf in
accordance with SEC Staff Accounting Bulletin No. 55. However, the Company
estimates it would have incurred increased expenses as a stand-alone company as
well as other incremental public company expenses. These additional costs would
have increased pretax loss by approximately $1,900 for the year ended December
31, 1995.
F-50
<PAGE>
13. Quarterly Operating Results:
As discussed in the Notes to Consolidated Financial Statements for the two
years ended December 31, 1995, the Company recorded special charges in 1995 and
1994 for a major litigation settlement and restructuring expenses. The fourth
quarter of 1995 was negatively impacted by approximately $15,000 for significant
losses on a few contracts and approximately $8,000 of underabsorbed overhead
costs.
The following table sets forth selected unaudited consolidated statement of
income information for the Company on a quarterly basis for the years ended
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Three Months Ended 1995
March 31 June 30 Sept 30 Dec 31
<S> <C> <C> <C> <C>
Revenues............................... $160,584 $156,385 $147,342 $157,627
Gross profit........................... 10,338 9,019 4,451 (16,100)
Special charges........................ 0 0 0 (5,230)
Income (loss) from operations.......... 1,223 (32) (2,966) (28,740)
Net income (loss)...................... 1,164 2,022 (5,263) (23,529)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended 1994
March 31 June 30 Sept 30 Dec 31
<S> <C> <C> <C> <C>
Revenues............................... $161,151 $190,942 $192,821 $217,889
Gross profit........................... 19,721 18,505 12,070 20,241
Special charges........................ 0 0 (16,990) 0
Income (loss) from operations.......... 10,780 9,624 (14,898) 13,898
Net income (loss)...................... 7,286 6,677 (10,713) 13,193
</TABLE>
F-51
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of Chicago Bridge & Iron Company N.V.:
We have audited the accompanying balance sheet of Chicago Bridge & Iron
Company N.V. (a Netherlands corporation) as of December 31, 1996. This balance
sheet is the responsibility of the Company's management. Our responsibility is
to express an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the balance sheet is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Chicago Bridge & Iron Company N.V.
as of December 31, 1996, in conformity with accounting principles generally
accepted in the United States.
Arthur Andersen & Co.
Amsterdam, The Netherlands
February 7, 1997
F-52
<PAGE>
CHICAGO BRIDGE & IRON COMPANY N.V.
BALANCE SHEET
As of December 31, 1996
(in thousands, except share data)
ASSETS
Cash............................................................ $59
---
Total Assets $59
===
LIABILITIES & SHAREHOLDER'S EQUITY
SHAREHOLDER'S EQUITY:
Common Stock (NLG .01 par value, 50,000,000 shares authorized;
10,000,000 issued and outstanding).............................. $59
---
Total Shareholder's Equity...................................... $59
===
The accompanying notes are an integral part of this balance sheet.
F-53
<PAGE>
CHICAGO BRIDGE & IRON COMPANY N.V.
NOTES TO BALANCE SHEET
December 31, 1996
(in thousands)
1. Organization:
In November 1996, Chi Bridge Holdings, Inc. ("Bridge Holdings"), a
subsidiary of Praxair, Inc., formed its wholly owned subsidiary Chicago Bridge &
Iron Company N.V. (the "Issuer"), a corporation organized under the laws of the
Netherlands. The original $59 investment in exchange for common stock and
additional paid-in capital is the Company's only transaction for the year ended
December 31, 1996, and as such, no income or cash flow statements are presented
for the period.
2. Significant Accounting Policies:
The Issuer employs accounting policies that are in accordance with
generally accepted accounting principles in the United States. The functional
currency for the Issuer is the U.S. dollar. The translation from Dutch Guilders
("NLG") to U.S. dollars is performed for balance sheet accounts using current
exchange rates in effect at the balance sheet date.
3. Subsequent Events:
In December 1996, the Issuer filed a registration statement with the
Securities and Exchange Commission for an initial public offering of a majority
of the Issuer's common shares (the "Offering"). Praxair and its affiliates will
own the balance of the Issuer's shares. The net proceeds of the Offering will
remain with Praxair or its affiliates and the Issuer will not receive any of the
proceeds from the sale of its common shares.
Prior to the consummation of the Offering, Bridge Holdings and certain of
its subsidiaries will consummate a reorganization. Pursuant to the
reorganization (i) the shares of substantially all of Chicago Bridge & Iron
Company's ("Old CBIC") non-U.S. subsidiaries will be transferred by dividend to
its parent corporation, Bridge Holdings, and contributed to Chicago Bridge &
Iron Company B.V. ("CBICBV") in exchange for newly issued common shares of
CBICBV; (ii) the shares of substantially all of Old CBIC's U.S. subsidiaries
will be transferred by dividend to Bridge Holdings and contributed to a wholly
owned subsidiary of Bridge Holdings ("CBIC"), which will become a wholly owned
subsidiary of the Issuer in the reorganization, in exchange for newly issued
common stock of CBIC; (iii) Bridge Holdings will contribute the shares held by
it of each of CBIC and CBICBV to the Issuer in exchange for additional Common
Shares of the Issuer; and (iv) CBIC will assume any remaining assets and
liabilities of Old CBIC. After the reorganization and prior to the consummation
of the Initial Common Share Offering, Bridge Holdings will be merged into
Praxair such that Praxair will then directly own all of the then outstanding
Common Shares of the Issuer.
F-54
<PAGE>
================================================================================
No dealer, salesperson, or other person has been authorized to give any
information or to make any representation not contained in this Prospectus and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company, the Selling Shareholder or any
Underwriter. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, any of the Securities offered hereby in any
jurisdiction to any person to whom it is unlawful to Chicago Bridge & Iron make
such offer in such jurisdiction. Neither the Company N.V. delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information herein is correct as of any time subsequent
to the date hereof or that there has been no change in the affairs of the
Company since such date.
TABLE OF CONTENTS
Page
----
Disclosure Regarding Forward Looking Statement ....... 2
Prospectus Summary ................................... 3
Risk Factors ......................................... 12
The Company .......................................... 20
Price Range of Common Shares and
Dividend Policy ................................... 20
Use of Proceeds ...................................... 21
Capitalization ....................................... 22
Selected Consolidated Financial and Other Data ....... 23
Management's Discussion and Analysis
of Financial Condition and Results of
Operations ........................................ 27
Business ............................................. 36
Certain Transactions; Relationship with Praxair ...... 53
Principal and Selling Shareholders ................... 56
Management ........................................... 58
Description of Revolving Credit Facility ............. 69
Description of Share Capital ......................... 70
Share Certificates and Transfer ...................... 75
Taxation ............................................. 78
Shares Eligible for Future Sale ...................... 83
Plan of Distribution ................................. 84
Legal Matters ........................................ 84
Experts .............................................. 84
Available Information ................................ 84
Service of Process and Enforcement of Civil
Liabilities ....................................... 87
Index to Financial Statements ........................ F-1
================================================================================
================================================================================
CHICAGO BRIDGE & IRON
COMPANY N.V.
PROSPECTUS
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection
with the issuance and distribution of the securities registered hereby:
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee............................................................ $ 2,735.00
Printing and engraving expenses................................................. 50,000.00
Legal fees and expenses......................................................... 95,000.00
Accounting fees and expenses.................................................... 100,000.00
Blue Sky fees and expenses (including
counsel fees)................................................................... 12,500.00
Miscellaneous................................................................... 19,765.00
-----------
Total.................................................................. $280,000.00
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Chicago Bridge & Iron Company N.V. (the "Issuer") is a Netherlands
corporation.
The Articles of Association of the Issuer, as amended, provide for
indemnification of directors and officers to the fullest extent permitted by the
law of The Netherlands.
Any underwriting agreement entered into in connection with underwritten
offerings of the securities registered hereunder is expected to contain certain
provisions for indemnification of directors and officers of the Company and any
underwriters against civil liabilities under the Securities Act.
The Issuer has entered into indemnification agreements with certain of
its directors providing for indemnification to the fullest extent permitted by
the law of The Netherlands. These agreements provide for specific procedures to
better assure the directors' rights to indemnification, including procedures for
directors to submit claims, for determination of directors' entitlement to
indemnification (including the allocation of the burden of proof and selection
of a reviewing party), and for enforcement of directors' indemnification rights.
The Company has also obtained officers' and directors' liability insurance in
amounts that it believes are reasonable under the circumstances.
Article 25 of the Articles of Association of the registrant also
provides that, to the fullest extent permitted by the law of The Netherlands,
directors of the Issuer will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for any transaction
from which the director derived an improper personal benefit or (iv) for
personal liability which is imposed by the law of The Netherlands, as from time
to time amended.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since its inception on November 22, 1996, the Issuer has made the
following sales of unregistered securities:
On November 22, 1996, upon its formation, the Issuer issued 10,000,000
Common Shares to Chi Bridge Holdings, Inc. in exchange for a capital
contribution of NLG 100,000 (approximately $59,150, calculated on the basis of
the exchange rate published in The Wall Street Journal on November 22, 1996).
In March 1997, the Issuer issued 1,500,000 Common Shares to Chi Bridge
Holdings, Inc. in exchange for a capital contribution of shares of capital stock
of certain subsidiaries of Chi Bridge Holdings, Inc. and certain other assets.
In March 1997, the Issuer issues 91,882 Common Shares to Praxair, Inc.
in exchange for a capital contribution equal to the par value of such Common
Shares.
All of the securities described above were issued without registration
under the Securities Act of 1933, as amended, in reliance upon the exemption
provided by Section 4(2) of that Act. No underwriting commissions were paid in
connection with such issuance.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following Exhibits are numbered in accordance with the
Exhibit Table of Item 601 of Regulation S-K.
1.(1) Form of Underwriting Agreement to be used in any underwritten
offerings.
3.(2) Amended Articles of Association of the Issuer (English
translation).
4.1(2) Specimen Stock Certificate.
5.(1) Form of Opinion of Loeff Claeys Verbeke as to the validity of
the Common Shares being offered, including consent.
8.1(1) Form of Opinion of Cahill Gordon & Reindel as to certain U.S.
tax matters relative to the Common Shares, including consent.
8.2(1) Form of Opinion of Loeff Claeys Verbeke as to certain
Netherlands tax matters relative to the Common Shares,
including consent.
10.1(2) Form of Indemnification Agreement between the Issuer and its
supervisory and managing directors.
10.2(1) The Company's Employee Stock Purchase Plan.
10.3(2) The Company's Bonus Plan.
10.4(2) The Company's Incentive Plan.
II-2
<PAGE>
10.5(2) The Company's Deferred Compensation Plan.
10.6(2) The Company's Management Plan.
10.7(2) The Company's Excess Benefit Plan.
10.8(2) Form of the Company's Supplemental Executive Death Benefits
Plan.
10.9(2) Employment Agreements including Special Stock-based, Long-Term
Compensation Related to the Common Share Offering between the
Company and certain executive officers.
10.10(2) Form of Termination Agreements between the Company and certain
executive officers.
10.11(2) Separation Agreement.
10.12(2) Form of Amended and Restated Tax Disaffiliation Agreement.
10.14(2) Employee Benefits Separation Agreement.
10.14(2) Registration Rights Agreement.
10.15(2) Note of the Company regarding a debt owed to Praxair, Inc.
10.16(2) Conforming Agreement.
10.17(2) Revolving Credit Facility.
21.(2) List of subsidiaries of the Issuer.
23.1.1(1) Consent of U.S. Independent Public Accountants.
23.1.2(1) Consent of Netherlands Independent Public Accountants.
23.2(1) Consents of Loeff Claeys Verbeke (certain consents included as
part of Exhibits 5 and 8.2).
23.3(1) Consent of Cahill Gordon & Reindel (included as part of
Exhibit 8.1).
24.(1) Powers of Attorney (included on signature page).
- -------------------
(1) Filed herewith.
(2) Incorporated by reference from the registrant's Registration Statement
on Form S-1 (File No. 333-18065).
<PAGE>
ITEM 17. UNDERTAKINGS.
1.To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; notwithstanding the foregoing, any
increase or decrease in volume of securities being 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;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that the undertakings set forth in clauses (i) and (ii) of
this paragraph shall not apply if the registration statement is on Form S-3 or
Form S-8 and the information required to be included in post-effective amendment
by those paragraphs is contained in periodic reports filed by the registrants
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in this registration statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered herein which remain unsold at the
termination of the offering.
4. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Issuer 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 of 1933, and is, therefore, unenforceable. If a claim for
indemnification against such liabilities (other than payment by the Issuer of
expenses incurred or paid by a director, officer or controlling person of the
Issuer in the successful defense of any action, suit or proceeding) is asserted
by a director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
5. That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of Prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Issuer pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
6. That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filings on Form S-1 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Chicago, State of Illinois, on the 10th day of
November 1997.
CHICAGO BRIDGE & IRON COMPANY N.V.
By: /s/ Timothy J. Wiggins
------------------------------
Chicago Bridge & Iron Company B.V.
Managing Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned
managing and supervisory directors of Chicago Bridge & Iron Company N.V., a
Netherlands corporation, and officers of Chicago Bridge & Iron Company ("CBIC"),
a Delaware corporation, do hereby constitute and appoint Gerald M. Glenn and
Thomas L. Aldinger, and each of them, the lawful attorneys and agents or
attorney or agent, with power and authority to do any and all acts and things
and to execute any and all instruments which said attorneys and agents, and any
one of them, determine may be necessary or advisable or required to enable said
corporation to comply with the Securities Act of 1933, as amended, and any rules
or regulations or requirements of the Securities and Exchange Commission in
connection with the Registration Statement. Without limiting the generality of
the foregoing power and authority, the powers granted include the power and
authority to sign names of the undersigned officers and directors in the
capacities indicated below to this Registration Statement, to any and all
amendments, all whether pre-effective or post-effective, and all supplements to
this Registration Statement and to any and all instruments, or documents filed
as part of or in conjunction with the Registration Statement or amendments,
whether pre-effective or post-effective, or supplements to this Registration
Statement, and each of the undersigned hereby ratifies and confirms all that
said attorneys and agents or any of them shall do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Timothy J. Wiggins Managing Director of Registrant November 10, 1997
- ------------------------------------------
Chicago Bridge & Iron Company B.V.
Chairman of the Supervisory Board of
Registrant, and President, Chief Executive
Officer of CBIC
/s/ Gerald M. Glenn (Principal Executive Officer) November 10, 1997
- ------------------------------------------
Gerald M. Glenn
Vice President and Chief Financial Officer
of CBIC
/s/ Timothy J. Wiggins (Principal Financial Officer)
Timothy J. Wiggins November 10, 1997
Vice President and Controller of CBIC
/s/ John R. Meier (Principal Accounting Officer) November 10, 1997
- ------------------------------------------
John R. Meier
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Jerry H. Ballengee Supervisory Director November 10, 1997
- ------------------------------------------
Jerry H. Ballengee
/s/ J. Dennis Bonney Supervisory Director November 10, 1997
- ------------------------------------------
J. Dennis Bonney
/s/ J. Charles Jennett Supervisory Director November 10, 1997
- ------------------------------------------
J. Charles Jennett
/s/ Vincent L. Kontny Supervisory Director November 10, 1997
- ------------------------------------------
Vincent L. Kontny
/s/ Gary L. Neale Supervisory Director November 10, 1997
- ------------------------------------------
Gary L. Neale
/s/ L. Donald Simpson Supervisory Director November 10, 1997
- ------------------------------------------
L. Donald Simpson
/s/ Marsha C. Williams Supervisory Director November 10, 1997
- ------------------------------------------
Marsha C. Williams
Registrant's Agent for
Service in the United States
/s/ Robert H. Wolfe
- ------------------------------------------
Robert H. Wolfe
</TABLE>
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
<S> <C>
1.(1) Form of Underwriting Agreement to be used in any underwritten offerings.
3.(2) Amended Articles of Association of the Issuer (English translation).
4.1(2) Specimen Stock Certificate.
5.(1) Form of Opinion of Loeff Claeys Verbeke as to the validity
of the Common Shares being offered, including consent.
8.1(1) Form of Opinion of Cahill Gordon & Reindel as to certain U.S. tax matters relative to the
Common Shares, including consent.
8.2(1) Form of Opinion of Loeff Claeys Verbeke as to certain Netherlands tax matters relative to
the Common Shares, including consent.
10.1(2) Form of Indemnification Agreement between the Issuer and its supervisory and managing
directors.
10.2(1) The Company's Employee Stock Purchase Plan.
10.3(2) The Company's Bonus Plan.
10.4(2) The Company's Incentive Plan.
10.5(2) The Company's Deferred Compensation Plan.
10.6(2) The Company's Management Plan.
10.7(2) The Company's Excess Benefit Plan.
10.8(2) Form of the Company's Supplemental Executive Death Benefits Plan.
10.9(2) Employment Agreements including Special Stock-based,
Long-Term Compensation Related to the Common Share Offering
between the Company and certain executive officers.
10.10(2) Form of Termination Agreements between the Company and certain executive officers.
10.11(2) Separation Agreement.
10.12(2) Form of Amended and Restated Tax Disaffiliation Agreement.
10.14(2) Employee Benefits Separation Agreement.
10.14(2) Registration Rights Agreement.
10.15(2) Note of the Company regarding a debt owed to Praxair, Inc.
10.16(2) Conforming Agreement.
10.17(2) Revolving Credit Facility.
21.(2) List of subsidiaries of the Issuer.
23.1.1(1) Consent of U.S. Independent Public Accountants.
23.1.2(1) Consent of Netherlands Independent Public Accountants.
23.2(1) Consents of Loeff Claeys Verbeke (certain consents included as part of Exhibits 5 and 8.2).
23.3(1) Consent of Cahill Gordon & Reindel (included as part of Exhibit 8.1).
24.(1) Powers of Attorney (included on signature page).
</TABLE>
- -------------------
(1) Filed herewith.
(2) Incorporated by reference from the registrant's Registration Statement on
0Form S-1 (File No. 333-18065).
CHICAGO BRIDGE & IRON COMPANY N.V.
Common Shares
UNDERWRITING AGREEMENT
1. Introductory. Praxair, Inc., a Delaware corporation (the "Selling
Shareholder"), proposes to sell from time to time common shares, par value NLG
0.01 per share ("Common Shares") of Chicago Bridge & Iron Company N.V., a
Netherlands corporation (the "Company") registered under the registration
statement referred to in Section 2(a) ("Registered Securities"). Particular
offerings of the Registered Securities will be sold pursuant to a Terms
Agreement referred to in Section 3, for resale in accordance with terms of
offering determined at the time of sale.
The Registered Securities involved in any such offering are hereinafter
referred to as the "Offered Securities". The firm or firms which agree to
purchase the Offered Securities are hereinafter referred to as the
"Underwriters" of such securities, and the representative or representatives of
the Underwriters, if any, specified in a Terms Agreement referred to in Section
3 are hereinafter referred to as the "Representatives"; provided, however, that
if the Terms Agreement does not specify any representative of the Underwriters,
the term "Representatives", as used in this Agreement (other than in Sections
2(b), 5(c) and 6 and the second sentence of Section 3), shall mean the
Underwriters.
The Company and the Selling Shareholder hereby agree with each Underwriter
as follows:
2. Representations and Warranties of the Company and the Selling
Shareholder. (a) The Company, as of the date of each Terms Agreement referred to
in Section 3, represents and warrants to, and agrees with, each Underwriter
that:
(i) A registration statement (No. 333- ), including a prospectus,
relating to the Registered Securities has been filed with the Securities
and Exchange Commission ("Commission") and has become effective. Such
registration statement, as amended at the time of any Terms Agreement
referred to in Section 3, is hereinafter referred to as the "Registration
Statement", and the prospectus included in such Registration Statement, as
supplemented as contemplated by Section 3 to reflect the terms of offering
of the Offered Securities, as first
<PAGE>
-2-
filed with the Commission pursuant to and in accordance with Rule 424(b)
("Rule 424(b)") under the Securities Act of 1933 ("Act"), including all
material incorporated by reference therein, is hereinafter referred to as
the "Prospectus". No document has been or will be prepared or distributed
in reliance on Rule 434 under the Act.
(ii) On the effective date of the registration statement relating to
the Registered Securities, such registration statement complied in all
material respects to the requirements of the Act and the rules and
regulations of the Commission ("Rules and Regulations") and did not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, and on the date of each Terms Agreement referred to in
Section 3, the Registration Statement and the Prospectus will comply in all
material respects to the requirements of the Act and the Rules and
Regulations, and neither of such documents will include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading, except that the foregoing does not apply to statements in or
omissions from any of such documents based upon written information
furnished to the Company by any Underwriter through the Representatives, if
any, specifically for use therein.
(iii) The Company has been duly incorporated and is validly existing
as a public company with limited liability (naamloze vennootschap) under
the laws of the Netherlands, with corporate power and authority to own its
properties and conduct its business as described in the Prospectus; and the
Company is duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions in which its ownership or lease of
property or the conduct of its business requires such qualification, except
where the failure to be so qualified would not have a material adverse
effect on the condition (financial or other), business, properties or
results of operations of the Company and its Subsidiaries (as hereinafter
defined) taken as a whole.
(iv) Each subsidiary of the Company (collectively, the "Subsidiaries")
is listed on Exhibit A hereto, together with its jurisdiction of
incorporation and the beneficial ownership interest of the Company therein.
Exhibit B hereto sets forth all Subsidiaries of the Company which
<PAGE>
-3-
are, individually or on a consolidated basis, material to the operations of
the Company and its Subsidiaries and the conduct of their respective
businesses (collectively, the "Significant Subsidiaries"). Each Significant
Subsidiary has been duly incorporated and is an existing corporation in
good standing under the laws of the jurisdiction of its incorporation, with
corporate power and authority to own its properties and conduct its
business as described in the Prospectus; and each Subsidiary is duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of the Company and its Subsidiaries taken as a whole; all of the
issued and outstanding capital stock of each Significant Subsidiary has
been duly authorized and validly issued and is fully paid and
nonassessable; and, except as described in the Prospectus, the capital
stock of each Significant Subsidiary owned by the Company, directly or
through Subsidiaries, is owned free and clear of any mortgage, pledge,
lien, security interest, restriction upon voting, claim or incumbency of
any kind, or, other than as imposed by operation of law, restriction upon
transfer (other than agreements previously disclosed to the Representatives
providing for rights of first refusal and preemptive rights); and there are
no rights granted to or in favor of any third party (whether acting in an
individual, fiduciary or other capacity) to acquire any such capital stock,
any additional capital stock or any other securities of any Significant
Subsidiary (other than agreements previously disclosed to the
Representatives providing for rights of first refusal and preemptive
rights).
(v) The Offered Securities and all other outstanding shares of capital
stock of the Company have been duly authorized; all outstanding shares of
capital stock of the Company are, and, when the Offered Securities have
been delivered and paid for in accordance with the Terms Agreement on the
Closing Date (as defined below), such Offered Securities will have been,
validly issued, fully paid and nonassessable and will conform in all
material respects to the description thereof contained in the Prospectus;
and except as described in the Prospectus, the shareholders of the Company
have no preemptive rights with respect to the Offered Securities which have
not been waived.
<PAGE>
-4-
(vi) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any third party that
would give rise to a valid claim against the Company or any Underwriter for
a brokerage commission, finder's fee or other like payment in connection
with the transactions contemplated by the Terms Agreement (including the
provisions of this Agreement).
(vii) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person granting
such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company owned
or to be owned by such person or to require the Company to include such
securities in the securities registered pursuant to the Registration
Statement or in any securities being registered pursuant to any other
registration statement filed by the Company under the Act; and there are no
legal or governmental proceedings, statutes, regulations, contracts or
other documents that are required to be described in the Registration
Statement or Prospectus or required to be filed as exhibits to the
Registration Statement that are not described or filed as required.
(viii) The Offered Securities in the form of Bearer Shares (as defined
in the Prospectus) have been approved for listing on the Official Market of
the AEX-Effectenbeurs nv (the "Amsterdam Stock Exchange") and the Offered
Securities in the form of New York Shares (as defined in the Prospectus)
have been approved for listing on the New York Stock Exchange, Inc. (the
"NYSE") subject to notice of issuance.
(ix) No material consent, approval or authorization, and no material
order, registration or qualification of, or filing with, any third party
(whether acting in an individual, fiduciary or other capacity) or any
governmental or regulatory agency or body or any court is required for the
consummation of the transactions to be effected by the Company, the Selling
Shareholder and their respective subsidiaries contemplated by the Terms
Agreement (including the provisions of this Agreement), except such as have
been obtained and made under the Act and such as may be required under
state or foreign securities laws in connection with the offer and sale of
the Offered Securities.
<PAGE>
-5-
(x) Except as described in the Prospectus, under current laws and
regulations of The Netherlands and any political subdivision thereof, all
dividends and other distributions declared and payable on the Offered
Securities may be paid by the Company to the holder thereof in United
States dollars (including, without limitation, payments on any Offered
Securities in the form of New York Shares), and all such payments made to
holders thereof who are non-residents of The Netherlands will, except as
described in the Prospectus, not be subject to income, withholding or other
taxes under laws and regulations of The Netherlands and any political
subdivision or taxing authority thereof or therein and will otherwise be
free and clear of any other tax, duty, withholding or deduction in The
Netherlands or any political subdivision or taxing authority thereof or
therein and without the necessity of obtaining any governmental
authorization in The Netherlands or any political subdivision or taxing
authority thereof or therein; provided that a reduced rate of withholding
tax on dividends, as described in the Prospectus, may only be applied by
the Company after the relevant permission to do so has been obtained from
the competent taxing authority in accordance with the formalities of the
relevant tax treaty and that, absent such permission, a reduction of
dividend withholding tax can, if applicable, only be obtained through a
refund procedure after a dividend has been paid, in accordance with the
formalities as prescribed by the relevant tax treaty.
(xi) No stamp or other issuance or transfer taxes or duties are
payable by or on behalf of the Underwriters and, except as described in the
Prospectus, no capital gains, income, withholding or other taxes are
payable by a non-Dutch resident Underwriter to The Netherlands or any
political subdivision or taxing authority thereof or therein in connection
with (A) the sale and delivery of the Offered Securities to or for the
accounts of the Underwriters or (B) the sale and delivery outside The
Netherlands by the Underwriters of the Offered Securities to the initial
purchasers thereof.
(xii) The execution, delivery and performance of the Terms Agreement
(including the provisions of this Agreement) and the offer and sale of the
Offered Securities will not conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a default
under (A) any statute, any rule, regulation or order of any governmental
agency or body or any court, domestic
<PAGE>
-6-
or foreign, having jurisdiction over the Company or any Subsidiary or any
of their properties or operations, or any agreement or instrument to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary is bound or to which any of the properties or operations of the
Company or any Subsidiary is bound or to which any of the properties or
operations of the Company or any Subsidiary is subject, or (B) the articles
of association or the charter or by-laws of the Company or any Significant
Subsidiary, as the case may be, except, in the case of clause (A), for such
conflicts, breaches, violations or defaults which could not reasonably be
expected to, individually or in the aggregate, have a material adverse
effect on the condition (financial or other), business, properties or
results of operations of the Company and its Subsidiaries taken as a whole,
or a material adverse effect on the consummation of the transactions
contemplated by the Terms Agreement (including the provisions of this
Agreement); and the Company has full corporate power and authority to
authorize, issue and sell the Offered Securities as contemplated by the
Terms Agreement (including the provisions of this Agreement).
(xiii) The Terms Agreement (including the provisions of this
Agreement) has been duly authorized, executed and delivered by the Company.
(xiv) Except as described in the Prospectus, the Company and its
Significant Subsidiaries have good and marketable title to all material
real properties and all other material properties and material assets
described in the Prospectus as being owned by them, in each case free from
liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or to be made thereof by
them; and except as described in the Prospectus, the Company and its
Significant Subsidiaries hold any material leased real or personal property
under valid and enforceable leases with no exceptions that would materially
interfere with the use made or to be made thereof by them and neither the
Company nor any Significant Subsidiary has been notified of any material
claim that has been asserted by anyone adverse to the rights of the Company
or any Significant Subsidiary under any of such leases.
(xv) Except as described in the Prospectus, the Company and its
Subsidiaries possess adequate certificates, authorizations, licenses or
permits issued by appropriate
<PAGE>
-7-
governmental agencies or bodies necessary to conduct the business now
operated by them and have not received any written notice of threatened or
actual proceedings (and are not aware of any facts that would reasonably be
expected to result in such proceeding) relating to the revocation or
modification of any such certificate, authorization, license or permit,
except for any such non-possession or proceeding as could not reasonably be
expected to, individually or in the aggregate, have a material adverse
effect on the condition (financial or other), business, properties or
results of operations of the Company and its Subsidiaries taken as a whole.
The Company and its Subsidiaries are in compliance with their respective
obligations under such certificates, authorizations, licenses or permits
and to the Company's knowledge, no event has occurred that allows, or after
notice or lapse of time would allow, revocation or termination of such
certificates, authorizations, licenses or permits or violation of such laws
or regulations, except for such non-compliance and events as could not
reasonably be expected to, individually or in the aggregate, have a
material adverse effect on the condition (financial or other), business,
properties or results of operations of the Company and its Subsidiaries
taken as a whole.
(xvi) No labor dispute with the employees of the Company or any
Subsidiary exists or, to the knowledge of the Company, is imminent that
could reasonably be expected to, individually or in the aggregate, have a
material adverse effect on the condition (financial or other), business,
properties or results of operations of the Company and its Subsidiaries,
taken as a whole.
(xvii) The Company and its Subsidiaries own or have obtained valid and
enforceable licenses for all material trademarks, trademark registrations,
service marks, service mark registrations, trade names, copyrights,
copyright registrations, computer software, trade secrets and proprietary
or other intellectual property owned, sold or used by or licensed to or by
the Company or any of its Subsidiaries or that are necessary for the
conduct of their businesses (collectively, the "Intellectual Property"),
and the Company and its Subsidiaries are not aware of any claim or
challenge by any third party to the rights of the Company or its
Subsidiaries with respect to any Intellectual Property or to the validity
or scope of the Intellectual Property and neither the Company nor any
Subsidiary has any claim against any third party with respect
<PAGE>
-8-
to infringement of any Intellectual Property, which claims or challenges,
if adversely determined, could reasonably be expected to, individually or
in the aggregate, have a material adverse effect on the condition
(financial or other), business, properties or results of operations of the
Company and its Subsidiaries taken as a whole.
(xviii) Except as described in the Prospectus and except as could not
reasonably be expected to, individually or in the aggregate, have a
material adverse effect on the condition (financial or other), business,
properties or results of operations of the Company and its Subsidiaries,
taken as a whole, the properties, assets and operations of each of the
Company and its Subsidiaries are in compliance with all applicable federal,
state, local and foreign laws, rules and regulations, orders, decrees,
judgments, permits and licenses relating to worker health and safety, and
to the protection and clean-up of the natural environment and to the
protection or preservation of natural resources, including, but not limited
to, those relating to the processing, manufacturing, generation, handling,
disposal, transportation or release of hazardous materials (collectively,
"Environmental Laws"). With respect to such properties, assets and
operations, there are no events, conditions, circumstances, activities,
practices, incidents, actions or plans of the Company or any of its
Subsidiaries of which the Company is aware that may interfere with or
prevent compliance or continued compliance with applicable Environmental
Laws in a manner that could reasonably be expected to, individually or in
the aggregate, have a material adverse effect on the condition (financial
or other), business, properties or results of operations of the Company and
its Subsidiaries, taken as a whole. Except as described in the Prospectus
and except as could not reasonably be expected to, individually or in the
aggregate, have a material adverse effect on the condition (financial or
other), business, properties or results of operations of the Company and
its Subsidiaries, taken as a whole, (A) to the Company's knowledge, none of
the Company or any of its Subsidiaries is the subject of any federal,
state, local or foreign investigation pursuant to Environmental Laws, (B)
none of the Company or any of its Subsidiaries has received any written
notice or claim pursuant to Environmental Laws and (C) there are no
pending, or, to the knowledge of the Company, threatened actions, suits or
proceedings against the Company, any of its Subsidiaries or its properties,
assets or operations, in connection with any such Environmental Laws. The
term
<PAGE>
-9-
"hazardous materials" shall mean those substances that are regulated by or
pursuant to any applicable Environmental Laws.
(xix) Each "employee benefit plan" within the meaning of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), in which
employees of the Company or any Subsidiary participate or as to which the
Company or any Subsidiary has any liability (the "ERISA Plans") is in
compliance with the applicable provisions of ERISA and the Internal Revenue
Code of 1986, as amended (the "Code"). Neither the Company nor any
Subsidiary has any liability with respect to the ERISA Plans, nor does the
Company expect that any such liability will be incurred, that could
reasonably be expected to, individually or in the aggregate, have a
material adverse effect on the condition (financial or other), business,
properties or results of operations of the Company and its Subsidiaries
taken as a whole. Except as described in the Prospectus, the value of the
aggregate vested and nonvested benefit liabilities under each of the ERISA
Plans that is subject to Section 412 of the Code, determined as of the end
of such ERISA Plan's most recent ended plan year on the basis of the
actuarial assumptions specified for funding purposes in such Plan's most
recent actuarial valuation report, did not exceed the aggregate current
value of the assets of such ERISA Plan allocable to such benefit
liabilities. Neither the Company nor any Subsidiary has any liability,
whether or not contingent, with respect to any ERISA Plan that provides
post-retirement welfare benefits that could reasonably be expected to,
individually or in the aggregate, have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of the Company and its Subsidiaries taken as a whole. The
descriptions of the Company's stock option, incentive compensation and
other employee benefits plans or arrangements, and the options or other
rights granted and exercised thereunder, set forth in the Prospectus are
accurate in all material respects.
(xx) Except as described in the Prospectus (A) neither the Company nor
any of its Significant Subsidiaries is in violation of its articles of
association or of its charter or by-laws, as the case may be, (B) neither
the Company nor any of its Subsidiaries is in violation of any applicable
law, ordinance, administrative or governmental rule or regulation, or any
order, decree or judgment of any court or governmental agency or body
having jurisdiction
<PAGE>
-10-
over the Company or any of its Subsidiaries and (C) no event of default or
event that, but for the giving of notice or the lapse of time or both,
would constitute an event of default exists, or upon consummation of the
sale of the Offered Securities will exist, under any indenture, mortgage,
loan agreement, note, lease, permit, license or other agreement or
instrument to which the Company or any of its Subsidiaries is a party or to
which any of the properties, assets or operations of the Company or any
such Subsidiary is subject, except, in the case of clauses (B) and (C), for
such violations and defaults that could not reasonably be expected,
individually or in the aggregate, to have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of the Company and its Subsidiaries, taken as a whole.
(xxi) The Company and its Significant Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are customary in the businesses in which they
are engaged; all material policies of insurance and material performance
bonds insuring the Company or any Significant Subsidiary or their
businesses, assets, employees, officers and directors are in full force and
effect; the Company and its Significant Subsidiaries are in compliance with
such policies and instruments in all material respects; and except as
described in the Prospectus or as could not reasonably be expected,
individually or in the aggregate, to have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of the Company and its Subsidiaries, taken as a whole, there are
no claims by the Company or a Significant Subsidiary under any such policy
or instrument as to which any insurance company is denying liability or
defending under a reservation of rights clause.
(xxii) Except as described in the Prospectus, there are no pending
actions, suits or proceedings against or, to the knowledge of the Company,
affecting the Company, any of its Subsidiaries or any of their respective
properties, assets or operations that, if determined adversely to the
Company or any of its Subsidiaries, could reasonably be expected to,
individually or in the aggregate, have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of the Company and its Subsidiaries, taken as a whole, or could
materially and adversely affect the ability of the
<PAGE>
-11-
Company to perform its obligations under the Terms Agreement (including the
provisions of this Agreement); and no such actions, suits or proceedings
are, to the knowledge of the Company, threatened or contemplated.
(xxiii) The financial statements, together with the related schedules
and notes, included in each Registration Statement and the Prospectus
present fairly, in all material respects, the financial position of the
Company and its consolidated Subsidiaries as of the dates shown and their
results of operations and cash flows for the periods shown, and have been
prepared in conformity with the generally accepted accounting principles in
the United States applied on a consistent basis; the pro forma financial
information included in the Prospectus has been prepared in accordance with
the Commission's rules and guidelines with respect to pro forma financial
information, the assumptions used in preparing such pro forma financial
information provide a reasonable basis for presenting the effects directly
attributable to the transactions or events described therein, the related
pro forma adjustments give appropriate effect to those assumptions, and the
pro forma columns therein reflect the proper application of those
adjustments to the corresponding historical financial statement amounts.
The other financial and statistical information set forth in the Prospectus
present fairly, in all material respects, the information shown therein and
have been compiled on a basis consistent with that of the audited financial
statements included in the Registration Statement.
(xxiv) Since the dates as of which information is given in the
Registration Statement and the Prospectus, and except as has occurred as
contemplated in the Prospectus, (i) the Company and its Subsidiaries, taken
as a whole, have not incurred any material liability or obligation
(indirect, direct or contingent) or entered into any material and adverse
verbal or written agreement or other transaction that is not in the
ordinary course of business or that could reasonably be expected to result
in a material reduction in the future earnings of the Company and its
Subsidiaries taken as a whole; (ii) the Company and its Subsidiaries, taken
as a whole, have not sustained any material loss or interference with their
business or properties from fire, flood, windstorm, accident or other
calamity (whether or not covered by insurance); (iii) there has been no
material increase, except as contemplated by the Prospectus, in the
indebtedness of the Company and ex-
<PAGE>
-12-
cept as contemplated by the Prospectus, no change in the capital stock of
the Company and except as contemplated by the Prospectus, no dividend or
distribution of any kind declared, paid or made by the Company on any class
of its capital stock; and (iv) there has been no material adverse change in
the condition (financial or other), business, properties or results of
operations of the Company and its Subsidiaries taken as a whole.
(xxv) The Company is not and, after giving effect to the offering and
sale of the Offered Securities pursuant to the Terms Agreement (including
the provisions of this Agreement) will not be, an "investment company" or
an entity "controlled" by an "investment company" as defined in the
Investment Company Act of 1940.
(xxvi) The Company has not taken and will not take, directly or
indirectly, any action designed to or that could reasonably be expected to
cause or result in stabilization or manipulation of the price of the
Offered Securities and the Company has not distributed and will not
distribute any offering material in connection with the offering and sale
of the Offered Securities other than any preliminary prospectus filed with
the Commission or the Prospectus or other materials, if any, permitted by
the Act or the Rules and Regulations.
(xxvii) Each of the Company and the Significant Subsidiaries has
timely filed (or joined in the filing of) all material federal, state,
local and foreign tax reports and returns that it was required to file (or
join in the filing of) and such reports and returns are complete and
correct in all material respects. All material taxes shown to be due on
such reports and returns or otherwise relating to periods ending on or
before the Closing Date, owed by the Company or any of its Significant
Subsidiaries (whether or not shown on any report or return) or to which the
Company or any of the Significant Subsidiaries may be liable under the
Treasury regulations section 1.1502-6 (or analogous state or foreign law
provisions) on account of having been a member of an "affiliated group" as
defined in section 1504 of the Code (or other group filing on a combined
basis) at any time on or prior to the Closing Date, if required to have
been paid, have been paid, except such tax assessments, if any, as are
being contested in good faith and as to which reserves have been provided
which the Company reasonably believes are adequate. To the Company's
knowledge after due inquiry, the charges,
<PAGE>
-13-
accruals and reserves on the books of the Company and the Subsidiaries in
respect of any tax liability for any year not finally determined are
adequate to meet any assessments or reassessments. No tax deficiency has
been asserted or, to the Company's knowledge, threatened against the
Company or any of the Subsidiaries that could reasonably be expected to,
individually or in the aggregate, have a material adverse effect on the
condition (financial or otherwise), business, properties or results of
operations of the Company and the Subsidiaries taken as a whole.
(xxviii) To the Company's knowledge, the Company is neither a foreign
personal holding company ("FPHC") within the meaning of section 552 of the
Code nor a passive foreign investment company ("PFIC") within the meaning
of section 1296 of the Code, is not, upon consummation of the transactions
contemplated hereby, likely to become an FPHC, a PFIC or a controlled
foreign corporation ("CFC") (within the meaning of section 957 of the
Code), and the Company is not aware of any contemplated action by any
shareholder or shareholders of the Company that would be likely to cause
the Company to become an FPHC, PFIC or CFC.
(xxix) Arthur Andersen LLP are independent public accountants with
respect to the Company as required by the Act.
(xxx) The Company has obtained the written agreement of each person
who will be, on the Closing Date, a supervisory director and of each
officer of the Company (other than Charles D. Bassett) listed on Exhibit C
hereto, in form reasonably satisfactory to the Underwriters, that such
person will not offer, sell, contract to sell, pledge or otherwise dispose
of, directly or indirectly, or request or demand the filing with the
Commission of a registration statement under the Act relating to, any
additional Common Shares or securities convertible into or exchangeable or
exercisable for Common Shares, or publicly disclose the intention to make
any such offer, sale, pledge, disposition or filing, without the prior
written consent of the Lead Underwriter for a period beginning at the time
of the execution of the Terms Agreement and ending the number of days after
the Closing Date specified under "Blackout" in the Terms Agreement, other
than the exercise of employee stock options outstanding on the date of the
Terms Agreement and transactions under the Company's New 401(k) Plan and
the Share Purchase Plan (each as defined in the Prospectus).
<PAGE>
-14-
(b) The Selling Shareholder, as of the date of each Terms Agreement
referred to in Section 3, represents and warrants to, and agrees with, each
Underwriter with respect to such Terms Agreement that:
(i) The Selling Shareholder has and on each Closing Date hereinafter
mentioned will have valid and unencumbered title to the Offered Securities
to be delivered by the Selling Shareholder under the Terms Agreement on
such Closing Date and full right, power and authority to enter into the
Terms Agreement (including the provisions of this Agreement) and to sell,
assign, transfer and deliver the Offered Securities to be delivered by such
Selling Shareholder on such Closing Date thereunder; and upon the delivery
of and payment for the Offered Securities on each Closing Date under the
Terms Agreement (including the provisions of this Agreement) the
Underwriters will acquire valid and unencumbered title to the Offered
Securities to be delivered by the Selling Shareholder on such Closing Date,
assuming each of the Underwriters has purchased the Offered Securities
purchased by it in good faith and without notice of any adverse claim.
(ii) On the effective date of the registration statement relating to
the Registered Securities, such registration statement conformed in all
respects to the requirements of the Act and the Rules and Regulations and
did not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, and on the date of each Terms Agreement
referred to in Section 3, the Registration Statement and the Prospectus
will conform in all respects to the requirements of the Act and the Rules
and Regulations, and neither of such documents will include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein (in the case
of the Prospectus, in the light of the circumstances under which they were
made) not misleading. The preceding sentence shall apply solely to
statements in or omissions from a Registration Statement or the Prospectus
based upon information relating specifically to the Selling Shareholder.
(iii) Except as described in the Prospectus, there are no contracts,
agreements or understandings between the Selling Shareholder and any third
party that would give rise to a valid claim against the Selling Shareholder
or
<PAGE>
-15-
any Underwriter for a brokerage commission, finder's fee or other like
payment in connection with the transactions contemplated by the Terms
Agreement (including the provisions of this Agreement).
(iv) The Terms Agreement (including the provisions of this Agreement)
has been duly authorized, executed and delivered by the Selling
Shareholder.
(v) The execution, delivery and performance of the Terms Agreement
(including the provisions of this Agreement) by the Selling Shareholder and
the offer and sale of the Offered Securities will not conflict with or
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, (A) any statute, any rule, regulation or order
of any governmental agency or body or any court having jurisdiction over
the Selling Shareholder or any of its properties or operations, or any
agreement or instrument to which the Selling Shareholder is bound or to
which any of the properties or operations of the Selling Shareholder is
subject, or (B) the charter or by-laws of the Selling Shareholder, except,
in the case of clause (A), for such conflicts, breaches, violations or
defaults which could not reasonably be expected to, individually or in the
aggregate, have a material adverse effect on the consummation of the
transactions contemplated by the Terms Agreement (including the provisions
of this Agreement); and the Selling Shareholder has full power and
authority to sell or cause the sale of the Offered Securities as
contemplated by the Terms Agreement (including the provisions of this
Agreement);
(vi) No material consent, approval or authorization, and no material
order, registration or qualification of, or filing with, any third party
(whether acting in an individual, fiduciary or other capacity) or any
governmental or regulatory agency or body or any court is required for the
performance by the Selling Shareholder of its obligations under the Terms
Agreement (including the provisions of this Agreement), except such as have
been obtained and made under the Act and such as may be required under
state or foreign securities laws in connection with the offer and sale of
the Offered Securities.
(vii) The Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to or that could reasonably be
expected to cause or result in stabilization or manipulation of the price
of the Offered
<PAGE>
-16-
Securities, and the Selling Shareholder has not distributed and will not
distribute any offering material in connection with the offering and sale
of the Offered Securities other than any preliminary prospectus filed with
the Commission or the Prospectus or other materials, if any, permitted by
the Act or the Rules and Regulations.
(viii) There are no pending (or, to the Selling Shareholder's
knowledge, threatened or contemplated) actions, suits or proceedings or, to
the Selling Shareholder's knowledge, investigations against or affecting
the Selling Shareholder or any of its properties, assets or operations that
could reasonably be expected to, individually or in the aggregate, have a
material adverse effect on the ability of the Selling Shareholder to
perform its obligations under the Terms Agreement (including the provisions
of this Agreement).
(ix) The Selling Shareholder is not a "foreign person" within the
meaning of section 1445 of the Code, and Selling Shareholder shall furnish
to you on or prior to the Closing Date a certification of the Selling
Shareholder's non-foreign status, as set forth in Treasury regulations
section 1.1445-2(b).
3. Purchase and Offering of Offered Securities. The obligation of the
Underwriters to purchase the Offered Securities will be evidenced by an
agreement or exchange of other written communications ("Terms Agreement") at the
time the Selling Shareholder determines to sell the Offered Securities. The
Terms Agreement will incorporate by reference the provisions of this Agreement,
except as otherwise provided therein, and will specify the firm or firms which
will be Underwriters, the names of any Representatives, the number of shares to
be purchased by each Underwriter and the purchase price to be paid by the
Underwriters. The Terms Agreement will also specify the time and date of
delivery and payment (such time and date, or such other time not later than
seven full business days thereafter as the Underwriter first named in the Terms
Agreement (the "Lead Underwriter") and the Selling Shareholder agree as the time
for payment and delivery, being herein and in the Terms Agreement referred to as
the "Closing Date"), the place of delivery and payment and any details of the
terms of offering that should be reflected in the prospectus supplement relating
to the offering of the Offered Securities. For purposes of Rule 15c6-1 under the
Securities Exchange Act of 1934, the Closing Date (if later than the otherwise
applicable settlement date) shall be the date for payment of funds and delivery
of
<PAGE>
-17-
securities for all the Offered Securities sold pursuant to the offering. The
obligations of the Underwriters to purchase the Offered Securities will be
several and not joint. It is understood that the Underwriters propose to offer
the Offered Securities for sale as set forth in the Prospectus.
The certificates for the Offered Securities delivered to the Underwriters
on the Closing Date will be in definitive form, in such denominations and
registered in such names as the Lead Underwriter requests.
4. Certain Agreements of the Company and the Selling Shareholder. (A) The
Company agrees with the several Underwriters that it will furnish to counsel for
the Underwriters, one signed copy of the registration statement relating to the
Registered Securities, including all exhibits, in the form it became effective
and of all amendments thereto and that, in connection with each offering of
Offered Securities:
(a) The Company will file the Prospectus with the Commission pursuant
to and in accordance with Rule 424(b)(2) (or, if applicable and if
consented to by the Lead Underwriter, subparagraph (5)) not later than the
second business day following the execution and delivery of the Terms
Agreement.
(b) The Company will advise the Lead Underwriter promptly of any
proposal to amend or supplement the Registration Statement or the
Prospectus and will afford the Lead Underwriter a reasonable opportunity to
comment on any such proposed amendment or supplement; and the Company will
also advise the Lead Underwriter promptly of the filing of any such
amendment or supplement and of the institution by the Commission of any
stop order proceedings in respect of the Registration Statement or of any
part thereof and will use its best efforts to prevent the issuance of any
such stop order and to obtain as soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of which
the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary at any time to
amend
<PAGE>
-18-
the Prospectus to comply with the Act, the Company promptly will notify the
Lead Underwriter of such event and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will
correct such statement or omission or an amendment which will effect such
compliance. Neither the Lead Underwriter's consent to, nor the
Underwriters' delivery of, any such amendment or supplement shall
constitute a waiver of any of the conditions set forth in Section 5.
(d) As soon as practicable, but not later than 16 months, after the
date of each Terms Agreement, the Company will make generally available to
its securityholders an earnings statement covering a period of at least 12
months beginning after the later of (i) the effective date of the
registration statement relating to the Registered Securities, (ii) the
effective date of the most recent post-effective amendment to the
Registration Statement to become effective prior to the date of such Terms
Agreement and (iii) the date of the Company's most recent Annual Report on
Form 10-K filed with the Commission prior to the date of such Terms
Agreement, which will satisfy the provisions of Section 11(a) of the Act.
(e) The Company will furnish to the Representatives copies of the
Registration Statement, including all exhibits, any related preliminary
prospectus, any related preliminary prospectus supplement, the Prospectus
and all amendments and supplements to such documents, in each case as soon
as available and in such quantities as the Lead Underwriter reasonably
requests. The Company will pay the expenses of printing and distributing to
the Underwriters all such documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as the Lead
Underwriter reasonably designates and will continue such qualifications in
effect so long as required for the distribution; provided that the Company
shall not be required to qualify to do business in any jurisdiction where
it is not now qualified or to file a general consent to service of process
in any jurisdiction.
(g) During the period of three years after the date of any Terms
Agreement, the Company will furnish to the Representatives and, upon
request, to each of the other Underwriters, if any, as soon as practicable
after the end
<PAGE>
-19-
of each fiscal year, a copy of its annual report to stockholders for such
year; and the Company will furnish to the Representatives (i) as soon as
available, a copy of each report and any definitive proxy statement of the
Company filed with the Commission under the Securities Exchange Act of 1934
or mailed to stockholders, and (ii) from time to time, such other
information concerning the Company as the Lead Underwriter may reasonably
request.
(h) The Company agrees with the Underwriters and the Selling
Shareholder that the Company will pay all expenses incident to the
performance of the obligations of the Selling Shareholder and the
obligations of the Company under the Terms Agreement (including the
provisions of this Agreement), for any filing fees or other expenses
(including fees and disbursements of counsel not to exceed $12,500 in
connection with qualification of the Registered Securities for sale under
the laws of such jurisdictions as the Lead Underwriter may designate and
the printing of memoranda relating thereto for any applicable filing fee
incident to, and the reasonable fees and disbursements of counsel for the
Underwriters in connection with, the review by the National Association of
Securities Dealers, Inc. of the Registered Securities, for any travel
expenses of the Company's officers and employees and any other expenses of
the Company in connection with attending or hosting meetings with
prospective purchasers of Registered Securities and for expenses incurred
in distributing the Prospectus, any preliminary Prospectus, any preliminary
prospectus supplements or any other amendments or supplements to the
Prospectus to the Underwriters.
(i) The Company will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Commission a
registration statement under the Act relating to, any additional Common
Shares or securities convertible into or exchangeable or exercisable for
Common Shares, or publicly disclose the intention to make any such offer,
sale, pledge, disposition or filing, without the prior written consent of
the Lead Underwriter for a period beginning at the time of execution of the
Terms Agreement and ending the number of days after the Closing Date
specified under "Blackout" in the Terms Agreement, except: (i) grants of
employee stock options pursuant to the terms of a plan in effect on the
date of the Terms Agreement, issuances of Securities pursuant to the
exercise of such options or the exercise of any other employee stock
options outstanding on the date
<PAGE>
-20-
of the Terms Agreement and (ii) sales pursuant to the New 401(k) Plan and
the Share Purchase Plan (each as defined in the Prospectus), in each case
pursuant to the terms of such plans in effect on the date of the Terms
Agreement.
(j) As promptly as practicable following the Closing Date, the Company
will take all actions reasonably necessary to obtain the relevant
permission for a reduced rate of withholding tax on dividends paid on the
Securities from the competent taxing authority in accordance with the
formalities of the relevant tax treaty.
(B) The Selling Shareholder agrees with the several Underwriters that:
(a) The Selling Shareholder will indemnify and hold harmless the
Underwriters against any documentary, stamp or similar issuance tax,
including any interest and penalties, on the sale of the Offered Securities
and on the execution and delivery of the Terms Agreement (including the
provisions of this Agreement). All payments to be made by the Selling
Shareholder hereunder or thereunder shall be made without withholding or
deduction for or on account of any present or future taxes, duties or
governmental charges whatsoever unless the Selling Shareholder is compelled
by law to deduct or withhold such taxes, duties or charges. In that event,
the Selling Shareholder shall pay such additional amounts as may be
necessary in order that the net amounts received after such withholding or
deduction shall equal the amounts that would have been received if no
withholding or deduction had been made. The agreement in this paragraph (a)
shall not modify the separate agreement between the Company and the Selling
Shareholder in the Registration Rights Agreement (as defined in the
Prospectus) between such parties, dated as of January 1, 1997, as amended.
(b) The Selling Shareholder agrees to deliver to the Lead Underwriter
on or prior to the Closing Date a properly completed and executed United
States Treasury Department Form W-9 (or other applicable form or statement
specified by Treasury Department regulations in lieu thereof).
(c) The Selling Shareholder agrees not to offer, sell, contract to
sell, pledge or otherwise dispose of, directly or indirectly or request or
demand the filing with the Commission of a registration statement under the
<PAGE>
-21-
Act relating to, any additional Common Shares of the Company or securities
convertible into or exchangeable or exercisable for any Common Shares, or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of the Lead
Underwriter for a period beginning at the time of execution of the Terms
Agreement and ending the number of days after the Closing Date specified
under "Blackout" in the Terms Agreement, except the sale of Offered
Securities to the Underwriters pursuant to the Terms Agreement (including
the provisions of this Agreement).
5. Conditions of the Obligations of the Underwriters. The obligations of
the several Underwriters to purchase and pay for the Offered Securities will be
subject to the accuracy of the representations and warranties on the part of the
Company and the Selling Shareholder herein, to the accuracy of the statements of
Company and Selling Shareholder officers made pursuant to the provisions hereof,
to the performance by the Company and the Selling Shareholder of their
respective obligations hereunder and to the following additional conditions
precedent:
(a) On or prior to the date of the Terms Agreement, the
Representatives shall have received a letter, dated the date of delivery
thereof, of Arthur Andersen LLP confirming that they are independent public
accountants within the meaning of the Act and the applicable published
Rules and Regulations thereunder and stating to the effect that:
(i) in their opinion the financial statements examined by them
and included in the Prospectus comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published Rules and Regulations;
(ii) at the date of the latest available balance sheet read by
such accountants, or at a subsequent specified date not more than
three business days prior to the date of the Terms Agreement, there
was any change in the capital stock or any increase in short-term
indebtedness or long-term debt of the Company and its consolidated
subsidiaries or, at the date of the latest available balance sheet
read by such accountants, there was any decrease in consolidated net
assets, as compared with amounts shown on the latest balance sheet
included in the Prospectus, except in all instances for changes,
increases or decreases that the Prospectus discloses have occurred or
may occur;
<PAGE>
-22-
(iii) for the period from the closing date of the latest income
statement included in the Prospectus to the closing date of the latest
available income statement read by such accountants there were any
decreases, as compared with the corresponding period of the previous
year and with the period of corresponding length ended the date of the
latest income statement included in the Prospectus, in consolidated
net sales, income from operations, income before extraordinary items
or net income, except in all instances for changes, increases or
decreases that the Prospectus discloses have occurred or may occur;
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Prospectus with the results obtained from inquiries,
a reading of general accounting records and other procedures specified
in such letter and have found such dollar amounts, percentages and
other financial information to be in agreement with such results,
except as otherwise specified in such letter; and
(v) (A) they have read the unaudited pro forma income statement
and other pro forma financial information included in the Registration
Statements (collectively, the "Pro Forma Information");
(B) they have made inquiries of certain officials of the Company
who have responsibility for financial and accounting matters about (i)
the basis for the determination of the pro forma adjustments, and (ii)
whether the unaudited pro forma consolidated income statement complies
as to form in all material respects with the applicable accounting
requirements of Rule 11-02 of Regulation S-X under the Act;
(C) they have proved the arithmetic accuracy of the application
of the pro forma adjustments to the historical amounts in the Pro
Forma Information; and
(D) on the basis of such procedures, and such other inquiries and
procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that the Pro Forma Information
does not comply as to form in all material respects with the
applicable accounting requirements of Rule 11-02 of Regulation S-X
under the Act or that the pro
<PAGE>
-23-
forma adjustments have not been properly applied to the historical amounts
in the compilation of such Pro Forma Information.
All financial statements and schedules included in material
incorporated by reference into the Prospectus shall be deemed included in
the Prospectus for purposes of this subsection.
(b) The Prospectus shall have been filed with the Commission in
accordance with the Rules and Regulations and Section 4(A)(a) of this
Agreement. No stop order suspending the effectiveness of the Registration
Statement or of any part thereof shall have been issued and no proceedings
for that purpose shall have been instituted or, to the knowledge of the
Company, the Selling Shareholder or any Underwriter, shall be contemplated
by the Commission.
(c) Subsequent to the execution and delivery of the Terms Agreement,
there shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company or its
Subsidiaries which, in the judgment of a majority in interest of the
Underwriters including any Representatives, is material and adverse and
makes it impractical or inadvisable to proceed with completion of the
public offering or the sale of and payment for the Offered Securities; (ii)
any downgrading in the rating of any debt securities of the Company by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Act), or any public announcement that any
such organization has under surveillance or review its rating of any debt
securities of the Company (other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating); (iii) any suspension or limitation of trading
in securities generally on the New York Stock Exchange or the Amsterdam
Stock Exchange, or any setting of minimum prices for trading on any such
exchange, or any suspension of trading of any securities of the Company on
any exchange or in the over-the-counter market; (iv) any banking moratorium
declared by either U.S. Federal or New York authorities or in Amsterdam
declared by the relevant authorities in The Netherlands; or (v) any
outbreak or escalation of major hostilities in which the United States or
The Netherlands is involved, any declaration of war by Congress or any
other substan-
<PAGE>
-24-
tial national or international calamity or emergency if, in the judgment of
a majority in interest of the Underwriters including any Representatives,
the effect of any such outbreak, escalation, declaration, calamity or
emergency makes it impractical or inadvisable to proceed with completion of
the public offering or the sale of and payment for the Offered Securities.
(d) The Representatives shall have received an opinion, dated the
Closing Date, of Cahill Gordon & Reindel, United States counsel for the
Company and the Selling Shareholder, to the effect that:
(i) Except as described in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered
pursuant to the Registration Statement.
(ii) The Company is not and, after giving effect to the offering
and sale of the Offered Securities will not be an "investment company"
or an entity "controlled" by an "investment company" as defined in the
Investment Company Act of 1940.
(iii) To the knowledge of such counsel, no consent, approval or
authorization and no order, registration or qualification of, or
filing with, any third party (whether acting in an individual
fiduciary or other capacity) or any governmental or regulatory agency
or body or any court is required to be obtained or made by the Company
or the Selling Shareholder for the consummation of the transactions to
be effected by the Company or the Selling Shareholder contemplated by
the Terms Agreement (including the provisions of this Agreement),
except such as have been obtained and made under the Act and such as
may be required under state securities laws in connection with the
offer and sale of the Offered Securities; and to the knowledge of such
counsel, the execution, delivery and performance of the Terms
Agreement (including the provisions of this Agreement) and offer and
sale of the Offered Securities will not conflict with or result in a
breach or violation of any
<PAGE>
-25-
of the terms and provisions of, or constitute a default under, (A) any
statute, any rule, regulation or order of any governmental agency or
body or any court having jurisdiction over the Company or any
Subsidiary of the Company or the Selling Shareholder or any of their
properties or operations, or any material agreement or instrument
identified to such counsel to which any of them is a party or by which
any of them is bound or to which any of their properties is subject,
or (B) the charter or by-laws of any Significant Subsidiary or the
Selling Shareholder, as the case may be, except in the case of clause
(A), for such conflicts, breaches, violations or defaults which could
not reasonably be expected to, individually or in the aggregate, have
a material adverse effect on the condition (financial or other),
business, properties or results of operations of the Company and its
Subsidiaries taken as a whole, or a material adverse effect on the
consummation of the transactions contemplated by the Terms Agreement
(including the provisions of this Agreement);
(iv) To the knowledge of such counsel, the Selling Shareholder
had valid and unencumbered title to the Offered Securities delivered
by such Selling Shareholder on such Closing Date and had full
corporate power and authority to sell, assign, transfer and deliver
the Offered Securities delivered by the Selling Shareholder on such
Closing Date as contemplated by the Terms Agreement (including the
provisions of this Agreement); and, assuming each of the Underwriters
has purchased the Offered Securities purchased by it in good faith and
without notice of any adverse claim, the several Underwriters have
acquired valid and unencumbered title to the Offered Securities
purchased by them on such Closing Date hereunder;
(v) The Registration Statement was declared effective under the
Act as of the date and time specified in such opinion, the Prospectus
was filed with the Commission pursuant to the subparagraph of Rule
424(b) specified in such opinion on the date specified therein, and,
to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement or any part thereof has
been issued and no proceedings for that purpose have been instituted
or are pending or contemplated under the
<PAGE>
-26-
Act, and the registration statement relating to the Registered
Securities, as of its effective date, the Registration Statement and
the Prospectus, as of the date of the Terms Agreement, and any
amendment or supplement thereto, as of its date, complied as to form
in all material respects with the requirements of the Act and the
Rules and Regulations;
(vi) The descriptions in the Registration Statement and the
Prospectus of statutes, contracts and other documents and, to the
knowledge of such counsel, legal and governmental proceedings, are
accurate in all material respects and fairly present the information
required to be shown with respect to such statutes, proceedings,
contracts and other documents;
(vii) The Terms Agreement (including the provisions of this
Agreement) have been duly authorized, executed and delivered by the
Company and the Selling Shareholder;
(viii) The statements made in the Prospectus under "Taxation
United States Federal Income Taxes," insofar as they relate to
provisions of U.S. federal tax law therein described, have been
reviewed by such counsel and fairly present the information disclosed
therein in all material respects;
(ix) Except as described in the Prospectus, to the knowledge of
such counsel, the shareholders of the Company have no preemptive
rights with respect to the Offered Securities; and
(x) Such counsel has participated in conferences with officers
and other representatives of the Company and representatives of the
Selling Shareholder, counsel for the Company, representatives of the
independent public accountants of the Company and representatives of
the Underwriters at which the contents of the Registration Statement
and the Prospectus and related matters were discussed and, although
such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus
(except to the extent described in (vi) and (viii) above), such
counsel shall advise that, on the basis of the foregoing (relying as
to materiality to a large extent upon the
<PAGE>
-27-
opinions of officers and other representatives of the Company and
representatives of the Selling Shareholder), no facts have come to the
attention of such counsel that lead it to believe that such
registration statement, at the time it became effective, the
Registration Statement, as of the date of the Terms Agreement or as of
the Closing Date, or any amendment thereto, as of its date or as of
the Closing Date, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus, as of the date of the Terms Agreement or as of such
Closing Date, or any amendment or supplement thereto, as of its date
or as of the Closing Date, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (it being
understood that such counsel need not express any comment with respect
to the financial statements and schedules and other financial and
statistical data contained in the Registration Statement and the
Prospectus).
In giving such opinions, such counsel may limit its opinion to laws of
the State of New York, the General Corporation Law of the State of Delaware
and the Federal laws of the United States of America, and matters
specifically governed thereby and may also rely on the opinion of Robert H.
Wolfe, Esq and Loeff Claeys Verbeke referred to herein.
(e) The Representatives shall have received an opinion, dated such
Closing Date, of Robert H. Wolfe, Esq., Corporate Counsel of the Company,
to the effect that:
(i) Each of the Company's Significant Subsidiaries has been duly
incorporated and is a validly existing corporation in good standing
under the laws of the jurisdiction of its incorporation, with
corporate power and authority to own, lease and operate its properties
and conduct its business as described in the Prospectus; and each of
the Company and its Significant Subsidiaries is duly qualified to
transact business as a foreign corporation in good standing in all
other jurisdictions in which it owns, leases or operates properties or
in which the conduct of its business or its ownership, leasing or
operation of
<PAGE>
-28-
property requires such qualification, except to the extent that the
failure to be so qualified or in good standing could not reasonably be
expected to have a material adverse effect on the Company and its
Subsidiaries, taken as a whole; and all of the outstanding shares of
capital stock of the Significant Subsidiaries have been duly
authorized and validly issued, are fully paid and non-assessable and
all such shares shown on Exhibit B hereof are owned by the Company,
directly or through Subsidiaries, free and clear of any mortgage,
pledge, lien, security interest, restriction upon voting, claim or
incumbency of any kind, or, other than as imposed by operation of law,
restriction upon transfer (other than agreements previously disclosed
to the Representatives providing for rights of first refusal and
preemptive rights); and neither the Company nor any Significant
Subsidiary has granted rights to or in favor of any third party
(whether acting in an individual, fiduciary or other capacity) to
acquire any such capital stock, any additional capital stock or any
other securities of any Significant Subsidiary (other than agreements
previously disclosed to the Representatives providing for rights of
first refusal and preemptive rights);
(ii) To the knowledge of such counsel, no material consent,
approval or authorization, and no material order, registration or
qualification of, or filing with, any third party (whether acting in
an individual fiduciary or other capacity) or any governmental or
regulatory agency or body or any court is required to be obtained or
made by the Company for the consummation of the transactions to be
effected by the Company or its Subsidiaries contemplated by the Terms
Agreement (including the provisions of this Agreement), except such as
have been obtained and made under the Act and such as may be required
under state or foreign securities laws in connection with the offer
and sale of the Offered Securities; the execution, delivery and
performance of the Terms Agreement (including the provisions of this
Agreement) and the offer and sale of the Offered Securities will not
conflict with or result in a breach or violation of any of the terms
and provisions of, or constitute a default under, (A) any statute, any
rule, regulation or order of any governmental agency or body or any
court having jurisdiction over the Company or any Subsidiary of the
Company or any of
<PAGE>
-29-
their properties, or any agreement or instrument to which the Company
or any such Subsidiary is a party or by which the Company or any such
Subsidiary or the Selling Shareholder is bound or to which any of the
properties of the Company or any such Subsidiary is subject, or (B)
the charter or by-laws of any Significant Subsidiary, except, in the
case of clause (A), for such conflicts, breaches, violations, or
defaults which could not reasonably be expected to, individually or in
the aggregate, have a material adverse effect on the condition
(financial or other), business, properties or results of operations of
the Company and its Subsidiaries, taken as a whole, or a material
adverse effect on the consummation of the transactions contemplated by
the Terms Agreement (including the provisions of this Agreement);
(iii) Except as described in the Prospectus, the Company and its
Subsidiaries possess adequate certificates, authorizations, licenses
or permits issued by appropriate governmental agencies or bodies
necessary to conduct the business now operated by them and have not
received any written notice of threatened or actual proceedings
relating to the revocation or modification of any such certificate,
authorization, license or permit, except for any such non-possession
or proceeding as could not reasonably be expected to, individually or
in the aggregate, have a material adverse effect on the condition
(financial or other), business, properties or results of operations of
the Company and its Subsidiaries taken as a whole. To the knowledge of
such counsel, except as described in the Prospectus, the Company and
its Subsidiaries are in compliance with their respective obligations
under such certificates, authorizations, licenses or permits and, to
such counsel's knowledge, no event has occurred that allows, or after
notice or lapse of time would allow, revocation or termination of such
certificates, authorizations, licenses or permits or violation of such
laws or regulations, except for such non-compliance and events as
could not reasonably be expected to, individually or in the aggregate,
have a material adverse effect on the condition (financial or other),
business, properties or results of operations of the Company and its
Subsidiaries taken as a whole;
<PAGE>
-30-
(iv) Except as described in the Prospectus, to the knowledge of
such counsel, there are no pending actions, suits or proceedings
against or affecting the Company, any of its Subsidiaries or any of
their respective properties, assets or operations that, if determined
adversely to the Company or any of its Subsidiaries, could reasonably
be expected to, individually or in the aggregate, have a material
adverse effect on the condition (financial or other), business,
properties or results of operations of the Company and its
Subsidiaries taken as a whole, or could materially and adversely
affect the ability of the Company to perform its obligations under the
Terms Agreement (including the provisions of this Agreement); and, to
the knowledge of such counsel, no such actions, suits or proceedings
are threatened or contemplated;
(v) To the knowledge of such counsel, except as described in the
Prospectus and except as could not reasonably be expected,
individually or in the aggregate, to have a material adverse effect on
the condition (financial or other), business, properties or results of
operations of the Company and its Subsidiaries taken as a whole, the
properties, assets and operations of the Company and its Subsidiaries
are in compliance with all applicable Environmental Laws. To the
knowledge of such counsel, except as described in the Prospectus and
except as could not reasonably be expected, individually or in the
aggregate, to have a material adverse effect on the condition
(financial or other), business, properties or results of operations of
the Company and its Subsidiaries taken as a whole, (A) none of the
Company or any of its Subsidiaries is the subject of any federal,
state, local or foreign investigation pursuant to Environmental Laws,
and (B) none of the Company or any of its Subsidiaries has received
any written notice or claim pursuant to Environmental Laws. For the
purpose of this opinion, "Environmental Laws" means all federal,
state, local and foreign laws, statutes, codes, ordinances, rules,
regulations, directives, permits, licenses, or orders relating to the
natural environment, or employee health or safety, including, but not
limited to, any law, statute, code, ordinance, rule, regulation,
directive, permit, license or order relating to (1) the release,
discharge or emission of any pollutant into the natural environ-
<PAGE>
-31-
ment, (2) damage to any natural resource, (3) the use, handling or
disposal of any chemical substance or (4) workplace or worker safety
and health, as such requirements are promulgated by the specifically
authorized governmental authority responsible for administering such
requirements, or imposed by judicial order or fiat.
(vi) Such counsel does not know of any legal or governmental
proceedings required to be described in a Registration Statement or
the Prospectus which are not described as required or of any contracts
or documents of a character required to be described in a Registration
Statement or the Prospectus or to be filed as exhibits to a
Registration Statement which are not described or filed as required;
and
(vii) Such counsel has participated in conferences with officers
and other representatives of the Company and representatives of the
Selling Shareholder, counsel for the Company, representatives of the
independent public accountants of the Company and representatives of
the Underwriters at which the contents of the Registration Statement
and the Prospectus and related matters were discussed and, although
such counsel is not passing upon and does not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus
(except to the extent described in (vi) above), such counsel shall
advise that, on the basis of the foregoing, no facts have come to the
attention of such counsel that lead it to believe that such
registration statement, as of the date it became effective, the
Registration Statement, as of the date of the Terms Agreement or as of
the Closing Date, or any amendment thereto, as of its date or as of
the Closing Date, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that the
Prospectus, as of the date of the Terms Agreement or as of such
Closing Date, or any amendment or supplement thereto, as of its date
or as of the Closing Date, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (it being
<PAGE>
-32-
understood that such counsel need not express any comment with respect
to the financial statements and schedules and other financial and
statistical data contained in the Registration Statement and the
Prospectus).
(viii) In giving such opinions, such counsel may limit its
opinion to laws of the State of Illinois, the General Corporation Law
of the State of Delaware and the Federal Laws of the United States of
America, and matters specifically governed thereby, except that such
counsel shall make such investigations (which may be limited to
relying on the statements or certificates of governmental officials or
directors or officers of the Company's subsidiaries, or the advice of
Arthur Andersen LLP or other recognized accounting firms and their
affiliates) in such other jurisdictions in which the Company and the
Significant Subsidiaries do business, as is appropriate to render the
opinions set forth in clauses (i) and (ii).
In giving such opinion, such counsel may rely on the opinion of Loeff
Claeys Verbeke referred to above.
(f) The Representatives shall have received an opinion, dated such
Closing Date, of Loeff Claeys Verbeke, Netherlands counsel for the Company
and the Selling Shareholder, substantially in the form attached hereto as
Exhibit D.
In giving such opinion, such counsel may rely on the opinions of
Cahill Gordon & Reindel and Robert H. Wolfe, Esq., referred to above, as
to matters of laws other than the laws of The Netherlands.
(g) The Representatives shall have received from Dewey Ballantine,
counsel for the Underwriters, such opinion or opinions, dated the Closing
Date, with respect to the validity of the Offered Securities, the
Registration Statement, the Prospectus and other related matters as the
Representatives may require, and the Company shall have furnished to such
counsel such documents as they request for the purpose of enabling them to
pass upon such matters. In rendering such opinion, Dewey Ballantine may
rely as to the incorporation of the Company and all other matters governed
by Netherlands law upon the opinion of Loeff Claeys Verbeke, referred to
above.
<PAGE>
-33-
(h) The Representatives shall have received a certificate, dated the
Closing Date, of Gerald M. Glenn and Timothy J. Wiggins, in which they
shall state that, to the best of their knowledge after reasonable
investigation: the representations and warranties of the Company in this
Agreement are true and correct; the Company has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied hereunder and under the Terms Agreement at or prior to the
Closing Date; no stop order suspending the effectiveness of the
Registration Statement or of any part thereof has been issued and no
proceedings for that purpose have been instituted or are contemplated by
the Commission; and subsequent to the date of the most recent financial
statements in the Prospectus, there has been no material adverse change,
nor any development or event involving a prospective material adverse
change, in the condition (financial or other), business, properties or
results of operations of the Company and its Subsidiaries taken as a whole
except as set forth in or contemplated by the Prospectus or as described in
such certificate.
(i) The Representatives shall have received a letter, dated the
Closing Date, of Arthur Andersen LLP which meets the requirements of
subsection (a) of this Section, except that the specified date referred to
in such subsection will be a date not more than three business days prior
to the Closing Date for the purposes of this subsection.
(j) The Representatives shall have received a certificate, dated such
Closing Date, of the President or any Vice President and a principal
financial or accounting officer of the Selling Shareholder in which such
officers shall state that, to the best of their knowledge after reasonable
investigation: the representations and warranties of the Selling
Shareholder in this Agreement are true and correct; and the Selling
Shareholder has complied with all agreements and satisfied all conditions
on its part to be performed or satisfied under the Terms Agreement
(including the provisions of this Agreement) at or prior to such Closing
Date.
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
request. The Lead Underwriter may in its sole discretion waive on behalf of the
Un-
<PAGE>
-34-
derwriters compliance with any conditions to the obligations of the Underwriters
under this Agreement and the Terms Agreement.
6. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus or preliminary prospectus
supplement, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse each Underwriter
for any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred; provided, however, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement in or omission or alleged omission from any of such
documents in reliance upon and in conformity with written information furnished
to the Company by any Underwriter through the Representatives, if any,
specifically for use therein, it being understood and agreed that the only such
information furnished by any Underwriter consists of the information described
as such in the Terms Agreement; and provided, further, that, with respect to any
untrue statement or alleged untrue statement in or omission or alleged omission
from any preliminary prospectus or preliminary prospectus supplement, the
indemnity agreement contained in this subsection (a) shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages or liabilities purchased the Offered Securities concerned, to
the extent that a prospectus relating to such Offered Securities was required to
be delivered by such Underwriter under the Act in connection with such purchase
and any such loss, claim, damage or liability of such Underwriter results from
the fact that there was not sent or given to such person, at or prior to the
written confirmation of the sale of such Offered Securities to such person, a
copy of the Prospectus if the Company had previously furnished such quantity of
copies thereof to such Underwriter as reasonably requested by or on behalf of
such Underwriter.
<PAGE>
-35-
(b) The Selling Shareholder will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus or preliminary prospectus, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Selling Shareholder will not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement in or omission
or alleged omission from any of such documents in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through the Representatives specifically for use therein, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the information described as such in the Terms Agreement; and provided,
further, that the Selling Shareholder shall only be subject to such liability to
the extent that the untrue statement or alleged untrue statement or omission or
alleged omission is based upon information specifically relating to the Selling
Shareholder; and provided, further, that, with respect to any untrue statement
or alleged untrue statement in or omission or alleged omission from any
preliminary prospectus or preliminary prospectus supplement, the indemnity
agreement contained in this subsection (b) shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages or
liabilities purchased the Offered Securities concerned, to the extent that a
prospectus relating to such Offered Securities was required to be delivered by
such Underwriter under the Act in connection with such purchase and any such
loss, claim, damage or liability of such Underwriter results from the fact that
there was not sent or given to such person, at or prior to the written
confirmation of the sale of such Offered Securities to such person, a copy of
the Prospectus if the Company had previously furnished such quantity of copies
thereof to such Underwriter as reasonably requested by or on behalf of such
Underwriter.
<PAGE>
-36-
(c) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company and the Selling Shareholder against any losses, claims,
damages or liabilities to which the Company or the Selling Shareholder may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, the Prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus or preliminary
prospectus supplement, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Underwriter
through the Representatives, if any, specifically for use therein, and will
reimburse any legal or other expenses reasonably incurred by each of the Company
and the Selling Shareholder in connection with investigating or defending any
such loss, claim, damage, liability or action as such expenses are incurred, it
being understood and agreed that the only such information furnished by any
Underwriter consists of the information described as such in the Terms
Agreement.
(d) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action or proceeding (including any
governmental investigation), such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under subsection (a), (b)
or (c) above, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under
subsection (a), (b) or (c) above. In case any such action or proceeding is
brought against any indemnified party and it notifies the indemnifying
<PAGE>
-37-
party of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who, if the parties to any such
action or proceeding (including impleaded parties) include both the indemnified
and the indemnifying parties and representation of both parties by such counsel
would be inappropriate due to actual or potential differing interests between
them, shall not, except with the consent of the indemnified party, be counsel to
the indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party unless such settlement includes an unconditional release of such
indemnified party from all liability on any claims that are the subject matter
of such action.
(e) If the indemnification provided for in this Section is unavailable or
insufficient to hold harmless an indemnified party under subsection (a), (b) or
(c) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a), (b) or (c) above (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Shareholder on the one hand and the Underwriters on the
other from the offering of the Securities or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Shareholder on
the one hand and the Underwriters on the other in connection with the statements
or omissions which resulted in such losses, claims, damages or liabilities as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Shareholder on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Selling Shareholder bear to the total underwriting discounts and commissions re-
<PAGE>
-38-
ceived by the Underwriters. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Selling Shareholder on the
one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The amount paid by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the first
sentence of this subsection (e) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
subsection (e). Notwithstanding the provisions of this subsection (e), no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Offered Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (e) to contribute are several in proportion to their respective
underwriting obligations and not joint. The agreement in this subsection (e)
shall not modify the separate agreement between the Selling Shareholder and the
Company regarding indemnification and contribution set forth in the Registration
Rights Agreement (as defined in the Prospectus) between such parties, dated as
of January 1, 1997, as amended. Under no circumstances shall the Selling
Shareholder be required to make any contribution pursuant to this subsection (e)
in excess of the amount it would be required to contribute pursuant to Section
7(c) of such Registration Rights Agreement as in effect on the date hereof; and
the Company shall contribute any such amount that would have been payable by the
Selling Shareholder but for the provisions of this sentence.
(f) The obligations of the Company and the Selling Shareholder under this
Section shall be in addition to any liability which the Company and the Selling
Shareholder may otherwise have, and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section
shall be in addition to any liability which the respective Underwriters may
otherwise have
<PAGE>
-39-
and shall extend, upon the same terms and conditions, to each director of the
Company, to each officer or managing director of the Company who has signed the
Registration Statement and to each person, if any, who controls the Company
within the meaning of the Act.
7. Default of Underwriters. If any Underwriter or Underwriters default in
their obligations to purchase Offered Securities under the Terms Agreement and
the aggregate number of shares of Offered Securities that such defaulting
Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of
the total number of shares of Offered Securities, the Lead Underwriter may make
arrangements satisfactory to the Selling Shareholder for the purchase of such
Offered Securities by other persons, including any of the Underwriters, but if
no such arrangements are made by the Closing Date, the non-defaulting
Underwriters shall be obligated severally, in proportion to their respective
commitments under the Terms Agreement (including the provisions of this
Agreement), to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase. If any Underwriter or Underwriters so default and
the aggregate number of shares of Offered Securities with respect to which such
default or defaults occur exceeds 10% of the total number of shares of Offered
Securities and arrangements satisfactory to the Lead Underwriter and the Selling
Shareholder for the purchase of such Offered Securities by other persons are not
made within 36 hours after such default, the Terms Agreement will terminate
without liability on the part of any non-defaulting Underwriter, the Selling
Shareholder or the Company, except as provided in Section 8. As used in this
Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
8. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company, the Selling Shareholder, and their respective officers and of the
several Underwriters set forth in or made pursuant to the Terms Agreement
(including the provisions of this Agreement) will remain in full force and
effect, regardless of any investigation, or statement as to the results thereof,
made by or on behalf of any Underwriter, the Company or the Selling Shareholder,
or any of their respective representatives, officers or directors or any
controlling person, and will survive delivery of and payment for the Offered
Securities. If the Terms Agreement is terminated pursuant to Section 7 or if for
any reason the purchase
<PAGE>
-40-
of the Offered Securities by the Underwriters is not consummated, the Company
shall remain responsible for the expenses to be paid or reimbursed by it
pursuant to Section 4 and the respective obligations of the Company, the Selling
Shareholder and the Underwriters pursuant to Section 6 shall remain in effect
and, if any Offered Securities have been purchased hereunder, the
representations and warranties in Section 2 and all obligations under Section 4
shall also remain in effect. If the purchase of the Offered Securities by the
Underwriters is not consummated for any reason other than solely because of the
termination of the Terms Agreement pursuant to Section 7 or the occurrence of
any event specified in clause (iii), (iv) or (v) of Section 5(c), the Company
will reimburse the Underwriters for all out-of-pocket expenses (including fees
and disbursements of counsel) reasonably incurred by them in connection with the
offering of the Offered Securities.
9. Notices. All communications hereunder will be in writing and, if sent to
the Underwriters, will be mailed, delivered or telegraphed and confirmed to them
at their address furnished to the Company and the Selling Shareholder in writing
for the purpose of communications hereunder or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at Chicago Bridge & Iron
Company N.V., P.O. Box 74658, 1070 BR Amsterdam, The Netherlands, with a copy to
Chicago Bridge & Iron Company, 1501 North Division Street, Plainfield, IL
60544-8929, Attention: General Counsel or, if sent to Praxair, will be mailed,
delivered or telegraphed and confirmed to it at Praxair, Inc., 39 Old Ridgebury
Road, Danbury, CT 06810-5113, Attention: Vice President and Treasurer; provided,
however, that any notice to an Underwriter pursuant to Section 6 will be mailed,
delivered or telegraphed and confirmed to such Underwriter.
10. Successors. The Terms Agreement (including the provisions of this
Agreement) will inure to the benefit of and be binding upon the Company, the
Selling Shareholder and such Underwriters as are identified in the Terms
Agreement and their respective successors and the officers and directors and
controlling persons referred to in Section 6, and no other person will have any
right or obligation hereunder. 11. Representation of Underwriters. Any
Representatives will act for the several Underwriters in connection with the
financing described in the Terms Agreement, and any action under such Terms
Agreement (including the provisions of this Agreement) taken by the
Representatives jointly or by the Lead Underwriter will be binding upon all the
Underwriters.
<PAGE>
-41-
12. Counterparts. The Terms Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
13. Applicable Law. This Agreement and the Terms Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York, without regard to principles of conflicts of laws.
14. Submission to Jurisdiction. The Company and the Selling Shareholder
each hereby submit to the non-exclusive jurisdiction of the Federal and state
courts in the Borough of Manhattan in The City of New York in any suit or
proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby. The Company irrevocably appoints Robert H. Wolfe, c/o
Chicago Bridge & Iron Company, 1501 North Division Street, Plainfield, IL
60544-8929, as its authorized agent in the United States upon which process may
be served in any such suit or proceeding and agrees that service of process upon
such agent by registered mail, return receipt requested, and written notice of
said service to the Company by the person serving the same to the address
provided in Section 9, shall be deemed in every respect effective service of
process upon the Company in any such suit or proceeding; provided, however,
that, if service is effected upon such agent, the Company agrees to waive any
defense based upon insufficient or improper service of process, improper venue
or forum non conveniens. The Company further agrees to take any and all action
as may be necessary to maintain such designation and appointment of such agent
in full force and effect for a period of seven years from the date of the Terms
Agreement.
15. Foreign Currency Judgments. The obligation of the Company in respect of
any sum due to any Underwriter shall, notwithstanding any judgment in a currency
other than United States dollars, not be discharged until the first business
day, following receipt by such Underwriter of any sum adjudged to be so due in
such other currency, on which (and only to the extent that) such Underwriter may
in accordance with normal banking procedures purchase United States dollars with
such other currency; if the United States dollars so purchased are less than the
sum originally due to such Underwriter thereunder, the Company agrees, as a
separate obligation and notwithstanding any such judgment, to indemnify such
Underwriter against such loss. If the United States dollars so purchased are
greater than the sum originally due to such Underwriter thereunder, such
Underwriter agrees to pay to the Company an amount equal to the ex-
<PAGE>
-42-
cess of the dollars so purchased over the sum originally due to such Underwriter
thereunder.
<PAGE>
EXHIBIT C
Supervisory Directors and Officers
Jerry H. Ballengee
J. Dennis Bonney
J. Charles Jennett
Vincent L. Kontny
Gary L. Neale
Dr. L. Donald Simpson
Marsha C. Williams
Gerald M. Glenn
Timothy J. Wiggins
Thomas L. Aldinger
Robert H. Wolfe
Thomas F. Basgen
Jimmy N. Brewer
Stephen M. Duffy
George M. Galdo
Jon Hagstrom
Robert A. Long
James R. McKenzie
Charles D. Bassett
<PAGE>
EXHIBIT D
Form of Loeff Claeys Verbeke Legal Opinion
We have acted as special counsel on matters of Netherlands law to Chicago Bridge
& Iron Company N.V. (the "Company") in connection with the offer for sale by
Praxair, Inc. (the "Selling Shareholder") of _______ Common Shares (the
"Shares") in the capital of the Company, under a Terms Agreement among the
Company, the Selling Shareholder and the several Underwriters dated _________,
1997, which Terms Agreement incorporates by reference the provisions of the
Underwriting Agreement filed as an exhibit to the Registration Statement (the
"Terms Agreement"). This legal opinion is rendered to you pursuant to clause
5(f) of the Underwriting Agreement.
Capitalized terms used but not defined herein are used as defined in the
Underwriting Agreement.
In rendering this opinion, we have examined and relied upon the following
documents:
1. A conformed copy of the Terms Agreement;
2. Copies of the Registration Statement on Form S-1, as filed with the
Securities and Exchange Commission (the "Commission") on ___________1997
and of the amendments thereto filed by the Company with the Commission on
_________1997 and ____________ 1997, respectively, relating to the offer of
the Shares, and copies of the related Prospectus, both in preliminary and
in final form (the "Prospectus", and, when in preliminary form, the
"Preliminary Prospectus").
3. An excerpt dated ________1997 of the registration of the Company in the
Trade Register of the Chamber of Commerce of Amsterdam;
4. The Articles of Association (statuten) of the Company as in effect on the
date hereof, dated _________ 1997 (the "Articles");
5. Copies of resolutions of the Board of Management of the Company adopted on
[ ] 1997 authorising, inter alia, the entering into the Underwriting
Agreement, the filing of the Registration Statement with the Commission
<PAGE>
-2-
and the listing of the Shares on the Amsterdam and New York Stock
Exchanges;
6. A copy of the shareholders register of the Company (the "Company's
Shareholders Register";
7. An excerpt dated ________1997 of the registration of Chicago Bridge & Iron
Company B.V. ("CBICBV") in the Trade Register of the Chamber of Commerce of
Amsterdam;
8. The Articles of Association of CBICBV as in effect on the date hereof,
dated [ ] March 1997;
9. A copy of CBICBV's shareholders register (the "CBICBV Shareholder
Register");
and such other documents and such other laws, rules, regulations, and the like,
as we have deemed necessary as a basis for the opinions hereinafter expressed.
For the purpose of the opinions expressed herein, we have assumed:
(i) the genuineness of all signatures;
(ii) the conformity to the originals of all documents submitted to us as copies;
(iii)that (a) each party to the Terms Agreement other than the Company has all
requisite corporate power to execute and deliver, and to perform its
obligations under, the Terms Agreement, that (b) the Terms Agreement has
been or will be duly authorised, executed and delivered by or on behalf of
the parties thereto other than the Company and that (c) the Terms Agreement
is legal, valid and binding under the laws of the State of New York by
which it is expressed to be governed and is enforceable in accordance with
its terms;
(iv) that the resolutions referred to above under 5. will not be declared null
and void by a court (we know of no reason, without having made any
investigation, to suppose that such resolutions will be declared null and
void); and
(v) that the information contained in the Company's Shareholders Register and
the CBICBV Shareholders Register is correct and complete on the date
hereof.
<PAGE>
-3-
Based upon the foregoing and subject to the qualifications and limitations
stated hereafter, we are of the opinion that:
A. The Company is a company duly incorporated for an unlimited period of time
and validly existing as a legal entity in the form of a public company with
limited liability ("naamloze vennootschap"). The Company has the corporate
power to conduct its business as described on page __ of the Prospectus
under the caption "The Company" (to the extent such description relates to
the Company). The Company has the corporate power to enter into the Terms
Agreement.
B. CBICBV (i) is a company duly incorporated for an unlimited period of time
and validly existing as a legal entity in the form of a close company with
limited liability ("besloten vennootschap met beperkte aansprakelijkheid")
and (ii) has the corporate power to conduct its business within the limits
of the objects clause in its Articles of Association. All of the
outstanding shares of CBICBV have been duly authorised, validly issued and
fully paid and are non-assessable. According to the CBICBV Shareholders
Register, all of CBICBV's issued share capital is owned directly by the
company, free from any liens and encumbrances.
C. The Company has taken all requisite corporate action to authorise the
execution by the Company of the Terms Agreement and the performance by the
Company of its obligations thereunder, to have its common shares listed on
the Amsterdam Stock Exchange.
D. The Terms Agreement has been duly executed by the Company and constitutes a
valid and legally binding instrument enforceable against the Company in
accordance with its terms. The Registration Statement has been duly
authorised and executed by the Company.
E. The compliance by the Company with all of the provisions of the Terms
Agreement and the consummation of the transactions therein contemplated and
of the Reorganisation will not result in any violation of the provisions of
the Articles, or the provisions of any published law, rule or regulation of
general application in the Netherlands, or, to the best of our knowledge
and solely on the basis of the documents provided to us by the Company, any
mortgage, indenture or other instrument or agreement to which the
<PAGE>
-4-
Company is a party and which is material in the context of the offer of the
Shares.
F. The issued and outstanding common shares of the Company have been duly
authorised, validly issued and fully paid and are non-assessable. According
to the Company's Shareholders Register, immediately prior to the delivery
of the Shares by the Selling Shareholder in accordance with the provisions
of the Terms Agreement, such shares were owned directly by the Selling
Shareholder, free from any liens and encumbrances.
G. No approval, authorisation or other action by or filing with any
governmental authority is required in connection with the execution by the
Company of the Terms Agreement and the performance of its obligations
thereunder, except for (i) notice requirements to the Netherlands Central
Bank pursuant to the Act on Foreign Financial Relations (Wet Financiele
Betrekkingen Buitenland); and (ii) notice requirements to the Securities
Board of the Netherlands (Stichting Toezicht Effectenverkeer) pursuant to
the Act on Disclosure of Holdings in Listed Companies (Wet melding
zeggenschap in ter beurze genoteerde vennootschappen); however,
non-observance of these notice requirements does not render the Terms
Agreement void, nor does it affect the legality and validity of the
Company's common shares or the legality, validity or enforceability of the
Terms Agreement or the obligations of the Company thereunder.
H. Under the laws of the Netherlands, the Company would not in the courts of
the Netherlands be entitled to invoke immunity from jurisdiction or
immunity from execution on the grounds of sovereignty in respect of any
action arising out of its obligations under the Terms Agreement.
I. After due inquiry, we do not know of any legal or governmental proceedings
pending or threatened to which the Company is a party in the Netherlands.
J. The statements in the Prospectus under the captions "Dividend Policy",
"Management", "Description Of Share Capital", "Share Certificates and
Transfer" and "Service of Process and Enforcement of Civil Liabilities",
insofar as such statements constitute a description or summary of certain
provisions of Dutch law or the Company's Articles, fairly summarise the
matters referred to therein, and such captions do not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order
<PAGE>
-5-
to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
K. It is not necessary to ensure the legality, validity, enforceability or
admissibility in evidence of the Terms Agreement that any document be
filed, recorded or enrolled with any government department or other
authority in the Netherlands.
L. No stamp duty or similar tax or duty is or will be payable in the
Netherlands in connection with the offering of the Shares or in respect of
the execution of the Terms Agreement.
M. The statements in the Prospectus under the caption "Taxation - Netherlands
Taxes" accurately summarise the provisions of Dutch tax law described
therein.
N. Except as described in the Prospectus, under current laws and regulations
of the Netherlands and any political subdivision or taxing authority
thereof, all dividends and other distributions declared and payable on the
Shares (including, without limitation, dividend payments on any Shares in
the form of New York Shares) may be paid by the Company to the holder
thereof in United States dollars. Except as described in the Prospectus,
all such payments made to holders of the Shares who are non-residents of
the Netherlands will not be subject to income, withholding or other taxes
under laws and regulations of the Netherlands or any political subdivision
or taxing authority thereof or therein and will otherwise be free and clear
of any other tax, duty, withholding or deduction in the Netherlands or any
political subdivision or taxing authority thereof or therein and without
the necessity of obtaining any governmental authorisation in the
Netherlands or any political subdivision or taxing authority thereof or
therein.
O. The choice of the laws of the State of New York as the law governing the
Terms Agreement is valid and binding under the laws of the Netherlands,
except (i) to the extent that any term of the Terms Agreement, or any
provision of New York law applicable to the Terms Agreement is manifestly
incompatible with the public policy of the Netherlands, and except (ii)
that a Netherlands court may give effect to mandatory rules of the laws of
another jurisdiction with which the situation has a close connection, it
and insofar as, under the laws of that other jurisdiction
<PAGE>
-6-
those rules must be applied, whatever the chosen law; with the express
reservation that we are not qualified to assess the exact meaning and
consequences of the terms of the Terms Agreement under New York law, none
of such terms on its face is manifestly incompatible with the public policy
of the Netherlands or should be expected to give rise to situations where
mandatory rules of Netherlands law will be applied by a Netherlands court
irrespective of the law otherwise applicable thereto.
P. In the absence of an applicable treaty between the United States of America
and the Netherlands, a judgment rendered by a New York court will not be
enforced by the courts in the Netherlands. In order to obtain a judgment
which is enforceable in the Netherlands the claim must be relitigated
before a competent Netherlands court. Notwithstanding the foregoing, a
judgment rendered by a New York court will, under current practice, be
recognised by a Netherlands court (i) if that judgment results from
proceedings compatible with Netherlands concepts of due process, and (ii)
if that judgment does not contravene public policy of the Netherlands. If
the judgment is recognized by a Netherlands court, that court will
generally grant the same claim without relitigation on the merits.
Q. The submission by the Company to the non-exclusive jurisdiction of the
courts in the Borough of Manhattan in the City of New York, with regard to
the Terms Agreement is valid and binding upon the Company under the laws of
the Netherlands, to the extent applicable, provided, however, that such
consent does not preclude that claims for provisional measures be brought
before the President of a competent district court in the Netherlands.
R. The Underwriters would be permitted to commence non-concurrent proceedings
against the Company in the competent Netherlands courts based upon the
Terms Agreement and such competent Netherlands courts would accept
Jurisdiction over any such proceedings.
S. By the due execution by the Selling Shareholder and the Underwriters of a
Deed of Transfer relating to the Shares sold by such Selling Shareholder to
the Underwriters pursuant to the Terms Agreement and the written
acknowledgement of such transfer by the Company, title to such shares will
under Netherlands law validly have been transferred to the Underwriters,
free from, subject to opinion F. above, all liens and encumbrances. To the
extent that
<PAGE>
-7-
Netherlands law is applicable, title to a Share in bearer form passes upon
delivery if the transferor has the authority to transfer title to the Share
and if the transfer is made pursuant to a valid agreement. Bearer Shares
held through Nederlands Centraal Instituut voor Giraal Effectenverkeer B.V.
(NECIGEF) (such as the Shares sold to the Managers under the Subscription
Agreement) are transferred in accordance with the provisions of the wet
Giraal Effectenverkeer
This opinion is subject to the following qualifications:
(a) The opinions expressed herein may be affected or limited by: (i) the
general defenses available to obligors under Netherlands law in respect of
the validity and enforceability of agreements and (ii) the provisions of
any applicable bankruptcy (faillissement), insolvency, fraudulent
conveyance (actio Pauliana), reorganisation, moratorium (surseance van
betaling), and other or similar laws of general application now or
hereafter in effect, relating to or affecting the enforcement or protection
of creditors' rights.
(b) The rights and obligations of the parties to the Terms Agreement are
subject to the principle of reasonableness and fairness (redelijkheid en
billijkheid), which under Netherlands law, to the extent applicable,
governs the relationship between the parties to a contract and which, in
certain circumstances, may limit or preclude the reliance on, or
enforcement of, contractual terms and provisions.
(c) The enforcement in the Netherlands of the Terms Agreement will be subject
to the rules of civil procedure as applied by the Netherlands courts.
Specific performance may not always be available under Netherlands law.
(d) We have assumed that the Shares or certificates thereof are produced with a
so called "white bar"; however, non-observance of this regulation does not
render the Shares void, nor does it affect the legality or validity of the
Shares.
(e) Under the laws of the Netherlands each power of attorney (volmacht) or
mandate (lastgeving), whether or not irrevocable, granted by the Company in
the Terms Agreement will terminate by force of law, and without notice,
upon insolvency or bankruptcy of the Company. To the extent that the
appointment by the Company of a process agent would be
<PAGE>
-8-
deemed to constitute a power of attorney or a mandate, this qualification
would apply.
We express no opinion on any law other than the law of the Netherlands
(unpublished case law not included) as it currently stands. We express no
opinion on any laws of the European Communities (insofar as not implemented in
the Netherlands in statutes or other regulations of general application) or on
any anti-trust laws.
In this opinion Netherlands legal concepts are expressed in English terms and
not in their original Dutch terms. The concept concerned may not be identical to
the concepts described by the same English term as they exist under the laws of
other jurisdictions. This opinion may, therefore, only be relied upon under the
express condition that any issues of interpretation or liability arising
thereunder will be governed by Netherlands law and be brought before a
Netherlands court.
This opinion is strictly limited to the matters stated herein and may not be
read as extending by implication to any matters not specifically referred to.
Nothing in this opinion should be taken as expressing an opinion in respect of
any representations or warranties, or other information, contained in the Terms
Agreement, the Preliminary Prospectus or the Prospectus or any other document
examined in connection with this opinion except as expressly confirmed herein.
This opinion is addressed to you and may only be relied upon by you and your
U.S. counsel, Dewey Ballantine, in connection with the transactions to which the
Terms Agreement relate, and may not be relied upon by, or (except as required by
applicable law) be transmitted to, or filed with any other person, firm,
company, or institution without our prior written consent.
Yours truly,
<PAGE>
CHICAGO BRIDGE & IRON COMPANY N.V.
Common Stock
TERMS AGREEMENT
, 1997
To: The Representatives of the Underwriters identified herein
Dear Sirs:
Praxair, Inc., a Delaware corporation, ("Selling Shareholder") agrees to
sell to the several Underwriters named in Schedule A hereto for their respective
accounts, on and subject to the terms and conditions of the Underwriting
Agreement filed as an exhibit to the registration statement of Chicago Bridge &
Iron Company N.V., a Netherlands corporation, ("Company") on Form S-1 (No.333- )
("Underwriting Agreement"), the following securities of the Company ("Offered
Securities") on the following terms:
Title: Common Shares, par value NLG 0.01
Number of Shares:
Purchase Price: $ per share
Closing: A.M. on , 1997, at ,
in Federal (same) funds.
Blackout: Until ______ days after the Closing Date.
Names and Addresses of Representatives
The respective numbers of shares of the Offered Securities to be purchased
by each of the Underwriters are set forth opposite their names in Schedule A
hereto.
The provisions of the Underwriting Agreement are incorporated herein by
reference.
The Offered Securities will be made available for checking and packaging at
the office of Dewey Ballantine, New York, New York at least 24 hours prior to
the Closing Date.
<PAGE>
-2-
For purposes of Section 6 of the Underwriting Agreement, the only
information furnished to the Company by any Underwriter for use in the
Prospectus consists of [(i)] the following information in the Prospectus
furnished on behalf of each Underwriter: the last paragraph at the bottom of the
prospectus supplement cover page concerning the terms of the offering by the
Underwriters, the legend concerning over-allotments and stabilizing on the
inside front cover page of the prospectus supplement--and--, --the concession
and reallowance figures appearing in the paragraph under the caption
"Underwriting" in the prospectus supplement [If applicable, insert--; and (ii)
the following information in the prospectus supplement furnished on behalf of
[insert name of Underwriter]: [insert description of information, such as
material relationship disclosure under the caption "Underwriting" in the
prospectus supplement].(1)
- ----------
1 Special care should be taken to ensure that the description of the
information, including caption references and any references to particular
paragraphs or sentences, matches the final Prospectus.
<PAGE>
-3-
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return an original executed copy to each of the Company and the
Selling Shareholder one of the counterparts hereof, whereupon it will become a
binding agreement between the Company, the Selling Shareholder and the several
Underwriters in accordance with its terms.
Very truly yours,
CHICAGO BRIDGE & IRON COMPANY N.V.
By:
------------------------------------
[Insert title]
PRAXAIR, INC.
By
------------------------------------
[Insert title]
The foregoing Terms Agreement is hereby confirmed and accepted as of the date
first above written.
[If no co-representative, use
first confirmation form.
If co-representative, use second.]
CREDIT SUISSE FIRST BOSTON
CORPORATION
By:
------------------------------------
[Insert title]
[Acting on behalf of itself and
as the Representative of the
several Underwriters.]
CREDIT SUISSE FIRST BOSTON CORPORATION
- ---------------------------------------
<PAGE>
-4-
[Acting on behalf of themselves
and as the Representatives of
the several Underwriters.]
By CREDIT SUISSE FIRST BOSTON CORPORATION
By
------------------------------------
[Insert title]
<PAGE>
SCHEDULE A
Number
of
Underwriter Shares
-----------------------
Total
-----------------------
Exhibit 5
[Letterhead of Loeff Claeys Verbeke]
[Form of Opinion]
Chicago Bridge & Iron Company N.V.
P.O. Box 74658
1070 RR Amsterdam
The Netherlands
Re: Chicago Bridge & Iron Company N.V.
Offer of Common Shares
Dear Sirs:
We have acted as special counsel on matters of Netherlands law to Chicago
Bridge & Iron Company N.V. (the "Company") in connection with the offer for sale
by Praxair, Inc. of Common Shares, par value NLG 0.01 (the "Shares"), in the
capital of the Company, as described in the Registration Statement (as defined
below).
In rendering this opinion, we have examined and relied upon the following
documents:
1. The Articles of Association (statuten) of the Company as currently in
effect, dated [ ] 1997 (the "Articles of Association");
2. An excerpt dated [ ] 1997 of the registration of the Company in the Trade
Register of the Chamber of Commerce of Amsterdam;
3. A copy of the Registration Statement on Form S-1 of the Company relating to
the offering by the State (the "Registration Statement"), filed with the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act");
and such other documents and such other laws, rules, regulations, and the like,
as we have deemed necessary as a basis for the opinions hereinafter expressed.
Capitalized terms used but not defined herein are used as defined in the
Registration Statement.
For the purpose of the opinion expressed herein, we have assumed the
conformity to the originals of all documents submitted to us as copies.
Subject to the foregoing, we are of the opinion that the Common Shares are
validly issued, fully paid and non-assessable.
In this opinion Netherlands legal concepts are expressed in English terms
and not in their original Dutch terms. The concepts concerned may not be
identical to the concepts described by the same English term as they exist under
the laws of other jurisdictions. This opinion may, therefore, only be relied
upon under the
<PAGE>
-2-
express condition that any issues of interpretation or liability arising
thereunder will be governed by Netherlands law and be brought before a
Netherlands court.
This opinion is strictly limited to the matters stated herein and may not
be read as extending by implication to any matters not specifically referred to.
Nothing in this opinion should be taken as expressing an opinion in respect of
any representations or warranties, or other information, contained in the
Registration Statement.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to us in the prospectus in the
Registration Statement. In giving such consent, we do not thereby admit that we
are within the category of persons whose consent is required under the
Securities Act, or the rules and regulations of the SEC thereunder.
Yours faithfully
Exhibit 8.1
[LETTERHEAD OF CAHILL GORDON & REINDEL]
[Form of Opinion]
Chicago Bridge & Iron Company N.V.
P.O. Box 74658
1070 BR Amsterdam
The Netherlands
Ladies and Gentlemen:
We hereby confirm the discussion set forth in the Prospectus for Chicago
Bridge & Iron Company N.V. (the "Company") dated _____________, 1997, contained
in the Registration Statement on Form S-1 of the Company, which discussion is
set forth under the heading "Taxation-United States Federal Income Taxes."
We hereby consent to the filing of this opinion as an exhibit to such
Registration Statement and the reference to the above-mentioned opinion under
"Taxation-United States Federal Income Taxes." In giving such consent, we do not
admit that we are within the category of persons who consent is required under
Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
Exhibit 8.2
[Letterhead of Loeff Claeys Verbeke]
[Form of Opinion]
Chicago Bridge & Iron Company N.V.
P.O. Box 74658
1070 RR Amsterdam
The Netherlands
Re: Registration Statement on Form S-1 of
Chicago Bridge & Iron Company N.V.
Dear Sirs:
We have acted as your special tax counsel in The Netherlands in connection
with the Registration Statement on Form S-1 as filed by you with the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Act"), in relation to the proposed public offering of Common Shares of Chicago
Bridge & Iron Company N.V. (the "Issuer") which may be sold by Praxair, Inc.
Capitalized terms to which no meaning is assigned herein have the meaning
assigned thereto in the Prospectus included in the Registration Statement.
We have advised the Issuer in connection with the description of the
material Netherlands tax consequences to an owner of Common Shares who is not,
or is not deemed to be, a resident of The Netherlands for purposes of the
relevant tax codes (a "Nonresident Shareholder") that appears under the heading
"Taxation - Netherlands Taxes" in the Prospectus included in the Registration
Statement (the "Netherlands Tax Description") and we confirm that the
Netherlands Tax Description is accurate in all material respects. While the
Netherlands Tax Description discusses the material Netherlands tax consequences
of the purchase, ownership and disposition of the Common Shares by a Nonresident
Shareholder, it does not purport to discuss all Netherlands tax considerations
and consequences and our opinion is limited to those Netherlands tax
consequences specifically discussed therein.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and further consent to the reference to our firm under
the heading "Taxation - Netherlands Taxes" in the Prospectus forming a part of
the Registration Statement. This consent is not to be construed as an admission
that we are a person whose consent is required to be filed with the Registration
Statement under the provisions of the Act.
Very truly yours,
Exhibit 10.2
TABLE OF CONTENTS
CHICAGO BRIDGE & IRON
EMPLOYEE STOCK PURCHASE PLAN (1997)
(Effective August 1, 1997)
ARTICLE I: DEFINITIONS
1.01 COMPANY:
1.02 COMPENSATION:
1.03 CONTRIBUTION PERIOD:
1.04 INCLUDED EMPLOYEE:
1.05 MARKET VALUE:
1.06 PLAN:
1.07 PLAN ADMINISTRATOR:
1.08 PARTICIPANT:
1.09 PARTICIPATING SUBSIDIARY:
1.10 PURCHASE DATE:
1.11 PURCHASE PRICE:
1.12 SERVICE PROVIDER:
ARTICLE II: EFFECTIVE DATE
ARTICLE III: PARTICIPATION
3.01 PARTICIPATION:
3.02 ELECTION TO CONTRIBUTE:
3.03 ELECTION OF INVESTMENT:
3.04 INTEREST ON CONTRIBUTIONS:
ARTICLE IV: PURCHASE OF SHARES
4.01 GRANT OF OPTIONS:
4.02 PURCHASE PRICE:
4.03 WITHDRAWAL OF CONTRIBUTIONS:
4.04 STOCK AVAILABLE FOR OPTIONS:
ARTICLE V: LIMITATIONS ON STOCK PURCHASE
5.01 INELIGIBLE EMPLOYEES:
5.02 NONTRANSFERABILITY OF OPTION:
5.03 RECAPITALIZATION ADJUSTMENT:
ARTICLE VI: AMENDMENT OF THE PLAN
ARTICLE VII: EXPIRATION OR TERMINATION OF THE PLAN
<PAGE>
CHICAGO BRIDGE & IRON
EMPLOYEE STOCK PURCHASE PLAN (1997)
(Effective August 1, 1997)
Chicago Bridge & Iron Company N.V., in order to give its employees and
those of Participating Subsidiaries an opportunity to participate in the growth
of the Company by investment and reinvestment in the common stock of the
Company, has established the Chicago Bridge & Iron Employee Stock Purchase Plan
(1997).
ARTICLE I: DEFINITIONS
Unless The Context Clearly Indicates Otherwise, The Following Terms When
Used In This Plan Shall Have The Following Meanings:
1.01 COMPANY: Chicago Bridge & Iron Company N.V., a Netherlands corporation, and
its respective corporate successors, if any.
1.02 COMPENSATION: The total of all wages and salaries, overtime, shift and
other premiums and bonuses and other incentive payments paid by the Company or
any Participating Subsidiary to an employee or former employee with respect to a
given period of employment during which the employee is a Participant, but
excluding the following:
(a) All employer contributions and payments under any deferred
compensation plan or contract, whether tax qualified or
non-qualified, excepting all elective employee salary
deferrals which are treated as employer contributions under
any such plan or contract;
(b) All payments made by the Company or any Participating
Subsidiary for services performed outside the United States
which are of a character not customarily made by the Company
or any Participating Subsidiary for services performed within
the United States;
(c) All payments identified when made as an allowance for
reimbursement of actual or estimated expenses incurred or to
be incurred by the recipient of such payments; and
(d) Any income realized from the grant, receipt, modification,
relinquishment, exchange, assignments, transfer, sale or other
disposition of securities of the Company or any Participating
Subsidiary, or rights or options with respect thereto.
1.03 CONTRIBUTION PERIOD: Any one of four periods of each calendar year during
which payroll deductions are made under the Plan. A new Contribution Period
shall begin with the start of the pay period which includes the first day of
each calendar quarter.
1.04 INCLUDED EMPLOYEE: Any person who is either: a) a full time or regular part
time employee of the Company or of a Participating Subsidiary who is paid from a
payroll constituting U.S. source income, or b) an employee of the Company or a
Participating Subsidiary employed outside of the United States, which
Participating Subsidiary or a unit thereof has not been excluded from
participation by the Company.
1.05 MARKET VALUE: The composite closing price reported for a given date for a
share of the common stock of the Company as traded on the New York Stock
Exchange, or if such price is not so reported for
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that date, then the closing price of a share as so reported for the most recent
preceding date on which such trading occurred. If the common stock of the
Company shall cease to be so traded, then Market Value shall be the value on
that date as determined in such reasonable manner as the Managing Director of
the Company determines and describes in a written notice sent to all holders of
options granted hereunder and affected by that determination.
1.06 PLAN: The Chicago Bridge & Iron Employee Stock Purchase Plan (1997), as
from time to time amended.
1.07 PLAN ADMINISTRATOR: The person or committee from time to time designated by
the Managing Director of the Company for the purposes of administering and
conclusively construing the Plan.
1.08 PARTICIPANT: An Included Employee for whom there is an account established
pursuant to this Plan.
1.09 PARTICIPATING SUBSIDIARY: Such present or future subsidiaries and
affiliates of the Company which employ Included Employees.
1.10 PURCHASE DATE: The first regular business day on which trading occurs on
the New York Stock Exchange following the end of each calendar quarter.
1.11 PURCHASE PRICE: The price of the common stock of the Company as defined in
Section 4.02.
1.12 SERVICE PROVIDER: Such third party institution, if any, to or with which
the Company, or the Plan Administrator on the Company's behalf, may choose to
delegate or contract to provide recordkeeping and other services for the
administration of the Plan, which may include, but not be limited to, operation
and maintenance of stock brokerage accounts for the purchase, sale and holding
of stock for Participants' Employee Stock Purchase Accounts, processing of
Participant elections, and reinvestment of dividends paid on stock held in
Employee Stock Purchase Accounts.
ARTICLE II: EFFECTIVE DATE
The effective date of this Plan is August 1, 1997.
ARTICLE III: PARTICIPATION
3.01 PARTICIPATION: An Included Employee may elect to start payroll deductions
pursuant to Section 3.02.
3.02 ELECTION TO CONTRIBUTE: An election must be in writing in a form as
prescribed by the Plan Administrator, and must be submitted to the Plan
Administrator by the 20th day of the calendar month preceding the beginning of a
Contribution Period to be effective for such Contribution Period, and thereafter
such election cannot be changed or terminated during that Contribution Period
except as provided in Section 4.03. Each such election shall authorize the
Company or Participating Subsidiary, as applicable, to withhold an integral
percentage from one percent (1%) to up to eight percent (8%) of each payment of
Compensation. An election once made shall be continuously applied to that
Contribution Period and all subsequent Contribution Periods, except as otherwise
provided in Section 4.03, until the Participant notifies the Plan Administrator,
in writing as the Plan Administrator prescribes, of a change or termination of
such election. Such notice of change or termination must be submitted by the
same date as described above and shall take effect as of the beginning of the
next Contribution Period after the date of such notice's effective submission.
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3.03 ELECTION OF INVESTMENT: Each Participant electing to make contributions to
the Plan as provided in Section 3.02 shall at the time of each such election
also be deemed to elect to purchase common stock of the Company under the terms
of Articles IV and V, and also to agree to the establishment and administration
of an Employee Stock Purchase Account in accordance with such additional
requirements that0 the Plan Administrator may prescribe pursuant to any
agreement with the Plan's Service Provider, if any, as the Plan Administrator
shall promptly notify Participants from time to time.
3.04 INTEREST ON CONTRIBUTIONS: The contributions made by a Participant pursuant
to Section 3.02 shall be held by the Company or Participating Subsidiary, as
applicable, until the purchase of stock pursuant to Sections 4.01 and 4.02, or
withdrawal pursuant to Section 4.03, and, except as may be required by
applicable law, shall not draw any interest or other earnings until so
disbursed.
ARTICLE IV: PURCHASE OF SHARES
4.01 GRANT OF OPTIONS: A Participant who is an Included Employee and who has
made an election pursuant to Section 3.02 shall be granted on the first day of
each Contribution Period on which an election pursuant to Section 3.03 is
effective, an option to purchase shares of common stock of the Company on the
Purchase Date next following the applicable Contribution Period. The option so
granted shall be automatically exercised, and shares of the common stock of the
Company shall be purchased with the Participant's contributions withheld during
the applicable Contribution Period pursuant to Section 3.02, provided the
Participant has not terminated employment more than three months prior to the
applicable Purchase Date and provided a withdrawal pursuant to Section 4.03 has
not occurred. Any unused portion, representing an excess over the amount needed
to purchase on the applicable Purchase Date the maximum number of shares
allowable under the limitations of Sections 4.02 and 5.01, shall be refunded to
such Participant.
4.02 PURCHASE PRICE: The Purchase Price of the stock purchased under the option
granted pursuant to Section 4.01 shall be 85% of the Market Value of such stock
on the Purchase Date. The number of shares to which the option applies shall be
the number of whole and fractional shares equal to the amount of contributions
withheld during the preceding Contribution Period divided by 85% of the Market
Value of the stock on the Purchase Date. The maximum number of shares a
Participant may purchase under the Plan in a single calendar year shall be the
lesser of: a) 500 shares, or b) the number purchasable under the limitations of
Section 5.01.
4.03 WITHDRAWAL OF CONTRIBUTIONS: A Participant may withdraw and receive from
the Company or Participating Subsidiary, as applicable, a refund of all (but
only all) contributions made to date during the current Contribution Period by
the submittal of a written election as prescribed by the Plan Administrator no
later than the 20th day of the last calendar month of such Contribution Period.
Upon such withdrawal, all elections pursuant to Sections 3.02 and 3.03 shall
automatically terminate until reinstated pursuant to said Sections.
4.04 STOCK AVAILABLE FOR OPTIONS: All shares of common stock of the Company from
time to time held in the treasury of the Company, and authorized but presently
unissued shares of common stock of the Company, but in any event limited to
250,000 shares, shall be available for option and sale pursuant to this Plan.
Shares allotted for option and sale pursuant to this Plan for which the right to
purchase has expired shall be deemed available for reallotment for option and
sale in ensuing Contribution Periods and on subsequent Purchase Dates, as if
such shares had never been so allotted.
<PAGE>
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ARTICLE V: LIMITATIONS ON STOCK PURCHASE
5.01 INELIGIBLE EMPLOYEES: No otherwise eligible Included Employee shall be
granted an option to purchase stock pursuant to this Plan if immediately after
that grant such employee owns, or has an option on, stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or any affiliate thereof, and for purposes of this
sentence, the rules of Section 425(d) of the U.S. Internal Revenue Code of 1986,
as from time to time amended, shall apply in determining the stock ownership of
an employee. Any stock which an employee may purchase under any outstanding
right or option shall be treated as stock owned by such employee for the purpose
of this section. No employee shall have or be granted under this Plan any option
that will permit the employee's rights or options to purchase stock under all
such employee stock purchase plans of the Company and its affiliates to accrue
at a rate which exceeds twenty-five thousand dollars ($25,000) of Market Value
of such stock, determined as of the date such right or option is granted, for
each calendar year during which such right or option is outstanding.
5.02 NONTRANSFERABILITY OF OPTION: No option to purchase stock pursuant to this
Plan shall be transferable by the grantee thereof during the grantee's lifetime,
but such an option may be transferred by will or by laws of descent and
distribution, which shall include the valid designation of a beneficiary
pursuant to uniform procedures prescribed by the Plan Administrator. Each such
option shall be exercisable during the lifetime of the grantee only by the
grantee. Certificates for shares of stock purchased pursuant to an option
granted under this Plan may, however, be issued in the names of the grantee and
any other adult person or persons jointly, with right of survivorship, provided
each such person is a member of the grantee's immediate family and provided
further that the grantee so requests in writing at or before the time of his
purchase of such shares and at the same time informs the Company of the name and
address of his co-owner. A grantee's "immediate family" for the purposes of this
Section 5.02 shall include only the grantee's spouse, son, daughter, grandson,
granddaughter, niece, nephew, father, mother, brother or sister. Certificates
for shares purchased after the transfer of an option as provided above in this
Section 5.02 may be issued only in the name or names of the person or persons so
succeeding to the option.
5.03 RECAPITALIZATION ADJUSTMENT: If at any time during the life of this Plan
the outstanding common stock of the Company is augmented by a dividend in such
common stock or divided into a greater or consolidated into a lesser number of
shares of such common stock, then (A) the number of unissued shares of such
common stock which may thereafter be allotted shall be correspondingly increased
or decreased, (B) the number of shares of common stock to which any then
outstanding options under the Plan relates shall be correspondingly increased or
decreased to the extent that shares are available for allotment within the limit
provided in Section 4.04, and (C) the purchase price for each share in respect
of which any such option is outstanding at the time of such increase or decrease
in the number of outstanding shares of common stock of the Parent shall be
adjusted in inverse proportion to such increase or decrease in the number of
outstanding shares.
ARTICLE VI: AMENDMENT OF THE PLAN
The Company reserves the right to amend this Plan in any manner, at any
time or from time to time, by action of its Managing Director, or by action of
the Supervisory Directors (in which case any such action shall supercede any
conflicting action of the Managing Director), but except for the purpose of
making the Plan meet the requirements of the U.S. Internal Revenue Code of 1986,
as from time to time amended, with respect to employee stock purchase plans, no
such amendment shall increase the number of shares of common stock that may be
allotted for sale under the Plan or make the definition of the term "Included
Employee" more restrictive or reduce the purchase price per share for which
Section 4.02 provides or alter or impair any right granted under the Plan
without the previous written consent of the holder of that right.
<PAGE>
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ARTICLE VII: EXPIRATION OR TERMINATION OF THE PLAN
The Plan shall expire on April 2, 2002, unless sooner terminated as
provided in this Article. The Company reserves the right to terminate this Plan
at any time by resolution of its Supervisory Directors, and the Plan shall
automatically terminate upon the happening of the first to happen of the
following events:
(a) whenever no shares remain to be allotted under the Plan, or
(b) whenever any merger of the Company into another corporation or
any consolidation of the Company with another corporation, or
any transfer of substantially all of the assets of the
Company, or any liquidation of the Company, becomes effective
or takes place unless the corporate successor of the Company
in any such transaction assumes the obligations of the Company
under the Plan.
No options shall be granted after the Plan is terminated nor may any stock
be purchased pursuant to the Plan subsequent to the termination.
Exhibit 23.1.1
[Letterhead of Arthur Andersen]
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our
reports dated February 7, 1997 and December 16, 1996 (and to all references to
our Firm) included in or made part of this Registration Statement on Form S-1.
/s/ Arthur Andersen LLP
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Arthur Andersen
Chicago, Illinois
November 10, 1997
Exhibit 23.1.2
[Letterhead of Arthur Andersen]
AEX Effectenbeurs N.V.
P.O. Box 19163
1000 GD Amsterdam
The Netherlands
Dear Sirs:
As independent public accountants with respect to Chicago Bridge & Iron
Company N.V., we hereby consent to the use of our audit report, addressed to the
shareholder of Chicago Bridge & Iron Company N.V. in respect of the December 31,
1996 balance sheet and to all references to our Firm in the form and context in
which they are included in this Registration Statement on pages F-52 through
F-54 dated November 10, 19, 1997.
It should be noted that we have not made an examination of any financial
statements of Chicago Bridge & Iron Company N.V. as of any date or for any
period subsequent to December 31, 1996, the date of the latest financial
statements covered by our report.
Very truly yours,
/s/ Arthur Andersen & Co.
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Arthur Andersen & Co.
Amsterdam, The Netherlands
November 10, 1997
