<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[X] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CHICAGO BRIDGE & IRON COMPANY N.V.
--------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
CHICAGO BRIDGE & IRON COMPANY N.V.
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
--------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
--------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
--------------------------------------------------------------------------------
(3) Filing party:
--------------------------------------------------------------------------------
(4) Date filed:
--------------------------------------------------------------------------------
<PAGE> 2
CHICAGO BRIDGE & IRON COMPANY N.V.
POLARISAVENUE 31
2132 JH HOOFDDORP, THE NETHERLANDS
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 13, 2000
To the Shareholders of:
CHICAGO BRIDGE & IRON COMPANY N.V.
You are hereby notified that a Special Meeting of Shareholders of Chicago
Bridge & Iron Company N.V. will be held at Sheraton Amsterdam Airport Hotel,
Schiphol Boulevard 101, Schiphol NL 1118 BG, The Netherlands, at 10:00 a.m.,
local time, on December 13, 2000, for the following purposes:
1. To approve the issuance of 8,146,665 shares of CB&I stock to be used in
consideration, together with cash provided by a subsidiary of CB&I, for
the purchase of all ownership interests in Howe-Baker International,
Inc. from WEDGE Group Incorporated and its affiliates;
2. To amend the Articles of Association to implement certain provisions of
the proposed Shareholder Agreements with WEDGE Group Incorporated and
First Reserve Fund VIII, L.P.;
3. To appoint Michael D. Winfield and William E. Macaulay members of the
Board of Supervisory Directors to serve until the Annual Meeting of
Shareholders in 2001; to appoint William H. White member of the Board of
Supervisory Directors to serve until the Annual Meeting of Shareholders
in 2002; and to appoint Ben E. Guill member of the Board of Supervisory
Directors to serve until the Annual Meeting of Shareholders in 2003, and
until their successors are duly appointed; and
4. To approve an amendment to the Chicago Bridge & Iron 1999 Long-Term
Incentive Plan which, among other things, increases the aggregate number
of shares available for issuance under the Plan.
Copies of the Dutch Statutory Annual Accounts, the report of the Management
Board, the list of nominees for the Supervisory Board and the verbatim text of
the proposed amendments to the Articles of Association (in Dutch and in English)
can be obtained free of charge by shareholders and other persons entitled to
attend meetings of shareholders of the Company at the offices of the Company at
Polarisavenue 31, 2132 JH Hoofddorp, The Netherlands; at Kas-Associatie N.V.,
Spuistraat 172, 1012 VT Amsterdam, The Netherlands; and at the Bank of New York,
101 Barclay Street, 22nd Floor West, New York, New York 10286 from the date
hereof until the close of the Special Meeting.
Holders of registered shares at the close of business on November 9, 2000,
and holders of bearer shares who deposit their shares prior to December 11, 2000
are entitled to vote at the Special Meeting and any adjournment thereof. Holders
of Registered Shares must give notice to the Management Board of their intention
to attend the special meeting in writing prior to December 11, 2000. The stock
transfer books will not be closed.
REGISTERED SHAREHOLDERS ARE REQUESTED TO COMPLETE, SIGN, DATE AND PROMPTLY
MAIL THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED FOR
MAILING IN THE UNITED STATES.
Robert H. Wolfe
Secretary
, 2000
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY TERM SHEET.......................................... iii
GENERAL..................................................... 1
COMMON STOCK OWNERSHIP BY CERTAIN PERSONS AND MANAGEMENT.... 2
Common Stock Ownership of Certain Beneficial Owners....... 2
Common Stock Ownership of Our Management.................. 3
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS AND RISK
FACTORS................................................... 4
ITEM 1 APPROVAL OF SHARE ISSUANCE; THE HBI TRANSACTION..... 8
Description of HBI's Business............................. 9
Background of the HBI Transaction......................... 10
Our Reasons for the HBI Transaction....................... 12
Opinion of Financial Advisor to CB&I's Supervisory
Board.................................................. 13
The Purchase Agreement.................................... 18
General................................................ 18
Conditions to Closing.................................. 18
Representations and Warranties......................... 19
Covenants.............................................. 19
Indemnification........................................ 21
Termination or Amendment............................... 21
Expenses and Termination Fees.......................... 22
The First Reserve Agreement............................... 22
General................................................ 22
Conditions to Closing.................................. 22
Representations and Warranties......................... 22
Purchase Price Adjustment.............................. 23
Assignment of WEDGE's Rights Under the Purchase
Agreement............................................. 23
Indemnification........................................ 23
Termination Fee........................................ 23
The Shareholder Agreements................................ 23
Standstill Provisions.................................. 23
Supervisory Board Representation....................... 24
Voting Restrictions.................................... 24
Transfer Restrictions and Registration Rights.......... 25
Duration............................................... 25
Interest of Certain Persons in the HBI Transaction........ 26
Government and Regulatory Approvals....................... 27
Certain Federal Income Tax Consequences................... 27
Accounting Treatment...................................... 28
Selected Financial Data -- CB&I........................... 28
Selected Financial Data -- HBI............................ 31
Management's Discussion and Analysis of Financial
Condition and Results of Operations of HBI............. 33
</TABLE>
i
<PAGE> 4
<TABLE>
<S> <C>
Unaudited Pro Forma Condensed Combined Financial
Statements of CB&I and HBI............................. 37
Comparative Unaudited Per Share Data...................... 43
ITEM 2 PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION
TO IMPLEMENT THE PROPOSED SHAREHOLDER AGREEMENTS.... 43
ITEM 3 APPOINTMENT OF ADDITIONAL SUPERVISORY DIRECTORS..... 45
General................................................... 45
Nominees of WEDGE and First Reserve....................... 46
Directors to Continue in Office........................... 48
Committees of the Board................................... 49
Information Regarding Meetings............................ 49
Executive Compensation.................................... 50
Summary Compensation Table............................. 50
1999 Option Grants..................................... 51
1999 Option Exercises and Year End Option Values....... 52
1999 Performance Share Awards.......................... 53
Pension and Other Retirement Benefits.................. 54
Termination and Employment Agreements.................. 54
Compensation of Directors................................. 56
Report of the Organization and Compensation Committee on
Executive Compensation................................. 57
Performance Graph......................................... 63
Section 16(a) Beneficial Ownership Reporting Compliance... 63
ITEM 4 ADOPTION OF AMENDMENT TO THE CHICAGO BRIDGE & IRON
1999 LONG-TERM INCENTIVE PLAN....................... 64
Reasons for Seeking Shareholder Approval.................. 64
Summary of the Amended Plan............................... 65
New Plan Benefits......................................... 67
Tax Aspects of the Amended Plan........................... 68
REPRESENTATIVES OF INDEPENDENT PUBLIC ACCOUNTANTS........... 69
ADDITIONAL INFORMATION...................................... 69
SHAREHOLDER PROPOSALS....................................... 69
ANNEXES..................................................... A-1
A. Consolidated Financial Statements of Howe-Baker
International, Inc. and Subsidiaries................... A-1
B. Opinion of Credit Suisse First Boston................. B-1
C. Proposed Amendments to CB&I Articles of Association... C-1
D. Chicago Bridge & Iron 1999 Long-Term Incentive Plan,
as amended............................................. D-1
</TABLE>
ii
<PAGE> 5
SUMMARY TERM SHEET
THE FOLLOWING IS A BRIEF SUMMARY OF THE MATERIAL TERMS OF OUR PROPOSED
ACQUISITION OF HOWE-BAKER INTERNATIONAL, INC. SHAREHOLDERS ARE URGED TO READ
THIS PROXY STATEMENT, THE ANNEXES HERETO AND THE OTHER DOCUMENTS REFERENCED
HEREIN IN THEIR ENTIRETY FOR ADDITIONAL IMPORTANT INFORMATION NOT CONTAINED IN
THIS SUMMARY TERM SHEET. TERMS USED BUT NOT DEFINED IN THIS SUMMARY TERM SHEET
HAVE THE MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS PROXY STATEMENT. CROSS
REFERENCES IN THIS SUMMARY TERM SHEET ARE TO THE CAPTIONS OF SECTIONS OF THIS
PROXY STATEMENT.
PURCHASE PRICE FOR HBI
- Pursuant to our Purchase Agreement dated July 30, 2000 (the "Purchase
Agreement") with WEDGE Group Incorporated and its affiliate ("WEDGE"), we
have agreed to acquire from WEDGE all the outstanding ownership interests
in HBI for consideration consisting of:
- 8,146,665 Registered Shares,
- $28 million in cash, and
- the assumption of certain liabilities (the "HBI Transaction").
See "Item 1 -- Approval of Share Issuance; The HBI Transaction -- The
Purchase Agreement".
- Subject to limited exceptions, we will
- acquire substantially all of the assets of HBI, other than HBI working
capital and certain miscellaneous assets, and
- assume all of the liabilities of HBI, including a $5.7 million
promissory note and contingent earn-out obligations payable to former
owners of certain HBI subsidiaries.
- The Purchase Agreement calls for a possible upward or downward adjustment
in purchase price to be made after closing based on the actual level of
HBI working capital on the closing date.
- The parties have assumed a level of HBI working capital at the time of
closing of $32,000,000, which would be paid by us to WEDGE.
- If the actual amount of HBI working capital on the closing date is
less than the sum of $30,000,000 plus an amount of up to $500,000 in
potential bonuses paid to HBI employees prior to the closing date,
then the cash portion of the purchase price would be reduced by the
amount of the shortfall.
- If the actual amount of HBI working capital on the closing date is
more than $34,000,000, then the cash portion of the purchase price
will be increased by the amount of the excess.
RESALE OF CERTAIN SHARES BY WEDGE TO FIRST RESERVE
- Pursuant to a stock purchase agreement dated July 30, 2000 (as amended,
the "First Reserve Agreement"), WEDGE has agreed to sell to First Reserve
Fund VIII, L.P. ("First Reserve") 4,323,333 Registered Shares conditional
upon the consummation of the HBI Transaction (the "First Reserve
Transaction"). See "Item 1 -- Approval of Share Issuance; The HBI
Transaction -- The First Reserve Agreement".
- Upon completion of the HBI Transaction and the First Reserve Transaction,
WEDGE will hold approximately 24% (including 400,000 shares already owned
by WEDGE), and First Reserve will hold approximately 24.5%, of our issued
and outstanding shares. Should WEDGE consummate the HBI Transaction but
not consummate the First Reserve Transaction, WEDGE will own
approximately 48.5% of our issued and outstanding shares (including its
current holdings). See "Common Stock Ownership by Certain Persons and
Management".
iii
<PAGE> 6
CONDITIONS
- The respective obligations of WEDGE and us to effect the HBI Transaction
on the closing date are subject to various conditions, including:
- our shareholders approving the proposals set forth in Items 1, 2 and 3
of this Proxy Statement,
- the receipt of all required governmental approvals, including
expiration of the waiting period under the HSR Act, and certain third
party consents, and
- our having made application and received approval for listing of the
8,146,665 Registered Shares being issued to WEDGE on a "when-issued"
basis on the New York Stock Exchange, Inc.
See "Item 1 -- Approval of Share Issuance; The HBI Transaction-The
Purchase Agreement-Conditions to Closing".
- On August 23 and August 25, 2000, the FTC notified us that the parties'
request for early termination of the waiting period under the HSR Act had
been granted with respect to the HBI Transaction and the First Reserve
Transaction, respectively.
See "Item 1 -- Approval of Share Issuance; The HBI Transaction-Government
and Regulatory Approvals".
THE SHAREHOLDER AGREEMENTS WITH WEDGE AND FIRST RESERVE
- The Purchase Agreement provides for us to enter into the WEDGE
Shareholder Agreement upon closing of the HBI Transaction. The WEDGE
Shareholder Agreement provides that if the First Reserve Transaction is
consummated, we will also enter into the First Reserve Shareholder
Agreement. See "Item 1 -- Approval of Share Issuance; The HBI
Transaction -- The Shareholder Agreements."
STANDSTILL PROVISIONS
- The Shareholder Agreements contain so-called "standstill" provisions
which, among other things:
- prohibit the purchase of additional shares by WEDGE except in order to
maintain a 10% ownership stake,
- prohibit the purchase of additional shares by First Reserve except
- in order to maintain a 10% ownership stake,
- for additional shares in connection with an equity financing to
fund the PDM Transaction so long as these additional purchases will
not cause First Reserve's and WEDGE's combined equity ownership to
exceed 48.15% of our voting securities outstanding or First
Reserve's equity ownership to exceed 30% of our voting securities
outstanding, and
- if the PDM Transaction shall not be consummated, for an additional
253,000 shares so long as these additional purchases by First
Reserve will not cause First Reserve's and WEDGE's combined equity
ownership to exceed 49.9% of our voting securities outstanding, and
- prohibit acquisition proposals, proxy solicitations, group formation
or encouragement of third parties for takeover purposes by either
WEDGE or First Reserve.
- In the event of a breach of WEDGE or First Reserve of the "standstill"
provisions (whether by the launching of a tender offer or otherwise), we
and/or our shareholders may seek injunctive relief. However, as the
relief is equitable in nature and at the discretion of the court in which
the action is brought, there can be no assurance that the court will
grant such relief.
See "Item 1 -- Approval of Share Issuance; The HBI Transaction -- The
Shareholder Agreements -- Standstill Provisions".
iv
<PAGE> 7
SUPERVISORY BOARD COMPOSITION
- Under the Shareholder Agreements, if the HBI Transaction and the First
Reserve Transaction are both consummated, the number of Supervisory
Directors comprising the Supervisory Board will expand from eight to
twelve members and:
- WEDGE will have the right to designate two Supervisory Directors so
long as it owns 17 1/2% of our issued and outstanding shares, and
- First Reserve will have the right to designate two Supervisory
Directors so long as it owns at least 3,083,871 of our issued and
outstanding shares.
See "Item 1 -- Approval of Share Issuance; The HBI Transaction -- The
Shareholder Agreements - Supervisory Board Representation".
- Under proposed Item 3 of this Proxy Statement, the Supervisory Board is
recommending the appointment of two WEDGE Supervisory Director nominees,
Michael D. Winfield and William H. White, and the appointment of two
First Reserve Supervisory Director nominees, Ben A. Guill and William E.
Macaulay, conditioned upon consummation of the HBI Transaction and the
First Reserve Transaction. See "Item 3 -- Appointment of Additional
Supervisory Directors".
RESTRICTION ON VOTING AND TRANSFER RIGHTS OF WEDGE AND FIRST RESERVE
- Pursuant to the Shareholder Agreements, WEDGE and First Reserve are
subject to restrictions on their voting rights relating to any matter
presented to our shareholders for vote or approval:
- WEDGE and First Reserve are obligated to vote "for" the nominees
recommended by the Supervisory Board, provided we are in compliance
with our covenants to WEDGE and First Reserve relating to Supervisory
Board representation, and
- WEDGE and First Reserve are obligated to vote "for" any proposal
recommended by the Supervisory Board and "against" any proposal that
is not recommended by the Supervisory Board, with limited exceptions
for certain matters as to which they will have discretionary voting
rights.
- Pursuant to the Shareholder Agreements, WEDGE and First Reserve are
subject to restrictions on the transfer of their shares, including the
restriction that, without our consent, neither WEDGE nor First Reserve
may sell any of their shares to:
- any person or group who is or would be required to file a Schedule 13D
under the Exchange Act,
- any person or group who would own more than 10% of our voting
securities, or
- a competitor of the Company.
Certain other sales of shares by WEDGE or First Reserve will be subject to
our right of first offer.
- Pursuant to the Shareholder Agreements, WEDGE and First Reserve have also
been granted certain demand and "piggyback" registration rights relating
to their shares.
See "Item 1 -- Approval of Share Issuance; The HBI Transaction -- The
Shareholder Agreements -- Voting Restrictions -- Transfer Restrictions and
Registration Rights".
AMENDMENTS TO ARTICLES; CHANGE OF CONTROL
- Under proposed Item 2 of this Proxy Statement, amendments to our Articles
of Association have been proposed to implement the purposes and
provisions of the Shareholder Agreements, including an amendment
providing that at a time when there is a 15% shareholder certain
significant transactions otherwise requiring shareholder approval will
require the approval of at least 80% of our outstanding voting
securities. See "Item 2 -- Proposed Amendments to the Articles of
Association to Implement the Proposed Shareholder Agreements".
- The HBI Transaction will constitute a "Change of Control" for purposes of
severance agreements with several of our executive officers. See "Item
1 -- Approval of Share Issuance; The HBI Transaction -- Interests of
Certain Persons in the HBI Transaction" and "Item 3 -- Appointment of
Additional Supervisory Directors -- Executive Compensation -- Termination
and Employment Agreements".
v
<PAGE> 8
CHICAGO BRIDGE & IRON COMPANY N.V.
PROXY STATEMENT
GENERAL
This Proxy Statement, which is first being mailed to holders of registered
shares on or about November 13, 2000, is furnished in connection with the
solicitation of proxies on behalf of the Supervisory Board of Chicago Bridge &
Iron Company N.V. ("CB&I" or the "Company"), who ask you to complete, sign, date
and mail the enclosed proxy for use at the Special Meeting of Shareholders to be
held on Wednesday, December 13, 2000, 10:00 a.m., local time (the "Special
Meeting"), for the purposes set forth in the foregoing notice.
Each share entitles the holder thereof to one vote on each matter submitted
to a vote at the meeting. All shares represented by proxies duly executed and
received by us within the time indicated on the enclosed proxy (the "Voter
Deadline"), will be voted at the meeting or any adjourned session of the meeting
in accordance with the terms of the proxies. If no choice is indicated on the
proxy, the proxyholders will vote for Messrs. Winfield, Macaulay, White and
Guill for Supervisory Directors and for all proposals described in this Proxy
Statement.
A shareholder may revoke a proxy by submitting a document revoking it or by
submitting a duly executed proxy bearing a later date prior to the Voter
Deadline, or by attending the meeting and voting in person.
Only holders of the registered shares of the Company's share
capital, par value NLG 0.01 (the "Registered Shares") issued at the close of
business on November 9, 2000, and the holders of the bearer shares
(the "Bearer Shares") who deposit their shares prior to December 11, 2000 (the
Registered Shares and the Bearer Shares together, the "Common Stock" or
"shares") are entitled to vote at the meeting. Holders of Registered Shares must
give notice to the Management Board of their intention to attend the special
meeting in writing prior to December 11, 2000.
Although there is no quorum requirement under Dutch law, abstentions,
directions to withhold authority to vote for a Supervisory Director nominee or
to withhold authority to vote for all Supervisory Director nominees and "broker
non-votes" (where a named entity holding shares for a beneficial owner has not
received voting instructions from the beneficial owner with respect to a
particular matter and such named entity does not possess or choose to exercise
its discretionary authority with respect thereto) will be considered present at
the meeting but will not be counted to determine the total number of votes cast.
We will bear the cost of soliciting proxies on the accompanying proxy card.
Some of our directors, officers and regular employees may solicit proxies in
person or by mail, telephone or telefax, but will not receive any additional
compensation for their services. We may retain a proxy solicitor to assist in
the solicitation of proxies. If we retain a proxy solicitor, that firm may
solicit proxies in person or by mail, telephone or telefax. We estimate that the
fees of any proxy solicitor that we may retain will not exceed $15,000, plus
reimbursement of customary out-of-pocket expenses. We may reimburse brokers and
others for their reasonable expenses in forwarding proxy solicitation material
to the beneficial owners of our shares.
1
<PAGE> 9
COMMON STOCK OWNERSHIP BY CERTAIN
PERSONS AND MANAGEMENT
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to our
outstanding Common Stock beneficially owned by (i) each person (other than our
management) known to us to be the beneficial owner of more than 5% of our Common
Stock as of October 11, 2000, and (ii) each such person assuming consummation of
the HBI Transaction and the First Reserve Transaction.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
AND NATURE OF OUTSTANDING
BENEFICIAL OWNERSHIP SHARES
AFTER HBI OWNED AFTER
NUMBER OF SHARES PERCENT OF TRANSACTION AND HBI TRANSACTION
NAME AND ADDRESS AND NATURE OF OUTSTANDING FIRST RESERVE AND FIRST RESERVE
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP SHARES(1) TRANSACTION TRANSACTION(1)
------------------- -------------------- ----------- -------------------- -----------------
<S> <C> <C> <C> <C>
WEDGE Group Incorporated (2)....... 400,000 4.33% 4,223,332(3) 24.0%
WEDGE International Tower
1415 Louisiana Street
Houston, TX 77002
First Reserve Fund VIII, L.P.
(4).............................. -- -- 4,323,333(3) 24.5%
c/o First Reserve Corporation
475 Steamboat Road
Greenwich, CT 06830
Wellington Management Company,
LLP.............................. 1,153,100(5) 12.44% 1,153,100 6.37%
75 State Street
Boston, MA 02109
Neuberger Berman LLC............... 904,341(6) 9.80% 904,341 5.01%
605 Third Ave
New York, NY 10158
Skyline Asset Management L.P....... 684,200(7) 7.41% 684,200 3.79%
311 South Wacker Drive
Chicago, IL 60606
Frontier Capital Management........ 597,200(8) 6.44% 597,200 3.38%
99 Summer Street, 19th Floor
Boston, MA 02110
</TABLE>
---------------
(1) Based on 9,270,078 shares outstanding on October 11, 2000 and 17,669,206 pro
forma shares to be outstanding upon consummation of the HBI Transaction.
(2) The sole ultimate beneficial owner of WEDGE is Issam M. Fares of Lebanon.
(3) If the HBI Transaction is consummated, but the First Reserve Transaction is
not consummated, WEDGE will hold 8,546,665 shares, or 48.5% of the pro forma
outstanding shares, and First Reserve will hold 0 shares or 0% of the pro
forma outstanding shares.
(4) First Reserve Corporation is the general partner of the general partner of
First Reserve Fund VIII, L.P. The following are directors and executive
officers of First Reserve Corporation: William E. Macaulay is the Chairman,
a Managing Director and Chief Executive Officer; J. Will Honeybourne is a
Managing Director; Ben A. Guill is the President and a Managing Director;
Thomas R. Denison is General Counsel, Secretary and a Managing Director;
John A. Hill is Vice Chairman and a Managing Director; Jonathan S. Linker is
a Managing Director; Cathleen M. Ellsworth is a Managing Director; and
Jennifer G. Kornfield is Vice President, Treasurer and Controller. All such
persons disclaim beneficial ownership of the shares held by First Reserve
Fund VIII, L.P.
(5) According to a Schedule 13F dated August 15, 2000 filed by Wellington
Management Company, LLP; it had sole power to vote 1,022,700 shares, shared
power to vote 91,100 shares and sole power to dispose of 1,063,700 shares.
2
<PAGE> 10
(6) According to a Schedule 13F dated July 28, 2000 filed by Neuberger Berman
LLC; it had sole power to vote 187,600 shares and shared power to dispose of
904,341 shares.
(7) According to a Schedule 13F dated July 31, 2000 filed by Skyline Asset
Management L.P.; it had shared power to vote 502,500 shares and shared power
to dispose of 684,200 shares.
(8) According to a Schedule 13F dated August 14, 2000 filed by Frontier Capital
Management; it had sole power to vote 597,200 shares and sole power to
dispose of 597,200 shares.
COMMON STOCK OWNERSHIP OF OUR MANAGEMENT
The following table sets forth certain information regarding our
outstanding Common Stock beneficially owned by (i) each Supervisory Director and
each nominee to be a Supervisory Director, each named executive officer and by
all directors and executive officers as a group as of October 11, 2000 and (ii)
each such person assuming consummation of the HBI Transaction and the First
Reserve Transaction.
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF OUTSTANDING SHARES
OUTSTANDING OWNED AFTER HBI
NAME OF NUMBER OF RIGHTS TO RESTRICTED SHARES TRANSACTION AND FIRST
BENEFICIAL OWNER SHARES OWNED(1) ACQUIRE(2) STOCK(3) OWNED(4) RESERVE TRANSACTION(4)
---------------- --------------- ---------- ---------- ------------- ------------------------
<S> <C> <C> <C> <C> <C>
Gerald M. Glenn............. 10,186 25,600 571,338 6.30% 3.5%
Stephen P. Crain............ 12,230 5,300 0 * *
Robert B. Jordan............ 53,323 10,250 12,500 * *
Timothy J. Wiggins.......... 3,675 9,225 136,157 1.60% *
Robert H. Wolfe............. 33,640 6,450 0 * *
Jerry H. Ballengee.......... 2,558 1,500 0 * *
J. Dennis Bonney............ 9,000 1,500 0 * *
J. Charles Jennett.......... 2,000 1,500 0 * *
Vincent L. Kontny........... 1,000 1,500 0 * *
Gary L. Neale............... 1,000 1,500 0 * *
L. Donald Simpson........... 1,000 1,500 0 * *
Marsha C. Williams.......... 2,000 1,500 0 * *
Greg Armstrong.............. 0 0 0 * *
Thomas R. Denison........... 0 0 0 * *
Ben A. Guill................ 0 0 0 * *
J. Will Honeybourne......... 0 0 0 * *
William E. Macaulay......... 0 0 0 * *
James M. Tidwell............ 0 0 0 * *
William H. White............ 0 0 0 * *
Michael D. Winfield......... 0 0 0 * *
All directors, nominees for
directors and executive
officers as a group (23 in
number)................... 165,227 71,525 719,995 9.58% 5.10%
</TABLE>
---------------
* Beneficially owns less than one percent of our Common Stock.
(1) Includes shares held by immediate family members.
(2) Includes shares that can be acquired through stock options exercisable
through December 31, 2000.
(3) Includes shares subject to a vesting schedule, forfeiture risk and other
restrictions, including restricted stock units for which the participant has
voting rights on the underlying Common Stock.
(4) Based on 9,270,078 shares outstanding on October 11, 2000 and 17,669,206 pro
forma shares to be outstanding upon consummation of the HBI Transaction.
3
<PAGE> 11
RECENT DEVELOPMENTS
On August 29, 2000, the Company announced that it had signed a letter of
intent to acquire the Engineered Construction Division and the Water Division
(the "PDM Divisions") of Pitt-Des Moines, Inc. of The Woodlands, Texas (the "PDM
Transaction").
PDM's Engineered Construction Division, headquartered in Houston,
engineers, fabricates and constructs liquid and cryogenic storage tanks and
systems, process systems, and specialty plate structures for the petroleum,
petrochemical, cryogenic, liquid natural gas, defense and aerospace industries.
This Division employs approximately 600 people and generated 1999 revenues of
$186 million. PDM's Water Division, headquartered in Pittsburgh, designs,
fabricates and constructs water storage tank projects that include both
conventional styles (such as ground storage reservoirs and standpipes, steel
elevated tanks and composite elevated tanks) and innovative styles designed for
specific applications. This Division employs approximately 400 people and
generated 1999 revenues of $95 million.
Consummation of the PDM Transaction is subject to the satisfaction of
various conditions, including (i) completion of comprehensive due diligence on
the PDM Divisions to the Company's satisfaction, (ii) arrangement of financing
for the transaction, (iii) regulatory clearance under applicable antitrust laws
(the transaction is currently being reviewed by the Federal Trade Commission),
and (iv) execution of a definitive asset purchase agreement.
The next steps are to complete and evaluate the results of our due
diligence, negotiate a definitive asset purchase agreement and arrange for the
financing. As part of the due diligence effort, we have begun to evaluate the
integration of the PDM Divisions with us. We presently have no commitments for
financing the purchase price of the PDM Divisions. Financing the whole
transaction with debt is not practical because of restrictive covenants in our
primary bank credit agreement. We expect substantially all of the purchase price
will come from an equity based financing which would have a dilutive impact on
our earnings per share if the combined earnings per share, including the impact
of goodwill amortization and the benefits of any cost savings and synergies is
less than our existing earnings per share, but would increase our net worth.
The PDM Transaction is not expected to have any material effect on the
anticipated benefits of the acquisition of HBI. The PDM Divisions and HBI offer
different and unique product lines. Acquiring the PDM Divisions will enable us
to provide more cost-effective customer solutions due to synergy opportunities
in markets unrelated to HBI.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS
The following are certain factors which should be considered by our
shareholders in determining whether to approve the issuance of additional shares
for the purpose of consummating the HBI Transaction:
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Proxy Statement that are not based on historical
fact are forward-looking and represent management's best judgment as to what may
occur in the future. The actual outcome and results are not guaranteed, are
subject to risks, uncertainties and assumptions and may differ materially from
what is expressed. A variety of factors could cause business conditions and
results to differ materially from what is contained in the forward-looking
statements, including, but not limited to, the uncertain timing and funding of
new contract awards; project cancellation risks and operating risks; cost
overruns on fixed price contracts; risks associated with percentage of
completion accounting; increase in competition by competitors; fluctuating
revenues resulting from the cyclical nature of the individual markets in which
our customers operate; reduced activity in the hydrocarbon industry, demand from
which is the largest generator of our revenue; risks inherent in our acquisition
strategy and the ability to obtain financing for proposed acquisitions; our
ability to integrate and successfully operate acquired businesses, including
HBI, and manage the risks associated with those businesses; and the impact of
the $2.5 billion Tuban, Indonesia petrochemical project where work remains
suspended. Additional factors are set forth below and in our other filings with
the Securities and Exchange
4
<PAGE> 12
Commission (the "SEC"). We do not undertake to update any forward-looking
statements contained herein, whether as a result of new information, future
events or otherwise.
INTEGRATION OF THE BUSINESSES OF CB&I AND HBI
The HBI Transaction involves the integration of two companies, CB&I and
HBI, that have previously operated independently. We expect to combine certain
areas of the companies' manufacturing facilities and their engineering and field
construction capabilities. We also expect to combine both companies'
technologies in natural gas processing. Finally, we expect to use CB&I's
established international infrastructure and resources to allow HBI to expand
the international distribution of its products and services. If we do not
consummate the HBI Transaction or successfully integrate the businesses of CB&I
and HBI or expand HBI's business internationally, then some or all of the
benefits expected from such activities will not be realized. It is not possible
at this time to determine the costs associated with these efforts, but any
delays or unexpected costs incurred in connection with these efforts could have
an adverse effect on CB&I. Additionally, our management and personnel may not be
compatible with HBI's.
RELIANCE ON RELATIVELY FEW CUSTOMERS
A significant portion of HBI's revenue is derived from relatively few
contracts. For the year ended December 31, 1999, HBI earned 58% of its revenues
from two customers, Williams Energy Services and Phillips Petroleum Company; for
the year ended December 31, 1998, HBI earned 56% of its revenues from two
customers, Air Liquide and ABB Lummus; and for the year ended December 31, 1997,
HBI earned 58% of its revenues from one customer, Air Liquide. This reliance on
relatively few customers could exacerbate problems related to fluctuating
revenue and cash flows described below.
HBI performs periodic credit evaluations of its customers' financial
conditions and generally does not require collateral from its U.S. customers but
does require letters of credit from most of its non-U.S. customers. At December
31, 1999 and 1998, receivables (generally due within 30 days) from non-U.S.
customers were not significant. Historically, credit losses relating to
customers have been within HBI management's expectations. HBI's reliance on
relatively few customers may result in significant credit risks in the future.
RISK OF ACQUISITION STRATEGY
CB&I intends to pursue growth through the opportunistic acquisition of
companies or assets that will enable us to provide more cost-effective customer
solutions. We routinely review potential acquisitions. This strategy involves
certain risks including difficulties in the integration of operations and
systems, the diversion of management's attention from other business concerns
and the potential loss of key employees of acquired companies. We may not be
able to successfully integrate acquired businesses, such as HBI and the PDM
Divisions, into our operations.
It is not our strategy to make highly leveraged acquisitions. However, if
we finance acquisitions with all or substantially all equity and the combined
earnings per share of the acquired company, including the impact of goodwill
amortization and the benefits of any cost savings and synergies, is less than
our existing earnings per share, then the transaction could be dilutive to
existing shareholders. To the extent equity issued in an acquisition transaction
is reduced by the goodwill created by such transaction, it will reduce our
tangible net worth, which might have an adverse effect on our credit and bonding
capacity.
FLUCTUATING REVENUES AND CASH FLOW
The businesses of CB&I and HBI are dependent upon major construction
projects in cyclical industries, including the hydrocarbon, petroleum,
petrochemical, chemical, pulp and paper, electric and gas utility, and water and
wastewater industries, for revenues and cash flow. In the hydrocarbon, petroleum
and petrochemical industry, which in recent years has accounted for the majority
of CB&I's and HBI'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
5
<PAGE> 13
expiration dates of leases and concessions; local and international political
and economic conditions; technological advances; and the ability of oil and gas
companies to generate capital. These factors are beyond our control. The
selection of, timing of or failure to obtain projects, delays in awards of
projects, cancellations of projects or delays in completion of contracts could
result in the under-utilization of CB&I's and HBI's resources which could have a
material adverse impact on our combined business, financial condition, results
of operations and cash flows. In addition, construction projects for which
CB&I's and HBI's services are contracted may require significant expenditures by
us prior to receipt of relevant payments by a customer. Such expenditures could
have a material adverse impact on our cash flows. In addition, quarterly results
may fluctuate depending on factors described above.
In addition, because CB&I's business is project-based, revenues are
dependent upon the availability of projects. Revenues are negatively affected by
the winding down or completion of work on significant projects that were active
in previous periods if such significant projects are not replaced. Revenues for
the year 1999 and the six months ended June 30, 2000 were lower than revenues in
comparable prior year periods because we recognized revenues in 1998 for several
projects substantially completed in that year for which there were no similar
projects of those magnitudes in 1999 or 2000. These projects included one
specialty structures project, two projects for low temperature/cryogenic tanks
and systems and four significant turnaround projects. Based on new business
taken in the third quarter of 2000, we do not believe that this drop in revenues
is a trend that will continue into 2001.
REALIZATION OF BACKLOG
CB&I's backlog consists of revenues related to projects which have been
awarded to CB&I and which have either (a) not yet been started or (b) are in
progress and are not yet complete. In the latter case, the revenue value
reported in backlog is the remaining amount that has not yet been completed.
Execution commences at or very soon (days or weeks) following award on most
projects, although occasional project awards are delayed pending financing or
other contingencies. In rare circumstances, projects are cancelled that appeared
to have a high certainty of going forward at the time of award. In these cases,
we remove the value of these projects from backlog as soon as these new
developments are known.
POTENTIAL ENVIRONMENTAL LIABILITY
The businesses of CB&I and HBI sometimes involve working around and with
volatile, toxic and hazardous substances, which creates exposure 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 such businesses. Although CB&I and HBI maintain liability insurance,
this insurance is subject to coverage limitations, deductibles and exclusions
and may exclude coverage for losses or liabilities relating to pollution damage.
CB&I or HBI may incur liabilities which may not be covered by insurance
policies, or, if covered, the dollar amount of such liabilities may exceed our
policy limits. Even a partially uninsured claim, if successful and of
significant magnitude, could have a material adverse effect on our combined
business, financial condition and results of operations.
DEPENDENCE ON THE HYDROCARBON INDUSTRY
In recent years, demand from the worldwide hydrocarbon industry has been
the largest generator of the revenues of CB&I and HBI (accounting for
approximately 78% of pro forma revenues for 1999 and for the interim period
ended June 30, 2000 for CB&I and HBI on a combined basis). Our combined
business, financial condition and results of operations may be materially
adversely affected because of reduced activity in the hydrocarbon industry. In
addition, CB&I and HBI may be materially adversely affected by changing taxes,
price controls and laws and regulations relating to the hydrocarbon industry.
POSSIBLE ANTITAKEOVER EFFECTS
Following the HBI Transaction and the First Reserve Transaction, WEDGE will
own approximately 24%, and First Reserve will own approximately 24.5%, of our
Common Stock. Both WEDGE and First
6
<PAGE> 14
Reserve are generally bound to vote, tender or otherwise act as recommended by
the Supervisory Board with respect to proposed business combinations. See "Item
1 -- Approval of Share Issuance; The HBI Transaction -- The Shareholder
Agreements." In addition, our Articles of Association (including the proposed
amendments set forth in Item 2 of this Proxy Statement) 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, a binding nomination process and supermajority voting
requirements in the case of shareholder approval for certain significant
transactions. Such provisions may delay, defer or prevent a takeover attempt
that a shareholder might consider in the best interests of our shareholders. In
addition, certain United States tax laws, including those described immediately
below, may discourage third parties from accumulating significant blocks of our
Common Stock.
RISK OF BEING CLASSIFIED AS A CONTROLLED FOREIGN CORPORATION
As a company incorporated in The Netherlands, CB&I would be classified as a
"controlled foreign corporation" if any United States person acquires 10% or
more of our Common Stock (including ownership through the attribution rules of
Section 958 of the Internal Revenue Code of 1986, as amended (the "Code")) and
the sum of the percentage ownership by all such persons exceeds 50% (by voting
power or value) of our Common Stock. We do not expect to be a "controlled
foreign corporation" for such purposes as a result of the HBI Transaction (we
have been informed that the shares to be issued to WEDGE in the HBI Transaction
are not expected to be held by a United States person for this purpose) nor as a
result of the First Reserve Transaction. However, we may 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 our Common Stock
would be subject to taxation under Subpart F of the Code. The ultimate
consequences of this determination are fact-specific to each 10% or greater U.S.
shareholder, but could include possible taxation of such U.S. shareholder on a
pro rata portion of CB&I's income, even in the absence of distribution by us of
such income.
RISK OF IMPAIRMENT OF GOODWILL
We expect to account for the HBI Transaction using the "purchase" method of
accounting. Under the purchase method we will record, at fair value, the assets
acquired and liabilities assumed and we will record as goodwill the difference
between the cost of acquisition and the sum of the fair value of the tangible
and identifiable assets acquired, less liabilities assumed. Our goodwill
resulting from the HBI Transaction is estimated to be $131,988,000. Amortization
of goodwill associated with the HBI Transaction will result in a pre-tax charge
to income from operations of approximately $3,299,700 per year for the next 40
years.
If the goodwill from the HBI Transaction would become "impaired" as that
term is used in Financial Accounting Standard 121, we would reduce the carrying
value of goodwill by the estimated shortfall of undiscounted future cash flows.
As a result, the asset impairment would result in a charge to income from
operations in the year of the impairment with a resulting decrease in net worth.
To the extent impairment would result in a reduced life for goodwill, there
would be a pro rata increase in amortization expense charged to income from
operations.
FIXED NUMBER OF SHARES
The number of shares which we are issuing to WEDGE in partial consideration
for the outstanding ownership interests in HBI is fixed at 8,146,665. The market
price of our shares is subject to fluctuation. The Purchase Agreement does not
provide for any adjustment based on such fluctuations. Accordingly, the value of
the shares to be issued cannot be presently determined and will depend on the
market price at the time of the consummation of the HBI Transaction. If the
price of our stock increases prior to consummation of the HBI Transaction, it
will result in an increase in the value of the consideration paid to WEDGE. On
July 28, 2000, the last full trading day prior to the announcement of the HBI
Transaction, the last reported sale price per share of our stock was $13.625. On
November , 2000, two business days prior to the mailing of this Proxy
Statement, the last reported sale price per share of our stock was $ .
7
<PAGE> 15
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon completion of the HBI Transaction and the First Reserve Transaction,
WEDGE will hold 4,223,332 shares (including 400,000 shares currently held by
WEDGE) and First Reserve will hold 4,323,333 shares. WEDGE and First Reserve
each have certain rights under the Shareholder Agreements to require us to
register the 8,146,665 shares of Common Stock acquired by them in the HBI
Transaction under the Securities Act to permit the public sale of such shares.
Significant sales of such shares under a registration statement in the future,
or the prospect of such sales, may depress the price of the shares. See "Item 1
--Approval of Share Issuance; The HBI Transaction -- The Shareholder
Agreements."
THE TUBAN PROJECT
In 1996, we took a contract to supply materials and construct a portion of
a $2.5 billion petrochemical project in Tuban, West Java, Indonesia. The Tuban
Project ("the Project"), which is currently approximately 45% complete, remains
suspended. At December 31, 1999, the Company's backlog related to this project
was approximately $50 million. While we believe the Project remains viable, the
$28.2 million outstanding net receivable has been recorded as a non-current
asset in recognition of the continued suspension of the Project. The Project's
shareholders have scheduled a meeting in the fourth quarter of 2000. After this
meeting, we will further consider the viability of the Project and timing of the
Project financing, thus evaluating the realizability of our net contract
investment as of December 31, 2000 in light of any new development. Based upon
these assessments, and a consideration of the mere passage of time, we may
determine whether a partial or full write-off or a valuation allowance for this
net contract investment may be necessary. Such a non-cash write-off or valuation
allowance is not expected to have an adverse impact on our ability to finance
its operations. While we believe that work on the Project will ultimately
resume, we have no indication that it will restart in the near term. If we
determine that some or all of the receivable can not be collected, we will take
a charge up to the amount of the net receivable and our net worth will decline
by a like amount, net of tax. This might have an adverse effect on our bonding
capacity. If we determine that the project will not be completed or that we will
not participate in the completion of the project, then our backlog will be
reduced by approximately $50 million.
ITEM 1
APPROVAL OF SHARE ISSUANCE; THE HBI TRANSACTION
On July 30, 2000, we entered into a purchase agreement (as amended by an
amendment thereto dated November __, 2000, the "Purchase Agreement") with WEDGE
Group Incorporated and its affiliate (collectively "WEDGE") pursuant to which we
agreed to acquire from WEDGE all the outstanding ownership interests in
Howe-Baker International, Inc. ("HBI") for consideration consisting of 8,146,665
Registered Shares, $28 million in cash and the assumption of certain liabilities
(the "HBI Transaction"). Subject to certain limited exclusions and certain
indemnification obligations of WEDGE, we will acquire substantially all of the
assets of HBI (other than HBI working capital and certain miscellaneous assets
and liabilities). At $ per share, the last reported sale price per share of
our stock on November , 2000, the proposed total consideration to be paid in
the HBI Transaction (after adjustment for net debt of HBI and certain other
assumed liabilities, including earnouts payable by HBI) represents an enterprise
value for HBI of approximately $ million.
On July 30, 2000, WEDGE entered into a stock purchase agreement (as amended
by an amendment thereto dated October 31, 2000, the "First Reserve Agreement")
with First Reserve Fund VIII, L.P. ("First Reserve") pursuant to which WEDGE
agreed to sell to First Reserve 4,323,333 Registered Shares conditional upon the
consummation of the HBI Transaction (the "First Reserve Transaction").
Upon completion of the HBI Transaction and the First Reserve Transaction,
WEDGE will hold approximately 24% (including 400,000 shares already owned by
WEDGE), and First Reserve will hold approximately 24.5%, of our outstanding
shares. Should WEDGE consummate the HBI Transaction but not consummate the First
Reserve Transaction, WEDGE will own approximately 48.5% of our outstanding
shares (including its current holdings). See "Common Stock Ownership by Certain
Persons and Management".
8
<PAGE> 16
Although the Supervisory Board currently possesses the necessary delegated
authority to issue the 8,146,665 Registered Shares to be used as consideration
in the HBI Transaction, the decision of the Supervisory Board to issue such
Shares is being submitted to shareholders for approval in order to comply with
applicable rules and policies of the New York Stock Exchange, Inc.
The Supervisory Board unanimously recommends that shareholders vote to
approve its decision to issue 8,146,665 shares of Common Stock to be used as
consideration, together with cash, for the purchase of all ownership interests
in HBI from WEDGE.
DESCRIPTION OF HBI'S BUSINESS
HBI is a holding company with subsidiaries specializing in engineering,
designing, fabricating and constructing processing facilities and equipment for
the petrochemical, refining and natural gas industries. HBI's subsidiaries also
custom engineer, construct and install combustion equipment for the
petrochemical, refining, pharmaceutical and wood products industries. In
addition, HBI has entered into an agreement with Conoco to pursue the
development of gas-to-liquids technology, which transforms natural gas into
liquid hydrocarbons. HBI is currently the sole manufacturer of reformers and
other component parts for the fuel cells manufactured by ONSI Corporation.
HBI has three main subsidiaries, Howe-Baker Engineers, Inc. ("Howe-Baker
Engineers"), Matrix Engineering Ltd. ("Matrix") and Callidus Technologies, Inc.
("Callidus"), which provide specialty services and equipment.
HOWE-BAKER ENGINEERS, INC.
Howe-Baker Engineers designs, engineers, constructs and upgrades refineries
for use in the petroleum industry. In addition, Howe-Baker Engineers designs and
constructs synthesis gas plants, which generate industrial gases, such as
hydrogen, carbon dioxide and carbon monoxide, for commercial use. Howe-Baker
Engineers also engineers and constructs desalting and dehydrating plants, which
remove water, salt and sediment from produced crude oil before shipment, storage
or further processing.
Howe-Baker, L.P., a subsidiary of Howe-Baker Engineers, specializes in
designing, engineering and constructing natural gas processing plants. These
plants remove liquid and gaseous substances from natural gas before the gas is
transported via pipeline.
MATRIX ENGINEERING LTD.
Matrix, through its two operating units, Matrix Engineering and A&B
Builders, provides a broad range of services to the petroleum refining and
petrochemical industries, including multi-disciplined engineering services such
as engineering design, project management and architectural drafting, and
general industrial construction, construction management, fabrication and
construction services. Matrix was acquired by HBI in July 1999.
Matrix's general construction activities focus predominately on projects
for petroleum refineries, chemical and petrochemical plants, steel mills, pulp
and paper mills and municipalities. Matrix provides its customers with a full
range of construction services, including site preparation, foundation
installation, equipment erection, building construction, piping, instrumentation
and electrical installation and start-up of the facility. In addition to
construction services, Matrix also provides construction management services,
such as assisting in the selection of the general contractor and subcontractors,
identifying and resolving engineering and construction problems, and developing,
managing and coordinating a site safety program. Matrix also designs, engineers,
fabricates and installs modular processing plants to be integrated into larger
plants or refineries.
CALLIDUS TECHNOLOGIES, INC.
Callidus specializes in combustion and environmental technology. Callidus
designs and produces combustion equipment, such as burners, gas and liquid
incinerators, flares and rotary kilns, to address environmental and safety
concerns for its clients in the petrochemical, refining, pharmaceutical and wood
9
<PAGE> 17
products industries. In addition, Callidus provides engineering and consultation
services to help its clients maintain compliance with continually changing
environmental regulatory requirements. Callidus was acquired by HBI in December
1999.
HBI'S SHAREHOLDERS AND DIVIDEND POLICY
Currently, all of HBI's outstanding capital stock, consisting of 880 shares
of common stock, is owned by WEDGE either directly or indirectly through
wholly-owned subsidiaries of WEDGE. Subsequent to 1997, HBI typically declared
and paid regular dividends equal to approximately 25% of the previous fiscal
year's net income plus amortization. In February 2000, HBI declared and paid a
special dividend to WEDGE in connection with the surrender of a life insurance
policy equal to the surrender value of the policy. The following table shows
dividends paid by HBI from January 1, 1998 to date:
<TABLE>
<CAPTION>
DATE OF DIVIDEND REGULAR DIVIDENDS SPECIAL DIVIDENDS
---------------- ----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
March 2000..................................... $3,173 --
February 2000.................................. -- $891
March 1999..................................... 3,318 --
March 1998..................................... 2,600 --
</TABLE>
BACKGROUND OF THE HBI TRANSACTION
On April 6, 1999, William H. (Bill) White, President and Chief Executive
Officer of WEDGE, wrote to our Chairman, Gerald M. Glenn, regarding his idea to
combine WEDGE's wholly-owned subsidiary, HBI, with CB&I. In June 1999, Mr. White
met with Mr. Glenn in Chicago regarding a potential transaction. The result was
an informal agreement to study the idea further and talk again in the future.
In August 1999, WEDGE retained the services of Goldman Sachs & Company to
advise it in regard to the disposition of HBI.
On August 27, 1999, Mr. White in a letter to Mr. Glenn further described
his reasons for concluding that a CB&I/HBI combination would be successful in
the markets in which these two companies participate. Mr. White's letter
suggested alternative types of transactions, including a merger or leveraged
buyout of the two firms, and included pro forma financial data on HBI.
Mr. Glenn, Mr. White and certain members of their staffs held discussions
throughout September 1999, examining the merits of a proposed transaction. WEDGE
indicated that it was not interested in acquiring a controlling interest, or in
taking an active role in managing CB&I's business, but rather that the CB&I
management team would remain in place to manage the combined entity.
On October 4, 1999, Timothy J. Wiggins, our Chief Financial Officer,
visited Houston and met with Mr. White to continue the discussion regarding a
potential transaction, which was followed by a similar meeting in Chicago on
December 22, 1999 between Mr. White and Mr. Glenn.
On January 7, 2000, CB&I, along with other potential purchasers, received a
confidential offering memorandum prepared by Goldman Sachs & Company in
connection with WEDGE's decision to explore the possible divestiture of HBI
through an auction process. The offering memorandum provided an overview of
HBI's business and historical and projected financial performance.
On February 7, 2000, Mr. White, in a letter to Mr. Glenn and Mr. Wiggins,
outlined WEDGE's views as to the value of HBI and confirmed previous discussions
that WEDGE would look favorably on an offer from CB&I for HBI that would include
equal proportions of cash and shares. WEDGE also reiterated that it was only
interested in being a passive investor in any resulting combination, and
confirmed that it would agree to appropriate shareholder restrictions to insure
that WEDGE could not effect a change in control of CB&I.
On February 11, 2000, Mr. White forwarded to Mr. Glenn certain financial
analyses that WEDGE had used in reviewing proposed transactions involving HBI.
10
<PAGE> 18
On February 17, 2000, we sent a letter to WEDGE expressing our interest in
pursuing the acquisition of HBI, subject to various terms and conditions,
including (i) a comprehensive due diligence review, (ii) the arrangement of
necessary financing, (iii) no material adverse change in the business,
operations, financial condition, properties and prospects of HBI from the
information contained in the confidential offering memorandum, and (iv) the
retention of key HBI personnel.
On February 24, 2000, at the Company's regular quarterly Supervisory Board
meeting in Nuevo Laredo, Mexico, our management team outlined a strategy for the
possible acquisition of HBI. The Supervisory Board authorized management to
proceed with discussions and suggested the hiring of an investment banker to
advise management and the Supervisory Board in connection with the proposed
acquisition.
On February 29, 2000, Mr. White wrote Mr. Glenn to express WEDGE's
continued interest in a potential transaction with CB&I and to thank Mr. Glenn
for his continued interest in HBI.
On February 29, 2000, we retained the services of Credit Suisse First
Boston ("CSFB") to act as financial advisor to the Supervisory Board with
respect to the proposed acquisition of HBI.
On March 2, 2000, we commenced a due diligence investigation of HBI,
beginning with a presentation given at HBI's offices in Tyler, Texas by HBI's
management to our senior management team.
On March 6, 2000, several members from WEDGE's management team conducted a
due diligence visit to our offices in Plainfield, Illinois for a day long
session covering our operations and financial outlook.
On March 10, 2000, having completed about a week's due diligence work, we
notified WEDGE that we were interested in pursuing a transaction for HBI, but
did not wish to incur the significant costs of a further due diligence effort
without an opportunity to negotiate and conclude the transaction on an exclusive
basis.
During the remainder of March and the first week of April 2000, the other
potential purchasers of HBI completed their due diligence and WEDGE received
their indications of interest and/or preliminary offers.
On April 10, 2000, WEDGE offered us an opportunity to complete our due
diligence of HBI and to negotiate a transaction to acquire HBI on an exclusive
basis.
During the remainder of April, further communications took place between
WEDGE and us, both directly and through our respective advisors, regarding the
negotiation of a draft term sheet and the terms of a possible exclusive
negotiating arrangement.
On May 3, 2000, CB&I and WEDGE agreed to pursue negotiations of a
definitive purchase agreement for HBI on an exclusive basis based on a proposal
that involved payment by us of a substantial cash consideration component and a
lesser equity portion and conditioned upon our ability to obtain necessary debt
financing.
On May 12, 2000, our preliminary acquisition proposal for HBI was approved
by the Supervisory Board, subject to a detailed examination and review to be
conducted by a three member special committee of the Supervisory Board ("Special
Committee") which was charged with making a recommendation to the Supervisory
Board. This preliminary proposal involved the acquisition of all outstanding
ownership interests in HBI for consideration from us consisting of $82 million
in cash, 3.1 million shares, a $40 million subordinated note, a deferred
purchase price element of approximately $13 million, and the assumption of
certain liabilities. Under this proposal, WEDGE would have been subject to a
standstill agreement limiting its equity ownership in CB&I to 35% and entitling
it to one representative on the Supervisory Board as long as its equity
ownership exceeded 15%.
On June 6, 2000, the Special Committee met and conducted a detailed review
of the proposed transaction. On June 7, 2000, the Special Committee presented
its report and recommendation at a meeting of the Supervisory Board, which
unanimously approved proceeding with the transaction subject to review of the
final terms and conditions by the Special Committee.
As negotiations proceeded through mid-June, we concluded in discussions
with WEDGE that the interests of CB&I and the proposed combined entity, as well
as the investment objectives of WEDGE, could
11
<PAGE> 19
be better served by restructuring the transaction in a way that would reduce the
cash portion (and thereby reduce the amount of debt we would incur to finance
the cash portion), and increase the equity component, of the consideration to be
paid by us for HBI, provided that adequate safeguards could be put in place to
prevent control of CB&I from passing to WEDGE.
During July, we and WEDGE pursued negotiations of a definitive Purchase
Agreement and a form of WEDGE Shareholder Agreement based upon a restructured
proposal, which became the ultimate terms of the HBI Transaction. Contingent
upon our agreement to purchase HBI, WEDGE initiated discussions with First
Reserve regarding the possible sale to First Reserve of approximately one-half
of the shares that WEDGE would receive from us in the HBI Transaction. WEDGE
contacted First Reserve, a leading private equity firm specializing in the
energy industry with particular expertise in corporate consolidations, because
WEDGE believed that First Reserve would add additional expertise at the
Supervisory Board level to help CB&I implement its growth plans and aid in the
consolidation of HBI into CB&I, and because WEDGE desired to decrease its
otherwise potentially concentrated holding in CB&I.
During the third week of July, we permitted First Reserve to commence a due
diligence investigation of the Company subject to a confidentiality agreement,
and we began negotiations with First Reserve regarding the form of a First
Reserve Shareholder Agreement.
On July 28, 2000, the Special Committee met and reviewed with the CB&I
management team the restructured proposal to acquire HBI and heard a
presentation by CSFB regarding the fairness of the transaction to CB&I from a
financial point of view. At a subsequent meeting of the Supervisory Board that
day, the Special Committee recommended to the Supervisory Board that the
proposed acquisition be approved. The Supervisory Board approved the acquisition
and, subject to the approval of the final terms by the Special Committee,
unanimously resolved to submit the proposed transaction to a vote of our
shareholders.
On July 30, 2000, CB&I and WEDGE signed the Purchase Agreement and WEDGE
and First Reserve signed the First Reserve Agreement.
OUR REASONS FOR THE HBI TRANSACTION
The Supervisory Board and our management board (the "Management Board")
have unanimously determined that the HBI Transaction is fair to, and in the best
interests of, the Company and our shareholders. Our Management Board and the
Supervisory Board believe the acquisition of HBI represents a unique opportunity
to advance our long-term strategic growth plan with a transaction that meets all
of our key criteria for potential acquisition targets. Such criteria involve
identifying target companies that: (i) enable us to provide more cost-effective
customer solutions; (ii) are well-managed; (iii) have strong growth prospects;
(iv) can be acquired without excessive leverage; (v) have above-average margins;
(vi) give us the ability to leverage our core skills and infrastructure; (vii)
have a strong cultural fit; and (viii) are priced fairly. We believe the HBI
Transaction meets these criteria and will contribute to the creation of value
for our shareholders for the following reasons:
1. The combination of CB&I and HBI will produce a company that can offer
customers a single supplier of integrated process and storage solutions
on a worldwide basis, using in-house engineering and construction
forces. In addition, we believe there will be an upturn in the
hydrocarbon market for several reasons. Our backlog has increased as a
result of larger orders. New business taken for the third quarter
exceeded new business taken in the second quarter. The recent
substantial increase in the price of oil has resulted in increased cash
flow to the hydrocarbon industry and leads us to expect increased
capital expenditures by the industry. Finally, the Asian economic crisis
appears to be slowly improving. Together, CB&I and HBI will be able to
leverage an upturn in the hydrocarbon market across a much larger
company, which will translate into greater efficiencies and lower costs
to our customers.
2. HBI is well-managed, with a depth of solid and experienced managers who
have grown the company profitably over the years in its market niche,
and who have developed their business model to minimize overhead and
maximize efficiency.
12
<PAGE> 20
3. We believe HBI has solid growth prospects, particularly in the four key
target areas of the hydrocarbon industry that we have identified as
offering strong near-term and long-term potential -- namely, natural gas
processing, hydrogen and synthetic gases, gas-to-liquid conversion and
fuel cells.
4. By using our shares as the primary consideration, we are acquiring HBI
without adding significant leverage to our balance sheet. Our
affiliation with WEDGE and First Reserve aligns us with investment firms
that have an excellent track record in identifying and enhancing value
in the companies in which they have invested. In addition, with a strong
balance sheet and low debt level, we can be an active participant in the
current engineering and construction industry consolidation, with
financial capacity to seek additional acquisition opportunities (such as
the PDM Transaction).
5. In the HBI Transaction, we are acquiring a company that enjoys what we
believe to be some of the highest margins in the engineering and
construction business, due to its low cost structure, proprietary
technology, value-added approach and selectivity in the jobs it
undertakes.
6. The combination of CB&I and HBI offers substantial opportunities for
synergy and leverage. HBI has a need to expand the international
distribution of its products and services; we have an established
international infrastructure that needs more business to support and
leverage it. There are opportunities to combine both companies'
technologies in natural gas liquefaction to service this growing segment
of the energy industry. We also expect to achieve synergies in
manufacturing and engineering, and the combination of field construction
forces, particularly in the areas of refinery repair and modification
work.
7. Both CB&I and HBI are singular companies with outstanding reputations in
the engineering and construction industry and rich histories of
technological innovation and market leadership. We believe there is an
excellent cultural fit.
8. Market conditions that are adversely affecting our current results of
operations include a lack of capital spending by our key customers, the
Asian economic crisis, distractions in the hydrocarbon industry caused
by mergers and consolidation and the cyclic nature of the hydrocarbon
industry. We believe these conditions have created an opportunity to
grow our business at an attractive price without excessively leveraging
our balance sheet because they have resulted in relatively depressed
price earnings multiples for target companies. Arthur Andersen LLP has
been engaged to assist us with an integration program for CB&I and HBI.
We expect to be able to streamline operations and reduce costs,
particularly with respect to facility utilization, at both CB&I and HBI
to position the combined entity for growth, although we do not expect
such cost reduction will have a material effect on our financial
condition and results of operations.
OPINION OF FINANCIAL ADVISOR TO CB&I'S SUPERVISORY BOARD
Credit Suisse First Boston acted as exclusive financial advisor to the
Supervisory Board in connection with the HBI Transaction. In connection with
Credit Suisse First Boston's engagement, the Supervisory Board requested that
Credit Suisse First Boston evaluate the fairness, from a financial point of
view, to the Company of the consideration to be paid by us pursuant to the
Purchase Agreement. On July 28, 2000, Credit Suisse First Boston rendered an
oral opinion to the Supervisory Board, subsequently confirmed by delivery of a
written opinion dated July 30, 2000, the date of the Purchase Agreement, to the
effect that, as of the date of the opinion and based on and subject to the
matters stated in the opinion, the consideration to be paid by us in the HBI
Transaction was fair to the Company from a financial point of view.
THE FULL TEXT OF CREDIT SUISSE FIRST BOSTON'S WRITTEN OPINION TO THE
SUPERVISORY BOARD DATED JULY 30, 2000, WHICH DESCRIBES THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN,
IS ATTACHED AS ANNEX B TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY
REFERENCE. CREDIT SUISSE FIRST BOSTON'S OPINION IS ADDRESSED TO AND EXPRESSLY
INTENDED FOR THE USE AND BENEFIT OF THE SUPERVISORY BOARD AND RELATES ONLY TO
THE FAIRNESS TO THE COMPANY, FROM A FINANCIAL POINT OF VIEW, OF THE
CONSIDERATION TO BE PAID BY US, DOES NOT ADDRESS ANY OTHER ASPECT OF THE
PROPOSED HBI TRANSACTION OR ANY RELATED TRANSACTION AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY SHAREHOLDER AS TO HOW SUCH SHAREHOLDER
13
<PAGE> 21
SHOULD VOTE OR ACT ON ANY MATTER RELATING TO THE HBI TRANSACTION. SHAREHOLDERS
ARE URGED TO READ THE FULL TEXT OF CREDIT SUISSE FIRST BOSTON'S OPINION ATTACHED
AS ANNEX B TO THIS PROXY STATEMENT FOR ADDITIONAL INFORMATION NOT CONTAINED IN
THE SUMMARY OF THE OPINION INCLUDED IN THIS PROXY STATEMENT.
In arriving at its opinion, Credit Suisse First Boston reviewed certain
publicly available business and financial information relating to the Company
and certain business and financial information relating to HBI, as well as (i)
the Purchase Agreement and (ii) the Shareholder Agreement to be entered into by
WEDGE and us concerning board composition, voting, share transfers and other
matters relevant to Credit Suisse First Boston's opinion. Such Shareholder
Agreement also includes the form of Shareholder Agreement which First Reserve
has agreed to enter into, and concerns similar matters. Credit Suisse First
Boston also reviewed certain other information, including financial forecasts
(including those related to earn-outs assumed and payable by us), provided to
Credit Suisse First Boston by HBI and us, and met with HBI's and our management
to discuss the business and prospects of HBI and the Company, including our
present intentions regarding stock repurchases.
Credit Suisse First Boston also considered certain financial and stock
market data of the Company and certain financial data of HBI, and compared those
data with similar data for publicly held companies in businesses similar to
those of HBI and the Company and considered the financial terms of certain other
business combinations and other transactions which have recently been effected.
Credit Suisse First Boston considered such other information, financial studies,
analyses and investigations and financial, economic and market criteria that it
deemed relevant. For purposes of its opinion Credit Suisse First Boston assumed,
with the Supervisory Board's consent, that each party would perform all of the
covenants and agreements required to be performed by it under the Shareholders
Agreement and that such agreement and the proposed amendments to our Articles of
Association described in Item 2 of this proxy statement and referenced in the
WEDGE Shareholder Agreement would be fully enforceable, in accordance with their
terms, under all applicable laws, including, without limitation, the laws of The
Netherlands and the State of New York. As to all matters of corporate and other
law, Credit Suisse First Boston, with the Supervisory Board's consent, relied
upon the advice of our counsel.
In connection with its review, Credit Suisse First Boston did not assume
any responsibility for independent verification of any of the information
provided to or otherwise reviewed by Credit Suisse First Boston and relied on
the information being complete and accurate in all material respects. With
respect to the financial forecasts, Credit Suisse First Boston assumed that the
forecasts were reasonably prepared on bases reflecting the best currently
available estimates and judgments of HBI's and our management as to the future
financial performance of HBI and the Company. In addition, Credit Suisse First
Boston was not requested to, and did not, make an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of HBI, and was
not furnished with any such evaluations or appraisals. Credit Suisse First
Boston's opinion was necessarily based upon financial, economic, market and
other conditions as they existed and could be evaluated on the date of its
opinion. Credit Suisse First Boston did not express any opinion as to the actual
value of the Common Stock when issued to the stockholder of HBI or the prices at
which the Common Stock would trade subsequent to the HBI Transaction. No other
limitations were imposed on Credit Suisse First Boston with respect to the
investigations made or procedures followed in rendering its opinion.
In preparing its opinion to the Supervisory Board, Credit Suisse First
Boston performed a variety of financial and comparative analyses, including
those described below. The summary of Credit Suisse First Boston's analyses
described below is not a complete description of its analyses but it is a
description of all of its material analyses. The preparation of a fairness
opinion is a complex analytic process involving various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances and, therefore, a fairness
opinion is difficult to summarize. In arriving at its opinion, Credit Suisse
First Boston made qualitative judgments as to the significance and relevance of
each analysis and factor considered by it. Accordingly, Credit Suisse First
Boston believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors, without considering all analyses
and factors, could create a misleading or incomplete view of the processes
underlying its analyses and opinion.
14
<PAGE> 22
In its analyses, Credit Suisse First Boston considered industry
performance, regulatory, general business, economic, market and financial
conditions and other matters. Many of these factors are beyond the control of
the Company and HBI. No company, transaction or business used in Credit Suisse
First Boston's analyses as a comparison is identical to the Company or the
proposed HBI Transaction, nor is an evaluation of the results of those analyses
entirely mathematical. Rather, the analyses involve complex considerations and
judgments concerning financial and operating characteristics and other factors
that could affect the acquisition, public trading or other values of the
companies, business segments or transactions being analyzed.
The estimates contained in Credit Suisse First Boston's analyses and the
ranges of valuations resulting from any particular analysis do not necessarily
reflect actual values or predict future results or values, which may be
significantly more or less favorable than those suggested by the analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, Credit Suisse First Boston's
analyses and estimates are inherently subject to substantial uncertainty.
Credit Suisse First Boston's opinion and financial analyses were only some
of the many factors considered by the Supervisory Board in its evaluation of the
proposed HBI Transaction and should not be viewed as determinative of the views
of the Supervisory Board or our management with respect to the consideration to
be paid, and other matters in connection with, the HBI Transaction. Although
Credit Suisse First Boston evaluated the consideration to be paid in the HBI
Transaction from a financial point of view, Credit Suisse First Boston was not
requested to, and did not, recommend the specific consideration payable in the
HBI Transaction, which consideration was determined between WEDGE and us.
The following is a summary of the material analyses underlying Credit
Suisse First Boston's opinion to the Supervisory Board in connection with the
HBI Transaction and presented to the Supervisory Board at its July 28, 2000
meeting (and as subsequently confirmed in writing). The financial analyses
summarized below include information presented in tabular format. In order to
fully understand Credit Suisse First Boston's financial analyses, the tables
must be read together with the text of each summary. The tables alone do not
constitute a complete description of the financial analyses. Considering the
data set forth in the tables below without considering the full narrative
description of the financial analyses, including the methodologies and
assumptions underlying the analyses, could create a misleading or incomplete
view of Credit Suisse First Boston's financial analyses.
DISCOUNTED CASH FLOW ANALYSIS
Credit Suisse First Boston estimated the present value of future streams of
unlevered free cash flows that HBI could produce on a stand-alone basis through
fiscal year 2010 based on projections developed by our management. Credit Suisse
First Boston performed its discounted cash flow analysis based on two scenarios
for HBI: (1) a base case assuming a nearly full recovery in HBI's markets over
the next couple of years; and (2) an alternative case based on a more
conservative sales outlook and slower margin recovery. The base case
incorporates HBI management estimates in 2000 and 2001 while the alternative
case incorporates HBI management estimates in 2000 only.
15
<PAGE> 23
The following table sets forth the key assumptions of sales growth,
profitability margin and capital expenditures that underlie each forecasted case
(dollars in millions):
<TABLE>
<CAPTION>
2002-2010P
2000E 2001P (PER YEAR)
--------------------- -------------------- ----------------------------
BASE ALTERNATIVE BASE ALTERNATIVE BASE ALTERNATIVE
CASE CASE CASE CASE CASE CASE
------ ----------- ----- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sales $ 237 $ 237 $ 298 $ 263 $312 - $462 $271 - $343
% Growth (23.0)% (23.0)% 25.6% 11.0% 5.0% 3.0%
EBITDA $ 26 $ 26 $ 41 $ 33 $44 - $67 $35 - $44
% Margin 10.9% 10.9% 13.7% 12.4% 14.2 - 14.6% 12.8%
EBIT $ 21 $ 21 $ 36 $ 28 $39 - $62 $30 - $39
% Margin 9.0% 9.0% 12.1% 10.5% 12.6 - 13.5% 11.1 - 11.4%
Capital Expenditures $ 2 $ 2 $ 2 $ 2 $2 - $3 $2 - $3
% of Sales 0.8% 0.8% 0.7% 0.8% 0.6% 0.7%
</TABLE>
Ranges of terminal values were estimated using multiples of terminal year
EBITDA of 4.5x to 6.5x. The free cash flow streams and terminal values were then
discounted to present value using discount rates ranging from 11 percent to 13
percent. This analysis indicated an enterprise value reference range for HBI of
approximately $260 million to $300 million for the base case and approximately
$180 million to $220 million for the alternative case.
COMPARABLE COMPANY ANALYSIS
Credit Suisse First Boston analyzed the operating performance of HBI
relative to the following publicly traded companies that are in the engineering
and construction industry: (i) Tier 1: Chicago Bridge & Iron Company N.V., Fluor
Corporation, Foster Wheeler Corporation, Jacobs Engineering Group Inc. and
Technip; and (ii) Tier 2: ABB Ltd., Linde AG and Morrison Knudsen Corporation.
The analysis was based on publicly available equity research analysts'
projections and public filings. Each of the aforementioned comparable companies
was selected and deemed comparable for purposes of this analysis by Credit
Suisse First Boston on the basis of similar operating and financial
characteristics in the industries in which they operate. Credit Suisse First
Boston calculated adjusted market value (fully diluted equity market value, plus
total debt, less cash and cash equivalents) (AMV) as a multiple of EBITDA and as
a multiple of EBIT for calendar years 2000 and 2001. Credit Suisse First Boston
also compared price to earnings (P/E) multiples using estimated net income for
calendar years 2000 and 2001. This analysis indicated multiples for the
aforementioned companies as set forth in the table below:
<TABLE>
<CAPTION>
AMV/EBITDA AMV/EBIT P/E
-------------- -------------- --------------
COMPANY 2000E 2001E 2000E 2001E 2000E 2001E
------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
TIER 1
Chicago Bridge & Iron Company N.V. ...... 4.2x 3.7x 6.6x 5.6x 7.3x 6.3x
Fluor Corporation........................ 4.8x 4.5x 8.9x 7.8x 10.7x 9.6x
Foster Wheeler Corporation............... 6.1x 5.3x 8.8x 7.7x 8.1x 6.7x
Jacobs Engineering Group Inc. ........... 6.9x 6.2x 8.9x 7.8x 12.2x 10.8x
Technip.................................. 5.6x 4.8x 6.5x 5.4x 15.9x 13.4x
TIER 2
ABB Ltd. ................................ 11.5x 10.4x 15.8x 14.0x 13.4x 11.4x
Linde AG................................. 7.1x 6.7x 14.0x 12.7x 19.9x 16.1x
Morrison Knudsen Corporation............. 6.9x 6.2x 8.9x 7.8x 12.2x 10.8x
</TABLE>
Application of these multiples to the corresponding financial data for HBI
(adjusting for net debt of HBI and certain other assumed liabilities including
earnouts payable by HBI) indicated an implied enterprise value reference range
for HBI of approximately $150 million to $200 million.
16
<PAGE> 24
COMPARABLE ACQUISITIONS ANALYSIS
Using publicly available information, Credit Suisse First Boston analyzed
the purchase prices and implied transaction multiples paid in selected
acquisition transactions involving companies in the engineering and construction
industry announced since November 1992. Each such selected acquisition
transaction was selected and deemed comparable for the purposes of this analysis
by Credit Suisse First Boston on the basis of similar operating and financial
characteristics in the industries in which they operate. All multiples for the
selected transactions were based on information available at the time of
announcement of the transaction. Credit Suisse First Boston calculated the
adjusted purchase price (fully diluted equity market value, plus total debt,
less cash and cash equivalents) in each of the selected acquisitions as a
multiple of last twelve months' (LTM) sales, LTM EBITDA and LTM EBIT.
<TABLE>
<CAPTION>
DATE ACQUIROR TARGET SALES EBITDA EBIT
---- -------------------- --------------------------------- ----- ------ -----
<S> <C> <C> <C> <C> <C>
7/6/00 The Shaw Group, Inc. Stone & Webster Engineering 0.2x NM NM
Corporation
5/8/00 Jacobs Engineering Stone & Webster Engineering 0.2x NM NM
Group Inc. Corporation(1)
4/18/00 Morrison Knudsen Raytheon Engineers & Constructors 0.3x NA NA
Corporation International, Inc.
2/16/00 AMEC p.l.c. AGRA Earth and Environmental, 0.4x 6.7x 9.5x
Inc.
8/9/99 Ashland Inc. Superfos Construction US 1.0x 8.7x 15.2x
5/5/99 URS Corporation Dames & Moore Group 0.6x 8.2x 11.4x
3/22/99 Morrison Knudsen GESCO (Westinghouse) 1.6x 6.2x 6.8x
Corporation
3/8/99 Anteon Corporation Analysis & Technology, Inc. 0.7x 8.4x 11.1x
2/17/99 NCC AB Superfos Construction 0.7x NA NA
12/21/98 Technip KTI, Inc. (Mannesmann) 0.1x NA 4.2x
12/9/98 Jacobs Engineering Sverdrup Technology, Inc. 0.2x 7.3x 8.8x
Group, Inc.
5/20/96 Raytheon Engineers & Rust International 0.3x NA NA
Constructors
International,
Inc.
11/29/95 Fried Krupp AG Uhde GmbH (Hoechst AG) 1.3x NA 24.1x
(Germany)
6/30/95 Raytheon Engineers & Litwin E&C and Litwin S.A. 0.2x 4.0x 5.4x
Constructors
International,
Inc.
12/6/94 OHM Corp. Rust International Hazard and 0.4x NA 11.8x
Nuclear Waste Removal
2/8/94 Earth Technology Summit Environmental Group, Inc. 0.9x 9.0x 15.0x
Corporation
11/17/93 Raytheon Engineers & Ebasco Services Inc. 0.3x NA 16.5x
Constructors
International,
Inc.
11/13/92 Rust International Brand Cos (Chemical Waste 1.3x 9.6x 13.7x
Management, Inc.)
</TABLE>
---------------
NA = Not applicable
NM = Not meaningful
(1) Withdrawn
Applying these multiples to corresponding financial data for HBI indicated
an implied enterprise value range for HBI of approximately $175 million to $250
million.
17
<PAGE> 25
CREDIT SUISSE FIRST BOSTON REFERENCE RANGE
Based on the discounted cash flow analyses, comparable companies analysis
and comparable acquisitions analysis, Credit Suisse First Boston derived an
enterprise value reference range of $175 million to $250 million. Credit Suisse
First Boston also established a pro forma enterprise value reference range of
$185 million to $260 million by adding to such range the net present value of
certain tax benefits (see "Item 1 -- Approval of Share Issuance: The HBI
Transaction -- Certain Federal Income Tax Consequences") which our management
had advised Credit Suisse First Boston would result from the acquisition. At
$13.88 per share, our stock price the day prior to the announcement of the HBI
Transaction, the proposed total consideration to be paid in the transaction
(after adjustment for net debt of HBI and certain other assumed liabilities,
including earnouts payable by HBI) represents an enterprise value for HBI of
approximately $167 million.
OTHER
Credit Suisse First Boston acted as exclusive financial advisor to the
Supervisory Board in connection with the HBI Transaction. The Supervisory Board
selected Credit Suisse First Boston based on Credit Suisse First Boston's
experience, expertise, reputation and familiarity with our business. Credit
Suisse First Boston is an internationally recognized investment banking firm and
regularly engages in the evaluation of businesses and securities in connection
with mergers and acquisitions, leveraged buyouts, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. Pursuant to
an engagement letter dated February 29, 2000, we agreed to pay Credit Suisse
First Boston $100,000 upon execution of the engagement letter and $1,900,000
upon the closing of the HBI Transaction against which the $100,000 retainer
would be credited. Credit Suisse First Boston has received a total of $206,890
in compensation for services provided to us during the last two years in
connection with repurchases of shares.
THE PURCHASE AGREEMENT
GENERAL
The Purchase Agreement calls for us and our subsidiary to purchase all of
the outstanding ownership interests of HBI from WEDGE and a subsidiary of WEDGE
for consideration consisting of 8,146,665 Registered Shares, $28 million in cash
and the assumption of certain liabilities. Subject to certain limited exclusions
and certain indemnification obligations of WEDGE discussed below, we will
acquire substantially all of the assets of HBI (other than HBI working capital
and certain miscellaneous assets), and assume of all the liabilities of HBI,
including a $5.7 million promissory note and certain contingent earn-out
obligations payable to former owners of certain HBI subsidiaries. The Purchase
Agreement calls for a possible upward or downward adjustment in purchase price
to be made after closing based on the actual level of HBI working capital on the
closing date. (The parties have assumed a level of HBI working capital at the
time of closing of $32,000,000, which would be paid by us to WEDGE. If the
actual amount of HBI working capital on the closing date is less than the sum of
$30,000,000 plus an amount of up to $500,000 in potential bonuses paid to HBI
employees prior to the closing date, then the cash portion of the purchase price
would be reduced by the amount of such shortfall. If the actual amount of HBI
working capital on the closing date is more than $34,000,000, then the cash
portion of the purchase price will be increased by the amount of such excess.)
The Purchase Agreement, together with the First Reserve Agreement and the
forms of the WEDGE Shareholder Agreement and the First Reserve Shareholder
Agreement discussed below, were filed by us with the SEC as exhibits to our
Current Report on Form 8-K dated July 30, 2000, as amended. Shareholders are
urged to read the full text of these Agreements contained in this Report for
additional information not included in the summary of such Agreements set forth
in this Proxy Statement.
CONDITIONS TO CLOSING
Conditions to Each Party's Obligations to Consummate the HBI
Transaction. The respective obligations of WEDGE and us to effect the HBI
Transaction on the closing date are subject to receipt of all required
governmental approvals on or prior to such date.
18
<PAGE> 26
Additional Conditions to the Obligation of WEDGE. The obligation of WEDGE
to effect the HBI Transaction is subject to the satisfaction or waiver of the
following additional conditions:
- our having made application and received approval for listing of the
8,146,665 Registered Shares being issued to WEDGE on a "when-issued"
basis on the New York Stock Exchange, Inc.;
- our representations and warranties in the Purchase Agreement being true
and correct as of the closing date, other than such changes or exceptions
as are contemplated by the Purchase Agreement or that could not
reasonably be expected to have a material adverse effect; and
- our delivery of various required closing documents.
Additional Conditions to Our Obligations. Our obligation to effect the HBI
Transaction is subject to the satisfaction or waiver of the following additional
conditions:
- our shareholders approving the proposals set forth in Items 1, 2 and 3 of
this Proxy Statement;
- the receipt of all non-governmental, third party consents necessary (i)
to prevent termination of a material HBI right or privilege or (ii) to
consummate the HBI Transaction (including consent of the required lenders
under our primary bank credit facility);
- the termination of, and release of liens under, HBI's existing bank
credit facility;
- WEDGE's representations and warranties in the Purchase Agreement being
true and correct as of the closing date, other than such changes or
exceptions as are contemplated by the Purchase Agreement or that could
not reasonably be expected to have a material adverse effect; and
- WEDGE's delivery of various required closing documents.
REPRESENTATIONS AND WARRANTIES
In the Purchase Agreement, we and WEDGE have made various customary
representations and warranties relating to, among other things, (i) due
organization, valid existence and good standing of the parties, subsidiaries'
information and similar corporate matters, (ii) the authorization, execution,
delivery and enforceability of the respective agreements and consummation of the
transactions contemplated by the Purchase Agreement, (iii) no conflicts under
charter documents, no violations of law or material agreements or obligations,
and required consents or approvals, in each case that might be caused or
required by the HBI Transaction, and (iv) any liabilities to brokers or finders.
In regard to the business of CB&I, on the one hand, and the business of HBI, on
the other hand, we and WEDGE have made respective representations and warranties
regarding (i) capitalization, (ii) litigation, (iii) compliance with worker
safety and environmental laws, (iv) material contracts, (v) intellectual
property, (vi) insurance, (vii) employee benefit, ERISA and labor matters, and
(viii) absence of certain changes during the current fiscal year. The Purchase
Agreement also contains representations and warranties of WEDGE as to its
ownership of HBI and certain securities law matters as well as representations
and warranties relating to the following aspects of HBI's business, operations
and financial condition: (i) HBI's financial statements and material outstanding
liabilities, (ii) material licenses and compliance with material obligations and
laws, (iii) validity of receivables, (iv) real property and leases, (v) tax
matters and (vi) related party transactions. In addition, the Purchase Agreement
contains representations and warranties by us relating to: (i) the integrity of
our filings with the SEC (including financial statements contained therein) and
our material outstanding liabilities, (ii) the general absence of Company rights
agreements applicable to the HBI Transaction, and (iii) our access to data
concerning HBI.
COVENANTS
The Purchase Agreement provides for a number of covenants by the parties
pending the closing, including the following:
1. WEDGE agrees to cause HBI and its subsidiaries, and we agree, to:
(a) carry on the respective businesses of HBI and CB&I and perform the
respective obligations of each in the ordinary course of
19
<PAGE> 27
business consistent with past practices, (b) use reasonable commercial
efforts to maintain the respective business organizations intact, including
retention of key employees and maintaining of relationships with outside
parties such as customers and suppliers, and (c) comply with applicable
laws and keep present insurance policies in force;
2. WEDGE agrees, and agrees to cause HBI and its subsidiaries, to: (a)
not increase or commit to increase cash compensation payable to HBI
employees or to make discretionary bonus or management fee payments to any
person, except bonuses or salary increases consistent with past practice
and up to an additional $500,000 in bonuses to HBI employees, (b) not adopt
any new employee benefit plans or materially amend any such existing plans
(with certain exceptions), (c) not create or permit any liens on the assets
of HBI and its subsidiaries (with certain exceptions), (d) not merge with
another entity and not make any disposition of assets outside the ordinary
course of business except as contemplated by the Purchase Agreement, (e)
not waive any material rights or claims (except billing adjustments in the
ordinary course) or materially breach or terminate any material contract or
material governmental approval, and (f) not enter into any other
transaction material to HBI's business which is not in the ordinary course
consistent with past practice or which is prohibited by the Purchase
Agreement;
3. We agree to (a) not solicit or encourage or participate in
discussions or negotiations regarding a business combination transaction
that is an alternative proposal to the HBI Transaction, except that prior
to approval of the HBI Transaction by our shareholders, the Supervisory
Board, in response to an alternative proposal that is unsolicited and
reasonably likely to lead to a superior transaction for our shareholders as
compared to the HBI Transaction, may furnish non-public information to
(subject to a customary confidentiality agreement), and participate in
negotiations with, the party making such alternative proposal, (b) not
create or permit any liens on our assets (with certain exceptions), (c) not
merge with another entity and not make any disposition of substantially all
of our assets, (d) not materially breach any material contract or material
governmental approval, and (e) not enter into any other transaction which
would have a material adverse effect on our business which is not in the
ordinary course consistent with past practice or which is prohibited by the
Agreement;
4. WEDGE agrees to cause a subsidiary of HBI to vacate certain leased
property located in Beaumont, Texas on or before the closing date, and we
agree not to occupy or use such property after the closing date;
5. We and WEDGE agree to provide each other and each other's
representatives with reasonable access to information, key employees and
properties of the respective businesses of HBI and the Company, subject to
certain confidentiality provisions;
6. We and WEDGE agree to provide each other with notice of certain
events relating to the HBI Transaction, including our agreement to provide
WEDGE with information concerning any alternative business combination
proposal received by us or the initiation by any third party of discussions
or negotiations regarding the same;
7. We and WEDGE each agree to make the required filings under the HSR
Act (we agreed to pay the filing fees), and to use commercially reasonable
efforts to take all actions and do all things necessary to consummate the
HBI Transaction and to obtain all necessary waivers, consents or approvals
of third parties and governmental authorities (including approval under the
HSR Act);
8. We agree to hold the Special Meeting and to prepare and mail this
Proxy Statement for the purpose of seeking approval of the matters set
forth in Items 1, 2 and 3 herein; and
9. We and WEDGE agree to consult with one another prior to the making
of any public statements regarding the Purchase Agreement or the HBI
Transaction.
The Purchase Agreement also contains a number of covenants relating to
post-closing obligations of the parties, including the following:
1. We agree to pay bonuses to the employees of HBI and its
subsidiaries for the year 2000 at the times and in the amounts consistent
with past practice;
20
<PAGE> 28
2. We and WEDGE agree on how various tax matters are to be handled,
including (a) allocation of responsibility for tax liabilities and tax
returns for periods before and after the closing date, (b) cooperation in
tax proceedings and in the exchange of tax-related information, and (c) the
termination, effective as of the closing date, of certain tax allocation
arrangements between WEDGE and HBI;
3. We agree to preserve the books and records of HBI and its
subsidiaries for certain time periods and to make such books and records
accessible to WEDGE; WEDGE agrees to forward to us mail belonging to HBI
and its subsidiaries; and
4. We and WEDGE agree to cooperate in the defense or prosecution of
litigation relating to the business of HBI, and in general to take such
actions and deliver such documentation as may be reasonably required or
appropriate to carry out the HBI Transaction.
INDEMNIFICATION
In the Purchase Agreement, WEDGE and we agree to indemnify each other in
respect of damage claims arising from the breach of either party's
representations, warranties and covenants under the Purchase Agreement. In
addition, WEDGE agrees to indemnify us against certain governmental or third
party claims arising out of certain identified environmental conditions on
specific HBI properties during certain time periods. The respective
representations and warranties upon which an indemnification claim by either
party can be based terminate in certain cases twelve months after the closing
date and in certain other cases five years after discovery of the condition or
circumstance causing the breach; certain other representations and warranties of
the parties survive indefinitely. Generally, neither party is required to
indemnify the other party unless and until the aggregate amount of all
indemnified losses incurred by such other party exceeds a threshold amount of $5
million. In addition, neither party is liable for indemnified losses incurred by
the other party which exceed an aggregate ceiling amount of $40 million, except
that in the case of WEDGE's representations, warranties and separate indemnity
relating to environmental matters, a separately aggregated ceiling amount of $60
million will apply to WEDGE's indemnification obligations to us. In respect of
damage claims asserted by us against WEDGE which are covered in whole or in part
by certain prepaid insurance contracts, only that portion of the damage claim
not insured and not actually paid will be deemed to be an indemnifiable loss
(such insurance recovery will be taken into account in calculating the
applicable ceiling amount but not taken into account in calculating the
applicable threshold amount). WEDGE has agreed to cooperate with and assist us
in securing recoveries under insurance policies issued on or prior to the
closing date in certain cases where indemnification from WEDGE is not available.
TERMINATION OR AMENDMENT
The Purchase Agreement may be terminated by the mutual written consent of
WEDGE and us. The Purchase Agreement may also be terminated as follows: (i) by
either WEDGE or us if the HBI Transaction has not been consummated by December
31, 2000; (ii) by us at any time prior to the Special Meeting if there is an
unsolicited alternative business combination proposal which the Supervisory
Board in good faith in the exercise of its fiduciary duties determines
represents a superior transaction for our shareholders as compared to the HBI
Transaction, provided that we shall have (a) provided WEDGE with prior written
notice of the intent to terminate the Purchase Agreement as well as a summary of
the material terms of such alternative proposal and (b) paid to WEDGE a $5
million termination fee; (iii) by WEDGE if the Supervisory Board withdraws its
approval or recommendation of the HBI Transaction, or recommends an alternative
business combination proposal, in which case the $5 million termination fee
would be payable by us; and (iv) by WEDGE or us if on the closing date a
preliminary or permanent injunction has been entered prohibiting the
consummation of the HBI Transaction.
Any provision of the Purchase Agreement may be amended or waived by an
instrument in writing signed on behalf of both parties. WEDGE may be required to
seek the consent of First Reserve for certain amendments or waivers.
21
<PAGE> 29
EXPENSES AND TERMINATION FEES
WEDGE and we each agree to pay our own expenses in connection with the
Purchase Agreement and the HBI Transaction, subject to the following exceptions:
(i) we agree to pay all accounting expenses relating to the preparation of this
Proxy Statement, (ii) we agree to pay WEDGE a termination fee of $5 million in
certain circumstances described above, and (iii) we agree to pay WEDGE $1
million as liquidated damages if the HBI Transaction is not consummated by
December 31, 2000 for any reason other than (a) the parties' mutual consent, (b)
entry of an injunction prohibiting the HBI Transaction, (c) failure to obtain a
necessary governmental approval, or (d) in the circumstances described above in
which we are obligated to pay the $5 million termination fee.
THE FIRST RESERVE AGREEMENT
GENERAL
The First Reserve Agreement calls for First Reserve to purchase from WEDGE
4,323,333 Registered Shares for consideration of $70,254,161 in cash, which is
subject to adjustment as described below. The closing under the First Reserve
Agreement will occur immediately following the closing of the HBI Transaction or
at another mutually agreed upon date, but in no event later than December 31,
2000.
CONDITIONS TO CLOSING
Conditions to Each Party's Obligations to Consummate the First Reserve
Transaction. The respective obligations of WEDGE and First Reserve to effect
the First Reserve Transaction on the closing date are subject to receipt of all
required governmental approvals on or prior to such date and the closing of the
HBI Transaction.
Additional Conditions to the Obligation of First Reserve. The obligation
of First Reserve to effect the First Reserve Transaction is subject to the
satisfaction or waiver of the following additional conditions:
- all of our and WEDGE's representations and warranties in the Purchase
Agreement being true and correct as of the closing date, other than such
changes or exceptions as are contemplated by the Purchase Agreement or
that could not reasonably be expected to have a material adverse effect;
- the execution of the WEDGE Shareholder Agreement;
- the election by CB&I's shareholders of two of First Reserve's designees
as Supervisory Directors in accordance with the First Reserve Shareholder
Agreement.
- WEDGE not having any reason to believe that there has been a material
adverse change in our assets, properties, liabilities, businesses,
affairs, results of operations or condition (financial or otherwise)
since December 31, 1999; and
- WEDGE's delivery of various required closing documents.
Additional Conditions to the Obligations of WEDGE. WEDGE's obligation to
effect the First Reserve Transaction is subject to the satisfaction or waiver of
the following additional conditions:
- the execution of the First Reserve Shareholder Agreement;
- First Reserve's representations and warranties in the First Reserve
Agreement being true and correct as of the closing date, other than such
changes or exceptions as are contemplated by the First Reserve Agreement
or that could not reasonably be expected to have a material adverse
effect; and
- First Reserve's delivery of various required closing documents.
REPRESENTATIONS AND WARRANTIES
In the First Reserve Agreement, First Reserve and WEDGE have made various
customary representations and warranties relating to, among other things, (i)
due organization, valid existence and good standing of
22
<PAGE> 30
the parties, and (ii) the authorization, execution, delivery and enforceability
of the respective agreements and consummation of the transactions contemplated
by the First Reserve Agreement. The First Reserve Agreement also contains
representations and warranties of WEDGE as to its ownership of the 4,323,333
Registered Shares being sold to First Reserve and the absence of any reason to
believe that the representations and warranties of WEDGE and us in the Purchase
Agreement are inaccurate in any material respect.
PURCHASE PRICE ADJUSTMENT
The purchase price for the 4,323,333 Registered Shares being sold to First
Reserve will be $16.25 per share, but is subject to downward adjustment so long
as First Reserve holds the purchased shares for at least one year. The amount of
the per share downward price adjustment, which cannot exceed $2.75 per share,
will equal the amount by which $16.25 exceeds the greater of (i) the average per
share sale price realized by First Reserve on the sale of its Registered Shares
and (ii) the highest mean of the daily closing prices of a Registered Share for
any 40 consecutive trading days prior to First Reserve's disposition of its
shares. If by July 30, 2010, First Reserve has not sold all of its Registered
Shares purchased in the First Reserve Transaction, First Reserve shall receive
an adjustment amount for those remaining shares as if it had sold those
remaining shares at the highest mean of the daily closing prices per share of
Common Stock as reported on the New York Stock Exchange for any period of 40
consecutive trading days prior to July 30, 2010.
ASSIGNMENT OF WEDGE'S RIGHTS UNDER THE PURCHASE AGREEMENT
WEDGE has assigned to First Reserve all of its rights under the Purchase
Agreement with respect to the 4,323,333 Registered Shares to be sold to First
Reserve and has agreed, if necessary, to assert and enforce those rights on
behalf of First Reserve.
INDEMNIFICATION
In the First Reserve Agreement, WEDGE agrees to indemnify First Reserve in
respect of damage claims arising from the breach of WEDGE's representations,
warranties and covenants under the First Reserve Agreement.
TERMINATION FEE
If the Purchase Agreement shall fail to close and WEDGE shall receive any
termination, expense or other fees under the terms of the Purchase Agreement,
First Reserve shall be entitled to 40% of any such amounts.
THE SHAREHOLDER AGREEMENTS
The Purchase Agreement provides for us to enter into a shareholder
agreement with WEDGE (the "WEDGE Shareholder Agreement") upon closing of the HBI
Transaction. The WEDGE Shareholder Agreement further provides that if the First
Reserve Transaction is consummated, we will also enter into a shareholder
agreement with First Reserve (the "First Reserve Shareholder Agreement", and
taken together with the WEDGE Shareholder Agreement, the "Shareholder
Agreements").
STANDSTILL PROVISIONS
The Shareholder Agreements contain so-called "standstill" provisions which,
among other things, (i) prohibit the purchase of additional shares by WEDGE and
First Reserve (whether by tender offer or otherwise) except in order to maintain
a 10% ownership stake; provided that First Reserve may purchase (a) additional
shares in connection with an equity financing to fund the PDM Transaction so
long as these additional purchases will not cause First Reserve's and WEDGE's
combined equity ownership to exceed 48.15% of our voting securities outstanding
or First Reserve's equity ownership to exceed 30% of our voting securities
outstanding, (b) if the PDM Transaction shall not be consummated, up to an
additional 253,000 shares so long as such additional purchases will not cause
First Reserve's and WEDGE's combined equity ownership to exceed 49.9% of our
voting securities outstanding, and (ii) prohibit acquisition proposals, proxy
23
<PAGE> 31
solicitations, group formation or encouragement of third parties for takeover
purposes by either WEDGE or First Reserve. With respect to any proposed business
combination or recapitalization involving the Company and any third party, each
of WEDGE and First Reserve must vote or tender its shares or otherwise act as
recommended by the Supervisory Board (or any special committee of the
Supervisory Board constituted for the purpose of evaluating such proposed
transaction). WEDGE or First Reserve will be free to submit a competing offer
for the Company only in the event that the Supervisory Board determines to sell
control of the Company to another party.
The Shareholder Agreements provide that in the event of a breach of any
covenants or agreements contained therein, the aggrieved party (including any
present or future CB&I shareholder) shall be entitled to the remedy of specific
performance, injunction or other equitable relief. In the event of a breach by
WEDGE or First Reserve of the "standstill" provisions discussed above (whether
by the launching of a tender offer or otherwise), we and/or our shareholders may
seek injunctive relief. However, as such relief is equitable in nature and at
the discretion of the court in which such action is brought, there can be no
assurance that such court will grant such relief.
SUPERVISORY BOARD REPRESENTATION
The Shareholder Agreements contain certain provisions intended to implement
the right of WEDGE and First Reserve to elect Supervisory Directors to the
Supervisory Board. If the HBI Transaction and the First Reserve Transaction are
both consummated, the number of Supervisory Directors comprising the Supervisory
Board will expand from eight to twelve and (i) WEDGE will have the right to
designate two Supervisory Directors so long as it owns 17 1/2% of our voting
securities outstanding, and (ii) First Reserve will have the right to designate
two Supervisory Directors so long as it owns at least 3,083,871 shares of our
voting securities. If the HBI Transaction is consummated but the First Reserve
Transaction is not consummated, the number of Supervisory Directors comprising
the Supervisory Board will instead expand from eight to nine, and WEDGE will
have the right to designate three Supervisory Directors (two of whom must be
independent) so long as it owns 33 1/3% of our voting securities outstanding.
The number of Supervisory Directors that WEDGE or First Reserve is entitled to
designate will decrease with a reduction in its percentage ownership of voting
securities and will terminate completely once such ownership falls below 10% of
our voting securities outstanding for any period of 30 consecutive days. The
Supervisory Board regulations shall provide that a special committee of the
Supervisory Board composed entirely of disinterested, independent Supervisory
Directors shall be constituted to evaluate any significant transactions
(primarily transactions involving a change of control) and any transactions or
issues involving WEDGE or First Reserve. As long as each of WEDGE and First
Reserve is entitled to designate at least two Supervisory Directors on the
Supervisory Board, each will be entitled to representation on the committees of
the Supervisory Board other than the Nominating Committee and the special
committee described immediately above.
VOTING RESTRICTIONS
Pursuant to the Shareholder Agreements, WEDGE and First Reserve each agree
that, with respect to any matter presented to our shareholders for vote or
approval, each will vote "for" the nominees recommended by the Supervisory Board
(provided we are in compliance with our covenants to WEDGE and First Reserve
relating to Supervisory Board representation), "for" any proposal recommended by
the Supervisory Board, and "against" any proposal that is not recommended by the
Supervisory Board, with the exception of the following matters as to which each
of WEDGE and First Reserve will have discretionary voting rights: (i)
appointment of auditors, (ii) adoption of any rights agreement which would
restrict WEDGE or First Reserve from effecting any transaction not otherwise
prohibited by the applicable Shareholder Agreement, (iii) migration of the
Company to another organizational jurisdiction (other than in connection with a
business combination), (iv) conversion of the Company's corporate form (other
than in connection with a business combination), and (v) proposed amendments to
our Articles of Association which would have a disproportionate material and
adverse effect on WEDGE or First Reserve versus our other shareholders not
contemplated by the Shareholder Agreements.
24
<PAGE> 32
As set forth in Item 2 of this Proxy Statement, we are proposing to amend
our Articles of Association to provide that, at a time when there is a CB&I
shareholder who owns 15% of our outstanding voting securities, certain
significant transactions (i.e., business combinations, recapitalizations or a
transaction with a 15% shareholder) otherwise requiring a shareholder vote for
approval will require the approval of at least 80% of our voting securities
outstanding. See "Item 2 -- Proposed Amendments to the Articles of Association
to Implement the Proposed Shareholder Agreements."
TRANSFER RESTRICTIONS AND REGISTRATION RIGHTS
The Shareholder Agreements contain certain restrictions on the transfer of
shares held by WEDGE and First Reserve. Without our consent, neither WEDGE nor
First Reserve may sell any of their shares to (a) any person or group who is or
would be required to file a Schedule 13D under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), (b) any person or group who would own
more than 10% of our voting securities, or (c) a competitor of the Company. Any
sale of shares by WEDGE or First Reserve will be subject to our right of first
offer, except for the following types of transfers: (i) pursuant to a bona fide
underwritten public offering, (ii) pursuant to a Rule 144 sale under the
Securities Act in an unsolicited broker's transaction in which WEDGE or First
Reserve has no knowledge that the purchaser is any of the persons described in
(a), (b) or (c) immediately above, (iii) pursuant to a business combination or
recapitalization transaction recommended by the Supervisory Board, (iv) to an
affiliate of WEDGE or First Reserve who agrees to be bound by the terms of the
applicable Shareholder Agreement, (v) a pledge or hypothecation to a financial
institution to secure a bona fide loan, and (vi) a transfer or transfers, once
per calendar quarter, to any institutional investor which, together with its
affiliates, would beneficially own not more than 5% of our voting securities
outstanding.
The Shareholder Agreements grant WEDGE and First Reserve certain
registration rights with respect to their shares. The Shareholder Agreements
require us, at the request of the holders of 75% of the shares held by WEDGE and
its assignees or at the request of the holders of 75% of the shares held by
First Reserve and its assignees, to register all or any portion of those shares
under the Securities Act; provided that we are required to effect no more than
two of such "demand" registrations for each of WEDGE and First Reserve (or, if
the First Reserve transaction is not consummated, no more than four of such
"demand" registrations for WEDGE alone). The Shareholder Agreements also require
us to give notice to such holders when we propose to register any of our
securities under the Securities Act (other than registrations on Forms S-8 or
S-4), and, if such holders so request, to include their shares in the
registration, provided that under certain circumstances the number of shares
such holders can include in these "piggyback" registrations will be limited. In
all registrations we will be required to pay the expenses of registration,
excluding underwriting discounts and commissions, and to provide customary
indemnification, except that we will not be obligated to pay more than $800,000
in the aggregate for registration expenses with respect to demand registrations.
Each of WEDGE and First Reserve has informed us that it intends to review
on a continuing basis its investment in the Company and may or may not dispose
of its shares, through its registration rights or otherwise, based upon the
following factors: the price of the Common Stock; developments affecting the
energy market as a whole; the Company and the Company's business prospects; and,
with respect to First Reserve, the eventual liquidation of First Reserve in
accordance with its partnership agreement.
DURATION
Each Shareholder Agreement will remain in effect so long as WEDGE or First
Reserve, as the case may be, continues to own 10% or more of our voting
securities outstanding, except that the registration rights shall continue as
long as WEDGE or First Reserve, as the case may be, continues to own 5% or more
of our voting securities outstanding.
THE SHAREHOLDER AGREEMENTS ARE EXPRESSLY INTENDED TO CONFER UPON OUR
PRESENT AND FUTURE SHAREHOLDERS AS THIRD PARTY BENEFICIARIES THE BENEFITS OF ALL
COVENANTS AND AGREEMENTS MADE BY WEDGE AND FIRST RESERVE IN THE SHAREHOLDER
AGREEMENTS, WITH PRIVITY TO ENFORCE SUCH PROVISIONS WITH ALL RIGHTS AND REMEDIES
UNDER APPLICABLE LAW, INCLUDING SPECIFIC PERFORMANCE AND INJUNCTIVE RELIEF. EACH
OF OUR SHAREHOLDERS SHALL BE
25
<PAGE> 33
DEEMED TO HAVE BEEN NOTIFIED OF SUCH INTENDED THIRD PARTY BENEFIT BY DISCLOSURE
IN OUR PUBLIC FILINGS CONCERNING THE SHAREHOLDER AGREEMENTS AND, TO THE EXTENT
ACKNOWLEDGMENT OF SUCH BENEFIT IS REQUIRED BY THE LAW OF ANY JURISDICTION, TO
HAVE ACKNOWLEDGED AND ACCEPTED THAT BENEFIT AS A THIRD PARTY BENEFICIARY BY
CASTING A VOTE CONCERNING THE TRANSACTIONS CONTEMPLATED BY THE SHAREHOLDER
AGREEMENTS AND THE PURCHASE AGREEMENT AT THE SPECIAL MEETING.
INTEREST OF CERTAIN PERSONS IN THE HBI TRANSACTION
SUPERVISORY DIRECTORS
On May 15, 2000, each Supervisory Director was granted 2000 options to
purchase shares which were issued pursuant to the Chicago Bridge & Iron 1999
Long-Term Incentive Plan (the "1999 Incentive Plan"). These options become
exercisable on May 15, 2001. Pursuant to the 1999 Incentive Plan, all
unexercisable options become immediately exercisable upon a "Change of Control",
which is defined as, among other things, the acquisition by any person of 25% or
more of the total voting power of the Company. Since WEDGE will own
approximately 48.5% of our outstanding shares after consummation of the HBI
Transaction, these options would become exercisable upon such consummation.
However, each Supervisory Director has agreed to waive the acceleration of his
or her options.
The Supervisory Director nominees nominated on behalf of WEDGE and First
Reserve in this Proxy Statement will be entitled to the same compensation
arrangements for their services as all other Supervisory Directors.
EXECUTIVE OFFICERS
Each of the executive officers has been granted options to purchase shares
pursuant to the 1999 Incentive Plan and the Chicago Bridge & Iron 1997 Long-Term
Incentive Plan (the "1997 Incentive Plan" and, together with the 1999 Incentive
Plan, the "Incentive Plans"). These options vest over the next four years.
Pursuant to the Incentive Plans, all unvested options become immediately vested
and exercisable upon a "Change of Control". As of August 11, 2000, Messrs.
Glenn, Crain, Duffy, Goodrich, Jordan, Reed, Wiggins and Wolfe held options to
purchase 213,571; 36,030; 33,992; 13,266; 101,151; 147; 50,687 and 55,638
shares, respectively, which had not vested. Each of the executive officers,
except Mr. Reed, has also been awarded performance shares pursuant to the
Incentive Plans. Pursuant to the Incentive Plans, the target opportunities under
the awards are deemed to have been fully earned and the full or partial vesting
and payout is accelerated upon a "Change of Control". As of August 11, 2000,
Messrs. Glenn, Crain, Duffy, Goodrich, Jordan, Wiggins, and Wolfe held 33,800;
7,600; 3,800; 1,766; 13,600; 8,200 and 5,600 performance share awards,
respectively, which have not been earned. See "Item 3 -- Appointment of
Additional Supervisory Directors -- Executive Compensation" for a fuller
description of recent or outstanding awards to executive officers under the
Incentive Plans.
Mr. Glenn and Mr. Wiggins have been awarded deferred shares pursuant to the
Chicago Bridge & Iron Management Defined Contribution Plan (the "Management
Plan"). Pursuant to the Management Plan, shares are to be distributed upon the
earlier of April 1, 2002, the participant's termination of employment, or a
"Change of Control." As of August 11, 2000, Messrs. Glenn and Wiggins held
rights to 571,338 and 136,157 deferred shares, respectively, under the
Management Plan. In addition, in connection with amendments of the Management
Plan in September 1999, the Company has entered into an agreement with Mr. Glenn
(the "Glenn Agreement") whereby he is awarded 50,000 restricted stock units
which vest and are to be distributed upon the earlier of April 1, 2002, Mr.
Glenn's termination of employment for certain reasons, or a "Change of Control,"
and granted put rights and contingent registration rights respecting shares
distributed to him.
For purposes of the Incentive Plans, the Management Plan, and Mr. Glenn's
Agreement, a "Change of Control" is defined as, among other things, the
acquisition by any person of 25% or more of the total voting power of the
Company. Since WEDGE will own approximately 48.5% of our outstanding shares
after consummation of the HBI Transaction, a "Change of Control" will occur upon
such consummation for purposes of the foregoing benefits. Options under the
Incentive Plans would become vested and exercisable, performance shares under
the Incentive Plans would fully or partially vest and be paid, deferred shares
under
26
<PAGE> 34
the Management Plan would be distributed, and restricted stock units under the
Glenn Agreement would become vested and be distributable.
Each executive officer has agreed to waive the acceleration of options and
the accelerated vesting and payout of performance shares under the Incentive
Plans, pursuant to agreements providing for a new grant of options described
below under "Item 4 -- Adoption of Amendments to the Chicago Bridge & Iron 1999
Long-Term Incentive Plan -- New Plan Benefits"), and the conversion of
performance shares, on the assumption of target performance, to time-vested
restricted shares. Messrs. Glenn and Wiggins have agreed to waive the
distribution of shares under the Management Plan, and Mr. Glenn has agreed to
waive the distribution of shares under the Glenn Agreement, which vest upon a
Change of Control, in each case until such shares are otherwise distributable
under the Management Plan and the Glenn Agreement.
The Company and Messrs. Crain, Jordan, Wiggins and Wolfe are parties to
change of control severance agreements each providing that, in the event of
certain terminations of their respective employment with the Company within the
two-year period following a "Change of Control," each will receive a lump-sum
payment. For these purposes, a "Change of Control" means, among other things,
the acquisition by any person of 25% or more of the total voting power of the
Company. Since WEDGE will own approximately 48.5% of our outstanding shares
after consummation of the HBI Transaction, a "Change of Control" will occur upon
such consummation. Each of these executive officers has entered into a new
change of control severance agreement altering certain consequences of the
Change of Control that would occur upon the consummation of the HBI Transaction.
See "Item 3 -- Appointment of Additional Supervisory Directors -- Executive
Compensation -- Termination and Employment Agreements" for a fuller description
of these agreements.
GOVERNMENT AND REGULATORY APPROVALS
HART-SCOTT-RODINO
The Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice ("DOJ") are responsible for reviewing the legality under
the antitrust laws of transactions such as the HBI Transaction and the First
Reserve Transaction. The Hart-Scott-Rodino Antitrust Improvement Act of 1976
(the "HSR Act"), and the rules and regulations thereunder, provide that certain
transactions (including the HBI Transaction and the First Reserve Transaction)
may not be consummated until required information and materials have been
furnished to the FTC and the DOJ and certain waiting periods have expired or
been terminated. On August 23 and September 15, 2000, the FTC notified us that
the parties' request for early termination of the waiting period had been
granted with respect to the HBI Transaction and the First Reserve Transaction,
respectively.
Private parties or state attorneys general may also bring action under the
antitrust laws under certain circumstances. We cannot assure you that a
challenge to the HBI Transaction or the First Reserve Transaction by private
parties or state attorneys general on antitrust grounds will not be made or, if
such a challenge is made, of the result.
OTHER
The obligation of WEDGE and us to consummate the HBI Transaction at closing
is conditioned upon receipt of all governmental consents, approvals and
authorizations required to be obtained by either party on or before the closing
date.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The HBI Transaction has been structured as an asset purchase for federal
income tax purposes. In addition, we expect to file a protective election
pursuant to section 338(h)(10) of the Code with respect to the HBI Transaction.
In general, under such election, the parties to the transaction elect to treat a
purchase of stock as a purchase of assets for federal income tax purposes. As a
result of these factors, we expect to write up the tax basis of the acquired HBI
assets by allocating the purchase price among the purchased assets in accordance
with their relative fair market values. This tax basis may then be depreciated
or amortized over the
27
<PAGE> 35
applicable cost recovery period of each asset in accordance with applicable law,
thereby reducing taxable income. Many, but not all, state income tax laws
produce similar consequences.
ACCOUNTING TREATMENT
We expect to account for the HBI Transaction using the "purchase" method of
accounting pursuant to Accounting Principles Board Opinion No. 16. Under the
purchase method we will record, at fair value, the assets acquired and
liabilities assumed and will record as goodwill the difference between the cost
of the acquisition and the sum of the fair value of the tangible and
identifiable intangible assets acquired, less liabilities assumed. The
operations of the acquired businesses will be included in our results of
operations from the date of the closing.
SELECTED FINANCIAL DATA -- CB&I
The following table sets forth selected consolidated financial and other
data of CB&I for the periods and as of the dates indicated. The selected
unaudited consolidated income statement and cash flow data for the comparative
nine months ended September 30, 2000 and 1999 and unaudited consolidated balance
sheet data as of September 30, 2000 and 1999 are presented below. The selected
income statement and cash flow data for each of the years in the five-year
period ended December 31, 1999 and the selected consolidated balance sheet data
as of December 31, 1999, 1998, 1997, 1996 and 1995 have been derived from the
audited consolidated financial statements of CB&I. References to "Notes" are the
notes to such audited consolidated financial statements.
The selected CB&I 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," the consolidated financial statements of CB&I and accompanying
notes thereto, and other financial information included in CB&I's Annual Report
on Form 10-K for the year ended December 31, 1999 and its Quarterly Report on
Form 10-Q for the period ended September 30, 2000.
28
<PAGE> 36
<TABLE>
<CAPTION>
PRE-PRAXAIR
POST-PRAXAIR ACQUISITION(1) ACQUISITION(1)
--------------------------------------------------------------- --------------
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------------
(IN THOUSANDS, EXCEPT SHARE AND EMPLOYEE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues........................ $470,714 $509,078 $674,770 $775,692 $672,811 $663,721 $621,938
Cost of revenues................ 426,484 454,197 598,335 703,363 609,173 590,030 614,230
-------- -------- -------- -------- -------- -------- --------
Gross profit.................. 44,230 54,881 76,435 72,329 63,638 73,691 7,708
Selling and administrative
expenses...................... 34,455 35,740 49,849 46,959 44,988 42,921 43,023
Management Plan charge(2)....... -- -- -- -- 16,662 -- --
Special charge(3)............... -- -- -- -- -- -- 5,230
Other operating income,
net(4)........................ (2,366) (2,221) (2,788) (991) (4,807) (493) (10,030)
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations.................. 12,141 21,362 29,374 26,361 6,795 31,263 (30,515)
Interest expense................ (3,777) (2,157) (2,980) (3,488) (3,892) (5,002) (799)
Interest income................. 329 564 766 1,616 1,416 990 1,191
-------- -------- -------- -------- -------- -------- --------
Income (loss) before taxes and
minority interest........... 8,693 19,769 27,160 24,489 4,319 27,251 (30,123)
Income tax (expense) benefit.... (2,434) (5,535) (7,605) (7,347) 730 (7,789) 8,093
-------- -------- -------- -------- -------- -------- --------
Income (loss) before minority
interest.................... 6,259 14,234 19,555 17,142 5,049 19,462 (22,030)
Minority interest in (income)
loss.......................... (636) (939) (1,171) (105) 354 (2,900) (3,576)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............. $ 5,623 $ 13,295 $ 18,384 $ 17,037 $ 5,403 $ 16,562 $(25,606)
======== ======== ======== ======== ======== ======== ========
PER SHARE DATA
Net income -- basic(5).......... $ 0.60 $ 1.19 $ 1.67 $ 1.41 $ 0.43 N/A N/A
Net income -- diluted(5)........ 0.59 1.17 1.65 1.40 0.43 N/A N/A
Dividends(5).................... 0.18 0.18 0.24 0.24 0.18 N/A N/A
BALANCE SHEET DATA
Total assets.................... $333,664 $344,747 $337,325 $348,709 $400,650 $351,496 $356,125
Long-term debt.................. 55,400 31,000 25,000 5,000 44,000 53,907 --
Total shareholders' equity...... 89,373 101,174 104,410 101,656 103,826 90,746 186,507
Contract capital(6)............. 55,086 98,970 71,321 71,099 95,243 121,926 109,503
CASH FLOW DATA
Cash flow from operating
activities.................... $ (3,977) $ (9,845) $ 22,461 $ 50,824 $ 40,407 $ 25,159 $(36,806)
Cash flow from investing
activities.................... (17,433) (5,711) (8,911) (2,142) (21,907) (11,348) 1,554
Cash flow from financing
activities.................... 10,404 16,581 (779) (53,286) (20,124) (14,797) 32,012
OTHER FINANCIAL DATA
Capital expenditures............ $ 9,812 $ 10,175 $ 13,450 $ 12,249 $ 34,955 $ 20,425 $ 14,880
Income (loss) from operations... 12,141 21,362 29,374 26,361 6,795 31,263 (30,515)
Depreciation and amortization... 13,269 13,127 17,765 17,710 16,911 17,281 16,077
-------- -------- -------- -------- -------- -------- --------
EBITDA(7)..................... $ 25,410 $ 34,489 $ 47,139 $ 44,071 $ 23,706 $ 48,544 $(14,438)
OTHER DATA
Number of employees:
Salaried...................... 1,543 1,419 1,378 1,525 1,464 1,516 1,663
Hourly and craft.............. 3,475 4,683 4,288 4,928 4,630 4,432 3,483
New business taken(8)........... $551,935 $532,257 $716,499 $760,989 $757,985 $687,227 $782,878
Backlog(8)...................... 573,350 499,465 510,614 507,783 554,982 485,704 470,174
</TABLE>
---------------
(1) Chicago Bridge & Iron Company and Subsidiaries ("Bridge") was a subsidiary
of CBI Industries, Inc. ("Industries") until the first quarter of 1996 when,
pursuant to a merger agreement dated December 22,
29
<PAGE> 37
1995, Industries became a subsidiary of Praxair, Inc. ("Praxair"). This merger
transaction was reflected in the consolidated financial statements of Bridge 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.
(2) Upon consummation of an initial public Common Stock offering in March 1997
(Note 1), the Company made a contribution to the Management Plan in the form
of 925,670 shares having a value of $16.7 million. Accordingly, the Company
recorded expense of $16.7 million (the "Management Plan charge" -- Note 9)
in 1997.
(3) In 1995, Bridge 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.
(4) Other operating income, net generally represents gains on the sale of
property, plant and equipment. 1997 was favorably impacted by non-recurring
income of approximately $4.0 million from the recognition of income related
to a favorable appeals court decision and the resolution of disputed
liabilities. In addition, 1997 includes a $1.6 million gain from the sale of
assets, primarily from the sale of the Cordova, Alabama manufacturing
facility. The gain recorded in 1995 primarily relates to the sale of certain
underutilized facilities.
(5) A reorganization was completed in March 1997 and did not materially affect
the carrying amounts of the Company's assets and liabilities. Such
reorganization is reflected in the Company's financial statements as of
January 1, 1997. Because the Company completed an initial public Common
Stock offering in March 1997, net income per share and dividend data are not
applicable for years prior to 1997. (Note 1)
(6) Contract capital is defined as contract receivables plus net contracts in
progress less accounts payable.
(7) EBITDA is defined as income (loss) from operations, 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 generally accepted accounting principles, 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. EBITDA may not be comparable to other similarly titled
measures of other companies.
(8) 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.
In July, 2000, in the course of negotiations with WEDGE, our management
provided to WEDGE certain projections of CB&I's sales and EBITDA for the years
2000 through 2003 (the "Projections") based on two scenarios: (1) an optimistic
base case scenario assuming a nearly full recovery in CB&I's markets by 2003;
and (2) an alternative case based on a more conservative sales outlook and
slower recovery. Management believes that the alternative case is the more
probable and realistic in the near term.
<TABLE>
<CAPTION>
2000 2001 2002 2003
------------------ ------------------ ------------------ ------------------
BASE ALTERNATIVE BASE ALTERNATIVE BASE ALTERNATIVE BASE ALTERNATIVE
CASE CASE CASE CASE CASE CASE CASE CASE
(DOLLARS IN MILLIONS) ---- ----------- ---- ----------- ---- ----------- ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales...................... $677 $648 $735 $660 $772 $680 $810 $700
EBITDA..................... $ 44 $ 40 $ 51 $ 40 $ 54 $ 42 $ 56 $ 44
</TABLE>
THE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO COMPLYING WITH PUBLISHED
GUIDELINES OF THE SEC AND ARE INCLUDED HEREIN ONLY BECAUSE SUCH INFORMATION WAS
PROVIDED TO WEDGE. THE PROJECTIONS REFLECT NUMEROUS ASSUMPTIONS, ALL MADE BY
MANAGEMENT OF CB&I, WITH RESPECT TO INDUSTRY PERFORMANCE, GENERAL BUSINESS,
ECONOMIC, MARKET AND FINANCIAL CONDITIONS AND OTHER MATTERS, ALL OF WHICH ARE
DIFFICULT TO PREDICT, AND MANY OF WHICH ARE BEYOND CB&I'S CONTROL. ACCORDINGLY,
THERE CAN BE NO ASSURANCE THAT THE ASSUMPTIONS MADE IN PREPARING THE PROJECTIONS
WILL PROVE ACCURATE, AND ACTUAL RESULTS MAY BE MATERIALLY GREATER OR LESS THAN
THOSE CONTAINED IN THE PROJECTIONS. THE INCLUSION OF THE PROJECTIONS HEREIN
SHOULD NOT BE REGARDED AS AN
30
<PAGE> 38
INDICATION THAT CB&I CONSIDERS THE PROJECTIONS TO BE A RELIABLE PREDICTION OF
FUTURE EVENTS, AND THE PROJECTIONS SHOULD NOT BE RELIED UPON AS SUCH. CB&I DOES
NOT ASSUME RESPONSIBILITY FOR THE VALIDITY, REASONABLENESS, ACCURACY OR
COMPLETENESS OF THE PROJECTIONS. CB&I DOES NOT MAKE ANY REPRESENTATION TO ANY
PERSON REGARDING THE INFORMATION CONTAINED IN THE PROJECTIONS AND DOES NOT
INTEND TO UPDATE OR OTHERWISE REVISE THE PROJECTIONS TO REFLECT CIRCUMSTANCES
EXISTING AFTER THE DATE WHEN MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS,
EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE PROJECTIONS
ARE SHOWN TO BE IN ERROR.
31
<PAGE> 39
SELECTED FINANCIAL DATA -- HBI
The following table sets forth selected consolidated financial and other
data of HBI for the periods and as of the dates indicated. The selected
unaudited consolidated statements of operations and cash flow data for the
comparative nine months ended September 30, 2000 and 1999 and unaudited
consolidated balance sheet data as of September 30, 2000 and 1999 are derived
from HBI's interim financial statements included elsewhere herein. The selected
statements of operations and cash flow data for each of the years in the
three-year period ended December 31, 1999 and the selected consolidated balance
sheet data as of December 31, 1999 and 1998 have been derived from the audited
consolidated financial statements of HBI included elsewhere herein. The selected
statements of operations and cash flow data for each of the years in the
two-year period ended December 31, 1996 and the selected consolidated balance
sheet data as of December 31, 1997, 1996 and 1995 have been derived from the
consolidated financial statements of HBI.
The selected HBI 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 of HBI," the consolidated financial statements of HBI and
accompanying notes thereto, and other financial information included elsewhere
herein.
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- --------------------------------------------------
2000(A) 1999(B) 1999(C) 1998(D) 1997 1996 1995
-------- -------- -------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT EMPLOYEE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues............................ $193,229 $140,249 $208,821 $117,340 $ 91,591 $89,738 $98,510
Cost of revenues.................... 163,633 115,836 167,075 90,652 73,295 73,715 86,430
-------- -------- -------- -------- -------- ------- -------
Gross profit...................... 29,596 24,413 41,746 26,688 18,296 16,023 12,080
Selling, general and administrative
expenses.......................... 13,997 7,594 11,200 8,503 6,135 6,381 4,872
-------- -------- -------- -------- -------- ------- -------
Income from operations............ 15,599 16,819 30,546 18,185 12,161 9,642 7,208
Interest income..................... 2,457 2,265 3,345 2,422 1,768 1,023 522
Interest expense.................... (341) (29) (264) (26) (2) (7) (11)
-------- -------- -------- -------- -------- ------- -------
Income before minority interest
and taxes....................... 17,715 19,055 33,627 20,581 13,927 10,658 7,719
Income tax expense.................. 6,628 7,130 12,252 7,407 3,642 4,671 2,701
-------- -------- -------- -------- -------- ------- -------
Income before minority interest... 11,087 11,925 21,375 13,174 10,285 5,987 5,018
Minority interest in income......... 1,184 998 1,380 316 -- -- --
-------- -------- -------- -------- -------- ------- -------
Net income........................ $ 9,903 $ 10,927 $ 19,995 $ 12,858 $ 10,285 $ 5,987 $ 5,018
======== ======== ======== ======== ======== ======= =======
BALANCE SHEET DATA
Total assets........................ $140,688 $159,748 $181,618 $104,173 $ 71,693 $59,205 $45,999
Long-term debt...................... 5,700 -- 5,700 -- -- -- 50
Total stockholder's equity.......... 60,998 52,718 55,158 44,181 33,923 24,638 19,651
CASH FLOWS DATA
Cash flows from operating
activities........................ $(18,323) $ 35,872 $ 45,691 $(13,455) $ 8,988 $24,792 $ 3,185
Cash flows from investing
activities........................ (954) (10,544) (18,718) (1,213) (10,982) (267) 225
Cash flows from financing
activities........................ (7,107) (3,533) (4,495) (2,937) (1,033) (1,056) (1,094)
OTHER FINANCIAL DATA
Capital expenditures................ $ (1,130) $ (1,709) $ 2,478 $ 393 $ 882 $ 267 $ 386
Income from operations.............. 15,559 16,819 30,546 18,185 12,161 9,642 7,208
Depreciation and amortization....... 3,163 1,755 2,648 928 785 1,043 562
-------- -------- -------- -------- -------- ------- -------
EBITDA(e)......................... $ 18,762 $ 18,574 $ 33,194 $ 19,113 $ 12,946 $10,685 $ 7,770
======== ======== ======== ======== ======== ======= =======
OTHER DATA
Number of employees................. 1,209 956 1,450 552 313 306 549
New business taken(f)............... $164,450 $ 71,420 $101,943 $198,625 $116,455 $97,768 $62,060
Backlog(f).......................... 98,565 143,164 127,650 191,357 91,846 86,424 78,394
</TABLE>
---------------
(a) Results for the nine months ended September 30, 2000 include operating
results of Matrix and Callidus for the entire nine-month period.
(b) Results for the nine months ended September 30, 1999 include operating
results of Howe-Baker, L.P. for the entire nine-month period, and excludes
the operating results of Matrix and Callidus.
32
<PAGE> 40
(c) Results for the year ended December 31, 1999 include operating results of
Matrix and Callidus from their dates of acquisition, July 16, 1999 and
December 1, 1999, respectively.
(d) Results for the year ended December 31, 1998 include operating results of
Howe-Baker, L.P. beginning with its first date of operations, October 1,
1998.
(e) EBITDA is defined as income from operations plus depreciation and
amortization expenses. While EBITDA should not be construed as a substitute
for operating income or a better measure of liquidity than cash flow from
operating activities, which are determined in accordance with United States
generally accepted accounting principles, it is included herein to provide
additional information regarding the ability of HBI to meet its capital
expenditures, working capital requirements and any future debt service.
EBITDA is not necessarily a measure of HBI's ability to fund its cash needs,
particularly because it does not include capital expenditures. EBITDA may
not be comparable to other similarly titled measures of other companies.
(f) New business taken represents the value of new project commitments received
by HBI during a given period. Such commitments are included in backlog
until work is performed and revenue recognized or until cancellation.
33
<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF HBI
The following discussion and analysis should be read in conjunction with
HBI's consolidated financial statements included in Annex A to this Proxy
Statement.
OVERVIEW
For the nine months ended September 30, 2000, HBI had new business taken of
$164.5 million compared with $71.4 million for the nine months ended September
30, 1999. Significant new contract awards included a partial-oxidation gas plant
and two natural gas processing plants. Backlog at September 30, 2000 decreased
to $98.6 million, compared with a $127.7 million backlog at December 31, 1999.
HBI's new business taken in the nine months ended September 30, 2000
exceeds the full year 1999 level due to the inclusion of Matrix and Callidus for
the period, and a significant improvement in the level of new business in the
natural gas processing sector. During 2000, new business from the refining
industry is expected to be significantly lower than historical levels. The U.S.
refining industry has been in a downturn relative to new capital projects as a
result of the merger, acquisition, and joint venture activity in the industry
the past few years. We expect new projects to begin to be funded as the industry
settles and reassesses its capital needs. Projects for additional hydrogen
capacity should follow the same pattern. Interest in natural gas projects is
increasingly reflecting the higher cost of crude oil, and the fourth quarter of
2000 and all of 2001 are expected to be more robust assuming crude oil prices
remain at or near $30 per barrel. Capital spending in the refining and natural
gas industries is expected to improve as business fundamentals for these
industries improve.
New business taken in 1999 was $101.9 million, a reduction of $96.7 million
from HBI's historical high of $198.6 million in 1998. Included in the 1999 new
business taken was a significant hydrogen project for a Canadian refiner for
$46.1 million. Matrix and Callidus contributed $28.8 million toward 1999's new
business subsequent to their acquisitions on July 16, 1999 and December 1, 1999,
respectively.
During 1999, new business from the refining and separation sector fell
significantly from the 1998 level of $180.6 million. The hydrogen and syngas
business taken during 1998 was only $6.6 million, and improved significantly in
1999 to $47.1 million. This trend has continued into 2000. HBI entered the
natural gas processing business on October 1, 1998 through its acquisition of
Schedule A, Ltd.'s assets and the formation of Howe-Baker, L.P. New business for
the natural gas processing line was weak in 1998 and 1999, but is showing signs
of significant improvement in 2000. HBI's backlog at December 31, 1999 was
$127.7 million as compared with a backlog of $191.4 million at December 31,
1998.
New business taken in 1998 increased by $82.1 million, or 71%, to $198.6
million compared to $116.5 million in 1997. Refinery projects accounted for over
$180 million in new business taken during 1998 compared with only $26.3 million
in 1997. Included in the 1998 refining and separation new business taken were
two Continuous Catalyst Regeneration ("CCR") Unit projects awarded in May and
December. The second project for $84.9 million contributed greatly to the
backlog level at December 31, 1998 of $191.4 million, compared to a backlog of
$91.8 million at December 31, 1997.
<TABLE>
<CAPTION>
NEW BUSINESS TAKEN BY PRODUCT LINE
---------------------------------------------------------
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- --------------------------------
2000 1999 1999 1998 1997
-------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Refining & separation --
Howe-Baker Engineers............. $ 10,407 $10,041 $ 11,453 $180,624 $ 26,277
Matrix........................... 37,360 12,055 25,467 NA NA
Syngas & hydrogen.................. 47,141 46,453 47,121 6,562 83,103
Natural gas processing............. 27,990 1,213 7,809 1,886 NA
Callidus........................... 36,201 NA 3,370 NA NA
Other.............................. 5,351 1,658 6,723 9,553 7,075
-------- ------- -------- -------- --------
$164,450 $71,420 $101,943 $198,625 $116,455
======== ======= ======== ======== ========
</TABLE>
34
<PAGE> 42
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Revenues. Revenues increased by $53.0 million, or 38%, to $193.2 million
in the nine months ended September 30, 2000 from $140.2 million in the nine
months ended September 30, 1999. This increase was primarily due to revenues
associated with the acquisitions of Matrix and Callidus effective July 16, 1999
and December 1, 1999, respectively.
Gross Profit. Gross profit for the nine months ended September 30, 2000
was $29.6 million, or 15% of revenues, compared with $24.4 million, or 17% of
revenues, for the nine months ended September 30, 1999. This decline in gross
margin percentage was primarily due to lower margins generated by Matrix and
Callidus subsequent to their acquisitions. Matrix and Callidus results were
adversely impacted by the overall downturn in the hydrocarbon processing
industry during 2000. With the exception of Matrix and Callidus, HBI's remaining
operations were not significantly impacted by this downturn due to the overall
strength of HBI's backlog at December 31, 1999.
Selling, General and Administrative Expenses. During the first nine months
of 2000, selling, general and administrative expenses increased by $6.4 million,
or 84%, to $14.0 million from $7.6 million in the nine months ended September
30, 1999. This increase was due to the direct expenses of Matrix and Callidus
subsequent to their acquisitions by HBI, and the increased goodwill amortization
expense associated with these acquisitions.
Other Income and Expense. Interest income rose to $2.5 million for the
nine months ended September 30, 2000 compared to $2.3 million for the nine
months ended September 30, 1999 due to an increase in interest rates and an
increase in HBI's average cash balance for the 2000 period.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenues. Revenues increased by $91.5 million, or 78%, to $208.8 million
in 1999 from $117.3 million in 1998. This increase was partially attributable to
HBI's backlog of $191.4 million at the beginning of 1999 compared to the backlog
of $91.8 million at the beginning of 1998. The acquisitions of Matrix and
Callidus during 1999 contributed $32.7 million to the increase in revenues for
that year, and a significant hydrogen project awarded early in 1999 accounted
for $19.3 million. Revenues for 2000 are expected to increase compared to 1999
since Matrix and Callidus results will be included for a full twelve-month
period.
Gross Profit. Gross profit increased by $15.0 million, or 56%, to $41.7
million in 1999 from $26.7 million in 1998. Increased revenue volume during 1999
accounted for the majority of this gross profit increase. However, gross profit
as a percentage of revenues decreased to 20% in 1999 from 23% in 1998. This
reduction in gross profit percentage was primarily attributable to the lower
level of new business taken during 1999, which resulted in lower absorption of
overhead costs. HBI expects gross profit for 2000 to be lower than 1999 despite
the anticipated increase in revenue. This is because revenues for 2000 include a
greater proportion of revenues from Matrix and Callidus which generally have
lower gross profit margins than those realized on HBI's projects. Matrix and
Callidus results are being adversely impacted by the overall downturn in the
hydrocarbon processing industry.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $11.2 million in 1999 primarily as a result
of acquisitions, an increase of 32% above the $8.5 million reported for 1998.
Selling, general and administrative expenses as a percentage of revenues fell
from 7% in 1998 to 5% in 1999 primarily due to the increase in revenues which
did not require a proportional increase in selling, general and administrative
expenses. HBI will have higher selling, general and administrative expenses in
2000 than in 1999 since 2000 will have a full year's activity for Matrix and
Callidus.
Other Income and Expense. Interest income for 1999 was $3.3 million. This
represents an increase of $0.9 million, or 38%, from $2.4 million in 1998 due to
an increase in HBI's average cash balance for the year. Income tax expense for
1999 was $12.3 million compared to $7.4 million for 1998, resulting in an
effective tax rate of 36.4% and 36.0% for 1999 and 1998, respectively. The
higher tax rate was the result of increased revenues generated in states with
higher corporate income tax rates compared to 1998 volume levels by state.
35
<PAGE> 43
Minority interest in income increased $1.1 million in 1999 when compared to
1998 and represents the interest of Schedule A, Ltd. in Howe-Baker, L.P. This
partnership commenced operations on October 1, 1998 and therefore 1998 results
reflect only three months activity.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenues. Revenues increased by $25.7 million, or 28%, to $117.3 million
in 1998 from $91.6 million in 1997. The natural gas processing business
accounted for $10.9 million of this increase. A majority of the remaining
increase resulted from the addition of a large CCR unit project taken in May
1998 in the amount of $93.9 million.
Gross Profit. Gross profit increased by $8.4 million, or 46%, to $26.7
million in 1998 compared to $18.3 million in 1997. This increase in gross profit
was due to an increase in revenues and the natural gas processing business,
which began operations on October 1, 1998 and contributed $2.4 million in
increased gross profit. Gross profit as a percentage of revenues improved to 23%
for 1998 compared to 20% for 1997 due primarily to the completion of several
higher margin projects during the year.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $2.4 million, or 39%, to $8.5 million in
1998 compared to $6.1 million in 1997. The addition of the natural gas
processing business during the last quarter of 1998 was a major contributor to
this increase. Selling, general and administrative expenses as a percentage of
revenue increased to 7.2% in 1998 from 6.7% in 1997. Almost half of this 0.5%
increase was due to amortization of goodwill associated with the organization of
Howe-Baker, L.P. on October 1, 1998.
Other Income and Expense. Interest income for 1998 increased by $0.7
million over 1997 due to an increase in HBI's average cash balance for the year.
Income tax expense for 1998 was $7.4 million compared to $3.6 million for 1997,
resulting in an effective tax rate of 36% and 26% for 1998 and 1997,
respectively. Without the reversal in 1997 of a valuation allowance for deferred
taxes, the 1997 effective tax rate would have been 37%. The higher tax rate for
1997 (excluding the valuation allowance adjustment) was the result of more
revenues generated in states with higher corporate income tax rates as compared
to 1998 revenues.
Minority interest in income increased $0.3 million in 1998 and represents
the interest of Schedule A, Ltd. in Howe-Baker, L.P. for the last quarter of
that year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at September 30, 2000 were $13.6 million compared
to $40.0 million at December 31, 1999. This decrease in cash was due in part to
a $15.8 million decrease in accounts receivable and a $9.0 million decrease in
accounts payable and accrued liabilities, both of which are attributable to a
reduction in contract activity resulting from the overall downturn in the
hydrocarbon industry during the nine month period ended September 30, 2000. In
addition, the $36.9 million decrease in progress billings in excess of cost and
recognized profits resulted from the Company using cash collected from customers
in a prior period to fund contract costs in the current period. Cash was further
decreased by $4.1 million in dividends paid during the period.
Cash and cash equivalents at the end of 1999 were $40.0 million compared
with $17.5 million at the end of 1998. In 1999, HBI generated cash from
operations of $45.7 million compared with a generation of $13.5 million in cash
in 1998. A significant contribution to positive operating cash flow in 1999 was
an increase of $24.6 million in progress billings in excess of contract costs as
compared to a $20.9 million decrease in 1998. Generally, all major projects
include progress billings which exceed costs during the initial stages of the
project thus adding to cash balances. The timing of new business as compared
with the completion of contracts in process can create large variances in cash
balances from one year to another.
In 1999, HBI expended $2.5 million for capital additions compared with $0.4
million in 1998. The majority of the 1999 expenditures related to the
construction of a new engineering building. HBI anticipates that capital
expenditures in the next several years will be sufficient to maintain its
current asset base, although
36
<PAGE> 44
there can be no assurance that such levels will not increase. HBI expects to be
able to meet its contract and capital expenditure needs from cash generated from
operations.
As of September 30, 2000, HBI owed a debt of $5.7 million to its former
minority shareholder which is due June 30, 2002.
HBI has a three-year, secured $50 million revolving credit facility with a
major national bank. From the inception of the revolving credit facility through
September 30, 2000, no borrowings were made. This credit facility will be
terminated upon completion of the purchase of HBI by CB&I.
Effective October 1, 1998, HBI, through its subsidiary, Howe-Baker
Engineers, Inc., acquired the assets of Schedule A, Ltd. for a purchase price of
approximately $19.8 million, which was funded out of HBI's existing cash
balances, and formed Howe-Baker, L.P. HBI will be required to pay additional
consideration based upon the profitability of Howe-Baker Engineers, Inc.
calculated in accordance with the terms of the acquisition agreement. As of
September 30, 2000, the additional undiscounted consideration is estimated to be
approximately $3.5 million, resulting in a total purchase price of approximately
$23.3 million.
HBI acquired all of the outstanding common stock of Matrix effective July
16, 1999 for approximately $23.7 million. HBI will be required to pay additional
consideration based upon the profitability of Matrix calculated in accordance
with the terms of the acquisition agreement. As of September 30, 2000, the
additional undiscounted consideration is estimated to be approximately $1.0
million, resulting in a total purchase price of approximately $24.7 million.
HBI acquired all of the outstanding common stock of Callidus and Plasma
Energy Corporation effective December 1, 1999 for a purchase price of
approximately $8.2 million. Effective December 31, 1999, HBI sold Plasma Energy
Corporation's common stock to a third party for approximately $1.3 million. The
sales price consisted of $0.5 million in cash and an $0.8 million note
receivable due in eight quarterly installments and maturing on December 31,
2001.
The acquisitions of Matrix and Callidus were funded out of HBI's existing
cash balances.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
HBI's exposure to market risks is primarily related to interest rate risks
associated with notes receivable, debt and other long-term obligations. HBI
continually monitors exposure to interest rate risks and develops appropriate
strategies to manage this risk. HBI is not exposed to any other significant
market risks, including commodity price risk, foreign currency exchange risk or
interest rate risks from the use of derivative financial instruments. HBI does
not use derivative financial instruments for trading or to speculate on changes
in interest rates or commodity prices.
HBI FORWARD-LOOKING STATEMENTS
This discussion and analysis contains certain forward-looking statements
that involve a number of risks and uncertainties. Actual events or results may
differ materially from HBI's expectations. In addition to matters described
herein, the uncertain timing of awards and contracts, project cancellation
risks, operating risks, risks associated with fixed price contracts, risks
associated with percentage of completion accounting, fluctuating revenues and
cash flow, dependence on the petrochemical, refining, and natural gas
industries, and competitive conditions may affect the actual results achieved by
HBI. HBI does not undertake to update any forward-looking statement contained
herein or that may be made from time to time by or on behalf of HBI.
37
<PAGE> 45
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF CB&I AND HBI
The following unaudited pro forma condensed combined balance sheet as of
September 30, 2000 gives effect to the acquisition of HBI and the related Common
Stock issuance as if each had occurred on September 30, 2000. The unaudited pro
forma condensed combined statements of income for the nine months ended
September 30, 2000 and for the year ended December 31, 1999 give effect to these
transactions and the effect of HBI's acquisitions of Matrix and Callidus as if
each occurred on January 1, 1999.
The unaudited pro forma condensed combined financial statements do not
purport to be indicative of the combined results of operations of CB&I and HBI
that might have occurred had the HBI Transaction been completed on such dates,
nor are they indicative of future results of operations. The pro forma
adjustments related to the purchase price allocation are preliminary, based on
information obtained to date that is subject to revisions as additional
information becomes available. Such information includes final third party
appraisals of HBI's property, plant and equipment, actuarial valuations of the
HBI employee benefit plans, adjustments required to fair value of HBI's
contracts in progress, and the determination of the final purchase price as it
relates to the working capital adjustment, all as of the transaction closing
date. Revisions to the preliminary purchase price allocation may have a
significant impact on total assets, total liabilities and shareholders' equity,
cost of revenues, selling, general and administrative expense, depreciation and
amortization, and interest expense.
The unaudited pro forma condensed combined financial statements should be
read in conjunction with the notes to the unaudited pro forma condensed combined
financial statements, the historical consolidated financial statements of CB&I
and related notes included in its Annual Reports on Form 10-K and Quarterly
Reports on Form 10-Q, and the historical financial statements of HBI and related
notes included elsewhere herein. Also refer to "Management's Discussion and
Analysis of Financial Condition and Results of Operations of HBI" (including
"HBI Forward-Looking Statements") and "Disclosure Regarding Forward-Looking
Statements and Risks Factors" included elsewhere herein.
38
<PAGE> 46
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
OPERATIONS NOT
CB&I HBI ACQUIRED BY PRO FORMA
HISTORICAL HISTORICAL CB&I ADJUSTMENTS AS ADJUSTED
---------- ---------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................. $ 7,401 $ 13,604 $ (1) $(13,000) $ 8,004
Accounts receivable........................ 93,797 38,846 (517) -- 132,126
Contracts in progress with earned revenues
exceeding related progress billings...... 48,679 10,968 -- -- 59,647
Other current assets....................... 9,765 4,251 -- -- 14,016
-------- -------- ------- -------- --------
Total Current Assets..................... 159,642 67,669 (518) (13,000) 213,793
Property and equipment..................... 103,105 18,854 (755) 3,500 124,704
Intangible assets.......................... 20,766 28,791 -- 108,369 157,926
Long-term receivable....................... 28,173 19,785 (107) -- 47,851
Other non-current assets................... 21,978 5,589 -- 2,414 29,981
-------- -------- ------- -------- --------
Total Assets............................. $333,664 $140,688 $(1,380) $101,283 $574,255
======== ======== ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable.............................. $ 212 $ 323 $ -- $ -- $ 535
Accounts payable........................... 40,311 21,816 (12) -- 62,115
Accrued liabilities........................ 37,431 7,872 (5) -- 45,298
Contracts in progress with progress
billings exceeding related earned
revenues................................. 47,079 7,551 -- -- 54,630
Income taxes payable and other............. 2,329 -- -- -- 2,329
-------- -------- ------- -------- --------
Total Current Liabilities................ 127,362 37,562 (17) -- 164,907
Long-term debt............................. 55,400 5,700 -- 53,000 114,100
Other non-current liabilities.............. 56,075 9,428 -- 3,197 68,700
Minority interest in subsidiaries.......... 5,454 27,000 -- -- 32,454
-------- -------- ------- -------- --------
Total Liabilities........................ 244,291 79,690 (17) 56,197 380,161
Common stock............................... 55 1 -- 47 103
Additional paid-in capital................. 63,362 499 -- 104,443 168,304
Retained earnings.......................... 48,581 66,198 (1,363) (65,104) 48,312
Stock held in Trust........................ (12,735) -- -- -- (12,735)
Treasury stock, at cost.................... (752) (5,700) -- 5,700 (752)
Cumulative translation adjustment.......... (9,138) -- -- -- (9,138)
-------- -------- ------- -------- --------
Total Shareholders' Equity............... 89,373 60,998 (1,363) 45,086 194,094
-------- -------- ------- -------- --------
Total Liabilities and Shareholders'
Equity................................ $333,664 $140,688 $(1,380) $101,283 $574,255
======== ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of this pro forma condensed combined
balance sheet.
39
<PAGE> 47
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MATRIX CALLIDUS COSTS NOT
CB&I HBI (1/1/99- (1/1/99- ACQUIRED PRO FORMA
HISTORICAL HISTORICAL 7/15/99) 11/30/99) BY CB&I ADJUSTMENTS PRO FORMA
---------- ---------- -------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................... $674,770 $208,821 $39,168 $61,580 $ -- $ -- $984,339
Cost of revenues................... 598,335 167,075 32,486 50,129 (480) -- 847,545
-------- -------- ------- ------- ----- ------- --------
Gross profit..................... 76,435 41,746 6,682 11,451 480 -- 136,794
Selling and administrative
expenses......................... 49,849 11,200 3,501 15,273 -- 2,023(a) 81,846
Other operating income, net........ (2,788) -- -- -- -- -- (2,788)
-------- -------- ------- ------- ----- ------- --------
Income from operations........... 29,374 30,546 3,181 (3,822) 480 (2,023) 57,736
Interest expense................... (2,980) (264) (139) (1,932) -- (4,915)(b) (10,230)
Interest income.................... 766 3,345 298 -- -- (650)(c) 3,759
-------- -------- ------- ------- ----- ------- --------
Income before taxes and minority
interest....................... 27,160 33,627 3,340 (5,754) 480 (7,587) 51,266
Income tax (expense) benefit....... (7,605) (12,252) (1,303) 2,277 (168) 2,395(d) (16,656)
-------- -------- ------- ------- ----- ------- --------
Income before minority
interest....................... 19,555 21,375 2,037 (3,477) 312 (5,193) 34,610
Minority interest in income........ (1,171) (1,380) -- -- -- -- (2,551)
-------- -------- ------- ------- ----- ------- --------
Net income....................... $ 18,384 $ 19,995 $ 2,037 $(3,477) $ 312 $(5,193) $ 32,059
======== ======== ======= ======= ===== ======= ========
Net income per share
Basic............................ $ 1.67 $ 1.67
Diluted.......................... $ 1.65 $ 1.66
Weighted average shares outstanding
Basic............................ 10,999 8,147(e) 19,146
Diluted.......................... 11,169 8,147(e) 19,316
</TABLE>
The accompanying notes are an integral part of this pro forma condensed combined
statement of income.
40
<PAGE> 48
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CB&I HBI OPERATIONS NOT PRO FORMA
HISTORICAL HISTORICAL ACQUIRED BY CB&I ADJUSTMENTS AS ADJUSTED
---------- ---------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues..................... $470,714 $193,229 $ -- $ -- $663,943
Cost of revenues............. 426,484 163,633 (360) -- 589,757
-------- -------- ----- ------- --------
Gross profit............... 44,230 29,596 360 -- 74,186
Selling and administrative
expenses................... 34,455 13,997 $ -- 1,155 49,607
Other operating income,
net........................ (2,366) -- -- -- (2,366)
-------- -------- ----- ------- --------
Income from operations..... 12,141 15,599 360 (1,155) 26,945
Interest expense............. (3,777) (341) -- (3,243) (7,361)
Interest income.............. 329 2,457 -- (585) 2,201
-------- -------- ----- ------- --------
Income before taxes and
minority interest....... 8,693 17,715 360 (4,983) 21,785
Income tax (expense)
benefit.................... (2,434) (6,628) (126) 1,624 (7,564)
-------- -------- ----- ------- --------
Income before minority
interest................ 6,259) 11,087 234 (3,360) 14,220
Minority interest in
income..................... (636) (1,184) -- 0 (1,820)
-------- -------- ----- ------- --------
Net income................. $ 5,623 $ 9,903 $ 234 $(3,360) $ 12,400
======== ======== ===== ======= ========
Net income per share
Basic...................... $ 0.60 $ 0.71
Diluted.................... $ 0.59 $ 0.70
Weighted average shares
outstanding
Basic...................... 9,320 8,147 17,467
Diluted.................... 9,563 8,147 17,710
</TABLE>
The accompanying notes are an integral part of this pro forma condensed combined
statement of income.
41
<PAGE> 49
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
1. CB&I AND HBI HISTORICAL DATA
The historical balances represent the consolidated balance sheets of CB&I
and HBI as of September 30, 2000 and the consolidated statements of income for
each of the indicated periods as reported in the historical consolidated
financial statements of CB&I and HBI.
2. HBI ACQUISITIONS
Effective July 16, 1999, HBI acquired all of the outstanding common stock
of Matrix for approximately $23,700. Matrix has been included in the
consolidated financial statements of HBI since July 16, 1999. Therefore, a pro
forma adjustment has been reflected within the unaudited pro forma condensed
combined statement of operations for the year ended December 31, 1999 to include
Matrix' results of operations for the period January 1, 1999 to July 15, 1999.
Effective December 1, 1999, HBI acquired all of the outstanding common
stock of Callidus and Plasma Energy Corporation ("Plasma") for approximately
$8,200. Effective December 31, 1999, HBI sold Plasma's common stock to a third
party for approximately $1,300. Callidus has been included in the consolidated
financial statements of HBI since December 1, 1999. Therefore, a pro forma
adjustment has been reflected within the unaudited pro forma condensed combined
statement of income for the year ended December 31, 1999 to include Callidus'
results of operations for the period January 1, 1999 to November 30, 1999. The
results of Plasma, a discontinued operation, have been excluded from this
adjustment.
3. NET ASSETS NOT ACQUIRED BY CB&I
In accordance with the Purchase Agreement, CB&I did not purchase certain
assets and liabilities of HBI including certain real properties and related
environmental contingencies, and a receivable from the sale of the Plasma
operations of Callidus (Note 2). Therefore, these assets and liabilities and
their related impact on the results of operations were excluded from the
unaudited pro forma condensed combined financial statements.
4. PRO FORMA ADJUSTMENTS
The pro forma adjustments reflected in the pro forma condensed combined
balance sheet give effect to the following based on the Company's preliminary
allocation of purchase price to HBI's net assets:
(a) To record the remittance of $32,000 in cash to WEDGE pursuant to the
working capital formula in the Purchase Agreement as if the acquisition
occurred on September 30, 2000. This remittance is assumed to be funded
by $13,000 in HBI cash and an additional $19,000 borrowing under the
CB&I revolving credit agreement.
(b) To record the write-up of HBI fixed assets to their depreciated
replacement value, based on preliminary estimates. This write-up will
be depreciated over 10 years.
(c) To record the $137,160 excess of cost over the fair value of tangible
net assets as intangible assets. This balance was allocated as follows:
<TABLE>
<CAPTION>
AMORTIZATION PERIOD
-------------------
<S> <C> <C>
Non-compete agreements................................... $ 5,032 5 to 10 years
Patents, licenses and technical agreements............... 140 13 years
Goodwill................................................. 131,988 40 years
--------
Total HBI intangible assets.............................. 137,160
HBI historical intangible assets......................... (28,791)
--------
Pro forma adjustment..................................... $108,369
========
</TABLE>
42
<PAGE> 50
(d) To record the following: (1) payment of $1,500 of fees associated with
the CB&I revolving credit agreement refinancing which will be amortized
over the life of the associated credit facility; (2) Write-off of
existing unamortized deferred financing fees of $269; and (3) a $985
deferred tax asset on employee benefit liability adjustment discussed
in (f) below.
(e) The drawdown of funds under the CB&I revolving credit agreement of
$53,000 for the following: (1) $28,000 for part of the HBI purchase
consideration; (2) $1,500 for debt refinancing fees; (3) $4,500 for
acquisition-related costs; and (4) $19,000 to fund the HBI working
capital due to WEDGE upon closing.
(f) To record the $3,197 increase in employee benefit liabilities.
(g) To record the issuance of 8,146,665 shares of Common Stock at NLG 0.01
par value. The shares were valued based on the average market price of
the Common Stock five days before and after the terms of the
acquisition were agreed to and announced, or $12.875 per share.
(h) The elimination of the HBI historical stockholder's equity and the
capital structure of HBI under WEDGE ownership. Also to write-off
CB&I's existing unamortized deferred financing fees of $269.
The pro forma adjustments reflected in the pro forma condensed combined
statements of income give effect to the following:
(a) To reflect $1,673 and $893 of incremental intangible asset amortization
expense and $350 and $262 of incremental depreciation expense for the
year ended December 31, 1999 and the nine months ended September 30,
2000, respectively. Total pro forma amortization and depreciation
expenses include the following amounts:
<TABLE>
<CAPTION>
AMORTIZATION
EXPENSE DEPRECIATION EXPENSE
------------ --------------------
12/31/99 9/30/00 12/31/99 9/30/00
-------- ------- --------- --------
<S> <C> <C> <C> <C>
CB&I Historical.................................. $ 502 $ 481 $17,263 $12,788
HBI Historical................................... 1,291 1,582 1,357 1,580
Matrix (1/1/99-7/15/99).......................... -- n/a 231 n/a
Callidus (1/1/99-11/30/99)....................... 29 n/a 1,010 n/a
Pro forma adjustment............................. 1,673 893 350 262
------ ------ ------- -------
Total pro forma expense.......................... $3,495 $2,956 $20,211 $14,630
====== ====== ======= =======
</TABLE>
(b) To adjust interest expense as follows: (1) an increase in interest
expense of $3,604 for the year ended December 31, 1999 and $2,942 for
the nine months ended September 30, 2000 reflecting the additional
$53,000 of borrowings under the CB&I revolving credit facility; (2) to
record $909 of incremental interest expense for the year ended December
31, 1999 which would have been incurred if HBI acquired Matrix and
Callidus effective January 1, 1999; and (3) to record incremental
amortization from refinancing costs associated with the CB&I revolving
credit facility of $402 for the year ended December 31, 1999 and $301
for the nine months ended September 30, 2000. For pro forma purposes,
the interest rates applied were based on the average historical rates
experienced by CB&I and HBI. The average interest expense rate for the
CB&I revolving credit facility was 6.8% in 1999 and 7.4% in 2000. The
interest income rate on the HBI cash balances was 5.0% in 1999 and 6.0%
in 2000.
(c) To reduce interest income by $650 and $585 for the year ended December
31, 1999 and the nine months ended September 30, 2000, respectively,
due to the remittance of $13,000 in cash to WEDGE.
(d) To reflect income tax effect of deductible pro forma adjustments.
(e) Incremental issuance of 8,146,665 shares of Common Stock.
The unaudited pro forma condensed combined statement of income excludes an
estimated after-tax expense of $3,000 related to the change of control
provisions of the CB&I Long-Term Incentive Plan. This one-time expense will be
recognized upon the consummation of the HBI Transaction.
43
<PAGE> 51
COMPARATIVE UNAUDITED PER SHARE DATA
The following table sets forth certain of our earnings per share and book
value per share data on a historical basis and on a pro forma condensed combined
basis after giving effect to the HBI Transaction and based on the same
assumptions as those described under the "Unaudited Pro Forma Condensed Combined
Financial Statements of CB&I and HBI." This data should be read in conjunction
with that section and the historical audited and unaudited consolidated
financial statements of CB&I and HBI and the notes thereto.
The unaudited pro forma information was presented for illustrative purposes
only and is not necessarily indicative of the combined financial position or
results of operations of future periods or the results that actually would have
been realized had we owned HBI during the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1999 SEPTEMBER 30, 2000
----------------- ------------------
<S> <C> <C>
Basic Earnings Per Share:
CB&I historical.................................. $ 1.67 $ 0.60
Pro forma combined............................... $ 1.67 $ 0.71
Diluted Earnings Per Share:
CB&I historical.................................. $ 1.65 $ 0.59
Pro forma combined............................... $ 1.66 $ 0.70
Book Value Per Share:
CB&I historical.................................. $10.16 $ 9.71
Pro forma combined............................... N/A $11.19
</TABLE>
The affirmative vote of a majority of the votes cast is required to adopt
the proposal to approve the Supervisory Board's issuance of 8,146,665 shares of
Common Stock in connection with the consummation of the HBI Transaction. The
effectiveness of this proposal is also conditioned upon shareholder approval of
the proposals contained in Items 2 and 3 of this Proxy Statement. Under
applicable Dutch law, there are no appraisal rights available to dissenting
shareholders in connection with the consummation of the HBI Transaction.
THE SUPERVISORY BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL
TO APPROVE THE ISSUANCE OF 8,146,665 SHARES OF COMMON STOCK IN CONNECTION WITH
THE CONSUMMATION OF THE HBI TRANSACTION.
ITEM 2
PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION
TO IMPLEMENT THE PROPOSED SHAREHOLDER AGREEMENTS
The proposed Shareholder Agreements contemplate that certain amendments
will be made to our Articles of Association in order to effectuate the
provisions and purposes of the Shareholder Agreements. The full text of the
unofficial English translation of such proposed amendments is attached as Annex
C to this Proxy Statement and is incorporated herein by reference. Shareholders
are urged to read the full text of the proposed amendments in Annex C for
additional information not contained in the summary set forth below.
The provisions of the proposed amendments are designed to accomplish the
following four objectives:
1. To permit the Supervisory Board to adopt rules and regulations governing
its internal proceedings, including Supervisory Board composition,
governance and voting on the nomination of Supervisory Directors (see
paragraph IX of Annex C) ("Amendment No. 1");
2. To limit the right of WEDGE or First Reserve to have Registered Shares
converted into Bearer Shares (see paragraphs II, IV and V of Annex C)
("Amendment No. 2");
44
<PAGE> 52
3. To require that certificated Registered Shares be submitted to us or our
duly authorized representative (transfer agent) for transfer (see
paragraphs III, VI and VII of Annex C) ("Amendment No. 3"); and
4. To require, at a time when there is a CB&I shareholder who owns 15% of
our outstanding voting securities, that certain significant transactions
(i.e., business combinations, recapitalizations or a transaction with a
person who is or has been a 15% shareholder) otherwise requiring a
shareholder vote for approval will require the approval of at least 80%
of our outstanding voting securities (see paragraph XI of Annex C)
("Amendment No. 4").
In addition to providing Supervisory Board representation for WEDGE and
First Reserve, the primary purpose of the Shareholder Agreements is to negate
the ability of WEDGE or First Reserve, or both acting together, to exercise
control over the Company. This purpose is effected by means of "standstill"
provisions, voting restrictions and share transfer restrictions contained in the
Shareholder Agreements as described above. See "Approval of Share Issuance; The
HBI Transaction -- The Shareholder Agreements".
The purpose of proposed Amendment No. 1 is to allow the Supervisory Board
to draw up its own rules and regulations governing internal matters of
composition and governance which give effect to the matters agreed upon in the
Shareholder Agreements, including the right of WEDGE and First Reserve to be
represented on the Supervisory Board and certain committees thereof.
The purpose of proposed Amendment No. 2 is to implement and enhance the
enforceability of the provisions in the Shareholder Agreements which prohibit
WEDGE, First Reserve and their respective affiliates and assignees from
converting their Registered Shares into Bearer Shares. Registered Shares are
maintained in a share registry by our New York Transfer Agent and Registrar and
traded only on the New York Stock Exchange, Inc. pursuant to a written
instrument of transfer and written acknowledgement by us (or our Transfer agent)
of such transfer (Common Stock may also be registered in The Netherlands in the
Amsterdam Register and may be converted to Registered Shares or Bearer Shares).
Bearer Shares are not maintained in a share registry and trade only on the
Amsterdam Stock Exchange. Without effective prohibition on the ownership of
Bearer Shares, there would be no practical means for us to ensure compliance by
WEDGE and First Reserve and their assignees with the voting and share transfer
restrictions provided in the Shareholder Agreements.
The purpose of proposed Amendment No. 3 is to implement and enhance the
enforceability of the provisions in the Shareholder Agreements which impose
certain restrictions on the persons to whom WEDGE and First Reserve may transfer
their shares and which grant us a right of first offer as to certain proposed
transfers. By requiring that any certificated Registered Share be submitted to
us or our transfer agent in connection with a proposed transfer, we believe that
we have an effective practical means of monitoring compliance with such transfer
restrictions in the Shareholder Agreements.
The purpose of proposed Amendment No. 4 is to ensure that, at a time when
there are one or more holders of 15% of our outstanding voting securities (each
an "affiliated holder"), any business combination transaction, recapitalization
transaction or transaction involving a person who is or has been an affiliated
holder, which transaction otherwise requires a shareholder vote for approval,
will require the approval of a supermajority percentage (at least 80%) of our
voting securities outstanding. As a result, it is unlikely that our affiliate
holder(s) could alone determine the outcome of such shareholder vote. For
example, assuming that the HBI Transaction and the First Reserve Transaction are
consummated and WEDGE and First Reserve together own approximately 48.5% of our
outstanding voting securities, if a proposed business combination transaction
thereafter required approval by our shareholders, such proposal could only be
adopted if approximately 62% of our shareholders not affiliated with WEDGE and
First Reserve voted for approval of the transaction, assuming that WEDGE and
First Reserve also voted for the proposal. An effect of this Amendment No. 4,
while negating the ability of WEDGE and First Reserve to control a decision to
sell the Company, would also make it more difficult to obtain shareholder
approval for certain types of business combination transactions (e.g., a "legal
merger" under Dutch law) requiring a shareholder vote, but would not affect the
ability of an acquiror to obtain control of the Company through a tender offer
or other type of business combination transaction not requiring such a
shareholder vote. In general, the intent and effect of
45
<PAGE> 53
various provisions of the Shareholder Agreements (including the requirement
that, as to any proposed business combination or recapitalization transaction
involving the Company and any third party, WEDGE and First Reserve must vote or
tender their shares or otherwise act as recommended by the Supervisory Board) is
to limit the influence of WEDGE and First Reserve over a decision to sell
control of the Company.
The affirmative vote of a majority of the votes cast is required to adopt
the proposed amendments to the Articles of Association. The effectiveness of the
proposed amendments to the Articles of Association is also conditioned upon
shareholder approval of the proposals contained in Items 1 and 3 of this Proxy
Statement.
THE SUPERVISORY BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSED
AMENDMENTS TO THE ARTICLES OF ASSOCIATION.
ITEM 3
APPOINTMENT OF ADDITIONAL SUPERVISORY DIRECTORS
GENERAL
The general affairs and business of the Company and the Management Board
are supervised by the Board of Supervisory Directors the members of which are
appointed by the general meeting of shareholders. Our Articles of Association
provide for at least six and no more than twelve Supervisory Directors to serve
on the Supervisory Board. By resolution of the Supervisory Board dated September
8, 2000, the size of the Supervisory Board will be increased from eight to
twelve, effective the date of the Special Meeting, subject to approval by the
shareholders of proposed Items 1 and 2 above, and the appointment of four
additional Supervisory Directors as proposed in this Item 3. Under the law of
The Netherlands, a Supervisory Director cannot be a member of the Management
Board of the Company. The general meeting of shareholders has appointed Chicago
Bridge & Iron Company B.V. as the sole member of the Management Board.
Members of the Supervisory Board are appointed to serve three-year terms,
with approximately one-third of such members' terms expiring each year. Members
of the Supervisory Board must retire no later than at the general meeting of
shareholders held after a period of three years following their appointment, but
may be re-elected. A member of the Supervisory Board must resign effective the
date of the annual general meeting of shareholders in the year in which the
director attains the age of 72. Pursuant to our 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 proposal is made by the Supervisory Board, a simple majority vote of the
shareholders is required to effect such suspension or dismissal. If no such
proposal is made, the general meeting of shareholders by vote of two-thirds of
the votes cast at the meeting if such two-thirds vote constitutes more than
one-half of the issued share capital of the Company (a "Two-Thirds Majority of
Quorum") is required to effect such suspension or dismissal. The members of the
Supervisory Board may receive such compensation as may be determined by the
general meeting of shareholders.
As permitted under Dutch law and our Articles of Association, the
Supervisory Board is authorized to make binding nominations of two candidates
for each open position on the Supervisory Board, with the candidate receiving
the greater number of votes being elected. A nomination by the Supervisory Board
is binding on general meeting of the shareholders unless overridden by a
Two-Thirds Majority of Quorum.
Under the proposed Shareholder Agreements, WEDGE and First Reserve are each
entitled to nominate candidates for two Supervisory Director positions. For one
position, the Supervisory Board, at the request of WEDGE, has proposed the
election of Michael D. Winfield or James M. Tidwell for a term to expire in
2001. For the second position, the Supervisory Board, at the request of WEDGE,
has proposed the election of William H. White or Greg Armstrong for a term to
expire in 2002. For the third position, the Supervisory Board, at the request of
First Reserve, has proposed the election of William E. Macaulay or J. Will
46
<PAGE> 54
Honeybourne for a term to expire in 2001. For the fourth position, the
Supervisory Board, at the request of First Reserve, has proposed the election of
Ben A. Guill or Thomas R. Denison for a term to expire in 2003.
THE SUPERVISORY BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPOINTMENT
OF MESSRS. WINFIELD, MACAULAY, WHITE, AND GUILL. THE ELECTION OF FOUR ADDITIONAL
SUPERVISORY DIRECTORS IS CONDITIONED UPON SHAREHOLDER APPROVAL OF THE PROPOSALS
CONTAINED IN ITEMS 1 AND 2 OF THIS PROXY STATEMENT AND CONSUMMATION OF THE HBI
TRANSACTION AND THE FIRST RESERVE TRANSACTION.
Certain information with respect to the nominees for Supervisory Director
and the eight Supervisory Directors who will continue in office is as follows:
THE FOLLOWING NOMINATIONS ARE MADE FOR THE TERM EXPIRING IN 2001:
FIRST POSITION
FIRST NOMINEE
MICHAEL D. WINFIELD, 59, has been president and chief executive officer
since February 1992 of UOP, a general partnership of Honeywell International
Inc. and Union Carbide Corporation, engaged in the licensing of technologies to
the oil refining and petrochemical industries. Mr. Winfield has served as a
director of Landauer Inc. (a firm providing services related to radiation
monitoring) since 1994.
SECOND NOMINEE
JAMES M. TIDWELL, 54, currently serves as Vice President and Chief
Financial Officer of WEDGE Group Incorporated, a position which he has held
since January 2000. WEDGE is a diversified firm with subsidiaries in engineering
and construction, hotel, oil and gas, and real estate businesses. Prior to
joining WEDGE, Mr. Tidwell served as President of Daniel Measurement and
Control, a division of Emerson Electric Company since June 1999. From August
1996 to June 1999, he was Executive Vice President and Chief Financial Officer
of Daniel Industries Inc., a leading supplier of specialized equipment and
systems to oil, gas and process operators and plants to measure and control flow
of fluids. For over five years prior to joining Daniel Industries, Mr. Tidwell
served as Senior Vice President and Chief Financial Officer of Hydril Company, a
worldwide leader in engineering, manufacturing and marketing premium tubular
connections and pressure control devices for oil and gas drilling and
production.
SECOND POSITION
FIRST NOMINEE
WILLIAM E. MACAULAY, 54, is the Chairman and Chief Executive Officer of
First Reserve Corporation where he has been employed since 1983. First Reserve
Corporation is the general partner of the general partner of First Reserve Fund
VIII, L.P. He is a member of the board of directors of National-Oilwell, Inc., a
distributor of oilfield equipment and machinery, Weatherford International,
Inc., an oilfield services company, Superior Energy Services, Inc., a provider
of specialized oilfield services and equipment, TransMontaigne Inc., a company
engaged in transporting, terminaling, storing and marketing refined petroleum
products, Maverick Tube Corporation, a manufacturer of oilfield pipe products
and structural steel, Grant Prideco, Inc., a company engaged in drill stem
technology development and drill pipe manufacturing, and Pride International,
Inc., a leading international provider of contract drilling and associated
services related to the oil and gas exploration and production industry, both
onshore and offshore. Mr. Macaulay holds a B.A. degree in Economics from City
College of New York and an M.B.A. from the Wharton Graduate School of Business
at the University of Pennsylvania, where he has also served as a member of the
Executive Board.
47
<PAGE> 55
SECOND NOMINEE
J. WILL HONEYBOURNE, 49, is a Managing Director of First Reserve
Corporation where he has been employed since 1998. From September 1996 to
December 1998, Mr. Honeybourne served as Senior Vice President of Western Atlas
International, a $2.5 billion oil service company. From October 1995 to
September 1996, he was a private investor. From September 1993 to October 1995,
Mr. Honeybourne served as President and Chief Executive Officer of Alberta-based
Computalog and in various capacities with Baker Hughes, including Vice President
and General Manager of INTEQ and President of EXLOG. Mr. Honeybourne holds a
B.S. in Oil Technology from Imperial College, London University.
THE FOLLOWING NOMINATIONS ARE MADE FOR THE TERM EXPIRING IN 2002:
FIRST NOMINEE
WILLIAM H. WHITE, 46, has been the President and Chief Executive Officer of
WEDGE Group Incorporated since April 1997. WEDGE is a diversified firm with
subsidiaries in engineering and construction, hotel, oil and gas, and real
estate businesses. From December 1995 to June 1998, Mr. White served as the
Chairman of the Democratic Party of Texas. Mr. White served as Deputy Secretary
and Chief Operating Officer of the Department of Energy from 1993 to 1995. Prior
to his service at the Department of Energy, Mr. White practiced law and served
on the management committee of the law firm of Susman Godfrey L.L.P. and taught
law at the University of Texas at Austin. Mr. White is the founder and Chairman
of the Board of Frontera Resources, an international energy company with
projects in emerging markets. Mr. White is a director of USEC, Inc., a global
energy company which produces and sells uranium fuel enrichment services for
nuclear power plants.
SECOND NOMINEE
GREG ARMSTRONG, 41, has served since February 2000 as the President and
Chief Executive Officer of WEDGE Real Estate Holdings, Inc., a subsidiary of
WEDGE responsible for the management, acquisitions, dispositions and financing
of WEDGE's real estate portfolio, including office, hotel, industrial and
climate-controlled, self-storage properties. From July 1997 to February 2000,
Mr. Armstrong served as the Vice President and Chief Financial Officer of WEDGE
Group Incorporated. From February 1995 to July 1997, Mr. Armstrong served as
WEDGE's Controller.
THE FOLLOWING NOMINATIONS ARE MADE FOR THE TERM EXPIRING IN 2003:
FIRST NOMINEE
BEN A. GUILL, 49, is the President of First Reserve Corporation where he
has served since September 1998. Prior to joining First Reserve Corporation, Mr.
Guill was a Partner and Managing Director of Simmons & Company International, an
investment banking firm located in Houston, Texas which focuses on the oil
service and equipment industry. Mr. Guill had been with Simmons & Company since
1980. He is member of the board of directors of National-Oilwell, Inc. and
Superior Energy Services, Inc. Mr. Guill received his Bachelor of Arts Degree
from Princeton University and his Masters Degree in Finance from the Wharton
Graduate School of Business at the University of Pennsylvania.
SECOND NOMINEE
THOMAS R. DENISON, 39, is a Managing Director and General Counsel of First
Reserve Corporation where he has served since 1998. He was a partner in the
international law firm of Gibson, Dunn & Crutcher LLP from January 1995 to
January 1998. Mr. Denison received a B.S. degree in Business Administration from
the University of Denver and a J.D. from the University of Virginia.
48
<PAGE> 56
DIRECTORS TO CONTINUE IN OFFICE WITH TERMS EXPIRING IN 2001:
JERRY H. BALLENGEE, 62, has served as a Supervisory Director of the Company
since April 1997. He served as President and Chief Operating Officer of Union
Camp Corporation from July 1994 to May 1999 and has served in various other
executive capacities and as a member of the Board of Directors of Union Camp
Corporation from 1988 to May 1999. He is Chairman of the Supervisory Board's
Nominating Committee and a member of the Corporate Governance Committee.
L. DONALD SIMPSON, 64, has served as a Supervisory Director of the Company
since April 1997. From December 1996 to February 2000, Mr. Simpson served as
Executive Vice President of Great Lakes Chemical Corporation. Prior thereto,
beginning in 1992, he served in various executive capacities at Great Lakes
Chemical Corporation. He is a member of the Supervisory Board's Audit Committee
and Corporate Governance Committee.
DIRECTORS TO CONTINUE IN OFFICE WITH TERMS EXPIRING IN 2002:
J. CHARLES JENNETT, 59, has served as a Supervisory Director of the Company
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. Dr. Jennett is a member of the
Supervisory Board's Nominating Committee and Corporate Governance Committee.
GARY L. NEALE, 60, has served as a Supervisory Director of the Company
since April 1997. He is currently President, CEO and Chairman of the Board of
NiSource, Inc., whose primary business is the distribution of electricity, gas
and water through utility companies. Mr. Neale has served as a director of
NiSource, Inc. since 1991, a director of Northern Indiana Public Service Company
since 1989 and a director of Modine Manufacturing Company (heat transfer
products) since 1977. Mr. Neale is Chairman of the Supervisory Board's Corporate
Governance Committee and a member of the Organization and Compensation
Committee.
MARSHA C. WILLIAMS, 49, has served as a Supervisory Director of the Company
since April 1997. Since May 1998, she has served as Chief Administrative Officer
of Crate & Barrel, a specialty retail company. Prior to that, she served as Vice
President and Treasurer of Amoco Corporation from December 1997 to May 1998 and
Treasurer from 1993 to 1997. Ms. Williams is a director of Selected Funds, Davis
Funds and Modine Manufacturing Company (heat transfer products). Ms. Williams is
a member of the Supervisory Board's Audit Committee and Corporate Governance
Committee.
DIRECTORS TO CONTINUE IN OFFICE WITH TERMS EXPIRING IN 2003:
J. DENNIS BONNEY, 69, has served as a Supervisory Director of the Company
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 Aeromovel Global Corporation. From 1996 to 1998 he was a director of Alumax
Inc. and United Meridian Corporation. Mr. Bonney is Chairman of the Supervisory
Board's Audit Committee, and is a member of the Organization and Compensation
Committee and the Corporate Governance Committee.
GERALD M. GLENN, 58, has served as Chairman of the Supervisory Board of the
Company since April 1997. He has been President and Chief Executive Officer of
Chicago Bridge & Iron Company since May 1996 and has been a Managing Director of
Chicago Bridge & Iron Company B.V. since March 1997. Since April 1994, Mr. Glenn
has been a principal in the Glenn Group LLC. From November 1986 to April 1994,
he served as Group President-Fluor Daniel, Inc. Mr. Glenn is a member of the
Supervisory Board's Nominating Committee.
VINCENT L. KONTNY, 63, has served as a Supervisory Director of the Company
since April 1997. He has served as Chief Operating Officer of Washington Group
International since April 2000 and since 1992 has been the owner and CEO of the
Double Shoe Cattle Company. Mr. Kontny was President and Chief Operating Officer
of Fluor Corporation from 1990 until September 1994. Mr. Kontny is Chairman of
the Supervisory Board's Organization and Compensation Committee and is a member
of the Audit Committee and the Corporate Governance Committee.
49
<PAGE> 57
COMMITTEES OF THE BOARD
The Audit Committee, which held four meetings in 1999, is charged with
reviewing the adequacy and effectiveness of the internal auditing, accounting
and financial controls of the Company, and coordinating the annual internal
audit plan with the auditing plan of the independent public accountants. The
Committee receives reports from the Company's Internal Audit Department, reviews
the annual report to shareholders and the financial statements contained
therein, reviews the results of the audit performed by the Company's independent
public accountants and acts as liaison between the independent public
accountants and the Supervisory Board. The Committee makes recommendations
concerning the appointment of the independent public accountants of the Company,
the scope of the audit to be performed and the fees to be paid. The Committee is
also authorized to audit and monitor the compliance by the Company and its
subsidiaries with the laws of the various jurisdictions in which the Company and
its subsidiaries conduct business and to report to the Supervisory Board and
make recommendations with respect to any problems.
The Organization and Compensation Committee, which held four meetings in
1999, reviews and makes recommendations concerning compensation philosophy and
guidelines for the executive and managerial group of the Company, reviews
compensation and benefit programs for employees of the Company and its
subsidiaries, compares such programs and compensation against market data and
makes recommendations as to modifications, reviews recommendations or actions of
management concerning benefit plans, incentive plans, stock option or other
stock awards and oversees the administration of such plans, reviews
compensation, awards and grants under corporate benefit plans for the Chief
Executive Officer, reviews management recommendations concerning compensation
for certain other officers, administers the Company's long-term incentive plan
and advises as to which key officers of the Company or its subsidiaries should
be offered employment and/or termination agreements.
The Nominating Committee, which held two meetings in 1999, establishes
criteria regarding the size and composition of the Supervisory Board and its
committees, recommends criteria relating to tenure and eligibility, identifies,
reviews and recommends prospective Supervisory Directors, recommends candidates
for the position of Chief Executive Officer, approves the nominees for new
positions on the Supervisory Board and vacancies on the Supervisory Board, and
advises regarding Supervisory Board compensation. It will consider nominees for
Supervisory Director recommended by shareholders. Recommendations must be
submitted in writing and addressed to the Chairman of the Nominating Committee,
c/o Secretary of the Company, Robert H. Wolfe, Chicago Bridge & Iron Company
N.V., Polarisavenue 31, JH 2132 Hoofddorp, The Netherlands, and set forth the
name, age, business and residential address, principal occupation, number of
shares of Common Stock owned and such other information concerning the nominee
as may be requested by the Nominating Committee.
The Corporate Governance Committee, which held one meeting in 1999, reviews
and makes recommendations concerning policies and practices of management
relating to corporate governance and responsibilities and is responsible for the
internal operations of the Supervisory Board.
INFORMATION REGARDING MEETINGS
The Supervisory Board held four meetings in 1999. Each of the Supervisory
Directors attended at least 75% of the meetings of the Supervisory Board and of
the committees of which he or she was a member.
50
<PAGE> 58
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer of the Company and the four other most highly compensated executive
officers of the Company.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------------------ ----------------------- -------
(A) (B) (C) (D) (G) (H) (I)
(E) (F) SECURITIES
OTHER RESTRICTED UNDERLYING
ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(2) ($)(3) ($)(4) (# SHARES) ($) ($)(5)
--------------------------- ---- ------------ ----------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gerald M Glenn.............. 1999 441,000 350,000 -- 671,875 51,200 258,935 83,157
Chairman of the
Supervisory Board;
President, 1998 420,000 330,000 -- -- 51,200 73,935 1,268,993
Chief Executive Officer
and Chairman of Chicago 1997 400,000 155,000 -- -- 92,094 -- 8,640,347
Bridge & Iron Company; and
Managing Director of
Chicago Bridge & Iron
Company B.V.
Stephen P. Crain............ 1999 185,000 100,000 38,135 -- 10,600 53,625 22,633
Vice President -- Global
Sales and Marketing of 1998 146,000 87,500 -- -- 7,400 15,311 15,842
Chicago Bridge & Iron
Company and Managing
Director of Chicago Bridge
& Iron Company B.V.
Robert B. Jordan............ 1999 300,000 160,000 46,923 -- 23,000 104,181 35,200
Vice
President -- Operations of
Chicago Bridge & 1998 250,082(1) 140,000 -- 275,000 70,500 29,745 121,448
Iron Company; and Managing
Director of Chicago Bridge
& Iron Company B.V.
Timothy J. Wiggins.......... 1999 255,000 127,500 -- -- 12,300 62,816 185,528
Vice President and Chief
Financial Officer of 1998 242,008 125,000 -- -- 12,300 17,932 318,578
Chicago Bridge & Iron
Company; and Managing 1997 220,012 75,000 -- -- 21,489 -- 2,057,273
Director of Chicago Bridge
& Iron Company B.V.
Robert H. Wolfe............. 1999 195,000 68,250 -- -- 8,600 42,900 22,021
Secretary of the Company;
Vice President, General 1998 187,252 65,538 -- -- 8,600 12,251 116,668
Counsel and Secretary of
Chicago Bridge & Iron 1997 175,000 35,000 -- -- 17,094 -- 721,090
Company; and Secretary of
Chicago Bridge & Iron
Company B.V.
</TABLE>
---------------
(1) Salary paid in 1998 for actual period of employment by the Company, February
9, 1998 through December 31, 1998.
(2) Bonus amounts include payments under the Incentive Compensation Plan (as
described under the caption "Organization and Compensation Committee Report
on Executive Compensation").
(3) Amounts reported are personal benefits and include club dues as follows:
Stephen P. Crain $29,742; Robert B. Jordan $39,480. Persons for whom no
amount is reported did not receive personal benefits the value of which
exceeded the lesser of $50,000 or 10% of their annual salary and bonus.
(4) Restricted stock awards or units are valued at the closing price on the date
of grant. Participants receive dividends on the grants reported in this
column. Restricted stock awards granted to Robert B. Jordan vest in four
equal annual installments starting in September 1999. Restricted stock units
granted to Gerald M. Glenn vest April 1, 2002 (as described under the
caption "Organization and Compensation Committee Report on Executive
Compensation").The number and value of the aggregate restricted share
holdings at the end of the last completed fiscal year, based on the NYSE
composite closing price of $13.75/share on December 31, 1999, for each named
executive officer who held such shares are: Gerald M. Glenn, 50,000,
$671,875; Robert B. Jordan, 18,750, $257,800.
51
<PAGE> 59
(5) The compensation reported for 1999 represents (a) the value of shares
reallocated to each named executive officer resulting from forfeitures of
other Participants pursuant to the Management Plan (as described below), (b)
contributions pursuant to the Chicago Bridge & Iron Savings Plan (the
"401(k) Plan") allocated to the executive officer's account, and (c) the
cost of allocations to each executive officer's account in a benefit
restoration plan (described under the caption "Pension and Other Retirement
Benefits") for allocations pursuant to the 401(k) Plan which otherwise
exceed the maximum limit imposed upon such plan by the Code. For 1999, those
three amounts, expressed in the respective order identified above, for each
named executive officer are as follows: Gerald M. Glenn, $21,477, $12,800,
$48,880; Stephen P. Crain $233, $12,800, $9,600; Robert B. Jordan $0,
$12,800, $22,400; Timothy J. Wiggins $5,128, $12,800, $17,600; Robert H.
Wolfe $1,178, $12,800, $8,043. With respect to Timothy J. Wiggins, the
compensation reported also includes $150,000 paid to him pursuant to an
agreement whereby his receipt of Management Plan Shares would be deferred.
MANAGEMENT PLAN
At the time of the initial public offering of the Common Stock by Praxair
in March 1997 (the "IPO"), we established the Management Plan and made a
contribution to the Management Plan in the form of 925,670 shares allocated as
restricted stock among approximately 52 key management employees.
Restrictions on the Management Plan shares lapsed as to one participant on
January 1, 1999, and as to all other participants except Messrs. Glenn and
Wiggins on March 27, 2000. Distribution of benefits to Mr. Glenn and Wiggins is
generally scheduled to occur on the earlier of termination of employment, April
1, 2002 or a "Change of Control". See "Item 1 -- Authorization of Share
Issuance; the HBI Transaction -- Interest of Certain Persons in the HBI
Transaction -- Executive Officers" for a fuller description of the benefits
under the Management Plan in light of the HBI Transaction.
EMPLOYEE STOCK PURCHASE PLAN
The Company has adopted a broad-based employee stock purchase plan (the
"Stock Purchase Plan") intended to qualify under Section 423 of the Code.
Pursuant to the Stock Purchase Plan, each employee, including executive
officers, electing to participate is granted an option to purchase shares on 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 participating employees' after-tax pay is withheld and used to purchase as
many shares as such funds allow at the discounted purchase price.
LONG-TERM COMPENSATION
The Company's subsidiary, Chicago Bridge & Iron Company, a Delaware
corporation ("Chicago Bridge") has adopted the Chicago Bridge & Iron 1997
Long-Term Incentive Plan (the "1997 Incentive Plan") and the Chicago Bridge &
Iron 1999 Long-Term Incentive Plan (the "1999 Incentive Plan" and, together with
the 1997 Incentive Plan, the "Incentive Plans"). The Incentive Plans are
so-called "omnibus" plans which provide long-term compensation in the form of:
non-qualified options to purchase shares; qualified "incentive" options to
purchase shares; restricted shares; restricted stock units; "performance shares"
paying out a variable number of shares depending on goal achievement; and
"performance units," which involve cash payments based on either the value of
the shares or appreciation in the price of the shares upon achievement of
specific financial goals. See "Item 4 -- Adoption of Amendment to the Chicago
Bridge & Iron 1999 Long-Term Incentive Plan -- Summary of the Amended Plan" for
a fuller description of the 1999 Incentive Plan (which is substantially similar
to the 1997 Incentive Plan).
Under the Incentive Plans, in the event of a "Change in Control," all
options become immediately exercisable, the restriction period imposed on any
restricted stock award lapses and the payout opportunities attainable under
outstanding awards of performance units and shares are deemed to have been fully
earned for the performance period. See "Item 1 -- Authorization of Share
Issuance; the HBI Transaction -- Interest of Certain Persons in the HBI
Transaction -- Executive Officers" for a fuller description of the benefits
under the Incentive Plans in light of the HBI Transaction.
52
<PAGE> 60
OPTIONS AND STOCK APPRECIATION RIGHTS
The following tables summarize option grants and exercises pursuant to the
Incentive Plans during the fiscal year 1999 to and by the executive officers
named in the Summary Compensation Table above, and the value of the options held
by such persons at the end of fiscal 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
GRANT VALUE
INDIVIDUAL GRANTS DATE
--------------------------------------------------------------------------------------------- -----------
(A) (B) (C) (D) (E) (F)
NUMBER OF
SECURITIES
UNDERLYING % OF TOTAL OPTIONS/
OPTIONS/SARS SARS GRANTED TO EXERCISE OR GRANT DATE
GRANTED EMPLOYEES IN FISCAL BASE PRICE EXPIRATION PRESENT
NAME (# SHARES)(1) YEAR ($/SHARE) DATE VALUE($)(2)
---- ------------- ------------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Gerald M. Glenn........... 51,200 30.0% 13.125 5/13/09 $266,240
Stephen P. Crain.......... 10,600 6.2% 13.125 5/13/09 55,120
Robert B. Jordan.......... 20,500 12.0% 13.125 5/13/09 106,600
Robert B. Jordan.......... 2,500(3) 1.5% 13.500 9/10/09 13,400
Timothy J. Wiggins........ 12,300 7.2% 13.125 5/13/09 66,560
Robert H. Wolfe........... 8,600 5.0% 13.125 5/13/09 44,720
</TABLE>
---------------
(1) All options, except the 2,500 options granted to Mr. Jordan, were granted at
market value and vest 25% per year starting May 13, 2000. Each option will
terminate and cease to be exercisable if the participant's employment with
the Company terminates for any reason other than death, retirement,
disability or dismissal for the convenience of the Company (other than
involuntary termination of employment for willful misconduct or gross
negligence).
(2) The estimated grant date present value reflected in the above table for all
options is determined using a Black-Scholes model. The material assumptions
and adjustments incorporated in the Black-Scholes model in estimating the
value of the options reflected in the above table, other than the grant of
2,500 options to Mr. Jordan, include the following: (a) an exercise price of
the option of $13.125 equal to the fair market value of the underlying stock
on the date of grant; (b) an interest rate of 5.54% that represents the
interest rate on a U.S. treasury security with a maturity date corresponding
to that of the option term; (c) volatility of 44.30% calculated using daily
stock prices for the thirty-six months prior to the date of grant; (d)
dividends at the rate of $0.24 per share, representing the annualized
dividends paid with respect to a share of Common Stock at the date of grant;
(e) an approximately 11.53% reduction to reflect the probability of
forfeiture due to termination prior to vesting and an approximately 9.63%
reduction to reflect the probability of a shortened option term due to
termination of employment prior to the option expiration date; and (f) an
option term of ten years.
The material assumptions and adjustments incorporated in the Black-Scholes
model in estimating the value of the 2,500 options granted to Mr. Jordan
reflected in the above table include the following: (a) an exercise price
of the option of $13.50 equal to the fair market value of the underlying
stock on the date of grant; (b) an interest rate of 5.92% that represents
the interest rate on a U.S. treasury security with a maturity date
corresponding to that of the option term; (c) volatility of 43.10%
calculated using daily stock prices for the thirty-six months prior to the
date of grant; (d) dividends at the rate of $0.24 per share, representing
the annualized dividends paid with respect to a share of Common Stock at
the date of grant; (e) an approximately 11.53% reduction to reflect the
probability of forfeiture due to termination prior to vesting and an
approximately 9.78% reduction to reflect the probability of a shortened
option term due to termination of employment prior to the option expiration
date; and (f) an option term of ten years.
The ultimate values of options will depend on the future market price of
the Common Stock, which cannot be forecast with reasonable accuracy. The
actual value, if any, an optionee will realize upon
53
<PAGE> 61
exercise of an option will depend on the excess of the market value of the
Common Stock over the exercise price on the date the option is exercised.
(3) The option vests on September 10, 2006, but may vest on September 10, 2002
if the executive officer has held continuously until such date certain
shares granted as restricted stock for which the restrictions have lapsed.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
FY-END(#) FY-END($)
--------------------- --------------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED($) UNEXERCISABLE UNEXERCISABLE(1)
---- --------------- ----------- --------------------- --------------------
<S> <C> <C> <C> <C>
Gerald M. Glenn............. 0 NA 12,800/181,694 8,000/56,000
Stephen P. Crain............ 0 NA 2,650/25,261 1,656/11,594
Robert B. Jordan............ 0 NA 5,125/88,375 3,203/22,422
Timothy J. Wiggins.......... 0 NA 3,075/43,014 1,922/13,453
Robert H. Wolfe............. 0 NA 2,150/32,144 1,344/9,406
</TABLE>
---------------
(1) Value is based on the NYSE composite closing price of $13.75 per share on
December 31, 1999.
LONG-TERM INCENTIVE PLANS -- PERFORMANCE SHARE AWARDS IN LAST FISCAL YEAR
In 1999, under the Incentive Plan, target awards were allocated one-third
for each year beginning in the fiscal year 1999. Target awards are subject to
adjustment based upon measurement of earnings per share for each fiscal year in
which the measurement of performance is made.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER NON-
STOCK PRICE-BASED PLANS
-----------------------------------
(A) (C) (D) (E) (F)
(B) PERFORMANCE
NUMBER OF OR OTHER
SHARES, UNITS PERIOD UNTIL
OR OTHER MATURATION THRESHOLD TARGET MAXIMUM
NAME RIGHTS (#) OR PAYOUT ($ OR #) ($ OR #) ($ OR #)
---- ------------- ------------ ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Gerald M. Glenn..................... 16,900 1999 2,816 5,633 8,450
2000 2,816 5,633 8,450
2001 2,816 5,634 8,450
Stephen P. Crain.................... 3,500 1999 583 1,116 1,749
2000 583 1,116 1,749
2001 583 1,117 1,749
Robert B. Jordan.................... 6,800 1999 1,133 2,266 3,399
2000 1,133 2,266 3,399
2001 1,133 2,267 3,399
Timothy J. Wiggins.................. 4,100 1999 683 1,366 2,049
2000 683 1,366 2,049
2001 683 1,366 2,049
Robert H. Wolfe..................... 2,800 1999 466 933 1,400
2000 466 933 1,400
2001 466 933 1,400
</TABLE>
54
<PAGE> 62
Actual performance against the performance goal for the fiscal year ended
December 31, 1999 has been determined and the stock earned has been allocated.
(See "Summary Compensation Table -- LTIP -- Payouts").
PENSION AND OTHER RETIREMENT BENEFITS
Effective January 1, 1997, the Company adopted the 401(k) Plan, a tax
qualified defined contribution pension plan for eligible employees, 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 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 shares.
The 401(k) Plan substantially replaced the CBI 401(k) Pay Deferral Plan and
the CBI Pension Plan (the "Pension Plan"), each adopted by the Company's former
parent, Industries. The CBI Pension Plan was non-contributory and covered
substantially all salaried employees and certain hourly employees of the Company
and its participating subsidiaries. Since December 31, 1996, no employees of the
Company participated in the Pension Plan who were not already participants as of
December 31, 1996. No further benefits accrue under the provisions of the
Pension Plan's normal benefit formulas for employees participating as of
December 31, 1996. Instead, benefits accrued as of that date were 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 December 31,
1996 accrued pension benefit was based on credited service and average earnings
over the high three consecutive-year period and is subject to an offset
adjustment for each individual for primary social security benefits and a
portion of the value of benefits under the terminated CBI Salaried Employee
Stock Ownership Plan (1987) previously sponsored by Industries. The estimated
annual benefit payable upon retirement at normal retirement age for Stephen P.
Crain, the only named executive officer who participates in the plan, is
$16,673.
The Code limited the compensation used to determine benefits under the
401(k) Plan to $160,000 for 1999. Chicago Bridge adopted the Chicago Bridge &
Iron Company Excess Benefit Plan through which it contributes benefits which
would be paid under the 401(k) Plan in the absence of this limit. Such
contributions are paid into a trust, with an independent trustee, established
for this purpose.
TERMINATION AND EMPLOYMENT AGREEMENTS
Messrs. Crain, Jordan, Wiggins and Wolfe had change of control severance
agreements with the Company, each providing that, in the event of certain
terminations 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. A "Change in Control"
was defined as, among other things, the acquisition by any person of 25% or more
of the total voting power of the Company. Since WEDGE will own approximately
48.5% of the shares after the HBI transaction, the HBI transaction would be a
"Change of Control" under the severance agreements.
On September 7, 2000 the Organization and Compensation Committee authorized
the Company to enter into and the Company has entered into, new change of
control severance agreements with Messrs. Crain, Jordan, Wiggins and Wolfe and a
change of control severance agreement on similar terms with Mr. Glenn. Each
agreement provides that upon the executive's termination of employment with the
Company by the Company without "cause," or by the executive with "good reason,"
within three years following a "Change of Control," the executive will be
entitled to a lump sum payment of three times the sum of his annual base salary
plus target bonus. The executive will also be entitled to a continuation of
medical and other benefits for
55
<PAGE> 63
a three year period after termination of employment, payment of deferred
compensation (to the extent not paid upon the "Change of Control"), payment of
unvested plan benefits, and Company-provided outplacement services.
In addition, upon a "Change of Control," the executive will be entitled to
preservation of salary, bonus, retirement, welfare and fringe benefits at levels
not less than immediately before the "Change of Control," and will generally be
entitled to receive upon the "Change of Control," without regard to termination
of employment, a payment of minimum pro-rata target bonus, vesting in options,
restricted stock and performance shares, and an immediate lump sum cash payment
of the value of all performance shares assuming achievement of target
performance goals. However, for the HBI Transaction (which is a "Change of
Control" as described below), the PDM Transaction and subsequent related share
transfers, no immediate bonus will be payable, there will be no vesting or
payment of options, restricted stock or performance shares prior to termination
of employment without cause or for good reason, and there is no requirement to
preserve compensation and benefits solely because of the HBI Transaction.
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 such payment being treated as a
"parachute payment" under Section 280G of the Code. The Company will also
reimburse the executive's costs incurred to obtain benefits under the agreements
as long as the executive had a reasonable basis for the action or was acting in
good faith. The Company must maintain a letter of credit and escrow in force to
secure this obligation for legal fee reimbursement. The agreements impose a
confidentiality obligation on each executive during employment and after
termination of employment, and subjects the executive to a noncompetition
covenant during employment and for one year following termination (regardless
whether there is a "Change of Control").
For purposes of these agreements, "cause" includes conviction of a felony
or of a crime involving moral turpitude, or willful misconduct or breach of the
agreement that results in material financial detriment to the Company, but cause
does not include negligence, actions taken in good faith, actions indemnifiable
by the Company, or known to the Company for more than a year before the
purported termination. "Good reason" for termination generally includes any
adverse changes in the executive's duties, title, reporting requirements or
responsibilities; failure by the Company to provide the compensation bonus and
other payments and plan and fringe benefits and perquisites contemplated by the
agreement, and relocation without consent to an office more than 50 miles from
the executive's current office. However, with respect to the "Change of Control"
occurring upon consummation of the HBI Transaction, the PDM Transaction and
subsequent related share transfers, "good reason" does not include failure to
provide minimum bonus but only failure to provide minimum bonus opportunity, and
does not include failure to provide each plan and fringe benefit and perquisite
but only benefits and perquisites of equivalent value in the aggregate. For Mr.
Glenn, "good reason" includes his resignation for any reason during a 60-day
period beginning 30 days after the closing of a "Major Change of Control." The
HBI Transaction, the PDM Transaction and subsequent related share transfers is
not a "Major Change of Control" for such purpose. In all other respects, Mr.
Glenn's agreement is identical to that of the other executive officers.
A "Change of Control" generally is defined as the acquisition by any person
or group of 25% (50% to be a "Major" change) or more of the beneficial interest
in the equity of the Company, failure of the current Supervisory Board (and
members nominated by at least 75% of the then-current Supervisory Board members)
to comprise at least 50% of the Supervisory Board; Supervisory Board or
shareholder approval of a merger, reorganization or consolidation resulting in
less than 75% (50% to be a "Major" change) continuing ownership by the
pre-merger shareholders; or Supervisory Board or shareholder approval of any
transaction as a result of which the Company does not own at least 70% of
Chicago Bridge, or Chicago Bridge does not own at least 75% of its subsidiary,
Chicago Bridge & Iron Company (Delaware), a Delaware corporation. In addition,
after the HBI Transaction, a "Change of Control" will also include failure of
WEDGE or First Reserve to comply with the respective Shareholder Agreements, or
collective ownership by WEDGE and First Reserve of more than 66.5% of the
Company. (See "Item 1 -- Approval of Share Issuance; The HBI Transaction -- The
Shareholder Agreements").
56
<PAGE> 64
At the time of their initial employment the Company entered into employment
arrangements with Messrs. Glenn, Jordan, Wiggins and Wolfe to serve the Company
as President and Chief Executive Officer, Vice President -- Operations, Vice
President -- Treasurer and Chief Financial Officer, and Vice President --
General Counsel and Secretary, respectively. Pursuant to these arrangements, Mr.
Glenn's base salary was $400,000 per year, Mr. Jordan's base salary was $265,000
per year, Mr. Wiggins' base salary was $220,000 per year and Mr. Wolfe's base
salary was $175,000 per year. Such arrangements do not establish any required
term of employment, but provide for, among other things, participation in
Company bonus and incentive compensation programs and change of control benefits
that are now represented by the arrangements described above.
VOLUNTARY RESIGNATION OFFER
On October 2, 2000, we presented a special one-time voluntary resignation
offer to the approximately 150 of our U.S. and U.S. expatriate salaried
employees who have accumulated a combination of years of service and age that
adds up to at least 80. We offered such eligible employees two or two and a half
weeks of pay for each year of service, depending upon the employee's salary
grade. Approximately 16 key employees who are otherwise eligible to participate
are excluded and will be given an opportunity to elect to participate in an
enhanced program on a date designated by management some time in the next three
years. The offer includes an 18-month consulting arrangement to allow us access
to the talents of those employees who elect to resign. We will take a pre-tax
special charge in the fourth quarter of $13,400,000 for the anticipated payments
associated with 110 employees accepting the offer.
COMPENSATION OF DIRECTORS
Supervisory Directors who are not employees of the Company receive an
annual retainer of $22,000, paid in quarterly installments, and $1,500 for
attendance at each Supervisory Board meeting, as well as an annual grant of
options, which vest after one year, to purchase 2000 shares at an exercise price
equal to the fair market value of the shares at the time of the grant.
Supervisory Directors who are chairpersons of Supervisory Board committees
receive an additional annual retainer of $3,000. Those who serve on Supervisory
Board committees received $1,000 for each committee meeting attended.
Supervisory Directors may elect to receive their compensation in Common Stock
and may elect to defer their compensation. In addition, a Supervisory Director
may direct that up to 8% of his or her director's fees be applied to purchase
shares at 85% of the closing price per share on the New York Stock Exchange,
Inc. on the first trading day following the end of each calendar quarter. Shares
are delivered either at the time of purchase or at a specified future date.
Supervisory Directors who are full-time employees of the Company receive no
compensation for serving as Supervisory Directors.
57
<PAGE> 65
ORGANIZATION AND COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
TO OUR SHAREHOLDERS:
COMMITTEE ROLE IN OVERSEEING EXECUTIVE COMPENSATION POLICY
The Company's Organization & Compensation Committee (the "Committee")
consists of three members of the Supervisory Board of the Company (the directors
of the Company elected by its public shareholders). None of the Committee's
members are current or former employees of the Company or have any
"interlocking" relationships for purposes of the proxy disclosure rules of(1)
the United States Securities and Exchange Commission (SEC).
A primary role of the Committee is to determine and oversee the
administration of compensation for the Company's executive officers. The
Committee approves the design of, assesses the effectiveness of, and
administers, reviews and approves all salary arrangements and other remuneration
for executive officers. The committee evaluates executive performance in
reviewing and approving executive compensation.
The Committee made certain compensation decisions for the Company's 1999
fiscal year as described below.
COMPENSATION PHILOSOPHY
The Company is committed to increasing shareholder value by growing its
business in the global marketplace. The Committee seeks to ensure that the
Company's compensation policies and practices are used effectively to support
the achievement of the Company's short- and long-term business objectives.
The Company's overall compensation philosophy is to remain competitive with
comparable companies while focusing on performance-based compensation. This
philosophy is premised on the fact that the Company must compete with a wide
variety of construction, engineering, heavy industrial and related firms in
order to attract and develop a pool of talented employees. The philosophy also
acknowledges the need to focus employees on the Company's financial performance.
The Company's compensation philosophy includes the following factors:
- Programs that will attract new talent and retain key people;
- Competitive pay with significant focus on incentive compensation;
- Equity compensation for top managers to motivate value creation for all
shareholders; and
- Plans with a higher percentage of pay "at-risk" (based on performance)
than typical marketplace practices.
In evaluating competitive practices, the Company considers competitive
market data provided by an independent compensation consultant, Hewitt
Associates LLC of Lincolnshire, Illinois. The data provided compares the
Company's compensation practices to a group of "comparator" companies. These are
companies that tend to have national and international business operations and
lines of business, and also include companies operating in the same geographic
areas and competing for management employees in the same areas of expertise as
the Company. The Committee reviews and approves the selection of comparator
companies based on its assessment of the comparability of the above factors. In
1999, the Committee reviewed and refined the selection of comparator companies
in light of the above factors.
The companies chosen for the comparator group used for compensation
purposes generally are not the same companies which comprise the peer group
index in the Performance Graph included in this Proxy Statement. Considering the
factors described above, the Committee believes that the Company's most direct
---------------
(1) The relevant SEC rule, Item 402(j) or Regulation S-K, does not define the
term "interlocking relationship."
58
<PAGE> 66
competitors for executive talent are not necessarily all of the companies that
would be included in a peer group established for comparing shareholder returns.
The four key elements of the Company's executive compensation are base
salary, annual incentives, long-term compensation, and benefits. These key
elements are addressed separately below. In determining compensation, the
Committee considers all elements of an executive officer's total compensation
package.
BASE SALARIES
The Committee regularly reviews each executive officer's base salary. Base
salaries for executive officers are initially determined by evaluating the
executives' levels of responsibility, prior experience, breadth of knowledge,
internal equity within the Company, and external pay considerations.
Base salaries provide the underlying level of compensation security to
executives and allow the Company to attract competent executive talent and
maintain a stable management team. Base salaries also allow executives to be
rewarded for individual performance based on the Company's evaluation process.
Base salary increases for individual performance, reward executives for
achieving goals that may not be immediately evident in common financial
measurements.
Individual performance is evaluated based on sustained levels of individual
contribution to the Company. When evaluating individual performance, the
Committee considers the executive's efforts in promoting Company values, safety,
continuing educational and management training, improving quality; developing
relationships with clients, suppliers and employees, demonstrating leadership
abilities among coworkers and other goals.
Base salaries are targeted at approximately the 50th percentile of the
compensation data supplied by Hewitt on the comparator companies. Overall,
executive salaries were increased in 1999 at a rate comparable to the increases
provided at other companies and are near median market levels. Salaries of
individual executives may be greater or less than the median of salaries of
their counterparts at comparator companies, due to differences in individual
performance, experience and knowledge, and the Committee's comparison of the
responsibilities of the position at the Company with the responsibilities of
similar positions at comparator companies.
In 1999, Mr. Glenn received an increase in his rate of base salary of
$21,000 per year, or an increase of 5% to his base rate of $420,000 per year.
This increase was based on an evaluation of Mr. Glenn's performance, considered
in light of the above described factors and individual performance goals set for
him by the Committee. He actually received total base salary payments of
$441,000 as reflected in the Summary Compensation Table.
ANNUAL INCENTIVES
The Company adopted an Incentive Compensation Plan (the "Bonus Plan") which
took effect in fiscal 1997, and was revised in 1999. 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 specific corporate-wide financial and non-financial goals
approved by the Committee, and other factors described below, and is payable
following the end of the fiscal year. The goals are 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 Committee.
For 1999, under the Bonus Plan, a target bonus, generally expressed as a
percent of salary, was established for each participating employee at the
beginning of the year based on position, responsibilities and grade level. The
bonus could be earned from three sources -- achievement of the corporate goals,
achievement of a participant's designated business unit performance goals (if
applicable), and achievement of individual performance goals. Each of these
sources consisted of a total bonus "pool," an amount that could range from zero
to 150% of the aggregate of all participants' target amounts for that source.
The total pool for
59
<PAGE> 67
achievement of the corporate goals was approved by the Committee, and the
respective pools for business unit and individual performance were determined by
Company management. The CEO's individual performance bonus was determined by the
Committee.
For fiscal 1999, Mr. Glenn and the Company's other executive officers
received bonus payments pursuant to the Bonus Plan. Mr. Glenn received a bonus
payment of $350,000. Mr. Glenn's bonus payment was above his target bonus and
reflects the achievement of the corporate goals for 1999. In 1999, Mr. Glenn's
annual bonus payment represented 83% of his base salary as reflected in the
Summary Compensation Table, and depending on achievement of the respective goals
under the Plan, could have ranged from 0% to 113% of his base pay. Mr. Glenn's
bonus is somewhat above the median of annual incentive compensation paid other
executives at comparator companies for 1999. The amount of Mr. Glenn's bonus was
determined by the Committee based on a combination of the degree of achievement
of the corporate goals, as applied to all Bonus Plan participants, and the
achievement of individual goals set for Mr. Glenn in the areas of leadership,
initiatives for new business development, and management development of the
other Company executives under Mr. Glenn's direction.
LONG-TERM INCENTIVES
In keeping with the Company's commitment to provide a total compensation
package that favors at-risk components of pay, long-term incentives comprise a
significant portion of an executive's total compensation package. The
Committee's objective is to provide executives with long-term incentive award
opportunities that are at or above the median of comparator companies, with the
actual realization of the opportunity dependent on the degree of achieving the
performance or other conditions of the award. As a key element of this
objective, it is the desire of the Committee to encourage continued executive
ownership of incentive award stock in order to align their long-term interests
with those of other shareholders.
Long-term incentives are provided pursuant to the Company's Long-Term
Incentive Plan ("Incentive Plan"). A new 1999 Incentive Plan was adopted by the
Company and approved by the shareholders in 1999. When awarding long-term
incentives, the Committee considers executives' levels of responsibility, prior
experience, historical award data, various performance criteria and compensation
practices at comparator companies. The long-term incentives awarded in 1999
were: non-qualified stock options, Performance Shares and Restricted Stock
Units.
Stock options are granted under the Incentive Plan at an option price not
less than the fair market value of the Common Stock on the date of grant.
Accordingly, stock options generally have value only if the stock price
appreciates from the date the options are granted. This design focuses
executives on the creation of shareholder value over the long term,
identification with shareholders' interests and encourages equity ownership in
the Company. Stock options granted in 1999 to senior executives under the
Incentive Plan become exercisable beginning May 13, 2000, at a rate of 25% of
such options on such date, and an additional 25% on May 13 of each of the
following three years.
In order to provide employees with an incentive to retain ownership of
vested shares from Performance Share or Restricted Stock grants, in 1999 the
Committee approved a program, pursuant to the Incentive Plan, to grant
non-qualified stock options ("Retention Options") upon the vesting of
Performance Shares or Restricted Stock Shares. Retention Options granted in 1999
vest and become exercisable on the seventh (7th) anniversary of date of grant.
However, this vesting and exercisability is accelerated to the third (3rd)
anniversary of date of grant, if the participant still retains ownership of 100%
of the vested shares in connection with which the Retention Options have been
awarded.
Performance Shares are granted under the Incentive Plan subject to specific
Company performance goals set by the Committee and made a part of each
participant's grant, to be achieved over a defined Performance Period, and which
determine the number of Performance Shares actually to be earned and issued to a
participant. Accordingly, Performance Shares are issued and the award has value
only to the extent the performance goals are achieved. Performance goals are
generally set to achieve the same objectives of creation of long-term
shareholder value as in the case of stock options, with an additional focus on
the specific performance goal utilized.
60
<PAGE> 68
During 1999, participants were granted a "target" number of Performance
Shares to be earned based on the compound growth of Company earnings per share
(EPS) as compared to fiscal year 1997 results, at a rate of one-third (1/3) of
the total target for each of fiscal years 1999, 2000 and 2001. Such target
Performance Shares, or a portion thereof ranging from a minimum of 0% to a
maximum of 150% of such target, will be earned for each of such fiscal years if
the compound growth in EPS over the 1997 fiscal year falls in a specified range.
Restricted Stock Units are bookkeeping units kept on the books of the
Company, each of which, upon award to a participant, represents the right of the
participant to receive a share in the future upon the lapse of restrictions
subject to conditions set by the Committee. Restricted Stock Units are awarded
as an incentive for retention and performance of both newly-hired and continuing
key managers. Such awards are subject to forfeiture during the period of
restrictions prior to vesting. Upon vesting, a participant is issued one share
for each Restricted Stock Unit vested. During the period of restriction,
participants are paid cash amounts corresponding to the time and amount of
actual dividends paid on issued shares. Awards of Restricted Stock Units made in
1999, subject to other conditions of forfeiture, will vest at a rate of 25% of
the number of Units awarded on each of the first four anniversaries of the date
of award.
In 1999, Mr. Glenn received options to purchase 51,200 shares with an
exercise price of $13.125, and a target award of 16,900 Performance Shares, both
of which were granted in accordance with the conditions described above, and as
detailed in the Option/SAR Grants in Last Fiscal Year table and the Long-term
Incentive Plans -- Performance Share Awards in Last Fiscal Year table. The size
and estimated value of such grant and award is slightly above the median of
comparator companies. Mr. Glenn currently owns or has beneficial ownership of
581,312 shares. This equity interest provides an appropriate link to the
interests of shareholders.
In 1999, the Committee approved and the Company agreed to a change in
outstanding long term incentive arrangements with Mr. Glenn. As a special
incentive to performance and the success of the Company in the period during the
initial public offering of the Company's Common Stock by Praxair, Inc., the
Company's former parent, in March, 1997, a designated group of management
employees, including Mr. Glenn, received from Praxair a grant of shares under
the Chicago Bridge & Iron Management Defined Contribution Plan ("Management Plan
Shares"). In the absence of other contingent events provided for in the
Management Plan, such shares would otherwise have vested on March 26, 2000.
After thorough discussion, and considering the advice of its outside consultants
and legal counsel, the Committee determined that it was in the best interests of
the Company and shareholders to provide an incentive to Mr. Glenn to retain
ownership of such shares for a longer time period and to remain in the
employment of the Company. Accordingly, in September, 1999, the Company entered
into an agreement with Mr. Glenn (the "Glenn Agreement") whereby the receipt of
his Management Plan Shares would be deferred until April 1, 2002, a change of
control or his termination of employment, if earlier. For purposes of such
incentive, Mr. Glenn was granted an award of 50,000 Restricted Stock Units. Such
Restricted Stock Units will vest April 1, 2002, but will be forfeited if Mr.
Glenn leaves the Company before that date for reasons other than death,
disability, or dismissal for the convenience of the Company.
HBI TRANSACTION
The HBI Transaction will be a "change of control" under several of the
Company's compensation arrangements, including existing change of control
severance agreements, the Incentive Plans, the Management Plan and the Glenn
Agreement. These plans and agreements call for different benefits to be paid to
covered employees upon a "change of control." The Company cannot amend these
plans and agreements to adversely affect existing awards and benefits in
anticipation of a change of control, without the affected participant's consent.
The Committee has reviewed these plans and agreements in light of the HBI
Transaction and determined that some of the change of control protections and
benefits are not necessary considering the nature of the HBI Transaction, and
that certain alternative benefits are appropriate to assure competitive and
consistent agreements and plans for the employees of the Company after the HBI
Transaction.
61
<PAGE> 69
Accordingly, the Committee has considered and approved revised change of
control severance agreements for select company officers. (See "Executive
Compensation -- Termination and Employment Agreements"). The Committee also
requested executive officers and other senior officers to consent to the
amendment of award agreements under the Incentive Plans and provisions of the
Management Plan and Glenn Agreement, modifying or eliminating the vesting or
payment of certain benefits that would otherwise be triggered by the HBI
Transaction. In setting appropriate consideration for such employee consent, and
designing effective incentives for the executive officers and other senior
officers of CB&I and HB&I going forward, the Committee has received and
considered reports on competitive market data provided by independent
compensation consultant Hewitt Associates LLC of Lincolnshire, Illinois, and
reports on change-in-control and equity award practices and compensation issues
provided by independent compensation consultant Arthur Andersen LLP of Chicago,
Illinois.
To accomplish its compensation objectives in light of the HBI Transaction,
the Committee has approved in concept a single grant of options (equivalent to
long-term incentive award values for 2000, 2001 and 2002) to executive officers
and other senior officers who agree to the revision of certain of the change of
control benefits they would otherwise receive in light of the HBI Transaction,
subject to shareholder approval of the increase in the number of shares covered
by the 1999 Incentive Plan to a total of 2,930,000 shares and the closing of the
HBI Transaction. (See Item 4 -- Approval of Amendments to the Chicago Bridge &
Iron 1999 Long-Term Incentive Plan.)The Committee has also approved for such
executive officers and other senior officers the conversion of Performance
Shares currently outstanding under the Incentive Plans to time-vested share
awards on the basis of target performance subject to the closing of the HBI
Transaction. See Item 1 -- Authorization of Share Issuance; the HBI
Transaction -- Interest of Certain Persons in the HBI Transaction.
BENEFITS
In general, benefits provide a safety net of protection against financial
catastrophes that can result from illness, disability, or death. The benefits
offered by the Company to key executives are generally those offered to the
general employee population with some variation to promote replacement of
benefit opportunities lost to regulatory limits, as discussed under the caption
Pension and Other Retirement Benefits. Data provided to the Committee under a
study conducted for it by Hewitt Associates LLC indicates that the nature and
value of the benefits being so provided by the Company are competitive and in
line with those offered by the comparator companies and those within the
Company's industry.
INTERNAL REVENUE CODE 162(m) CONSIDERATIONS
Section 162(m) of the U.S. Internal Revenue Code of 1986 ("Code") provides
that compensation in excess of $1,000,000 annually for any of the five most
highly-paid executive officers will not be deductible for purposes of U.S.
corporate income taxes unless it is "performance-based" compensation and is paid
pursuant to a plan meeting certain requirements of the Code. The Committee's
primary obligation is to promote, recognize and reward performance which
increases shareholder value, and accordingly will continue to rely on
performance-based compensation programs which are designed to achieve that goal.
The Committee believes that all compensation paid in respect of 1999 and earlier
years was deductible, primarily because the aggregate amount of such
compensation for each executive officer was below the $1 million threshold under
Section 162(m). In 1999, upon the Company's recommendation, the Company's
shareholders approved a new Incentive Compensation Program and the 1999
Long-Term Incentive Plan that permit the Company to provide annual bonuses,
stock options and other stock-based awards to its executive officers. Such plans
were designed in a form that payments under such plans would qualify as
deductible performance-based compensation. Certain compensation paid in 1999 and
in future years pursuant to the Company's prior Bonus Plan and Long-Term
Incentive Plan may not be deductible to the extent such compensation causes the
$1,000,000 threshold to be exceeded for any of Company's five highest paid
executive officers. The Committee intends to give appropriate consideration to
the requirements of Section 162(m) in the operation of the Plan and Program, but
will also exercise its discretion to determine, according to the best overall
interests of the Company, whether to satisfy such requirements.
62
<PAGE> 70
CONCLUSION
The Committee believes these executive compensation policies and programs
serve the interests of shareholders and the Company effectively. The various pay
vehicles offered are appropriately balanced to provide increased motivation for
executives to contribute to the Company's overall future success, thereby
enhancing the value of the Company for the shareholders' benefit.
We will continue to monitor the effectiveness of the Company's total
compensation program to meet the current needs of the Company.
Vincent L. Kontny (Chairman)
J. Dennis Bonney
Gary L. Neale
63
<PAGE> 71
STOCK PERFORMANCE CHART
The Stock Performance Chart below shall not be deemed incorporated by
reference by a general statement incorporating by reference this Proxy Statement
into any filing under the Securities Act of 1933 or under the Exchange Act,
except to the extent the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts. There can be
no assurance that the Common Stock performance will continue into the future
with the same or similar trends depicted in the graph below. The Company will
not make or endorse any predictions as to future performance of the Common
Stock.
The chart below compares the cumulative total shareholder return on the
Common Stock from the date of the IPO to the end of the last fiscal year with
the cumulative total return on the Dow Jones Heavy Construction Industry Index
("Peer Group Index") and the Russell 2000 Index for the same period. The
comparison assumes $100 was invested in the Common Stock, the Peer Group Index
and the Russell 2000 Index on March 27, 1997, and reinvestment of all dividends.
[COMPARATIVE LINE GRAPH]
<TABLE>
<CAPTION>
CHICAGO BRIDGE & IRON
COMPANY N.V. PEER GROUP INDEX RUSSELL 2000 INDEX
--------------------- ---------------- ------------------
<S> <C> <C> <C>
3/27/97 100.00 100.00 100.00
12/31/97 91.14 83.28 129.01
12/31/98 69.59 86.74 125.40
12/31/99 80.06 81.47 149.96
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Supervisory Directors,
executive officers and persons who own more than 10% of the Common Stock to file
initial reports of ownership and reports of changes in ownership of Common Stock
(Forms 3, 4 and 5) with the SEC and the New York Stock Exchange, Inc.
Supervisory Directors, Executive Officers and greater than 10% shareholders are
required by SEC regulation to furnish the Company with copies of all such forms
that they file.
To the Company's knowledge based solely on its review of the copies of such
reports received by it and on written representations by certain reporting
persons that no reports on Form 5 were required, the Company believes that
during the fiscal year ended December 31, 1999 its Supervisory Directors,
executive officers and 10% shareholders complied with all Section 16(a) filing
requirements applicable to them, except Mr. Bonney who filed one Form 4 ten days
late with respect to one transaction.
64
<PAGE> 72
ITEM 4
APPROVAL OF AMENDMENT TO THE CHICAGO BRIDGE & IRON
1999 LONG-TERM INCENTIVE PLAN
Chicago Bridge as sponsor adopted the 1999 Incentive Plan, which was
approved by our 1999 annual general meeting of shareholders. The Board of
Directors of Chicago Bridge has amended the 1999 Incentive Plan (the
"Amendment"), subject to the approval of our shareholders. The principal
material change reflected in the 1999 Incentive Plan, as amended (the "Amended
Plan") is an increase in the aggregate number of shares available by 1,800,000
shares, for a total of 2,930,000 shares. The Amendment also revises the Amended
Plan in technical respects to
- permit the definition and consequences of a "Change of Control"
respecting any Award (as defined below) to be varied by the award
agreement or other written agreement with the participant, and
- reflect that shares awarded or to be awarded as restricted stock or other
Awards may be held during the period of restriction in a trust of the
kind commonly known as a rabbi trust.
Shares held in the rabbi trust will be considered outstanding for the
purpose, among others, of determining the percentage ownership of WEDGE and
First Reserve under the Shareholder Agreements. (See "Item 1 -- Approval of
Share Issuance; The HBI Transaction -- The Shareholder Agreements.") Holding
shares in the rabbi trust during the period of restriction will therefore help
insulate the number (and percentage) of outstanding shares from unpredictable
fluctuation depending on the contingencies of timing of awards and the vesting
or forfeiture of shares under the Amended Plan. It will also enable the vote on
restricted stock units (which are commitments to transfer shares to a
participant in the future upon satisfaction of vesting conditions) to be passed
through to participants during the period of restriction. The rabbi trust is not
expected to alter the tax or other material aspects of the Amended Plan that
would otherwise result from holding such shares in the Company treasury during
such period.
As of August 31, 2000 and prior to this Amendment, 580,199 shares remain
available for future grants and awards under the 1999 Incentive Plan. During
1999, and this year through August 31, 2000 options for 171,606 and 284,885
shares, respectively, have been granted under the 1999 Incentive Plan,
restricted stock awards of 50,000 and 0 shares, respectively, have been made
under the 1999 Incentive Plan, and performance share awards of 21,000 and
26,500, respectively, have been made under the 1999 Incentive Plan. As of August
31, 2000 the aggregate number of shares underlying outstanding awards under the
1999 Incentive Plan was 537,301 and the aggregate market value of the those
underlying shares was $7,724,000 (based on a closing price of $14.375 as of that
date).
REASONS FOR SEEKING SHAREHOLDER APPROVAL
Approval of the Amendment is necessary to permit compensation expense
recognized by the Company in connection with the exercise of options, and the
payment of performance-vested restricted stock and performance units or
performance shares, to qualify as "performance-based" compensation for purposes
of Section 162(m) of the Code.
Under Section 162(m), the Company cannot claim a U.S. federal income tax
deduction for compensation paid to its chief executive officer or any of its
four other most highly compensated executive officers in excess of $1,000,000 in
any year, unless the compensation qualifies as shareholder-approved
"performance-based" compensation. Compensation attributable to the exercise of
options (the "spread," or excess of the fair market value of the option shares
at the time of exercise over the option exercise price) is eligible to be
considered as performance-based compensation for purposes of Section 162(m).
Compensation attributable to certain other types of Awards such as
performance-vested restricted stock, performance shares or performance units, is
eligible to be considered as performance-based compensation for purposes of
Section 162(m) if the shareholders have approved the material terms of the
performance goals set forth in the Amended Plan for such Awards. Awards made
pursuant to the Amended Plan will not satisfy the requirements of Section 162(m)
unless our shareholders approve the Amendment.
65
<PAGE> 73
Approval of the Amendment will also permit options granted under the
Amended Plan that are intended to be incentive stock options ("ISOs") to qualify
as such. Finally, approval of the Amendment is required under the rules of the
New York Stock Exchange, Inc. applicable to the Company, unless all shares of
Common Stock issued under the Amended Plan will be treasury shares.
If the Amendment is not approved at the Special Meeting, the Amendment will
not go into effect, but Awards may continue to be made under the 1999 Incentive
Plan until the shares remaining for Awards under the 1999 Incentive Plan are
exhausted.
SUMMARY OF THE AMENDED PLAN
The principal provisions of the Amended Plan are summarized below.
Shareholders are urged to read the full text of the Amended Plan attached as
Annex D to this Proxy Statement for additional information not contained in this
summary.
Purpose. The objectives of the Amended Plan are to optimize the
profitability and growth of the Company and its subsidiaries through incentives
which link the personal interests of participants to those of our shareholders;
to provide participants with an incentive for excellence in individual
performance; to promote teamwork among participants; and to provide flexibility
to CB&I in its ability to motivate, attract and retain the services of
participants who make significant contributions to CB&I's success and to allow
participants to share in its success.
Duration. The Amendment is effective as of September 7, 2000 subject to
approval by our shareholders. The Amended Plan will remain in effect, subject to
the right of the Board of Directors of Chicago Bridge to amend or terminate the
Amended Plan, until all shares subject to the Amended Plan shall have been
awarded.
Types of Awards. The Amended Plan permits the granting of the following
types of awards to employees of the Company or any of its affiliates: (1) stock
options, including ISOs and options other than ISOs ("nonqualified options");
(2) restricted stock (whether in the form of restricted stock shares or
restricted stock units); and (3) performance shares or performance units
conditioned upon meeting performance criteria (collectively, the "Awards").
Administration. The Amended Plan is administered by a committee (the
"Committee") appointed by the Board of Directors of Chicago Bridge. However, as
to Awards to any individual who is a member of that Committee or an executive
officer or a Supervisory Director of the Company, the Organization and
Compensation Committee of the Supervisory Board (the "Supervisory Committee")
will act as the Committee. In addition, the Supervisory Committee may in its
discretion exercise directly any function of the Committee, including the making
of Awards to any employees or nonemployee members of the Supervisory Board.
Subject to the foregoing, the Committee will have the power, among other things,
to select employees of the Company and its affiliates (and nonemployee members
of the Supervisory Board) to whom Awards are granted, and to determine the sizes
and types of Awards and the terms and conditions of Awards. The Committee is
authorized to construe and interpret the Amended Plan and any related award
agreements, to establish, amend or waive rules relating to plan administration,
to amend outstanding Awards, and to make all other determinations which may be
necessary or advisable for the administration of the Amended Plan. The Committee
may delegate its authority.
Shares Subject to the Amended Plan. Subject to the anti-dilution
adjustment described below, a total of 2,930,000 shares will be reserved for
Awards under the Amended Plan. The number of shares with respect to which Awards
may be granted in the form of options to any single participant in any one
fiscal year may not exceed 250,000. The number of shares with respect to which
Awards may be granted in the form of restricted stock and performance
shares/units combined to any single participant in any one fiscal year may not
exceed 125,000. Shares may be held in a "rabbi" trust as described above pending
transfer to participants under an Award.
In the event of a stock dividend, stock split or other change in corporate
capitalization, or a corporate transaction such as a merger, consolidation or
spin-off, or a reorganization or liquidation of the Company, the Committee shall
adjust the number and class of shares which may be issued under the Amended
Plan, the
66
<PAGE> 74
limitation on the number of shares that may be the subject of Awards under the
Amended Plan, and the number, class and option or other purchase price of shares
subject to outstanding Awards under the Amended Plan, as the Committee deems
appropriate and equitable to prevent dilution or enlargement of rights.
If any shares subject to any Award granted under the Amended Plan are
forfeited or such Award otherwise terminates without the issuance of such shares
or of other consideration in lieu of such shares, the shares subject to such
Award, to the extent of any such forfeiture or termination, shall again be
available for grant under the Amended Plan. If shares are applied to pay the
exercise price upon exercise of an option pursuant to the Amended Plan or
applied to withholding of federal, state and local taxes pursuant to the Amended
Plan, the shares so applied shall be added to the foregoing limitation in
determining the number of shares remaining for grants pursuant to Awards, and
shall be available for grants under the Amended Plan. No fractional shares are
issued under the Amended Plan.
Eligibility. All employees of the Company and its affiliates, and
nonemployee members of the Supervisory Board (approximately 5,135 persons) are
eligible to be participants. The Committee determines which eligible individuals
receive Awards.
Stock Options. The Committee grants options, which may be ISOs or
nonqualified options, pursuant to award agreements. The option price per share
purchasable under any stock option will be determined by the Committee, in its
sole discretion, but cannot in any event be less than 100% of the fair market
value of a share on the date the option is granted. On August 31, 2000, the
closing price of the Common Stock was $14.375 per share. The Committee
determines, in its sole discretion, the term of each stock option and the time
or times when it may be exercised. Options may be exercised by payment of the
exercise price in cash, or, in the sole discretion of the Committee, in shares
with a fair market value equal to the exercise price of the option, or pursuant
to a "cashless exercise" executed through a broker-dealer.
Restricted Stock. Restricted stock may be awarded in the form of
restricted stock shares (which are shares issued by the Company subject to risk
of forfeiture and restrictions on such shares), or restricted stock units (which
are bookkeeping units evidencing a participant's right to receive shares in the
future upon or after the lapse of risks of forfeiture and restrictions on such
units). Restricted stock shares or units may not be disposed of by the recipient
until the restrictions established by the Committee lapse. Upon termination of
employment during the restriction period, all restricted stock shall be
forfeited, subject to such exceptions, if any, made by the Committee. Award
agreements may impose other restrictions or vesting conditions, including
achievement of specific Company-wide, divisional or individual performance goals
(which can include the performance goals described below).
Recipients are not required to pay for restricted stock other than by the
rendering of services or the payment of any minimum amount required by law. With
respect to restricted stock shares, the participant has all of the rights of a
shareholder, including the right to vote the shares and the right to receive any
cash dividends, unless the Committee shall otherwise determine. With respect to
restricted stock units, the participant has the right to receive the equivalent
of any cash dividends, unless the Committee shall otherwise determine, but not
the right to vote the shares. Restricted stock units are paid in certificates
for the applicable number of shares at or after the satisfaction of the
applicable vesting date.
Performance Awards. Performance shares pay out a variable number of shares
of Common Stock depending on goal achievement. Performance units provide for
payment of an amount, based either on the value of shares or appreciation in the
price of shares, upon the achievement of performance goals. Such shares or units
have an initial value determined by the Committee as of the date of grant. In
the case of a performance share, this value equals the value of a share of
Common Stock. The Committee selects the period during which one or more
performance criteria designated by the Committee are measured for the purpose of
determining the extent to which performance shares or units will have been
earned. The performance criteria which the Committee may designate are net
income (before or after interest, taxes, depreciation and amortization), share
price, earnings per share, operating income, return on net assets, return on
equity, return on capital or investments, total shareholder return, savings in
working capital, reductions in expense levels, operating cash flow, free cash
flow, or economic value added, in each case where applicable determined either
on a Company-wide basis or in respect of any one or more business units.
67
<PAGE> 75
Performance awards may be paid in cash, stock, other property or a
combination thereof. Recipients are not required to pay for performance awards
other than by the rendering of services or the payment of any minimum
consideration required by applicable law.
Change in Control. A "Change in Control" would occur in the event of the
acquisition by anyone other than the Company or a subsidiary of the Company of a
25% or greater interest in the voting power of the Company; certain mergers and
other transactions which result in the Company's shareholders owning 70% or less
of the surviving corporation; or certain changes in the composition of the
Supervisory Board. Upon a "Change in Control," all options become exercisable,
all restriction periods and restrictions on restricted stock lapse, and target
payout opportunities attainable under all outstanding Awards of restricted
stock, performance units and performance shares are deemed to be fully earned
(with such Awards denominated in shares becoming fully vested). The definition
and consequences of a "Change in Control" may be varied in an award agreement or
other written agreement with the participant.
Power to Amend. The Board of Directors of Chicago Bridge may amend, alter
or discontinue the Amended Plan at any time without the approval of the
shareholders of the Company.
Other Provisions. ISOs are not transferrable unless an award agreement
provides for transferability. Restricted stock is not transferrable prior to
vesting. Performance shares and performance units are not transferrable prior to
payment except as provided in the award agreement. However, all such Awards are
transferrable upon death under the laws of descent and distribution or by the
participant's designation of a beneficiary. In the discretion of the Committee,
withholding tax liabilities incident to the exercise of an option or other
taxable event may be satisfied by withholding of shares.
NEW PLAN BENEFITS
The benefits or amounts that will be received by or allocated to executive
officers, non-executive directors, and employees other than executive officers,
by reason of the Amendment, are not yet determinable. Future awards are in the
discretion of the Committee (including, as applicable, the Supervisory
Committee), and cannot be determined at this time. However, the Supervisory
Committee has determined in principal that grants of options should be made to
executive officers and other senior officers who consent to the amendment of
certain benefit agreements curtailing the benefits they would otherwise obtain
by reason of the HBI Transaction being a "Change in Control" under such
agreements. See "Item 1 -- Approval of Share Issuance; The HBI
Transaction -- Interest of Certain Persons in the HBI Transaction -- Executive
Officers" for a fuller description of the effect of the HBI Transaction on
certain benefit agreements. For each such consenting executive officer, the
option grant is expected to be the target long-term incentive award value for
such employee for fiscal years 2000, 2001 and 2002, divided by the per-share
modified Black-Scholes value of the option as of the date of grant.
68
<PAGE> 76
The table below sets forth the dollar value of options (based on the target
long-term incentive award), and resulting per-share number of options, that are
expected to be granted under the Amended Plan to the designated persons and
groups:
<TABLE>
<CAPTION>
DOLLAR VALUE ESTIMATED NUMBER
NAME AND POSITION OF OPTIONS($) OF OPTIONS(1)
----------------- ------------- ----------------
<S> <C> <C>
Gerald M. Glenn............................................. 1,273,833 203,813
Chairman of the Supervisory Board; President, Chief
Executive Officer and Chairman of Chicago Bridge & Iron
Company; and Managing Director of Chicago Bridge & Iron
Company B.V.
Stephen P. Crain............................................ 393,091 62,895
Vice President -- Global Sales and Marketing of Chicago
Bridge & Iron Company and Managing Director of Chicago
Bridge & Iron Company B.V.
Robert B. Jordan............................................ 575,911 92,146
Vice President and Chief Operating Officer of Chicago
Bridge & Iron Company; and Managing Director of Chicago
Bridge & Iron Company B.V.
Timothy J. Wiggins.......................................... 393,091 62,895
Vice President and Chief Financial Officer of Chicago
Bridge & Iron Company; and Managing Director of Chicago
Bridge & Iron Company B.V.
Robert H. Wolfe............................................. 245,020 39,203
Secretary of the Company; Vice President, General Counsel
and Secretary of Chicago Bridge & Iron Company; and
Secretary of Chicago Bridge & Iron Company B.V.
Executive Group(8).......................................... 3,148,764 503,802
Non-Executive Director Group................................ 0 0
Non-Executive Officer Employee Group........................ 1,619,471 259,115
</TABLE>
---------------
(1) The material assumptions and adjustments incorporated in the Black-Scholes
model used to estimate the options to be granted to executives in the above
table include the following: (a) an exercise price on the option of $15.00,
the assumed fair market value of the underlying stock on the date of grant;
(b) an option term of ten years; (c) an interest rate of 6.05 percent that
represents the interest rate on U.S. Treasury securities with a maturity
date corresponding to that of the option term; (d) volatility of 42.49
percent calculated using daily stock prices for the 36 months prior to the
date of grant; (e) an annual dividend on common stock of $0.24 per share;
(f) reductions of approximately 7.79 percent to reflect the probability of
forfeiture due to termination prior to vesting, and approximately 10.17
percent to reflect the probability of a shortened option term due to
termination of employment prior to the option expiration date. The actual
number of options granted will depend on the assumed fair market value of
the underlying stock on the date of grant. The actual value, if any, an
optionee will realize upon exercise of an option will depend on the excess
of the market value of the Company's common stock over the exercise price on
the date the option is exercised.
TAX ASPECTS OF THE AMENDED PLAN
The following summarizes the U.S. federal tax consequences generally
arising under present law with respect to Awards granted under the Amended Plan.
The grant of an option creates no tax consequences for a grantee or the Company.
In general, the grantee will have no taxable income upon exercising an ISO if
the applicable ISO holding period is satisfied (except that the alternative
minimum tax may apply), and the Company will receive no deduction when an ISO is
exercised. In general, the grantee will realize ordinary income upon exercising
a nonqualified option equal to the difference between the option price and the
fair market value of shares on the date of the exercise. The Company will be
entitled to a deduction for the same amount. Generally, there will be no tax
consequence to the Company in connection with a disposition of shares acquired
by exercise of an option, except that the Company may be entitled to a deduction
in the case
69
<PAGE> 77
of a disposition of shares acquired by exercise of an ISO before the applicable
ISO holding period has been satisfied.
The award of restricted stock shares or units generally will create no tax
consequences for a participant or the Company at the time of the award. The
participant will realize ordinary income (and the Company will normally be
entitled to a corresponding deduction) when the restricted stock shares become
freely transferable or the restrictions lapse, whichever occurs first, in the
amount of the fair market value of the restricted stock shares at that time. The
award of restricted stock units, performance shares and performance units
generally will create no tax for a participant or the Company at the time of the
award. The participant will realize ordinary income (and the Company will
normally be entitled to a corresponding deduction) when the restricted stock
units, performance stock or performance units are transferred to the participant
in the form of shares (or cash) at or after the units vest or the performance
goals are attained. If, however, the restricted stock units, performance shares,
or performance units are paid in the form of shares which continue to be
nontransferable and subject to a substantial risk of forfeiture, the
participant's tax (and Company's deduction) will be incurred (and taken) when
those restrictions lapse under the rules for restricted property described
above.
The affirmative vote of a majority of the votes cast at the meeting is
required to adopt the Amendment to the 1999 Incentive Plan. The effectiveness of
this proposal is also conditioned upon shareholder approval of the proposals
contained in Items 1, 2 and 3 of this Proxy Statement.
THE SUPERVISORY BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE APPROVAL
OF THE AMENDMENT TO THE 1999 INCENTIVE PLAN.
REPRESENTATIVES OF INDEPENDENT PUBLIC ACCOUNTANTS
It is expected that representatives of Arthur Andersen, the independent
public accountants of CB&I and HBI, will be available at the Special Meeting,
where they will have an opportunity to respond to appropriate questions and to
make a statement if they so desire.
ADDITIONAL INFORMATION
A copy of the Company's Annual Report on Form 10-K, including the financial
statements, schedules and exhibits thereto, and other reports filed by the
Company with the SEC during the current year, may be obtained without charge by
written request to Robert H. Wolfe, Secretary, Chicago Bridge & Iron Company
N.V., Polarisavenue 31, 2132 JH Hoofddorp, The Netherlands or Investor Relations
Department c/o Chicago Bridge & Iron Company, 1501 N. Division Street,
Plainfield, IL 60544-8984 USA.
SHAREHOLDER PROPOSALS
Any proposal of a shareholder intended to be presented at the 2001 Annual
Meeting of Shareholders must be received at the Company's principal executive
offices no later than December 13, 2000 if the proposal is to be considered for
inclusion in the Company's proxy statement relating to such meeting, without
prejudice to shareholders' rights to cause a general meeting of shareholders to
be convened or to convene one under article 34.2 of the Articles of Association.
By Order of the Board of Supervisory
Directors
Gerald M. Glenn
Chairman of the Board of Supervisory
Directors
Amsterdam, The Netherlands
, 2000
70
<PAGE> 78
<TABLE>
<S> <C>
Annex A Consolidated Financial Statements of Howe-Baker
International, Inc. and Subsidiaries
Annex B Opinion of Credit Suisse First Boston
Annex C Proposed Amendments to CB&I Articles of Association
Annex D Chicago Bridge & Iron 1999 Long-Term Incentive Plan, as
amended
</TABLE>
71
<PAGE> 79
ANNEX A
HOWE-BAKER INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
TOGETHER WITH AUDITORS' REPORT
A-1
<PAGE> 80
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Howe-Baker International, Inc.:
We have audited the accompanying consolidated balance sheets of Howe-Baker
International, Inc. (a Delaware corporation), and subsidiaries as of December
31, 1999 and 1998, and the related consolidated statements of operations,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1999. 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 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 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Howe-Baker International, Inc., and subsidiaries as of December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States.
Arthur Andersen LLP
Houston, Texas
February 2, 2000
A-2
<PAGE> 81
HOWE-BAKER INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 39,988 $ 17,510
Receivables --
Billed accounts and retentions, less allowance for
doubtful accounts of $916 and $100, respectively....... 56,383 22,386
Unbilled accounts......................................... 9,241 9,784
-------- --------
Total receivables...................................... 65,624 32,170
Inventories, prepaid expenses and other................... 2,588 2,055
-------- --------
Total current assets................................... 108,200 51,735
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $10,729 and $9,898, respectively.......... 18,568 4,119
NOTE RECEIVABLE FROM MINORITY INTEREST...................... 19,785 19,785
INTANGIBLE ASSETS, net of accumulated amortization of $1,968
and $341, respectively.................................... 27,829 21,773
REAL ESTATE HELD FOR SALE, net.............................. 800 800
DEFERRED TAX ASSET.......................................... 2,440 2,043
OTHER ASSETS................................................ 3,996 3,918
-------- --------
Total assets........................................... $181,618 $104,173
======== ========
LIABILITIES, MINORITY INTEREST AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 24,962 $ 13,240
Accrued liabilities....................................... 14,022 4,172
Progress billings in excess of contract costs and
recognized profits..................................... 44,403 11,396
Notes payable............................................. 2,182 --
-------- --------
Total current liabilities.............................. 85,569 28,808
OTHER LONG-TERM LIABILITIES................................. 8,191 4,205
LONG-TERM DEBT.............................................. 5,700 --
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN PARTNERSHIP............................ 27,000 26,979
STOCKHOLDER'S EQUITY:
Common stock, $1 par value, 1,000 shares authorized and
issued; 880 shares and 1,000 shares outstanding,
respectively........................................... 1 1
Additional paid-in capital................................ 499 499
Retained earnings......................................... 60,358 43,681
Treasury stock at cost, 120 shares........................ (5,700) --
-------- --------
Total stockholder's equity............................. 55,158 44,181
-------- --------
Total liabilities, minority interest and stockholder's
equity................................................ $181,618 $104,173
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
A-3
<PAGE> 82
HOWE-BAKER INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES.................................................... $208,821 $117,340 $91,591
COST OF REVENUES............................................ 167,075 90,652 73,295
-------- -------- -------
Gross profit........................................... 41,746 26,688 18,296
SELLING, GENERAL AND ADMINISTRATIVE......................... 11,200 8,503 6,135
-------- -------- -------
Income from operations................................. 30,546 18,185 12,161
INTEREST INCOME............................................. 3,345 2,422 1,768
INTEREST EXPENSE............................................ (264) (26) (2)
-------- -------- -------
Income before minority interest and income taxes....... 33,627 20,581 13,927
INCOME TAX EXPENSE.......................................... 12,252 7,407 3,642
-------- -------- -------
Income before minority interest........................ 21,375 13,174 10,285
MINORITY INTEREST IN INCOME................................. 1,380 316 --
-------- -------- -------
NET INCOME.................................................. $ 19,995 $ 12,858 $10,285
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
A-4
<PAGE> 83
HOWE-BAKER INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
--------------- PAID-IN RETAINED ----------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------ ------ ---------- -------- ------ ------- -------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996.... 1,000 $1 $499 $24,138 -- $ -- $24,638
Dividends..................... -- -- -- (1,000) -- -- (1,000)
Comprehensive income.......... -- -- -- 10,285 -- -- 10,285
----- -- ---- ------- ---- ------- -------
BALANCE, December 31, 1997.... 1,000 1 499 33,423 -- -- 33,923
Dividends..................... -- -- -- (2,600) -- -- (2,600)
Comprehensive income.......... -- -- -- 12,858 -- -- 12,858
----- -- ---- ------- ---- ------- -------
BALANCE, December 31, 1998.... 1,000 1 499 43,681 -- -- 44,181
Purchase of treasury shares... -- -- -- -- (120) (5,700) (5,700)
Dividends..................... -- -- -- (3,318) -- -- (3,318)
Comprehensive income.......... -- -- -- 19,995 -- -- 19,995
----- -- ---- ------- ---- ------- -------
BALANCE, December 31, 1999.... 1,000 $1 $499 $60,358 (120) $(5,700) $55,158
===== == ==== ======= ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
A-5
<PAGE> 84
HOWE-BAKER INTERNATIONAL, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 19,995 $ 12,858 $ 10,285
Adjustments to reconcile net income to net cash provided
by (used in) operating activities --
Depreciation and amortization......................... 2,648 928 785
Minority interest in net income....................... 1,380 316 --
Equity in loss of limited liability company........... 75 250 --
Deferred tax benefit.................................. (397) (345) (1,698)
Write-down of real estate held for sale............... -- -- 550
Changes in assets and liabilities --
Increase in receivables............................. (8,510) (7,062) (4,684)
Decrease (increase) in inventories, prepaid expenses
and other........................................ 750 (451) 367
Increase in accounts payable and liabilities........ 5,137 1,000 3,600
Increase (decrease) in progress billings in excess
of contract costs and recognized profits......... 24,613 (20,949) (217)
-------- -------- --------
Net cash provided by (used in) operating
activities..................................... 45,691 (13,455) 8,988
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment............... (2,478) (393) (882)
Acquisition of businesses, net of cash acquired of
$15,150............................................... (16,754) -- --
Net cash contributed by minority interest................ -- 9,168 --
Loans made to affiliated companies and minority
interest.............................................. -- (19,888) (10,000)
Proceeds from repayment of loans made to affiliated
companies............................................. 53 10,050 --
Investment in limited liability company.................. (75) (150) (100)
Proceeds from sale of business........................... 536 -- --
-------- -------- --------
Net cash used in investing activities............ (18,718) (1,213) (10,982)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid........................................... (3,318) (2,600) (1,000)
Proceeds from notes payable.............................. 474 -- --
Repayments on notes payable.............................. (292) -- (33)
Priority return to minority interest..................... (1,359) (337) --
-------- -------- --------
Net cash used in financing activities............ (4,495) (2,937) (1,033)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 22,478 (17,605) (3,027)
CASH AND CASH EQUIVALENTS, beginning of year............... 17,510 35,115 38,142
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year..................... $ 39,988 $ 17,510 $ 35,115
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for taxes...................... $ 10,286 $ 7,798 $ 5,209
======== ======== ========
Cash paid during the year for interest................... $ 91 $ -- $ --
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF INVESTING AND FINANCING
ACTIVITY:
Matrix earn-out liability (Note 3)....................... $ 581 $ -- $ --
======== ======== ========
Stock repurchase financed by a note payable (Note 8)..... $ 5,700 $ -- $ --
======== ======== ========
Issuance of note receivable in connection with sale of
business (Note 3)..................................... $ 800 $ -- $ --
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
A-6
<PAGE> 85
HOWE-BAKER INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. ORGANIZATION AND BUSINESS:
The accompanying consolidated financial statements include the accounts of
Howe-Baker International, Inc. (HBI), a Delaware corporation, and its wholly
owned subsidiaries: Howe-Baker Engineers, Inc., and subsidiaries (Howe-Baker),
Holdings Company of New Jersey, Inc., Constructors International, Inc., Process
Management, Inc., HBI Holdings, LLC, Howe-Baker International Management, LLC,
and Callidus Technologies, Inc., and subsidiaries (collectively with HBI, the
Company). Also included are the following subsidiaries which are wholly owned or
controlled by HBI through its wholly owned subsidiaries: Howe-Baker Management
Corp. (HBMC), Howe-Baker, L.P. (HBLP), and Matrix Engineering, Ltd., and
subsidiaries (Matrix). All significant intercompany balances and transactions
have been eliminated in consolidation. The Company's operations are
headquartered in Tyler, Texas. HBI is a wholly owned subsidiary of WEDGE Group
Incorporated (the Parent).
The Company engineers, designs, fabricates and constructs processing
facilities for the petrochemical, refining and natural gas industries. More
specifically, the Company's services include, but are not limited to, process
plant construction, fabrication of pressure vessels, process piping and
structural steel, specialized know-how and equipment for electrostatic desalting
of crude oil and treating of petroleum distillate products and other process
development services. Additionally, the Company custom engineers, constructs and
installs burners, gas/liquid incinerators, flares and rotary kilns for the
refining, petrochemical, pharmaceutical and wood products industries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash equivalents
consist of investments in commercial paper and overnight repurchase agreements
and totaled approximately $38,645,000 and $17,449,000 at December 31, 1999 and
1998, respectively.
INVENTORIES
Inventories are valued at the lower of average cost or market (replacement
cost or net realizable value).
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost, less accumulated
depreciation. The costs of ordinary maintenance and repairs are expensed while
renewals and replacements are capitalized. Depreciation and amortization of
property, plant and equipment are computed on the basis of estimated useful
lives of the assets by the straight-line and declining-balance methods.
Established useful lives in years are as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 5-40 years
Machinery and equipment..................................... 2-12 years
</TABLE>
LONG-LIVED ASSETS
The Company evaluates the recoverability of property and equipment and
intangible assets if facts and circumstances indicate that any of those assets
might be impaired. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset are compared to the asset's
carrying amount to determine if a write-down to discounted cash flow value is
necessary. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. During 1997, the Company recognized a
A-7
<PAGE> 86
HOWE-BAKER INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$550,000 loss from the write-down of the carrying value of its Holdings Company
of New Jersey, Inc., facilities, which is included in Cost of Revenues in the
accompanying consolidated statements of operations.
REVENUE RECOGNITION
For financial reporting purposes, revenues on long-term contracts are
recognized on the percentage-of-completion method, measured by the percentage of
total costs incurred to date to total estimated contract costs. Contracts are
deemed to be complete upon mechanical completion, at which point remaining
estimated costs are accrued and remaining revenues on the contracts are
recognized.
Losses on contracts are charged against current earnings when such losses
can be estimated. As contracts can extend over one or more years, revisions in
costs and profits estimated during the course of the work are reflected during
the period in which the facts requiring the revisions become known. While
management uses available information to estimate total costs, future costs
could exceed or be less than such estimates resulting in adjustments to the
Company's contract revenues and profits.
Costs and estimated profits to date in excess of amounts billed on
contracts in process are classified in current assets as unbilled receivables.
Amounts billed in excess of costs and estimated profits to date are classified
in current liabilities as progress billings in excess of contract costs and
recognized profits.
CONCENTRATION OF RISKS
The Company's operations could be significantly impacted, either positively
or negatively, by its concentration in the petrochemical, refining and natural
gas industries and reliance upon sales to those industries, as the Company would
be impacted by the same economic conditions affecting its suppliers and
customers.
Due to the nature of the Company's operations, a few customers, including
the former minority stockholder (see Note 8), generally account for a
significant amount of the Company's revenues. This is due to management's
decisions regarding the acceptance of large contracts and the allocation of
resources to these contracts. For the year ended December 31, 1999, the Company
earned 58 percent of its revenues from two customers, for the year ended
December 31, 1998, the Company earned 56 percent of its revenues from two
customers and for the year ended December 31, 1997, the Company earned 58
percent of its revenues from one customer.
The Company performs periodic credit evaluations of its customers'
financial conditions and generally does not require collateral for its domestic
customers but does require letters of credit from most of its foreign customers.
At December 31, 1999 and 1998, receivables from foreign customers were not
significant. Receivables generally are due within 30 days. Historically, credit
losses relating to customers have been within management's expectations.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 and 1997 consolidated
financial statements contained herein to conform to the classifications
presented in 1999.
A-8
<PAGE> 87
HOWE-BAKER INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACQUISITIONS AND PARTNERSHIP:
MATRIX ACQUISITION
Effective July 16, 1999, HBI, acquired all of the outstanding common stock
of Matrix (a Texas limited partnership), formerly Matrix Engineering, Inc. (a
Texas corporation), which was reorganized from a Texas corporation into a Texas
limited partnership effective September 1, 1999. The acquisition was accounted
for using the purchase method of accounting, and the excess of the initial
purchase price of approximately $23.7 million over the fair value of Matrix's
net operating assets was estimated to be $6,417,000 and has been allocated as
follows (in thousands):
<TABLE>
<S> <C>
Goodwill.................................................... $4,003
Noncompete agreements....................................... 2,414
------
$6,417
======
</TABLE>
The noncompete agreements are being amortized over five years, which is the
term of the agreements. Goodwill is being amortized over 20 years. The estimated
fair values assigned to the intangible assets and net operating assets may be
revised as additional information concerning the valuation of such assets
becomes available.
Additional Purchase Price -- The purchase price of Matrix will be adjusted
upward based on the profitability of Matrix from July 17, 1999, through July 16,
2004. The additional purchase price (earn-out), payable in 2002, 2003 and 2004,
is calculated as follows: (a) the 2002 payment is equal to cumulative earnings
before interest, taxes, depreciation and amortization (EBITDA) for the period
from July 17, 1999, through July 16, 2002, less profits realized above an agreed
upon amount for certain Matrix contracts in process at July 16, 1999, less
$900,000, multiplied by 25 percent, (b) the 2003 payment is equal to EBITDA for
the period July 17, 2002, through July 16, 2003, less $300,000, multiplied by 25
percent, and (c) the 2004 payment is equal to EBITDA for the period July 17,
2003, through July 16, 2004, less $300,000, multiplied by 25 percent. As of
December 31, 1999, goodwill has been increased by approximately $581,000 and a
corresponding long-term liability has been recorded related to the projected
earn-out attributable to the operating results of Matrix from July 17, 1999,
through December 31, 1999.
CALLIDUS AND PLASMA ACQUISITIONS
Effective December 1, 1999, HBI acquired all of the outstanding common
stock of Callidus Technologies, Inc. (Callidus), an Oklahoma corporation, and
Plasma Energy Corporation (Plasma), a North Carolina corporation. The
acquisition was accounted for using the purchase method of accounting, and the
excess of the purchase price of approximately $8.2 million over the fair value
of Callidus' and Plasma's net operating assets was estimated to be $525,000 and
has been recorded as goodwill. The goodwill is being amortized over 20 years.
Effective December 31, 1999, the Company sold Plasma's common stock to a
third party for approximately $1.3 million. The sales proceeds consisted of
$536,000 cash and an $800,000 note receivable. The note is due in quarterly
installments of principal and interest at a rate of 8.0 percent. Maturities on
the note are approximately $385,000 and $415,000 for 2000 and 2001,
respectively. The note is recorded in current and long-term other assets in the
accompanying consolidated balance sheet as of December 31, 1999. No gain or loss
was recognized on the transaction as the sales price approximated the net book
value of Plasma at the time of sale.
A-9
<PAGE> 88
HOWE-BAKER INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PARTNERSHIP
Effective October 1, 1998, HBMC contributed $100 to HBLP in exchange for a
1 percent general partnership interest and Howe-Baker contributed $19,785,000 to
HBLP in exchange for a 98 percent limited partnership interest. In addition,
Schedule A, Ltd. (Schedule A), a Texas limited partnership headquartered in
Houston, Texas, contributed contracts in process and its net operating assets
and intangible assets to HBLP in exchange for a 1 percent limited partnership
interest. Schedule A engineered, designed, fabricated and constructed natural
gas processing facilities.
The contribution of HBLP's assets has been accounted for using the purchase
method of accounting and, accordingly, the assets contributed to HBLP have been
recorded at their fair market value at the date of contribution. The fair market
value of the net operating assets and intangible assets contributed by Schedule
A was estimated to be $4,886,000 and $22,114,000, respectively. The intangible
assets have been recorded and allocated as follows (in thousands):
<TABLE>
<S> <C>
Goodwill.................................................... $18,114
Noncompete agreements....................................... 4,000
-------
$22,114
=======
</TABLE>
The noncompete agreements are being amortized over 10 years, which is the
term of the noncompete provisions included in employment agreements (see Note
13) entered into with the Schedule A partners at the time of the Schedule A
contribution. Goodwill is being amortized over 20 years.
Option Agreement -- Beginning January 1, 2003, and ending May 1, 2006,
Schedule A has the option to require HBLP to redeem, or Howe-Baker to purchase,
all or part of Schedule A's partnership interest. Any partnership interest not
voluntarily redeemed or sold by Schedule A prior to May 1, 2006 will be deemed
offered on that date. Schedule A has the right to exercise its option in whole,
or the right may be exercised proportionately by Schedule A on behalf of a
Schedule A partner. The consideration paid for Schedule A's partnership interest
will be $19,785,000, plus an additional amount based on the profitability of
Howe-Baker as calculated in accordance with the terms of the related option
agreement. As of December 31, 1999 and 1998, the additional undiscounted
consideration was estimated to be $2,339,000 and $2,191,000, respectively,
resulting in a total redemption price of approximately $22,124,000 for the
Schedule A partnership interest. Each Schedule A partner must be employed by
Howe-Baker or an affiliate of Howe-Baker at the time of exercise of the option
in order to have the right to receive his proportional interest of the
additional consideration amount.
HBLP and Howe-Baker also have the option to redeem or purchase Schedule A's
partnership interest during the same period over which Schedule A has its
option. The consideration paid will be the same as if Schedule A had exercised
its option plus an additional premium, which will range from 10 percent to 40
percent of the additional consideration amount, depending upon the timing of the
exercise.
Allocation of Profits and Losses -- Profits and losses are allocated to the
HBLP partners in accordance with their respective percentage ownership
interests, subject to a priority return to be allocated first to Schedule A
based on Schedule A's undistributed capital account times a defined interest
rate (5.30 percent at December 31, 1999). The priority return is paid to
Schedule A semiannually.
UNAUDITED PROFORMA CONSOLIDATED RESULTS OF OPERATIONS
The unaudited consolidated results of operations of the Company on a
proforma basis as though the Matrix and Callidus acquisitions had occurred as of
the beginning of the year ended December 31, 1998, and
A-10
<PAGE> 89
HOWE-BAKER INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
as though the Schedule A partnership had commenced as of the beginning of the
year ended December 31, 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C>
Revenues................................... $309,569 $316,589 $153,531
Net income................................. 18,555 22,430 15,426
</TABLE>
4. COMPONENTS OF CERTAIN BALANCE SHEET ACCOUNTS:
The components of certain balance sheet accounts at December 31, 1999 and
1998, are as follows (in thousands):
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Land.................................................... $ 979 $ 222
Buildings and improvements.............................. 10,977 5,663
Machinery and equipment................................. 17,341 8,132
-------- -------
Total property, plant and equipment................ 29,297 14,017
Less -- Accumulated depreciation........................ (10,729) (9,898)
-------- -------
Net property, plant and equipment.................. $ 18,568 $ 4,119
======== =======
</TABLE>
Intangible assets consists of the following:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Goodwill................................................. $23,223 $18,114
Noncompete agreements.................................... 6,414 4,000
Patents.................................................. 160 --
------- -------
Total intangible assets............................. 29,797 22,114
Less -- Accumulated amortization......................... (1,968) (341)
------- -------
Net intangible assets............................... $27,829 $21,773
======= =======
</TABLE>
Other assets consists of the following:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Cash surrender value of life insurance................... $ 2,768 $ 2,984
Pension plan intangible asset............................ 706 853
Note receivable, net of current portion (see Note 3)..... 415 --
Other assets............................................. 107 81
------- -------
Total............................................... $ 3,996 $ 3,918
======= =======
</TABLE>
A-11
<PAGE> 90
HOWE-BAKER INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Other long-term liabilities consists of the following:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Long-term pension benefit obligation (see Note 10)......... $1,814 $2,019
Long-term retiree group medical insurance (see Note 10).... 2,556 1,186
Warranty reserve........................................... 3,068 1,000
Earn-out obligation (see Note 3)........................... 581 --
Other...................................................... 172 --
------ ------
Total................................................. $8,191 $4,205
====== ======
</TABLE>
5. NOTE RECEIVABLE FROM MINORITY INTEREST:
Effective October 1, 1998, HBLP loaned $19,785,000 to Schedule A under a
loan agreement which provides for interest to accrue at LIBOR (5.82 percent at
December 31, 1999) plus a variable rate of interest of 1.9 percent through June
1, 2003, 2.9 percent through June 1, 2004, 3.9 percent through June 1, 2005, and
4.9 percent through the date of maturity of June 1, 2006. Interest is payable
semiannually. The loan is secured by Schedule A's rights in the option
agreement, Schedule A's partnership interest in HBLP and Schedule A's interests
in certain other nonaffiliated ventures. During 1999 and 1998, the Company
recorded interest income of approximately $1,436,000 and $356,000, respectively,
related to this loan.
6. NOTES PAYABLE:
As of December 31, 1999, the Company has a $5,700,000 note payable due to
its former minority stockholder bearing interest at 6.0 percent, with accrued
interest and principal due June 30, 2002 (see Note 8).
As of December 31, 1999, the Company has a $2.0 million note payable to a
third party, which bears interest at 6.0 percent, with accrued interest and
principal due July 1, 2000.
The Company finances certain of its insurance premiums through notes
payable with a finance company. The notes payable bear interest at 7.16 percent,
and interest and principal are due monthly through March 9, 2000. During the
year ended December 31, 1999, the Company borrowed approximately $474,000 to
finance such premiums. As of December 31, 1999, the Company had aggregate notes
payable outstanding of approximately $182,000.
7. FEDERAL INCOME TAX:
The Company is included in the consolidated federal income tax return with
the Parent. Pursuant to a tax-sharing policy with the Parent, the annual
provision or benefit for federal income taxes is determined as though the
Company filed a separate federal income tax return. Any federal income taxes
currently due are paid directly to the Parent.
A-12
<PAGE> 91
HOWE-BAKER INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the years ended December 31, 1999, 1998 and 1997, income tax expense
consists of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ -------
<S> <C> <C> <C>
Current --
U.S. federal................................. $12,425 $7,302 $ 4,897
State........................................ 824 450 443
Deferred....................................... (997) (345) (1,698)
------- ------ -------
Total income tax expense.................. $12,252 $7,407 $ 3,642
======= ====== =======
</TABLE>
A reconciliation between the U.S. Federal statutory rate and the Company's
effective tax rate is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ -------
<S> <C> <C> <C>
Tax (expense) at statutory rate................ $11,769 $7,203 $ 4,874
State income taxes............................. 536 293 288
Change in valuation allowance.................. -- -- (1,446)
Other, net..................................... (53) (89) (74)
------- ------ -------
$12,252 $7,407 $ 3,642
======= ====== =======
Effective tax rate............................. 36.4% 36.0% 26.1%
</TABLE>
The provision for federal income taxes included in the statements of
operations for the years ended December 31, 1999, 1998 and 1997, differs from
the amount of federal income taxes, computed by applying the U.S. federal income
tax rate of 35 percent to pretax income, primarily as a result of limitations on
the deductibility of meals and entertainment, state income taxes and
nondeductible goodwill amortization.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1999 and 1998, are presented below (in thousands):
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Deferred tax assets --
Management security plan................................. $ 481 $ 525
Health benefit plan...................................... 942 456
Allowance for doubtful accounts.......................... 35 35
Warranty reserve......................................... 490 350
Real estate held for sale................................ 193 501
Difference between book and tax amortization............. 536 --
Other.................................................... 391 252
------ ------
Total gross deferred tax assets....................... 3,068 2,119
Deferred tax liabilities --
Differences between book and tax depreciation............ (628) (76)
------ ------
Total gross deferred tax liabilities.................. (628) (76)
------ ------
Net deferred tax asset................................ $2,440 $2,043
====== ======
</TABLE>
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been recognized differently between
the financial statements and tax returns. Under this method, deferred tax assets
and liabilities are determined based on the difference between the financial
A-13
<PAGE> 92
HOWE-BAKER INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statement carrying amounts and tax bases of assets and liabilities using enacted
tax rates and laws in effect in the years in which the differences are expected
to reverse.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will be realized. Based upon the level of historical taxable income and
projections for future taxable income over the periods in which the deferred tax
assets are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences at December
31, 1999.
8. STOCK REPURCHASE:
Effective July 1, 1999, the Company issued a $5,700,000 note payable to its
12 percent minority stockholder in exchange for all 120 shares of outstanding
common stock held by the minority stockholder. As a result, the Parent is the
Company's sole stockholder (see Note 6).
9. RELATED PARTIES:
During each of the years ended December 31, 1999, 1998 and 1997, the Parent
was paid management fees of approximately $528,000 by the Company. The fees are
included in selling, general and administrative expenses in the accompanying
consolidated statements of operations.
The Company pays annual insurance premiums to Winsco, Inc., an affiliate,
which is responsible for purchasing insurance coverage for HBI and certain of
its subsidiaries. During the years ended December 31, 1999, 1998 and 1997, such
premiums paid were approximately $2,119,000, $1,171,000 and $1,537,000,
respectively. In addition, during the year ended December 31, 1998, the Company
charged approximately $976,000 to selling, general and administrative expenses
related to the resolution of 1998 claims and insurance issues.
A former minority stockholder of the Company has a contract with the
Company which guarantees a certain level of minimum cash payments for services,
at market rates, to be purchased by the former minority stockholder. The
contract, as amended, extends through June 30, 2006. Included in receivables are
amounts due from the former minority stockholder of approximately $2,174,000 and
$3,635,000 at December 31, 1999 and 1998, respectively.
During 1999, the Company terminated its investment in a limited liability
company (LLC) that designed, manufactured and sold fired heaters. The Company
accounted for its investment using the equity method of accounting and
accordingly recorded its share of the LLC's losses to the extent of the
Company's cumulative investment, which was $325,000.
10. EMPLOYEE BENEFITS:
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Howe-Baker sponsors an unfunded defined benefit plan (pension plan) to
provide retirement benefits to a select group of former and current management
and highly compensated employees that contribute or have contributed materially
to the continued growth, development and future business success of Howe-Baker.
The pension plan provides compensation benefits to be paid after retirement.
Provisions for these benefits are charged to operations ratably over the
employees' expected terms of employment. Benefits are generally based on age and
average final compensation at retirement. The Company also sponsors health
insurance plans to provide health benefits to Howe-Baker and Matrix's full-time
and qualified retired employees. The following
A-14
<PAGE> 93
HOWE-BAKER INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
table sets forth the plans' funded status and amounts recognized in the
Company's consolidated balance sheets as of December 31, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
----------------- -----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Change in benefit obligation --
Benefit obligation at beginning of year......... $ 2,635 $ 2,919 $ 2,506 $ 2,387
Acquisition (Note 3)............................ -- -- 1,039 --
Service cost.................................... -- -- 259 133
Change in actuarial assumptions................. 66 -- -- --
Interest cost................................... 173 201 159 219
Actuarial gains................................. (17) (1) (188) (115)
Benefits paid................................... (466) (484) (139) (118)
------- ------- ------- -------
Benefit obligation at end of year............ $ 2,391 $ 2,635 $ 3,636 $ 2,506
======= ======= ======= =======
Fair value of plan assets at beginning and end of
year............................................ $ -- $ -- $ -- $ --
======= ======= ======= =======
Funded status..................................... $(2,391) $(2,635) $(3,636) $(2,506)
Unrecognized net actuarial loss (gain)............ 414 383 (224) (42)
Unrecognized transition obligation................ 706 853 1,168 1,245
------- ------- ------- -------
Net amount recognized........................ $(1,271) $(1,399) $(2,692) $(1,303)
======= ======= ======= =======
Weighted average assumptions as of December 31 --
Discount rate................................... 7.00% 7.00% 7.25% 7.00%
Rate of compensation increase................... 5.00% 5.00% N/A N/A
</TABLE>
For measurement purposes, a 7.0 percent annual rate of increase in the per
capita cost of covering healthcare was assumed for 1999. The rate was assumed to
decrease gradually to 3.0 percent for 2006 and remain at that level thereafter.
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------ ------------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost --
Service cost.................................. $ -- $ -- $ -- $259 $133 $159
Interest cost................................. 173 201 222 159 219 159
Amortization of transition obligation......... 197 147 147 78 78 78
Recognized net actuarial loss................. 18 7 5 -- -- --
---- ---- ---- ---- ---- ----
Net periodic benefit cost.................. $388 $355 $374 $496 $430 $396
==== ==== ==== ==== ==== ====
</TABLE>
Assumed healthcare cost trend rates have a significant effect on the
amounts reported for the healthcare plan. A one-percentage-point change in
assumed healthcare cost trend rates would have the following effects:
<TABLE>
<CAPTION>
ONE-PERCENTAGE- ONE-PERCENTAGE-
POINT INCREASE POINT DECREASE
--------------- ---------------
<S> <C> <C>
Effect on total service and interest cost
components..................................... $174 $(104)
Effect on postretirement benefit obligation...... 187 (167)
</TABLE>
Howe-Baker is a beneficiary of certain life insurance policies with a face
value of approximately $9,417,000 and $11,979,000 at December 31, 1999 and 1998,
respectively. The life insurance policies have been purchased as a method of
recovering costs related to the pension plan. The insurance policies are not
considered pension plan assets as Howe-Baker can utilize the cash surrender
value of the insurance policies in
A-15
<PAGE> 94
HOWE-BAKER INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
its daily operations. The Company has recorded the cash surrender value of
$2,768,000 and $2,984,000 as an asset on the consolidated balance sheets at
December 31, 1999 and 1998, respectively.
EMPLOYEE SAVINGS PLANS
The Company has various employee profit-sharing 401(k) plans (collectively,
the Plans) covering substantially all its employees. Under the terms of the
Plans, the Company is required to make certain mandatory and matching
contributions and may make discretionary profit-sharing contributions for
eligible employees. The Plans provide for participating employees to contribute
up to maximum of 15 percent of their salaries to the Plans. In addition to these
contributions, certain Plans provide for the employees to make nondeductible
contributions to the Plans of up to 10 percent of their salaries. Total expenses
incurred by the Company related to the Plans were $1,341,000, $1,106,000 and
$846,000 in 1999, 1998 and 1997, respectively. These amounts included
discretionary contributions of $939,000, $889,000 and $663,000 in 1999, 1998 and
1997, respectively.
11. COMMITMENTS AND CONTINGENCIES:
CREDIT FACILITY
The Company has a credit facility with Bank of America for a $50,000,000
line of credit for cash borrowings and/or letters of credit which expires April
2002. Maximum cash borrowings under the line of credit are $50,000,000, with the
interest rate selected by the Company equal to LIBOR plus 1.25 percent to 2.5
percent, or the higher of prime and the Federal Funds rate plus .50 percent
(approximately 8.5 percent at December 31, 1999). The line of credit has an
annual commitment fee ranging from .25 percent to .50 percent of the committed
amount. Collateral consists of the Company's receivables, inventory, general
intangibles, and property, plant and equipment. As of December 31, 1999 and
1998, standby letters of credit amounting to approximately $3,594,000 and
$8,049,000, respectively, had been issued on behalf of the Company to support
revenue obligations. There have been no borrowings on the credit facility since
inception.
EMPLOYMENT AGREEMENTS
During 1999 and 1998, the Company entered into employment agreements with
its president and certain other officers, each of which provides for a base
salary and various benefits through July 15, 2004. Total commitments under these
agreements are approximately $1,284,000, $1,317,000, $1,349,000, $944,000 and
$289,000, for 2000, 2001, 2002, 2003 and 2004, respectively. The president's
employment agreement also provides for future compensation based on the combined
consolidated operating results of the Company for the years ended December 31,
1998, 1999 and 2000. Management believes the Company's accrual at December 31,
1999 and 1998, for estimated deferred compensation earned by the president
during 1999 and 1998, to be adequate.
OPERATING LEASES
The Company leases office space and a fabrication facility under
noncancelable operating leases that expire through September 30, 2001. In
connection with the leases, the Company incurred rental expense totaling
$256,000, $31,500 and none during 1999, 1998 and 1997, respectively. Future
minimum payments related to the noncancelable lease agreements are approximately
$444,000 and $94,600 for 2000 and 2001, respectively.
SELF-INSURANCE
The Company is self-insured for annual healthcare costs up to as much as
$120,000 per participant and $2,854,000 in the aggregate. Management believes
the Company's accrual for estimated potential claim costs
A-16
<PAGE> 95
HOWE-BAKER INTERNATIONAL, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to satisfy the deductible and self-insurance provisions of the insurance
policies for services provided through December 31, 1999, to be adequate.
LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of the Company's management,
uninsured losses, if any, resulting from the ultimate disposition of these
matters will not have a material adverse effect on the Company's consolidated
financial position or results of operations.
12. QUARTERLY OPERATING RESULTS (UNAUDITED):
As discussed in the Note 3, the Company's results for the three years ended
December 31, 1999 include Matrix and Callidus, from their dates of acquisition,
July 16, 1999 and December 1, 1999, respectively. Howe-Baker, L.P. operating
results are included beginning with its first date of operations, October 1,
1998.
The following table sets forth selected unaudited consolidated statements
of operation information for the Company on a quarterly basis for the years
ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED 1999
-----------------------------------------
MARCH 31 JUNE 30 SEPT 30 DEC 31
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues........................................... $29,768 $39,509 $69,236 $70,308
Gross profit....................................... 5,560 7,236 11,579 17,371
Income from operations............................. 3,270 4,873 8,655 13,748
Net income......................................... 2,152 3,176 5,773 8,894
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED 1998
-----------------------------------------
MARCH 31 JUNE 30 SEPT 30 DEC 31
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues........................................... $23,100 $32,472 $24,570 $37,198
Gross profit....................................... 4,445 7,146 6,536 8,561
Income from operations............................. 2,863 5,536 4,992 4,794
Net income......................................... 2,157 3,905 3,441 3,355
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED 1997
-----------------------------------------
MARCH 31 JUNE 30 SEPT 30 DEC 31
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues........................................... $23,363 $21,705 $21,766 $24,757
Gross profit....................................... 3,522 4,519 4,605 5,650
Income from operations............................. 1,923 2,938 3,045 4,255
Net income......................................... 1,457 2,103 2,098 4,627
</TABLE>
A-17
<PAGE> 96
HOWE-BAKER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000 DECEMBER 31,
(UNAUDITED) 1999
------------- ------------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 13,604 $ 39,988
Receivables --
Billed accounts and retentions, less allowance for
doubtful accounts of $577 and $916, respectively...... 38,846 56,383
Unbilled accounts...................................... 10,968 9,241
-------- --------
Total receivables................................. 49,814 65,624
Inventories, prepaid expenses and other................... 4,251 2,588
-------- --------
Total current assets.............................. 67,669 108,200
-------- --------
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $12,310 and $10,729, respectively......... 18,099 18,568
NOTE RECEIVABLE FROM MINORITY INTEREST...................... 19,785 19,785
INTANGIBLE ASSETS, net of accumulated amortization of $3,550
and $1,968, respectively.................................. 28,791 27,829
REAL ESTATE HELD FOR SALE, net.............................. 755 800
DEFERRED TAX ASSET.......................................... 2,844 2,440
OTHER ASSETS................................................ 2,745 3,996
-------- --------
Total assets...................................... $140,688 $181,618
======== ========
LIABILITIES, MINORITY INTEREST AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 21,816 $ 24,962
Accrued liabilities....................................... 7,872 14,022
Progress billings in excess of contract costs and
recognized profits..................................... 7,551 44,403
Notes payable............................................. 323 2,182
-------- --------
Total current liabilities......................... 37,562 85,569
-------- --------
OTHER LONG-TERM LIABILITIES................................. 9,428 8,191
LONG-TERM DEBT.............................................. 5,700 5,700
MINORITY INTEREST IN PARTNERSHIP............................ 27,000 27,000
SHAREHOLDER'S EQUITY:
Common stock, $1 par value, 1,000 shares authorized and
issued; 880 shares outstanding......................... 1 1
Additional paid-in capital................................ 499 499
Retained earnings......................................... 66,198 60,358
Treasury stock at cost, 120 shares........................ (5,700) (5,700)
-------- --------
Total stockholders' equity........................ 60,998 55,158
-------- --------
Total liabilities, minority interest, and
stockholder's equity............................ $140,688 $181,618
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
A-18
<PAGE> 97
HOWE-BAKER INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
REVENUES.................................................... $193,229 $140,249
COSTS OF REVENUES........................................... 163,633 115,836
-------- --------
Gross profit.............................................. 29,596 24,413
SELLING, GENERAL AND ADMINISTRATIVE......................... 13,997 7,594
-------- --------
Income from operations.................................... 15,599 16,819
INTEREST INCOME............................................. 2,457 2,265
INTEREST EXPENSE............................................ (341) (29)
-------- --------
Income before minority interest and income taxes.......... 17,715 19,055
INCOME TAX EXPENSE.......................................... 6,628 7,130
-------- --------
Income before minority interest........................... 11,087 11,925
MINORITY INTEREST IN INCOME................................. 1,184 998
-------- --------
NET INCOME.................................................. $ 9,903 $ 10,927
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
A-19
<PAGE> 98
HOWE-BAKER INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------
2000 1999
-------- -------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 9,903 $10,927
Adjustments to reconcile net income to net cash provided
by (used in) operating activities
Depreciation and amortization.......................... 3,163 1,755
Minority interest in net income........................ 1,184 998
Equity in loss of limited liability company............ -- 75
Deferred tax benefit................................... (404) 1
Writedown in real estate held for resale............... 45 --
Changes in assets and liabilities-
Decrease (increase) in receivables................... 15,810 (12,060)
Decrease (increase) in inventories, prepaid expenses
and other........................................... (588) (448)
Increase (decrease) in payables and liabilities...... (10,584) 11,512
Increase (decrease) in progress billings in excess of
contract costs and recognized profits............... (36,852) 23,112
-------- -------
Net cash provided by (used in) operating activities.... (18,323) 35,872
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant & equipment.................. (1,130) (1,709)
Proceeds from note receivable issued in connection with
sale of business....................................... 176 --
Proceeds from repayment of loans made to affiliated
companies.............................................. -- 53
Acquisition of business, net of cash acquired............. -- (8,813)
Investment in limited liability company................... -- (75)
-------- -------
Net cash used in investing activities.................. (954) (10,544)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid............................................ (4,064) (3,318)
Proceeds from notes payable............................... 504 926
Repayments on notes payable............................... (2,363) (143)
Priority return to minority interest...................... (1,184) (998)
-------- -------
Net cash used in financing activities................ (7,107) (3,533)
-------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (26,384) 21,795
CASH AND CASH EQUIVALENTS, beginning of the period.......... 39,988 17,510
-------- -------
CASH AND CASH EQUIVALENTS, end of the period................ $ 13,604 $39,305
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for taxes..................... $ 11,146 $ 5,823
======== =======
Cash paid during the period for interest.................. $ 146 $ 4
======== =======
SUPPLEMENTAL DISCLOSURE OF INVESTING AND
FINANCING ACTIVITY:
Matrix earn-out liability.............................. $ 428 $ 86
======== =======
Adjustment to Goodwill................................. $ 2,118 $ --
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
A-20
<PAGE> 99
HOWE-BAKER INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
1. ORGANIZATION AND BUSINESS
The accompanying consolidated financial statements include the accounts of
Howe-Baker International, Inc. (HBI, or the Company), a Delaware corporation,
and all of its wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation. The Company's operations
are headquartered in Texas. HBI is a wholly owned subsidiary of WEDGE Group
Incorporated (the Parent).
Results of operations include the operating results of Matrix Engineering,
Ltd. and Callidus Technologies, Inc. from their dates of acquisition, July 16,
1999 and December 1, 1999, respectively.
The Company engineers, designs, fabricates and constructs processing
facilities for the petrochemical, refining and natural gas industries. More
specifically, the Company's services include, but are not limited to, process
plant construction, fabrication of pressure vessels, process piping and
structural steel, specialized know-how and equipment for electrostatic desalting
of crude oil and treating of petroleum distillate products and other process
development services. Additionally, the Company custom engineers, constructs and
installs burners, gas/liquid incinerators, flares and rotary kilns for the
refining, petrochemical, pharmaceutical and wood products industries.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of 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
consolidated financial statements and notes thereto included in the Company's
audited financial statements for the three years in the period ended December
31, 1999. In the opinion of the Company, all adjustments necessary to present
fairly the financial position of the Company at September 30, 2000 and 1999 and
the results of its operations and cash flows for the nine month periods then
ended have been included. The results of operations for such interim periods are
not necessarily indicative of the results for the full year.
3. LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions in the ordinary
course of business. In the opinion of the Company's management, uninsured
losses, if any, resulting from the ultimate disposition of these matters will
not have a material adverse effect on the Company's consolidated financial
position or results of operations.
4. SUBSEQUENT EVENT
On July 30, 2000, the Parent signed a definitive agreement to sell
Howe-Baker International, Inc. to Chicago Bridge & Iron Company, N.V. (CB&I) in
a transaction valued at approximately $145 million, which excludes the value of
future earnout obligations as discussed in the Company's 1999 financial
statements to be assumed by CB&I. Completion of the transaction, expected during
the fourth quarter of this year, is subject to shareholder and regulatory
approval. Under the terms of the transaction, CB&I will pay $28 million in cash,
assume $5.7 million in debt and issue 8.1 million shares of CB&I common stock to
the Parent.
A-21
<PAGE> 100
ANNEX B
July 30, 2000
Board of Directors
Chicago Bridge & Iron Company N.V.
1501 North Division Street
Plainfield, IL 60544
Ladies and Gentlemen:
You have asked us to advise you with respect to the fairness to Chicago
Bridge & Iron Company N.V. ("Acquiror") from a financial point of view of the
Consideration (as defined below) to be paid by the Acquiror pursuant to the
terms of the Stock Purchase Agreement, dated as of July 30, 2000 (the
"Acquisition Agreement"), among WEDGE Group Incorporated ("Seller"), CB&I and
CB&I Tyler Company. The Acquisition Agreement provides for the purchase by the
Acquiror from the Seller (the "Acquisition") of all of the issued and
outstanding shares of capital stock (the "HBI Shares") of Howe-Baker
International, Inc. (the "Company") in exchange for (i) U.S. $28,000,000 and
(ii) 8,146,665 shares of Acquiror's common stock (together, the
"Consideration"), subject to adjustment as provided in the Acquisition
Agreement.
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Acquiror and certain business
and financial information relating to the Company, as well as (i) the
Acquisition Agreement and (ii) Shareholders Agreement to be entered into by the
Acquiror and the Company's principal stockholder concerning board composition,
voting, share transfers and other matters relevant to our opinions herein We
have also reviewed certain other information, including financial forecasts
(including those related to earn-outs payable by the Company), provided to us by
the Company and the Acquiror, and have met with the Company's and the Acquiror's
management to discuss the business and prospects of the Company and the
Acquiror, including the Acquiror's present intentions regarding stock
repurchases.
We have also considered certain financial and stock market data of the
Acquiror and certain financial data of the Company, and we have compared those
data with similar data for publicly held companies in businesses similar to
those of the Company and the Acquiror and we have considered the financial terms
of certain other business combinations and other transactions which have
recently been effected. We also considered such other information, financial
studies, analyses and investigations and financial, economic and market criteria
which we deemed relevant. For purposes of our opinion we have assumed, with your
consent, that each party will perform all of the covenants and agreements
required to be performed by it under the Shareholders Agreement and that such
agreement and the amendments to the Acquiror's Articles of Association to be
adopted in connection with the Acquisition and referenced in the Shareholders
Agreement are fully enforceable, in accordance with their terms, under all
applicable laws, including, without limitation, the laws of the Netherlands and
the State of New York. As to all matters of corporate and other law, we have,
with your consent, relied upon the advice of Acquiror's counsel.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's and the Acquiror's managements as to the future financial performance
of the Company and the Acquiror. In addition, we have not been requested to
make, and have not made, an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Company, nor have we been furnished
with any such evaluations or appraisals. Our opinion is necessarily based upon
financial, economic, market and other conditions as they exist and can be
evaluated on the date hereof. We are not expressing any opinion as to the actual
value of the Acquiror's common stock when issued to the Seller or the prices at
which such Acquiror common stock will trade subsequent to the Acquisition.
We have acted as financial advisor to the Acquiror in connection with the
Acquisition and will receive a fee for our services, a significant portion of
which is contingent upon the consummation of the Acquisition.
B-1
<PAGE> 101
In the past, we have performed certain investment banking services for the
Acquiror and have received customary fees for such services.
In the ordinary course of our business, we and our affiliates may actively
trade the equity securities of the Acquiror for our and such affiliates' own
accounts and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of the Acquiror in connection with its consideration of the
Acquisition and does not constitute a recommendation to any stockholder of the
Acquiror as to how to vote or act on any matter relating to the Acquisition.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration to be paid by the Acquiror in the Acquisition is
fair to the Acquiror from a financial point of view.
Very truly yours,
CREDIT SUISSE
FIRST BOSTON CORPORATION
B-2
<PAGE> 102
ANNEX C
SUBJECT TO CIVIL LAW NOTARY APPROVAL
AMENDMENT OF THE ARTICLES
CHICAGO BRIDGE & IRON COMPANY N.V.
On this day, the ** day of ** two thousand appears before me, **, notaris
(civil-law notary) practising in **:
**.
The person appearing declares that on ** two thousand the general meeting
of shareholders of CHICAGO BRIDGE & IRON COMPANY N.V., a limited liability
company under the laws of the Netherlands, with corporate seat in Amsterdam, the
Netherlands and address at: 2132 JH Hoofddorp, the Netherlands, Polarisavenue
31, resolved to amend the articles of association of this company and to
authorize the person appearing to execute this deed. Pursuant to those
resolutions the person appearing declares that he/she amends the company's
articles of association as follows:
I. TWO DEFINITIONS ARE ADDED TO ARTICLE 1 that shall read as follows:
g. group: a group consists of two or more persons acting as a partnership,
limited partnership, syndicate or other group for the purpose of
acquiring, holding or disposing of the company's securities.
h. issued and outstanding share capital: all shares issued by the company
for which votes could be cast in any general meeting of shareholders.
II. PARAGRAPH 3 OF ARTICLE 4 shall be amended and shall read as follows:
3. All shares are, at the option of the shareholder, either registered
shares or bearer shares, with due observance of paragraph 3 of article
5.B.
III. THE SECOND SENTENCE OF PARAGRAPH 1 OF ARTICLE 5 shall be amended and shall
read as follows:
Share certificates may, at the discretion of the management board or at the
request of a shareholder, also be issued for registered shares.
IV. PARAGRAPH 1 OF ARTICLE 5.B. shall be amended and shall read as follows:
1. Bearer shares may, at the shareholders request, be converted into
registered shares and vice versa, with due observance of paragraph 3 of
this article.
V. ARTICLE 5.B, PARAGRAPH 3 shall be amended and shall read as follows:
3. Conversion of registered shares into bearer shares shall be effected at
the written request of the shareholder, unless such conversion has been
limited or excluded upon issuance of those shares. If a life interest or
a right of pledge is created in a share, the cooperation of the
beneficiary of the life interest or pledgee shall be required. At the
issuance of bearer share certificates the entry in the register shall be
deleted.
VI. ARTICLE 10, PARAGRAPH 1 shall be amended and shall read as follows:
1. The transfer of shares and the creation and transfer of limited rights
thereon shall take place in accordance with the provisions of Dutch law
applicable thereto and, if applicable, in accordance with paragraphs 2
and 3 of this article.
VII. A NEW PARAGRAPH 2 AND PARAGRAPH 3 SHALL BE ADDED TO ARTICLE 10, that shall
read as follows:
2. If the transfer concerns a registered share for which a share
certificate has been issued, the corresponding share certificate must be
delivered to the company or to its duly authorized representative. The
company or its duly authorized representative on behalf of the company
can only acknowledge the transfer of such share by, at the discretion of
the management board, either
C-1
<PAGE> 103
(i) endorsement on the share certificate or (ii) issuance of a new share
certificate to the transferee, registered in the name of the transferee.
The provisions of paragraph 3 of article 5 shall apply accordingly.
3. The provisions of paragraph 2 of this article 10 shall equally apply to
the transfer of a registered share as a consequence of foreclosure of a
right of pledge.
VIII. THE PARAGRAPHS 2, 3, 4 AND 5 OF ARTICLE 10 shall be renumbered into
paragraphs 4, 5, 6 and 7, respectively.
IX. A NEW PARAGRAPH 2 SHALL BE ADDED TO ARTICLE 23 that shall read as follows:
2. With due observance of these articles of association, the supervisory
board may adopt rules and regulations governing its internal proceedings
and especially pertaining to voting, including voting on nomination of
supervisory directors, and provisions relating to supervisory board
composition and governance and to give effect to matters agreed upon in
shareholder agreements.
X. PARAGRAPHS 2 AND 3 OF ARTICLE 23 shall be renumbered into paragraphs 3 and 4,
respectively.
XI. A NEW PARAGRAPH 2 IS ADDED TO ARTICLE 41 that shall read as follows:
2. To the extent (i) the general meeting of shareholders has the authority
to vote on the matters listed below, (ii) the authority to vote on the
matters listed below has not been delegated to another corporate body of
the company and (iii) there is a person that alone or together with a
group (beneficially) holds more than fifteen percent (15%) of the issued
and outstanding share capital of the company, the general meeting may
only adopt resolutions by a majority consisting of at least eighty
percent (80%) of the entire issued and outstanding share capital:
a. to the extent the management board is not authorized to do so pursuant
to sections 2:331.1 or 2:334ff.1 Dutch Civil Code, a resolution for a
legal merger, legal demerger, dissolution, liquidation and legal
division with or to any person;
b. to the extent the general meeting has not designated the supervisory
board as authorized body to issue shares and without prejudice to the
right of the general meeting of shareholders to designate the
supervisory board to that extent, a resolution to issue shares to all
shareholders, including to a person that, alone or together with a
group, (beneficially) holds more than fifteen percent (15%) of the
issued and outstanding share capital of the company or (beneficially)
held more than fifteen percent (15%) of the issued and outstanding
share capital of the company at any time since the first day of
January two thousand;
c. in case the supervisory board is no longer authorized to issue shares
in accordance to article 6, but without prejudice to the right of the
general meeting to designate the supervisory board to that extent, a
resolution to distribute profits or to distribute reserves in the form
of stock dividend to all shareholders, including to a person that,
alone or together with a group company, (beneficially) holds more than
fifteen percent (15%) of the issued and outstanding share capital of
the company or (beneficially) held more than fifteen percent (15%) of
the issued and outstanding share capital of the company at any time
since the first day of January two thousand;
d. without prejudice to the right of the general meeting to authorize the
management board to resolve that the company shall acquire shares in
its own capital or depositary receipts for those shares for a valuable
consideration, which authorization is valid for a maximum period of
eighteen (18) months, any acquisition of the company, for a valuable
consideration, of shares in its own capital or of depositary receipts
of those shares from all shareholders, including from a person that,
alone or together with a group, (beneficially) holds more than fifteen
percent (15%) of the issued and outstanding share capital of the
company or (beneficially) held more than fifteen percent (15%) of the
issued and outstanding share capital of the company at any time since
the first day of January two thousand;
C-2
<PAGE> 104
e. any transaction with a person or its affiliate, if such person, alone
or together with a group, (beneficially) holds more than fifteen
percent (15%) of the issued and outstanding share capital of the
company or (beneficially) held more than fifteen percent (15%) of the
issued and outstanding share capital of the company at any time since
the first day of January two thousand that would otherwise require
shareholder approval.
This paragraph does not create any additional rights for the general
meeting that it does not already have under Dutch law or these articles of
association.
XII. PARAGRAPHS 2, 3, 4, 5, 6 AND 7 OF ARTICLE 41 shall be renumbered into
paragraphs 3, 4, 5, 6, 7 and 8 respectively.
Finally, the person appearing declares that pursuant to and by execution of
this deed the issued share capital of the company amounts to one hundred and
seventy-four thousand four hundred and twenty-eight Dutch guilders and sixty-two
Dutch guilder cents (NLG 174,428.62) and [ASSUMING ISSUANCE OF 8,146,665
REGISTERED SHARES UNDER THE CONDITION PRECEDENT THAT THE ARTICLES OF ASSOCIATION
OF THE COMPANY ARE AMENDED]
The required ministerial declaration of no-objection was granted on ** two
thousand, number N.V. 579.328.
The ministerial declaration of no-objection and a document in evidence of
the resolutions, referred to in the head of this deed, are attached to this
deed.
In witness whereof the original of this deed, which will be retained by me,
notaris, is executed in Amsterdam, on the date first mentioned in the head of
this deed.
Having conveyed the substance of the deed and given an explanation thereto
and following the statement of the person appearing that [he][she] has taken
note of the contents of the deed and agrees with the same, this deed is signed,
immediately after reading those parts of the deed which the law requires to be
read, by the person appearing, who is known to me, notaris, and by myself,
notaris, at [ ].
C-3
<PAGE> 105
ANNEX D
CHICAGO BRIDGE & IRON
1999 LONG-TERM INCENTIVE PLAN
ADOPTED MAY 1, 1999, AS AMENDED
THROUGH SEPTEMBER 1, 2000
D-1
<PAGE> 106
CHICAGO BRIDGE & IRON
1999 LONG-TERM INCENTIVE PLAN
ARTICLE 1. -- ESTABLISHMENT, OBJECTIVES AND DURATION
1.1. ESTABLISHMENT OF THE PLAN. Chicago Bridge & Iron Company, a Delaware
corporation ("CB&I"), a wholly owned subsidiary of Chicago Bridge & Iron Company
N.V., a Netherlands corporation (the "Company"), hereby establishes an incentive
compensation plan to be known as the "Chicago Bridge & Iron 1999 Long-Term
Incentive Plan" (the "Plan"), as set forth in this document. The Plan permits
the grant of Nonqualified Stock Options, Incentive Stock Options, Restricted
Stock Shares, Restricted Stock Units, Performance Shares and Performance Units.
1.2. OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize
the profitability and growth of CB&I, the Company and their respective
Subsidiaries, through incentives which are consistent with CB&I's goals and
which link the personal interests of Participants to those of the Company's
shareholders; to provide Participants with an incentive for excellence in
individual performance; and to promote teamwork among Participants.
The Plan is further intended to provide flexibility to CB&I in its ability
to motivate, attract, and retain the services of Participants who make
significant contributions to CB&I's success and to allow Participants to share
in the success of CB&I.
1.3. DURATION OF THE PLAN. The Plan shall become effective as of May 1,
1999 (the "Effective Date"), subject to its approval by the shareholders of the
Company, and shall remain in effect, subject to the right of the Board of
Directors to amend or terminate the Plan at any time pursuant to Article 14
hereof, until all Shares subject to it shall have been purchased or acquired
according to the Plan's provisions.
ARTICLE 2. -- DEFINITIONS
Whenever and wherever used in the Plan, the following terms shall have the
meanings set forth below, and when the meaning is intended, the initial letter
of the word shall be capitalized:
2.1. "AFFILIATE" shall have the meaning ascribed to such term in Rule
12b-2 of the General Rules and Regulations under the Exchange Act.
2.2. "AWARD" means, individually or collectively, a grant under this Plan
of Nonqualified Stock Options, Incentive Stock Options, Restricted Stock Shares,
Restricted Stock Units, Performance Shares or Performance Units.
2.3. "AWARD AGREEMENT" means an agreement setting forth the terms and
provisions applicable to an Award granted to a Participant under this Plan.
2.4. "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
2.5. "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of CB&I.
2.6. "CB&I" means Chicago Bridge & Iron Company, a Delaware corporation
and the sponsor of the Plan.
2.7. "CHANGE IN CONTROL," unless otherwise defined in the Award Agreement
or other written agreement between the Participant and the Company (or CB&I or
the Committee), will be deemed to have occurred:
(a) Any Person, other than the Company, any Subsidiary or any employee
benefit plan (or related trust) of the Company or any such Subsidiary,
becomes the Beneficial Owner of 25% or more of the total voting power of
the Company's outstanding securities;
(b) During any period of two years or less, individuals who at the
beginning of such period constituted the Supervisory Board of the Company
cease for any reason to constitute at least a majority
D-2
<PAGE> 107
thereof; provided that any new member of the Supervisory Board who is
nominated for election to the Supervisory Board with the approval of at
least 75% of the other members then still in office who were members at the
beginning of the period shall be considered for purposes of this paragraph
(b) as having been a member at the beginning of such period; or
(c) Upon the consummation of (i) any merger or other business
combination of the Company with or into another corporation pursuant to
which the persons who were the shareholders of the Company immediately
before such consummation do not own, immediately after such consummation,
more than 70% of the voting power and the value of the stock of the
surviving corporation in substantially the same respective proportions as
their ownership of the common stock of the Company immediately prior to
such consummation, or (ii) the sale, exchange or other disposition of all
or substantially all the consolidated assets of the Company.
2.8. "CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
2.9. "COMMITTEE" means the Committee appointed by the Board to administer
the Plan as provided in Article 3 herein or, to the extent it functions as the
Committee as provided in Article 3 herein, the Organization and Compensation
Committee of the Supervisory Board.
2.10. "COMPANY" means Chicago Bridge & Iron Company N.V., a Netherlands
corporation, including, as may be applicable to the context, any and all
Subsidiaries and Affiliates, and any successor thereto.
2.11. "DIRECTOR" means any individual who is a member of the Board of
Directors of CB&I or any Subsidiary or Affiliate.
2.12. "DISABILITY" shall mean a mental or physical condition of a
Participant which the Committee, on the basis of information satisfactory to it,
finds to be a permanent condition which renders such member unfit to perform the
duties of an Employee, as such duties shall be determined by the Committee. Any
determination of whether any condition of a Participant constitutes Disability
shall be made under rules uniformly applied to all Participants.
2.13. "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Section 1.3 hereof.
2.14. "EMPLOYEE" means any employee of CB&I or the Company or their
respective Subsidiaries and Affiliates. Directors who are not employed by any of
the foregoing shall not be considered Employees under this Plan.
2.15. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.16. "FAIR MARKET VALUE" of Shares as of any date shall be determined on
the basis of the closing sale price of Shares on the principal securities
exchange on which the Shares are traded or if there is no such sale on the
relevant date, then on the last previous day on which a sale was reported.
2.17. "FISCAL YEAR" means a fiscal year of CB&I.
2.18. "INCENTIVE STOCK OPTION"or "ISO" means an option to purchase Shares
which is designated as an Incentive Stock Option and which is intended to meet
the requirements of Code Section 422, granted to a Participant pursuant to
Article 6 herein.
2.19. "NAMED EXECUTIVE OFFICER" means a Participant who, as of the last
date of a taxable year of CB&I, is one of the group of "covered employees," as
defined in the regulations promulgated under Code Section 162(m), or any
successor statute.
2.20. "NONEMPLOYEE DIRECTOR" means an individual who is a member of the
Supervisory Board but who is not an Employee.
2.21. "NONQUALIFIED STOCK OPTION"or "NQSO" means an option to purchase
Shares which is not intended to meet the requirements of Code Section 422,
granted to a Participant pursuant to Article 6 herein.
2.22. "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option.
D-3
<PAGE> 108
2.23. "OPTION PRICE" means the price at which a Share may be purchased by
a Participant pursuant to an Option.
2.24. "OPTIONEE" means the Participant or, if the Participant has died,
his or her Beneficiary, or other person determined under Section 6.9, entitled
to exercise any Option.
2.25. "PARTICIPANT" means an Employee or Nonemployee Director who has
outstanding an Award.
2.26. "PERFORMANCE-BASED EXCEPTION" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).
2.27. "PERFORMANCE SHARE" means an Award providing for the payment of a
variable number of Shares depending on the achievement of performance goals,
granted to a Participant pursuant to Article 8 herein.
2.28. "PERFORMANCE UNIT" means an Award providing for the payment of an
amount based on either the Fair Market Value of Shares or the appreciation in
Fair Market Value of Shares upon the achievement of performance goals, granted
to a Participant, pursuant to Article 8 herein.
2.29. "PERIOD OF RESTRICTION" means the period during which the transfer
of Restricted Stock Shares or Restricted Stock Units is limited in some way
(based on the passage of time, the achievement of performance goals, or upon the
occurrence of other events, as determined by the Committee, at its discretion),
and the Shares are subject to a substantial risk of forfeiture, as provided in
Article 7 herein.
2.30. "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, and
shall include a "group" as defined in Section 13(d) thereof.
2.31. "RESTRICTED STOCK" means Restricted Stock Shares or Restricted Stock
Units.
2.32. "RESTRICTED STOCK SHARES" means Shares which are issued and awarded
to Participants subject to a substantial risk of forfeiture and restrictions on
such Shares during the Period of Restriction as provided in Article 7 herein.
2.33. "RESTRICTED STOCK UNIT" means a bookkeeping unit that represents the
right of a Participant to be issued and to receive a Share upon lapse of risks
of forfeiture and restrictions on such Units during the Period of Restriction,
or at such later time as shall be determined by the Committee in its discretion
upon grant of the Award or, with the consent of the Participant, after grant of
the Award, as provided in Article 7 herein.
2.34. "RETIREMENT" means a termination of employment after (i) age 55 and
at least a 10 year period of employment by CB&I or the Company or their
respective present or former Subsidiaries or Affiliates, (ii) a 30-year period
of such employment, or (iii) age 65; provided, however, that the Committee as
part of an Award Agreement or otherwise may provide that for purposes of this
Section, a Participant may be credited with such additional years of age and
employment as the Committee in its sole discretion shall determine is
appropriate, and may provide such additional or different conditions for
Retirement as the Committee in its sole discretion shall determine is
appropriate.
2.35. "SHARES" means shares of common stock of the Company.
2.36. "SUBSIDIARY" means any corporation in which CB&I or the Company owns
directly, or indirectly through subsidiaries, at least 50% of the total combined
voting power of all classes of stock, or any other entity (including, but not
limited to, partnerships and joint ventures) in which CB&I or the Company owns
at least 50% of the combined equity thereof.
2.37. "SUPERVISORY BOARD means the Supervisory Board of the Company.
2.38. "VESTING DATE means with respect to Restricted Stock and Restricted
Stock Units the date (if any) on which the risks of forfeiture and restrictions
on such Restricted Stock Shares or Units during the Period of Restriction have
terminated (by their terms or by other action of the Committee consistent with
this Plan) and all other conditions or restrictions applicable to such
Restricted Stock Shares or Units have been satisfied.
D-4
<PAGE> 109
ARTICLE 3. -- ADMINISTRATION
3.1. THE COMMITTEE. The Plan shall be administered by a Committee, the
members of which shall be appointed from time to time by, and shall serve at the
discretion of, the Board; provided, however, that (i) with respect to grants and
Awards made or to be made to or held by any member of such Committee or any
Named Executive Officer, the Plan shall be administered by the Organization and
Compensation Committee of the Supervisory Board; and (ii) the Organization and
Compensation Committee of the Supervisory Board may in its sole discretion
exercise directly any power, right, duty or function of the Committee, including
but not limited to the grant or amendment of an Award to any Employee or
Nonemployee Director.
3.2. AUTHORITY OF THE COMMITTEE. Except as limited by law or by the
Certificate of Incorporation or Bylaws of CB&I, and subject to the provisions
herein, the Committee shall have full power to select Employees and Nonemployee
Directors who shall participate in the Plan; determine the sizes and types of
Awards; determine the terms and conditions of Awards in a manner consistent with
the Plan; construe and interpret the Plan and any agreement or instrument
entered into under the Plan as they apply to Employees; establish, amend, or
waive rules and regulations for the Plan administration as they apply to
Employees; and (subject to the provisions of Article 14 herein) amend the terms
and conditions of any outstanding Award to the extent such terms and conditions
are within the discretion of the Committee as provided in the Plan. Further, the
Committee shall make all other determinations which may be necessary or
advisable for the administration of the Plan. As permitted by law, the Committee
may delegate its authority as specified herein.
3.3. DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the Plan and all related orders and resolutions of the
Board shall be final, conclusive and binding on all persons, including CB&I, the
Company, their respective shareholders, Directors, members of the Supervisory
Board, Employees, Participants, and their estates and beneficiaries.
ARTICLE 4. -- SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1. NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as
provided in Section 4.3 herein, the number of Shares reserved for issuance to
Participants under the Plan is 2,930,000. The maximum aggregate number of Shares
with respect to which Awards may be granted in any fiscal year to any
Participant in the form of Stock Options is 250,000. The maximum aggregate
number of Shares with respect to which Awards may be granted in the form of
Restricted Stock Shares, Restricted Stock Units, Performance Shares and
Performance Units combined in any fiscal year to any Participant is 125,000.
Shares awarded or to be awarded as Restricted Stock or other Awards may be held
during the Period of Restriction or prior to transfer to the Participant in a
trust of the kind commonly known as a rabbi trust.
4.2. FORFEITED AND REACQUIRED SHARES. If any Shares subject to any Award
are forfeited or such Award otherwise terminates without the issuance of such
Shares or of other consideration in lieu of such Shares, the Shares subject to
such Award, to the extent of any such forfeiture or termination, shall again be
available for grant under the Plan. If Shares are applied to pay the Option
price upon exercise of an Option or to satisfy federal, state or local tax
withholding requirements pursuant Section 15.2, the Shares so applied shall be
added to the Shares permitted under the limitations of Section 4.1 in
determining the number of Shares remaining for issuance and for grants of Awards
with respect to such Shares under the Plan.
4.3. ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as a merger, consolidation, separation, spin-off, or other distribution of
stock or property of the Company, or any reorganization (whether or not such
reorganization comes within the definition of such term in Code Section 368) or
any partial or complete liquidation of the Company, the Committee shall adjust
the number and class of Shares which may be issued under Section 4.1 and in the
limitation of Section 4.1 on grants of Awards with respect to Shares, in the
number, class and/or price of Shares subject to outstanding Awards, as the
Committee in its sole discretion determines to be appropriate and equitable to
prevent dilution or enlargement of rights; provided, however, that the number of
Shares subject to any Award shall always be a whole number.
D-5
<PAGE> 110
4.4. FRACTIONAL SHARES. No fractional Shares shall be issued to
Participants under the Plan. If for any reason an Award or adjustment thereto
would otherwise result in the issuance of a fractional Share to a Participant,
the Company shall pay the Participant in cash the Fair Market Value of such
fractional Share.
ARTICLE 5. -- ELIGIBILITY AND PARTICIPATION
5.1. ELIGIBILITY. Persons eligible to participate in this Plan include all
Employees, including Employees who are members of the Board, and Nonemployee
Directors.
5.2. ACTUAL PARTICIPATION. Subject to the terms and provisions of the
Plan, the Committee may, from time to time, select from all eligible individuals
those to whom Awards shall be granted and shall determine the nature and amount
of each Award.
ARTICLE 6. -- STOCK OPTIONS
6.1. GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
the Committee may grant Options to Participants in such number, and upon such
terms, and at any time and from time to time, as the Committee in its discretion
may determine. The date an Option is granted shall be the day on which the
Committee acts to award a specific number of Shares to a Participant at a
specific Option Price, and shall be specified in each Award Agreement.
6.2. AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the expiration date of the
Option, the number of Shares to which the Option pertains, and such other
provisions as the Committee shall determine. The Award Agreement also shall
specify whether or not the Option is intended to be an ISO.
6.3. OPTION PRICE. The Option Price for each grant of an Option under this
Plan shall be at least equal to 100% of the Fair Market Value of a Share on the
date the Option is granted.
6.4. DURATION OF OPTIONS. Each Option shall expire at such time (not later
than the 10th anniversary of its date of grant) as the Committee shall determine
at the time of grant. If an Award Agreement does not specify an expiration date,
the Option shall expire on the 10th anniversary of its date of grant.
6.5. EXERCISE OF OPTIONS. Options shall be exercisable at such times and
be subject to such restrictions and conditions as the Committee shall in each
instance approve, which need not be the same for each grant or for each
Participant.
6.6. PAYMENT. If the Award Agreement does not otherwise specify the manner
of exercise, Options shall be exercised by the delivery of a written notice of
exercise to CB&I identifying the Option(s) being exercised, completed by the
Optionee and delivered during regular business hours to the office of the
Secretary of CB&I, or sent by certified mail to the Secretary of CB&I,
accompanied by a negotiable check or other cash equivalent in full payment for
the Shares. A copy of such notice of exercise shall also be delivered by the
Optionee to the office of the Secretary of the Company.
In the discretion of the Committee and as set forth in the Award Agreement,
the Optionee may pay the Option Price to CB&I upon exercise of any Option by
tendering previously acquired Shares which have been held by the Optionee for at
least six months and which have an aggregate Fair Market Value at the time of
exercise equal to the total Option Price, or by a combination of such Shares and
a check or other cash equivalent.
The Committee also may allow cashless exercise as permitted under Federal
Reserve Board's Regulation T, subject to applicable securities law restrictions,
or exercise by any other means which the Committee determines to be consistent
with the Plan's purpose and applicable law.
Subject to any governing rules or regulations, as soon as practicable after
receipt of a written notification of exercise and full payment, CB&I shall
deliver, or have delivered, to the Optionee, in the Optionee's name,
certificates for an appropriate number of Shares based upon the number of Shares
purchased under the Option(s).
D-6
<PAGE> 111
6.7. RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option under
this Article 6 as it may deem advisable, including, without limitation,
restrictions under applicable securities laws and under the requirements of any
stock exchange or market upon which such Shares are then listed and/or traded.
6.8. TERMINATION OF EMPLOYMENT. Each Participant's Option Award Agreement
shall set forth the extent to which the Participant shall have the right to
exercise the Option following termination of the Participant's employment as an
Employee or service as a Director. Such provisions shall be determined in the
sole discretion of the Committee, shall be included in the Award Agreement
entered into with each Participant, need not be uniform among all Options issued
pursuant to this Article 6, and may reflect distinctions based on the reasons
for termination of employment.
6.9. NONTRANSFERABILITY OF OPTIONS.
(a) INCENTIVE STOCK OPTIONS. No ISO may be sold, transferred,
pledged, assigned, or otherwise alienated, other than by will or by the
laws of descent and distribution. Further, all ISOs granted to a
Participant under this Article 6 shall be exercisable during his or her
lifetime only by such Participant or by designation of a Beneficiary in
accordance with Article 10.
(b) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided in a
Participant's Award Agreement, no NQSO may be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated, other than by will or by
the laws of descent and distribution. Further, except as otherwise provided
in a Participant's Award Agreement, all NQSOs granted to a Participant
under this Article 6 shall be exercisable during his or her lifetime only
by such Participant or by designation of a Beneficiary in accordance with
Article 10.
ARTICLE 7. -- RESTRICTED STOCK
7.1. GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Committee may grant Awards of Restricted Stock Shares or Restricted
Stock Units to Participants in such amounts and upon such terms, and at any time
and from time to time, as the Committee shall in its discretion determine.
7.2. RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify whether the
grant is an Award of Restricted Stock Shares or Restricted Stock Units, the
Period(s) of Restriction, the number of Shares or Units of Restricted Stock
granted, and such other provisions as the Committee shall determine.
7.3. TRANSFERABILITY. Except as otherwise provided in this Article 7,
Restricted Stock Units may not be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated; and Restricted Stock Shares may not be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated
until the end of the applicable Period of Restriction established by the
Committee and specified in the Restricted Stock Award Agreement, or upon earlier
satisfaction of any other conditions, as specified by the Committee in its sole
discretion and set forth in the Restricted Stock Award Agreement. Except as
otherwise provided in this Article 7, Restricted Stock Shares shall become
freely transferable by the Participant upon the Vesting Date, and Shares issued
in respect of Restricted Stock Units shall be freely transferable by the
Participant upon issuance to the Participant on or after the Vesting Date.
7.4. OTHER RESTRICTIONS. The Committee may impose such other conditions
and/or restrictions on any Shares or Units of Restricted Stock granted pursuant
to the Plan as it may deem advisable, including, without limitation, a
requirement that Participants pay a stipulated purchase price at a stipulated
time for each Share or Unit of Restricted Stock, restrictions and conditions of
vesting or forfeiture based upon the achievement of specific performance goals
(Company-wide, divisional, and/or individual), time-based restrictions on
vesting following the attainment of the performance goals, and/or restrictions
under applicable Federal or state securities laws.
If the Restricted Stock Award is made in Restricted Stock Shares, CB&I
shall retain the certificates representing Shares in CB&I's possession until the
Vesting Date. If the Restricted Stock Award is made in
D-7
<PAGE> 112
Restricted Stock Units, no Shares shall be issued until the Vesting Date, but
Shares shall be issued in respect of such Units as of or after the Vesting Date.
In either case, certificates for Shares shall be delivered to the Participant on
or as soon as practicable after the Vesting Date, or at such later time or times
as shall be determined by the Committee in its discretion upon grant of the
Award or, with the consent of the Participant, after grant of the Award.
7.5. VOTING RIGHTS. Unless otherwise provided in the Award Agreement,
Participants awarded Restricted Stock Shares hereunder which have not been
forfeited may exercise full voting rights with respect to those Shares during
the Period of Restriction. Restricted Stock Units shall not confer any voting
rights (unless and until Shares are issued therefor on or after the Vesting
Date).
7.6. DIVIDEND AND OTHER DISTRIBUTIONS. Unless otherwise provided in the
Award Agreement, if during the Period of Restriction prior to a Vesting Date or
forfeiture of Restricted Stock:
(a) Cash dividends are paid on Shares, (i) the Company shall pay
Participants holding Restricted Stock Shares the regular cash dividends
paid with respect to the Shares; and (ii) the Company shall pay
Participants holding Restricted Stock Units an amount equal to the cash
dividends paid on an equivalent number of Shares;
(b) Dividends in Shares are paid in Shares, (i) Participants holding
Restricted Stock Shares shall be credited with such dividends as additional
Restricted Stock Shares subject to the same restrictions as the underlying
Shares; and (ii) Participants holding Restricted Stock Units shall be
credited with additional Restricted Stock Units equivalent to such
dividends, subject to the same restrictions as the underlying Units.
The Committee may in its discretion apply any restrictions to the dividends that
the Committee deems appropriate.
7.7. TERMINATION OF EMPLOYMENT. Except as otherwise provided in the Award
Agreement, if the Participant's employment as an Employee or service as a
Director with CB&I or the Company or their respective Subsidiaries and
Affiliates terminates for any reason during the Period of Restriction, all
Restricted Stock as to which the Period of Restriction has not yet expired or as
to which a Vesting Date has not otherwise occurred shall be forfeited. The
Committee in its discretion may set forth in the Award Agreement the extent to
which the Participant shall nevertheless have the right to receive vested
unrestricted Shares at or after termination of the Participant's employment as
an Employee or service as a Director. Such provisions shall be determined in the
sole discretion of the Committee, shall be included in the Award Agreement
entered into with each Participant, need not be uniform among all Shares or
Units of Restricted Stock issued pursuant to the Plan, and may reflect
distinctions based on the reasons for termination of employment.
7.8. RIGHTS PERSONAL TO PARTICIPANT. All rights prior to the Vesting Date
with respect to the Restricted Stock granted to a Participant under the Plan
shall be available during his or her lifetime only to such Participant, or in
the event of the Participant's death prior to the Vesting Date, to the
Beneficiary designated in accordance with Article 10.
ARTICLE 8. -- PERFORMANCE UNITS AND PERFORMANCE SHARES
8.1. GRANT OF PERFORMANCE UNITS/SHARES. Subject to the terms and
provisions of the Plan, the Committee may grant Awards of Performance Units
and/or Performance Shares to Participants in such amounts and upon such terms,
and at any time and from time to time, as the Committee shall in its discretion
determine.
8.2. VALUE OF PERFORMANCE UNITS/SHARES. Each Performance Unit shall have
an initial value that is established by the Committee at the time of grant. The
Committee shall set performance goals in its discretion which, depending on the
extent to which they are met, will determine the number and/or value of
Performance Units/Shares that will be paid out to the Participant. For purposes
of this Article 8, the time period during which the performance goals must be
met shall be called a "Performance Period."
D-8
<PAGE> 113
8.3. EARNING OF PERFORMANCE UNITS/SHARES. Subject to the terms of this
Plan, after the applicable Performance Period has ended, the holder of
Performance Units/Shares shall be entitled to receive payout on the number and
value of Performance Units/Shares earned by the Participant over the Performance
Period, to be determined as a function of the extent to which the corresponding
performance goals have been achieved.
8.4. FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/SHARES. Payment of
earned Performance Units/Shares shall be made in a single lump sum, as soon as
practicable after the Committee has certified the number of Performance
Units/Shares earned for the Performance Period, or at such later time or times
as shall be determined by the Committee in its discretion upon grant of the
Award or, with the consent of the Participant, after grant of the Award. Subject
to the terms of this Plan and except as otherwise provided in an Award
Agreement, the Committee shall pay earned Performance Shares in Shares but may
in its sole discretion pay earned Performance Units in the form of cash or in
Shares (or in a combination thereof) which have an aggregate Fair Market Value
equal to the value as of the date of distribution of the number of earned
Performance Units at the close of the applicable Performance Period. Such Shares
may be granted subject to any restrictions deemed appropriate by the Committee.
Unless otherwise provided in the Award Agreement, Participants shall be
entitled to receive any dividends paid with respect to Shares which have been
earned in connection with grants of Performance Units/Shares but not yet
distributed to Participants, such dividends to be subject to the same terms and
conditions as apply to dividends earned with respect to Restricted Stock, as set
forth in Section 7.6 herein.
8.5. TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR
RETIREMENT. Unless determined otherwise by the Committee and set forth in the
Participant's Award Agreement, in the event the employment or service as a
Director of a Participant is terminated by reason of death, Disability, or
Retirement during a Performance Period, the Participant shall receive a payout
of the Performance Units/Shares in a reduced amount prorated according to the
ratio of the length of Participant's employment or service in the Performance
Period to the length of the Performance Period, as specified by the Committee in
its discretion. Payment of earned Performance Units/Shares shall be made at a
time specified by the Committee in its sole discretion and set forth in the
Participant's Award Agreement. Notwithstanding the foregoing, with respect to
Named Executive Officers who retire during a Performance Period, payments shall
be made at the same time as payments are made to Participants who did not
terminate employment or service during the applicable Performance Period.
8.6. TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a
Participant's employment or service terminates for any reason other than those
reasons set forth in Section 8.5 herein, all Performance Units/Shares shall be
forfeited by the Participant to CB&I unless determined otherwise by the
Committee, as set forth in the Participant's Award Agreement.
8.7. NONTRANSFERABILITY. Except as otherwise provided in a Participant's
Award Agreement, Performance Units/Shares may not be sold, transferred, pledged,
assigned, or otherwise alienated, other than by will or by the laws of descent
and distribution or by designation of a Beneficiary in accordance with Article
10. Further, except as otherwise provided in a Participant's Award Agreement, a
Participant's rights under the Plan shall be exercisable during the
Participant's lifetime only by the Participant or the Participant's legal
representative.
ARTICLE 9. -- PERFORMANCE MEASURES
The performance measure(s) to be used for purposes of Awards to Named
Executive Officers which are designed to qualify for the Performance-Based
Exception shall be chosen from among net income (either before or after
interests, taxes, depreciation and amortization), share price, earnings per
share, operating income, return on net assets, return on equity, return on
capital or investments, total shareholder return, savings in working capital,
reduction in expense levels, operating cash flow, free cash flow, or economic
value added, in each case where applicable determined either on a Company-wide
basis or in respect of any one or more business units.
D-9
<PAGE> 114
The Committee shall have the discretion to adjust the determinations of the
degree of attainment of the pre-established performance goals; provided,
however, that Awards to Named Executive Officers, which are designed to qualify
for the Performance-Based Exception, may not be adjusted upward (the Committee
shall retain the discretion to adjust such Awards downward).
In the event that the Committee determines that it is advisable to grant
Awards which shall not qualify for the Performance-Based Exception, the
Committee may make such grants without satisfying the requirements of Code
Section 162(m).
ARTICLE 10. -- BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively) to
whom any benefit under the Plan is to be paid, to exercise any Stock Option, or
succeed to the ownership of any Restricted Stock Performance Units/Shares or
other Award as provided in this Plan, in case of his or her death before he or
she receives any or all of such benefit. Each such designation shall revoke all
prior designations by the same Participant, shall be in a form prescribed by the
Committee, and will be effective only when filed by the Participant in writing
with the Committee during the Participant's lifetime. In the absence of any such
designation, benefits remaining unpaid at the Participant's death shall be paid
to the Participant's estate.
ARTICLE 11. -- DEFERRALS
The Committee may, subject to Section 14.3, in the Award Agreement or
otherwise, permit or require a Participant to defer such Participant's receipt
of the payment of cash or the delivery of Shares that would otherwise be due to
such Participant by virtue of the exercise of an Option, the lapse or waiver of
restrictions with respect to Restricted Stock, or the satisfaction of any
requirements or goals with respect to Performance Units/Shares. If any such
deferral election is required or permitted, the Committee shall, in its sole
discretion, establish rules and procedures for such payment deferrals.
ARTICLE 12. -- RIGHTS OF EMPLOYEES
12.1. EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right of CB&I to terminate any Participant's employment at any time, nor
confer upon any Participant any right to continue in the employ of CB&I.
12.2. PARTICIPATION. No Employee or Director shall have the right to be
selected to receive an Award under this Plan, or, having been so selected, to be
selected to receive a future Award.
ARTICLE 13. -- CHANGE IN CONTROL
13.1. TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a Change in
Control, unless otherwise specifically prohibited under applicable laws, or by
the rules and regulations of any governing governmental agencies or national
securities exchanges or unless otherwise provided in an Award Agreement or other
written agreement between a Participant and the Company (or CB&I or the
Committee), then with respect to each Award outstanding on the date of the
Change in Control:
(a) Any and all Options granted hereunder shall become immediately
exercisable, and shall remain exercisable throughout their entire term;
(b) Any restriction periods and restrictions imposed on Restricted
Shares shall lapse;
(c) The target 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(s) as
of the effective date of the Change in Control. The vesting of all Awards
denominated in Shares shall be accelerated as of the effective date of the
Change in Control, and there shall be paid out in cash to Participants
within 30 days following the effective date of the Change in Control an
amount based upon an assumed achievement of all relevant performance goals.
D-10
<PAGE> 115
13.2. TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL
PROVISIONS. Notwithstanding any other provision of this Plan or any provision
of any Award Agreement, the provisions of this Article 13 may not be terminated,
amended, or modified on or after the date of Change in Control to affect
adversely any Award theretofore granted without the prior written consent of the
Participant with respect to said Participant's outstanding Awards; provided,
however, the Board, upon recommendation of the Committee, may terminate, amend,
or modify this Article 13 at any time and from time to time prior to the date of
a Change of Control.
ARTICLE 14. -- AMENDMENT, MODIFICATION, AND TERMINATION
14.1. AMENDMENT, MODIFICATION, AND TERMINATION. The Board may at any time
and from time to time, alter, amend, suspend or terminate the Plan in whole or
in part.
14.2. ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 4.3 hereof) affecting CB&I or the Company, or the financial statements
of CB&I or the Company, or of changes in applicable laws, regulations or
accounting principles, whenever the Committee determines that such adjustments
are appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.
14.3. AWARDS PREVIOUSLY GRANTED. The Committee may amend or modify any
outstanding Award Agreement in any manner consistent with this Plan for an
original Award Agreement, provided, however, that no amendment or modification
of an Award Agreement shall adversely affect in any material way the Award
previously granted without the written consent of the Participant holding such
Award. No termination, amendment or modification of the Plan shall adversely
affect in any material way any Award previously granted without the written
consent of the Participant holding such Award.
ARTICLE 15 -- WITHHOLDING
15.1. TAX WITHHOLDING. CB&I shall have the power and the right to deduct
or withhold, or require a Participant to remit to CB&I, an amount sufficient to
satisfy Federal, state, and local taxes, domestic or foreign, required by law or
regulation to be withheld with respect to any taxable event arising as a result
of this Plan.
15.2. SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options, upon the lapse of restrictions on Restricted Stock, or upon
any other taxable event arising as a result of Awards granted hereunder,
Participants may elect, subject to the approval of the Committee, to satisfy the
withholding requirement, in whole or in part, by having CB&I withhold Shares
having a Fair Market Value on the date the tax is to be determined equal to the
minimum statutory total tax which could be imposed on the transaction. All such
elections shall be irrevocable, made in writing, and shall be subject to any
restrictions or limitations that the Committee, in its sole discretion, deems
appropriate.
ARTICLE 16. -- INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of the
Board, shall be indemnified and held harmless by CB&I against and from any loss,
cost, liability, or expense that may be imposed upon or reasonably incurred by
him or her in connection with or resulting from any claim action, suit, or
proceeding to which he or she may be party or in which he or she may be involved
by reasons of any action taken or failure to act under the Plan and against and
from any and all amounts paid by him or her in settlement thereof, with CB&I's
approval, or paid by him or her in satisfaction of any judgment of any such
action, suit, or proceeding against him or her, provided he or she shall give
CB&I an opportunity, at its own expense, to handle and defend the same before he
or she undertakes to handle and defend it on his or her own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
Articles of Association, CB&I's Certificate of Incorporation or Bylaws, any
D-11
<PAGE> 116
agreement, as a matter of law, or otherwise, or any power that CB&I may have to
indemnify them or hold them harmless.
ARTICLE 17. -- SUCCESSORS
All obligations of CB&I under the Plan with respect to Awards granted
hereunder shall be binding on any successor to CB&I, whether such successor
arises as a result of a direct or indirect purchase, merger, consolidation, or
otherwise, of all or substantially all of the business and/or assets of CB&I.
ARTICLE 18. -- LEGAL CONSTRUCTION
18.1. GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
18.2. SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
18.3. REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
18.4. SECURITIES LAW COMPLIANCE. Transactions under this Plan are intended
to comply with all applicable conditions of Rule 16b-3 under the Exchange Act
(or any successor rule). To the extent any provision of the Plan or action by
the Committee fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Committee.
18.5. GOVERNING LAW. To the extent not preempted by federal law, the Plan
and all agreements hereunder, shall be construed in accordance with and governed
by the laws of the state of Illinois, without regard to its provisions regarding
conflict of laws.
D-12
<PAGE> 117
CHICAGO BRIDGE & IRON COMPANY N.V.
VOTING INSTRUCTION CARD
(MUST BE PRESENTED AT THE MEETING OR RECEIVED BY MAIL PRIOR TO THE CLOSE OF
BUSINESS ON ,2000)
The undersigned registered holder of Shares of New York Registry (each
representing one Common Share of NLG 0.01 nominal amount of Chicago Bridge &
Iron Company N.V.), hereby appoints The Bank of New York, as New York Transfer
Agent and Registrar, through its agent, as the proxy of the undersigned to
attend and address the Extraordinary General Meeting of Shareholders of Chicago
Bridge & Iron Company N.V. to be held in Amsterdam. The Netherlands on ,
2000 and, in general, to exercise all rights the undersigned could exercise in
respect of such Common Shares if personally present thereat upon all matters
which may properly come before such Meeting and every adjournment thereof, and
instructs such proxy to endeavor, in so far as practicable, to vote or cause to
be voted on a poll (if a poll shall be taken) the Common Shares of Chicago
Bridge & Iron Company N.V. represented by Shares of New York Registry registered
in the name of the undersigned on the books of the New York Transfer Agent and
Registrar as of the close of business on , 2000, at such Meeting in
respect of the resolutions specified on the reverse side hereof.
NOTE: PLEASE DIRECT YOUR PROXY HOW IT IS TO VOTE BY PLACING AN X IN THE
APPROPRIATE BOX OPPOSITE THE RESOLUTIONS SPECIFIED ON THE REVERSE SIDE
HEREOF.
CHICAGO BRIDGE & IRON COMPANY N.V.
P.O. BOX 11436
NEW YORK, N.Y. 10203-0436
(Continued and to be dated and signed on the reverse side.)
<TABLE>
<CAPTION>
<S><C>
1. To approve the issuance of FOR AGAINST ABSTAIN 3. To appoint Michael D. Winfield and William Annual Meeting of
8,146,665 shares of CB&I Shareholders in 2001; to appoint William H. White member
stock to be used in consideration, [X] [X] [X] of the Board of Supervisory Directors to serve until the
together with cash provided by a Annual Meeting of Shareholders in 2002; and to appoint
subsidiary of CB&I, for the purchase Ben A. Guill member of the Board of Supervisory Directors to
of all ownership interests in serve until the Annual Meeting of Shareholders in 2003, and
Howe-Baker International, Inc. until their successors are duly appointed; and
from WEDGE Group Incorporated
and its affiliates;
Michael D. Winfield [ ]
THE SUPERVISORY BOARD
RECOMMENDS A other: [ ]
VOTE FOR MESSRS ---------------------------
WINFIELD, MACAULAY, William E. Macaulay [ ]
2. To amend the Articles of Association WHITE AND GUILL
to implement certain provisions of the AND FOR ITEMS 1, 2 AND 4. other: [ ]
proposed Shareholder Agreements with ---------------------------
WEDGE Group Incorporated and First William H. White [ ]
Reserve Fund VIII, L.P.; [X] [X] [X]
other: [ ]
---------------------------
Ben A. Guill [ ]
other: [ ]
---------------------------
FOR AGAINST ABSTAIN
4. To approve an amendment to the
Chicago Bridge & Iron 1999
Long-Term Incentive Plan to increase
the aggregate number of shares [x] [x] [x]
available for issuance under the Plan.
CHANGE OF ADDRESS AND
OR COMMENTS MARK HERE [X]
This Form must be signed by the person in whose
name the relevant Common Share is registered on
the books of New York Transfer Agent and
Registrar. In the case of a Corporation,the Form
should be executed by a duly authorized Officer or
Attorney.
Dated , 2000
------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
Signature of Registered Holder
Sign, Date and Return the Form Promptly Using the Enclosed Envelope.
VOTES MUST BE INDICATED (X) IN BLACK OR BLUE INK. [X]
</TABLE>
