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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 and 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event
reported): June 24, 1994
Brown & Sharpe Manufacturing Company
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(Exact name of registrant as specified in its charter)
Delaware 1-5881 050113140
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(State or other (Commission File No.) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
Precision Park, 200 Frenchtown Road
North Kingston, Rhode Island 02852
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(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (401) 886-2000
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Item 5. Other Events
On June 24, 1994, Brown & Sharpe Manufacturing Company (the "Company")
entered into an Acquisition Agreement dated as of June 10, 1994 (the "DEA
Acquisition Agreement") with Finmeccanica S.p.A., an Italian corporation
("Finmeccanica"), for the Company to acquire from Finmeccanica all the
outstanding capital stock of DEA S.p.A. ("DEA").
DEA, a worldwide leader in the manufacturing and marketing of high
precision coordinate measuring machines ("CMMs") and related accessories,
software and services, had 1993 net sales and operating profit of approximately
$110.7 million and $5.4 million, respectively. DEA derives over half of its
revenues from medium-to-large vertical and horizontal-arm CMMs used principally
in automotive and aerospace end markets and also derives a significant portion
of its revenues through the sale of upgrades, enhancements, replacement parts
and services. The Company believes that DEA's large vertical and horizontal CMM
products, as well as DEA's distribution capabilities in Europe, South America,
the Middle East, India and China, will complement and strengthen the Company's
CMM product line and distribution network.
The Company's plan for integrating DEA, Ets. Pierre Roch S.A., based in
France ("Roch"), and Roch's German affiliate, Mauser Prazisions-Messmittel Gmbh
("Mauser") (Roch and Mauser were acquired in March 1994) anticipates cost
savings (before one-time implementation cash costs) of nearly $8 million to be
realized within the first twelve months of combined operations. The Company
expects to achieve these savings primarily by eliminating duplicative
administrative and sales personnel and facilities, duplicative marketing
expenses such as advertising and trade shows and some redundant design
engineering activities, including personnel. The Company expects to realize
total annual savings of approximately $14 million after 24 months of combined
operations through these actions, further reductions in selling and
administrative expenses, rationalization of European manufacturing facilities
and reductions in associated manufacturing overhead costs. The Company expects
to spend approximately $12.3 million in severance and other one-time cash costs
in eliminating these duplicative operations and taking other planned measures
intended to produce these savings. These cost savings do not include savings
that may result from consolidation of certain manufacturing operations or from
other synergies, although the Company intends to evaluate such opportunities
following the closing of the DEA Acquisition. Due to the inherent risks in
integrating separate operations, in particular operations located in different
countries and that in the aggregate are large in relation to the Company, there
can be no assurance that the Company will realize anticipated cost savings or
realize the savings in the contemplated timetable, or that as a result of its
decentralized management or other factors the Company will not experience
unanticipated one-time or ongoing costs or difficulties in implementing the
integration of DEA, Roch and Mauser into the Company. In addition, there can be
no assurance that following these acquisitions the Company's net sales will not
be adversely affected by planned cost cutting measures, possible discontinuance
of certain similar products, customers' desire to maintain alternative sources
of supply or for other reasons. Further, there can be no assurance that
following these acquisitions the Company's management and organizational
structure will be adequate to manage a business that is substantially larger
than the Company prior to the acquisitions.
The DEA Acquisition Agreement provides that the purchase price for the
DEA Acquisition consists of 3,450,000 shares of the Company's Class A Common
Stock. Prior to the closing, Finmeccanica will assume or discharge all
indebtedness for borrowed money of DEA net of cash in excess of L0.8 billion,
other than an amount to remain outstanding on the closing, which amount is
determined as of July 31, 1994 (the "Pricing Date") pursuant to a formula in the
DEA Acquisition Agreement. The Company estimates that approximately $13.8
million aggregate principal amount of DEA indebtedness will remain outstanding
at the closing. The purchase price is subject to a post-closing adjustment
based upon a comparison of adjusted net asset value (as defined in the DEA
Acquisition Agreement) of DEA as of June 30, 1993 and adjusted net asset value
of DEA as of the Pricing Date (as defined and calculated in accordance with a
formula in the DEA Acquisition Agreement) and after taking into account the
withdrawal by Finmeccanica of cash generated from the non-recourse factoring of
a mutually agreed amount of receivables of DEA prior to the Pricing Date (and
after reflecting an additional adjustment relating to any difference between the
estimated July
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31, 1994 amount of indebtedness of DEA to be discharged by Finmeccanica and the
actual amount, as finally determined, of such indebtedness as of July 31, 1994).
If the post closing adjustment indicates an increase or a decrease in the
purchase price, then either the Company will issue to Finmeccanica an additional
number of shares of Class A Common Stock with a value equal to such positive
difference or Finmeccanica will make a cash payment to the Company equal to such
negative difference. However, if such positive or negative difference is less
than $500,000, no adjustment will be made. The amount of any purchase price
adjustment will be conclusively determined, subsequent to the closing date of
the DEA Acquisition, based upon the specified calculations and the audited
combined balance sheet as of July 31, 1994 of DEA and its subsidiaries as agreed
between the parties under the procedures set forth in the DEA Acquisition
Agreement. The obligations to complete the transactions contemplated by the DEA
Acquisition Agreement are subject to the satisfaction (or waiver) of certain
specified closing conditions.
In connection with the DEA Acquisition, the Company and Finmeccanica will
enter into a Shareholders Agreement (the "Shareholders Agreement") providing
Finmeccanica with certain rights and obligations respecting its ownership of
shares in the Company. Finmeccanica will be prohibited from acquiring any
shares of the Company's stock if such acquisition would increase Finmeccanica's
ownership above approximately 40% on a fully-diluted basis (as defined in the
Shareholders Agreement) until December 31, 1998, or earlier upon the happening
of certain specified events. The Shareholders Agreement will provide that so
long as Finmeccanica owns at least 862,500 shares of the Company's Class A
Common Stock, the Company may not issue any shares of its Class A Common Stock
or equity securities exercisable, exchangeable or convertible into shares of
Class A Common Stock ("Derivative Securities") to any third party, other than
certain specified exclusions (including shares issued on conversion of the
Company's 9 1/4% Subordinated Convertible Debentures due 2005 and up to 400,000
shares issuable upon the exercise of stock options), without first offering to
Finmeccanica the right to purchase that percentage of the Company's equity
securities such that Finmeccanica's percentage ownership of the Company's Common
Stock on a fully-diluted basis (as defined in the Shareholders Agreement) does
not decrease. In addition, Finmeccanica will not sell any of the Company's
equity securities to any third party until the expiration of two years after the
closing of the DEA Acquisition, and upon the expiration of two years may sell
securities to a third party only after offering the Company the first
opportunity to purchase such shares other than sales pursuant to a registered
public offering pursuant to Finmeccanica's registration rights and sales
pursuant to Rule 144 under the Securities Act of 1933.
The Shareholders Agreement also provides that the Company will increase
the number of its directors from seven to ten and will use reasonable best
efforts to cause to be elected to the board of directors three nominees
designated by Finmeccanica for respective terms expiring at the 1995, 1996 and
1997 annual meeting of shareholders. At such time as Henry D. Sharpe, Jr.
ceases to be a director of the Company, Finmeccanica will thereafter be entitled
to only a total of two nominees on the board plus a third nominee, who may not
be an employee of Finmeccanica but shall be an experienced executive or advisor
to industrial businesses, selected by Finmeccanica, subject to approval by the
Board of Directors of the Company, that may not be unreasonably withheld. In
any event, Finmeccanica shall be entitled to two nominees on the board of
directors while it owns at least 1,250,000 shares of Class A Common Stock and
one nominee on the board of directors while it owns at least 375,000 shares of
Class A Common Stock. Under the terms of a letter agreement between Henry D.
Sharpe, Jr. and Finmeccanica, Henry D. Sharpe, Jr. will agree to vote all shares
of the Company's stock as to which he has sole voting power in favor of the
Finmeccanica nominees on the Company's board of directors. The Shareholders
Agreement provides that Finmeccanica will vote its shares of Class A Common
Stock in favor of the election as directors of the Company all the nominees
selected by the Company's board of directors.
The DEA Acquisition Agreement provides that Finmeccanica or any of its
affiliates may not compete with any metrology business related to CMMs conducted
by the Company on the closing date of the DEA Acquisition for a period of five
years after such closing date (other than as a result
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of up to 20% equity ownership of entities engaged in such a business). The DEA
Acquisition Agreement also provides that the Company and Finmeccanica will
indemnify each other against up to $10.0 million in damages (less the first
$500,000) resulting from certain inaccuracies, misrepresentations or breaches of
warranty or nonfulfillment of agreements and against certain specific
contingencies.
The foregoing description of certain terms of the DEA Acquisition
Agreement and the Shareholders Agreement are qualified in their respective
entireties by reference to the full text thereof, copies of which are included
as Exhibits 1 and 2, respectively, to this report and are hereby incorporated by
reference herein.
In connection with the DEA Acquisition, on June 16, 1994, the Company
amended the Rights Agreement, dated as of March 9, 1988 (the "Rights
Agreement"), between the Company and The First National Bank of Boston, as
Rights Agent, to provide that Finmeccanica shall not be deemed an Acquiring
Person thereunder so long as it owns no shares of the Company's common stock
other than shares of Class A Common Stock acquired pursuant to the DEA
Acquisition Agreement or pursuant to the preemptive rights contained in the
Shareholders Agreement. The foregoing description of the amendment to the
Rights Agreement is qualified in its entirety by reference to the full text
thereof, a copy of which is included as Exhibit 3 to this report and is hereby
incorporated by reference herein.
Also in connection with the DEA Acquisition, on June 27, 1994, the
Company filed with the Securities and Exchange Commission a Registration
Statement on Form S-1 (the "Registration Statement") with respect to its public
offering of $75,000,000 aggregate principal amount of Senior Notes due 2002.
The completion of the DEA Acquisition is a condition to the offering of the
Senior Notes. The sections of the Registration Statement captioned "Summary -
The Offering," "Pro Forma Combined Financial Statements," "Brown & Sharpe
Selected Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Brown & Sharpe," "DEA Selected
Combined Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations of DEA" are included as Exhibit 4 to this
report and are hereby incorporated by reference herein.
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Item 7. Financial Statements and Exhibits
(c) Exhibits. The following exhibits are filed as part of this report.
Exhibit No. Description Page No.
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1 Acquisition Agreement
dated as of June 10,
1994 between the Company
and Finmeccanica.
2 Form of Shareholders Agreement
to be entered into between the
Company and Finmeccanica.
3 Amendment No. 3, dated
June 16, 1994, to Rights
Agreement, dated March 9,
1988 between the Company and
The First National Bank of
Boston, as Rights Agent.
4 Portions of the Company's
Registration Statement on
Form S-1 (File No. 33-54319)
filed with the Commission
on June 27, 1994.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereto duly authorized.
BROWN & SHARPE MANUFACTURING COMPANY
Dated: June 27, 1994 By: /s/ Charles A. Junkunc
---------------------------------------
Charles A. Junkunc
Vice President and
Chief Financial Officer
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<PAGE>
ACQUISITION AGREEMENT
Dated as of June 10, 1994
BETWEEN
BROWN & SHARPE MANUFACTURING COMPANY
AND
FINMECCANICA S.P.A.
<PAGE>
ACQUISITION AGREEMENT
ACQUISITION AGREEMENT made as of June 10, 1994 (this "Agreement") by and
between Brown & Sharpe Manufacturing Company, a Delaware corporation with its
principal offices at 200 Frenchtown Road, Precision Park, North Kingstown, Rhode
Island 02852 U.S.A. ("Brown & Sharpe") and Finmeccanica S.p.A., an Italian
corporation, operating through its Elsag Bailey division, with offices at Via
Puccini, 2, 16154 Genoa, Italy ("Finmeccanica").
WHEREAS, Brown & Sharpe and Finmeccanica have agreed to combine the DEA
Business with the Brown & Sharpe business upon the terms and conditions set
forth below, intending thereby to expand the combined business line of CMM (as
defined below) products, strengthen CMM distribution capability worldwide,
augment its R&D capabilities, and provide for other synergies.
WHEREAS, Finmeccanica, through its direct and indirect ownership of all of
the issued and outstanding shares of capital stock of DEA S.p.A., an Italian
corporation (the "Company"), and the other DEA companies listed in Annex A
attached hereto (collectively, the "DEA Companies or sometimes "the Company and
its Subsidiaries") is engaged in the design, engineering, development, testing,
manufacture, sale and servicing of coordinate measuring machines ("CMMs") and
parts and accessories therefor (the "DEA Business");
WHEREAS, Brown & Sharpe and certain of its subsidiaries (collectively, the
"B&S Subsidiaries") are engaged in the design, engineering, development,
testing, manufacture, sale and servicing of CMMs and other metrology products
(the "B&S Business");
NOW THEREFORE, and in consideration of the respective covenants and
conditions herein contained, Finmeccanica and Brown & Sharpe hereby agree as
follows:
1. Acquisition of the DEA Shares by Brown & Sharpe on the Closing Date.
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1.1 Purchase and Sale of the DEA Shares. Finmeccanica agrees to sell
-----------------------------------
and transfer to Brown & Sharpe (or, at the option of Brown & Sharpe, to one or
more wholly owned subsidiaries of Brown & Sharpe designated by Brown & Sharpe
(its "designee" or "designees")) at the Closing (as defined in Section 2), and
Brown & Sharpe agrees to purchase (or cause its designee or designees to
purchase) from Finmeccanica at the Closing, all of the issued and outstanding
shares of capital stock of the Company (the "DEA Shares").
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1.2 Purchase Price for the DEA Shares. In consideration of the
---------------------------------
assignment, transfer, conveyance and delivery by Finmeccanica of the DEA Shares
to Brown & Sharpe (or its designee or designees) and of the other agreements of
Finmeccanica stated herein, Brown & Sharpe (or its designees) will pay and
Finmeccanica will receive the purchase price for the DEA Shares determined in
accordance with Section 1.3 below.
1.3 Elements of the Purchase Price. Subject to the Post-Closing
------------------------------
Purchase Price Adjustment as described in Section 1.4, the purchase price for
the DEA Shares (the "Purchase Price") shall be 3,450,000 shares of Class A
Common Stock, $1.00 par value per share (the "Brown & Sharpe Purchase Price
Shares" which term shall also include any additional shares of Class A Common
Stock of Brown & Sharpe issued to Finmeccanica pursuant to the Post-Closing
Purchase Price Adjustment referred to in Section 1.4 below).
1.3A Aggregate Permitted Indebtedness. As of July 31, 1994 (the
--------------------------------
"Pricing Date"), the amount of Indebtedness (as defined herein) which shall be
reflected on the books of the Company and its Subsidiaries shall be the sum of
(w) 8,000 Million Italian Lire ("Lit.") denominated Indebtedness ("Lit. Debt"),
plus (x) $9,897,960 U.S. Dollar denominated Indebtedness ("U.S. Debt"), plus (y)
- - ---- ----
the aggregate amount of the Company's and its Subsidiaries' cash and cash
equivalents in excess of Lit. 800 Million, minus (z) the amount of the accrual
-----
for TFR Liabilities of the Company and the Subsidiaries attributable to CIGS
Employees reflected on and as of the date of the Pricing Balance Sheet, but not
to exceed Lit. 1,700 Million ("Aggregate Permitted Indebtedness"); such amount
of TFR Liabilities shall first reduce short term Lit. Debt to the maximum extent
possible and then to the extent short term Lit. Debt cannot be reduced by such
amount, U.S. Debt converted at the U.S. Dollar/Lit. exchange rate in effect on
the business day immediately preceding July 31, 1994 as published in SOLE 24
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ORE. "Indebtedness" shall mean amounts classified on the Pricing Balance Sheet
- - ---
(as such term is defined in Section 1.4(c) below) as borrowings, including
short-term debt, current maturities of debt, long term debt and payables (other
than payables for goods or services) of the DEA Companies to Finmeccanica
(including its Elsag Bailey division and its subsidiaries).
1.4 Post-Closing Purchase Price Adjustment.
--------------------------------------
(a) For purposes of this Agreement and of calculating the Post-
Closing Purchase Price Adjustment, based on the Pricing Balance Sheet as of July
31, 1994, the following terms shall have the meanings ascribed to them below:
"Adjusted Net Asset Value" of the DEA Companies shall mean an amount
determined, as the case may be, by reference to the
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audited combined balance sheets of the DEA Companies at the relevant balance
sheet dates (June 30, 1993 or the Pricing Date), equal to:
(i) the total assets (excluding cash and cash equivalents) of the DEA
Companies as shown on and as of the date of the relevant balance sheet;
minus
-----
(ii) the total liabilities of the DEA Companies as shown on and as of the
date of the relevant balance sheet, other than amounts classified on the
balance sheet of the DEA Companies as of such relevant balance sheet date
as Indebtedness; plus
----
(iii) the accrual for TFR Liabilities of the Company and the Subsidiaries
attributable to CIGS Employees shown on and as of the date of the relevant
balance sheet in the amount of Lit. 1,700 Million as of the Pricing Date
and Lit. 1,700 million as of June 30, 1993; plus.
----
(iv) solely with respect to the June 30, 1993 DEA Financial Statements,
the net accrual of Lit. 2,019 million for INPS liability for terminated
employees reflected on such financial statements.
"CIGS Employees" shall mean, as of the relevant balance sheet date,
any and all employees of the Company and the Subsidiaries that are, or have been
in the past, placed in Cassa Integrazione Guadagni Straordinaria and/or in the
solidarity system and/or in any temporary or definitive lay-off plan other than
(i) those employees who have been terminated with all TFR Liabilities on account
thereof having been paid in full and no accrual in respect thereof is recorded
on the books of the Company or any Subsidiary, and (ii) those employees who have
been recalled to full-time active employment by the Company or any of its
Subsidiaries.
"TFR Liabilities" shall mean T.F.R. "trattamento di fine rapporto"
severance pay liabilities of the Company and the Subsidiaries accrued as of the
relevant balance sheet dates.
"Pricing Adjusted Net Asset Value" shall mean an amount equal to the
Adjusted Net Asset Value determined by reference to the Pricing Balance Sheet
(as herein defined), plus either (A) Lit. 3.4 Billion which amount is equal to
----
the aggregate amount of the understatement of the provision for excess, slow
moving and obsolete inventory and the provision for warranty costs identified in
the report of RE&Y (as defined below) to the December 31, 1993 DEA Financial
Statements if such reserves have been charged to the inventory account and
charged as a warranty liability on the Pricing Balance Sheet or (B) zero if
there has been no change in the accounting methodology for excess, slow moving
and obsolete inventory or warranty costs, i.e., no such
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charge or change in warranty costs is reflected in the Pricing Balance Sheet.
Any unrealized loss or gain on foreign currency exchange with respect to
Indebtedness (which was, by way of reference, Lit 1.19 Billion on June 30, 1993)
shall be assumed to be zero in the Pricing Balance Sheet for purposes of the
pricing adjustments made pursuant to this Section 1.
"June 30, 1993 Adjusted Net Asset Value" shall mean an amount equal to
Lit. 112,551 Billion.
(b) Finmeccanica represents and warrants to Brown & Sharpe that
attached hereto as Schedule 1.4(b), is a true and accurate list of all employees
of the Company and its Subsidiaries who are on CIGS on the date hereof; no
additional employees will be on CIGS at the Pricing Date or the Closing Date.
In connection with such Schedule, Finmeccanica represents and warrants to Brown
& Sharpe that (i) other than the 77 employees on CIGS (as set forth on the
Schedule), no Employee is on the date hereof, or as of the Pricing Date or the
Closing Date will be, on the solidarity system, the mobilita system or on any
temporary or definitive layoff system, nor has any of such 77 employees on CIGS
been recalled to full employment and active work by the Company or any
Subsidiary, except in each case with the consent of Brown & Sharpe, and (ii)
except to the extent required by the Verbale di Accordo dated June 15, 1993
among the Company, INTERSIND, FIOM-CGIL, FIM-CISL, UILM-UIL and RSA-DEA no
commitment has been or will have been made on or prior to the Pricing Date or
the Closing Date with respect to any CIGS Employees being placed on the
solidarity system or the mobilita system or being recalled to full employment
and active work by the Company or any Subsidiary, except that with regard to (i)
and (ii) above, not more than five employees in the aggregate may be recalled to
full employment to replace vacancies in the Company's existing work force, and
for each employee recalled from CIGS, another employee can be put on CIGS so
that the number of employees on CIGS never exceeds 77 employees.
(c) Subsequent to the Closing, Finmeccanica will cause combined
financial statements of the DEA Companies (consisting of a balance sheet as of
the Pricing Date (the "Pricing Balance Sheet") and the related income statement,
statement of stockholder's equity and statement of cash flows for the period
January 1, 1994 through July 31, 1994, the Pricing Date, together with notes
thereto (hereinafter the "Pricing Financial Statements", or sometimes the
"Closing Financial Statements") prepared by the Company to be audited and
certified by Reconta Ernst & Young ("RE&Y") and delivered to the parties within
75 days after the Closing Date. The scope of the audit will be consistent with
the scope used in the audits of the December 31, 1992 and 1993 and June 30, 1993
DEA Financial Statements. Brown & Sharpe will cause the DEA Companies to
furnish to Finmeccanica and RE&Y such assistance in the preparation of the
Pricing
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Financial Statements and their certification as they shall reasonably request,
including making available at no cost to Finmeccanica all books and records
pertinent thereto and employees of the DEA Companies customarily involved in the
preparation of the DEA financial statements. Such employees may be requested by
Finmeccanica and under Finmeccanica's supervision to prepare the Pricing
Financial Statements and to perform other tasks with respect thereto which shall
generally be consistent with tasks performed by such employees prior to the
Closing Date. These employees will prepare the Pricing Financial Statements
using the same accounting principles and accounting policies and methodologies
(including those policies attached as Annex C and referred to below) used in the
December 31, 1992 and 1993 and June 30, 1993 DEA Financial Statements,
consistently applied, except to the extent that those accounting principles and
methodologies applicable to the provision for warranty costs and the provision
for slow moving and obsolete inventories, as applied to the Pricing Financial
Statements, may be provided for in accordance with Italian GAAP or, in the
absence thereof, IASC GAAP (each as defined below), thereby eliminating the
understatement for warranty costs and overstatement of inventory values as
indicated in the report of RE&Y to the audited combined financial statements for
the Company and its Subsidiaries for the periods ending December 31, 1993 and
1992 and June 30, 1993.
Finmeccanica has previously delivered to Brown & Sharpe and C&L
descriptions of the accounting principles and methodologies used in the
preparation of such financial statements with regard to revenue recognition,
accounts receivable reserves and related receivables credit policy, excess and
obsolete inventory and warranty policy which are attached as Annex C hereto.
(d) The Pricing Financial Statements shall be denominated in Italian
Lire and shall fairly present, in conformity with generally accepted Italian
accounting principles (hereinafter "Italian GAAP") or, in the absence thereof,
accounting principles recommended by the International Accounting Standards
Committee ("IASC") (hereinafter "IASC GAAP") (except to the extent that an
increase of Lit. 2,800 Million to the reserve for excess, slow-moving and
obsolete inventory and a provision of Lit. 600 Million for warranty costs may
not be reflected in the Pricing Balance Sheet) on a basis consistent with the
December 31, 1992 and 1993 and June 30, 1993 DEA Financial Statements and the
methodologies described in Annex C, in all material respects the combined
financial position of the DEA Companies as of the Pricing Date and the results
of operations, changes in stockholder's equity and cash flows during the period
covered thereby. The amount on the Pricing Balance Sheet for TFR Liability
shall reflect an accrual in respect of the number of CIGS Employees at the
Pricing Balance Sheet date, which accrual shall be calculated utilizing the same
methodology used in the December 31, 1993 and June 30, 1993 DEA Financial
Statements for determining TFR Liability for
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CIGS Employees, consistently applied. The Closing Financial Statements shall be
accompanied by certificates of the Chief Financial Officer of Elsag Bailey
S.p.A., a subsidiary of Finmeccanica as to the compliance with the provisions of
this Section 1.4(d) and the auditor's report of RE&Y.
(e) Although it is not to be a joint audit, Coopers & Lybrand ("C&L")
and Brown & Sharpe's accounting staff shall be permitted access to work papers
supporting specific audit areas when completed and reviewed by the RE&Y
engagement partner in each respective country and will be allowed to observe any
physical counts and similar procedures RE&Y may conduct during the audit. RE&Y
will not be required to address, prior to certification, any C&L and/or Brown &
Sharpe accounting staff's questions concerning the working papers. C&L will not
in any way interfere with the timely and efficient completion of the audit. In
addition, RE&Y and C&L will meet and agree with each other on the scope and
procedures for the audit.
(f) Within 30 days of Brown & Sharpe's receipt of the Pricing Balance
Sheet, Brown & Sharpe shall inform Finmeccanica if Brown & Sharpe does not agree
with the amounts contained in such Pricing Balance Sheet, and, in the absence of
such notification, such Pricing Balance Sheet shall become final and binding
upon Brown & Sharpe and Finmeccanica at the expiration of such 30 day period.
If Brown & Sharpe gives such notification to Finmeccanica, Brown & Sharpe and
Finmeccanica shall promptly meet in an effort to resolve any differences. In
the event any differences remain 30 days after Finmeccanica's receipt of such
notification by Brown & Sharpe, Brown & Sharpe and Finmeccanica shall refer the
question to their respective independent public accountants which shall attempt
to resolve such differences and whose determination shall be final and binding
upon Brown & Sharpe and Finmeccanica. If such independent public accountants
are themselves unable to resolve any differences, they shall refer such
differences to a third firm of independent public accountants selected by lot
from among such of the "Big Six" accounting firms (or their successors) as are
not the past or then current principal auditors of Finmeccanica and Brown &
Sharpe, whose determination of the Pricing Balance Sheet shall be final and
binding upon Brown & Sharpe and Finmeccanica. Such accounting firm shall make
its determination within sixty (60) days after the referral. Each party shall
bear the cost of its own employees and independent accountants and shall share
equally the cost of any third firm of independent public accountants in
connection with such determination.
(g) The Purchase Price shall be adjusted as follows:
(i)(A) If the Pricing Adjusted Net Asset Value as of July 31, 1994 is
greater than the June 30, 1993 Adjusted Net Asset Value by an amount which,
after netting the amounts
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required pursuant to Clauses (iii), A(i), A(ii) and A(iii) below, is
greater than Lit. 800 Million (the "Basket"), then Brown & Sharpe shall
issue an additional number of shares of its Class A Common Stock with a
value (as determined by the average of the Closing Prices of such shares on
the Listing Exchange over a thirty day period immediately preceding the
Closing Date) equal to the amount by which the Pricing Adjusted Net Asset
Value exceeds the June 30, 1993 Adjusted Net Asset Value after netting the
amounts referred to in Clauses (iii), A(i), A(ii) and A(iii) below
("Purchase Price Increase").
(i)(B) If the Pricing Adjusted Net Asset Value as of July 31, 1994 is less
than the June 30, 1993 Adjusted Net Asset Value by an amount which, after
netting the amounts required pursuant to Clauses (iii), B(i), B(ii) and
B(iii) below, is greater than the Basket, then Finmeccanica shall
contribute cash to the capital of Brown & Sharpe (without receiving shares
therefor) in an amount equal to the amount of the difference between the
Pricing Adjusted Net Asset Value and the June 30, 1993 Adjusted Net Asset
Value after netting the amounts referred to in Clauses (iii), B(i), B(ii)
and B(iii) below ("Purchase Price Decrease").
(ii) If the Pricing Adjusted Net Asset Value is less than or more than the
June 30, 1993 Adjusted Net Asset Value by an amount which, after netting
the amounts referred to in the clauses set forth in (iii)(A) and (iii)(B)
below, is, in either case, less than or equal to the Basket, no adjustment
shall be made pursuant to Clause (i)(A) or (i)(B).
(iii) Any Post-Closing Purchase Price Adjustment required to be made
pursuant to Sections 1.4(g)(i)(A) or (B) above shall be calculated by
netting against the amount by which Actual Excess Indebtedness as of July
31, 1994 is greater than or less than Estimated Excess Indebtedness as of
July 31, 1994.
(A)(i) In the event an adjustment is required to be made pursuant to
Section 1.4(g)(i)(A) above, the amount of the Purchase Price
Increase shall be netted against the amount by which Actual
Excess Indebtedness is greater than Estimated Excess
Indebtedness. (As a result, the number of shares of Brown &
Sharpe's Class A Common Stock to be issued to Finmeccanica
pursuant to Section 1.4(g)(i)(A) shall be reduced by the
difference between Actual Excess Indebtedness and Estimated
Excess Indebtedness.)
(A)(ii) In the event an adjustment is required to be made pursuant to
Section 4(g)(i)(A) above, and if the amount by which Actual
Excess Indebtedness exceeds
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<PAGE>
Estimated Excess Indebtedness is greater than or equal to the
Purchase Price Increase (the "difference") under Section
1.4(g)(i)(A), then no shares shall be issued by Brown & Sharpe to
Finmeccanica, and Finmeccanica will contribute cash to Brown &
Sharpe in an amount equal to such difference.
(A)(iii) In the event an adjustment is required to be made pursuant to
Section 1.4(g)(i)(A) above, and if Actual Excess Indebtedness is
less than Estimated Excess Indebtedness, Brown & Sharpe shall
issue to Finmeccanica shares of stock in an amount equal to the
sum of (1) the amount of the Purchase Price Increase and (2) the
difference between Estimated Excess Indebtedness and Actual
Excess Indebtedness.
(B)(i) In the event that an adjustment is required to be made pursuant
to Section 1.4(g)(i)(B) above, the amount of the Purchase Price
Decrease shall be netted against the amount by which Actual
Excess Indebtedness is less than Estimated Excess Indebtedness,
and the amount of cash contributed to Brown & Sharpe by
Finmeccanica under Section 1.4(g)(i)(B) shall be reduced by an
amount equal to the difference between (1) the shortfall between
Actual Excess Indebtedness and Estimated Excess Indebtedness and
(2) the Purchase Price Decrease.
(B)(ii) In the event an adjustment is required to be made pursuant to
Section 1.4(g)(i)(B) above, and if the amount by which Actual
Excess Indebtedness is less than Estimated Excess Indebtedness
exceeds the Purchase Price Decrease, then Brown & Sharpe will
issue shares to Finmeccanica in an amount equal to such
difference.
(B)(iii) In the event that an adjustment is required to be made pursuant
to Section 1.4(g)(i)(B) above, and the Actual Excess Indebtedness
is greater than the Estimated Excess Indebtedness, Finmeccanica
will contribute cash to Brown & Sharpe in an amount equal to the
sum of (1) the Purchase Price Decrease and (2) the amount by
which Actual Excess Indebtedness is greater than Estimated Excess
Indebtedness.
(h) In the event of any Post-Closing Purchase Price Adjustment pursuant to
all of the provisions of 1.4(g) (after taking into account by netting any
adjustment required because
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<PAGE>
Actual Excess Indebtedness as of July 31, 1994 is more or less than Estimated
Excess Indebtedness as of July 31, 1994), (a) the delivery of a certificate or
certificates representing additional Brown & Sharpe Purchase Price Shares to
Finmeccanica or (b) the payment of cash by Finmeccanica to Brown & Sharpe (as a
contribution to capital, without the receipt of any additional shares of stock)
shall take place within ten days following acceptance (or final determination)
under Section 1.4(f) of the Pricing Balance Sheet. Any certificates
representing additional Brown & Sharpe Purchase Price Shares shall bear legends
as required by Section 2.2 hereof.
(i) Not less than ten (10) days prior to July 31, 1994, Finmeccanica shall
cause to be delivered to Brown & Sharpe an estimated unaudited combined balance
sheet of the DEA Companies as of the July 31, 1994 Pricing Date ("Forecasted
Pricing Balance Sheet"). The Forecasted Pricing Balance Sheet shall be
denominated in Lit. and shall be prepared by the chief financial officer of the
Elsag Bailey division of Finmeccanica to the extent practicable on a basis
consistent with the December 31, 1993 and the June 30, 1993 combined balance
sheets included in the DEA Financial Statements (except for such changes as are
necessary to comply with the provisions hereof).
(j) The parties agree that, prior to July 31, 1994, if the Pricing
Adjusted Net Asset Value (as computed based on the Forecasted Pricing Balance
Sheet) is or may be, depending on certain contingencies, greater than the June
30, 1993 Adjusted Net Asset Value without regard to the Basket, Finmeccanica
shall cause the Company and/or its Subsidiaries to factor on commercially
reasonable terms and at market rates, without recourse, an amount, which shall
be mutually agreed between the parties, of the receivables then on the books of
the Company and its Subsidiaries. Any differential between the cash received
and the face amount of such receivables (net of any reserves in respect
thereto), as reflected on the Forecasted Pricing Balance Sheet, shall be added
to the Pricing Adjusted Net Asset Value and the face amount (net of reserve) of
the receivables factored shall be subtracted from the Pricing Adjusted Net Asset
Value and the term Forecasted Pricing Balance Sheet shall thereafter include the
results of such factoring transactions.
2. Closing. The acquisition of the DEA Shares by Brown & Sharpe or its
-------
designee(s) from Finmeccanica in exchange for the Purchase Price and the
consummation of the transactions contemplated by this Agreement (the "Closing")
shall be held at 12:00 P.M. at the offices of Ropes & Gray, One International
Place, Boston, Massachusetts, 02110 U.S.A. on the date of the Special Meeting of
Stockholders of Brown & Sharpe relating to the transactions contemplated hereby
(the "Closing Date"), or at such other time and place as the parties may agree
in writing. It is understood, however, that July 31, 1994 is the "Pricing Date"
and that the
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<PAGE>
parties are using a July 31, 1994 Pricing Balance Sheet as distinguished from a
balance sheet dated as of the actual Closing for various purposes under this
Agreement, including purchase price adjustment.
At the Closing:
2.1 Delivery and Recordation of the DEA Shares by Finmeccanica.
----------------------------------------------------------
Finmeccanica will deliver to Brown & Sharpe (or one or more of its designees)
certificates representing the DEA Shares, duly endorsed with authenticated
signature, in proper form for transfer and will cause upon said delivery the due
recordation of such transfer of such DEA Shares on the stock ledger book of the
Company as required to vest in Brown & Sharpe (or its designee) all of the
right, title and interest in the DEA Shares.
2.2 Payment to Finmeccanica. Brown & Sharpe (or its designee) will
-----------------------
deliver to Finmeccanica a certificate or certificates representing 3,450,000 of
the Brown & Sharpe Purchase Price Shares, which shall in each case bear a legend
referencing the investment representation in Section 3.20 and the restrictions
and provisions of the Stockholders Agreement referred to below.
2.3 Stockholders Agreement. Finmeccanica and Brown & Sharpe shall execute
----------------------
and deliver a Stockholders Agreement providing for the election of directors of
Brown & Sharpe, restrictions on transfer, sale of or other disposition of the
Brown & Sharpe Purchase Price Shares issued or to be issued to Finmeccanica and
registration and pro rata securities purchase rights, in substantially the form
of Exhibit 2.3 (the "Stockholders Agreement").
It is expressly understood that Finmeccanica's right to purchase a pro-rata
portion of future issues of securities by Brown & Sharpe from time to time, in
order to maintain its percentage ownership of the capital stock of Brown &
Sharpe after giving effect to the issue of stock of Brown & Sharpe at the
Closing, is an integral part of the acquisition transaction contemplated by this
Agreement. Said right is, for the convenience of the parties, set forth in the
Stockholders Agreement to be delivered at the Closing hereunder.
2.4 [Intentionally Left Blank]
2.5 [Intentionally Left Blank]
2.6 Certificates, Opinions, etc. Each party will deliver to the others
---------------------------
such certificates, opinions and other documents as are contemplated hereby or as
may reasonably be requested by the other parties to evidence compliance with the
terms of Sections 1
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<PAGE>
and 2 and the other provisions of this Agreement, including Sections 10 and 11.
2.7 Conduct of DEA Business Between the Pricing Date, July 31, 1994 and
-------------------------------------------------------------------
the Closing. In addition to complying with the provisions of Section 6.1
- - -----------
hereof, from July 31, 1994 (the date of the Pricing Balance Sheet) through the
Closing, subject always to the Closing occurring, the parties further agree to
cause the Company to operate the DEA Companies as follows:
(a) Accrual of Economic Benefits From July 31, 1994 to the Closing Date.
-------------------------------------------------------------------
In view of the fact that the Post-Closing Purchase Price Adjustment will reflect
the operation of the DEA Business only through July 31, 1994, the economic risks
and benefits which derive from the DEA Business from such date through the
Closing shall accrue for the account of Brown & Sharpe, and Finmeccanica shall,
if requested by Brown & Sharpe, execute such documents and instruments and shall
take such action or refrain from taking such action as Brown & Sharpe may
reasonably request, in order to evidence and to give effect to Brown & Sharpe's
rights to such economic risks and benefits.
(b) Operation and Management of the DEA Business after the Pricing Date,
--------------------------------------------------------------------
July 31, 1994. Finmeccanica shall manage the DEA Business for the benefit of
- - --------------
Brown & Sharpe in accordance with this Section 2.7. Except to the extent of
cash and cash equivalents shown on the Pricing Balance Sheet (less Lit. 800
Million), the DEA Companies shall not use any of their cash or other assets to
pay any principal, interest or other charges in connection with Indebtedness
existing as of the close of business on the Pricing Date, July 31, 1994, in
excess of Aggregate Permitted Indebtedness; nor shall any such principal,
interest or other charges be charged to or in any way become the responsibility
of the DEA Companies. The DEA Companies shall, however, be responsible for and
make all accruals and payments required in connection with principal, interest
and other charges in connection with new borrowings or incremental utilization
of existing lines of credit after July 31, 1994. Finmeccanica shall not permit
any cash or other assets to be transferred out of the DEA Companies by way of a
dividend or distribution or in any other manner to Finmeccanica or any affiliate
thereof, except that the DEA Companies may pay trade payables in the ordinary
course of the conduct of the DEA Business, consistent with past practice; nor
shall the DEA Companies forgive or compromise any amount owed to them by
Finmeccanica or any affiliate thereof (or any amount owed to a third party
without the consent of Brown & Sharpe). Finmeccanica shall not be required to
fund, contribute to the assets of or otherwise make any commitments or
guarantees with respect to any action taken or proposed to be taken by the DEA
Business unless specifically consented to and indemnified by Brown & Sharpe.
Finmeccanica shall be entitled to rely on any written instruction as to the
operation of the DEA Business given
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<PAGE>
by Brown & Sharpe, shall not be liable for any failure to act or for action it
takes pursuant to such written instruction and shall be promptly indemnified by
Brown & Sharpe for any "damages" (as defined in Section 8.5) arising from such
reliance, inaction or action, except that Finmeccanica shall be liable to Brown
& Sharpe for any damages resulting from any negligence on Finmeccanica's part in
failing to act or not to act in accordance with such written instructions from
Brown & Sharpe, or failing to refrain from acting, in each case, in accordance
with such written instructions from Brown & Sharpe.
3. Representations and Warranties by Finmeccanica. Finmeccanica represents and
----------------------------------------------
warrants to Brown & Sharpe (and its designee(s)) as to the matters set forth in
this Section 3. For purposes of this Section 3, the term "best knowledge of
Finmeccanica" shall mean the actual knowledge of the Chief Financial Officer and
Chief Legal Officer the Elsag Bailey division of Finmeccanica, the Managing
Director, Chief Financial Officer, and Director of Sales and Marketing of DEA
SpA and the general manager of each DEA Company and branch other than DEA SpA
and (solely as to the matters covered by Section 3.12) the Director of Product
Development of DEA SpA.
3.1 Corporate Status. The Company is a corporation duly organized,
----------------
validly existing and in good standing under the laws of the Republic of Italy
and has all necessary corporate power and authority to carry on the DEA Business
as now conducted and as proposed to be conducted. The Company has delivered to
Brown & Sharpe a complete and correct copy of its charter and by-laws, each as
amended to date and all minutes of meetings of its stockholders and directors
since January 1, 1991. On the Closing Date Finmeccanica will have delivered to
Brown & Sharpe or to the possession of DEA all other minutes of meetings of
stockholders and directors and all other corporate records of DEA and its
subsidiaries (or branches). Finmeccanica is a corporation duly organized,
validly existing and in good standing under the laws of the Republic of Italy
and has all necessary corporate power and authority to carry on its business.
Except as set forth in Schedule 3.1, the assets of the DEA Companies
constitute all of the property and property rights (including contract rights)
used in the conduct of the DEA Business in the manner and to the extent
presently conducted and conducted since June 30, 1993 except for incidental
changes in such items in the ordinary course of business. Finmeccanica is not
engaged in any aspect of the manufacture and sale of CMM's except through the
DEA Companies.
3.2 Capitalization and Ownership of the DEA Shares. The authorized and
----------------------------------------------
issued share capital of the Company consists of 16,300,000 shares of common
stock, nominal value Lit. 1,000 per share (the "Company Common Stock" or the
"DEA Shares").
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<PAGE>
Finmeccanica owns of record and beneficially all of the issued and outstanding
Company Common Stock, free and clear of all liens, claims, charges, encumbrances
and restrictions ("Encumbrances"). No other person or entity has or shares any
direct or indirect interest or right with respect to the DEA Shares. The DEA
Shares have been duly authorized and validly issued and are fully paid and
nonassessable. There are no preemptive rights or rights of first refusal on the
part of any holder of any class of securities of the Company or any other
person. There are no options, warrants, conversion or other rights, agreements
or commitments of any kind obligating the Company, contingently or otherwise, to
issue or sell any shares of its capital stock of any class or any securities
convertible into or exchangeable for any such shares, and no authorization
therefore has been given. Finmeccanica has full right, power and authority to
transfer the DEA Shares to Brown & Sharpe and/or its designees, free and clear
of any Encumbrances, and such transfer will not constitute a breach or violation
of, or a default under, any agreement or instrument by which Finmeccanica is
bound.
3.3 Subsidiaries. The DEA Companies listed on Annex A, other than the
------------
Company (each, a "Subsidiary and, collectively, the "Subsidiaries"), are the
only corporations, associations, partnerships or other entities or business
enterprises in which the Company has any investment or owns any shares of
capital stock or any other record or beneficial equity or other ownership or
control interest. Except as set forth on Schedule 3.3, the Company owns or is
sole beneficiary of all of the issued and outstanding stock options, warrants,
rights or commitments, relating to the issuance of any shares of capital stock
of or equity interests in the Subsidiaries. Each Subsidiary is a duly
organized, validly existing corporation in good standing under the laws of its
jurisdiction of organization and has all necessary power and authority,
corporate or otherwise, to carry on its business as presently conducted and as
proposed to be conducted. The Company has delivered to Brown & Sharpe a
complete and correct copy of the organizational and governance documents, each
as amended to date, of each Subsidiary.
3.4 Authority for Agreement. Finmeccanica has all necessary power and
-----------------------
authority to execute and deliver this Agreement and the Stockholders Agreement
and to carry out its obligations hereunder and thereunder. Each of this
Agreement and the Stockholders Agreement constitutes the valid and legally
binding obligation of Finmeccanica and is enforceable in accordance with its
terms, subject to bankruptcy, insolvency, reorganization or similar laws of
general application affecting the rights and remedies of creditors. The
execution and delivery of this Agreement and the Stockholders Agreement and the
consummation of any of the other transactions contemplated hereby and thereby
will not conflict with, or result in any violation of, or default with respect
to, or require the consent of any
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<PAGE>
third parties under, any mortgage, loan, indenture, lease, agreement or other
instrument, permit, concession, grant, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Company or
any of its Subsidiaries, or Finmeccanica. Subject to the receipt prior to the
Closing of the consents of certain of the DEA Companies' lenders as provided in
Section 10.12 below, such execution, delivery and consummation will not
accelerate the maturity of or otherwise modify in any material respect the terms
of any indebtedness of the Company or any Subsidiary, or result in the creation
of any Encumbrance upon any of the property or assets of the Company or any
Subsidiary.
There are no agreements by which the Company or any Subsidiary is bound
which restrict the ability of the Company to carry on the DEA Business or any
other metrology business anywhere in the world. Except as described in Schedule
3.4, there are no agreements to which the Company or any Subsidiary is a party
which upon the consummation of the transactions contemplated hereby create
rights in any third party enforceable against the Company or any Subsidiary as a
consequence of a change in control of the Company or any Subsidiary, and no
consent, approval, order or authorization of, recording, or registration,
declaration or filing with any governmental authority is required in connection
with the execution and delivery of this Agreement and the Stockholders Agreement
or the consummation of any of the other transactions contemplated hereby and
thereby by the Company or Finmeccanica.
3.5 Financial Statements; Indebtedness.
----------------------------------
(a) Attached hereto as Schedule 3.5 are true and correct copies of (i) the
audited combined balance sheets of the Company and the Subsidiaries as of
December 31, 1993 and 1992 and June 30, 1993 and the related combined statements
of operations, accumulated deficit and cash flows all denominated in Lit
(together with the auditors' reports thereon, including any exceptions noted
therein) for the twelve and six month periods then ended (excluding any non-
metrology activities of any DEA Company), together with the notes to such
financial statements (the "Audited Combined DEA Financial Statements"); (ii) the
separate audited balance sheets of each of the Subsidiaries other than Digital
Electronic Automation Company ("DEA U.S.") as of December 31, 1993 and 1992 and
June 30, 1993 and the related statements of operations, accumulated deficit and
cash flows for the twelve and six month periods then ended, together with the
notes to such financial statement (the "Audited DEA Subsidiaries Financial
Statements"); and (iii) the audited balance sheets of DEA U.S. as of December
31, 1993 and of the Digital Electronic Automation division of Elsag Bailey, Inc.
as of December 31, 1992 and June 30, 1993 and the related statements of
operations, divisional deficit and cash flows (together with the auditors'
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<PAGE>
reports thereon, including any exceptions noted therein) for the twelve and six
month periods then ended, together with the notes to such financial statements
(the "Audited DEA U.S. Financial Statements") (collectively, the "DEA Financial
Statements").
(b) Except as otherwise indicated in the respective reports of auditors or
in the notes thereto, all of the DEA Financial Statements have been prepared (in
the case of the Audited Combined DEA Financial Statements) in accordance with
Italian GAAP or, in the absence thereof, with IASC GAAP or (in the case of the
Audited DEA Subsidiaries Financial Statements) in accordance with IASC GAAP or,
in the case of the U.S. entity, United States generally accepted accounting
principles ("U.S. GAAP"), in each case consistently applied throughout the
periods indicated, and fairly present, in all material respects, the financial
condition of the DEA Companies (excluding any non-metrology activity of any DEA
Company) and the results of their operations and cash flows as of the dates and
for the periods covered thereby, subject to the exceptions stated in the
auditor's reports included therewith.
(c) The DEA Financial Statements are in accordance with the books and
records of the DEA Companies. All material transactions occurring during the
periods covered by the DEA Financial Statements have been disclosed in the DEA
Financial Statements to the extent required to be disclosed under the applicable
generally accepted accounting principles referred to above.
At the Closing Finmeccanica will place in the possession of Brown & Sharpe
the books and records of the DEA Companies, including without limitation the
accounting journals and general ledgers of the DEA Companies.
3.5.1 Terms of Indebtedness of the Company and the Subsidiaries on
------------------------------------------------------------
the Closing Date. The principal terms of the Aggregate Permitted
----------------
Indebtedness of the Company and the Subsidiaries which will be outstanding
on the Closing Date are set out on Schedule 3.5.1 (identifying the lender,
amount outstanding, interest rate(s) and maturity). The Company has
provided Brown & Sharpe with access to all agreements relating to such
Aggregate Permitted Indebtedness and all copies of such agreements
delivered by the Company to Brown & Sharpe are true and correct.
3.6 Absence of Undisclosed Liabilities. Except as set forth in Schedule
----------------------------------
3.6 and other than liabilities which have arisen after December 31, 1993 in the
ordinary course of business and consistent with past practice, neither the
Company nor any of its Subsidiaries has any material liabilities or obligations
of any nature, whether absolute, contingent or otherwise (including without
limitation, letters of credit for the purchase of
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<PAGE>
inventory) which are required to be reflected or reserved against in, or
otherwise provided for in the notes to, the DEA Financial Statements under
Italian GAAP or, in the absence thereof, IASC GAAP, and which are not so
reflected or reserved against therein or in the notes thereto.
3.7 Absence of Changes. Except as set forth in Schedule 3.7 since
------------------
December 31, 1993, (a) there has been no material adverse change in the
condition, financial or otherwise (other than as a result of general external
economic conditions affecting the metrology industry), properties, assets,
liabilities, business or operations of the Company and its Subsidiaries,
considered as a whole ("Material Adverse Change"); and (b) neither the Company
nor any of its Subsidiaries has:
(i) declared, set aside, made or paid any dividend or other
distribution in respect of its capital stock or agreed to do any of the
foregoing, or purchased or redeemed or agreed to purchase or redeem,
directly or indirectly, any shares of its capital stock;
(ii) issued or sold any shares of its capital stock of any class or
any options, warrants, conversion or other rights to purchase any such
shares or any securities convertible into or exchangeable for such shares;
(iii) incurred any indebtedness for purchase money or borrowed money
other than in the ordinary course of business consistent with past
practice;
(iv) mortgaged, pledged, or subjected to any Encumbrance, any of its
properties or assets, tangible or intangible, except Permitted Encumbrances
(as defined in Section 3.9.1);
(v) acquired or disposed of any assets or properties in any
transaction involving money or value in excess of $25,000 with any officer,
director or salaried employee of the Company, or any Subsidiary, or any
relative by blood or marriage, or except in the ordinary course of business
acquired or disposed of any assets or properties having a value in excess
of $100,000 in any transaction with any other person;
(vi) forgiven or canceled any debts or claims, or waived any rights,
except in the ordinary course of business and consistent with past
practices;
(vii) (A) granted to any officer, director or consultant or to any
employee whose annual compensation is, or was during the year ended
December 31, 1993, in excess of the equivalent of $50,000, any material
increase in
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<PAGE>
compensation in any form (including any material increase in scope of any
benefits), other than annual salary increases consistent with prior
practice, or (B) become subject to any request for severance or termination
pay, or granted any severance or termination pay, or entered into any
employment or severance agreement with any officer or employee (other than
a CIGS Employee) whose annual compensation is or was during the year ended
December 31, 1993 in excess of the equivalent of $50,000;
(viii) adopted, or amended in any material respect, any bonus,
profit-sharing, compensation, stock option, pension, welfare, security,
retirement, deferred compensation or other material plan, agreement, trust,
fund or arrangement for the benefit of any employee or employees;
(ix) except as disclosed on Schedule 3.7 experienced any actual or,
to the best of the knowledge of the Company and the Subsidiaries,
threatened dispute with a supplier involving more than $100,000 or with a
customer involving more than the lower of (a) $90,000 or (b) the full
contract value of the machine or other product which is the subject of the
dispute;
(x) except as disclosed on Schedule 3.7, made any capital
expenditures or commitment therefor in excess of $250,000;
(xi) incurred any liability (absolute, accrued or contingent) except
current liabilities incurred, liabilities under contracts entered into,
borrowings under short-term lines of credit and liabilities in respect of
letters of credit issued under credit facilities, in each case incurred in
the ordinary course of business consistent with past practices;
(xii) suffered a loss, damage or destruction, whether or not covered
by insurance, in excess of $25,000; or
(xiii) extended or modified in any material respect the terms or
provisions of any lease of real property of the character set forth on
Schedule 3.9 or described in Section 3.9.2.
(xiv) made any changes in accounting principles or accounting
practices.
3.8 Taxes.
-----
(a) The following defined terms shall have the meanings set forth below:
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(i) "Tax" means any (and in the plural "Taxes" shall mean all)
---
income, gross receipts, license, payroll, employment, excise, manufacturing,
severance, stamp, occupation, premium, windfall profits, environmental,
customs, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, turnover, alternative or add-on
minimum, estimated or other tax, duty, or other fiscal charge of any kind
whatsoever (whether payable directly, or by way of withholding or on account,
and including those paid or withheld in the capacity as withholding tax
agent), including without limitation any interest, penalty, or addition
thereto, whether disputed or not, imposed by any national or local taxing
authority or other authority having jurisdiction to administer or enforce any
of the foregoing.
(ii) "Tax Return" means any return, declaration, report, claim for
----------
refund, or information return relating to Taxes, including without limitation
any schedule or attachment thereto, and any amendment thereof.
(b) Except as set forth on Schedule 3.8:
(i) The Company and each of the Subsidiaries have filed or caused to
be filed and, from the date hereof until the Closing Date, will file or cause
to be filed all Tax Returns required to be filed by them in accordance with
applicable laws on or before the date hereof or the Closing Date (as
applicable) with respect to Taxes.
(ii) All Taxes which are shown on Tax Returns filed on or before the
date hereof as due from or payable by the Company or the Subsidiaries have
been paid in full or adequately disclosed and fully provided for in the DEA
Financial Statements, and all Taxes which are shown on Tax Returns filed after
the date hereof and on or before the Closing Date as due from or payable by
the Company or the Subsidiaries will be paid in full or adequately disclosed
and fully provided for in the Company's Closing Financial Statements.
(iii) There are no actions, suits, proceedings, examinations, audits,
claims or assessments by any governmental authority now pending against
the Company or the Subsidiaries in respect of Taxes or any Tax Return.
(iv) There are no outstanding agreements or waivers between the
Company or any Subsidiary and any governmental authority extending the statute
of limitations applicable to any Tax Return of the Company or any of the
Subsidiaries for any period;
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<PAGE>
(v) The Company and the Subsidiaries have delivered to Brown & Sharpe
correct and complete copies of all income Tax Returns, examination reports,
and statements of deficiencies for the 1990, 1991 and 1992 tax years and shall
deliver all income Tax Returns for subsequent periods that are filed on or
before the Closing Date. No Tax deficiency (whether or not agreed to by the
Company or the Subsidiaries) have been assessed against or proposed in writing
to be assessed against the Company or any Subsidiary by any governmental
authority except for Tax deficiencies that have been paid in full or adequately
disclosed and fully provided for in the DEA Financial Statements. Prior to the
Closing Finmeccanica will have placed in the possession of the Company all other
tax returns of the Company and its Subsidiaries.
(vi) The Company and the Subsidiaries are not a party to any Tax
sharing agreement. It is understood, however, that Istituto per la
Ricostruzione Industriale - IRI S.P.A. files consolidated VAT returns for all
its consolidated Italian subsidiaries (including the Company).
(vii) The Company and the Subsidiaries are not liable, by contract or
as a matter of law, primarily or otherwise, for the payment of any Taxes for
which another person is liable.
(viii) The Company has reported net operating losses as reflected in
its Tax Returns filed for the 1988, 1989, 1990, 1991 and 1992 tax years and a
cumulative net operating loss of 23.5 Billion Lit. in its draft Tax Return for
the 1993 tax year, a copy of which is furnished as Exhibit 3.8(viii).
Finmeccanica makes no representation or warranty that the net operating losses
of the Company and its Subsidiaries referred to above will be allowed as
deduction by the Company or its Subsidiaries in tax periods ending after the
Closing Date.
3.9 Property.
--------
3.9.1 Title; Encumbrances. Except as stated in Schedule 3.9, each of
-------------------
the Company and its Subsidiaries (as indicated in Schedule 3.9) has good
and marketable title to all real properties owned by it and to all material
tangible personal property reflected in the June 30, 1993 and December 31,
1993 combined balance sheets included in the DEA Financial Statements or
acquired after such dates (except to the extent of property disposed of
since such dates in the ordinary course of business), and valid leasehold
interests in all real properties leased by the Company or its Subsidiaries
and all material tangible personal properties leased by the Company or its
Subsidiaries, in each case free and clear of all mortgages, liens, charges,
encumbrances, easements, security interests or title imperfections except
(a) liens for current taxes
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not due and payable or the validity of which is being contested in good
faith, (b) liens securing Indebtedness reflected on the December 31, 1993
balance sheet included in the DEA Financial Statements, which liens are
listed on Schedule 3.9, (c) purchase money security interests and liens
securing rental payments under leases incurred in the ordinary course of
business, (d) liens arising by operation of law in favor of mechanics,
materialmen and similar parties for work done to the extent that the
obligation secured thereby is not at the time required to be paid and (e)
other encumbrances on real property, such as ordinary utility easements,
rights of way, zoning, building and use restrictions, that do not
materially interfere with the existing use of such property in the conduct
of the DEA Business or materially detract from the value of such property
(the exceptions described in the foregoing clauses (a), (b), (c), (d) and
(e) being referred to herein as "Permitted Encumbrances").
Neither the Company nor any Subsidiary has received any notice or has
any knowledge of any violation of any zoning restrictions and ordinances,
health and fire codes and ordinances, laws or regulations, affecting any
such parcel in any material respect, and have no reason to believe that any
authority contemplates issuing the same. Neither the Company nor any
Subsidiary has received any notice of any condemnation or eminent domain
proceeding for any taking of any such parcel, or any part thereof or of any
negotiations for the purchase of any such parcel, or any part thereof in
lieu of condemnation and, to the best of their knowledge, no condemnation
or eminent domain proceedings or negotiations have been commenced or
threatened in connection with any such property.
3.9.2 Leases. Except as set forth on Schedule 3.9.2, the Company and
------
its Subsidiaries enjoy peaceful and undisturbed possession under all leases
of real and personal property to which they are parties (which in the case
of personal property means any lease having an unexpired term of one or
more years and remaining rental payments aggregating in excess of $10,000)
and all such leases are valid and subsisting; the Company or its
Subsidiaries, as the case may be, have paid all rent due and payable under
all such leases, and there exists no material default on the part of the
Company or its Subsidiaries, or, to the best of Finmeccanica's and the
Company's knowledge, the lessors, existing thereunder.
3.9.3 Condition. Except as set forth in Schedule 3.9.3, all
---------
structures and other improvements, including fixtures, located on the real
property owned or leased by the Company or any of its Subsidiaries and all
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tangible personal property owned or leased by the Company or its
Subsidiaries, which in each case are necessary for the conduct of the DEA
Business as presently conducted, are in good operating condition in all
material respects for property of its type and age, subject to ordinary
wear and tear.
3.10 Material Contracts. Schedule 3.10 contains a complete and correct
------------------
list of all agreements, contracts and commitments of the following types,
written or oral, to which the Company or any of its Subsidiaries is a party or
by which any of their property is bound as of the date hereof (collectively the
"DEA Material Contracts"):
(a) notes, loans, credit agreements, overdraft facilities, mortgages,
indentures, security agreements and other agreements and instruments
relating to the borrowing of money or extension of credit to the Company or
its Subsidiaries or to any guarantee by the Company or its Subsidiaries of
any obligations of a third party;
(b) consulting or professional services agreements, or employment
agreements;
(c) all distribution, agency, commission or sales representative
agreements;
(d) agreements, orders, or commitments for the purchase of raw
materials exceeding $75,000 in any case or for the purchase of supplies or
finished products exceeding $75,000 in any case or;
(e) agreements, orders or commitments for the sale or lease to
customers of products or services exceeding $200,000 in any case (or
$100,000, if such agreements, orders or commitments for sale or lease
involve a warranty or performance representation, terms or acceptance
criteria imposed by the purchaser which are different from the standard
warranty and terms and conditions of sale terms disclosed in or scheduled
pursuant to Section 3.22);
(f) all licenses by or to the Company or its Subsidiaries (other than
solely intercompany licenses between the Company and any of the
Subsidiaries) of any Intellectual Property (as defined in Section 3.12) to
or from any affiliated or unaffiliated third party (excluding any end-user
licenses available through normal commercial channels), including all
licenses from third parties relating to Software Programs and Technical
Documentation (as such terms are defined in Section 3.12);
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(g) agreements or commitments for capital expenditures in excess of
$100,000 for any single project or series of related projects; and
(h) other agreements or obligations material to the Company and its
Subsidiaries involving payments, receipts, assets or obligations of more
than $100,000.
The Company has delivered or made available to Brown & Sharpe complete and
correct copies of all written Material Contracts and accurate summaries of all
oral Material Contracts. Except as disclosed in Schedule 3.10, all such
Material Contracts are in full force and effect. Except as set forth on
Schedule 3.10, neither the Company nor any of its Subsidiaries have any
outstanding powers of attorney, except routine powers of attorney relating to
representation before governmental agencies or given in connection with
qualification to conduct business in another jurisdiction.
3.11 Accounts Receivable; Inventories. (a) The accounts receivable of the
--------------------------------
Company and its Subsidiaries reflected on the combined balance sheets of the DEA
Companies as at June 30, 1993 and December 31, 1993 contained in the DEA
Financial Statements (except those collected since such date) and such
additional accounts receivable as are reflected on the books of the Company and
its Subsidiaries on the date hereof, net of applicable reserves as shown on such
June 30, 1993 and December 31, 1993 balance sheets or applicable reserves on the
additional accounts receivable subsequent to December 31, 1993, (which reserves
have been determined in accordance with the general accounting methodology with
respect to reserves against accounts receivable and with respect to credit
policies relating to receivables utilized by the Company and its Subsidiaries
and furnished to Brown & Sharpe pursuant to Section 1.4(b) above) and arose out
of bona fide sales and deliveries of goods or the performance of services in the
ordinary course of the DEA Business in accordance with past practice.
(b) The inventories reflected on such combined balance sheet as at
December 31, 1993 and held by the Company and its Subsidiaries on the date
hereof are in good, usable or saleable condition and, except as indicated in the
report of RE&Y accompanying the DEA Financial Statements for the periods ended
December 31, 1993 and 1992, have been reflected on such balance sheet in
accordance with Italian GAAP or, in the absence thereof, IASC GAAP consistently
applied. The reserves with respect to obsolete, slow moving or discontinued
items and the accounting for inventory is in accordance with the general
accounting policy and methodology with respect to inventory utilized by the
Company and its Subsidiaries and furnished to Brown & Sharpe pursuant to Section
1.4(b) above, except as indicated in the report of RE&Y
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accompanying the DEA Financial Statements for the periods ended December 31,
1993 and 1992.
To the best knowledge of Finmeccanica and the Company, except as disclosed
on Schedule 3.11(b), none of the DEA Companies holds any goods on consignment
from third parties. Except as disclosed on Schedule 3.11(b), no third party
(including Finmeccanica or any of its affiliates) holds any goods on consignment
from the DEA Companies or has purchased goods from the DEA Companies on a "sale
on approval" basis or with a right of return (other than pursuant to an express
warranty as disclosed in Schedule 3.22D).
3.12 Intellectual Property. (a) For purposes of this Section 3.12, the
---------------------
term "Intellectual Property" shall mean all patents and patent applications,
registered or unregistered trademarks, copyrights, service marks, applications
for registration thereof, trade names, inventions, processes, designs and design
rights, formulas, trade secrets, know-how, software and computer programs,
including all software or program logic burned into a chip ("Firmware") and
other items of intellectual property and propriety rights.
(b) The Company and the Subsidiaries own all rights to the name "DEA" and
the other names listed on Schedule 3.12 for all products, and no other person
has acquired or owns any rights thereto. Schedule 3.12 also contains a complete
and correct list of all patents, patent applications, registered or unregistered
trademarks, tradenames or servicemarks, registered trademarks, tradenames or
servicemarks applications, and all copyrights or copyright applications (which
copyrights are listed by general category only), which are, in the case of each
item on said lists, owned by the Company and the Subsidiaries or in which the
Company or its Subsidiaries has any rights or licenses. Schedule 3.12 also sets
forth the principal products (or features such as controls) which utilize or are
covered by the software programs and Firmware which the DEA Companies own or
have the right to use.
The Company and its Subsidiaries own, or possess adequate rights to use,
all Intellectual Property necessary for the conduct of the DEA Business as
presently conducted and as conducted since June 30, 1993.
Except as set forth on Schedule 3.12, neither the Company nor any of its
Subsidiaries has any obligation to make payments of royalties or other amounts
or transfer any interest in such Intellectual Property to any third party,
including Finmeccanica and its other affiliates.
(c) For the purposes of this Section 3.12(c), the term "Technical
Documentation" shall mean flow charts, diagrams,
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descriptive texts and programs, computer print-outs, underlying tapes, source
codes and computer data bases, mechanical designs, parts manufacturing and
assembly processes and similar items owned by the Company and the Subsidiaries
or in which the Company or the Subsidiaries has any right or interest with
respect to the software programs and Firmware.
To the best knowledge of Finmeccanica, the Technical Documentation,
including that relating to the Firmware and the software programs (except with
respect to any third party software programs which include only the materials
and Technical Documentation actually delivered to the Company and the
Subsidiaries by the third party under any third party software contract)
includes the source code, system documentation, statements of principles of
operation, and schematics for all software programs and Firmware used in the
conduct of the DEA Business. Except with respect to third party software
programs, the Technical Documentation also includes any program (including
compilers), "workbenches", tools and higher level (or "proprietary") language
used for the development, maintenance, and implementation of the software
programs and Firmware.
(d) To the best knowledge of Finmeccanica and the Company, the Company and
the Subsidiaries have obtained all necessary rights and licenses to use, copy
and distribute as part of the software programs or Firmware used in the DEA
business the third-party programming and materials contained in the software
programs and Technical Documentation. The Company has exercised reasonable
efforts to maintain the source codes and system documentation relating to the
software programs. The software programs and Firmware have been maintained in
confidence, except for end-user licenses solely for use in connection with
products of the Company and the Subsidiaries purchased by such end-users. The
Company and the Subsidiaries have not received or have knowledge of any claims
from any person or entity that the use of the Intellectual Property by the
Company and the Subsidiaries infringes or conflicts with any intellectual
property right or other proprietary right of any person or entity.
(e) Except as indicated in Schedule 3.12, to the best knowledge of
Finmeccanica and the Company, the Company and the Subsidiaries have not granted,
transferred or assigned, or acquiesced in or permitted use without a license of,
any right or interest in the Intellectual Property to any person or entity,
except pursuant to non-exclusive end-user license agreements for internal
purposes only.
3.13 Insurance. The Company and its Subsidiaries have maintained and now
---------
maintain, as the case may be, (i) insurance on the DEA Business covering
property damage and loss of income by fire and other casualty to the limits and
with the deductibles shown on Schedule 3.13 and (ii) insurance protection
against such
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<PAGE>
liabilities, claims and risks including product liability, and in such amounts,
as is shown on such Schedule. The Company will, upon request, deliver to Brown
& Sharpe complete and correct copies of all such policies together with all
riders and amendments thereto. Such policies are in full force and effect, all
premiums due thereon have been paid, and the Company and its Subsidiaries have
complied in all material respects with the provisions of such policies and have
not received notice of any material increase in insurance premiums payable.
3.14 Litigation. (a) Except for the matters described in Schedules 3.8,
----------
3.14 and 3.19.1 and claims fully covered by insurance policies of the Company
and its Subsidiaries, there are no judicial or administrative actions, suits,
proceedings or arbitrations or investigations (domestic or foreign) pending or,
to the best knowledge of Finmeccanica or the Company, threatened (for an amount
in excess of $100,000 in the case of threatened matters) against the Company or
any of its Subsidiaries or their respective assets, including the DEA Shares, or
which were pending or threatened at any time since January 1, 1991.
Finmeccanica has heretofore furnished or made available to Brown & Sharpe, if so
requested by Brown & Sharpe, true and complete copies of all relevant court
papers, proceeding administrative request, and other documents relating to the
matters specifically set forth on Schedules 3.8, 3.14 and 3.19.1. Grievance
matters if less than $15,000 or, in the aggregate $50,000, are excluded from
this Section 3.14.
(b) Except as listed on Schedule 3.14, there are no machines, products,
systems or equipment sold by the Company or any of its Subsidiaries as to which,
to the best knowledge of Finmeccanica, there is pending a written dispute with a
customer for an amount in excess of $100,000 as to the performance or
functionality of the items sold to such customer (and all such disputes where
the Company or a Subsidiary has received a letter from legal counsel for such
customer have been reflected in the reserve to the accounts receivable on the
December 31, 1993 combined balance sheet included in the DEA Financial
Statements or reserved against in the case of any such disputes occurring after
December 31, 1993 to the extent required in each case to be so reserved against
under applicable Italian GAAP or in the absence thereof IASC GAAP and the
reserves policies furnished to Brown & Sharpe under Section 1.4(c)).
3.15 Compliance with Laws; Governmental Authorizations. Except for
-------------------------------------------------
matters described in Schedule 3.15 and excluding environmental matters that are
encompassed by Section 3.16 below and all matters encompassed by Section 3.19
below, the Company and its Subsidiaries are not in violation of or default in
any material respect under any statute, law, ordinance, rule, regulation,
judgment, order, decree, permit, concession, grant, franchise, license or other
governmental authorization or
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<PAGE>
approval including without limitation any laws, rules or regulations of the
European Union ("EU Law") applicable to the Company or its Subsidiaries or to
any of their assets, properties, products or services. All permits,
concessions, grants, franchises, licenses and other governmental authorizations
and approvals necessary for the conduct of the DEA Business have been duly
obtained and are in full force and effect, except where the failure to obtain or
maintain in effect any of the foregoing would not have a material adverse effect
on any plants or facilities of the Company or any Subsidiary or on the business
of the Company or any Subsidiary, and there are no proceedings pending or, to
Finmeccanica's knowledge threatened that may result in the revocation,
cancellation or suspension, or any materially adverse modification, of any
thereof.
3.16 Environmental Matters. Schedule 3.16 is a true and complete list of
---------------------
all known conditions or states of fact existing on the date hereof and as of the
Closing Date based on or resulting from the presence in or discharge, spill,
disposal, emission, generation, storage or release of any chemical, pollutant,
contaminant, waste, toxic or hazardous substance or petroleum product into the
environment caused by any of the DEA Companies at any location owned or leased,
currently or in the past, by the Company or any of its Subsidiaries, which
constitutes a violation of or requires remediation under any Health and
Environmental Laws.
"Health and Environmental Laws" means any decree, order (including any
administrative act issued by any authority requiring compliance with applicable
laws, statutes, rules and regulations before the issue of a formal order) or
arbitration award of, any EU Regulation and Decision (as defined below) or any
law, statute, or binding decision or regulation of or any agreement with, or any
license, authorization or permit from, any EU Institution, national, regional or
local governmental authority or court relating to occupational and public health
and safety (including fire prevention), or the environment in effect as of the
date hereof and the Closing Date (including, without limitation, national,
regional and local laws, statutes, rules and regulations relating to
environmental matters and contamination of any type whatsoever).
"EU Institution" shall mean the EU Council, the European Commission and the
European Court of Justice.
"EU Regulations and Decisions" means all applicable regulations and
decisions adopted by the EU Council (or the former Council of the European
Community) or the European Commission (or the former Commission of the European
Community).
3.16.1 Except as disclosed on Schedule 3.16, the Company and its
Subsidiaries are in compliance in all
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material respects with all applicable Health and Environmental Laws with
respect to the use, transport, import, export, temporary or final storage,
recycling or disposal of any waste, chemical substance or mixture,
pollutant, including without limitation, any contaminant, irritant, or
pollutant or other hazardous or toxic substance ("Hazardous Materials")
which are identified as such in any jurisdiction in which the Company or
its Subsidiaries either owns or leases real property or conducts its
business.
3.16.2 Except as disclosed on Schedule 3.16, (i) neither the Company
nor any of its Subsidiaries has received notice from any governmental
authority (or has knowledge that any governmental authority may give
notice) that it is in violation of any applicable Health and Environmental
Laws with respect to the use, transport, import, export, temporary or final
storage, recycling or disposal of any such Hazardous Materials; (ii) the
Company and its Subsidiaries have obtained and have complied with all
financial or other conditions contained in all necessary permits, licenses,
authorizations and consents for the use, transport, import, export,
temporary or final storage, recycling and disposal of all Hazardous
Materials used in the conduct of the DEA Business except for those permits,
licenses or authorizations the failure to obtain which would not have a
Material Adverse Effect on the DEA Business; and (iii) to the knowledge of
Finmeccanica, there have been no direct or indirect discharges, spills,
leaks or releases, whether accidental or voluntary, of any Hazardous
Materials caused by any of the DEA Companies on any real property (a) now
leased or previously leased or (b) now owned or previously owned by the
Company or any of its Subsidiaries, which in any case constitutes a
violation of or requires remediation under any Health and Environmental
Law.
3.17 Brokers, Finders, etc. Neither Finmeccanica, the Company or any of
---------------------
its Subsidiaries has retained any financial advisor, broker, agent or finder or
paid or agreed to pay for any financial advisor, broker, agent, or finder on
account of this Agreement or any transaction contemplated hereby, or any
transaction of like character that would be required to be paid by Finmeccanica,
the Company, any of its Subsidiaries or Brown & Sharpe.
3.18 Directors, Officers and Employees; Compensation. The Company has
-----------------------------------------------
delivered to Brown & Sharpe a true and complete list of directors and officers
of the Company and its Subsidiaries and of all employees and consultants of the
Company and its Subsidiaries whose current total compensation was for the
calendar year ended 1993 at an annual rate in excess of $50,000 (or the
equivalent amount in foreign currency), which list states
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the annual rate of compensation of, and the positions held by, the persons
listed.
3.19 Labor and Employment; ERISA.
---------------------------
3.19.1 Except as set forth on Schedule 3.19.1:
(a) each of the Company and its Subsidiaries is in compliance in all
material respects with all applicable EU Regulations and Decisions,
national and state or local laws, rules and regulations with respect to its
employees and employment practices, and terms and conditions of employment,
including without limitation any provisions thereof relating to wages,
bonuses, hours of work and social security pensions and other mandatory
contributions, medical laws and safety insurance laws and regulations
(including [INPS, INAIL] and other similar authorities as well as other
funds, entities or agencies, as provided for by the applicable national
collective bargaining agreements);
(b) there is not pending or, to the best knowledge of Finmeccanica,
threatened, and there has not occurred since January 1, 1991, any material
trade union or collective labor-related disputes or strikes involving the
Company or any of its Subsidiaries;
(c) there are no grievance or arbitration proceedings arising out of
or under any national collective bargaining agreement pending or, to the
best knowledge of Finmeccanica, threatened, and no claim therefor has been
asserted against the Company, in each case for an amount in excess of
$15,000 or in the aggregate $50,000;
(d) all pension plans and severance funds required by law to be
funded by the Company or any Subsidiary are funded in accordance with
applicable laws, regulations or statutes;
(e) there are no material written agreements or understandings with
any unions or shop committees (in regard to employees outside the United
States), except under the provisions of the applicable national collective
bargaining agreements;
(f) except where required by law, there are no employment agreements
(other than those the terms of which are solely prescribed by laws,
regulations and applicable national collective bargaining agreements) or
agreements for provision of services or consultancy of whatever nature,
which (A) are not terminable by the Company or its Subsidiaries on 90 or
fewer days notice at any time without penalty, (B) have a remaining term,
as of the date hereof, of more than one year in length of obligation on the
part of
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the Company or its Subsidiaries or (C) involve payment by the Company and
its Subsidiaries, subsequent to the date hereof, of more than US $50,000;
(g) there are no employment agreements whatsoever that may be
terminated solely as a result of a change of control of the Company or any
of its Subsidiaries, other than for as provided for by any applicable
national collective bargaining agreements.
3.19.2 Schedule of Employee Benefit Plans.
----------------------------------
(a) Schedule 3.19.2 contains a true and complete list, as of the date
of this Agreement, of all profit sharing, deferred compensation, severance
pay, bonus, stock option, stock purchase, pension, retainer, consulting,
retirement, change-in-control, welfare or incentive plans, contracts,
arrangements, policies, programs or practices, vacation pay (or so-called
"thirteen months' pay") or other plans, policies or agreements for the
benefit of employees whether or not subject to the US Employee Retirement
Income Security Act of 1974, as amended ("ERISA") (including any funding
mechanism therefor now in effect or required in the future as a result of
the transaction contemplated by this Agreement or otherwise) maintained or
contributed to by the Company and its Subsidiaries (other than government
plans) and in which any one or more of the employees (including former
employees and beneficiaries of employees or former employees) of the
Company and its Subsidiaries participates or is eligible to participate,
whether or not reduced to writing, including, without limitation, a
complete list of all plans, agreements, arrangements, policies, programs or
practices which constitute "fringe benefits" with respect to any of the
employees of the Company and its Subsidiaries, vacation plans or programs,
sick leave plans or programs, group medical insurance, group life
insurance, medical reimbursement, disability insurance, workmen's
compensation, supplemental unemployment benefits, other insurance coverage
relating to employees (including any self-insured arrangements) and related
benefits, any employee benefit plan (as defined in Section 3(3) of ERISA),
maintained by the Company or any of its Subsidiaries or to which the
Company or any of its Subsidiaries makes or is required to make
contributions, or to which the Company or any of its Subsidiaries is a
party or by which it is bound, except any such plan, contract, arrangement,
policy, program or practice which the Company or any of its Subsidiaries is
required by law to maintain or to which the Company or any of its
Subsidiaries is required by law to contribute (collectively, the "Plans").
True, current and complete copies of such Plans, all amendments and written
interpretations with respect thereto, if any, and to the
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extent applicable, copies of the most recent of the following have been
furnished to Brown & Sharpe: (i) determination letter of the Internal
Revenue Service and any outstanding request for a determination letter;
(ii) Form 5500, attached schedules, audited financial statements, and any
related actuarial valuation reports with respect to the last three plan
years for each Plan; and (iii) any summary plan description.
(b) Each Plan and each trust or funding vehicle related to such Plan
has been administered and operated in all material respects in compliance
with its terms and with all applicable statutes, orders, rules and
regulations, including where applicable, ERISA and the US Internal Revenue
Code of 1986, as amended ("Code"), including, but not limited to, the
preparation and filing of all required reports and returns with respect to
such Plan, the submission of such reports or returns to the appropriate
governmental authorities, the timing, preparation and distribution of all
required employee communications (including without limitation any notice
of plan amendments which is required prior to the effectiveness of such
amendments), and the proper and timely disposition of all benefit claims.
Each Plan which is intended to be a "qualified plan" as described in
Section 401(a) of the Code has been determined by the Internal Revenue
Service to so qualify (or a timely application for such determination has
been or is intended to be submitted to the Internal Revenue Service), and
neither the Company nor any Subsidiary knows of any fact or facts which
might adversely affect such qualification. Neither the Company nor any
Subsidiary sponsors or contributes to any Plan subject to the funding
requirements of Section 412 of the Code.
(c) With respect to all Plans and related trusts, no "prohibited
transaction," as that term is defined in Section 406 of ERISA, has occurred
which is likely to subject any Plan, related trust or party dealing with
any such Plan or related trust to any material tax or penalty on prohibited
transactions imposed by Section 502(i) of ERISA or Section 4975 of the Code
and the consummation of the transactions contemplated hereby will not
constitute such a prohibited transaction. There are no actions, suits,
arbitrations or claims with respect to a Plan (other than routine claims
for benefits by employees, beneficiaries or dependents arising in the
normal course of operations of such Plan) pending, or to the best knowledge
of Finmeccanica, threatened, with respect to any such Plan or any fiduciary
or sponsor of such Plan with respect to their duties under such Plan or the
assets of any trust under any such Plan.
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<PAGE>
(d) Other than the TFR Liabilities reflected on the December 31, 1993
balance sheet included in the DEA Financial Statements, there are no
unfunded obligations under any Plan providing pension or post-retirement
welfare benefits to any employee of the Company or any Subsidiary who will
be employed by Brown & Sharpe after the Closing Date (other than
continuation of health coverage as provided pursuant to Sections 601
through 608 of ERISA, Sections 104, 105, 106, and 4980B of the Code).
3.20 Investment Representation. Neither Finmeccanica nor any of its
-------------------------
affiliates owns beneficially or of record any of the capital stock of Brown &
Sharpe. Finmeccanica is acquiring the Brown & Sharpe Purchase Price Shares and
the Contingent Stock for its own account and not with a view to, or for sale in
connection with, directly or indirectly, any distribution thereof that would
require registration under the Securities Act of 1933, as amended (the
"Securities Act") or applicable state "blue sky" or securities laws or would
otherwise violate the Securities Act of 1933 or such state securities laws.
3.21 Government Grants. Attached as Schedule 3.21 is a true and correct
-----------------
list of grants from governmental bodies to the Company and its Subsidiaries as
reflected on the combined balance sheet at December 31, 1993 included in the DEA
Financial Statements. Except as set forth in Schedule 3.21, the funds
represented by such grants have been disbursed by the relevant governmental
bodies and received by the relevant DEA Companies, and no DEA Company which is a
recipient of any such grant is in default of any of the terms and conditions
specified in the governmental authorization of such grant.
3.22 Customers, Suppliers, Product Warranties, Defects in Products.
-------------------------------------------------------------
Schedule 3.22A contains a correct and complete list of all orders for unshipped
goods involving a sales price of $95,000 or more for non-standard and $150,000
or more for standard machines, products or equipment. To the best of the
knowledge of the Company and the Subsidiaries, all such orders are written
orders signed by the customer, with a delivery date as set forth on Schedule
3.22A and such orders do not require any reserves to be established under
Italian GAAP or, in the absence thereof, IASC GAAP or under the past practices
of the Company and the Subsidiaries. Schedule 3.22A also includes a current and
complete list of all sales transactions involving a sales price of $95,000 or
more for non-standard and $150,000 for standard machines, products or equipment
pursuant to which the goods have been shipped and the revenue therefrom
recognized in full but as to which (i) the Company or a Subsidiary has an
obligation to perform services (excluding warranty services) or additional work
(such as for example software programming) at no additional charge in addition
to the sales price and (ii) the gross margin recognized in the transaction is
less than the cost of performing
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the service or other work (other than warranty work) that is contractually to be
performed by the Company or the Subsidiary.
Schedule 3.22B is a list by country of the top 20 customers of the Company
and its Subsidiaries, having the largest aggregate monetary purchases from the
Company and the Subsidiaries for each of the years 1993, 1992 and 1991, with
notation of the aggregate dollar purchases, and a list of the top 10 suppliers
to the Company for each of the years 1993, 1992 and 1991.
The estimated costs of warranty work and "out-of-warranty" work (less any
payments received therefor) for machines sold by the Company and the
Subsidiaries in each of 1993, 1992 and 1991 are set forth on Schedule 3.22C. It
is expressly acknowledged and agreed by Brown & Sharpe that inasmuch as the DEA
Companies do not charge warranty costs to a separate account in the ordinary
course of business, actual historical warranty cost data are not available, and
that the figures stated in the foregoing sentence are solely estimates provided
in good faith for informational purposes. Unless such information has not been
provided in good faith, Finmeccanica shall not be liable for any failure to
disclose, or inaccurate disclosure of, the actual warranty cost of the DEA
Companies in respect of the machines described in the foregoing sentence.
Schedule 3.22D sets forth a correct and complete list of machines sold for
$95,000 or more (for standard machines) and $150,000 or more (for nonstandard
machines) under warranty as of the date hereof for which the Company has
provided special or non-standard warranty provisions. Attached as Schedule
3.22E are the standard warranty provisions relating to CMMs and spare parts
therefor produced and sold as part of the DEA Business since January 1, 1993.
3.23 No Illegal Payments, etc. Neither Finmeccanica, the Company or any
------------------------
of its Subsidiaries, nor, to the knowledge of Finmeccanica or the Company, any
of their respective officers, employees or agents, has (a) directly or
indirectly given or agreed to give any illegal gift, contribution, payment or
similar benefit to any supplier, customer, governmental official or employee or
other person who was, is or may be in a position to help or hinder the Company
or any of its Subsidiaries (or assist in connection with any actual or proposed
transaction) or made or agreed to make any illegal contribution, or reimbursed
any illegal political gift or contribution made by any other person, to any
candidate for federal, state, local or foreign public office (i) which would
subject the Company, any of its Subsidiaries to any damage or penalty in any
civil, criminal or governmental litigation or proceeding or (ii) the non-
continuation of which has had or will have, individually or in the aggregate, a
material adverse effect on the Company or any Subsidiary or (b) established or
maintained any unrecorded fund or asset or made any false entries on any books
or records for any purpose.
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3.24 Financial Statements and Other Information for Inclusion in the Brown
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& Sharpe Proxy Statement. Finmeccanica has heretofore delivered to Brown &
- - ------------------------
Sharpe for inclusion in the Brown & Sharpe Proxy Statement and the Brown &
Sharpe Registration Statement (each as defined in Section 22) (i) consolidated
financial statements (expressed in U.S. dollars) consisting of balance sheets,
income statements, statements of cash flow and the footnotes relating thereto
for the Company and the Subsidiaries and including the operations of the
metrology business units in the United States, France and England (to the extent
not included in the above referred entities as at the end of and for each of the
years ended December 31, 1993, 1992 and 1991, and at March 31, 1994 and for the
three months then ended (which statements are audited in the case of the years
ended December 31, 1993, 1992 and 1991 and unaudited in the case of the three
months ended March 31, 1994) in each case in accordance with U.S. GAAP and in
compliance with the Securities Act of 1933, as amended (the "Securities Act"),
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations promulgated by the Securities Exchange Commission (the
"Commission Rules") applicable to financial statements prepared for inclusion in
proxy statements and registration statements, in each case reported on and
certified by the unqualified opinion of RE&Y with respect to years ending
December, 1992 and 1993 and of Coopers & Lybrand with respect to years ending
1990 and 1991, together with the text of Management's Discussion and Analysis of
Financial Condition and Results of Operations ("Management's Discussion and
Analysis") for the year ended December 31, 1993 and the three months ended March
31, 1994 and (ii) a description of the business of the entities included in the
consolidated financial statements referred to above complying with the
requirements, in each case, of the Securities Act and the Exchange Act and the
Commission Rules applicable to such information. All of the financial
statements referred to in this Section 3.24 are true and complete in all
material respects and the Management's Discussion and Analysis referred to above
and the description of the business does not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading.
3.25 Disclosure. Neither this Agreement (including without limitation the
----------
Schedules hereto), nor the DEA Financial Statements, nor the information and
financial statements furnished to Brown & Sharpe and referred to in Section 3.24
furnished for the Brown & Sharpe Proxy Statement and for the Brown & Sharpe
Registration Statement, nor any other document, certificate, financial statement
or other instrument furnished or to be furnished by or on behalf of
Finmeccanica, contains or will contain any untrue statement of a material fact,
nor, considered
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as a whole, omit to state a material fact necessary in order to make the
statements contained herein or therein not misleading.
4. Representations and Warranties by Brown & Sharpe. Brown & Sharpe represents
------------------------------------------------
and warrants to Finmeccanica as follows:
4.1 Corporate Status. Brown & Sharpe is a corporation duly organized,
----------------
validly existing and in good standing under the laws of the State of Delaware
and has full corporate power and authority to carry on its business as now
conducted and to own or lease and operate its properties as and in the places
where such business is now conducted and such properties are now owned, leased
or operated. Brown & Sharpe is qualified to do business in each jurisdiction in
which such qualification is required and where the failure to do so would have a
Material Adverse Effect (as defined in Section 4.6).
4.2 Authority for Agreement. Brown & Sharpe has all necessary corporate
-----------------------
power to execute and deliver this Agreement and the Stockholders Agreement and
to carry out its obligations hereunder and thereunder and to cause any of its
subsidiaries to carry out any of its obligations. The execution and delivery of
this Agreement and the Stockholders Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary actions on behalf of Brown & Sharpe on the date hereof, except for the
approval of its stockholders as contemplated by Section 10.6. Upon obtaining of
such approval by stockholders of Brown & Sharpe, this Agreement and the
Stockholders Agreement constitute the valid and legally binding obligations of
Brown & Sharpe and are enforceable against Brown & Sharpe in accordance with
their respective terms, subject to bankruptcy, insolvency, reorganization or
similar laws of general application affecting the rights and remedies of
creditors and to general equity principles; and the execution and delivery of
this Agreement and the Stockholders Agreement and the consummation of the
transactions contemplated hereby will not conflict with, or result in any
violation of, or default under, any provision of the charter or by-laws of Brown
& Sharpe or any mortgage, loan indenture, lease, agreement or other instrument,
permit, concession, grant, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Brown & Sharpe, any of its
subsidiaries or any of their respective properties or assets. Except as set
forth in Schedule 4.2, such execution, delivery and consummation will not
accelerate the maturity of or otherwise modify in any material respect the terms
of any indebtedness of Brown & Sharpe or any of its subsidiaries, or result in
the creation of any Encumbrance upon any of the properties or assets of Brown &
Sharpe or any of its subsidiaries. There are no agreements by which Brown &
Sharpe or any of its subsidiaries is bound which restrict the ability of Brown &
Sharpe to carry on the B&S Business anywhere in the world. Except as set forth
on Schedule 4.2 and subject to
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such filings as may be required by the Securities and Exchange Commission, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any governmental authority is required in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby and thereby by Brown & Sharpe.
4.3 Capitalization; Authorization of Brown & Sharpe Purchase Price Shares
---------------------------------------------------------------------
and Brown & Sharpe Purchase Price Shares Right. Brown & Sharpe's authorized
- - ----------------------------------------------
capital stock consists of 15,000,000 shares of Class A Common Stock, 2,000,000
shares of Class B Common Stock and 1,000,000 shares of Preferred Stock. On
March 4, 1994 there were issued and outstanding 4,468,138 shares of Class A
Common Stock, 545,693 shares of Class B Common Stock and no shares of Preferred
Stock. On March 24, 1994, a total of 175,000 shares of Class A Common Stock
were issued to Diehl GmbH & Co. ("Diehl") in connection with the acquisition by
Brown & Sharpe from Diehl of the share capital of Ets. Pierre Roch S.A. and
Mauser Prazisions - Messmittel GmbH (the "Roch Group"), of which 140,350 shares
of Class A Common Stock were issued to Diehl for cash and 34,650 shares were
issued to Diehl in consideration for the transfer of the Roch Group to Brown &
Sharpe International Capital Corporation, a wholly-owned subsidiary of Brown &
Sharpe and an additional 25,000 shares of Class A Common Stock have been
reserved for issuance to Diehl pursuant to purchase price adjustments. In
connection with the acquisition of the Roch Group, Diehl also received a non-
assignable contingent right to receive an additional 50,000 shares of Class A
Common Stock of Brown & Sharpe.
As of March 24, 1994, the Company had reserved for issuance 609,523 shares
of Class A Common Stock issuable on conversion of the 9 1/4% Convertible
Debentures Due December 15, 2005 outstanding in principal amount of $16,000,000,
and shares of Class A Common Stock, not exceeding 800,000 shares in the
aggregate, issuable pursuant to the Amended Profit Incentive Plan, the amended
1973 Stock Option Plan, the Restated Employee Stock Ownership and Profit
Participation Plan, the Savings and Retirement Plan and the 1989 Equity
Incentive Plan. Upon obtaining approval by the Stockholders of Brown & Sharpe,
the Brown & Sharpe Purchase Price Shares to be issued in connection with the
transactions contemplated hereby will have been duly authorized and, when issued
under this Agreement shall be validly issued, fully paid and non-assessable.
Brown & Sharpe has reserved a sufficient number of Class A Common Stock for
issuance pursuant to the Post-Closing Price Adjustment provided for in Section
1.4 hereof. The Brown & Sharpe Purchase Price Shares will be duly authorized
for listing on the New York Stock Exchange upon the required approval by
stockholders of Brown & Sharpe of the issue thereof pursuant to this Agreement.
There are no preemptive rights on the part of any holder of any class of
securities of Brown & Sharpe. There are no options, warrants,
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conversion or other rights, agreements, or commitments of any kind obligating
Brown & Sharpe, contingently or otherwise, to issue or sell any shares of its
capital stock of any class or any securities convertible into or exchangeable
for any such shares except as set forth above, and no authorization therefor has
been given, except for not exceeding 100,000 shares of Class A Common Stock
which may be issued in connection with potential acquisitions. All outstanding
shares of Brown & Sharpe's Class A Common Stock and Class B Common Stock and any
outstanding options, warrants or other rights to purchase shares of Brown &
Sharpe's capital stock and any shares of Brown & Sharpe's stock issuable upon
exercise, conversion or exchange thereof, have been issued or granted in
compliance with the registration or qualification provisions of the Securities
Act and any applicable state securities laws, or pursuant to valid exemptions
therefrom. Brown & Sharpe is not a party or subject to any agreement or
understanding and, to the best of its knowledge, there is no agreement or
understanding between any persons that affects or relates to the voting or
giving of written consents with respect to any security or the voting by a
director of Brown & Sharpe. Except for agreements relating to shares of Class A
common stock held by members of the Mercer family and by Diehl GmbH & Co., which
together do not exceed in the aggregate 300,000 shares (exclusive of 50,000
contingent shares which Diehl GmbH has a right to acquire), Brown & Sharpe is
not under any obligation to register any of its presently outstanding securities
or any of its securities which may hereafter be issued. To the extent Brown &
Sharpe is under any obligation to register any of its securities, such
obligations do not violate, limit or impede the rights granted to Finmeccanica
under the Stockholders Agreement.
Brown & Sharpe has heretofore delivered a true and complete copy of its
Certificate of Incorporation, as amended, setting forth the rights and
privileges associated with the classes of its capital stock. A correct list as
of March 4, 1994 of beneficial owners of 5% or more of the capital stock of
Brown & Sharpe is contained in the Brown & Sharpe Proxy Statement delivered to
its securities holders for the 1994 Annual Meeting on April 29, 1994.
4.4 Subsidiaries. Except as set forth on Schedule 4.4, there are no
------------
corporations, associations, partnerships or other entities or business
enterprises in which Brown & Sharpe, directly or indirectly, has any investment
or owns any shares of capital stock or any other record or beneficiary equity or
other ownership or control interest (except such investments or interests which
as of December 25, 1993 had a book value as reflected in the Brown & Sharpe
Financial Statements (as defined in Section 4.5) of less than $250,000) which
are set forth in a letter of even date from Brown & Sharpe to Finmeccanica.
Except as set forth on Schedule 4.4, Brown & Sharpe owns or is sole beneficiary
of all of the issued and outstanding stock options,
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<PAGE>
warrants, rights or commitments, relating to the issuance of any shares of
capital stock or equity interests of its subsidiaries. Brown & Sharpe and its
subsidiaries have no commitment to contribute to the capital of, make loans to
or share the losses of any enterprise.
Each of Brown & Sharpe's subsidiaries is a duly organized, validly existing
corporation in good standing under the laws of its jurisdiction of organization,
and has all necessary power and authority (corporate or otherwise) to carry on
its business as presently conducted and as proposed to be conducted.
4.5 Financial Statements. Attached hereto as Schedule 4.5 are copies of
--------------------
the audited consolidated balance sheets of Brown & Sharpe and its subsidiaries
at and for the years ending December 25, 1993, December 26, 1992 and December
28, 1991 and the three months ending April 2, 1994 (unaudited) and related
statements of operations, changes in shareholder equity and cash flows (together
with the auditors' reports thereon) for each of the years in the three year
period ended December 25, 1993 and for the three months ended April 2, 1994
(unaudited), together with the notes to such financial statements (all of such
financial statements being herein referred to as the "Brown & Sharpe Financial
Statements"). Such financial statements are true and complete in all material
respects and have been prepared in accordance with U.S. GAAP consistently
applied throughout the periods indicated (except as otherwise indicated in the
report of Coopers & Lybrand and except as indicated in the footnotes to the
Financial Statements for the three months ended April 2, 1994), and fairly
present the financial condition of the entities covered thereby, as of the dates
thereof, and the results of their operations for the indicated periods subject,
in the case of the unaudited statements, to normal and recurring year-end audit
adjustments.
4.6 Absence of Changes. Except as set forth in the Brown & Sharpe Report
------------------
on Form 10-Q for the quarter ended April 2, 1994 and in Schedule 4.6 and other
than liabilities which have arisen after December 25, 1993 in the ordinary
course of business consistent with past practice, since December 25, 1993, (a)
there has been no material adverse change in the condition, financial or
otherwise (other than as a result of general external economic conditions
affecting the metrology industry), properties, assets, liabilities, business or
operations of Brown & Sharpe and its subsidiaries, considered as a whole (a
"Material Adverse Effect") and (b) neither the Company nor any of its
subsidiaries has:
(i) declared, set aside, made or paid any dividend or other
distribution (other than intercompany dividends or distributions) in respect of
its capital stock, or agreed to do any of the foregoing, or purchase or redeem
or agreed to purchase
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<PAGE>
or redeem, directly or indirectly, any shares of its capital stock;
(ii) issued or sold any shares of its capital stock of any class or
any options, warrants, conversion or other rights to purchase any such shares or
any securities convertible into or exchangeable for such shares; except for
------
issuances or proposed issuances as referred to in Section 4.3;
(iii) incurred any indebtedness for purchase money or borrowed money
other than in the ordinary course of business consistent with past practices,
except that it is understood that Brown & Sharpe and its Subsidiaries may borrow
additional amounts under the lines of credit and agreements described in its
Annual Report on Form 10-K for the year ended December 25, 1993 (the "Annual
Report") and that Brown & Sharpe may obtain a Rhode Island Plant mortgage which
would be repaid following the Closing out of the proceeds of the funding
referred to in Section 10.11;
(iv) mortgaged, pledged, or subjected to any Encumbrance any of its
properties or assets, tangible or intangible, except for loans under the lines
of credit and agreements described in its Annual Report and Permitted
Encumbrances; other than in connection with a Rhode Island Plant Mortgage
referred to above;
(v) except in the ordinary course of business or in connection with
the Roch Group acquisition or any pending acquisition by Brown & Sharpe the
consideration for which consists of shares of its Class A Common Stock as
contemplated by Section 4.3, acquired or disposed of any tangible assets or
properties having a value in excess of $100,000 in any transaction with any
other person;
(vi) forgiven or canceled any debts or claims, or waived any rights,
except in the ordinary course of business and consistent with past practices;
(vii) with respect to any director, officer, employee or consultant
whose annual compensation is, or was during the year ended December 25, 1993, in
excess of the equivalent of $50,000, (A) granted to any such person any material
increase in compensation in any form (including any material increase in scope
of any benefits), other than annual salary increases consistent with prior
practice, or increases upon promotions or bonuses under the President's Award
Program and the Profit Incentive Plan or promotional increases in sales
commissions, or (B) become subject to any request for severance or termination
pay, or granted any severance or termination pay, or entered into any employment
or severance agreement with any such person;
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<PAGE>
(viii) adopted, or amended in any material respect, any bonus, profit-
sharing, compensation, stock option, pension, welfare, security, retirement,
deferred compensation or other material plan, agreement, trust, fund or
arrangement of Brown & Sharpe Manufacturing Company for the benefit of any
employee or employees;
(ix) experienced any Material Adverse Effect in its relations with
any of its suppliers or customers;
(x) except for the construction of the TML Building in England or
as disclosed on Schedule 4.6, made any capital expenditures or commitment
therefor in excess of $250,000;
(xi) incurred any liability (absolute, accrued or contingent) except
current liabilities incurred, liabilities under contracts entered into, in each
case incurred in the ordinary course of business, borrowings under short-term
lines of credit, the borrowings referred to in clauses (iii) and (iv) above and
liabilities in respect of letters of credit issued under credit facilities;
(xii) extended or modified in any material respect the terms or
provisions of any lease of real property to the Company or any Subsidiary that
is a Brown & Sharpe Material Contract (as defined in Section 4.12).
(xiii) made any change in accounting principles or practices, except
for a shift to percentage of completion accounting for its Leitz subsidiary
(Brown & Sharpe already being on percentage of completion accounting method).
4.7 Taxes.
-----
Except as set forth on Schedule 4.7:
(i) Brown & Sharpe and each of its Subsidiaries have filed or caused
to be filed and, from the date hereof until the Closing Date, will file or cause
to be filed all Tax Returns required to be filed by them on or before the date
hereof or the Closing Date (as applicable) with respect to Taxes.
(ii) All Taxes which are shown on Tax Returns filed on or before the
date hereof as due from or payable by Brown & Sharpe or its Subsidiaries have
been paid in full or adequately disclosed and fully provided for in the Brown &
Sharpe Financial Statements and all Taxes which are shown on Tax Returns filed
after the date hereof and on or before the Closing Date due from or payable by
Brown & Sharpe or its Subsidiaries will be paid in full or adequately disclosed
and fully provided for in the Brown & Sharpe financial statements.
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<PAGE>
(iii) There are no actions, suits, proceedings, examinations, audits,
claims or assessments by any governmental authority now pending against Brown &
Sharpe or its subsidiaries in respect of Taxes or any Tax Return.
(iv) There are no outstanding agreements or waivers between Brown &
Sharpe or any subsidiary and any governmental authority extending the statute of
limitations applicable to any Tax Return of Brown & Sharpe or any of its
subsidiaries for any period;
(v) No Tax deficiency (whether or not agreed to by Brown & Sharpe or
its Subsidiaries) have been assessed against proposed in writing to be assessed
against Brown & Sharpe or any subsidiary by any governmental authority except
for Tax deficiencies that have been paid in full or adequately disclosed and
fully provided for in the Brown & Sharpe Financial Statements.
(vi) Brown & Sharpe and its subsidiaries are not a party to any Tax
sharing agreement.
(vii) Brown & Sharpe and its subsidiaries are not liable, by contract
or as a matter of law, primarily or otherwise, for the payment of any Taxes for
which another person is liable.
4.8 Litigation. Except for the matters described in Schedule 4.8 and
----------
claims fully covered by insurance policies of the Company and its subsidiaries,
there are no judicial or administrative actions, suits, proceedings or
arbitrations or investigations (domestic or foreign) pending or, to the best
knowledge, of Brown & Sharpe, threatened (for an amount in excess of $100,000 in
the case of threatened matters) against Brown & Sharpe or any of its
subsidiaries. Brown & Sharpe has heretofore furnished or made available to
Finmeccanica, if so requested by Finmeccanica, true and complete copies of all
relevant court papers, proceedings, administrative requests, and other documents
relating to the matters specifically set forth on Schedule 4.8.
4.9 Filings Under the Securities Exchange Act of 1934.
-------------------------------------------------
(a) The Brown & Sharpe Annual Report on Form 10-K for the year ended
December 25, 1993, the Report on Form 10-Q for the first quarter of 1994 and the
1994 Annual Meeting Proxy Statement heretofore filed under the Exchange Act,
when they were filed (or, if any amendment with respect to any such document was
filed, when such amendment was filed), conformed in all material respects with
the requirements of the Exchange Act and the rules and regulations thereunder;
and no such document when it was filed (or, if an amendment with respect to any
such document was filed, when such amendment was filed), contained an untrue
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statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading.
(b) The Brown & Sharpe Proxy Statement to approve the issue of the Brown &
Sharpe Purchase Price Shares and the Contingent Stock under this Agreement, when
filed, will conform in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder and, when it is filed,
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, excluding from the provisions of this Section
4.9(b) the description of the DEA Business, the financial statements of the
Company and the Subsidiaries, the related Management's Discussion and Analysis
and financial and other data relating to the Company and the Subsidiaries
contained therein.
(c) The Brown & Sharpe Registration Statement, when filed, will conform in
all material respects with the requirements of the Securities Act and the
Commission Rules and, when it is declared effective in accordance with the
Commission Rules, will not contain an untrue statement of a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, in light of the circumstances under which they were
made, excluding from the provisions of this Section 4.9(c) the description of
the business of the Company and the Subsidiaries (or information in respect
thereof contained in a combined description of the business of Brown & Sharpe
after giving effect to the transactions contemplated by this Agreement), the
financial statements of the Company and the Subsidiaries, the related
Management's Discussion and Analysis and financial and other data relating to
the Company and the Subsidiaries contained therein.
4.10 Brokers, Finders, etc. Neither Brown & Sharpe nor any of its
----------------------
subsidiaries has retained any financial advisor, broker, agent or finder or paid
or agreed to pay for any financial advisor, broker, agent, or finder on account
of this Agreement or any transaction contemplated hereby, or any transaction of
like character that would be required to be paid by Brown & Sharpe, the Company,
any of its Subsidiaries or Finmeccanica, except for the fees of Wertheim
Schroder payable by Brown & Sharpe pursuant to the agreements between Brown &
Sharpe and Wertheim Schroder.
4.11 Disclosure. This Agreement (including without limitation the
----------
Schedules hereto), the Brown & Sharpe Financial Statements, the information
furnished by Brown & Sharpe for the Brown & Sharpe Proxy Statement, any other
document, certificate, financial statement or other instrument furnished or to
be furnished by or on behalf of Brown & Sharpe do not contain any untrue
statement of a material fact, or, considered as a whole,
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<PAGE>
omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading.
4.12 Contracts and Other Instruments
-------------------------------
(a) The Brown & Sharpe Annual Report on Form 10-K for the year ended
December 25, 1993 includes in Item 14 a list of all contracts, agreements and
other instruments material to Brown & Sharpe ("B&S Material Contracts"), to the
extent required to be so listed and filed as an exhibit by applicable rules
under the Exchange Act and, except as specified therein, as of the date such
Annual Report was filed pursuant to the Exchange Act, there is no other
contract, agreement or other instrument that is material to the Brown & Sharpe
Business, taken as a whole, which was required to be so filed.
(b) Except as disclosed in Schedule 4.12, neither Brown & Sharpe nor, to
Brown & Sharpe's best knowledge, any other party to any B&S Material Contract to
which Brown & Sharpe is a party or which any of their assets or properties are
bound is in breach of or default under or is claimed to be in breach of or
default in complying with any provision thereof or has committed or permitted
any event which, with notice or the passage of time or both, would constitute
such a breach or default, except for such breaches and defaults which in the
aggregate would not have a Material Adverse Effect on the B&S Business taken as
a whole.
(c) Except as set forth in Schedule 4.12, no consent of any party to any
such contract, agreement or other instrument to which Brown & Sharpe is a party
or by which any of their properties or assets are bound is required for any of
the transactions contemplated by this Agreement except for such consents, the
failure of which to obtain would not in the aggregate have a Material Adverse
Effect on Brown & Sharpe.
4.13 Compliance with Laws; Governmental Authorizations. Except for
-------------------------------------------------
matters described in Schedule 4.13 or covered elsewhere in this Section 4, Brown
& Sharpe and its subsidiaries are not in violation in any material respect of
any governmental license or permit, statute, law, ordinance, rule, regulation,
judgment, order, decree, permit, concession, grant, franchise, license or other
governmental authorization or approval including without limitation any EU laws
applicable to Brown & Sharpe or its subsidiaries or to any of their assets,
properties, properties or businesses. All permits, concessions, grants,
franchises, licenses and other governmental authorizations and approvals
necessary for the conduct of the business of Brown & Sharpe and its subsidiaries
as presently conducted have been duly obtained and are in full force and effect,
except where the failure to obtain or maintain in effect any of the foregoing
would not have a material adverse effect on the business of Brown & Sharpe or
any subsidiary, and there are no proceedings pending
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or, to the Brown & Sharpe's best knowledge, threatened that may result in the
revocation, cancellation or suspension, or any materially adverse modification,
of any thereof.
4.14 Environmental Matters. Schedule 4.14 is a true and complete list of
---------------------
all known conditions or states of fact existing on the date hereof and as of the
Closing Date based on or resulting from the presence in or discharge, spill,
disposal, emission, generation, storage or release of any chemical, pollutant,
contaminant, waste, toxic or hazardous substance or petroleum product into the
environment caused by any of Brown & Sharpe or any of its subsidiaries at any
location owned or leased, currently or in the past, by Brown & Sharpe or any of
its subsidiaries, which constitutes a violation of or requires remediation under
any Health and Environmental Laws.
4.14.1 Except as disclosed on Schedule 4.14, Brown & Sharpe and its
subsidiaries are in compliance in all material respects with all applicable
Health and Environmental Laws with respect to the use, transport, import,
export, temporary or final storage, recycling or disposal of any waste,
chemical substance or mixture, pollutant, including without limitation, any
contaminant, irritant, or pollutant or other hazardous or toxic substance
("Hazardous Materials") which are identified as such in any jurisdiction in
which Brown & Sharpe or its subsidiaries either owns or leases real
property or conducts its business.
4.14.2 Except as disclosed on Schedule 4.14, (i) neither Brown &
Sharpe nor any of its subsidiaries has received notice from any
governmental authority (or has knowledge that any governmental authority
may give notice) that it is in violation of any applicable Health
Environmental Laws with respect to the use, transport, import, export,
temporary or final storage or disposal of any such Hazardous Materials;
(ii) Brown & Sharpe and its subsidiaries have obtained and have complied
with all financial or other conditions contained in all necessary permits,
licenses, authorizations and consents for the use, transport, import,
export, temporary or final storage, recycling and disposal of all Hazardous
Materials used in the conduct of the Brown & Sharpe Business except for
those permits, licenses or authorizations the failure to obtain which would
not have a Material Adverse Effect on the Brown & Sharpe Business; and
(iii) to Brown & Sharpe's knowledge, there have been no, direct or
indirect, discharges, spills or leaks or releases, whether accidental or
voluntary, of any Hazardous Materials caused by any of Brown & Sharpe or
any of its subsidiaries on any real property (a) now leased or previously
leased or (b) now owned or previously owned by Brown & Sharpe or any of its
subsidiaries, which in any case
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constitutes a violation of or requires remediation under any Health and
Environmental Law.
4.15 Absence of Undisclosed Liabilities. Except as set forth in Schedule
----------------------------------
4.15 and other than liabilities which have arisen after December 25, 1993 in the
ordinary course of business consistent with past practice (including those
permitted by or scheduled pursuant to Section 4.6), neither Brown & Sharpe nor
any of its Subsidiaries has any material liabilities or obligations of any
nature, whether absolute, contingent or otherwise which are required to be
reflected or reserved against in, or otherwise provided for in the notes to, the
Brown & Sharpe Financial Statements under U.S. GAAP and which are not so
reflected or reserved against therein or in the notes thereto.
4.16 Prohibited Foreign Trade Practices Act; Sensitive Payments. To the
----------------------------------------------------------
best of Brown & Sharpe's knowledge, Brown & Sharpe and its subsidiaries are in
compliance with the Prohibited Foreign Trade Practices Act with respect to the
Brown & Sharpe Business, and have no "sensitive" receipts or disbursements,
which are defined to mean the following types of transactions: (i) illegal
receipts from or payments to governmental officials or employees; (ii)
commercial bribes or kickbacks; (iii) amounts disbursed or received with an
understanding that rebates or refunds will be made in contravention of the laws
of any nation or other jurisdiction; (iv) illegal political contributions; or
(v) payments of commitments, regardless of form, made with the knowledge or
under circumstances that would indicate that all or part thereof is to be paid
ultimately to or for the benefit of governmental officials or employees or as an
influence payment or kickback.
5. Expenses. Each of the parties hereto shall assume and bear all expenses,
--------
costs and fees (including any fees of investment banks, financial advisors,
professional advisers and legal counsel) incurred or assumed by such party in
the preparation and execution of this Agreement and compliance herewith, whether
or not the transactions herein provided for shall be consummated, it being
understood and agreed that Finmeccanica and not the Company shall assume and
bear the reasonable legal, and other out-of-pocket expenses, costs and fees of
the Company and the Subsidiaries in connection with the transactions hereby
contemplated, except that the Company may pay for the audit fees of RE&Y in
preparing the audited financial statements of the Company and the Subsidiaries,
including the Closing Financial Statements; Brown & Sharpe, on the one hand, and
Finmeccanica, on the other, shall indemnify and hold each other harmless from
and against any and all liabilities and claims in respect of any such expenses,
costs or fees or taxes which are the responsibility of or assumed by Brown &
Sharpe, the Company and the Subsidiaries on the one hand and which are the
responsibility of or assumed by Finmeccanica and their affiliates on the other
hand. Notwithstanding the foregoing, all excise, documentary, transfer
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(including indirect transfer of stock of the Subsidiaries), value added taxes
and like taxes, if any, or fees for the like payable in connection with the
sale, transfer and delivery of the DEA Shares to Brown & Sharpe or its designees
(including indirect transfer of DEA Subsidiary shares and transactions pursuant
to the Post-Closing Purchase Price Adjustment provisions) shall be paid in the
first instance by Brown & Sharpe and the total cost thereof shall be borne
equally by the parties, except that in this connection it is agreed that any
liability for registration taxes or issue taxes incurred by the Company in
connection with the removal of "excess" Indebtedness of the Company in
accordance with Section 6.4 and other applicable sections shall be paid by the
Company and shall be the responsibility of Brown & Sharpe and shall not be
reflected in the Pricing Adjusted Net Asset Value for purposes of determining
the Post-Closing Purchase Price Adjustment.
6. Additional Covenants of the Parties. The parties further covenant and
-----------------------------------
agree as follows:
6.1 Conduct of Business. From and after the date of this Agreement and
-------------------
until the Closing Date, except as the other party shall otherwise specifically
consent to in writing, each of the parties will conduct, or in the case of
Finmeccanica, cause the Company and the Subsidiaries to conduct, their affairs
so that they:
(a) carry on their respective businesses in, and only in, the usual,
regular and ordinary course in substantially the same manner as conducted
since January 1, 1994 and use reasonable efforts to preserve intact their
respective present business organizations, to the extent reasonably
possible keep available the services of present officers and employees, and
preserve their respective relationships with customers, suppliers and
others having business dealings with them;
(b) not sell or withdraw assets, including factoring of receivables,
except for inventory in the ordinary course of business or disposals of
assets which are replaced in the ordinary course.
(c) maintain all of the material structures, equipment and other
tangible personal property used in the conduct of their respective
businesses as conducted since January 1, 1993 in good repair, order and
condition except for ordinary wear and tear;
(d) keep in full force and effect insurance comparable in amount and
scope of coverage to the insurance now carried by them and, in the case of
Finmeccanica, as disclosed on Schedule 3.13;
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(e) perform in all material respects all obligations under all DEA
Material Contracts and B&S Material Contracts, as the case may be;
(f) maintain their books of account and records in the usual, regular
and ordinary manner;
(g) comply in all material respects with all applicable statutes,
laws, ordinances, rules and regulations;
(h) not take or permit to be taken any action or incur any liability
or obligation which if taken or incurred prior to the date hereof would
have been required to be disclosed pursuant to any of the representations
and warranties made by Finmeccanica or Brown & Sharpe, as the case may be;
(i) not issue any capital stock or other securities other than, in
the case of Brown & Sharpe, as may be required pursuant to any of Brown &
Sharpe's stock option or employee benefit plans described in Section 4.3 or
from such reserves as are disclosed in Section 4.3 or not exceeding 100,000
shares of Class A Common Stock for purposes of future acquisitions; and
(j) maintain adequate reserves under the applicable accounting
principles specified in Section 3.5 and the reserve policies provided to
Brown & Sharpe and referred to in Section 1.4(b) or the applicable
accounting principles specified in Section 4.5 for all Taxes and other
governmental charges which have occurred during such period and for any
disputes with customers.
Notwithstanding the foregoing provisions of this Section 6.1, this Section
6.1 shall be subject to the over-riding provisions of Section 2.7 which
provides, as set forth therein, that the business of the DEA Companies during
the period after July 31, 1994 and prior to the completion of the Closing on the
Closing Date shall be operated for the economic benefit of Brown & Sharpe. In
addition, the factoring of a mutually agreed amount of receivables of the DEA
Companies, as contemplated by Section 1.4(j) and Section 6.4, shall not
constitute a violation of this Section 6.1.
6.2 Governmental Filings. (a) The parties shall fully cooperate in making
--------------------
joint or separate filings to the German, Belgian, and Portuguese antitrust or
competition authorities and in seeking any approvals which may be required from
such authorities for the consummation of the transactions contemplated hereby.
Each party shall be responsible for any inaccuracy or omission relating to
information supplied by it and contained in such filings and further agrees to
indemnify and hold harmless the other party for any damages, including without
limitation,
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<PAGE>
fines imposed by such authorities, arising from such inaccuracy or omission.
(b) The parties acknowledge that the Closing may occur on a date which is
more than one year after the expiration in August 1993 of the waiting period
under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 ("HSR") for
completion of the transactions contemplated hereby and that it is a condition to
each of Finmeccanica's and Brown & Sharpe's obligation to perform its agreements
hereunder that the transactions either close prior to the expiration of said one
year period or that the parties refile reports under the HSR Act and not
complete the transactions hereby contemplated until after the expiration of the
HSR waiting period following said 1994 HSR filings by the parties. Accordingly,
each of the parties covenants and agrees to cooperate and use their best efforts
to make all necessary filings and notifications under HSR permit the Closing.
6.3 Shareholder Approval. (a) Brown & Sharpe shall, as soon as reasonably
--------------------
practicable after the date hereof, take all action necessary in accordance with
the Exchange Act, the laws of the State of Delaware and Brown & Sharpe's
Certificate of Incorporation and By-laws to give notice of and convene a special
meeting (the "Meeting") of its shareholders to consider and vote upon the
approval of the issuance of the Brown & Sharpe Purchase Price Shares in
connection with the consummation of the transactions contemplated hereby and for
such other purposes as may be necessary or desirable. The Board of Directors of
Brown & Sharpe shall, consistent with their fiduciary obligations, recommend
without qualification of any nature that Brown & Sharpe's shareholders vote to
approve such issuance of the Brown & Sharpe Purchase Price Shares, and use its
reasonable best efforts to solicit and secure from the shareholders of Brown &
Sharpe such approval, which efforts may include, without limitation, causing
Brown & Sharpe to solicit shareholder proxies therefor and to advise
Finmeccanica upon its request from time to time as to the status of the
shareholder vote then tabulated.
(b) Promptly following the date of this Agreement, Brown & Sharpe shall
prepare and file with the Securities and Exchange Commission under the Exchange
Act and the Commission Rules a preliminary draft of the Brown & Sharpe Proxy
Statement. The Company and Finmeccanica shall cooperate fully with Brown &
Sharpe in the preparation and filing of the Brown & Sharpe Proxy Statement and
any amendments and supplements thereto. So far as practicable in the judgment
of Brown & Sharpe's counsel, the Brown & Sharpe Proxy Statement shall not be
filed, and no amendment or supplement thereto shall be made by Brown & Sharpe,
without Finmeccanica's (or its counsel's) prior approval which shall not be
unreasonably delayed or withheld. Brown & Sharpe shall use its reasonable best
efforts to have any review of the Brown & Sharpe Proxy Statement conducted by
the Securities and Exchange Commission promptly. As soon as reasonably
practicable
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<PAGE>
following the date hereof, Brown & Sharpe shall cause to be mailed a definitive
Brown & Sharpe Proxy Statement to its shareholders entitled to vote at the
Meeting called to vote upon the issuance of the Brown & Sharpe Purchase Price
Shares promptly following completion of any review by, or in the absence of such
review, the termination of any applicable waiting period required under the
Exchange Act and the Commission Rules.
6.4 Elimination of Excess Indebtedness. Finmeccanica will, prior to July
----------------------------------
31, 1994, make its best possible forecast of the amount of total Indebtedness of
the DEA Companies, net of cash, in excess of Lit. 800 Million, on the Forecasted
Pricing Balance Sheet of the DEA Companies as of July 31, 1994.
Based on that forecast, Finmeccanica will identify the amount of total
Indebtedness of the DEA Companies to be discharged at the Closing by
Finmeccanica. If practical, Finmeccanica may concentrate the Indebtedness of
the DEA Companies (including through a payoff of certain Indebtedness to third
parties) in the so-called current account of the DEA Companies with
Finmeccanica. By making contributions of the appropriate amount to the capital
of DEA on or prior to the Closing, Finmeccanica will put itself in a position to
cause the DEA Companies to be obligated at the Closing in the aggregate only
with respect to an amount of Indebtedness equal to the amount of Aggregate
Permitted Indebtedness as of July 31, 1994. It is understood that, as of the
Pricing Date, July 31, 1994, the exact amount of Indebtedness of the DEA
Companies to be discharged can only be estimated. After July 31, 1994 and prior
to the Closing, Finmeccanica shall use its best efforts to gather the
information necessary to verify the accuracy of the forecast made prior to July
31, 1994 with regard to the amount of Indebtedness of the DEA Companies to be
discharged. Finmeccanica will share such information with Brown & Sharpe, and
the parties agree that they will work together in good faith to effect the
required reduction of Indebtedness in a manner that will result, after making
all of the calculations contemplated by Section 1.4, in the issuance of the
least possible number of additional Brown & Sharpe Purchase Price Shares under
Section 1.4(h). Accordingly, Finmeccanica will determine, with the consent of
Brown & Sharpe, which may not unreasonably be withheld, if the forecast for the
amount of Indebtedness of the DEA Companies to be discharged by Finmeccanica on
the Closing needs to be modified based on the new information, and any such
modification shall be reflected on the Forecasted Pricing Balance Sheet (which
term shall thereafter for all purposes reflect such modification).
On the Closing Date Finmeccanica shall cause the DEA Companies to be
obligated in the aggregate only with respect to Indebtedness equal to the amount
of Aggregate Permitted Indebtedness as of July 31, 1994 by discharging any DEA
Companies Indebtedness in excess of Aggregate Permitted Indebtedness.
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<PAGE>
Subsequent to the Closing, on the basis of the final Pricing Balance Sheet
as determined under Section 1.4(f), the precise actual amount of Excess
Indebtedness that should have been discharged at the Closing shall be
established ("Actual Excess Indebtedness"). In the event that the Actual Excess
Indebtedness as of July 31, 1994 based on the Pricing Balance Sheet is less or
more than the Forecasted Excess Indebtedness based on the Forecasted Pricing
Balance Sheet as of July 31, 1994 (as adjusted by Finmeccanica for any
reforecast required by this Section 6.4 above), the amount of said overage or
shortfall shall be taken into account and netted in the Post-Closing Purchase
Price Adjustment calculation as provided in Section 1.4(g). Then, as and to the
extent required by Section 1.4(h), Brown & Sharpe shall issue additional Brown &
Sharpe Purchase Price Shares or Finmeccanica shall contribute cash to the
capital of Brown & Sharpe (without receiving any shares of stock therefor).
6.5 B&S Business Plan. As soon as practicable after the date hereof, and
-----------------
in any event not later than the Closing Date, the executive management of Brown
& Sharpe shall submit for approval by the Board of Directors of Brown & Sharpe
(as evidenced by an extract from the meeting of the Board of Directors of Brown
& Sharpe) a business plan for the 18-month period commencing upon the Closing
Date (containing a detailed action plan for the implementation of management's
revenue and cost objectives). Brown & Sharpe shall deliver to Finmeccanica, not
later than the Closing, a copy of such business plan.
7. Survival of Representations and Warranties. Except as otherwise
------------------------------------------
specifically provided for in this Agreement, all representations, warranties and
agreements (other than Section 8) of Finmeccanica and Brown & Sharpe contained
herein or in any document, certificate or other instrument required to be
delivered hereunder in connection with the transactions contemplated hereby
shall survive for a period of 21 months from the Closing Date. Notwithstanding
the foregoing:
(a) the representations and warranties set forth in Sections 3.16, 3.20,
and 3.21 and Section 4.14 shall survive for five years from the Closing Date;
(b) the representations and warranties set forth in Sections 3.8, 3.19,
3.23 and 3.24 and Sections 4.7 and 4.9 shall survive until thirty (30) days
after the expiration of the relevant statutes of limitation, including any
extensions thereof; and
(c) the representations and warranties set forth in Sections 3.2, 3.4,
3.9.1, 3.12 and 3.17 and Sections 4.2, 4.3 and 4.10 shall survive without limit
as to time.
8. Indemnification.
---------------
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<PAGE>
8.1 Indemnity by Finmeccanica. Finmeccanica hereby agrees to indemnify,
-------------------------
defend and hold harmless Brown & Sharpe and its directors, officers and
affiliates (and, in the case of claims arising in connection with the DEA
Financial Statements and the information furnished by Finmeccanica and included
in the Brown & Sharpe Proxy Statement or the Brown & Sharpe Registration
Statement, each person, if any, who controls Brown & Sharpe within the meaning
of Section 15 of the Securities Act) against and in respect of any damage that
results from
(i) the inaccuracy of any representation or warranty made by
Finmeccanica herein, or resulting from any misrepresentation, breach
of warranty or non-fulfillment of any agreement or covenant of
Finmeccanica contained herein or in any agreement or instrument
required to be entered into in connection herewith and specifically
identified herein or from any misrepresentation in or omission from
any schedule, document, certificate or other instrument required to be
furnished by Finmeccanica hereunder and specifically identified
herein;
(ii) (a) the amount (if any) by which the accrual for TFR Liabilities
on the Pricing Balance Sheet exceeds Lit. 1,715 million; (b) the
amount (if any) by which the Lit. 2,400 million liability for INPS for
terminated employees reflected on the June 30, 1993 DEA Financial
Statements has not been actually paid by the Closing, except for Lit.
16 million which the parties agreed need not be paid by such date; and
(c) any liability to any employee of the Company or any Subsidiary
terminated or terminating prior to or on the Closing Date or, after
the Closing Date, if such termination results from or grants rights to
any such employee as a consequence of a change in control (excluding
those provisions provided for under applicable labor or national
contract or statute); and (d) any in accuracy in the representations
and warranties made in Section 1.4(b) above and in Schedule 1.4(b);
(iii) any liability of the Company or any Subsidiary for Indebtedness
in excess of the Aggregate Permitted Indebtedness on the Closing Date
(subject to the Post-Closing Purchase Price Adjustment);
(iv) any liability on account of any conditions or states of fact
existing on the Closing Date based on or resulting from the presence
in or discharge, spill, disposal, emission, generation, storage or
release of any chemical, pollutant, contaminant, waste, toxic or
hazardous substance or petroleum product into the environment caused
by any of the DEA Companies at any
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location owned or leased, currently or in the past, by the Company or
any of its Subsidiaries, which constitutes a violation of or requires
remediation under Environmental Laws other than any such conditions or
states of fact disclosed on Schedule 3.16 (as to which Finmeccanica
shall have no liability under this clause (iv)); provided that such
--------
condition or states of fact shall not have been discovered as a result
of Brown & Sharpe's voluntary investigative efforts; provided, further
-------- -------
that nothing in this clause (iv) shall limit the obligations of
Finmeccanica pursuant to clause (i) to the extent such matters relate
to a breach of the representations and warranties covered by Section
3.16 hereof;
(v) all Taxes arising from judgments, assessments, impositions,
administrative decrees or arbitration awards upon, or being the
liabilities of, the Company or any of the Subsidiaries to the extent
that such Taxes are not absorbed by net operating losses and are
attributable to any period ending on or prior to the Closing Date and
the aggregate liability in respect thereof exceeds the amount provided
for Taxes in the Closing Balance Sheet;
(v)(A) any liability or other damages (including without limitation,
the cost of making improvements to facilities or changes in operations
conducted at the facilities in order to obtain the issuance of the
permits and certificates noted in Schedule 3.15) resulting from the
failure of the DEA Business to have the permits or certificates noted
in Schedule 3.15.
(vi) any and all claims, actions, suits and proceedings resulting from
any of the foregoing (hereinafter called a "Brown & Sharpe Claim" or
"Brown & Sharpe Claims").
At the option of Brown & Sharpe, any dispute between the parties under clause
(iv) of Section 8.1 as to the existence of states of fact or conditions on or
prior to the Closing Date or having come into existence after the Closing Date
shall be referred to the parties' respective independent environmental
consultants which shall attempt to resolve such disputes and whose determination
shall be final and binding on the parties. If such independent environmental
consultants are themselves unable to agree, they shall refer any such dispute to
a third firm of independent environmental consultants whose determination and
resolution of such dispute shall be final and binding on the parties. Such
third firm of independent environmental consultants shall make its determination
within sixty (60) days after the referral. Each party shall bear the cost of
its own independent environmental consultants and shall share equally in the
costs of
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any third firm of independent environmental consultants so appointed.
Notwithstanding the foregoing, Finmeccanica shall have no obligation to
indemnify Brown & Sharpe under this Section 8.1 unless, and only to the extent
that, the aggregate of all amounts for which indemnity would otherwise be due as
a result of or arising out of the matters set forth in clauses (i) through (vi)
of Section 8.1 (but excluding clause (ii)(a)) above exceed $500,000, provided
--------
that in computing such amount each single indemnity amount (or any series of
amounts relating to a class action or series of claims arising out of a common
set of facts) of less than $10,000 shall be disregarded. Finmeccanica's
liability under this Section 8.1 shall not exceed in the aggregate $10,000,000.
8.2 Brown & Sharpe Indemnity. Brown & Sharpe hereby agrees to indemnify
------------------------
and hold harmless Finmeccanica and its directors, officers and affiliates
against and in respect of any damage resulting from
(i) the inaccuracy of any representation or warranty made by Brown &
Sharpe or resulting from any misrepresentation, breach of warranty or
non-fulfillment of any agreement or covenant of Brown & Sharpe
contained herein or in any agreement or instrument required to be
entered into in connection herewith and specifically identified herein
or from any misrepresentation in or omission from any document,
certificate or other instrument required to be furnished by Brown &
Sharpe hereunder and specifically identified herein or any liability
or any other damage arising prior to the expiration of 21 months from
the Closing resulting from (i) any accounting restatement of Brown &
Sharpe Financial Statements (other than a restatement for the change
in accounting principle previously disclosed in Brown & Sharpe's 10Q
for the first quarter of 1994) or (ii) the establishment of a specific
receivable reserve relating to one customer, as disclosed in the Brown
& Sharpe Registration Statement, or any charges made thereto, (it
being understood that this provision shall be the only remedy for
breach of any representation by Brown & Sharpe based on the occurrence
of any such restatement, or the transaction giving rise to said
restatement).
(ii) any liability on account of (A) facts or conditions which present
a substantial threat to human health or to the environment, including
environmental conditions at operating facilities, or (B) any violation
of any environmental laws which are or may become applicable, relating
to any act or failure to act by Brown & Sharpe or condition or
occurrence
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existing on or prior to the Closing Date unless such facts or
conditions are set forth on Schedule 4.14 (in which event there shall
be no liability with respect thereto under this clause (ii));
provided, however, that nothing in this clause (ii) shall limit the
-------- -------
obligations of Brown & Sharpe pursuant to clause (i) to the extent
that such matters relate to a breach of the representations and
warranties covered by Section 4.14 hereof;
(iii) all Taxes arising from judgments, assessments, impositions,
administrative decrees or arbitration awards upon, and being the
liabilities of, Brown & Sharpe or any of the Brown & Sharpe
Subsidiaries to the extent that such Taxes are attributable to the
period prior to the Closing Date and the aggregate liability in
respect thereof exceeds the amount provided for Taxes in the December
25, 1993 consolidated balance sheet included in the Brown & Sharpe
Financial Statements, as adjusted in the interim consolidated
financial statements of Brown & Sharpe during the period from December
25, 1993 through the quarter ending prior to the Closing Date; and
(iv) any and all claims, actions, suits and proceedings resulting from
any of the foregoing (hereinafter called an "Finmeccanica Claim" or
"Finmeccanica Claims").
Notwithstanding the foregoing, Brown & Sharpe shall have no obligation to
indemnify Finmeccanica under this Section 8.2 unless, and only to the extent
that, the aggregate of all amounts for which indemnity would otherwise be due as
a result of or arising out of the matters set forth in clauses (i) through (iv)
above exceed $500,000; provided that in computing such amount each single
--------
indemnity amount (or any series of amounts relating to a class action or series
of claims arising out of a common set of facts) of less than $10,000 shall be
disregarded. Brown & Sharpe's liability under this Section 8.2 shall not exceed
$10,000,000.
8.3 Certification of Claims. If Brown & Sharpe or Finmeccanica is of the
-----------------------
opinion that any Brown & Sharpe Claim or an Finmeccanica Claim, as the case may
be, has occurred or will or may occur, Brown & Sharpe or Finmeccanica, as the
case may be, shall so notify the other, and each such notice shall specify the
circumstances of such asserted Brown & Sharpe Claim or Finmeccanica Claim.
8.4 Third Party Actions.
-------------------
(a) In the event any claim is made, suit is brought or tax audit or
other proceeding, including any administrative action relating to
environmental laws or conditions, is
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instituted against Brown & Sharpe or the Company or any Subsidiary, or any
of their respective directors, officers or affiliates which involves or
appears reasonably likely to involve a Brown & Sharpe Claim for which
indemnification may be sought against Finmeccanica hereunder, Brown &
Sharpe will, promptly (and in any event within 15 days) after receipt of
notice of any such claim, suit, tax audit or proceeding, notify
Finmeccanica of the commencement thereof. The failure to so notify
Finmeccanica of the commencement of any such claim, suit, tax audit or
proceeding will relieve Finmeccanica from liability only to the extent that
such failure materially adversely affects the ability of Finmeccanica to
defend its interests in such claim, suit, tax audit or proceeding.
Finmeccanica (at its expense) shall have the right and shall be given the
opportunity (i) to assume and control the defense of such claim, suit, tax
audit or proceeding or (ii) in the case of any environmental claim or
administrative action for which remediation is or may be required, to have
authority and control as to the methodology, extent and implementation of
any clean-up or remedial measures ("Remedial Measures") with respect
thereto, provided that Brown & Sharpe and its counsel (at Brown & Sharpe's
--------
expense) may participate in (but not control the conduct of) all matters
pertaining to the defense or settlement of such claim, suit, tax audit or
proceeding and, in the case of any Remedial Measures required by law or
administrative action, have the rights provided in Section 8.7.1 hereof.
Whether or not Finmeccanica elects to assume such defense, Brown & Sharpe
shall not, except at its own cost, make any settlement with respect to any
such claim, suit, tax audit or proceeding without the prior consent of
Finmeccanica, which may not be unreasonably withheld; provided, that, if
--------
Finmeccanica elects not to undertake any Remedial Measure(s) as may be
required either by law or pursuant to an administrative order, Brown &
Sharpe may undertake any and all such Remedial Measures as may be required
by such law or administrative order without the consent of Finmeccanica but
the lack of Finmeccanica's consent thereto shall not relieve it of its
indemnification obligations hereunder. In the event that Brown & Sharpe
determines to settle any such claim, suit, tax audit or proceeding without
the prior consent of Finmeccanica (as provided above), Finmeccanica shall
have no indemnification obligations with respect to such claim, suit, tax
audit or proceeding. Brown & Sharpe's consent to the settlement of any
such claim, suit, tax audit or proceeding by Finmeccanica shall be required
and shall not be unreasonably withheld, but such consent shall not be
required if (or to the extent that) such settlement only requires the
payment of a monetary amount.
(b) In the event any claim is made, suit is brought or tax audit or
other proceeding is instituted against
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Finmeccanica which involves or appears reasonably likely to involve a
Finmeccanica Claim for which indemnification may be sought against Brown &
Sharpe hereunder, Finmeccanica will, promptly (and in any event within 15
days) after receipt of notice of any such claim, suit, tax audit or
proceeding, notify Brown & Sharpe of the commencement thereof. The failure
to so notify Brown & Sharpe of the commencement of any such claim, suit,
tax audit or proceeding will relieve Brown & Sharpe from liability only to
the extent that such failure materially adversely affects the ability of
Brown & Sharpe to defend its interest in such claim, suit, tax audit or
proceeding. Brown & Sharpe (at its expense) shall have the right and shall
be given the opportunity to assume and control the defense of such claim,
suit, tax audit or proceeding, provided that Finmeccanica and their counsel
--------
may participate in (but not control the conduct of) all matters pertaining
to the defense or settlement of such claim, suit, tax audit or proceeding.
Whether or not Brown & Sharpe elects to assume such defense, Finmeccanica
shall not, except at its own cost, make any settlement with respect to any
such claim, suit, tax audit or proceeding without the prior consent of
Brown & Sharpe, which may not be unreasonably withheld. In the event that
Finmeccanica determines to settle any such claim, suit, tax audit or
proceeding without the prior consent of Brown & Sharpe (as provided above),
Brown & Sharpe shall have no indemnification obligations with respect to
such claim, suit, tax audit or proceeding. Finmeccanica's consent to the
settlement of any such claim, suit, tax audit or proceeding by Brown &
Sharpe shall be required and shall not be unreasonably withheld, but such
consent shall not be required if (or to the extent that) such settlement
only requires the payment of a monetary amount.
8.5 Definition of Damages. For purposes of this Section 8, the term
---------------------
"damages" shall mean the amount of any loss, claim, demand, damage, deficiency,
assessment, judgment, remediation, cost or expense (including reasonable
attorneys', consultants' and experts' fees and expenses) actually incurred, (in
the case of a Finmeccanica Claim, either by Finmeccanica directly or by virtue
of its shareholding in Brown & Sharpe) less the sum of the following economic
----
benefits, if any, pertaining to such loss, claim, demand, damage, deficiency,
cost or expense: (i) any income tax savings (net of any income tax cost
attributable to the indemnity payment) actually realized (or incurred) that
affect the overall economic impact of the damage to the indemnified party and
(ii) any insurance proceeds actually realized and adverse insurance consequences
actually incurred (such as premium adjustments and other detriments) that affect
the overall economic impact of the damages to the indemnified party.
Notwithstanding the foregoing, neither party will be entitled to any special,
exemplary or consequential damages, including without limitation lost profits,
good will or
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<PAGE>
investments (excluding any damage resulting from a diminution in the value of
the Brown & Sharpe Purchase Price Shares), loss of distributors, suppliers or
customers or inability to use any of the properties of the DEA Business or the
B&S Business with respect to any environmental matters covered under Sections
8.1(i) and (iv) and 8.2(i) and (ii). In the event that an indemnified party
hereunder pays a claim covered by the indemnified party's insurance for which it
is entitled to indemnification by another party hereunder, such indemnified
party shall pay such claim and the indemnifying party shall reimburse the
indemnified party the full amount of such claim (less the amount of any
insurance proceeds previously recovered by the indemnified party with respect to
such claim). If the indemnified party subsequently receives insurance proceeds
with respect to such claim, the indemnified party shall pay the indemnifying
party such insurance proceeds up to the amount actually paid by the indemnifying
party. In the event of any claim by any third party based on facts which, if
true as alleged, would give rise to any liability for damages as to which
indemnification exists under this Agreement, the amount of the damages shall be
deemed to include the reasonable costs of the defense thereof, whether or not
successful, subject to the rights of the indemnifying party to assume such
defense pursuant to Section 8.4 hereof.
8.6 Pricing Balance Sheet. Neither party shall be entitled to seek
---------------------
damages from the other party pursuant to this Section 8 with respect to any
claim to the extent that the liability forming the basis for such claim is
reflected as a liability in the Pricing Balance Sheet and thereby included in
the calculation of the Post-Closing Purchase Price Adjustment under Section 1.4,
including a liability not resulting in an adjustment as a result of the Basket.
8.7 Environmental Limitations. For the avoidance of doubt, no claim for
-------------------------
damages by either party for which indemnification is available pursuant to
Sections 8.1(iv) or 8.2(ii), respectively, may be made by either party if the
basis for such claim derives from a change in law or regulation or a change in
the standards of enforcement or remediation applicable to environmental
conditions or hazards which change becomes effective on or after the Closing
Date.
8.7.1 Remediation. (a) In the event of any Brown & Sharpe Claim
-----------
under Section 8.1(iv) which involves the taking or required taking of a Remedial
Measure with respect to any leased real property of the Company or any of its
Subsidiaries and which Finmeccanica undertakes pursuant to Section 8.4(a), then
Finmeccanica shall use its reasonable efforts to minimize interruption or other
disruption of the operations of the DEA Business and exercise its authority and
control over the remediation in a reasonable manner and in compliance with all
applicable Environmental Laws. Finmeccanica shall inform Brown &
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<PAGE>
Sharpe at least quarterly of actions taken in furtherance of such remedial
measures since the previous update and actions anticipated prior to the next
update. The purpose of such updates shall be to attempt to reach consensus as
to the best means of handling such matters. All consultant proposals, reports,
conclusions and/or data shall be submitted promptly to Brown & Sharpe upon
Finmeccanica's receipt. To the extent reasonably practicable, any submissions
by Finmeccanica to environmental regulatory agencies shall be submitted to Brown
& Sharpe for review prior to submission to such agency. Brown & Sharpe shall
cooperate, assist and not interfere with Finmeccanica's performance of its
obligations hereunder, including without limitation allowing Finmeccanica and
its agents, representatives or contractors to have access to the premises of the
DEA Companies in order to (i) conduct studies, take samples and perform other
inspections on the premises of the DEAd Companies, (ii) install, maintain and
operate treatment systems, equipment and other apparatus incidental to
implementing a remedial measure; (iii) consult pertinent books and records and
knowledgeable employees of the DEA Companies; and (iv) take any other
remediation or other actions necessary to fulfill Finmeccanica's
responsibilities under Sections 8.1(iv) and 8.4(a); provided, however, that if
-------- -------
any Remedial Measure shall require the closing of any facility (or significant
portion thereof) of the DEA Business for a period of greater than one week, then
Finmeccanica shall consult with Brown & Sharpe so as to determine a reasonable
period of shut down, taking into account Brown & Sharpe's need to minimize any
disruptive effect on the facilities' operations and Finmeccanica's desire to
utilize the most cost-effective method of remediation, and Finmeccanica shall
conform the remediation plan accordingly.
9. Access and Information; Confidentiality.
---------------------------------------
9.1 Finmeccanica shall cause the Company to afford to Brown & Sharpe and
its employees, accountants, counsel and other authorized representatives
reasonable access during normal business hours, upon reasonable notice,
throughout the period prior to the Closing to the facilities, properties, books
and records of the Company and its Subsidiaries and shall cause its
representatives to furnish to Brown & Sharpe such additional financial and
operating data and other information as Brown & Sharpe may from time to time
reasonably request. Brown & Sharpe shall cause all information obtained by it
or its representatives pursuant to this Agreement or in connection with the
negotiation hereof to be treated as confidential and shall not use, nor permit
others to use, any such information for any purpose whatsoever in a manner
detrimental to the Company or its Subsidiaries. In the event that this
Agreement is terminated, Brown & Sharpe shall promptly return all documents
(together with all copies thereof) provided by the Company or any of its
Subsidiaries.
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<PAGE>
9.2 Brown & Sharpe shall afford to Finmeccanica and its employees,
accountants, counsel and other authorized representatives reasonable access
during normal business hours, upon reasonable notice, throughout the period
prior to the Closing to the facilities and properties of Brown & Sharpe and its
subsidiaries and shall cause its representatives to furnish to Finmeccanica such
additional financial data and other information (including action plans and
projections relating to the transactions contemplated hereby) as Finmeccanica
may from time to time reasonably request. Finmeccanica shall cause all
information obtained by it or its representatives pursuant to this Agreement or
in connection with the negotiation hereof to be treated as confidential and
shall not use, nor permit others to use, any such information for any purpose
whatsoever in a manner detrimental to Brown & Sharpe. In the event that this
Agreement is terminated, Finmeccanica shall promptly return all documents
(together with all copies thereof) provided by Brown & Sharpe.
9.3 Confidentiality. Following the Closing Date, Finmeccanica shall hold
---------------
in confidence all financial information concerning the business, assets,
intellectual property, products, application methods, sources of supply,
markets, marketing methods and customers of the Company and its Subsidiaries
that heretofore has been treated as proprietary or confidential. This Agreement
shall continue to apply after the Closing Date for a period of five years, but
shall cease to apply to information that comes into the public domain (other
than through a breach by Finmeccanica of an obligation of confidentiality owed
to Brown & Sharpe hereunder) and to information the disclosure of which is
required by law or pursuant to any request or order of any governmental agency
or authority.
10. Conditions Precedent to Brown & Sharpe's Obligations. All obligations of
----------------------------------------------------
Brown & Sharpe under this Agreement are subject to the fulfillment to the
satisfaction of Brown & Sharpe and its counsel prior to or at Closing of each of
the following conditions, any of which may be waived in writing by Brown &
Sharpe:
10.1 Performance by Finmeccanica; Certificate. Finmeccanica shall have
----------------------------------------
performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by it prior to or at the Closing, and
shall deliver to Brown & Sharpe a certificate of the Chief Executive Officer and
Chief Financial Officer of the Elsag Bailey Division of Finmeccanica, dated the
Closing Date, to such effect.
10.2 Representations and Warranties; Certificate. The representations and
-------------------------------------------
warranties of Finmeccanica contained in this Agreement shall be true and correct
in all material respects on and as of the Closing Date except for changes
contemplated by this Agreement or specifically consented to or approved by Brown
& Sharpe, and Brown & Sharpe shall have received a certificate of
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<PAGE>
the Chief Executive Officer and Chief Financial Officer of the Elsag Bailey
Division of Finmeccanica dated the Closing Date to the foregoing effect.
10.3 Opinions of Counsel. Brown & Sharpe shall have received such
-------------------
opinions of counsel for Finmeccanica and the Company and its Subsidiaries with
respect to the subject matter of this Agreement as Brown & Sharpe and its
counsel shall deem necessary, the form and substance of such opinions of counsel
to be determined by Brown & Sharpe and its counsel.
10.4 Absence of Litigation. No action or proceeding shall have been
---------------------
instituted or threatened prior to or at the Closing Date before any court or
governmental agency, body or authority pertaining to the transactions
contemplated hereby, the result of which could prevent or make illegal the
consummation of such transactions.
10.5 Governmental Clearance and Approval. All required filings with all
-----------------------------------
United States, European, federal, national, state, local and foreign
governmental agencies or authorities, the notification of which, or consent,
approval or clearance by which, is necessary in connection with the consummation
of the transactions (or any of them) contemplated hereby shall have been made,
and all clearances or consents required in order to effect the transactions
contemplated hereby shall have been obtained, or any applicable waiting period
under any applicable statute or regulation shall have expired or been
terminated, without any objection or notice of intent to challenge the
transactions contemplated hereby having been received by any of the parties
hereto or their subsidiaries and not withdrawn by the objecting or challenging
agency.
10.6 Approval by Stockholders of Brown & Sharpe. The issue of the Brown &
------------------------------------------
Sharpe Purchase Price Shares pursuant to this Agreement shall have been approved
by the stockholders of Brown & Sharpe in accordance with its Bylaws and the
rules of the New York Stock Exchange, and in connection therewith, Wertheim
Schroder shall have provided Brown & Sharpe with a fairness opinion on the
contemplated transactions hereunder in customary form, which is satisfactory to
the Board of Directors of Brown & Sharpe.
10.7 Approval of Proceedings; Documentation. All corporate and other
--------------------------------------
proceedings in connection with the transactions contemplated by this Agreement,
and the form and substance of all opinions, certificates and other documents
hereunder shall be reasonably satisfactory in form and substance to Brown &
Sharpe and its counsel.
10.8 Factoring of Receivables. The parties shall have mutually agreed on
------------------------
the amount of factoring of DEA receivables and
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<PAGE>
such factoring shall have been satisfactorily completed on or prior to July 31,
1994.
10.9 Stockholder Agreement. Finmeccanica shall have executed and
---------------------
delivered the Stockholders Agreement.
10.10 [Intentionally left blank]
10.11 Working Capital and Refinancing Requirements. Brown & Sharpe shall
--------------------------------------------
have completed arrangements with its principal lending institutions to ensure
that Brown & Sharpe and its Subsidiaries, including the Company and its
Subsidiaries, are able to obtain sufficient borrowings to meet working capital
requirements, including refinancing of their working capital requirements for
the Brown & Sharpe Business and the DEA Business to be conducted after the
Closing Date, or shall have simultaneously completed such other arrangements to
raise such necessary funding, in each case as Brown & Sharpe deems appropriate.
10.12 Company Indebtedness; Consents of Lenders. The aggregate
-----------------------------------------
Indebtedness of the Company and its Subsidiaries as of the Closing Date shall
not exceed the Aggregate Permitted Indebtedness as defined by and calculated in
accordance with the applicable Sections of this Agreement; and the terms and
conditions of such Aggregate Permitted Indebtedness shall be satisfactory to
Brown & Sharpe, and the Lenders identified on Schedule 3.5.1 shall, if required,
have consented to the transactions contemplated hereby.
10.13 Resignations of Members of the Board of Directors. All of the
-------------------------------------------------
members of the boards of directors of the Company and each Subsidiary shall have
submitted their resignations as directors effective upon the Closing on the
Closing Date and upon their acceptance by Brown & Sharpe after the Closing Date.
10.14 [Intentionally Left Blank]
10.15 [Intentionally Left Blank]
11. Conditions Precedent to the Obligations of Finmeccanica. The obligation of
-------------------------------------------------------
Finmeccanica to consummate the transactions contemplated hereby shall be subject
to the fulfillment prior to or at the Closing of each of the following
conditions, any of which may be waived by Finmeccanica:
11.1 Performance by Brown & Sharpe; Certificate. Brown & Sharpe shall
------------------------------------------
have performed and complied with all agreements and conditions required by this
Agreement to be performed or complied with by it prior to or at the Closing on
the Closing Date and Brown & Sharpe shall delivered a certificate of its
President and Chief Financial Officer, dated the Closing Date, to such effect.
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<PAGE>
11.2 Representations and Warranties; Certificate. The representations and
-------------------------------------------
warranties of Brown & Sharpe contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date, except for
changes contemplated by this Agreement or specifically concerted to or approved
by Finmeccanica, and Finmeccanica shall have received a certificate of the
President and Chief Financial Officer of Brown & Sharpe to that effect.
11.3 Opinion of Counsel. Finmeccanica shall have received an opinion of
------------------
Ropes & Gray, counsel to Brown & Sharpe, and, if appropriate, an opinion of
James W. Hayes, III or other counsel to Brown & Sharpe, with respect to the
subject matter of this Agreement in form and substance reasonably satisfactory
to Finmeccanica and its counsel.
11.4 Absence of Litigation. No action or proceeding shall have been
---------------------
instituted or threatened prior to or at the Closing Date before any court or
governmental agency, body or authority pertaining to the transactions
contemplated hereby, the result of which could prevent or make illegal the
consummation of such transactions.
11.5 Governmental Clearance and Approval. All required filings with all
-----------------------------------
United States, European, federal, state, local and foreign governmental agencies
or authorities, the notification of which, or consent, approval or clearance by
which, is necessary in connection with the consummation of the transactions
contemplated hereby shall have been made, and all clearances or consents
required in order to effect the transactions contemplated hereby shall have been
obtained, or any applicable waiting period under any applicable statute or
regulation shall have expired or been terminated, without any objection or
notice of intent to challenge the transactions contemplated hereby having been
received by any of the parties hereto and not withdrawn by the objecting or
challenging agency.
11.6 Approval by Stockholders of Brown & Sharpe. The issue of the Brown &
------------------------------------------
Sharpe Purchase Price Shares and the Contingent Stock pursuant to this Agreement
shall have been approved by the stockholders of Brown & Sharpe in accordance
with its Bylaws and the rules of the New York Stock Exchange.
11.7 Approval of Proceedings; Documentation. All corporate and other
--------------------------------------
proceedings in connection with the transactions contemplated by this Agreement,
and the form and substance of all opinions, certificates and other documents
hereunder shall be satisfactory in form and substance to Finmeccanica and its
counsel.
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<PAGE>
11.8 Execution and Delivery of Stockholder Agreement. Brown & Sharpe
-----------------------------------------------
shall have executed and delivered the Stockholders Agreement.
11.9 [Intentionally Left Blank]
11.10 Guarantees of Indebtedness of the Company to Banks. Each relevant
--------------------------------------------------
lender to the DEA Companies shall have released Finmeccanica from its guarantee
of Indebtedness of the Company and either (a) such Indebtedness shall have been
extinguished or an agreement to repay all of such indebtedness shall have been
reached with each such lender as of the Closing Date or (b) Brown & Sharpe shall
have agreed to guarantee that portion of Aggregate Permitted Indebtedness of the
Company and its Subsidiaries which is owed to each such lender on the Closing
Date and each such lender shall have agreed to substitute the guaranty of Brown
& Sharpe for the guaranty of Finmeccanica.
12. Covenant Not to Compete. (a) Finmeccanica agrees that, in consideration of
-----------------------
the purchase by Brown & Sharpe hereunder, neither Finmeccanica nor any affiliate
thereof shall, on or prior to the date which is five (5) years after the Closing
Date directly or indirectly own, manage, operate, control or have any greater
than 20% ownership interest in any business, venture or activity which competes
with the metrology business relating to CMMs (including parts and accessories
therefor) being conducted or proposed to be conducted at the Closing Date by the
Company and its Subsidiaries or relating to metrology products performing
functions similar to those of the products manufactured and sold by the Company
and its Subsidiaries, whether or not the assets of the Company and the
Subsidiaries are subsequently moved in whole or in part into another legal
entity within Brown & Sharpe and its Subsidiaries, provided that the provisions
--------
of this Section 12(a) shall terminate if Brown & Sharpe no longer owns a greater
than 50% ownership interest in the DEA Business and provided further that
----------------
Finmeccanica shall not be in breach of the covenant made in this Section 12(a)
if Finmeccanica or any of its affiliates acquires or invests in any company or
group of companies, whether through an acquisition of assets or stock, merger,
consolidation or other combination or otherwise, which includes among its
business operations the manufacture and sale of metrology products performing
functions similar to those of the products manufactured and sold by the DEA
Companies to the extent that sales of such products constitute only an
immaterial portion of the total revenues of the acquired business. In this
connection Finmeccanica represents to Brown & Sharpe that it has no present
intention of acquiring any company or group of companies engaged in the
business of manufacturing and selling such metrology products.
(b) Finmeccanica further agrees that for a period of three (3) years after
the Closing Date it will not, without the prior written consent of Brown &
Sharpe, recruit, offer employment,
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<PAGE>
including employment as a consultant, to any person who is an employee of Brown
& Sharpe (including the Company and its Subsidiaries) or any subsidiary, group,
or division of Brown & Sharpe (including the Company and its Subsidiaries),
unless such person has been terminated by the Company or a Subsidiary.
13. Agreed Exchange Ratio. Except as otherwise specified in this Agreement,
---------------------
the Agreed Exchange Ratio for the purposes of calculating 8 Billion Lit.
Indebtedness of the Company and the Subsidiaries on the Closing Date shall be $1
= Lit. 1,568. For all other purposes, the Agreed Exchange Ratio shall be the
U.S. Dollar/Lit. exchange rate, as published in SOLE 24 ORE, in effect on the
-----------
date preceding the date a payment of cash or delivery of Brown & Sharpe Purchase
Price Shares is required.
14. Entire Agreement. This Agreement, together with the schedules and exhibits
----------------
hereto, constitutes the entire agreement between the parties hereto pertaining
to the subject matter hereof and supersedes all prior and contemporaneous
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, and there are no warranties, representations, or other
agreements between the parties in connection with the subject matter hereof
except as specifically set forth or incorporated herein; provided, however, that
-------- -------
the provisions of Section 9 shall survive the termination of this Agreement
pursuant to Section 17.
15. Amendment. This Agreement may be amended by the parties hereto at any
---------
time, but only by an instrument in writing duly executed and delivered on behalf
of each of the parties hereto.
16. Press Releases. Each of the parties agrees that they (and their respective
--------------
affiliate and subsidiaries) will not issue any announcements or reports, or
confirm any statements by third parties pertaining to any of the proposed
transactions until after the Closing Date under this Agreement except as may be
advisable for Brown & Sharpe under U.S. securities laws or Finmeccanica under
Italian securities laws upon advice of counsel or except as may be mutually
agreed upon by the parties.
17. Termination. This Agreement may be terminated without liability:
-----------
(a) at any time by mutual agreement of Brown & Sharpe and Finmeccanica;
(b) by either Brown & Sharpe or Finmeccanica if, by the close of business
on October 31, 1994, or such later date as the parties may mutually
agree, the consummation of the transactions hereby contemplated to
take place on the Closing Date shall not have occurred; provided,
--------
however, that this Agreement may not be
-------
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<PAGE>
terminated by a party which at such time is in material breach of a
provision of this Agreement.
18. Headings. Section headings are not to be considered part of this Agreement
--------
and are included solely for convenience and are not intended to be full or
accurate descriptions of the content thereof. References to sections are to
portions of this Agreement unless the context requires otherwise.
19. Exhibits, etc. Exhibits and schedules referred to in this Agreement are an
--------------
integral part of this Agreement.
20. Assignment, Successors and Assigns; Benefits of Agreement. This Agreement
---------------------------------------------------------
may not be assigned by any party without the prior written consent of the other
parties hereto, except that Brown & Sharpe may designate one or more of its
Subsidiaries to acquire all or some of the DEA Shares. All of the terms and
provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective transferees, successors and,
subject to the foregoing, their assigns, and shall not inure to the benefit of,
or be enforceable by, any other person or entity.
21. Notices. All notices, requests, demands and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if delivered by
hand or courier or delivery service or mailed, first-class postage prepaid,
(a) if to Brown & Sharpe:
Brown & Sharpe Manufacturing Company
200 Frenchtown Road
Precision Park
North Kingstown, Rhode Island 02852
USA
Attn: Vice President and Chief
Financial Officer
In each case, with a copy to:
Ropes & Gray
One International Pace
Boston, MA 02110-2624
USA
Attn: Howard K. Fuguet, Esq.
(b) if to Finmeccanica:
Elsag Bailey
via G. Puccini, 2
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<PAGE>
16154 Genova
Italy
Attn: Chief Financial Officer and
General Counsel
in each case, with a copy to:
Coudert Brothers
1114 Avenue of the Americas
New York, NY 10036-7794
USA
Attn: W. Preston Tollinger, Esq.
or, in each case, at such other address as the party receiving notice shall have
furnished in writing to the party giving notice.
22. Accounting Terms; Proxy Statement; Registration Statement. All accounting
---------------------------------------------------------
terms not otherwise defined herein have with respect to Finmeccanica and its
affiliates the meanings assigned to them in accordance with generally accepted
Italian accounting principles or, in the absence thereof, with accounting
principles as recommended by the IASC, except for the financial statements to be
delivered for inclusion in the Brown & Sharpe Proxy Statement and the Brown &
Sharpe Registration Statement which shall have the meanings assigned to them in
accordance with United States generally accepted accounting principles, and
shall have, with respect to Brown & Sharpe and its affiliates, the meanings
assigned to them in accordance with United States generally accepted accounting
principles.
The term "Brown & Sharpe Proxy Statement" shall mean the definitive proxy
statement of Brown & Sharpe as filed or to be filed with the Securities and
Exchange Commission relating to the transactions contemplated hereby.
The term "Brown & Sharpe Registration Statement" shall mean a Registration
Statement on Form S-1 of Brown & Sharpe covering the registration of an
aggregate of $75,000,000 of debt securities of Brown & Sharpe to be offered and
sold under the Securities Act.
23. Severability. The provisions of this Agreement are severable, and in the
------------
event that any one or more provisions are deemed illegal or unenforceable, the
remaining provisions shall remain in full force and effect.
24. Arbitration. All disputes, differences, controversies or claims arising in
------------
connection with, or questions occurring under, this Agreement (other than those
relating to the Post-Closing Purchase Price Adjustment, which shall be resolved
in the manner
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<PAGE>
provided in Section 1.4) shall be finally settled under the Rules of Arbitration
(the "Rules") of the International Chamber of Commerce ("ICC") by an arbitral
tribunal composed of three arbitrators appointed in accordance with said Rules.
24.1. Each of Brown & Sharpe and Finmeccanica shall each nominate one
arbitrator in accordance with the Rules. If a party fails to nominate an
arbitrator within thirty (30) days from the date when the claimant's request for
arbitration has been communicated to the other party, such appointment shall be
made by the ICC International Court of Arbitration.
24.2. The two arbitrators so appointed shall agree upon the third
arbitrator who shall act as Chairman of the arbitral tribunal. If said two
arbitrators fail to nominate a Chairman, the Chairman shall be selected by the
ICC International Court of Arbitration.
24.3. In all cases the Chairman of the arbitral tribunal shall be a lawyer
fluent in English and not of the same nationality as either party.
24.4. The place of arbitration shall be London, England.
24.5. The arbitral proceedings shall be conducted in the English language.
24.6. The parties hereby exclude any right of appeal to any court on the
merits of the dispute.
24.7. Judgment on the award may be entered in any court having jurisdiction
over the award or any of the parties or their assets.
24.8. At the time of the arbitration, the parties may agree in writing to
submit the dispute to a single arbitrator. In such event said single arbitrator
shall be appointed by the ICC International Court of Arbitration, and shall be
subject to the same qualifications as would have been the Chairman under Section
24.3 hereof.
24.9. Nothing contained in this arbitration clause shall prevent either
party from seeking injunctive relief or interim measures of protection in the
form of pre-award attachment of assets from a court of competent jurisdiction.
25. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws (other than those with respect to conflict
of laws) of the State of New York.
26. Tax Return Cooperation. (a) Brown & Sharpe shall provide Finmeccanica or
----------------------
any affiliate that Finmeccanica may designate (hereinafter the "Finmeccanica
Group") with such financial,
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<PAGE>
accounting, tax and other information with respect to the Company and the
Subsidiaries as shall be reasonably required by the Finmeccanica Group to enable
the Finmeccanica Group to prepare:
(i) the income tax returns of the Company and the Subsidiaries for the
taxable years ending on December 31, 1993 and for any other taxable periods
beginning before the Closing Date and ending on or before the Closing Date,
including, without limitation, the U.S. Federal income tax returns and the U.S.
state and local corporate franchise and income tax returns of DEA Company (which
state and local tax returns may be prepared on a separate return basis or on a
unitary, combined or consolidated basis),
(ii) any non-income tax return or report properly due by the Company or any
Subsidiary for any taxable periods beginning before and ending on or before the
Closing Date, except for any return for registration or capital tax, if any,
arising in connection with the reduction of Indebtedness of DEA and its
subsidiaries required by Section 6.4 and other applicable sections of this
Agreement required to be filed by the Company or any of its Subsidiaries for any
period beginning on or after January 1, 1994.
(iii) any income tax returns and non-income tax return or report of the
Finmeccanica Group which requires information with respect to the Company or any
Subsidiary.
(b) At the reasonable request of the Finmeccanica Group, Brown & Sharpe
shall cause a representative of the Company, or the relevant Subsidiary, or any
successor to the Company or the relevant Subsidiary to sign any returns and
related consents prepared by the Finmeccanica Group for the Company or its
Subsidiaries for taxable periods ending on or before the Closing Date pursuant
to this Section 26.
(c) The Finmeccanica Group shall provide Brown & Sharpe, the Company, any
Subsidiary, or any affiliate of Brown & Sharpe that Brown & Sharpe may designate
(collectively, the "Brown & Sharpe Group") with such financial, accounting, tax
and other information with respect to the Company and the Subsidiaries as shall
be reasonably required by the Brown & Sharpe Group to enable the Brown & Sharpe
Group to prepare:
(i) the income tax returns of the Company and the Subsidiaries for any
taxable periods beginning on or before the Closing Date and ending after the
Closing Date and for the two taxable years following each such period,
including, without limitation, the Italian national income tax returns and the
Italian local income tax returns of the Company and comparable returns for the
Subsidiaries in other countries,
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<PAGE>
(ii) any non-income tax return or report properly due by the Company
or any Subsidiary for any taxable periods beginning on or before and ending
after the Closing Date, and any return for registration or capital tax, if any,
arising in connection with the reduction of Indebtedness required by applicable
sections of this Agreement that is required to be filed by the Company or its
Subsidiaries for any period beginning on or after January 1, 1994;
(iii) any income tax return, non-income tax return or report of the Brown &
Sharpe Group which requires information with respect to the Company or any
Subsidiary.
(d) Brown & Sharpe will be responsible for filing, and agrees to file or
to cause the Company and the Subsidiaries to file, all tax returns and reports
of the Company and the Subsidiaries for any taxable periods beginning on or
after the Closing Date and any return for registration or capital tax, if any,
arising in connection with the reduction of Indebtedness required by applicable
sections 6.4, 10.12 and 1.4(f) of this Agreement that is required to be filed by
the Company or its Subsidiaries for any period beginning on or after January 1,
1994.
(e) None of the provisions of this Section 26 shall relieve Finmeccanica
of its obligation to indemnify, defend and hold harmless Brown & Sharpe and its
directors, officers and affiliates as more fully provided in Section 8.1 of this
Agreement, except to the extent attributable to the acts or omissions of Brown &
Sharpe, of its directors, officers or affiliates.
27. Counterparts. This Agreement may be executed simultaneously in any number
------------
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
-68-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,
attested by their respective Secretaries as of the day and year first above
written.
ATTEST: BROWN & SHARPE MANUFACTURING COMPANY
_______________________ By _________________________________
Secretary Title:
ATTEST: FINMECCANICA S.p.A. (through its
Elsag Bailey Division)
____________________ By _______________________________
Secretary Title:
-69-
<PAGE>
ANNEX A
List of DEA Companies
---------------------
1. D.E.A. SpA (Italy)
Outstanding Capital Stock: 16,300,000 shares; nominal value:
------------------------- L.1,000/share
Corporate Headquarters: Corso Torino, 70, Moncalieri (TO), Italy
----------------------
2. D.E.A. Company (USA)
Outstanding Capital Stock:
-------------------------
Corporate Headquarters: 37100 Plymouth Rd., Livonia, Michigan 48150,
---------------------- U.S.A.
3. D.E.A.K.K. (Japan)
Outstanding Capital Stock:
-------------------------
Corporate Headquarters: 1030 Kawaraguchi-Ebina Shi, Kanagawa Pref.,
---------------------- Japan
4. D.E.A. France S.A. (France)
Outstanding Capital Stock:
-------------------------
Other Shareholders:
------------------
Corporate Headquarters: 122, Rue Marcel Hartmann, 94853 Ivry-sur-
---------------------- Seine CEDEX France
5. D.E.A. GmbH (Germany)
Outstanding Capital Stock:
-------------------------
Corporate Headquarters: Praunheimer Landstr. 32, 6000 Frankfurt 90,
---------------------- Germany
6. D.E.A. IBERICA S.A. (Spain)
Outstanding Capital Stock:
-------------------------
Corporate Headquarters: Ctra. del Mig, 37, 08940 CORNELLA
---------------------- (Barcelona), Spain
-70-
<PAGE>
7. D.E.A. U.K. (United Kingdom)
Corporate Headquarters: Terminal Three, 3B2,
---------------------- Sontehill Green, WESTLEA
SWINDON, WILTS, SN5 7HB
United Kingdom
-71-
<PAGE>
[CBNYO 6/16/94 DRAFT]
Exhibit 2.3 to
Acquisition Agreement
---------------------
SHAREHOLDERS AGREEMENT
By and Between
BROWN & SHARPE MANUFACTURING COMPANY
and
FINMECCANICA S.p.A.
----------------------------
August __, 1994
----------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I DEFINITIONS............................. 1
1.1. Additional Finmeccanica Securities...... 1
1.2. Affiliate............................... 1
1.3. Average Market Price.................... 2
1.4. Business Day............................ 2
1.5. Charter Documents....................... 2
1.6. Class A Common Stock.................... 2
1.7. Class B Common Stock.................... 2
1.8. Commission.............................. 2
1.9. Common Equivalent Securities............ 2
1.10. Derivative Securities................... 2
1.11. Disposition............................. 3
1.12. Equity Securities....................... 3
1.13. Exchange Act............................ 3
1.14. Holder.................................. 3
1.15. NYSE.................................... 3
1.16. Person.................................. 3
1.17. Preferred Stock......................... 3
1.18. Prospectus.............................. 3
1.19. Public Offering......................... 3
1.20. Purchase Right.......................... 3
1.21. Registration Statement.................. 3
1.22. Restricted Securities................... 3
1.23. Sale Notice............................. 4
1.24. Securities Act.......................... 4
1.25. Sharpe.................................. 4
1.26. Third Party............................. 4
1.27. Third Party Transaction................. 4
1.28. Total Voting Power...................... 4
1.29. Underwritten Registration............... 4
ARTICLE II ORGANIZATIONAL DOCUMENTS................ 4
2.1. Charter Documents....................... 4
ARTICLE III FUTURE EQUITY ISSUANCES................. 5
3.1. Future Equity Issuances................. 5
3.2. Exercise of Purchase Right.............. 6
3.3. Termination of Purchase Rights.......... 6
3.4. Closing................................. 7
3.5. Certain Covenants....................... 7
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE IV LIMITATIONS ON TRANSFER................. 7
4.1. Two-Year Restriction on Transfer........ 7
4.2. Company Right of First Offer............ 7
4.3. Legends................................. 9
4.4. Standstill.............................. 10
ARTICLE V CORPORATE GOVERNANCE.................... 11
5.1. Board of Directors...................... 11
5.3. Resignation of Sharpe................... 12
5.4. Voting of Finmeccanica Shares........... 12
ARTICLE VI REGISTRATION RIGHTS..................... 13
6.1. Registration Rights..................... 13
6.2. Registration Procedures................. 14
6.3. Registration Expenses................... 17
6.4. Indemnification......................... 18
6.5. Participation In Public Offering........ 20
6.6. Selection of Underwriters............... 20
6.7. Period of Distribution.................. 20
ARTICLE VII FINANCIAL MATTERS....................... 20
7.1. Financial Statements.................... 20
ARTICLE VIII TERMINATION............................. 21
8.1. Termination............................. 21
ARTICLE IX GENERAL................................. 21
9.1. Injunctive Relief....................... 21
9.2. Further Assurances...................... 21
9.3. Assignment.............................. 21
9.4. Notices................................. 22
9.5. Governing Law........................... 22
9.6. Binding Effect.......................... 23
9.7. No Partnership Relationship............. 23
9.8. Headings................................ 23
9.9. Legal Costs............................. 23
9.10. Severability............................ 23
9.11. Entire Agreement; No Waiver; Amendment.. 23
</TABLE>
-ii-
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
SHAREHOLDERS AGREEMENT
Agreement made as of this ___ day of August, 1994 by and between BROWN &
SHARPE MANUFACTURING COMPANY, a Delaware corporation (the "Company"), and
FINMECCANICA S.p.A., an Italian corporation ("Finmeccanica").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, pursuant to a certain Stock Acquisition Agreement dated as of June
__, 1994 ("Acquisition Agreement"), Finmeccanica has on the date hereof acquired
3,450,000 newly issued shares of Class A Common Stock of the Company;
WHEREAS, Finmeccanica's right to purchase a pro-rata percentage of the
future issues of securities by Brown & Sharpe from time to time, in order to
maintain its percentage of the capital stock of Brown & Sharpe issued as the
Brown & Sharpe Purchase Price Shares, is, as set forth in the Acquisition
Agreement, an integral part of the acquisition transaction contemplated by the
Acquisition Agreement;
WHEREAS, said Finmeccanica purchase right is, for the convenience of the
parties, set forth in this separate Agreement.
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereby agree as follows:
ARTICLE I
---------
DEFINITIONS
-----------
As used herein, the following terms shall have the meanings set forth
below:
1.1. Additional Finmeccanica Securities. "Additional Finmeccanica
----------------------------------
Securities" shall have the meaning set forth in Section 3.1.
1.2. Affiliate. "Affiliate" shall mean any Person (as hereinafter
---------
defined) which directly or indirectly and/or one or more intermediaries
controls, or is controlled by, or is under common control with any party. For
the purpose of this definition, "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with") when used in respect
to any Person shall mean the possession, directly or indirectly, of the power to
direct
<PAGE>
or cause the direction of the management or policies of any Person whether
through the ownership of voting securities (control is assumed in cases of more
than 50% ownership), by contract or otherwise.
1.3. Average Market Price. "Average Market Price" of the Class A Common
--------------------
Stock at any date shall mean the average of the closing prices for a share of
Class A Common Stock on the thirty (30) consecutive trading days ending on the
trading date last preceding the date of determination of such price, on the
NYSE.
1.4. Business Day. Any weekday which is not a day on which banking
------------
institutions in New York City are authorized or obligated by law or executive
order to close.
1.5. Charter Documents. "Charter Documents" shall have the meaning set
-----------------
forth in Section 2.1 hereof.
1.6. Class A Common Stock. "Class A Common Stock" shall mean shares of
--------------------
the Class A Common Stock, $1.00 par value, of the Company.
1.7. Class B Common Stock. "Class B Common Stock" shall mean shares of
--------------------
the Class B Common Stock, $1.00 par value, of the Company.
1.8. Commission. The Securities and Exchange Commission.
----------
1.9. Common Equivalent Securities. "Common Equivalent Securities" shall
----------------------------
at any date mean the sum of (a) the number of shares of Class A Common Stock
then outstanding, (b) the number of shares of Class B Common Stock then
outstanding, and (c) the number of shares of Class A Common Stock for or into
which other securities of the Company, can be exercised, exchanged or converted,
assuming the exercise, exchange or conversion, as appropriate, of all such
outstanding securities (including all warrants, options and convertible
securities, but excluding therefrom (w) the number of shares of Class A Common
Stock into which the Class B Common Stock then outstanding may be converted, (x)
up to 400,000 shares of Class A Common Stock issuable upon the exercise of stock
options granted to employees of the Company or its subsidiaries pursuant to
Benefit Plans (as defined in Section 3.1(c)), (y) any shares of Class A Common
Stock issuable to holders of the Company's 9 1/4% Convertible Subordinated
Debentures Due December 2005 unless the Average Market Price of shares of Class
A Common Stock shall exceed $24.25 per share on the Business Day immediately
preceding such date and (z) such number of warrants as may have been issued by
the Company in connection with its offering of _____% Senior Notes due 2002, but
not to exceed that number which would result in a 5% dilution of the 3,450,000
shares of Class A Common Stock held by Finmeccanica assuming the exercise of all
such warrants) immediately prior to the taking of the record of the holders of
Class A Common Stock.
1.10. Derivative Securities. "Derivative Securities" shall have the
---------------------
meaning set forth in Section 3.1(a).
-2-
<PAGE>
1.11. Disposition. "Disposition" means any sale, transfer, encumbrance,
-----------
gift, donation, assignment, pledge, hypothecation, or other disposition of any
Restricted Securities or any interest therein, whether voluntary or involuntary,
including, but not limited to, any disposition by operation of law, by court
order, by judicial process, or by foreclosure, levy or attachment, except for
pledges merely creating a security interest if the pledgee agrees to become a
party hereto with respect to the Restricted Securities subject to such pledge.
1.12. Equity Securities. "Equity Securities" shall have the meaning set
-----------------
forth at Section 3.1(a).
1.13. Exchange Act. The Securities Exchange Act of 1934, as amended.
------------
1.14. Holder. "Holder" shall mean Finmeccanica and its permitted
------
successors and assigns.
1.15. NYSE. "NYSE" shall mean the New York Stock Exchange, Inc.
----
1.16. Person. "Person" shall mean an individual, a corporation, a
------
partnership, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
1.17. Preferred Stock. "Preferred Stock" shall mean shares of Preferred
---------------
Stock, $1.00 par value, of the Company.
1.18. Prospectus. The prospectus included in a Registration Statement, as
----------
amended or supplemented by any prospectus supplement and by all other amendments
thereto, including post-effective amendments, and all material incorporated by
reference into such Prospectus.
1.19. Public Offering. "Public Offering" shall mean an underwritten
---------------
public offering of the Company's Common Equivalent Securities made pursuant to
an effective registration statement in compliance with applicable securities
laws.
1.20. Purchase Right. "Purchase Right" shall have the meaning set forth
--------------
in Section 3.1(a).
1.21. Registration Statement. Any registration statement, including all
----------------------
amendments and supplements thereto, of the Company relating to the registration
for resale of Restricted Securities pursuant to the Registration Statement,
which is filed pursuant to the provisions of this Agreement, including the
Prospectus included therein.
1.22. Restricted Securities. "Restricted Securities" means all shares of
---------------------
Class A Common Stock, and any other equity securities of the Company of any
class or character whatever (including without limitation all securities
convertible into or exchangeable or exercisable for equity securities of the
Company, all options to acquire equity securities of the Company, and all other
rights to acquire equity securities of the Company), whether now or hereafter
authorized, owned now or in the future specifically by Finmeccanica, including
all
-3-
<PAGE>
securities receivable upon the exercise or conversion of such securities, all
shares of Class A Common Stock received in the future by Finmeccanica as a
purchase price adjustment pursuant to Sections 1.4(g) of the Acquisition
Agreement, respectively, all securities received from the issuer thereof on
account of the foregoing securities, and all securities received from the issuer
as a result of any stock split or combination, stock dividend, recapitalization,
reorganization or other similar corporate event, until (a) the date on which any
such Restricted Security has been effectively registered under the Securities
Act and sold pursuant to a Registration Statement; or (b) the date on which any
such security is sold to the public pursuant to Rule 144 under the Securities
Act.
1.23. Sale Notice. "Sale Notice" shall have the meaning set forth in
-----------
Section 4.1(f) hereof.
1.24. Securities Act. "Securities Act" shall mean the Securities Act of
--------------
1933, as amended.
1.25. Sharpe. "Sharpe" shall mean Henry D. Sharpe, Jr.
------
1.26. Third Party. "Third Party" shall have the meaning set forth in
-----------
Section 3.1(a).
1.27. Third Party Transaction. "Third Party Transaction" shall have the
-----------------------
meaning set forth in Section 3.1(a).
1.28. Total Voting Power. "Total Voting Power of the Company" shall mean
------------------
the total number of votes which may be cast in the election of directors of the
Company at any meeting of shareholders of the Company if all securities entitled
to vote in the election of directors of the Company were present and voted at
such meeting (other than votes that may be cast only upon the happening of a
contingency).
1.29. Underwritten Registration. A registration in which Common
-------------------------
Equivalent Securities of the Company are sold to an underwriter for reoffering
to the public.
ARTICLE II
----------
ORGANIZATIONAL DOCUMENTS
------------------------
2.1. Charter Documents. Attached hereto as Exhibit B are copies of the
-----------------
Certificate of Incorporation and By-Laws (the "Charter Documents") of the
Company as of the date hereof. The parties agree that:
(a) if any inconsistency between the provisions of the Certificate of
Incorporation of By-Laws of the Company and the provisions of this Agreement
exists, they shall use their best efforts to cause the Board of Directors of
the Company to recommend to the shareholders of the Company to vote in favor of
amending and shall vote or cause to be voted the securities
-4-
<PAGE>
as to which they have beneficial ownership to amend, the provisions of the
Certificate of Incorporation or By-Laws to conform to the terms of this
Agreement; and
(b) the Charter Documents shall not be amended in any manner which is
inconsistent with the terms of this Agreement while this Agreement remains in
effect.
ARTICLE III
-----------
FUTURE EQUITY ISSUANCES
-----------------------
3.1. Future Equity Issuances. (a) Subject to the provisions of Section
-----------------------
3.3 hereof, the Company agrees that it will not, following the date hereof,
issue any equity securities of the Company, including, without limitation,
shares of Class A Common Stock, Class B Common Stock or Preferred Stock
(collectively, "Equity Securities"), or any rights, warrants or options to
purchase, or securities convertible into, any Equity Securities (collectively,
"Derivative Securities"), to any Person or Persons (a "Third Party"), other than
Finmeccanica or any of its Affiliates (as the term is hereinafter defined), in
any transaction or series of transactions (a "Third Party Transaction") without
first offering to Finmeccanica the right to purchase (the "Purchase Right") from
the Company that percentage of such Equity Securities or (subject to the
provisions of Section 3.1(d) hereof) such number or principal amount of
Derivative Securities (based, in the case of Derivative Securities, on the
number of Equity Securities which may be acquired upon the exercise or
conversion thereof as of the date that such Derivative Securities may first be
exercised or converted) (collectively, "Additional Finmeccanica Securities") as
is equal to a fraction, the numerator of which is the total of all Common
Equivalent Securities then owned by Finmeccanica and its Affiliates, and the
denominator of which is the total number of Common Equivalent Securities then
issued and outstanding (including, without limitation, all shares owned by
Finmeccanica and its Affiliates). For purposes of this Agreement, any issuance
or sale of Equity Securities held as treasury shares by the Company shall be
subject to the provisions of this Agreement.
(b) The purchase price payable by Finmeccanica for any Additional
Finmeccanica Securities which it elects to purchase pursuant to Section 3.1(a)
above shall be equal to the purchase price to be paid for Equity Securities or
Derivative Securities, as applicable, by any Third Party in the underlying Third
Party Transaction, and the Additional Finmeccanica Securities shall otherwise be
issued on the same terms and conditions as such Equity Securities or Derivative
Securities. Notwithstanding the foregoing, if Equity Securities or Derivative
Securities are to be acquired in a Third Party Transaction for consideration
other than cash, the purchase price payable by Finmeccanica hereunder shall be
equal to the Average Market Price per share of Class A Common Stock determined
as of the Business Day immediately preceding the date of the closing of the
Third Party Transaction.
(c) Notwithstanding anything to the contrary in the foregoing, the
provisions of this Article III shall not apply with respect to any Equity
Securities (including, without limitation, any restricted stock units or awards
covering Equity Securities) or Derivative Securities granted
-5-
<PAGE>
or issued under any employee stock ownership, employee stock option, employee
benefit or similar plan or arrangement maintained by the Company (collectively,
"Benefit Plans").
(d) Notwithstanding anything to the contrary in the foregoing, the
following special provisions shall apply with respect to any Derivative
Securities issued by the Company (other than under Benefit Plans). Finmeccanica
shall have the right to exercise Purchase Rights in respect of such Derivative
Securities only at such time as such Derivative Securities have been exercised,
in the case of rights, options or warrants to acquire Equity Securities, or
converted, in the case of securities convertible into Equity Securities, by the
holders thereof, and then only in respect of any Equity Securities actually
issued to such holders in connection with such exercise or conversion, by
purchasing shares of Class A Common Stock in an amount determined in accordance
with Section 3.1(a) above. The purchase price payable by Finmeccanica for any
shares of Class A Common Stock acquired by Finmeccanica pursuant to this Section
3.1(c) shall be payable in cash and shall be equal to the Average Market Price
per share of Class A Common Stock determined as of the Business Day prior to the
Closing (as defined below) of any such acquisition by Finmeccanica as provided
in Section 3.4 below, without regard to the consideration payable by the
relevant holders of the Derivative Securities for the underlying Equity
Securities issued to such holders.
3.2. Exercise of Purchase Right. (a) The Company shall provide prior
--------------------------
written notice to Finmeccanica of any issuance of Equity Securities or
Derivative Securities which it proposes to make, including description of the
terms and conditions of such proposed new issuances; provided, however, that
with respect to the Derivative Securities as described in the first sentence of
Section 3.1(d) the Company shall provide a written summary to Finmeccanica on a
monthly basis, which notice shall set forth the number of Equity Securities
issued during the preceding calendar month as a result of the exercise of any
such Derivative Securities, and Finmeccanica's Purchase Right shall be based on
the total number of Equity Securities so issued during such preceding calendar
month. Each Purchase Right shall be exercisable by Finmeccanica in writing for
a period of 30 days after Finmeccanica's receipt of the written notice required
to be provided to Finmeccanica pursuant to this Section 3.2(a). If any such
Purchase Right is exercised, Finmeccanica shall have an additional 20 days
(following the termination of such 30-day period) within which to pay for and
accept delivery of the Additional Finmeccanica Securities in respect of which
the Purchase Rights are exercised.
(b) If Finmeccanica elects not to exercise any Purchase Right or fails
to elect to exercise any Purchase Right within the time period specified in this
Section 3.2, such failure or refusal shall not be deemed to be a waiver of
Finmeccanica's Purchase Rights under this Agreement with respect to any Equity
Securities or Derivative Securities issued by the Company at a later date, all
of which Purchase Rights shall remain in full force and effect.
3.3. Termination of Purchase Rights. Finmeccanica's rights pursuant to
------------------------------
Sections 3.1 and 3.2 of this Agreement shall terminate at such time as
Finmeccanica shall cease to beneficially own at least 862,500 shares of Class A
Common Stock (as adjusted for any shares issued pursuant to a to stock split,
stock dividend capitalization, reorganization or similar corporate event);
provided, however, that any such decrease in Finmeccanica's beneficial
-6-
<PAGE>
ownership of Class A Common Stock or other voting securities as aforesaid is not
due directly or indirectly to any breach by the Company of its obligations under
this Agreement.
3.4. Closing. The closing of the purchase of any Additional
-------
Finmeccanica Securities of the Company pursuant to the exercise by Finmeccanica
of any Purchase Rights under Section 3.1 hereof shall be held at such place and
on such date within 20 days following any exercise of such Purchase Rights as
may be mutually agreed upon by the Company and Finmeccanica (the "Closing"). At
each Closing, the Company shall deliver to Finmeccanica the certificate(s) or
other document(s) representing the Additional Finmeccanica Securities being
purchased, duly registered in the name of Finmeccanica, and Finmeccanica shall
simultaneously deliver the purchase price therefor. In the case of any Closing
of shares of Class A Common Stock acquired pursuant to Section 3.1(d) above,
Brown & Sharpe shall either issue new shares of Class A Common Stock or sell
shares of Class A Common Stock held as treasury stock.
3.5. Certain Covenants. (a) The Company covenants and agrees that it
-----------------
will at all times keep a sufficient amount of authorized but unissued shares of
all relevant classes of Equity Securities and Derivative Securities available
for issuance upon any exercise of the Purchase Rights granted to Finmeccanica
under the terms of this Agreement.
(b) At each Closing, Finmeccanica shall receive a certificate signed by
the President and Chief Executive Officer of the Company pursuant to which the
Company represents and warrants that, since the date of this Agreement up to and
including the date of such Closing, no Equity Securities or Derivative
Securities have been issued, sold, offered for sale or otherwise disposed of by
the Company except in accordance with this Agreement.
ARTICLE IV
----------
LIMITATIONS ON TRANSFER
-----------------------
4.1. Two-Year Restriction on Transfer. Subject to the provisions of
--------------------------------
Section 4.2(d) below, Finmeccanica agrees not to sell any of its Restricted
Securities to any entity other than the Company from the date hereof through and
including the second anniversary of the date hereof. After such date,
Finmeccanica shall be free to dispose of Restricted Securities in such manner as
it may determine in its sole discretion, subject only to the provisions herein.
4.2. Company Right of First Offer. (a) Subject to the exceptions
----------------------------
contained in Section 4.2(d) hereof, if at any time after the second anniversary
of the date hereof Finmeccanica desires to make a bona fide sale or transfer of
any or all of the Restricted Securities to a third party in a private
transaction that is not required to be registered under the Securities Act,
Finmeccanica shall offer the first opportunity to purchase such shares to the
Company in the following manner:
(i) Finmeccanica shall first deliver to the Secretary of the Company
a written notice (the "Sale Offer"), which shall be irrevocable for a period of
thirty (30) days after delivery thereof, offering to the Company all or any part
of the Restricted Securities owned by
-7-
<PAGE>
Finmeccanica at the purchase price and on the terms specified therein, whereupon
the Company shall have the right and option to purchase, within thirty (30) days
of the date of delivery of such notice, all but not part of the Restricted
Securities so offered at the purchase price and on the terms stated therein.
The Company's acceptance of the offer made in the Sale Offer shall be made by
delivering a written notice to Finmeccanica within the 30-day period specified
above, as applicable, which shall provide Finmeccanica with satisfactory
evidence (by written commitment letter subject only to customary requirements,
diligence and documentation) of the Company's ability to finance such
repurchase. In the event that Finmeccanica is negotiating with any particular
potential transferee(s), Finmeccanica shall disclose the name(s) of such
transferee(s).
(ii) Notwithstanding the foregoing, the period of time within which the
Company shall be required to notify Finmeccanica of its intention to purchase
the Restricted Securities covered by the Sale Offer shall be extended from
thirty (30) to ninety (90) days if a majority of the Board of Directors of the
Company determines, in the reasonable exercise of its discretion, that the
transfer to the proposed transferee of such Restricted Securities by
Finmeccanica is incompatible with the interests of the Company. In such event
the Company shall deliver to Finmeccanica within ten days following receipt of
the Sale Offer a written notice confirming its intention to extend the 30-day
period to 90 days and setting forth the basis for such extension.
(b) Sales of Restricted Securities under the terms of this Section 4.2
shall be made at the offices of the Company within thirty (30) days after the
date by which notice of the Company's acceptance of the Sale Offer is due under
Sections 4.2(a)(i) or (ii) above. Delivery of certificates or other instruments
evidencing such Restricted Securities duly endorsed for transfer to the Company
shall be made on such date or dates against payment of the purchase price
therefor.
(c) If the Company does not exercise its right of first offer with respect
to all Restricted Securities included in the Sale Offer within the time
specified for such exercise, Finmeccanica may sell, subject to any other
restrictions or conditions contained in this Agreement, all (but not less than
all) of the Restricted Securities so offered for sale at a price not less than
the price, and on terms not more favorable to the purchaser thereof than the
terms, stated in the Sale Offer, for a period of ninety (90) days following
expiration of the Company's time to exercise. In the event all the Restricted
Securities so offered are not sold by Finmeccanica during such ninety day period
in accordance with the terms referred to in the preceding sentence, the right of
Finmeccanica to sell such Restricted Securities shall expire and the obligations
of this Section 4.2 shall be reinstated with respect to such Restricted
Securities.
(d) Anything contained in Sections 4.1 and 4.2 to the contrary
notwithstanding, the following sales and transfers shall not be subject to
Sections 4.1 and 4.2 hereof:
(i) Dispositions of Restricted Securities to or among Affiliates
of Finmeccanica, provided that each such Affiliate shall
affirm in writing its agreement to be bound by this
Agreement;
-8-
<PAGE>
(ii) Sales of Restricted Securities pursuant to Rule 144
promulgated under the Securities Act (but only to the extent
the sale or transfer of Class A Common Stock at any time is
in compliance with the volume limitations under paragraph
(e) thereunder);
(iii) Sales pursuant to Article VI below (from and after the second
anniversary of the Closing Date under the Acquisition
Agreement);
(iv) Sales of Restricted Securities in response to a tender offer
made (as evidenced by the filing with the Commission of a
Schedule 14D-1 or any successor schedule or form thereto) by
any Person or group of Persons (within the meaning of
Section 13(d) of the Exchange Act) other than Finmeccanica
or a Person controlled by or under common control with
Finmeccanica to purchase or to exchange for cash or other
consideration any Class A Common Stock or Class B Common
Stock which, if successful, would result in such Person or
group of Persons owning or having the right to acquire,
beneficially or of record, shares of Class A Common Stock or
Class B Common Stock constituting thirty percent (30%) or
(in the case of any Person affiliated with any director,
officer or employee stock ownership plan of the Company) ten
percent (10%) or more of the Total Voting Power of the
Company, if the Board of Directors of the Company shall have
recommended to the shareholders to accept such tender offer
or a majority of the securities of the Company which are the
subject of the tender offer held by any of the persons
referred to above shall have been tendered in acceptance of
the Tender Offer prior to the expiration date of such Tender
Offer (as notified to Finmeccanica not less than five
Business Days prior to such expiration date).
(v) Bona fide pledges of Restricted Securities to an
institutional lender to secure a loan, guaranty or other
financial support, provided that such lender agrees to hold
such Restricted Securities subject to all provisions of this
Agreement and any sale or disposition by such lender of such
pledged Restricted Securities shall be subject to the
limitations of this Section 4.2 .
4.3. Legends. Each certificate for Restricted Securities shall be stamped
-------
or otherwise imprinted with legends in substantially the following form, each
Holder hereby agreeing to deliver all outstanding certificates to the Company
for such legending:
TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO THE CONDITIONS SPECIFIED IN A SHAREHOLDERS' AGREEMENT AMONG THE
CORPORATION AND CERTAIN OF ITS SHAREHOLDERS, AND NO TRANSFER OF THESE
SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL
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<PAGE>
SUCH CONDITIONS HAVE BEEN FULFILLED. COPIES OF SUCH AGREEMENT MAY BE
OBTAINED FROM THE CORPORATION.
4.4. Standstill. (a) Until December 31, 1998, neither Finmeccanica nor
----------
any of Finmeccanica's Affiliates shall acquire beneficial ownership of any
Equity Securities or Derivative Securities of the Company (except, in any case,
by way of stock dividends or other distributions or offerings made available by
the Company to holders of any Class A Common Stock generally) or authorize or
make a tender, exchange or other offer therefor, without the written consent of
the Company, if the effect of such acquisition would be to increase
Finmeccanica's percentage of ownership of the outstanding Common Equivalent
Securities of the Company beyond 40%; provided, however, that such percentage
shall be reduced proportionately to such lesser percentage of the outstanding
Common Equivalent Securities of the Company as Finmeccanica shall hold as a
result of any disposition of Class A Common Stock by Finmeccanica permitted
under this Agreement. Notwithstanding the foregoing, (x) nothing in this
Section 4.4 shall be deemed to preclude Finmeccanica from exercising its rights
under Article III above; and (y) in connection with any tender offer made (as
evidenced by the filing with the Commission of a Schedule 14D-1 or any successor
schedule or form thereto) by any Person or group of Persons (within the meaning
of Section 13(d) of the Exchange Act) other than Finmeccanica or a Person
controlled by or under common control with Finmeccanica to purchase or to
exchange for cash or other consideration any Class A Common Stock or Class B
Common Stock which, if successful, would result in such Person or group of
Persons owning or having the right to acquire, beneficially or of record, shares
of Class A Common Stock or Class B Common Stock constituting thirty percent
(30%) or (in the case of any Person affiliated with any director, officer or
employee stock ownership plan of the Company) ten percent (10%) or more of the
Total Voting Power of the Company, in the event (A) the Board of Directors of
the Company shall have recommended to the shareholders of the Company to tender
their shares in acceptance of such Tender Offer or (B) a majority of the
securities of the Company which are the subject of the Tender Offer held by any
of the persons referred to above shall have been tendered in acceptance of the
Tender Offer prior to the expiration date of such Tender Offer (as notified to
Finmeccanica not less than five Business Days prior to such expiration date),
Finmeccanica shall have the right to commence a tender offer or other offer to
purchase or exchange for cash or other consideration any Common Equivalent
Securities.
(b) Nothing in this Section 4.5 shall obligate Finmeccanica to dispose of
any Restricted Securities if the aggregate percentage ownership of outstanding
Common Equivalent Securities of the Company by Finmeccanica is increased as a
result of a recapitalization of the Company or a repurchase of securities by the
Company or any other action taken by the Company or its Affiliates.
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ARTICLE V
---------
CORPORATE GOVERNANCE
--------------------
5.1. Board of Directors. (a) The parties agree that the Board of
------------------
Directors of the Company shall be increased from seven (7) to ten (10) directors
to permit the election to the Board of Directors of three (3) nominees
designated by Finmeccanica ("Finmeccanica Nominees"). In order to effectuate
the foregoing, the Company shall, as soon as reasonably practicable after the
Closing, take all action necessary in accordance with the Exchange Act, the laws
of Delaware and the Company's Certificate of Incorporation and Bylaws to give
notice of and convene a special meeting (the "Meeting") of its shareholders to
consider and vote upon the approval of the increase of the number of directors
of the Company from seven to ten and the election to the Board of Directors of
the Company of the three Finmeccanica Nominees that Finmeccanica shall have
notified in writing to the Company at the Closing. The Board of Directors of
the Company shall nominate one of the Finmeccanica Nominees for election to the
class of Directors with terms expiring in 1995, one of the Finmeccanica Nominees
for election to the class of Directors with terms expiring in 1996 and the
remaining Finmeccanica Nominee for election to the class of Directors with terms
expiring in 1997, and shall recommend without qualification of any nature that
the Company's shareholders vote to approve such increase in the number of
directors and to elect each of the Finmeccanica Nominees. The Company's Board
of Directors shall use its reasonable best efforts to solicit from the
shareholders of the Company such approval and such election, which efforts may
include without limitation causing the Company to solicit shareholder proxies
therefor and to advise Finmeccanica upon its request from time to time as to the
status of the shareholder vote then tabulated. It is further agreed that the
Company's Board of Directors shall be decreased from ten to nine directors at
such time as Sharpe resigns or otherwise ceases to be a member of the Board of
Directors of the Company, and that a Finmeccanica Nominee elected to the class
of directors with the next earliest expiring terms shall resign his directorship
upon the election of a director (as set forth in Section 5.3) to fill the
vacancy created by Sharpe ceasing to be a member of the Board of Directors.
(b) For so long as Finmeccanica owns at least 1,250,000 shares of the
Company's Class A Common Stock (as adjusted for any shares issued pursuant to a
stock split, stock dividend, recapitalization, reorganization or similar
corporate event), the Company's Board of Directors shall nominate and recommend
for election at meetings of shareholders of the Company at which Directors are
to be elected up to two individuals designated by Finmeccanica such that there
shall at all times be two Finmeccanica Nominees on the Board of Directors of the
Company. In the event that Finmeccanica's ownership of shares of the Company's
Class A Common Stock falls below 1,250,000 (as adjusted for any shares issued
pursuant to a stock split, stock dividend, recapitalization, reorganization or
similar corporate event), Finmeccanica's representation on the Board of
Directors of the Company shall be reduced as follows: (i) if Finmeccanica owns
between 375,000 and 1,250,000 shares, it shall be entitled only to one
directorship; and (ii) if Finmeccanica owns 375,000 shares or less, it shall not
be entitled to any directorship. The reduction in Finmeccanica's permitted
directorships on the Company's Board of Directors shall be accomplished by
resignation of the Finmeccanica Nominee(s). Upon the resignation of a
Finmeccanica Nominee resulting solely by virtue of the provisions of this
Section 5.1, the nomination and election of a successor director shall be made
by the Company's
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<PAGE>
Board of Directors. In all other cases, the Board of Directors shall nominate
and elect a successor nominee designated by Finmeccanica.
5.2. Executive Committee. For so long as Finmeccanica owns at least
-------------------
1,250,000 shares of the Company's Class A Common Stock (as adjusted for any
shares issued pursuant to a stock split, stock dividend, recapitalization,
reorganization or similar corporate event), Finmeccanica shall be entitled to be
represented on the Executive Committee of the Board of Directors of the Company
by one Finmeccanica Nominee (if the Executive Committee is composed of four
directors) or two Finmeccanica Nominees (if the Executive Committee is composed
of five directors).
5.3. Resignation of Sharpe. In connection with the resignation of
---------------------
Sharpe, Finmeccanica shall, not less than 60 days prior to the date the Company
notifies Finmeccanica it intends to file its preliminary or definitive proxy
statement with the Commission in respect of such Annual Meeting, designate an
individual to fill the vacancy created by Sharpe ceasing to be a director, who
shall be an executive or professional advisor, not an employee of Finmeccanica,
of appropriate standing and reputation with at least 10 years of experience in
managing or advising industrial companies. Such individual shall be acceptable
to the Company's Board of Directors, who shall not unreasonably withhold their
approval and shall recommend without qualification of any nature that the
Company's shareholders vote to approve such nominee.
5.4. Voting of Finmeccanica Shares. In each election of members of
-----------------------------
the Board of Directors of the Company, Finmeccanica shall vote its shares (a)
first, in such manner as Finmeccanica deems appropriate, so as to assure the
election of any Finmeccanica Nominees included in the slate of nominees
presented to the shareholders by the Board of Directors or management of the
Company pursuant to Section 5.1 above, and (b) second, to the extent
Finmeccanica has any remaining votes to cast, in favor of the election of the
nominees recommended by the Company's Board of Directors; provided, however,
-------- -------
that in the absence of any cumulative voting, Finmeccanica shall vote its shares
for the Finmeccanica Nominees and for any other nominees recommended by the
Company's Board of Directors. Nothing contained herein shall prevent
Finmeccanica from voting its shares in any manner it deems appropriate with
regard to any matter presented to the shareholders of the Company other than the
election of members of the Board of Directors, provided, that Finmeccanica shall
not vote its shares in favor of any shareholder proposal that would reduce below
nine the members of directors comprising the Board of Directors.
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<PAGE>
ARTICLE VI
REGISTRATION RIGHTS
-------------------
6.1. Registration Rights. (a) Subject to the provisions of Section
-------------------
4.1. above, if at any time the Company receives a written request from one or
more Holders (i) stating that such Holder wishes or Holders wish to register not
less than 25% of the Restricted Securities, the Company shall prepare and file a
Registration Statement for a public offering under the Securities Act covering
such Restricted Securities which are the subject of such request and shall use
its reasonable efforts to cause such Registration Statement to become effective.
In addition, upon the receipt of such request, the Company shall promptly give
written notice to all other Holders of Restricted Securities that such
registration is to be effected. The Company shall include in such Registration
Statement such Restricted Securities for which it has received written requests
to register by such other Holders within fifteen (15) days after the Company's
written notice to such other Holders. The Company shall be obligated to prepare
and file not more than three Registration Statements pursuant to this Section
6.1 and not more than one Registration Statement in any twelve-month period. If
a Holder makes or Holders make a request under this Section 6.1 and the Company
determines, in good faith, that it is not in the best interests of the Company
and its shareholders to file a Registration Statement at such time, the Company
shall have the right to refuse to file a Registration Statement and such request
shall not constitute a demand to file a Registration Statement under this
Section 6.1. In the event the Company, in good faith, prepares and files with
the Commission a Registration Statement pursuant to the exercise of the
registration rights granted hereunder, and the Registration Statement is not
able to be declared effective, (a) the Holders shall have the right to require
the company to file an additional Registration Statement pursuant to this
Section 6.1, and (b) the Holders shall not be required to wait twelve months
from the prior request. Notwithstanding the 2-year restriction on sales of the
Restricted Securities provided under Section 4.1, a Holder shall be entitled to
request a registration of Registered Securities pursuant to this Section 6.1(a)
two months prior to the expiration of such 2-year period to enable the
registration statement covering such Registered Securities to be declared
effective by the Commission as soon as practicable after the expiration of such
period.
Notwithstanding the provisions of this Section 6.1, the Company's
obligation to file a registration statement, to cause such registration
statement to become and remain effective or to make available the prospectus
supplement described in Section 6.2(i) shall be suspended for a period not to
exceed 90 days in any 24-month period if, in the good faith judgment of the
Company's Board of Directors, there is a material fact relating to the Company
which has not been disclosed to the general public.
(b) Incidental Registration. If the Company proposes to register
-----------------------
(including for this purpose a registration effected by the Company for
stockholders other than the Holders) any of its Class A Common Stock under the
Securities Act in connection with an Underwritten Offering solely for cash
(other than a registration on Form S-8 relating solely to the sale of securities
to participants in a Benefit Plan, a registration on Form S-4 or any successor
form, or a registration on Form S-1 or S-3 relating to a merger conversion), the
Company shall promptly give the Holders written notice of such registration.
Upon the written request of a
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<PAGE>
Holder given within 30 days after mailing of such notice by the Company, the
Company shall, subject to Section 6.5, use its reasonable efforts to cause a
registration statement covering all of the Restricted Securities that such
Holder has requested to be registered to become effective under the Securities
Act. The Company shall be under no obligation to complete an offering of its
securities it proposes to make under this Section 6.1(b) and shall incur no
liability to the Holders for its failure to do so.
Notwithstanding any other provision of this Section 6.1(b), if the
underwriter advises the Company in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Company shall so
advise all Holders of Restricted Securities which would otherwise be
underwritten pursuant hereto and the number of shares that may be included in
the underwriting shall be allocated as follows: (x) first, all shares to be sold
by the Company shall be included, (y) second, shares held by the Holder(s) of
Restricted Securities shall be included pro rata based on the number of shares
requested by such Holder(s) to be included in the underwriting, and (z)
thereafter, shares held by other Persons having registration rights shall be
included pro rata based on the number of such shares requested by each such
Person to be included in the underwriting.
(c) Restrictions on Public Sale by Holders. The Holders agree, upon
--------------------------------------
the request of the underwriter(s) in any Underwritten Offering not to effect any
sale or distribution of securities of the Company of the same class as the
securities (or any security convertible into or exchangeable or exercisable for
such security) included in such Registration Statement, including a sale
pursuant to Rule 144 under the Securities Act (except as part of such
registration), during the 30-day period prior to, and during the 180-day period
beginning on, the closing date of any such Public Offering made pursuant to such
Registration Statement, to the extent timely notified in writing by the Company
or such underwriter(s).
6.2. Registration Procedures. In connection with the Registration
-----------------------
Statement, the Company will use its reasonable efforts to effect such
registration to permit the sale of the Restricted Securities being sold in
accordance with the intended method or methods of distribution thereof, and
pursuant thereto the Company will:
(a) prepare and file with the Commission a Registration Statement
relating to the registration on any appropriate form under the Securities Act,
which form shall be available for the sale of the Restricted Securities being
sold in accordance with the intended method or methods of distribution thereof,
cooperate and assist in any filings required to be made with the NYSE and use
its reasonable efforts to cause such Registration Statement to become effective;
(b) prepare and file with the Commission such amendments and post-
effective amendments to the Registration Statement as may be necessary to keep
the Registration Statement effective for the period of the distribution
contemplated thereby (determined as hereinafter provided) and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable period
in accordance with the intended method or methods of distribution by the sellers
thereof set forth in such Registration Statement;
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<PAGE>
(c) advise the underwriter(s), if any, and selling Holders promptly:
(i) when the Prospectus or any Prospectus supplement or post-
effective amendment has been filed, and, with respect to the Registration
Statement or any post-effective amendment thereto, when the same has become
effective;
(ii) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or
for additional information relating thereto;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement under the
Securities Act or of the suspension by any state securities commission of
the qualification of the Restricted Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the preceding
purposes;
(iv) if at any time the representations and warranties of the
Company contemplated by paragraph (j)(i) below cease to be true and
correct; and
(v) of the existence of any fact and the happening of any event
that makes any statement of a material fact made in the Registration
Statement, the Prospectus, any amendment or supplement thereto, or any
document incorporated by reference therein untrue, or that requires the
making of any additions to or changes in the Registration Statement or the
Prospectus in order to make the statements therein not misleading;
(d) in connection with the filing of Registration Statement, any
amendment thereto, any document that is to be incorporated by reference into the
Registration Statement or the Prospectus and any other communication with the
Commission:
(i) furnish copies of any such document to the selling Holders
and to the managing underwriter(s), if any, at least two (2) business days
prior to any such filing and provide them the opportunity to comment
thereon; and
(ii) make the Company's representatives available for discussion
of such document;
(e) furnish to the selling Holders and each of the underwriter(s), if
any, at least one signed copy of the Registration Statement, as first filed with
the Commission, and of each amendment thereto, including all documents
incorporated by reference therein and all exhibits;
(f) deliver to the selling Holders and each of the underwriter(s), if
any, as many copies of the Prospectus (including each preliminary prospectus)
and any amendment or supplement thereto as such Persons may reasonably request;
the Company consents to the use of the Prospectus and any amendment or
supplement thereto by each of the selling Holders and
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<PAGE>
each of the underwriter(s), if any, in connection with the offering and the sale
of the Restricted Securities covered by the Prospectus or any amendment or
supplement thereto;
(g) prior to any public offering of Restricted Securities, cooperate
with the selling Holders, the underwriter(s), if any, and their respective
counsel in connection with the registration and qualification of the Restricted
Securities under the securities or Blue Sky laws of such jurisdictions as the
selling Holders or underwriter(s) may reasonably request and do any and all
other acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Restricted Securities covered by the Registration
Statement; provided, however, that the Company shall not be required to register
or qualify as a foreign corporation where it is not then so qualified or to take
any action that would subject it to the service of process in suits or to
taxation, other than an to matters and transactions relating to the Registration
Statement, in any jurisdiction where it is not then so subject;
(h) cooperate with the selling Holders and the underwriter(s), if
any, to facilitate the timely preparation and delivery of certificates
representing Restricted Securities to be sold and not bearing any restrictive
legends; and enable such Restricted Securities to be in such denominations and
registered in such names as the Holder or the underwriter(s), if any, may
request at least two Business Days prior to any sale of Restricted Securities
made by such underwriter(s);
(i) if any fact or event contemplated by clause (c)(v) above shall
exist or have occurred, prepare a supplement or post-effective amendment to the
Registration Statement or related Prospectus or any document incorporated
therein by reference or file any other required document so that, when
thereafter delivered to the purchasers of Restricted Securities, the Prospectus
will not contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading;
(j) enter into such agreements (including an underwriting agreement)
and take all such other actions in connection therewith as may be required in
order to facilitate the disposition of the Restricted Securities pursuant to
this Agreement, and in connection with any such underwriting agreement entered
into by the Company:
(i) make such representations and warranties to the
underwriter(s), in form, substance and scope as are customarily made by
issuers to underwriters in secondary underwritten offerings;
(ii) obtain opinions of counsel to the Company and updates
thereof addressed to the underwriter(s) covering the matters customarily
requested in opinions requested in underwritten offerings and such other
matters as may be requested by such underwriters;
(iii) obtain "cold comfort" or "agreed upon procedures" letters
and updates thereof from the Company's independent certified public
accountants, addressed to the underwriters, such letters to be in customary
form and covering matters of the type
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<PAGE>
customarily required in such letters by underwriters in connection with
primary underwritten offerings;
(iv) set forth in full or incorporate by reference in the
underwriting agreement the indemnification provisions and procedures of
Section 6.4 hereof with respect to all parties to be indemnified pursuant
to said Section; and
(v) deliver such documents and certificates as may be requested
by the underwriter(s) of such Public Offering to evidence compliance with
clause (i) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company
pursuant to this clause (j).
The above shall be done at each closing under such underwriting or similar
agreement, if and to the extent required thereunder;
(k) make available for inspection by a representative of the selling
Holders, any underwriter participating in any disposition pursuant to such
Registration Statement, and any attorney or accountant retained by the
underwriters, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by such Holders,
underwriter, attorney or accountant in connection with such Registration
Statement subsequent to the filing thereof and prior to its effectiveness; and
(l) use its reasonable efforts to cause all Restricted Securities to
be listed on each securities exchange, if any, on which equity securities issued
by,the Company are then listed.
Each Holder agrees to furnish promptly to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such Holder not materially misleading.
Each Holder agrees by acquisition of such Restricted Securities that, upon
receipt of any notice from the Company of the existence of any fact of the kind
described in Section 6.2(c)(v) hereof, such Holder will forthwith discontinue
disposition of Restricted Securities until such Holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 6.2(f) hereof,
or until it is advised in writing by the Company that the use of the Prospectus
may be resumed, and has received copies of any additional or supplemental
filings which are incorporated by reference in the Prospectus. If so directed
by the company, each Holder will deliver to the Company all copies, other than
permanent file copies then in such Holder's possession, of the Prospectus
covering such Restricted Securities current at the time of receipt of such
notice.
6.3. Registration Expenses. (a) Except as otherwise provided below, all
---------------------
expenses incident to the Company's performance of or compliance with this
Agreement will be borne by the Company, including without limitation:
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<PAGE>
(i) all registration and filing fees and expenses (including
filings made with the NYSE);
(ii) fees and expenses of compliance with federal securities
and state blue sky or securities laws;
(iii) expenses of printing;
(iv) fees and disbursements of counsel for the Company;
(v) underwriter expenses;
(vi) fees of transfer agents and registrars; and
(vii) all fees and disbursements of independent certified
public accountants of the Company (including the expenses of any special
audit and "cold comfort" or "agreed upon procedures" letters required by or
incident to such performance).
Notwithstanding the foregoing, the Holder(s) will pay all underwriting discounts
and selling commissions attributable to Restricted Securities included in an
underwritten Public Offering pro rata in proportion to the number of shares sold
by each.
6.4. Indemnification. (a) The Company agrees to indemnify and hold
---------------
harmless each Holder and each Person, if any, who controls such Holder within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act from and against any and all losses, claims, damages, liabilities and
expenses (including, without limiting the foregoing but subject to Section
6.4(c) hereof, the reasonable legal and other expenses incurred in connection
with any action, suit or proceeding or any claim asserted) arising out of or
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendment or supplements
thereto) or any preliminary Prospectus, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made in the case of the Prospectus, not
misleading, except insofar as such losses, claims, damages, liabilities, or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission based upon information (i) relating to such
Holder, furnished in writing to the Company by or on behalf of such Holder
expressly for use therein or (ii) made in any preliminary Prospectus if a copy
of the Prospectus (or in the Prospectus if a copy of a Prospectus amendment or
supplement) was not sent or given by or on behalf of such Holder to the Person
asserting any such loss, claim, damage or liability or obtaining such judgment
at or prior to the written confirmation of the sale of the Restricted Securities
as required by the Securities Act, and the Prospectus (or the Prospectus
amendment or supplement) would have corrected such untrue statement or omission;
provided, however, that the Company shall have furnished copies of such
- - -------- -------
Prospectus (or such Prospectus amendment or
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<PAGE>
supplement) to such Holder in compliance with Section 6.3(f) hereof at least
five days prior to such sale confirmation.
(b) As a condition to the inclusion of its Restricted Securities in
any Registration Statement pursuant to this Agreement, the Holder thereof will
furnish to the Company in writing, promptly after receipt of a request therefor,
such information as the Company may reasonably request for use in connection
with any Registration Statement, Prospectus or preliminary prospectus and agrees
to indemnify and hold harmless, the Company and its directors, its officers who
sign such Registration Statement, and any Person controlling the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, from and against any and all losses, claims, liabilities and expenses
arising out of (i) information relating to such Holder furnished in writing by
or on behalf of such Holder expressly for use in such Registration Statement or
the Prospectus or any preliminary Prospectus included therein or (ii) the
failure of such Holder to cause the Prospectus or a Prospectus supplement or
amendment to be delivered to the Person asserting any such loss, claim, damage
or liability prior to the written confirmation of the sale of the Restricted
Securities as required by the Securities Act, and the Prospectus (or Prospectus
amendment or supplement) would have corrected such untrue statement or omission;
provided, however, that the Company shall have furnished copies of such
- - -------- -------
Prospectus (or such Prospectus amendment or supplement) to such Holder in
compliance with section 6.2(f) hereof at least five days prior to such sale
confirmation. In case any action shall be brought against the Company, any of
its directors, any such officer, or any such controlling Person based on the
Registration Statement, the Prospectus or any preliminary Prospectus and in
respect of which indemnity may be sought against the Holder, such Holder shall,
mutatis mutandis, have the rights and duties given to the Company by Section
- - ------- --------
6.4(c) hereof (except that if the Company as provided in Section 6.4(c) hereof
shall have assumed the defense thereof such Holder shall not be required to do
so, but may employ separate counsel therein and participate in the defense
thereof but the fees and expenses of such counsel shall be at such Holder's
expense) and the Company and its directors, any such officers, and any such
controlling Person shall have the rights and duties given by Section 6.4(c)
hereof. In no event shall the liability of a selling Holder hereunder be
greater than the gross proceeds received by such Holder upon the sale of the
Restricted Securities giving rise to such indemnification obligation.
(c) In case any action or proceeding shall be brought against the
Holder or any Person controlling such Holder, based upon the Registration
Statement, the Prospectus or any preliminary Prospectus, or any amendment or
supplement thereto, and with respect to which indemnity may be sought against
the Company, such Holder or such Person controlling such Holder shall promptly
notify the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Holder and
payment of all reasonable fees and expenses relating thereto. The Holder and
such Persons controlling such Holder shall have the right to employ separate
counsel in any such action or proceeding and participate in the defense thereof,
but the fees and expenses of such counsel shall be at such Holder's expense
unless (i) the employment of such counsel has been specifically authorized in
writing by the Company, (ii) the Company has not assumed the defense and
employed counsel reasonably satisfactory to such Holder within 15 days after
notice of any such action or proceeding, or (iii) the named parties to any such
action or proceeding (including any
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<PAGE>
impleaded parties) include both the Holder or any Person controlling such Holder
and the Company and such Holder or any Person controlling such Holder shall have
been advised by such counsel that there may be one or more legal defenses
available to such Holder or Person controlling such Holder that are different
from or additional to those available to the Company (in which case the Company
shall not have the right to assume the defense of such action or proceeding on
behalf of such Holder or controlling Person, it being understood that the
Company shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of one separate firm of attorneys for all Holders and controlling
Persons, which firm shall be designated in writing by the Holders and shall be
reasonably acceptable to the Company). The Company shall not be liable for any
settlement of any such action effected without the written consent of the
Company, but if settled with the written consent of the Company, the Company
agrees to indemnify and hold harmless such Holder and all Persons controlling
such Holder from and against any loss or liability by reason of such settlement
or judgment.
6.5. Participation In Public Offering. No Holder may participate in any
--------------------------------
Public Offering, hereunder unless such Holder completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting agreements.
6.6. Selection of Underwriters. In any underwritten Public Offering
-------------------------
pursuant to Section 6.1(a), the lead underwriter or underwriters that will
conduct the offering will be selected by the selling Holders and shall be
reasonably acceptable to the Company.
6.7. Period of Distribution. For purposes of Section 6.2(b), the period of
----------------------
distribution of Restricted Securities in a firm commitment underwritten Public
Offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Securities in any other registration shall be deemed to extend
until the earlier of the sale of all Restricted Securities covered thereby or
120 days after the effective date thereof.
ARTICLE VII
-----------
FINANCIAL MATTERS
-----------------
7.1. Financial Statements. The Company will deliver to Finmeccanica:
--------------------
(a) Not later than the date furnished to the Company's Board of Directors,
such financial and operating data concerning the Company and its business units
as are regularly made available to the Company's Board of Directors (and its
Executive Committee). The Company's obligation under this Section 7.1(a) shall
be deemed satisfied upon delivery of such data to the Finmeccanica nominees who
are members of the Board of Directors of the Company.
-20-
<PAGE>
(b) Promptly (but in any event within five days) after any filing by the
Company with the Commission or with the NYSE of any publicly available annual or
periodic or special report or proxy statement or final registration statement, a
copy of such report or statement and copies of all press releases and other
statements made available generally by the Company to the public concerning
material developments in the Company's business.
ARTICLE VIII
------------
TERMINATION
-----------
8.1. Termination. Except to the extent expressly provided herein, this
-----------
Agreement will continue in full force and effect until the earlier of (i) seven
and one half (7 1/2) years from the date hereof, (ii) termination by mutual
written agreement of the parties, (iii) dissolution of the Company, or (iv) the
date upon which Finmeccanica ceases to own, by virtue of a Disposition of
Restricted Securities of the Company, at least ten percent (10%) of those Common
Equivalent Securities of the Company held by Finmeccanica on the date hereof.
To the extent that this Agreement has not otherwise terminated prior to the
seventh anniversary of the date hereof, the parties shall negotiate in good
faith the renewal of this Agreement on substantially similar terms and
conditions for a successive seven-year period to the extent permitted by
Delaware law.
ARTICLE IX
----------
GENERAL
-------
9.1. Injunctive Relief. It is acknowledged that it will be impossible to
-----------------
measure in money the damages that would be suffered if the parties fail to
comply with any of the obligations imposed on them by this Agreement and that in
the event of any such failure, an aggrieved person will be irreparably damaged
and will not have an adequate remedy at law. Any such person shall, therefore,
be entitled to injunctive relief and/or specific performance to enforce such
obligations, and if any action should be brought in equity to enforce any of the
provisions of this Agreement, none of the parties hereto shall raise the defense
that there is an adequate remedy at law.
9.2. Further Assurances. Each party hereto shall do and perform or cause
------------------
to be done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments, and documents as
any other party hereto reasonably may request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
9.3. Assignment. None of the parties hereto shall assign any of its rights
----------
or duties under any provision of this Agreement to any third party (other than
to an Affiliate), without obtaining the prior written consent of the other
parties hereto, except that a Holder may transfer or assign its rights and
obligations hereunder in whole or in part to a transferee pursuant to a transfer
of shares made in compliance with all of the provisions of this Agreement.
-21-
<PAGE>
9.4. Notices. All notices and other communications hereunder, except as
-------
otherwise expressly provided, shall be in writing and shall be deemed to have
been duly given if either (i) delivered personally, (ii) transmitted by
telecopier (if followed by the original copy sent by postage prepaid mail as
provided below) or (iii) sent by postage prepaid certified mail (airmail if
international), return receipt requested, as follows (or to such other address
as may be specified in a notice to the other party hereto):
if to the Company:
Brown & Sharpe Manufacturing Company
Precision Park
North Kingstown, Rhode Island 02852
Attention: James W. Hayes, III
Fax: (401) 886-2214
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110-2624
Attention: Howard K. Fuguet, Esq.
Fax: (617) 951-7050
if to Finmeccanica:
Elsag Bailey Company
via Puccini, 2
16154 Genoa
Italy
Attention: General Counsel
Fax: 011-39-10-6582781
with a copy to:
Coudert Brothers
1114 Avenue of the Americas
New York, New York 10036
Attention: W. Preston Tollinger, Jr., Esq.
Fax: (212) 626-4120
9.5. Governing Law. This Agreement and all issues concerning the
-------------
respective rights and obligations of the Company and the Shareholders shall be
governed by the laws of the State of Delaware, without regard to the conflicts
of law principles thereof.
-22-
<PAGE>
9.6. Binding Effect. The terms and conditions of the Agreement shall
--------------
extend to, be binding upon, and inure to the benefit of, the heirs, successors,
administrators, legal representatives, permitted assigns of the respective
parties hereto.
9.7. No Partnership Relationship. The parties agree that nothing in this
---------------------------
Agreement will create or be deemed to create any partnership, agency or any
other relationship between them except as otherwise expressly stated herein.
9.8. Headings. The descriptive headings contained herein are for
--------
convenience only and shall not control or affect the meaning of construction of
any provision of this Agreement.
9.9. Legal Costs. The losing party in any lawsuit to enforce the rights of
-----------
any party to this Agreement shall reimburse the prevailing party for all costs
(including attorney's fees) incurred in connection with such action.
9.10. Severability. Should any provision of this Agreement be held
------------
invalid or unenforceable under the laws of any applicable jurisdiction, the
other provisions of this Agreement shall remain valid and in full force and
effect. To the extent permissible under applicable law, the parties will use
their best efforts to modify the invalid or unenforceable provisions so as to
comply with such laws so long as the intent and effect of the affected provision
is preserved.
9.11. Entire Agreement; No Waiver; Amendment. This Agreement and all
--------------------------------------
Exhibits hereto supersede all other oral or written representations and
understandings of the parties hereto with respect to the subject matter hereof.
No failure or delay by any party in the exercise of any right hereunder will
operate as a waiver thereof, nor will any single or partial exercise of any
right preclude an additional or further exercise thereof or the exercise of any
other right. No amendment, variation, modification or waiver of any provision
of this Agreement shall be valid unless made in writing and signed by the
parties hereto.
-23-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their duly authorized representatives as of the date first above
written.
FINMECCANICA S.p.A.
through its Elsag Bailey Company division
By:
-------------------------------------
Name:
Title:
BROWN & SHARPE MANUFACTURING
COMPANY
By:
-------------------------------------
Name:
Title:
-24-
<PAGE>
Amendment No. 3 to Rights Agreement
-----------------------------------
This amendment, dated June 16, 1994, amends the Rights Agreement dated as
of March 9, 1988, as amended by Amendment No. 1 dated as of May 2, 1988 and
Amendment No. 2 dated as of February 24, 1989 (the "Rights Agreement"), between
Brown & Sharpe Manufacturing Company, a Delaware corporation (the "Company"),
and The First National Bank of Boston, as Rights Agent (the "Rights Agent").
Terms defined in the Rights Agreement and not otherwise defined herein are used
herein as so defined.
W I T N E S S E T H
-------------------
WHEREAS, the Company intends shortly to enter into an Acquisition Agreement
to be dated as of June 10, 1994 with Finmeccanica S.p.A., an Italian corporation
("FM"), pursuant to which the Company shall acquire the metrology business of FM
and FM shall receive shares of the Company's Class A Common Stock (the
"Shares").
WHEREAS, pursuant to Section 26 of the Rights Agreement, the Board of
Directors desire to amend certain provisions of the Rights Agreement to permit
the acquisition of the Shares by FM without FM becoming an Acquiring Person as a
result thereof.
NOW, THEREFORE, the Rights Agreement is hereby amended as follows:
1. Section 1(a) of the Rights Agreement is amended and restated in its
entirety as follows:
(a) The term "Acquiring Person" shall mean any Person who or which,
together with all Affiliates of such Person, shall be the Beneficial Owner
of 20% or more of the outstanding shares of Common Stock of the Company,
but shall not include (i) the Company, any Wholly Owned Subsidiary of the
Company, or any employee benefit plan of the Company, or any trustee of, or
member of a committee having voting or investment power over shares of
Common Stock of the Company held by, any employee benefit plan of the
Company acting in such capacity, or (ii) Finmeccanica, S.p.A., an Italian
corporation ("Finmeccanica"), so long as Finmeccanica does not beneficially
own shares of Common Stock other than (A) 3,450,000 shares of Class A
Common Stock acquired at the closing under the Acquisition Agreement dated
as of June 10, 1994 to be entered into between the Company and Finmeccanica
(the "DEA Acquisition Agreement"), (B) such additional shares of Class A
Common Stock as Finmeccanica may receive as a purchase price adjustment
pursuant to Section 1.4 of the DEA Acquisition Agreement, and (C) such
additional
<PAGE>
shares of Class A Common Stock as Finmeccanica may receive in accordance
with Article III of the Shareholders Agreement attached as Exhibit 2.3 to
the Acquisition Agreement, which Shareholders Agreement will be entered
into between Brown & Sharpe and Finmeccanica in connection with the closing
under the DEA Acquisition Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to
the Rights Agreement to be duly executed as of the day and year first above
written.
BROWN & SHARPE MANUFACTURING
COMPANY
By: /s/ Charles A. Junkunc
----------------------------------
Charles A. Junkunc, Vice President
Attest:
By: /s/ James W. Hayes, III
------------------------------
James W. Hayes, III, Secretary
THE FIRST NATIONAL BANK OF BOSTON, as
RIGHTS AGENT
By: /s/ Kenyon Bissell
-----------------------------------
Title: Administration Manager
-2-
<PAGE>
SUMMARY - THE OFFERING
<TABLE>
<S> <C>
Securities Offered...... $75,000,000 principal amount of % Senior Notes due 2002
(the "Senior Notes").
Maturity................ August 1, 2002.
Interest Payment Dates.. February 1 and August 1 of each year, commencing February
1, 1995.
Optional Redemption..... The Senior Notes will be redeemable at the option of the
Company in whole or in part, at any time on or after
August 1, 1998, at the redemption prices set forth
herein, plus accrued and unpaid interest, if any, to the
date of redemption. Prior to August 1, 1997, up to 25% of
the aggregate principal amount of the Senior Notes
outstanding on the date of the Indenture will be
redeemable at the option of the Company from the net
proceeds of any public offering of common stock of the
Company at % of the principal amount thereof, plus
accrued interest to the date fixed for redemption.
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
Change of Control....... In the event of a Change of Control (as defined in the
Indenture), the Company will have the obligation to offer
to purchase from the holders of the Senior Notes all or
any part of their Senior Notes then outstanding at a
purchase price equal to 101% of the principal amount
thereof, plus accrued interest thereon to the date of
repurchase. See "Description of Senior Notes--Change of
Control."
Security................ The Senior Notes will be unsecured obligations of the
Company and will not be guaranteed by any of its
subsidiaries.
Ranking................. The Senior Notes will be senior obligations of the
Company ranking senior in right of payment to any
subordinated indebtedness of the Company (including the
$16 million principal amount of the Company's 9 1/4%
Convertible Subordinated Debentures outstanding as of
April 2, 1994), and pari passu with the existing and
future senior indebtedness of the Company. The Company
expects, prior to consummation of the Offering, to enter
into a new $25 million revolving credit facility (the
"Revolving Credit Facility") that will be secured by
substantially all of the Company's domestic inventory and
accounts receivable. The Senior Notes will be effectively
subordinated to the amounts outstanding under the
Revolving Credit Facility with respect to the assets
securing such facility.
A majority of the Company's assets are held by various
subsidiaries, and the Senior Notes will be effectively
subordinated to all liabilities of the Company's
subsidiaries. As of April 2, 1994, assuming that the DEA
Acquisition, the Offering and the application of the net
proceeds therefrom had occurred on such date, the
Company's subsidiaries had approximately $145 million of
liabilities, including trade payables, outstanding on a
pro forma basis.
Restrictive Covenants... The Indenture imposes certain restrictions on, among
other things, the ability of the Company and its
subsidiaries to create liens; incur additional
indebtedness; pay dividends or make certain distributions
on the Company's capital stock; dispose of certain
assets; enter into transactions with affiliates; engage
in mergers; make investments; enter into sale and
leaseback transactions; and incur restrictions that would
prevent the subsidiaries from making payments of
dividends or certain distributions on capital stock, or
making loans or transferring assets to the Company.
Use of Proceeds......... The net proceeds from the Offering will be used to retire
substantially all outstanding borrowings of the Company
and its subsidiaries (including DEA), other than the
Company's 9 1/4% Convertible Subordinated Debentures.
Risk Factors............ Prospective purchasers of the Senior Notes should
consider the factors set forth under "Risk Factors" as
well as the other information set forth in this
Prospectus.
</TABLE>
2
<PAGE>
PRO FORMA COMBINED FINANCIAL STATEMENTS
The following Pro Forma Combined Financial Statements are unaudited and are
based on the Consolidated Financial Statements of Brown & Sharpe, the Combined
Financial Statements of DEA, the Financial Statements of Roch and the
Financial Statements of Mauser, each included elsewhere in this Prospectus.
The Pro Forma Combined Financial Statements should be read in conjunction with
such historical financial statements and the related notes thereto, and the
other information pertaining to Brown & Sharpe, DEA, Roch and Mauser, included
elsewhere in this Prospectus.
The unaudited Pro Forma Combined Statements of Income (Loss) for the year
ended December 25, 1993 and for the three months ended April 2, 1994 have been
adjusted to give effect to the Roch Acquisition, the DEA Acquisition and the
Offering (and the application of the proceeds therefrom) as if such
transactions had occurred on December 27, 1992. The unaudited Pro Forma
Combined Balance Sheet at April 2, 1994 has been adjusted to give effect to
the DEA Acquisition and the Offering (and the application of the proceeds
therefrom) as if such transactions had occurred on that date. The pro forma
adjustments are based upon available information and certain assumptions that
management of Brown & Sharpe believes are reasonable and that are described in
the notes to the Pro Forma Combined Financial Statements. The Pro Forma
Combined Financial Statements do not purport to represent what the Company's
financial position or results of operations would actually have been if the
transactions had occurred on the dates specified or to project the Company's
financial position or results of operations for any future period.
PRO FORMA COMBINED STATEMENT OF INCOME (LOSS)
FOR THE QUARTER ENDED APRIL 2, 1994
<TABLE>
<CAPTION>
PRO FORMA
----------------------
BROWN &
SHARPE DEA ROCH MAUSER ADJUSTMENTS COMBINED
------- ------- ------ ------ ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales............... $36,659 $21,280 $2,713 $ 710 $ (518)(a) $60,844
Cost of goods sold...... 25,940 13,778 1,461 518 (1,054)(b) 40,643
Selling, general and ad-
ministrative expense... 12,261 7,595 1,411 370 (2,936)(c) 18,701
Depreciation and amorti-
zation(1).............. -- 742 145 1 (255)(d) 633
Amortization of excess
of fair value over cost
of assets acquired..... -- -- -- -- (156)(e) (156)
------- ------- ------ ------ ------- -------
Operating profit
(loss)................ (1,542) (835) (304) (179) 3,883 1,023
Interest expense........ (1,280) (1,798) (108) -- 472 (f) (2,714)
Other income, net....... 48 580 9 1,498 (1,494)(g) 641
------- ------- ------ ------ ------- -------
Income (loss) before
income taxes.......... (2,774) (2,053) (403) 1,319 2,861 (1,050)
Income tax provision.... 100 -- -- -- -- 100
------- ------- ------ ------ ------- -------
Net income (loss)...... $(2,874) $(2,053) $ (403) $1,319 $ 2,861 $(1,150)
======= ======= ====== ====== ======= =======
OTHER DATA:
EBITDA (2).............. $ (235) $ (93) $ (44) $ (175) $ 3,472 $ 2,925
Depreciation and amorti-
zation(3).............. 1,307 742 260 4 (411) 1,902
Capital expenditures.... 814 120 -- -- -- 934
</TABLE>
- - --------
(1) Brown & Sharpe includes depreciation and amortization in cost of sales or
selling, general and administrative expense, depending on the nature of
the use of the asset involved. Mauser includes depreciation in selling,
general and administrative expense.
(2) "EBITDA" consists of earnings before interest expense, other income
(expense), restructuring charges, provision for income taxes, and
depreciation and amortization. EBITDA is included herein to provide
additional information, and should not be construed as a substitute for
cash flow from operating activities, which is determined in accordance
with generally accepted accounting principles.
(3) Pro forma depreciation and amortization includes amortization of excess of
fair value over cost of assets acquired.
See Accompanying Notes to the Pro Forma Combined Financial Statements
3
<PAGE>
PRO FORMA COMBINED STATEMENT OF INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 25, 1993
<TABLE>
<CAPTION>
PRO FORMA
----------------------
BROWN &
SHARPE DEA ROCH MAUSER ADJUSTMENTS COMBINED
-------- -------- ------- ------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales............... $157,035 $110,675 $ 9,868 $ 2,634 $(2,214)(a) $277,998
Cost of goods sold...... 110,841 70,989 5,639 2,214 (4,357)(b) 185,326
Selling, general and ad-
ministrative expense... 45,474 30,269 5,233 1,157 (11,742)(c) 70,391
Depreciation and amorti-
zation(1) ............. -- 3,532 34 605 (1,623)(d) 2,548
Restructuring costs..... -- 511 -- -- -- 511
Amortization of excess
of fair value over cost
of assets acquired..... -- -- -- -- (626)(e) (626)
-------- -------- ------- ------- ------- --------
Operating profit
(loss)................ 720 5,374 (1,038) (1,342) 16,134 19,848
Interest expense........ (5,100) (6,157) (447) (55) 904 (f) (10,855)
Other income, net....... 2,764 (1,613) (27) 10 -- 1,134
-------- -------- ------- ------- ------- --------
Income (loss) before
income taxes.......... (1,616) (2,396) (1,512) (1,387) 17,038 10,127
Income tax provision.... 800 -- -- -- -- 800
-------- -------- ------- ------- ------- --------
Net income (loss) ..... $ (2,416) $ (2,396) $(1,512) $(1,387) $17,038 $ 9,327
======== ======== ======= ======= ======= ========
OTHER DATA:
EBITDA (2).............. $ 7,210 $ 9,417 $ (800) $ (719) $13,885 $ 28,993
Depreciation and amorti-
zation(3).............. 6,355 3,532 238 623 (2,249) 8,499
Capital expenditures.... 4,399 1,965 287 28 160 6,839
</TABLE>
- - --------
(1) Brown & Sharpe includes depreciation and amortization in cost of sales or
selling, general and administrative expense, depending on the nature of
the use of the asset involved. Mauser includes depreciation in selling,
general and administrative expense.
(2) "EBITDA" consists of earnings before interest expense, other income
(expense), restructuring charges, provision for income taxes, and
depreciation and amortization. EBITDA is included herein to provide
additional information, and should not be construed as a substitute for
cash flow from operating activities, which is determined in accordance
with generally accepted accounting principles. Brown & Sharpe incurred
restructuring charges of $135 for the year ended December 25, 1993. DEA
incurred restructuring charges of L823 ($511) for the year ended December
31, 1993.
(3) Pro forma depreciation and amortization includes amortization of excess of
fair value over cost of assets acquired.
See Accompanying Notes to Pro Forma Combined Financial Statements
4
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
APRIL 2, 1994
<TABLE>
<CAPTION>
PRO FORMA
-----------------------
BROWN &
SHARPE DEA ADJUSTMENTS COMBINED
-------- -------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........ $ 3,818 $ 5,565 $ 7,490 (h) $ 16,873
Restricted cash.................. 6,113 -- (6,113)(h) --
Accounts receivable, net of al-
lowances for doubtful accounts.. 42,284 45,158 (1,500)(i) 85,942
Inventories...................... 57,550 40,271 (5,068)(j) 92,753
Prepaid expenses and other cur-
rent assets..................... 3,387 6,439 3,000 (k) 12,826
-------- -------- --------- --------
Total current assets........... 113,152 97,433 (2,191) 208,394
PROPERTY, PLANT AND EQUIPMENT:
Land............................. 6,358 49 (49)(l) 6,358
Buildings and improvements....... 32,572 1,752 (1,752)(l) 32,572
Machinery and equipment.......... 78,615 24,814 (24,814)(l) 78,615
-------- -------- --------- --------
117,545 26,615 (26,615) 117,545
Less-accumulated depreciation.... 73,775 21,281 (21,281)(l) 73,775
-------- -------- --------- --------
43,770 5,334 (5,334) 43,770
OTHER ASSETS...................... 12,760 3,079 (3,079)(m) 12,760
-------- -------- --------- --------
$169,682 $105,846 $(10,604) $264,924
======== ======== ========= ========
LIABILITIES AND SHAREOWNERS' EQ-
UITY
CURRENT LIABILITIES:
Notes payable and current in-
stallments of long-term debt.... $ 33,742 $ 26,127 $(58,869)(n) $ 1,000
Accounts payable................. 12,549 13,392 -- 25,941
DEA debt......................... -- 45,971 (45,971)(o) --
Accrued expenses and income tax-
es.............................. 22,665 11,885 12,258 (p) 46,808
-------- -------- --------- --------
Total current liabilities...... 68,956 97,375 (92,582) 73,749
Long-term debt.................... 33,224 7,759 49,017 (q) 90,000
Deferred income taxes............. 1,781 -- -- 1,781
Termination indemnities........... -- 7,489 -- 7,489
Unfunded accrued pension cost..... 4,345 -- -- 4,345
Excess of fair value over cost of
assets acquired.................. -- -- 6,264 (r) 6,264
SHAREOWNERS' EQUITY:
Preferred stock, $1 par value;
authorized 1,000,000 shares,
none issued..................... -- -- -- --
Common stock:
Class A, $1 par value; autho-
rized 15,000,000 shares, is-
sued 4,651,368 and pro forma
8,101,368..................... 4,651 -- 3,450 (s) 8,101
Class B, $1 par value; autho-
rized 2,000,000 shares, issued
545,539....................... 546 -- -- 546
Additional paid in capital....... 47,013 -- 17,250 (s) 64,263
Earnings employed in the busi-
ness............................ 1,503 -- (780)(t) 723
Cumulative foreign currency
translation adjustment.......... 8,547 -- -- 8,547
Treasury stock; 8,076 shares at
cost............................ (163) -- -- (163)
Unearned compensation............ (721) -- -- (721)
DEA equity (deficit)............. -- (6,777) 6,777 (u) --
-------- -------- --------- --------
Total shareowners' equity...... 61,376 (6,777) 26,697 81,296
-------- -------- --------- --------
$169,682 $105,846 $ (10,604) $264,924
======== ======== ========= ========
</TABLE>
See Accompanying Notes to Pro Forma Combined Financial Statements
5
<PAGE>
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. BASIS OF PRESENTATION
The pro forma combined financial statements have been prepared assuming that
the purchase price for the DEA Acquisition will consist of 3,450,000 shares of
Class A Common Stock, having an aggregate value of $20,700 based on the June
20, 1994 closing price of $6.00 per share. The DEA Acquisition Agreement
provides that this purchase price will be subject to a post-closing adjustment
based on the balance sheet of DEA as of July 31, 1994. See "DEA Acquisition."
The assumed purchase price has been allocated as follows:
<TABLE>
<S> <C>
Cash............................................................. $ 497
Accounts receivable, net of allowances for doubtful accounts..... 43,658
Inventories...................................................... 35,203
Prepaid expenses and other current assets........................ 6,439
Notes payable and current installments of long-term debt......... (8,843)
Accounts payable................................................. (13,392)
Accrued expenses and income taxes................................ (24,143)
Long-term debt................................................... (4,966)
Termination indemnities.......................................... (7,489)
Excess of fair value over cost of assets acquired................ (6,264)
--------
Total.......................................................... $ 20,700
========
</TABLE>
The allocation of purchase price to cash reflects DEA's expected cash level
as of the closing under the DEA Acquisition Agreement. The pro forma combined
income statements are unaudited and present a combination of the historical net
sales of Brown & Sharpe, DEA, Roch and Mauser (after elimination of
intercompany sales), and do not reflect possible increases in net sales that
may arise from synergies related to the combination, or possible decreases in
net sales as a result of planned cost cutting measures, possible discontinuance
of certain similar products, customers' desires to maintain alternative sources
of supply or for other reasons.
The pro forma combined financial statements reflect the effects of planned
cost savings measures assuming that such cost savings measures are implemented
and are effective on December 27, 1992 in the case of the pro forma combined
income statements and on April 2, 1994 in the case of the pro forma combined
balance sheet. Brown & Sharpe expects that substantially all these cost savings
measures will be implemented within twelve months of the consummation of the
applicable acquisitions, and the balance will be implemented within 24 months
of the consummation of the applicable acquisitions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Brown & Sharpe--Effects of Roch Acquisition and DEA Acquisition."
The pro forma combined income statements do not include severance and other
costs to be incurred in connection with anticipated elimination of personnel,
closure of facilities and other cost savings measures following the Roch
Acquisition and the DEA Acquisition. Brown & Sharpe estimates that these costs
will approximate $12,329, of which approximately $1,839 will be reflected as
restructuring expense in 1994, $10,330 will be charged against reserves
established in the allocations of purchase price associated with these
acquisitions and $160 will be incurred with respect to capital spending
associated with facilities consolidation.
2. PRO FORMA ADJUSTMENTS
The pro forma financial statements reflect the following adjustments:
a) Adjustment to eliminate intercompany sales made by Roch to Mauser.
b) Adjustment to reflect decreased design engineering and manufacturing
expenses as a result of expected reductions in personnel, decreased
purchasing costs of the combined operations, and the elimination of
intercompany purchases of Mauser from Roch. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Brown &
Sharpe--Effects of Roch Acquisition and DEA Acquisition."
6
<PAGE>
c) Adjustment to reflect expected decreased administrative, sales and
distribution expenses resulting from reductions in North American and
European administrative, sales and distribution personnel and closing of
overlapping facilities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Brown & Sharpe--Effects of
Roch Acquisition and DEA Acquisition."
d) Adjustment to reflect an elimination of depreciation of fixed assets
and goodwill related to the write-down of DEA assets in accordance with the
purchase method of accounting, and the amortization over the eight-year
life of the Senior Notes of the estimated expenses of the Offering. The
adjustment for the year ended December 25, 1993 is as follows:
<TABLE>
<S> <C>
Depreciation of assets............................................. $ 790
Amortization of goodwill........................................... 1,193
Amortization of estimated expenses of Offering..................... (360)
------
$1,623
======
</TABLE>
This adjustment approximated $255 for the quarter ended April 2, 1994.
e) Adjustment to reflect the amortization of the excess of fair value of
DEA's assets over Brown & Sharpe's cost to acquire such assets. The excess
of fair value will be amortized over a ten-year period.
f) Adjustment to reflect the decrease in interest expense resulting from
the issuance of the Senior Notes, the assumption, discharge or waiver by
Finmeccanica of DEA debt in connection with the DEA Acquisition, and the
repayment of Brown & Sharpe and DEA debt with the proceeds of the Offering,
calculated as follows:
<TABLE>
<S> <C>
Interest on Senior Notes of $75,000 at 12.5%..................... $ 9,375
Interest on $16,000 debentures at 9.25%.......................... 1,480
-------
10,855
Actual expense recorded........................................ 11,759
-------
$ (904)
=======
</TABLE>
This adjustment approximated $(472) for the quarter ended April 2, 1994.
g) Adjustment to eliminate nonrecurring income from debt forgiveness by
Diehl, the former owner of Mauser.
h) Adjustment to eliminate DEA cash retained by Finmeccanica and to
reflect the receipt of the gross proceeds of the Offering and the
application thereof as follows:
<TABLE>
<S> <C>
Gross proceeds from Offering..................................... $ 75,000
Repayment of existing Brown & Sharpe debt as at April 2, 1994.... (50,966)
Repayment of existing DEA debt as at April 2, 1994............... (13,809)
Prepayment penalties............................................. (780)
Estimated Offering expenses...................................... (3,000)
Reclassification of restricted cash.............................. 6,113
Cash withdrawal by Finmeccanica.................................. (5,068)
--------
$ 7,490
========
</TABLE>
Brown & Sharpe has been required to maintain restricted cash balances to
support certain of its foreign lines of credit. At April 2, 1994, the
required restricted cash balances totaled $6,133. These amounts will cease
to be restricted upon repayment of the lines of credit. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Brown & Sharpe--Liquidity and Capital Resources."
i) Adjustment to record DEA receivables at estimated fair value in
accordance with the purchase method of accounting.
j) Adjustment to record DEA inventories at estimated fair value in
accordance with the purchase method of accounting.
k) Adjustment to record estimated expenses of the Offering. Offering
expenses will be amortized over the eight-year life of the Senior Notes.
7
<PAGE>
l) Adjustment to property, plant and equipment of DEA to reflect the
allocation of the excess of fair value over the cost of the assets acquired
in accordance with the purchase method of accounting.
m) Adjustment to eliminate intercompany goodwill of DEA and allocate the
excess of the fair value over the cost of DEA assets acquired in accordance
with the purchase method of accounting.
n) Adjustment to eliminate the third party short-term debt of DEA assumed
or discharged by Finmeccanica in connection with the DEA Acquisition, and
repayment with the proceeds of the Offering of the short-term debt of Brown
& Sharpe and the remaining third party short-term debt of DEA, as follows:
<TABLE>
<S> <C>
Short-term debt of DEA assumed or discharged by Finmeccanica...... $17,284
Repayment of short-term debt of Brown & Sharpe with Offering pro-
ceeds............................................................ 32,742
Repayment of short-term debt of DEA with Offering proceeds........ 8,843
-------
$58,869
=======
</TABLE>
o) Adjustment to eliminate DEA borrowings from Finmeccanica cancelled or
waived by Finmeccanica in connection with the DEA Acquisition.
p) Adjustment of DEA's reserve for warranty expense to estimated fair
value in accordance with the purchase method of accounting and the accrual
of restructuring costs related to the DEA Acquisition.
q) Adjustment to reflect issuance of the Senior Notes, to eliminate the
long-term debt of DEA assumed or discharged by Finmeccanica in connection
with the DEA Acquisition, and to reflect the repayment with the proceeds of
the Offering of the Foothill Facility, mortgage debt of Brown & Sharpe and
the remaining long-term debt of DEA, as follows:
<TABLE>
<S> <C>
Gross proceeds from Offering.................................... $ 75,000
Long-term debt assumed or discharged by Finmeccanica............ (2,793)
Repayment of Foothill Facility, mortgage and other long-term
debt of Brown & Sharpe with Offering proceeds.................. (18,224)
Repayment of existing long-term debt of DEA with Offering pro-
ceeds.......................................................... (4,966)
--------
$ 49,017
========
</TABLE>
r) Adjustment to record the excess of the fair value over the cost of the
DEA assets acquired in accordance with the purchase method of accounting.
s) Adjustment to reflect the issuance of 3,450,000 shares of Brown &
Sharpe Class A Common Stock as part of the purchase price of DEA.
t) Adjustment to reflect prepayment penalties incurred by the Company as
a result of the repayment of the Foothill Facility and certain mortgage
loans of Brown & Sharpe with the proceeds of the Offering.
u) Adjustment to eliminate the shareowners' equity (or divisional
deficit) of DEA in connection with the DEA Acquisition in accordance with
the purchase method of accounting.
8
<PAGE>
BROWN & SHARPE SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial information of Brown & Sharpe
for each of the last five fiscal years is derived from Brown & Sharpe's
audited consolidated financial statements, including the notes thereto. The
information for the quarters ended March 27, 1993, and April 2, 1994, are
unaudited but, in the opinion of management, reflect all adjustments
(consisting only of normal recurring items) necessary for a fair presentation
of the results for such interim periods. The results for the quarter ended
April 2, 1994 are not necessarily indicative of the results that may be
expected for the full year. This selected financial information should be read
in conjunction with the Consolidated Financial Statements of Brown & Sharpe,
related notes and other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
------------------------------------------------ -------------------
DEC. 30, DEC. 29, DEC. 28, DEC. 26, DEC. 25, MAR. 27, APRIL 2,
1989 1990 1991(1) 1992(1) 1993(1) 1993(1)(2) 1994(2)
-------- -------- -------- -------- -------- ---------- --------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales:
Metrology.............. $130,933 $165,865 $166,819 $152,201 $155,133 $ 38,207 $ 36,659
General products....... 11,111 10,838 9,028 8,494 1,902 1,551 -- (3)
-------- -------- -------- -------- -------- -------- --------
Total................ 142,044 176,703 175,847 160,695 157,035 39,758 36,659
Cost of goods sold...... 95,875 135,821 119,481 116,283 110,841 28,448 25,940
Selling, general and ad-
ministrative expense... 37,898 52,971 56,672 52,509 45,474 10,744 12,261
-------- -------- -------- -------- -------- -------- --------
Operating profit (loss):
Metrology.............. 6,816 (13,005) (1,281) (8,857) 1,652 431 (1,542)
General products....... 1,455 916 975 760 (932) 135 -- (3)
-------- -------- -------- -------- -------- -------- --------
Total................ 8,271 (12,089) (306) (8,097) 720 566 (1,542)
Interest expense........ (2,340) (3,811) (4,219) (5,272) (5,100) (1,132) (1,280)
Other income (expense),
net.................... 983 (74) 824 2,135 2,764 1,794 48
-------- -------- -------- -------- -------- -------- --------
Income (loss) before in-
come taxes............. 6,914 (15,974) (3,701) (11,234) (1,616) 1,228 (2,774)
Income tax provision
(benefit).............. 961 (3,737) (800) (3,250) 800 -- 100
-------- -------- -------- -------- -------- -------- --------
Income (loss) from con-
tinuing operations..... 5,953 (12,237) (2,901) (7,984) (2,416) 1,228 (2,874)
(Loss) from discontinued
operations............. (1,138) (2,329) (1,180) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 4,815 $(14,566) $ (4,081) $ (7,984) $ (2,416) $ 1,228 $ (2,874)
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(4)............... $ 15,386 $ (305) $ 10,194 $ 4,336 $ 7,210 $ 2,212 $ (235)
Depreciation and amorti-
zation................. 7,115 9,084 8,700 7,330 6,355 1,646 1,307
Capital expenditures.... 6,262 9,277 9,864 12,474 4,399 975 814
Ratio of earnings to
fixed charges(5)....... 3.3x -- 0.3x -- 0.8x 1.9x --
BALANCE SHEET DATA (END
OF PERIOD):
Working capital......... $ 74,719 $ 59,006 $ 68,587 $ 48,036 $ 46,025 $ 49,224 $ 44,196
Property, plant and
equipment, net......... 33,105 42,609 44,602 46,402 43,554 44,552 43,770
Total assets............ 167,733 205,912 183,748 166,086 165,871 163,733 169,682
Total debt.............. 34,650 58,053 61,369 60,700 64,500 57,041 66,966
Shareowners' equity..... 87,403 82,893 80,268 66,674 63,520 66,330 61,376
</TABLE>
- - --------
(1) Restated to reflect the change in accounting for large machinery
construction contracts for its European operations. See Note 2 of Notes to
Consolidated Financial Statements of Brown & Sharpe.
(2) The quarter ended April 2, 1994 includes fourteen weeks, while the quarter
ended March 27, 1993 includes thirteen weeks.
(3) The machine tool spare parts and rebuild operations, the last remaining
operations in the general products segment, were sold in 1993.
(4) "EBITDA" consists of earnings before interest expense, other income
(expense), restructuring charges, provision for income taxes, and
depreciation and amortization. EBITDA is included herein to provide
additional information, and should not be construed as a substitute for
cash flow from operating activities, which is determined in accordance
with generally accepted accounting principles. Brown & Sharpe incurred
restructuring charges of $2,700, $1,800, $5,103 and $135 for the years
ended December 29, 1990, December 28, 1991, December 26, 1992, and
December 25, 1993, respectively.
(5) The ratio of earnings to fixed charges is calculated by dividing (i)
earnings from continuing operations before income taxes and fixed charges
by (ii) fixed charges, which consist of interest expense and one-third of
rental expense, which is deemed to be representative of the interest
factor. Earnings were insufficient to cover fixed charges by $20,785,
$9,267, $18,067, $7,998, and $4,287 for the years ended December 29, 1990,
December 28, 1991, December 26, 1992, and December 25, 1993 and the first
quarter of 1994, respectively.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF BROWN & SHARPE
In completing its transformation from a machine tool company to a dimensional
metrology company, Brown & Sharpe has made a number of acquisitions and
divestitures that have impacted, and will continue to impact, its results of
operations and liquidity. At the end of the first quarter of 1994, Brown &
Sharpe acquired Roch and Mauser. During the first and second quarters of 1993,
Brown & Sharpe sold its machine tool spare parts and rebuild operations. During
the first quarter of 1992, Brown & Sharpe sold its pump operation and its 80%
ownership interest in GageTalker Corporation, a provider of data collection and
statistical process control systems ("GageTalker"). In late 1991, Brown &
Sharpe purchased Thomas Mercer Limited, a manufacturer of metrology devices
that is now included in the PMI Division ("Mercer"). At the end of the second
quarter of 1990, the Company acquired Leitz, a manufacturer of high accuracy
CMMs. The DEA Acquisition will also have a significant impact on the Company's
results of operations and liquidity. See "--Effects of Roch Acquisition and DEA
Acquisition." The following discussion of Brown & Sharpe's historical financial
condition and results of operations should be read in conjunction the
Consolidated Financial Statements of Brown & Sharpe and the notes thereto
included elsewhere in this Prospectus.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales of Brown & Sharpe
represented by the components of income and expense for the years ended
December 28, 1991, December 26, 1992 and December 25, 1993 and the quarters
ended March 27, 1993 and April 2, 1994:
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
---------------------------- -----------------
DEC. 28, DEC. 26, DEC. 25, MAR. 27, APRIL 2,
1991 1992 1993 1993 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales......................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................ 67.9 72.4 70.6 71.6 70.8
Selling, general and administra-
tive expense..................... 32.2 32.7 29.0 27.0 33.4
----- ----- ----- ----- -----
Operating profit (loss)........... (0.2) (5.0) 0.5 1.4 (4.2)
Interest expense.................. (2.4) (3.3) (3.2) (2.8) (3.5)
Other income, net................. 0.5 1.3 1.8 4.5 0.1
----- ----- ----- ----- -----
Income (loss) before income taxes. (2.1) (7.0) (1.0) 3.1 (7.6)
Income tax provision (benefit).... (0.5) (2.0) 0.5 -- 0.3
Income (loss) from continuing op-
erations......................... (1.7) (5.0) (1.5) 3.1 (7.8)
(Loss) from discontinued opera-
tions............................ (0.7) -- -- -- --
----- ----- ----- ----- -----
Net income (loss)................. (2.3)% (5.0)% (1.5)% 3.1% (7.8)%
===== ===== ===== ===== =====
</TABLE>
Quarter Ended April 2, 1994 compared to Quarter Ended March 27, 1993
Orders. Orders during the first quarter of 1994 totaled $37.9 million,
compared to $36.9 million during the first quarter of 1993. The machine tool
spare parts and rebuild operations, sold at the end of the first quarter 1993,
represented $1.6 million in orders during the first quarter of 1993, and
foreign currency exchange rate fluctuations, principally the strengthening of
the Swiss franc against the U.S. dollar, caused a $0.9 million increase in
first quarter 1994 orders compared to first quarter 1993. Excluding the effect
of these items, orders increased to $37.0 million in the first quarter of 1994
from $35.3 million in the first quarter of 1993, an increase of 4.8%. Backlog
as of April 2, 1994 was $27.5 million, compared to $26.1 million at year end
1993 and $25.4 million at the end of the first quarter of 1993.
Net Sales. Net sales in the first quarter of 1994 were $36.7 million,
compared to $39.8 million for the first quarter of 1993. Approximately $1.6
million of first quarter 1993 net sales were attributable to machine tool spare
parts and rebuild operations which were sold during the first and second
quarters of 1993, and
10
<PAGE>
foreign currency exchange rate fluctuations, principally the strengthening of
the Swiss franc against the U.S. dollar, caused an increase in net sales in the
first quarter of 1994 of $1.2 million as compared to the first quarter of 1993.
Excluding the effect of these items, first quarter 1994 net sales declined
approximately $2.6 million from first quarter 1993 sales. The decline in net
sales occurred primarily in the MS Division (referred to after consummation of
the DEA Acquisition as the MS Group). MS Division net sales in the quarter were
14.4% below the first quarter of 1993, in part as a result of entering the 1993
first quarter with a larger backlog that could be shipped than at the beginning
of 1994 and the continued effect of competitive discounting. Net sales of PMI
products increased from the prior year primarily due to the resolution of the
financial difficulties of a German distributor, which had depressed net sales
in the prior period.
Gross Profit. Gross profit margin increased to 29.2% in the first quarter of
1994 from 28.4% in the first quarter of 1993. The improvement resulted in part
from a reduction in design engineering expenses in Brown & Sharpe's PMI
Division.
Selling, General and Administrative Expense. Selling, general and
administrative ("SG&A") expense in the first quarter of 1994, at $12.3 million
or 33.4% of net sales, increased from the $10.7 million, or 27.0% of net sales,
incurred in the comparable period in 1993. The increase was primarily due to
the extra week in the first quarter of 1994 as compared to the first quarter of
1993 and the receipt of litigation settlement proceeds in the first quarter of
1993.
Operating Profit (Loss). Brown & Sharpe generated an operating loss of $1.5
million in the first quarter of 1994. This compared to an operating profit of
$0.6 million in the first quarter of 1993. In the United States, operating loss
for the first quarter of 1994 totaled $0.2 million as compared to an operating
profit of $0.8 million in the first quarter of 1993. Foreign operations
generated an operating loss of $1.3 million in the first quarter of 1994 as
compared to an operating loss of $0.2 million in the first quarter of 1993. The
deterioration of Brown & Sharpe's performance in the United States in the 1994
period as compared to the 1993 period was due primarily to the receipt of
litigation settlement proceeds in the 1993 period, as well as an extra week of
selling, general and administrative expense in the 1994 period. Brown & Sharpe
believes that its sales pattern would not generally result in proportionate
increases in net sales in a fourteen week quarter as compared to a thirteen
week quarter. The greater operating loss in foreign operations reflected the
worsening performance at Brown & Sharpe's German CMM operations due to the
continued effect of competitive discounting, which was partially offset by
improvement at Brown & Sharpe's PMI Division.
Interest Expense. Interest expense totaled $1.3 million in the first quarter
of 1994 compared to $1.1 million in the first quarter of 1993. This increase
reflects an increase in the average balance of borrowings in the United States,
which was partially offset by lower interest rates in Europe.
Other Income, Net. Other income, net was $48,000 in the first quarter of 1994
and $1.8 million in the first quarter of 1993. The 1993 first quarter included
a gain of approximately $2.0 million on the sale of certain small business
operations, partially offset by foreign exchange losses.
Income Tax Provision. The provision for income taxes was $0.1 million in the
first quarter of 1994 compared to $0.5 million in the first quarter of 1993.
The 1993 provision was offset by deferred tax benefits of $0.5 million due to
reductions in deferred tax liabilities as a result of losses in certain of
Brown & Sharpe's European subsidiaries.
Net Income (Loss). As a result of the foregoing, Brown & Sharpe had a net
loss of $2.9 million ($0.57 per share) in the first quarter of 1994, compared
to net income of $1.2 million ($0.25 per share) in the first quarter of 1993.
See "--Effects of Roch Acquisition and DEA Acquisition." Brown & Sharpe expects
to report a net loss for the second quarter of 1994 primarily resulting from
the continuing effect of competitive discounting. In addition, Brown & Sharpe
expects to record a provision increasing the allowance for uncollectible
accounts receivable by approximately $0.6 million for collection uncertainties
arising from one sale to a single customer.
11
<PAGE>
Year Ended December 25, 1993 Compared to Year Ended December 26, 1992
Orders. Orders totaled $155.9 million in 1993, a decline of $12.9 million, or
7.6%, from the prior year. The decrease resulted principally from the sale of
the machine tool parts and rebuild operations in the first quarter of 1993,
which represented $8.6 million of incoming orders in 1992 compared to $1.9
million of incoming orders in 1993. In addition, weakening of certain European
currencies against the U.S. dollar resulted in a decrease in reported 1993
orders of approximately $4.8 million compared to 1992. Excluding the effect of
these items, 1993 orders increased $1.0 million from 1992. Backlog was $26.1
million at year-end 1993, compared with $30.2 million at year-end 1992, which
was a particularly high level for Brown & Sharpe's metrology business. The
decrease in backlog resulted principally from a decrease in orders in 1993 as
compared to 1992.
Net Sales. Net sales in 1993 were $157.0 million, a decrease of $3.7 million,
or 2.3%, as compared to $160.7 million in 1992. The weakening of certain
European currencies against the U.S. dollar caused a decrease of $5.0 million
in net sales in 1993 as compared to 1992. In addition, in the first and second
quarters of 1993, Brown & Sharpe disposed of its machine tool spare parts and
rebuild operations, which accounted for $1.9 million and $8.5 million of net
sales in 1993 and 1992, respectively. Excluding the effect of these items, net
sales in 1993 increased $7.9 million from the prior year. Net sales in the
United States increased to $72.3 million in 1993 from $69.8 million in 1992, an
increase of 3.5%. The increase was primarily due to improvements in the U.S.
economy and in the automotive industry in particular and was reflected in
increased sales of both CMMs and PMI division products. The increase in U.S.
net sales was offset by a $6.7 million reduction resulting from the sale of the
machine tool parts and rebuild operations. In Europe, net sales declined to
$62.2 million in 1993 from $70.7 million in 1992, or 11.9%, as a result of the
continuing recession in Europe and the weakening of certain European currencies
against the U.S. dollar. Net sales in the rest of the world totaled $22.5
million in 1993, up 11.6% from sales of $20.2 million in 1992. This increase
was principally due to increased sales in Asia.
Gross Profit. Gross profit margin increased to 29.4% in 1993 from 27.6% in
1992. In 1992, cost of goods sold included inventory write-offs of $2.0 million
resulting from the introduction of new products that replaced certain of Brown
& Sharpe's existing products and $2.5 million of restructuring costs, primarily
employee severance expenses resulting from downsizing at Brown & Sharpe's
German and Swiss manufacturing facilities in response to declining sales. Brown
& Sharpe's gross profit for these years also reflects benefits from the
liquidation of LIFO inventories of $9.8 million in 1992 and $0.7 million in
1993 resulting from successful efforts to reduce inventory in the United
States. Gross profit in 1993 was also reduced as a result of the weakening of
certain European currencies against the U.S. dollar. Excluding the effect of
these items, gross profit was $46.7 million in 1993, or a margin of 29.7%,
compared to $39.1 million in 1992,or a margin of 24.3%. This improvement
reflects the benefits of Brown & Sharpe's cost control and restructuring
efforts described above.
Selling, General and Administrative Expense. SG&A expense was $45.5 million
in 1993 and $52.5 million in 1992. As a percentage of net sales, SG&A expense
decreased to 29.0% in 1993 from 32.7% in 1992. SG&A expense in 1992 includes
approximately $2.6 million of restructuring costs, primarily for employee
severance at European facilities, and $1.5 million of incentive compensation
related to the acquisition of the remaining minority interest in Technicomp,
Brown & Sharpe's education quality training products subsidiary.
Operating Profit (Loss). Operating profit was $0.7 million in 1993 compared
to an operating loss of $8.1 million in the prior year. Excluding an operating
loss of $0.9 million attributable to the divested machine tool operations,
operating profit in 1993 totaled $1.7 million. In the United States, operating
profit increased substantially in 1993 to $5.2 million from $1.3 million in
1992 for the reasons discussed earlier. Although the European recession
continued, Brown & Sharpe's European operations generated improved results,
posting an operating loss of $4.4 million in 1993 compared to an operating loss
of $9.4 million in 1992.
Interest Expense. Interest expense declined to $5.1 million in 1993 from $5.3
million in 1992 principally due to a reduction in interest rates on Brown &
Sharpe's borrowings.
12
<PAGE>
Other Income, Net. Other income, net increased to $2.8 million in 1993 from
$2.1 million in 1992. Other income in 1993 included a $2.0 million net gain on
the sale of the machine tool parts and rebuild operations, and other income in
1992 included a net gain of $0.6 million on the sale of an office building and
an aggregate of $0.6 million on the sale of the pump operation and Brown &
Sharpe's interest in GageTalker.
Income Tax Provision (Benefit). The provisions for income taxes for 1993 and
1992 include foreign, federal and state income taxes. Income tax expense
totaled $0.8 million in 1993 based on a consolidated pretax loss of $1.6
million. The income tax expense in 1993 resulted largely from profits in the
United States. Brown & Sharpe has substantial loss carryforwards in European
countries and tax credit carryforwards in the United States. In 1992, Brown &
Sharpe recorded a tax benefit of $3.3 million in 1992 on a pretax loss of
$11.2 million, an effective rate of 28.9%.
Year Ended December 26, 1992 Compared to Year Ended December 28, 1991
Orders. Orders increased 4.2% to $168.8 million in 1992 from $162.0 in 1991.
Orders in 1992 included an increase of $4.1 million resulting from the
inclusion of Mercer which was acquired on November 1, 1991, and a decrease of
$5.9 million in orders from Brown & Sharpe's pump operation and interest in
GageTalker which were sold during the first quarter of 1992. Excluding the
effect of these items, orders in 1992 increased $8.6 million from 1991. The
increase in orders was due primarily to increased orders for Brown & Sharpe
and Leitz CMM products in the United States and Europe. This improvement
resulted from new product introductions, improved European distribution,
certain product promotions and selective competitive discounting. Backlog
increased to $29.4 million at the end of 1992 from $23.2 million at the end of
1991, principally resulting from increased orders for the CMM products
described above.
Net Sales. Net sales in 1992 decreased to $160.7 million from $175.8 million
in 1991. Net sales in 1992 reflected the disposition of the pump operation and
Brown & Sharpe's interest in GageTalker in the first quarter of 1992. These
operations, and the machine tool parts and rebuild operation which was sold in
1993, accounted for net sales of $9.4 million in 1992 and $16.6 million in
1991. Excluding these businesses, 1992 net sales totaled $151.2 million
compared to $159.2 million in 1991. This decrease resulted from declining
orders from distributors of PMI products related to the global recession,
particularly in Europe. Net sales in the United States fell to $69.8 million
in 1992 from $76.8 million in 1991 due in large part to the sale of the pump
operations and the interest in GageTalker. In Europe, net sales declined to
$70.7 million in 1992 from $82.7 million in 1991, resulting primarily from the
European recession. Net sales in the rest of the world increased to $20.2
million in 1992 from $16.4 million in 1991. This increase primarily resulted
from an increase in net sales in Asia due largely to sales efforts of Leitz.
Gross Profit. Gross profit margin decreased to 27.6% in 1992 from 32.1% in
1991. Gross profit in 1992 was affected by (i) the recognition of $9.8 million
of LIFO liquidation benefits due to reductions in inventory levels, (ii) the
extension of the estimated lives of machinery and equipment at a Swiss
subsidiary based on low utilization, which resulted in a reduction in
depreciation expense of approximately $0.9 million annually, (iii) inventory
write-offs of $2.0 million that resulted from a combination of reduced sales,
new product introductions that replaced certain existing products and
restructuring decisions that resulted in removal of some products from Brown &
Sharpe's product lines and (iv) $2.5 million of restructuring costs primarily
related to employee severance at European facilities. Gross profit in 1991 was
affected by restructuring costs of $1.8 million primarily attributable to
employee severance at European facilities. Adjusted for these items, gross
profit margin was 24.9% in 1992 compared to 33.1% in 1991. This significant
decline was a result of increased pricing pressure in the metrology market in
both the United States and Europe as well as the effect of the reduced sales
volume in relation to fixed costs.
Selling, General and Administrative Expense. SG&A expense was $52.5 million
in 1992, compared to $56.7 million in 1991. As a percentage of net sales, SG&A
expense increased to 32.7% in 1992 from 32.2% in 1991. In 1992, this amount
included $2.6 million in restructuring charges primarily for employee
severance at European facilities as well as $1.5 million of incentive
compensation paid in connection with the acquisition
13
<PAGE>
of the remaining minority interest in Technicomp. Excluding these items, SG&A
expense declined to $48.4 million in 1992 from $56.7 million in 1991 (30.1% of
net sales in 1992 compared to 32.2% in 1991). The reduction in the amount of
SG&A expense in 1992 reflected the effect of personnel reductions.
Operating Profit (Loss). Operating losses totaled $8.1 million in 1992
compared to an operating loss of $0.3 million in the prior year. In the United
States, operating profit declined to $1.3 million in 1992 from a profit of $4.8
million in 1991 on reduced sales as discussed earlier. In Europe, losses
deepened as a result of continued competitive pressure and recessionary
conditions, with a resultant operating loss of $9.4 million in 1992 compared to
$5.1 million in 1991.
Interest Expense. Interest expense increased to $5.3 million in 1992 from
$4.2 million in 1991. The increase resulted from increased borrowing in Europe
to support operations of Mercer acquired at the end of 1991, financing of a new
building for the Leitz operation in Germany and European operating losses.
Other Income, Net. Other income, net which includes interest income,
increased to $2.1 million in 1992 from $0.8 million in 1991, principally as a
result of an aggregate of $1.2 million in gains recognized on the sale of an
office building, the pump operation and Brown & Sharpe's interest in
GageTalker.
Income Tax Provision. Brown & Sharpe recognized an income tax benefit of $3.3
million in 1992 based on consolidated pretax losses of $11.2 million,
reflecting an effective rate of 28.9%. This compares to a benefit of $0.8
million in 1991 on a pretax loss of $3.7 million, reflecting an effective rate
of 21.6%. The increased tax benefit in 1992 reflects $4.6 million of deferred
tax reductions resulting from losses, compared to 1991 deferred tax reductions
of $1.0 million.
LIQUIDITY AND CAPITAL RESOURCES
In recent years, Brown & Sharpe has met its liquidity needs, including
capital expenditures and the funding of operating losses, through cash
generated from operations, sale proceeds of discontinued businesses, secured
and unsecured lines of credit and the Foothill Facility, a secured $15 million
two-year revolving credit facility entered into in June 1993. Amounts
outstanding under the lines of credit are payable on demand, and certain of the
lines extended to Brown & Sharpe's foreign subsidiaries are secured by
restricted cash balances and other assets. The Foothill Facility provides for
borrowings based on a percentage of eligible domestic accounts receivable and
finished inventory, is secured by substantially all domestic assets (including
the stock of domestic subsidiaries and 65% of the stock of certain foreign
subsidiaries), and requires maintenance of a minimum current ratio, a maximum
ratio of debt to adjusted net worth, minimum adjusted net worth and minimum
working capital. At April 2, 1994, Brown & Sharpe had borrowings of $22.9
million under the lines of credit and $7.6 million under the Foothill Facility,
compared to total availability at that date of $27.2 million under the lines of
credit and $12.5 million under the Foothill Facility. As of May 27, 1994, Brown
& Sharpe had borrowings of $23.0 million under the lines of credit and $10.3
million under the Foothill Facility, compared to total availability at that
date of $28.8 million under the lines of credit and $12.9 million under the
Foothill Facility. At May 27, 1994, Brown & Sharpe was required to maintain an
aggregate of $6.1 million in restricted cash balances to support certain of the
foreign lines of credit.
Brown & Sharpe expects shortly to enter into a commitment letter for an $8.5
million, five-year mortgage financing (the "North Kingstown Mortgage") secured
by the Company's North Kingstown, Rhode Island facility, principally in order
to provide a liquidity cushion in the event the Offering is not consummated.
The Company expects that the North Kingstown Mortgage would bear interest at
approximately 8 3/4% with annual amortization based on a ten-year schedule and
the remaining balance due at maturity.
14
<PAGE>
To provide cash needed to fund operations, including capital expenditures,
Brown & Sharpe expects, on or prior to the Closing Date, to enter into the
Revolving Credit Facility, which will provide borrowings of up to $25 million
subject to borrowing base limitations. Brown & Sharpe expects that the
Revolving Credit Facility will be secured by a first priority lien, subject to
certain permitted encumbrances, on domestic accounts receivable and inventory,
will have a term of three years and will bear interest at a floating rate. See
"Description of Revolving Credit Facility."
Following the completion of the Offering, management believes that the
availability of borrowings from the Revolving Credit Facility, together with
cash flow from current levels of operations and anticipated cost savings from
the integration of DEA, Roch and Mauser, will be sufficient to meet operational
cash requirements (including one-time costs in integrating Roch, Mauser and
DEA), working capital requirements and planned capital expenditures through
1995. However, failure to achieve anticipated cost savings, or unexpected
delays in or costs related to the integration, could have a material adverse
affect on Brown & Sharpe's liquidity. See "--Effects of Roch Acquisition and
DEA Acquisition."
Cash Flow. The operations of Brown & Sharpe used cash of $6.0 million in 1993
in large part because of an increase in accounts receivable of $8.2 million due
to a high sales volume in the fourth quarter of the year. In 1992, operations
generated cash of $6.1 million despite a net loss of $8.0 million in part
because of a decrease in accounts receivable of $6.9 million during the year.
In the first quarter of 1994, operations generated cash of $3.5 million; the
net loss of $2.9 million was offset by accounts receivable collections from
typically higher sales near the end of the preceding fourth quarter.
Investment transactions used $2.2 million in 1993 despite proceeds from the
sale of operations of $8.7 million because cash of $6.1 million was pledged in
connection with foreign lines of credit. In 1992, investing activities used
cash of $12.7 million as a result of unusually high capital expenditures, of
which $7.0 million were used for the construction of a new facility in Germany.
In the first quarter of 1994, investment transactions used cash of $1.0
million, reflecting a normal level of capital expenditures.
Cash provided from financing transactions was $4.8 million in 1993 and $2.5
million in 1992, reflecting the net increase in borrowings. Cash used in
financing transactions was $0.1 million in the first quarter of 1994.
Working Capital. Working capital was $44.2 million at the end of the first
quarter of 1994 compared to $46.0 million at the end of 1993 and $48.0 million
at the end of 1992. Accounts receivable decreased $5.8 million in the first
quarter of 1994 after an increase of $8.2 million during 1993 and a decrease of
$6.9 million during 1992. These changes resulted largely from the timing of
sales during the respective fourth quarters with higher sales in December of
1993. Inventories decreased to $54.0 million at the end of 1993 from $62.0
million at the end of 1992. This decrease was primarily due to the sale of
operations during the respective years as well as fluctuations in foreign
currency exchange rates. Inventories increased to $57.6 million at April 2,
1994, an increase of $3.6 million from $54.0 million at the end of 1993.
However, this increase did not require the use of cash because it resulted from
Brown & Sharpe's purchase of Roch and Mauser in the first quarter of 1994.
Capital Expenditures. Brown & Sharpe's capital expenditures to support the
ongoing business were approximately $4.1 million, $5.5 million, and $8.0
million in 1993, 1992 and 1991, respectively. In addition, capital spending to
construct a new building at its German facility, substantially completed in
1992, amounted to approximately $0.3 million, $7.0 million and $1.9 million, in
1993, 1992 and 1991, respectively.
With the consummation of the DEA Acquisition, total capital expenditures for
the combined Company are expected to increase. DEA capital expenditures totaled
L0.2 billion ($0.1 million) in the first quarter of 1994, L3.2 billion in 1993
($2.0 million), L5.1 billion in 1992, and L3.1 billion in 1991. Management
expects to continue to incur incremental capital expenditures to develop new
products, improve product and service quality, and expand its distribution
network. Management estimates that annual capital expenditures of
15
<PAGE>
approximately $8 million are required to maintain the operations of the
combined Company. Planned capital expenditures in 1994 and 1995 will include an
aggregate of approximately $2.1 million for the construction of a new facility
in Telford, England to replace an existing facility upon the expiration of its
lease.
Acquisitions and Divestitures. Proceeds from the sale of the machine tool
parts and rebuild operations during 1993 provided $8.7 million of cash. During
1992, $3.6 million was generated from the sale of Brown & Sharpe's pump
operations and statistical process control subsidiary. Payments in connection
with the acquisition of the remaining minority interest in Technicomp amounted
to approximately $3.9 million in 1992. See "Effects of Roch Acquisition and DEA
Acquisition."
After the completion of the DEA Acquisition, management does not foresee any
significant acquisitions or divestitures. Management will continue to evaluate
smaller acquisitions that have the potential to expand the Company's geographic
market presence or product lines.
EFFECTS OF ROCH ACQUISITION AND DEA ACQUISITION
The Company's plans for integrating DEA, Roch and Mauser anticipate cost
savings (before one-time implementation cash costs) of nearly $8 million to be
realized within the first twelve months of combined operations. The Company
expects to achieve these savings primarily by eliminating duplicative
administrative and sales personnel and facilities, duplicative marketing
expenses such as advertising and trade shows and certain duplicative design
engineering activities, including personnel. The Company expects to realize
total annual savings of nearly $14 million after 24 months of combined
operations through these actions, further reductions in selling and
administrative expenses, rationalization of European manufacturing facilities
and reductions in associated manufacturing overhead costs. The Company
estimates that implementation of these cost savings measures will require one-
time cash costs of approximately $12.3 million for severance, lease
terminations, and other actions. Of these $12.3 million in expected cash costs,
$1.8 million will be reflected as restructuring expense in 1994, $10.3 million
will be charged against reserves established in the allocations of purchase
price associated with the Roch Acquisition and the DEA Acquisition, and $0.2
million will be incurred with respect to capital spending associated with
facilities construction. Due to the inherent risks in integrating separate
operations, in particular operations located in different countries and that in
the aggregate are large in relation to Brown & Sharpe, there can be no
assurance that the Company will realize anticipated cost savings or realize the
savings in the contemplated timetable, or that as a result of its decentralized
management structure or other factors the Company will not experience
unanticipated one-time or ongoing costs or difficulties in implementing the
integration of DEA, Roch and Mauser into Brown & Sharpe. In addition, there can
be no assurance that following these acquisitions the Company's net sales will
not be adversely affected by planned cost cutting measures, possible
discontinuance of certain similar products, customers' desires to maintain
alternative sources of supply or for other reasons.
The following table shows the estimated cost savings (before one-time
implementation cash costs) that the Company expects to realize through planned
cost cutting measures in the integration of DEA, Roch and Mauser, as compared
to the aggregate current cost structures of Brown & Sharpe and these companies
as stand-alone entities.
<TABLE>
<CAPTION>
EXPECTED ANNUAL
COST SAVINGS
-----------------
FIRST 12 AFTER 24
MONTHS MONTHS
-------- --------
(IN MILLIONS)
<S> <C> <C>
Roch and Mauser
Closing of Tesa office, Paris, France............... $0.8 $0.8
Closing of Mauser office, Nurnberg, Germany......... 0.7 0.7
Staff reduction, Luneville, France.................. 0.4 0.4
Reduction of design engineering expense............. 0.3 0.3
Negotiated purchase discounts....................... 0.1 0.1
---- ----
$2.3 $2.3
---- ----
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
EXPECTED ANNUAL
COST SAVINGS
-----------------
FIRST 12 AFTER 24
MONTHS MONTHS
-------- --------
(IN MILLIONS)
<S> <C> <C>
DEA
North American sales and distribution.............. $2.0 $ 4.5
European sales and distribution.................... 2.8 3.2
Excess production facility space................... -- 1.2
Reduction of manufacturing overhead in European
operations........................................ -- 1.6
Design engineering................................. 0.6 1.0
---- ------
$5.4 $ 11.5
---- ------
Total savings (before one-time costs)............ $7.7 $ 13.8
==== ======
</TABLE>
Savings From Roch Acquisition
Since consummation of the Roch Acquisition at the end of the first quarter of
1994, Brown & Sharpe has closed the Tesa PMI office in France and a Mauser
office in Germany, reduced staffing at a remaining office in France, terminated
a Brown & Sharpe design engineering project relating to technology acquired in
the Roch Acquisition, reduced design engineering staffing, and used the larger
volume of the combined operations to negotiate reduced prices from certain
suppliers on certain purchasing arrangements. Brown & Sharpe anticipates that
these actions will result in approximately $2.3 million in annual cost savings
within the first twelve months following the Roch Acquisition (before one-time
implementation cash costs). Brown & Sharpe believes that these center closings
and personnel reductions will result in one-time severance, relocation and
other cash costs of approximately $0.9 million, substantially all of which will
be expended by the end of 1994.
Savings From DEA Acquisition
Brown & Sharpe has prepared a plan to eliminate duplicative operations and
take other actions to achieve cost savings in integrating the operations of DEA
with those of its existing CMM operations. This plan was developed in part
based on information provided by DEA personnel and, in certain areas, on
discussions with DEA personnel concerning appropriate staffing, facility and
activity levels of the combined operations. In certain instances where specific
DEA information has not been made available to Brown & Sharpe, such as
compensation levels of DEA personnel, Brown & Sharpe has made assumptions based
on its experience. In general, Brown & Sharpe has assumed that personnel
reductions will be effective within six months of the DEA Acquisition, and that
personnel will be entitled to severance or redundancy of six months' salary. To
date, the integration plan has been limited to functions where Brown & Sharpe
management believes that sufficient information concerning DEA's operations is
available to Brown & Sharpe to allow it to forecast cost savings with
reasonable confidence. These functions include North American sales and
distribution, European sales and distribution, certain excess production
facility space, reduction of certain manufacturing overhead in Italian
operations, and design engineering activities.
Consolidation of North American Sales and Distribution. Following the DEA
Acquisition, Brown & Sharpe plans to consolidate North American sales and
distribution activities by reducing the number of sales and related support
employees by approximately 13%, closing five demonstration centers (net of
one replacement center) in cities where both Brown & Sharpe and DEA now
have centers, and opening three new demonstration centers where the
combined volume of the two operations will make direct sales more cost
effective than using sales agents or distributors. Brown & Sharpe believes
that these measures can all be implemented within twelve months of the DEA
Acquisition, and will result in savings within the twelve months of
approximately $2.0 million (before one-time implementation cash costs) and
total annual cost savings after 24 months of approximately $4.5 million.
Brown & Sharpe
17
<PAGE>
believes that these personnel reductions and center closings and openings
would result in one-time severance, relocation and other cash costs of
approximately $1.5 million, substantially all of which will be expended
within the first twelve months.
Consolidation of European Sales and Distribution. Brown & Sharpe also
plans to consolidate European sales and distribution activities by reducing
sales and related support employees by approximately 25% in Germany, Italy,
France and England, and by closing six demonstration centers (net of one
replacement center). Brown & Sharpe believes that these measures can all be
implemented within twelve months of the acquisition, and will result in
savings within the twelve months of approximately $2.8 million (before one-
time implementation cash costs) and total annual cost savings by the third
year of approximately $3.2 million. Brown & Sharpe believes that these
personnel reductions and center closings would result in one-time
severance, relocation and other cash costs of approximately $2.4 million,
substantially all of which would be expended in the first twelve months.
Elimination of Excess Facility Space. Brown & Sharpe believes that
consolidation of DEA's manufacturing operations currently located in three
buildings outside Turin, Italy, into one of the three buildings would both
reduce facility rental expense and streamline the manufacturing process,
resulting in production savings. Brown & Sharpe believes that this
manufacturing consolidation will require up to twenty-four months to
implement, and will result in total annual cost savings of approximately
$1.2 million (before one-time implementation cash costs). Brown & Sharpe
believes that these consolidation efforts will result in one-time
relocation and other cash costs of approximately $4.9 million,
substantially all of which will be expended in the second through fourth
years following the DEA Acquisition.
Reduction of Manufacturing Overhead in European Operations. Brown &
Sharpe believes that the integration of DEA into the MS Group will permit
the reduction of supervisory and other staffing at the Company's
manufacturing facilities in Europe. Brown & Sharpe believes that it will be
able to identify and provide the required twelve-month statutory notice to
the affected employees within twelve months following the DEA Acquisition,
and that these reductions will result in total annual cost savings after 24
months of approximately $1.6 million (before one-time implementation cash
costs). Brown & Sharpe believes that these staffing reductions will result
in one-time severance and other cash costs of approximately $1.6 million,
substantially all of which will be expended in the second year following
the DEA Acquisition.
Consolidation of Design Engineering. Brown & Sharpe believes that overlap
in design engineering activities of the two operations will permit
reduction of at least 9% in the total number of employees dedicated to
these activities without reducing the effective level of the design
engineering activity. A portion of this reduction has already been made in
Brown & Sharpe's design engineering operations in anticipation of the
acquisition, and Brown & Sharpe expects that the balance would be made
within twelve months after the acquisition. Brown & Sharpe believes that
these personnel reductions would result in approximately $0.6 million in
savings in the first twelve months (before one-time implementation cash
costs), and total annual cost savings of approximately $1.0 million by the
third year. Brown & Sharpe believes that these reductions would result in
approximately $1.0 million in one-time severance and relocation costs,
substantially all of which would be incurred in the first twelve months.
In addition to the specific cost savings plans described above, Brown &
Sharpe also believes that additional cost savings may be realized through
consolidation of certain manufacturing operations and discontinuance of certain
similar products. As of the date hereof, Brown & Sharpe does not have
sufficient specific cost and other information concerning DEA's operations to
allow Brown & Sharpe to quantify with confidence the potential additional
savings or to determine that additional savings are in fact attainable. In
addition, Brown & Sharpe is unable to predict whether and to what extent the
elimination of similar products, expected to produce further manufacturing
savings, will in fact result in incremental decreases in revenue.
18
<PAGE>
Accounting for Roch Acquisition and DEA Acquisition
Brown & Sharpe accounted for the Roch Acquisition as a purchase transaction
and will apply the same accounting method to the DEA Acquisition. In a purchase
transaction the purchase price, including assumed liabilities and the costs of
the acquisition, is allocated among the acquired assets based on estimated fair
values for purposes of recording such assets on the purchaser's balance sheet.
Brown & Sharpe expects that the purchase price for the DEA Acquisition,
including an estimated $9.7 million in reserves for anticipated costs
associated with consolidation and related cost savings measures, will be less
than Brown & Sharpe's estimate of the fair value of the assets acquired by
approximately $6.3 million. This excess of fair value over cost of assets
acquired will be recorded as a long-term liability that will be amortized over
the expected ten-year period during which Brown & Sharpe believes it will
benefit from this excess. In addition to the $9.7 million in reserves
established with respect to DEA personnel, assets and liabilities, the Company
plans to record a one-time charge of an estimated $1.6 million in connection
with the DEA Acquisition to establish additional reserves relating to
anticipated consolidation and related cost savings measures to be taken with
respect to Brown & Sharpe's existing personnel, assets and liabilities. The
Company believes that these reserves, when combined with reserves established
in connection with the Roch Acquisition, will be adequate for all currently
anticipated costs associated with the consolidation of DEA, Roch and Mauser.
19
<PAGE>
DEA SELECTED COMBINED FINANCIAL DATA
The following selected combined financial information of DEA for each of the
last three fiscal years is derived from the audited Combined Financial
Statements of DEA, including the notes thereto. The data for the quarters ended
March 31, 1993 and March 31, 1994, are unaudited but, in the opinion of
management, reflect all adjustments (consisting only of normal recurring items)
necessary for a fair presentation of the results for such interim periods. The
results of the quarter ended March 31, 1994 are not necessarily indicative of
the results that may be expected for the full year. The following selected
financial information should be read in conjunction with the Combined Financial
Statements of DEA, related notes and other financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
-------------------------------------- ----------------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 31, MAR. 31, MAR. 31, MAR. 31,
1991 1992 1993 1993 1993 1994 1994
-------- -------- -------- -------- -------- -------- --------
(LIRE IN MILLIONS; DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales............... L117,662 L124,749 L178,297 $110,675 L29,137 L34,282 $21,280
Cost of goods sold...... 93,561 83,922 114,363 70,989 20,830 22,197 13,778
Selling, general and
administrative expense. 35,388 39,873 48,764 30,269 11,302 12,236 7,595
Restructuring costs..... -- 2,949 823 511 -- -- --
Depreciation and
amortization........... 5,641 5,718 5,690 3,532 1,384 1,196 742
-------- -------- -------- -------- ------- ------- -------
Operating profit (loss). (16,928) (7,713) 8,657 5,374 (4,379) (1,347) (836)
Interest expense, net... (12,086) (11,731) (9,918) (6,157) (2,981) (2,895) (1,798)
Other income (expense),
net.................... 10,688 (4,789) (2,599) (1,613) 227 935 580
-------- -------- -------- -------- ------- ------- -------
Net income (loss)....... L 18,326 L(24,233) L (3,860) $ (2,396) L(7,133) L(3,307) $(2,053)
======== ======== ======== ======== ======= ======= =======
OTHER DATA:
EBITDA(1)............... L(11,287) L 1,120 L 15,170 $ 9,417 L(2,995) L (151) $ (93)
Capital expenditures.... 3,107 3,080 3,165 1,965 780 193 120
BALANCE SHEET DATA (END
OF PERIOD):
Working capital......... (135) 4,561 1,930 1,198 (1,598) 95 58
Property, plant and
equipment, net......... 12,979 9,558 9,341 5,798 9,700 8,593 5,334
Total assets............ 142,239 184,455 186,658 115,864 183,879 170,519 105,846
Total debt including
indebtedness to
affiliates............. 106,466 120,047 130,755 81,163 132,416 128,649 79,857
</TABLE>
- - --------
(1) "EBITDA" consists of earnings before interest expense, other income
(expense), restructuring charges, provision for income taxes, depreciation
and amortization. EBITDA is included herein to provide additional
information, and should not be construed as a substitute for cash flow from
operating activities, which is determined in accordance with generally
accepted accounting principles. DEA incurred restructuring charges of
L2,949 and L823 ($511) for the years ended December 31, 1992 and December
31, 1993, respectively.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF DEA
The Combined Financial Statements of DEA have been prepared in accordance
with accounting principles generally accepted in the United States and include
the financial position and results of operations of the companies and divisions
described in Note 1 of the Combined Financial Statements of DEA. This
discussion supplements the detailed information in the Combined Financial
Statements of DEA and notes thereto included elsewhere in this Prospectus and
should be read in conjunction therewith.
RESULTS OF OPERATIONS
The following table sets forth the percentage of net sales of DEA represented
by the components of income and expense for the years ended December 31, 1992
and 1993 and the three months ended March 31, 1993 and 1994:
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
------------------ ------------------
DEC. 31, DEC. 31, MAR. 31, MAR. 31,
1992 1993 1993 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0% 100.0%
Cost of products sold................... (77.2) (64.1) (71.5) (64.7)
----- ----- ----- -----
Gross profit........................ 22.8 35.9 28.5 35.3
Selling, general and administration..... (21.9) (27.3) (38.8) (35.7)
Restructuring costs..................... (2.4) (0.5) -- --
Depreciation and amortization........... (4.6) (3.2) (4.7) (3.5)
----- ----- ----- -----
Operating income (loss)............. (6.0) 4.9 (15.0) (3.9)
Interest expense, net................... (9.4) (5.6) (10.2) (8.4)
Other income (expense), net............. (4.0) (1.5) 0.8 2.7
----- ----- ----- -----
Net income (loss)................... (19.4)% (2.2)% (24.5)% (9.6)%
===== ===== ===== =====
</TABLE>
Quarter Ended March 31, 1994 compared to Quarter Ended March 31, 1993
Net Sales. Net sales in the first quarter of 1994 rose to L34.3 billion from
L29.1 billion in the first quarter of 1993, an increase of 17.7%. This increase
was due to improvements in the performance in the U.S. and European markets,
which offset a decline in net sales in Italy. Net sales in Italy for the first
quarter of 1994 were L5.6 billion, a decrease of 47.4% as compared to net sales
of L10.6 billion in the first quarter of 1993. The decrease was primarily due
to an unusually large sale in the 1993 period. Net sales in the United States
in the first quarter of 1994 increased 30.2% to L9.3 billion from L7.2 billion
in the prior year due in part to generally improved economic conditions in the
United States and in the automotive industry in particular. In addition, a
general reorganization of the U.S. operations contributed to the increase in
net sales. In Europe (excluding Italy), net sales for the first quarter of 1994
totaled L10.5 billion, an increase of 19.4% compared to net sales of L8.8
billion in the first quarter of 1993. This increase was principally due to
modest improvement in the major European economies. Net sales in the rest of
the world were L8.9 billion in the first quarter of 1994, an increase of 242.5%
as compared to net sales of L2.6 billion in the prior year's quarter. This
growth reflects increased sales in South America resulting from the
reorganization of sales operations and increased marketing as well as increased
net sales in China.
Gross Profit. Gross profit margin increased to 35.3% in the first quarter of
1994 from 28.5% in the first quarter of the previous year. This improvement
resulted primarily from a cost reduction program as well as the introduction of
a new line of CMM products with higher average profit margins than DEA's
previous product mix.
Selling, General and Administrative Expense. SG&A expense in the first
quarter of 1994 totaled L12.2 billion, an increase of L0.9 billion, or 8.3%,
from the total in the first quarter of 1993. As a percentage of net
21
<PAGE>
sales, these expenses decreased to 35.7% from 38.8% in the first quarter of
1993. The decrease reflects the results of DEA's cost control program.
Operating Profit (Loss). DEA recorded an operating loss of L3.3 billion
during the first quarter of 1994 compared to a loss of L7.1 billion in the
first quarter of 1993. The improvement was primarily due to increased net
sales, increased sales of products with higher average profit margins and the
cost reduction program discussed above.
Interest Expense. Net interest expense for the first quarter of 1994 and the
first quarter of 1993 totaled L2.9 billion and L3.0 billion, respectively. The
reduction of L0.1 billion reflects lower average interest rates and a
reduction in long-term borrowing. At March 31, 1994, DEA's borrowings,
including interest-bearing payables to affiliates, totaled L128.6 billion
($79.9 million). In the DEA Acquisition, Finmeccanica will assume, discharge
or waive all but approximately L22.2 billion ($13.8 million) of these
borrowings. See "DEA Acquisition" and "Pro Forma Combined Financial
Statements."
Other Income, Net. Other income, net of L0.9 billion in the first quarter of
1994 and L0.2 billion in the first quarter of 1993 is comprised primarily of
foreign exchange gains.
Net Income (Loss). As a result of the factors discussed above, DEA recorded
a net loss of L3.3 billion in first quarter of 1994 compared to a net loss of
L7.1 billion in the first quarter of 1993.
Year Ended December 31, 1993 Compared to Year Ended December 31, 1992
Net Sales. Net sales in the year ended December 31, 1993 totaled L178.3
billion, an increase of 42.9% as compared to net sales of L124.7 billion in
the year ended December 31, 1992. Net sales in Italy were L40.8 billion in
1993, a 45.4% increase as compared to L28.1 billion in 1992. The increase was
principally due to a general restructuring of the sales network, an unusually
large contract from a major Italian industrial group, and the launch of a new
line of CMM products. Net sales in 1993 in the United States increased 75.2%
to L54.3 billion from L31.0 billion in 1992. This increase resulted from a
devaluation of the Lire in the fourth quarter of 1992, as well as from general
reorganization of DEA's U.S. operations and improved economic conditions in
the United States. In Europe, other than Italy, net sales in 1993 totaled
L55.1 billion, an increase of 22.4% as compared to net sales of L44.0 billion
in 1992, reflecting an increase in market share resulting in part from the
devaluation of the Lire. Net sales in the rest of the world were L28.0 billion
in 1993, an increase of 29.0% as compared to net sales of L21.7 billion in
1992, in part as a result of increased net sales in China.
Gross Profit. Gross profit margin increased to 35.9% in 1993 from 32.7% in
1992. This improvement was principally due to devaluation of the Lire in the
fourth quarter of 1992, as well as cost reductions achieved as a result of a
reorganization of DEA's sales and distribution organization, as well as
increased efficiency in research and development and manufacturing operations.
Selling, General and Administrative Expense. SG&A expense increased 22.3% to
L48.8 billion in 1993 compared to L39.9 billion in 1992. SG&A expense in 1993
was offset by the recognition of L2.4 billion of government grants receivable
in connection with research and development activities. Excluding this item,
SG&A expense totaled L51.2 billion in 1993 (28.7% of net sales) compared to
L39.9 billion (32.0% of net sales) in 1992. This percentage decrease reflects
the cost reductions achieved following the reorganization in 1992 and
management's cost control program.
Operating Profit (Loss). DEA recorded an operating profit of L8.7 billion in
1993, as compared to a loss of L7.7 billion in 1992. Included in these figures
are restructuring costs of L0.8 billion in 1993 and L2.9 billion in 1992. The
restructuring costs in 1993 related to the dismissal of employees in France.
The restructuring costs in 1992 related to staff reductions in France and the
early retirement of certain employees. The operating profit was primarily the
result of devaluation of the Lire in the fourth quarter of 1992, as well as
cost savings arising from the restructuring of DEA's operations in 1992,
increased sales volume and improvements in manufacturing efficiency.
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Interest Expense. Net interest expense for 1993 and 1992 totaled L9.9
billion and L11.7 billion, respectively. This reduction was principally
attributable to the general decrease in interest rates throughout the
countries in which DEA holds borrowings and a decline in DEA's long-term
borrowings.
Other Income, Net. Other expense, net of L2.6 billion in 1993 and L4.8
billion in 1992 were primarily comprised of foreign exchange losses. The large
foreign exchange loss in 1992 principally arose due to the devaluation of the
Lire in the final quarter of 1992 against DEA's principal foreign trading
currencies, the U.S. dollar, German mark and the Japanese yen. DEA is not a
party to any forward exchange contracts or similar investments as a hedge
against transactions denominated in foreign currency.
Net Income (Loss). As a result of the factors discussed above, DEA recorded
a net loss of L3.9 billion in 1993 compared to a net loss of L24.2 billion in
1992.
LIQUIDITY AND CAPITAL RESOURCES
DEA has historically financed its operations with short-term borrowings
provided from affiliated companies and banks. In addition, long-term financing
for capital expenditures and research and development has been provided by a
mix of long-term loans (from both lending institutions and government
agencies) and government grants. Under the terms of the DEA Acquisition
Agreement, Finmeccanica has agreed to assume, discharge or waive all but
approximately L22.2 billion ($13.8 million) of DEA's existing borrowings. See
"DEA Acquisition."
Cash Flow. The operating activities of DEA used cash of L9.3 billion in
1993, primarily as a result of an increase in accounts receivable as a result
of higher sales, as well as a decrease in accounts payable from an unusually
high amount at the end of 1992. In 1992, total cash used by operating
activities was L44.7 billion, primarily due to the conversion of Digital
Electronic Automation Company (USA) from a division of Elsag Bailey Inc. to a
subsidiary of DEA. On the date of the conversion, Elsag Bailey Inc. eliminated
the net asset deficiency of the division by waiving a portion of a working
capital advance granted to it. In the first quarter of 1994, operating
activities provided cash of L4.0 billion, primarily as a result of a decrease
in accounts receivable due to the normal pattern of higher sales volume at the
end of the year.
In 1993, investing activities used cash of L3.6 billion, consisting
primarily of capital expenditures. Investment transactions used cash of L3.3
billion in 1992, as the proceeds of sales of fixed assets, primarily the sale
of property in Spain, were offset in part by the purchase of assets from
Renault Automation and capital expenditures. In the first quarter of 1994,
investing activities provided cash of L0.5 billion, as a decrease in deferred
charges more than offset small amounts of capital expenditures.
Increases in borrowings resulted in net cash from financing activities of
L16.1 billion in 1993. Borrowings and current maturities of debt increased to
L47.1 billion at the end of 1993 from L21.2 billion at year end 1992. This
increase of L25.8 billion, principally arising in short term borrowings,
resulted from the acquisition of DEA USA from Elsag Bailey Inc. In 1992, cash
flow from financing activities showed a net inflow of L46.4 billion as a
result of the waiving of borrowings from Elsag Bailey Inc. in connection with
the acquisition of DEA USA. In the first quarter of 1994, financing activities
used cash of L2.9 billion because of a decrease in borrowings.
Working Capital. Working capital decreased to L1.9 billion at the end of
1993 from L4.6 billion at the end of 1992. Accounts receivable increased to
L83.7 billion at the end of 1993 from L74.8 billion at the end of 1992 as a
result of the increase in net sales offset by a reduction in the average
collection period. Inventories decreased slightly in 1993, to L67.1 billion at
the end of 1993 from L68.7 billion at the end of 1992, as a result of normal
fluctuations in the purchasing, manufacturing and selling cycle. Accounts
payable decreased to L25.9 billion at the end of 1993 from L33.7 billion at
the end of 1992, reflecting the different purchasing trends and patterns in
the final four months of 1993 compared to 1992.
Capital Expenditures. Capital expenditures totaled L3.2 billion in 1993
compared to L3.1 billion in 1992, a level sufficient to maintain the
operations of the businesses. In the first quarter of 1994, capital
expenditures totaled L0.2 billion.
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