<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1994
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
BROWN & SHARPE MANUFACTURING COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 05-0113140
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
PRECISION PARK, 200 FRENCHTOWN ROAD
NORTH KINGSTOWN, RHODE ISLAND 02852
TELEPHONE: (401) 886-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
CHARLES A. JUNKUNC
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
BROWN & SHARPE MANUFACTURING COMPANY
PRECISION PARK, 200 FRENCHTOWN ROAD
NORTH KINGSTOWN, RHODE ISLAND 02852
TELEPHONE: (401) 886-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
HOWARD K. FUGUET, ESQ. DENNIS J. BLOCK, ESQ.
ROPES & GRAY WEIL, GOTSHAL & MANGES
ONE INTERNATIONAL PLACE 767 FIFTH AVENUE
BOSTON, MASSACHUSETTS 02110 NEW YORK, NEW YORK 10153
(617) 951-7000 (212) 310-8000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE PER SENIOR AGGREGATE REGISTRATION
REGISTERED REGISTERED NOTE OFFERING PRICE FEE(1)
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Senior Notes due
2002................... $75,000,000(1) 100% $75,000,000 $25,862.07
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
----------------
CROSS REFERENCE SHEET FOR PROSPECTUS
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
----------------------- ----------------------
<S> <C>
1. Forepart of Registration
Statement and Outside Front Facing Page; Cross Reference Sheet; Front
Cover Page of Prospectus....... Cover Page
2. Inside Front and Outside Back
Cover of Prospectus............ Table of Contents; Stabilization Legend
3. Summary Information, Risk
Factors and Ratio of Earnings Summary; Risk Factors; Brown & Sharpe
to Fixed Charges............... Selected Consolidated Financial Data
4. Use of Proceeds................ Use of Proceeds
5. Determination of Offering
Price.......................... Underwriting
6. Dilution....................... Inapplicable
7. Selling Security Holders....... Inapplicable
8. Plan of Distribution........... Underwriting
9. Description of Securities to be
Registered..................... Description of Senior Notes
10. Interests of Named Experts and
Counsel........................ Legal Opinions; Experts
11. Information With Respect to the
Registrant
(a) Description of Business...... The Company; Business
(b) Description of Property...... Business
(c) Legal Proceedings............ Business; Notes to Consolidated Financial
Statements of Brown & Sharpe
(d) Common Equity Securities..... Inapplicable
(e) Financial Statements......... Consolidated Financial Statements
(f) Selected Financial Data...... Brown & Sharpe Selected Consolidated
Financial Data
(g) Supplementary Financial Notes to Consolidated Financial Statements
Information.................. of Brown & Sharpe
(h) Management's Discussion and
Analysis of Financial
Condition and Results of Management's Discussion and Analysis of
Operations................... Financial Condition and Results of
Operations of Brown & Sharpe; Management's
Discussion and Analysis of Financial
Condition and Results of Operations of DEA
(i) Changes in and Disagreements
with Accountants on
Accounting and Financial
Disclosure................... Inapplicable
(j) Directors and Executive
Officers..................... Management
(k) Executive Compensation....... Management
(l) Security Ownership of Certain
Beneficial Owners and
Management................... Principal Stockholders
(m) Certain Relationships and
Related Transactions......... DEA Acquisition; Management
12. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities..... Inapplicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 24, 1994
$75,000,000
BROWN & SHARPE
% SENIOR NOTES DUE 2002
The Company is hereby offering $75,000,000 aggregate principal amount of %
Senior Notes due 2002. The Senior Notes will mature on August 1, 2002. Interest
on the Senior Notes will be payable semi-annually on February 1 and August 1 of
each year, commencing on February 1, 1995. 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
interest to the date fixed for 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. See "Description of Senior Notes."
In the event of a Change of Control (as defined), the Company is obligated to
make an offer to purchase all outstanding Senior Notes at a price of 101% of
the principal amount thereof, plus accrued interest thereon. In addition, the
Company is obligated in certain instances to make offers to purchase Senior
Notes at a price of 100% of the principal amount thereof, plus accrued interest
thereon, with the Net Proceeds (as defined) of certain sales or other
dispositions of assets.
The Senior Notes will be senior obligations of the Company ranking pari passu
in right of payment with all existing and future senior indebtedness. The
Senior Notes will be unsecured obligations of the Company and will not be
guaranteed by any of its subsidiaries. The Company expects, prior to
consummation of the Offering, to enter into a new revolving credit facility
which will be secured by substantially all of the Company's domestic inventory
and receivables.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SENIOR NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
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<S> <C> <C> <C>
Per Senior Note........................... % % %
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Total..................................... $ $ $
</TABLE>
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- --------------------------------------------------------------------------------
(1)Plus accrued interest, if any, from , 1994.
(2)See "Underwriting" for indemnification agreements.
(3)Before deducting estimated expenses of $ payable by the Company.
The Senior Notes offered hereby are being offered by Wertheim Schroder & Co.
Incorporated, subject to prior sale and acceptance by Wertheim Schroder & Co.
Incorporated and subject to its right to reject any order in whole or in part.
It is expected that the Senior Notes, in temporary or definitive registered
form, will be available for delivery on or about , 1994, in New York, New
York. If temporary Senior Notes are delivered, definitive Senior Notes will be
available for exchange as soon as practicable after that date.
Wertheim Schroder & Co.
Incorporated
July , 1994
<PAGE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION ABOUT THE
COMPANY CONTAINED IN THIS PROSPECTUS SINCE THE DATE HEREOF. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
ANY SECURITY OTHER THAN THE SECURITIES COVERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, information statements and other
information with the Securities and Exchange Commission (the "Commission").
The Registration Statement, and the exhibits thereto, as well as such reports,
information statements and other information can be inspected and copied at
the Public Reference Room of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the following regional
offices of the Commission: Seven World Trade Center, 13th Floor, New York, New
York 10048, and Suite 1400, Northwestern Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material can be obtained from
the Public Reference Section of the Commission at the Washington address at
prescribed rates. The Company's Class A Common Stock, Preferred Stock Purchase
Rights and 9 1/4% Convertible Subordinated Debentures are registered pursuant
to Section 12(b) of the Exchange Act and are listed on the New York Stock
Exchange, and the Company's Class B Common Stock is registered pursuant to
Section 12(g) of the Exchange Act. Reports, proxy statements and other
information concerning the Company may be inspected and copied at the offices
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. See
"Additional Information."
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information............... 2
Summary............................. 3
Risk Factors........................ 8
The Company......................... 12
DEA Acquisition..................... 12
Use of Proceeds..................... 15
Capitalization...................... 16
Pro Forma Combined Financial
Statements......................... 17
Brown & Sharpe Selected Consolidated
Financial Data..................... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations of Brown & Sharpe.... 24
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DEA Selected Combined Financial
Data............................... 34
Management's Discussion and
Analysis of Financial Condition
and Results of Operations of DEA... 35
Business............................ 38
Management.......................... 48
Principal Stockholders.............. 52
Description of Senior Notes......... 54
Description of Revolving Credit
Facility........................... 71
Underwriting........................ 72
Legal Opinions...................... 72
Experts............................. 72
Additional Information.............. 73
Index to Financial Statements....... F-1
</TABLE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR NOTES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements (including the notes thereto)
appearing elsewhere in this Prospectus. As used in this Prospectus, the term
"Brown & Sharpe" refers to Brown & Sharpe Manufacturing Company and (unless the
context otherwise requires) its consolidated subsidiaries before giving effect
to its acquisition (the "DEA Acquisition") of DEA S.p.A. and its subsidiaries
(collectively "DEA"), and the term the "Company" refers to Brown & Sharpe
Manufacturing Company and (unless the context otherwise requires) its
consolidated subsidiaries after giving effect to the DEA Acquisition. The DEA
Acquisition is a condition to the Offering. Unless otherwise noted, in this
Prospectus Italian Lire, French Franc and German Mark amounts have been
translated into U.S. dollars at the March 31, 1994 exchange rates of L1,611,
FF5.81 and DM1.67 to $1.00, respectively.
THE COMPANY
The Company is a leader in the design, manufacture and marketing of
dimensional metrology products worldwide under several internationally
recognized brand names. The Company's products measure the physical dimensions
of objects and are used by a wide variety of industrial companies to improve
product quality by monitoring product conformance to specifications.
Manufacturers are increasingly integrating quality control functions, and
therefore the Company's products, directly into the manufacturing process.
Primary end markets for the Company's products are the automotive, aerospace
and industrial machinery industries. The Company has sold over 15,000
coordinate measuring machines worldwide and derived over 15% of its pro forma
1993 net sales from aftermarket sales and service.
The Company's operations are conducted through three units: Measuring
Systems, Precision Measuring Instruments and Custom Metrology.
. THE MEASURING SYSTEMS GROUP (the "MS Group"), the Company's largest unit,
manufactures and markets a wide range of manual and computer-controlled,
high-precision coordinate measuring machines and measuring robots ("CMMs").
CMMs measure manufactured products and their components within exacting
dimensional tolerances, thereby enabling manufacturers to minimize scrap
and rework costs, reduce warranty expense and improve product quality. The
MS Group sells a wide variety of attachments, accessories and related
software and provides aftermarket parts and services. Its products are sold
under the Brown & Sharpe (R), Leitz (R) and DEA (R) brand names. The
Company believes it is the worldwide market leader for CMM products as
measured by net sales.
. THE PRECISION MEASURING INSTRUMENTS DIVISION (the "PMI Division")
manufactures and markets a wide range of mechanical and electronic
measuring and inspection tools including micrometers, dial indicators,
calipers, gauge blocks and height gauges. PMI Division products are sold
under the Brown & Sharpe (R), Tesa (R), Etalon (R), Interapid (R), Standard
Gage (R), Mauser (R), Mercer (R) and Roch (R) brand names.
. THE CUSTOM METROLOGY DIVISION (the "CM Division") designs and engineers
specialty products and systems to provide customized solutions for unique
measurement or inspection problems. The CM Division also manufactures and
markets probes, factory networks and inspection stations. Its products are
sold under the Tesa (R) and Mercer (R) brand names.
Brown & Sharpe, founded in 1833, has been a leading manufacturer of precision
manufacturing tools and instruments for many years. For most of its history,
Brown & Sharpe was principally known for the manufacture of metal cutting
machine tools. From 1985 to 1993, Brown & Sharpe undertook a series of
acquisitions, divestitures and other actions which transformed what had been
principally a machine tool company into a leader in the field of dimensional
metrology.
Brown & Sharpe is implementing a strategy designed to improve its
competitiveness and position itself for improvement in its markets, including
the currently depressed European market. Key elements of this strategy are (i)
expanding its market presence in the metrology industry, including through
acquisition and consolidation opportunities, (ii) reducing product costs
through more cost-effective product design, selective outsourcing and
consolidation of manufacturing processes, (iii) providing "best in class"
customer service and strengthening its worldwide distribution network and (iv)
focusing on technological innovations designed to improve product performance
and the development of new products.
3
<PAGE>
1994 STRATEGIC ACQUISITIONS
As part of its strategy, Brown & Sharpe has entered into an agreement to
acquire DEA, the Italy-based metrology business of Finmeccanica S.p.A.
("Finmeccanica"), for a purchase price of 3,450,000 shares of Brown & Sharpe's
Class A Common Stock (subject to a post-closing purchase price adjustment) and
the assumption of approximately $13.8 million of DEA's existing indebtedness.
DEA, a worldwide leader in the manufacturing and marketing of CMMs and related
accessories, software and services, had 1993 net sales and operating profit of
$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 the automotive and aerospace industries and also derives a significant
portion of its revenues through the sale of upgrades, enhancements, replacement
parts and services. Brown & Sharpe 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 strengthen Brown &
Sharpe's existing CMM product line and distribution network. Brown & Sharpe
intends to continue to manufacture and market DEA's products under the DEA (R)
brand name and to provide support, including technical assistance and upgrades,
to DEA customers.
Also as part of this strategy, in March 1994 Brown & Sharpe acquired (the
"Roch Acquisition") Ets. Pierre Roch S.A., based in France ("Roch"), and Roch's
German affiliate, Mauser Prazisions-Messmittel GmbH ("Mauser"). Roch
manufactures and, together with Mauser, markets mechanical and electronic
measuring and inspection tools and in 1993 generated aggregate sales of
approximately $10 million. Brown & Sharpe believes that the Roch Acquisition
will broaden the PMI Division's technological capabilities and product line and
over time will enable it to reduce manufacturing costs.
The Company's plan for integrating DEA, Roch and Mauser 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 certain redundant 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. See "Risk Factors--Risks
Related to 1994 Strategic Acquisitions" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Brown & Sharpe--
Effects of Roch Acquisition and DEA Acquisition."
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>
4
<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>
5
<PAGE>
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
DECEMBER 25, 1993(1) APRIL 2, 1994(1)
-------------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales................................ $277,988 $ 60,844
Gross profit............................. 92,672 20,201
Operating profit......................... 19,848 1,023
Net income (loss)........................ 9,327 (1,150)
BALANCE SHEET DATA (AT PERIOD END):
Working capital.......................... $133,492
Total assets............................. 263,772
Total debt............................... 91,000
Shareowners' equity...................... 81,296
OTHER DATA:
EBITDA(3)................................ $ 28,993 $ 2,925
Depreciation and amortization(4)......... 8,499 1,902
Pro forma interest expense............... 10,855 2,714
Ratio of EBITDA to pro forma interest ex-
pense................................... 2.7x 1.1x
</TABLE>
BROWN & SHARPE SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
----------------------------------------------- -----------------
DEC. 30, DEC. 29, DEC. 28, DEC. 26, DEC. 25, MAR. 27, APRIL 2,
1989 1990 1991(2) 1992(2) 1993(2) 1993(2) 1994
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $142,044 $176,703 $175,847 $160,695 $157,035 $39,758 $36,659
Gross profit............ 46,169 40,882 56,366 44,412 46,194 11,310 10,719
Operating profit (loss). 8,271 (12,089) (306) (8,097) 720 566 (1,542)
Income (loss) from con-
tinuing operations..... 5,953 (12,237) (2,901) (7,984) (2,416) 1,228 (2,874)
OTHER DATA:
EBITDA(3)............... $ 15,386 $ (305) $ 10,194 $ 4,336 $ 7,210 $ 2,212 $ (235)
Number of employees(5).. 1,674 1,889 2,011 1,872 1,656 1,603 1,628
Net sales per employee.. $ 84.9 $ 93.5 $ 87.4 $ 85.8 $ 94.8 n/a n/a
</TABLE>
DEA SUMMARY COMBINED FINANCIAL DATA
<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
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS; LIRE IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... L117,662 L124,749 L178,297 $110,675 L29,137 L34,282 $21,280
Gross profit............ 24,101 28,429 63,934 39,686 8,307 12,085 7,502
Operating profit (loss). (16,928) (7,713) 8,657 5,374 (4,379) (1,347) (835)
OTHER DATA:
EBITDA(3)............... L(11,287) L 1,120 L 15,170 $ 9,417 L(2,995) L (151) $ (93)
Number of employees(5).. 982 802 690 690 720 697 697
Net sales per employee.. L 119.8 L 155.5 L 258.4 $ 160.4 n/a n/a n/a
</TABLE>
6
<PAGE>
(footnotes for preceding page)
- --------
(1) The pro forma income statement data and other data assume that the Roch
Acquisition, the DEA Acquisition and the Offering and the application of
the net proceeds therefrom occurred on December 27, 1992, and the pro forma
balance sheet data assume that the DEA Acquisition and the Offering and the
application of the net proceeds therefrom occurred on April 2, 1994. See
"Pro Forma Combined Financial Statements."
(2) Restated to reflect the change in accounting for large machinery
construction contracts for Brown & Sharpe's European operations. See Note 2
of Notes to Consolidated Financial Statements of Brown & Sharpe.
(3) "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. DEA incurred restructuring charges of L2,949 and
L823 ($511) for the years ended December 31, 1992 and December 31, 1993,
respectively.
(4) Depreciation and amortization includes amortization of excess of fair value
over cost of assets acquired.
(5) Figures represent the average of the number of employees at the beginning
of period and at the end of period, adjusted in the case of Brown & Sharpe
for employees engaged directly in discontinued operations.
7
<PAGE>
RISK FACTORS
SUBSTANTIAL INDEBTEDNESS
The Company will have significant debt service obligations after completion
of the Offering. On a pro forma basis, assuming that the DEA Acquisition and
the Offering and the application of net proceeds therefrom had occurred on
April 2, 1994, the Company would have had total outstanding long-term
indebtedness (including the current portion thereof) and total shareowners'
equity of approximately $91.0 million and $81.3 million, respectively. See
"Capitalization."
The Company's indebtedness could have important consequences to holders of
the Senior Notes, including the following: (i) the Company's ability to obtain
additional financing in the future for working capital, capital expenditures,
acquisitions or other corporate purposes may be impaired, (ii) a substantial
portion of the Company's cash flow from operations will be used to pay
principal and interest on its indebtedness, thereby reducing the funds
available to the Company for its operations and future business opportunities,
(iii) the Company's borrowings under the Revolving Credit Facility will be at
floating rates of interest, which could result in higher interest expense in
the event of an increase in interest rates, (iv) the Revolving Credit Facility
will contain financial and other restrictive covenants which could limit the
Company's operating and financial flexibility and, if violated, would result in
an event of default which, if not cured or waived, could preclude the Company's
access to credit under such facility or otherwise have a material adverse
effect on the Company, (v) the Company may be more vulnerable to general
economic and industry downturns, (vi) the Company's ability to purchase the
Senior Notes upon a Change in Control may be impaired, (vii) $8 million
principal amount of the Company's 9 1/4% Convertible Subordinated Debentures
will be due pursuant to applicable sinking fund provisions prior to the
maturity of the Senior Notes and (viii) all of the indebtedness under the
Revolving Credit Facility will become due prior to the maturity of the Senior
Notes. See "Description of Senior Notes" and "Description of Revolving Credit
Facility."
HISTORICAL LOSSES
Brown & Sharpe had losses from continuing operations of approximately $2.9
million, $8.0 million, $2.4 million and $2.9 million in fiscal 1991, 1992, 1993
and the first quarter of 1994, respectively. In addition, Brown & Sharpe
expects to report a net loss for the second quarter of 1994. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Brown & Sharpe--Results of Operations." In addition, DEA had operating losses
of L16.9 billion, L7.5 billion and L1.3 billion ($0.8 million) in 1991 and 1992
and the first quarter of 1994, respectively, and operating profit of L8.7
billion ($5.4 million) in 1993.
In 1990, Brown & Sharpe acquired the Industrial Metrology Technology Division
and certain related marketing and sales assets of Wild Leitz GmbH (such
division and related assets, "Leitz"). In the year prior to the acquisition,
Leitz's net sales were approximately 21% of Brown & Sharpe's net sales in that
year. While Leitz has strategic value to Brown & Sharpe, Leitz has produced
operating losses in each year since its acquisition. Brown & Sharpe believes
that these losses have resulted from the severe, prolonged recession in Europe
that began a year after the acquisition and that has resulted in price erosion
for Leitz's products and revenues below expected levels, and from unexpected
difficulties and additional expenses in integrating Leitz with Brown & Sharpe's
other CMM operations. These difficulties were heightened by the fact that the
Leitz business acquired by Brown & Sharpe did not have a complete freestanding
management structure or its own complete facilities.
RISKS RELATED TO 1994 STRATEGIC ACQUISITIONS
The Company's profitability in the foreseeable future, and accordingly its
ability to fund necessary capital expenditures and service its debt
obligations, will depend in large part on its success in integrating the
8
<PAGE>
operations of DEA, Roch and Mauser with Brown & Sharpe's existing operations.
The combined net sales of DEA, Roch and Mauser in 1993 were approximately 75%
of Brown & Sharpe's net sales in that year.
The Company's plan for integrating the operations of DEA into the MS Group
and Roch and Mauser into the PMI Division 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 annualized 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 expects to spend approximately $12.3 million for
severance and other one-time cash costs in eliminating duplicative operations
and taking other planned measures intended to produce these savings.
Upon consummation of the DEA Acqusition, the Company will have significant
manufacturing, engineering, sales and administrative facilities at 20 locations
in seven countries, and will continue to operate with a decentralized and
geographically dispersed management structure. Each of the Company's three
operating units has worldwide management and operating responsibility for
certain product and market groups. The daily operating functions and decisions,
including matters such as budgeting, accounting and cash management, are
managed by the general managers of the Company's MS Group, PMI Division and CM
Division, subject to oversight by Fred M. Stuber, President and Chief Executive
Officer, and Charles A. Junkunc, Vice President and Chief Financial Officer.
Accordingly, 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. 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 Brown & Sharpe.
See "DEA Acquisition," "Pro Forma Combined Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Brown & Sharpe--Effects of Roch Acquisition and DEA Acquisition."
RANKING OF THE SENIOR NOTES; SECURITY
The Senior Notes will be unsecured obligations of the Company and will not be
guaranteed by any of its subsidiaries. The Company expects that its obligations
under the Revolving Credit Facility will be secured by a first priority lien on
substantially all of the Company's domestic current and after-acquired
inventory and accounts receivable. Because the lender under the Revolving
Credit Facility will have such a first priority lien, the Senior Notes will be
effectively subordinated to the extent of such security interests.
The Company conducts a substantial portion of its operations through its
subsidiaries and will depend in significant part on the earnings and cash flow
of, and dividends from, such subsidiaries to pay its obligations, including
payments of principal of, premium, if any, and interest on the Senior Notes.
The right of the Company and its creditors (including the holders of the Senior
Notes) to realize proceeds from the assets of any of the Company's subsidiaries
upon any liquidation or reorganization of such subsidiary would be subject to
the prior claims of that subsidiary's creditors (except the Company, to the
extent it may itself be a creditor of such subsidiary), including trade
creditors. Accordingly, the Senior Notes will be effectively
9
<PAGE>
subordinated to the claims of creditors of the Company's subsidiaries. As of
April 2, 1994, after giving pro forma effect to the DEA Acquisition, the
Offering and the application of the net proceeds therefrom, the Company's
subsidiaries had assets of approximately $222 million and liabilities,
including trade indebtedness, of approximately $145 million.
The various jurisdictions in which the Company's foreign subsidiaries are
located may impose withholding and other taxes on distributions and payments of
dividends, interest and fees by such subsidiaries to the Company. Such taxes
could increase the cost of transferring funds from the Company's subsidiaries
to the Company, and the Senior Notes will be effectively subordinated to such
jurisdictions' claims for such taxes. There can be no assurance that the
governments of the countries in which the Company operates will not impose new,
or increase existing, taxes on distributions and payments in the future.
FOREIGN OPERATIONS
As of April 2, 1994, after giving effect to the DEA Acquisition,
approximately 75% of the Company's assets were located outside the United
States (based on historical book values). For fiscal 1993, on a pro forma basis
after giving effect to the DEA Acquisition and the Roch Acquisition,
approximately 62% of the Company's net sales were to customers located outside
the United States. Foreign operations are subject to special risks that can
materially affect the sales, profits, cash flows and financial position of the
Company, including taxes on distributions and payments, currency exchange rate
fluctuations, inflation, minimum capital requirements and exchange controls.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations of Brown & Sharpe," "Management's Discussion and Analysis of
Financial Condition and Results of Operations of DEA," "Business--Foreign
Operations," "Business--Properties," "Business--Litigation," Note 14 to
Consolidated Financial Statements of Brown & Sharpe and Note 2 to Combined
Financial Statements of DEA.
CYCLICAL NATURE OF THE METROLOGY INDUSTRY
As a capital goods supplier, the market for the Company's products is
generally subject to general economic conditions and, more specifically, to the
level of capital spending by industrial companies, especially those in the
primary end markets for the Company's products. Management believes that in
recent years, the total world market for dimensional metrology products
declined significantly. Although the recession has subsided in the United
States, the Company still faces poor economic conditions in Europe and Japan.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations of Brown & Sharpe" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of DEA."
COMPETITION
The Company's business is subject to direct and indirect competition from a
considerable number of both domestic and foreign firms, a number of which are
larger in overall size than the Company. In addition, the dimensional metrology
market has suffered from overcapacity, which, together with reduced demand for
capital goods, has resulted in intense price discounting and performance
competition that have reduced margins throughout the industry. See "Business--
Competition."
CONTROL OF THE COMPANY
The Company's common stock is divided into two classes, the Class A Common
Stock and the Class B Common Stock. Shares of Class A Common Stock are entitled
to one vote per share. Shares of Class B Common Stock are entitled to ten votes
per share, except as otherwise provided by law or in Brown & Sharpe's
certificate of incorporation or by-laws. The Class A Common Stock and the Class
B Common Stock vote together as a single class on all matters, except that the
Class A Common Stock, voting alone, elects one director each year. No dividend
may be declared on shares of the Class B Common Stock unless a dividend
10
<PAGE>
at least equal in amount is declared on shares of Class A Common Stock. After
giving effect to the DEA Acquisition (prior to any post-closing adjustment for
the DEA Acquisition purchase price), various members of the Sharpe family,
including Henry D. Sharpe, Jr. and Henry D. Sharpe, III (each of whom is a
director of the Company), hold 483,966 shares of Class A Common Stock and
161,320 shares of Class B Common Stock, representing approximately 7.5% of the
outstanding aggregate equity in the Company and approximately 15.4% of the
combined voting power of the Company's outstanding common stock, and
Finmeccanica holds 3,450,000 shares of Class A Common Stock, representing
approximately 39.9% of the outstanding aggregate equity of the Company and
approximately 25.5% of the combined voting power of the Company's outstanding
common stock. In addition to the shares beneficially owned by the Sharpe
family, 247,734 shares of Class A Common Stock and 166,063 shares of Class B
Common Stock are held for the benefit of employees by Brown & Sharpe's
Employee Stock Ownership Plan of which Henry D. Sharpe, Jr. is a Trustee. Upon
consummation of the DEA Acquisition, Finmeccanica will have the right to
designate three nominees for election to the Company's Board of Directors
(which will increase from seven to ten directors) and will have certain pre-
emptive rights with respect to future issuances of common stock of the
Company. See "DEA Acquisition" and "Principal Stockholders."
LIMITED MARKET FOR THE SENIOR NOTES
Prior to the Offering, there has not been any market for the Senior Notes.
The Senior Notes will not be listed on a national securities exchange or
authorized for trading on The Nasdaq System. The Company has been advised by
Wertheim Schroder & Co. Incorporated that it presently intends to make a
market in the Senior Notes. It is not obligated to do so, however, and such
market making may be discontinued at any time. There can be no assurance that
an active public market for the Senior Notes will develop. If a public trading
market develops for the Senior Notes, future trading prices of such securities
will depend on many factors, including, among others, prevailing interest
rates, the Company's results of operations and the market for similar
securities. Depending on such factors, the Senior Notes may trade at a
discount from their face value.
11
<PAGE>
THE COMPANY
Brown & Sharpe Manufacturing Company was founded in Providence, Rhode Island
in 1833 by Joseph R. Brown, one of America's leading industrialists. In 1848,
Lucian Sharpe came to work for Joseph Brown as an apprentice and, in 1851, was
made a partner in the firm. The business grew from a small clock and watch
building and repair business to a major industrial company that introduced
several significant mechanical innovations such as the first linear dividing
engine in America in 1850, the first universal milling machine in 1861, the
first commercially saleable micrometer caliper in 1868, the first single
spindle automatic screw machine in 1880 and the first digital vernier caliper
in 1976. The Company was among the first companies in the United States to make
a registered public offering after the passage of the Securities Act of 1933,
and the Company's common stock has been listed on the New York Stock Exchange
since 1965.
The Company designs, manufactures and markets worldwide a diversified line of
dimensional metrology products and provides related services to support them.
For most of its history, the Company was principally known for its
manufacturing of metal cutting machine tools. From 1985 to 1993, the Company
undertook a series of divestitures, acquisitions and other actions which
transformed what had been principally a machine tool company into a leader in
the field of dimensional metrology. In connection with this transformation, the
Company acquired Leitz, a manufacturer of high accuracy CMMs headquartered in
Germany, in June of 1990. In March of 1994, the Company completed the Roch
Acquisition and in June 1994 entered into an agreement to acquire DEA. See "DEA
Acquisition." In addition to its metrology operations, the Company also
conducts a small education quality training products business.
Brown & Sharpe was founded as a partnership in 1833, and was incorporated in
1868 by special act of the General Assembly of the State of Rhode Island and
Providence Plantations. In 1969, Brown & Sharpe reincorporated in Delaware.
Brown & Sharpe's principal executive offices are located at Precision Park, 200
Frenchtown Road, North Kingstown, Rhode Island 02852 and its telephone number
is (401) 886-2000.
DEA ACQUISITION
The following summary of certain terms of the DEA Acquisition is qualified in
its entirety by reference to the DEA Acquisition Agreement (as defined below)
which will be included as an exhibit to the Registration Statement of which
this Prospectus is a part and is incorporated by reference herein.
Brown & Sharpe has entered into an Acquisition Agreement dated as of June 10,
1994 (the "DEA Acquisition Agreement") with Finmeccanica pursuant to which
Brown & Sharpe will purchase all of the outstanding capital stock of DEA from
Finmeccanica. DEA, a worldwide leader in the manufacturing and marketing of
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. Brown & Sharpe
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 Brown & Sharpe's CMM product
line and distribution network. The completion of the DEA Acquisition is a
condition to this Offering.
The Company's plan for integrating the operations of DEA, Roch and Mauser
into the MS Group and the PMI Division, respectively, anticipates cost savings
of nearly $8 million (before one-time implementation cash costs) to be realized
within the first twelve months of combined operations, 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 nearly $14 million after 24 months of combined
operations through these actions, further reductions in selling and
administrative expenses, rationalization of European
12
<PAGE>
manufacturing facilities and reductions in associated manufacturing overhead
costs. The Company expects to incur 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 consolidating two separate operations, in
particular operations headquartered in different countries and operating in
several countries, there can be no assurance that the anticipated cost savings
will be realized or be realized in the contemplated timetable, or that the
Company will not incur unanticipated one-time or ongoing costs or difficulties
in implementing the consolidation. In addition, there can be no assurance that
following the DEA Acquisition 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. See "Pro Forma Consolidated Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Brown & Sharpe--Effects of Roch Acquisition and DEA Acquisition."
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 on a
comparison of adjusted net asset value (as defined in the DEA Acquisition
Agreement) of DEA as of June 30, 1994 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 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, Brown & Sharpe 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
13
<PAGE>
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 Brown & Sharpe 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 meetings of stockholders. 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 Brown & Sharpe, 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 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.
DEA rents certain buildings in Italy and Spain from Elsag Bailey, S.p.A., a
subsidiary of Finmeccanica. The lease with respect to the Italian property
provides for minimum annual rent of L1.3 billion, subject to adjustment for
inflation, and expires on December 31, 1997. DEA paid L1.3 billion ($0.8
million) in rent under the lease in the year ended December 31, 1993. The lease
with respect to the Spanish property provides for an annual rent of Pesetas
30,600,000 ($0.2 million based on the March 31, 1994 exchange rate) and expires
on January 4, 1998. DEA paid L0.1 billion ($0.1 million) in rent under this
lease in the year ended December 31, 1993.
Since the transfer of the assets of the assembly divisions of DEA to Sistemi
di Assemblaggio Robotizzato, a subsidiary of Finmeccanica ("SAR"), on January
19, 1993, DEA has provided administrative services to SAR. In the year ended
December 25, 1993, SAR paid DEA L0.7 billion ($0.4 million) for these services.
In addition, Franco De Gennaro, Managing Director of DEA, is employed and paid
by Finmeccanica, and DEA reimburses Finmeccanica for the cost of his services.
14
<PAGE>
USE OF PROCEEDS
The net proceeds available to the Company from the sale of the Senior Notes
offered hereby are estimated to be approximately $72.0 million, based on the
anticipated underwriting discount, commissions and other expenses of the
Offering of approximately $3.0 million. Based on amounts outstanding as of May
27, 1994, the Company will use $10.3 million of such proceeds to repay in full
all amounts outstanding under the Loan and Security Agreement dated as of June
30, 1993 between Foothill Capital Corporation ("Foothill") and Brown & Sharpe
(the "Foothill Facility"), $16.9 million to repay in full all amounts
outstanding under the Company's foreign lines of credit (net of $6.1 million in
restricted cash balances to support certain of the lines of credit), $18.5
million to repay in full mortgage loans of certain of Brown & Sharpe's
subsidiaries, $5.0 million to repay in full certain long-term bank debt to be
retained by DEA following the DEA Acquisition, $8.8 million in revolving credit
debt to be retained by DEA following the DEA Acquisition, and $0.8 million in
prepayment premiums in connection with the prepayment of the Foothill Facility
and the mortgage loans. The balance of the net proceeds will be used for
general corporate purposes, including to fund a portion of the Company's
expected expenses in integrating DEA, Roch and Mauser.
The Foothill Facility is a secured $15 million revolving credit facility,
bears interest at a rate equal to the higher of (i) 1.75% above the highest of
the variable interest rates most recently announced by certain financial
institutions or (ii) 7% per annum, and matures on June 30, 1995. The proceeds
of the Foothill Facility are used to provide working capital. The foreign lines
of credit bear interest at rates ranging from 5.0% to 9.25% and a weighted
average interest rate of approximately 7.6%, and are used to provide working
capital. The mortgage loans to be repaid are secured by certain of the
Company's European properties, and bear interest at fixed rates ranging from
7.75% to 8.50% and a weighted average rate of approximately 8.13%. The DEA
long-term bank loans to be repaid bear interest at fixed rates ranging from
2.75% to 12.39% and a weighted average rate of approximately 8.8%, and mature
at various times from 1996 through 2004. The DEA revolving credit debt to be
repaid bears interest at 0.5% over the applicable bank's borrowing rate. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
15
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of Brown & Sharpe
at April 2, 1994, the pro forma capitalization of Brown & Sharpe at that date,
assuming the DEA Acquisition occurred on that date, and the adjusted pro forma
capitalization of the Company, assuming consummation of the DEA Acquisition and
as adjusted to give effect to the Offering and application of the net proceeds
therefrom as of such date.
<TABLE>
<CAPTION>
APRIL 2, 1994
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
Lines of credit and overdrafts................. $ 25,003 $ 25,003 $ --
Revolving Credit Agreement..................... 7,608 7,608 --
Mortgages at rates ranging from 7 3/4% to 8
1/2%.......................................... 18,355 18,355 --
DEA debt....................................... -- 13,809 --
Senior Notes offered hereby.................... -- -- 75,000
9 1/4 Convertible Subordinated Debentures due
December 2005................................. 16,000 16,000 16,000
-------- -------- --------
Total debt................................... 66,966 80,775 91,000
Preferred stock, $1.00 par value: shares autho-
rized, 1,000,000; no shares issued............ -- -- --
Common stock:
Class A, $1.00 par value: shares authorized,
15,000,000; issued, 4,651,368; and pro forma
and pro forma as adjusted, 8,101,368 (1).... 4,651 8,101 8,101
Class B, $1.00 par value: shares authorized,
2,000,000; issued 545,539................... 546 546 546
Additional paid in capital..................... 47,013 64,263 64,263
Earnings employed in the business.............. 1,503 1,503 723
Cumulative foreign currency translation adjust-
ment.......................................... 8,547 8,547 8,547
Treasury stock: 8,076 shares................... (163) (163) (163)
Unearned compensation.......................... (721) (721) (721)
-------- -------- --------
Total shareowners' equity.................. 61,376 82,076 81,296
-------- -------- --------
Total capitalization..................... $128,342 $162,851 $172,296
======== ======== ========
</TABLE>
- --------
(1) Excludes (i) 50,000 shares of Class A Common Stock as to which Diehl GmbH &
Co. (the former owner of Roch and Mauser) has a contingent right, (ii)
options to purchase 195,000 shares of Class A Common Stock granted to
employees under the Company's 1989 Equity Incentive Plan and (iii) options
to purchase 42,997 shares of Class A Common Stock granted to employees
under the Company's Amended 1973 Stock Option Plan (under which no further
awards can be made). Up to 61,600 additional shares of Class A Common Stock
may be issued under the 1989 Equity Incentive Plan. Also excludes
additional shares of Class A Common Stock that may be issued to Diehl GmbH
& Co. and Finmeccanica as post-closing adjustments to the purchase prices
for the Roch Acquisition and the DEA Acquisition, respectively. See "DEA
Acquisition."
16
<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
17
<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
18
<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
19
<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."
20
<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.
21
<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.
22
<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.
23
<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
24
<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.
25
<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.
26
<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
27
<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.
28
<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
29
<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>
30
<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
31
<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.
32
<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.
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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.
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<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
35
<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.
36
<PAGE>
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.
37
<PAGE>
BUSINESS
The following discussion of the Company's business assumes the consummation
of the DEA Acquisition, except where the context otherwise requires.
GENERAL
The Company is a leader in the design, manufacture and marketing of
dimensional metrology products worldwide under several internationally
recognized brand names. The Company's products measure the physical dimensions
of objects and are used by a wide variety of industrial companies to monitor
product conformance to specifications. Manufacturers use the Company's products
to improve product quality and are increasingly integrating quality control
functions, and therefore the Company's products, directly into the
manufacturing process. The Company markets its dimensional metrology products
and services in North America, Europe, Asia, South America and the Middle East.
Primary end markets for the Company's products are the automotive, aerospace,
and industrial machinery industries. The Company has sold over 15,000 CMMs
worldwide and, as a result of this large installed base, derived over 15% of
its pro forma 1993 net sales from aftermarket sales and service.
The Company's operations are conducted through three units: Measuring
Systems, Precision Measuring Instruments and Custom Metrology.
. THE MEASURING SYSTEMS GROUP (the "MS Group"), the Company's largest unit,
manufactures and markets a wide range of manual and computer-controlled,
high-precision CMMs. CMMs measure manufactured products and their
components within exacting dimensional tolerances, thereby enabling
manufacturers to minimize scrap and rework costs, reduce warranty expense
and improve product quality. The MS Group also sells a wide variety of
attachments, accessories and related software and provides aftermarket
parts and services. Its products are sold under the Brown & Sharpe (R),
Leitz (R) and DEA (R) brand names. The Company believes it is the
worldwide market leader for CMM products as measured by net sales.
. THE PRECISION MEASURING INSTRUMENTS DIVISION (the "PMI Division")
manufactures and markets a wide range of mechanical and electronic
measuring and inspection tools including micrometers, dial indicators,
calipers, gauge blocks and height gauges. PMI Division products are sold
under the Brown & Sharpe (R), Tesa (R), Etalon (R), Interapid (R),
Standard Gage (R), Mauser (R), Mercer (R) and Roch (R) brand names.
. THE CUSTOM METROLOGY DIVISION (the "CM Division") designs and engineers
specialty products and systems to provide customized solutions for unique
measurement or inspection problems, such as applications requiring
several simultaneous measurements or inspection of an entire object in a
high volume production line. The CM Division also manufactures and
markets probes, interfaces, statistical network software and tooling
which are purchased by OEMs for use on their inspection stations. CM
Division products are sold under the Tesa (R) and Mercer (R) brand names.
DIMENSIONAL METROLOGY INDUSTRY
Dimensional metrology products measure and inspect manufactured parts and
components for conformance to specifications. These products include a wide
range of measuring devices such as calipers, micrometers, dial indicators,
fixed gauges, height gauges, measuring microscopes, electronic probes,
customized semiautomatic and automatic measuring devices, optical and laser
measuring devices, robots, coordinate measuring machines and related software.
Prices range from $20 for a caliper to over $3 million
38
<PAGE>
for a large gantry CMM. A customer generally will choose between different
dimensional metrology technologies or products based upon the features,
complexity, variety and throughput of the items to be measured, the degree of
accuracy required, and cost differences between the available metrology
products. For example, fixed gauges are more likely to meet a customer's
metrology needs if the items that a customer must measure are all uniform in
size and shape, such as automobile connecting rods, and results are needed
instantly. If, however, a customer needs to measure a large number of items all
having different features from one another, such as the parts of a prototype
automobile engine, a more flexible measuring device such as a CMM would more
likely meet the customer's metrology needs. As manufactured products and
components become more precise and complex, flexibility of CMMs should give
them an advantage in certain applications over less flexible dimensional
metrology products such as manual, semi-automatic and fixed gauges.
Although the metrology industry is fragmented for lower-priced products,
Brown & Sharpe and DEA are two of only six major worldwide competitors that
manufacture high precision CMMs. CMM products can be grouped into three
categories: small (which can be used to measure a product such as an automobile
carburetor), medium (which can be used to measure an item such as an engine
block) and large (which can be used to measure an item such as the body of a
truck or bus). CMMs were first introduced in the 1950s, but early models were
only capable of two-axis measurement. Over time, CMMs have evolved into
complex, computer assisted or computer driven, multi-axis systems, often with
attachments such as two-axis articulated probe holders, contact and non-contact
sensors of various types, electronic touch trigger probes, continuous scanning
analog probes, marking systems, laser probes and rotary tables. Today, CMMs are
utilized to measure and inspect finished products, mechanical components and
families of parts in many basic industries, including the automotive,
aerospace, construction and farm equipment, industrial machinery, defense,
appliance, computer and electronics, medical equipment and semiconductor
industries. CMM prices range from approximately $12,000 to over $3 million
depending upon accuracy, attachments and size.
The increasing use of more sophisticated software has played an important
role in the evolution of the CMM. Improved software, CAD/CAM and network
technologies enable CMMs to automatically compensate for the position of the
piece to be measured relative to the measuring axes of the machine, eliminating
the need for the time-consuming manual positioning necessary with other
dimensional metrology products. Although CMM-type software can be added to on-
machine gauging, vision systems of various types and a small percentage of
fixed gauges, CMMs are easier to use, more flexible and generally provide more
analytical information than most products using competing technologies.
Manufacturers of component parts, as well as manufacturers of finished
products, are purchasers of CMMs and other dimensional metrology products.
Manufacturers depend upon dimensional metrology products to improve the
reliability, fit and finish of their products and to improve efficiency by
reducing errors, scrap, throughput time and work-in-progress inventories.
Traditionally, customers used either fixed gauges, optical comparators or
calipers, or other hand or bench tools to inspect product conformance to
specifications on the factory floor, while CMMs were used in factory quality
control departments due to the necessity for a controlled environment for
optimum CMM operation. Improved hardware and software technologies have allowed
customers to move CMMs onto the factory floor to facilitate direct integration
of CMM measurement capabilities into the manufacturing process. Because CMMs,
fixed gauges and certain other types of dimensional metrology products can be
configured to accommodate a wide variety of customer specifications for
accuracy, speed, set-up time and physical characteristics of the objects to be
measured, the Company believes these products can effectively meet the evolving
quality control needs of manufacturers.
Management believes that the total size of the dimensional metrology market
worldwide is approximately $1 billion for product categories in which the
Company's products generally compete. Despite growth in the dimensional
metrology markets in China, India and the Pacific Rim countries, management
believes that in recent years, the total world market for dimensional metrology
products has declined significantly in terms of dollar denominated sales. In
the three major world markets, the decline has been more significant in Europe
and Japan than in the United States. The Company believes that this overall
market decline is primarily related to global economic conditions which have
resulted in reduced levels of
39
<PAGE>
capital expenditures by manufacturers in many market segments. In addition,
during this period, revenues from sales of CMMs and other dimensional
metrology products were impacted by vigorous price and performance competition
due to overcapacity in the dimensional metrology industry and reduced demand
by the capital goods sector for dimensional metrology products. However,
because of the steady economic recovery in the United States and the
expectation that the European economies will begin to emerge from recession,
the Company believes that the world market for metrology products should
improve during the next few years.
METROLOGY BUSINESS STRATEGY
Brown & Sharpe is implementing a strategy designed to improve its
competitiveness and position itself for improvement in its markets, including
the currently depressed European market. Key elements of this strategy are (i)
expanding its market presence in the metrology industry, including through
acquisition and consolidation opportunities, (ii) reducing product costs
through more cost-effective product design, selective outsourcing and
consolidation of manufacturing processes, (iii) providing "best in class"
customer service and strengthening its worldwide distribution network and (iv)
focusing on technological innovations designed to improve product performance
and the development of new products.
Expanded Market Presence. Through the acquisitions of DEA, Roch and
Mauser, the Company has expanded its product lines and its marketing and
distribution capabilities in Europe, South America, the Middle East, India
and China. The Company intends to continue to expand and strengthen its
market presence and broaden its product lines by pursuing selected small
acquisition and consolidation opportunities within the dimensional
metrology industry. The Company believes that the dimensional metrology
industry has continuing overcapacity, and that competitors having
complementary product lines and geographic market coverage may continue to
become available for acquisition.
Competitive Costs. The Company intends to continue to increase production
efficiency through more cost-effective product designs and through other
cost reductions. The Company intends to reduce costs by using the "Design
for Manufacturability and Assembly" (DFMA) engineering principle, which
strives to use the fewest parts and the lowest cost assembly process by
examining the production processes at each facility in order to maximize
efficiency, and by outsourcing components and complete products in cases
where it can achieve its high quality standards at reduced costs. During
the last five years, net sales per employee for Brown & Sharpe have
increased from approximately $84,900 to approximately $94,800. During the
last three years, net sales per employee for DEA have increased from L119.8
million to L258.4 million.
"Best in Class" Customer Service and Worldwide Distribution
Capability. The Company provides post-sale service and support to its
customers through its customer service departments and its regional and
international demonstration centers. The Company is committed to providing
"best in class" customer service, and believes that the level of customer
service provided by the Company has improved in recent years and is
superior to the services provided by its principal competitors. In order to
continue to improve its customer service, the Company plans to increase its
emphasis on customer training by improving user manuals and documentation
relating to the Company's products, and to directly support a greater
number of its customers by adding new demonstration and service centers in
previously unserved geographic areas. In addition, the Company plans to
strengthen its worldwide distribution capability, principally by continuing
to rationalize its existing distribution network and by opening new
demonstration centers and adding new direct sales capacity or distributors
where increased volume makes such distribution methods cost effective.
Technological Innovation. The Company intends to continue to enhance and
expand its offering of systems and products through sustained engineering
and research and development. On a pro forma basis, in 1993 the Company
invested, exclusive of customer-sponsored activities and government grants,
$13.0 million, comprising 4.7% of sales, and directly involved 204
employees in product design, development, refinement and manufacturing
engineering. The Company intends to continue such research and development
at approximately this percentage of net sales. The Company performs some
additional engineering development activities through government grants in
some countries and engages in special projects that utilize customer
funding.
40
<PAGE>
MS GROUP
The MS Group, the largest of the Company's three units, accounted for more
than 70% of the Company's pro forma net sales in 1993. The MS Group is
headquartered in North Kingstown, Rhode Island. Products sold under the Brown &
Sharpe (R) name are manufactured at the North Kingstown facility, products sold
under the Leitz (R) name are manufactured in Wetzler, Germany, and products
sold under the DEA (R) name are manufactured in Turin, Italy. The Company also
manufactures some CMM products in the United Kingdom. The primary end markets
for the CMM products of the MS Group are the automotive, aerospace and
industrial machinery industries.
MS Group products range from small, manually operated CMMs to large, high
speed, high precision automatic CMMs. In addition to these standard and custom-
configured CMMs, the Company also produces and sells high-speed process control
robots. The smallest machines can measure in a volume up to 16 X 14 X 12 inches
and are priced at approximately $12,000, and the larger, high speed, high
accuracy CMMs with integrated software systems can cost over $3 million. In
addition, the MS Group provides accessories, parts, after-sales service,
rebuilds and computer hardware and software upgrades for the Company's CMMs and
competing machines.
The MS Group's "user-friendly" CMM application software is an important
component of its marketing strategy for its CMM products. Management believes
that the MS Group's uniquely functional CMM software packages give it a
competitive advantage in the marketplace for CMMs. These proprietary software
products provide the MS Group's customers with an easily understood, icon-based
inspection analysis capability, graphical user interfaces and outputs, and
networking capability with manufacturing systems. The MS Group also provides
its customers with special software and systems integration of the MS Group's
products with the customer's host computer.
Management believes that the MS Group will realize significant cost savings
and product and distribution synergies by combining the DEA business with its
existing CMM business. The primary focus of the DEA business has been large
vertical CMM products used principally in automotive and aerospace end markets,
as well as horizontal CMMs used in sheet metal gauging systems primarily in the
automotive industry. A large number of DEA's CMM products are complementary to
those of Brown & Sharpe, which focuses on medium and small CMMs. Management
believes that after the DEA Acquisition, the MS Group will be able to offer a
broader line of CMM products than any of its competitors. The combination of
the DEA business with the MS Group business is expected to result in
substantial cost savings through the elimination of duplicative administrative
and sales personnel and facilities, duplicative marketing expenses such as
advertising and trade shows, and some duplicative research and development
activities and personnel. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Brown & Sharpe--Effects of
Roch Acquisition and DEA Acquisition."
The MS Group distributes the majority of its products directly to customers
through its worldwide direct sales force. The typical sales process involves
lengthy, technical, one-on-one discussions between the salesperson or the
distributor/sales agent and the customer. As an important part of its marketing
and distribution strategy, the Company provides in-depth training to the
customer through demonstration, installation and application support both prior
to and after the sale. This direct sales and customer support strategy is
primarily implemented through the Company's customer support and demonstration
centers. The Company currently operates demonstration centers in seven cities
throughout the United States, 13 centers throughout Europe and one in Asia,
including five located at the Company's CMM manufacturing facilities. The
Company also operates contract inspection and measuring services from these
demonstration centers. Service revenue generated by the demonstration centers
offsets a portion of the cost of operating the centers. In 1994, the Company
plans to close five demonstration centers (with seven centers still remaining
in the United States) in cities where existing Brown & Sharpe and DEA
demonstration centers overlap, and to open new demonstration centers in three
additional U.S. cities and one in Asia.
41
<PAGE>
PMI DIVISION
The principal products of the Company's PMI Division are precision measuring
tools and related instruments such as micrometers, rulers, dial indicators,
calipers, electronic height gauges and gauge blocks. These tools and
instruments have a broad application and lower unit list prices (with a range
of approximately $20 to approximately $13,000) than the prices of the MS
Group's products (which range from approximately $12,000 to over $3 million).
PMI products typically measure in one or two dimensions, and are often used in
comparative measuring where an unknown part or dimension is compared to a
previously measured part or dimension. PMI products also include systems and
application software for measuring and statistical process control. The primary
end markets for the products of the Company's PMI Division are the automotive,
aerospace, metal processing and defense industries, although the Company's PMI
products are used in virtually all types of industrial settings. The Company's
PMI Division is headquartered in Renens, Switzerland, and its products are
manufactured at its plants in Rolle and Renens, Switzerland; Poughkeepsie, New
York; Leicester, St. Albans and Plymouth, England and in Luneville, France.
The PMI Division generally distributes its products through international
import companies, regional distributors and catalog houses throughout the
world. Company sales offices located in key markets provide support to the
distributors and catalog houses. As of May 27, 1994, the PMI Division operates
four sales offices in the United States and eight in other countries, which are
staffed by a total of 74 PMI Division employees as of May 27, 1994.
CM DIVISION
Headquartered in Telford, England, the CM Division is an engineering division
which designs and engineers specialty products and systems to provide
customized solutions for unique measurement or inspection problems. For
example, the CM Division recently designed and implemented a system for
measuring the thickness of the metal top of a soda can and the thickness of the
groove scored around the can's pop-up tab, so that the manufacturer could
determine the ease with which the can could be opened by the end user while
insuring that the can would not rupture. The CM Division's products include
factory networks, contact and optical measuring machines and fixtures aimed at
specific niche markets. CM Division products also include components such as
measuring sensors used in its custom gauges and fixtures as well as those
manufactured by other companies. Prices for CM Division products range from
approximately $20,000 to $1 million for systems and from approximately $150 to
$5,000 for probes, sensors and other components.
Often, the CM Division is able to produce a superior customized product while
at the same time gaining the expertise necessary to convert such customer-
funded research into new, standard Company products. For example, the CM
Division has recently developed a family of optical measuring systems, with
list prices of approximately $50,000 to $500,000.
The primary end markets for the custom-designed products of the CM Division
currently are automotive, aerospace, defense, package and can manufacturing,
oil drilling and standards laboratories. Sales of these products typically
involve a close, highly technical relationship with the customer. This direct
relationship with the customer is reinforced by strong and continuing efforts
to provide superior customer service through on-going customer training and
technical support. Sales of measuring sensors and other components to OEM
customers are generally conducted by regional distributors. In 1993,
approximately 48% of the CM Division's net sales were derived from custom-
engineered metrology solutions, including made-to-order products, and the
balance of the CM Division's net sales were derived from sales of probes,
sensors and other components.
FOREIGN OPERATIONS
The Company manufactures and sells substantial amounts of its dimensional
metrology products in foreign countries. For fiscal 1993, on a pro forma basis
after giving effect to the DEA Acquisition and the Roch Acquisition,
approximately 62% of the Company's net sales were to customers located outside
the
42
<PAGE>
United States. Manufacturing operations take place in Italy, Switzerland,
Germany, England and France, as well as in the United States, and the Company's
products are sold in over 60 countries worldwide. As of April 2, 1994, after
giving effect to the DEA Acquisition, approximately 75% of the Company's assets
were located outside the United States (based on historical book values).
Accordingly, margins and the ability to export competitively from these
manufacturing locations are affected by fluctuations in foreign currency
exchange rates. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Brown & Sharpe." For financial
information concerning the foreign operations of the Company for 1991, 1992 and
1993, see Note 14 to the Consolidated Financial Statements of Brown & Sharpe
and Note 2 to the Combined Financial Statements of DEA.
ENGINEERING AND PRODUCT DEVELOPMENT
The Company's commercial success is dependent upon its ability to develop
products, enhancements and applications that meet changing customer metrology
needs and anticipate and respond to technological changes. The Company designs,
develops and refines its products internally through engineering departments
within its product groups and divisions. The Company employs approximately 310
engineers and technicians, the majority of whom hold engineering or other
university degrees. When it is more cost-effective to do so, the Company
purchases product designs or portions of product designs from engineering
subcontractors or acquires such designs through licensing arrangements. The
Company also benefits from research and development efforts which are
subsidized by customer funds and, in certain countries, by government research
grants. The Company's research, development and manufacturing engineering
activities are conducted in the United States, Italy, France, Switzerland,
Germany, the United Kingdom and Lithuania.
The Company derived over 50% of its pro forma net sales in 1993 from the sale
of products that were introduced into the market after 1987. The Company has
been successful in bringing to market new, high-quality products and has
introduced at least one major new product every year since 1987. The current
objectives of the Company's research, development and manufacturing engineering
activities are the integration of the DEA and Roch technologies with the
Company's existing technologies and the introduction of new CMM and PMI
products. In 1993, the Company invested $13.0 million on a pro forma basis in
product design, development, refinement and manufacturing engineering, or about
4.7% of its 1993 pro forma net sales. The Company currently intends to maintain
product design, development, refinement and manufacturing engineering at
approximately this pro forma level. In 1991, 1992 and 1993, Brown & Sharpe
expended $11.4 million, $10.9 million and $8.7 million, respectively, and DEA
expended L10.9 billion, L8.2 billion and L8.3 billion ($5.1 million),
respectively, for product design, development, refinement and manufacturing
engineering. In addition, the Company performs engineering development
activities funded by government grants in some countries and engages in special
projects that utilize customer funding.
RAW MATERIALS AND SOURCES OF SUPPLY
The Company purchases certain products, raw materials, supplies and other
components from a variety of suppliers, and considers its source of supply to
be adequate. The Company does, at times, depend upon a sole source of supply
for various procurement requirements, but has not experienced any significant
difficulty in meeting delivery obligations because of its reliance on such a
supplier. The Company continues to explore means of lowering production through
selective outsourcing in situations where the Company can achieve its high
quality standards at reduced costs.
PATENTS, LICENSES, TRADEMARKS AND PROPRIETARY INFORMATION
The Company's business is not significantly affected by or dependent upon the
procurement or maintenance of patents covering the Company's products.
Nevertheless, the Company pursues, where appropriate, patent protection for
inventions, developments and improvements relating to its products both in the
United States and abroad. The Company owns or has the right to use a number of
trademarks which it
43
<PAGE>
believes are valuable in promoting the sale of certain of its principal
products, and it has registered the trademarks that it owns in the United
States and in some foreign countries. The internationally recognized brand
names under which the Company sells its products are the subject of trademarks
owned or licensed by the Company and are important to the Company's marketing
strategy, as brand name recognition is a significant factor in the dimensional
metrology market.
One of the Company's CMM products, a horizontal arm-type CMM, has been
manufactured and sold in North America under an exclusive license from an
independent German company which has recently been modified to a non-exclusive
license agreement. The Company has entered into an exclusive arrangement in
1994 with another German CMM manufacturer to market and sell its horizontal CMM
on an exclusive basis in North America and on a non-exclusive basis in the rest
of the world. In addition, the Company uses the Leitz (R) and Mauser (R) brand
names under royalty-free license agreements entered into in connection with the
Company's acquisition of these product lines. These licenses expire in 1997 and
1999, respectively. The Company believes it will be able to negotiate
satisfactory extensions prior to expiration and that the failure to renew these
licenses would not have a material adverse effect on the Company.
PROPERTIES
The following table sets forth certain information concerning the Company's
major operating facilities:
<TABLE>
<CAPTION>
OWNED/ APPROXIMATE
LOCATION LEASED PRINCIPAL USE SQUARE FOOTAGE
-------- ------ ------------- --------------
<S> <C> <C> <C>
UNITED STATES
N. Kingstown, Rhode Owned Manufacturing, Engineering, Sales and 359,000(1)
Island Administration
Poughkeepsie, New
York Owned Manufacturing 58,000
Livonia, Michigan(2) Leased Administration and Sales 57,000
Farmington Hills,
Michigan Leased Sales 24,000
ITALY
Moncalieri(2) Leased Engineering, Sales and Administration 260,000
Moncalieri(2) Leased Manufacturing 70,000
Grugliasco(2) Leased Manufacturing 105,000
GERMANY
Wetzlar Owned Manufacturing, Engineering, Sales and 101,000
Administration
Ludwigsburg Leased Sales 15,000
Frankfurt(2) Leased Sales 11,000
SWITZERLAND
Renens Owned Manufacturing, Engineering, Sales and 139,000
Administration
Rolle Owned Manufacturing 51,000
UNITED KINGDOM
St. Albans Owned Manufacturing and Sales 36,000
Telford Leased Manufacturing, Engineering, Sales and 32,000
Administration
Bedford Manufacturing, Sales and
Leased Administration 14,000
Leicester Owned Manufacturing 14,000
Swindon(2) Leased Sales 7,500
Plymouth Manufacturing, Sales and
Leased Administration 5,000
FRANCE
Luneville(3) Leased Manufacturing, Engineering and Sales 77,100
Villebon(2) Leased Sales 18,000
SPAIN
Barcelona(2) Leased Sales 16,000
</TABLE>
- --------
(1) Excludes approximately 401,000 square feet leased to unrelated parties.
(2) Acquired in the DEA Acquisition.
(3) Acquired in the Roch Acquisition.
44
<PAGE>
In addition, the Company leases smaller sales offices located in the United
States, Europe and Asia. In the opinion of management, the Company's
properties are in good condition and adequate for the Company's business as
presently conducted.
EMPLOYEES
At December 25, 1993, Brown & Sharpe had 1,543 employees, (as compared with
1,768 at December 27, 1992), including approximately 1,000 employees located
outside the United States. The reduction from the end of 1992 was due to the
sale of the machine tool parts and rebuild operations and other employee
reductions implemented as a result of the Company's cost cutting efforts,
especially in Europe. At December 31, 1993, DEA had 686 employees (as compared
with 694 at December 31, 1992), of which 465 were located in Italy and 221
were located at sales and service facilities in other countries. The Company
considers its relations with its employees to be good, although there can be
no assurance that the Company's cost-cutting efforts or other factors will not
cause a deterioration in these relations.
Approximately 1,585 of the Company's employees located at several sites in
the United States, Italy, Switzerland, England, Germany, Spain and France are
covered by collective bargaining or similar agreements. An agreement covering
approximately 22 management employees expired on June 30, 1993, and an
agreement covering approximately 438 clerical and production employees at
DEA's manufacturing facility in Italy will expire June 30, 1994. The Company
expects that these agreements will be renewed by the end of 1995. The balance
of the Company's collective bargaining agreements expire at various times
between December 4, 1994 and June 30, 1998. The Company expects that these
collective bargaining agreements will be successfully renegotiated prior to
their expiration. However, there can be no assurance that successor collective
bargaining agreements will be successfully negotiated, or that negotiations
will not result in work stoppages or that a work stoppage would not materially
interfere with the Company's ability to produce the products manufactured at
the affected location.
In addition to the collective bargaining agreements that cover workers at
certain of the Company's foreign subsidiaries, it is customary for these
employees to be represented by various works or shop councils. These councils
are governed by applicable labor laws and are comprised of members who are
elected or appointed by the work force. Except for the top level of
management, the councils represent the entire work force at their location in
its dealings with senior management on matters affecting the work force or
arising under relevant labor contracts in effect at the location.
A collective bargaining agreement with the International Association of
Machinists and Aerospace Workers (the "IAM") relating to certain manufacturing
employees in North Kingstown, Rhode Island expired in October of 1981. The
Company and the IAM failed to reach agreement on the terms of a successor
collective bargaining agreement, resulting in a strike by the IAM. See "--
Litigation." No successor collective bargaining agreement was entered into,
although the IAM remains the representative of the bargaining unit. The
Company continues to satisfy its obligation to bargain with the IAM with
respect to the terms and conditions of employment by providing notice of, and
offering to bargain with respect to, proposed changes to the terms and
conditions, although no collective bargaining has resulted in recent years.
At certain of the Company's European locations, the Company has utilized a
staffing procedure called "short work" to reduce the hours that an employee
works during periods of decreased demand for the Company's products. This
staffing procedure is similar to furloughs utilized by U.S. employers although
the specifics differ in each country. Generally, the employer is eligible for
government reimbursement for a portion of the amount paid to the employee
working reduced hours. Each country generally requires that applications be
made for reimbursement, for significant periods after payment is made to the
employee and imposes time limits and other material conditions as to how often
an employer may use this mechanism. The Company has utilized "short work" in
Switzerland and Germany. This staffing procedure is not available in France,
the United Kingdom or Japan. Approximately 150 employees were on "short work"
as of May 27, 1994. In Italy, at May 31, 1994 there were approximately 80
employees in "cassa integrazione guadagni straordinaria," a mechanism designed
to temporarily reduce DEA's work force through furlough of employees with
substantially all the employment expense reimbursed by the government. DEA's
qualifying period for governmental reimbursement expires in September 1994.
45
<PAGE>
The following table sets forth the location of the Company's employees:
<TABLE>
<CAPTION>
EMPLOYEES(1)
------------------
COUNTRY BROWN & SHARPE DEA
------- -------------- ---
<S> <C> <C>
France.................................................... 166 52
Germany................................................... 258 30
Italy..................................................... 7 481
Japan..................................................... 10 18
Spain..................................................... 0 14
Switzerland............................................... 351 0
United Kingdom............................................ 351 21
United States............................................. 485 80
----- ---
TOTAL................................................. 1,628 696
===== ===
</TABLE>
- --------
(1) Includes full-time employees on "short-work." Other part-time employees
are included on a full-time equivalent basis. Numbers for Brown & Sharpe
employees are as of May 20, 1994 and for DEA employees are as of April 30,
1994.
COMPETITION
The Company's business is subject to intense direct and indirect competition
from a considerable number of domestic and foreign firms, a number of which
are larger in overall size than the Company. Most of these firms, however, do
not compete with the Company in all product lines. The principal factors
affecting competition include reliability and quality of product,
technological proficiency, price, ease of system configuration and use,
application expertise, engineering support, local presence, distribution
networks and delivery times. Price competition has been intense for
dimensional metrology products, due to the recent period of decreased demand
for these products, which has resulted in overcapacity within the industry.
The Company believes that competition in the dimensional metrology field will
continue to be intense in the future as a result of advances in technology,
overcapacity in the dimensional metrology industry and consolidations and/or
strategic alliances among competitors. In addition to direct competition from
companies that market similar types of products, the Company is also subject
to indirect but effective competition from firms that market other dimensional
metrology products, such as fixed gauging and vision-based systems, which
utilize alternative technology or methodologies to perform functions similar
to those of the CMMs and other products manufactured or sold by the Company.
The Company's single largest global competitor is Mitutoyo/MTI Corp., a
subsidiary of Mitutoyo Solsakusho Co. Ltd., a Japan-based company, which is
the largest supplier of metrology equipment and products worldwide. In
addition to Mitutoyo, the MS Group's main competitors are Carl Zeiss, Inc., a
subsidiary of Carl-Zeiss-Stiftung AG, the Sheffield Measurement Division of
Giddings & Lewis, Inc., and LK Tool Co. Ltd., a subsidiary of TransTech Ltd.
The primary competitors faced by the PMI Division are Mitutoyo, L. S. Starrett
Co. and Federal Products Co. (Inc.), a subsidiary of Esterline Technologies
Corporation. Marposs S.p.A. is a major competitor of the CM Division for
custom metrology sales. Marposs, which is based in Italy, competes with the CM
Division through its sales subsidiaries in all major markets.
LITIGATION
The Company is involved in litigation stemming from an October 1981 strike
at the Company's Rhode Island operations. In connection with this strike, the
IAM filed charges with the National Labor Relations Board ("NLRB") which
alleged that the Company engaged in unfair labor practices. On August 28,
1990, the NLRB dismissed the IAM's charges. The IAM appealed this decision to
the U.S. Court of Appeals for the District of Columbia Circuit. On November
29, 1991, the Court accepted the legal reasoning advanced by the NLRB and the
Company in support of the NLRB's 1990 decision, but ordered the NLRB to
further clarify and support its decision. The NLRB reaffirmed its original
dismissal of the IAM charges. The IAM has filed notice of an appeal
46
<PAGE>
of the NLRB's decision. The Company is continuing to defend this case
vigorously and, in the opinion of management, the possibility of an ultimate
finding of monetary liability in this matter is remote. See Note 8 to the
Consolidated Financial Statements of Brown & Sharpe.
The Company is involved in two proceedings under the Comprehensive
Environmental Response Compensation and Liability Act, 42 U.S.C. (S) 9601 et
seq., with the federal Environmental Protection Agency and one private
contribution claim lawsuit brought by a subsequent landowner in which the
Company has been identified as one of many potentially responsible parties who
may have liability for industrial waste disposed of at two off-site sites
designated for clean-up by the government. The Company believes that its
ultimate liability with respect to these sites will not be material. In
addition, the Company was involved in an administrative proceeding with the
Department of Environmental Management of the State of Rhode Island relating
to the issuance of a Notice of Violation and Order in July 1991 alleging that
the Company contaminated the groundwater at its North Kingstown facility prior
to removal of several underground storage tanks used to store hazardous
liquids used in its manufacturing process. Tests conducted after removal of
the tanks indicated levels of contamination of groundwater in the tank area in
amounts above acceptable limits. The Company has settled the proceeding by
entry of a Consent Order pursuant to which it agreed to pay a fine of $10,000
and conduct additional groundwater testing. Test results to date indicate
there are no additional sources of contamination, and that previously detected
contamination appears to be dissipating. The Company believes that it is
unlikely to have any additional liability with respect to this matter, and
that any such liability would not be material. See Note 8 to the Consolidated
Financial Statements of Brown & Sharpe.
Environmental testing at the Leitz's facility in Wetzlar, Germany, conducted
at the time of its acquisition in June, 1990, and at Roch's Luneville
facility, at the time of its recent acquisition, has indicated that the soil
and groundwater at both factory sites are contaminated with certain toxic
waters and chemicals used in their manufacturing processes. Although neither
company is involved in any governmental claims or proceeding relating to this
contamination, the levels of contamination are such that clean-up and future
remediation of these sites could be required. In addition, the contamination
of the Leitz property stems from a waste disposal site adjacent to the Leitz
property previously operated and owned by the seller of the Leitz businesses.
The owner of that site is conducting soil remediation activity on that parcel
of land at the request of government authorities. Recent tests have indicated
that such existing remediation efforts may be inadequate and could result in
further contamination of the Leitz property. Until September 30, 1995, the
Company has certain rights to be indemnified by the seller of the Roch and
Mauser businesses against liability at the Roch and Mauser sites and such
seller is also obligated to clean up the contamination. The seller of the
Leitz business has agreed to indemnify the Company against any liability
incurred because of governmental action imposed on the Company before June 29,
1997. The Company believes that these indemnification rights are enforceable
against the sellers of the Leitz and the Roch and Mauser businesses. There can
be no assurance, however, that the Company will in fact be able to collect any
indemnification amounts to which it is entitled or that any amounts received
by the Company in satisfaction of its indemnification rights will be adequate
to cover the Company's potential liabilities.
In addition, the Company and its subsidiaries and predecessors have
conducted heavy manufacturing operations for many years, often in locations at
which, or adjacent to which, other industrial operations were or are
conducted. As with any such operations that involve the use, generation, and
management of hazardous materials, there is a risk that practices deemed
acceptable by regulatory authorities in the past may have created conditions
which could give rise to liability under current environmental laws. Because
the law in this area is developing rapidly, particularly in many European
countries, and all such laws are subject to amendment and widely varying
enforcement, the Company cannot predict with any certainty the nature and
amount of any potential environmental liability related to these operations or
locations that it may face in the future.
The Company is also involved in several product liability claims and
lawsuits which arose out of and were incidental to the conduct of its
discontinued metal cutting machine tool business, the potential liability
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<PAGE>
for which the Company believes is adequately covered by insurance or reserves
established for such contingencies. The Company is contesting or defending
these claims and suits and management believes that the ultimate liability, if
any, resulting from these matters will not have a material effect on the
Company's financial position.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information concerning each of the Executive
Officers and Directors of the Company as of May 27, 1994:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Fred M. Stuber.......................... 55 President, Chief Executive Officer
and Director
Charles A. Junkunc...................... 51 Vice President and Chief Financial
Officer
Antonio Aparicio........................ 43 Vice President & General Manager--
Precision Measuring Instruments
John Cooke.............................. 57 Vice President & General Manager--
Custom Metrology
Richard F. Paolino...................... 49 Vice President & General Manager--
Measuring Systems
Karl J. Lenz............................ 47 Vice President
John M. Lochner......................... 47 Controller and Principal Accounting
Officer
Henry D. Sharpe, Jr..................... 70 Chairman of the Board and Director
Russell A. Boss......................... 55 Director
Howard K. Fuguet........................ 56 Director
John M. Nelson.......................... 62 Director
Henry D. Sharpe, III.................... 39 Director
Paul R. Tregurtha....................... 58 Director
</TABLE>
Fred M. Stuber has been President, Chief Executive Officer and a Director of
the Company since 1991. From March 1989 to January 1991, Mr. Stuber was Vice
President & Managing Director of Tesa, S.A., a Swiss subsidiary of the Company.
Prior to March 1989, Mr. Stuber was Executive Vice President of Landis & Gyr, a
communications business.
Charles A. Junkunc has been Vice President and Chief Financial Officer of the
Company since May 1, 1992. From November 1990 to May 1, 1992, Mr. Junkunc was a
self-employed consultant. From April of 1987 to November of 1990, Mr. Junkunc
was Senior Vice President--Finance and Chief Financial Officer of Data Products
Corporation, a manufacturer of computer printers.
Antonio Aparicio has been Vice President & General Manager--Precision
Measuring Instruments of the Company since September of 1991. Mr. Aparicio was
previously Marketing Director--Precision Measuring Instruments of the Company.
John Cooke has been Vice President & General Manager--Custom Metrology of the
Company since September of 1991. Mr. Cooke was previously Managing Director of
Tesa Metrology Limited, a subsidiary of the Company.
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<PAGE>
Richard F. Paolino has been Vice President and General Manager--Measuring
Systems of the Company since 1985.
Karl J. Lenz has been Vice President of the Company since September of 1991.
Mr. Lenz has been General Manager--Leitz Messtechnik GmbH since June of 1990.
Mr. Lenz was previously General Manager--Messtechnik Division of Leica
Industrieverwaltung.
John M. Lochner has been Controller and Principal Accounting Officer of the
Company since June of 1986.
Henry D. Sharpe, Jr. has been Chairman of the Board of the Company since
1954.
Paul R. Tregurtha is Chairman of the Board and Chief Executive Officer of
Mormac Marine Group, Inc., in Stamford, Connecticut, a marine transportation
company. Mr. Tregurtha is a director of Shawmut National Corporation, a bank
holding company, and a director of FPL Group, Inc., a utility company, and is
a trustee of Teachers Insurance and Annuity Association.
John M. Nelson has been Chairman of the Board and Chief Executive Officer of
Wyman-Gordon Company, Worcester, MA, manufacturer of steel forgings since June
1991. Until October 1990, Mr. Nelson was Chairman of the Board and Chief
Executive Officer of Norton Company, Worcester, MA, a manufacturer of
abrasives and related products. Mr. Nelson was also a Director of Cambridge
Biotech Corp., a biotechnology firm; a Director of The TJX Companies, Inc., a
discount specialty apparel retailing concern, Commerce Holdings Inc., a
holding company for property and casualty insurance company; and TSI Corp., a
biotechnology company.
Russell A. Boss is President, Chief Executive Officer and a director of AT
Cross Company, Lincoln, Rhode Island, a manufacturer of fine writing
instruments. Mr. Boss is a Director of Fleet National Bank of Rhode Island, a
bank holding company and a Trustee of Eastern Utilities Associates, an
electric utility.
Howard K. Fuguet has been a partner of the law firm of Ropes & Gray, Boston,
Massachusetts, since 1971. Ropes & Gray has acted as principal outside counsel
to Brown & Sharpe since the 1960s.
Henry D. Sharpe, III is the co-founder and technical director of Design Lab,
Inc. in Providence, R.I., a multi-disciplinary product design firm
specializing in research and design of new products, re-design of existing
products and engineering management services.
DIRECTOR COMPENSATION
As compensation for services rendered during 1993, the Company paid each
non-employee Director an annual retainer of $10,000 (except the Chairman of
the Board, who was paid $15,000), a fee of $800 for each Board meeting
attended, a fee of $400 for each teleconference meeting which lasted more than
one-half hour in duration, and a fee of $500 for each Committee meeting
attended ($200 if held on the same day as a Board meeting). Directors who are
members of the Audit Committee also receive an additional $1,000 in their
annual retainer fee.
Mr. Tregurtha has elected to defer 50% of his Director's fees under a
deferred stock equivalent unit contract with the Company dated September 3,
1987 pursuant to which fees earned after that date were to be converted into
deferred stock equivalent units based on the market value of the Company's
stock on each fee payment date. Dividend equivalents in amounts and timing
equal to cash dividends paid on the Company's outstanding stock were similarly
converted into additional stock equivalent units. Mr. Tregurtha's contract
matures on October 1, 2005 or the earlier date of death or other termination
of Mr. Tregurtha as a Director. The contract was amended in 1992 to provide
that fee amounts deferred after May 1, 1991 (including dividend equivalent
amounts) shall be payable on maturity only in cash, with amounts deferred
prior to such date payable in cash or shares.
49
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth in summary form the compensation for each of
the Company's Chief Executive Officer and the four other highest-paid
Executive Officers in 1993 for each of the Company's last three fiscal years:
<TABLE>
<CAPTION>
LONG-
ANNUAL COMPENSATION TERM COMPENSATION
-------------------------------- ---------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND COMPEN- AWARD(S) OPTIONS/ COMPEN-
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) SATION ($)(1) SARS (#) SATION ($)
- ------------------ ---- ---------- --------- ------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fred M. Stuber 1993 285,811(2) 50,000(2) -- -- -- 28,009(2)(3)
President and CEO 1992 286,245(2) -- -- 305,900 -- 29,314(2)(3)
1991 288,117(2) 50,386(2) -- -- 10,000 --
Charles A. Junkunc 1993 178,369 46,720 -- -- -- 7,719(4)
Vice President-- 1992 111,154 51,000 52,509(5) 144,000 -- 144,803(6)
Chief Financial Officer 1991 -- -- -- -- -- --
Richard F. Paolino 1993 178,369 42,473 -- -- -- 15,532(4)
Vice President & 1992 175,231 -- -- 191,900 -- 810
General Manager-- 1991 171,258 47,000 -- -- 15,000 --
Measuring Systems
Antonio Aparicio 1993 182,601(2) 41,376(2) -- -- -- 15,209(2)(3)
Vice President & 1992 168,937(2) -- -- 152,000 -- 14,721(2)(3)
General Manager-- 1991 136,418(2) 7,063(2) -- -- -- --
Precision Measuring
Instruments
Karl J. Lenz 1993 131,525(2) 12,551(2) -- 67,000 -- 14,658(2)(3)
Vice President 1992 124,000(2) -- -- -- -- --
1991 124,000(2) -- -- -- -- --
</TABLE>
- --------
(1) The following table sets forth information relating to awards of
restricted stock to Executive Officers:
<TABLE>
<CAPTION>
TOTAL NUMBER
RESTRICTED SHARES AGGREGATE MARKET VALUE
HELD AT FISCAL RESTRICTED SHARES AT
NAME YEAR-END* FISCAL YEAR-END
---- ----------------- ----------------------
<S> <C> <C>
Fred M. Stuber 32,200 $257,600
Charles A. Junkunc 16,000 128,000
Richard F. Paolino 20,200 161,600
Antonio Aparicio 16,000 128,000
Karl J. Lenz 8,000 64,000
</TABLE>
* The awards to Messrs. Stuber, Junkunc, Paolino and Aparicio were made in
1992; the award to Mr. Lenz was made in 1993. Restrictions lapse ratably
over five (5) years from the date of award with 25% of the shares awarded
vesting two years and three years, respectively, after such date and the
remaining 50% of the shares vesting five (5) years after such date. The
Company has omitted and not reinstated its dividend on its Class A Stock;
however, should it be reinstated, dividends would be paid on the restricted
stock reported.
(2) Amounts with respect to Messrs. Stuber and Aparicio were paid or
contributed in Swiss francs and converted at the rates of $0.6759, $0.7563
and $0.7198 per Swiss franc for 1993, 1992 and 1991, respectively.
Amounts with respect to Mr. Lenz were paid or contributed in German marks
and converted at the rates of $0.6038, $0.6359 and $0.6129 per German mark
for 1993, 1992 and 1991, respectively.
(3) Amounts represent the contributions to the Tesa S.A. retirement plan, a
defined contribution plan for key employees, for Messrs. Stuber and
Aparicio.
(4) Amounts represent the value of 1993 year-end contributions to the
Company's Savings and Retirement Plan (the "SARP") on behalf of Messrs.
Junkunc and Paolino of $5,934 and $11,965, respectively and to the
Company's Employee Stock Ownership and Profit Participation Plan (the
"ESOP") of shares of Class A Stock with values of $1,785 and $3,567,
respectively, and with respect to Mr. Junkunc reflects eligible wage
participation for approximately six months.
(5) Reimbursement for payment of taxes in connection with certain relocation
payments made to the Executive Officer, whose employment with the Company
commenced on April 24, 1992.
(6) Amounts paid to the Executive Officer and third-party relocation service
in connection with the Executive Officer's relocation.
50
<PAGE>
OPTION YEAR-END VALUE TABLE
None of the named Executive Officers exercised stock options in 1993, and
none hold unexercisable options or options that are in-the-money. The following
table sets forth the number of securities underlying unexercised options and
the value of unexercised options held by the named Executive Officers at
December 25, 1993:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED
OPTIONS AT
NAME FISCAL YEAR-END (#)
---- ----------------------
<S> <C>
Fred M. Stuber..................................... 40,000
Charles A. Junkunc................................. None
Richard F. Paolino................................. 24,332
Antonio Aparicio................................... None
Karl J. Lenz....................................... None
</TABLE>
DEFINED BENEFIT PLANS
Leitz maintains a defined benefit plan required by German law covering all of
its employees. Benefits accrue on behalf of Mr. Lenz, who is Managing Director
of Leitz, under such plan annually equal to a percentage of his annual
compensation and the accrued benefit earns interest at a rate of 6% per annum.
Currently, upon reaching normal retirement age under such plan, Mr. Lenz would
receive a lifetime annual pension benefit amount equivalent to $25,622.76
(converted at the rate of $0.6038 per German mark).
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company has an employment agreement dated March 14, 1988 with Richard F.
Paolino, Vice President & General Manager--Measuring Systems, which provides
for a two-year term of employment, commencing upon the date of a Change of
Control (as defined in the Agreement) of the Company. In general, it provides
for salary, bonus, participation in employee benefit plans and other fringe
benefits at rates at least equal to those in effect immediately prior to the
Change of Control. In the event his employment is terminated before the term
expires (except for cause, as defined), Mr. Paolino is entitled to (i) the same
rates of salary, bonus, benefits and fringes for the lesser of 12 months or the
number of months remaining in the two-year term of employment, which payments
are subject to mitigation, and (ii) a lump sum equal to the sum of his highest
annual base salary during the three-year period immediately preceding
termination, the value of annual fringe benefits, and the highest cash bonus
received during the prior three-year period. Upon such termination, Mr. Paolino
is also entitled to limited continuation of certain employee welfare plans and
accelerated vesting of any stock options or restricted stock. For purposes of
this agreement, Mr. Paolino's severance rights would also be triggered by a
deemed termination following a change of control, which would include a
reduction of employment compensation, benefits, position or responsibilities or
relocation of the Company's principal executive offices. The payment and
benefits will be reduced to the extent necessary to preserve their
deductibility to the Company for Federal income tax purposes and to avoid
imposition of any "excess parachute payments" taxes under the Internal Revenue
Code. Mr. Paolino is subject to a covenant not to compete with the Company (as
specified) during the two-year term of such employment and for the lesser of
one-year or the balance of the term of employment following any such
termination. The agreement also obligates the Company to pay legal fees
incurred by Mr. Paolino to maintain his rights under the agreement and provides
for letter of credit mechanics to carry this out. Mr. Paolino has agreed to
amend the agreement such that the DEA Acquisition will not result in a Change
of Control under the agreement.
The Company also has an agreement with Charles A. Junkunc, Vice President and
Chief Financial Officer, who joined the Company on May 4, 1992, to pay a
severance amount to him equal to his annual salary in effect at the time of
termination and to continue his basic employee benefits for a one-year period
in the event his employment with the Company is terminated for any reason.
Under the agreement the Company will pay a bonus equal to the average of the
bonus payments received by him during the three years (or such
51
<PAGE>
lesser period) prior to termination, pro rated according to the number of
months of service during the year in which any termination occurs. In addition,
a bonus payment of $34,000 for 1993 was guaranteed pursuant to the agreement.
Upon any termination Mr. Junkunc, if requested by the Company, is to provide
consulting services to the Company for one year, with offsets against the
payments to be made by the Company for any income received from other sources.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 4, 1994 (unless otherwise
indicated), certain information with respect to the beneficial ownership of
shares of each class of the Company's voting securities by (i) each person
known by the Company to be the beneficial owner of more than 5% of the
Company's outstanding voting securities, (ii) each director and executive
officer of the Company individually, and (iii) all directors and executive
officers of the Company as a group. The information set forth below assumes the
consummation of the DEA Acquisition. Except as otherwise noted, the persons
marked in the table have sole voting and investment power with respect to all
shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
CLASS A CLASS B
------------------ ----------------
PERCENTAGE
NAME AND ADDRESS PERCENT PERCENT OF COMBINED
OF BENEFICIAL OWNER NUMBER OF CLASS NUMBER OF CLASS VOTING POWER
- ------------------- --------- -------- ------- -------- ------------
<S> <C> <C> <C> <C> <C>
Finmeccanica S.p.A............. 3,450,000 42.5% -- -- 25.5%
Elsag Bailey
via G. Puccine, 2
16154 Genova, Italy
Fiduciary Trust Company........ 476,646 5.9% 158,920 29.2% 15.2%
International(1)
Two World Trade Center
New York, NY 10048-0774
Dimensional Fund Advisors(2)... 351,766 4.3% -- -- 2.6%
1299 Ocean Avenue
Santa Monica, CA 90401
The Killen Group, Inc.(3)...... 288,058 3.6% -- -- 2.1%
1189 Lancaster Avenue
Berwyn, PA 19312
Fleet National Bank(4)......... 165,795 2.0% 52,744 9.7% 5.1%
100 Westminster Street
Providence, RI 02903
Henry D. Sharpe, Jr.(5)........ 563,504 6.9% 271,319 49.9% 24.2%
Fred M. Stuber(6).............. 319,734 3.9% 166,063 30.5% 14.6%
Charles A. Junkunc(7).......... 324,872 4.0% 194,489 35.8% 16.7%
Henry D. Sharpe, III........... 55,145 * 18,381 3.3% 1.8%
John M. Nelson................. 1,453 * 151 * *
Howard K. Fuguet............... 1,000 * -- -- *
Russell A. Boss................ 1,000 * -- -- *
Paul R. Tregurtha.............. 705 * 13 * *
Richard F. Paolino............. 47,938 * 2,235 * *
Antonio Aparicio............... 20,000 * -- -- *
Karl J. Lenz................... 8,000 * -- * *
All Directors and Executive.... 980,953 12.1% 360,053 66.2% 33.8%
Officers as a Group (13
persons)(8)
</TABLE>
- --------
* Less than one percent (1%).
52
<PAGE>
(1) Fiduciary Trust Company International, a bank, by virtue of various
investment management contracts and trust agreements with members of the
Sharpe family, shares voting and dispositive power with respect to the
aforementioned shares of Class A and Class B Stock. See Footnote 5 below.
(2) Dimensional Fund Advisors, Inc. ("Dimensional") a registered investment
advisor, is deemed to have beneficial ownership of 351,766 shares of Class
A Stock of the Company, 220,066 of which shares are held in portfolios of
DFA Investment Dimensions Group Inc. and The Investment Trust Company,
management investment companies for which Dimensional serves as investment
manager. Dimensional disclaims beneficial ownership of such shares.
(3) The Killen Group, Inc. a registered investment adviser, is the beneficial
owner of 288,058 shares of Class A Stock, of which it has sole dispositive
power with respect to 284,892 shares and as to which it has sole voting
power with respect to 96,813 of such shares. Robert E. Killen, the
President and sole shareholder of The Killen Group, Inc. directly owns
3,166 shares as to which he has sole voting and dispositive power.
(4) Fleet National Bank acts as Trustee of the SARP and in that capacity shares
voting power with respect to the shares of Class A Stock and Class B Stock,
subject to direction from participants in such SARP Plan.
(5) Various members of the Sharpe family, including Henry D. Sharpe, Jr. and
Henry D. Sharpe, III, beneficially owned an aggregate of 731,700 shares of
Class A Stock and 327,383 shares of Class B Stock of the Company, amounting
to 9.0% and 60.2%, respectively, of each class of stock and representing
29.6% of the combined voting power of the Class A Stock and Class B Stock.
The table excludes (a) 168,076 shares of Class A Stock and 56,024 shares of
Class B Stock held by Henry D. Sharpe, Jr.'s wife and children and by
trusts, of which they are beneficiaries and of which beneficial ownership
is disclaimed; and (b) 120 shares of Class A Stock and 40 shares of Class B
Stock held by the Sharpe Family Foundation, a charitable foundation, of
which beneficial ownership is disclaimed. The table includes (i) 7,200
shares of Class A Stock and 2,400 shares of Class B Stock as to which Henry
D. Sharpe, Jr. has neither voting nor dispositive power but as to which he
is a beneficiary under a trust established under the will of Henry D.
Sharpe, Sr.; (ii) 247,734 shares of Class A Stock and 166,063 shares of
Class B Stock as to which Henry D. Sharpe, Jr., by virtue of being one of
the three Trustees under the Company's ESOP, has shared voting power
(subject to direction from plan participants) and limited residual
investment power as a Trustee under the terms of the Trust Agreement for
the ESOP and of which beneficial ownership is disclaimed; and (iii) 308,570
shares of Class A Stock and 102,856 shares of Class B Stock as to which
Henry D. Sharpe, Jr. has shared voting and dispositive power with Fiduciary
Trust Company International.
(6) Includes 247,734 shares of Class A Stock and 166,063 shares of Class B
Stock, which, by virtue of Mr. Stuber's role as a Trustee of the ESOP, are
deemed to be beneficially owned but as to all of which ESOP shares he
disclaims beneficial ownership.
(7) Includes (a) 55,000 shares of Class A Stock and 28,333 shares of Class B
Stock held by the Company's United Kingdom Pension Plan as to which Mr.
Junkunc has shared voting and investment power; and (b) 247,734 shares of
Class A Stock and 166,063 shares of Class B Stock, which, by virtue of Mr.
Junkunc's role as a Trustee of the ESOP, are deemed to be owned
beneficially by him but as to which all of such ESOP (except for his vested
shares of Class A and Class B Stock in such plan) and U.K. Pension Plan
shares he disclaims beneficial ownership.
(8) With respect to Executive Officers who are not Directors, includes 101,332
shares of Class A Stock as to which certain of the Executive Officers have
sole voting and investment power; 55,000 shares of Class A Stock and 28,333
shares of Class B Stock held in the Company's pension plan covering its
United Kingdom employees as to which an Executive Officer has shared voting
and investment power; and 7,268 shares of Class A Stock and 4,186 shares of
Class B Stock as to which the Executive Officers have shared voting power.
Includes 65,132 shares of Class A Stock subject to exercisable stock
options granted pursuant to the Company's Amended 1973 Stock Option Plan
(under which no further awards can be made) and 1989 Equity Incentive Plan.
See "Management--Summary Compensation Table."
53
<PAGE>
DESCRIPTION OF SENIOR NOTES
GENERAL
The Senior Notes will be issued under an Indenture dated as of , 1994
(the "Indenture") between the Company, as issuer, and Morgan Guaranty Trust
Company of New York, as trustee (the "Trustee"). The terms and conditions of
the Senior Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust
Indenture Act") as in effect on the date of the Indenture. The Senior Notes
are subject to all such terms and conditions, and reference is made to the
Indenture and the Trust Indenture Act for a statement thereof. The following
statements are summaries of the provisions of the Senior Notes and the
Indenture and do not purport to be complete. Such summaries make use of
certain terms defined in the Indenture and are qualified in their entirety by
express reference to the Indenture, which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. All references
in this "Description of Senior Notes" to the Company are to Brown & Sharpe
Manufacturing Company.
The Senior Notes will be limited to $75,000,000 aggregate principal amount
and will be issued in fully registered form without coupons in denominations
of $1,000 and any integral multiple of $1,000. Principal of, premium, if any,
and interest on the Senior Notes will be payable, and the Senior Notes will be
transferable, at the corporate trust office of the Trustee in the City of New
York. Initially, the Trustee will act as paying agent and registrar under the
Indenture. The Company and its Subsidiaries may act as paying agent and
registrar under the Indenture, and the Company may change any paying agent and
registrar without notice to the persons who are registered holders ("Holders")
of the Senior Notes. The Company may pay principal, premium and interest by
check and may mail an interest check to a Holder's registered address. Holders
must surrender the Senior Notes to the paying agent to collect principal and
premium payments. No service charge will be made for any registration of
transfer or exchange of the Senior Notes, except for any tax or other
governmental charge that may be imposed in connection therewith.
Interest on the Senior Notes will initially accrue from , 1994, and
thereafter from the most recent date to which interest has been paid. Interest
will be payable semi-annually on February 1 and August 1 of each year,
commencing February 1, 1995, at the rate set forth on the cover page of the
Prospectus to Holders of the Senior Notes as of the close of business on
January 15 and July 15 next preceding the interest payment date. Interest will
be computed on the basis of a 360-day year comprised of twelve 30-day months.
The Senior Notes mature on August 1, 2002.
The Senior Notes will be senior obligations of the Company, ranking senior
in right of payment to any subordinated indebtedness of the Company, and pari
passu with the existing and future unsecured senior indebtedness of the
Company. All secured senior obligations of the Company, including obligations
under the Revolving Credit Facility, will effectively be senior in right of
payment to the Senior Notes with respect to the assets securing such senior
obligations. In addition, 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 proceeds
therefrom had occurred on such date, the Company's subsidiaries had
approximately $145 million of liabilities outstanding on a pro forma basis.
OPTIONAL REDEMPTION
The Senior Notes will not be redeemable prior to August 1, 1998, except that
prior to August 1, 1997 the Company may redeem, in part, Senior Notes at % of
the principal amount thereof, plus accrued interest, if any, to the date fixed
for redemption, with the net proceeds of any public offering of Common Stock
of the Company; provided that at least $56,250,000 aggregate principal amount
of the Senior Notes must remain outstanding after each such redemption. All
such redemptions will be required to occur within 90 days of the receipt of
the proceeds of such public offering. The Senior Notes will be redeemable at
the option of the Company, in whole or from time to time in part, at any time
on or after August 1, 1998, on not less than 30
54
<PAGE>
nor more than 60 days' prior notice, at the following redemption prices
(expressed as percentages of the principal amount), if redeemed in the 12-month
period indicated below, in each case plus accrued and unpaid interest to the
date fixed for redemption:
<TABLE>
<CAPTION>
TWELVE -MONTH PERIOD
COMMENCING REDEMPTION PRICE
-------------------- ----------------
<S> <C>
August 1, 1998.............................................. %
August 1, 1999.............................................. %
August 1, 2000.............................................. %
August 1, 2001.............................................. 100%
</TABLE>
The Senior Notes will not be subject to, or entitled to the benefits of, any
sinking fund.
Senior Notes may be redeemed or repurchased as set forth below under "Change
of Control" and "Certain Covenants--Limitations on Asset Sales" in part in
multiples of $1,000. If less than all the Senior Notes issued under the
Indenture are to be redeemed, the Trustee will select the Senior Notes to be
redeemed pro rata, by lot or by any other method which the Trustee shall deem
fair and appropriate. The Indenture provides that if any Senior Note is to be
redeemed or repurchased in part only, the notice which relates to the
redemption or repurchase of such Senior Note shall state the portion of the
principal amount of such Senior Note to be redeemed or repurchased and shall
state that on or after the date fixed for redemption or repurchase a new Senior
Note equal to the unredeemed portion thereof will be issued.
On and after the date fixed for redemption or repurchase, interest will cease
to accrue on the Senior Notes or portions thereof called for redemption or
tendered for repurchase.
CHANGE OF CONTROL
In the event of a Change of Control (the date of such occurrence being the
"Change of Control Date"), the Company shall notify the Holders in writing of
such occurrence and shall make an offer to purchase (the "Change of Control
Offer"), on a business day (the "Change of Control Payment Date") not later
than 60 days following the Change of Control Date, all Senior Notes then
outstanding at a purchase price equal to 101% of the principal amount thereof
plus accrued and unpaid interest, if any, to the Change of Control Payment
Date. Notice of a Change of Control Offer shall be mailed by the Company to the
Holders not less than 30 days nor more than 45 days before the Change of
Control Payment Date. The Change of Control Offer is required to remain open
for at least 20 business days and until the close of business on the Change of
Control Payment Date. A "Change of Control" means the occurrence of any of the
following: (i) any "person" or "group" (as such terms are used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more
than 50% of the combined voting power of the securities of the Company, (ii)
the merger or consolidation of the Company with or into another corporation
with the effect that the stockholders of the Company immediately prior to such
merger or consolidation cease to be the "beneficial owners" (as defined in Rule
13d-3 under the Exchange Act) of 50% or more of the combined voting power of
the securities of the surviving corporation of such merger or the corporation
resulting from such merger or consolidation ordinarily (and apart from rights
arising under special circumstances) having the right to vote in the election
of directors outstanding immediately after such merger or consolidation, (iii)
the sale, conveyance, transfer or lease by the Company of all or substantially
all of its assets to any person in one transaction or a series of related
transactions or (iv) within any period of twenty-four consecutive months, a
majority of the Board of Directors of the Company is not composed of Continuing
Directors.
The Company will comply, to the extent applicable, with the requirements of
Rule 14e-1 under the Exchange Act and other securities laws or regulations in
connection with the offer to repurchase and the repurchase of the Senior Notes
as described above.
55
<PAGE>
The Company's ability to repurchase the Senior Notes pursuant to a Change of
Control Offer will be limited by, among other things, the Company's financial
resources at the time of repurchase.
The existence of the right of Holders to require the Company to repurchase
their Senior Notes upon the occurrence of a Change of Control may deter a
third party from acquiring the Company in a transaction which would constitute
a Change of Control. The Change of Control provisions will not prevent a
change in a majority of the members of the Board of Directors which is
approved by the then-present Board of Directors. See "Principal Stockholders."
The use of the term "all or substantially all" in Indenture provisions such
as clause (iii) of the definition of Change of Control and under "--
Limitations on Mergers; Sales of Assets" has no clearly established meaning
under New York law (which governs the Indenture) and has been the subject of
limited judicial interpretation in few jurisdictions. Accordingly, there may
be a degree of uncertainty in ascertaining whether a particular transaction
would involve a disposition of "all or substantially all" of the assets of a
person, which uncertainty should be considered by prospective purchasers of
the Senior Notes.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitations on Indebtedness. The Indenture will provide that the Company
will not, and will not permit its Restricted Subsidiaries to, directly or
indirectly, create, incur, issue, assume or in any other manner become liable
with respect to or become responsible for the payment of, contingently or
otherwise, (individually or collectively, to "incur" or an "incurrence") any
Indebtedness; provided, however, that the Company, but not a Restricted
Subsidiary of the Company, may incur Indebtedness if at the time of such
incurrence and after giving pro forma effect thereto, the Company's Fixed
Charge Coverage Ratio (as defined) for the most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such Indebtedness is incurred,
calculated on a pro forma basis as if such Indebtedness was incurred on the
first day of such four-quarter period, would be greater than or equal to 2.0
to 1.
The Indenture will further provide that notwithstanding the foregoing
limitations, the incurrence of the following will not be prohibited:
(a) Indebtedness of the Company evidenced by the Senior Notes;
(b) Indebtedness of the Company constituting Existing Indebtedness;
(c) Indebtedness of the Company and its Restricted Subsidiaries
constituting Revolving Credit Indebtedness;
(d) Acquired Indebtedness, Capitalized Lease Obligations of the Company
and its Restricted Subsidiaries and Indebtedness of the Company and its
Restricted Subsidiaries secured by Liens that secure the payment of all or
part of the purchase price of assets or property acquired or constructed in
the ordinary course of business after the date of the Indenture; provided,
however, that the aggregate principal amount of such Indebtedness permitted
by this clause (d) shall not exceed $10.0 million outstanding at any time;
(e) Indebtedness of the Company and its Restricted Subsidiaries incurred
in connection with any sale and leaseback arrangement permitted under
"Limitations on Sale and Leaseback Transactions";
(f) Indebtedness of any Restricted Subsidiary issued to or held by the
Company or another Restricted Subsidiary;
(g) Indebtedness of the Company and its Restricted Subsidiaries in an
aggregate amount not to exceed $5.0 million outstanding at any time;
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(h) Indebtedness under Currency Agreements related to payment obligation
in respect of Indebtedness of the Company or of its Restricted Subsidiaries
incurred in accordance with the Indenture and Indebtedness in respect of
Currency Agreements entered into with respect to payables and receivables
of the Company and its Restricted Subsidiaries, provided that in the case
of Currency Agreements that relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company or of its
Restricted Subsidiaries outstanding at any time other than as a result of
fluctuations in foreign currency or exchange rates;
(i) Indebtedness incurred in respect of performance bonds, bankers'
acceptances or letters of credit of the Company and of any Restricted
Subsidiary of the Company and surety bonds provided by the Company or any
Subsidiary of the Company in the ordinary course of business, the
Indebtedness incurred under this clause (i) not to exceed $5 million in the
aggregate;
(j) Indebtedness of the Company under Interest Rate Protection Agreements
covering Indebtedness which bears interest at fluctuating interest rates to
the extent the notional principal amount of such Interest Rate Protection
Agreements does not exceed the principal amount of the Indebtedness to
which such Interest Rate Protection Agreements relate; and
(k) Any refinancing, refunding, deferral, renewal or extension (each, a
"Refinancing") of any Indebtedness of the Company permitted by the
preceding paragraph or by clause (a) or (c) of this paragraph (the
"Refinancing Indebtedness"); provided, however, that (i) such Refinancing
does not increase the total consolidated Indebtedness of the Company and
its Restricted Subsidiaries outstanding at the time of such Refinancing,
(ii) the Refinancing Indebtedness shall not provide for any mandatory
redemption, amortization or sinking fund requirement in an amount greater
than or at a time prior to the amounts and times specified in the
Indebtedness being refinanced, refunded, deferred, renewed or extended and
(iii) if the Indebtedness being refinanced, refunded, deferred, renewed or
extended is subordinated to the Senior Notes, the Refinancing Indebtedness
incurred to refinance, refund, defer, renew or extend such Indebtedness
shall be subordinated in right of payment to the Senior Notes on terms at
least as favorable to the Holders as those contained in the documentation
governing the Indebtedness being so refinanced, refunded, deferred, renewed
or extended.
Limitations on Restricted Payments. The Indenture will provide that the
Company will not, nor will it cause, permit or suffer any Restricted Subsidiary
to, (i) declare or pay any dividends on any class of Equity Interests of the
Company or such Restricted Subsidiary (other than dividends payable by a
Restricted Subsidiary on account of its Equity Interests), (ii) make any
payment on account of, or set apart money for a sinking or other analogous fund
for, the purchase, redemption or other retirement of such Equity Interests
(other than the purchase, redemption or other retirement by a Restricted
Subsidiary of its Equity Interests held by the Company or a wholly-owned
Restricted Subsidiary), (iii) make any distribution in respect of such Equity
Interests (including through mergers, liquidations or other transactions
commonly known as leveraged buyouts (other than distributions by a Restricted
Subsidiary on account of its Equity Interests held by the Company or a wholly-
owned Restricted Subsidiary), (iv) purchase, defease, redeem or otherwise
retire any Indebtedness issued by the Company or any Restricted Subsidiary that
is subordinated to the Senior Notes (other than Sinking Fund Payments on the
Existing Debentures),or (v) make any Investment (other than a Permitted
Investment), either directly or indirectly, whether in cash or property or in
obligations of the Company (all of the foregoing being called "Restricted
Payments"), unless, (I) in the case of a dividend, such dividend is payable not
more than 60 days after the date of declaration and (II) after giving effect to
such proposed Restricted Payment, all the conditions set forth in clauses (1)
through (3) below shall be satisfied (A) at the date of declaration (in the
case of any dividend), (B) at the date of such setting apart (in the case of
any such fund), or (C) on the date of such other payment or distribution (in
the case of any other Restricted Payment) (each such date being referred to as
a "Computation Date"):
(1) no Default has occurred and is continuing or would result from the
making of such Restricted Payment;
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(2) the Company's Fixed Charge Coverage Ratio for the most recently ended
four full fiscal quarters for which internal financial statements are
available immediately preceding the Computation Date, calculated on a pro
forma basis as if such Restricted Payment had been made at the beginning of
such four-quarter period, would have been more than 2.0 to 1; and
(3) the aggregate amount of Restricted Payments declared, paid or
distributed subsequent to the date of the Indenture (including the proposed
Restricted Payment) shall not exceed the sum of (i) 50% of the cumulative
Consolidated Net Income (as defined) of the Company for the period
beginning with the first fiscal quarter commencing after the issuance of
the Senior Notes to and including the Computation Date (each such period to
constitute a "Computation Period") (or if such cumulative Consolidated Net
Income shall be a loss, 100% of such loss), (ii) the aggregate net cash
proceeds of the issue or sale of the Company's Equity Interests or cash
contributions to the Company's capital subsequent to the date of the
Indenture, and (iii) the aggregate net cash proceeds of any Indebtedness of
the Company issued or sold subsequent to the date of the Indenture which
has been converted into the Company's Equity Interests.
For purposes of this covenant, (a) the amount of any Restricted Payment
declared, paid or distributed in property of the Company or any Restricted
Subsidiary shall be deemed to be the net book value of any such property that
is intangible property and the Fair Market Value (as determined by and set
forth in a resolution of the Company's board of directors) of any such property
that is tangible property at the Computation Date, in each case, after
deducting related reserves for depreciation, depletion and amortization; (b)
the amount of any Restricted Payment declared, paid or distributed in
obligations of the Company or any Restricted Subsidiary shall be deemed to be
the principal amount of such obligations as of the date of the adoption of a
resolution by the board of directors of the Company or such Restricted
Subsidiary authorizing such Restricted Payment and (c) a distribution to
holders of the Company's Equity Interests of (i) shares of Capital Stock or
other Equity Interests of any Restricted Subsidiary of the Company or (ii)
other assets of the Company, without, in either case, the receipt of equivalent
consideration therefor shall be regarded as the equivalent of a cash dividend
equal to the excess of the Fair Market Value of the Equity Interests or other
assets being so distributed at the time of such distribution over the
consideration, if any, received therefor.
Limitations on Creation of Liens. The Indenture will provide that the Company
will not, and will not permit any Restricted Subsidiary to, create, incur,
assume or suffer to exist any Lien (as defined) upon any of their respective
assets or properties now owned or hereafter acquired, or any income or profits
therefrom, except for the following:
(a) Existing Liens;
(b) Liens on accounts receivable, inventory, general intangibles and
proceeds therefrom granted in connection with Revolving Credit
Indebtedness;
(c) Permitted Liens;
(d) Liens on assets or properties of the Company or of Restricted
Subsidiaries of the Company to secure the payment of all or a part of the
purchase price of assets or property acquired or constructed in the
ordinary course of business after the date of the Indenture; provided,
however, that (i) the aggregate principal amount of Indebtedness secured by
such Liens shall not exceed the lesser of cost or Fair Market Value of the
assets or property so acquired or constructed, (ii) the Indebtedness
secured by such Liens shall have otherwise been permitted to be incurred
under the Indenture and (iii) such Liens shall not encumber any other
assets or property of the Company or any of its Restricted Subsidiaries and
shall attach to such assets or property within 90 days of the completion of
construction or acquisition of such assets or property;
(e) Any Lien on assets or properties of the Company or of Restricted
Subsidiaries of the Company securing any Capitalized Lease Obligation that
is permitted to be incurred by the Company under "Limitations on
Indebtedness"; provided, however, that such Liens do not extend to or cover
any property
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or assets of the Company or any of its Restricted Subsidiaries other than
the property or assets subject to such Capitalized Lease Obligations;
(f) Liens securing Acquired Indebtedness permitted to be incurred under
"Limitations on Indebtedness"; provided, however, that (i) such Liens
existed on the date such asset or property was acquired and was not
incurred as a result of or in anticipation of such acquisition and (ii)
such Liens do not extend to or cover any property or assets of the Company
or any of its Restricted Subsidiaries other than the property or assets so
acquired;
(g) Any Lien on assets or properties of the Company or of Restricted
Subsidiaries of the Company granted in connection with a sale and leaseback
transaction permitted under "Limitations on Sale and Leaseback
Transactions," below; provided, however, that such Liens do not extend to
or cover any property or assets not the subject of such sale and leaseback
transaction;
(h) Liens securing Refinancing Indebtedness which is incurred to
refinance Indebtedness which has been secured by a Lien permitted under the
Indenture and which is permitted to be refinanced under the Indenture;
provided, however, that such Liens do not extend to or cover any property
or assets of the Company or any of its Restricted Subsidiaries not securing
the Indebtedness so refinanced; and
(i) Liens on assets which are created to secure Senior Indebtedness, so
long as the Senior Notes are equally and ratably secured thereby.
Limitations on Payment Restrictions Affecting Restricted Subsidiaries. The
Indenture will provide that the Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction
of any kind on the ability of any Restricted Subsidiary to (i) pay dividends or
make any other distribution to the Company or its Restricted Subsidiaries on
its Capital Stock, (ii) pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (iii) make loans or advances to the Company or any other
Restricted Subsidiary or (iv) transfer any of its property or assets to the
Company or any other Restricted Subsidiary, except (A) consensual encumbrances
or restrictions in financing or credit agreements in effect as of the date of
the Indenture, (B) consensual encumbrances or restrictions in the Senior Notes
and the Indenture, (C) any restriction, with respect to a Subsidiary of the
Company that is not a Subsidiary of the Company on the date of the Indenture,
in existence at the time such entity becomes a Subsidiary of the Company and
not created as a result of or in anticipation of such entity becoming a
Subsidiary of the Company; provided that such encumbrance or restriction is not
applicable to any person or the properties or assets of any person other than a
person that becomes a Subsidiary, (D) customary provisions restricting
subletting or assignment of any lease, (E) with respect to clause (iv) above,
in connection with purchase money obligations for property acquired in the
ordinary course of business or (F) consensual encumbrances and restrictions of
the type described in clauses (A) or (B) hereof that are not materially less
favorable to the Holders than those contained in or pursuant to the agreements
being replaced or the agreements evidencing the Indebtedness being refinanced.
Limitations on Asset Sales. The Indenture will provide that the Company will
not, and will not permit any Restricted Subsidiary to, make any Asset Sale
unless (i) the Company or such Restricted Subsidiary receives consideration at
the time of such Asset Sale at least equal to the Fair Market Value of the
assets sold or otherwise disposed of, and at least 75% of the consideration
received by the Company or such Restricted Subsidiary from such Asset Sale is
in the form of cash; provided, however, that the amount of (A) any liability of
the Company or such Restricted Subsidiary (as shown on the most recent balance
sheet of the Company or such Restricted Subsidiary or in the notes thereto)
that is assumed by the transferee in any such transaction (other than
securities which are subordinated in right of payment to the Senior Notes) and
(B) any cash equivalent or note or other obligation received by the Company or
such Restricted Subsidiary from such transferee that is converted by the
Company or such Restricted Subsidiary into cash within 30 days of the receipt
thereof shall be deemed to be cash for purposes of this provision; and (ii) the
Net Proceeds received by the Company or such Restricted Subsidiary from such
Asset Sale are applied in accordance with the following paragraphs.
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Within 270 days after consummation of such Asset Sale, the Company shall
apply 100% of such Net Proceeds to either (i) an investment in a Related
Business or (ii) an Asset Sale Offer with respect to the Senior Notes.
The Company will cause a notice of any Asset Sale Offer to be mailed to the
Holders not less than 20 business days prior to the purchase date. Such notice
will contain all instructions and materials necessary to enable Holders to
tender their Senior Notes to the Company. Upon receiving notice of an Asset
Sale Offer, Holders may elect to tender their Senior Notes in whole or in part
in integral multiples of $1,000 in exchange for cash. To the extent that
Holders properly tender Senior Notes in an amount exceeding the Asset Sale
Offer, Senior Notes of tendering holders will be repurchased on a pro rata
basis (based on amounts tendered).
The Company will comply, to the extent applicable, with the requirements of
Rule 14e-1 under the Exchange Act and other securities laws or regulations in
connection with any offer to repurchase and the repurchase of the Senior Notes
as described above.
Limitations on Sale and Leaseback Transactions. The Indenture will provide
that the Company will not, and will not permit any Restricted Subsidiary to,
enter into any arrangement with any person providing for the leasing by the
Company or any such Restricted Subsidiary of any real property or tangible
personal property, which property has been or is to be sold or transferred by
the Company or such Restricted Subsidiary to such person in contemplation of
such leasing, provided, however, that the Company or a Restricted Subsidiary of
the Company may enter into any such sale and leaseback arrangement if (i) the
Company or such Restricted Subsidiary is permitted to dispose of such asset
under the "Limitation on Asset Sales" covenant, and (ii) (a) the Company would
be entitled, under the covenant described in the initial paragraph of
"Limitations on Indebtedness," to incur Indebtedness in an amount equal to the
Attributable Indebtedness with respect to such arrangement or (b) the net
proceeds of such sale are at least equal to the Fair Market Value of such
property and the Company applies the Net Proceeds of such sale as provided
under "Limitations on Asset Sales."
Limitations on Mergers; Sales of Assets. The Indenture will provide that the
Company shall not consolidate with or merge with or into, or sell, assign,
convey, lease or transfer all or substantially all of its assets and those of
its Subsidiaries taken as a whole to, any person, unless (i) the resulting,
surviving or transferee person (if other than the Company) expressly assumes
all the obligations of the Company under the Senior Notes and the Indenture;
(ii) such person is organized and existing under the laws of the United States,
a state thereof or the District of Columbia; (iii) except in the case of a
merger or consolidation involving only the Company and one or more Restricted
Subsidiaries, after giving effect to such transaction, such person could incur
$1.00 of additional Indebtedness pursuant to the initial paragraph of
"Limitations on Indebtedness" (assuming a market rate of interest with respect
to such additional Indebtedness); (iv) the Consolidated Net Worth of such
person shall, immediately after giving effect to such transaction, be not less
than the Consolidated Net Worth of the Company prior to such transaction; and
(v) immediately before and after giving effect to such transaction and treating
any Indebtedness which becomes an obligation of the Company or any of its
Subsidiaries or of such person as a result of such transaction as having been
incurred by the Company or such Subsidiary or such person, as the case may be,
at the time of such transaction, no Default or Event of Default shall have
occurred and be continuing.
Liquidation. The Indenture will provide that neither the Board of Directors
nor the stockholders of the Company shall adopt a plan of liquidation which
provides for, contemplates or the effectuation of which is preceded by (i) the
sale, lease, conveyance or other disposition of all or substantially all of the
assets of the Company and its Restricted Subsidiaries taken as a whole
otherwise than substantially as an entirety and (ii) the distribution of all or
substantially all of the proceeds of such sale, lease, conveyance or other
disposition and of the remaining assets of the Company and its Restricted
Subsidiaries taken as a whole to the holders of Capital Stock of the Company,
unless the Company shall in connection with the adoption of such plan make
provision for, or agree that prior to making any liquidating distribution it
will make provision for, the satisfaction of the Company's obligations under
the Indenture and the Senior Notes as to the payment of
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principal, premium, if any, and interest. Provision for such payments shall be
deemed to have been made only if (A) the Company has deposited or caused to be
deposited with the Trustee irrevocably as trust funds in trust for the purpose,
(x) money in an amount, (y) U.S. Government Obligations which through the
payment of interest and principal in respect thereof in accordance with their
terms will provide not later than one day before the due date of the payment
(referred to below) money in an amount, or (z) a combination thereof,
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered to
the Trustee, to pay and discharge the principal of, premium, if any, and
interest on the outstanding Senior Notes on the stated maturity date of such
principal or interest; or (B) the liquidation is in compliance with clauses (i)
through (v) referred to under the caption "Limitations on Mergers; Sales of
Assets"; provided, however, that the Company shall not make any liquidating
distribution until after it shall have certified to the Trustee with an
Officers' Certificate at least five days prior to the making of any liquidating
distribution that it has complied with the foregoing provisions.
Transactions with Affiliates. The Indenture will provide that the Company and
its Subsidiaries will not, directly or indirectly, enter into any transaction
or series of related transactions with or for the benefit of any of their
respective Affiliates (other than transactions among two or more of the Company
and its Subsidiaries in the ordinary course of business), except if (a) (i) in
the case of any such transaction in which the aggregate rental value,
remuneration or other consideration (including the value of a loan), together
with the aggregate rental value, remuneration or other consideration (including
the value of a loan) of all such other transactions consummated in the year
during which such transaction is proposed to be consummated, exceeds $500,000,
the board of directors and the Independent Directors of the Company that are
disinterested, each have (by a majority vote) determined in good faith that the
aggregate rental price, remuneration or other consideration (including the
value of any loan) inuring to the benefit of such Affiliate from any such
transaction is not greater than that which would be charged to or extended by
the Company or its Subsidiaries, as the case may be, on an arm's-length basis
for similar properties, assets, rights, goods or services by or to a person not
affiliated with the Company or its Subsidiaries, as the case may be, and (ii)
in the case of any such transaction in which the aggregate rental value,
remuneration or other consideration (including the value of any loan), together
with the aggregate rental value, remuneration or other consideration (including
the value of any loan) of all such other transactions consummated in the year
during which such transactions proposed to be consummated, exceeds $5.0
million, the board of directors of the Company and the Independent Directors of
the Company that are disinterested (each by a majority vote), and a nationally
recognized investment banking firm, unaffiliated with the Company and the
Affiliate which is party to such transaction, each has determined that the
aggregate rental price, remuneration or other consideration (including the
value of a loan) inuring to the benefit of such Affiliate from any such
transaction is not greater than that which would be charged to or extended by
the Company or its Subsidiaries, as the case may be, on an arm's-length basis
for similar properties, assets, rights, goods or services by or to a person not
affiliated with the Company or its Subsidiaries, as the case may be, and (b)
such transaction is entered into in good faith and on an arm's length basis.
Any transaction required to be approved by Independent Directors pursuant to
the preceding paragraph shall be approved by at least one such Independent
Director.
Reports to Noteholders. The Indenture will provide that so long as the Senior
Notes remain outstanding, the Company will provide to the Trustee and the
Holders thereof and file with the Commission all unaudited quarterly and
audited annual reports that would be required to be filed under the Exchange
Act, regardless of whether it is subject to the provisions of the Exchange Act.
DEFAULTS AND REMEDIES
An Event of Default is default for 30 days in payment of interest on the
Senior Notes; default in payment of principal of, or premium with respect to,
the Senior Notes; failure by the Company to comply with the covenants entitled
"Limitations on Restricted Payments," "Limitations on Indebtedness,"
"Limitations on Asset Sales," "Limitations on Sale and Leaseback Transactions,"
"Liquidation," "Change of Control" and "Limitation on Mergers; Asset Sales";
failure by the Company to comply with any of its other agreements in the
Indenture or the Senior Notes for a period that continues for 60 days after
receipt of written notice from
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the Trustee or from the holders of at least 25% of the aggregate principal
amount of the Senior Notes then outstanding, specifying such default; a default
under any indebtedness of the Company or any of its subsidiaries, the principal
amount of such indebtedness, together with the principal amount of any other
such indebtedness under which there has been a default, aggregates $3.0 million
or more; certain final judgments which remain undischarged or unstayed for a
period of sixty (60) days; and certain events of bankruptcy or insolvency of
the Company or its Subsidiaries.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the Senior Notes may declare the Senior
Notes due and payable immediately. However, if an Event of Default resulting
from bankruptcy or insolvency occurs, such amount shall be due and payable
without any declaration or any act on the part of the Trustee or the Holders.
Such declaration or acceleration may be rescinded and past defaults may be
waived by the Holders of a majority in principal amount of the Senior Notes
upon conditions provided in the Indenture.
Holders may not enforce the Indenture or the Senior Notes, except as provided
therein. The Trustee may require an indemnity satisfactory to it before
enforcing the Indenture or the Senior Notes. Subject to certain limitations,
Holders of a majority in principal amount of the Senior Notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
the Trustee. The Trustee, however, may refuse to follow any direction that
conflicts with law or such Indenture, that is unduly prejudicial to the rights
of any Holder or that would subject the Trustee to personal liability. The
Trustee may withhold from the Holders of the Senior Notes notice of any
continuing default (except a default in payment of principal, premium, if any,
or interest) if it determines that withholding notice is in their interest. The
Company is required to file periodic reports with the Trustee as to the absence
of Default. If a Default exists, the Company is required to describe the
Default and efforts undertaken to remedy the default.
Directors, officers, employees or stockholders, as such, of the Company and
its Subsidiaries will not have any liability for any obligations of the Company
under the Senior Notes or the Indenture or for any claim based on, in respect
of, or by reason of, such obligations. Each Holder of a Senior Note by
accepting a Senior Note waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Senior Notes.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Senior Notes in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law. The Registrar need not transfer or exchange any Senior Note
previously selected for redemption. A registered Holder of a Senior Note may be
treated as the owner thereof for all purposes. No Senior Note shall be valid
until the Trustee or an authenticating agent manually signs the certificate of
authentication on the Senior Note. Each Senior Note shall become effective on
the date upon which it is so signed.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the Senior Notes may be
amended or supplemented, and any past default or compliance with any provision
may be waived, with the consent of the Holders of a majority in principal
amount of the Senior Notes then outstanding. Without the consent of any Holder,
the Company may amend or supplement the Indenture or the Senior Notes to comply
with the provisions of the Indenture in the case of a consolidation, merger or
sale of all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole, to provide for uncertificated Senior Notes in
addition to or in place of certificated Senior Notes, to cure any ambiguity,
defect or inconsistency or to make any other change that does not adversely
affect the rights of any Holder.
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Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Securities held by a non-consenting Holder) (i) reduce the
principal amount of Senior Notes whose holders must consent to an amendment or
waiver; (ii) reduce the rate of, or change the time for payment of, interest,
including default interest, on any Senior Notes; (iii) reduce the principal of
or change the fixed maturity of any Senior Note(s), or alter the optional
redemption provisions, or alter the price at which the Company shall offer to
purchase such Senior Notes pursuant to an Asset Sale Offer or a Change of
Control Offer; (iv) make any Senior Note payable in money other than that
stated in such Senior Note; (v) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of holders of the
Senior Notes to receive payments of principal of or interest on the Senior
Notes; (vi) waive a Default or Event of Default in the payment of principal of,
premium, if any, or interest on the Senior Notes, including any such obligation
arising pursuant to an Asset Sale Offer or a Change of Control Offer (except a
rescission of acceleration of the Senior Notes by the holders of at least a
majority (or, in the case of the failure to make a Change of Control Offer,
two-thirds) in principal amount of the Senior Notes and a waiver of the payment
default that resulted from such acceleration); (vii) waive the obligation to
make an Asset Sale Offer or any payment required to be made pursuant to an
Asset Sale Offer or a Change of Control Offer; or (viii) make any change in the
foregoing amendment and waiver provisions. Without the consent of the Holders
of at least two-thirds in principal amount of the Senior Notes, an amendment or
waiver may not waive the obligation to make a Change of Control Offer.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Senior Notes ("Legal
Defeasance") except for (i) the rights of holders of outstanding Senior Notes
to receive payments in respect of the principal of, premium, if any, and
interest on such Senior Notes when such payments are due, (ii) the Company's
obligations with respect to the Senior Notes concerning issuing temporary
Senior Notes, registration or transfer of Senior Notes, mutilated, destroyed,
lost or stolen Senior Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee, and the Company's
obligations in connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Senior Notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Senior Notes.
In order to effect either a Legal Defeasance or a Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the holders of the Senior Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest on
the outstanding Senior Notes on the stated maturity or on the applicable
redemption date, as the case may be, of such principal or installment of
principal of, premium, if any, or interest on the outstanding Senior Notes;
(ii) in the case of Legal Defeasance, the Company shall have delivered to the
Trustee an opinion of counsel reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the holders of the outstanding Senior Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
not occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel reasonably acceptable to the
Trustee confirming that the holders of the outstanding Senior Notes will not
recognize
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income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit or
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date of
deposit; (v) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under any material agreement or
instrument (other than the Indenture) to which the Company is a party or by
which the Company is bound; (vi) the Company shall have delivered to the
Trustee an opinion of counsel to the effect that after the 91st day following
the deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; (vii) the Company shall have delivered to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the holders of Senior Notes over the
other creditors of the Company or with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; and (viii) the
Company shall have delivered to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent provided for
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it under the Indenture
and use the same degree of care and skill in their exercise as a prudent person
would exercise under the circumstances in the conduct of such person's own
affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claim
as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest, it must
eliminate such conflict or resign.
The Trustee is the trustee under the indenture governing the Company's 9 1/4%
Convertible Subordinated Debenture due 2005. In addition, the Company may have
customary banking relationships with the Trustee in the ordinary course of
business.
CERTAIN DEFINITIONS
"Acquired Indebtedness" of any specified Person means Indebtedness of any
other Person and its Subsidiaries existing at the time such other Person merged
with or into or became a Subsidiary of such specified Person or assumed by the
specified Person in connection with the acquisition of assets from such other
Person, including, without limitation, Indebtedness of such other Person and
its Subsidiaries incurred by the specified Person in connection with or in
anticipation of (a) such other Person and its Subsidiaries being merged with or
into or becoming a Subsidiary of such specified Person or (b) such Acquisition
by the specified Person.
"Affiliate" means, with respect to any party, any person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such party. For purposes of this definition, "control" (including,
with correlative meanings, the terms "controlling," "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
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"Asset Sale" means, with respect to the Company or any Restricted Subsidiary,
the sale, lease, conveyance or other disposition (including, without
limitation, by way of merger or consolidation, and whether by operation of law
or otherwise) of any of the Company's or such Restricted Subsidiary's assets
(including, without limitation, (x) any sale or other disposition of Equity
Interests of any Restricted Subsidiary and (y) any sale or other disposition of
any non-cash consideration received by the Company or such Restricted
Subsidiary from any prior transaction or series of related transactions that
constituted an Asset Sale under the Indenture), whether owned on the date of
the Indenture or subsequently acquired, in one transaction or a series of
related transactions; provided, however, that the following shall not
constitute an Asset Sale: (i) a transaction or series of related transactions
(other than transactions described in clause (y) above) in which the Fair
Market Value of the cash and/or other consideration received (including,
without limitation, the unconditional assumption of Indebtedness) is less than
$500,000; (ii) a transaction or series of related transactions that results in
a Change in Control; and (iii) sales of inventory, spare parts and related
items, in the ordinary course of business of the Company and its Restricted
Subsidiaries, consistent with past practices.
"Attributable Indebtedness" means, with respect to any sale and leaseback
arrangement, as at the time of determination, the greater of (i) the Fair
Market Value of the property subject to such arrangement and (ii) the present
value (discounted at a rate equivalent to the Company's then current weighted
average cost of funds for borrowed money, compounded on a semi-annual basis) of
the total obligations of the lessee for rental payments during the remaining
term of the lease included in such arrangement (including any period for which
such lease has been extended).
"Capital Stock" means any and all shares, interests, participations or other
equivalents (however designated) of corporate stock.
"Capitalized Lease Obligation" means Indebtedness represented by obligations
under a lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP and the amount of such Indebtedness shall be
the capitalized amount of such obligations determined in accordance with GAAP.
"Consolidated Cash Flow" of any person for any period means the sum (without
duplication) of (i) the Consolidated Net Income of such person for such period
plus (ii) the sum of (A) provision for income taxes based on income or profits
for such period, (B) Total Interest Expense for such period, (C) depreciation
expense for such period, (D) amortization expense for such period and (E) other
non-cash charges for such period, in each case, to the extent such expense
reduced Consolidated Net Income for such period, minus (iii) non-cash items
increasing Consolidated Net Income for such period, in each case determined on
a consolidated basis for such person and its consolidated Restricted
Subsidiaries in accordance with GAAP.
"Consolidated Indebtedness" means the Indebtedness of the Company and its
consolidated Restricted Subsidiaries determined on a consolidated basis in
conformity with GAAP.
"Consolidated Net Income" of any person for any period means the aggregate
Net Income of such person and its Subsidiaries (other than, in the case of the
Company, an Unrestricted Subsidiary of the Company) for such period, provided
that (i) the Net Income of any person which is not a wholly-owned Subsidiary of
such person but which is consolidated with such person or is accounted for by
such person by the equity method of accounting shall be included for the
purpose of determining Net Income only to the extent of the amount of cash
dividends or cash distributions paid to such person or a Subsidiary of such
person (other than, in the case of the Company, an Unrestricted Subsidiary of
the Company), (ii) the Net Income of any person acquired by such person or a
Subsidiary of such person in a pooling of interests transaction for any period
prior to the date of such acquisition shall be excluded, (iii) the Net Income
of any Subsidiary of such person that is subject to restrictions, direct or
indirect, on the payment of dividends or the making of distributions to such
person shall be excluded to the extent of such restrictions, (iv) the Net
Income of (A) any Unrestricted Subsidiary and (B) any Subsidiary less than 80%
of whose securities having the right (apart from the right under special
circumstances) to vote in the election of directors are owned by the Company or
its wholly-owned Restricted
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Subsidiaries shall be included only to the extent of the amount of cash
dividends or cash distributions actually paid by such Subsidiary to the Company
or a wholly-owned Restricted Subsidiary of the Company, (v) in the case of the
Company, the Net Income attributable to any business, properties or assets
acquired (by way of merger, consolidation, purchase or otherwise) by the
Company or any Restricted Subsidiary of the Company for any period prior to the
date of such acquisition shall be excluded and (vi) all extraordinary gains and
losses, and any gain or loss realized upon the termination of any employee
pension benefit plan, in respect of dispositions of assets other than in the
ordinary course of business and any one-time increase or decrease to Net Income
which is required to be recorded because of the adoption of new accounting
policies, practices or standards required by GAAP, shall be excluded.
"Consolidated Net Worth" means consolidated shareowners' equity as determined
in accordance with GAAP.
"Continuing Directors" means any member of the Board of Directors who (i) is
a member of the Board of Directors on the date of the Indenture or (ii) was
nominated for election or elected to the Board of Directors with the
affirmative vote of two-thirds of the Continuing Directors who were members of
the Board of Directors at the time of such nomination or election.
"Eligible Investments" means, as to any person, (i) securities issued or
directly and fully guaranteed or insured by the United States of America (and,
in the case of Eligible Investments of a Foreign Subsidiary, the jurisdiction
in which it operates) or any agency or instrumentally thereof (provided that
the full faith and credit of the United States of America (or, in the case of
Eligible Investments of a Foreign Subsidiary, the principal jurisdiction in
which it operates) is pledged in support thereof) having maturities of not more
than one year from the date of acquisition by such person, (ii) time deposits
and certificates of deposits of any commercial bank incorporated in the United
States of America (or, in the case of Eligible Investments of a Foreign
Subsidiary, the principal jurisdiction in which it operates) of recognized
standing having capital and surplus in excess of $100.0 million, (iii)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (i) above (except that there shall
be no restrictions on the maturities of such underlying securities pursuant to
this clause (iii) entered into with any bank meeting the qualifications
specified in clause (ii)), (iv) commercial paper issued by the parent
corporation of any commercial bank (provided that the parent corporation and
the bank are both incorporated in the United States of America (or, in the case
of Eligible Investments of a Foreign Subsidiary, the principal jurisdiction in
which it operates)) of recognized standing having capital and surplus in excess
of $100.0 million, and commercial paper rated at least A-1 or the equivalent
thereof by Standard & Poor's Corporation or at least P-1 or the equivalent
thereof by Moody's Investors Service, Inc. and in each case maturing within 365
days from the date of acquisition thereof, (v) securities, bonds, notes,
debentures, investments or other forms of Indebtedness of any person rated at
least A-2 or the equivalent thereof by Standard & Poor's Corporation or P-2 or
the equivalent thereof by Moody's Investors Service, Inc., and in each case
maturing within 365 days from the date of acquisition thereof, and (vi)
investments in money market or mutual funds registered under the Investment
Company Act of 1940, as amended, whose sole investments are comprised of
securities of the types described in clauses (i) through (v) above.
"Equity Interests" means shares, interest, participation or other equivalents
(however designated) of Capital Stock and all warrants, options or other rights
to acquire Capital Stock (but excluding any debt security which is convertible
into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Debentures" means the Company's 9 1/4% Convertible Subordinated
Debentures due 2005 issued under the Indenture dated as of October 1, 1980
between the Company and Morgan Guaranty Trust Company of New York, as Trustee.
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"Existing Indebtedness" means all indebtedness of the Company and its
Subsidiaries (including DEA and its Subsidiaries) existing on the date of the
Indenture, after giving effect to the DEA Acquisition, the Offering and the
application of the proceeds therefrom.
"Existing Liens" means Liens existing on the date of the Indenture.
"Fair Market Value" means, with respect to any asset or property, the price
which could be negotiated in an arm's length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair Market Value shall be
determined by a majority of the members of the Board of Directors of the
Company, and a majority of the disinterested members of such Board of
Directors, if any, acting in good faith and shall be evidenced by a duly and
properly adopted resolution of the Board of Directors except any determination
of Fair Market Value made with respect to any real property or personal
property which is customarily appraised shall be made by an independent
qualified appraiser.
"Fixed Charges" means for any person for any period the sum of (i) Total
Interest Expense and (ii) dividends or other distributions paid on Preferred
Stock of such person and its Restricted Subsidiaries for such period.
"Fixed Charge Coverage Ratio" means for any person for any period the ratio
of its (a) Consolidated Cash Flow to (b) Fixed Charges for such period. If, at
any time during the period for which Consolidated Cash Flow or Fixed Charges of
any person is required to be determined, or concurrently with or immediately
after the incurrence of any Indebtedness giving rise to any such determination,
any of the following events shall occur: (i) such person acquires a Subsidiary;
(ii) such person or any of its Restricted Subsidiaries acquires directly or
indirectly a business; (iii) such person or any of its Subsidiaries sells or
otherwise disposes of any of their respective Subsidiaries (a "Stock
Disposition") or any properties or assets (including on liquidation,
dissolution or winding up) outside the ordinary course of business (an "Asset
Disposition") and such Stock Disposition or Asset Disposition, together with
all other Stock Dispositions and Asset Dispositions during the immediately
preceding 12-month period, accounts for more than 5% of such person's
Consolidated Cash Flow for the four consecutive fiscal quarters of such person
immediately preceding the date of such determination; or (iv) such person or
any of its Subsidiaries incurs any Indebtedness, then Consolidated Cash Flow
and Fixed Charges shall each be computed giving pro forma effect to such event
and the application of the proceeds, if any, therefrom, as if such event (and
the application of such proceeds) had occurred at the beginning of such period.
Pro forma adjustments made pursuant to the preceding sentence shall reflect
only actual transactions and shall not reflect any assumed increases in income
or reductions of expenses. For purposes of this definition, if the date of
determination occurs prior to the date on which the Company's consolidated
financial statements for the four full fiscal quarters subsequent to the date
on which the Senior Notes are originally issued are first available,
Consolidated Cash Flow and Fixed Charges shall be calculated giving pro forma
effect to (i) the issuance of any Securities outstanding on the date of
determination and (ii) any merger of the Company that occurred at any time
during the period (A) commencing on the first day of the four full fiscal
quarter period for which financial statements are available that precedes the
date of determination and (B) ending on and including the date of determination
as, in the case of clauses (i) and (ii), if they had occurred on the first day
of such period.
"Foreign Subsidiary" means any Subsidiary of the Company, more than 80% of
the sales, earnings or assets (determined on a consolidated basis) of which are
located or derived from operations outside the United States.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are in effect from time to
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time; provided, however, that for purposes of determining compliance with the
covenants contained in Articles 4 and 5 of the Indenture, GAAP shall mean such
generally accepted accounting principles, as in effect on the date of the
Indenture.
"Indebtedness" of any person means the principal of and interest on (i) all
indebtedness for money borrowed or which is evidenced by a bond, debenture,
note or other similar instrument or agreement, whether or not for money
borrowed, but excluding trade credit evidenced by any such instrument or
agreement; (ii) Capitalized Lease Obligations; (iii) indebtedness, secured or
unsecured, created or arising in connection with the acquisition or improvement
of any property or asset or the acquisition of any business; (iv) all
indebtedness secured by any Lien upon property owned by such person and all
indebtedness secured in the matter specified in this clause even if such person
has not assumed or become liable for the payment thereof; (v) all indebtedness
of such person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such person or
otherwise representing the deferred and unpaid balance of the purchase price of
any such property, including all indebtedness created or arising in the manner
specified in this clause even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property; (vi) guarantees, direct or indirect, of any
indebtedness of other persons referred to in clauses (i) through (v) above, or
of dividends or leases, taxes or other obligations of other persons, excluding
any guarantee arising out of the endorsement of negotiable instruments for
collection in the ordinary course of business; (vii) contingent obligations in
respect of, or to purchase or otherwise acquire or be responsible or liable
for, through the purchase of products or services, irrespective of whether such
products are delivered or such services are rendered, or otherwise, any such
indebtedness referred to in clauses (i) through (v) above; and (viii) any
obligation, contingent or otherwise, arising under any surety, performance or
maintenance bond; which indebtedness, Capitalized Lease Obligation, guarantee
or contingent obligation such person has directly or indirectly created,
incurred, assumed, guaranteed or otherwise become liable or responsible for,
whether then outstanding or thereafter created. For purposes of the foregoing
definition, the liquidation preference of any Preferred Stock issued by a
Subsidiary of the Company to persons other than the Company or a wholly-owned
Restricted Subsidiary of the Company shall be deemed to represent an equal
principal amount of Indebtedness and dividends thereon shall be deemed to
represent an equal amount of interest. Any reference in this definition to
indebtedness shall be deemed to include any renewals, extensions, refundings,
amendments and modifications of any such indebtedness or any indebtedness
issued in exchange for such indebtedness.
"Independent Director" of any person means any director who is not an
employee or an officer of such person and who is not otherwise an Affiliate
(other than by virtue of his or her position as a director) of such person.
"Interest Rate Protection Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option agreement,
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedge agreement or other similar agreement or
arrangement designed to protect a Person or any of its Subsidiaries against
fluctuations in interest rates to or under which such Person or any of its
Subsidiaries is or becomes a party or a beneficiary.
"Investment" means any direct or indirect advance, loan, other extension of
credit or capital contribution to, purchase or acquisition of Equity Interests,
bonds, notes, debentures or other securities of, or purchase or other
acquisition of all or a substantial part of the business, assets, Equity
Interests or other evidence of beneficial ownership of, or any other investment
in or Guarantee of any Indebtedness of, any person.
"Lien" means any mortgage, lien, pledge, security interest, charge or
encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
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"Net Income" means for any person for any period the net income (loss) of
such person and its Subsidiaries (other than, in the case of the Company,
Unrestricted Subsidiaries) determined in accordance with GAAP.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, the proceeds of insurance paid on account of the loss of or
damage to any property, or compensation or other proceeds for any property
taken by condemnation, eminent domain or similar proceedings, and any non-cash
consideration received by the Company or any Restricted Subsidiary from any
Asset Sale that is converted into or sold or otherwise disposed of for cash
within ninety (90) days after the relevant Asset Sale), net of (i) the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees and sales commissions), (ii) any taxes
paid or payable as a result thereof (after taking into account any available
tax credits or deductions arising from such Asset Sale), (iii) all amounts
required to be applied to the repayment of, or representing the amount of
permanent reductions in the commitments relating to, Indebtedness secured by a
Lien on the asset or assets the subject of such Asset Sale (other than
Indebtedness relating to the Securities) which Lien is and is permitted to be
prior to the Lien on such assets in favor of the Trustee, if any, and (iv) any
reserve for adjustment in respect of the sale price of such asset or assets
required by GAAP.
"Permitted Investments" means (a) investments in cash and Eligible
Investments; (b) Investments in any wholly owned Subsidiary of the Company by
the Company, or by any other wholly owned Subsidiary of the Company, provided
that such Investment shall only be a Permitted Investment so long as any such
wholly owned Subsidiary in which the Investment has been made or which has made
such Investment remains a wholly owned Subsidiary of the Company; (c)
Investments, not exceeding $2 million at any one time in the aggregate, in
joint ventures, partnerships or Persons that are not wholly owned Subsidiaries
of the Company that are made solely for the purpose of acquiring or developing
a Related Business; and (d) Investments of the Company and its Subsidiaries
arising as a result of any Asset Sale otherwise complying with the terms of the
Indenture, provided that for each Asset Sale the maximum aggregate amount of
Investments permitted under this clause (d) shall not exceed 25% of the total
consideration received for such Asset Sale by the Company, or any Subsidiary of
the Company.
"Permitted Liens" means, as of any particular time, any one or more of the
following:
(a) Liens for taxes, rates and assessments not yet due or, if due, the
validity of which is being contested diligently and in good faith by the
Company or any Restricted Subsidiary and against which the Company has
established appropriate reserves in accordance with GAAP;
(b) the Lien of any judgment rendered which is being contested diligently
and in good faith by the Company or any of its Restricted Subsidiaries and
against which the Company has established appropriate reserves and which
does not have a material adverse effect on the ability of the Company and
its Restricted Subsidiaries to operate their business or operations;
(c) other than in connection with Indebtedness, any Lien arising in the
ordinary course of business (i) to secure payments of workers'
compensation, unemployment insurance, pension or other social security or
retirement benefits, or to secure the performance of bids, tenders, leases,
progress payments, contracts (other than for the payment of money) or to
secure public or statutory Obligations of the Company or any Restricted
Subsidiary, or to secure surety or appeal bonds to which the Company or any
Restricted Subsidiary is a party, (ii) imposed by law dealing with
materialmen's, mechanics', workmen's, repairmen's, warehousemen's,
landlords', vendors' or carriers' Liens created by law, or deposits or
pledges which are not yet due or, if due, the validity of which is being
contested diligently and in good faith by the Company or any Restricted
Subsidiary and against which the Company has established appropriate
reserves and (iii) like Liens;
(d) servitude, licenses, easements, encumbrances, restrictions, rights-
of-way and rights in the nature of easements or similar charges which will
not in the aggregate materially adversely impair the use of the subject
property by the Company or a Restricted Subsidiary;
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(e) zoning and building by-laws and ordinances, municipal by-laws and
regulations, and restrictive covenants, which do not materially interfere
with the use of the subject property by the Company or a Restricted
Subsidiary as such property is used as of the date of the Indenture;
(f) any extension, renewal, substitution or replacement (or successive
extension, renewals, substitutions or replacements), as a whole or in part,
of any of the Liens referred to in clauses (a) through (e) of this
definition or the Indebtedness secured thereby; provided that (1) such
extension, renewal, substitution or replacement Lien shall be limited to
that portion of the property or assets, now owned or hereafter acquired,
that was subject to the Lien prior to such extension, renewal, substitution
or replacement Lien and (2) the principal amount of Indebtedness secured by
such Lien (assuming all available amounts were borrowed) at such time is
not increased.
"Person" means any individual, corporation, partnership, joint venture,
trust, estate, unincorporated organization or government or any agency or
political subdivision thereof.
"Preferred Stock," as applied to the Equity Interest of any corporation,
means stock of any class or classes (however designated) which is preferred
over shares of stock of any other class of such corporation as to the
distribution of assets on any voluntary or involuntary liquidation or
dissolution of such corporation or as to dividends.
"Related Business" means any corporation or other entity engaged in, and any
asset utilized in, the manufacture of metrology products or any product
reasonably related to metrology products.
"Restricted Subsidiary" means (i) any Subsidiary of the Company in existence
on the date of the Indenture, (ii) any Subsidiary of the Company organized or
acquired after the date of the Indenture, unless such Subsidiary shall have
been designated as an Unrestricted Subsidiary by a resolution of the Board of
Directors as provided in the definition of "Unrestricted Subsidiary" and (iii)
any Unrestricted Subsidiary which is designated as a Restricted Subsidiary by
the Board of Directors; provided, that immediately after giving effect to any
such designation (A) no Default or Event of Default shall have occurred and be
continuing and (B) in the case of any designation referred to in clause (ii) or
(iii) hereof, the Company could incur at least $1.00 of Indebtedness pursuant
to the initial paragraph of "Certain Covenants--Limitations on Indebtedness,"
on a pro forma basis taking into account such designation. The Company will
evidence any such designation to the Trustee by promptly filing with the
Trustee an Officers' Certificate certifying that such designation has been made
and complies with the requirements of the immediately preceding sentence.
Notwithstanding the foregoing, Restricted Subsidiaries shall include the
corporate and other entities, referred to in the Indenture as the DEA Group,
acquired by the Company in the DEA Acquisition.
"Revolving Credit Indebtedness" means, without duplication, Indebtedness of
the Company incurred pursuant to or in connection with one or more revolving
credit, letter of credit or other working capital facilities (including without
limitation the Revolving Credit Facility), in an aggregate principal amount not
to exceed, at any one time outstanding, the lesser of (i) $35,000,000 and (ii)
the sum of (A) 85% of the gross book value of accounts receivable of the
Company and its Restricted Subsidiaries and (B) 50% of the gross book value of
the inventory of the Company and its Restricted Subsidiaries.
"Senior Indebtedness" means (i) the Senior Notes, (ii) all additional
Indebtedness incurred by the Company or its Restricted Subsidiaries that is
permitted to be incurred under the Indenture that is not by its terms
subordinated to the Senior Notes and (iii) all renewals, extensions,
amendments, refinancings, repurchases or redemptions, modifications,
replacements or refundings thereof, in whole or in part, that are permitted
pursuant to the Indenture. Senior Indebtedness shall not include the 9 1/4%
Convertible Subordinated Debentures.
"Sinking Fund Payments on the Existing Debentures" means scheduled sinking
fund payments under the Existing Debentures, and purchases by the Company of
Existing Debentures to be used by the Company to make scheduled sinking fund
payments under the Existing Debentures due within one year from the date of
purchase.
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"Subsidiary" means, with respect to the Company, (i) any corporation of which
the outstanding Equity Interests having at least a majority of the votes
entitled to be cast in the election of directors, under ordinary circumstances,
shall at the time be owned, directly or indirectly, by the Company and one or
more of its Subsidiaries or by one or more of the Company's Subsidiaries or
(ii) any other person or entity of which at least a majority of voting
interest, under ordinary circumstances, shall at the time be owned, directly or
indirectly, by the Company, by the Company and one or more of its Subsidiaries
or by one or more of the Company's Subsidiaries.
"Total Interest Expense" means for any person for any period the aggregate
amount of interest in respect of Indebtedness (including amortization of
original issue discount on any Indebtedness and amortization of deferred
financing costs, in each case calculated in accordance with GAAP) and all but
the principal component of rentals in respect of Capitalized Lease Obligations,
paid or accrued by such person and its Restricted Subsidiaries during such
period, determined on a consolidated basis in accordance with GAAP. For
purposes of this definition, (i) interest on Indebtedness determined on a
fluctuating basis for periods succeeding the date of determination shall be
deemed to accrue at a rate equal to the rate of interest on such Indebtedness
as in effect on the date of determination and (ii) interest on a Capitalized
Lease Obligation shall be deemed to accrue at an interest rate reasonably
determined by the Chief Financial Officer of such person to be the rate of
interest implicit in such Capitalized Lease Obligation in accordance with GAAP.
"Unrestricted Subsidiary" means, until such time at it may be designated as a
Restricted Subsidiary by the Board of Directors of the Company as provided in
and in compliance with the definition of "Restricted Subsidiary," (i) any
Subsidiary of the Company organized or acquired after the date of the Indenture
in which all investments, loans, advances or capital contributions by the
Company or any Restricted Subsidiary are made only from funds available for the
making of Restricted Payments as described under "Certain Covenants--
Limitations on Restricted Payments" and (ii) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors of the Company may designate any Subsidiary
of the Company (including any newly acquired or newly formed Subsidiary) to be
an Unrestricted Subsidiary unless such Subsidiary owns any Equity Interests of,
or owns, or holds any Lien upon, any property of, any Subsidiary of the Company
which is not a Subsidiary of such Subsidiary to be so designated; provided that
each Subsidiary to be so designated and each of its Subsidiaries has not, at
the time of designation, and does not thereafter, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable with respect to any
Indebtedness pursuant to which the lender has recourse to any of the assets of
the Company or any of its Restricted Subsidiaries. The Company will evidence
any such designation by promptly filing with the Trustee an Officers'
Certificate certifying that such designation has been made and complies with
the requirements of the immediately preceding sentence.
DESCRIPTION OF REVOLVING CREDIT FACILITY
Set forth below are certain terms that the Company expects will be included
in the Revolving Credit Facility. The Company has not yet entered into the
Revolving Credit Facility. There can be no assurance that the Revolving Credit
Facility will become effective, or that it will contain the terms described
herein if it becomes effective. The Revolving Credit Facility is a condition to
the Offering.
The Company expects that the Revolving Credit Facility will provide the
Company with a three-year revolving credit facility of cash borrowings and
issuances or guarantees of letter of credit in an aggregate amount of up to $25
million, subject to a borrowing base based on domestic inventory and accounts
receivable. The Company expects that the Company's obligations under the
Revolving Credit Facility will be secured by substantially all the Company's
domestic current and after-acquired inventory and accounts receivable.
71
<PAGE>
UNDERWRITING
Wertheim Schroder & Co. Incorporated has agreed, subject to certain
conditions, to purchase from the Company all of the Senior Notes offered
hereby, if any are purchased. Wertheim Schroder & Co. Incorporated has advised
the Company that it proposes to offer the Senior Notes to the public initially
at the offering price set forth on the cover page of this Prospectus, which
public offering price may be changed by Wertheim Schroder & Co. Incorporated
after the initial public offering.
The Company and Wertheim Schroder & Co. Incorporated have agreed to indemnify
each other against certain liabilities, including liabilities under the
Securities Act.
Prior to the Offering, there has not been any market for the Senior Notes.
The Senior Notes will not be listed on a national securities exchange or
authorized for quotation on The Nasdaq System. The Company has been advised by
Wertheim Schroder & Co. Incorporated that it presently intends to make a market
in the Senior Notes; however, it is not obligated to do so and such market
making activity may be discontinued at any time. There can be no assurance that
an active public market for the Senior Notes will develop. If a public trading
market develops for the Senior Notes, future trading prices of such securities
will depend on many factors, including, among other things, prevailing interest
rates, the Company's results of operations and the market for similar
securities. Depending on such other factors, the Senior Notes may trade at a
discount from their face value.
Wertheim Schroder & Co. Incorporated has provided certain financial advisory
and investment banking services to the Company and certain of its affiliates
(including services in connection with the DEA acquisition) from time to time
and has received compensation customary for such services.
LEGAL OPINIONS
The legality of the Senior Notes will be passed upon for the Company by Ropes
& Gray, Boston, Massachusetts. Howard K. Fuguet, who is a director of the
Company, is a partner of Ropes & Gray. Mr. Fuguet owns 1,000 shares of Brown &
Sharpe's Class A Common Stock. Certain legal matters in connection with the
Offering will be passed upon for Wertheim Schroder & Co. Incorporated by Weil,
Gotshal & Manges (a partnership including professional corporations), New York,
New York.
EXPERTS
The consolidated financial statements of Brown & Sharpe Manufacturing Company
as of December 26, 1992 and December 25, 1993 and for each of the three years
in the period ended December 25, 1993 included in this Prospectus have been
included herein in reliance upon the report of Coopers & Lybrand, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The combined financial statements of DEA as of December 31, 1992 and December
31, 1993 and for each of the two years in the period ended December 31, 1993
included in this Prospectus have been included herein in reliance upon the
report of Reconta Ernst & Young, independent accountants, given on the
authority of that firm as experts in accounting and auditing. The consolidated
financial statements of DEA as of December 31, 1991 and for the year ended
December 31, 1991 have been included herein in reliance upon the report of
Coopers & Lybrand, independent accountants, given on the authority of that firm
as experts in accounting and auditing.
The financial statements of Roch as of December 31, 1992 and December 31,
1993 and for each of the two years in the period ended December 31, 1993
included in this Prospectus have been included herein in reliance upon the
report of Kurt Schlotthauer, independent accountant, given on the authority of
that firm as experts in accounting and auditing.
72
<PAGE>
The financial statements of Mauser as of December 31, 1992 and December 31,
1993 and for each of the two years in the period ended December 31, 1993
included in this Prospectus have been included herein in reliance upon the
report of Coopers & Lybrand Wirtschaftsprufungsgesellschaft Gesellschaft mit
beschrankter Haftung, independent accountants, given on the authority of that
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form S-
1 (herein, together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, with respect to the securities
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement. Statements contained in this Prospectus
concerning the provisions of certain documents are not necessarily complete
and, in each instance, reference is made to the copy of such document filed as
an exhibit to the Registration Statement or otherwise filed with the
Commission, each statement being qualified in all respects by such reference.
The Company has agreed to furnish the Trustee (as defined) and holders of the
Senior Notes with the reports required to be filed under Sections 13 and 15(d)
of the Exchange Act, regardless of whether the Company is subject to the
reporting requirements under the Exchange Act. The Company has also agreed, so
long as the Senior Notes remain outstanding, to file reports under Section 13
or 15(d) of the Exchange Act and to make such reports available to prospective
purchasers of the Senior Notes, securities analysts and broker-dealers upon
request.
73
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF BROWN & SHARPE
Report of Independent Accountants--Coopers & Lybrand.................... F-2
Consolidated Balance Sheet as of December 26, 1992, December 25, 1993,
and April 2, 1994 (Unaudited).......................................... F-3
Consolidated Statement of Income (Loss) for the Years Ended December 28,
1991, December 26, 1992, and December 25, 1993, and for the Quarters
Ended March 27, 1993 (Unaudited) and April 2, 1994 (Unaudited)......... F-4
Consolidated Statement of Cash flows for the Years Ended December 28,
1991, December 26, 1992, and December 25, 1993, and for the Quarters
ended March 27, 1993 (Unaudited) and April 2, 1994 (Unaudited)......... F-5
Notes to Consolidated Financial Statements.............................. F-7
COMBINED FINANCIAL STATEMENTS OF DEA
Report of Independent Accountants--1991--Coopers & Lybrand.............. F-22
Report of Independent Accountants--1992--Price Waterhouse............... F-23
Report of Independent Accountants--1992 and 1993--Reconta Ernst & Young. F-24
Combined Balance Sheet as of December 31, 1992, 1993, and March 31, 1994
(Unaudited)............................................................ F-25
Combined Statement of Income (Loss) for the Years Ended December 31,
1991, 1992, and 1993, and for the Quarters Ended March 31, 1993
(Unaudited) and 1994 (Unaudited)....................................... F-26
Combined Statement of Cash Flows for the Years Ended December 31, 1991,
1992, and 1993, and for the Quarters Ended March 31, 1993 (Unaudited)
and 1994 (Unaudited)................................................... F-27
Combined Statement of Changes in Divisional Deficit for the Years Ended
December 31, 1991, 1992, and 1993, and for the Quarters Ended March 31,
1993 (Unaudited) and 1994 (Unaudited).................................. F-28
Notes to Combined Financial Statements.................................. F-29
FINANCIAL STATEMENTS OF ETS. PIERRE ROCH S.A.
Report of Independent Accountants--Kurt Schlotthauer (Expert Comptable). F-47
Balance Sheet as of December 31, 1992, 1993, and March 31, 1994
(Unaudited)............................................................ F-48
Statement of Income (Loss) for the Years Ended December 31, 1991, 1992,
and 1993, and for the Quarters Ended March 31, 1993 (Unaudited) and
1994 (Unaudited)....................................................... F-49
Statement of Cash Flows for the Years Ended December 31, 1991, 1992, and
1993, and for the Quarters Ended March 31, 1993 (Unaudited) and 1994
(Unaudited)............................................................ F-50
Notes to Financial Statements........................................... F-51
FINANCIAL STATEMENTS OF MAUSER PRAZISIONS--MESSMITTEL GMBH
Report of Independent Accountants--Coopers & Lybrand
Wirtschaftsprufungsgesellschaft Gesellschaft mit beschrankter Haftung.. F-69
Balance Sheet as of December 31, 1992, 1993, and March 31, 1994
(Unaudited)............................................................ F-70
Statement of Income (Loss) and Accumulated Losses for the Years Ended
December 31, 1991, 1992, and 1993, and for the Quarters Ended March 31,
1994 (Unaudited)....................................................... F-71
Statement of Cash Flows for the Years Ended December 31, 1991, 1992, and
1993, and for the Quarters Ended March 31, 1994 (Unaudited)............ F-72
Notes to Financial Statements........................................... F-73
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareowners and Directors
of Brown & Sharpe Manufacturing Company:
We have audited the consolidated balance sheet of Brown & Sharpe
Manufacturing Company as of December 26, 1992 and December 25, 1993, and the
consolidated statements of income (loss), cash flows, and shareowners' equity
for each of the three years in the period ended December 25, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Brown & Sharpe
Manufacturing Company as of December 25, 1993 and December 26, 1992, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 25, 1993, in conformity with generally
accepted accounting principles.
Boston, Massachusetts Coopers & Lybrand
February 14, 1994, except as to
the information presented in
Note 2, for which the date
is June 7, 1994
F-2
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DEC. 26, DEC. 25, APRIL 2,
1992 1993 1994
-------- -------- -----------
(AS ADJUSTED--NOTE 2)(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................... $ 4,640 $ 2,094 $ 3,818
Restricted cash.............................. -- 6,078 6,113
Accounts receivable, net of allowances for
doubtful accounts of $1,452, $1,320 and
$1,635...................................... 37,150 44,525 42,284
Inventories.................................. 62,008 53,963 57,550
Prepaid expenses and other current assets.... 3,281 3,031 3,387
-------- -------- --------
Total current assets....................... 107,079 109,691 113,152
Property, plant and equipment:
Land......................................... 6,509 6,398 6,358
Buildings and improvements................... 32,043 32,315 32,572
Machinery and equipment...................... 83,120 77,053 78,615
-------- -------- --------
121,672 115,766 117,545
Less accumulated depreciation................ 75,270 72,212 73,775
-------- -------- --------
Total property, plant and equipment........ 46,402 43,554 43,770
Other assets................................... 12,605 12,626 12,760
-------- -------- --------
$166,086 $165,871 $169,682
======== ======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current installments of
long-term debt.............................. $ 26,074 $ 31,804 $ 33,742
Accounts payable............................. 11,818 12,716 12,549
Accrued expenses and income taxes............ 21,151 19,146 22,665
-------- -------- --------
Total current liabilities.................. 59,043 63,666 68,956
Long-term debt................................. 34,626 32,696 33,224
Deferred income taxes.......................... 1,660 1,763 1,781
Unfunded accrued pension cost.................. 4,083 4,226 4,345
SHAREOWNERS' EQUITY:
Preferred stock, $1 par value; authorized
1,000,000 shares; none issued............... -- -- --
Common stock:
Class A, par value $1; authorized 15,000,000
shares; issued 4,358,261 shares in 1992,
4,431,890 in 1993, and 4,651,368 in 1994.... 4,358 4,432 4,651
Class B, par value $1; authorized 2,000,000
shares; issued 621,201 shares in 1992,
547,604 in 1993, and 545,539 in 1994........ 621 548 546
Additional paid in capital................... 45,710 45,710 47,013
Earnings employed in the business............ 6,894 4,377 1,503
Cumulative foreign currency translation
adjustment.................................. 10,260 9,394 8,547
Treasury stock; 16,662 shares in 1992, 8,076
in 1993 and in 1994, at cost................ (336) (163) (163)
Unearned compensation........................ (833) (778) (721)
-------- -------- --------
Total shareowners' equity.................. 66,674 63,520 61,376
-------- -------- --------
$166,086 $165,871 $169,682
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
CONSOLIDATED STATEMENT OF INCOME (LOSS)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
---------------------------- ------------------
DEC. 28, DEC. 26, DEC. 25, MAR. 27, APRIL 2,
1991 1992 1993 1993 1994
-------- -------- -------- -------- --------
(AS ADJUSTED--NOTE 2) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.................... $175,847 $160,695 $157,035 $39,758 $36,659
Cost of goods sold........... 119,481 116,283 110,841 28,448 25,940
Selling, general and
administrative expense...... 56,672 52,509 45,474 10,744 12,261
-------- -------- -------- ------- -------
Operating profit (loss).... (306) (8,097) 720 566 (1,542)
Interest expense............. (4,219) (5,272) (5,100) (1,132) (1,280)
Other income, net............ 824 2,135 2,764 1,794 48
-------- -------- -------- ------- -------
Income (loss) before income
taxes..................... (3,701) (11,234) (1,616) 1,228 (2,774)
Income tax provision
(benefit)................... (800) (3,250) 800 -- 100
-------- -------- -------- ------- -------
Income (loss) from
continuing operations..... (2,901) (7,984) (2,416) 1,228 (2,874)
(Loss) from discontinued
operations................ (1,180) -- -- -- --
-------- -------- -------- ------- -------
Net income (loss)............ $ (4,081) $ (7,984) $ (2,416) $ 1,228 $(2,874)
======== ======== ======== ======= =======
Primary and fully diluted
loss per common share:
Income (loss) from
continuing operations..... $ (0.62) $ (1.63) $ (0.49) $ 0.25 $ (0.57)
(Loss) from discontinued
operations................ (0.25) -- -- -- --
-------- -------- -------- ------- -------
Net income (loss).......... $ (0.87) $ (1.63) $ (0.49) $ 0.25 $ (0.57)
======== ======== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
---------------------------- ------------------
DEC. 28 DEC. 26, DEC. 25, MAR. 27, APRIL 2,
1991 1992 1993 1993 1994
-------- -------- -------- -------- --------
(AS ADJUSTED--NOTE 2) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATIONS:
Net loss.................... $ (4,081) $ (7,984) $ (2,416) $ 1,228 $ (2,874)
Adjustment for noncash
Items:
Depreciation and
amortization............. 8,700 7,330 6,355 1,646 1,307
Pension credits and
charges.................. 831 762 138 75 112
Deferred income taxes..... (1,000) (3,600) 500 (500) --
Gain on sale of
operations............... -- (628) (2,182) (2,000) --
Changes in working capital:
Accounts receivable....... 822 6,925 (8,204) (3,251) 5,762
Inventories............... (282) (577) 957 1,757 495
Prepaid expenses and other
current assets........... (842) (859) 323 727 (477)
Accounts payable and
accrued expenses......... (5,363) 2,826 (1,455) 1,549 (798)
Net assets of discontinued
operations............... 12,645 1,912 -- -- --
-------- -------- -------- ------- --------
Net Cash Provided by (Used
in) Operations............. 11,430 6,107 (5,984) 1,231 3,527
-------- -------- -------- ------- --------
INVESTMENT TRANSACTIONS:
Acquisitions................ (232) (1,604) -- -- --
Capital expenditures........ (9,864) (12,474) (4,399) (975) (814)
Proceeds from sale of
operations................. 216 3,615 8,700 3,200 --
Cash equivalents pledged.... -- -- (6,078) -- (35)
Other investing activities.. 263 (2,270) (377) 101 (194)
-------- -------- -------- ------- --------
Net Cash (Used in)
Investment Transactions.. (9,617) (12,733) (2,154) 2,326 (1,043)
-------- -------- -------- ------- --------
FINANCING TRANSACTIONS:
Increase in long-term and
short-term debt............ 16,296 4,877 5,778 272 1,912
Payment of long-term and
short-term debt............ (16,417) (2,414) (968) (2,652) (2,488)
Other financing activities.. -- -- -- -- 498
-------- -------- -------- ------- --------
Net Cash Provided by (Used
in) Financing Transactions. (121) 2,463 4,810 (2,380) (78)
-------- -------- -------- ------- --------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH.............. (651) 456 782 390 (682)
-------- -------- -------- ------- --------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during
the period................. 1,041 (3,707) (2,546) 1,567 1,724
Beginning balance........... 7,306 8,347 4,640 4,640 2,094
-------- -------- -------- ------- --------
Ending balance.............. $ 8,347 $ 4,640 $ 2,094 $ 6,207 $ 3,818
======== ======== ======== ======= ========
SUPPLEMENTARY CASH FLOW
INFORMATION:
Interest paid............... $ 5,117 $ 4,500 $ 4,942 $ 434 $ 532
======== ======== ======== ======= ========
Taxes paid.................. $ 215 $ 552 $ 1,158 $ 581 $ 694
======== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON EARNINGS FOREIGN
STOCK ADDITIONAL EMPLOYED CURRENCY
$1 PAR PAID IN IN THE TRANSLATION TREASURY UNEARNED
VALUE CAPITAL BUSINESS ADJUSTMENT STOCK COMPENSATION
------ ---------- -------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance--December 29,
1990................... $4,979 $47,756 $20,876 $16,710 $(7,428) $ --
Net loss................ -- -- (4,081) -- -- --
Treasury stock
transactions........... -- (2,046) -- -- 3,932 --
Foreign currency
translation adjustment. -- -- -- (430) -- --
------ ------- ------- ------- ------- -----
Balance--December 28,
1991................... 4,979 45,710 16,795 16,280 (3,496) --
------ ------- ------- ------- ------- -----
Net loss................ -- -- (7,984) -- -- --
Treasury stock
transactions........... -- -- (691) -- 1,008 --
Restricted stock awards. -- -- (1,226) -- 2,152 (833)
Foreign currency
translation adjustment. -- -- -- (6,020) -- --
------ ------- ------- ------- ------- -----
Balance--December 26,
1992................... 4,979 45,710 6,894 10,260 (336) (833)
------ ------- ------- ------- ------- -----
Net loss................ -- -- (2,416) -- -- --
Treasury stock
transactions........... -- -- (101) -- 12 --
Restricted stock awards. 1 -- -- -- 161 55
Foreign currency
translation adjustment. -- -- -- (866) -- --
------ ------- ------- ------- ------- -----
Balance--December 25,
1993................... 4,980 45,710 4,377 9,394 (163) (778)
------ ------- ------- ------- ------- -----
Net loss................ -- -- (2,874) -- -- --
Issuance of stock....... 217 1,303 -- -- -- --
Restricted stock awards. -- -- -- -- 57
Foreign currency
translation adjustment. -- -- -- (847) -- --
------ ------- ------- ------- ------- -----
Balance--April 2, 1994
(unaudited)............ $5,197 $47,013 $ 1,503 $ 8,547 $ (163) $(721)
====== ======= ======= ======= ======= =====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all subsidiaries. The Company's fiscal year ends on the last Saturday in
December. Results for 1991, 1992 and 1993 include 52 weeks. Results for the
quarters ended March 27, 1993 and April 2, 1994 include 13 and 14 weeks,
respectively. Intercompany transactions have been eliminated from the
consolidated financial statements. Investments in 20% to 50% part-owned
affiliates are accounted for on the equity method.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements for the quarters ended March 27, 1993
and April 2, 1994 and the related notes are unaudited and in the opinion of
management, include all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of the results of these periods.
The results for the quarter ended April 2, 1994 are not necessarily indicative
of the results to be expected for the entire year.
INVENTORY VALUATION
Inventories are stated at the lower of cost or market. Cost is determined
principally on a last-in, first-out (LIFO) basis for domestic inventories and
principally on a first-in, first-out (FIFO) basis for inventories outside the
United States. LIFO inventories at December 26, 1992, $9,000, December 25,
1993, $8,500, and April 2, 1994, $8,500, were approximately $13,800, $13,500,
and $13,400, respectively, less than the amounts of such inventories valued on
a FIFO basis, which approximates current cost. Provision is made to reduce
slow-moving and obsolete inventories to net realizable values. Inventory
reductions in 1992 and 1993 resulted in the liquidation of LIFO inventory
quantities carried at lower costs which prevailed in prior years as compared
with the current cost of inventory purchases. The effect of this LIFO
liquidation was to decrease 1992 and 1993 loss from continuing operations by
$9,822 ($2.00 per share) and $749 ($.15 per share), respectively.
The composition of inventory at the year-end 1992 and 1993 and the quarter
ended April 2, 1994 was as follows:
<TABLE>
<CAPTION>
DEC. 26, DEC. 25, APRIL 2,
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Parts, raw materials and supplies.................... $20,076 $14,492 $22,922
Work in progress..................................... 11,353 8,490 11,380
Finished goods....................................... 30,579 30,981 23,248
------- ------- -------
$62,008 $53,963 $57,550
======= ======= =======
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are carried at cost and are being depreciated
principally on a straight-line basis over the estimated useful lives of the
assets which generally range from 20 to 40 years for buildings and improvements
and from 3 to 12 years for machinery and equipment. In 1992, the Company
extended the estimated useful lives of machinery and equipment at its Swiss
subsidiary, based upon the current low rate of utilization. The effect of this
change was to reduce 1992 depreciation expense and net loss by $921 or $0.19
per share. Depreciation expense was $8,054, $6,836, $5,862, $1,546, and $1,207
in the years 1991, 1992, 1993, and first quarters of 1993 and 1994,
respectively. Repair and maintenance costs are charged against income
F-7
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
while renewals and betterments are capitalized as additions to the related
assets. Retirements, sales, and disposals of assets are recorded by removing
the cost and accumulated depreciation from the asset and accumulated
depreciation accounts with any resulting gain or loss reflected in income. At
December 25, 1993, land and buildings with a book value of $16,124 were pledged
as collateral for mortgage loans of $18,225.
OTHER ASSETS
Other assets consisted of the following:
<TABLE>
<CAPTION>
YEARS QUARTER
--------------- -------
1992 1993 1994
------- ------- -------
<S> <C> <C> <C>
Goodwill............................................... $ 1,704 $ 1,654 $ 1,654
Training tape masters.................................. 5,570 5,870 5,870
Prepaid pension........................................ 4,767 4,905 5,017
Equity investments..................................... 567 1,551 1,573
Other.................................................. 5,131 4,273 4,373
------- ------- -------
17,739 18,253 18,487
Less accumulated amortization.......................... 5,134 5,627 5,727
------- ------- -------
$12,605 $12,626 $12,760
======= ======= =======
</TABLE>
Goodwill is being amortized on a straight-line basis over periods ranging
from 7 to 20 years. Training tape masters are amortized on a straight-line
basis over 3 years.
CONTRACTS IN PROCESS
Sales under large machinery construction contracts are recorded under the
percentage of completion method, wherein sales and estimated gross margin are
recorded as the work is performed. Estimated gross margin is based on the total
contract sales value and the most recent estimate of total costs. When the
current contract estimate indicates a loss, provision is made for the total
anticipated loss.
FOREIGN CURRENCY
Assets and liabilities of those subsidiaries located outside the United
States whose cash flows are primarily in local currencies are translated at
year-end exchange rates and income and expense items are translated at average
monthly rates. Translation gains and losses are accounted for in a separate
shareowners' equity account "Cumulative foreign currency translation
adjustment." The Company enters into forward exchange contracts in anticipation
of future movements in certain foreign exchange rates and to hedge against
foreign currency fluctuations on certain intercompany transactions and other
foreign currency denominated balance sheet positions. Realized and unrealized
gains and losses on these contracts are included in net income except that
gains and losses on contracts to hedge specific foreign currency commitments
are deferred and accounted for as part of the transaction.
Outstanding forward exchange contracts at December 28, 1991 had unrealized
gains of $120. There were no forward exchange contracts outstanding at December
25, 1993 and December 26, 1992. Other income and expense for the years 1991,
1992, 1993, and for the quarters ended March 27, 1993 and April 2, 1994
included $264, $484, $88, $(215), and $4, respectively, relating to transaction
gains and losses.
F-8
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
CREDIT RISK
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments with high credit
quality financial institutions and, by policy, limits the amount of credit
exposure to any one financial institution. Concentrations of credit risk with
respect to trade receivables are limited due to the Company's large number of
customers and their dispersion across many different industries and countries
worldwide. At December 25, 1993 and April 2, 1994, the Company had no
significant concentrations of credit risk.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
The Company does not provide postretirement or postemployment benefits as
contemplated by SFAS 112, and accordingly these statements have no impact upon
the Company's financial position or results of operations.
INCOME TAXES
The Company provides for income taxes under the provisions of SFAS No. 109
"Accounting for Income Taxes", which was adopted at the beginning of 1993,
which requires a liability based approach in accounting for income taxes.
Deferred income tax assets and liabilities are recorded to reflect the tax
consequences on future years of timing differences of revenue and expense items
for financial statement and income tax purposes. Valuation allowances are
provided against assets which are not likely to be realized. Federal income
taxes are not provided on the unremitted earnings of foreign subsidiaries since
it has been the practice and is the intention of the Company to continue to
reinvest these earnings in the business outside the United States.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is based upon the weighted average number of common
shares outstanding (4,639,594, 4,898,536, 4,969,543, 4,964,368, and 5,037,507
shares) for the years 1993, 1992, 1991, and quarters ended March 27, 1993 and
April 2, 1994, respectively, since inclusion of common stock equivalents would
have been anti-dilutive.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of cash on hand, deposits in banks,
and short-term marketable securities with a maturity at acquisition of three
months or less.
2. ACCOUNTING CHANGE
During the first quarter of 1994, the Company changed its method of
accounting from the completed contract method to the percentage-of-completion
method for its large machinery construction contracts for its European
operations. This conforms the worldwide accounting to the U.S. reporting
percentage-of-completion basis. Management believes that this method more
appropriately reports revenue and costs in related accounting periods rather
than recognizing substantially all revenue and cost at the time of shipment.
The Company has retroactively restated prior years' financial statements, as
required by generally accepted
F-9
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
accounting principles. The first quarter of 1994 net income was increased by
$164 or $0.03 per share. The effect of this restatement on net income of
periods previously reported is as follows:
<TABLE>
<CAPTION>
YEARS QUARTER
------------------------- -------
1991 1992 1993 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) as previously reported.... $(4,024) $(8,507) $(2,244) $1,527
Adjustment for effect of the change in
accounting for long-term contracts......... (57) 523 (172) (299)
------- ------- ------- ------
Net income (loss) adjusted.................. $(4,081) $(7,984) $(2,416) $1,228
======= ======= ======= ======
Per share amounts:
Earnings (loss) per common share as
previously reported...................... $ (0.86) $ (1.74) $ (0.45) $ .31
Adjustment for effect of the change in
accounting for long-term contracts....... (0.01) 0.11 (0.04) (0.06)
------- ------- ------- ------
Net income (loss) adjusted.................. $ (0.87) $ (1.63) $ (.49) $ .25
======= ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
YEARS
----------------------
1992 1993 1994
------- ------ ------
<S> <C> <C> <C>
Earnings Employed in the Business--
Balance at beginning of year, as previously reported.... $16,852 $6,428 $4,083
Adjustment for the cumulative effect on prior years of
applying, retroactively, the new method of accounting
for long-term contracts................................ (57) 466 294
------- ------ ------
Balance at beginning of year, as adjusted............... $16,795 $6,894 $4,377
======= ====== ======
</TABLE>
3. DISCONTINUED OPERATIONS
On March 27, 1991, Brown & Sharpe Manufacturing Company announced its
decision to withdraw from the business of manufacturing and distributing
machine tools, but to continue to provide repair parts, tools, service, and
reconditioning for its machine tool products.
The financial statements reflect the operating results and balance sheet
accounts of the discontinued operations separately from continuing operations.
In segregating the income statement components, interest expense of $600 for
1991 has been allocated to discontinued operations based upon a proportionate
share of assets employed. Results for the discontinued operations were:
<TABLE>
<CAPTION>
1991
--------
<S> <C>
Revenues......................................................... $ 22,005
========
Loss from operations before income taxes......................... $ (530)
Income tax provision............................................. 650
--------
Loss from discontinued operations................................ $ (1,180)
========
</TABLE>
4. INCOME TAXES
Effective the beginning of 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method as required
by SFAS 109. As permitted under the new rules,
F-10
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
prior years' financial statements have not been restated. The adoption of the
provisions of SFAS 109 in 1993 had no impact on the Company's reported results
of operations or financial position.
Income (loss) before income taxes consisted of the following:
<TABLE>
<CAPTION>
YEARS QUARTERS
----------------------------- -----------------
1991 1992 1993 1993 1994
-------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Domestic..................... $ 3,276 $ (2,376) $ 1,394 $ 2,779 $ (542)
Foreign...................... (6,920) (8,858) (3,010) (1,551) (2,232)
-------- --------- -------- ------- --------
Income (loss) before income
taxes....................... $ (3,644) $ (11,234) $ (1,616) $ 1,228 $ (2,774)
======== ========= ======== ======= ========
</TABLE>
The following table reconciles the income tax provision (benefit) at the U.S.
statutory rate to that in the financial statements:
<TABLE>
<CAPTION>
YEARS QUARTERS
-------------------------- -------------
1991 1992 1993 1993 1994
-------- -------- ------ ----- ------
<S> <C> <C> <C> <C> <C>
Taxes computed at 34%............... $ (1,239) $ (3,997) $ (491) $ 418 $ (943)
Alternative minimum and state taxes. 200 350 200 50 100
Reduction of deferred tax liability. (468) --
Other losses not utilizeable........ 239 397 1,091 -- 943
-------- -------- ------ ----- ------
Income tax provision (benefit)...... $ (800) $ (3,250) $ 800 $ -- $ 100
======== ======== ====== ===== ======
</TABLE>
The income tax provision (benefit) consisted of the following:
<TABLE>
<CAPTION>
YEARS QUARTERS
------------------------ ------------
1991 1992 1993 1993 1994
------- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Current:
Federal................................. $ 1,300 $ 1,150 $ 500 $ 400 $ --
Utilization of net operating loss and
credit carryforwards................... (1,198) -- -- -- --
------- -------- ----- ----- -----
102 1,150 500 400 --
State................................... 98 200 300 100 --
Foreign................................. -- -- 500 -- 100
------- -------- ----- ----- -----
200 1,350 1,300 500 100
------- -------- ----- ----- -----
Deferred:
Federal................................. -- (1,000) -- -- --
Foreign................................. (1,000) (3,600) (500) (500) --
------- -------- ----- ----- -----
(1,000) (4,600) (500) (500) --
------- -------- ----- ----- -----
Income tax provision (benefit).......... $ (800) $ (3,250) $ 800 $ -- $ 100
======= ======== ===== ===== =====
</TABLE>
The deferred tax benefits reflect deferred tax reductions resulting from
operating losses. Provision has not been made for U.S. taxes on $32,000 of
undistributed earnings of foreign subsidiaries as those earnings are intended
to be permanently reinvested.
F-11
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The components of the Company's deferred tax asset and liability as of
December 25, 1993 and April 2, 1994 are as follows:
<TABLE>
<CAPTION>
DEC. 25, APRIL 2,
1993 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Inventory reserves............................................. $ 800 $ 800
Warranty expense............................................... 400 400
Provision for doubtful accounts................................ 100 100
Depreciation................................................... 700 700
Tax credit and loss carryforwards.............................. 12,300 15,000
Other.......................................................... 400 400
------- -------
Gross deferred assets........................................ 14,700 17,400
Less valuation allowance....................................... 13,700 16,400
------- -------
Deferred tax asset........................................... $ 1,000 $ 1,000
======= =======
Deferred tax liabilities:
Pension expense................................................ $ 1,300 $ 1,300
Inventory reserves............................................. 700 700
Other.......................................................... 600 600
------- -------
Deferred tax liability....................................... $ 2,600 $ 2,600
======= =======
</TABLE>
A valuation allowance has been recognized due to the uncertainty of realizing
tax credit and loss carryforwards and some portion or all of the other deferred
tax assets.
The deferred tax asset of $1,000 is included in Other Assets in the
accompanying consolidated balance sheets. The current portion of the deferred
tax liability, $837, is included in accrued expenses and income taxes in the
accompanying consolidated balance sheets. For income tax purposes, at year-end
1993 the Company has operating loss and capital loss carryforwards of $2,400
and $700, respectively, in the U.K. and net operating loss carryforwards of
$28,000 and $15,000, respectively in Switzerland and Germany. The Company has
tax credit carryforwards of $700 in the U.S. The U.S. tax credit carryforwards
expire from 1994 to 2004. The Swiss carryforwards expire between 1995 and 1998.
There is no time limit for the U.K. and German carryforwards.
5. SHORT-TERM BORROWINGS
Bank and other financial institution lines of credit in effect at December
26, 1992, December 25, 1993, and April 2, 1994 were $28,872, $39,731, and
28,906, respectively. The 1993 year end balance includes $15,000 eligible
borrowing under a financing agreement the Company entered into on June 30, 1993
with a commercial lender for a revolving credit facility of up to a maximum of
$15,000 for an initial period of two years with successive one year renewals,
subject to termination provisions in the agreement. The borrowing limit is
determined periodically as a portion of the eligible accounts receivable and
finished inventory of the parent company headquartered in North Kingstown,
Rhode Island. Substantially all assets of the Company are pledged as
collateral. The agreement contains covenants which, among other things, require
the Company to maintain certain financial ratios and restricts the payment of
dividends. The remaining lines of credit are due upon demand by the lenders.
Borrowings under these lines were $21,502 at December 26, 1992, $30,143 at
December 25, 1993, and $32,491 at April 2, 1994, respectively. Short-term debt
represents amounts due in U.S. dollars and the U.S. dollar equivalent of
amounts due in foreign currencies. Interest on these lines of credit is
generally up to 2% above the prime or base rate of the country in which the
amounts are borrowed.
F-12
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Certain foreign lines of credit require the Company to maintain restricted
cash deposit accounts which amounted to $6,078 and $6,113 at December 25, 1993
and April 2, 1994, respectively. No compensating balances were required at
December 25, 1993 or April 2, 1994. The Company has guaranteed the bank debt of
its German subsidiary. In addition, a credit line of $3,385 ((Pounds)2,250) in
the U.K. is collateralized by the assets in that country, and the Company has
guaranteed up to $752 ((Pounds)500).
6. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
YEARS QUARTER
----------------- --------
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
9 1/4% convertible subordinated debentures due
December, 2005..................................... $ 17,000 $ 16,000 $ 16,000
Mortgages at rates ranging from 7 3/4% to 8 1/2%.... 18,599 18,225 18,355
Notes payable....................................... 3,599 132 120
-------- -------- --------
39,198 34,357 34,475
Less: current installments.......................... 4,572 1,661 1,251
-------- -------- --------
Total long-term debt................................ $ 34,626 $ 32,696 $ 33,224
======== ======== ========
</TABLE>
The 9 1/4% subordinated debentures are convertible, at the option of the
holders, into common shares at $26.25 per share subject to antidilution
provisions. The Company, through a sinking fund, is required to provide for
retirement of $1,000 in principal amount annually. This will result in
retirement of all but $5,000 prior to maturity. The 1992 sinking fund
requirement was met through a repurchase in 1992 and 1991.The 1993 sinking fund
requirement was met by a call by the trustee for redemption of $1,000 principal
amount at par to the debenture holders, using a random selection process. At
December 25, 1993, 609,523 shares of Class A Common Stock were reserved for
conversion of these debentures. At December 25, 1993, there were mortgage notes
outstanding, in foreign currencies, equivalent to $18,225. Annual maturities of
long-term debt are as follows: 1994--$1,661, 1995--$1,794; 1996--$11,360;
1997--$3,694; 1998--$1,962; 1999 through 2004--$7,886, and $6,000 thereafter.
Interest rates on long-term debt average about 9%.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts of the Company's financial instruments are
determined through relevant market information and valuation techniques. As
estimates they represent the results of management's judgment. The following
table summarizes such valuations at December 25, 1993 in accordance with
Statement of Financial Accounting Standards No. 107, implemented in 1993:
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
--------------- ----------
<S> <C> <C>
Financial assets:
Cash and cash equivalents............................ $ 2,094 $ 2,094
Restricted cash...................................... 6,078 6,078
Accounts receivable.................................. 44,525 44,525
Financial liabilities:
Accounts payable..................................... 12,716 12,716
Short-term debt...................................... 31,804 31,804
Long-term debt....................................... 17,696 17,478
Debentures........................................... 15,000 15,150
</TABLE>
F-13
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Cash, receivables, payables, and short-term debt carrying amounts reasonably
represent their fair values. Long-term debt rates currently available for debt
with similar terms and remaining maturities are used to estimate their fair
value. The fair value of debentures is the year-end market trading price.
8. CONTINGENCIES
On November 29, 1991, the U.S. Court of Appeals for the District of Columbia
Circuit rendered its decision on the appeal by the International Association of
Machinists (the "IAM") of the National Labor Relations Board's ("NLRB") August
28, 1990 decision dismissing unfair labor practice charges brought against the
Company by the IAM arising out of a strike which began at the Company's Rhode
Island operations in October 1981. The Court although accepting the legal
reasoning advanced by the Board and the Company in support of the Board's 1990
decision dismissing such charges ordered the NLRB to further clarify and
support its decision. The NLRB has now issued its Supplemental Decision,
favorable to the Company again reaffirming dismissal of the charges. The IAM
has filed notice of another appeal of that decision. The Company is continuing
to defend this case vigorously and management adheres to its earlier assessment
that an ultimate finding of monetary liability in this matter is remote.
The Company is also involved in several product liability claims and lawsuits
which are incidental to the conduct of its business, the potential liability
for which is adequately covered by insurance or reserves established for such
contingencies. The Company is contesting or defending these claims and suits
and management believes that the ultimate liability, if any, resulting from
these matters will not have a material effect on the Company's financial
position.
The Company is involved in two environmental proceedings in which the United
States Environmental Protection Agency ("EPA") identified Brown & Sharpe as a
potentially responsible party ("PRP") at waste disposal sites (the "Sites") in
Rhode Island and Connecticut listed on the EPA's National Priority List for
clean-up and future monitoring remedial action under the Superfund legislation.
While the Company's proportionate share of the total waste contributed to both
Sites was minimal in volume and toxicity, the EPA nevertheless with regard to
the Rhode Island site issued an Administrative Order against the Company and
other PRP's to clean up the Site. Subsequently, the Company was permitted by
the EPA to settle its liability at such Site in exchange for releases from the
EPA and contribution protection from claims of any third parties who may have
liability at the Site. A group of non-settling major PRP's at the Rhode Island
site has brought suit in the Federal District Court in Rhode Island against all
of the settling parties to recover a portion of their costs of performing the
clean-up remedy. The Court has granted a summary judgment in favor of the
Company and other settling parties. The non-settling group of major PRP's
appealed that ruling and have brought suit against the EPA to have the
settlements of the de minimis settling parties set aside. The Company is
vigorously defending this lawsuit and believes that the release and
contribution protection obtained from the EPA in connection with settlement of
its liability at the Site will ultimately bar the cost-recovery claim. The
Company will likely be offered the opportunity to settle its de minimis
liability as a PRP at the Connecticut site in an amount not deemed to be
material.
9. PREFERRED STOCK
The Board of Directors is empowered to provide from time to time for issuance
of one or more series of preferred shares without further shareowner action and
to fix various terms and provisions with respect to each such series,
including, without limitation, the dividend rate, redemption prices, terms of
any sinking fund, conversion rights, if any, voting rights, if any, and rights
of the holders upon liquidation (See Note 16--Preferred Stock Purchase Rights).
F-14
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
10. INCENTIVE AND RETIREMENT PLANS
PROFIT INCENTIVE PLAN
Under the provisions of the Company's Profit Incentive Plan, cash and Class A
common stock, valued at 100% of the market value on the date of award, may be
awarded as bonuses to certain management employees. Provisions regarding
forfeiture of rights to all or part of the stock awards and restrictions
regarding sale or disposition of shares lapse in equal annual installments over
a five-year period commencing one year after the date of award, and
compensation expense is recognized ratably over the vesting period. The
aggregate amount of additional shares which may be issued under the Plan may
not exceed 116,200 shares, net of forfeitures, and is subject to adjustments in
the event of stock splits and other changes. Plan awards amounted to $0, $53,
and $601 in 1991, 1992, and 1993, respectively.
STOCK INCENTIVE PLANS
Under the provisions of the Company's 1989 Equity Incentive Plan, a variety
of cash, common stock, stock option, and other stock based incentive awards are
available for grant. The Equity Incentive Plan permits the granting of both
options which do, and options which do not, qualify as incentive stock options
under the Internal Revenue Code. During 1992 and 1993, respectively, a total of
100,400 and 8,000 shares of restricted Class A common stock, utilizing shares
held in the Treasury were issued as restricted awards under the Plan. The
shares are subject to forfeiture upon the recipients' termination of employment
over a five year period, with the restriction lapsing in amounts of 25% at the
end of the 2nd and 3rd years, and 50% at the end of the 5th year. Unearned
compensation in the amount of $926 is being amortized to expense over the
forfeiture lapsing period. In 1990 and 1991, options to purchase a total of
80,000 shares of Class A common stock were granted for a ten year period at
prices between $11 and $12.125 per share. The aggregate remaining amount of
shares of Class A common stock that may be issued under the Equity Incentive
Plan is 216,600. The price for shares covered by options is 100% of the market
value on the dates such options are granted.
No further options or other awards may be granted under the Company's amended
1973 Stock Option Plan. The exercise price for shares covered by outstanding
options under both the 1993 Stock Option Plan and the Equity Incentive Plan is
100% of the market value on the dates such options were granted. Options
granted under this plan are exerciseable one year after the date of grant and
expire at the end of ten years. On December 25, 1993 all outstanding options
were exerciseable. Option activity under the Plans during the past three years
and the first quarter of 1994 is summarized as follows:
<TABLE>
<CAPTION>
SHARES PRICE RANGE
------- ----------------
<S> <C> <C>
Outstanding December 29, 1990........................ 146,387 $11.50 to $20.81
Granted............................................ 55,000 $10.25 to $12.13
Forfeited or canceled.............................. (29,930) $12.47 to $14.38
-------
Outstanding December 28, 1991........................ 171,457 $10.25 to $20.81
Forfeited or canceled.............................. (26,265) $12.13 to $20.81
-------
Outstanding December 26, 1992........................ 145,192 $10.25 to $17.86
Forfeited or canceled.............................. (21,666) $10.78 to $12.13
-------
Outstanding December 25, 1993........................ 123,526 $10.25 to $17.86
-------
Granted............................................ 145,000 $6.50
Forfeited or canceled.............................. (29,332) $12.94 to $17.86
-------
Outstanding April 2, 1994............................ 239,194 $6.50 to $17.86
=======
</TABLE>
F-15
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SAVINGS PLANS
The Company has 401(k) stock bonus and thrift savings plans for U.S.
employees, which include retirement income features consisting of employer
contributions and employee tax deferred contributions. Contributions under all
plans are invested in professionally managed portfolios and Company stock. The
savings plans' expense for the years 1991, 1992, 1993 and for the quarters
ended March 27, 1993 and April 2, 1994 was $824, $739, $705, $227, and $189,
respectively.
STOCK OWNERSHIP PLAN
Under the provisions of the Company's Employee Stock Ownership Plan (ESOP),
the Company may make contributions of common stock or cash to purchase common
stock from the Company or otherwise, to be held in trust for employees meeting
certain eligibility requirements until the employees reach retirement age. The
ESOP may also borrow funds to purchase common shares, for which the Company
will contribute amounts as necessary to pay down the indebtedness. ESOP expense
was $378 in 1991, $347 in 1992, $327 in 1993, and $93 and $112 for the quarters
ended March 27, 1993 and April 2, 1994. At December 25, 1993, there were no
unallocated shares of Class A and B stock held in the ESOP as all shares were
allocated to participants' accounts.
RETIREMENT PLANS
The Company's subsidiaries have several defined contribution retirement plans
covering employees in the U.S. and Switzerland, and two defined benefit
retirement plans covering employees in the U.K. and Germany, which includes
substantially all employees. Retirement plan expense net of pension income for
the years 1991, 1992, 1993, and for the quarters ended March 27, 1993 and April
2, 1994 was $2,265, $2,488, $1,223, $355, and $269, respectively.
The defined benefit plans which cover employees in the U.K. and Germany,
respectively, provide benefits based on years of service and employee
compensation. Retirement costs under both plans are compiled based on the
projected unit credit actuarial method.
The U.K. plan's actuarial assumptions used settlement rates of 8.5% at the
end of 1992 and 7.5% at the end of 1993, a long-term return on assets of 10% at
the end of 1992 and 8% at the end of 1993, and annual wage increases of 7.5% at
the end of 1992 and 6.5% at the end of 1993. Retirement costs accrued are
funded.
The German plan's actuarial assumptions used a settlement rate of 7.5% and an
annual wage increase of 4.5%. Retirement costs accrued are not funded.
The following items are the components of net periodic pension income for the
U.K. plan for the years ended December 28, 1991, December 26, 1992, and
December 25, 1993:
<TABLE>
<CAPTION>
1991 1992 1993
------ ------ ------
<S> <C> <C> <C>
Service cost-benefits earned........................... $ 766 $ 815 $ 664
Interest cost on projected benefit obligations......... 867 1,075 743
Return on plan assets, net............................. (1,696) (1,952) (1,200)
Amortization of unrecognized assets.................... (361) (465) (345)
------ ------ ------
Net periodic pension income............................ $ (424) $ (527) $ (138)
====== ====== ======
</TABLE>
F-16
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The plan has assets in excess of the accumulated benefit obligations. Plan
assets include investments in equity securities, corporate and government debt
securities, and cash equivalents. The following table presents a reconciliation
of the funded status of the plan at December 28, 1991, December 26, 1992, and
December 25, 1993:
<TABLE>
<CAPTION>
1991 1992 1993
--------- --------- ---------
<S> <C> <C> <C>
Vested and accumulated benefit obligation...... $ (11,274) $ (13,164) $ (14,571)
Projected benefit obligation................... (13,383) (15,273) (16,680)
Plan assets at fair value...................... 21,629 24,511 26,401
--------- --------- ---------
Funded status.................................. 8,246 9,238 9,721
Unrecognized portion of net assets............. (4,006) (4,471) (4,816)
--------- --------- ---------
Prepaid pension................................ $ 4,240 $ 4,767 $ 4,905
========= ========= =========
</TABLE>
The following items are the components of net periodic pension cost for the
unfunded German plan for the years ended December 28, 1991, December 26, 1992,
and December 25, 1993:
<TABLE>
<CAPTION>
1991 1992 1993
------- ------- -------
<S> <C> <C> <C>
Service cost-benefits earned............................ $ 376 $ 818 $ 112
Interest cost on projected benefit obligations.......... 184 394 295
------- ------- -------
Net periodic pension cost............................... $ 560 $ 1,212 $ 407
======= ======= =======
Vested and accumulated benefit obligation............... $ 2,303 $ 3,121 $ 3,233
======= ======= =======
Projected benefit obligation and accrued pension cost... $ 3,453 $ 4,083 $ 4,012
======= ======= =======
</TABLE>
11. RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense was $11,364, $10,903, $8,669, $2,411, and
$1,892 in the years 1991, 1992, 1993, and the quarters ended March 27, 1993 and
April 2, 1994, respectively.
12. OTHER INCOME AND EXPENSE
Other income (expense), net includes:
<TABLE>
<CAPTION>
YEARS QUARTERS
---------------------- -------------
1991 1992 1993 1993 1994
----- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
Interest income........................... $ 380 $ 457 $ 266 $ 41 $ 45
Gain (loss) on sale of fixed assets....... 94 655 44 (6) --
Foreign currency gains (losses)........... 264 484 157 (215) 4
Gain on sale of operations................ -- 628 2,182 1,972 --
Other income (expense).................... 86 (89) 115 2 (1)
----- ------- ------- ------- ----
$ 824 $ 2,135 $ 2,764 $ 1,794 $ 48
===== ======= ======= ======= ====
</TABLE>
Operations sold in 1993 were spares and rebuild, and in 1992 were GageTalker
and pump.
F-17
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
13. RENTAL EXPENSE AND LEASE COMMITMENTS
At December 25, 1993, the Company was obligated under operating leases
expiring on various dates. Rental expense was $4,040, $4,684 and $3,845 in
1991, 1992, and 1993 and $961 and $700 in the quarters ended March 27, 1993 and
April 2, 1994, respectively. Annual rental commitments under noncancelable
leases pertaining principally to buildings and equipment at December 25, 1993
are $2,800, $2,023, $901, $279, and $251 for the years 1994 through 1998, and
aggregate to $1,036 for all years subsequent to 1998.
14. FINANCIAL INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHIC AREA
Following is financial information by business segment:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
DEC 28, DEC. 26, DEC. 25,
1991 1992 1993
--------- --------- ---------
<S> <C> <C> <C>
Metrology
Net sales.................................... $ 166,819 $ 152,201 $ 155,133
Operating profit (loss)...................... (1,281) (8,857) 1,652
Identifiable assets.......................... 163,565 153,766 157,699
Capital expenditures......................... 9,761 12,424 4,356
Depreciation................................. 7,798 6,591 5,781
General Products (through April 1993)
Net sales.................................... 9,028 8,494 1,902
Operating profit (loss)...................... 975 760 (932)
Identifiable assets.......................... 9,981 7,680 --
Capital expenditures......................... 103 50 43
Depreciation................................. 256 245 81
Geographic Area:
Sales to Unaffiliated Customers:
United States................................ $ 76,750 $ 69,810 $ 72,257
Europe....................................... 82,701 70,692 62,246
Other........................................ 16,396 20,193 22,532
--------- --------- ---------
$ 175,847 $ 160,695 $ 157,035
========= ========= =========
Transfers Between Geographic Areas:
United States................................ $ 6,977 $ 5,542 $ 4,040
Europe....................................... 16,770 12,167 12,365
--------- --------- ---------
$ 23,747 $ 17,709 $ 16,405
========= ========= =========
Operating Profit (Loss):
United States................................ $ 4,830 $ 1,283 $ 5,151
Europe....................................... (5,136) (9,380) (4,431)
--------- --------- ---------
$ (306) $ (8,097) $ 720
========= ========= =========
Identifiable Assets:
United States................................ $ 35,496 $ 34,537 $ 39,521
Europe....................................... 138,050 126,909 118,178
Corporate.................................... 10,259 4,640 8,172
--------- --------- ---------
$ 183,805 $ 166,086 $ 165,871
========= ========= =========
</TABLE>
F-18
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
15. COMMON STOCK
Both classes of common stock have equal rights upon liquidation. Class A
common stock may not receive less cash dividends per share than Class B common
stock, nor may such dividends be less frequent. The Class A common stock has
one vote per share. Except as otherwise provided by law, the Class B common
stock has ten votes per share, and the Class B common stock is convertible into
Class A common stock on a one-for-one basis, and can be transferred in Class B
form only to specified transferees, generally members of a shareowner's family
and certain others affiliated with a shareowner. During 1992 and 1993, 26,441
shares and 73,597 shares, respectively, were converted from Class B to Class A
common stock.
During 1992 and 1993, respectively, 108,400 and 8,000 treasury shares were
allocated for use as restricted stock awards, and 586 treasury shares were
issued under a Directors' deferred compensation plan. The 8,000 treasury shares
were allocated during the first quarter of 1993. During 1992, 939 shares were
sold to employee benefit plans, 44,382 treasury shares were allocated to ESOP
participants, and 1,702 treasury shares were issued under a Directors' deferred
compensation plan.
16. PREFERRED STOCK PURCHASE RIGHTS
On March 23, 1988, the Company distributed a dividend of one purchase right
for each outstanding share of common stock. Until the occurrence of specified
events, the rights are represented by the associated common stock certificates.
Following the distribution of the Class B common stock on June 10, 1988, and
until the occurrence of specified events, each certificate representing a share
of Class A or Class B common stock also represents three-quarters of a right.
Each right entitles the shareowner to buy from the Company one-hundredth of a
share of Series A Participating Preferred Stock at an exercise price of $55 per
right. The rights become exerciseable ten days after a party acquires 20% of
the Company's common stock. The rights, which are subject to adjustment, may be
redeemed by the Company at a price of $.03 per right at any time prior to the
fifteenth day after a person acquires 20% of the Company's common stock. The
rights expire on March 23, 1998.
In the event the Company is involved in certain business combination
transactions with a 20% shareowner, each right will entitle its holder (other
than a 20% shareowner) to purchase, at the right's then exercise price, an
equity interest in the acquiring person having a market value of two times the
exercise price. In the event a 20% shareholder engages in certain other
transactions with the Company or (pursuant to a February, 1989 amendment) any
person becomes a 20% shareowner, each right will entitle its holder (other than
a 20% shareowner) to purchase, at the right's then exercise price, shares of
Class A common stock having a market value of two times the exercise price.
17. ACQUISITION
Brown & Sharpe Manufacturing Company through its subsidiary Brown & Sharpe
International Capital Corporation purchased, on March 24, 1994, the stock of
the French company Ets. Pierre Roch S.A. ("Roch") and its German affiliate,
Mauser Prazisions--Messmittel GmbH ("Mauser"). Roch manufactures and, together
with Mauser, markets micrometers, calipers, height gages, digital indicators,
and other similar precision measuring instrument products. The business is
headquartered in Luneville, France which is its sole manufacturing site. The
German operation is a sales office. These operations were purchased from Diehl
GmbH & Co. of Nurnberg, Germany ("Diehl").
The purchase price was 175,000 shares of Brown & Sharpe Class A Common Stock,
subject to certain post closing adjustments and the right to receive an
additional 50,000 shares of such stock in the event the
F-19
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Company's Class A Common Stock attains a market price of $15 or more per share
for a total of 30 days or more during any twelve month period within the five
years following the purchase. The purchase price was determined through
negotiation by the parties subject to adjustment based on specified closing
balance sheet changes. Roch entered into a nine year lease agreement to lease
the Luneville facility from Societe Immobiliere Lunevilloise S.A.R.L., a
subsidiary of Diehl, for approximately $34 annually with options to purchase
the facility during the lease term.
The acquisition has been accounted for by the purchase method of accounting,
and accordingly, the purchase price has been allocated to assets acquired and
liabilities assumed based on an estimate of their fair values at the date of
acquisition. The estimated fair values of assets and liabilities after
allocation are summarized as follows:
<TABLE>
<S> <C>
Cash................................................................ $1,380
Accounts receivable................................................. 2,700
Inventory........................................................... 3,250
Machinery and equipment............................................. 510
Accounts payable and accruals....................................... 3,880
Short-term debt..................................................... 2,350
Long-term debt...................................................... 410
------
$1,200
======
</TABLE>
The Company's unaudited combined results of operations for the year ended
December 25, 1993 and the quarter ended April 2, 1994 on a pro forma basis
assuming the acquisition of Roch occurred at the beginning of 1993 are as
follows:
<TABLE>
<CAPTION>
FIRST
YEAR QUARTER
-------- -------
1993 1994
-------- -------
<S> <C> <C>
Net sales.................................................... $169,542 $40,072
Net (loss)................................................... (2,004) (2,714)
Primary and fully diluted (loss) per common share............ (.39) (.52)
</TABLE>
18. OTHER MATTERS
During the fourth quarter of 1991 and 1992, the Company recorded $1,800 and
$5,100 of restructuring costs, primarily employee severance at European
facilities. The third quarter of 1992 included about $1,500 of incentive
compensation in conjunction with acquiring a subsidiary's minority interest
whereas the fourth quarter included about $2,000 of inventory write-offs.
As announced in 1993, the Company is continuing negotiations to purchase
Finmeccanica's DEA Group of metrology companies and business units. The DEA
Group, headquartered in Turin, Italy, manufactures and markets worldwide a
variety of types of coordinate measuring machines and systems with 1993
worldwide sales of about $110 million. Under the proposed transactions, the DEA
Group would have approximately $15 million debt, and Brown & Sharpe would issue
3,450,000 shares of Brown & Sharpe Class A Common Stock to Finmeccanica. The
letter of intent would require Finmeccanica not to transfer the acquired Brown
& Sharpe shares to any person other than Brown & Sharpe for a specified period
and to afford Brown & Sharpe certain rights of first refusal with respect
thereto for a further specified period. The letter of intent contemplates that
Finmeccanica would have representatives on Brown & Sharpe's Board of
F-20
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Directors. The proposed combination is subject to negotiation of a definitive
acquisition agreement and to a number of other conditions, including
satisfactory completion of due diligence, approval by the Board of Directors of
each party, approval by Brown & Sharpe's stockholders, receipt of relevant
governmental approvals in applicable countries and successful negotiation of
financing arrangements with certain financial institutions to obtain consent of
certain existing lenders and to obtain an additional line of credit based on
DEA Group assets or upon other financing arrangements deemed satisfactory by
the Company. The waiting period with respect to the proposed transaction under
the Hart-Scott-Rodino Antitrust Improvements Act expired in August 1993. There
can be no assurance that a definitive acquisition agreement can be negotiated
and executed or that the financing arrangement conditions or all other closing
conditions will be satisfied.
F-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and
Board of Directors of
DEA S.p.A.
We have audited the accompanying combined statements of operations, cash
flows and changes in divisional deficit of the DEA Metrology Activities of
Finmeccanica, as described in Note 1, for the year ended December 31, 1991.
These financial statements are the responsibility of the DEA S.p.A. management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined results of operations and cash
flows of the DEA Metrology Activities of Finmeccanica for the year ended
December 31, 1991 in conformity with accounting principles generally accepted
in the United States.
Coopers & Lybrand
Turin, Italy
October 22, 1993
F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
October 5, 1993
Toledo, Ohio
To the Board of Directors of
Elsag Bailey, Inc.
In our opinion, the accompanying statement of division assets, liabilities
and equity (deficit) and the related statements of operations and accumulated
deficit and of cash flows present fairly, in all material respects, the
financial position of Digital Electronic Automation, a division of Elsag
Bailey, Inc., at December 31, 1992, and the results of its operations and its
cash flows for the year in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the management
of Elsag Bailey, Inc. and Digital Electronic Automation; our responsibility is
to express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made be management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
Digital Electronic Automation is a division of Elsag Bailey, Inc., which is a
member of a group of affiliated companies and, as disclosed in the financial
statements, has extensive transactions and relationships with members of the
group. Because of these relationships, it is possible that the terms of these
transactions are not the same as those that would result from transactions
among wholly unrelated parties.
As described in Note 7, Brown & Sharpe Manufacturing Company has entered into
a non-binding letter of intent to purchase certain net assets of Finmeccanica's
DEA Group, of which Digital Electronic Automation is a part.
Price Waterhouse
F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
DEA S.p.A.
We have audited the combined balance sheets of the DEA Metrology Activities
of Finmeccanica as described in Note 1, as of December 31, 1993 and 1992, and
the related combined statements of operations, divisional deficit and cash
flows for the years then ended. These combined financial statements are the
responsibility of the management of DEA S.p.A. Our responsibility is to express
an opinion on these combined financial statements based on our audit. We did
not audit the financial statements of Digital Electronic Automation (U.S.A.), a
division of Elsag Bailey Inc., for the year ended December 31, 1992 which
statements reflect total assets of Lire 28,525 million and total revenues of
Lire 30,990 million for the year then ended. Those statements were audited by
other auditors, whose report has been furnished to us, and our opinion, insofar
as it relates to the amounts included for Digital Electronic Automation
(U.S.A.), a division of Elsag Bailey Inc., at December 31, 1992 is based solely
on the report of the other auditors.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the combined financial
statements are free of material misstatement. An audit includes examining on a
test basis, evidence supporting the amounts and disclosures in the combined
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall combined financial statement presentation. We believe
that our audit and the report of other auditors provide a reasonable basis for
our opinion.
As more fully described in Note 5, the DEA Metrology Activities is one of
many divisions of Finmeccanica S.p.A. and its subsidiaries and has material
transactions with the affiliated companies of IRI, an Italian State holding
company which has a controlling interest in Finmeccanica S.p.A.
In our opinion, based on our audit and the report of the other auditors on
the December 31, 1992 financial statements, the combined financial statements
referred to above present fairly, in all material respects, the combined
financial position of the DEA Metrology Activities of Finmeccanica, as
described in Note 1, at December 31, 1993 and 1992 and the combined results of
its operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
As discussed in Note 19 to the combined financial statements, the DEA
Metrology Activities of Finmeccanica has a history of recurring losses from
operations and a net asset deficiency which raise substantial doubt about its
ability to continue as a going concern without the continued financial support
of Finmeccanica S.p.A. Management's plans as to these matters are also
described in Note 19. The combined financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Reconta Ernst & Young
Turin, Italy
March 18, 1994, except for the
information expressed in U.S.
Dollars referred to in Note 1,
as to which the date is
March 31, 1994
F-24
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
COMBINED BALANCE SHEET
(ITALIAN LIRE IN MILLIONS, U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
---------------------------- ------------------
1992 1993 1993 1994 1994
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.... L 4,304 L 7,236 $ 4,492 L 8,966 $ 5,565
Accounts receivable, net of
allowance for doubtful
debts....................... 74,751 83,732 51,975 72,749 45,158
Other receivables from
affiliates.................. 13,383 3,313 2,056 -- --
Inventories.................. 68,709 67,088 41,644 64,877 40,271
Other current assets......... 6,411 9,852 6,115 10,374 6,439
-------- -------- -------- -------- --------
Total current assets......... 167,558 171,221 106,282 156,966 97,433
-------- -------- -------- -------- --------
Non-current assets:
Property, plant and
equipment, net of
accumulated depreciation.... 9,558 9,341 5,798 8,593 5,334
Other assets and deferred
charges..................... 7,339 6,096 3,784 4,960 3,079
-------- -------- -------- -------- --------
Total non-current assets..... 16,897 15,437 9,582 13,553 8,413
-------- -------- -------- -------- --------
Total assets................. L184,455 L186,658 $115,864 L170,519 $105,846
======== ======== ======== ======== ========
LIABILITIES AND DIVISIONAL DEFICIT
Current liabilities:
Borrowings and current
maturities of debt.......... L 21,244 L 47,083 $ 29,226 L 42,090 $ 26,127
Accounts payable............. 33,653 25,932 16,097 21,575 13,392
Other payables to affiliates. 78,596 71,288 44,250 74,059 45,971
Accrued expenses and other
liabilities................. 29,504 24,988 15,511 19,147 11,885
-------- -------- -------- -------- --------
Total current liabilities.... 162,997 169,291 105,084 156,871 97,375
-------- -------- -------- -------- --------
Non-current liabilities:
Long-term debt............... 20,207 12,384 7,687 12,500 7,759
Termination indemnities...... 11,346 11,968 7,429 12,064 7,489
-------- -------- -------- -------- --------
Total non-current
liabilities................. 31,553 24,352 15,116 24,564 15,248
-------- -------- -------- -------- --------
Total liabilities............ 194,550 193,643 120,200 181,435 112,623
-------- -------- -------- -------- --------
Divisional deficit:
Finmeccanica S.p.A.
investment in Division...... 49,685 36,540 22,682 31,547 19,582
Accumulated deficit.......... (56,514) (40,632) (25,222) (39,828) (24,723)
Foreign currency translation
adjustment.................. (3,266) (2,893) (1,796) (2,635) (1,636)
-------- -------- -------- -------- --------
Total divisional deficit..... (10,095) (6,985) (4,336) (10,916) (6,777)
-------- -------- -------- -------- --------
Total liabilities and
divisional deficit.......... L184,455 L186,658 $115,864 L170,519 $105,846
======== ======== ======== ======== ========
</TABLE>
The convenience translation into U.S. Dollars has been made using the exchange
rate of 1,611 Italian Lire to U.S. $1 existing at March 31, 1994.
See notes to combined financial statements.
F-25
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
COMBINED STATEMENT OF OPERATIONS
(ITALIAN LIRE IN MILLIONS, U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
-------------------------------------- -------------------------
1991 1992 1993 1993 1993 1994 1994
-------- -------- -------- -------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... L117,662 L124,749 L178,297 $110,675 L29,137 L34,282 $21,280
Cost of products sold... 93,561 83,922 114,363 70,989 20,830 22,197 13,778
Selling, general and
administration......... 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
-------- -------- -------- -------- ------- ------- -------
134,590 132,462 169,640 105,301 33,516 35,629 22,115
Operating (loss) income. (16,928) (7,713) 8,657 5,374 (4,379) (1,347) (835)
Interest expense, net... (12,086) (11,731) (9,918) (6,157) (2,981) (2,895) (1,798)
Other (expenses) income,
net.................... 10,688 (4,789) (2,599) (1,613) 227 935 580
-------- -------- -------- -------- ------- ------- -------
Net loss................ L(18,326) L(24,233) L (3,860) $ (2,396) L(7,133) L(3,307) $(2,053)
======== ======== ======== ======== ======= ======= =======
</TABLE>
The convenience translation into U.S. Dollars has been made using the exchange
rate of 1,611 Italian Lire to U.S. $1 existing at March 31, 1994.
See notes to combined financial statements.
F-26
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
COMBINED STATEMENT OF CASH FLOWS
(ITALIAN LIRE IN MILLIONS, U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
------------------------------------ -----------------------------
1991 1992 1993 1993 1993 1994 1994
-------- -------- ------- ------- -------- ----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash provided by (used
in) operations:
Net loss............... L(18,326) L(24,233) L(3,860) $(2,396) L (7,133) L(3,307) $(2,053)
Adjustments to reconcile
net income to net cash
provided:
Depreciation and
amortization.......... 5,641 5,718 5,690 3,532 1,384 1,196 742
Provision for
termination
indemnities........... 2,609 2,247 2,037 1,264 450 420 262
Gain on sale of fixed
assets................ (11,553) (652) 2 1 34 -- --
Government grant
accrued............... -- (500) (2,410) (1,496) -- -- --
Changes in operating
assets and liabilities:
(Increase) decrease in
accounts receivable... 24,309 (22,293) (8,981) (5,575) (2,688) 10,983 6,818
(Increase) decrease in
other receivables from
affiliates............ -- (13,383) 10,070 6,251 2,283 3,313 2,056
(Increase) decrease in
inventories........... 7,009 (11,887) 1,621 1,006 86 2,211 1,372
Decrease in other
current assets,
excluding government
grants................ 1,524 2,224 (1,264) (785) (2,561) (621) (385)
Increase (decrease) in
accounts payable...... (16,275) 8,986 (7,721) (4,792) (4,031) (4,357) (2,705)
Increase (decrease) in
accrued expenses and
other liabilities..... (6,211) 9,123 (4,516) (2,803) (2,345) (5,841) (3,626)
-------- -------- ------- ------- -------- ------- -------
Net cash used in
operating activities... (11,273) (44,650) (9,332) (5,793) (14,521) 3,997 2,481
-------- -------- ------- ------- -------- ------- -------
Cash flows from
investing activities:
Fixed assets additions. (3,107) (3,080) (3,165) (1,965) (780) (193) (120)
Net assets acquired
from Renault
Automation business... -- (2,989) -- -- -- -- --
Proceeds from sale of
fixed assets.......... 22,969 4,490 169 105 -- 46 28
Intangible asset
additions............. (2,981) (948) (361) (224) (23) -- --
(Decrease) increase in
other non-current
assets and deferred
charges............... 530 (765) (228) (141) 490 668 415
-------- -------- ------- ------- -------- ------- -------
Net cash provided from
(used in) investing
activities............. 17,411 (3,292) (3,585) (2,225) (313) 521 323
-------- -------- ------- ------- -------- ------- -------
Cash flows from
financing activities:
Increase (decrease) in
borrowings and current
maturities of long
term debt............. (27,580) (13,976) 25,839 16,039 (807) (5,213) (3,236)
Payment of long term
debt.................. (8,066) (7,707) (7,823) (4,856) (237) 336 209
(Decrease) increase in
payables to
affiliates............ 35,780 35,264 (7,308) (4,536) 13,413 2,771 1,720
Government grants
received.............. -- -- 233 144 -- 99 61
Additional Finmeccanica
S.p.A. investment in
divisions............. 19,189 30,047 -- -- -- -- --
Coverage of net asset
deficiency of Digital
Electronic Automation
Company by Elsag
Bailey Inc............ -- -- 6,597 4,095 -- -- --
Payment of termination
indemnities........... (2,449) (2,206) (1,415) (878) -- (324) (201)
Distribution to
shareholders.......... (19,556) -- -- -- -- -- --
Increase in net equity
following combination
of Metrology Division
of DEA France S.A..... -- 4,994 -- -- -- (534) (331)
-------- -------- ------- ------- -------- ------- -------
Net cash provided from
(used in) financing
activities............ (2,682) 46,416 16,123 10,008 12,369 (2,865) (1,778)
-------- -------- ------- ------- -------- ------- -------
Effect of exchange rate
changes on cash....... (171) (1,133) (274) (170) (344) 77 47
-------- -------- ------- ------- -------- ------- -------
Cash and cash
equivalents:
Net increase (decrease)
in cash and cash
equivalents........... 3,285 (2,659) 2,932 1,820 (2,809) 1,730 1,073
Cash and cash
equivalents at
beginning of period... 3,678 6,963 4,304 2,672 4,304 7,236 4,492
-------- -------- ------- ------- -------- ------- -------
Cash and cash
equivalents at end of
period................ L 6,963 L 4,304 L 7,236 $ 4,492 L 1,495 L 8,966 $ 5,565
-------- -------- ------- ------- -------- ------- -------
Supplementary cash flow
information:
Net interest paid....... L 12,600 L 11,396 L11,531 $ 7,157 L 2,067 L 1,631 $ 1,012
======== ======== ======= ======= ======== ======= =======
</TABLE>
The convenience translation into U.S. Dollars has been made using the exchange
rate of 1,611 Italian Lire to U.S. $1 existing at March 31, 1994.
See notes to combined financial statements.
F-27
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
COMBINED STATEMENTS OF CHANGES IN DIVISIONAL DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1991; DECEMBER 31, 1992; AND DECEMBER 31,
1993; AND QUARTERS ENDED MARCH 31, 1993 AND MARCH 31, 1994 (UNAUDITED)
(ITALIAN LIRE IN MILLIONS, U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN CURRENCY
FINMECCANICA S.P.A. ACCUMULATED TRANSLATION
INVESTMENT DEFICIT ADJUSTMENT TOTAL
------------------- ----------- ---------------- --------
<S> <C> <C> <C> <C>
Balance at December 31,
1990................... L 17,145 L(16,088) L(2,773) L (1,716)
Reduction of capital to
cover losses........... (4,000) 4,000 -- --
Additional capital
arising on
transformation of U.S.
activity from
subsidiary to affiliate
branch................. 1,248 -- -- 1,248
Capital contribution in
cash................... 1,500 16,441 -- 17,941
Asset distribution to
shareholders arising
from September 30, 1991
reorganization......... -- (19,556) -- (19,556)
Net loss for 1991....... -- (18,326) -- (18,326)
Currency translation
adjustments............ -- -- (171) (171)
-------- -------- ------- --------
Balance at December 31,
1991 as previously
stated................. 15,893 (33,529) (2,944) (20,580)
Reclassification of
divisional equity of
Digital Electronic
Automation (USA)....... (1,248) 1,248 -- --
-------- -------- ------- --------
Balance at December 31,
1991 as restated....... 14,645 (32,281) (2,944) (20,580)
-------- -------- ------- --------
Increase in share
capital................ 14,800 -- -- 14,800
Additional paid in
capital................ 15,247 -- -- 15,247
Divisional equity of
metrology division of
DEA France S.A......... 4,993 -- -- 4,993
Net loss for 1992....... -- (24,233) -- (24,233)
Currency translation
adjustments............ -- -- (322) (322)
-------- -------- ------- --------
Balance at December 31,
1992................... 49,685 (56,514) (3,266) (10,095)
-------- -------- ------- --------
Net loss for 1993....... -- (3,860) -- (3,860)
Net asset deficiency of
Digital Electronic
Automation Company
eliminated on
conversion of DEA
Company from a division
of Elsag Bailey Inc. to
a subsidiary of DEA
S.p.A.................. (13,145) 19,742 -- 6,597
Currency translation
adjustments............ -- -- 373 373
-------- -------- ------- --------
Balance at December 31,
1993................... L 36,540 L(40,632) L(2,893) L (6,985)
======== ======== ======= ========
U.S. Dollars December
31, 1993............... $ 22,682 $(25,222) $(1,796) $ (4,336)
======== ======== ======= ========
Balance at December 31,
1993................... L 36,540 L(40,632) L(2,893) L (6,985)
Net divisional equity of
Metrology Division of
DEA France S.A. at
December 31, 1993
eliminated on
consolidation.......... (4,993) 4,111 348 (534)
Net loss for three
months ending March 31,
1994................... -- (3,307) -- (3,307)
Currency translation
adjustments............ -- -- (90) (90)
-------- -------- ------- --------
Balance at March 31,
1994 (Unaudited)....... L 31,547 L(39,828) L(2,635) L(10,916)
======== ======== ======= ========
U.S. Dollars March 31,
1994 (Unaudited)....... $ 19,582 $(24,723) $(1,636) $ (6,777)
======== ======== ======= ========
</TABLE>
The convenience translation into U.S. Dollars has been made using the exchange
rate of 1,611 Italian Lire to U.S. $1 existing at March 31, 1994.
See notes to combined financial statements.
F-28
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
NOTES TO COMBINED FINANCIAL STATEMENTS
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS)
NOTE 1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
The DEA Metrology Activities of Finmeccanica (the"Division") design and
manufacture at its Italian headquarters a diversified line of Metrology
Products (precision dimensional measuring systems and instruments). The
products are marketed worldwide direct from Italy and through its five overseas
operations which also provide technical assistance, sales support and other
related services.
The Division is one of many divisions of Finmeccanica S.p.A., a company which
is incorporated in Italy and wholly owned by an Italian government entity. At
March 31, 1994,the Division was comprised of DEA S.p.A. and its wholly owned
subsidiaries which are as follows:
<TABLE>
<S> <C>
DEA Iberica S.A. ................................... Spain
DEA Digital Electronic Automation Vetriebs GmbH..... Germany
DEA Kabushiki Kaisha................................ Japan
Digital Electronic Automation Company............... United States of America
DEA France S.A...................................... France
</TABLE>
The following re-organizations occurred in the structure of the Division
during the three months ended March 31, 1994 and the years ended December 31,
1993 and 1992.
DIGITAL ELECTRONIC AUTOMATION COMPANY
Digital Electronic Automation Company was originally incorporated in the
United States as Digital Electronic Automation Inc., a fully owned subsidiary
of the DEA Metrology Activities of Finmeccanica. On November 22, 1991,
following a corporate reorganization, it was sold to an affiliated company,
Bailey Controls Inc., which itself was merged into Elsag Bailey Inc.
Subsequently, Digital Electronic Automation became a trading division of Elsag
Bailey Inc. with its common stock, paid in and contribution capital being
recharacterized as Divisional equity.
On October 31, 1993 Elsag Bailey Inc. eliminated the net asset deficiency of
the division by waiving part of a working capital advance made to the division.
The remaining outstanding balance on the advance was repaid. On the following
day, the net assets of the Division were sold to Digital Electronic Automation
Company, a fully owned subsidiary of DEA S.p.A. at their net book value of
zero.
The combined statement of operations for the year ended December 31, 1993
incorporates the results of Digital Electronic Automation for the whole year as
both the Division and the Company formed part of the DEA Metrology Activities
of Finmeccanica during 1993.
DEA FRANCE S.A.
The combined financial statements for the years ending December 31, 1993 and
1992 include the results and operations of the Metrology Division of DEA France
S.A., a wholly owned subsidiary of Finmeccanica S.p.A., which was incorporated
into the combined financial statements from January 1, 1992.
On January 1, 1994 the non-metrology activities of DEA France S.A. were
transferred to another Finmeccanica group company. On the same day, the
shareholders' capital of DEA France S.A. was acquired by DEA S.p.A. for a
consideration representing the net asset value of the Company at December 31,
1993.
The net divisional equity of the Metrology Division of DEA France S.A.
included in the combined financial statements at December 31, 1993 and 1992 has
been eliminated from the combined financial statements at March 31, 1994 on
consolidation.
F-29
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS)
At December 31, 1992 DEA S.p.A. had two separate business divisions as
follows:
Metrology division--Design, manufacture and distribution of high precision
measuring instruments
Assembly division--Design and manufacture of assembly machines and robots.
On January 19, 1993 the net assets attributable to the assembly division of
DEA S.p.A. at December 31, 1992 were transferred to "SAR--Sistemi di
Assemblaggio Robotizzato" (a subsidiary of Finmeccanica S.p.A.). No
consideration was paid by SAR for the net assets acquired as these had a net
value of zero. The combined financial statements for the years ended December
31, 1992 and prior thereto exclude the income, expenses, assets and liabilities
of the Assembly division as these did not form part of the DEA Metrology
Activities of Finmeccanica in those years.
Principles of combination
The combined financial statements of the DEA Metrology Activities of
Finmeccanica for the years ended December 31, 1993 and 1992, and the quarters
ended March 31, 1993 and 1994, include the results and operations of the
following:
. DEA S.p.A.
. DEA Iberica S.A.
. DEA Digital Electronic Automation Vetriebs GmbH
. DEA Kabushiki Kaisha
. Digital Electronic Automation Company (U.S.A.), a division of Elsag
Bailey Inc., for the years ended December 31, 1991 and 1992, and the ten
months ended October 31, 1993.
. Digital Electronic Automation Company, a subsidiary of DEA S.p.A., for
the two months ended December 31, 1993 and the three months ended March
31, 1994.
. The metrology division of DEA France S.A. for the year ending December
31, 1992 and 1993, and the three months ended March 31, 1993.
. DEA France S.A. for the three months ended March 31, 1994.
The individual companies maintain their accounting records and prepare their
financial statements for local statutory purposes in accordance with the
accounting practices and currencies of the respective countries in which they
are located. The accompanying combined financial statements have been prepared
in accordance with accounting principles generally accepted in the United
States.
The following is a reconciliation of the legal entity consolidated financial
statements of DEA S.p.A. at December 31, 1991, 1992, 1993, and March 31, 1993
and 1994 with the combined financial statements of the DEA Metrology Activities
of Finmeccanica presented in accordance with accounting principles generally
accepted in the United States:
<TABLE>
<CAPTION>
12/31/91 12/31/92 12/31/93 03/31/93 03/31/94
------------------- -------------------- -------------------- -------------------- --------------------
DIVISIONAL DIVISIONAL DIVISIONAL DIVISIONAL DIVISIONAL
NET LOSS DEFICIT NET LOSS DEFICIT NET LOSS DEFICIT NET LOSS DEFICIT NET LOSS DEFICIT
-------- ---------- -------- ---------- -------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Legal entity
consolidated
financial
statements...... L(197) L(869) L(18,617) L12,467 L(7,958) L6,500 L(5,666) L8,790 L(4,417) L1,408
Effect of
combination of
Digital
Electronic
Automation
U.S.A........... (922) (1,656) (2,436) (4,184) -- -- (1,532) (4,077) -- --
Effect on the
combination of
nine months
operations of
DEA Digital
S.p.A........... (8,337) -- -- -- -- -- -- -- -- --
</TABLE>
F-30
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
12/31/91 12/31/92 12/31/93 03/31/93 03/31/94
-------------------- -------------------- -------------------- -------------------- --------------------
DIVISIONAL DIVISIONAL DIVISIONAL DIVISIONAL DIVISIONAL
NET LOSS DEFICIT NET LOSS DEFICIT NET LOSS DEFICIT NET LOSS DEFICIT NET LOSS DEFICIT
-------- ---------- -------- ---------- -------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loss and
divisional
equity of the
Metrology
Division of DEA
France S.A..... L -- L -- L (3,808) L (598) L (891) L(1,382) L(1,080) L (1,080) L -- L --
-------- -------- -------- -------- ------- ------- ------- -------- ------- --------
Loss and
divisional
equity before
combination
adjustments.... (9,456) (2,525) (24,861) 7,685 (8,849) 5,118 (8,278) 3,633 (4,417) 1,408
COMBINATION
ADJUSTMENTS
Elimination of
loss
attributable to
Assembly
Division....... (1,003) 4,000 1,453 4,000 -- 4,000 -- 4,000 -- 4,000
Restatement of
divisional
equity of DEA
France S.A..... -- -- -- 1,331 -- 1,331 -- 1,303 -- --
Elimination of
research and
development
costs.......... (5,895) (13,926) (463) (14,388) 2,935 (11,453) 679 (13,709) 577 (10,876)
Amortization of
deferred
charges........ (616) (616) -- -- -- -- -- -- -- --
Warranty
installation
reserve
provision...... -- (600) -- (600) -- (600) -- (600) -- (600)
Provision for
obsolete and
slow moving
inventory...... (500) (5,000) -- (5,000) 2,200 (2,800) -- (5,000) -- (2,800)
Other
adjustments on
inventory and
fixed assets... (1,828) (1,273) (495) (2,673) (259) (2,244) 177 (2,503) 505 (1,739)
Other
adjustments
arising on
combination.... 972 (640) 133 (450) 113 (337) 28 (422) 28 (309)
Restatement of
opening
divisional
equity of
Digital
Electronic
Automation USA. -- -- -- -- -- -- 261 (2,422) -- --
Elimination of
unrealized
profit on
inter-company
inventory...... -- -- -- -- -- -- -- (1,394) -- --
-------- -------- -------- -------- ------- ------- ------- -------- ------- --------
Per accompanying
combined
financial
statements..... L(18,326) L(20,580) L(24,233) L(10,095) L(3,860) L(6,985) L(7,133) L(17,114) L(3,307) L(10,916)
======== ======== ======== ======== ======= ======= ======= ======== ======= ========
U.S. Dollars.... $(2,396) $(4,336) $(2,053) $ (6,777)
======= ======= ======= ========
</TABLE>
The assets and liabilities of the subsidiaries are combined on a line-by-line
basis and the carrying value of investments is eliminated against the related
divisional equity accounts.
All significant intercompany transactions and balances within the DEA
Metrology Activities of Finmeccanica are eliminated. Unrealized intercompany
profits and the gains and losses arising from transactions within the Division
are also eliminated.
The financial statements of the foreign entities are translated into Italian
Lire using the year-end exchange rate for balance sheet items and the average
exchange rate for the year for the income statement. Differences arising on
translation are recorded in a component of divisional deficit.
F-31
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS)
Interim consolidated financial statements
The consolidated financial statements for the quarters ended March 31, 1993
and March 31, 1994 and the related notes are unaudited and in the opinion of
management, include all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of the results of these periods.
The results for the quarter ended March 31, 1994 are not necessarily indicative
of the results to be expected for the entire year.
Revenue recognition
Revenues and all costs (including costs of installation and training) of
standardized machines are recognized upon shipment to the customer.
In the exceptional case of large or long term projects, where machines may
require integration into complex manufacturing operations over an extended
period of time, revenue is recognized on the percentage of completion method.
Under the percentage of completion method, revenue and gross profit are
recognized as work is performed based on the relationship between actual costs
incurred and the total estimated costs at completion. Revenues and gross
profits are adjusted prospectively for revisions in estimated total contract
costs and contract revenues. Estimated losses are recorded when identified.
In addition, the Division earns revenue from the servicing of its equipment,
in certain instances under service contracts. Revenue under such contracts is
recognized on a straight line basis over the life of the contract.
Foreign currency transactions
Gains and losses resulting from foreign currency transactions and the
remeasurement of foreign currency balances and accounts denominated in foreign
currencies are included in the determination of net income in the period in
which they occur.
Inventories
Inventories are stated at the lower of cost or market value, with cost
principally determined on an average basis. Cost is comprised of direct
materials, labor and manufacturing overhead.
An allowance is provided to account for slow moving and obsolete inventory.
Government grants
Government grants in respect of research and development projects and other
revenue items are recognized in the income statement when all the terms and
conditions of the grant have been met.
Property, plant, and equipment
All property, plant, and equipment is recorded at historical cost.
F-32
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS)
Depreciation is calculated so as to write off the cost of property, plant,
and equipment on a straight line basis over the expected useful lives of the
assets concerned. The principal rates used for this purpose are:
<TABLE>
<S> <C>
Property................ 10%
Leasehold improvements.. shorter of, the life of the asset or the term of the lease
Machinery, equipment,
and tools.............. 10%--25%
Office furniture and
equipment.............. 12%--18%
Motor vehicles.......... 20%
</TABLE>
Maintenance and repair expenses are charged to operations as incurred.
Other non-current assets and deferred charges
Intangibles, including goodwill, software, and deferred charges included
within non-current assets and deferred charges are amortized primarily over
five years, their expected economic life.
Research and development
The Division's research and development department is responsible for product
design, development, and refinement. All costs of the department are charged to
operations as they are incurred.
Income taxes
Income taxes are provided in accordance with applicable local tax
regulations. Deferred income taxes are provided in accordance with Financial
Accounting Standards Board Statement No. 109 "Accounting for Income Taxes" for
temporary differences between financial statements carrying amounts and the
corresponding tax bases of assets and liabilities.
Warranty costs
Warranty costs are provided for at the time of product shipment.
Termination indemnities
In accordance with Italian severance pay statutes, an employee benefit is
accrued for service to date and is payable immediately upon separation. The
cost of providing these benefits is accounted for in accordance with Financial
Accounting Standards Board Statement No. 112 "Employers Accounting for
Postemployment Benefits".
Information expressed in U.S. Dollars
The combined financial statements are stated in Italian Lire, the currency of
the country in which the divisions principal legal entity and market is
located. The translation into U.S. Dollars amounts is included solely for the
convenience of readers and has been made at the rate of Italian Lire 1,611 to
U.S. 1, the approximate rate of exchange at March 31, 1994, for December 31,
1993. Such translation should not be construed as representation that the
Italian Lire amounts could be converted into U.S. Dollars at that or any other
rate.
F-33
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS)
NOTE 2--OPERATIONS BY GEOGRAPHIC AREA
The divisions operations are conducted in various countries around the world.
The geographic analysis of the division's net sales, net loss, and identifiable
assets is set out below:
<TABLE>
<CAPTION>
12/31/91 12/31/92 12/31/93 12/31/93 03/31/93 03/31/94 03/31/94
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES BY GEOGRAPHIC
MARKET:
Italy.................. L 61,850 L 61,916 L 74,549 $ 46,275 L15,890 L 17,796 $ 11,047
United States.......... 23,858 30,990 54,309 33,712 7,150 9,310 5,779
France, Germany, and
Spain................. 24,912 23,784 39,352 24,427 5,563 6,733 4,179
Japan.................. 7,042 8,059 10,087 6,261 534 443 275
Other.................. -- -- -- -- -- -- --
-------- -------- -------- -------- ------- -------- --------
L117,662 L124,749 L178,297 $110,675 L29,137 L34,282 $ 21,280
======== ======== ======== ======== ======= ======== ========
NET SALES FROM THE
ITALIAN OPERATIONS:
Domestic............... L 34,781 L 28,070 L 40,815 $ 25,335 L10,622 L 5,586 $ 3,467
Other European......... 20,825 20,182 15,797 9,806 3,196 3,728 2,314
Rest of the world...... 6,244 13,664 17,937 11,134 2,072 8,482 5,266
-------- -------- -------- -------- ------- -------- --------
L 61,850 L 61,916 L 74,549 $ 46,275 L15,890 L 17,796 $ 11,047
======== ======== ======== ======== ======= ======== ========
TRANSFERS BETWEEN
GEOGRAPHIC OPERATIONS:
From Italy............. L 14,909 L 25,927 L 40,322 $ 25,029 L 6,904 L 7,716 $ 4,790
From France, Germany,
and Spain............. 1,152 6,855 925 574 -- 17 11
From United States..... -- 243 -- -- -- 40 24
From Japan............. 16 70 -- -- -- -- --
-------- -------- -------- -------- ------- -------- --------
L 16,077 L 33,095 L 41,247 $ 25,603 L 6,904 L 7,773 $ 4,825
======== ======== ======== ======== ======= ======== ========
NET LOSS:
Italy.................. L(12,627) L(17,096) L 4,077 $ 2,531 L(3,145) L (314) $ (195)
France, Germany, and
Spain................. (460) (4,460) (2,084) (1,294) (2,350) (978) (607)
United States.......... (5,290) (2,315) (4,928) (3,059) (1,231) (1,384) (859)
Japan.................. 51 (362) (925) (574) (407) (631) (392)
-------- -------- -------- -------- ------- -------- --------
L(18,326) L(24,233) L (3,860) $ (2,396) L(7,133) L (3,307) $ (2,053)
======== ======== ======== ======== ======= ======== ========
IDENTIFIABLE ASSETS:
Italy.................. L131,218 L108,043 $ 67,066 L109,180 $ 67,772
France, Germany, and
Spain................. 21,234 31,033 19,263 25,774 15,999
United States.......... 28,525 40,513 25,147 31,665 19,655
Japan.................. 3,478 7,069 4,388 3,900 2,420
-------- -------- -------- -------- --------
L184,455 L186,658 $115,864 L170,519 $105,846
======== ======== ======== ======== ========
</TABLE>
Identifiable assets by geographic area are those assets used specifically by
the Division's operations in each geographic area. Interdivisional transfers
between geographic areas are generally priced to recover costs plus a
reasonable amount of profit and have been eliminated from combined net sales.
NOTE 3--RESTRUCTURING COSTS
The Division recorded restructuring costs of Lire 823 ($511) and Lire 2,949
during fiscal years 1993 and 1992, respectively.
The 1993 restructuring charges reflect the severance costs relating to the
dismissal of employees at the Metrology Division of DEA France S.A.
F-34
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS)
The 1992 restructuring charge relates to Lire 2,432 of social security and
pension costs that the Italian Division is obliged to pay following the
agreement with employees to take early retirement and Lire 517 to the costs of
dismissing 30 employees at the Metrology Division of DEA France S.A.
NOTE 4--OPERATING INCOME
The operating income for the year is stated after charging the costs of the
Division's research and development department of Lire 8,290 ($5,146) for 1993
(Lire 8,200 and Lire 10,900 for 1992 and 1991, respectively) and after
crediting government grants receivable of Lire 2,410 ($1,496) (Lire 500 in
1992).
NOTE 5--INTERCOMPANY BALANCES AND TRANSACTIONS
The Division is a member of an affiliated group of companies controlled by
IRI Finmeccanica, an Italian state owned financial holding entity. The
transactions with affiliated companies during the years and the respective
balances at the year ends and quarter ends are summarized as follows:
Trade receivables from affiliates included in accounts receivable
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Alfa Romeo Avio............... L-- L2,788 $1,731 L3,310 $2,055
Alenia group.................. -- 281 174 298 185
Sistemi di Assemblaggio
Robotizzato S.p.A............ -- 207 129 120 74
Ansaldo group................. -- 137 85 137 85
Elsag Bailey (a division of
Finmeccanica S.p.A.)......... 234 49 30 49 30
Other affiliated companies.... 298 29 18 12 8
---- ------ ------ ------ ------
L532 L3,491 $2,167 L3,926 $2,437
==== ====== ====== ====== ======
</TABLE>
Sales to affiliated companies during the years ending December 31, 1993 and
1992 were Lire 3,339 ($2,073) and Lire 111 respectively. Sales to affiliated
companies during the three months ending March 31, 1994 and 1993 were Lire 23
($14) and Lire 89, respectively.
Trade payables from affiliates included in accounts payable
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Elsag Sistemi...................... L11 L11 $ 7 L-- $--
Other affiliated companies......... -- -- -- -- --
--- --- --- --- ----
L11 L11 $ 7 L-- $--
=== === === === ====
</TABLE>
Other receivables from affiliates
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CURRENT ACCOUNTS
Savafactoring S.p.A............... L -- L2,319 $1,440 L-- $--
Elsag Bailey France............... -- 903 560 -- --
Sistemi di Assemblaggio
Robotizzato S.p.A................ -- 91 56 -- --
Cofiri Factor S.p.A............... 10,214 -- -- -- --
Finmeccanica S.p.A................ 3,169 -- -- -- --
------- ------ ------ ---- ----
L13,383 L3,313 $2,056 L-- $--
======= ====== ====== ==== ====
</TABLE>
F-35
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS)
The current account operated with Savafactoring S.p.A. is used for invoice
factoring and discounting. The other current accounts are utilized to settle
commercial transactions between the Companies. Interest is charged/credited to
the accounts at normal commercial bank rates. Interest income during 1993 on
such short-term lending amounted to Lire 353 ($219) (Lire 109 for 1992).
Other payables to affiliates
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CURRENT ACCOUNTS AND SHORT-TERM
LOANS
Elsag Bailey (a division of
Finmeccanica S.p.A.)............. L 1,195 L19,292 $11,975 L19,815 $12,300
Finmeccanica S.p.A.--Lire......... 25,000 36,229 22,488 37,736 23,424
--other currencies........... 24,065 14,994 9,307 14,995 9,308
Elsag Bailey Inc.................. 28,336 -- -- -- --
------- ------- ------- ------- -------
78,596 70,515 43,770 72,546 45,032
OTHER PAYABLES
Other affiliates.................. -- 773 480 1,513 939
------- ------- ------- ------- -------
L78,596 L71,288 $44,250 L74,059 $45,971
======= ======= ======= ======= =======
</TABLE>
The Division, under the terms of informal agreements with the above
affiliated companies, operates current accounts with them. The accounts are
used to settle commercial transactions and to provide short-term finance. The
current accounts bear interest at varying rates from 5.3% to 11.75% as
determined by the commercial rates available for the currency in which the
loans are denominated.
The interest expense relating to such borrowings was Lire 7,960 ($4,941) for
the year ended December 31, 1993 (Lire 8,134; and Lire 7,326 for 1992 and 1991,
respectively).
The interest expense relating to such borrowings was Lire 2,126 ($1,320) for
the period ended March 31, 1994 and Lire 2,251 for the three months ended March
31, 1993.
Long-term affiliated debt
The Division has a long-term loan from Elsag Bailey, a division of
Finmeccanica. The terms, conditions, and amount repayable under the loan are
detailed in Note 14 .
Interest charged on this loan was Lire 725 ($450) for the year ended December
31, 1993 (Lire 1,025; and Lire 1,325 for 1992 and 1991, respectively).
Interest charged on this loan was Lire 114 ($71) for the period ended March
31, 1994 and Lire 194 for the three months ended March 31, 1993.
Other transactions involving affiliated companies
a. On December 29, 1992, the Division's Spanish subsidiary, DEA Iberica S.A.
sold its freehold buildings to Elsag Bailey for Lire 3,208. The sales price
was based on an appraisal by an independent firm of qualified appraisers.
The profit realized on the sale of Lire 766 has been included as "other
income (expenses)" in the combined statement of income.
On January 4, 1993, DEA Iberica S.A. signed an agreement whereby it
undertook to rent the property from Elsag Bailey (a division of
Finmeccanica S.p.A.) for an annual fixed rent of Pesetas 30,600,000
F-36
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS)
(Lire 367 ($228)) based on the exchange rate of 12 Italian Lire to the
Spanish Peseta in existence at March 31, 1994 for a period of five years.
The contract is renewable, at the option of both parties, at the end of the
five year period. In this case, the annual rent will be revised and may be
adjusted to account for inflation in the previous five years. The new
agreed upon rent will be indexed linked from year six onwards. Rent charged
to operations in the period to March 31, 1994 amounted to Lire 90 ($56) and
Lire 103 in the three months ended March 31, 1993.
b. DEA S.p.A. rents its premises in Moncalieri from Elsag Bailey S.p.A. under
the terms of a rental agreement. The agreement commenced on January 1, 1992
and expires on December 31, 1997. The minimum annual rent payable under the
contract is Lire 1,300 per annum. The rent is adjusted to account for
inflation at the beginning of each year. Rent charged to operations in the
period to March 31, 1994 totalled Lire 337 ($209) and Lire 337 in the three
months ended March 31, 1993.
DEA S.p.A. is responsible for all maintenance and repair costs to the
buildings during the period of the contract.
NOTE 6--ACCOUNTS RECEIVABLE
The accounts receivable balance is composed of the following:
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Trade receivables--external
customers........................ L75,472 L81,626 $50,668 L70,127 $43,530
Trade receivables--affiliated
customers........................ 532 3,491 2,167 3,926 2,437
------- ------- ------- ------- -------
76,004 85,117 52,835 74,053 45,967
Allowance for doubtful accounts... (1,253) (1,385) (860) (1,304) (809)
------- ------- ------- ------- -------
L74,751 L83,732 $51,975 L72,749 $45,158
======= ======= ======= ======= =======
</TABLE>
Included in the trade receivables balance are receivables of Lire 10,976
($6,813), (Lire 5,230 for 1992) from one customer which accounted for
approximately 11% (12% in 1992) of the combined sales of the Metrology Division
of Finmeccanica S.p.A. There were no customers accounting for more than 10% of
the combined sales in the three months ending March 31, 1994.
NOTE 7--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Parts, raw materials, and
supplies......................... L31,399 L21,689 $13,463 L26,483 $16,439
Semi-finished goods............... 23,134 21,236 13,182 19,887 12,345
Finished goods.................... 22,802 33,250 20,639 27,656 17,167
------- ------- ------- ------- -------
77,335 76,175 47,284 74,026 45,951
Provision for slow moving and
obsolete inventory............... (8,626) (9,087) (5,640) (9,149) (5,680)
------- ------- ------- ------- -------
L68,709 L67,088 $41,644 L64,877 $40,271
======= ======= ======= ======= =======
</TABLE>
F-37
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS)
NOTE 8--OTHER CURRENT ASSETS
Other current assets consist of the following:
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Government grants receivable...... L2,684 L4,861 $3,017 L4,762 $2,956
Prepaid expenses.................. 983 2,180 1,353 2,757 1,711
Advances to employees............. 526 343 213 454 282
Prepaid social security
contributions.................... 500 1,177 731 619 384
VAT and other taxes recoverable... 410 1,120 695 1,437 892
Other............................. 1,308 171 106 345 214
------ ------ ------ ------- ------
L6,411 L9,852 $6,115 L10,374 $6,439
====== ====== ====== ======= ======
</TABLE>
The net increase from December 1992 to December 1993 in government grants
receivable reflects the following:
. the recognition of Lire 2,410 ($1,496) of grants in the combined
statement of operations following approval of the grant project and
completion of the terms and conditions of the grant;
. the receipt of Lire 233 ($145) of government grants.
NOTE 9--PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Property..................... L 79 L 79 $ 49 L 79 $ 49
Leasehold improvements....... 2,623 2,879 1,787 2,822 1,752
Machinery, equipment, and
tools....................... 25,576 28,553 17,724 27,842 17,282
Office equipment and furni-
ture........................ 10,415 11,453 7,109 11,176 6,937
Motor vehicles............... 796 926 575 959 595
-------- -------- -------- -------- --------
39,489 43,890 27,244 42,878 26,615
Less: Accumulated deprecia-
tion........................ (29,931) (34,549) (21,446) (34,285) (21,281)
-------- -------- -------- -------- --------
L 9,558 L 9,341 $ 5,798 L 8,593 $ 5,334
======== ======== ======== ======== ========
</TABLE>
Depreciation charges relative to property, plant, and equipment were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
--------------------------- -----------------------
1991 1992 1993 1993 1993 1994 1994
------ ------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Depreciation charges........ L4,285 L4,128 L3,813 $2,367 L907 L769 $ 477
------ ------ ------ ------ ------- ------- -------
</TABLE>
F-38
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS)
NOTE 10--OTHER NON-CURRENT ASSETS AND DEFERRED CHARGES
Other non-current assets and deferred charges consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
----------------------- -----------------------
1992 1993 1993 1994 1994
------- ------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Goodwill....................... L3,656 L2,886 $ 1,791 L2,649 $ 1,644
Deposits....................... 457 779 484 366 227
Loans to employees............. 387 433 269 408 253
Advance to distributor......... -- 317 196 300 186
Software costs................. 1,319 298 185 174 108
Trade licenses and technical
rights........................ 212 157 98 146 91
Other deferred charges......... 1,308 1,226 761 917 570
------- ------- ------- ----------- -----------
L7,339 L6,096 $ 3,784 L4,960 $ 3,079
======= ======= ======= =========== ===========
</TABLE>
Amortization charges relative to other non-current assets and deferred
charges were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
--------------------------- -----------------------
1991 1992 1993 1993 1993 1994 1994
------ ------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Amortization charge in the
year...................... L1,356 L1,590 L1,877 $1,165 L477 L427 $ 265
------ ------ ------ ------ ------- ------- -------
</TABLE>
The written down value of the goodwill at December 31, 1993 consists of Lire
2,033 ($1,262) (Lire 2,647 for 1992) and at March 31, 1994, Lire 1,879 ($1,166)
representing the excess of the purchase cost over the net assets acquired from
Prima Industrie S.p.A. in 1990 and 1991 and Lire 853 ($529) (Lire 1,009 in
1992) arising from the acquisition of the Renault Automation business by the
Metrology Division of DEA France S.A. in July 1992.
NOTE 11--BORROWINGS AND CURRENT MATURITIES OF DEBT
Borrowings and current maturities of debt consist of the following:
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Bank overdrafts and other short-
term borrowings.................. L13,538 L39,163 $24,310 L34,156 $21,202
Current portion of long-term debt. 7,706 7,920 4,916 7,934 4,925
------- ------- ------- ------- -------
L21,244 L47,083 $29,226 L42,090 $26,127
======= ======= ======= ======= =======
</TABLE>
The composition of the bank overdrafts and other short term borrowings by
currency is as follows:
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
U.S. Dollars....................... L 54 L26,757 $16,609 L23,847 $14,803
Italian Lire....................... 2,026 1,040 645 -- --
Deutsche Mark...................... 5,071 4,436 2,754 3,955 2,455
Japanese Yen....................... 1,713 2,597 1,612 364 226
French Francs...................... 4,674 4,333 2,690 5,990 3,718
Other currencies................... -- -- -- -- --
------- ------- ------- ------- -------
L13,538 L39,163 $24,310 L34,156 $21,202
======= ======= ======= ======= =======
</TABLE>
F-39
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS)
As of December 31, 1992, the Division maintained relationships with banks
providing the following credit lines:
<TABLE>
<CAPTION>
CREDIT LINE UTILIZED
----------- --------
<S> <C> <C>
Bank overdraft and short-term loans........................ L47,851 L11,538
Invoice discounting facilities............................. 2,000 2,000
------- -------
L49,851 L13,538
======= =======
</TABLE>
As of December 31, 1993, the Division maintained relationships with banks
providing the following credit lines:
<TABLE>
<CAPTION>
CREDIT LINE UTILIZED CREDIT LINE UTILIZED
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Bank overdraft and other short-term
borrowings.......................... L61,707 L39,163 $38,303 $24,310
======= ======= ======= =======
</TABLE>
As of March 31, 1994, the Division maintained relationships with banks
providing the following credit lines:
<TABLE>
<CAPTION>
CREDIT LINE UTILIZED CREDIT LINE UTILIZED
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Bank overdraft and other short-term
borrowings.......................... L63,364 L34,156 $39,332 $21,202
======= ======= ======= =======
</TABLE>
The weighted average interest rates on deposits and borrowings are as
follows:
<TABLE>
<CAPTION>
BORROWINGS DEPOSITS
----------------- -----------------
12/31/92 12/31/93 12/31/92 12/31/93
-------- -------- -------- --------
<S> <C> <C> <C> <C>
U.S. Dollars--overdraft..................... -- 4.0% -- --
Italian Lire--overdraft..................... 17.5% 13.7% 7.0% 3.0%
Deutsche Mark--overdraft.................... 10.9% 10.3% -- --
Japanese Yen--overdraft..................... 4.0% 4.0% -- --
French Francs--short-term loan.............. 12.0% 12.0% -- --
</TABLE>
<TABLE>
<CAPTION>
BORROWINGS DEPOSITS
03/31/94 03/31/94
---------- --------
<S> <C> <C>
U.S. Dollars--overdraft..................................... 4.0% --
Italian Lire--overdraft..................................... 13.7% 3.0%
Deutsche Mark--overdraft.................................... 10.3% --
Japanese Yen--overdraft..................................... 4.0% --
French Francs--short-term loan.............................. 12.0% --
</TABLE>
The total interest expense during 1993 in respect of short and long-term
borrowings from both external and affiliated sources was Lire 12,485 ($7,750)
(Lire 15,272 for 1992).
NOTE 12--ACCOUNTS PAYABLE
The accounts payable balance is composed of the following:
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Accounts payable--external
suppliers........................ L33,642 L25,921 $16,090 L21,575 $13,392
Accounts payable--affiliated
suppliers........................ 11 11 7 -- --
------- ------- ------- ------- -------
L33,653 L25,932 $16,097 L21,575 $13,392
------- ------- ------- ------- -------
</TABLE>
F-40
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS)
NOTE 13--ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Payroll and other related
liabilities...................... L10,243 L5,824 $ 3,615 L4,611 $ 2,862
Value added tax and other
taxation......................... 1,814 4,078 2,531 1,261 783
Accrued commissions............... 2,539 3,287 2,040 3,067 1,904
Social security contributions on
early retirement of staff........ 2,431 2,109 1,309 2,953 1,833
Advances from customers and
deferred income.................. 5,627 2,040 1,267 1,445 897
Accrued interest.................. 2,611 1,791 1,112 1,542 957
Warranty reserve.................. 1,003 1,679 1,042 861 534
Provision for redundancy costs.... -- 535 332 -- --
Other accruals.................... 3,236 3,645 2,263 3,407 2,115
------- ------- ------- ------- -------
L29,504 L24,988 $15,511 L19,147 $11,885
======= ======= ======= ======= =======
</TABLE>
NOTE 14--LONG-TERM DEBT
Long-term debt consists of the following
<TABLE>
<CAPTION>
12/31/92 12/31/93 03/31/94
----------------- ----------------- -----------------
CURRENT LONG-TERM CURRENT LONG-TERM CURRENT LONG-TERM
THIRD PARTY DEBT PORTION PORTION PORTION PORTION PORTION PORTION
---------------- ------- --------- ------- --------- ------- ---------
<C> <S> <C> <C> <C> <C> <C> <C>
5.5% Unsecured loan from
Istituto Mobiliare
Italiano (IMI) repay-
able in semi-annual in-
stallments expiring in
July 1996. The original
capital amount was Lire
3,563.................. L453 L1,521 L479 L1,041 L493 L790
10.05% Unsecured loan from IMI
repayable in semi-an-
nual installments ex-
piring in October 1996.
The original capital
amount was Lire 2,250.. 288 1,024 371 711 371 711
10.05% Unsecured loan from IMI
repayable in semi-an-
nual installments ex-
piring in October 1996.
The original capital
amount was Lire 783.... 101 364 110 254 110 254
10.05% Unsecured loan from IMI
repayable in semi-an-
nual installments ex-
piring in October 1996.
The original capital
amount was Lire 1,827.. 233 824 320 570 320 570
12.33% Unsecured loan from
Mediocredito Piemontese
repayable in semi-an-
nual installments ex-
piring in April 1994.
The original capital
amount was Lire 953.... 159 159 159 -- 159 --
9.07% Unsecured loan from
Mediocredito Piemontese
repayable in semi-an-
nual installments ex-
piring in April 1994.
The original capital
amount was Lire 1,167.. 168 167 167 -- 167 --
</TABLE>
F-41
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
12/31/92 12/31/93 03/31/94
----------------- ----------------- -----------------
CURRENT LONG-TERM CURRENT LONG-TERM CURRENT LONG-TERM
THIRD PARTY DEBT PORTION PORTION PORTION PORTION PORTION PORTION
---------------- ------- --------- ------- --------- ------- ---------
<C> <S> <C> <C> <C> <C> <C> <C>
12.39% Unsecured loan from the
Ministry of Industry
repayable in annual in-
stallments expiring in
October 1996. The orig-
inal capital amount was
Lire 787............... L 71 L 505 L 79 L 427 L 79 L 427
8.28% Unsecured loan from the
Ministry of Industry
repayable in annual
installments commencing
in 1995 and expiring in
2004. The total amount
of the loan is Lire
1,916 with Lire 1,505
received as of December
31, 1992............... -- 1,505 -- 1,505 -- 1,870
11.76% Unsecured loan from the
Ministry of Industry
repayable in annual in-
stallments expiring in
1999. The original cap-
ital amount was Lire
586.................... 47 425 26 372 26 374
12.36% Unsecured loan from the
Ministry of Industry
repayable in annual in-
stallments expiring in
1999. The original cap-
ital amount of the loan
was Lire 2,344......... 186 1,713 209 1,504 209 1,504
------ ------- ------ ------- ------ -------
Total third party long
term debt.............. 1,706 8,207 1,920 6,384 1,934 6,500
------ ------- ------ ------- ------ -------
AFFILIATED DEBT
5.0% Unsecured loan from
Elsag Bailey repayable
in annual installments
of Lire 6,000 expiring
in June 1995........... 6,000 12,000 6,000 6,000 6,000 6,000
------ ------- ------ ------- ------ -------
Total long-term debt.... L7,706 L20,207 L7,920 L12,384 L7,934 L12,500
====== ======= ====== ======= ====== =======
U.S. Dollars............ $4,916 $ 7,687 $4,925 $ 7,759
====== ======= ====== =======
</TABLE>
The repayment of long-term debt outstanding at December 31, 1993 is scheduled
as follows:
<TABLE>
<CAPTION>
YEAR ITALIAN LIRE U.S. DOLLARS
---- ------------ ------------
<S> <C> <C>
1994.................................................. 7,920 4,916
1995.................................................. 7,756 4,814
1996.................................................. 1,904 1,182
1997.................................................. 636 395
1998.................................................. 707 439
Thereafter............................................ 1,381 857
------ ------
20,304 12,603
====== ======
</TABLE>
Interest charged to the income statement in the period in respect of long-
term debt was Lire 1,469 ($862) (Lire 1,919 and Lire 2,446 for 1992 and 1991,
respectively) for the year ended December 1993, of which Lire 725 ($450) (Lire
1,025 and Lire 1,325 for 1992 and 1991, respectively) relates to the loan from
Elsag Bailey (a division of Finmeccanica S.p.A.).
F-42
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS)
Interest charged to the income statement in the period in respect of long
term debt was Lire 277 ($172) (Lire 395 in 1993) for the period ended March 31,
1994, of which Lire 114 ($71) (Lire 194 in 1993) relates to the loan from Elsag
Bailey (a division of Finmeccanica S.p.A.).
NOTE 15--TERMINATION INDEMNITIES
Movements in the reserve for employees termination indemnities are as
follows:
<TABLE>
<CAPTION>
12/31/92 12/31/93 03/31/94
-------- -------- --------
<S> <C> <C> <C>
Balance at the beginning of the period............ L11,305 L11,346 L11,968
Provisions made during the period................. 2,247 2,037 420
Payments made during the period................... (2,206) (1,415) (324)
------- ------- -------
Balance at the end of the period.................. L11,346 L11,968 L12,064
------- ------- -------
U.S. Dollars...................................... $ 7,429 $ 7,489
======= =======
</TABLE>
NOTE 16--INCOME TAXES
The Division has no income tax liability due to losses made in the current
and previous years. All fiscal years from 1988 are still open for examination
by the fiscal authorities.
The Division had a deferred tax asset which is summarized as follows:
<TABLE>
<CAPTION>
12/31/91 12/31/92 12/31/93 12/31/93 03/31/93 03/31/94 03/31/94
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Tax losses available for
carry forward (per
filed tax returns)..... L 4,732 L 11,649 L 12,527 $ 7,776 L 11,649 L 12,512 $ 7,767
Deferral of research and
development costs for
tax purposes........... 7,269 5,423 3,890 2,415 5,068 3,589 2,228
Inventory valuation
reserve and provision
for warranty and
installation costs..... 3,236 3,549 3,126 1,940 3,236 3,132 1,944
Deferred depreciation
and amortization....... 1,075 1,347 1,435 891 1,439 1,156 718
Deferred maintenance
costs.................. 18 224 180 111 224 180 112
Other temporary timing
differences............ 1,340 1,352 2,224 1,381 1,352 2,225 1,380
-------- -------- -------- -------- -------- -------- --------
17,670 23,544 23,382 14,514 22,968 22,794 14,149
Valuation allowance..... (17,670) (23,544) (23,382) (14,514) (22,968) (22,794) (14,149)
-------- -------- -------- -------- -------- -------- --------
Net deferred tax asset.. L -- L -- L -- $ -- L -- L -- $ --
======== ======== ======== ======== ======== ======== ========
</TABLE>
A valuation allowance has been made against the full amount of the deferred
tax asset as the Division does not meet the "more likely than not" realization
criteria.
F-43
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS)
NOTE 17--FINMECCANICA S.P.A. INVESTMENT
<TABLE>
<CAPTION>
DEA S.P.A.
DEA S.P.A. ADDITIONAL DIVISIONAL
SHARE CAPITAL PAID IN CAPITAL EQUITY TOTAL
------------- --------------- ---------- --------
<S> <C> <C> <C> <C>
At December 31, 1991....... L 1,500 L -- L 14,393 L 15,893
Reclassification of
divisional equity of
Digital Electronic
Automation (USA) to
accumulated deficit....... -- -- (1,248) (1,248)
------- ------- -------- --------
At December 31, 1991 as
restated.................. 1,500 -- 13,145 14,645
Increase in share capital.. 14,800 -- -- 14,800
Additional paid in capital. -- 15,247 -- 15,247
Divisional equity of DEA
France S.A................ -- -- 4,993 4,993
------- ------- -------- --------
At December 31, 1992....... 16,300 15,247 18,138 49,685
Elimination of Divisional
equity of Digital
Electronic Automation
following conversion from
a division of Elsag Bailey
Inc. to a subsidiary of
DEA S.p.A................. -- -- (13,145) (13,145)
------- ------- -------- --------
At December 31, 1993....... L16,300 L15,247 L 4,993 L 36,540
======= ======= ======== ========
U.S. Dollars December 31,
1993...................... $10,118 $ 9,464 $ 3,100 $ 22,682
======= ======= ======== ========
Divisional equity of the
Metrology division of DEA
France S.A. at December
31, 1993 eliminated on
consolidation following
the purchase of the share
capital of DEA France S.A.
by DEA S.p.A.............. -- -- (4,993) (4,993)
------- ------- -------- --------
At March 31, 1994.......... L16,300 L15,247 L -- L31,547
======= ======= ======== ========
U.S. Dollars March 31,
1994...................... $10,118 $ 9,464 $ -- $ 19,582
======= ======= ======== ========
</TABLE>
On December 18, 1992, the share capital of DEA S.p.A. was increased to Lire
16,300 by the creation and issue of a further 14,800 shares to Finmeccanica
S.p.A. In addition, Finmeccanica S.p.A. contributed a further Lire 16,700 as
additional paid in capital, of which Lire 15,247 related to the Metrology
Division of DEA S.p.A. These transactions were made in order to comply with the
minimum capital requirement stipulated by Italian company law.
The whole of the share capital of DEA S.p.A., consisting of 16,300,000 shares
with a nominal value of 1,000 Italian Lire, is owned by Finmeccanica S.p.A.
The divisional equity balance at December 31, 1992 is comprised of Lire
13,145 representing the common stock, paid in and contribution capital of
Digital Electronic Automation Inc. at the date it was converted into a trading
division of Elsag Bailey Inc. On October 31, 1993 the net asset deficiency
(Divisional equity and accumulated deficit) was eliminated by means of a loan
waiver from Elsag Bailey Inc. Subsequently, on November 1, 1993 the net assets
of the division were sold at their net book value of zero to DEA S.p.A. Lire
4,993 representing the divisional capital of the Metrology Division of DEA
France S.A. following its inclusion into the combined financial statements from
January 1, 1992. On January 1, 1994 the non-metrology activities of DEA France
S.A. were transferred to another Finmeccanica group entity and the
shareholders' capital of the Company acquired by DEA S.p.A. The divisional net
equity at December 31, 1993 was consequently eliminated on consolidation
against the carrying value of the investment in DEA S.p.A. at March 31, 1994.
F-44
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS)
On August 18, 1993, Brown & Sharpe Manufacturing Company (Brown & Sharpe)
announced that they had entered into a non-binding letter of intent to purchase
the assets of the Metrology Division of Finmeccanica S.p.A. at June 30, 1993
with the exception of certain agreed upon exclusions and adjustments. In return
for the disposal, Finmeccanica S.p.A. would receive 2.5 million shares of Class
A Brown & Sharpe common stock and a contingent non-assignable right to obtain a
further 950,000 shares of Class A Brown & Sharpe common stock. Such right would
be exercisable only if during the five year period following the closing date
of the transaction, the closing share price of Brown & Sharpe common stock
equals or exceeds $15.00 per share for thirty non-consecutive business days
over any twelve month period of time. At the date of this report, the
transaction has not yet been completed.
NOTE 18--COMMITMENTS AND CONTINGENCIES
The Company leases certain property and equipment under non-cancelable
operating leases that expire in various years through to 2002. The property
leases may be renewed upon expiry of the original term.
Future minimum payments under operating leases with initial or unexpired
terms of one year or more consisted of the following:
<TABLE>
<CAPTION>
1992 1993 1993
------- ------- -------
<S> <C> <C> <C>
1993.................................................... L 5,659 L -- $ --
1994.................................................... 5,376 6,695 4,156
1995.................................................... 4,940 5,681 3,526
1996.................................................... 4,229 4,388 2,724
1997.................................................... 3,193 3,891 2,415
1998.................................................... -- 954 592
Thereafter.............................................. 298 623 387
------- ------- -------
L23,695 L22,232 $13,800
======= ======= =======
</TABLE>
The total rental expense in respect of operating leases for the year ending
December 31, 1993 was Lire 7,300 ($4,513) (Lire 5,524 and Lire 4,224 for 1992
and 1991, respectively).
NOTE 19--GOING CONCERN
The Division has incurred substantial losses in recent years (1991: Lire
18,326, 1992: Lire 10,095, 1993: Lire 6,985 ($4,336)) and at March 31, 1994 had
a net asset deficiency of Lire 10,916 ($6,777), (March 1993: Lire 17,114).
The ability of the Division to operate as a going concern has been dependent
on the financial support of its parent company, Finmeccanica S.p.A.
Under the terms of the non-binding letter of intent, described in Note 17
above, Brown & Sharpe is to assume existing debt of the DEA Metrology
Activities of Finmeccanica up to the amount of $15 million. The ability of the
Division to operate as a going concern is dependent upon the continuing
financial support of its future owners and a return to profitable operations.
Management forecasts this will occur in the foreseeable future as a result of
the restructuring which has taken place and the completion of the contemplated
transaction with Brown & Sharpe, which will substantially reduce the Division's
borrowing needs.
NOTE 20--OTHER INCOME (EXPENSES)
The 1991 net other income of Lire 10,688 includes a gain of Lire 11,618 that
arose on the disposal of the factory premises at Moncalieri to an affiliated
company following the reorganization of the divisions
F-45
<PAGE>
DEA METROLOGY ACTIVITIES OF FINMECCANICA
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS)
operations in that year. No taxation was incurred on this transaction since the
gain was fully offset against trading losses incurred in that year.
NOTE 21--ACCUMULATED DEFICIT
The accumulated deficit at December 31, 1991 is stated net of the
recapitalization transactions made in order to comply with the minimum capital
requirements stipulated by Italian company law. Under these regulations, the
shareholders, in general meeting, elect to eliminate part of the accumulated
loss against issued share capital or additional capital injections.
F-46
<PAGE>
KURT SCHLOTTHAUER
DOCTEUR ES SCIENCES ECONOMIQUES
WIRTSCHAFTSPRUFER
EXPERT COMPTABLE DIPLOME
COMMISSAIRE AUX COMPTES INSCRIT
155, boulevard Haussmann
75008 PARIS
Tel. (1) 43.59.33.88
Telex 643 348 F
Telecopie (1) 45.63.93.59
To the General Meeting
ETABLISSEMENTS PIERRE ROCH
societe anonyme
Luneville--France
Paris, May 10th, 1994
Dears Misters,
In performing the duties entrusted to me by your General meeting of June 14th
1989, I hereby present my audit report concerning:
--the audited balance sheet of Roch S.A. as of December 31, 1991, 1992, and
1993, and the audited statements of income (loss) and of cash flows for
each of the three years ended December 31, 1991, 1992, and 1993.
--specific controls and information required by law, relative to the
accounting periods ended December 31, 1991, 1992, and 1993.
I. OPINION ON THE FINANCIAL STATEMENTS
In accordance with professional accounting and auditing standards, generally
accepted in the United States, I hereby certify that the financial statements
are accurate, honest and that they present a true and fair view of the results
of the Company's operations and of its financial situation at the end of these
accounting period, in conformity with U.S. generally accepted accounting
principles.
Auditor
Kurt Schlotthauer
F-47
<PAGE>
ROCH S.A.
BALANCE SHEET
AT DECEMBER 31, 1991; DECEMBER 31, 1992; DECEMBER 31, 1993; MARCH 31, 1993; AND
MARCH 31, 1994
(FRENCH FRANCS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS FOR THE QUARTERS
------------------------------------- ---------------------------
1991 1992 1993 1993 1993 1994 1994
-------- -------- -------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ FF 563 FF 129 FF 86 $ 15 FF 140 FF 171 $ 30
Accounts receivable, net
of allowance for
doubtful debts......... 17,010 19,048 11,804 2,032 16,373 13,834 2,382
Other receivables....... 1,390 6,335 1,217 210 4,804 2,497 430
Inventories............. 28,390 26,331 22,838 3,932 26,612 21,955 3,781
Other current assets.... -- -- -- -- -- -- --
-------- -------- -------- ------- -------- -------- -------
Total current assets.... 47,353 51,843 35,945 6,189 47,929 38,457 6,623
-------- -------- -------- ------- -------- -------- -------
Non-current assets:
Property, plant and
equipment, net of
accumulated
depreciation........... 6,037 4,793 5,574 959 4,931 4,064 700
Other assets and
deferred charges....... 1,217 861 1,522 261 1,538 1,736 299
-------- -------- -------- ------- -------- -------- -------
Total non-current
assets................. 7,254 5,654 7,096 1,222 6,469 5,800 999
-------- -------- -------- ------- -------- -------- -------
Total assets............ FF54,606 FF57,496 FF43,042 $ 7,409 FF54,398 FF44,258 $ 7,623
======== ======== ======== ======= ======== ======== =======
LIABILITIES AND
STOCKHOLDERS EQUITY
Current liabilities:
Borrowings and current
maturities of debt..... FF21,258 FF24,310 FF15,891 $ 2,736 FF19,988 FF19,060 $ 3,282
Accounts payable........ 5,082 5,076 4,242 730 4,935 3,814 657
Other payables.......... 2,747 2,123 1,785 307 4,307 3,814 656
Accrued expenses and
other liabilities...... 8,725 7,645 7,161 1,233 6,329 5,952 1,024
-------- -------- -------- ------- -------- -------- -------
Total current
liabilities............ 37,812 39,154 29,079 5,006 35,559 32,640 5,619
-------- -------- -------- ------- -------- -------- -------
Non-current liabilities:
Long term debt.......... 3,164 2,970 7,266 1,251 5,162 7,267 1,251
Retirement indemnities.. 3,000 3,000 3,000 516 3,000 3,000 516
-------- -------- -------- ------- -------- -------- -------
Total liabilities....... 43,976 45,125 39,345 6,772 43,722 42,907 7,386
-------- -------- -------- ------- -------- -------- -------
STOCKHOLDERS' EQUITY
Stock................... 11,750 11,750 11,750 2,023 11,750 11,750 2,023
Additional paid in
Capital
Earnings employed in the
business............... 941 (2,643) (1,013) (174) (927) (9,796) (1,686)
Current period earnings. (2,883) 1,716 (8,783) (1,512) (1,695) (2,347) (404)
Reserves................ 822 1,548 1,743 299 1,548 1,743 299
Currency translation.... -- -- -- -- -- -- --
-------- -------- -------- ------- -------- -------- -------
Total shareholders'
equity................. 10,630 12,371 3,697 636 10,676 1,350 232
-------- -------- -------- ------- -------- -------- -------
Total liabilities and
equity................. FF54,606 FF57,496 FF43,042 $ 7,409 FF54,398 FF44,258 $ 7,618
======== ======== ======== ======= ======== ======== =======
</TABLE>
The convenience translation into U.S. Dollars has been made using the exchange
rate of 5.81 French Francs to U.S. $1.
See notes to financial statements.
F-48
<PAGE>
ROCH S.A.
STATEMENT OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1991; DECEMBER 31, 1992; DECEMBER 31, 1993;
AND QUARTERS ENDED MARCH 31, 1993 AND MARCH 31, 1994
(FRENCH FRANCS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS FOR THE QUARTERS
------------------------------------- --------------------------
1991 1992 1993 1993 1993 1994 1994
-------- -------- -------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... FF97,771 FF79,072 FF57,311 $ 9,868 FF16,757 FF15,753 $2,713
OPERATING COSTS:
Cost of products sold... 55,245 42,683 32,752 5,639 8,873 8,481 1,461
Selling, general and
administration......... 42,215 36,135 30,394 5,233 8,296 8,196 1,411
Restructuring costs..... -- -- -- -- -- -- --
Depreciation and
amortization........... 1,106 504 203 34 320 840 145
-------- -------- -------- ------- -------- -------- ------
Total operating costs... 98,566 79,322 63,349 10,906 17,489 17,517 3,017
Operating (loss) income. (795) (250) (6,038) (1,038) (732) (1,764) (304)
Interest expense, net... (3,672) (3,139) (2,590) (447) (981) (632) (108)
Other (expenses) income,
net.................... 1,584 5,105 (155) (27) 17 49 9
-------- -------- -------- ------- -------- -------- ------
Net loss................ FF(2,883) FF1,716 FF(8,783) $(1,512) FF(1,695) FF(2,347) $ (403)
======== ======== ======== ======= ======== ======== ======
</TABLE>
The convenience translation into U.S. Dollars has been made using the exchange
rate of 5.81 French Francs to U.S. $1.
See notes to financial statements.
F-49
<PAGE>
ROCH S.A.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1991; DECEMBER 31, 1992; DECEMBER 31, 1993;
AND QUARTERS ENDED MARCH 31, 1993 AND MARCH 31, 1994
(FRENCH FRANCS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS FOR THE QUARTERS
------------------------------------- -------------------------
1991 1992 1993 1993 1993 1994 1994
-------- -------- -------- ------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Cash provided by (used
in) operations:
Net loss............... FF(2,883) FF 1,716 FF(8,783) $(1,512) FF(1,695) FF(2,347) $(404)
Adjustments to reconcile
net income to net cash
provided:
Depreciation and
amortization.......... 3,826 245 1,385 238 60 1,510 260
Other non-cash
expenses.............. (926) (4,014) (109) (19) -- -- --
Gain on sale of fixed
assets................ -- -- (82) (14) -- -- --
Changes in working
capital--
(Increase) decrease
in:
accounts receivable.. 551 (6,480) 7,355 1,266 4,206 (3,310) (570)
inventories.......... 1,095 2,597 2,090 360 (281) 883 152
other current assets. 357 (460) 612 105 -- -- --
accounts payable..... (4,759) (441) 3,109 535 728 394 68
-------- -------- -------- ------- -------- -------- -----
Net cash used in
operating activities... (2,739) (6,837) 5,577 959 3,018 (2,870) (494)
-------- -------- -------- ------- -------- -------- -----
Cash flows from
investing activities:
Fixed assets
additions............. (2,381) (1,019) (1,669) (287) (198) -- --
Proceeds from sale of
fixed assets.......... 1,036 4,428 162 28 -- -- --
Other investing
activities............ 138 137 10 2 (677) (214) (37)
-------- -------- -------- ------- -------- -------- -----
Net cash (used in)
investing activities... (1,207) 3,546 (1,497) (257) (875) (214) (37)
-------- -------- -------- ------- -------- -------- -----
Cash flows from
financing activities:
Borrowings and current
maturities of long
term debt............. 8,246 5,159 2,120 365 -- 3,169 545
Payment of long term
debt.................. (4,023) (2,301) (6,243) (1,075) (2,192) -- --
-------- -------- -------- ------- -------- -------- -----
Net cash provided from
financing activities... 4,223 2,858 (4,123) (710) (2,192) 3,169 545
-------- -------- -------- ------- -------- -------- -----
Effect of exchange rate
changes
Cash and cash
equivalents--
Net increase
(decrease) in:
cash and cash
equivalents......... 277 (433) (43) (7) 11 85 14
beginning of period.. 285 562 129 22 129 86 15
-------- -------- -------- ------- -------- -------- -----
end of period........ FF 562 FF 129 FF 86 $ 15 FF 140 FF 171 $ 29
-------- -------- -------- ------- -------- -------- -----
Supplementary cash flow
information:
Net interest paid....... FF 3,021 FF 2,791 FF 2,616 $ 450 FF -- FF -- $ --
======== ======== ======== ======= ======== ======== =====
Income taxes paid....... FF 1,440 FF 1,505 FF 1,033 $ 178 FF -- FF -- $ --
======== ======== ======== ======= ======== ======== =====
</TABLE>
The convenience translation into U.S. Dollars has been made using the exchange
rate of 5.81 French Francs to U.S. $1.
See notes to financial statements.
F-50
<PAGE>
ROCH S.A.
NOTES TO FINANCIAL STATEMENTS
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS)
The main difference between French and U.S. results in 1991 consists in the
booking of a retirement provision of FF 3,000. This provision is only a
commitment in France. So, the French result in 1991 amounts to FF 117; the U.S.
one to FF (2,993). The financial statements for the quarters ended March 1993
and March 1994 are unaudited and do not form part of the opinion expressed by
the auditors; it is management opinion that they include all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of the results of these periods.
I. BALANCE SHEET
ASSETS
1. FIXED ASSETS
See Note No. 1
Depreciation is recorded by the straight-line and the accelerated methods.
The depreciation terms are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings.............................................................. 20-10
Machinery and equipment................................................ 5-8
Cars and trucks (straight-line only)................................... 2-3
Office and EDP equipment (straight-line only).......................... 5-10
</TABLE>
2. CURRENT ASSETS
INVENTORIES DECEMBER 31, 1991
<TABLE>
<CAPTION>
GROSS VALUE DEPRECIATION NET VALUE NET VALUE
----------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Raw materials and consumables...... FF 8,626 FF1,772 FF 6,854 $1,180
Work in progress................... 4,315 -- 4,315 743
Finished goods..................... 13,702 1,487 12,215 2,102
Goods for sale..................... 5,245 905 4,340 747
Payments on account................ 666 -- 666 115
-------- ------- -------- ------
FF32,554 FF4,164 FF28,390 $4,886
======== ======= ======== ======
INVENTORIES DECEMBER 31, 1992
<CAPTION>
GROSS VALUE DEPRECIATION NET VALUE NET VALUE
----------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Raw materials and consumables...... FF 7,166 FF1,767 FF 5,399 $ 929
Work in progress................... 4,769 -- 4,769 821
Finished goods..................... 13,818 1,467 12,351 2,126
Goods for sale..................... 3,537 852 2,685 462
Payments on account................ 1,127 -- 1,127 194
-------- ------- -------- ------
FF30,417 FF4,086 FF26,331 $4,532
======== ======= ======== ======
INVENTORIES DECEMBER 31, 1993
<CAPTION>
GROSS VALUE DEPRECIATION NET VALUE NET VALUE
----------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Raw materials and consumables...... FF 7,600 FF2,141 FF 5,459 $ 940
Work in progress................... 2,667 99 2,568 442
Finished goods..................... 14,394 1,732 12,662 2,179
Goods for sale..................... 2,540 664 1,876 323
Advance payments to suppliers...... 274 -- 274 47
-------- ------- -------- ------
FF27,475 FF4,636 FF22,839 $3,931
======== ======= ======== ======
</TABLE>
F-51
<PAGE>
ROCH S.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS)
Physical inventory count
A physical inventory count took place on December 31st 1993, 1992, and 1991.
Valuation principles
Raw materials and consumables and goods for sale are valued at purchasing
cost. Purchasing cost is determined on a "weighted average cost" basis.
Indirect purchasing costs amounting to 5 or 3% are also included, according to
the geographic origin of the goods concerned.
Work in progress and finished goods are valued at manufacturing cost, which
includes:
. Cost of raw materials and consumables consumed
. Individual and global costs based on an hourly rate applied to the
average production time.
Depreciation of inventories December 31, 1991 and 1992
<TABLE>
<CAPTION>
DEPRECIATION DEPRECIATION DEPRECIATION DEPRECIATION
1991 EXPENSES RECOVERIES 1992
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Raw materials and
consumables............... FF1,772 FF1,767 FF1,772 FF1,767
Finished goods............. 1,487 1,467 1,487 1,467
Goods for sale............. 905 852 905 852
------- ------- ------- -------
FF4,164 FF4,086 FF4,164 FF4,086
======= ======= ======= =======
</TABLE>
Depreciation of inventories December 31, 1992 and 1993
<TABLE>
<CAPTION>
DEPRECIATION DEPRECIATION DEPRECIATION DEPRECIATION DEPRECIATION
1992 ALLOWANCE RECOVERIES 1993 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Raw materials and
consumables............ FF1,767 FF2,141 FF1,767 FF2,141 $369
Work in progress........ -- 99 -- 99 17
Finished goods.......... 1,467 1,732 1,467 1,732 298
Goods for sale.......... 852 664 852 664 114
------- ------- ------- ------- ----
FF4,086 FF4,636 FF4,086 FF4,636 $798
======= ======= ======= ======= ====
</TABLE>
DEPRECIATION PRINCIPLES
The following method is applied to determine the amount of the depreciation
of inventories:
<TABLE>
<CAPTION>
RATE OF
DEPRECIATION
------------
<S> <C>
Inventories without movements within a year.................... 100%
Inventories covering 60 months or more of average consumption.. 90%
Inventories covering between 36 and 60 months of average
consumption................................................... 75%
Inventories covering between 24 and 36 months of average
consumption................................................... 50%
Inventories covering between 12 and 24 months of average
consumption................................................... 25%
</TABLE>
F-52
<PAGE>
ROCH S.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS)
ACCOUNTS RECEIVABLES
Trade debtors
<TABLE>
<CAPTION>
1991 1992 1993 1993
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Trade receivables............................ FF13,547 FF13,979 FF10,988 $1,891
Short terms notes receivable................. 3,184 4,808 485 83
Doubtful accounts............................ 2,051 1,904 1,864 321
-------- -------- -------- ------
Gross value.................................. 18,782 20,692 13,337 2,296
Allowance for doubtful accounts.............. 1,771 1,644 1,533 264
-------- -------- -------- ------
Net value.................................... FF17,010 FF19,048 FF11,804 $2,032
======== ======== ======== ======
The depreciation of doubtful accounts is recorded without V.A.T., on a net
basis.
Other debtors
<CAPTION>
1991 1992 1993 1993
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Advances to employees........................ FF 35 FF 35 FF 164 $ 28
Prepaid V.A.T................................ -- 694 355 61
Taxes........................................ 1,128 474 362 62
Other accounts receivable.................... 177 254 299 51
Group companies.............................. 49 4,877 37 6
-------- -------- -------- ------
FF 1,389 FF 6,334 FF 1,217 $ 208
======== ======== ======== ======
Taxes mainly consist of V.A.T. and state compensation for part time
unemployment.
CASH
<CAPTION>
1991 1992 1993 1993
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Bank accounts................................ FF 511 FF 89 FF 47 $ 8
Petty cash................................... 52 40 39 7
-------- -------- -------- ------
FF 563 FF 129 FF 86 $ 15
======== ======== ======== ======
PREPAID EXPENSES
They consist of:
<CAPTION>
1991 1992 1993 1993
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Consumables.................................. FF 140 FF 123 FF 115 $ 20
Advertising equipment........................ 562 314 506 87
Price lists.................................. 103 -- -- --
Prepaid lease................................ 43 91 116 20
Other expenses............................... 78 82 57 10
-------- -------- -------- ------
FF 926 FF 610 FF 794 $ 137
======== ======== ======== ======
</TABLE>
F-53
<PAGE>
ROCH S.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS)
STOCKHOLDERS' EQUITY
Net income appropriation December 31, 1991:
<TABLE>
<CAPTION>
1990 PLUS MINUS 1991
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Capital stock............................. FF11,750 FF -- FF -- FF11,750
Revaluation reserve....................... 519 -- -- 519
Statutory or contractural reserves........ -- 50 -- 50
Long term capital gains reserves.......... 79 -- -- 79
Retained earnings......................... (4,033) 4,974 -- 941
Profit and loss account................... 5,023 (2,883) 5,023 (2,883)
Investment subsidies...................... 36 235 97 174
-------- -------- ------- --------
FF13,374 FF 2,376 FF5,120 FF10,630
======== ======== ======= ========
</TABLE>
Capital stock consists of 235,000 ordinary shares of F 50 each. The
shareholders' list is analysed below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
---------
<S> <C>
Diehl GmbH & Co................................................. 234,250
Plachez......................................................... 180
Marchal......................................................... 61
Heckel.......................................................... 50
Hederer......................................................... 50
Hobrecker....................................................... 50
Niethammer...................................................... 50
Around 26 people who own less than 50 shares each............... 309
-------
235,000
=======
</TABLE>
Net income appropriation December 31, 1992:
<TABLE>
<CAPTION>
1991 PLUS MINUS 1992
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Capital stock........................... FF11,750 FF -- FF -- FF11,750
Revaluation reserve..................... 519 -- -- 519
Statutory or contractural reserves...... 50 5 -- 55
Long term capital gains reserves........ 79 695 -- 774
Retained earnings....................... 941 (2,643) 941 (2,643)
Profit and loss account................. (2,883) 1,716 (2,883) 1,716
Investment subsidies.................... 174 138 112 200
-------- -------- -------- --------
FF10,630 FF (89) FF(1,830) FF12,371
======== ======== ======== ========
</TABLE>
F-54
<PAGE>
ROCH S.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS)
Capital stock consists of 235,000 ordinary shares of F 50 each. The
shareholders' list is analysed below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
---------
<S> <C>
Diehl GmbH & Co. ................................................. 234,313
Plachez........................................................... 180
Marchal........................................................... 61
Heckel............................................................ 50
Hederer........................................................... 50
Hobrecker......................................................... 50
Niethammer........................................................ 50
Around 26 people who own less than 50 shares each................. 246
-------
235,000
=======
</TABLE>
Net income appropriation December 31, 1993:
<TABLE>
<CAPTION>
1992 PLUS MINUS 1993 1993
-------- -------- ------- -------- ------
<S> <C> <C> <C> <C> <C>
Capital stock.................... FF11,750 FF -- FF -- FF11,750 $2,022
Revaluation reserve.............. 519 -- -- 519 89
Statutory or contractural re-
serves.......................... 55 86 -- 141 24
Long term capital gains reserves. 774 -- -- 774 133
Retained earnings................ (2,643) 1,630 -- (1,013) (174)
Profit and loss account.......... 1,716 (8,783) 1,716 (8,783) (1,512)
Investment subsidies............. 200 170 61 309 53
-------- -------- ------- -------- ------
FF12,371 FF(6,897) FF1,777 FF 3,697 $ 635
======== ======== ======= ======== ======
</TABLE>
Capital stock consists of 235,000 ordinary shares of F 50 each. The
shareholders' list is analysed below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
---------
<S> <C>
Diehl GmbH & Co. ................................................. 234,313
Plachez........................................................... 180
Marchal........................................................... 61
Heckel............................................................ 50
Hederer........................................................... 50
Hobrecker......................................................... 50
Niethammer........................................................ 50
Around 26 people who own less than 50 shares each................. 246
-------
235,000
=======
</TABLE>
F-55
<PAGE>
ROCH S.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS)
CONTINGENCY AND LOSS PROVISIONS
<TABLE>
<CAPTION>
CONTINGENCY PROVISIONS 1991 1992 1993 1993
- ---------------------- -------- -------- -------- ------
<S> <C> <C> <C> <C>
Litigation with staff members................. FF 287 FF 135 FF 422 $ 73
Dissolution costs of an American subsidiary... 50 50 50 9
Unrealized foreign exchange loss.............. 67 8 63 11
-------- -------- -------- ------
FF 404 FF 193 FF 535 $ 93
======== ======== ======== ======
<CAPTION>
LOSS PROVISIONS 1991 1992 1993 1993
- --------------- -------- -------- -------- ------
<S> <C> <C> <C> <C>
Lay-off compensation.......................... FF 315 FF 124 FF 124 $ 21
Product warranty.............................. 580 580 530 91
Major repairs................................. 700 -- -- --
F.N.E. (tax on elderly people lay-off)........ 167 -- -- --
-------- -------- -------- ------
FF 1,762 FF 704 FF 654 $ 112
======== ======== ======== ======
BANK LOANS AND OVERDRAFT
At December 31, 1991, 1992, and 1993, the Company's long term borrowings
consisted of the following:
<CAPTION>
1991 1992 1993 1993
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Lordex 1...................................... FF 345 FF 230 FF 115 $ 20
Lordex 2...................................... 358 187 -- --
Banque Nationale de Paris 1................... 600 469 326 56
Banque Nationale de Paris 2................... 900 756 598 103
SNVB.......................................... 125 -- 422 73
Banque du Credit Mutuel....................... 1,363 1,069 746 128
Accrued interest payable...................... 46 38 16 3
-------- -------- -------- ------
FF 3,737 FF 2,749 FF 2,223 $ 383
======== ======== ======== ======
The installments of long term borrowings is described in the note No. 2.
At December 31, 1991, 1992, and 1993, the Company's short term borrowings
consisted of the following:
<CAPTION>
1991 1992 1993 1993
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Bank Accounts:
Banque Nationale de Paris..................... FF 3,037 FF 1,656 FF 452 $ 78
Foreign receivables........................... 2,122 2,082 2,216 381
Societe Nanceienne Varin Bernier.............. 20 306 1 --
Societe Nanceienne Varin Bernier.............. -- -- 102 18
Foreign currency account...................... 813 569 327 56
Commerzbank, Paris (DM)....................... 131 -- -- --
Commerzbank, Paris............................ 7,266 15,055 9,659 1,662
Credit du Nord foreign receivables............ 985 -- -- --
Credit du Nord, Paris......................... 2,312 648 -- --
Banque du Credit Mutuel....................... 629 554 525 90
Bayerische Vereinsbank........................ 208 -- --
Accrued interest payable...................... 206 483 387 67
-------- -------- -------- ------
FF17,521 FF21,561 FF13,669 $2,352
======== ======== ======== ======
</TABLE>
F-56
<PAGE>
ROCH S.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS)
MISCELLANEOUS DEBTS
<TABLE>
<CAPTION>
1991 1992 1993 1993
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Diehl GmbH & Co. (current account)........ FF1,468 FF2,595 FF -- $ --
Diehl GmbH & Co. (loan)................... -- -- 1,670 287
Bayerische Vereinsbank.................... 1,196 -- 5,113 880
Aprodi.................................... 500 375 375 65
Accrued interest payable.................. -- -- 108 19
-------- -------- -------- ------
FF3,164 FF2,970 FF7,266 $1,251
======== ======== ======== ======
OTHER CREDITORS
<CAPTION>
1991 1992 1993 1993
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Credit notes.............................. FF 823 FF 725 FF 405 $ 70
Unbilled credit notes..................... 166 172 311 54
Fees...................................... 467 427 419 72
Mauser Werke GmbH......................... -- 69 57 10
Kiehl GmbH & Co. KG....................... 145 87 27 5
Research.................................. 390 205 -- --
Other..................................... 478 285 374 64
-------- -------- -------- ------
FF 2,469 FF 1,970 FF 1,593 $ 275
======== ======== ======== ======
II. PROFIT AND LOSS ACCOUNT
A. OPERATING INCOME
1. TURNOVER
<CAPTION>
1991 1992 1993 1993
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Sales of goods............................ FF29,099 FF22,894 FF16,686 $2,872
Sales of manufactured goods............... 68,672 56,178 40,625 6,992
-------- -------- -------- ------
FF97,771 FF79,072 FF57,311 $9,864
======== ======== ======== ======
2. CHANGE IN FINISHED GOODS
<CAPTION>
1991 1992 1993 1993
-------- -------- -------- ------
<S> <C> <C> <C> <C>
FF(1,723) FF 571 FF(1,527) $ (263)
======== ======== ======== ======
3. OWN WORK CAPITALIZED
<CAPTION>
1991 1992 1993 1993
-------- -------- -------- ------
<S> <C> <C> <C> <C>
FF 22 FF 10 FF -- $ --
======== ======== ======== ======
4. SUBSIDIES
<CAPTION>
1991 1992 1993 1993
-------- -------- -------- ------
<S> <C> <C> <C> <C>
FF 353 FF -- FF -- $ --
======== ======== ======== ======
</TABLE>
F-57
<PAGE>
ROCH S.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS)
5. EXCESS DEPRECIATION AND EXPENSE TRANSFER
<TABLE>
<CAPTION>
1991 1992 1993 1993
-------- -------- ------- ------
<S> <C> <C> <C> <C>
Depreciation recovery....................... FF 67 FF FF1,040 $ 179
Recovery on doubtful debts provision........ 391 1,268 762 131
Decrease in product warranty................ 680 580 580 100
Decrease in lay-off compensation............ -- 293 -- --
Recovery on inventory losses provision...... -- 77 -- --
Other....................................... 295 137 91 16
-------- -------- ------- ------
FF 1,433 FF 2,355 FF2,473 $ 426
======== ======== ======= ======
6. OTHER OPERATING INCOME
<CAPTION>
1991 1992 1993 1993
-------- -------- ------- ------
<S> <C> <C> <C> <C>
FF1,160 FF 786 FF 853 $ 147
======== ======== ======= ======
This income represents the invoicing of freight, supplies, and rents.
B. OPERATING EXPENSES
1. COST OF PURCHASED MERCHANDISE
<CAPTION>
1991 1992 1993 1993
-------- -------- ------- ------
<S> <C> <C> <C> <C>
FF18,273 FF12,338 FF9,376 $1,614
======== ======== ======= ======
The merchandises consist in manufactured goods bought in foreign countries.
2. CHANGE IN GOODS INVENTORY
<CAPTION>
1991 1992 1993 1993
-------- -------- ------- ------
<S> <C> <C> <C> <C>
FF (364) FF 1,708 FF 997 $ 172
======== ======== ======= ======
3. COST OF RAW MATERIALS, CONSUMABLES, AND SUPPLIES
<CAPTION>
1991 1992 1993 1993
-------- -------- ------- ------
<S> <C> <C> <C> <C>
FF13,925 FF 9,912 FF7,273 $1,252
======== ======== ======= ======
4. CHANGE IN RAW MATERIALS INVENTORY AND OTHER SUPPLIES EXPENSES
<CAPTION>
1991 1992 1993 1993
-------- -------- ------- ------
<S> <C> <C> <C> <C>
FF (265) FF 1,459 FF (434) $ (75)
======== ======== ======= ======
</TABLE>
F-58
<PAGE>
ROCH S.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS)
5. OTHER PURCHASES AND EXTERNAL CHARGES
<TABLE>
<CAPTION>
1991 1992 1993 1993
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Energy expenses............................. FF 1,239 FF 1,090 FF 959 $ 165
Supplies and minor equipment................ 1,308 817 740 127
Packaging................................... 302 302 239 41
Office supplies............................. 320 295 196 34
Cost of purchased service................... 4,782 2,955 3,997 688
Maintenance and repairs..................... 775 550 516 89
Leasing..................................... 1,861 1,499 1,275 219
Insurance premium........................... 488 469 321 55
Research studies............................ 1,079 1,095 306 53
Outside and temporary employees............. 203 286 45 8
Sundry expenses............................. 1,467 896 493 85
Fees........................................ 724 780 509 88
Advertising expenses........................ 2,140 1,484 788 136
Purchases freight costs..................... 549 454 289 50
Sales freight costs......................... 1,847 1,696 1,372 236
Travelling expenses......................... 983 804 508 87
Telephone expenses.......................... 907 922 566 97
Dues........................................ 259 124 48 8
Bank fees................................... 151 157 144 25
Other....................................... 208 125 99 17
Company's fees.............................. 764 -- -- --
-------- -------- -------- ------
FF22,356 FF16,800 FF13,410 $2,308
======== ======== ======== ======
6. TAXES AND SIMILAR EXPENSES
<CAPTION>
1991 1992 1993 1993
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Employment tax in France to enhance
continuing education....................... FF 558 FF 315 FF 314 $ 54
Social construction tax..................... -- -- 12 2
Employment tax in France for training....... 39 39 36 6
Tax on corporate cars....................... 81 -- 954 164
Business use tax............................ 1,359 1,430 80 14
Real estate tax............................. 81 75 -- --
Tax stamps.................................. 6 1 -- --
Local construction tax...................... (137) 8 89 15
ORGANIC (Social security compensating tax).. 94 77 59 10
Sundry taxes................................ 30 152 27 5
-------- -------- -------- ------
FF 2,111 FF 2,097 FF 1,571 $ 270
======== ======== ======== ======
</TABLE>
F-59
<PAGE>
ROCH S.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS)
7. WAGES AND SALARIES
<TABLE>
<CAPTION>
1991 1992 1993 1993
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Gross wages................................... FF 8,237 FF 7,678 FF 6,258 $1,077
Vacation expenses for workers................. 1,372 1,202 1,019 175
Wages premium and bonus for workers........... 1,770 1,861 1,755 302
Compensation.................................. 10,059 9,019 8,550 1,472
Independant salesmen provisions............... 2,132 1,810 924 159
Vacation expenses for employees............... 855 723 496 85
Wages premium and bonus for employees......... 1,315 1,372 1,123 193
Lay-off compensation.......................... 1,115 638 204 35
Other expenses................................ 131 58 79 14
Independant salesmen provisions............... 48 -- -- --
-------- -------- -------- ------
FF27,034 FF24,361 FF20,408 $3,512
======== ======== ======== ======
8. SOCIAL SECURITY AND PENSION EXPENSES
<CAPTION>
1991 1992 1993 1993
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Social Security charges in France............. FF 9,283 FF 8,985 FF 8,110 $1,396
Social Security charges in Oberndorf.......... 413 360 -- --
Personnel committee fees...................... 313 272 250 43
Medical labor charges......................... 60 58 57 10
-------- -------- -------- ------
FF10,069 FF 9,675 FF 8,417 $1,449
======== ======== ======== ======
9. FIXED ASSETS DEPRECIATION ALLOWANCE
<CAPTION>
1991 1992 1993 1993
-------- -------- -------- ------
<S> <C> <C> <C> <C>
FF 2,240 FF 1,718 FF 1,425 $ 245
======== ======== ======== ======
10. DEPRECIATION ON CURRENT ASSETS EXPENSES
<CAPTION>
1991 1992 1993 1993
-------- -------- -------- ------
<S> <C> <C> <C> <C>
FF 300 FF 1,142 FF 1,251 $ 215
======== ======== ======== ======
At December 31, 1993, the depreciation on current assets consisted of the
following:
<CAPTION>
1993 1993
-------- ------
<S> <C> <C>
Doubtful accounts............................. FF 651 $ 112
Depreciation of inventories................... 550 95
Depreciation of other debtors................. 50 9
-------- ------
FF 1,251 $ 216
======== ======
11. DEPRECIATION ON CONTINGENCY AND LOSS PROVISIONS
<CAPTION>
1991 1992 1993 1993
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Product warranty.............................. FF 580 FF 580 FF 530 $ 91
Lay-off compensation.......................... -- -- 212 36
-------- -------- -------- ------
FF 580 FF 580 FF 742 $ 127
======== ======== ======== ======
</TABLE>
F-60
<PAGE>
ROCH S.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS)
12. OTHER OPERATING EXPENSES
<TABLE>
<CAPTION>
1991 1992 1993 1993
------- ------- ------- ----
<S> <C> <C> <C> <C>
Loss on doubtful debts............................. FF 278 FF1,029 FF457 $ 79
Retirement Indemnities............................. 3,000 -- -- --
Directors' fees.................................... 34 33 35 6
License fees....................................... 33 33 112 19
Other expenses..................................... 222 158 110 19
------- ------- ------- ----
FF3,567 FF1,253 FF714 $123
======= ======= ======= ====
C. INTEREST, DIVIDENDS, AND OTHER FINANCIAL INCOME
1. INTEREST AND OTHER INCOME
<CAPTION>
1991 1992 1993 1993
------- ------- ------- ----
<S> <C> <C> <C> <C>
FF198 FF209 FF175 $ 30
======= ======= ======= ====
2. EXCESS PROVISIONS CHARGED
<CAPTION>
1991 1992 1993 1993
------- ------- ------- ----
<S> <C> <C> <C> <C>
FF159 FF67 FF8 $1
======= ======= ======= ====
This line item recorded the recovery on unrealized foreign currency losses
booked in 1991, 1992, and 1993.
3. FOREIGN EXCHANGE GAINS
<CAPTION>
1991 1992 1993 1993
------- ------- ------- ----
<S> <C> <C> <C> <C>
FF137 FF69 FF119 $20
======= ======= ======= ====
This line item recorded the foreign currency gains realized during 1991,
1992, and 1993.
D. INTEREST AND OTHER FINANCIAL CHARGES
1. FINANCIAL PROVISIONS
<CAPTION>
1991 1992 1993 1993
------- ------- ------- ----
<S> <C> <C> <C> <C>
FF67 FF8 FF63 $11
======= ======= ======= ====
This line item recorded the provision on foreign currency losses at December
1991, 1992, and 1993.
2. INTEREST AND OTHER FINANCIAL CHARGES
<CAPTION>
1991 1992 1993 1993
------- ------- ------- ----
<S> <C> <C> <C> <C>
Bank interest paid................................. FF2,517 FF2,442 FF2,377 $409
Discounting of notes............................... 919 537 154 27
Interest paid on loans............................. 504 350 239 41
Sundry expenses.................................... 4 2 5 1
------- ------- ------- ----
FF3,944 FF3,331 FF2,775 $478
======= ======= ======= ====
</TABLE>
F-61
<PAGE>
ROCH S.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS)
3. FOREIGN EXCHANGE LOSSES
1991 1992 1993 1993
------- ------- ----- ----
FF 289 FF 145 FF 53 $ 9
======= ======= ===== ===
This line item recorded the foreign currency losses realized during 1991,
1992, and 1993.
E. EXTRAORDINARY INCOME
1. EXTRAORDINARY GAINS IN OPERATIONS
1991 1992 1993 1993
------- ------- ----- ----
FF 113 FF 11 FF 1 $--
======= ======= ===== ===
2. PROCEEDS OF ASSETS SOLD AND OTHER CAPITAL GAINS
1991 1992 1993 1993
------- ------- ----- ----
Effect of exchange rate changes on the financial
statements of Oberndorf............................ FF 91 FF -- FF -- $--
Portion of capital subsidies reported as income..... 6 112 61 10
Proceeds from sales of assets....................... 1,036 356 39 7
Income from the sale of the permanent
establishment in Oberndorf......................... -- 4,007 -- --
------- ------- ----- ---
FF1,132 FF4,475 FF100 $17
======= ======= ===== ===
3. EXCESS PROVISIONS CHARGED AND EXPENSE TRANSFERS
1991 1992
------- -------
FF1,561 FF 926
======= =======
F. EXTRAORDINARY EXPENSES
1. EXTRAORDINARY LOSSES IN OPERATIONS
1991 1992 1993 1993
------- ------- ----- ----
FF 353 FF 3 FF 3 $ 1
======= ======= ===== ===
2. BOOK VALUE OF ASSETS SOLD AND OTHER CAPITAL LOSSES
1991 1992 1993 1993
------- ------- ----- ----
FF 81 FF 294 FF178 $31
======= ======= ===== ===
3. EXTRAORDINARY DEPRECIATION AND REGULATED PROVISIONS
1991 1992 1993 1993
------- ------- ----- ----
Lay-off compensation................................ FF 606 FF 10 FF 75 $13
======= ======= ===== ===
F-62
<PAGE>
ROCH S.A.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS)
III. COMMITMENTS
1. OPERATING LEASE
See the note 3.
2. DISCOUNTED NOTES NOT YET MATURED
<TABLE>
<CAPTION>
1991 1992 1993 1993
------- ----- ------- ----
<S> <C> <C> <C> <C>
These notes amounted to............................. FF3,173 FF444 FF4,011 $690
======= ===== ======= ====
</TABLE>
F-63
<PAGE>
ROCH S.A.
LONG TERM DEBTS SCHEDULE
(FRENCH FRANCS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TERM INTEREST LONG TERM DEBTS' EVOLUTION INSTALLMENT
----------------- ------------- ---------------------------------- ---------------------
2-
LENDER FROM TO AMOUNT RATE 12/31/91 INCREASE REFUND 12/31/92 (1 YR. 5 YRS. )5 YRS.
------ -------- -------- ------- ----- -------- -------- ------- -------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lordex 1................ 11/01/80 11/15/94 FF1,150 9.50% FF 345 FF-- FF 115 FF 230
Lordex 2................ 01/01/86 07/01/93 1,100 9.75% 358 -- 170 188
Banque Nationale de
Paris 1................ 01/01/91 12/31/95 600 8.75% 600 -- 131 469
Banque Nationale de
Paris 2................ 900 Pibor+ 900 -- 144 756
0.60%
Credit Mutuel Lorraine.. 07/05/91 12/05/95 750 8.75% 681 -- 149 532
Credit Mutuel Lorraine.. 07/06/91 12/06/95 750 10.25% 682 -- 145 537
APRODI.................. 1,500 8,75% 125 -- 125 --
SNUB.................... 500 500 -- 125 375
Interest................ 46 -- 8 38
------- ----- ------- -------
FF4,237 FF-- FF1,113 FF3,125
======= ===== ======= =======
</TABLE>
F-64
<PAGE>
ROCH S.A.
LONG TERM DEBTS SCHEDULE
(FRENCH FRANCS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TERM INTEREST LONG TERM DEBTS' EVOLUTION INSTALLMENT
----------------- ------------- --------------------------------- -----------------------
2-
LENDER FROM TO AMOUNT RATE 12/31/92 INCREASE REFUND 12/31/93 ( 1 YR. 5 YRS. )5 YRS.
------ -------- -------- ------- ----- -------- -------- ------ -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lordex 1................ 11/01/80 11/15/94 FF1,150 9.50% FF 230 FF-- FF115 FF 115 FF 115 FF --
Lordex 2................ 01/01/86 07/01/93 1,100 9.75% 187 -- 187 -- -- --
Banque Nationale de
Paris 1................ 01/01/91 12/31/95 600 8.75% 469 -- 143 326 156 170
Banque Nationale de
Paris 2................ 900 Pibor+ 756 -- 158 598 184 413
0.60%
Credit Mutuel Lorraine.. 07/05/91 12/05/95 750 8.75% 532 -- 162 370 177 193
Credit Mutuel Lorraine.. 07/06/91 12/06/95 750 10.25% 537 -- 161 376 163 213
APRODI.................. 500 375 -- -- 375 125 250
SNUB.................... 450 -- 450 28 422 84 338
Interest................ 38 16 38 16 -- --
------- ----- ----- ------- ------- -------
FF3,124 FF466 FF993 FF2,598 FF1,004 FF1,577
======= ===== ===== ======= ======= =======
<CAPTION>
TERM INTEREST LONG TERM DEBTS' EVOLUTION INSTALLMENT
----------------- ------------- --------------------------------- -----------------------
2-
LENDER FROM TO AMOUNT RATE 12/31/92 INCREASE REFUND 12/31/93 ( 1 YR. 5 YRS. )5 YRS.
------ -------- -------- ------- ----- -------- -------- ------ -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lordex 1................ 11/01/80 11/15/94 $ 198 9.50% $ 40 $ -- $ 20 $ 20 $ 20 $ --
Lordex 2................ 01/01/86 07/01/93 189 9.75% 32 -- 32 -- -- --
Banque Nationale de
Paris 1................ 01/01/91 12/31/95 103 8.75% 81 -- 25 56 27 29
Banque Nationale de
Paris 2................ 155 Pibor+ 130 -- 27 103 32 71
0.60%
Credit Mutuel Lorraine.. 07/05/91 12/05/95 129 8.75% 92 -- 28 64 30 33
Credit Mutuel Lorraine.. 07/06/91 12/06/95 129 10.25% 92 -- 28 65 28 37
APRODI.................. 86 65 -- -- 65 22 43
SNUB.................... 77 -- 77 5 73 14 58
Interest................ 7 3 7 3 -- --
------- ----- ----- ------- ------- -------
$ 539 $ 80 $ 172 $ 449 $ 173 $ 271
======= ===== ===== ======= ======= =======
</TABLE>
F-65
<PAGE>
ROCH S.A.
ASSETS SCHEDULE
(FRENCH FRANCS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITION COSTS AMORTIZATION
-------------------------------------- ------------------------------------ BOOK VALUE
12/31/91 ACQUISITIONS SALES 12/31/92 12/31/91 ALLOWANCE RECOVERY 12/31/92 12/31/92
-------- ------------ ------- -------- -------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Concessions, patents,
similar rights......... FF 349 FF 31 FF -- FF 380 FF 317 FF 44 FF -- FF 361 FF 19
Payments on account..... -- -- -- -- -- -- -- -- --
-------- ----- ------- -------- -------- ------- ----- -------- -------
TANGIBLE ASSETS......... 349 31 -- 380 317 44 -- 361 19
-------- ----- ------- -------- -------- ------- ----- -------- -------
Lands................... 656 -- -- 656 103 -- -- 103 554
Buildings............... 1,450 -- -- 1,450 1,408 21 -- 1,429 20
Plant & machinery....... 16,505 345 66 16,784 13,098 1,135 52 14,181 2,603
Other assets............ 3,624 109 -- 3,733 2,500 211 -- 2,711 1,022
Cars & trucks........... 318 154 314 158 187 83 190 80 77
Computer & office
equipment.............. 2,333 137 539 1,931 1,612 223 421 1,414 516
Payment on account...... 59 34 93 -- -- -- -- -- --
-------- ----- ------- -------- -------- ------- ----- -------- -------
INTANGIBLE ASSETS....... 24,946 779 1,011 24,713 18,909 1,674 663 19,918 4,793
-------- ----- ------- -------- -------- ------- ----- -------- -------
Other fixed securities.. 9 -- -- 9 9 -- -- 9 1
Other loans............. 116 95 -- 211 -- -- -- -- 211
Other investments....... 76 2 65 13 -- -- -- -- 13
-------- ----- ------- -------- -------- ------- ----- -------- -------
INVESTMENTS............. 201 97 65 233 9 -- -- 9 224
-------- ----- ------- -------- -------- ------- ----- -------- -------
FIXED ASSETS............ FF25,495 FF907 FF1,077 FF25,325 FF19,234 FF1,718 FF663 FF20,288 FF5,036
======== ===== ======= ======== ======== ======= ===== ======== =======
</TABLE>
F-66
<PAGE>
ROCH S.A.
ASSETS SCHEDULE
(FRENCH FRANCS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACQUISITION COSTS AMORTIZATION
------------------------------------ ------------------------------------ BOOK VALUE
12/31/91 ACQUISITIONS SALES 12/31/92 12/31/91 ALLOWANCE RECOVERY 12/31/92 12/31/92
-------- ------------ ----- -------- -------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Concessions, patents,
similar rights......... FF 380 FF 8 FF-- FF 388 FF 361 FF 16 FF -- FF 377 FF 11
Payments on account..... -- 342 -- 342 -- -- -- -- 342
-------- ------- ----- -------- -------- ------- ------- -------- -------
TANGIBLE ASSETS......... 380 350 -- 730 361 16 -- 377 353
-------- ------- ----- -------- -------- ------- ------- -------- -------
Lands................... 656 -- -- 656 103 -- -- 103 554
Buildings............... 5,183 -- -- 5,183 4,141 215 -- 4,356 827
Plant & machinery....... 16,784 1,138 102 17,820 14,181 967 1,142 14,006 3,814
Cars & trucks........... 158 78 126 110 81 75 46 110 --
Computer & office
equipment.............. 1,931 15 -- 1,946 1,415 151 -- 1,566 380
-------- ------- ----- -------- -------- ------- ------- -------- -------
INTANGIBLE ASSETS....... 24,713 1,231 228 25,715 19,921 1,408 1,188 20,141 5,575
-------- ------- ----- -------- -------- ------- ------- -------- -------
Other fixed securities.. 9 -- -- 9 9 -- -- 9 1
Other loans............. 211 90 -- 301 -- -- -- -- 301
Other investments....... 13 -- 2 11 -- -- -- -- 11
-------- ------- ----- -------- -------- ------- ------- -------- -------
INVESTMENTS............. 233 90 2 321 9 -- -- 9 313
-------- ------- ----- -------- -------- ------- ------- -------- -------
FIXED ASSETS............ FF25,325 FF1,671 FF230 FF26,766 FF20,291 FF1,424 FF1,188 FF20,527 FF6,241
======== ======= ===== ======== ======== ======= ======= ======== =======
<CAPTION>
ACQUISITION COSTS AMORTIZATION
------------------------------------ ------------------------------------ BOOK VALUE
12/31/91 ACQUISITIONS SALES 12/31/92 12/31/91 ALLOWANCE RECOVERY 12/31/92 12/31/92
-------- ------------ ----- -------- -------- --------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Concessions, patents,
similar rights......... $ 65 $ 1 $ -- $ 67 $ 62 $ 3 $ -- $ 65 $ 2
Payments on account..... -- 59 -- 59 -- -- -- -- 59
-------- ------- ----- -------- -------- ------- ------- -------- -------
TANGIBLE ASSETS......... 65 60 -- 126 62 3 -- 65 61
-------- ------- ----- -------- -------- ------- ------- -------- -------
Lands................... 113 -- -- 113 18 -- -- 18 95
Buildings............... 892 -- -- 892 713 37 -- 750 142
Plant & machinery....... 2,889 196 18 3,067 2,441 166 197 2,411 656
Cars & trucks........... 27 13 22 19 14 13 8 19 --
Computer & office
equipment.............. 332 3 -- 335 244 26 -- 270 65
-------- ------- ----- -------- -------- ------- ------- -------- -------
INTANGIBLE ASSETS....... 4,310 222 40 4,426 3,430 242 205 3,468 958
-------- ------- ----- -------- -------- ------- ------- -------- -------
Other fixed securities.. 2 -- -- 2 2 -- -- 2 --
Other loans............. 36 15 -- 52 -- -- -- -- 52
Other investments....... 2 -- -- 2 -- -- -- -- 2
-------- ------- ----- -------- -------- ------- ------- -------- -------
INVESTMENTS............. 40 15 -- 56 2 -- -- 2 54
-------- ------- ----- -------- -------- ------- ------- -------- -------
FIXED ASSETS............ $ 4,358 $ 287 $ 40 $ 4,608 $ 3,494 $ 245 $ 205 $ 3,535 $ 1,073
======== ======= ===== ======== ======== ======= ======= ======== =======
</TABLE>
F-67
<PAGE>
ROCH S.A.
OPERATING LEASE SCHEDULE
(FRENCH FRANCS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
LEASE RENTALS PAYABLE
LEASE CUMULATED ----------------------
ACQUISITION AMORTIZATION CUMULATED BOOK RENTALS LEASE WITHIN 1 TO 5 TOTAL REPURCHASE
ASSETS COST OF THE YEAR AMORTIZATION VALUE OF THE YEAR RENTALS A YEAR YEARS AMOUNT PRICE
------ ----------- ------------ ------------ ------- ----------- --------- ---------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hardware........ FF 974 FF288 FF 685 FF 290 FF345 FF 807 FF 267 FF 72 FF 339 FF14
Cars............ 1,455 404 796 659 490 902 566 321 888 35
------- ----- ------- ------- ----- ------- ---------- ---------- ------- ----
Total at
December 31,
1991........... FF2,429 FF692 FF1,481 FF 949 FF835 FF1,709 FF 833 FF 393 FF1,227 FF49
======= ===== ======= ======= ===== ======= ========== ========== ======= ====
Hardware........ FF 907 FF170 FF 205 FF 702 FF169 FF 212 FF 280 FF 400 FF 679 FF 1
Cars............ 1,995 456 1,130 865 535 1,287 456 519 974 32
------- ----- ------- ------- ----- ------- ---------- ---------- ------- ----
Total at
December 31,
1992........... FF2,902 FF626 FF1,335 FF1,567 FF704 FF1,499 FF 736 FF 919 FF1,653 FF33
======= ===== ======= ======= ===== ======= ========== ========== ======= ====
Hardware........ FF1,253 FF334 FF 474 FF 779 FF383 FF 546 FF 479 FF 413 FF 892 FF18
Cars............ 1,860 406 1,402 458 493 2,573 295 185 480 33
------- ----- ------- ------- ----- ------- ---------- ---------- ------- ----
Total at
December 31,
1993........... FF3,113 FF740 FF1,876 FF1,237 FF876 FF3,119 FF 774 FF 598 FF1,372 FF51
======= ===== ======= ======= ===== ======= ========== ========== ======= ====
Hardware........ $ 216 $ 57 $ 82 $ 134 $ 66 $ 94 $ 82 $ 71 $ 154 $ 3
Cars............ 320 70 241 79 85 443 51 32 83 6
------- ----- ------- ------- ----- ------- ---------- ---------- ------- ----
Total at
December 31,
1993........... $ 536 $ 127 $ 323 $ 213 $ 151 $ 537 $ 133 $ 103 $ 237 $ 9
======= ===== ======= ======= ===== ======= ========== ========== ======= ====
</TABLE>
F-68
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of Mauser Prazisions-Messmittel
GmbH:
We have audited the accompanying balance sheets of Mauser Prazisions-
Messmittel GmbH (the "Company") as of December 31, 1992 and 1993, and the
related statements of income (loss) and accumulated losses and cash flows for
the period September 1, 1992 through December 31, 1992 and for the year ended
December 31, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mauser Prazisions-Messmittel
GmbH as of December 31, 1992 and 1993, and the results of its operations and
its cash flows for the period September 1, 1992 through December 31, 1992 and
for the year ended December 31, 1993, in conformity with generally accepted
accounting principles in the United States.
As explained in Note 1 to the financial statements, on March 24, 1994, Brown
& Sharpe Manufacturing Company acquired all the common stock of the Company
from Diehl GmbH & Co., the Company's parent. The accompanying financial
statements do not include any allocation of the purchase price or other
adjustments to the Company's historical carrying values of assets and
liabilities as a result of this transaction.
Coopers & Lybrand
Wirtschaftsprufungsgesellschaft
Gesellschaft mit beschrankter
Haftung
Munich, Germany
May 31, 1994
F-69
<PAGE>
MAUSER PRAZISIONS-MESSMITTEL GMBH
BALANCE SHEET
(DEUTSCH MARKS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------
1992 1993 1993
------- ------ ------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents (Note 1).................. DM 3 DM 2 $ 1
Accounts receivable trade (net of allowances of DM
22 in 1992 and DM 110 in 1993)..................... 614 477 286
Affiliates........................................ 696 14 8
Other............................................. 12 23 14
Inventories (Note 1)................................ 267 195 117
Prepaid expenses.................................... 30 14 8
------- ------ ------
Total current assets.................................. 1,622 725 434
------- ------ ------
Machinery and equipment at cost....................... 34 76 46
Less accumulated depreciation......................... 8 33 20
------- ------ ------
Machinery and equipment, net.......................... 26 43 26
------- ------ ------
Goodwill (net of accumulated amortization of DM 32 in
1992 and DM 1,043 in 1993) (Note 1).................. 1,111 100 60
------- ------ ------
DM2,759 DM 868 $ 520
======= ====== ======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Current portion of long-term debt due to parent..... DM -- DM 25 $ 15
Accounts payable
Affiliates (Note 2)............................... 2,686 3,058 1,831
Other............................................. 144 30 18
Accrued and other current liabilities (Note 3)...... 94 182 109
------- ------ ------
Total current liabilities............................. 2,924 3,295 1,973
Long-term debt due to parent less current portion
(Note 4)............................................. -- 55 33
------- ------ ------
2,924 3,350 2,006
------- ------ ------
Stockholder's Equity (Deficit):
Common stock (Note 5)............................... 50 50 30
Accumulated losses.................................. (215) (2,532) (1,516)
------- ------ ------
Total stockholder's equity (deficit).................. (165) (2,482) (1,486)
------- ------ ------
Total liabilities and stockholder's equity (deficit).. DM2,759 DM868 $ 520
======= ====== ======
</TABLE>
The convenience translation into U.S. Dollars has been made using the exchange
rate in effect at March 31, 1994 of 1.67 Deutsche Marks to U.S. $1.
The accompanying notes are an integral part of the financial statements.
F-70
<PAGE>
MAUSER PRAZISIONS-MESSMITTEL GMBH
STATEMENT OF INCOME (LOSS) AND ACCUMULATED LOSSES
(DEUTSCH MARKS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOUR MONTHS YEAR ENDED QUARTER ENDED
ENDED DECEMBER 31, DECEMBER 31, MARCH 31,
------------------ ----------------- ---------------
1992 1993 1993 1994 1994
------------------ -------- ------- ------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... DM2,039 DM4,398 $ 2,634 DM1,185 $ 710
Cost and expenses:
Cost of goods sold.... 1,642 3,698 2,214 865 518
Selling, general and
administrative
expenses............. 627 1,932 1,157 617 370
Amortization of
goodwill (Note 1).... 32 1,010 605 2 1
------- -------- ------- ------- ------
Operating loss.......... (262) (2,242) (1,342) (299) (179)
Other income (expense)
Interest income....... 15 27 16 -- --
Interest expense...... -- (118) (71) -- --
Other income, net
(Note 2)............. 15 16 10 2,502 1,498
------- -------- ------- ------- ------
Net income (loss)....... (232) (2,317) (1,387) 2,203 1,319
Retained earnings
(accumulated losses),
beginning of period.... 17 (215) (129) (2,532) (1,516)
------- -------- ------- ------- ------
Accumulated losses, end
of period.............. DM (215) DM(2,532) $(1,516) DM (329) $ (197)
======= ======== ======= ======= ======
</TABLE>
The convenience translation into U.S. Dollars has been made using the exchange
rate in effect at March 31, 1994 of 1.67 Deutsche Marks to U.S. $1.
The accompanying notes are an integral part of the financial statements.
F-71
<PAGE>
MAUSER PRAZISIONS-MESSMITTEL GMBH
STATEMENT OF CASH FLOWS
(DEUTSCH MARKS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOUR MONTHS YEAR ENDED QUARTER ENDED
ENDED DECEMBER 31, DECEMBER 31, MARCH 31,
------------------ ----------------- -----------------
1992 1993 1993 1994 1994
------------------ -------- ------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)....... DM (232) DM(2,317) $(1,387) DM 2,203 $ 1,319
Adjustments to reconcile
net income (loss) to
net cash provided by
(used in) operating
activities:
Forgiveness of
accounts payable to
parent............... -- -- -- (2,495) (1,494)
Depreciation and
amortization......... 40 1,036 621 7 4
Provision for losses
on accounts
receivable........... 22 88 53 (67) (40)
Changes in operating
assets and liabilities:
Accounts receivable--
trade................ (636) 49 29 (32) (19)
- --affiliates............ (625) 682 408 (35) (21)
- --other................. (12) (11) (7) 16 10
Inventories........... (267) 72 43 (14) (8)
Prepaid expenses...... (30) 16 10 (7) (4)
Accounts payable--
affiliates........... 2,685 372 222 454 272
- --other................. 144 (114) (68) (2) (1)
Accrued and other
current liabilities.. 91 88 53 280 167
-------- -------- ------- -------- -------
Net cash provided by
(used in) operating
activities............. 1,180 (39) (23) 308 185
-------- -------- ------- -------- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisition of branch
assets................. (1,177) -- -- -- --
Additions to machinery
and equipment.......... -- (42) (26) -- --
-------- -------- ------- -------- -------
Net cash used in
investing activities... (1,177) (42) (26) -- --
-------- -------- ------- -------- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from
borrowings............. -- 80 48 -- --
-------- -------- ------- -------- -------
Net cash provided by
financing activities... -- 80 48 -- --
-------- -------- ------- -------- -------
Net increase (decrease)
in cash and cash
equivalents............ 3 (1) (1) 308 185
Cash and cash
equivalents, beginning
of period.............. -- 3 2 2 1
-------- -------- ------- -------- -------
Cash and cash
equivalents, end of
period................. DM 3 DM 2 $ 1 DM 310 $ 186
======== ======== ======= ======== =======
</TABLE>
The convenience translation into U.S. Dollars has been made using the exchange
rate in effect at March 31, 1994 of 1.67 Deutsche Marks to U.S. $1.
The accompanying notes are an integral part of the financial statements.
F-72
<PAGE>
MAUSER PRAZISIONS-MESSMITTEL GMBH
NOTES TO COMBINED FINANCIAL STATEMENTS
(DEUTSCH MARKS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business:
The Company distributes precision measuring instruments and associated tools
throughout Germany.
Formation of the Company:
Mauser Prazisions-Messmittel GmbH, a wholly-owned subsidiary of Diehl GmbH &
Co. ("Diehl"), was formed from its predecessor company, Elektrosil GmbH. On
August 27, 1992, the Company's articles were rewritten in order to effect the
change in name and business. With effect from September 1, 1992, the Company
acquired certain assets of the former Oberndorf branch of Ets. Pierre Roch
S.A., Luneville, France for DM 1,177.
Consequently, the fiscal periods included in these financial statements are
for the period September 1, 1992 to December 31, 1992 and for the year ended
December 31, 1993, and for the quarter ended March 31, 1994.
Sale of the Company:
On March 24, 1994, Brown & Sharpe Manufacturing Company acquired all the
common stock of the Company from Diehl. The financial statements do not include
any allocations of the purchase price or other adjustments to the Company's
historical carrying values of assets and liabilities as a result of this
transaction.
Interim Financial Statements:
The financial statements for the quarter ended March 31, 1994 and the related
notes are unaudited and in the opinion of management, include all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of the results of the period. These results are not necessarily
indicative of the results to be expected for the entire year.
Translation of Foreign Currencies:
The functional currency for the accounts of the Company is the local
currency, the Deutschmark (DM). A translation of convenience has been applied
in translating the financial statements into US Dollars at the rate prevailing
at March 31, 1994, US $1--DM 1.67. (DM 1 = US $0.60).
Revenue Recognition:
Revenue is recognized upon shipment of product.
Cash and Cash Equivalents:
The Company considers all debt instruments purchased with a maturity of three
months or less at the time of acquisition to be cash equivalents.
Inventories:
Inventories of finished measuring instruments are carried at the lower of
average cost or market.
F-73
<PAGE>
MAUSER PRAZISIONS-MESSMITTEL GMBH
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DEUTSCH MARKS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS)
Machinery and Equipment:
Machinery and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is provided using the straight line method over the
estimated useful lives of the assets of between two and six years. Depreciation
expense was DM 8, DM 25 ($15) and DM 5 ($3) for the period September 1, 1992
through December 31, 1992, the year ended December 31, 1993, and the quarter
ended March 31, 1994, respectively.
Repair and maintenance costs are expensed, while additions and betterments
are capitalized. The cost and related accumulated depreciation of assets sold
or retired are eliminated from the accounts and any gains or losses are
reflected in earnings.
Goodwill:
The excess of cost over the fair value of net assets of a purchased business
is recorded as goodwill, which is included in intangible assets. In 1993, an
adjustment was made to the valuation of goodwill to take account of the adverse
development of the business, which had not previously been expected.
Consequently, DM 1,010 ($605) was written off in order to revalue the remaining
goodwill at DM 100 ($60), which is being amortized on a straight-line basis
over 10 years.
Income Taxes:
Due to losses in 1992 and 1993, no income taxes are payable. In accordance
with Statement of Financial Accounting Standards No. 109, deferred tax assets
and liabilities are recognized for the expected future tax consequences of
events that have been included in the financial statements or tax returns under
the liability method. A valuation allowance is provided for when it is more
likely than not that some portion or all of a deferred tax asset will not be
realized.
2. ACCOUNTS PAYABLE TO AFFILIATES
At December 31, the Company owed the following amounts to affiliates
(excluding the long-term debt--see Note 4):
<TABLE>
<CAPTION>
1992 1993 1993
------- ------- ------
<S> <C> <C> <C>
Diehl GmbH & Co. Nurnberg, Germany...................... DM 175 DM2,414 $1,446
Mauser-Werke Oberndorf, Germany......................... 5 21 12
Ets. Pierre Roch S.A., Luneville, France................ 2,506 623 373
------- ------- ------
DM2,686 DM3,058 $1,831
======= ======= ======
</TABLE>
The Company purchases all goods for resale from Ets. Pierre Roch S.A. Amounts
owed Diehl principally represent net operating expenditures incurred by Diehl
on behalf of the Company. During the quarter ended March 31, 1994, Diehl
forgave all amounts owed to Diehl by the Company.
F-74
<PAGE>
MAUSER PRAZISIONS-MESSMITTEL GMBH
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DEUTSCH MARKS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS)
3. ACCRUED AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
1992 1993 1993
---- ----- ----
<S> <C> <C> <C>
Due to customer................................................ DM46 DM 45 $ 27
Employees...................................................... -- 21 13
Taxes other than income........................................ -- 18 11
Compensated absences........................................... 36 14 8
Miscellaneous accrued expenses................................. 12 84 50
---- ----- ----
DM94 DM182 $109
==== ===== ====
</TABLE>
4. LONG-TERM DEBT DUE TO PARENT
Long-term debt amounting to DM 80 ($48) is due to the Company's parent, Diehl
GmbH & Co., Nurnberg, Germany and bears interest at 7.5% per annum. It is
repayable as follows:
<TABLE>
<S> <C>
1994................................................................. DM 25
1995................................................................. DM 25
1996................................................................. DM 30
</TABLE>
5. COMMON STOCK
As a "GmbH"--form of company incorporated in Germany, the Company's common
stock is not divided into individual shares.
6. INCOME TAXES
Due to losses in 1992 and 1993, no income taxes are payable by the Company.
At December 31, 1993, a deferred tax asset of DM 1,025 ($614) existed in
connection with net German operating loss carryforwards, which do not expire.
The Company has provided a valuation allowance in full for this asset due to
the uncertainty of realizing the benefit of the loss carryforwards.
F-75
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated costs of issuance and distribution that will be borne by the
Company are as follows:
<TABLE>
<S> <C>
SEC Registration.................................................... $25,862
NASD Filing Fee..................................................... 8,000
Blue Sky Fees and Expenses.......................................... 20,000
Trustee Fee......................................................... *
Accounting Fees and Expenses........................................ *
Legal Fees and Expenses............................................. *
Printing and Engraving.............................................. *
Miscellaneous....................................................... *
-------
Total............................................................. $ *
=======
</TABLE>
* To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law, as amended, provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145 further provides that a corporation similarly may indemnity any
such person serving in any such capacity who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its favor, against
expenses (including attorneys' fees) actually and reasonably incurred in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Delaware Court of chancery or such other court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses as
the Court of Chancery or such other court may deem proper.
Section 102(b)(7) of the Delaware General Corporation Law permits
corporations to eliminate or limit the personal liability of their directors by
adding to the Certificate of Incorporation a provision eliminating or limiting
the personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director for (a) any
breach of the director's duty of loyalty to the corporation or its
stockholders, (b) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (c) payment of dividends
or repurchases or redemptions of stock other than from lawfully available
funds, or (d) any transaction from which the director derived an improper
personal benefit. Article Ten of the Company's Restated Certificate of
Incorporation provides that no director of the Company shall be liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty
as a director, except to the extent that exculpation from liability is not
permitted under the Delaware General Corporation Law as in effect at the time
such liability is determined.
II-1
<PAGE>
Under the provisions of the bylaws of the Company, each person who is or was
a director or officer of the Company shall be indemnified against all
liabilities and expenses (including attorneys' fees), and upon request shall be
advanced expenses, actually and reasonably incurred by him in connection with
any suit, action or proceeding brought against him by reason of the fact that
he is or was a director or officer of the Company (other than an action by or
in the right of the Company), to the maximum extent permitted from time to time
by the General Corporation Law of the State of Delaware.
In addition, the Company has entered into indemnification agreements with
each of its directors and certain of its officers indemnifying them, to the
extent permitted by Delaware law, against expenses, settlements, judgments and
fines incurred in connection with any threatened, pending or completed action,
suit, arbitration or proceeding, where the individual's involvement is by
reason of the fact that he or she is or was a director or officer or served at
the Company's request as a director of another organization. An individual may
not be indemnified if he is found not to have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company, except to the extent Delaware law permits broader contractual
indemnification. The indemnification agreements provide procedures,
presumptions and remedies which substantially strengthen the indemnity rights
beyond those provided by the Company's Bylaws and by Delaware law.
Reference is made to the Underwriting Agreement filed as Exhibit 1 hereto
which provides for indemnification to directors and certain officers against
certain liabilities under the Securities Act with respect to the Offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(a) The following exhibits are filed as a part of this Registration
Statement. Where such filing is made by incorporation as an exhibit hereto by
reference to a previously filed statement or report, such incorporation is
noted.
<TABLE>
<C> <S>
1. Form of Underwriting Agreement between Brown & Sharpe Manufacturing
Company and Wertheim Schroder & Co. Incorporated.
2.1 Acquisition Agreement, between Brown & Sharpe Manufacturing Company and
Finmeccanica S.p.A. dated as of June 10, 1994.
2.2 Share Purchase and Transfer Agreement between Brown & Sharpe
Manufacturing Company and Diehl GmbH & Co. dated March 24, 1994 (Exhibit
to Form 8-K filed May 16, 1994 and hereby incorporated by reference).
3.1 Joint Agreement of Merger between Brown & Sharpe Manufacturing Company,
incorporated in Rhode Island, and Brown & Sharpe Manufacturing Company,
the surviving corporation incorporated in Delaware (Exhibit to Form 8-K
for the month of January, 1969, and hereby incorporated by reference).
3.2 Amendment to Certificate of Incorporation, dated April 27, 1979 (Exhibit
13 to Form 10-K for the period ending December 29, 1979, and hereby
incorporated by reference).
3.3 Amendment to Certificate of Incorporation, dated April 25, 1980 (Exhibit
3.1 to Form 10-Q for the period ending June 28, 1980, and hereby
incorporated by reference).
3.4 Amendment to Certificate of Incorporation, dated April 24, 1987 (Exhibit
10.4 to Form 10-Q for the period ending June 27, 1987, and hereby
incorporated by reference).
3.5 Amendment to Certificate of Incorporation, dated May 6, 1988 (Exhibit 1
to Current Report on Form 8-K filed May 9, 1988, and hereby incorporated
by reference).
3.6 Certificate of Designation (Exhibit A to Exhibit 5 of Amendment on Form 8
filed on March 6, 1989, and hereby incorporated by reference).
3.7 Amendment to Certificate of Incorporation, dated May 2, 1989 (Exhibit 3.7
to the Form 10-K for the year ended December 30, 1989, and hereby
incorporated by reference).
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
3.8 By-laws of Brown & Sharpe Manufacturing Company, as amended through
February 24, 1989 (Exhibit 3.8 to the Form 10-K for the year ended
December 30, 1989, and hereby incorporated by reference).
4.1 Indenture dated October 1, 1980 (including form of debenture) between
the Company and Morgan Guaranty Trust Company of New York as Trustee
relating to 9 1/4% Convertible Subordinated Debentures due December 15,
2005 (Exhibit 2 to Form 8-A dated October 8, 1980, and hereby
incorporated by reference).
4.2 Form of Indenture dated as of , 1994 among the Company and Morgan
Guaranty Trust Company of New York, as Trustee.
4.3 Form of % Senior Notes due 2002 (included in the Form of Indenture
included as Exhibit 4.2).
The Registrant hereby agrees to furnish to the Commission upon request
copies of any long-term debt instruments not filed herewith because the
securities authorized under any such instrument do not exceed ten
percent of total assets of the Registrant and its Consolidated
Subsidiaries.
5 Opinion of Ropes & Gray.*
10.1 Amended Brown & Sharpe Profit Incentive Plan, as amended through March
9, 1988 (Exhibit 10.1 to the Form 10-K for the year ended December 31,
1988, and hereby incorporated by reference).
10.2 Amended Brown & Sharpe 1973 Stock Option Plan, as amended through March
9, 1988 (Exhibit 10.2 to the Form 10-K for the year ended December 31,
1988, and hereby incorporated by reference).
10.3 Amendment dated December 29, 1990 to the Brown & Sharpe 1973 Stock
Option Plan (Exhibit 10.3 to the Form 10-K for the year ended December
29, 1990, and hereby incorporated by reference).
10.4 Amendment No. 4 to the Restated Brown & Sharpe Employee Stock Ownership
and Profit Participation Plan and Trust Agreement, as amended through
December 21, 1990 (Exhibit 10.4 to the Form 10-K for the year ended
December 29, 1990, and hereby incorporated by reference).
10.5 Executive Liability and Defense Coverage Insurance Policy for the period
August 1, 1993 through July 31, 1994 (Exhibit 10.5 to the Form 10-K for
the year ended December 25, 1993, and hereby incorporated by reference).
10.6 Deferred Stock Equivalent Unit Contract dated December 31, 1982, between
Brown & Sharpe Manufacturing Company and Donald A. Gaudion (Exhibit
10.24 to Form 10-K for the period ended December 25, 1982, and hereby
incorporated by reference).
10.7 The Brown & Sharpe Savings and Retirement Plan for Management Employees,
dated October 7, 1987 (Exhibit 10.2 to the Form 10-Q for the period
ended September 26, 1987, and hereby incorporated by reference).
10.8 The Brown & Sharpe Savings and Retirement Plan, dated October 7, 1987
(Exhibit 10.3 to the Form 10-Q for the period ended September 26, 1987,
and hereby incorporated by reference).
10.9 Amendment and Restatement of the Brown & Sharpe Employee Stock Ownership
and Profit Participation Plan and Trust Agreement, dated October 7, 1987
(Exhibit 10.4 to the Form 10-Q for the period ended September 26, 1987,
and hereby incorporated by reference).
10.10 Preferred Stock Rights Agreement dated as of March 9, 1988, between the
Company and The First National Bank of Boston, as Rights Agent (Exhibit
1 to the Registration Statement on Form 8-A filed on April 28, 1988, and
hereby incorporated by reference).
10.11 Amendment No. 1, dated as of May 2, 1988, to Preferred Stock Rights
Agreement (Exhibit 5 to Amendment No. 1 on Form 8, filed on March 6,
1989, to the Registration Statement on Form 8-A filed on April 28, 1988,
and hereby incorporated by reference).
10.12 Amendment No. 2, dated as of February 24, 1989, to Preferred Stock
Rights Agreement (Exhibit 6 to Amendment No. 1 on Form 8, filed on March
6, 1989, to the Registration Statement on Form 8-A filed on April 28,
1988, and hereby incorporated by reference).
10.13 Amendment, dated February 23, 1989, to The Brown & Sharpe Savings and
Retirement Plan for Management Employees (Exhibit 10.19 to the Form 10-K
for the year ended December 31, 1988, and hereby incorporated by
reference).
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.14 Amendment No. 2, dated October 19, 1988, to The Brown & Sharpe Savings
and Retirement Plan for Management Employees (Exhibit 10.20 to the Form
10-K for the year ended December 31, 1988, and hereby incorporated by
reference).
10.15 Amendment No. 3, dated February 23, 1989, to The Brown & Sharpe Savings
and Retirement Plan for Management Employees (Exhibit 10.21 to the Form
10-K for the year ended December 31, 1988, and hereby incorporated by
reference).
10.16 Amendment dated February 23, 1989 to The Brown & Sharpe Savings and
Retirement Plan (Exhibit 10.22 to the Form 10-K for the year ended
December 31, 1988, and hereby incorporated by reference).
10.17 Amendment No. 2, dated October 19, 1988, to The Brown & Sharpe Savings
and Retirement Plan (Exhibit 10.23 to the Form 10-K for the year ended
December 31, 1988, and hereby incorporated by reference).
10.18 Amendment No. 3, dated February 23, 1989, to The Brown & Sharpe Savings
and Retirement Plan (Exhibit 10.24 to the Form 10-K for the year ended
December 31, 1988, and hereby incorporated by reference).
10.19 Amendment, dated February 23, 1989, to the Restated Brown & Sharpe
Employee Stock Ownership and Profit Participation Plan and Trust
Agreement (Exhibit 10.25 to the Form 10-K for the year ended December
31, 1988, and hereby incorporated by reference).
10.20 Amendment No. 2, dated October 19, 1988, to the Restated Brown & Sharpe
Employee Stock Ownership and Profit Participation Plan and Trust
Agreement (Exhibit 10.26 to the Form 10-K for the year ended December
31, 1988, and hereby incorporated by reference).
10.21 Amendment No. 3, dated February 23, 1989, to the Restated Brown & Sharpe
Employee Stock Ownership and Profit Participation Plan and Trust
Agreement (Exhibit 10.27 to the Form 10-K for the year ended December
31, 1988, hereby incorporated by reference).
10.22 Amended 1989 Equity Incentive Plan, as amended through February 21, 1992
(Exhibit 10.24 to the Form 10-K for the year ended December 28, 1991,
and hereby incorporated by reference).
10.23 Deferred Stock Equivalent Unit Contract, dated September 3, 1987 between
Brown & Sharpe Manufacturing Company and Paul R. Tregurtha (Exhibit
10.24 to the Form 10-K for the year ended December 30, 1989, and hereby
incorporated by reference).
10.24 Form of amendment dated April 30, 1991, to Deferred Stock Equivalent
Unit Contract dated September 3, 1987, between Brown & Sharpe
Manufacturing Company and Paul R. Tregurtha (Exhibit 10.26 to the Form
10-K for the year ended December 28, 1991, and hereby incorporated by
reference).
10.25 Deferred Stock Equivalent Unit Contract, dated November 30, 1989,
between Brown & Sharpe Manufacturing Company and Herbert A. Beyer
(Exhibit 10.25 to the Form 10-K for the year ended December 30, 1989,
and hereby incorporated by reference).
10.26 Form of amendment dated April 30, 1991, to Deferred Stock Equivalent
Unit Contract, dated November 30, 1989, between Brown & Sharpe
Manufacturing Company and Herbert A. Beyer (Exhibit 10.28 to the Form
10-K for the year ended December 28, 1991, and hereby incorporated by
reference).
10.27 Amendment No. 4, dated October 20, 1989, to The Brown & Sharpe Savings
and Retirement Plan for Management Employees (Exhibit 10.26 to the Form
10-K for the year ended December 30, 1989, and hereby incorporated by
reference).
10.28 Amendment No. 4, dated October 30, 1989, to The Brown & Sharpe Savings
and Retirement Plan (Exhibit 10.27 to the Form 10-K for the year ended
December 30, 1989, and hereby incorporated by reference).
10.29 Amendment No. 5, dated September 7, 1990, to The Brown & Sharpe Savings
and Retirement Plan (Exhibit 10.30 to the Form 10-K for the year ended
December 29, 1990, and hereby incorporated herein by reference).
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.30 Amendment No. 5, dated September 7, 1990, to The Brown & Sharpe Savings
and Retirement Plan for Management Employees (Exhibit 10.31 to the Form
10-K for the year ended December 29, 1990, and hereby incorporated by
reference).
10.31 The acquisition agreement pertaining to the acquisition of Wild Leitz
Messtechnik GmbH and The Marketing and Sales Assets of the IMT Division
of LEICA plc by Brown & Sharpe Manufacturing Company, dated June 29,
1990 (Exhibit 10.1 to Form 10-Q for the period ended June 30, 1990, and
hereby incorporated by reference).
10.32 Employment Agreement, dated March 14, 1988, between Brown & Sharpe
Manufacturing Company and Richard J. Duncan (Exhibit 10.34 to the Form
10-K for the year ended December 28, 1991, and hereby incorporated by
reference).
10.33 Employment Agreement, dated May 29, 1990, amended February 3, 1992,
between Brown & Sharpe Manufacturing Company and Richard J. Duncan
(Exhibit 10.35 to the Form 10-K for the year ended December 28, 1991,
and hereby incorporated by reference).
10.34 Employment Agreement, dated March 14, 1988, between Brown & Sharpe
Manufacturing Company and Richard F. Paolino (Exhibit 10.36 to the Form
10-K for the year ended December 28, 1991, and hereby incorporated by
reference).
10.35 Employment Agreement, dated March 14, 1988, between Brown & Sharpe
Manufacturing Company and John M. Lochner (Exhibit 10.37 to the Form 10-
K for the year ended December 28, 1991, and hereby incorporated by
reference).
10.36 Stock Purchase Agreement pertaining to the sale of GageTalker
Corporation to P. Eric Berg by Brown & Sharpe Manufacturing Company,
dated January, 1992 (Exhibit 10.38 to the Form 10-K for the year ended
December 28, 1991, and hereby incorporated by reference).
10.37 Consulting Agreement between Brown & Sharpe Manufacturing Company and
Henry D. Sharpe, Jr. (Chairman of the Board of Directors), dated May 18,
1990 (Exhibit 10.39 to the Form 10-K for the year ended December 26,
1992, and hereby incorporated by reference).
10.38 Amendment No. 5 of the Restated Brown & Sharpe Employee Stock Ownership
and Profit Participation Plan and Trust Agreement, as amended through
March 23, 1991 (Exhibit 10.40 to the Form 10-K for the year ended
December 26, 1992, and hereby incorporated by reference).
10.39 Employment Agreement, dated April 23, 1992, between Brown & Sharpe
Manufacturing Company and Charles A. Junkunc (Exhibit 10.41 to the Form
10-K for the year ended December 26, 1992, and hereby incorporated by
reference).
10.40 Amendment, dated July 24, 1992 to Employment/Severance Agreement, dated
April 23, 1992, between Brown & Sharpe Manufacturing Company and Charles
A. Junkunc (Exhibit 10.42 to the Form 10-K for the year ended December
26, 1992, and hereby incorporated by reference).
10.41 Amendment, dated November 11, 1992, to 1989 Equity Incentive Plan, as
amended through November 6, 1992 (Exhibit 10.43 to the Form 10-K for the
year ended December 26, 1992, and hereby incorporated by reference).
10.42 Form of Shareholders Agreement to be entered into between Brown & Sharpe
and Finmeccanica.
10.43 Letter Agreement dated as of , 1994 between Henry D. Sharpe and
Finmeccanica.*
11 Statement regarding Computation of Per Share Data.
12 Statement re: Computation of Ratios.
23.1 Consent of Ropes & Gray (contained in Exhibit 5).*
23.2 Consent of Coopers & Lybrand (Boston).
23.3 Consent of Coopers & Lybrand Wirtschaftsprufungsgesellschaft
Gesellschaft mit beschrankter Haftung.
23.4 Consent of Kurt Schlotthauer.
23.5 Consent of Coopers & Lybrand (Turin).
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
23.6 Consent of Reconta Ernst & Young.
23.7 Consent of Price Waterhouse.
24 Powers of Attorney (included on page II-7).
25 Statement of Eligibility of Morgan Guaranty Trust Company of New York, as Trustee.
</TABLE>
- --------
* To be filed by amendment
(b) The following financial statements schedules for the Company for the year
ended December 31, 1991, 1992 and 1993 are filed as a part of this Registration
Statement.
Schedule V--Property, Plant and Equipment
Schedule VI--Accumulated Depreciation
Schedule VIII--Valuation and Qualifying Accounts
Schedule IX--Short-term Borrowings
Schedule X--Supplementary Income Statement Information
Schedules other than those listed are omitted because they are not required
under the instructions, are not applicable or contain information that is set
forth in the financial statements or the notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim or indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless, in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The Company hereby undertakes that:
(1) For purpose of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
registration as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereon.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECTION ACT OF 1933, THE REGISTRANT HAS
DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE TOWN OF NORTH KINGSTOWN, STATE
OF RHODE ISLAND AND PROVIDENCE PLANTATIONS ON JUNE 24, 1994.
Brown & Sharpe Manufacturing Company
/s/ Charles A. Junkunc
By: _________________________________
CHARLES A. JUNKUNC, VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Brown & Sharpe Manufacturing
Company, hereby severally constitute and appoint Henry D. Sharpe, Jr., Charles
A. Junkunc, and James W. Hayes, III, and each of them singly, our true and
lawful attorneys or attorney to execute in our names, in the capacities
indicated below, any and all amendments to this Registration Statement on Form
S-1, and all instruments necessary or incidental in connection therewith, and
to file the same with the Securities and Exchange Commission. Each of said
attorneys shall have power to act hereunder with or without any other of said
attorneys, and shall have full power of substitution and resubstitution. Each
of said attorneys shall have full power and authority to do and perform in the
name and on behalf of each of the undersigned, in any and all capacities, every
act whatsoever requisite or necessary to be done in the premises, as duly and
to all intents and purposes as each of the undersigned might or could do in
person, and each of the undersigned hereby ratifies and approves the acts of
said attorneys and each of them.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
AS OF THE 24TH DAY OF JUNE, 1994.
/s/ Howard K. Fuguet
/s/ Henry D. Sharpe, Jr. _____________________________________
_____________________________________ HOWARD K. FUGUET, DIRECTOR
HENRY D. SHARPE, JR.,
CHAIRMAN OF THE BOARD AND DIRECTOR
/s/ Charles A. Junkunc
_____________________________________ _____________________________________
CHARLES A. JUNKUNC, VICE PRESIDENT JOHN M. NELSON, DIRECTOR
AND CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
/s/ Henry D. Sharpe, III
/s/ Fred M. Stuber _____________________________________
_____________________________________ HENRY D. SHARPE, III, DIRECTOR
DR. FRED M. STUBER, PRESIDENT
CHIEF EXECUTIVE OFFICER (PRINCIPAL
EXECUTIVE OFFICER), AND DIRECTOR
/s/ Paul R. Tregurtha
/s/ John M. Lochner _____________________________________
_____________________________________ PAUL R. TREGURTHA, DIRECTOR
JOHN M. LOCHNER, CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
/s/ Russell A. Boss
_____________________________________
RUSSELL A. BOSS, DIRECTOR
II-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Shareowners and Directors
of Brown & Sharpe Manufacturing Company:
In connection with our audit of the consolidated financial statements of
Brown & Sharpe Manufacturing Company as of December 26, 1992 and December 25,
1993, and for each of the three years in the period ended December 25, 1993,
which financial statements are included in the Prospectus, we have also audited
the financial statement schedules listed in Item 16(b) herein.
In our opinion, these financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly, in
all material respects, the information required to be included therein.
Coopers & Lybrand
Boston, Massachusetts
February 14, 1994, except as
to the information presented
in Note 2, for which the
date is June 7, 1994
S-1
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
SCHEDULE V--PROPERTY, PLANT, AND EQUIPMENT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT FOREIGN BALANCE AT
BEGINNING CURRENCY END OF
YEAR ENDED OF PERIOD ADDITIONS REMOVALS TRANSLATION(1) PERIOD
---------- ---------- --------- -------- -------------- ----------
<S> <C> <C> <C> <C> <C>
DECEMBER 28, 1991
Land.................... $ 2,525 $4,007 $ -- $ 220 $ 6,752
Buildings and
improvements........... 22,034 2,505 -- 272 24,811
Machinery and equipment. 94,392 3,352 7,427 (1,102) 89,215
DECEMBER 26, 1992
Land.................... 6,752 644 -- (887) 6,509
Buildings and
improvements........... 24,811 7,461 483 254 32,043
Machinery and equipment. 89,215 4,369 4,183 (6,281) 83,120
DECEMBER 25, 1993
Land.................... 6,509 -- -- (111) 6,398
Buildings and
improvements........... 32,043 1,145 123 (750) 32,315
Machinery and equipment. 83,120 3,254 9,422 101 77,053
</TABLE>
- --------
(1) Adjustment resulting from translating fixed assets of overseas subsidiaries
at year-end exchange rates.
Note: See Note 1 of Notes to Consolidated Financial Statements for information
regarding depreciation methods and estimated useful lives used to compute
depreciation.
S-2
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
SCHEDULE VI--ACCUMULATED DEPRECIATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT FOREIGN BALANCE AT
BEGINNING CURRENCY END OF
YEAR ENDED OF PERIOD ADDITIONS REMOVALS TRANSLATION(1) PERIOD
---------- ---------- --------- -------- -------------- ----------
<S> <C> <C> <C> <C> <C>
DECEMBER 28, 1991
Buildings and
improvements........... $16,288 $1,047 $ -- $ (775) $16,560
Machinery and equipment. 60,054 7,007 8,549 1,104 59,616
DECEMBER 28, 1992
Buildings and
improvements........... 16,560 870 323 (175) 16,932
Machinery and equipment. 59,616 5,966 3,721 (3,523) 58,338
DECEMBER 25, 1993
Buildings and
improvements........... 16,932 990 110 (144) 17,668
Machinery and equipment. 58,338 4,872 9,587 901 54,544
</TABLE>
- --------
(1) Adjustment resulting from translating fixed assets of overseas subsidiaries
at year-end exchange rates.
S-3
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO FOREIGN BALANCE AT
BEGINNING COSTS AND CURRENCY END OF
YEAR ENDED OF PERIOD EXPENSES DEDUCTIONS(2) TRANSLATION(1) PERIOD
---------- ---------- ---------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
DECEMBER 28, 1991
Allowance for doubtful
accounts............... $1,059 $778 $422 $ (8) $1,407
DECEMBER 28, 1992
Allowance for doubtful
accounts............... 1,407 514 388 (81) 1,452
DECEMBER 28, 1993
Allowance for doubtful
accounts............... 1,452 264 358 (38) 1,320
</TABLE>
- --------
(1) Adjustment resulting from translating allowance for doubtful accounts of
foreign subsidiaries at year-end exchange rates.
(2) Write-off of uncollectible accounts.
S-4
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
SCHEDULE IX--SHORT-TERM BORROWINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CATEGORY OF WEIGHTED AVERAGE MAXIMUM AMOUNT AVERAGE AMOUNT WEIGHTED AVERAGE
AGGREGATE BALANCE INTEREST RATE OUTSTANDING OUTSTANDING INTEREST RATE
SHORT-TERM AT END OF ON BALANCE AT DURING THE DURING THE DURING THE
BORROWINGS(1) PERIOD END OF PERIOD PERIOD PERIOD(2) PERIOD(3)
------------- --------- ---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
DECEMBER 28, 1991
Payable to banks for
borrowings............. $21,240 9.3% $27,121 $21,610 9.1%
DECEMBER 26, 1992
Payable to banks for
borrowings............. 21,502 9.1% 21,502 19,522 9.9%
DECEMBER 25, 1993
Payable to banks for
borrowings............. 30,143 7.7% 30,143 23,069 8.3%
</TABLE>
- --------
(1) Short-term borrowings represent borrowings on various domestic and
international lines of credit. Interest on these lines of credit is
generally at, or below, the prime rate of the country in which the amounts
are borrowed. Certain lines of credit require compensating balances, which
are not legally restricted, based on a percent of borrowings and/or a
percent of the open line of credit.
(2) Computed by dividing the total of the four quarters' ending borrowed
balances in each year by four.
(3) Computed by dividing the sum of four quarters' interest expense (based on
quarter-end effective interest rates) in each year by the sum of four
quarters' ending borrowed balances in each year.
S-5
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO COSTS AND EXPENSES
-----------------------------------------------------
DECEMBER 28, 1991 DECEMBER 26, 1992 DECEMBER 25, 1993
----------------- ----------------- -----------------
<S> <C> <C> <C>
Advertising............... $4,208 $4,259 $3,150
Maintenance and repairs... 2,730 1,620 1,642
</TABLE>
S-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
1 Form of Underwriting Agreement between Brown & Sharpe
Manufacturing Company and Wertheim Schroder & Co.
Incorporated.
2.1 Acquisition Agreement, between Brown & Sharpe
Manufacturing Company and Finmeccanica S.p.A. dated as of
June 10, 1994.
2.2 Share Purchase and Transfer Agreement between Brown &
Sharpe Manufacturing Company and Diehl GmbH & Co. dated
March 24, 1994 (Exhibit to Form 8-K filed May 16, 1994
and hereby incorporated by reference).
3.1 Joint Agreement of Merger between Brown & Sharpe
Manufacturing Company, incorporated in Rhode Island, and
Brown & Sharpe Manufacturing Company, the surviving
corporation incorporated in Delaware (Exhibit to Form 8-K
for the month of January, 1969, and hereby incorporated
by reference).
3.2 Amendment to Certificate of Incorporation, dated April
27, 1979 (Exhibit 13 to Form 10-K for the period ending
December 29, 1979, and hereby incorporated by reference).
3.3 Amendment to Certificate of Incorporation, dated April
25, 1980 (Exhibit 3.1 to Form 10-Q for the period ending
June 28, 1980, and hereby incorporated by reference).
3.4 Amendment to Certificate of Incorporation, dated April
24, 1987 (Exhibit 10.4 to Form 10-Q for the period ending
June 27, 1987, and hereby incorporated by reference).
3.5 Amendment to Certificate of Incorporation, dated May 6,
1988 (Exhibit 1 to Current Report on Form 8-K filed May
9, 1988, and hereby incorporated by reference).
3.6 Certificate of Designation (Exhibit A to Exhibit 5 of
Amendment on Form 8 filed on March 6, 1989, and hereby
incorporated by reference).
3.7 Amendment to Certificate of Incorporation, dated May 2,
1989 (Exhibit 3.7 to the Form 10-K for the year ended
December 30, 1989, and hereby incorporated by reference).
3.8 By-laws of Brown & Sharpe Manufacturing Company, as
amended through February 24, 1989 (Exhibit 3.8 to the
Form 10-K for the year ended December 30, 1989, and
hereby incorporated by reference).
4.1 Indenture dated October 1, 1980 (including form of
debenture) between the Company and Morgan Guaranty Trust
Company of New York as Trustee relating to 9 1/4%
Convertible Subordinated Debentures due December 15, 2005
(Exhibit 2 to Form 8-A dated October 8, 1980, and hereby
incorporated by reference).
4.2 Form of Indenture dated as of , 1994 among the
Company and Morgan Guaranty Trust Company of New York, as
Trustee.
4.3 Form of % Senior Notes due 2002 (included in the Form of
Indenture included as Exhibit 4.2).
The Registrant hereby agrees to furnish to the Commission
upon request copies of any long-term debt instruments not
filed herewith because the securities authorized under
any such instrument do not exceed ten percent of total
assets of the Registrant and its Consolidated
Subsidiaries.
5 Opinion of Ropes & Gray.*
10.1 Amended Brown & Sharpe Profit Incentive Plan, as amended
through March 9, 1988 (Exhibit 10.1 to the Form 10-K for
the year ended December 31, 1988, and hereby incorporated
by reference).
10.2 Amended Brown & Sharpe 1973 Stock Option Plan, as amended
through March 9, 1988 (Exhibit 10.2 to the Form 10-K for
the year ended December 31, 1988, and hereby incorporated
by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.3 Amendment dated December 29, 1990 to the Brown & Sharpe
1973 Stock Option Plan (Exhibit 10.3 to the Form 10-K for
the year ended December 29, 1990, and hereby incorporated
by reference).
10.4 Amendment No. 4 to the Restated Brown & Sharpe Employee
Stock Ownership and Profit Participation Plan and Trust
Agreement, as amended through December 21, 1990 (Exhibit
10.4 to the Form 10-K for the year ended December 29,
1990, and hereby incorporated by reference).
10.5 Executive Liability and Defense Coverage Insurance Policy
for the period August 1, 1993 through July 31, 1994
(Exhibit 10.5 to the Form 10-K for the year ended
December 25, 1993, and hereby incorporated by reference).
10.6 Deferred Stock Equivalent Unit Contract dated December
31, 1982, between Brown & Sharpe Manufacturing Company
and Donald A. Gaudion (Exhibit 10.24 to Form 10-K for the
period ended December 25, 1982, and hereby incorporated
by reference).
10.7 The Brown & Sharpe Savings and Retirement Plan for
Management Employees, dated October 7, 1987 (Exhibit 10.2
to the Form 10-Q for the period ended September 26, 1987,
and hereby incorporated by reference).
10.8 The Brown & Sharpe Savings and Retirement Plan, dated
October 7, 1987 (Exhibit 10.3 to the Form 10-Q for the
period ended September 26, 1987, and hereby incorporated
by reference).
10.9 Amendment and Restatement of the Brown & Sharpe Employee
Stock Ownership and Profit Participation Plan and Trust
Agreement, dated October 7, 1987 (Exhibit 10.4 to the
Form 10-Q for the period ended September 26, 1987, and
hereby incorporated by reference).
10.10 Preferred Stock Rights Agreement dated as of March 9,
1988, between the Company and The First National Bank of
Boston, as Rights Agent (Exhibit 1 to the Registration
Statement on Form 8-A filed on April 28, 1988, and hereby
incorporated by reference).
10.11 Amendment No. 1, dated as of May 2, 1988, to Preferred
Stock Rights Agreement (Exhibit 5 to Amendment No. 1 on
Form 8, filed on March 6, 1989, to the Registration
Statement on Form 8-A filed on April 28, 1988, and hereby
incorporated by reference).
10.12 Amendment No. 2, dated as of February 24, 1989, to
Preferred Stock Rights Agreement (Exhibit 6 to Amendment
No. 1 on Form 8, filed on March 6, 1989, to the
Registration Statement on Form 8-A filed on April 28,
1988, and hereby incorporated by reference).
10.13 Amendment, dated February 23, 1989, to The Brown & Sharpe
Savings and Retirement Plan for Management Employees
(Exhibit 10.19 to the Form 10-K for the year ended
December 31, 1988, and hereby incorporated by reference).
10.14 Amendment No. 2, dated October 19, 1988, to The Brown &
Sharpe Savings and Retirement Plan for Management
Employees (Exhibit 10.20 to the Form 10-K for the year
ended December 31, 1988, and hereby incorporated by
reference).
10.15 Amendment No. 3, dated February 23, 1989, to The Brown &
Sharpe Savings and Retirement Plan for Management
Employees (Exhibit 10.21 to the Form 10-K for the year
ended December 31, 1988, and hereby incorporated by
reference).
10.16 Amendment dated February 23, 1989 to The Brown & Sharpe
Savings and Retirement Plan (Exhibit 10.22 to the Form
10-K for the year ended December 31, 1988, and hereby
incorporated by reference).
10.17 Amendment No. 2, dated October 19, 1988, to The Brown &
Sharpe Savings and Retirement Plan (Exhibit 10.23 to the
Form 10-K for the year ended December 31, 1988, and
hereby incorporated by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.18 Amendment No. 3, dated February 23, 1989, to The Brown &
Sharpe Savings and Retirement Plan (Exhibit 10.24 to the
Form 10-K for the year ended December 31, 1988, and
hereby incorporated by reference).
10.19 Amendment, dated February 23, 1989, to the Restated Brown
& Sharpe Employee Stock Ownership and Profit
Participation Plan and Trust Agreement (Exhibit 10.25 to
the Form 10-K for the year ended December 31, 1988, and
hereby incorporated by reference).
10.20 Amendment No. 2, dated October 19, 1988, to the Restated
Brown & Sharpe Employee Stock Ownership and Profit
Participation Plan and Trust Agreement (Exhibit 10.26 to
the Form 10-K for the year ended December 31, 1988, and
hereby incorporated by reference).
10.21 Amendment No. 3, dated February 23, 1989, to the Restated
Brown & Sharpe Employee Stock Ownership and Profit
Participation Plan and Trust Agreement (Exhibit 10.27 to
the Form 10-K for the year ended December 31, 1988,
hereby incorporated by reference).
10.22 Amended 1989 Equity Incentive Plan, as amended through
February 21, 1992 (Exhibit 10.24 to the Form 10-K for the
year ended December 28, 1991, and hereby incorporated by
reference).
10.23 Deferred Stock Equivalent Unit Contract, dated September
3, 1987 between Brown & Sharpe Manufacturing Company and
Paul R. Tregurtha (Exhibit 10.24 to the Form 10-K for the
year ended December 30, 1989, and hereby incorporated by
reference).
10.24 Form of amendment dated April 30, 1991, to Deferred Stock
Equivalent Unit Contract dated September 3, 1987, between
Brown & Sharpe Manufacturing Company and Paul R.
Tregurtha (Exhibit 10.26 to the Form 10-K for the year
ended December 28, 1991, and hereby incorporated by
reference).
10.25 Deferred Stock Equivalent Unit Contract, dated November
30, 1989, between Brown & Sharpe Manufacturing Company
and Herbert A. Beyer (Exhibit 10.25 to the Form 10-K for
the year ended December 30, 1989, and hereby incorporated
by reference).
10.26 Form of amendment dated April 30, 1991, to Deferred Stock
Equivalent Unit Contract, dated November 30, 1989,
between Brown & Sharpe Manufacturing Company and Herbert
A. Beyer (Exhibit 10.28 to the Form 10-K for the year
ended December 28, 1991, and hereby incorporated by
reference).
10.27 Amendment No. 4, dated October 20, 1989, to The Brown &
Sharpe Savings and Retirement Plan for Management
Employees (Exhibit 10.26 to the Form 10-K for the year
ended December 30, 1989, and hereby incorporated by
reference).
10.28 Amendment No. 4, dated October 30, 1989, to The Brown &
Sharpe Savings and Retirement Plan (Exhibit 10.27 to the
Form 10-K for the year ended December 30, 1989, and
hereby incorporated by reference).
10.29 Amendment No. 5, dated September 7, 1990, to The Brown &
Sharpe Savings and Retirement Plan (Exhibit 10.30 to the
Form 10-K for the year ended December 29, 1990, and
hereby incorporated herein by reference).
10.30 Amendment No. 5, dated September 7, 1990, to The Brown &
Sharpe Savings and Retirement Plan for Management
Employees (Exhibit 10.31 to the Form 10-K for the year
ended December 29, 1990, and hereby incorporated by
reference).
10.31 The acquisition agreement pertaining to the acquisition
of Wild Leitz Messtechnik GmbH and The Marketing and
Sales Assets of the IMT Division of LEICA plc by Brown &
Sharpe Manufacturing Company, dated June 29, 1990
(Exhibit 10.1 to Form 10-Q for the period ended June 30,
1990, and hereby incorporated by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
10.32 Employment Agreement, dated March 14, 1988, between Brown
& Sharpe Manufacturing Company and Richard J. Duncan
(Exhibit 10.34 to the Form 10-K for the year ended
December 28, 1991, and hereby incorporated by reference).
10.33 Employment Agreement, dated May 29, 1990, amended
February 3, 1992, between Brown & Sharpe Manufacturing
Company and Richard J. Duncan (Exhibit 10.35 to the Form
10-K for the year ended December 28, 1991, and hereby
incorporated by reference).
10.34 Employment Agreement, dated March 14, 1988, between Brown
& Sharpe Manufacturing Company and Richard F. Paolino
(Exhibit 10.36 to the Form 10-K for the year ended
December 28, 1991, and hereby incorporated by reference).
10.35 Employment Agreement, dated March 14, 1988, between Brown
& Sharpe Manufacturing Company and John M. Lochner
(Exhibit 10.37 to the Form 10-K for the year ended
December 28, 1991, and hereby incorporated by reference).
10.36 Stock Purchase Agreement pertaining to the sale of
GageTalker Corporation to P. Eric Berg by Brown & Sharpe
Manufacturing Company, dated January, 1992 (Exhibit 10.38
to the Form 10-K for the year ended December 28, 1991,
and hereby incorporated by reference).
10.37 Consulting Agreement between Brown & Sharpe Manufacturing
Company and Henry D. Sharpe, Jr. (Chairman of the Board
of Directors), dated May 18, 1990 (Exhibit 10.39 to the
Form 10-K for the year ended December 26, 1992, and
hereby incorporated by reference).
10.38 Amendment No. 5 of the Restated Brown & Sharpe Employee
Stock Ownership and Profit Participation Plan and Trust
Agreement, as amended through March 23, 1991 (Exhibit
10.40 to the Form 10-K for the year ended December 26,
1992, and hereby incorporated by reference).
10.39 Employment Agreement, dated April 23, 1992, between Brown
& Sharpe Manufacturing Company and Charles A. Junkunc
(Exhibit 10.41 to the Form 10-K for the year ended
December 26, 1992, and hereby incorporated by reference).
10.40 Amendment, dated July 24, 1992 to Employment/Severance
Agreement, dated April 23, 1992, between Brown & Sharpe
Manufacturing Company and Charles A. Junkunc (Exhibit
10.42 to the Form 10-K for the year ended December 26,
1992, and hereby incorporated by reference).
10.41 Amendment, dated November 11, 1992, to 1989 Equity
Incentive Plan, as amended through November 6, 1992
(Exhibit 10.43 to the Form 10-K for the year ended
December 26, 1992, and hereby incorporated by reference).
10.42 Form of Shareholders Agreement to be entered into between
Brown & Sharpe and Finmeccanica.
10.43 Letter Agreement dated as of , 1994 between Henry D.
Sharpe and Finmeccanica.*
11 Statement regarding Computation of Per Share Data.
12 Statement re: Computation of Ratios.
23.1 Consent of Ropes & Gray (contained in Exhibit 5).*
23.2 Consent of Coopers & Lybrand (Boston).
23.3 Consent of Coopers & Lybrand
Wirtschaftsprufungsgesellschaft Gesellschaft mit
beschrankter Haftung.
23.4 Consent of Kurt Schlotthauer.
23.5 Consent of Coopers & Lybrand (Turin).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<C> <S> <C>
23.6 Consent of Reconta Ernst & Young.
23.7 Consent of Price Waterhouse.
24 Powers of Attorney (included on page II-7).
25 Statement of Eligibility of Morgan Guaranty Trust Company
of New York, as Trustee.
</TABLE>
- --------
* To be filed by amendment
<PAGE>
======================================================================
BROWN & SHARPE MANUFACTURING COMPANY
$75,000,000
___% SENIOR NOTES DUE 2002
UNDERWRITING AGREEMENT
________________ ___, 1994
WERTHEIM SCHRODER & CO. INCORPORATED
======================================================================
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
$75,000,000
___% Senior Notes due 2002
UNDERWRITING AGREEMENT
----------------------
________________ ____, 1994
WERTHEIM SCHRODER & CO. INCORPORATED
Equitable Center
787 Seventh Avenue
New York, New York 10019
Ladies and Gentlemen:
Brown & Sharpe Manufacturing Company, a Delaware corporation
(the "COMPANY"), proposes to issue and sell to Wertheim Schroder & Co.
Incorporated (the "UNDERWRITER") an aggregate of $75,000,000 in
principal amount of its __% Senior Notes due 2002 (the "SECURITIES").
The Securities are to be issued pursuant to the provisions of an
indenture (the "NOTE INDENTURE") to be dated as of the Closing Date
(as defined herein) between the Company and _________________________,
as trustee (the "TRUSTEE"). The Securities are more fully described
in the Registration Statement referred to below. Concurrently with
the issuance and sale of the Securities pursuant hereto, the Company
will be acquiring, directly or indirectly, 100% of the outstanding
capital stock of DEA S.p.A., an Italian corporation ("DEA"), from
Finmeccanica S.p.A.
2
<PAGE>
("FINMECCANICA") pursuant to the Acquisition Agreement, dated as of May
__, 1994 (the "ACQUISITION AGREEMENT") between the Company and
Finmeccanica (the "DEA TRANSACTION").
1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Securities and Exchange Commission (the
"COMMISSION") in accordance with the provisions of the Securities Act
of 1933, as amended, and the rules and regulations of the Commission
thereunder (collectively, the "ACT"), a registration statement
(including a preliminary prospectus) on Form S-1 (File No. 33-_____)
relating to the Securities. The registration statement, as amended at
the time it becomes effective or, if a post-effective amendment is
filed with respect thereto, as amended by such post-effective
amendment at the time of its effectiveness, including in each case
financial statements and exhibits and the information (if any)
contained in a prospectus subsequently filed with the Commission
pursuant to Rule 424(b) under the Act and deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule
430A under the Act, is referred to in this Agreement as the
"REGISTRATION STATEMENT," and the prospectus in the form first used to
confirm sales of the Securities, whether or not filed with the
Commission pursuant to Rule 424(b) under the Act, is referred to in
this Underwriting Agreement as the "PROSPECTUS."
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the
representations and warranties contained in this Agreement, and
subject to the terms and conditions contained herein, the Company
agrees to issue and sell to you, and you agree to purchase from the
Company, $75,000,000 principal amount of the Securities. The purchase
price for the Securities shall be __% of their principal amount (the
"PURCHASE PRICE").
This Underwriting Agreement (this "AGREEMENT"), the
Securities, the Note Indenture, the Acquisition Agreement and the New
Credit Agreement (as defined below) are hereinafter sometimes referred
to collectively as the "OPERATIVE DOCUMENTS."
3. DELIVERY AND PAYMENT. Delivery to you of and payment
for the Securities shall be made at 9:30 A.M., New York City time, on
the fifth business day following the date of the public offering of
the Securities by you (the "CLOSING DATE"), as advised by you to the
Company, at the office of Weil, Gotshal & Manges, 767 Fifth Avenue,
New York, New York. The Closing Date and the location of the delivery
of and payment for the Securities may be varied by agreement between
you and the Company.
The Securities in definitive form shall be registered in
such names and issued in such denominations as you shall request in
writing not later than two full business days
3
<PAGE>
prior to the Closing Date and shall be made available to you for
inspection at your offices in New York, New York (or such other place as
shall be acceptable to you) not later than 9:30 A.M. on the business day
immediately preceding the Closing Date. The Securities shall be
delivered to you on the Closing Date, with any transfer taxes payable
upon the initial issuance by the Company of the Securities duly paid
by the Company, for your account against payment of the Purchase Price
by certified or official bank check or checks payable in New York
Clearing House or similar next day funds to the order of the Company.
4. TERMS OF PUBLIC OFFERING. You have advised the Company
that you propose (i) to make a public offering of the Securities as
soon after the effective date of the Registration Statement as in its
judgment is advisable and (ii) initially to offer the Securities upon
the terms set forth in the Prospectus.
5. AGREEMENTS OF THE COMPANY. The Company hereby agrees
with you as follows:
(a) If necessary, to file (i) an amendment to the
Registration Statement or (ii) a post-effective amendment to the
Registration Statement pursuant to Rule 430A under the Act, in either
case as soon as practicable after the execution and delivery of this
Agreement; to provide evidence satisfactory to you of such timely
filing; and to use its best efforts to cause the Registration
Statement or such post-effective amendment to become effective at the
earliest possible time.
(b) To comply fully and in a timely manner with the
applicable provisions of Rule 424 and Rule 430A under the Act.
(c) To advise you promptly and, if requested by you,
confirm such advice in writing, (i) when the Registration Statement
has become effective, if and when the Prospectus is sent for filing
pursuant to Rule 424 under the Act and when any post-effective
amendment to the Registration Statement becomes effective, (ii) of the
receipt of any comments from the Commission or any state securities
commission or regulatory authority that relate to the Registration
Statement or requests by the Commission or any state securities
commission or regulatory authority for amendments to the Registration
Statement or amendments or supplements to the Prospectus or for
additional information, (iii) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement,
or of the suspension of qualification of the Securities for offering
or sale in any jurisdiction, or the initiation of any proceeding for
such purpose by the Commission or any state securities commission or other
regulatory authority, and (iv) of the happening of any event during the
period referred to in Section 5(f) hereof which makes any statement of a
material fact made in the Registration Statement untrue or which requires
the
4
<PAGE>
making of any additions to or changes in the Registration Statement (as
amended or supplemented from time to time) in order to make the statements
therein not misleading or that makes any statement of a material fact
made in the Prospectus (as amended or supplemented from time to time)
untrue or which requires the making of any additions to or changes in
the Prospectus (as amended or supplemented from time to time) untrue
or which requires the making of any additions to or changes in the
Prospectus (as amended or supplemented from time to time) in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. The Company shall use its best
efforts to prevent the issuance of any stop order by the Commission or
order suspending the qualification or exemption of the Securities
under any state securities or Blue Sky laws, and, if at any time the
Commission shall issue any stop order suspending the effectiveness of
the Registration Statement, or any state securities commission or
other regulatory authority shall issue an order suspending the
qualification or exemption of the Securities under any state
securities or Blue Sky laws, the Company shall use every reasonable
effort to obtain the withdrawal or lifting of such order at the
earliest possible time.
(d) To promptly furnish to you and your counsel without
charge two signed copies of the Registration Statement as first filed
with the Commission and of each amendment thereto, including all
exhibits filed therewith, and to furnish to you such number of
conformed copies of the Registration Statement as so filed and of each
amendment thereto as you may reasonably request.
(e) Not to file any amendment or supplement to the
Registration Statement, whether before or after the time when the
Registration Statement becomes effective, or to make any amendment or
supplement to the Prospectus, of which you shall not previously have
been advised and provided a copy within two business days prior to the
filing thereof (or such reasonable amount of time as is necessitated
by the exigency of such amendment or supplement) or to which you shall
reasonably and timely object; and the Company will prepare and file
with the Commission, promptly upon your reasonable request, any
amendment to the Registration Statement or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Securities by you, and will use its best efforts to
cause the same to become effective as promptly as possible.
(f) Promptly after the Registration Statement becomes
effective and the public offering of the Securities commences, and
from time to time thereafter for such period as in the opinion of your
counsel a prospectus is required to be delivered in connection with
sales of the Securities by you, to furnish to you and dealers without
charge as many copies of each preliminary prospectus, the Prospectus,
the Registration Statement and all amendments and supplements to such
documents, if any, as you and dealers may reasonably request. The
Company consents to the use of each preliminary prospectus and the
Prospectus and each
5
<PAGE>
amendment or supplement thereto by you and by all dealers to whom the
Securities may be sold, both in connection with the offering or sale of
the Securities and for such period of time thereafter as the Prospectus
is required to be delivered in connection therewith.
(g) If during the period specified in Section 5(f) above
any event shall occur as a result of which, in the judgment of the
Company or in the reasonable opinion of your counsel, it becomes
necessary or advisable to amend the Registration Statement in order to
make the statements therein not misleading or amend or supplement the
Prospectus in order to make the statements therein, in the light of
the circumstances when the Prospectus is delivered to any purchaser,
not misleading, or if it is necessary to amend the Registration
Statement or amend or supplement the Prospectus to comply with any
law, to promptly prepare and file with the Commission an appropriate
amendment to the Registration Statement (in form and substance
reasonably satisfactory to you) so that the statements therein as so
amended will not be misleading or an appropriate amendment or
supplement to the Prospectus (in form and substance reasonably
satisfactory to you) so that the statements therein as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Registration Statement and
the Prospectus will comply with law, to use its best efforts to have
each such amendment to the Registration Statement declared effective
as promptly as possible, and to furnish to you and dealers without
charge such number of copies thereof as they may reasonably request.
(h) At or prior to the public offering of the Securities,
to cooperate with you and your counsel in connection with the
registration or qualification of the Securities for offer and sale by
you under the state securities or Blue Sky laws of such jurisdictions
as you may request, to continue such qualification in effect so long as
reasonably required for distribution of the Securities and to file such
consents to service of process or other documents as may be necessary in
order to effect such registration or qualification; provided, however,
that the Company shall not be required to register or qualify as a
foreign corporation where it is not now so qualified or to take any
action that would subject it to the service of process in suits, other
than as to matters and transactions relating to the offer and sale of the
Securities, in any jurisdiction where it is not now so subject.
(i) To make generally available to the Company's security
holders as soon as reasonably practicable, but not later than 45 days
after the close of the period covered thereby, a consolidated earnings
statement (which need not be audited) covering a period of at least
twelve months beginning after the effective date of the Registration
Statement which shall satisfy the provisions of Section 11(a) of the
Act and Rule 158 promulgated thereunder, and to advise you in writing
when such statement has been so made available.
6
<PAGE>
(j) For a period of five years after the Closing Date,
to deliver without charge to you, promptly upon their becoming
available, copies of (i) all reports and other publicly available
information of the Company and any of its subsidiaries that the
Company or any of its subsidiaries shall be required to mail or
otherwise make available to its stockholders or to holders of the
Securities, (ii) all reports, financial statements and proxy
information filed by the Company or any of its subsidiaries with the
Commission or any national securities exchange and (iii) such other
publicly available information concerning the Company or any of its
subsidiaries, including without limitation, press releases as you may
reasonably request.
(k) To use the proceeds from the sale of the Securities in
the manner specified in the Prospectus under the caption "Use of
Proceeds."
(l) Whether or not the transactions contemplated by
this Agreement are consummated or this Agreement becomes effective or
is terminated, to pay and be responsible for all costs, expenses, fees
and taxes incident to and in connection with: (i) the preparation,
printing, processing, duplicating, filing, distribution and delivery
under the Act of the Registration Statement (including, without
limitation, the financial statements and exhibits thereto), each
preliminary prospectus and the Prospectus relating to the Securities and
all amendments and supplements to any of them, (ii) the preparation,
printing, processing, execution, distribution and delivery of the
Operative Documents and preliminary and supplemental Blue Sky memoranda,
(iii) the registration with the Commission and the issuance, transfer and
delivery by the Company of the Securities (including, without limitation,
the fees of the Company's paying agent and registrar, the costs of
printing and engraving the certificates representing the Securities and
all transfer and other taxes payable thereon), (iv) the registration or
qualification of the Securities for offer and sale under the securities
or Blue Sky laws of the several states (including, without limitation,
the fees and disbursements of counsel to the Underwriters relating to
such registration or qualification and memoranda relating thereto and all
filing fees in connection therewith), (v) furnishing such copies of the
Registration Statement, the Prospectus and all preliminary prospectuses,
and all amendments and supplements thereto, as may be reasonably
requested by you or by dealers to whom Securities may be sold, (vi) the
rating of the Securities by rating agencies, (vii) filing and clearance
by the National Association of Securities Dealers, Inc. in connection
with the offering of the Securities, including the fees and disbursements
of your counsel in relation thereto, (viii) the reasonable fees and
expenses of the Trustee in connection with the Note Indenture and the
Securities, and (ix) the performance by the Company of its other
obligations under this Agreement and the other Operative Documents.
7
<PAGE>
(m) To do and perform all things required or necessary to
be done and performed by it under this Agreement prior to and after
the Closing Date and to satisfy all conditions precedent to the
delivery of the Securities.
(n) Not to, and to cause its affiliates not to, offer,
sell, contract to sell or grant any option to purchase or otherwise
transfer or dispose of any debt security, or any security convertible
into or exchangeable or exercisable for, any such debt security of the
Company or such affiliate (other than loans pursuant to the New Credit
Agreement, for a period of 180 days after the date of the Prospectus,
without your prior written consent.
(o) Not to take, directly or indirectly, any action
designed to, or that might reasonably be expected to, cause or result
in stabilization or manipulation of the price of any security of the
Company or its subsidiaries to facilitate the sale or resale of the
Securities. Except as permitted by the Act, the Company and its
subsidiaries will not distribute any Registration Statement, preliminary
prospectus or Prospectus or other offering material in connection with
the offering and sale of the Securities.
(p) Prior to the Closing Date, to furnish to you, as soon
as they have been prepared and approved for distribution generally by
the Company, a copy of all consolidated financial statements of the
Company and its subsidiaries or the DEA Group for all periods
subsequent to the period covered by the financial statements appearing
in the Registration Statement and the Prospectus.
6. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to you that:
(a)(i) Each preliminary prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Act, complied when so
filed with the Act and the Trust Indenture Act of 1939, as amended
(the "TRUST INDENTURE ACT"); (ii) when the Registration Statement
became or becomes effective, including at the date of each post-
effective amendment, at the date of the Prospectus (if different) and
at the Closing Date, the Registration Statement and each amendment
thereto complied or will comply with the provisions of the Act and the
Trust Indenture Act and will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading;
and (iii) the Prospectus and each amendment and supplement thereto, as
of its date and the Closing Date, will not contain any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that
the representations and warranties contained in this paragraph (a)
shall not apply to statements or omissions in
8
<PAGE>
the Registration Statement or the Prospectus (or any supplement or
amendment to them) made in reliance on and in conformity with information
relating to you furnished to the Company in writing by you expressly for
use therein. The Company acknowledges for all purposes under this
Agreement that the statements set forth in the last sentence of the first
paragraph, the second sentence of the third paragraph and the last
paragraph under the caption "Underwriting" in the Prospectus (and each
amendment or supplement) constitute information relating to you furnished
to the Company in writing by you, expressly for use in the Registration
Statement and the Prospectus (or any amendment or supplement to them). As
of the Closing Date, the Note Indenture will be duly qualified under the
Trust Indenture Act.
(b) Each of the Company and its subsidiaries (including the DEA
Group) has been duly organized, is validly existing as a corporation in
good standing under the laws of its respective jurisdiction of
incorporation, has all requisite corporate power and authority to carry
on its business as it is currently being conducted and as described in
the Registration Statement and Prospectus and to own, lease and operate
its properties, and is duly qualified and in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the
nature of its business or its ownership or leasing of property requires
such qualification, except where the failure to be so qualified or in
good standing would not have a material adverse effect on (i) the
business, condition (financial or other), results of operations, affairs,
properties or prospects of the Company and its subsidiaries (including
the DEA Group), taken as a whole, (ii) the issuance, sale and delivery of
the Securities or (iii) the consummation of the transactions contemplated
by this Agreement or the other Operative Documents (each of the events
described in clause (i), (ii) or (iii), a "MATERIAL ADVERSE EFFECT").
(c) The Company has all requisite corporate power and authority
to authorize the offering of the Securities, to execute, deliver and
perform its obligations under this Agreement and the other Operative
Documents and to issue, sell and deliver the Securities to you as provided
herein.
(d) The execution, delivery and performance by the Company
of this Agreement and the other Operative Documents, the issuance and
sale of the Securities, and the consummation of the transactions
contemplated hereby and thereby will not violate, conflict with or
constitute a breach of any of the terms or provisions of, or a default
under (or an event that with notice or the lapse of time, or both,
would constitute a default), or require consent under, or result in
the imposition of a lien or encumbrance on any properties of the
Company or any of its subsidiaries (including the DEA Group), or an
acceleration of indebtedness pursuant to, (i) the charter or bylaws of
the Company or any of its subsidiaries (including the DEA Group), (ii)
any bond, debenture, note, indenture, mortgage, deed of
9
<PAGE>
trust or other agreement or instrument to which the Company or any of its
subsidiaries (including the DEA Group) is a party or by which any of
them or their property is or may be bound, (iii) any statute, rule or
regulation applicable to the Company, any of its subsidiaries
(including the DEA Group) or any of their assets or properties, or (iv) any
judgment, order or decree of any court or governmental agency or authority
having jurisdiction over the Company, any of its subsidiaries (including
the DEA Group) or their assets or properties, except, in the case of events
described in clauses (ii), (iii) and (iv), for such events as would not
have a Material Adverse Effect. No consent, approval, authorization or
other action by, or order of, or filing, notice, registration,
qualification, license or permit of or with, any court or governmental
agency, body or administrative agency is required for the execution,
delivery and performance of this Agreement and the other Operative
Documents, the consummation of the DEA Acquisition and the consummation of
the transactions contemplated hereby and thereby, except such as have been
obtained and made under the Act, the Trust Indenture Act and state
securities or Blue Sky laws and regulations. No consents or waivers from
any other person are required for the execution, delivery and performance
of this Agreement and the other Operative Documents, the consummation of
the DEA Acquisition and the consummation of the transactions contemplated
hereby and thereby, other than such consents and waivers as have been
obtained.
(e) This Agreement has been duly and validly authorized,
executed and delivered by the Company and constitutes the legal, valid
and binding obligation of the Company, enforceable against it in
accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and
subject, as to enforceability, to general principles of equity,
including principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a proceeding
at law or in equity) and except to the extent that rights to
indemnification and contribution thereunder may be limited by federal
or state securities laws or public policy relating thereto.
(f) The Note Indenture has been duly and validly authorized
by the Company and, when duly executed and delivered by the Company,
will constitute the legal, valid and binding obligation of the
Company, enforceable against it in accordance with its terms, subject
to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial
reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
(g) The Securities have been duly and validly authorized
for issuance and sale by the Company to you pursuant to this Agreement
and, when issued and authenticated in
10
<PAGE>
accordance with the terms of the Note Indenture and delivered against
payment therefor in accordance with the terms hereof, will constitute the
legal, valid and binding obligations of the Company, enforceable
against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies
generally, and subject, as to enforceability, to general principles of
equity, including principles of commercial reasonableness, good faith
and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity). The Securities, when issued,
authenticated and delivered, will conform in all material respects to
the description thereof in the Prospectus and the Registration
Statement. Upon transfer, assignment and delivery of the Securities
and payment therefor in accordance with the terms of the Agreement,
you will acquire good and marketable title to such Securities, free
and clear of any and all liens, pledges, encumbrances, charges,
agreements or claims of any kind whatsoever.
(h) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus and up to the
Closing Date, except as set forth in the Registration Statement and the
Prospectus, neither the Company nor any of its subsidiaries (including the
DEA Group) has incurred any liabilities or obligations, direct or
contingent, which are material to the Company and its subsidiaries
(including the DEA Group) taken as a whole, nor entered into any
transaction not in the ordinary course of business, and there has not been,
singly or in the aggregate, any material adverse change, or any development
which may reasonably be expected to involve a material adverse change, in
the properties, business, results of operations, condition (financial or
otherwise), affairs or prospects of the Company and its subsidiaries
(including the DEA Group), taken as a whole (a "MATERIAL ADVERSE CHANGE").
(i) Neither the Company nor any of its subsidiaries (including
the DEA Group) is (i) in violation of its respective charter or bylaws or
(ii) in default in the performance of any bond, debenture, note, indenture,
mortgage, deed of trust or other agreement or instrument to which it is a
party or by which it is bound or to which any of its properties is subject
or (iii) in violation of any law, statute, rule, regulation, judgment or
court decree applicable to the Company, any of its subsidiaries (including
the DEA Group) or their assets or properties, except, in the case of
violations or defaults described in clauses (ii) and (iii), for such
violations or defaults as would not have a Material Adverse Effect. There
exists no condition that, with notice, the passage of time or otherwise,
would constitute such a default under any such document or instrument.
(j) There is (i) no action, suit or proceeding before or by
any court, arbitrator or governmental agency, body or official,
domestic, foreign or international, now pending or, to the best of the
Company's knowledge, threatened to which the Company or any of its
11
<PAGE>
subsidiaries (including the DEA Group) is or may be a party or to which the
business or property of the Company or any of its subsidiaries (including
the DEA Group) is or may be subject, (ii) no statute, rule, regulation or
order that has been enacted, adopted or issued by any governmental agency
(domestic, foreign or international) or that has been proposed by any
governmental body (domestic, foreign or international), (iii) no
injunction, restraining order or order of any nature by a court of
competent jurisdiction to which the Company or any of its subsidiaries
(including the DEA Group) is or may be subject that, in the case of clauses
(i), (ii) and (iii) above, (w) is required to be disclosed in the
Registration Statement or the Prospectus and that is not so disclosed or
(x) is reasonably likely to have a Material Adverse Effect. No contract,
agreement, instrument or document of a character required to be described
in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement is not so described or filed as
required.
(k) In the ordinary course of its business, each of the Company
and its subsidiaries (including the DEA Group) conducts periodic reviews of
the effect of Environmental Laws (as defined herein) and the disposal
and/or release of hazardous or toxic substances, wastes, pollutants and
contaminants on the business, operations and properties of the Company and
its subsidiaries, in the course of which it identifies and evaluates
associated costs and liabilities (including, without limitation, all
capital and operating expenditures required for cleanup, closure of
properties and compliance with Environmental Laws, all permits, licenses
and approvals, all related constraints on operating activities and all
potential liabilities to governmental or third parties). On the basis of
such reviews, the Company has reasonably concluded that such associated
costs and liabilities would not, singly or in the aggregate, result in a
Material Adverse Effect. Neither the Company nor any of its subsidiaries
has violated any environmental, safety or similar law or regulation
applicable to it or its business or property relating to the protection of
human health and safety, the environment or hazardous or toxic substances
or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), lacks any
permit, license or other approval required of them under applicable
Environmental Laws or is violating any term or condition of such
permit, license or approval which would result, singly or in the
aggregate, in a Material Adverse Effect.
(l) Each of the Company and its subsidiaries (including the
DEA Group) has (i) good and marketable title to all of the properties
and assets described in the Prospectus as owned by it, free and clear
of all liens, charges, encumbrances and restrictions, except such as
are described in the Prospectus or as would not have a Material
Adverse Effect, (ii) peaceful and undisturbed possession under all
material leases to which it is party as lessee and (iii) all licenses,
certificates, permits, authorizations, approvals, franchises and other
rights from, and has made all declarations and filings with, all
governmental authorities (domestic, foreign or international), all
self-regulatory authorities and all courts and other
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tribunals (each an "AUTHORIZATION") necessary to engage in the business
currently conducted by it in the manner described in the Prospectus, except
where failure to hold such Authorizations would not, individually or in the
aggregate, have a Material Adverse Effect. All such Authorizations are
valid and in full force and effect and the Company and its subsidiaries
(including the DEA Group) are in compliance in all material respects with
the terms and conditions of all such Authorizations and with the rules and
regulations of the regulatory authorities having jurisdiction with respect
thereto.
(m) There is (i) no material unfair labor practice complaint
pending against the Company or any of its subsidiaries (including the DEA
Group) nor, to the best knowledge of the Company and its subsidiaries
(including the DEA Group), threatened against any of them, before the
National Labor Relations Board or any state or local labor relations board,
and no significant grievance or significant arbitration proceeding arising
out of or under any collective bargaining agreement is so pending against
the Company or any or its subsidiaries (including the DEA Group) or, to the
best knowledge of the Company, threatened against any of them, except in
each case as described in the Prospectus (ii) no other material complaint,
claim or charge pending against the Company or any of its subsidiaries
(including the DEA Group) nor, to the best knowledge of the Company and its
subsidiaries (including the DEA Group), threatened against any of them
before any public or governmental authority, arbitrator or court relating
to the employment by the Company or any of its subsidiaries (including the
DEA Group) of any individual, (iii) no material strike, labor dispute,
slowdown or stoppage pending against the Company or any of its
subsidiaries (including the DEA Group) nor, to the best knowledge of
the Company, threatened against the Company or any of its subsidiaries
(including the DEA Group) and (iv) to the best knowledge of the
Company, no union representation question existing with respect to the
employees of the Company and, to the best knowledge of the Company, no
union organizing activities are taking place. Neither the Company nor
any of its subsidiaries (including the DEA Group) has violated any
federal, state or local law relating to discrimination in hiring,
promotion or pay of employees, nor any applicable wage or hour laws
nor any occupational safety and health laws, nor any provision of the
Employee Retirement Income Security Act of 1974, as amended, or the
rules and regulations thereunder, which might result, singly or in the
aggregate, in a Material Adverse Effect.
(n) Each of the Company and its subsidiaries (including the
DEA Group) owns or is licensed to use all patents, patent
applications, copyrights, inventions, trade secrets and know-how
(including all unpatented or unpatentable proprietary or confidential
information or procedures), trademarks, service marks and trade names
(collectively, "INTELLECTUAL PROPERTY") presently employed by it in
connection with the businesses now operated by them, and neither the
Company nor any of its subsidiaries (including the DEA Group) has
received any notice of infringement of or conflict with
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asserted rights of others with respect to any Intellectual Property, nor
has knowledge of any basis for any such notice. The operations and other
activities of the businesses of the Company and its subsidiaries
(including the DEA Group) do not infringe the rights of any person in
any Intellectual Property.
(o) Neither the Company nor any of its subsidiaries (including
the DEA Group) has (i) taken, directly or indirectly, any action designed
to, or that might reasonably be expected to, cause or result in
stabilization or manipulation of the price of any security of the Company
or any of its subsidiaries (including the DEA Group) to facilitate the sale
or resale of the Securities or (ii) since the initial filing of the
Registration Statement (A) sold, bid for, purchased or paid any person any
compensation for soliciting purchases of, the Securities or (B) paid or
agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company. Except as permitted by the
Act, the Company has not distributed any Registration Statement,
Prospectus, preliminary prospectus or other offering material in connection
with the offering and sale of the Securities.
(p) Neither the Company nor any of its subsidiaries is
(i) an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended (the "INVESTMENT COMPANY ACT"), or (ii) a "holding company" or a
"subsidiary company" or an "affiliate" of a holding company within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
(q) No injunction, restraining order or order of any nature by
a federal or state court of competent jurisdiction has been issued that
suspends the effectiveness of the Registration Statement or prevents or
suspends the use of any preliminary prospectus or suspends the sale of the
Securities in any jurisdiction referred to in Section 5(h) hereof; and no
action, suit or proceeding is pending against or affecting or, to the best
knowledge of the Company, threatened against, the Company or any of its
subsidiaries (including the DEA Group) before any court or arbitrator or
any governmental body, agency or official which, if adversely determined,
would adversely affect the marketability of the Securities.
(r) The Company and each of its subsidiaries (including the DEA
Group) maintains insurance covering their properties, operations, personnel
and businesses in such amounts, and covering such losses and risks, as are
adequate in accordance with customary industry practice to protect the
Company and its subsidiaries (including the DEA Group) and their
businesses. Neither the Company nor any of its subsidiaries (including the
DEA Group) has received notice from any insurer or agent of such insurer
that substantial capital improvements or other expenditures will have to be
made in order to continue such
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insurance. All such insurance is outstanding and duly in force on the date
hereof and will be outstanding and duly in force on the Closing Date.
(s) The accountants who have certified or shall certify the
historical consolidated financial statements and supporting schedules filed
or to be filed with the Commission as part of the Registration Statement
and the Prospectus are independent accountants as required by the Act. The
historical consolidated financial statements, together with the related
schedules and notes thereto set forth in the Prospectus and in the
Registration Statement, comply in all material respects with the
requirements of the Act and have been prepared, and fairly present the
financial condition and results of operations of the Company and its
subsidiaries, the DEA Group, Ets. Pierre Roch S.A. ("Roch") or Mauser
Prazisions-Messmittel GmbH ("Mauser"), as the case may be, at the
respective dates and for the respective periods indicated, in accordance
with accounting principles generally accepted in the United States
consistently applied throughout such periods. The pro forma financial data
and the related notes thereto included in the Registration Statement (and
any amendment or supplement thereto) have been prepared in accordance with
the applicable requirements of the Act, include all adjustments necessary
to present fairly the pro forma financial condition and results of
operations at the respective dates and for the respective periods indicated
and are based upon good faith estimates and assumptions believed by the
Company to be reasonable at the time made. The other financial and
statistical information and data set forth in the Registration Statement
(and any amendment or supplement thereto) is, in all material respects,
accurately presented and prepared on a basis consistent with such financial
statements and the books and records of the Company and its subsidiaries,
DEA, Roch or Mauser, as the case may be.
(t) Each of the Company and its subsidiaries (including the
DEA Group) maintains a system of internal accounting controls
sufficient to provide reasonable assurance that: (i) transactions are
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect
thereto.
(u) There are no holders of securities of the Company or any of
its subsidiaries or the DEA Group who, by reason of the filing
of the Registration Statement under the Act, the execution by the
Company of this Agreement or any other Operative Document or the
consummation of the transactions contemplated hereby and thereby, have
the right to request or demand that the Company register under the Act
securities held by
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them [other than [Mercer], which has waived its rights in writing prior
to the execution and delivery of this Agreement].
(v) There are no contracts, agreements or understandings
between the Company or any of its subsidiaries and any person that would
give rise to a valid claim against the Company, its subsidiaries or the
Underwriter for a brokerage commission, finder's fee or like payment in
connection with the issuance, purchase and sale of the Securities.
(w) The Company has delivered to you a true and correct copy of
the [NEW CREDIT AGREEMENT] and there have been no amendments, alterations,
modifications or waivers thereto or in the exhibits or schedules thereto
since ________ __, 1994. The New Credit Agreement has been duly and validly
authorized by the Company and (assuming due execution and delivery thereof
by the other parties thereto), the New Credit Agreement will be a legally
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms. There shall exist at and as of the
Closing Date (after giving effect to the transactions contemplated by this
Agreement) no conditions that would constitute a default (or an event that
with notice or the lapse of time, or both, would constitute a default)
under the Note Indenture, the New Credit Agreement or any other
indebtedness of the Company or any of its subsidiaries (including the DEA
Group). The New Credit Agreement conforms in all material respects to the
description thereof in the Prospectus and the Registration Statement.
(x) None of the Company, its subsidiaries (including the DEA
Group) or any agent thereof acting on the behalf of any of them has taken,
and none of them will take, any action that might cause this Agreement or
the issuance or sale of the Securities to violate Regulation G (12 C.F.R.
Part 207), Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part
221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the
Federal Reserve System.
(y) The entities listed on Schedule I hereto are the only
subsidiaries, direct or indirect, of the Company and, at the Closing, the
entities listed on Schedules I and II hereto will be the only subsidiaries,
direct or indirect, of the Company. The Company owns (or will own at the
Closing), directly or indirectly, 100% of the outstanding capital stock or
other securities evidencing equity ownership of such subsidiaries (other
than as set forth on such schedules), free and clear of any security
interest, claim, lien, limitation on voting rights or encumbrance; and all
of such securities have been duly authorized, validly issued, are fully
paid and nonassessable and were not issued in violation of any preemptive
or similar rights. There are no outstanding subscriptions, rights,
warrants, calls, commitments
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of sale or options to acquire, or instruments convertible into or
exchangeable for, any such shares of capital stock or other equity
interest of such subsidiaries.
(z) The authorized, issued and outstanding capital stock of
the Company has been duly and validly authorized and issued, is fully paid
and nonassessable and was not issued in violation of or subject to any
preemptive or similar rights. The Company's authorized and outstanding
capitalization is as set forth in the Registration Statement and the
Prospectus.
(aa) All tax returns required to be filed by the Company
and its subsidiaries, in all jurisdictions, have been so filed. All taxes,
including withholding taxes, penalties and interest, assessments, fees and
other charges due or claimed to be due from such entities or that are due
and payable have been paid, other than those being contested in good faith
and for which adequate reserves have been provided or those currently
payable without penalty or interest or in the case of franchise taxes and
charges related thereto that would not singly or in the aggregate have a
Material Adverse Effect. The Company does not know of any material proposed
additional tax assessments against it or any of its subsidiaries.
(bb) The Company and its subsidiaries have complied with all of
the provisions of Florida H.B. 1771, codified as Section 517.075 of the
Florida statutes, and all regulations promulgated thereunder relating to
issuers doing business with the Government of Cuba or with any person or
any affiliate located in Cuba.
(cc) Each of the representations and warranties by
Finmeccanica regarding or relating to the DEA Group or any one or more
companies in the DEA Group or their properties, business, financial
condition or otherwise contained in Section 3 of the Acquisition Agreement
is hereby incorporated by reference is this Section 6(cc) and made by the
Company as if each such representation and warranty was set forth herein in
full (the capitalized terms used in such representations and warranties
shall have the meanings ascribed to them in the Acquisition Agreement).
Each of the representations and warranties by the Company contained in
Sections 4.2, 4.3, 4.4 (except the last paragraph thereof), 4.7(iii)
through (vii), 4.8, 4.9 (provided that the clause "excluding from the
provisions . . . and the Subsidiaries contained therein" in Section 4.9(b)
and the clause "excluding from the provisions . . . and the Subsidiaries
contained therein" in Section 4.9(c) shall not be incorporated in this
Agreement), 4.10, 4.11, 4.12, 4.14 and 4.16 of the Acquisition Agreement is
hereby incorporated by reference in this Section 6(cc) as if such
representation and warranty was set forth herein in full (the capitalized
terms used in such representations and warranties shall have the meanings
ascribed to them in the Acquisition Agreement).
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7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless (i) the
Underwriter and (ii) each person, if any, who controls (within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act) the Underwriter
(any of the persons referred to in this clause (ii) being hereinafter
referred to as a "controlling person"), and (iii) the respective officers,
directors, partners, employees, representatives and agents of the
Underwriter or any controlling person (any person referred to in clause
(i), (ii) or (iii) may hereinafter be referred to as an "INDEMNIFIED
PERSON") to the fullest extent lawful, from and against any and all losses,
claims, damages, liabilities, judgments, actions and expenses (including
without limitation and as incurred, reimbursement of all reasonable costs
of investigating, preparing, pursuing or defending any claim or action, or
any investigation or proceeding by any governmental agency or body,
commenced or threatened, including the reasonable fees and expenses of
counsel to any Indemnified Person) directly or indirectly caused by,
related to, based upon, arising out of or in connection with any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the
information deemed to be a part of the Registration Statement pursuant to
Rule 430A promulgated under the Act, if applicable, or the Prospectus
(including any amendment or supplement thereto) or any preliminary
prospectus, or 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 case of the Prospectus, in the light of the circumstances
under which they were made) not misleading, except (i) insofar as such
losses, claims, damages, liabilities or expenses are caused by an untrue
statement or omission or alleged untrue statement or omission that is made
in reliance upon and in conformity with information relating to the
Underwriter furnished in writing to the Company by the Underwriter
expressly for use in the Registration Statement (or any amendment thereto)
or the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus or (ii) with respect to any preliminary prospectus,
to the extent that any such losses, claims, damages, liabilities or
expenses result solely from the fact that the Underwriter sold securities
to a person to whom there was not sent or given, at or prior to written
confirmation of such sale, a copy of the Prospectus, as amended or
supplemented, if the Company shall have previously furnished copies thereof
to the Underwriter in accordance with this Agreement and the Prospectus, as
amended or supplemented, would have completely corrected such untrue
statement or omission. The Company shall notify you promptly of the
institution, threat or assertion of any claim, proceeding (including any
governmental investigation) or litigation in connection with the matters
addressed by this Agreement which involves the Company or an Indemnified
Person.
(b) In case any action or proceeding (including any
governmental investigation) shall be brought or asserted against any
of the Indemnified Persons with
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respect to which indemnity may be sought against the Company, the
Underwriter (or the Underwriter controlled by such controlling person)
shall promptly notify the Company in writing (provided, that the failure to
give such notice shall not relieve the Company of its obligations pursuant
to this Agreement except to the extent that it has been materially
prejudiced by such failure). Such Indemnified Person shall have the right
to employ its own counsel in any such action and the fees and expenses of
such counsel shall be paid, as incurred, by the Company (regardless of
whether it is ultimately determined that an Indemnified Person is not
entitled to Indemnification hereunder). The Company shall not, in
connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances,
be liable for the reasonable fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) at any time for such
Indemnified Persons, which firm shall be designated by the Underwriter and
reasonably acceptable to the Company. The Company shall be liable for any
settlement of any such action or proceeding effected with the Company's
prior written consent, which consent will not be unreasonably withheld, and
the Company agrees to indemnify and hold harmless any Indemnified Person
from and against any loss, claim, damage, liability or expense by reason of
any settlement of any action effected with the written consent of the
Company. Notwithstanding the immediately preceding sentence, if at any time
an Indemnified Person shall have requested an indemnifying party to
reimburse the Indemnified Person for fees and expenses of counsel as
contemplated by the second sentence of this paragraph, the indemnifying
party agrees that it shall be liable for any settlement of any proceeding
effected without its written consent if (i) such settlement is entered into
more than thirty business days after receipt by such indemnifying party of
the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the Indemnified Person in accordance with such request prior to
the date of such settlement. The Company shall not, without the prior
written consent of each Indemnified Person, settle or compromise or consent
to the entry of judgment in or otherwise seek to terminate any pending or
threatened action, claim, litigation or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not any
Indemnified Person is a party thereto), unless such settlement, compromise,
consent or termination includes an unconditional release of each
Indemnified Person from all liability arising out of such action, claim
litigation or proceeding.
(c) The Underwriter agrees to indemnify and hold harmless the
Company, its directors, its officers who sign the Registration Statement,
any person controlling (within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act) the Company, and the officers, directors,
partners, employees, representatives and agents of each such person, to the
same extent as the foregoing indemnity from the Company to each of the
Indemnified Persons, but only with respect to claims and actions based on
information relating to the
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Underwriter furnished in writing by the Underwriter expressly for use in
the Registration Statement or the Prospectus (or any amendment or
supplement thereto).
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party in respect of any losses, claims,
damages, liabilities or expenses referred to herein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities and expenses
(i) in such proportion as is appropriate to reflect the relative benefits
received by the indemnifying party on the one hand and the indemnified
party on the other hand from the offering of the Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
indemnifying parties and the indemnified party, as well as any other
relevant equitable considerations. The relative benefits received by the
Company, on the one hand, and the Underwriter, on the other hand, shall be
deemed to be in the same proportion as the total proceeds from the offering
(net of underwriting discounts and commissions but before deducting
expenses) received by the Company bear to the total underwriting discounts
and commissions received by the Underwriter, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault of the
Company and the Underwriter shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact related
to information supplied by the Company or the Underwriter and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The indemnity set forth
herein shall be in addition to any liability or obligation of the Company
that the Company may otherwise have to any Indemnified Person.
The Company and the Underwriter agree that it would not be
just and equitable if contribution pursuant to this Section 7(d) were
determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages,
liabilities or expenses referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section
7, the Underwriter (and its related Indemnified Persons) shall not be
required to contribute, in the aggregate, any amount in excess of the
amount by which the total underwriting discount applicable to the
Securities purchased by the Underwriter exceeds the amount of any
damages which the Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation
(within the
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meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
8. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. The several
obligations of the Underwriters under this Agreement are subject to the
satisfaction of each of the following conditions:
(a) All of the representations and warranties of the Company
contained in this Agreement shall be true and correct on the date hereof
and on the Closing Date with the same force and effect as if made on and as
of the date hereof and the Closing Date, respectively. The Company shall
have performed or complied with all of the agreements herein contained and
required to be performed or complied with by it at or prior to the Closing
Date.
(b)(i) The Registration Statement shall have become effective
(or if a post-effective amendment is required to be filed pursuant to Rule
430A under the Act, such post-effective amendment shall become effective)
not later than 10:00 a.m., New York City time, on the date of this
Agreement or at such later date and time as you may approve in writing,
(ii) at or prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission and every request for additional
information on the part of the Commission shall have been complied with in
all material respects and (iii) no stop order suspending the sale of the
Securities in any jurisdiction designated by the Underwriter pursuant to
Section 5(h) hereof shall have been issued and no proceeding for that
purpose shall have been commenced or be pending before, or contemplated by,
any state securities regulators.
(c) No action shall have been taken and no statute, rule or
regulation or order shall have been enacted, adopted or issued by any
governmental agency that would as of the Closing Date prevent the issuance
of the Securities; and no injunction, restraining order or order of any
nature by a federal, state or foreign court of competent jurisdiction shall
have been issued as of the Closing Date that would prevent or interfere
with the issuance of the Securities.
(d) Since the date of the latest balance sheet included in the
Registration Statement and Prospectus (before and after consummation of the
DEA Transaction) there shall not have been any material change, or any
development that is reasonably likely to result in a material change, in
the capital stock or the long-term debt, or material increase in the short-
term debt, of the Company or any of its subsidiaries (including the DEA
Group) from that set forth in the Registration Statement and Prospectus,
and no dividend or
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distribution of any kind shall have been declared, paid or made by the
Company on any class of its capital stock, and (ii) neither the Company nor
any of its subsidiaries (including the DEA Group) shall have incurred any
liabilities or obligations, direct or contingent, that are material,
individually or in the aggregate, to the Company and its subsidiaries
(including the DEA Group), taken as a whole, and are required to be
disclosed on a balance sheet in accordance with generally accepted
accounting principles and are not disclosed on the latest balance sheet
included in the Registration Statement and the Prospectus. Since the date
hereof and since the dates as of which information is given in the
Registration Statement and the Prospectus, there shall not have been any
Material Adverse Change.
(e) On the Closing Date, you shall have received a certificate
dated the Closing Date, signed by the President and the Chief Financial
Officer of the Company, confirming the matters set forth in paragraphs
(a), (b), (c) and (d) of this Section 8.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and your counsel), dated the Closing Date, of Ropes &
Gray, counsel for the Company and its subsidiaries, in the form attached
hereto as EXHIBIT A. Such opinion shall be rendered at the request of the
Company and shall so state therein.
(g) You shall have received on the Closing Date an opinion
(satisfactory to the you and your counsel), dated the Closing Date, of
local counsel acceptable to you in [each of] Michigan [and other states if
necessary], special counsel for the Company and its subsidiaries, in the
form attached hereto as EXHIBIT B. Such opinions shall be rendered at the
request of the Company and shall so state therein.
(h) You shall have received on the Closing Date opinions
(satisfactory to you and your counsel), dated the Closing Date, of local
counsel acceptable to you in each of France, Germany, Japan, Switzerland
and the United Kingdom, special counsel for the Company and its
subsidiaries, in the form attached hereto as EXHIBIT C. Such opinions shall
be rendered at the request of the Company and shall so state therein.
(i) You shall have received on the Closing Date an opinion
(satisfactory to you and your counsel), dated the Closing Date, of [Italian
counsel], special counsel for the Company and its subsidiaries, in the form
attached hereto as EXHIBIT D. Such opinion shall be rendered at the request
of the Company and shall so state therein.
(j) You shall have received on the Closing Date opinions
(satisfactory to you and your counsel) dated the Closing Date of each
counsel for Finmeccanica in the form agreed to pursuant to Section
10.3 of the Acquisition Agreement.
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(k) All proceedings taken in connection with the sale of the
Securities as herein contemplated shall be reasonably satisfactory in form
and substance to you and to Weil, Gotshal & Manges, and you shall have
received on the Closing Date an opinion, dated the Closing Date, of Weil,
Gotshal & Manges in form and substance reasonably satisfactory to you.
(l) At the time this Agreement is executed and delivered by
the Company and on the Closing Date, you shall have received letters,
substantially in the form previously approved by you, from (i) Coopers &
Lybrand in Boston and Turin, each independent public accountants with
respect to the financial statements and certain financial information
contained in the Registration Statement and the Prospectus, (ii) Reconta
Ernst & Young, independent public accountants with respect to the financial
statements and certain financial information contained in the Registration
Statement and the Prospectus regarding the DEA Group, (iii) Kurt
Schlotthauer, independent public accountants with respect to certain
financial information contained in the Registration Statement and the
Prospectus regarding Roch, (iv) C&L Treuhand-Vereinigung Deutsche Revision,
independent public accountants with respect to certain financial
information contained in the Registration Statement and the Prospectus
regarding Mauser, and (v) Price Waterhouse, independent public accountants
with respect to certain financial information contained in the Registration
Statement and the Prospectus regarding a subsidiary of DEA.
(m) Your counsel shall have been furnished with such documents
and opinions, in addition to those set forth herein, as they may
reasonably require for the purpose of enabling them to review or pass upon
the matters referred to in this Section 8 and in order to evidence the
accuracy, completeness and satisfaction of the representations, warranties
and conditions herein contained.
(n) The closing of the DEA Acquisition shall have occurred
in all material respects in the manner described in the Registration
Statement concurrently with the closing described in Section 3.
(o) You shall have received an opinion of [to be supplied]
as to the solvency of the Company, substantially in the form
previously approved by you.
(p) You shall have received, prior to the execution and
delivery hereof, evidence in writing satisfactory to you that each of
Messrs. Barclay, Eppich, Lochner and Paolino have waived the provisions
in their respective employment agreements so that the DEA Transaction will
not be a "Change of Control" as defined in such agreements.
23
<PAGE>
(q) You shall have received, prior to the execution and
delivery hereof, evidence in writing satisfactory to you that Mercer has
waived its registration rights arising in connection with the transactions
contemplated hereby.
(r) Prior to the Closing Date, the Company shall have furnished
to you such further information, certificates and documents as you may
reasonably request.
All opinions, certificates, letters and other documents required
by this Section 8 to be delivered by the Company will be in compliance with
the provisions hereof only if they are reasonably satisfactory in form and
substance to you. The Company will furnish you and your counsel with such
conformed copies of such opinions, certificates, letters and other
documents as you and your counsel shall reasonably request.
9. EFFECTIVE DATE OF AGREEMENT AND TERMINATION. This Agreement
shall become effective upon the later to occur of (i) the execution and
delivery of the Agreement by the parties hereto, (ii) the effectiveness of
the Registration Statement, and (iii) if a post-effective amendment is
required to be filed pursuant to Rule 430A under the Act, the effectiveness
of such post-effective amendment. Until this Agreement becomes effective as
aforesaid, it may be terminated by the Company by notifying you or by you
by notifying the Company.
This Agreement may be terminated at any time on or prior to the
Closing Date by you by notice to the Company if any of the following has
occurred: (i) subsequent to the date the Registration Statement is declared
effective or the date of this Agreement, any Material Adverse Change which,
in your judgment, materially impairs the investment quality of the
Securities, (ii) any outbreak or escalation of hostilities or other
national or international calamity or crisis or material adverse change in
the financial markets of the United States or elsewhere, or any other
substantial national or international calamity or emergency if the effect
of such outbreak, escalation, calamity, crisis or emergency would, in your
judgment, make it impracticable or inadvisable to market the Securities or
to enforce contracts for the sale of the Securities, (iii) any suspension
or limitation of trading generally in securities on the New York Stock
Exchange or in the over-the-counter markets or any setting of minimum
prices for trading on such exchange or markets, (iv) any declaration of a
general banking moratorium by either Federal or New York authorities, (v)
the taking of any action by any Federal, state or local government or
agency in respect of its monetary or fiscal affairs that in your judgment
has a material adverse effect on the financial markets in the United
States, and would, in your judgment, make it impracticable or inadvisable
to market the Securities or to enforce contracts for the sale of the
Securities, or (vi) any securities of the Company or any of its
subsidiaries shall have been downgraded or placed on any "watch
list" for possible downgrading by any nationally recognized
statistical rating
24
<PAGE>
organization, provided, that in the case of such "watch list" placement,
termination shall be permitted only if such placement would, in your
judgment, make it impracticable or inadvisable to market the Securities or
to enforce contracts for the sale of the Securities or materially impair
the investment quality of the Securities.
The indemnities and contribution provisions and the other
agreements, representations and warranties of the Company, its
subsidiaries, their respective officers and directors and of the
Underwriter set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and
payment for the Securities, regardless of (i) any investigation, or
statement as to the results thereof, made by or on your behalf or by or on
behalf of the Company, the officers or directors of the Company or any
controlling person of the Company, (ii) acceptance of the Securities and
payment for them hereunder, or the (iii) termination of this Agreement.
If this Agreement shall be terminated by you pursuant to clause
(i) or (vi) of the second paragraph of this Section 9 or because of the
failure or refusal on the part of the Company to comply with the terms or
to fulfill any of the conditions of this Agreement, the Company agrees to
reimburse you for all out-of-pocket expenses (including the fees and
disbursements of counsel) incurred by you. Notwithstanding any termination
of this Agreement, the Company shall be liable for all expenses which it
has agreed to pay pursuant to Section 5(l) hereof.
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Company, the
Underwriter, any Indemnified Person referred to herein and their respective
successors and assigns, all as and to the extent provided in this
Agreement, and no other person shall acquire or have any right under or by
virtue of this Agreement. The terms "successors and assigns" shall not
include a purchaser of any of the Securities from any of you merely because
of such purchase.
10. MISCELLANEOUS. Notices given pursuant to any provision
of this Agreement shall be addressed as follows: (a) if to the Company,
Brown & Sharpe Manufacturing Company, Precision Park, 200 Frenchtown Road,
North Kingstown, Rhode Island 02852-1700, Attention: ____________, with a
copy to Ropes & Gray, One International Place, Boston, Massachusetts 02110,
Attention: Howard K. Fuguet, Esq., and (b) if to the Underwriter, Wertheim
Schroder & Co. Incorporated, Equitable Center, 787 Seventh Avenue, New
York, New York 10019, Attention: Jonathan Nathanson, with a copy to Weil,
Gotshal & Manges, 767 Fifth Avenue, New York, New York 10153, Attention:
Dennis J. Block, Esq., or in any case to such other address as the person
to be notified may have requested in writing.
25
<PAGE>
This Agreement shall be governed and construed in accordance
with the internal laws of the State of New York. This Agreement may be
signed in various counterparts which together shall constitute one and the
same instrument.
26
<PAGE>
Please confirm that the foregoing correctly sets forth the
Agreement between the Company and the Underwriter.
Very truly yours,
BROWN & SHARPE
MANUFACTURING COMPANY
By:
--------------------------
Name:
Title:
Accepted and agreed to as of
the date first above written:
WERTHEIM SCHRODER & CO. INCORPORATED
By:
--------------------------------
Name:
Title:
27
<PAGE>
SCHEDULE I
[Brown & Sharpe Manufacturing Company and its subsidiaries:/1/
Borel & Dunner, Inc.
Technicomp Inc.
Brown & Sharpe International Capital Corporation and its subsidiaries:
Brown & Sharpe A.G.
Leitz Messtechnik G.m.b.H. and its subsidiary:
Tesa Leitz G.m.b.H.
Tesa, S.A. and its subsidiaries:
Etalon, S.A. and its subsidiaries:
P. Roch, S.a.R.L.
Interapid, S.A.
Ludwig-Metrologie, S.A.
Tesa Italia, S.R.L. (70% owned by Brown & Sharpe Manufacturing
Company)
Tesa Seimitsu KK
Brown & Sharpe Group Ltd. (55.5% owned by Brown & Sharpe
International Capital Corporation, 44.5% owned by Tesa S.A.) and
its subsidiaries:
Brown & Sharpe Ltd.
Tesa Metrology Systems Ltd.
Thomas Mercer Ltd.]
-----------------------
/1/. All Brown & Sharpe subsidiaries are 100% owned unless otherwise noted.
28
<PAGE>
SCHEDULE II
[DEA S.p.A. (metrology division) and its subsidiaries:
DEA Iberica S.A.
DEA Digital Electronic Automation Vetriebs G.m.b.H.
DEA Kabushiki Kaisha
Digital Electronic Automation Company (currently a subsidiary of Elsag
Bailey, a subsidiary of Finmeccanica)
DEA France S.A., metrology division (currently a subsidiary of
Finmeccanica)]
29
<PAGE>
SCHEDULE I
Brown & Sharpe Manufacturing Company and its subsidiaries:/1/
Automation Software Inc. (50% owned by Brown & Sharpe
Manufacturing Company)
Borel & Dunner, Inc.
Technicomp Inc.
BSP, Inc.
B & S Precisika (52.8% owned by BSP, Inc.)
Brown & Sharpe International Capital Corporation and its
subsidiaries:
Brown & Sharpe A.G.
Ets. Pierre Roch S.A.
Mauser Prazisions-Messmittel GmbH
Tesa, S.A. and its subsidiaries:
Etalon, S.A. and its subsidiaries:
P. Roch, S.a.R.L.
Interapid, S.A.
Tesa Italia, S.R.L. (70% owned by Brown & Sharpe
Manufacturing Company)
Tesa Seimitsu KK
Tesa France
Brown & Sharpe Group Ltd. (55.5% owned by Brown & Sharpe
International Capital Corporation, 44.5% owned by Tesa S.A.)
and its subsidiaries:
Brown & Sharpe Ltd.
Leitz Messtechnik GmbH and its subsidiary:
Tesa Leitz GmbH
Tesa Metrology Systems Limited
Thomas Mercer Limited
Thomas Mercer (Mfg.) Ltd.
Thomas Mercer Technical Services Ltd.
------------------------
/1/. All Brown & Sharpe subsidiaries are 100% owned unless otherwise noted.
28A
<PAGE>
SCHEDULE II
[DEA S.p.A. and its subsidiaries:
DEA Iberica S.A.
DEA Digital Electronic Automation Vetriebs GmbH
DEA Kabushiki Kaisha
Digital Electronic Automation Company
DEA France S.A.]
29A
<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.
-------------------------------------------------------------------
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").
<PAGE>
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
-------
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
-2-
<PAGE>
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
-3-
<PAGE>
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
-4-
<PAGE>
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
-5-
<PAGE>
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
-6-
<PAGE>
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
-7-
<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
-11-
<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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<PAGE>
(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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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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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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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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.
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<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:
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<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>
BROWN & SHARPE MANUFACTURING COMPANY
as Obligor
$75,000,000
% Senior Notes
---
due August 1, 2002
---------------------------------
INDENTURE
Dated as of , 1994
-----------
---------------------------------
[to be supplied]
Trustee
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
<S> <C> <C>
Section 1.01. Definitions . . . . . . . . . . . . . . . . . 1
Section 1.02. Other Definitions . . . . . . . . . . . . . . 16
Section 1.03. Incorporation by Reference of Trust Indenture
Act . . . . . . . . . . . . . . . . . . . . . 17
Section 1.04. Rules of Construction . . . . . . . . . . . . 18
ARTICLE 2
THE SECURITIES
Section 2.01. Form and Dating . . . . . . . . . . . . . . . 18
Section 2.02. Execution and Authentication . . . . . . . . 18
Section 2.03. Registrar and Paying Agent . . . . . . . . . 19
Section 2.04. Paying Agent to Hold Money in Trust . . . . . 20
Section 2.05. Holders Lists . . . . . . . . . . . . . . . . 20
Section 2.06. Transfer and Exchange . . . . . . . . . . . . 20
Section 2.07. Replacement Securities . . . . . . . . . . . 21
Section 2.08. Outstanding Securities . . . . . . . . . . . 22
Section 2.09. Treasury Securities . . . . . . . . . . . . . 22
Section 2.10. Temporary Securities . . . . . . . . . . . . 22
Section 2.11. Cancellation . . . . . . . . . . . . . . . . 23
Section 2.12. Defaulted Interest . . . . . . . . . . . . . 23
ARTICLE 3
REDEMPTION
Section 3.01. Notices to Trustee . . . . . . . . . . . . . 23
Section 3.02. Selection of Securities to Be Redeemed . . . 24
Section 3.03. Notice of Redemption . . . . . . . . . . . . 25
Section 3.04. Effect of Notice of Redemption . . . . . . . 26
Section 3.05. Deposit of Redemption Price . . . . . . . . . 26
Section 3.06. Securities Redeemed in Part . . . . . . . . . 26
Section 3.07. Optional Redemption . . . . . . . . . . . . . 26
Section 3.08. Mandatory Redemption . . . . . . . . . . . . 27
Section 3.09. Offer to Redeem by Application of Net
Proceeds . . . . . . . . . . . . . . . . . . 27
ARTICLE 4
COVENANTS
Section 4.01. Payment of Securities . . . . . . . . . . . . 28
Section 4.02. Maintenance of Office or Agency . . . . . . . 29
Section 4.03. SEC Reports . . . . . . . . . . . . . . . . . 29
Section 4.04. Compliance Certificate . . . . . . . . . . . 30
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 4.05. Taxes . . . . . . . . . . . . . . . . . . . . 31
Section 4.06. Stay, Extension and Usury Laws . . . . . . . 31
Section 4.07. Limitation on Restricted Payments . . . . . . 31
Section 4.08. Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries 33
Section 4.09. Limitation on Indebtedness . . . . . . . . . 34
Section 4.10. Asset Sales . . . . . . . . . . . . . . . . . 36
Section 4.11. Limitation on Sale and Leaseback Transactions 37
Section 4.12. Limitation on Transactions with Affiliates . 38
Section 4.13. Limitation on Liens . . . . . . . . . . . . . 39
Section 4.14. Corporate Existence . . . . . . . . . . . . . 40
Section 4.15. Liquidation . . . . . . . . . . . . . . . . . 41
Section 4.16. Change of Control . . . . . . . . . . . . . . 42
Section 4.17. Maintenance of Properties . . . . . . . . . . 43
Section 4.18. Maintenance of Insurance . . . . . . . . . . 44
ARTICLE 5
SUCCESSORS
Section 5.01. When the Issuer May Merge, etc . . . . . . . 44
Section 5.02. Successor Substituted . . . . . . . . . . . . 46
ARTICLE 6
DEFAULT AND REMEDIES
Section 6.01. Events of Default . . . . . . . . . . . . . . 46
Section 6.02. Acceleration . . . . . . . . . . . . . . . . 48
Section 6.03. Other Remedies . . . . . . . . . . . . . . . 49
Section 6.04. Waiver of Past Defaults . . . . . . . . . . . 50
Section 6.05. Control by Majority . . . . . . . . . . . . . 50
Section 6.06. Limitation on Suits . . . . . . . . . . . . . 50
Section 6.07. Rights of Holders to Receive Payment . . . . 51
Section 6.08. Collection Suit by Trustee . . . . . . . . . 51
Section 6.09. Trustee May File Proofs of Claim . . . . . . 51
Section 6.10. Priorities . . . . . . . . . . . . . . . . . 52
Section 6.11. Undertaking for Costs . . . . . . . . . . . . 53
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee . . . . . . . . . . . . . . 53
Section 7.02. Rights of Trustee . . . . . . . . . . . . . . 55
Section 7.03. Individual Rights of Trustee . . . . . . . . 55
Section 7.04. Trustee's Disclaimer . . . . . . . . . . . . 55
Section 7.05. Notice of Defaults . . . . . . . . . . . . . 56
Section 7.06. Reports by Trustee to Holders . . . . . . . . 56
Section 7.07. Compensation and Indemnity . . . . . . . . . 56
Section 7.08. Replacement of Trustee . . . . . . . . . . . 57
Section 7.09. Successor Trustee by Merger, etc . . . . . . 59
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 7.10. Eligibility; Disqualification . . . . . . . . 59
Section 7.11. Preferential Collection of Claims Against
Issuer . . . . . . . . . . . . . . . . . . . 59
ARTICLE 8
DISCHARGE OF INDENTURE
Section 8.01. Option to Effect Legal Defeasance or Covenant
Defeasance. . . . . . . . . . . . . . . . . . 59
Section 8.02. Legal Defeasance and Discharge . . . . . . . 60
Section 8.03. Covenant Defeasance . . . . . . . . . . . . . 60
Section 8.04. Conditions to Legal or Covenant Defeasance . 61
Section 8.05. Deposited Money and Government Securities to
Be Held in Trust; Other Miscellaneous
Provisions. . . . . . . . . . . . . . . . . . 63
Section 8.06. Repayment to Company . . . . . . . . . . . . 64
Section 8.07. Reinstatement . . . . . . . . . . . . . . . . 64
ARTICLE 9
AMENDMENTS
Section 9.01. Without Consent of Holders . . . . . . . . . 65
Section 9.02. With Consent of Holders . . . . . . . . . . . 65
Section 9.03. Compliance with Trust Indenture Act . . . . . 67
Section 9.04. Revocation and Effect of Consents . . . . . . 67
Section 9.05. Notation on or Exchange of Securities . . . . 67
Section 9.06. Trustee to Sign Amendments. etc . . . . . . . 68
ARTICLE 10
INTERCREDITOR AGREEMENT
Section 10.01. Authorization of Actions to Be Taken by the
Trustee Under the and the Intercreditor
Agreement. . . . . . . . . . . . . . . . . . 68
Section 10.02. Authorization of Receipt of Funds by the
Trustee Under the Intercreditor Agreement . . 68
Section 10.03. Conflicts . . . . . . . . . . . . . . . . . 69
ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls . . . . . . . . 69
Section 11.02. Notices . . . . . . . . . . . . . . . . . . 69
Section 11.03. Communication by Holders with Other Holders 70
Section 11.04. Certificate and Opinion as to Conditions
Precedent. . . . . . . . . . . . . . . . . . 70
Section 11.05. Statements Required in Certificate or
Opinion. . . . . . . . . . . . . . . . . . . 71
Section 11.06. Rules by Trustee and Agents . . . . . . . . 72
Section 11.07. Legal Holidays . . . . . . . . . . . . . . . 72
Section 11.08. No Recourse Against Others . . . . . . . . . 72
Section 11.09. Duplicate Originals . . . . . . . . . . . . 72
Section 11.10. Governing Law . . . . . . . . . . . . . . . 72
Section 11.11. No Adverse Interpretation of Other
Agreements . . . . . . . . . . . . . . . . . 73
Section 11.12. Successors . . . . . . . . . . . . . . . . . 73
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 11.13. Severability . . . . . . . . . . . . . . . . 73
Section 11.14. Counterpart Originals . . . . . . . . . . . 73
Section 11.15. Table of Contents, Headings, etc . . . . . . 73
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
Page
EXHIBITS
<S> <C>
EXHIBIT A - FORM OF SENIOR NOTE
EXHIBIT B - FORM OF INTERCREDITOR AGREEMENT
</TABLE>
vi
<PAGE>
INDENTURE, dated as of _________ ___, 1994, between Brown &
Sharpe Manufacturing Company, a Delaware corporation (the "Company"),
and [to be supplied], as trustee ("Trustee").
The Company and the Trustee agree as follows, for the
benefit of each other and for the equal and ratable benefit of the
Holders of the ___% Senior Notes due August 1, 2002 (the "Securities")
of the Company:
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
------------ -----------
"Acquired Indebtedness" of any specified person means
---------------------
Indebtedness of any other person and its Subsidiaries at the time such
other person merged with or into or became a Subsidiary of such
specified person or assumed by the specified person in connection with
the acquisition of assets from such other person, including, without
limitation, Indebtedness of such other person and its Subsidiaries
incurred by the specified person in connection with or in anticipation
of (a) such other person and its Subsidiaries being merged with or
into or becoming a Subsidiary of such specified person or (b) such
Acquisition by the specified person.
"Affiliate" means, with respect to any party, any person
---------
directly or indirectly controlling or controlled by or under direct or
indirect common control with such party. For purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," controlled by" and "under common control with"), as
used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the
management or policies of such Person, whether through the ownership
of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a
Person shall be deemed to be control.
"Agent" means any Registrar, Paying Agent or co-registrar.
-----
"Applicable Premium" means, in respect of Securities, 110%
------------------
of the principal amount of such Securities.
<PAGE>
"Asset Sale" means, with respect to the Issuer or any
----------
Restricted Subsidiary, the sale, lease, conveyance or other disposition
(including, without limitation, by way of merger or consolidation, and
whether by operation of law or otherwise) of any of the Issuer's or such
Restricted Subsidiary's assets (including, without limitation, (x) any
sale or other disposition of Equity Interests of any Restricted
Subsidiary and (y) any sale or other disposition of any non-cash
consideration received by the Issuer or such Restricted Subsidiary from
any prior transaction or series of related transactions that constituted
an Asset Sale), whether owned on the date hereof or subsequently
acquired, in one transaction or a series of related transactions;
provided, however; that the following shall not constitute an Asset Sale:
(i) a transaction or series of related transactions (other than
transactions described in clause (y) above) in which the Fair Market
Value of the cash and/or other consideration received (including, without
limitation, the unconditional assumption of Indebtedness) is less than
$500,000; (ii) a transaction or series of related transactions that
results in a Change of Control; and (iii) sales of inventory, spare parts
and related items in the ordinary course of business of the Issuer and
its Restricted Subsidiaries, consistent with past practices.
"Attributable Indebtedness" means, with respect to any sale
-------------------------
and leaseback arrangement, as at the time of determination, the
greater of (i) the Fair Market Value of the property subject to such
arrangement and (ii) the present value (discounted at a rate
equivalent to the Issuer's then current weighted average cost of funds
for borrowed money, compounded on a semi-annual basis) of the total
Obligations of the lessee for rental payments during the remaining
term of the lease included in such arrangement (including any period
for which such lease has been extended).
"Board of Directors" means the Board of Directors of the
------------------
Issuer, any Restricted Subsidiary of the Issuer or any authorized
committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
------------
"Capital Stock" means any and all shares, interests,
-------------
participations or other equivalents (however designated) of corporate
stock.
"Capitalized Lease Obligation" means Indebtedness
----------------------------
represented by Obligations under a lease that is required to be
capitalized for financial reporting
2
<PAGE>
purposes in accordance with GAAP and the amount of such Indebtedness
shall be the capitalized amount of such Obligations determined in
accordance with such principles.
"Change of Control" means the occurrence of any of the
-----------------
following: (i) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of more than 50% of the combined voting power of
the Capital Stock of the Company, (ii) a merger or consolidation of the
Issuer with or into another corporation with the effect that the
stockholders of the Issuer immediately prior to such merger or
consolidation hold less than 50% of the combined voting power of the
securities of the surviving corporation of such merger or the corporation
resulting from such merger or consolidation ordinarily (and apart from
rights arising under special circumstances) having the right to vote in
the election of directors outstanding immediately after such merger or
consolidation, (iii) the sale, conveyance, transfer or lease by the
Issuer of all or substantially all of its assets to any person in one
transaction or a series of related transactions or (iv) within any period
of twenty-four consecutive months, a majority of the Board of Directors
of the Issuer is not composed of Continuing Directors.
"Consolidated Cash Flow" of any person for any period means
----------------------
the sum (without duplication) of (i) the Consolidated Net Income of
such person for such period, (ii) the sum of (A) provision for income
taxes based on income or profits for such period, (B) Total Interest
Expense for such period, (C) depreciation expense for such period, (D)
amortization expense for such period and (E) other non-cash charges
for such period, in each case, to the extent such expense reduced
Consolidated Net Income for such period, minus (iii) non-cash items
increasing Consolidated Net Income for such period, in each case
determined on a consolidated basis for such person and its
consolidated Restricted Subsidiaries in accordance with GAAP.
"Consolidated Indebtedness" means the Indebtedness of the
-------------------------
Issuer and its consolidated Restricted Subsidiaries determined on a
consolidated basis in conformity with GAAP.
"Consolidated Net Income" of any person for any period the
-----------------------
aggregate Net Income of such person and its Subsidiaries (other than,
in the case of the Issuer, an Unrestricted Subsidiary of the Issuer)
for such period, provided that (i) the Net Income of any person which
is not a Subsidiary of such person but which is consolidated with such
person or is accounted for by such person by the equity method of
accounting shall be included only to the extent of the amount of cash
3
<PAGE>
dividends or cash distributions paid to such person or a wholly owned
Subsidiary of such person (other than, in the case of the Issuer, an
Unrestricted Subsidiary of the Issuer), (ii) the Net Income of any person
acquired by such person or a Subsidiary of such person in a pooling of
interests transaction for any period prior to the date of such
acquisition shall be excluded, (iii) the Net Income of any Subsidiary of
such person that is subject to restrictions, direct or indirect, on the
payment of dividends or the making of distributions to such person shall
be excluded to the extent of such restrictions, (iv) the Net Income of
(A) any Unrestricted Subsidiary and (B) any Subsidiary less than 80% of
whose securities having the right (apart from the right under special
circumstances) to vote in the election of directors are owned by the
Issuer or its wholly owned Restricted Subsidiaries shall be included for
the purpose of determining Net Income only to the extent of the amount of
cash dividends or cash distributions actually paid by such Subsidiary to
the Issuer or a wholly owned Restricted Subsidiary of the Issuer, (v) in
the case of the Issuer, the Net Income or loss attributable to any
business, properties or assets acquired (by way of merger, consolidation,
purchase or otherwise) by the Issuer or any Restricted Subsidiary of the
Issuer for any period prior to the date of such acquisition shall be
excluded, and (vi) all extraordinary gains and losses, any gain or loss
realized upon the termination of any employee pension benefit plan or in
respect of dispositions of assets other than in the ordinary course of
business and any one-time increase or decrease to Net Income which is
required to be recorded because of the adoption of new accounting
policies, practices or standards required by GAAP shall be excluded.
"Consolidated Net Worth" means consolidated shareowners'
----------------------
equity as determined in accordance with GAAP.
"Continuing Directors" means any member of the Board of
--------------------
Directors who (i) is a member of the Board of Directors on the date
hereof or (ii) was nominated for election or elected to the Board of
Directors with the affirmative vote of two-thirds of the Continuing
Directors who were members of the Board of Directors at the time of
such nomination or election.
"Corporate Trust Office of the Trustee" shall be at the
-------------------------------------
address of the Trustee specified in Section 11.02 or such other
address as the Trustee may give notice to the Issuer.
"Credit Agent" means [to be supplied], in its capacity as
------------
agent for the Lenders party to the Credit Agreement and any successor
thereto.
4
<PAGE>
"Credit Agreement" means, collectively, (i) that [name of
----------------
agreement], by and among the Company, the Lenders that may be from time
to time parties thereto and the Credit Agent, and the other Loan
Documents (as defined therein) (or other analogous documents entered into
in connection with any refinancing thereof), as any of the foregoing has
been or may from time to time be amended, renewed, supplemented or
otherwise modified at the option of the parties thereto and any other
agreement pursuant to which any of the Indebtedness, commitments,
Obligations, costs, expenses, fees, reimbursements and other indemnities
payable or owing thereunder may be refinanced, restructured, renewed,
extended, refunded or increased, as any such other agreement may from
time to time at the option of the parties thereto be amended,
supplemented, renewed or otherwise modified; and (ii) after the Credit
Agent has acknowledged in writing that the Credit Agreement has been
terminated and all then outstanding Indebtedness and Obligations
thereunder or with respect thereto have been repaid in full in cash and
discharged, any successors to or replacements of (as designated by the
Board of Directors of the Issuer in its sole judgment and evidenced by a
resolution thereof) such Credit Agreement, as such successors or
replacements may from time to time be amended, renewed, supplemented,
modified or replaced; provided, however, that the Credit Agent under any
such successor or replacement Credit Agreement shall agree to be bound by
the Intercreditor Agreement.
"DEA" means DEA S.p.A, an Italian corporation, all the
---
outstanding capital stock of which shall have been acquired by the
Company on the date of this Indenture.
"Default" means any event which is or, after notice or
-------
passage of time or both, would become an Event of Default.
"Eligible Investments" means, as to any person, (i)
--------------------
securities issued or directly and fully guaranteed or insured by the
United States of America (and, in the case of Eligible Investments of
a Foreign Subsidiary, the principal jurisdiction in which it operates)
or any agency or instrumentality thereof (provided that the full faith
and credit of the United States of America (or, in the case of
Eligible Investments of a Foreign Subsidiary, the principal
jurisdiction in which it operates) is pledged in support thereof)
having maturities of not more than one year from the date of
acquisition of such person, (ii) time deposits and certificates of
deposit of any commercial bank organized in the United States of
America (or, in the case of Eligible Investments of a Foreign
Subsidiary, the principal jurisdiction in which it operates) of
recognized standing having capital and surplus in excess of
5
<PAGE>
$100,000,000, (iii) repurchase Obligations with a term of not more than
seven (7) days for underlying securities of the types described in clause
(i) above (except that there shall be no restrictions on the maturities
of such underlying securities pursuant to this clause (iii) entered into
with any bank meeting the qualifications specified in clause (ii)), (iv)
commercial paper issued by the parent corporation of any commercial bank
(provided that the parent corporation and the bank are both incorporated
in the United States of America (or, in the case of Eligible Investments
of a Foreign Subsidiary, the principal jurisdiction in which it
operates)) of recognized standing having capital and surplus in excess of
$100,000,000, and commercial paper rated at least A-1 or the equivalent
thereof by Standard & Poor's Corporation or at least P-1 or the
equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within 365 days from the date of acquisition thereof, (v)
securities, bonds, notes, debentures, investments or other forms of
Indebtedness of any person rated at least A-2 or the equivalent thereof
by Standard & Poor's Corporation or P-2 or the equivalent thereof by
Moody's Investors Services, Inc., and in each case maturing within 365
days from the date of acquisition thereof and (vi) investments in money
market or mutual funds registered under the Investment Company Act of
1940, as amended, whose sole investments are comprised of securities of
the types described in clause (i) through (v) above.
"Equity Interests" means shares, interests, participation or
----------------
other equivalents (however designated) of Capital Stock or warrants,
options or other rights to acquire Capital Stock (but excluding any
debt security which is convertible into, or exchangeable for, capital
stock).
"Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
"Existing Debentures" means the Company's 9 1/4%
-------------------
Convertible Subordinated Debentures due 2005 issued under the
Indenture dated as of October 1, 1980 between the Company and Morgan
Guaranty Trust Company of New York, as Trustee.
"Existing Indebtedness" means all Indebtedness of the Issuer
---------------------
and its Subsidiaries (including DEA and its Subsidiaries) existing on
the date hereof, after giving effect to the acquisition by the Company
of all the outstanding stock of DEA, the Offering and the application
of the proceeds therefrom [and including the North Kingstown
mortgage].
6
<PAGE>
"Existing Liens" means Liens existing on the date of the
--------------
Indenture or incurred in connection with the North Kingstown Mortgage.
"Fair Market Value" means, with respect to any asset or
-----------------
property, the price which could be negotiated in an arm's length free
market transaction, for cash, between a willing seller and a willing
buyer, neither of whom is under undue pressure or compulsion to
complete the transaction. "Fair Market Value" shall be determined by
a majority of the members of the Board of Directors of the Issuer and
a majority of the disinterested members of such Board of Directors, if
any, acting in good faith and shall be evidenced by a duly and
properly adopted resolution of the Board of Directors; except that any
determination of Fair Market Value made with respect to any real
property or personal property which is customarily appraised shall be
made by an independent qualified appraiser.
"Fixed Charges" means for any person for any period, the sum
-------------
of (i) Total Interest Expense and (ii) dividends or other
distributions paid on Preferred Stock of such person and its
Restricted Subsidiaries for such period.
"Fixed Charge Coverage Ratio" means for any person for any
---------------------------
period, the ratio of its (a) Consolidated Cash Flow to (b) Fixed Charges
for such period. If, at any time during the period for which Consolidated
Cash Flow or Fixed Charges of any person is required to be determined, or
concurrently with or immediately after the incurrence of any Indebtedness
giving rise to any such determination, any of the following events shall
occur: (i) such person acquires a Subsidiary; (ii) such person or any of
its Restricted Subsidiaries acquire, directly or indirectly, a business;
(iii) such person or any of its Subsidiaries sells or otherwise disposes
of any of their respective Subsidiaries (a "Stock Disposition") or any
properties or assets (including on liquidation, dissolution or winding
up) outside the ordinary course of business (an "Asset Disposition") and
such Stock Disposition or Asset Disposition, together with all other
Stock Dispositions and Asset Dispositions during the immediately
preceding 12-month period, accounts for more than 5% of such person's
Consolidated Cash Flow for the four consecutive fiscal quarters
immediately preceding the date of such determination; or (iv) such person
or any of its Subsidiaries incurs any Indebtedness, then Consolidated
Cash Flow and Fixed Charges shall be computed giving pro forma effect to
such event and the application of the proceeds, if any, therefrom, as if
such event (and the application of such proceeds) had occurred at the
beginning of such period. Pro forma adjustments made pursuant to the
preceding sentence shall reflect only actual transactions and shall not
reflect any assumed increases in income or reductions of expenses. For
purposes of this definition, if the date of determination
7
<PAGE>
occurs prior to the date on which the Issuer's consolidated financial
statements for the four full fiscal quarters subsequent to the date on
which the Securities are originally issued are first available,
Consolidated Cash Flow and Fixed Charges shall be calculated giving pro
forma effect to (i) the issuance of any Securities outstanding on the
date of determination and (ii) any merger of the Issuer that occurred at
any time during the period (A) commencing on the first day of the four
full fiscal quarter period for which financial statements are available
that precedes the date of determination and (B) ending on and including
the date of determination as, in the case of clauses (i) and (ii), if
they had occurred on the first day of such period.
"Foreign Subsidiary" means any Subsidiary of the Issuer,
------------------
more than 80% of the sales, earnings or assets (determined on a
consolidated basis) of which are located or derived from operations
outside the United States.
"GAAP" means generally accepted accounting principles set
----
forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards
Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession, which are in
effect from time to time; provided, however, that for purposes of
determining compliance with the covenants contained in Articles 4 and
5 hereof, GAAP shall mean such generally accepted accounting
principles, as in effect on the date hereof.
"Guarantee" means a guarantee (other than by endorsement of
---------
negotiable instruments for collection in the ordinary course of
business), direct or indirect, in any manner (including, without
limitation, letters of credit and reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Holder" means a person in whose name a Security is
------
registered.
"Indebtedness" of any person means the principal of and
------------
interest on (i) all indebtedness for money borrowed or which is
evidenced by a bond, debenture, note or other similar instrument or
agreement, whether or not for money borrowed, but excluding trade
credit evidenced by any such instrument or agreement; (ii) Capitalized
Lease Obligations; (iii) indebtedness, secured or unsecured, created
or arising in connection with the acquisition or improvement of any
property or asset or the acquisition of any business; (iv) all
indebtedness secured by any Lien upon property owned by such person
and all indebtedness secured in the matter specified in this clause
even if such person has not assumed or become liable for the payment
8
<PAGE>
thereof; (v) all indebtedness of such person created or arising under
any conditional sale or other title retention agreement with respect
to property acquired by such person or otherwise representing the
deferred and unpaid balance of the purchase price of any such
property, including all indebtedness created or arising in the manner
specified in this clause even though the rights and remedies of the
seller or lender under such agreement in the event of default are
limited to repossession or sale of such property; (vi) Guarantees,
direct or indirect, of any indebtedness of other persons referred to
in clauses (i) through (v) above, or of dividends or leases, taxes or
other Obligations of other persons, excluding any Guarantee arising
out of the endorsement of negotiable instruments for collection in the
ordinary course of business; (vii) contingent Obligations in respect
of, or to purchase or otherwise acquire or be responsible or liable
for, through the purchase of products or services, irrespective of
whether such products are delivered or such services are rendered, or
otherwise, any such indebtedness referred to in clauses (i) through
(v) above; and (viii) any Obligation, contingent or otherwise, arising
under any surety, performance or maintenance bond; which indebtedness,
Capitalized Lease Obligation, Guarantee or contingent Obligation such
person has directly or indirectly created, incurred, assumed,
guaranteed or otherwise become liable or responsible for, whether then
outstanding or thereafter created. For purposes of the foregoing
definition, the liquidation preference of any Preferred Stock issued
by a Subsidiary of the Issuer to persons other than the Issuer or a
wholly owned Restricted Subsidiary of the Issuer shall be deemed to
represent an equal principal amount of Indebtedness and dividends
thereon shall be deemed to represent an equal amount of interest. Any
reference in this definition to indebtedness shall be deemed to
include any renewals, extensions, refundings, amendments and
modifications of any such indebtedness or any indebtedness issued in
exchange for such indebtedness.
"Indenture" means this Indenture as amended or supplemented
---------
from time to time.
"Independent Director" of any person means any director who
--------------------
is not an employee or an officer of such person and who is not
otherwise an Affiliate (other than by virtue of his or her position as
a director) of such person.
"Intercreditor Agreement" means that certain Intercreditor
-----------------------
Agreement dated as of the date hereof by and between the Trustee and
the Credit Agent, substantially in the form attached hereto as Exhibit
B, and as subsequently amended, modified or supplemented.
9
<PAGE>
"Interest Rate Protection Agreement" means any interest rate
----------------------------------
protection agreement, interest rate future agreement, interest rate
option agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge
agreement or other similar agreement or arrangement designed to
protect a person or any of its Subsidiaries against fluctuations in
interest rates to or under which such person or any of its
Subsidiaries is or becomes a party or a beneficiary.
"Investment" means any direct or indirect advance, loan,
----------
other extension of credit or capital contribution to, purchase or
acquisition of Equity Interests, bonds, notes, debentures or other
securities of, or purchase or other acquisition of all or a
substantial part of the business, assets, Equity Interests or other
evidence of beneficial ownership of, or any other investment in or
Guarantee of any Indebtedness of, any person.
"Issuer" means the Company, as obligor under the Securities,
------
unless and until a successor replaces the Company in accordance with
Article 5 hereof and thereafter includes such successor.
"Lenders" means those banks and other persons (other than
-------
the Issuer) party to the Credit Agreement.
"Lien" means any mortgage, lien, pledge, security interest,
----
charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and
any agreement to give any security interest).
"Net Income" means for any person for any period the net
----------
income (loss) of such person and its Subsidiaries (other than, in the
case of the Issuer, Unrestricted Subsidiaries) determined in
accordance with GAAP consistently applied.
"Net Proceeds" means the aggregate cash proceeds received by
------------
the Issuer or any of its Restricted Subsidiaries in respect of any
Asset Sale (including, without limitation, the proceeds of insurance
paid on account of the loss of or damage to any property, or
compensation or other proceeds for any property taken by condemnation,
eminent domain or similar proceedings, and any non-cash consideration
received by the Issuer or any Restricted Subsidiary from any Asset
Sale that is converted into or sold or otherwise disposed of for cash
within ninety (90) days after the relevant Asset Sale), net of (i) the
direct costs relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees and sales
10
<PAGE>
commissions), (ii) any taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions
arising from such Asset Sale), (iii) all amounts required to be
applied to the repayment of, or representing the amount of permanent
reductions in the commitments relating to, Indebtedness secured by a
Lien on the asset or assets the subject of such Asset Sale (other than
Indebtedness relating to the Securities) which Lien is and is
permitted to be prior to the Lien on such assets in favor of the
Trustee, if any, and (iv) any reserve for adjustment in respect of the
sale price of such asset or assets required by GAAP.
"Obligations" means for any person all principal, premium,
-----------
interest, penalties, expenses, fees, indemnifications, reimbursements,
damages and other liabilities payable under the documentation
governing any Indebtedness of such person including, without
limitation, all amounts payable by such person as a result of all
interest rate protection agreements, and the net cost to such person
of foreign exchange contracts and interest rate swap, collar or
similar agreements or arrangements designed to protect such person as
an obligor or entered into in the ordinary course of business.
"Offering" means the public offering of the Securities,
--------
described in the Prospectus.
"Officers" means the Chairman of the Board, the President,
--------
the Chief Financial Officer, the Treasurer, any Assistant Treasurer,
Controller, Secretary or any Vice-President of the Issuer.
"Officers' Certificate" means a certificate signed by two
---------------------
Officers, one of whom must be the principal executive officer,
principal financial officer or principal accounting officer of the
Issuer.
"Opinion of Counsel" means an opinion from legal counsel who
------------------
is reasonably acceptable to the Trustee. Such counsel may be an
employee of or counsel to the Issuer or the Trustee.
"Permitted Investments" means (a) investments in cash and
---------------------
Eligible Investments; (b) Investments in any wholly owned Subsidiary
of the Issuer by the Issuer, or by any other wholly owned Subsidiary
of the Issuer, provided that such Investment shall only be a Permitted
Investment so long as any such wholly owned Subsidiary in which the
Investment has been made or which has made such Investment remains a
wholly owned Subsidiary of the Issuer; (c) Investments, not
11
<PAGE>
exceeding $2,000,000 at any one time in the aggregate, in joint ventures,
partnerships or persons that are not wholly owned Subsidiaries of the
Issuer that are made solely for the purpose of acquiring or developing a
Related Business; and (d) Investments of the Issuer and its Subsidiaries
arising as a result of any Asset Sale otherwise complying with the terms
of the Indenture, provided that for each Asset Sale the maximum aggregate
amount of Investments permitted under this clause (d) shall not exceed
25% of the total consideration received for such Asset Sale by the
Issuer, or any Subsidiary of the Issuer.
"Permitted Liens" means, as of any particular time, any one
---------------
or more of the following:
(a) Liens for taxes, rates and assessments not yet due or,
if due, the validity of which is being contested diligently and in
good faith by the Issuer or any Restricted Subsidiary and against
which the Issuer has established appropriate reserves in accordance
with GAAP;
(b) the Lien of any judgment rendered which is being
contested diligently and in good faith by the Issuer or any of its
Restricted Subsidiaries and against which the Issuer has established
appropriate reserves and which does not have a material adverse effect
on the ability of the Issuer and its Restricted Subsidiaries to
operate their business or operations;
(c) other than in connection with Indebtedness, any Lien
arising in the ordinary course of business (i) to secure payments of
workers' compensation, unemployment insurance, pension or other social
security or retirement benefits, or to secure the performance of bids,
tenders, leases, progress payments, contracts (other than for the
payment of money) or to secure public or statutory Obligations of the
Issuer or any Restricted Subsidiary, or to secure surety or appeal
bonds to which the Issuer or any Restricted Subsidiary is a party,
(ii) imposed by law dealing with materialmen's, mechanics', workmen's,
repairmen's, warehousemen's, landlords', vendors' or carriers' Liens
created by law, or deposits or pledges which are not yet due or, if
due, the validity of which is being contested diligently and in good
faith by the Issuer or any Restricted Subsidiary and against which the
Issuer has established appropriate reserves and (iii) like Liens;
(d) servitude, licenses, easements, encumbrances,
restrictions, rights-of-way and rights in the nature of easements or
similar charges which will not in the
12
<PAGE>
aggregate materially adversely impair the use of the subject property by
the Issuer or a Restricted Subsidiary;
(e) zoning and building by-laws and ordinances, municipal
by-laws and regulations, and restrictive covenants, which do not
materially interfere with the use of the subject property by the
Issuer or a Restricted Subsidiary as such property is used as of the
date hereof;
(f) any extension, renewal, substitution or replacement (or
successive extension, renewals, substitutions or replacements), as a
whole or in part, of any of the Liens referred to in clauses (a)
through (e) of this definition or the Indebtedness secured thereby;
provided that (1) such extension, renewal, substitution or replacement
Lien shall be limited to that portion of the property or assets, now
owned or hereafter acquired, that was subject to the Lien prior to
such extension, renewal, substitution or replacement Lien and (2) the
Indebtedness secured by such Lien (assuming all available amounts were
borrowed) at such time is not increased.
"person" means any individual, corporation, partnership,
------
joint venture, trust, estate, unincorporated organization or
government or any agency or political subdivision thereof.
"Preferred Stock," as applied to the Equity Interests in any
---------------
corporation, means stock of any class or classes (however designated)
which is preferred over shares of stock of any other class of such
corporation as to the distribution of assets on any voluntary or
involuntary liquidation or dissolution of such corporation or as to
dividends.
"Prospectus" means the Prospectus, dated __________, 1994,
----------
relating to the Securities.
"Redeemable Stock" means any Equity Interest that by its
----------------
terms or otherwise is required to be redeemed prior to the maturity of
the Securities, or is redeemable at the option of the holder thereof
at any time prior to such maturity, or is convertible into or
exchangeable for debt securities, at the option of the issuer at any
time prior to such maturity, until the right to so convert or exchange
is irrevocably relinquished.
13
<PAGE>
"Related Business" means any corporation or other entity
----------------
engaged in, and any asset utilized in, the manufacture of metrology
products or any product reasonably related to metrology products.
"Responsible Officer" means with respect to the Trustee, any
-------------------
officer within the corporate trust department of the Trustee located
at the Corporate Trust Office (or any successor group of the Trustee)
and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his
knowledge of and familiarity with the particular subject.
"Restricted Subsidiary" means (i) any Subsidiary of the
---------------------
Issuer, in existence on the date hereof, (ii) any Subsidiary of the
Issuer organized or acquired after the date hereof, unless such
Subsidiary shall have been designated an Unrestricted Subsidiary by a
resolution of the Board of Directors as provided in the definition of
"Unrestricted Subsidiary" and (iii) an Unrestricted Subsidiary which
is designated a Restricted Subsidiary by the Board of Directors;
provided, that immediately after giving effect to such designation
referred to in clauses (ii) and (iii), (A) no Default or Event of
Default shall have occurred and be continuing and (B) the Issuer could
incur at least $1.00 of Indebtedness pursuant to the first paragraph
of Section 4.09 hereof, on a pro forma basis taking into account such
designation. The Issuer will evidence any such designation to the
Trustee by promptly filing with the Trustee an Officer's Certificate
certifying that such designation has been made and complies with the
requirements of the immediately preceding sentence. Notwithstanding
the foregoing, Restricted Subsidiaries shall include DEA and the
corporate and other entities owned, directly or indirectly, by DEA.
"Revolving Credit Indebtedness" means, without duplication,
-----------------------------
Indebtedness of the Issuer incurred pursuant to or in connection with
one or more revolving credit, letter of credit or other working
capital facilities (including without limitation the Revolving Credit
Facility), in an aggregate principal amount not to exceed, at any one
time outstanding, the lesser of (i) [$45,000,000] and (ii) the sum of
(A) [85%] of the gross book value of accounts receivable of the Issuer
and its Restricted Subsidiaries and (B) [50%] of the gross book value
of the inventory of the Issuer and its Restricted Subsidiaries.
"SEC" means the Securities and Exchange Commission.
---
"Securities" means the Securities described above issued
----------
under this Indenture.
14
<PAGE>
"Securities Act" means the Securities Act of 1933, as
--------------
amended.
"Senior Indebtedness" means (i) the Securities, (ii) all
-------------------
Revolving Credit Indebtedness, (iii) all additional Indebtedness
incurred by the Issuer or its Restricted Securities that is permitted
to be incurred pursuant hereto that is not by its terms subordinated
to the Securities and (iv) all renewals, extensions, amendments,
refinancings, repurchases or redemptions, modifications, replacements
or refundings thereof, in whole or in part, that are permitted
pursuant to the Indenture. Senior Indebtedness shall not include the
9 1/4% Convertible Subordinated Debentures.
"Sinking Fund Payments on Existing Debentures" means
--------------------------------------------
scheduled sinking fund payments under the Existing Debentures, and
purchases by the Issuer of Existing Debentures to be used by the
Issuer to make scheduled sinking fund payments under the Existing
Debentures due within one year from the date purchased.
"Subsidiary" means, with respect to the Issuer, (i) any
----------
corporation of which the outstanding Equity Interests having at least
a majority of the votes entitled to be cast in the election of
directors, under ordinary circumstances, shall at the time be owned,
directly or indirectly, by the Issuer and one or more of its
Subsidiaries or by one or more of the Issuer's Subsidiaries or (ii)
any other person or entity of which at least a majority of voting
interest, under ordinary circumstances, shall at the time be owned,
directly or indirectly, by the Issuer, by the Issuer and one or more
of its Subsidiaries or by one or more of the Issuer's Subsidiaries.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
---
(S)(S) 77aaa-77bbbb) as in effect on the date on which this Indenture is
qualified under the TIA.
"Total Interest Expense" means for any person for any period
----------------------
the aggregate amount of interest in respect of Indebtedness (including
amortization of original issue discount on any Indebtedness and
amortization of deferred financing costs, in each case calculated in
accordance with GAAP) and all but the principal component of rentals
in respect of Capitalized Lease Obligations, paid or accrued by such
person and its Restricted Subsidiaries during such period, determined
on a consolidated basis in accordance with GAAP. For purposes of this
definition, (i) interest on Indebtedness determined on a fluctuating
basis for periods succeeding the date of determination shall be deemed
to accrue at a rate equal to the rate of interest on such Indebtedness
as in effect on the date of determination and (ii) interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest
rate reasonably
15
<PAGE>
determined by the Chief Financial Officer of such person to be the rate
of interest implicit in such Capitalized Lease Obligation in accordance
with GAAP.
"Trustee" means the party named as such above until a
-------
successor replaces it in accordance with the applicable provisions of
this Indenture and thereafter means the successor serving hereunder.
"Unrestricted Subsidiary" means, until such time as it may
-----------------------
be designated as a Restricted Subsidiary by the Board of Directors of
the Issuer as provided in and in compliance with the definition of
"Restricted Subsidiary," (i) any Subsidiary of the Issuer organized or
acquired after the date hereof in which all Restricted Investments by
the Issuer or any Restricted Subsidiary are made only from funds
available for the making of Restricted Payments pursuant to Section
4.07 hereof and (ii) any Subsidiary of an Unrestricted Subsidiary.
Subject to the foregoing, the Board of Directors of the Issuer may
designate any Subsidiary of the Issuer (including any newly acquired
or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary owns Equity Interests of, or owns or holds any Lien
upon any property of, any Subsidiary of the Issuer which is not a
Subsidiary of such Subsidiary to be so designated; provided that each
Subsidiary to be so designated and each of its Subsidiaries has not,
at the time of designation, and does not thereafter, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly
liable with respect to any Indebtedness pursuant to which the lender
has recourse to any of the assets of the Issuer or any of its
Restricted Subsidiaries. The Issuer will evidence any such
designation by promptly filing with the Trustee an Officers'
Certificate certifying that such designation has been made and
complies with the requirements of the immediately preceding sentence.
"U.S. Government Obligations" means direct Obligations of
---------------------------
the United States of America, or any agency or instrumentality
thereof, for the payment of which the full faith and credit of the
United States of America is pledged.
Section 1.02. Other Definitions.
------------ -----------------
Defined in
Term Section
---- -----------
"Asset Sale Offer" 3.09
"Bankruptcy Law" 6.01
"Change of Control Date" 4.16
"Change of Control Offer" 4.16
16
<PAGE>
"Change of Control Payment Date" 4.16
"Computation Date" 4.07
"Computation Period" 4.07
"Covenant Defeasance" 8.03
"Custodian" 6.01
"Event of Default" 6.01
"incur" 4.09
"Legal Defeasance" 8.02
"Legal Holiday" 11.07
"Paying Agent" 2.03
"Refinancing" 4.09
"Refinancing Indebtedness" 4.09
"Registrar" 2.03
"Restricted Payments" 4.07
Section 1.03. Incorporation by Reference of Trust Indenture Act.
------------ -------------------------------------------------
Whenever this Indenture refers to a provision of the TIA,
the provision is incorporated by reference in and made a part of this
Indenture.
The following TIA terms used in this Indenture have the
following meanings:
"indenture securities" means the Securities;
--------------------
"indenture security holder" means a Holder;
-------------------------
"indenture to be qualified" means this Indenture;
-------------------------
"indenture trustee" or "institutional trustee" means the
----------------- ---------------------
Trustee;
"obligor" on the Securities means the Issuer or any
-------
successor obligor upon the Securities.
All other terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC
rule under the TIA have the meanings so assigned to them.
17
<PAGE>
Section 1.04. Rules of Construction.
------------ ---------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural and in the
plural include the singular; and
(5) provisions apply to successive events and transactions.
ARTICLE 2
THE SECURITIES
Section 2.01. Form and Dating.
------------ ---------------
The Securities and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A, the
terms of which are incorporated in and made a part of this Indenture.
The Securities may have notations, legends or endorsements required by
law, stock exchange rule, agreements to which the Issuer is subject or
usage. Each Security shall be dated the date of its authentication.
The Securities shall be issued initially in denominations of $1,000
and integral multiples thereof.
Section 2.02. Execution and Authentication.
------------ ----------------------------
An Officer of the Issuer shall sign the Securities for the
Issuer by manual or facsimile signature.
If an Officer whose signature is on a Security no longer
holds that office at the time the Security is authenticated, the
Security shall nevertheless be valid.
18
<PAGE>
A Security shall not be valid until authenticated by the
manual signature of the Trustee. The signature of the Trustee shall
be conclusive evidence that the Security has been authenticated under
this Indenture. The form of Trustee's certificate of authentication
to be borne by the Securities shall be substantially as set forth in
Exhibit A hereto.
The Trustee shall, upon a written order of the Issuer signed by
two Officers of the Issuer, authenticate Securities for original issue up
to an aggregate principal amount stated in paragraph 4 of the Securities.
The aggregate principal amount of Securities outstanding at any time may
not exceed the amount set forth herein except as provided in Section
2.07.
The Trustee may appoint an authenticating agent acceptable
to the Issuer to authenticate Securities. Unless limited by the terms
of such appointment, an authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by
such agent. An authenticating agent has the same rights as an Agent
to deal with the Issuer or an Affiliate.
Section 2.03. Registrar and Paying Agent.
------------ --------------------------
The Issuer shall maintain (i) an office or agency where
Securities may be presented for registration of transfer or for
exchange ("Registrar") and (ii) an office or agency where Securities
may be presented for payment ("Paying Agent"). The Registrar shall
keep a register of the Securities and of their transfer and exchange.
The Issuer may appoint one or more co-registrars and one or more
additional paying agents. The term "Paying Agent" includes any
additional paying agent. The Issuer may change any Paying Agent,
Registrar or co-registrar without notice to any Holder. The Issuer
shall notify the Trustee of the name and address of any Agent not a
party to this Indenture. If the Issuer fails to appoint or maintain
another entity as Registrar or Paying Agent, the Trustee shall act as
such. The Issuer or any of its Subsidiaries may act as Paying Agent,
Registrar or co-registrar. The Issuer shall enter into an appropriate
agency agreement with any Agent not a party to this Indenture, which
shall incorporate the provisions of the TIA. The agreement shall
implement the provisions of this Indenture that relate to such Agent.
The Issuer shall notify the Trustee of the name and address of any
such Agent. If the Issuer fails to maintain a Registrar or Paying
Agent, or fails to give the foregoing notice, the Trustee shall act as
such, and shall be entitled to appropriate compensation in accordance
with Section 7.07 hereof.
19
<PAGE>
The Issuer initially appoints the Trustee as Registrar,
Paying Agent and agent for service of notices and demands in
connection with the Securities.
Section 2.04. Paying Agent to Hold Money in Trust.
------------ -----------------------------------
The Issuer shall require each Paying Agent other than the
Trustee to agree in writing that the Paying Agent will hold in trust for
the benefit of Holders or the Trustee all money held by the Paying Agent
for the payment of principal or interest on the Securities, and will
notify the Trustee of any default by the Issuer in making any such
payment. While any such default continues, the Trustee may require a
Paying Agent to pay all money held by it to the Trustee. The Issuer at
any time may require a Paying Agent to pay all money held by it to the
Trustee. Upon payment over to the Trustee, the Paying Agent (if other
than the Issuer) shall have no further liability for the money delivered
to the Trustee. If the Issuer or any of its Subsidiaries acts as Paying
Agent, it shall segregate and hold in a separate trust fund for the
benefit of the Holders all money held by it as Paying Agent.
Section 2.05. Holders Lists.
------------ -------------
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the
names and addresses of Holders and shall otherwise comply with TIA
(S)(S)312(a). If the Trustee is not the Registrar, the Issuer shall
furnish to the Trustee at least seven (7) Business Days before each
interest payment date and at such other times as the Trustee may
request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Holders,
including the aggregate principal amount thereof, and the Issuer shall
otherwise comply with TIA (S) 312(a).
Section 2.06. Transfer and Exchange.
------------ ---------------------
When Securities are presented to the Registrar or a co-
registrar with a request to register, transfer or exchange them for an
equal principal amount of Securities of other denominations, the
Registrar shall register the transfer or make the exchange if its
requirements for such transactions are met; provided, however, that
any Security presented or surrendered for registration of transfer or
exchange shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the Registrar and the
Trustee duly executed by the Holder thereof or by his attorney duly
authorized in writing. To permit registrations of transfer and
20
<PAGE>
exchanges, the Issuer shall issue and the Trustee shall authenticate
Securities at the Registrar's request, subject to such rules as the
Trustee may reasonably require.
Neither the Issuer nor the Registrar shall be required (i)
to issue, register the transfer of or exchange Securities during a
period beginning at the opening of business on a Business Day fifteen
(15) days before the day of any selection of Securities for redemption
under Section 3.02 and ending at the close of business on the day of
selection, (ii) to register the transfer of or exchange any Security
so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part or (iii) to register
the transfer or exchange of a Security between a record date and the
next succeeding interest payment date.
No service charge shall be made to any Holder for any
registration of transfer or exchange (except as otherwise expressly
permitted herein), but the Issuer may require payment of a sum
sufficient to cover any transfer tax or similar governmental charge
payable in connection therewith (other than such transfer tax or
similar governmental charge payable upon exchanges pursuant to
Sections 2.10, 3.06 or 9.05 hereof, which shall be paid by the
Issuer).
Prior to due presentment for registration of transfer of any
Security, the Trustee, any Agent and the Issuer may deem and treat the
person in whose name any Security is registered as the absolute owner
of such Security for the purpose of receiving payment of principal of
and interest on such Security and for all other purposes whatsoever,
whether or not such Security is overdue, and neither the Trustee, any
Agent, nor the Issuer shall be affected by notice to the contrary.
Section 2.07. Replacement Securities.
------------ ----------------------
If any mutilated Security is surrendered to the Trustee, or
the Issuer and the Trustee receive evidence to their satisfaction of
the destruction, loss or theft of any Security, the Issuer shall issue
and the Trustee, upon the written order of the Issuer signed by two
Officers of the Issuer, shall authenticate a replacement Security if
the Trustee's requirements for replacements of Securities are met. If
required by the Trustee or the Issuer, an indemnity bond must be
supplied by the Holder that is sufficient in the judgment of the
Trustee and the Issuer to protect the Issuer, the Trustee, each Agent
and each authenticating agent from any loss which any of them may
suffer if a Security is replaced. The Issuer and the Trustee may
charge for its expenses in replacing a Security.
21
<PAGE>
Every replacement Security is an additional Obligation of
the Issuer.
Section 2.08. Outstanding Securities.
------------ ----------------------
The Securities outstanding at any time are all the
Securities authenticated by the Trustee except for those cancelled by
it, those delivered to it for cancellation and those described in this
Section as not outstanding.
If a Security is replaced pursuant to Section 2.07 hereof,
it ceases to be outstanding unless the Trustee receives proof
satisfactory to it that the replaced Security is held by a bona fide
purchaser.
If the principal amount of any Security is considered paid
under Section 4.01 hereof, it ceases to be outstanding and interest on
it ceases to accrue.
Subject to Section 2.09 hereof, a Security does not cease to
be outstanding because the Issuer or an Affiliate of the Issuer holds
the Security.
Section 2.09. Treasury Securities.
------------ -------------------
In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, waiver or
consent, Securities owned by the Issuer or any Affiliate of the Issuer
shall be considered as though not outstanding, except that for
purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent, only Securities
which a Responsible Officer knows to be so owned shall be so
considered.
Section 2.10. Temporary Securities.
------------ --------------------
Until definitive Securities are ready for delivery, the
Issuer may prepare and the Trustee shall authenticate temporary
Securities. Temporary Securities shall be substantially in the form
of definitive Securities but may have variations that the Issuer and
the Trustee consider appropriate for temporary Securities. Without
unreasonable delay, the Issuer shall prepare and the Trustee, upon
receipt of the written order of the Issuer signed by two Officers of
the Issuer, shall authenticate definitive Securities in exchange for
temporary Securities. Until such exchange, temporary Securities shall
be entitled to the same rights, benefits and privileges as definitive
Securities.
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Section 2.11. Cancellation.
------------ ------------
The Issuer at any time may deliver Securities to the Trustee
for cancellation. The Registrar and Paying Agent shall forward to the
Trustee any Securities surrendered to them for registration of
transfer, exchange or payment. The Trustee shall cancel all
Securities surrendered for registration of transfer, exchange,
payment, replacement or cancellation and shall destroy cancelled
Securities (subject to the record retention requirement of the
Exchange Act) unless the Issuer directs them to be returned to them.
The Issuer may not issue new Securities to replace Securities that
have been redeemed or paid or that have been delivered to the Trustee
for cancellation. All cancelled Securities held by the Trustee shall
be destroyed and certification of their destruction delivered to the
Issuer unless by a written order, signed by one Officer of the Issuer,
the Issuer shall direct that cancelled Securities be returned to them.
Section 2.12. Defaulted Interest.
------------ ------------------
If the Issuer defaults in a payment of interest on the
Securities, it shall pay the defaulted interest in any lawful manner
plus, to the extent lawful, interest payable on the defaulted
interest, to the persons who are Holders on a subsequent special
record date, which date shall be at the earliest practicable date but
in all events at least five (5) Business Days prior to the payment
date, in each case at the rate provided in the Securities and in
Section 4.01 hereof. The Issuer shall, with the consent of the
Trustee, fix or cause to be fixed each such special record date and
payment date. At least fifteen (15) days before the special record
date, the Issuer (or the Trustee, in the name of and at the expense of
the Issuer) shall mail to Holders a notice that states the special
record date, the related payment date and the amount of such interest
to be paid.
ARTICLE 3
REDEMPTION
Section 3.01. Notices to Trustee.
------------ ------------------
If the Issuer elects to redeem Securities pursuant to the
optional redemption provisions of Section 3.07 hereof, it shall
furnish to the Trustee, at least forty-five (45) days but not more
than sixty (60) days before a redemption date, an Officers'
Certificate setting forth the Section of this Indenture pursuant to
which the
23
<PAGE>
redemption shall occur, the redemption date, the principal
amount of Securities to be redeemed and the redemption price.
If the Issuer is required to make an offer to redeem
Securities pursuant to the provisions of Section 3.09 hereof, it shall
notify the Trustee in writing of the Section of this Indenture
pursuant to which the redemption shall occur, the redemption date, the
principal amount of Securities to be redeemed and the redemption price
and shall furnish to the Trustee an Officers' Certificate to the
effect that (a) the Issuer or one of its Restricted Subsidiaries has
effected an Asset Sale and (b) the conditions set forth in Section
4.10 have been satisfied.
Section 3.02. Selection of Securities to Be Redeemed.
------------ --------------------------------------
If less than all of the Securities are to be redeemed, the
Trustee shall select the Securities to be redeemed among the Holders of
the Securities pro rata, by lot or in accordance with a method which the
Trustee considers to be fair and appropriate (and in such manner as
complies with applicable legal and stock exchange requirements, if any).
In the event of partial redemption by lot, the particular Securities to
be redeemed shall be selected, unless otherwise provided herein, not less
than thirty (30) nor more than sixty (60) days prior to the redemption
date by the Trustee from the outstanding Securities not previously called
for redemption.
The Trustee shall promptly notify the Issuer in writing of
the Securities selected for redemption and, in the case of any
Security selected for partial redemption, the principal amount thereof
to be redeemed. Securities and portions of them selected shall be in
amounts of $1,000 or whole multiples of $1,000 except that if all of
the Securities of a Holder are to be redeemed, the entire outstanding
amount of Securities held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding
sentence, provisions of this Indenture that apply to Securities called
for redemption also apply to portions of Securities called for
redemption.
In the event the Issuer is required to make an offer to
redeem Securities pursuant to Sections 3.09 and 4.10 hereof and the
amount of the Net Proceeds from the Asset Sale is not evenly divisible
by $1,000, the Trustee shall promptly refund to the Issuer any
remaining Net Proceeds.
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Section 3.03. Notice of Redemption.
------------ --------------------
Subject to the provisions of Section 3.09 hereof, at least
thirty (30) days but not more than sixty (60) days before a redemption
date, the Issuer shall mail a notice of redemption to each Holder
whose Securities are to be redeemed at its registered address.
The notice shall identify the Securities to be redeemed and
shall state:
(1) the redemption date;
(2) the redemption price;
(3) if any Security is being redeemed in part, the portion
of the principal amount of such Security to be redeemed and that,
after the redemption date, upon surrender of such Security, a new
Security or Securities in principal amount equal to the
unredeemed portion will be issued;
(4) the name and address of the Paying Agent;
(5) that Securities called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(6) that, unless the Issuer defaults in making such
redemption payment, interest on Securities or portions of
Securities called for redemption ceases to accrue on and after
the redemption date;
(7) the paragraph of the Securities and/or Section of this
Indenture pursuant to which the Securities called for redemption
are being redeemed; and
(8) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or
printed on the Securities.
At the Issuer's request, the Trustee shall give the notice
of redemption in the name of the Issuer and at its expense; provided,
however, that the Issuer shall deliver to the Trustee, at least forty-
five (45) days prior to the redemption date, an Officers' Certificate
requesting that the Trustee give such notice and setting forth the
information to be stated in such notice as provided in the preceding
paragraph.
25
<PAGE>
Section 3.04. Effect of Notice of Redemption.
------------ ------------------------------
Once notice of redemption is mailed in accordance with
Section 3.03 herein, Securities called for redemption become due and
payable on the redemption date at the redemption price.
Section 3.05. Deposit of Redemption Price.
------------ ---------------------------
On or before the redemption date, the Issuer shall deposit
with the Trustee (to the extent not already held by the Trustee) or
with the Paying Agent money in immediately available funds sufficient
to pay the redemption price of and accrued interest on all Securities
to be redeemed on that date. The Trustee or the Paying Agent shall
return to the Issuer any money deposited with the Trustee or the
Paying Agent by the Issuer in excess of the amounts necessary to pay
the redemption price of, and accrued interest on, all Securities to be
redeemed.
Interest on the Securities to be redeemed will cease to accrue
on the applicable redemption date, whether or not such Securities are
presented for payment, if the Issuer makes the redemption payment. If any
Security called for redemption shall not be so paid upon surrender for
redemption because of the failure of the Issuer to comply with the
preceding paragraph, interest will be paid on the unpaid principal, from
the redemption date until such principal is paid, and to the extent
lawful on any interest not paid on such unpaid principal, in each case at
the rate provided in the Securities and in Section 4.01 hereof.
Section 3.06. Securities Redeemed in Part.
------------ ---------------------------
Upon surrender of a Security that is redeemed in part, the
Issuer shall issue and the Trustee shall authenticate for the Holder
at the expense of the Issuer a new Security equal in principal amount
to the unredeemed portion of the Security surrendered.
Section 3.07. Optional Redemption.
------------ -------------------
At any time, on or after August 1, 1998, the Issuer may
redeem all or any of the Securities at the redemption prices
(expressed as percentages of the principal amount) set forth below,
plus accrued interest to the redemption date, if redeemed during the
12-month period beginning August 1, of the years indicated below:
26
<PAGE>
Year %
---- ------
1998 . . . . . . . . . . . . . . %
1999 . . . . . . . . . . . . . . %
2000 . . . . . . . . . . . . . . %
2001 . . . . . . . . . . . . . . 100%
Notwithstanding the foregoing, at any time on or before August 1,
1997, the Issuer may redeem Securities with the net proceeds of any
public offering of common stock of the Issuer, in whole or in part, at
a redemption price equal to the Applicable Premium for such
Securities, plus accrued interest to the redemption date; provided,
that each such redemption must be consummated within 90 days of
receipt of the proceeds of such public offering and at least
$56,250,000 aggregate principal amount of the Securities must remain
outstanding after each such redemption. Any redemption pursuant to
this Section 3.07 shall be made pursuant to the provisions of Sections
3.01 through 3.06 hereof.
Section 3.08. Mandatory Redemption.
------------ --------------------
Subject to the Issuer's obligation to make an offer to
purchase Securities under certain circumstances pursuant to Sections
4.10 and 4.16 hereof, the Issuer shall have no mandatory redemption or
sinking fund obligations with respect to the Securities.
Section 3.09. Offer to Redeem by Application of Net Proceeds.
------------ ----------------------------------------------
Within 90 days after the occurrence of any event requiring
the Issuer to offer to redeem Securities pursuant to the provisions of
Section 4.10 hereof, the Issuer shall deliver to the Trustee a notice
of redemption pursuant to Section 3.01 hereof (without regard to the
number of prior days' notice required). Within fifteen (15) days
thereafter, the Trustee shall select the Securities to be offered to
be redeemed in accordance with Section 3.02 hereof. Within fifteen
(15) Business Days thereafter, the Issuer shall mail or cause the
Trustee to mail (in the name of the Issuer, at its expense and
pursuant to an Officers' Certificate as required by Section 3.03
hereof) an offer to redeem (the "Asset Sale Offer") to each Holder
whose Securities are to be offered to be redeemed. The Issuer shall
make the Asset Sale Offer in compliance with all applicable laws,
including, without limitation, Regulation 14E of the Exchange Act and
the rules thereunder and all other applicable federal and state
securities laws. The Asset Sale Offer shall identify the Securities
to which it
27
<PAGE>
relates and shall contain the information required by clauses (1) through
(8) of Section 3.03 hereof and shall provide for a redemption date no
earlier than fifty (50) days after the giving of the Asset Sale Offer.
The redemption price shall be 100% of the principal amount of the
Securities, plus accrued interest to the redemption date.
A Holder receiving an Asset Sale Offer may elect to have
redeemed the Securities to which the Asset Sale Offer relates by
completing the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Security and providing such form to the Trustee on
or before thirty (30) days preceding the redemption date. A Holder
may not elect to have redeemed less than all of the Securities to
which the Asset Sale Offer relates. In the event that less than all
of the Holders receiving an Asset Sale Offer elect to have Securities
redeemed, the Issuer or the Trustee (in the name of the Issuer, at its
expense and pursuant to an Officers' Certificate as required by
Section 3.03 hereof) shall, no later than twenty (25) days preceding
the redemption date, mail an additional Asset Sale Offer to the
Holders of the Securities, if any, who have provided written notice of
election to redeem Securities and whose Securities have not been
completely redeemed. Such additional Asset Sale Offer shall be
accepted by the Holder by providing written notice of such acceptance
to the Trustee on or before fifteen (15) days preceding the redemption
date. The Trustee shall thereafter mail a notice of redemption in
accordance with Section 3.03 hereof at least ten (10) days prior to
the redemption date.
Other than as specifically provided in this Section 3.09,
any redemption pursuant to this Section 3.09 shall be made pursuant to
the provisions of Sections 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
Section 4.01. Payment of Securities.
------------ ---------------------
The Issuer shall pay the principal of and interest on the
Securities on the dates and in the manner provided in the Securities.
Principal and interest shall be considered paid on the date due if the
Paying Agent, if other than the Issuer or a Subsidiary of the Issuer,
holds on or before that date money deposited by the Issuer in
immediately available funds and designated for and sufficient to pay
all principal, premium, if any, and interest then due. Such Paying
Agent shall return to the Issuer, no later than three (3) Business
Days following the date of payment, any money
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(including accrued interest) that exceeds such amount of principal and
interest paid on the Securities.
The Issuer shall pay interest (including post-petition
interest) on overdue principal at the rate equal to 1% per annum in
excess of the then applicable interest rate on the Securities to the
extent lawful. It shall pay interest (including post-petition
interest) on overdue installments of interest (without regard to any
applicable grace period) at the same rate to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
------------ -------------------------------
The Issuer will maintain in the Borough of Manhattan, The
City of New York, an office or agency (which may be an office of the
Trustee, Registrar or co-registrar) where Securities may be
surrendered for registration of transfer or exchange and where notices
and demands to or upon the Issuer in respect of the Securities and
this Indenture may be served. The Issuer will give prompt written
notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Issuer shall fail to
maintain any such required office or agency or shall fail to furnish
the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust
Office of the Trustee.
The Issuer may also from time to time designate one or more
other offices or agencies where the Securities may be presented or
surrendered for any or all such purposes and may from time to time
rescind such designations; provided, however, that no such designation
or rescission shall in any manner relieve the Issuer of its
Obligations to maintain an office or agency in the Borough of
Manhattan, The City of New York for such purposes. The Issuer will
give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office
or agency.
The Issuer hereby designates the Corporate Trust Office of
the Trustee as one such office or agency of the Issuer in accordance
with Section 2.03.
Section 4.03. SEC Reports.
------------ -----------
(i) The Issuer shall file with the Trustee, with a copy to
the Holders at their addresses appearing in the register of Securities
maintained by the Registrar, promptly after filing with the SEC,
copies of the annual reports and of the
29
<PAGE>
information, documents and other reports (or copies of such portions of
any of the foregoing as the SEC may by rules and regulations prescribe)
which the Issuer is required to file with the SEC pursuant to Section 13
or 15(d) of the Exchange Act. If the Issuer is not subject to the
requirements of Section 13 or 15(d) of the Exchange Act, the Issuer shall
continue to file with the SEC and the Trustee, with such copy to the
Holders, on the same timely basis, such reports, information and other
documents as it would file if it were subject to the requirements of
Section 13 or 15(d) of the Exchange Act. The Issuer shall also comply
with the provisions of TIA (S)(S) 314(a).
(ii) If the Issuer is required to furnish annual or
quarterly reports to its stockholders pursuant to the Exchange Act,
the Issuer shall cause any annual report to its stockholders and any
quarterly or other financial report furnished by it generally to its
stockholders to be filed with the Trustee and mailed to the Holders at
their addresses appearing in the register of Securities maintained by
the Registrar.
(iii) The Issuer shall provide the Trustee with a sufficient
number of copies of all reports and other documents and information
that the Trustee may be required to deliver to the Holders under this
Section 4.03. The delivery of such reports, documents and information
shall be at the sole expense of the Issuer.
Section 4.04. Compliance Certificate.
------------ ----------------------
(i) The Issuer shall deliver to the Trustee, within 120 days
after the end of each fiscal year, an Officers' Certificate stating that
a review of the activities of the Issuer and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether each has kept, observed,
performed and fulfilled its Obligations under this Indenture, and further
stating, as to each such Officer signing such certificate, that to the
best of his or her knowledge each has kept, observed, performed and
fulfilled each and every covenant contained in this Indenture and is not
in default in the performance or observance of any of the terms,
provisions and conditions hereof (or, if a Default or Event of Default
shall have occurred, describing all such Defaults or Events of Default of
which he may have knowledge and what action each is taking or proposes to
take with respect thereto).
(ii) So long as not contrary to the then current
recommendations of the American Institute of Certified Public
Accountants, the year-end financial statements delivered pursuant to
Section 4.03 above shall be accompanied by a written statement of the
Issuer's independent public accountants (who shall be a firm of
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<PAGE>
established national reputation reasonably satisfactory to the
Trustee) that in making the examination necessary for certification of
such financial statements nothing has come to their attention which
would lead them to believe that the Issuer or any of its Subsidiaries
has violated any provisions of Article 4 or Article 5 hereof or, if
any such violation has occurred, specifying the nature and period of
existence thereof, it being understood that such accountants shall not
be liable directly or indirectly to any person for any failure to
obtain knowledge of any such violation.
(iii) The Issuer shall, so long as any of the Securities are
outstanding, deliver to the Trustee, forthwith upon any Officer
becoming aware of (a) any Default or Event of Default or (b) any event
of default under any other mortgage, indenture or instrument referred
to in Section 6.01(5), an Officers' Certificate specifying such
Default, Event of Default or other event of default and what action
the Issuer is taking or proposes to take with respect thereto.
Section 4.05. Taxes.
------------ -----
The Issuer shall, and shall cause each of its Subsidiaries
to, pay prior to delinquency all material taxes, assessments, and
governmental levies except as contested in good faith and by
appropriate proceedings.
Section 4.06. Stay, Extension and Usury Laws.
------------ ------------------------------
The Issuer covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter
in force, which may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and
covenants that it will not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee,
but will suffer and permit the execution of every such power as though
no such law has been enacted.
Section 4.07. Limitation on Restricted Payments.
------------ ---------------------------------
Subject to the other provisions of this Section 4.07, the
Issuer will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any
dividends on any class of Equity Interest of the Company or such
Restricted Subsidiary (other than dividends payable by a [wholly
owned]
31
<PAGE>
Restricted Subsidiary on account of its Equity Interests), (ii) make any
payment on account of, or set apart money for a sinking or other
analogous fund for the purchase, redemption or other retirement of any
such Equity Interests (other than the purchase, redemption or other
retirement by a Restricted Subsidiary of its Equity Interests held by the
Issuer or a wholly owned Restricted Subsidiary), (iii) make any
distribution in respect of such Equity Interests (including through
mergers, liquidations or other transactions commonly known as leveraged
buyouts (other than distributions by a Restricted Subsidiary on account
of its Equity Interests held by the Issuer or a wholly owned Restricted
Subsidiary), (iv) purchase, defease, redeem or otherwise retire any
Indebtedness issued by the Issuer or any Restricted Subsidiary that is
subordinated to the Securities (other than Sinking Fund Payments or the
Existing debentures in accordance with their terms), or (v) make any
Investment (other than a Permitted Investment), either directly or
indirectly, whether in cash or property or in obligations of the Issuer
(all of the foregoing being called "Restricted Payments"), unless, (I) in
the case of a dividend, such dividend is payable not more than 60 days
after the date of declaration and (II) after giving effect to such
proposed Restricted Payment, all the conditions set forth in clauses (1)
through (3) below shall be satisfied (A) at the date of such declaration
(in the case of a dividend), (B) at the date of such setting apart (in
the case of any such fund), or (C) on the date of such other payment or
distribution (in the case of any other Restricted Payment) (each such
date being referred to as a "Computation Date"):
(1) no Default or Event of Default shall have occurred and be
continuing or would result as a consequence of the making of
such Restricted Payment;
(2) the Issuer's Fixed Charge Coverage Ratio for the most
recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the
Computation Date, calculated on a pro forma basis as if such
Restricted Payment had been made at the beginning of such
four-quarter period, would have be, more than 2.0 to 1; and
(3) the aggregate amount of Restricted Payments made after the
date hereof (including the proposed Restricted Payment)
shall not exceed the sum of (i) 50% of the cumulative
Consolidated Net Income of the Issuer for the period
beginning with the first fiscal quarter commencing after the
issuance of the Senior Notes to and including the
Computation Date (each such period to constitute a
"Computation Period") (or if such
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<PAGE>
cumulative Consolidated Net Income shall be a loss, 100% of
such loss), (ii) the aggregate net cash proceeds received by
the Issuer from the issue or sale of Equity Interests of the
Issuer (other than Redeemable Stock) or cash contributions to
the Issuer's capital subsequent to the date hereof and (iii)
the aggregate net cash proceeds of the issue or sale of any
Indebtedness of the Issuer which subsequent to the date hereof
has been converted into Equity Interests of the Issuer (other
than Redeemable Stock).
For purposes of this Section 4.07, (a) the amount of any
Restricted Payment declared, paid or distributed in property of the
Issuer or any Restricted Subsidiary shall be deemed to be the net book
value of any such property that is intangible property and the Fair
Market Value (as determined by and set forth in a resolution of the
Issuer's board of directors) of any such property that is tangible
property, in each case, at the Computation Date and after deducting
related reserves for depreciation, depletion and amortization; (b) the
amount of any Restricted Payment declared, paid or distributed in
Obligations of the Issuer or any Restricted Subsidiary shall be deemed
to be the principal amount of such Obligations as of the date of the
adoption of a resolution by the Board of Directors or such Restricted
Subsidiary authorizing such Restricted Payment and (c) a distribution
to holders of the Issuer's Equity Interests of (i) shares of Capital
Stock or other Equity Interests of any Restricted Subsidiary of the
Issuer or (ii) other assets of the Issuer, without, in either case,
the receipt of equivalent consideration therefor shall be regarded as
the equivalent of a cash dividend equal to the excess of the Fair
Market Value of the Equity Interests or other assets being so
distributed at the time of such distribution over the consideration,
if any, received therefor.
Not later than the date of making any Restricted Payment,
the Issuer shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this Section 4.07
were computed, which calculations may be based upon the Issuer's
latest available internal financial statements.
Section 4.08. Limitation on Dividend and Other Payment Restrictions
------------ -----------------------------------------------------
Affecting Restricted Subsidiaries.
---------------------------------
The Issuer will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability
33
<PAGE>
of any Restricted Subsidiary to (i) pay dividends or make any other
distributions to the Issuer or any other Restricted Subsidiary on its
Equity Interests, (ii) pay any Indebtedness owed to the Issuer or any
other Restricted Subsidiary, (iii) make loans or advances to the Issuer
or any other Restricted Subsidiary or (iv) transfer any of its properties
or assets to the Issuer or any other Restricted Subsidiary, except for
such encumbrances or restrictions existing under or by reason of (a)
financing or credit agreements in effect as of the date of the Indenture,
including the Credit Agreement, as in effect on the date hereof, (b) the
Securities and the Indenture, (c) any restriction, with respect to a
Subsidiary of the Issuer that is not a Subsidiary of the Issuer and not
created as a result of or in anticipation of such entity becoming a
Restricted Subsidiary of the Issuer; provided that such encumbrance or
restriction is not applicable to any person or the properties or assets
of any person other than the person that becomes a Subsidiary, (d)
customary provisions restricting subletting or assignment of any lease,
(e) with respect to clause (iv) above, in connection with purchase money
obligations for property acquired in the ordinary course of business or
(f) consensual encumbrances and restrictions of the type described in
clauses (a) and (b) hereof that are not materially less favorable to the
Holders than those contained in or pursuant to the agreements being
replaced or the agreements evidencing the Indebtedness being refinanced.
Section 4.09. Limitation on Indebtedness.
------------ --------------------------
The Issuer will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, Guarantee or otherwise become directly or indirectly
liable with respect to ("incur"); provided, however, that the Issuer,
but not a Restricted Subsidiary of the Issuer, may incur Indebtedness
if at the time of such incurrence and after giving pro forma effect
thereto the Issuer's Fixed Charge Coverage Ratio for the most recently
ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
Indebtedness is incurred, calculated on a pro forma basis as if such
Indebtedness was incurred on the first day of such four-quarter
period, would be greater than or equal to 2.0 to 1.
Notwithstanding the foregoing, the limitations of this
Section 4.09 shall not apply to the incurrence of:
(a) Indebtedness of the Issuer evidenced by the Securities;
(b) Indebtedness of the Issuer constituting Existing
Indebtedness;
34
<PAGE>
(c) Indebtedness of the Issuer [and its Restricted
Securities] constituting Revolving Credit Indebtedness;
(d) Acquired Indebtedness, Capitalized Lease Obligations of
the Issuer [and its Restricted Subsidiaries] and
Indebtedness of the Issuer [and its Restricted
Subsidiaries] secured by Liens that secure payment of
all or part of the purchase price of assets or property
acquired or constructed in the ordinary course of
business after the date hereof; provided, however, that
the aggregate principal amount of such Indebtedness
permitted by this clause (d) shall not exceed
$[10,000,000] outstanding at any time;
(e) Indebtedness of the Issuer [and its Restricted
Subsidiaries] incurred in connection with any sale and
leaseback arrangement permitted under Section 4.11
hereof;
(f) Indebtedness of any Restricted Subsidiary issued to or
held by the Issuer or another Restricted Subsidiary;
(g) Indebtedness of the Issuer [and its Restricted
Subsidiaries] in an aggregate amount not to exceed
$5,000,000 outstanding at any time;
(h) Indebtedness under Currency Agreements related to
payment obligation in respect of Indebtedness of the
Issuer or of its Restricted Subsidiaries incurred in
accordance with this Indenture and Indebtedness in
respect of Currency Agreements entered into with
respect to payables and receivables of the Issuer and
its Restricted Subsidiaries, provided that in the case
of Currency Agreements that relate to Indebtedness,
such Currency Agreements do not increase the
Indebtedness of the Issuer or of its Restricted
Subsidiaries outstanding at any time other than as a
result of fluctuations in foreign currency or exchange
rates;
(i) Indebtedness incurred in respect of performance bonds,
bankers' acceptances or letters of credit of the
Company and of any Restricted Subsidiary of the Issuer
and surety bonds provided by
35
<PAGE>
the Issuer or any Subsidiary of the Issuer in the ordinary
course of business, the Indebtedness incurred under this
clause (i) not to exceed $5,000,000 in the aggregate;
(j) Indebtedness of the Issuer under Interest Rate Protection
Agreements covering Indebtedness which bears interest at
fluctuating interest rates to the extent the notional
principal amount of such Interest Rate Protection
Agreements does not exceed the principal amount of the
Indebtedness to which such Interest Rate Protection
Agreements relate; and
(k) Any refinancing, refunding, deferral, renewal or
extension (each, a "Refinancing") of any Indebtedness
of the Issuer permitted by the preceding paragraph or
by clause (a) or (c) of this Section 4.9 (the
"Refinancing Indebtedness"); provided, however, that
(i) such Refinancing does not increase the total
Consolidated Indebtedness of the Issuer and its
Restricted Subsidiaries outstanding at the time of such
Refinancing, (ii) the Refinancing Indebtedness shall
not provide for any mandatory redemption, amortization
or sinking fund requirement in an amount greater than
or at a time prior to the amounts and times specified
in the Indebtedness being refinanced, refunded,
deferred, renewed or extended and (iii) if the
Indebtedness being refinanced, refunded, deferred,
renewed or extended is subordinated to the Securities,
the Refinancing Indebtedness incurred to refinance,
refund, defer, renew or extend such Indebtedness shall
be subordinated in right of payment to the Securities
on terms at lease as favorable to the Holders as those
contained in the documentation governing the
Indebtedness being so refinanced, refunded, deferred,
renewed or extended.
Section 4.10. Asset Sales.
------------ -----------
(i) The Issuer will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, consummate an
Asset Sale unless (a) the Issuer or such Restricted Subsidiary
receives consideration at the time of such Asset Sale at least equal
to the Fair Market Value of the assets sold or otherwise disposed of,
and at least 75% of the consideration therefor received by the Issuer
or such Restricted Subsidiary is in the form of cash; provided,
however, that the amount of (1) any
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liability (as shown on the Issuer's or such Restricted Subsidiary's most
recent balance sheet or in the notes thereto) of the Issuer or such
Restricted Subsidiary that is assumed by the transferee in any such
transaction (other than securities which are subordinated in right of
payment to the Securities) and (2) any cash equivalent, note or other
Obligation received by the Issuer or any such Restricted Subsidiary from
such transferee that is converted by the Issuer or such Restricted
Subsidiary into cash, within 30 days of the receipt thereof, shall be
deemed to be cash for purposes of this provision; and (b) the Net
Proceeds received by the Issuer or such Restricted Subsidiary from such
Asset Sale are applied in accordance with the following Sections 4.10(ii)
and (iii).
(ii) Within 270 days after consummation of such Asset Sale,
the Issuer shall apply 100% of the Net Proceeds thereof to either (A)
an investment in a Related Business or (B) an Asset Sale Offer
pursuant to Section 3.09 hereof.
(iii) An Asset Sale Offer pursuant to this Section 4.10 shall
be made pursuant to the provisions of Section 3.09 hereof.
Simultaneously with the notification of such Asset Sale Offer to the
Trustee as required by Sections 3.01, 3.03 and 3.09 hereof, the Issuer
shall provide the Trustee with an Officers' Certificate setting forth
the information required to be included therein by Section 3.01 hereof
and, in addition, setting forth the calculations used in determining
the amount of Net Proceeds to be applied to the redemption of
Securities.
(iv) The Issuer will comply, to the extent applicable, with
the requirements of Rule 14e-1 under the Exchange Act and all other
securities laws or regulations in connection with any Asset Sale Offer
and the repurchase of the Securities described above.
Section 4.11. Limitation on Sale and Leaseback Transactions.
------------ ---------------------------------------------
The Issuer will not, and will not permit any of its
Restricted Subsidiaries to, enter into any arrangement with any person
providing for the leasing by the Issuer or any such Restricted
Subsidiary of any real property or tangible personal property, which
property has been or is to be sold or transferred by the Issuer or
such Restricted Subsidiary to such person in contemplation of such
leasing; provided, however, that the Company or a Restricted
Subsidiary of the Company may enter into any such sale leaseback
arrangement if (i) the Issuer or such Restricted Subsidiary is
permitted to dispose of such asset pursuant to Section 4.10 hereof and
(ii) (a) the Issuer would be entitled, under the first paragraph of
Section 4.09 hereof,
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to incur Indebtedness in an amount equal to the Attributable Indebtedness
with respect to such arrangement or (b) the net proceeds of such sale are
at least equal to the Fair Market Value of such property and the Issuer
applies the Net Proceeds of such sale pursuant to Section 4.10 hereof.
Section 4.12. Limitation on Transactions with Affiliates.
------------ ------------------------------------------
The Issuer and its Subsidiaries will not, directly or
indirectly, enter into any transaction or series of related transactions
with or for the benefit of any of their respective Affiliates (other than
transactions among two or more of the Issuer and its Subsidiaries in the
ordinary course of business), except if (i)(A) in the case of any such
transactions in which the aggregate rental value, remuneration or other
consideration (including the value of a loan) together with the aggregate
rental value, remuneration or other consideration (including the value of
a loan) of all such other transactions consummated in the year during
which such transaction is proposed to be consummated, exceeds $500,000,
the board of directors and the Independent Directors of the Issuer that
are disinterested, each have (by a majority vote including the vote of at
least one Independent Director) determined in good faith that the
aggregate rental price, remuneration or other consideration (including
the value of any loan) inuring to the benefit of such Affiliate from any
such transaction is not greater than that which would be charged to or
extended by the Issuer or its Subsidiary, as the case may be, on an arm's
length basis for similar properties, assets, rights, goods or services by
or to a person not affiliated with the Issuer or its Subsidiaries and (B)
in the case of any such transaction in which the aggregate rental value,
remuneration or other consideration (including the value of any loan),
together with the aggregate rental value, remuneration or other
consideration (including the value of any loan) of all such other
transactions consummated in the year during which such transaction
proposed to be consummated, exceeds $5,000,000, the board of directors of
the Issuer and the Independent Directors of the Issuer that are
disinterested (each by a majority vote including the vote of at least one
Independent Director), and a nationally recognized investment bank,
unaffiliated with the Issuer and the Affiliate which is party to such
transaction has determined that the aggregate rental price, remuneration
or other consideration (including the value of a loan) inuring to the
benefit of such Affiliate from any such transaction is not greater than
that which would be charged to or extended by the Issuer or its
Subsidiary, as the case may be, on an arm's length basis for similar
properties, assets, rights, goods or services by or to a person not
affiliated with the Issuer or its Subsidiaries, as the case may be, and
such transaction is entered into in good faith and on an arm's-length
basis.
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Section 4.13. Limitation on Liens.
------------ -------------------
The Issuer will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist any Lien upon any of their respective assets
or properties now owned or hereafter acquired, or any income or
profits therefrom, or assign or convey any right to receive income
therefrom, except for the following:
(a) Existing Liens;
(b) Liens on accounts receivable, inventory[, general
intangibles] and proceeds therefrom granted in
connection with Revolving Credit Indebtedness;
(c) Permitted Liens;
(d) the Lien granted to the Trustee pursuant to Sections
6.09 and 7.07 hereof;
(e) Liens on assets or properties of the Issuer, [but not
on assets or properties] of Restricted Subsidiaries of
the Issuer, to secure the payment of all or a part of
the purchase price of assets or property acquired or
constructed in the ordinary course of business after
the date hereof; provided, however, that (i) the
aggregate principal amount of Indebtedness secured by
such Liens shall not exceed the lesser of cost or Fair
Market Value of the assets or property so acquired or
constructed, (ii) the Indebtedness secured by such
Liens shall have otherwise been permitted to be
incurred pursuant to Section 4.09 hereof and (iii) such
Liens shall not encumber any other assets or property
of the Issuer or any of its Restricted Subsidiaries and
shall attach to such assets or property within ninety
(90) days of the completion of construction or
acquisition of such assets or property;
(f) any Lien on assets or properties of the Issuer[, but
not on assets] or [properties] of Restricted
Subsidiaries of the Issuer[,] securing any Capitalized
Lease Obligation, which Capitalized Lease Obligation is
permitted to be incurred pursuant to Section 4.09
hereof; provided, however, that such Liens do not
extend to or
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cover any property or assets of the Issuer or any of its
Restricted Subsidiaries other than the property or assets
subject to such Capitalized Lease Obligations;
(g) Liens securing Acquired Indebtedness permitted to be
incurred under Section 4.09 hereof; provided, however,
that (i) such Liens existed on the date such asset or
property was acquired and were not incurred as a result
of or in anticipation of such acquisition and (ii) such
Liens do not extend to or cover any property or assets
of the Issuer or any of its Restricted Subsidiaries
other than the property or assets so acquired;
(h) Any Lien on assets or properties of the Issuer [or of
Restricted Subsidiaries of the Issuer] granted in
connection with a sale and leaseback transaction
permitted to be incurred pursuant to Section 4.11
hereof; provided, however, that such Liens do not
extend to or cover any property or assets not the
subject of such sale and leaseback transaction;
(i) Liens securing Refinancing Indebtedness which is
incurred to refinance Indebtedness which has been
secured by a Lien permitted hereunder and which is
permitted to be refinanced pursuant to Section 4.09;
provided, however, that such Liens do not extend to or
cover any property or assets of the Issuer or any of
its Restricted Subsidiaries not securing the
Indebtedness so refinanced; and
(j) Liens on assets which are created to secure Senior
Indebtedness, so long as the Senior Notes are equally
and ratably secured thereby.
Section 4.14. Corporate Existence.
------------ -------------------
Subject to Section 4.15 and Article 5 hereof, the Issuer
will do or cause to be done all things necessary to preserve and keep
in full force and effect (i) its corporate existence and the corporate
existence of each of its Subsidiaries, in accordance with their
respective organizational documents (as the same may be amended from
time to time) and (ii) its (and its Subsidiaries) rights (charter and
statutory), licenses and franchises; provided, however, that the
Issuer shall not be
40
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required to preserve any such right, license or franchise, or the
corporate existence of any Subsidiary, if the Board of Directors of the
Issuer shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Issuer and its
Subsidiaries taken as a whole and that the loss thereof is not adverse in
any material respect to the Holders.
Section 4.15. Liquidation.
------------ -----------
The Issuer will not adopt any plan of liquidation or
dissolution which provides for, contemplates or the effectuation of which
is preceded by (i) the sale, lease, conveyance or other disposition of
all or substantially all of the assets of the Issuer and its Restricted
Subsidiaries taken as a whole otherwise than substantially as an entirety
(Article 5 hereof being the Section which governs any such sale, lease,
conveyance or other disposition substantially as an entirety) and (ii)
the distribution of all or substantially all of the proceeds of such
sale, lease, conveyance or other disposition and of the remaining assets
of the Issuer and its Restricted Subsidiaries taken as a whole to the
holders of Equity Interests of the Issuer, unless in connection with the
adoption of such plan the Issuer makes provision for, or agrees that
prior to making any liquidating distribution pursuant to such plan, it
will make provision for, the satisfaction of the Issuer's Obligations
hereunder and under the Securities as to the payment of principal,
premium, if any, and interest. The Issuer shall be deemed to make
provision for such payments only if (a) the Issuer has deposited or
caused to be deposited with the Trustee or Paying Agent (other than the
Issuer or its Restricted Subsidiaries) irrevocably as trust funds in
trust for the purpose, (1) money in an amount, (2) U.S. Government
Obligations which through the payment of principal and interest in
respect thereof in accordance with their terms will provide not later
than one day before the due date of the payment (referred to below) money
in an amount, or (3) a combination thereof, sufficient, in the opinion of
a nationally recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee or Paying
Agent, to pay and discharge the principal of and interest on the
Securities on the stated maturity date of such principal or interest or
(b) the liquidation is in compliance with Article 5 hereof; provided,
however, that the Issuer shall not make any liquidating distribution
until after the Issuer has certified to the Trustee in an Officers'
Certificate at least five (5) days prior to the making of any liquidating
distribution that it has complied with the provisions of this Section
4.15.
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Section 4.16. Change of Control.
------------ -----------------
In the event of a Change of Control (the time of such Change
of Control being referred to as the "Change of Control Date"), the
Issuer shall notify the Trustee in writing thereof and shall make an
offer (the "Change of Control Offer") on a Business Day not more than
sixty (60) Business Days after the Change of Control Date (the "Change
of Control Payment Date"), to purchase all Securities then outstanding
at a purchase price equal to 101% of the principal amount thereof plus
accrued and unpaid interest to the date of payment. The Change of
Control Offer shall be made in compliance with all applicable laws,
including without limitation, Regulation 14E of the Exchange Act and
the rules thereunder and all other applicable federal and state
securities laws.
Notice of a Change of Control Offer shall be mailed by the
Issuer not less than 30 days nor more than 45 days before the Change
of Control Payment Date to the Holders at their last registered
addresses with a copy to the Trustee and the Paying Agent. The Change
of Control Offer shall remain open from the time of mailing until the
close of business on the Change of Control Payment Date and shall
remain open for no less than twenty (20) Business Days. The notice,
which shall govern the terms of the Change of Control Offer, shall
state:
(1) that the Change of Control Offer is being made pursuant
to this Section 4.16 and that all Securities tendered
will be accepted for payment;
(2) the purchase price and the Change of Control Payment
Date;
(3) that any Securities not tendered will continue to
accrue interest;
(4) that any Securities accepted for payment pursuant to
the Change of Control Offer shall cease to accrue
interest after the Change of Control Payment Date;
(5) that Holders electing to have Securities purchased
pursuant to a Change of Control Offer will be required
to surrender their Securities, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of
the Security completed, to the Issuer prior to the
close of business on the Change of Control Payment
Date;
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(6) that Holders will be entitled to withdraw their
election if the Issuer receives, not later than the
close of business on the Business Day preceding the
Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name
of the Holder, the principal amount of Securities the
Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such
Securities purchased;
(7) that Holders whose Securities are purchased only in
part will be issued Securities representing the
unpurchased portion of the Securities surrendered;
(8) the instructions that Holders must follow in order to
tender their Securities; and
(9) the circumstances and relevant facts regarding such
Change of Control (including but not limited to
information with respect to pro forma historical and
projected financial information after giving effect to
such Change of Control, information regarding the
persons acquiring control and such person's business
plans going forward).
On the Change of Control Payment Date, the Issuer will (i)
accept for payment Securities or portions thereof tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Securities or portions
thereof so tendered and (iii) deliver to the Trustee Securities so
accepted together with an Officers' Certificate stating the Securities or
portions thereof tendered to the Issuer. The Paying Agent shall promptly
mail to the Holder of Securities so accepted payment in an amount equal
to the purchase price, and the Trustee shall promptly authenticate and
mail to such Holders a new Security equal in principal amount to any
unpurchased portion of the Security surrendered.
Section 4.17. Maintenance of Properties.
------------ -------------------------
The Issuer shall, and shall cause its Restricted
Subsidiaries to, maintain their respective properties and assets in
normal working order and condition as on the date hereof (reasonable
wear and tear excepted) and make all necessary repairs, renewals,
replacements, additions, betterments and improvements thereto, as
shall be reasonably necessary for the proper conduct of the business
of the Issuer and its
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Restricted Subsidiaries taken as a whole; provided that nothing herein
shall prevent the Issuer or any of its Restricted Subsidiaries from
discontinuing any maintenance of any such properties if such
discontinuance is desirable in the conduct of the business of the Issuer
and its Restricted Subsidiaries taken as a whole.
Section 4.18. Maintenance of Insurance.
------------ ------------------------
The Issuer shall, and shall cause its Restricted
Subsidiaries to, (i) maintain liability, casualty and other insurance
(subject to customary deductibles and retentions) with responsible
insurance companies in such amounts and against such risks as is
customarily carried by responsible companies engaged in similar
businesses and owning similar assets in the general areas in which the
Issuer and its Restricted Subsidiaries operate (which may include
self-insurance in comparable form to that maintained by such
responsible companies); (ii) provide to the Trustee an endorsement to
such insurance providing that the insurance companies issuing such
policies will give the Trustee at least fifteen (15) days prior
written notice of cancellation, non-renewal or any other material
change; and (iii) maintain the Trustee for the benefit of the Holders
as additional insured, as its interest appears, with respect to
liability insurance.
ARTICLE 5
SUCCESSORS
Section 5.01. When the Issuer May Merge, etc.
------------ ------------------------------
The Issuer will not consolidate with or merge with or into
(whether or not the Issuer is the surviving person), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets and those of its Restricted
Subsidiaries taken as a whole in one or more related transactions to,
another corporation, person or entity unless:
(i) the person formed by or surviving any such
consolidation or merger (if other than the Issuer) or
the person to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been
made assumes all the Obligations of the Issuer,
pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee, under this
Indenture and the Securities;
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(ii) the entity or the person formed by or surviving any
such consolidation or merger or to which such sale,
assignment, transfer, lease, conveyance or other
disposition will have been made is organized and
existing under the laws of the United States, any state
thereof or the District of Columbia;
(iii) except in the case of a merger or consolidation
involving only the Issuer and one or more Restricted
Subsidiaries, the Issuer or any person formed by or
surviving any such consolidation or merger, or to which
such sale, assignment, transfer, lease, conveyance or
other disposition will have been made will be permitted
to incur, immediately after giving effect to such
transaction, at least $1.00 of additional Indebtedness
pursuant to the first paragraph or clause (i) of
Section 4.09 hereof (assuming a market rate of interest
with respect to such additional Indebtedness);
(iv) the Consolidated Net Worth of the Issuer or person
formed by or surviving any such consolidation or
merger, or to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been
made shall, immediately after giving effect to such
transaction, be not less than the Consolidated Net
Worth of the Company prior to such transaction; and
(v) immediately before and after giving effect to such
transaction and treating any Indebtedness which becomes
an Obligation of the Issuer or any of its Subsidiaries
or of such person as a result of such transaction as
having been incurred by the Issuer or such Subsidiary
of such person, as the case may be, at the time of such
transaction, no Default or Event of Default exists.
The Issuer shall deliver to the Trustee prior to the
consummation of the proposed transaction an Officers' Certificate to the
foregoing effect and an Opinion of Counsel, covering clauses (i) through
(v) above, stating that the proposed transaction and such supplemental
indenture comply with this Indenture. The Trustee shall be entitled to
conclusively rely upon such Officers' Certificate and Opinion of Counsel.
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Section 5.02. Successor Substituted.
------------ ---------------------
Upon any consolidation or merger, or any sale, lease,
conveyance or other disposition of all or substantially all of the
assets of the Issuer and its Restricted Subsidiaries as a whole in
accordance with Section 5.01, the successor formed by such
consolidation, or into or with which the Issuer is merged or to which
such sale, lease, conveyance or other disposition is made, or formed
by such reorganization, as the case may be, shall succeed to, and be
substituted for, and may exercise every right and power of, the
Issuer, under this Indenture and the Securities with the same effect
as if such successor person had been named as the Issuer, herein or
therein.
ARTICLE 6
DEFAULT AND REMEDIES
Section 6.01. Events of Default.
------------ -----------------
An "Event of Default" shall occur if:
(1) the Issuer defaults in the payment of interest on any
Security when the same becomes due and payable and the
Default continues for a period of thirty (30) days;
(2) the Issuer defaults in the payment of the principal or
premium, if any, of any Security when the same becomes
due and payable at maturity, upon redemption, in
connection with a Change of Control, an Asset Sale or
otherwise;
(3) the Issuer fails to observe or perform any covenant,
condition or agreement on the part of the Issuer to be
observed or performed pursuant to Section 4.07, 4.09,
4.10, 4.15, 4.16 or Article 5 hereof;
(4) the Issuer fails to observe or perform any other
covenant, condition or agreement in this Indenture or
the Securities and such failure continues for the
period and after the notice specified below;
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(5) a default occurs under any mortgage, indenture or
instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for
money borrowed (other than the Securities) by the
Issuer or any of its Subsidiaries (or the payment of
which is Guaranteed by the Issuer or any of its
Subsidiaries), whether such Indebtedness or Guarantee
now exists or is created hereafter, and the principal
amount of such Indebtedness, together with the
principal amount of any other Indebtedness under which
there has occurred a default, aggregates $3,000,000 or
more;
(6) a final judgment or final judgments for the payment of
money are entered by a court or courts of competent
jurisdiction against the Issuer or any of its
Subsidiaries and such judgment or judgments remain
undischarged, unbonded or unstayed for a period of
sixty (60) days, provided that the aggregate of all
such judgments exceeds $[3,000,000];
(7) The Issuer or any of its Subsidiaries pursuant to or
within the meaning of any Bankruptcy Law:
(a) commences a voluntary case,
(b) consents to the entry of an order for relief
against it in an involuntary case,
(c) consents to the appointment of a Custodian of it
or for all or substantially all of its property,
(d) makes a general assignment for the benefit of its
creditors,
(e) admits in writing its inability to pay debts as
the same become due;
(8) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
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(a) is for relief against the Issuer or any of its
Subsidiaries in an involuntary case,
(b) appoints a Custodian of the Issuer or any of its
Subsidiaries or for all or substantially all of
their property,
(c) orders the liquidation of the Issuer or any of its
Subsidiaries.
and the order or decree remains unstayed and in effect
for sixty (60) days; or
(9) the Issuer denies or disaffirms its Obligations under
the Securities.
The term "Bankruptcy Law" means title 11, U.S. Code or any
similar Federal or state law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
A Default under clause (4) is not an Event of Default until
the Trustee notifies the Issuer, or the Holders of at least 25% in
principal amount of the then outstanding Securities notify the Issuer
and the Trustee, of the Default and the Issuer does not cure the
Default within sixty (60) days after receipt of such notice. The
notice must specify the Default, demand that it be remedied and state
that the notice is a "Notice of Default."
Section 6.02. Acceleration.
------------ ------------
If an Event of Default (other than an Event of Default
specified in clauses (7) and (8) of Section 6.01) occurs and is
continuing, the Trustee by notice to the Issuer, or the Holders of at
least 25% in principal amount of the then outstanding Securities by
written notice to the Issuer and the Trustee may declare the unpaid
principal of and any accrued interest on all the Securities to be due
and payable. Upon such declaration the principal and interest shall
be due and payable immediately. If an Event of Default specified in
clause (7) or (8) of Section 6.01 occurs, such an amount shall ipso
facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder.
The Holders of a majority in principal amount of the then outstanding
Securities by written
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notice to the Trustee may rescind an acceleration and its consequences if
the rescission would not conflict with any judgment or decree and if all
existing Events of Default (except nonpayment of principal or interest that
has become due solely because of the acceleration) have been cured, paid or
waived.
In the case of any Event of Default occurring by reason of
any willful action (or inaction) taken (or not taken) by or on behalf
of the Issuer with the intention of avoiding payment of the premium
that the Issuer would have had to pay if the Issuer then had elected
to redeem the Securities pursuant to Section 3.07 hereof, an
equivalent premium shall also become and be immediately due and
payable to the extent permitted by law. If an Event of Default occurs
prior to __________, 1999 by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Issuer with the
intention of avoiding the prohibition on redemption of the Securities
prior to such date pursuant to Section 3.07, then the premium payable
for purposes of this paragraph for each of the years beginning on
________ of the years set forth below shall be as set forth in the
following table expressed as a percentage of the amount that would
otherwise be due but for the provisions of this paragraph, plus
accrued interest, if any, to the date of payment;
Year Percentage
---- ----------
1994 . . . . . . . . . . .
1995 . . . . . . . . . . .
1996 . . . . . . . . . . .
1997 . . . . . . . . . . .
1998 . . . . . . . . . . .
Section 6.03. Other Remedies.
------------ --------------
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy (under this Indenture or otherwise) to
collect the payment of principal or interest on the Securities or to
enforce the performance of any provision of the Securities or this
Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the
proceeding. A delay or omission by the Trustee or any Holder in
exercising any right or remedy accruing upon an Event of Default shall
not impair the right or remedy or constitute a waiver
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of or acquiescence in the Event of Default. All remedies are cumulative
to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
------------ -----------------------
Holders of a majority in aggregate principal amount of the then
outstanding Securities by notice to the Trustee may waive an existing
Default or Event of Default and its consequences, except a continuing
Default or Event of Default in the payment of the principal of or
interest on any Security held by a non-consenting Holder. Upon any such
waiver, such Default shall cease to exist, and any Event of Default
arising therefrom shall be deemed to have been cured for every purpose of
this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
Section 6.05. Control by Majority.
------------ -------------------
The Holders of a majority in principal amount of the then
outstanding Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it. However, the Trustee
may refuse to follow any direction that conflicts with law or this
Indenture, that the Trustee determines may be unduly prejudicial to
the rights of other Holders, or that may involve the Trustee in
personal liability.
Section 6.06. Limitation on Suits.
------------ -------------------
A Holder may pursue a remedy with respect to this Indenture
or the Securities only if:
(1) the Holder gives to the Trustee written notice of
a continuing Event of Default;
(2) the Holders of at least 25% in principal amount of
the then outstanding Securities make a written request to the
Trustee to pursue the remedy;
(3) such Holder or Holders offer and, if requested,
provide to the Trustee indemnity satisfactory to the Trustee
against any loss, liability or expense;
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(4) the Trustee does not comply with the request
within sixty (60) days after receipt of the request and the offer
and, if requested, the provision of indemnity; and
(5) during such sixty (60) day period the Holders of a
majority in principal amount of the then outstanding Securities
do not give the Trustee a direction inconsistent with the
request.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.
Section 6.07. Rights of Holders to Receive Payment.
------------ ------------------------------------
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Security to receive payment of principal and
interest on the Security, on or after the respective due dates
expressed in the Security, or to bring suit for the enforcement of any
such payment on or after such respective dates, shall not be impaired
or affected without the consent of the Holder.
Section 6.08. Collection Suit by Trustee.
------------ --------------------------
If an Event of Default specified in Section 6.01(1) or (2)
occurs and is continuing, the Trustee is authorized to recover
judgment in its own name and as trustee of an express trust against
the Issuer for the whole amount of principal and interest remaining
unpaid on the Securities and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient
to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
------------ --------------------------------
The Trustee is authorized to file such proofs of claim and
other papers or documents as may be necessary or advisable in order to
have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel) and the Holders allowed in any judicial
proceedings relative to the Issuer (or any other obligor upon the
Securities), their creditors or their property and shall be entitled
and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian
in any such judicial proceeding is hereby
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authorized by each Holder to make such payments to the Trustee, and in
the event that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee
under Section 7.07 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, and any other amounts due the Trustee under Section
7.07 hereof out of the estate in any such proceeding, shall be denied for
any reason, payment of the same shall be secured by a Lien on, and shall
be paid out of, any and all distributions, dividends, money securities
and other properties which the Holders of the Securities may be entitled
to receive in such proceeding whether in liquidation or under any plan of
reorganization or arrangement or otherwise. Nothing herein contained
shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization,
arrangement, adjustment or composition affecting the Securities or the
rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
Section 6.10. Priorities.
------------ ----------
If the Trustee collects any money pursuant to this Article,
it shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts
due under Section 7.07, including payment of all compensation, expense
and liabilities incurred, and all advances made, by the Trustee and
the costs and expenses of collection;
Second: to Holders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively;
Third: without duplication, to Holders for any other
Obligations owing to the Holders under this Indenture or the
Securities; and
Fourth: to the Issuer or to such party as a court of
competent jurisdiction shall direct.
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The Trustee may fix a record date and payment date for any
payment to Holders.
Section 6.11. Undertaking for Costs.
------------ ---------------------
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken
or omitted by it as a Trustee, a court in its discretion may require
the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess
reasonable costs, including reasonable attorneys' fees, against any
party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This
Section does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 or a suit by Holders of more than 10% in
principal amount of the then outstanding Securities.
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.
------------ -----------------
(i) If an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers
vested in it by this Indenture, and use the same degree of care and
skill in their exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs.
(ii) Except during the continuance of an Event of
Default:
(a) The duties of the Trustee shall be determined
solely by the express provisions of this Indenture
and the Trustee need perform only those duties
that are specifically set forth in this Indenture
and no others, and no implied covenants or
Obligations shall be read into this Indenture
against the Trustee.
(b) In the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions
expressed therein, upon certificates or opinions
furnished to the Trustee and
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conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates
and opinions to determine whether or not they conform
to the requirements of this Indenture.
(iii) The Trustee may not be relieved from liabilities
for its own negligent action, its own negligent failure to act, or its
own willful misconduct, except that:
(a) This paragraph does not limit the effect of
paragraph (ii) of this Section.
(b) The Trustee shall not be liable for any error of
judgment made in good faith by a Responsible
Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(c) The Trustee shall not be liable with respect to
any action it takes or omits to take in good faith
in accordance with a direction received by it
pursuant to Section 6.05.
(iv) Whether or not therein expressly so provided,
every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (i), (ii) and (iii) of this Section.
(v) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or incur any liability. The
Trustee may refuse to perform any duty or exercise any right or power
unless it receives indemnity satisfactory to it against any loss,
liability or expense.
(vi) The Trustee shall not be liable for interest on
any money received by it except as the Trustee may agree in writing
with the Issuer. Money held in trust by the Trustee need not be
segregated from other funds except to the extent required by law.
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Section 7.02. Rights of Trustee.
------------ -----------------
(i) The Trustee may conclusively rely upon any
document believed by it to be genuine and to have been signed or
presented by the proper person. The Trustee need not investigate any
fact or matter stated in the document.
(ii) Before the Trustee acts or refrains from acting,
it may require an Officers' Certificate or an Opinion of Counsel or
both. The Trustee shall not be liable for any action it takes or
omits to take in good faith in reliance on such Officers' Certificate
or Opinion of Counsel. The Trustee may consult with counsel and the
written advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.
(iii) The Trustee may act through agents and shall not
be responsible for the misconduct or negligence of any agent appointed
with due care.
(iv) The Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be
authorized or within its rights or powers conferred upon it by the
Indenture.
(v) Unless otherwise specifically provided in the
Indenture, any demand, request, direction or notice from the Issuer
shall be sufficient if signed by an Officer of the Issuer.
Section 7.03. Individual Rights of Trustee.
------------ ----------------------------
The Trustee in its individual or any other capacity may
become the owner or pledgee of Securities and may otherwise deal with
the Issuer or an Affiliate of the Issuer with the same rights it would
have if it were not Trustee. Any Agent may do the same with like
rights. However, the Trustee is subject to Sections 7.10 and 7.11.
Section 7.04. Trustee's Disclaimer.
------------ --------------------
The Trustee shall not be responsible for and makes no
representation as to the validity or adequacy of this Indenture or the
Securities. The Trustee shall not be accountable for the Issuer's use
of the proceeds from the Securities or any money paid to the Issuer or
upon the Issuer's direction under any provision hereof, shall not
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be responsible for the use or application of any money received by any
Paying Agent other than the Trustee and shall not be responsible for any
statement or recital herein or any statement in the Securities or any
other document in connection with the sale of the Securities or pursuant
to this Indenture other than its certificate of authentication.
Section 7.05. Notice of Defaults.
------------ ------------------
If a Default or Event of Default occurs and is continuing
and if it is known to the Trustee, the Trustee shall mail to Holders a
notice of the Default or Event of Default within ninety (90) days
after it occurs. Except in the case of a Default or Event of Default
in payment on any Security pursuant to Section 6.01(1) or (2), the
Trustee may withhold the notice if it determines that withholding the
notice is in the interests of Holders.
Section 7.06. Reports by Trustee to Holders.
------------ -----------------------------
Within sixty (60) days after each June 15 beginning with the
June 15 following the date of this Indenture, the Trustee shall mail to
Holders a brief report dated as of such reporting date that complies
with TIA (S)(S) 313(a) (but if no event described in TIA (S)(S) 313(a)
has occurred within the twelve months preceding the reporting date, no
report need be transmitted). The Trustee also shall comply with TIA
(S)(S) 313(b). The Trustee shall also transmit by mail all reports as
required by TIA (S)(S) 313(c).
A copy of each report at the time of its mailing to Holders
shall be filed with the SEC and each stock exchange on which the
Securities are listed. The Issuer shall promptly notify the Trustee
when the Securities are listed on any stock exchange.
Section 7.07. Compensation and Indemnity.
------------ --------------------------
The Issuer shall pay to the Trustee from time to time
reasonable compensation for its acceptance of this Indenture and
services hereunder and under the Intercreditor Agreement. The
Trustee's compensation shall not be limited by any law on compensation
of a trustee of an express trust. The Issuer shall reimburse the
Trustee promptly upon request for all reasonable disbursements,
advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the
reasonable compensation, disbursements and expenses
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of the Trustee's agents and counsel, except such disbursements, advances
and expenses as may be attributable to its negligence or bad faith.
The Issuer shall indemnify the Trustee against any and all
losses, liabilities or expenses incurred by it without negligence or
bad faith on its part arising out of or in connection with the
acceptance or administration of its duties under this Indenture and
the Intercreditor Agreement, except as set forth below. The Trustee
shall notify the Issuer promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Issuer shall not
relieve the Issuer of its Obligations hereunder. The Issuer shall
defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Issuer shall pay the
reasonable fees and expenses of such counsel. The Issuer need not pay
for any settlement made without its consent, which consent shall not
be unreasonably withheld.
The Obligations of the Issuer under this Section 7.07 shall
survive the satisfaction and discharge of this Indenture.
The Issuer need not reimburse any expense or indemnify
against any loss or liability incurred by the Trustee through its own
negligence or bad faith.
To secure the Issuer's payment Obligations in this Section,
the Trustee shall have a Lien prior to the Securities on all money or
property held or collected by the Trustee, except that held in trust
to pay principal and interest on particular Securities. Such Lien
shall survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after
an Event of Default specified in Section 6.01(7) or (8) occurs, the
expenses and the compensation for the services are intended to
constitute expenses of administration under any Bankruptcy Law.
Section 7.08. Replacement of Trustee.
------------ ----------------------
A resignation or removal of the Trustee and appointment of a
successor Trustee shall become effective only upon the successor
Trustee's acceptance of appointment as provided in this Section.
The Trustee may resign at any time and be discharged from
the trust hereby created by so notifying the Issuer. The Holders of a
majority in principal
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amount of the then outstanding Securities may remove the Trustee by so
notifying the Trustee and the Issuer. The Issuer may remove the Trustee
if:
(i) the Trustee fails to comply with Section 7.10;
(ii) the Trustee is adjudged a bankrupt or an insolvent
or an order for relief is entered with respect to
the Trustee under any Bankruptcy Law;
(iii) a Custodian or public officer takes charge of the
Trustee or its property; or
(iv) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists
in the office of Trustee for any reason, the Issuer shall promptly
appoint a successor Trustee. Within one year after the successor
Trustee takes office, the Holders of a majority in principal amount of
the then outstanding Securities may appoint a successor Trustee to
replace the successor Trustee appointed by the Issuer.
If a successor Trustee does not take office within sixty
(60) days after the retiring Trustee resigns or is removed, the
retiring Trustee, the Issuer or the Holders of at least 10% in
principal amount of the then outstanding Securities may petition any
court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee after written request by any Holder fails to
comply with Section 7.10, such Holder may petition any court of
competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuer. Thereupon, the
resignation or removal of the retiring Trustee shall become effective,
and the successor Trustee shall have all the rights, powers and duties of
the Trustee under this Indenture and the Intercreditor Agreement. The
successor Trustee shall mail a notice of its succession to Holders. The
retiring Trustee shall promptly transfer all property held by it as
Trustee to the successor Trustee, provided all sums owing to the Trustee
hereunder have been paid and subject to the Lien provided for in Section
7.07. Notwithstanding
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replacement of the Trustee pursuant to this Section 7.08, the Issuer's
Obligations under Section 7.07 hereof shall continue for the benefit of
the retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
------------ --------------------------------
If the Trustee consolidates, merges or converts into, or
transfers all or substantially all of its corporate trust business to,
another corporation, the successor corporation without any further act
shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
------------ -----------------------------
There shall at all times be a Trustee hereunder which shall
be a corporation organized and doing business under the laws of the
United States of America or of any state thereof authorized under such
laws to exercise corporate trustee power, shall be subject to
supervision or examination by Federal or state authority and shall
have a combined capital and surplus of at least $100,000,000 as set
forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S)(S) 310(a)(1) and 310(a)(5). The Trustee is
subject to TIA (S) 310(b).
Section 7.11. Preferential Collection of Claims Against Issuer.
------------ ------------------------------------------------
The Trustee is subject to TIA (S) 311(a), excluding any
creditor relationship listed in TIA (S) 311(b). A Trustee who has
resigned or been removed shall be subject to TIA (S) 311(a) to the
extent indicated therein.
ARTICLE 8
DISCHARGE OF INDENTURE
Section 8.01. Option to Effect Legal Defeasance or Covenant
------------ ---------------------------------------------
Defeasance.
----------
The Company may, at the option of its Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any
time, with respect to the Securities, elect to have either Section 8.02
or 8.03 be applied to all outstanding Securities upon compliance with the
conditions set forth below in this Article Eight.
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Section 8.02. Legal Defeasance and Discharge.
------------ ------------------------------
Upon the Company's exercise under Section 8.01 of the option
applicable to this Section 8.02, the Company shall be deemed to have
been discharged from its obligations with respect to all outstanding
Securities on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, such Legal
Defeasance means that the Company shall be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding
Securities, which shall thereafter be deemed to be "outstanding" only
for the purposes of Section 8.05 and the other Sections of this
Indenture referred to in (i) and (ii) below, and to have satisfied all
its other obligations under such Securities and this Indenture (and
the Trustee, on demand of and at the expense of the Company, shall
execute proper instruments acknowledging the same), except for the
following which shall survive until otherwise terminated or discharged
hereunder: (i) the rights of Holders of outstanding Securities to
receive solely from the trust fund described in Section 8.04, and as
more fully set forth in such Section, payments in respect of the
principal of, premium, if any, and interest on such Securities when
such payments are due, (ii) the Company's obligations with respect to
such Securities under Sections 2.04, 2.06, 2.07, 2.10 and 4.02, (iii)
the rights, powers, trusts, duties and immunities of the Trustee
hereunder and the Company's obligations in connection therewith and
(iv) this Article Eight. Subject to compliance with this Article
Eight, the Company may exercise its option under this Section 8.02
notwithstanding the prior exercise of its option under Section 8.03
with respect to the Securities.
Section 8.03. Covenant Defeasance.
------------ -------------------
Upon the Company's exercise under Section 8.01 of the option
applicable to this Section 8.03, the Company shall be released from its
obligations under the covenants contained in Sections 4.07, 4.08, 4.09,
4.11, 4.12, 4.13, 4.16 and Article 5 with respect to the outstanding
Securities on and after the date the conditions set forth below are
satisfied (hereinafter, "Covenant Defeasance"), and the Securities shall
thereafter be deemed not "outstanding" for the purposes of any direction,
waiver, consent or declaration or act of Holders (and the consequences of
any thereof) in connection with such covenants, but shall continue to be
deemed "outstanding" for all other purposes hereunder (it being
understood that such Securities shall not be deemed outstanding for
accounting purposes). For this purpose, such Covenant Defeasance means
that, with respect to the outstanding Securities, the Company may omit to
comply with and shall have no liability in respect of any term, condition
or limitation set forth in any such covenant, whether
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directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to
any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under
Section 6.01(3), but, except as specified above, the remainder of this
Indenture and such Securities shall be unaffected thereby. In addition,
upon the Company's exercise under Section 8.01 of the option applicable
to this Section 8.03, Sections 6.01(4) through 6.01(8) shall not
constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance.
------------ ------------------------------------------
The following shall be the conditions to application of
either Section 8.02 or Section 8.03 to the outstanding Securities:
(i) The Company shall irrevocably have deposited or
caused to be deposited with the Trustee (or another trustee
satisfying the requirements of Section 7.10 who shall agree to
comply with the provisions of this Article 8 applicable to it) as
trust funds in trust for the purpose of making the following
payments, specifically pledged as security for, and dedicated
solely to, the benefit of the Holders of such Securities, (a)
cash in U.S. Dollars in an amount, or (b) non-callable Government
Securities which through the scheduled payment of principal and
interest in respect thereof in accordance with their terms will
provide, not later than one day before the due date of any
payment, cash in U.S. Dollars in an amount, or (c) a combination
thereof, in such amounts, as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the
Trustee, to pay and discharge and which shall be applied by the
Trustee (or other qualifying trustee) to pay and discharge (1)
the principal of, premium, if any, and interest on the
outstanding Securities on the stated maturity or on the
applicable redemption date, as the case may be, of such principal
or installment of principal, premium, if any, or interest and (2)
any mandatory sinking fund payments or analogous payments
applicable to the outstanding Securities on the day on which such
payments are due and payable in accordance with the terms of this
Indenture and of such Securities; provided that the Trustee shall
have been irrevocably instructed to apply such money or the
proceeds of such nonallowable Government Securities to said
payments with respect to the Securities.
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(ii) In the case of an election under Section 8.02, the
Company shall have delivered to the Trustee an Opinion of Counsel in
the United States reasonably satisfactory to the Trustee confirming
that (a) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (b) since the date
hereof, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such
opinion shall confirm that, the Holders of the outstanding
Securities will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
Legal Defeasance has not occurred;
(iii) In the case of an election under Section 8.03, the
Company shall have delivered to the Trustee an Opinion of Counsel
in the United States to the effect that the Holders of the
outstanding Securities will not recognize income, gain or loss
for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to Federal income tax in the same
amount, in the same manner and at the same time as would have
been the case if such Covenant Defeasance had not occurred;
(iv) No Default or Event of Default with respect to the
Securities shall have occurred and be continuing on the date of
such deposit or, in so far as Subsection 6.01(7) or 6.01(8) is
concerned, at any time in the period ending on the 91st day after
the date of such deposit (it being understood that this condition
shall not be deemed satisfied until the expiration of such
period);
(v) Such Legal Defeasance or Covenant Defeasance shall
not result in a breach or violation of, or constitute a default
under, this Indenture or any other material agreement or
instrument to which the Company is a party or by which the
Company is bound;
(vi) In the case of an election under either Section
8.02 or 8.03, the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that after the 91st day
following the deposit, the trust funds will not be subject to the
effect of any applicable Bankruptcy Law;
(vii) In the case of an election under either Section
8.02 or 8.03, the Company shall have delivered to the Trustee an
Officers' Certificate
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stating that the deposit made by the Company pursuant to its
election under Section 8.02 or 8.03 was not made by the Company with
the intent of preferring the Holders over other creditors of the
Company or with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and
(viii) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel in the United
States, each stating that all conditions precedent provided for
relating to either the Legal Defeasance under Section 8.02 or the
Covenant Defeasance under Section 8.03 (as the case may be) have
been complied with as contemplated by this Section 8.04.
Section 8.05. Deposited Money and Government Securities to Be Held in
------------ -------------------------------------------------------
Trust; Other Miscellaneous Provisions.
--------------------------------------
Subject to Section 8.06, all money and non-callable
Government Securities (including the proceeds thereof) deposited with
the Trustee (or other qualifying trustee, collectively for purposes of
this Section 8.05, the "Trustee") pursuant to Section 8.04 in respect
of the outstanding Securities shall be held in trust and applied by
the Trustee, in accordance with the provisions of such Securities and
this Indenture, to the payment, either directly or through any Paying
Agent (including the Company acting as Paying Agent) as the Trustee
may determine, to the Holders of such Securities of all sums due and
to become due thereon in respect of principal, premium, if any, and
interest, but such money need not be segregated from other funds
except to the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the cash or
non-callable Government Securities deposited pursuant to Section 8.04
or the principal and interest received in respect thereof other than
any such tax, fee or other charge which by law is for the account of
the Holders of the outstanding Securities.
Anything in this Article 8 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon
the Company's request any money or non-callable Government Securities
held by it as provided in Section 8.04 which, in the opinion of a
nationally recognized firm of independent public accountants expressed
in a written certification thereof delivered to the Trustee (which may
be the opinion delivered under Section 8.04(i)), are in excess of the
amount
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thereof which would then be required to be deposited to effect
an equivalent Legal Defeasance or Covenant Defeasance.
Section 8.06. Repayment to Company.
------------ --------------------
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of,
premium, if any, or interest on any Security and remaining unclaimed for
two years after such principal, and premium, if any, or interest has
become due and payable shall be paid to the Company on its request or (if
then held by the Company) shall be discharged from such trust; and the
Holder of such Security shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all liability
of the Trustee or such Paying Agent with respect to such trust money, and
all liability of the Company as trustee thereof, shall thereupon cease;
provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company
cause to be published once, in The New York Times and The Wall Street
Journal (national edition), notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30
days from the date of such notification or publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
Section 8.07. Reinstatement.
------------ -------------
If the Trustee or Paying Agent is unable to apply any U.S.
Dollars or non-callable Government Securities in accordance with
Section 8.02 or 8.03, as the case may be, by reason of any order or
judgment of any court or governmental authority enjoining, restraining
or otherwise prohibiting such application, then the Company's
obligations under this Indenture and the Securities shall be revived
and reinstated as though no deposit had occurred pursuant to Section
8.02 or 8.03 until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or
8.03, as the case may be; provided, however, that, if the Company
makes any payment of principal of, premium, if any, or interest on any
Security following the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such Security to
receive such payment from the money held by the Trustee or Paying
Agent.
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ARTICLE 9
AMENDMENTS
Section 9.01. Without Consent of Holders.
------------ --------------------------
The Issuer and the Trustee, as applicable, may amend this
Indenture, the Securities and the Intercreditor Agreement without the
consent of any Holder:
(i) to cure any ambiguity, defect or inconsistency;
(ii) to comply with Article 5 and Section 4.14;
(iii) to provide for uncertificated Securities in addition to
or in place of certificated Securities; or
(iv) to make any change that does not adversely affect the
legal rights hereunder or thereunder of any Holder.
Upon the request of the Issuer, accompanied by a resolution
of the Board of Directors of the Issuer authorizing the execution of
any such supplemental indenture or amendment, and upon receipt by the
Trustee of the documents described in Section 9.06 hereof required or
requested by the Trustee, the Trustee shall join with the Issuer in
the execution of any supplemental indenture or amendment authorized or
permitted by the terms of this Indenture and to make any further
appropriate agreements and stipulations which may be therein
contained, but the Trustee shall not be obligated to enter into such
supplemental indenture or amendment which affects its own rights,
duties or immunities under this Indenture, the Intercreditor Agreement
or otherwise.
Section 9.02. With Consent of Holders.
------------ -----------------------
The Issuer and the Trustee, as applicable, may amend this
Indenture, the Securities and the Intercreditor Agreement with the
written consent of the Holders of at least a majority in principal
amount of the then outstanding Securities.
Upon the request of the Issuer, accompanied by a resolution
of the Board of Directors of the Issuer authorizing the execution of
any such supplemental indenture or amendment, and upon the filing with
the Trustee of evidence satisfactory to the Trustee of the consent of
the Holders as aforesaid, and upon receipt by the
65
<PAGE>
Trustee of the documents described in Section 9.06 hereof, the Trustee
shall join with the Issuer in the execution of such supplemental
indenture or amendment unless such supplemental indenture or amendment
affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its discretion,
but shall not be obligated to, enter into such supplemental indenture.
It shall not be necessary for the consent of the Holders
under this Section to approve the particular form of any proposed
supplemental indenture or amendment, but it shall be sufficient if
such consent approves the substance thereof.
After a supplemental indenture or amendment under this Section
becomes effective, the Issuer shall mail to the Holders of each Security
affected thereby a notice briefly describing the amendment or waiver. Any
failure of the Issuer to mail such notice, or any defect therein, shall
not, however, in any way impair or affect the validity of any such
supplemental indenture, amendment or waiver. Subject to Sections 6.04 and
6.07 hereof, the Holders of a majority in principal amount of the
Securities then outstanding may waive compliance in a particular instance
by the Issuer with any provision of this Indenture or the Securities.
However, without the consent of each Holder affected, an amendment or
waiver under this Section may not (with respect to any Securities held by
a non-consenting Holder):
(i) reduce the principal amount of Securities whose Holders
must consent to an amendment or waiver;
(ii) reduce the rate of or change the time for payment of
interest, including default interest, on any Security;
(iii) reduce the principal of or change the fixed maturity of
any Security or alter the optional or mandatory
redemption provisions or the price at which the Issuer
shall offer to purchase such Securities pursuant to
Sections 3.09 and 4.16 hereof;
(iv) make any Security payable in money other than that
stated in the Security;
(v) make any change in Section 6.04 or 6.07 hereof or in
this sentence of this Section 9.02; or
66
<PAGE>
(vi) waive a Default in the payment of principal of or
interest on, or redemption payment with respect to, any
Security (other than a Default in the payment of an
amount due as a result of an acceleration if the
Holders rescind such acceleration pursuant to Section
6.02).
Section 9.03. Compliance with Trust Indenture Act.
------------ -----------------------------------
If at the time of an amendment to this Indenture or the
Securities, this Indenture shall be qualified under the TIA, every
amendment to this Indenture or the Securities shall be set forth in a
supplemental indenture that complies with the TIA as then in effect.
Section 9.04. Revocation and Effect of Consents.
------------ ---------------------------------
Until a supplemental indenture, an amendment or waiver
becomes effective, a consent to it by a Holder of a Security is a
continuing consent by the Holder and every subsequent Holder of a
Security or portion of a Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not
made on any Security. A supplemental indenture, amendment or waiver
becomes effective in accordance with its terms and thereafter binds
every Holder.
The Issuer may fix a record date for determining which
Holders must consent to such supplemental indenture, amendment or
waiver. If the Issuer fixes a record date, the record date shall be
fixed at (i) the later of thirty (30) days prior to the first
solicitation of such consent or the date of the most recent list of
Holders furnished to the Trustee prior to such solicitation pursuant
to Section 2.05 or (ii) such other date as the Issuer shall designate.
Section 9.05. Notation on or Exchange of Securities.
------------ -------------------------------------
The Trustee may place an appropriate notation about a
supplemental indenture, amendment or waiver on any Security thereafter
authenticated. The Issuer in exchange for all Securities may issue
and the Trustee shall authenticate new Securities that reflect the
amendment or waiver.
Failure to make the appropriate notation or issue a new
Security shall not affect the validity and effect of such amendment or
waiver.
67
<PAGE>
Section 9.06. Trustee to Sign Amendments. etc.
------------ -------------------------------
The Trustee shall sign any amendment or supplemental
indenture authorized pursuant to this Article 9 if the amendment does
not adversely affect the rights, duties, liabilities or immunities of
the Trustee. If it does, the Trustee may, but need not, sign it. In
signing or refusing to sign such amendment or supplemental indenture,
the Trustee shall be entitled to receive, if requested, an indemnity
reasonably satisfactory to it and to receive and, subject to Section
7.01, shall be fully protected in relying upon, an Officers'
Certificate and an Opinion of Counsel as conclusive evidence that such
amendment or supplemental indenture is authorized or permitted by this
Indenture, that it is not inconsistent herewith or therewith, and that
it will be valid and binding upon the Issuer in accordance with its
terms. The Issuer may not sign an amendment or supplemental indenture
until the Board of Directors of the Issuer approves it.
ARTICLE 10
INTERCREDITOR AGREEMENT
Section 10.01. Authorization of Actions to Be Taken by the
------------- -------------------------------------------
Trustee Under the and the Intercreditor Agreement.
-------------------------------------------------
Each Holder, by acceptance of a Security, consents and
agrees to the terms of the Intercreditor Agreement as the same may be
in effect or may be amended from time to time in accordance with the
terms thereof and hereof and authorizes and directs the Trustee to
enter into the Intercreditor Agreement and to perform its Obligations
and exercise its rights thereunder in accordance therewith. The
Trustee may, in its sole discretion and without the consent of the
Holders, on behalf of the Holders, take all actions it deems necessary
or appropriate in order to (a) enforce any of the terms of the
Intercreditor Agreement and (b) collect and receive any and all
amounts payable in respect of the Obligations of the Issuer hereunder.
Section 10.02. Authorization of Receipt of Funds by the Trustee Under
------------- ------------------------------------------------------
the Intercreditor Agreement.
---------------------------
The Trustee is authorized to receive any funds for the
benefit of the Holders distributed under the Intercreditor Agreement
and to make further distributions of such funds to the Holders
according to the provisions of this Indenture.
68
<PAGE>
Section 10.03. Conflicts.
------------- ---------
As between the Credit Agent and the Trustee, this Indenture
is expressly made subject to the Intercreditor Agreement.
ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls.
------------- ----------------------------
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by TIA (S) 318(c), the imposed duties
shall control.
Section 11.02. Notices.
------------- -------
Any notice or communication by the Issuer, any Guarantor or
the Trustee to the others is duly given if in writing and delivered in
person or mailed by first-class mail (registered or certified, return
receipt requested), telex, telecopier or overnight air courier
guaranteeing next day delivery, to the others' addresses:
If to the Issuer:
Brown & Sharpe Manufacturing Company
Precision Park
200 Frenchtown Road
North Kingstown, Rhode Island 02852-1700
Attention:
Telecopier No.: (401) 886-2214
with a copy to:
Ropes & Gray
1 International Place
Boston, Massachusetts 02110
Attention: Howard K. Fuguet, Esq.
Telecopier No.: (617) 951-7050
69
<PAGE>
If to the Trustee:
[To be supplied]
Attn: Corporate Trust Department
Telecopier No.: (212) [ ]
The Issuer or the Trustee by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to
Holders) shall be deemed to have been duly given: at the time delivered
by hand, if personally delivered; five (5) Business Days after being
deposited in the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt acknowledged, if telecopied; and the next Business
Day after timely delivery to the courier, if sent by a nationally
recognized overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by
first-class mail, certified or registered, return receipt requested,
to his address shown on the register kept by the Registrar. Failure
to mail a notice or communication to a Holder or any defect in it
shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner
provided above within the time prescribed, it is duly given, whether
or not the addressee receives it.
If the Issuer mails a notice or communication to Holders, it
shall mail a copy to the Trustee and each Agent at the same time.
Section 11.03. Communication by Holders with Other Holders.
------------- -------------------------------------------
Holders may communicate pursuant to TIA (S) 312(b) with other
Holders with respect to their rights under this Indenture and the
Securities. The Issuer, the Trustee, the Registrar and anyone else
shall have the protection of TIA (S) 312(c).
Section 11.04. Certificate and Opinion as to Conditions Precedent.
------------- --------------------------------------------------
Upon any request or application by the Issuer to the Trustee
to take any action under this Indenture or the Collateral Documents,
the Issuer shall furnish to the Trustee:
70
<PAGE>
(i) an Officers' Certificate in form and substance
reasonably satisfactory to the Trustee (which shall
include the statements set forth in Section 11.05)
stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided
for in this Indenture relating to the proposed action
have been complied with; and
(ii) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the
statements set forth in Section 11.05) stating that, in
the opinion of such counsel, all such conditions
precedent and covenants, if any, provided for in this
Indenture relating to the proposed action have been
complied with.
Section 11.05. Statements Required in Certificate or Opinion.
------------- ---------------------------------------------
Each certificate or opinion with respect to compliance with
a condition or covenant provided for in this Indenture shall include:
(i) a statement that the person making such certificate or
opinion has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements
or opinions contained in such certificate or opinion
are based;
(iii) a statement that, in the opinion of such person, he has
made such examination or investigation as is necessary
to enable him to express an informed opinion as to
whether or not such covenant or condition has been
complied with; and
(iv) a statement as to whether or not, in the opinion of
such person, such condition or covenant has been
complied with, provided, however, that with respect to
matters of fact, an Opinion of Counsel may rely upon an
Officers' Certificate or a certificate of a public
official.
71
<PAGE>
Section 11.06. Rules by Trustee and Agents.
------------- ---------------------------
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable
rules and set reasonable requirements for its functions.
Section 11.07. Legal Holidays.
------------- --------------
A "Legal Holiday" is a Saturday, a Sunday or a day on which
banking institutions in The City of New York, in the city in which the
Corporate Trust Office of the Trustee is located or at a place of
payment are authorized or obligated by law, regulation or executive
order to remain closed. If a payment date is a Legal Holiday at a
place of payment, payment may be made at that place on the next
succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
Section 11.08. No Recourse Against Others.
------------- --------------------------
No director, officer, employee, agent, manager or stockholder
of the Issuer, as such, shall have any liability for any Obligations of
the Issuer under the Securities or the Indenture or for any claim based
on, in respect of or by reason of such Obligations. Each Holder, by
accepting a Security, waives and releases all such liability. The waiver
and release shall be part of the consideration for the issuance of the
Securities. Notwithstanding the foregoing, nothing in this provision
shall be construed as a waiver or release of any claims under the federal
securities laws.
Section 11.09. Duplicate Originals.
------------- -------------------
The parties may sign any number of copies of this Indenture.
One signed copy is enough to prove this Indenture.
Section 11.10. Governing Law.
------------- -------------
The internal law of the State of New York shall govern and
be used to construe this Indenture and the Securities.
72
<PAGE>
Section 11.11. No Adverse Interpretation of Other Agreements.
------------- ---------------------------------------------
This Indenture may not be used to interpret another
indenture, loan or debt agreement of the Issuer or its Subsidiaries.
No such indenture, loan or debt agreement may be used to interpret
this Indenture.
Section 11.12. Successors.
------------- ----------
All agreements of the Issuer in this Indenture and the
Securities shall bind its successors. All agreements of the Trustee
in this Indenture shall bind its successors.
Section 11.13. Severability.
------------- ------------
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 11.14. Counterpart Originals.
------------- ---------------------
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together
represent the same agreement.
Section 11.15. Table of Contents, Headings, etc.
------------- --------------------------------
The Table of Contents, Cross-Reference Table and Headings of
the Articles and Sections of this Indenture have been inserted for
convenience of reference only, are not to be considered a part hereof
and shall in no way modify or restrict any of the terms or provisions
hereof.
73
<PAGE>
SIGNATURES
Dated as of _________, 1994 BROWN & SHARPE
MANUFACTURING COMPANY
By:
----------------------
Attest:
----------------------------
Dated as of , 1994 _____________________________,
---------- AS TRUSTEE
By:
----------------------
Attest:
_____________________________
74
<PAGE>
EXHIBIT A
(Face of Security)
___% SENIOR NOTE
DUE ____
No. $
---------
Brown & Sharpe Manufacturing Company
promise to pay to __________________________________________ or registered
assigns, the principal sum of ___________________ Dollars on _______,
_____.
Interest Payment Dates: _______________ and ______________
Record Dates: ___________ and ___________ (whether or not a Business Day).
Dated:
----------------------------------------
BROWN & SHARPE MANUFACTURING
COMPANY
By:
-------------------------------------------
Trustee's Certificate of Authentication:
This is one of the Securities referred to
in the within-mentioned Indenture:
_________________________________________,
as Trustee
By
----------------------------
Authorized Signature
<PAGE>
(Back of Security)
___% SENIOR NOTE
DUE ____
1. Interest. Brown & Sharpe Manufacturing Company, a
--------
Delaware corporation ("B&S"'), as obligor (the "Issuer"), promises to
pay interest on the principal amount of this Security at the rate and
in the manner specified below.
The Issuer shall pay interest in cash on the principal
amount of this Security at a rate per annum of __%. The Issuer will
pay interest semi-annually on ____________ and ____________ of each
year, or if any such day is not a Business Day, on the next succeeding
Business Day (each an "Interest Payment Date").
Interest will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Interest shall accrue from the
most recent date to which interest has been paid or, if no interest
has been paid, from the date of the original issuance of the
Securities. To the extent lawful, the Issuer shall pay interest on
overdue principal at the rate of 1% per annum in excess of the then
applicable interest rate on the Securities. The Issuer shall pay
interest on overdue installments of interest (without regard to any
applicable grace periods) at the same rate to the extent lawful.
2. Method of Payment. The Issuer will pay interest on the
-----------------
Securities (except defaulted interest) to the persons who are
registered Holders of Securities at the close of business on the
record date next preceding the Interest Payment Date, even if such
Securities are cancelled after such record date and on or before such
Interest Payment Date. The Holder must surrender this Security to a
Paying Agent to collect principal payments. The Issuer will pay
principal and interest in money of the United States that at the time
of payment is legal tender for payment of public and private debts.
The Issuer, however, may pay principal and interest by check payable
in such money. The Issuer may mail an interest check to a Holder's
registered address.
3. Paying Agent and Registrar. Initially, the Trustee
--------------------------
will act as Paying Agent and Registrar. The Issuer may change any
Paying Agent, Registrar or co-registrar without notice to any Holder.
The Issuer or any of its Subsidiaries may act in any such capacity.
A-2
<PAGE>
4. Indenture. The Issuer issued the Securities under an
---------
Indenture dated as of ________ 1994 (the "Indenture") between B&S and
the Trustee. The terms of the Securities include those stated in the
Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) as in
effect on the date of the Indenture. The Securities are subject to all
such terms, and Holders are referred to the Indenture and such act for
a statement of such terms. The terms of the Indenture shall govern any
inconsistencies between the Indenture and the Securities. Terms not
otherwise defined herein shall have the meanings assigned in the
Indenture. The Securities are limited to $75,000,000 in aggregate
principal amount.
5. Optional Redemption. At any time on or after ________,
-------------------
[1998], the Issuer may redeem all or any of the Securities at the
redemption prices (expressed as percentages of principal amount) set
forth below, plus accrued interest to the redemption date, if redeemed
in the 12-month period commencing _________ in the years indicated
below:
Year Redemption Price
---- ----------------
1998 . . . . . . . . . . . . . . . . . . . . . . . . .
1999 . . . . . . . . . . . . . . . . . . . . . . . . .
2000 . . . . . . . . . . . . . . . . . . . . . . . . .
2001 and thereafter . . . . . . . . . . . . . . . . . . 100%
Notwithstanding the foregoing, at any time before _______,
1997, the Issuer may redeem Securities at a redemption price of 110%
of the principal amount thereof, plus accrued interest to the date
fixed for redemption, with the net proceeds of any public offering of
common stock of the Issuer; provided that (i) no less than $56,250,000
aggregate principal amount of the Securities must remain outstanding
after each such redemption and (ii) each such redemption must occur
within 90 days of the receipt of the proceeds of such public offering.
Notice of redemption will be mailed at least thirty (30)
days but not more than sixty (60) days before the redemption date to
each Holder at its registered address. Securities may be redeemed in
part but only in whole multiples of $1,000, unless all of the
Securities held by a Holder are to be redeemed. On and after the
A-3
<PAGE>
redemption date, interest ceases to accrue on Securities or portions
of them called for redemption.
6. Mandatory Redemption. Subject to the Issuer's
--------------------
Obligation to make an offer to repurchase Securities under certain
circumstances pursuant to Section 4.10 and 4.16 of the Indenture (as
described in paragraph 7 below), the Issuer has no mandatory or
sinking fund Obligations with respect to the Securities.
7. Redemption or Repurchase at Option of Holder. (a) If
--------------------------------------------
there is a Change of Control, the Issuer will be required to offer to
purchase all Securities at 101% of the principal amount thereof, plus
accrued interest to the date of purchase. Holders of Securities that
are subject to an offer to purchase will receive an offer to purchase
from the Issuer prior to any related purchase date, and may elect to
have such Securities purchased by completing the form entitled "Option
of Holder to Elect Purchase" appearing on this reverse side of this
Security.
(b) If an Asset Sale is consummated, then within 180 days
after consummation of such Asset Sale, the Issuer shall apply 100% of
the Net Proceeds thereof to either (A) an investment in a Related
Business, or (B) an Asset Sale Offer pursuant to the Indenture.
8. Denominations. Transfer Exchange. The Securities are
--------------------------------
in registered form without coupons in denominations of $1,000 and
integral multiples of $1,000. The transfer of Securities may be
registered and Securities may be exchanged as provided in the
Indenture. The Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted
by the Indenture. The Registrar need not exchange or register the
transfer of any Security or portion of a Security selected for
redemption. Also, it need not exchange or register the transfer of any
Securities for a period of fifteen (15) days before a selection of
Securities to be redeemed or during the period between a record date
and the corresponding Interest Payment Date.
9. Persons Deemed Others. Prior to due presentment to the
---------------------
Trustee for registration of the transfer of this Security, the
Trustee, any Agent and the Issuer may deem and treat the person in
whose name this Security is registered as its absolute owner for the
purpose of receiving payment of principal of and interest on this
Security and for all other purposes whatsoever, whether or not this
Security is overdue, and neither the Trustee, any Agent nor the Issuer
shall be affected by notice
A-4
<PAGE>
to the contrary. The registered holder of a Security shall be treated as
its owner for all purposes.
10. Amendments and Waivers. Subject to certain exceptions,
----------------------
the Indenture, the Securities and the Intercreditor Agreement may be
amended with the consent of the Holders of at least a majority in
principal amount of the then outstanding Securities, and any existing
default (except a payment default) may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding
Securities. Without the consent of any Holder, the Indenture, the
Securities and the Intercreditor Agreement may be amended or supplemented
to cure any ambiguity, defect or inconsistency, to provide for assumption
of the Issuer's Obligations to Holders, to provide for uncertificated
Securities and to make any change that does not adversely affect the
rights of any Holder.
11. Defaults and Remedies. Events of Default under the
---------------------
Indenture include in summary form: default in payment of interest on
the Securities for thirty (30) days; default in payment of principal
on the Securities; failure by the Issuer to comply with the covenants
relating to Restricted Payments, incurrence of Indebtedness, Asset
Sales and Mergers and Consolidations; failure by the Issuer to comply
with certain of its other agreements in the Indenture or the
Securities and the continuance of such default or breach for sixty
(60) days after notice; defaults in certain Indebtedness; certain
final judgments which remain undischarged, unbonded or unstayed; and
certain events of bankruptcy or insolvency. If an Event of Default
occurs and is continuing, the Trustee or the Holders of at least 25%
in principal amount of the then outstanding Securities may declare all
the Securities to be due and payable immediately, except that in the
case of an Event of Default arising from certain events of bankruptcy
or insolvency, all outstanding Securities become due and payable
immediately without further action or notice. Holders may not enforce
the Indenture or the Securities except as provided in the Indenture.
The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Securities. Subject to certain
limitations, Holders of a majority in principal amount of the then
outstanding Securities may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Holders notice of any
continuing default (except a default in payment of principal or
interest) if it determines that withholding notice is in the interests
of the Holders. The Issuer must furnish an annual compliance
certificate to the Trustee.
12. Trustee Dealings with Issuer. The Trustee under the
----------------------------
Indenture, in its individual or any other capacity, may make loans to,
accept deposits from, and
A-5
<PAGE>
perform services for the Issuer or its Affiliates, and may otherwise deal
with the Issuer or its Affiliates, as if it were not Trustee.
13. No Recourse Against Others. No director, officer,
--------------------------
employee, agent, manager or stockholder, as such, of the Issuer shall
have any liability for any Obligations of the Issuer under the Indenture
or the Securities, or for any claim based on, in respect of or by reason
of such Obligations. Each Holder, by accepting a Security, waives and
releases all such liability. The waiver and release are part of the
consideration for the issuance of the Securities. Notwithstanding the
foregoing, nothing in this provision shall be construed as a waiver or
release of any claims under the federal securities laws.
14. Authentication. This Security shall not be valid until
--------------
authenticated by the manual signature of the Trustee or an
authenticating agent.
15. Abbreviations. Customary abbreviations may be used in
-------------
the name of a Holder or an assignee, such as: TEN COM (= tenants in
common), TENANT (= tenants by the entireties), JT TEN (= joint tenants
with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
16. CUSIP Numbers. Pursuant to a recommendation
-------------
promulgated by the Committee on Uniform Security Identification
Procedures, the Issuer has caused a CUSIP number to be printed on the
Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed on the
Securities or as contained in any notice of redemption and reliance
may be placed only on the other identification numbers placed thereon.
17. Intercreditor Agreement. Each Holder, by accepting a
-----------------------
Security, agrees to be bound by all terms and provisions of the
Intercreditor Agreement, as the same may be amended from time to time.
A-6
<PAGE>
The Issuer will furnish to any Holder upon written request
and without charge a copy of the Indenture and the Intercreditor
Agreement. Request may be made to:
Brown & Sharpe Manufacturing Company
Precision Park
200 Frenchtown Road
North Kingstown, RI 02852-1700
Attention: _______________________
A-7
<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign
and transfer this Security to _____________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ___________________________________________________
agent to transfer this Security on the books of the Issuer. The agent
may substitute another to act for him.
---------------------------------------------------------------------------
Date:
--------------------
Your Signature:
-------------------------------------
(Sign exactly as your name appears on
the face of this Security)
Signature Guarantee.*
----------------------------
* Your signature must be guaranteed by a commercial bank or trust
company located, or having a correspondent located, in The City of
New York or the city where the principal officer of the registrar
is located or by a member of a national securities exchange.
A-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
1. If you want to elect to have all or any part of this
Security purchased by the Issuer pursuant to Section 4.16 of the
Indenture, state the amount you elect to have purchased (if all,
write "ALL"): $
---------
2. If you want to elect to have this Security redeemed by the
Issuer pursuant to Section 3.09 of the Indenture (Redemption by
Application of Net Proceeds from Asset Sales), check this box [_]
Date:
---------------
Your Signature:
-----------------------------------------
(Sign exactly as your name appears on the
face of this Security)
Signature Guarantee.*
------------------------------
* Your signature must be guaranteed by a commercial bank or trust
company located, or having a correspondent located, in The City of
New York or the city where the principal officer of the registrar
is located or by a member of a national securities exchange.
A-9
<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
-9-
<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.
-10-
<PAGE>
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.
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<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.
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<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>
EXHIBIT 11
BROWN & SHARPE MANUFACTURING COMPANY
STATEMENT REGARDING COMPUTATION OF PER SHARE DATA*
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED QUARTERS ENDED
---------------------------------- ---------------------
DEC. 28, DEC. 26, DEC. 25, MAR. 27, APR. 2,
1991 1992 1993 1993 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Computation of income
(loss):
Net income (loss) used
for computation of
primary earnings
(loss) per share..... $ (4,081) $ (7,984) $ (2,416) $ 1,228 $ (2,874)
Add: interest, net of
taxes, assuming
conversion of
debentures........... 1,658 1,631 1,240 295 226
---------- ---------- ---------- ---------- ----------
Net income (loss) used
for computation of
fully diluted earnings
income (loss) per
share.................. $ (2,422) $ (6,353) $ (1,176) $ 1,523 $ (2,648)
========== ========== ========== ========== ==========
Computation of shares:
Weighted average
number of common
shares outstanding
during the year...... 4,639,594 4,898,536 4,969,453 4,964,368 5,037,507
Dilutive stock
options.............. -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Weighted average
number of common
shares outstanding
used in computation
of primary earnings
(loss) per share..... 4,639,594 4,898,536 4,969,453 4,964,368 5,037,507
Assumed conversion of
9 1/4% convertible
debentures........... 680,000 647,619 609,523 647,619 609,523
---------- ---------- ---------- ---------- ----------
Weighted average
number of common
shares used in
computation of fully
diluted earnings
(loss) per share..... 5,319,594 5,546,155 5,578,976 5,611,987 5,647,030
========== ========== ========== ========== ==========
Per common share:
Primary earnings
income (loss) $ (0.87) $ (1.63) $ (0.49) $ 0.25 $(0.57)
Fully diluted earnings
income (loss)*....... $ (0.46) $ (1.15) $ (0.21) $ 0.27 $ (0.47)
</TABLE>
- --------
* Computed in accordance with item 601(11) of Regulation S-K.
<PAGE>
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
---------------------------- ----------------
DEC. 28, DEC. 26, DEC. 25, MAR. 27, APR. 2,
1991 1992 1993 1993 1994
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net Income (Loss) from continuing
operations....................... $(2,901) $(7,984) $(2,416) $1,228 $(2,874)
Income Taxes...................... (800) (3,250) 800 -- 100
Fixed Charges..................... 5,566 6,833 6,382 1,452 1,513
Total............................. 1,865 (4,401) 4,766 2,680 (1,261)
Interest Expense.................. 4,219 5,272 5,100 1,132 1,280
Interest Component of Rentals..... 1,347 1,561 1,282 320 233
Fixed Charges..................... 5,566 6,833 6,382 1,452 1,513
Ratio of Earnings to Fixed
Charges.......................... .34 * .75 1.85 *
</TABLE>
- --------
* Earnings were insufficient to cover fixed charges by $9,267, $18,067, $7,998
and $4,287 for the years ended December 28, 1991, December 26, 1992,
December 25, 1993 and the first quarter of 1994, respectively.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDANT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
reports dated February 14, 1994, except as to the information presented in Note
2, for which the date is June 7, 1994, on our audits of the consolidated
financial statements and financial statement schedules of Brown & Sharpe
Manufacturing Company. We also consent to the reference to our firm under the
caption "Experts".
Coopers & Lybrand
Boston, Massachusetts
June 23, 1994
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated May 31, 1994, on our audits of the financial statements of Mauser
Prazisions-Messmittel GmbH. We also consent to the reference to our firm under
the caption "Experts".
Coopers & Lybrand
Wirtschafteprufungsgesellschaft
Gesellschaft mit beschrankter
Haftung
Munich, Germany
June 23, 1994
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated May 10, 1994, on our audits of the financial statements of Roch
S.A. We also consent to the reference to our firm under the caption "Experts".
Kurt Schlotthauer
Paris, France
May 25, 1994
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated October 22, 1993, on our audit of the financial statements of DEA
Metrology Activities of Finmeccanica. We also consent to the reference to our
firm under the caption "Experts".
Turin, Italy Coopers & Lybrand
June 23, 1994
<PAGE>
EXHIBIT 23.6
Mr. John Lochner
Controller
Brown and Sharpe Manufacturing Company
200 Frenchtown Road, Precision Park,
North Kingstown,
RI 02852 USA
May 19, 1994
Dear Mr. Lochner,
We hereby give you and your advisers consent to include our audit opinions on
the financial statements of the DEA Metrology Activities of Finmeccanica S.p.A.
for the years ending December 31, 1993 and 1992 in the Form S-1 registration
statement.
We should emphasize that the above consent only applies to the financial
statements prepared in accordance with accounting principles generally accepted
in the United States.
Yours sincerely,
Reconta Ernst & Young
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion as an exhibit to the Prospectus
constituting part of this Registration Statement on Form S-1 of our report
dated October 5, 1993, relating to the financial statements of Digital
Electronic Automation, a division of Elsag Bailey, Inc., for the year ended
December 31, 1992.
PRICE WATERHOUSE
Toledo, Ohio
June 10, 1994
<PAGE>
Exhibit 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)__
-----------------
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5123346
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. Identification No.)
national bank)
60 Wall Street, New York, NY 10260
(Address of principal executive (Zip Code)
offices)
----------------
Sharon W. Lindsay, Esq.
Morgan Guaranty Trust Company of New York
60 Wall Street, 38th Floor
New York, NY 10260
(212) 648-3393
(Name, address and telephone number of agent for service)
-----------------
BROWN & SHARPE MANUFACTURING COMPANY
(Exact name of obligor as specified in its charter)
Delaware 05-0113140
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification
organization) No.)
Precision Park
North Kingston, Rhode Island 02852
(Address of principal executive offices) (Zip Code)
----------------
SENIOR NOTES DUE 2002
(Title of the indenture securities)
<PAGE>
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Federal Reserve Bank (2nd District) New York, NY
Federal Deposit Insurance Corporation Washington, DC
New York State Banking Department Albany, NY
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
Brown & Sharpe Manufacturing Company is not an affiliate of the trustee.
Item 16. List of Exhibits.
Exhibit 1. Charter of Morgan Guaranty Trust Company of New York, as
amended to date (which among other things grants to Morgan
Guaranty Trust Company of New York the authority to
commence business and exercise corporate trust powers),
incorporated herein by reference to Exhibit 1 of Form T-1,
Registration No. 33-63794.
Exhibit 2. Contained in Exhibit 1.
Exhibit 3. Contained in Exhibit 1.
Exhibit 4. By-Laws of Morgan Guaranty Trust Company of New York, as
amended to date incorporated herein by reference to
Exhibit 4 of Form T-1, Registration No. 33-63794.
Exhibit 5. Not applicable.
Exhibit 6. Consent of Morgan Guaranty Trust Company of New York
required by Section 321(b) of the Act, incorporated herein
by reference to Exhibit 6 of Form T-1, Registration No.
33-66344.
Exhibit 7. Report of Condition of Morgan Guaranty Trust Company of
New York as of the close of business on March 31, 1994,
published
-2-
<PAGE>
pursuant to law or the requirements of its supervising or
examining authority.
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, Morgan Guaranty Trust Company of New York, a corporation
organized and existing under the laws of the State of New York, has duly caused
this statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in The City of New York, and State of New York,
on the 1st day of June, 1994.
MORGAN GUARANTY TRUST COMPANY
of New York
By:_______________________________
Michael Culhane
Vice President
-3-
<PAGE>
MORGAN GUARANTY TRUST COMPANY
of New York, and foreign and domestic subsidiaries
Consolidated Report of Condition at the close of business
March 31, 1994
A state banking institution and operating under the banking laws of this state
and a member of Reserve District No. 2 of the Federal Reserve System. This
report is published in accordance with a call made by the State Banking
Authority and by the Federal Reserve Bank of this District.
<TABLE>
<CAPTION>
Dollar amounts
ASSETS in thousands
<S> <C>
Cash and balances due from depository
institutions:
Noninterest-bearing balances and
currency and coin $ 1,695,930
Interest-bearing balances................ 2,552,688
Securities:
Held-to-maturity securities.............. 0
Available-for-sale securities............ 16,961,476
Federal funds sold and securities
purchased under agreements to resell
in domestic offices of the bank and
of its Edge and Agreement subsidiaries,
and in IBFs:
Federal funds sold....................... 1,697,358
Securities purchased under
agreements to resell................... 0
Loans and lease financing receivables:
Loans and leases, net of
unearned income............ $36,984,709
Loss Allowance for loan
and lease losses............. 1,035,137
Loans and leases, net of unearned income,
allowance, and reserve...................... 35,949,572
Assets held in trading accounts............... 52,165,305
Premises and fixed assets (including
capitalized leases)......................... 1,682,942
Other real estate owned....................... 542
Investments in unconsolidated subsidiaries
and associated companies.................... 102,112
Customers' liability to the bank on
acceptances outstanding..................... 609,955
Intangible assets............................. 2,915
Other assets.................................. 25,216,278
------------
Total assets............................. $138,637,073
============
LIABILITIES
Deposits:
In domestic offices...................... $ 6,567,168
Noninterest-bearing........$ 4,741,822
Interest-bearing........... 1,825,346
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C>
In foreign offices, Edge and
Agreement subsidiaries, and IBFs:....... $ 38,954,736
Noninterest-bearing....... $ 626,427
Interest-bearing........... 38,328,309
Federal funds purchased and securities sold
under agreements to repurchase in domestic
offices of the bank and of its Edge and
Agreement subsidiaries, and in IBFs:
Federal funds purchased.................. 5,535,515
Securities sold under agreements
to repurchase.......................... 8,254,898
Trading Liabilities........................... 29,016,183
Other borrowed money:
With original maturity of one year
or less................................ 18,600,678
With original maturity of more than
one year............................... 2,180,558
Mortgage indebtedness and obligations
under capitalized leases.................... 5,765
Bank's liability on acceptances executed
and outstanding............................. 616,525
Subordinated notes and debentures............. 2,170,280
Other liabilities............................. 19,639,041
------------
Total liabilities........................ 131,541,347
------------
EQUITY CAPITAL
Common Stock.................................. 250,000
Surplus....................................... 2,419,745
Undivided profits and capital reserves........ 4,120,986
Net unrealized holding gains (losses) on
available-for-sale securities............... 308,653
Cumulative foreign currency translation
adjustments................................. (3,658)
------------
Total equity capital..................... 7,095,726
------------
Total liabilities, limited-life
preferred stock, and equity
capital................................ $138,637,073
============
</TABLE>
-5-
<PAGE>
I, David H. Sidwell, Senior Vice President and Controller of the above named
bank, do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and the State Banking Authority and is true to the best
of my knowledge and belief.
DAVID H. SIDWELL
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and the State
Banking Authority and is true and correct.
KURT F. VIERMETZ
ROBERT G. MENDOZA
DOUGLAS A. WARNER III
Directors
-6-
