<PAGE>
SCHEDULE 14A
(Rule 14A-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. _____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[X] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2)
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-12
BROWN & SHARPE MANUFACTURING COMPANY
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14c-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $187,000,000.00
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(5) Total fee paid: $37,400.00
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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BROWN & SHARPE MANUFACTURING COMPANY
Precision Park
200 Frenchtown Road
North Kingstown, RI 02852-1700
(401) 886-2000
________________, 2001
Dear Stockholder,
You are cordially invited to attend the Special Meeting of Stockholders of
Brown & Sharpe Manufacturing Company (the "Company" or "Brown & Sharpe") on
_________ __, 2001 at ____ a.m. at the Company's executive office.
At the meeting, you will be asked to approve the proposed sale for cash to
Hexagon AB, ("Hexagon") a Swedish corporation, headquartered in Stockholm,
Sweden, of substantially all of the business and assets of the Company and
assumption by Hexagon of substantially all of the Company's liabilities and the
related distribution to stockholders (which will be made as soon as practicable
after the Closing under the Acquisition Agreement and after payment, or
provision for payment, of the estimated liabilities and potential contingent
liabilities not assumed by Hexagon and retention of an amount for funding
expenses of operations of BSIS and expenses of its "public company overhead" for
some period of time), all in an amount to be finally determined by the Board of
Directors. You will also be asked to approve a proposal to change the name of
the Company so that it does not include the name "Brown & Sharpe" as required by
the terms of the Acquisition Agreement.
The Board of Directors believes that, given the position of the Company,
the alternatives reasonably available to the Company, the purchase price and
terms of the sale to Hexagon (including Hexagon's investment in BSIS, Inc., a
subsidiary of the Company engaged in the development of a "measuring software"
business and the arrangements going forward after the Closing between BSIS and
Hexagon), that the proposed sale to Hexagon and related transactions and the
related distribution to stockholders with the Company continuing in business,
engaged in the "measuring software" business through its ownership in BSIS
(subject to Hexagon's significant minority stockholdings) will be in the best
interests of the Company and its stockholders. Since there are a number of
details remaining to be resolved, including the fact that the purchase price
payable to Hexagon is subject to upward adjustment depending on Brown & Sharpe's
actual 2000 operating profit for the Metrology Business being sold and subject
to other adjustments, it is not possible to determine the purchase price, or the
dollar amount per share contemplated to be paid to stockholders as soon as
practicable after the closing. However, based upon evaluations of all of the
unknown or variable factors, (including amounts to be held back to satisfy known
liabilities and estimated contingent liabilities and an amount to be retained
for funding the ongoing operations of BSIS and "public company" overhead for
some period of time), it is estimated by management that the ultimate
distribution of cash, including the expected proceeds of the sale of the North
Kingstown facility and the U.K. real estate (when such sales are completed),
could be in the range of [$____ to $____] per share. Further details will be
available after the Closing under the Acquisition Agreement and appropriate
Board consideration of the distribution at that time.
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In addition, you will be asked to approve a reduction in the par value per
share of the Class A Common Stock and the Class B Common Stock from $1.00 per
share to $0.01 per share.
The Board of Directors has approved the proposal for the sale to Hexagon
and related transactions and the related distribution to stockholders, has
approved the proposal to change the name of the Company to omit the words "Brown
& Sharpe" and has approved the reduction of the par value per share of the Class
A Common Stock and Class B Common Stock and urges you to vote in favor of these
four proposals.
The attached materials consist of Notice of a Special Meeting of the
Stockholders and a Proxy Statement describing the proposed sale of assets to
Hexagon and related transactions and the related distribution to stockholders,
the proposed change of the name of the Company, and the reduction in par value
per share of the Company's Class A Common Stock and Class B Common Stock. You
are urged to read these materials in their entirety.
Whether or not you plan to attend the meeting, we urge you to sign and
return the enclosed proxy so that your shares will be represented at the
meeting. If you so desire, you can withdraw your proxy and vote in person at
the meeting.
Sincerely,
John M. Nelson
Chairman of the Board
Kenneth N. Kermes
President and CEO
Brown & Sharpe Manufacturing Company
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NOTICE
[BROWN & SHARPE MANUFACTURING COMPANY LOGO]
SPECIAL MEETING OF STOCKHOLDERS
_____________ __, 2001
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Brown &
Sharpe Manufacturing Company ("Brown & Sharpe" or the "Company"), a Delaware
corporation, will be held at ____ a.m., Eastern Standard Time, on _________ __ ,
2001, at the Company's executive offices at Precision Park, 200 Frenchtown Road,
North Kingstown 02852, to consider and act upon the following items of business:
1. To consider and vote upon a proposal to approve the Acquisition Agreement
dated as of November 16, 2000 between the Company and Hexagon AB
("Hexagon"), a Swedish corporation (the "Acquisition Agreement") and the
sale thereunder for a cash purchase price (subject to adjustments as
provided therein) to Hexagon (and its Affiliates) of substantially all the
Company's business and assets and the related assumption by Hexagon (and
its Affiliates) of substantially all the Company's liabilities (other than
Excluded Assets and Excluded Liabilities, each as defined in the
Acquisition Agreement) and to authorize the Board of Directors to take all
action necessary to carry out the sale and related transactions
contemplated under the Acquisition Agreement, including:
(i) the provisions therein (and in the BSIS Stock Purchase Agreement and
BSIS Stockholders' Agreement contemplated therein) contemplating a
software license, software purchase arrangements and software royalty
arrangements between BSIS, Inc. (presently a wholly owned subsidiary
of the Company that is an Excluded Asset) and Hexagon (or an
Affiliate) and contemplating the sale for cash to Hexagon (or an
Affiliate of Hexagon) of specified percentages of the authorized but
unissued shares of BSIS, which will continue after the Closing under
the Acquisition Agreement to be owned by the Company, with such
minority investments by Hexagon (or its Affiliate),
(ii) the provisions therein contemplating a lease (the "Lease") of a
portion of the Company's North Kingstown facility at Precision Park
to Hexagon for a term of five (5) years, with a declining amount of
space rented to Hexagon over the term, the Company retaining
responsibility for structural repair and a rental rate consisting of
a base rent with appropriate charges for taxes, utilities and
insurance calculated in a manner consistent with past practice, and
(iii) as a part of the proposal, and as soon as practicable and following:
(a) the Closing under the Acquisition Agreement, (b) the final
determination of post-closing adjustments to the purchase price
thereunder, (c) the receipt of the proceeds of sale thereunder and,
if available, the receipt of proceeds of sales to others of certain
real estate that is part of the Excluded Assets under the Acquisition
Agreement and (d) the payment, or reservation for payment, of
estimated liabilities remaining with the Company, and retention of
portions of the proceeds to be available (together with funds to be
invested by Hexagon in BSIS) for funding the operations of BSIS and
for the "public company overhead" of the Company, a contemplated pro
rata cash distribution to stockholders of the Company, such
distribution to be at a date
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later selected by the Board of Directors of the Company and in an
amount of such proceeds as shall be later determined by the Board of
Directors,
all as set forth in each case in the accompanying Proxy Statement.
2. To consider and vote upon an amendment to the Certificate of Incorporation
of the Company to change the name of the Company to "____________________"
(or such other name not using the words "Brown & Sharpe" as shall be
determined by the Board of Directors of the Company) and to authorize the
Board of Directors to take all action necessary to give effect thereto, all
as set forth in the accompanying Proxy Statement.
3. To consider and vote upon an amendment to the Certificate of Incorporation
of the Company to reduce the par value of the Company's Class A Common
Stock from $1.00 per share to $0.01 per share.
4. To consider and vote upon an amendment to the Certificate of Incorporation
of the Company to reduce the par value of the Company's Class B Common
Stock from $1.00 per share to $0.01 per share.
5. To transact such other business as may properly come before the special
meeting of stockholders or any adjourned session.
All of the above matters are more fully described in the accompanying Proxy
Statement. Only stockholders of record of the Company at the close of business
on ___________, 2001 will be entitled to receive notice of and to vote at the
special meeting of stockholders or any adjourned session (the "Meeting" or the
"Special Meeting"). A list of all stockholders of record as of _________, 2001
will be open for inspection at the Special Meeting.
The telephone number of our executive office is (401) 886-2000.
By Order of the Board of Directors,
/s/ James W. Hayes III
JAMES W. HAYES III
Corporate Secretary
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE MEETING. WHETHER OR NOT YOU PLAN
TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND MAIL THE ENCLOSED PROXY
CARD PROMPTLY SO THAT YOUR SHARES MAY BE REPRESENTED AT THIS MEETING AND TO
ENSURE A QUORUM. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES USING THE
ACCOMPANYING ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY WITHDRAW YOUR PROXY
AND VOTE YOUR SHARES. PROXIES CAN ALSO BE REVOKED BY SUBMITTING A NEW PROXY WITH
A LATER DATE OR BY DELIVERING WRITTEN INSTRUCTIONS TO THE SECRETARY OF BROWN &
SHARPE.
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When completing your Proxy Card, please sign your name as it appears
printed. If signing as an attorney, executor, administrator, trustee or
guardian, please give your full title. A Proxy executed by a corporation must be
signed by an authorized officer.
North Kingstown, Rhode Island
_________ __, 2001
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QUESTIONS AND ANSWERS ABOUT THE PROPOSALS
Q. WHAT AM I BEING ASKED TO VOTE UPON?
A. Four proposals will be voted on at the Special Meeting. First, whether to
approve the proposed sale of substantially all of the business and assets
of the Company to Hexagon AB, a Swedish corporation, headquartered in
Stockholm, Sweden, and the related distribution to stockholders. Second,
whether to approve the name change so that the name of the Company does not
include the words "Brown & Sharpe." The name change is required to be made
by the terms of the Acquisition Agreement between the Company and Hexagon.
Third, whether to amend the Company's Certificate of Incorporation to
reduce the par value of the Company's Class A Common Stock from $1.00 per
share to $0.01 per share. Fourth, whether to amend the Company's
Certificate of Incorporation to reduce the par value of the Company's Class
B Common Stock from $1.00 per share to $0.01 per share.
Q. WHAT WILL HAPPEN IF THE SALE AND RELATED DISTRIBUTION IS APPROVED?
A. If the sale is approved, we will sell substantially all the Company's
business and assets to Hexagon for cash and the assumption by Hexagon of
substantially all of the Company's liabilities. As soon as practicable
after the Closing of the Sale and completion of purchase price adjustments,
and after payment, or provision for payment, of the liabilities and
potential contingent liabilities not assumed by Hexagon, a distribution
will be made to stockholders in an amount to be determined by the Board of
Directors. The Company will retain the software business of its subsidiary
BSIS and will also retain from sale proceeds an amount for funding the
expenses of operations of BSIS (together with funding from investments
required to be made by Hexagon) and expenses of its "public company
overhead" for some period of time. Other than the reduction in par value,
there will not be a change in the equity of the Company, and the number of
outstanding shares of Common Stock will not be affected by the
transactions.
Q. WHAT WILL HAPPEN IF THE SALE IS NOT APPROVED?
A. Under the terms of the Acquisition Agreement, if the Company fails to
obtain a stockholder vote in favor of the Acquisition Agreement, the
Company pays certain actual documented, out-of-pocket expenses of Hexagon
up to $2 million. In addition, there has been and continues to be, Events
of Default under the Company's Senior Note Agreement and Revolving Credit
Agreement. The lenders under the Senior Note Agreement and Revolving Credit
Agreement may at any time declare the notes to be immediately due and
payable and may resort to collateral securing the Company's obligations to
the lenders under note agreements and related collateral agreements.
Accordingly, if the sale is not approved the Company must seek other
strategic alternatives, including sale or merger of the Company in order to
satisfy its lenders.
Q. WHEN WILL THE STOCKHOLDERS RECEIVE ANY PAYMENT FROM THE SALE?
A. The distribution will occur at a date later selected by the Board of
Directors, as soon as practicable after the Closing and completion of
purchase price adjustments.
Q. WHAT IS THE AMOUNT OF THE PAYMENT THAT STOCKHOLDERS WILL RECEIVE FROM THE
SALE?
A. Since there are a number of details remaining to be resolved, including the
fact that the purchase price payable by Hexagon is subject to adjustment up
or down depending on Brown & Sharpe's actual 2000 operating profit for the
Metrology Business being sold, it is not possible to determine the purchase
price, or the dollar amount per share contemplated to be paid to
stockholders as a distribution. However, based upon evaluations of all of
the unknown or variable factors, (including amounts to be held back to
satisfy known liabilities and estimated contingent liabilities and an
amount to be retained for funding the ongoing operations of BSIS (together
with funding from investments required to be made by Hexagon) and "public
company overhead" for some period of time), it is estimated by management
that the ultimate distribution of cash, including the expected proceeds of
the sale of the North Kingstown facility and the U.K. real estate (when
such sales are
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completed), could be in the range of [$______ to $______] per share.
Further details will be available after the closing (and adjustments to the
purchase price) and appropriate Board consideration of the distribution at
that time.
Q. WHAT DO I NEED TO DO NOW?
A. After carefully reading and considering the information contained in this
Proxy Statement, you should complete and sign your proxy and return it in
the enclosed return envelope as soon as possible so that your shares may be
represented at the meeting. A majority vote of the entitled votes of the
shares of Brown & Sharpe Class A Common Stock and Class B Common Stock
outstanding on the record date, voting together as a single class, is
required to approve Proposal 1: the Acquisition Agreement and the related
contemplated distribution to stockholders and Proposal 2: the name change.
A majority vote of the entitled votes of the Class A Common Stock
outstanding on the record date and a majority vote of the entitled votes of
the shares of Class A and Class B Common Stock outstanding on the record
date, voting together as a single class, is required to approve Proposal 3:
the reduction in the par value per share of the Class A Common Stock. A
majority vote of the entitled votes of the Class B Common Stock outstanding
on the record date and a majority vote of the entitled votes of the shares
of Class A and Class B Common Stock outstanding on the record date, voting
together as a single class, is required to approve Proposal 4: the
reduction in the par value per share of the Class B Common Stock.
Q. WHAT DOES THE BROWN & SHARPE BOARD OF DIRECTORS RECOMMEND?
A. The Brown & Sharpe Board unanimously recommends voting in favor of the
proposed sale to Hexagon, related transactions and related distribution to
stockholders, the proposed name change and the reduction of the par value
per share of the Company's two classes of Common Stock.
Q. CAN THE COMPANY STOCKHOLDERS CHANGE THEIR VOTE AFTER THEY HAVE MAILED THEIR
SIGNED PROXIES?
A. Yes. You can change your vote at any time before your proxy is voted at the
special meeting. You can change your vote in one of three ways. First, you
can send a written notice to our Secretary, James W. Hayes III, at our
executive offices, stating that you would like to revoke your proxy.
Second, you can complete and submit a new proxy. If you choose either of
these two methods, you must submit the notice of revocation or the new
proxy to the Company. Third, you can attend the special meeting and vote in
person. Simply attending the meeting, however, will not revoke your proxy;
you must vote at the special meeting.
Q. IF THE COMPANY SHARES ARE HELD IN "STREET NAME" BY YOUR BROKER, WILL THE
BROKER VOTE THESE SHARES ON MY BEHALF?
A. You will vote Company shares only if you provide the broker with
instructions on how to vote. You should follow the directions provided by
you broker regarding how to instruct your broker to vote the shares.
Q. CAN I STILL PURCHASE OR SELL SHARES OF COMPANY COMMON STOCK ON THE NEW YORK
STOCK EXCHANGE?
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A. Yes. Based on discussions with the NYSE, the sale to Hexagon, related
transactions and related distribution to stockholders is not expected to
affect our listing on the New York Stock Exchange.
Q. WHAT ARE THE TAX CONSEQUENCES OF THE SALE TO ME?
A. The Company has estimated that it will have neither current earnings and
profits nor accumulated earnings and profits at either the time of
distribution in 2001 or for the year (2001) in which the initial
distribution is expected to be made, in which event the distribution would
not be treated as a dividend for federal income tax purposes. Instead, the
distribution would first be treated as non-taxable return of each
shareholders adjusted basis in the stock of the Company to the extent of
such basis. Any distribution in excess of a shareholder's basis will be
treated as capital gain from the exchange of the respective shares.
Distributions to shareholders that are corporations will not qualify for
the dividend received deduction.
Q. WHO CAN HELP ANSWER QUESTIONS?
A. If you have any additional questions about the proposed sale to Hexagon
under the Acquisition Agreement or the other matters to be acted on at the
Special Meeting or if you need additional copies of this Proxy Statement or
any public filings referred to in this Proxy Statement, you should contact:
James W. Hayes III, Corporate Secretary at (401) 886-2000. Our public
filings can also be accessed at the SEC's web site at www.sec.gov.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Summary.........................................................................
Proxy Statement.................................................................
Solicitation of proxies.........................................................
Cautionary Statement Regarding Forward Looking Statements.......................
Proposal 1: To Approve the Acquisition Agreement, including the
the Sale to Hexagon, Related Transactions and Related Distribution to
Stockholders....................................................................
General.......................................................................
Brown & Sharpe................................................................
Hexagon.......................................................................
Background and Reasons for the Directors' Recommendation......................
Opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc..............
Distribution to Stockholders..................................................
Principal Provisions of the Acquisition Agreement and Related Agreements........
Selected Historical Financial Data..............................................
Pro forma Financial Information.................................................
No Dissenters' Rights...........................................................
Accounting Treatment............................................................
Certain Federal Income Tax Considerations.......................................
Interests of Certain Persons in the Acquisition Agreement.......................
Business Activities of the Company Following the Proposed Sale: BSIS...........
Risk Factors Relating to BSIS...................................................
Regulatory Approvals............................................................
Reference to Financial Statements...............................................
Stock Ownership of Certain Beneficial Owners and Management.....................
Proposal 2: Amendment of Articles of Incorporation to Change the Name
of the Company..................................................................
Proposal 3: Amendment to Articles of Incorporation to Reduce Par Value
Per Share of Class A Common Stock...............................................
Proposal 4: Amendment to Articles of Incorporation to Reduce Par Value
Per Share of Class B Common Stock...............................................
Available Information...........................................................
Annex A: Acquisition Agreement and Related Agreements
Annex B: Opinion of Houlihan, Lokey, Howard & Zukin Financial Advisors, Inc.
Annex C: Amended Article FOURTH of the Certificate of Incorporation
</TABLE>
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SUMMARY
This Summary highlights selected information from this proxy Statement, and may
not contain all of the information that is important to you. To understand the
proposed sale of substantially all the business and assets of the Company fully
and for a more complete description of the sale to Hexagon, related transactions
and the contemplated distribution to stockholders and other matters to be acted
upon at the Special Meeting of stockholders, you should read carefully this
entire Proxy Statement and the documents to which we have referred you. See
"Where You Can Find More Information" (pages __ through __). The Acquisition
Agreement (and related agreements) covering the sale to Hexagon, including the
investment by Hexagon in BSIS and the lease of a portion of the North Kingston
facility at Precision Park to Hexagon, is attached as Annex A to this document.
We encourage you to read the acquisition agreement, as it is the legal document
that governs the sale.
The Companies (pages ____ through ___)
Brown & Sharpe Manufacturing Company
Precision Park
200 Frenchtown Road
North Kingstown, RI 02852-1700
(401) 886-2000
The Company currently operates entirely in the metrology industry through
four business units:
. MS Division: manufacturers and markets a wide range of manual and
computer-controlled, high precision coordinated measuring machines and
is the largest division;
. PMI Division: manufacturers mechanical and electronic measuring and
inspection tools and is the second largest division;
. Brown & Sharpe Information Systems ("BSIS"): develops measuring software
and has had no sales to date; and
. Electronics Division: acquired in 1999 (and is being sold by the
Company), designs and manufactures surface inspection systems.
The Company has had losses for the year ending December 31, 1999 and for nine
months ending September 30, 2000 and will record a loss for the year ending
December 31, 2000. The Metrology Business being sold to Hexagon had an Operating
Profit as defined under the Acquisition Agreement of $11.3 million for the nine
months ended September 30, 2000.
Hexagon AB
P-O Box 1112
S0131 26 Nacka Strand
Stockholm, Sweden
Hexagon AB is a limited liability company existing under the laws of Sweden
and has listed its series B shares on the OM Stockholm Exchange. Hexagon's
primary business concept is to acquire and develop, on a long-term basis,
engineering companies. The Hexagon Group consists of eight directly reporting
subsidiaries that are grouped in three fields of operation:
<PAGE>
. Industrial Components and Systems: produces hydraulics, flow technology,
temperature technology, mechanical maintenance products and transmission
equipment;
. Niche Manufacturing: produces gaskets for plate heat exchangers and
special wheels, sliding bearings, cage rings and preprocessed special
steel, tools and components as well as systems and/or components for
industrial robots, trucks and base stations for mobile phone systems; and
. Hexagon Wireless: develops and markets antennas and antenna systems for
mobile handsets and Bluetooth applications ranging from lap tops, palm
tops, up to large industrial applications for process controlling
purposes.
Reasons for the Proposed Sale of Substantially all the Business and the Assets
of the Company and the Distribution (pages __ through __)
Our board of directors believes that the proposed sale to Hexagon under the
Acquisition Agreement and related transactions and the contemplated distribution
to stockholders in an amount to be finally determined by our board of directors
is in the best interest of the Company and our stockholders.
In reaching its decision to approve the sale, our Board considered a number
of factors, including the following:
. The historical market prices (and related financial multiples) and recent
trading range of the Company's Common Stock.
. Our inability to raise additional subordinated debt or preferred stock in
late 1999 - June, 2000, in an effort to resolve the financial defaults
existing since 1999 under the lending agreements with our senior lenders,
including a payment default under our $30 million bank revolving credit
since November 10, 2000.
. The financial condition, results of operations (losses) in the years 1999
through 2000 and cash flows of the Company, including the Company's
prospects as an independent company in the Metrology Business in light of
the long-standing financial defaults in agreements with our senior
lenders and the resulting insufficiency of the Company's capital
structure.
. The purchase price and terms of the proposed sale to Hexagon, as
reflected in the Acquisition Agreement, including the opportunity to
receive additional purchase price to the extent that our Metrology
Business Operating Profit (as defined) for the Year 2000 exceeds certain
specified levels.
. The opportunity to develop the embryonic "measuring software" business
being conducted by the Company's subsidiary, BSIS, in which Hexagon will
make substantial investments aggregating $7 million over the next three
years, eventually owning up to as much as 47% of the equity of BSIS.
However, in view of the speculative nature of the prospects for BSIS, the
Board has determined to make a distribution to stockholders of the sale
proceeds after paying the Company's debt obligations to its senior
lenders (which aggregated $ ________ at ________, 2001),
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after payment, or making provision for the payment, of its other retained
liabilities, a retention for "public company overhead" and a retention
for of only a portion of the proceeds to be available (together with the
$7 million to be received over three years by BSIS from Hexagon for
purchases of stock of BSIS) for development of the BSIS software business
for some period of time.
. The potential disadvantages and complications of not selling the Company
as an entirety to a single buyer (or several buyers) and thus retaining
certain unassumed liabilities and potential contingent liabilities of the
Company and its retained subsidiaries.
. The fact that BSIS, which will be a controlled subsidiary after the
Closing and will be the only active operations of the Company, has not
yet generated any revenues.
. The possibility that the Common Stock of the Company may be delisted by
the New York Stock Exchange after the Closing.
. The opinion of Houlihan, Lokey to the Board of Directors of the Company
that, subject to the matters set forth in its opinion, the consideration
to be received by the Company in connection with the proposed sale to
Hexagon will be fair, from a financial point of view, to us.
. The process undertaken by the Company, with the assistance of its
financial advisor Chase Securities, to identify prospective purchasers
and/or investors that might be interested in pursuing a strategic
transaction with the Company, such as a possible merger or sale of the
Company or substantial investment in the Company or similar transaction,
including the fact that more than 100 parties were contacted by the
Company and Chase Securities regarding their potential interest in such a
transaction, more than 50 parties executed confidentiality agreements
with the Company and were sent a descriptive memoranda concerning the
Company, and a number of parties provided preliminary or indicative bids;
and the information Chase Securities reviewed with the Board at its
meeting on September 18, 2000 with respect to the results of the process
undertaken by the Company and Chase Securities, the indicative bids
received and other opportunities for the Company to sell its Metrology
Business or all of its business and assets, including the recommendation
of Chase Securities to the Board at its September 18 meeting, made in the
context of the results of that process and the continued request of
Hexagon for negotiating exclusivity for the Company to pursue the Hexagon
bid on an exclusive basis for a limited period; and the further review of
the process and the proposed definitive Acquisition Agreement between
Hexagon and the Company that was presented to the Board for approval at
its meeting on November 16, 2000.
. The fact that since the Company's announcement on June 27, 2000 to the
effect that it had engaged Chase Securities to pursue various strategic
alternatives, including a possible sale or merger of the Company, to
enhance shareholder value, no other party had presented the Company with
an acquisition proposal that, taken as a whole, would be more favorable
to the Company and its shareholders than the purchase offer
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from Hexagon embodied in the Acquisition Agreement (and related
agreements) and that would be as certain to be consummated within the
same time frame as the Hexagon offer.
. The Company's estimation regarding its lack of earnings and profits for
federal income tax purposes and, as a result, the expected tax posture of
the Company with respect to the sale to Hexagon and related transactions
and the contemplated distribution to stockholders.
. The Company's decision to close down and sell the Company's operations
for inspection devices in the electronic industry and to stop funding of
the project for the development of new non-contact metrology technology
as one of two 50% owners of a 50/50 joint venture with Metroptic
Technology in Israel.
. The Company's ability to sell its North Kingstown facility pursuant to an
Agreement dated ____________, providing for a closing on ________________
subject to satisfaction of closing conditions.
. The fact that, pursuant to the Acquisition Agreement, the Company and its
representatives may not (a) solicit, initiate or encourage the initiation
of any inquiries or proposals regarding the acquisition by any person of
the common stock of the Company in a takeover bid, or all or a material
portion of the business and assets of the Company (an "Acquisition
Proposal"), (b) engage in negotiations or discussions concerning, or
furnish or permit to be furnished any non-public information concerning
the Company's business, properties or assets to any person relating to,
any Acquisition Proposal, or (c) agree to, approve or recommend any
Acquisition Proposal, unless in each case the Board of Directors
reasonably determines after consultation with its outside counsel that
such Acquisition Proposal is a superior proposal and determines in good
faith (based on the advice of its financial advisor and outside counsel)
that it is required to take such actions in order to discharge properly
its fiduciary duties.
. The fact that, pursuant to the Acquisition Agreement, the Board of
Directors has the right, to terminate the Acquisition Agreement in order
to accept a superior company proposal if (a) the Board of Directors has
determined, based upon the advice of legal counsel, that it is required
to accept such proposal to discharge properly its fiduciary duties under
applicable law, (b) the Company gives Hexagon AB written notice of the
Company's intention to accept such superior proposal, and (c) the Company
pays to Hexagon a break-up fee of $4 million plus up to $2 million of
actual expenses, and if the Company fails to obtain a Stockholder vote in
favor of the Acquisition Agreement, the Company pays certain actual
expenses of Hexagon of up to $2 million.
Recommendation of the Brown & Sharpe Board (page __)
The Brown & Sharpe Board has unanimously approved the Acquisition Agreement
and the transactions contemplated thereby, including the sale of substantially
all the business and
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assets of the Company, and the contemplated future distribution to Stockholders
on a date and in an amount to be finally determined by the Brown & Sharpe Board,
and unanimously recommends that you vote in favor of the approval of the sale
under the acquisition agreement and the name change and the reduction of the par
value per share of each Class of the Company's Common Stock.
Purposes of the Special Meeting (page __)
The purposes of the special meeting are to consider and vote upon:
. A proposal to approve the Acquisition Agreement dated as of November 16,
2000 between the Company and Hexagon AB (the "Acquisition Agreement")
and the sale thereunder to Hexagon of substantially all the Company's
business and assets and the related assumption by Hexagon of
substantially all the Company's liabilities and to authorize the Board
of Directors to take all action necessary to carry out the sale and
related transactions contemplated under the Acquisition Agreement,
including:
. the provisions therein relating to agreements between BSIS, a wholly-
owned subsidiary of the Company that is to be retained by the Company,
and Hexagon, and Hexagon's investments in BSIS,
. the provisions therein contemplating a lease (the "Lease") of a portion
of the Company's North Kingstown facility at Precision Park to Hexagon
for a term of five (5) years,
. as a part of the proposal, a contemplated pro rata cash distribution to
stockholders of the Company, such distribution to be at a date later
selected by the Board of Directors of the Company and in an amount as
shall be later determined by the Board of Directors,
. An amendment to the Certificate of Incorporation of the Company to
change the name of the Company to "________________________" (or such
other name not using the words "Brown & Sharpe" as shall be determined
by the Board of Directors of the Company).
. An amendment to the Certificate of Incorporation to reduce the par value
per share of the Class A Common Stock from $1.00 per share to $0.01 per
share,
. An amendment to the Certificate of Incorporation to reduce the par value
per share of the Class B Common Stock from $1.00 per share to $0.01 per
share,
all as set forth in each case in the accompanying Proxy Statement, and
. Such other business as may properly come before the special meeting.
Date, Time and Place (page __)
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The Special Meeting of the Brown & Sharpe stockholders will be held at ___
a.m., Eastern Standard time, on _____________, 2001, at the Company's executive
offices at Precision Park, 200 Frenchtown Road, North Kingstown, Rhode Island
02852.
Record Date; Required Votes (page __)
The close of business on _____ __, 2001 is the record date for the special
meeting. Only Brown & Sharpe stockholders on the record date are entitled to
notice of and vote at the special meeting. On the record date, the Company had
[13,787,885] shares of common stock outstanding comprised of [13,283,988] shares
of Class A Common Stock, $1.00 par value (the "Class A Stock") and [503,897]
share of Class B Common Stock, $1.00 par value (the "Class B Stock"). The
Company's Certificate of Incorporation provides that each share of Class A Stock
outstanding on the record date entitles the holder thereof to one vote and each
share of Class B Stock outstanding on the record date entitles the holder
thereof to ten votes except as otherwise provided by law or by the Certificate
of Incorporation.
A majority vote of the entitled votes of the shares of Brown & Sharpe
Class A Common Stock and Class B Common Stock outstanding on the record date,
voting together as a single class, is required to approve Proposal 1: the
Acquisition Agreement and the related contemplated distribution to stockholders
and Proposal 2: the name change.
A majority vote of the entitled votes of the Class A Common Stock
outstanding on the record date and a majority vote of the entitled votes of the
shares of Class A and Class B Common Stock outstanding on the record date,
voting together as a single class, is required to approve Proposal 3: the
reduction in the par value per share of the Class A Common Stock. A majority
vote of the entitled votes of the Class B Common Stock outstanding on the record
date and a majority vote of the entitled votes of the shares of Class A and
Class B Common Stock outstanding on the record date, voting together as a single
class, is required to approve Proposal 4: the reduction in the par value per
share of the Class B Common Stock
Interests of Directors and Officers in the Merger (page __)
In the past, we have granted stock options to our directors, officers and
employees, some of which are currently exercisable. Because the exercise price
of these options has recently been greater than the trading price of the Common
Stock, these options generally remained unexercised. It is expected that all
options which are not currently exercisable will become exercisable at or
shortly before the closing date under the Acquisition Agreement. If the
Acquisition Agreement is approved, it is anticipated that the amount ultimately
distributed with respect to each share of common stock may be greater than the
exercise price of some of the stock options. In that event, it is likely that
some or all of those stock options would be exercised. Information regarding our
stock options as of December 31, 1999 is set forth in our Form 10-K for the
fiscal year ended December 31, 2000.
The Acquisition Agreement and Related Agreements between us and Hexagon (pages
__ through __)
PURCHASE PRICE PAYABLE TO US
The purchase price for the assets and stock we are transferring to Hexagon
is $160 million, subject to certain adjustments. At the closing, the purchase
price will be increased or decreased by an amount equal to the difference
between the estimated amount of cash and cash equivalents held by our
subsidiaries being transferred to Hexagon or its affiliates and the estimated
amount of indebtedness of our transferred subsidiaries at the closing.
In addition, if Hexagon shall have exercised its option to purchase our Heathrow
Airport property, the purchase price shall be increased by an additional
$5 million. Finally, the purchase price shall be increased at the closing by the
amount of any Business Operating Profit contingent payment that has been
determined to be due prior to the closing.
A portion of the purchase price shall be paid directly to our lenders to
pay off in full all of our indebtedness under the Credit Agreement dated as of
November 10, 1997 between us, certain lenders and The Chase Manhattan Bank, as
agent, as amended, and the Note Agreement dated November 10, 1997 between us and
certain lenders, as amended. Hexagon shall pay the balance of the purchase
price to us. In addition, at the closing Hexagon shall pay to BSIS, one of the
subsidiaries we are retaining, the amount of $2.5 million in respect of
Hexagon's first required investment in BSIS.
TRANSFERRED STOCK AND TRANSFERRED ASSETS
The proposed transaction involves a transfer of substantially all of our
assets, including the stock of most of our subsidiaries. We or our affiliates
are directly transferring to Hexagon or its affiliates all of the shares of
stock we hold of the following subsidiaries:
. Brown & Sharpe International Capital Corporation
. Brown & Sharpe DEA S.p.A.
. BSP, Inc.
. Brown & Sharpe Foreign Sales Corp.
. Brown & Sharpe Finance Company
. Borel & Dunner, Inc.
. Qingdao Brown & Sharpe Qianshao Trading Company Limited
. Qingdao Brown & Sharpe Qianshao Technology Company Limited
. Brown & Sharpe Aftermarket Services, Inc.
We are also indirectly transferring to Hexagon all of the stock of the
various subsidiaries of the companies listed above, as well as the 30% interest
in Wilcox Associates, Inc. held by Brown & Sharpe Aftermarket Services, Inc.
EXCLUDED ASSETS RETAINED BY US
The following are some of the principal excluded assets to be retained by
the Company: (a) our stock of BSIS, and all of its products and rights owned or
licensed and its employees and assets, other than the XactMeasure legacy
derivatives of BSIS which shall be transferred to Hexagon; (b) our stock of
Brown & Sharpe Surface Inspection Systems Inc., and all of its assets (including
stock in its subsidiaries), which is in the process of being sold; (c) our owned
real estate in North Kingstown, R.I. and our landlord leasehold interests with
respect to tenants occupying the building, which we also plan to sell; and (d)
the Heathrow Airport property owned by Brown & Sharpe Group Ltd. (unless Hexagon
exercises its option to purchase such property), which we plan to sell later.
PURCHASE BY HEXAGON OF STOCK IN BSIS, INC.; BSIS STOCKHOLDERS' AGREEMENT
Hexagon has agreed to purchase (or cause on of its affiliates to purchase)
shares of our subsidiary BSIS, representing 16.7% of the issued and outstanding
common stock of BSIS for a purchase price of $2.5 million in cash.
In addition, on each of the first three anniversaries of the closing,
Hexagon or its affiliate shall purchase additional shares of BSIS for a purchase
price of $1.5 million on each such anniversary.
LIABILITIES TO BE ASSUMED BY HEXAGON
At the closing, Hexagon and its affiliates will assume all of our
liabilities and the liabilities of our transferred subsidiaries (other than
certain excluded liabilities), including all liabilities, commitments,
obligations, claims and expenses, known or unknown, absolute or contingent,
accrued or unaccrued, directly relating to the conduct of the transferred
business as it has been directly or indirectly conducted by us.
EXCLUDED LIABILITIES RETAINED BY US
The following are some of the principal excluded liabilities that will be
retained by us: (a) all of our liabilities and the liabilities of our
retained subsidiaries to the extent they relate to the excluded assets;
(b) liabilities for taxes payable by or attributable to us or our retained
subsidiaries; (c) our expenses of negotiating and documenting the proposed
transaction; (d) any brokerage, finder's or advisory fee payable by us; (e) all
litigation matters pending on the date of the Acquisition Agreement, other than
two specified matters that will be assumed by Hexagon; (f) all liabilities under
our Umbrella Supplemental Executive Retirement Plan to persons who do not accept
employment with Hexagon; (g) all liabilities under our Profit Incentive Plan in
respect of year 2000 cash bonuses; (h) all liabilities under our Long-Term
Deferred Cash Incentive Plan in respect of year 2000 cash bonuses; (i) all of
our liabilities to participants in our regular Supplemental Executive Retirement
Plans; (j) all liabilities under our employee stock option plans; (k) all
liabilities under employee change in control contracts (except with regard to
executives hired or retained at the closing or within one year thereafter by
Hexagon or its affiliates, and employees of our transferred subsidiaries on the
closing date); (l) all liabilities, claims or expenses, whether known or
unknown, absolute or contingent, accrued or unaccrued, relating to the excluded
assets or otherwise, not directly resulting from the conduct of the transferred
business; and (m) certain of our corporate overhead liabilities.
EMPLOYEE MATTERS
Hexagon has agreed that either it or one or more of its affiliates will
offer employment, effective as of the closing date, to substantially all
individuals employed by us in the transferred business other than those
employees who have change in control or severance agreements with us (except
such as Hexagon has agreed to continue their employment), and Hexagon shall be
responsible for and indemnify us against all severance or termination amounts
payable to all individuals employed by us in the transferred business (whether
or not receiving an offer from Hexagon), other than such employees who have
change in control or severance agreements with us (except such as Hexagon has
agreed to continue their employment). The Agreement provides for Hexagon 401(k)
plans to accept rollovers from the Company's 401(k) plans and for the Company's
Employee Stock Ownership Plan to be terminated.
REPRESENTATION, WARRANTIES AND INDEMNIFICATION
The Agreement contains representation and warranties by us and Hexagon,
provisions for their survival past the Closing in some cases, and specified
indemnification.
CONDUCT OF OUR BUSINESS PENDING THE CLOSING
We must conduct the transferred business only in the ordinary course
consistent with our past practice and we have agreed not to take certain actions
without Hexagon's consent.
CONDITIONS TO THE PROPOSED SALE
Hexagon's and the Company's obligations to complete the proposed purchase
and sale of substantially all of the Company's business and assets is subject to
the satisfaction or waiver of several conditions, including the following:
. The Company's stockholders must approve the proposed sale to Hexagon and
related transactions;
. No law or court order prohibits the sale to Hexagon or makes the sale
illegal;
. Hexagon and the Company obtain all regulatory and third party approvals
necessary to complete the sale;
. Each of Hexagon and the Company shall have certified to the other that its
representations and warranties made in the Acquisition Agreement are true
(except in the case of the Company for such failures to be true as do not, in
the aggregate, have a material adverse effect (as defined) on the transferred
business) and that its obligations under the Acquisitions Agreement have been
complied with in all material respects;
. Hexagon's obligation to close is subject to the absence of any event or
condition having occurred since September 30, 2000 which has had or is
reasonably likely to result in a material adverse effect on the transferred
business, except as previously disclosed;
. The Company's obligations to complete the proposed sale offer to Hexagon of
substantially all of the Company's business and assets is subject to Hexagon
having paid or made arrangements to pay certain of the Company's indebtedness
simultaneously with the closing and the payment by Hexagon of the required
$2.5 million initial investment in BSIS.
SOLICITATION OF ALTERNATIVE TRANSACTIONS
Under the Acquisition Agreement, we and our subsidiaries may not take, or
permit any of our directors, officers, employees, agents or representatives to
take, directly or indirectly, any action to solicit, encourage, negotiate,
assist or otherwise facilitate (including by furnishing confidential information
with respect to the transferred business or the transferred assets or permitting
access to the transferred assets and business) any alternate proposal for
acquisition of any of the transferred stock or all or a material portion of the
transferred business or of the transferred assets. However, if, at any time
prior to the closing of the sale and purchase of the transferred assets and
stock contemplated by the Acquisition Agreement, our Board of Directors
determines in good faith, upon the advice of outside counsel, that it would be a
violation of its fiduciary duties to our stockholders under applicable law not
to do so, we may, in response to an alternative proposal for acquisition of any
of the transferred stock or all or a material portion of the transferred
business or of the transferred assets, furnish information to and participate in
negotiations with the third party making such superior proposal.
TERMINATION
The Acquisition Agreement may be terminated at any time prior to the
closing:
(i) by mutual written consent of us and Hexagon;
(ii) by either Hexagon or the Company if the other party breaches the
Acquisition Agreement in a manner likely to result in a material adverse effect,
as specified and does not cure such breach;
(iii) by either Hexagon or the Company if the Closing shall not have occurred
on or before April 30, 2001; or
(iv) by Hexagon or the Company, if our Board of Directors shall have recommended
to our stockholders a merger offer, tender offer, exchange offer or
proposal to purchase substantially all the assets of the Company, if such action
by our Board is required to be taken to satisfy its fiduciary duties.
FEES AND EXPENSES
Except as set forth below, all fees and expenses incurred in connection
with the Acquisition Agreement and the transactions contemplated thereby shall
be paid by the party incurring such expenses, whether or not the transaction is
consummated.
The Acquisition Agreement requires us to pay Hexagon a fee of $4 million,
plus actual, documented out-of-pocket expenses of Hexagon relating to the
transactions contemplated by the Acquisition Agreement not in excess of
$2 million in the aggregate upon the termination of the Acquisition Agreement by
us or Hexagon on the basis described under clause (iv) of "Termination" above.
In the event the Company fails to obtain stockholder approval for the
proposed sale, we will be required to pay up to $2 million of actual, documented
out of pocket expenses of Hexagon.
In no event shall be we be required to pay Hexagon more than one fee
pursuant to these termination provisions. In the event that more than one fee
would be applicable, we will be required to pay the highest of such fees.
No Dissenter's Rights (page __)
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Any of our stockholders who do not approve of the proposed sale and related
matters are not entitled to appraisal or dissenter's rights with respect to the
proposed sale and related matters under Delaware law or our Certificate of
Incorporation.
Material Federal Income Tax Considerations of the Contemplated Distribution to
Stockholders (page __)
The Company estimates that it will have neither current earnings and
profits nor accumulated earnings and profits at either the time of the
contemplated distribution in 2001 or for the year (2001) in which the
distribution is expected to be made, in which event the contemplated
distribution would not be treated as a dividend for federal income tax purposes.
Instead, the distribution would first be treated as non-taxable return of each
stockholders adjusted basis in the stock of the Company to the extent of such
basis . Any distribution in excess of a stockholder's basis would be treated as
capital gain from the exchange of the respective shares. Distributions to
stockholders that are corporations will not qualify for the dividend received
deduction.
The federal, state or foreign tax consequences of the distribution to you
will depend on the facts of your own situation. You should consult your tax
advisors for a full understanding of the tax consequences of the contemplated
distribution to you.
Accounting Treatment
The proposed sale will be accounted for as a sale of certain assets,
including the stock of certain subsidiary corporations, and assumption of
certain liabilities. Upon consummation of the proposed sale, the Company will
recognize financial reporting gain equal to the net proceeds (the sum of the
purchase price received less the expenses relating to the proposed sale) less
the closing net book value of the assets sold and liabilities assumed.
Business Activities of the Company Following the Proposed Sale: BSIS
We are presently operating in the measuring systems and precision measuring
instruments industry. After the consummation of the proposed sale to Hexagon, we
will no longer operate in the measuring systems and precision measuring
instruments industry. We will retain ownership of our embryonic software
development business, BSIS, which is focused on the commercialization of its new
XACTMEASURE Measuring Software, has been in development for approximately three
years and nearing introduction of a product.
BSIS is an early stage software development company formed in December 1997
and focused on commercialization of metrology (the science of measuring physical
attributes) software (sometimes referred to as "measuring software"). BSIS
currently has approximately 40 employees. BSIS's vision is to successfully
commercialize a metrology operating system software standard for use in all
inspection devices used in worldwide manufacturing operations and to market a
variety of applications that run on such standard metrology operating system.
BSIS believes that it is possible and preferable for the manufacturer who uses
multiple inspection devices to operate all of those devices with a single
metrology operating system and will market XactMOS as such an operating system.
BSIS has not generated any revenue and has recorded operating losses of
$1.0 million, $5.2 million and $5.1 million in the years 1997, 1998 and 1999,
and operating losses of $5.6 million for the nine months ended September 30,
2000.
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The operating capital for BSIS will initially be provided by the Company
and by Hexagon's investments in the stock of BSIS under the Acquisition
Agreement. The Company will hold back (in addition to payment or provision for
payment of liabilities or potential contingent liabilities) an amount to be
later determined by the Board of Directors from the Distribution to
Stockholders of proceeds from the sale to Hexagon under the Acquisition
Agreement, for use together with funds required to be provided by Hexagon, to
fund operating requirements of BSIS and to fund "public company overhead" for
some period of time not yet determined.
The Company will continue as a publicly-owned corporation after the Closing
and the contemplated Distribution to Stockholders and the transaction will not
change the number of shares of outstanding stock of the Company. However, the
size and composition of the Board of Directors may change. The 2001 Annual
Meeting of Stockholders is scheduled to be held on ________ 2001.
Risk Factors Relating to BSIS (pages __ through __)
The business of BSIS is subject to a variety of risks and special
considerations. As a result, stockholders of the Company should carefully
consider the risks summarized below and the other information in the Proxy
Statement before voting at the Special Meeting.
. BSIS Software Product is Still in Development; Uncertainty of Market
Acceptance. There can be no assurance that BSIS will be able to complete
its development of a software product that is accepted by consumers on a
basis which is profitable to BSIS.
. History of Losses; No Revenues to Date. Since BSIS has not yet completed
development of a product for sale to customers, BSIS has had no revenues,
and hence its operating results to date (losses) does not form any basis
for conclusion that BSIS will become profitable.
. Limited Resources. We will have substantially more limited financial and
other resources than all, or most, of our software competitors and
potential software competitors and we may be unable to compete
significantly against them.
. Competition; Inability to Use "Brown & Sharpe" Name. In addition to the
significant competition for software products, with many offerings in the
marketplace, the software products to be developed by BSIS are expected
at the outset to compete with software used by the Metrology Business
sold to Hexagon, and may be competitive with software developed in the
future by the Metrology Business being purchased by Hexagon.
. Royalty and Other Obligations of BSIS to the Metrology Business Sold to
Hexagon. For five years after the Closing, BSIS is required to sell its
XactMeasure software products to Hexagon, on a non-exclusive basis, for
use in coordinated measuring machine ("CMM") applications at a price per
unit which is expected to be substantially below the price charged by
BSIS to other customers for CMM applications. In addition, BSIS is
required for the five year period to pay a significant royalty to Hexagon
per unit of
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software sold to persons other than Hexagon for CMM market applications.
The effect of these provisions may be materially adverse to the business
of BSIS.
. The Relationship Between BSIS and Wilcox Associates, Inc. Ends With the
Closing Under the Acquisition Agreement. The Company's Metrology Business
has been significantly dependent on a software license from Wilcox
Associates, Inc. and the services of William Wilcox, its President
. Management of BSIS. While BSIS has significant software business
experience, there is no assurance the Company and BSIS will be able to
successful manage a "software company."
. Future Development of Software Products for Markets Other Than CMM
Applications. The BSIS business plan contemplates the development of
additional software products for markets other than CMM applications,
including primarily Vision and CNC applications. There can be no
assurance such additional software products will be developed, or, if
developed, will be of interest to customers in fields beyond those in
which the Metrology Business has been engaged in.
. Need for Additional Qualified Employees, Potential Loss of Foreign
Employees of the Metrology Business Sold to Hexagon. In order to grow our
business, we will have to hire additional employees. We do not know
whether we will be successful in hiring or retaining qualified personnel.
Competition for qualified personnel throughout the software industry is
intense. In addition, BSIS has been using the services of __ employees
resident in Europe who had formerly been employees of the Metrology
Business to be sold to Hexagon. The inability to hire additional
qualified employees or the loss of the services of some of these foreign
technical employees could have a material adverse effect on the business
of BSIS.
. Implementation of BSIS Strategy, Uncertain Ability to Develop Strategic
Relationships The BSIS business plan calls for BSIS to establish
marketing, development and distribution relationships through strategic
alliance with other companies, there can be no assurance that BSIS will
be able to achieve its planned objectives for the year 2001 or establish
a software business that will grow and be profitable.
. Intellectual Property Risks. If we become subject to intellectual
property infringement claims, or if we are unable to protect important
intellectual property, we could incur significant expenses and be
prevented from offering specific products, and we may lose prospective
sales to competitors.
. International Business Risks. Our financial condition and results of
operation may be adversely affected by international business risks,
including the fact that the protection of copyrights and other
intellectual property is difficult to achieve under the laws of certain
foreign countries.
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. Sales of Company Stock in the Market Before and After the Closing May
Adversely Impact this Market. The market price of the Company's Common
Stock could decline as a result of sales of shares by the Company's
existing stockholders before or after the Closing under the Acquisition
Agreement, including sales by trustees or beneficiaries under the
Company's Employee Stock Ownership Plan, (which will be terminated in
connection with the Closing) and sales under other Company employee
benefit plans.
. Possible DeListing of Company Stock by NYSE Although we expect, based on
informal discussions with representatives of the New York Stock Exchange,
the Company's Class A Common Stock to continue to be listed on the New
York Stock Exchange, it is possible that future results of the Company
(which will be engaged only in the software business conducted by BSIS)
or future discussions with the NYSE, may lead to delisting of the
Company's stock by the New York Stock Exchange, in which event the
Company may not be able to have its shares quoted on another stock
exchange. Consequently, an active trading market for the Company's shares
may not be sustained following the Closing under the Acquisition
Agreement.
. Possible Change in Capital Structure After the Closing. Other than the
reduction in par value, and the amount distributed in the contemplated
distribution to stockholders, there will not be a change in the equity of
the Company. The proposed sale to Hexagon and related transactions and
the related Distribution to Stockholders will not affect the number of
outstanding shares of Common Stock of the Company; however, the Board of
Directors may, after the Closing, depending on developments with BSIS and
other factors, decide to recommend some change in the capital structure,
which may include consideration of a "reverse stock split" pursuant to a
further amendment of the Certificate of Incorporation requiring Board and
stockholder approval in the future. In addition, the Company can not
predict the affect the sale to Hexagon, related transactions and related
distribution will have on the market price of the Company's Common Stock.
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PROXY STATEMENT
[BROWN & SHARPE MANUFACTURING COMPANY LOGO]
SOLICITATION OF PROXIES
General. The enclosed Proxy is solicited by our Board of Directors for the
purposes set forth in the Notice of Special Meeting of Stockholders (the
"Meeting") of Brown & Sharpe Manufacturing Company. The terms "we," "our,"
"Brown & Sharpe" and the "Company" as used in this Proxy Statement refers to
Brown & Sharpe Manufacturing Company (and, if applicable, its subsidiaries).
The term "you" refers to the stockholders of Brown & Sharpe Manufacturing
Company. The term Hexagon refers to Hexagon AB, a Swedish corporation (and, if
applicable, its Affiliates). The solicitation is being made by mail and we may
also use our officers and regular employees to solicit proxies from stockholders
either in person or by telephone, facsimile, e-mail or letter without additional
compensation. We will pay the cost for solicitation of proxies, including
preparation, assembly and mailing the proxy statement and proxy. Such costs
normally include charges from brokers and other custodians, nominees and
fiduciaries for the distribution of proxy materials to the beneficial owners of
our Common Stock.
Recent Data. Each stockholder of record at the close of business on _____
__, 2001, (the "record date") is entitled to notice of and vote at the Meeting.
As of the close of business on the record date, the Company had [13,787,885]
shares of common stock outstanding comprised of [13,283,988] shares of Class A
Common Stock, $1.00 par value (the "Class A Stock") and [503,897] share of Class
B Common Stock, $1.00 par value (the "Class B Stock"). The Company's
Certificate of Incorporation provides that each share of Class A Stock
outstanding on the record date entitles the holder thereof to one vote and each
share of Class B Stock outstanding on the record date entitles the holder
thereof to ten votes except as otherwise provided by law or by the Certificate
of Incorporation.
Votes Required to Approve Each of Proposals 1 and 2. Holders of record of
the Class A Stock on the record date are entitled to one vote per share and
holders of record of the Class B Stock on the record date are entitled to ten
votes per share on Proposals 1 and 2 and on any other matter which may properly
come before the Special Meeting. A majority vote of the entitled votes of the
shares of Class A Stock and Class B Stock outstanding on the record date, voting
together as a single class, is necessary to approve each of Proposal 1 and
Proposal 2.
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Votes Required to Approve Proposals 3. A majority vote of the entitled
votes of the shares of Class A Stock and Class B Stock outstanding on the record
date, voting together as a single class, and a majority vote of the entitled
votes of the shares of Class A Stock outstanding on the record date, is
necessary to approve Proposal 3.
Votes Required to Approve Proposals 4. A majority vote of the entitled
votes of the shares of Class A Stock and Class B Stock outstanding on the record
date, voting together as a single class, and a majority of the entitled votes of
the shares of Class B Stock outstanding on the record date, is necessary to
approve Proposal 4.
Proxies. Proxies returned to us or our transfer agent, Equiserve
("Transfer Agent"), and properly executed will be voted in accordance with
stockholders' instructions. You specify your choice by appropriately marking the
enclosed Proxy card. Brokers holding shares for the account of their clients may
vote such shares in the manner directed by their clients. Properly executed
proxies that are marked abstain or held in street name by brokers that are not
voted on one or more proposals, if otherwise voted on at least one proposal
("broker non-votes"), will be included in the number of shares present at the
Meeting for the purpose of determining whether a quorum exists for the conduct
of business. Abstentions have the same effect as a vote against the proposal for
which such abstention applies while broker non-votes are not treated as a vote
for or a vote against any of the proposals to which such broker non-votes
applies. Any Proxy which is timely signed and returned with no other markings
will be voted in accordance with the recommendation of our Board. The Proxies
also give the Board discretionary authority to vote the shares represented
thereby on any matter which was not known as of the date of this Proxy Statement
and is properly presented for action at the Meeting.
The execution of a Proxy will in no way affect your right to attend the
Meeting and vote in person. You have the right to revoke your Proxy prior to the
Meeting by giving notice to our Secretary, James W. Hayes, III, at our executive
offices. You may also complete and submit a new proxy prior to the Meeting or
you may revoke a previously submitted proxy at the Meeting by giving notice to
our Secretary at the Meeting.
For convenience in voting your shares on the enclosed Proxy card, we have
enclosed a postage-paid return envelope to our Transfer Agent who will assist in
tabulating the stockholder vote. Brown & Sharpe's mailing address is Precision
Park, 200 Frenchtown Road, North Kingstown, RI 02852-1700. Our telephone number
is (401) 886-2000, and facsimile number is (401) 886-2214.
The approximate mailing date of this Proxy Statement and Notice and Form of
Proxy is ____ __, 2001.
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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
THIS PROXY STATEMENT AND THE ACCOMPANYING LETTER TO STOCKHOLDERS CONTAIN
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES AND ARE NOT BASED ON HISTORICAL
FACT AND ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. AMONG OTHER THINGS, THEY RELATE TO THE
COMPANY'S LIQUIDITY, FINANCIAL CONDITION, OPERATIONAL MATTERS, CERTAIN STRATEGIC
INITIATIVES AND PLANS, OBJECTIVES AND INTENTIONS PERTAINING TO BSIS, INC. AND
ALTERNATIVES AFTER THE CLOSING UNDER THE ACQUISITION AGREEMENT AND THEIR
POTENTIAL OUTCOMES, THE AMOUNT OF LIABILITIES AND POTENTIAL CONTINGENT
LIABILITIES RETAINED BY THE COMPANY AND THE POTENTIAL VALUE OF THE COMPANY'S
PROPERTY AND ASSETS, INCLUDING THE POTENTIAL VALUE OF BSIS AS A CONTROLLED
SUBSIDIARY AFTER THE CLOSING UNDER THE ACQUISITION AGREEMENT. WORDS OR PHRASES
DENOTING THE ANTICIPATED RESULTS OF FUTURE EVENTS, SUCH AS "ANTICIPATE,"
"BELIEVE," "ESTIMATE," "EXPECTS," "MAY," "NOT CONSIDERED LIKELY," "ARE EXPECTED
TO," "WILL CONTINUE," "PROJECT," "COULD," AND SIMILAR EXPRESSIONS THAT DENOTE
UNCERTAINTY ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE
METHODS USED BY THE BOARD OF DIRECTORS AND MANAGEMENT IN ESTIMATING THE VALUE OF
THE COMPANY'S PROPERTY ASSETS WHICH ARE CONTEMPLATED TO BE SOLD OR THE AMOUNT OF
LIABILITIES AND POTENTIAL CONTINGENT LIABILITIES TO BE RETAINED AFTER THE SALE
TO HEXAGON DO NOT, WITH CERTAINTY, RESULT IN AN EXACT DETERMINATION OF VALUE OR
THE AMOUNT OF SUCH LIABILITIES AND POTENTIAL CONTINGENT LIABILITIES TO BE
RETAINED BY THE COMPANY. THE AMOUNT OF THE SALE PROCEEDS CANNOT BE DETERMINED IN
ADVANCE AND WILL DEPEND ON VARIOUS FACTORS, INCLUDING, WITHOUT LIMITATION, THAT
THE PURCHASE PRICE PAYABLE BY HEXAGON IS SUBJECT TO ADJUSTMENT BASED ON THE
COMPANY'S 2000 OPERATING RESULTS (AND SUBJECT TO OTHER ADMUSTMENTS), THE PRICE
AT WHICH THE COMPANY WILL BE ABLE TO SELL CERTAIN REMAINING REAL ESTATE
PROPERTIES, THE CONDITION OF REAL ESTATE AND FINANCIAL MARKETS AND THE TIMING OF
THE SALE OF SUCH ASSETS. THE AMOUNT OF THE DISTRIBUTION TO STOCKHOLDERS CANNOT
BE DETERMINED IN ADVANCE AS IT WILL DEPEND UPON THE AMOUNT OF SALES PROCEEDS
FROM HEXAGON, SALES PROCEEDS FROM THE SALES OF CERTAIN REAL ESTATE PROPERTIES
(WHEN SOLD) AND AMOUNTS TO BE RETAINED BY THE COMPANY TO FUND, FOR A PERIOD OF
TIME TO BE DETERMINED BY THE BOARD OF DIRECTORS, THE OPERATING EXPENSES OF BSIS
AND THE "PUBLIC COMPANY OVERHEAD" OF THE COMPANY.
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PROPOSAL 1
TO APPROVE THE ACQUISITION AGREEMENT
DATED AS OF NOVEMBER 16, 2000 BETWEEN
THE COMPANY AND HEXAGON AND THE RELATED
TRANSACTIONS, AND THE RELATED DISTRIBUTION TO STOCKHOLDERS
IN AN AMOUNT AS TO BE DETERMINED BY THE BOARD OF DIRECTORS
GENERAL
Our Board of Directors is proposing the approval of the Acquisition
Agreement dated as of November 16, 2000 between the Company and Hexagon AB
("Hexagon"), a Swedish corporation, (the "Acquisition Agreement"), including (i)
the sale thereunder for a cash purchase price (subject to adjustments as
provided therein) to Hexagon (and its Affiliates) of substantially all the
Company's business and assets and the related assumption by Hexagon (and its
Affiliates) of substantially all the Company's liabilities (other than Excluded
Assets and Excluded Liabilities, each as defined in the Acquisition Agreement),
(ii) the investment thereunder by Hexagon in BSIS, Inc., an embryonic "measuring
software" business being retained as a controlled subsidiary by the Company and
related agreements, and (iii) the lease agreed upon thereunder of a portion of
the North Kingstown facility at Precision Park by the Company to Hexagon and to
authorize the Board of Directors, after approval by Stockholders at the Special
Meeting, to take all action necessary to carry out the sale and related
transactions (including Hexagon's investment in BSIS and the lease between the
Company and Hexagon) contemplated under the Acquisition Agreement and the
related distribution to stockholders in an amount to be finally determined by
the Board of Directors (the "Distribution"). The Acquisition Agreement and the
proposal for a Distribution to Stockholders at a date as soon as practicable
after the Closing to be later selected by the Board and in an amount as to be
finally determined by the Board were unanimously approved by the Board of
Directors on November 16, 2000. A copy of the Acquisition Agreement, including
the forms of Lease, BSIS Stock Purchase Agreement and BSIS Stockholders'
Agreement, is attached as Exhibit A to this Proxy Statement. Certain material
features of the Acquisition Agreement (and the related agreements) and the
related Distribution to Stockholders and the on-going operations of the Company
after Closing under the Acquisition Agreement are summarized below. STOCKHOLDERS
SHOULD READ THE ACQUISITION AGREEMENT AND RELATED AGREEMENTS IN THEIR ENTIRETY.
BROWN & SHARPE
The Company currently operates entirely in the metrology industry through
four business segments. The MS Division ("MSD"), which manufacturers and
markets a wide range of manual and computer-controlled, high precision
coordinated measuring machines ("CMMs") is the largest division, historically
generating more than 70% of the Company's sales. The MSD includes the former
Custom Metrology Division ("CMD"), which, after its reorganization in 1999, was
dedicated to the production and development of non-contact technology. The PMI
Division ("PMI"), which manufacturers mechanical and electronic measuring and
inspection tools is the second largest division. The Brown & Sharpe Information
Systems ("BSIS") measuring software business has had no sales. The Electronics
Division ("ED"), which was acquired in 1999 (and is being sold by the Company),
designs and manufactures surface
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inspection systems. MSD sales include revenue from aftermarket sales and service
for CMMs. More than half of the Company's sales historically have been outside
the United States (based upon the location of customers who are situated within
the market areas assigned to subsidiaries located outside of the United States.)
The Company has had losses for the year ending December 31, 1999 and for nine
months ending September 30, 2000 and will record a loss for the year ending
December 31, 2000. The Metrology Business being sold to Hexagon had an Operating
Profit as defined under the Acquisition Agreement of $11.3 million for the nine
months ended September 30, 2000.
HEXAGON
Hexagon AB is a limited liability company existing under the laws of Sweden
and has listed its series B shares on the OM Stockholm Exchange. Hexagon's
primary business concept is to acquire and develop, on a long-term basis,
engineering companies. The Hexagon Group consists of eight directly reporting
subsidiaries that are grouped in three fields of operation: Industrial
Components and Systems, Niche Manufacturing and Hexagon Wireless. The
subsidiaries grouped within these three fields of operation are all niche
oriented, operate in markets with exclusively industrial customers, have leading
positions within their respective market niches, and conduct their product or
production technology development within the framework of applied technology.
The three companies that comprise the Industrial Components and Systems business
area principally produce hydraulics, flow technology, temperature technology,
mechanical maintenance products and transmission equipment. The three companies
comprising the Niche Manufacturing business area produce gaskets for plate heat
exchangers and special wheels, sliding bearings, cage rings and preprocessed
special steel, tools and components as well as systems and/or components for
industrial robots, trucks and base stations for mobile phone systems. Hexagon
Wireless is active in the field of wireless communication. It develops and
markets antennas and antenna systems for mobile handsets and Bluetooth
applications ranging from lap tops, palm tops, up to large industrial
applications for process controlling purposes.
Hexagon's principal executive offices are located P-O Box 1112, S-131 26,
Nacka Strand, Stockholm, Sweden, (tel): +46 (0) 8 601 26 20 and (fax) +46 (0) 8
601 26 21. e-mail: [email protected], web site:www.hexagon.se.
BACKGROUND AND REASONS FOR THE SALE; DIRECTORS' RECOMMENDATION
BACKGROUND
November, 1999 -- the Company agreed with its senior lenders, including its
senior bank lenders under a $30 million secured revolving credit bank agreement
and insurance companies holding privately placed secured promissory notes in an
aggregate amount of $50 million, to reduce the Company's senior unsecured debt
by $35 million. From then until June 2000, the Company, with the assistance of
Chase Securities endeavored to raise subordinated debt/mezzanine financing or
preferred stock to accomplish this refinancing but the Company was not able to
secure any such refinancing on a basis considered by the Company to be
acceptable and in the best interest of the Company and its stockholders.
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<PAGE>
April 2000 -- Representatives of Hexagon contacted Chase Securities to
inquire about the Company's search for privately placed equity securities.
June 27, 2000-- Brown & Sharpe announced in a press release that the
Company had engaged Chase Securities to pursue various strategic alternatives,
including a possible sale or merger of the Company, to enhance shareholder
value.
July 17, 2000 -- Ola Rollen, Chief Executive Officer of Hexagon, had an
introductory meeting with Ken Kermes, President and Chief Executive Officer and
Andy Genor, Chief Financial Officer of Brown & Sharpe, at Brown & Sharpe's
North Kingstown headquarters.
August 15-17, 2000 -- Business presentations in North Kingstown by both
Hexagon and Brown & Sharpe, including in-depth divisional financial/business
reviews on MS (Measuring Systems Division) and PMI (Precision Measuring
Instruments Division), the two major Brown & Sharpe divisions comprising the
Metrology Business, and on BSIS (Brown & Sharpe's software development
business).
August 21-25, 2000 -- Hexagon representatives make due diligence visits to
Brown & Sharpe's locations in Telford, UK (MS), Wetzlar, Germany (MS), Rennes,
Switzerland (PMI), Torino, Italy (MS) and North Kingstown (MS and corporate
headquarters).
September 4, 2000 and following -- There were discussions between
representatives of the parties, covering principally Hexagon's concern about
purchasing stock in a public U.S. corporation, including its automatic
assumption of all the liabilities, known or unknown of such corporation, and
acquiring certain unwanted assets not associated with the Metrology Business.
Hexagon presented an oral indication of interest which would result in a
cash purchase price at a small premium over market. Brown & Sharpe indicated
that this proposal was not at a sufficient level to grant Hexagon negotiating
exclusivity, but that Brown & Sharpe would entertain a proposal by Hexagon for
an acquisition of Brown & Sharpe's Metrology Business (including its MS and PMI
businesses) which account for substantially all of Brown & Sharpe's assets and
business, and the assumption of the Metrology Business liabilities, excluding
certain unrelated assets and liabilities.
September 12 - 13, 2000, representatives of the parties and their
respective investment bankers and counsel met in New York to discuss and reach a
preliminary understanding on key points, including deal structure, purchase
price and excluded assets and excluded liabilities.
Following the New York meeting -- Brown & Sharpe prepared and sent to
Hexagon a "Summary of Proposed Principal Terms (For Discussion)", dated
September 15, 2000, for the cash purchase of the Metrology Business of Brown &
Sharpe, with Brown & Sharpe retaining certain Excluded Assets and Excluded
Liabilities. The Summary contemplated a purchase by Hexagon of the shares of a
company created by Brown & Sharpe to hold the U.S. assets and a purchase by
Hexagon of the shares of the Brown & Sharpe subsidiaries holding the foreign
subsidiaries engaged in the Metrology Business. The Summary provided for a
break-up fee
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payable to Hexagon in an amount to be negotiated, including a "fiduciary out"
for the Brown & Sharpe Board of Directors to respond to more favorable
unsolicited offers. The Closing would be conditioned upon, among other things,
approval of Brown & Sharpe's stockholders, a lease by Hexagon of a portion of
the North Kingstown facilities and other conditions to be set forth in a
mutually acceptable Definitive Acquisition Agreement to be entered into between
the parties.
Brown & Sharpe, following a meeting of its Board of Directors on September
18, 2000, at which time the Board reviewed, among other matters, the information
presented by Chase Securities and the results of the process undertaken by Brown
& Sharpe and by Chase Securities since June 27, 2000, granted Hexagon
negotiating exclusivity for two weeks, which was later extended to about three
weeks, until October 6.
September 18, 2000 -- Hexagon began its financial due diligence on Brown &
Sharpe's Metrology Business. Hexagon's representatives (representatives of
KPMG, a public accounting firm) visited the Metrology Business locations at
Telford, United Kingdom; Wetzlar, Germany; Rennes, Switzerland; Torino, Italy
and North Kingstown for extensive financial due diligence.
October 5, 2000 -- A draft of Acquisition Agreement was forwarded by Brown
& Sharpe's counsel to Hexagon and its counsel. After a Hexagon Board meeting on
or about October 10, Hexagon raised concerns relating to Brown & Sharpe's
projected fourth quarter results for the Metrology Business. Brown & Sharpe
then prepared and sent Hexagon historical information on Brown & Sharpe's nine
months and fourth quarter results for the Metrology Business.
October 13, 2000 -- After the Brown & Sharpe Board call on October 13,
Brown & Sharpe countered Hexagon's statement during the week of October 9 that
Hexagon would not pay the purchase price included in the Summary of Proposed
Principal Terms with a Brown & Sharpe proposal (oral) for a purchase price of
$170 million, and including in the assets to be sold Brown & Sharpe's 30%
interest in Wilcox Associates, Inc., a software firm that had granted an
exclusive license to Brown & Sharpe on its PCDIMIS measuring software for Brown
& Sharpe machines, and including certain software rights.
October 16 - 17, 2000 -- The parties and their respective investment
bankers and counsel met in New York City on October 16 - 17 to discuss the
Acquisition Agreement draft dated October 5, and related matters, including
comments submitted to Brown & Sharpe by Hexagon's counsel dated October 16 and a
memorandum of "major issues", including break-up fee, purchase price, Metrology
Business, fourth quarter earnings, investment in BSIS and certain more technical
matters, which had been prepared by Hexagon and distributed at the meeting.
Following this meeting, the parties continued to discuss various matters,
including Brown & Sharpe's likely fourth quarter 2000 results for the Metrology
Business, whether or not a closing condition relating to no material adverse
change with respect to the Metrology Business operating results would be a part
of the Acquisition Agreement and various other matters.
October 24, 2000 -- A revised draft of the Acquisition Agreement was sent
to Brown & Sharpe by Hexagon's counsel, and on October 27 a further revised
draft of the Acquisition Agreement was sent to Hexagon by Brown & Sharpe's
counsel, together with a memorandum
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<PAGE>
commenting on the changes made in the draft, including changes in the definition
of material adverse effect, closing conditions and various other matters.
There was also considerable discussion between the parties on the key
issues remaining after the New York meeting, and including the introduction of a
proposal for a "collar" on the purchase price, which would provide for a
purchase price of $170 million subject to being reduced down to $160 million,
depending on lower Year 2000 Operating Profit of the Metrology Business and
subject to being increased up to $180 million depending on higher Year 2000
Operating Profit of the Metrology Business.
October 30 - 31, 2000 -- Details of a proposal for the collar on the
purchase price were discussed by the respective investment bankers for Hexagon
and Brown & Sharpe, and on October 31 Brown & Sharpe's proposal for a collar was
orally conveyed by its investment bankers to Hexagon.
November 3, 2000 -- A revised draft of Acquisition Agreement was sent by
Brown & Sharpe's counsel to Hexagon, which contained a purchase price collar,
and on November 6 a memorandum from Brown & Sharpe's counsel was sent to Hexagon
making certain changes in the draft of collar and various other portions of the
November 3 draft Acquisition Agreement and the schedules of Excluded Assets and
Excluded Liabilities, and noting open points to be discussed and agreed in order
to complete the Acquisition Agreement.
November 11, 2000 -- The parties and their counsel and Brown & Sharpe's
investment bankers met in Boston to discuss the November 3 draft of Acquisition
Agreement, including details related to the collar on the purchase price,
details of the Excluded Assets and Excluded Liabilities, the lease for a portion
of the North Kingstown facility to be occupied by Hexagon and a discussion of
Brown & Sharpe's embryonic software business (BSIS), including proposed
investments by Hexagon in BSIS and certain possible software and other
arrangements between Brown & Sharpe and BSIS on the one hand and Hexagon on the
other hand, as buyer of the Metrology Business and an investor in BSIS.
November 12 - 16, 2000 -- Representatives of Hexagon and Brown & Sharpe and
their counsel, and for part of the time representatives of their respective
investment bankers, discussed and negotiated by phone and e-mail the remaining
"open" issues on the draft Acquisition Agreement and Schedules and on the
wording of a press release to be issued by Brown & Sharpe at 8 a.m. on Friday,
November 17 in the United States and a press release to be issued by Hexagon at
2 p.m. in Sweden (assuming that the parties had signed the Acquisition
Agreement). A further revised draft of the Acquisition Agreement was sent on
November 14 by Brown & Sharpe's counsel to Hexagon.
November 16, 2000 -- Following a further telephone conference call between
representatives and counsel for each of the parties on November 16, the Board of
Directors of Brown & Sharpe at a meeting held 6 p.m. on November 16, 2000
unanimously approved the Acquisition Agreement and the related transactions and
the contemplated distribution to stockholders, to be made at such later date and
in such amount to be finally determined by the Board. At this meeting the Board
gave consideration to various factors, including the opinion of Houlihan Lokey
and the results of
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the process undertaken by the Company and Chase Securities and the other factors
discussed in the following section of this Proxy Statement entitled "Our Reasons
For the Proposed Sale and Related Transactions and Distribution to Stockholders;
Approval by the Board of Directors". Following Brown & Sharpe Board approval,
counsel for each of the parties agreed on final changes to the Acquisition
Agreement, and the Acquisition Agreement was then signed by representatives of
both parties.
November 17, 2000 -- Brown & Sharpe and Hexagon each issued a press
release announcing signing of the Acquisition Agreement.
OUR REASONS FOR THE PROPOSED SALE AND RELATED TRANSACTIONS AND DISTRIBUTION TO
STOCKHOLDERS; APPROVAL BY THE BOARD OF DIRECTORS
OUR BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED SALE UNDER THE
ACQUISITION AGREEMENT AND RELATED TRANSACTIONS AND THE CONTEMPLATED DISTRIBUTION
TO STOCKHOLDERS IN AN AMOUNT TO BE FINALLY DETERMINED BY OUR BOARD OF DIRECTORS
IS IN THE BEST INTEREST OF THE COMPANY AND OUR STOCKHOLDERS. ACCORDINGLY, THE
BOARD OF DIRECTORS HAS APPROVED THE PROPOSED SALE AND RELATED TRANSACTIONS UNDER
THE ACQUISITION AGREEMENT AND SUCH RELATED CONTEMPLATED DISTRIBUTION TO
STOCKHOLDERS.
The purchase price under the Acquisition Agreement, including the
purchase price for shares of BSIS, and the rental amounts under the Lease were
negotiated on an arm's-length basis between our representatives and
representatives of Hexagon. Our Board of Directors based its recommendation, in
part, on the factors set forth below.
(i) The historical market prices (and related financial multiples) and
recent trading range of the Company's Common Stock.
(ii) Our inability to raise additional subordinated debt or preferred
stock in late 1999 - June, 2000, in an effort to resolve the financial defaults
existing since 1999 under the lending agreements with our senior lenders,
including a payment default under our $30 million bank revolving credit since
November 10, 2000.
(iii) The financial condition, results of operations (losses) in the years
1999 through 2000 and cash flows of the Company, including the Company's
prospects as an independent company in the Metrology Business in light of the
long-standing financial defaults in agreements with our senior lenders and the
resulting insufficiency of the Company's capital structure.
(iv) The purchase price and terms of the proposed sale to Hexagon, as
reflected in the Acquisition Agreement, including the opportunity to receive
additional purchase price to the extent that our Metrology Business Operating
Profit (as defined) for the Year 2000 exceeds certain specified levels.
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(v) The opportunity to develop the embryonic "measuring software"
business being conducted by the Company's subsidiary, BSIS, in which Hexagon
will make substantial investments aggregating $7 million over the next three
years, eventually owning up to as much as 47% of the equity of BSIS. However, in
view of the speculative nature of the prospects for BSIS, the Board has
determined to make a distribution to stockholders of the sale proceeds after
paying the Company's debt obligations to its senior lenders (which aggregated $
________ at ________, 2001), after payment, or making provision for the payment,
of its other retained liabilities, a retention for public company overhead and a
retention for of only a portion of the proceeds to be available (together with
the $7 million to be received over three years by BSIS from Hexagon for
purchases of stock of BSIS) for development of the BSIS software business for
some period of time. See "Business Activities of the Company Following the
Proposed Sale: BSIS" and "Risk Factors Related to BSIS".
(vi) The potential disadvantages and complications of not selling the
Company as an entirety to a single buyer (or several buyers) and thus retaining
certain unassumed liabilities and potential contingent liabilities of the
Company and its retained subsidiaries.
(vii) The fact that BSIS, which will be a controlled subsidiary after the
Closing and will be the only active operations of the Company, has not yet
generated any revenues.
(viii) The possibility that the Common Stock of the Company may be delisted
by the New York Stock Exchange after the Closing.
(ix) The opinion of Houlihan, Lokey to the Board of Directors of the
Company that, subject to the matters set forth in its opinion, the consideration
to be received by the Company in connection with the proposed sale to Hexagon
will be fair, from a financial point of view, to us. The full text of the
written opinion dated as of November 16, 2000 which sets forth the assumptions
made, matters considered and limitations on the review undertaken, is attached
to this Proxy Statement as Annex B hereto and is incorporated herein by
reference. Holders of shares of Company Common Stock are urged to read such
opinion carefully in its entirety.
(x) The process undertaken by the Company, with the assistance of its
financial advisor Chase Securities, to identify prospective purchasers and/or
investors that might be interested in pursuing a strategic transaction with the
Company, such as a possible merger or sale of the Company or substantial
investment in the Company or similar transaction, including the fact that more
than 100 parties were contacted by the Company and Chase Securities regarding
their potential interest in such a transaction, more than 50 parties executed
confidentiality agreements with the Company and were sent a descriptive
memoranda concerning the Company, and a number of parties provided preliminary
or indicative bids; and the information Chase Securities reviewed with the Board
at its meeting on September 18, 2000 with respect to the results of the process
undertaken by the Company and Chase Securities, the indicative bids received and
other opportunities for the Company to sell its Metrology Business or all of its
business and assets, including the recommendation of Chase Securities to the
Board at its September 18 meeting, made in the context of the results of that
process and the continued request of Hexagon for negotiating exclusivity, for
the Company to pursue the Hexagon bid on an exclusive basis for a limited
period; and the further review of the process and the proposed definitive
Acquisition
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Agreement between Hexagon and the Company that was presented to the Board for
approval at its meeting on November 16, 2000.
(xi) The fact that since the Company's announcement on June 27, 2000 to
the effect that it had engaged Chase Securities to pursue various strategic
alternatives, including a possible sale or merger of the Company, to enhance
shareholder value, no other party had presented the Company with an acquisition
proposal that, taken as a whole, would be more favorable to the Company and its
shareholders than the purchase offer from Hexagon embodied in the Acquisition
Agreement (and related agreements) and that would be as certain to be
consummated within the same time frame as the Hexagon offer.
(xii) The Company's decision to close down and sell the Company's
operations for inspection devices in the electronic industry and to stop funding
of the project as one of two 50% owners of a 50/50 joint venture with Metroptic
Technology in Israel for the development of new non-contact metrology
technology.
(xiii) The Company's ability to sell its North Kingstown facility pursuant
to an Agreement dated ____________, providing for a closing on ________________
subject to satisfaction of closing conditions.
(xiv) The fact that, pursuant to the Acquisition Agreement, the Company
and its representatives may not (a) solicit, initiate or encourage the
initiation of any inquiries or proposals regarding the acquisition by any person
of the common stock of the Company in a takeover bid, or all or a material
portion of the business and assets of the Company (an "Acquisition Proposal"),
(b) engage in negotiations or discussions concerning, or furnish or permit to be
furnished any non-public information concerning the Company's business,
properties or assets to any person relating to, any Acquisition Proposal, or (c)
agree to, approve or recommend any Acquisition Proposal, unless in each case the
Board of Directors reasonably determines after consultation with its outside
counsel that such Company Acquisition Proposal is a superior proposal and
determines in good faith (based on the advice of its financial advisor and
outside counsel) that it is required to take such actions in order to discharge
properly its fiduciary duties.
(xv) The fact that, pursuant to the Acquisition Agreement, the Board of
Directors has the right, to terminate the Acquisition Agreement in order to
accept a superior company proposal if (a) the Board of Directors has determined,
based upon the advice of legal counsel, that it is required to accept such
proposal to discharge properly its fiduciary duties under applicable law, (b)
the Company gives Hexagon AB written notice of the Company's intention to accept
such superior proposal, and (c) the Company pays to Hexagon a break-up fee of $4
million plus up to $2 million of actual expenses, and if the Company fails to
obtain a Stockholder vote in favor of the Acquisition Agreement, the Company
pays certain actual expenses of Hexagon of up to $2 million.
The above information and factors considered by the Board are not intended
to be exhaustive, but includes all of the material factors, both negative and
positive, considered by the Board. The Board did not attempt to quantify or
otherwise assign relative weights to the specific factors it considered or
determine that any factor was of particular importance. A determination
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of various weightings would, in the view of the Board, be impractical. Rather,
our Board viewed its position and recommendations as being based on all of the
information presented to, and considered by, it. In addition, individual members
of the Board may have given different weight to different factors.
ACCORDINGLY, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE ACQUISITION AGREEMENT AND THE RELATED
TRANSACTIONS AND THE RELATED DISTRIBUTION TO STOCKHOLDERS IN AN AMOUNT TO BE
DETERMINED BY THE BOARD OF DIRECTORS, ALL AS DESCRIBED IN PROPOSAL 1 .
OPINION OF HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The
following is a brief summary and general description of the valuation
methodologies utilized by Houlihan Lokey. The summary does not purport to be a
complete statement of the analyses and procedures applied, the judgements made
or the conclusion reached by Houlihan Lokey or a complete description of its
presentation. Houlihan Lokey believes, and so advised the Brown & Sharpe Board,
that its analyses must be considered as a whole and that selecting portions of
its analyses and of the factors considered by it, without considering all
factors and analyses, could create an incomplete view of the process underlying
its analyses and opinions.
Brown & Sharpe retained Houlihan Lokey to render an opinion as to the
fairness, from a financial point of view, of the Transaction to Brown & Sharpe.
At the November 16, 2000 meeting of the Brown & Sharpe Board, Houlihan Lokey
presented its analysis as hereinafter described and on November 16, 2000
delivered its written opinion that as of such date and based on the matters
described therein, the consideration to be received by Brown & Sharpe in
connection with the Transaction is fair to Brown & Sharpe from a financial point
of view.
THE COMPLETE TEXT OF HOULIHAN LOKEY'S OPINION IS ATTACHED HERETO AS ANNEX B.
THE SUMMARY OF THE OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH OPINION. THE COMMON STOCKHOLDERS ARE URGED TO READ SUCH
OPINION CAREFULLY IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED,
THE FACTORS CONSIDERED AND THE ASSUMPTIONS MADE BY HOULIHAN LOKEY.
Houlihan Lokey's opinion to the Brown & Sharpe Board addresses only the
fairness from a financial point of view of the Transaction, and does not
constitute a recommendation to the stockholders as to how such stockholder
should vote at the Special Meeting. Houlihan Lokey's opinion does not address
Brown & Sharpe's underlying business decision to effect the Transaction.
Houlihan Lokey has not been requested to, and did not, solicit third party
indications of interest in acquiring all or part of Brown & Sharpe.
Furthermore, at Brown & Sharpe's Board's request, Houlihan Lokey did not (i)
participate in the negotiations with regard to the Transaction nor (ii) advise
the Brown & Sharpe Board with respect to their alternatives to the Transaction.
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In connection with the preparation of its opinion, Houlihan Lokey made such
reviews, analyses and inquiries as they deemed necessary and appropriate under
the circumstances. Among other things, Houlihan Lokey: (i) reviewed Brown &
Sharpe Manufacturing Company's audited financial statements on Form 10-K for the
three fiscal years ended December 31, 1999, and unaudited financial statements
on Form 10-Q for the three quarters ended September 30, 2000, which Brown &
Sharpe's management has identified as being the most current financial
statements available; (ii) reviewed drafts of certain documents to be delivered
at the closing of the Transaction; (iii) met with certain members of the senior
management of the Company to discuss the operations, financial condition, future
prospects and projected operations and performance of the Company; (iv) spoke
with representatives of the Company's investment banker to discuss certain
matters; (v) visited certain facilities and business offices of the Company;
(vi) reviewed forecasts and projections prepared by the Company's management
with respect to the Company for the years ended December 31, 2000 through 2004;
(vii) reviewed the historical market prices and trading volume for the Company's
publicly traded securities; (viii) reviewed documents pertaining to Company's
businesses and assets which will not be purchased and acquired by HEX; (ix)
reviewed certain other publicly available financial data for certain companies
that we deem comparable to the Company, and publicly announced transactions that
we considered similar to the Transaction; and (x) conducted such other studies,
analyses and inquiries as we have deemed appropriate.
In assessing the financial fairness of the Transaction to Brown & Sharpe,
Houlihan Lokey: (i) independently valued Brown & Sharpe using widely accepted
valuation methodologies, (ii) analyzed the reasonableness of the consideration
being offered in the Transaction, and (iii) reviewed the valuation implications
to Brown & Sharpe's stockholders of various alternatives to the Transaction.
Valuation of Brown & Sharpe
---------------------------
Houlihan Lokey completed an independent valuation of Brown & Sharpe
Manufacturing Company using the market multiple, the discounted cash flow and
comparable transaction approaches.
Market Multiple Approach. The first approach, the market multiple approach
involved the multiplication of revenue and cash flow measures by appropriate
risk-adjusted multiples. Multiples were determined through an analysis of
certain publicly traded companies, selected on the basis of operational and
economic similarity with the principal business operations of Brown & Sharpe.
Revenue and cash flow multiples were calculated for the comparative companies
based upon daily trading prices. A comparative risk analysis between Brown &
Sharpe and the public companies formed the basis for the selection of
appropriate risk adjusted multiples for Brown & Sharpe. The risk analysis
incorporated both quantitative and qualitative risk factors, which relate to,
among other things, the nature of the industry in which Brown & Sharpe, and the
other comparative companies were engaged.
For purposes of this analysis, we selected seven publicly traded, domestic
companies involved in manufacturing precision measuring products. The companies
include Mocon, Inc., Badger Meter, Inc., K-Tron International, Inc., MTS
Systems, Inc., Transmation, Inc., L.S. Starrett Co., and Hardinge, Inc.
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Discounted Cash Flow Approach. In the second approach, the discounted cash
flow analysis ("DCF"), we used financial projections prepared by management.
The present value of the cash flows and the terminal value was determined using
a risk-adjusted rate of return or "discount rate." The discount rate, in turn,
was developed through an analysis of rates of return on alternative investment
opportunities on investments in companies with similar risk characteristics to
the entity being valued. The discount rate is intended to reflect all risks of
ownership and the associated risks of realizing the stream of projected future
cash flows. It can also be interpreted as the rate of return that would be
required by providers of capital to the Company to compensate them for the time
value of their money, as well as the risk inherent in the particular investment.
Comparable Transaction Approach. The third approach, the comparable
transaction approach, involved multiples of revenue and cash flow similarly to
the market multiple approach. Multiples analyzed in this approach involved
controlling interest transactions for companies with operations similar in some
manner to Brown & Sharpe's operations. For purposes of this analysis Houlihan
Lokey analyzed 13 completed transactions between April 1998 and October 2000.
Houlihan Lokey informed the Board that based on the three approaches,
Houlihan Lokey concluded that the value of Brown & Sharpe Manufacturing Company
on a total invested capital ("TIC") basis is reasonably stated in the range of
$140.0 million to $170.0 million, or $66.0 million to $96.0 million ($4.79 to
$6.97 per share), after deducting outstanding debt, net of cash.
Fairness Analysis
-----------------
To determine the fairness of the Transaction to the Brown & Sharpe from a
financial point of view Houlihan Lokey compared the value of (i) the
consideration be received by Brown & Sharpe and the value of assets to be
retained by Brown & Sharpe to (ii) the estimated value of Brown & Sharpe.
Houlihan Lokey valued the cash to be paid at closing, net of the
indebtedness to be paid off. Houlihan Lokey concluded that the value of the
consideration to be received in connection with the Transaction plus the value
of the assets to remain with the Company, less the remaining liabilities and
transaction costs, was approximately $98.3 million, or $7.13 per share, which
Houlihan Lokey noted was greater than the concluded value of Brown & Sharpe of
$6.16 per share.
Assessment of Brown & Sharpe's Strategic Alternatives to the Transaction
------------------------------------------------------------------------
In evaluating the fairness of the Transaction, from a financial point of
view, we considered the expected value to Brown & Sharpe of completing the
Transaction and certain alternatives to the Transaction. With regard to each
alternative our analysis qualitatively considered the valuation implications to
Brown & Sharpe, the probability of successfully completing the alternative, and
the cost and time to implement.
For purposes of this analysis Houlihan Lokey considered the following
strategic alternatives: (i) status quo; (ii) debt financing; (iii) public
offering of common stock; (iv)
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issuance of a preferred security; and (v) the Transaction. Houlihan Lokey noted
that of the strategic alternatives considered, the Transaction appears to
provide the greatest value to Brown & Sharpe.
Houlihan Lokey relied upon and assumed, without independent verification,
that the financial forecasts and projections provided to them, and as adjusted
based on their discussions with management, were reasonably prepared and
reflected the best currently available estimates of the future financial results
and condition of Brown & Sharpe, and that there had been no material change in
the assets, financial condition, business or prospects of Brown & Sharpe since
the date of the most recent financial statements made available to them.
Houlihan Lokey did not independently verify the accuracy and completeness
of the information supplied to them with respect to Brown & Sharpe and do not
assume any responsibility with respect to it. Houlihan Lokey has not made any
independent appraisal of any of the properties or assets of Brown & Sharpe.
Houlihan Lokey's opinion was necessarily based on business, economic, market and
other conditions as they existed and could be evaluated by them at the date of
their letter.
Houlihan Lokey is a nationally recognized investment banking firm with
special expertise in, among other things, valuing businesses and securities and
rendering fairness opinions. Houlihan Lokey is continually engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, private placements of debt and equity,
corporate reorganizations, employee stock ownership plans, corporate and other
purposes. Brown & Sharpe selected Houlihan Lokey because of its experience and
expertise in performing valuation and fairness analysis. Houlihan Lokey does
not beneficially own nor has it ever beneficially owned any interest in Brown &
Sharpe.
Fees and Expenses. Pursuant to an agreement dated September 26, 2000,
Houlihan Lokey was retained by Brown & Sharpe to analyze the fairness of the
consideration to be received by Brown & Sharpe in connection with the
Transaction, from a financial point of view. Brown & Sharpe has agreed to pay
Houlihan Lokey a fee of $200,000 plus its reasonable out-of-pocket expenses
incurred in connection with the rendering of a fairness opinion. Brown & Sharpe
has further agreed to indemnify Houlihan Lokey against certain liabilities and
expenses in connection with the rendering of its services.
DISTRIBUTION TO STOCKHOLDERS
The Board of Directors proposes a contemplated pro rata cash distribution
to stockholders of the Company following the Closing at a date later selected by
the Board of Directors of the Company and in an amount as shall be later
determined by the Board of Directors. The date will be as soon as practicable
after: (a) the Closing under the Acquisition Agreement, (b) the final
determination of post-closing adjustments to the purchase price thereunder, (c)
the receipt of the proceeds of sale thereunder and, if available, the receipt of
proceeds of sales to others of certain real estate that is part of the Excluded
Assets under the Acquisition Agreement and (d) the payment, or provision for
payment, of estimated liabilities and potential contingent liabilities remaining
with the Company. At the present time, the Company plans to retain for an
undetermined period, the Heathrow UK gravel pit which is an income and cash flow
generating asset and plans to complete the sale of the North Kingstown facility
before making the
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Distribution to Stockholders. The Company also plans to reserve some amount (not
yet finally determined) for potential contingent liabilities that are not of the
type to be recorded as balance sheet liabilities under generally accepted
accounting principles. See "Accounting Treatment" and "Certain Federal Income
Tax Considerations" for a discussion of the accounting and tax treatment of the
Distribution.
As discussed more fully under "Description of BSIS," the Company plans to
retain a portion of the proceeds to be available (together with funds from
Hexagon's investments in BSIS) for use in funding the operations of BSIS and the
estimated expenses of "public company overhead" of the Company for some period
of time.
PRINCIPAL PROVISIONS OF THE ACQUISITION AGREEMENT
AND RELATED AGREEMENTS
We and Hexagon are parties to the Acquisition Agreement. The following
summarizes certain provisions of the Acquisition Agreement and related
agreements. You should carefully read the full text of the Acquisition
Agreement and related agreements attached to this Proxy Statement as Appendix A
which qualifies this description and is in incorporated by reference into this
Proxy Statement.
PURCHASE PRICE PAYABLE TO US
The purchase price for the assets and stock we are transferring to Hexagon
is $160 million, subject to certain adjustments. At the closing, the purchase
price will be increased or decreased by an amount equal to the difference
between the estimated amount of cash and cash equivalents held by our
subsidiaries being transferred to Hexagon or its affiliates and the estimated
amount of indebtedness of our transferred subsidiaries at the closing. In
addition, if Hexagon shall have exercised its option to purchase our Heathrow
Airport property (as described in more detail under "Heathrow Airport Property"
below), the purchase price shall be increased by an additional $5 million.
Finally, the purchase price shall be increased at the closing by the amount of
any Business Operating Profit contingent payment (as described below) that has
been determined to be due prior to the closing.
A portion of the purchase price shall be paid directly to our lenders to
pay off in full all of our indebtedness under the Credit Agreement dated as of
November 10, 1997 between us, certain lenders and The Chase Manhattan Bank, as
agent, as amended, and the Note Agreement dated November 10, 1997 between us and
certain lenders, as amended. Hexagon shall pay the balance of the purchase
price to us. In addition, at the closing Hexagon shall pay to BSIS, one of the
subsidiaries we are retaining, the amount of $2.5 million in respect of
Hexagon's first required investment in BSIS, as described further in "Purchase
of Stock in BSIS, Inc." below.
Within 30 days of the closing, we and Hexagon shall jointly prepare a
written statement calculating the actual difference between the amount of cash
and cash equivalents held by our transferred subsidiaries and the amount of
indebtedness of our transferred subsidiaries at the closing. If the parties
cannot agree on the actual amount within 30 days after the closing, either
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party may submit the dispute to a "Big Five" accounting firm for final
determination. If the actual amount is determined by the parties or the
accounting firm to be different from the amount paid at the closing, the party
owing the difference shall pay it to the other party within ten business days.
As soon as reasonably practicable following our receipt of our audited
financial statements for the year ended December 31, 2000, we must deliver a
draft statement of the Business Operating Profit of the transferred business
for the year ended December 31, 2000, adjusted so as to (i) disregard all
effects of Staff Accounting Bulletin No. 101, (ii) exclude all income or gains
and expenses or losses attributable to the assets or liabilities being retained
by us, (iii) include all accruals for royalty payments made or to be made by us
or any of our affiliates to Wilcox Associates, Inc. and (iv) deduct the sum of
$8.5 million. If Hexagon objects to our draft statement of Business Operating
Profit within fifteen days of its delivery, we and Hexagon shall attempt to
resolve the dispute. If we cannot resolve the dispute within 15 days, a "Big
Five" accounting firm shall finally determine the amount of Business Operating
Profit of the transferred business, as adjusted, for the year ended December 31,
2000.
If the Business Operating Profit of the transferred business, as adjusted,
for the year ended December 31, 2000 is finally determined to be equal to or
less than $15 million, there shall be no further adjustment to the purchase
price. If such Business Operating Profit is equal to or greater than $17
million and equal to or less than $20 million, the purchase price shall be
increased by $10 million. If the Business Operating Profit is equal to or
greater than $22 million, the purchase price shall be increased by $20 million.
If the amount of such Business Operating Profit is greater than $15 million but
less than $17 million, the purchase price shall be increased by an amount equal
to the product of (i) five multiplied by (ii) the difference between the amount
of Business Operating Profit and $15 million. If the amount of such Business
Operating Profit is greater than $20 million but less than $22 million, the
purchase price shall be increased by an amount equal to the product of (i) five
multiplied by (ii) the difference between the amount of Business Operating
Profit and $20 million. Any amount due as a result of an increase in the
purchase price pursuant to this paragraph shall be paid in cash on the later of
the closing date and the date that is five days after final determination of the
Business Operating Profit of the transferred business for the year ended
December 31, 2000.
TRANSFERRED STOCK AND TRANSFERRED ASSETS
The proposed transaction involves a transfer of substantially all of our
assets, including the stock of most of our subsidiaries. We or our affiliates
are directly transferring to Hexagon or its affiliates all of the shares of
stock we hold of the following subsidiaries:
. Brown & Sharpe International Capital Corporation
. Brown & Sharpe DEA S.p.A.
. BSP, Inc.
. Brown & Sharpe Foreign Sales Corp.
. Brown & Sharpe Finance Company
. Borel & Dunner, Inc.
. Qingdao Brown & Sharpe Qianshao Trading Company Limited
. Qingdao Brown & Sharpe Qianshao Technology Company Limited
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. Brown & Sharpe Aftermarket Services, Inc.
We are also indirectly transferring to Hexagon all of the stock of the
various subsidiaries of the companies listed above, as well as the 30% interest
in Wilcox Associates, Inc. held by Brown & Sharpe Aftermarket Services, Inc.
(subject to the right of first refusal described in "Wilcox Associates, Inc."
below).
In addition to the stock and assets of the subsidiaries we are
transferring, we are transferring to Hexagon substantially all of our assets,
properties and rights of every nature, kind and description, tangible and
intangible (including goodwill), whether real, personal or mixed, whether
accrued, contingent or otherwise, other than the stock of the subsidiaries we
are retaining (and the assets of such subsidiaries), and the excluded assets
described below under "Excluded Assets Retained by Us."
EXCLUDED ASSETS RETAINED BY US
The transferred assets specifically exclude, and we will retain, the
following excluded assets: (a) our stock of BSIS, and all of its products and
rights owned or licensed and its employees and assets which were on the date of
the Acquisition Agreement employed and utilized by us and our transferred
subsidiaries in the transferred business, other than the XactMeasure legacy
derivatives of BSIS, which shall be transferred to Hexagon or its affiliate at
the closing; (b) our stock of Brown & Sharpe Surface Inspection Systems Inc.,
and all of its assets (including stock in its subsidiaries); (c) our owned real
estate in North Kingstown, R.I. and our landlord leasehold interests with
respect to tenants occupying the building; (d) the Heathrow Airport property
owned by Brown & Sharpe Group Ltd. (unless Hexagon exercises its option to
purchase such property, as described under "Heathrow Airport Property" below);
(e) all of our cash and the cash of our retained subsidiaries; (f) our patents,
trademarks and other intellectual property, including know-how, which are not
employed in the operation of the transferred business; (g) all corporate
records, including corporate financial and accounting records, income tax
returns and corporate minute books of meetings of our Board of Directors and
stockholders; (h) U.S. federal and state income tax, credits and net operating
loss carryforwards; (i) our third party accounts, notes, investments and other
receivables unrelated to the operation of the transferred business; (j) our
Metroptic investment 50% interest and our notes receivable due from Metroptic;
(k) all inventory and fixed assets relating to or utilized in the development of
the turbine blade measuring machine situated at Telford, U.K.; and (l) insurance
policies relating to funding of those excluded liabilities under our Umbrella
Supplemental Executive Retirement Plan.
HEATHROW AIRPORT PROPERTY
Hexagon has the option, exercisable up to 30 days prior to the closing, to
request that the Brown & Sharpe Group Ltd., one of our subsidiaries that will be
indirectly transferred to Hexagon, retain ownership of the real property
operated at Heathrow Airport in Great Britain that is operated as a gravel pit.
In the event that Hexagon exercises this option, Hexagon shall be obligated to
pay us an additional $5 million at the closing. If Hexagon does not exercise
the
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option, we or one of our affiliates shall acquire (by dividend or otherwise)
the Heathrow Airport property from Brown & Sharpe Group Ltd. at no cost prior
to the closing. We shall be responsible for any taxes arising out of such
acquisition.
WILCOX ASSOCIATES, INC.
One of the subsidiaries being transferred to Hexagon, Brown & Sharpe
Aftermarket Services, Inc., holds a 30% interest in Wilcox Associates, Inc.
Pursuant to the terms of an Incorporation Agreement dated as of August 10, 1990
among Wilcox Associates, Brown & Sharpe Aftermarket Services and the other
stockholders of Wilcox Associates, such other stockholders have a right of first
refusal on the transfer of the shares of Wilcox Associates, whether directly or
indirectly through a transfer of Brown & Sharpe Aftermarket Services. Unless
the other stockholders waive this right, Brown & Sharpe Aftermarket Services
will be required to offer its shares of Wilcox Associates to the other
stockholders. Hexagon has agreed to provide us with a notice setting forth the
dollar amount of the purchase price payable to us that will be allocated by
Hexagon to the shares of Wilcox Associates held by Brown & Sharpe Aftermarket
Services. Such dollar amount will be the purchase price at which the shares are
offered to the other stockholders of Wilcox Associates.
If the right of first refusal is exercised, the purchase price payable to
us at the closing will be reduced by the amount paid by to Brown & Sharpe
Aftermarket Services the stockholders of Wilcox Associates to exercise their
right of first refusal, and the shares purchased pursuant to such right of first
refusal shall be deemed excluded assets for purposes of the Acquisition
Agreement. To the extent that the cash received by Brown & Sharpe Aftermarket
Services is left in such subsidiary, it shall be included in the cash adjustment
to the purchase price described under "Purchase Price Payable to Us." If the
right of first refusal is not exercised or is waived, Brown & Sharpe Aftermarket
Services shall continue to hold its shares of Wilcox Associates through the
closing and there shall be no adjustment to the purchase price.
PURCHASE BY HEXAGON (OR AN AFFILIATE) OF STOCK IN BSIS, INC.; BSIS STOCKHOLDERS'
AGREEMENT
In addition to acquiring the transferred business, Hexagon has agreed to
purchase (or cause on of its affiliates to purchase) at the closing shares of
our subsidiary BSIS, representing 16.7% of the issued and outstanding common
stock of BSIS for a purchase price of $2.5 million in cash. Such purchase and
sale will be made pursuant to the BSIS Stock Purchase Agreement entered into on
________, 2001 pursuant to the terms of the Acquisition Agreement, and at the
closing we and Hexagon (or its affiliate) shall enter into a mutually acceptable
stockholders' agreement containing investment restrictions necessary for a
"private placement" under United States securities laws, transfer restrictions,
voting provisions and a Hexagon right of first refusal in connection with offers
by a third party to us or BSIS for the acquisition of BSIS (by sale of stock,
merger or otherwise).
On each of the first three anniversaries of the closing, Hexagon or its
affiliate shall purchase additional shares of BSIS for a purchase price of $1.5
million on each such anniversary. The number of shares sold to Hexagon shall be
the lesser of (a) 10% of the outstanding common
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stock of BSIS or (b) a percentage of the outstanding common stock of BSIS equal
to the quotient of $1.5 million divided by the fair market value of BSIS
determined as of a date which is 30 days prior to the scheduled additional
purchase date (or, if the shares of BSIS are at the time publicly traded,
determined by reference to the average of the closing prices of such BSIS shares
on the applicable exchange over the thirty-day period ending three (3) days
prior to the scheduled purchase date). If we and Hexagon cannot agree as to the
fair market value as of any date, such determination shall be made by a "Big
Five" independent accounting firm, whose determination shall be final and
binding on the parties and whose fees shall be shared equally by the parties.
Hexagon shall have the right to accelerate the timing of the purchases it is
obligated to make at any time.
We and Hexagon have acknowledged and agreed that (i) the legacy software
(including Quindos, Tutor, Chorus and MM4) owned by us and/or our subsidiaries
is and shall continue to be after the closing an exclusive asset of the
transferred business; (ii) the XactMeasure legacy derivatives (including
XactQuindos, Chorus X, MM4X and Tutor X) of BSIS shall be transferred by BSIS to
the appropriate unit in the transferred business prior to the closing (with BSIS
retaining rights to its XactMeasure MR1 and MR2 Technology) and BSIS shall have
no right to sell or license the XactMeasure legacy derivatives software; and
(iii) the XactMeasure product is and shall continue to be after the closing an
exclusive asset of BSIS, and BSIS's rights to use the legacy software and
XactMeasure legacy derivatives in connection with the development of XactMeasure
and its progeny (but not the derivatives transferred as part of the transferred
business above), as embodied in Software Programming Services Agreements between
BSIS and certain of our transferred subsidiaries, will continue in full force
and effect following the closing. We have agreed to make such mutually agreed
changes to the various Software Programming Services Agreements as may be
necessary to protect the proprietary rights of Hexagon and our transferred
subsidiaries in the legacy software products.
The BSIS Stockholders' Agreement shall provide that for a five year period
following the Closing, (a) BSIS shall sell XactMeasure licenses to Hexagon and
its affiliates for OEM use and for distribution in connection with the
transferred business at a price of $1,500 per unit for coordinate measuring
machine applications and (b) BSIS shall pay to Hexagon a royalty of $5,000 per
unit for XactMeasure licenses sold by BSIS through distribution channels other
than Hexagon or its affiliates for coordinate measuring machine applications.
LIABILITIES TO BE ASSUMED BY HEXAGON
At the closing, Hexagon and its affiliates will assume all of our
liabilities and the liabilities of our transferred subsidiaries (other than the
excluded liabilities specified below under "Excluded Liabilities Retained by
Us"), including all liabilities, commitments, obligations, claims and expenses,
known or unknown, absolute or contingent, accrued or unaccrued, directly
relating to the conduct of the transferred business as it has been directly or
indirectly conducted by us.
EXCLUDED LIABILITIES RETAINED BY US
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The assumed liabilities specifically exclude, and we will retain, the
following excluded liabilities: (a) all of our liabilities and the liabilities
of our retained subsidiaries to the extent they relate to the excluded assets;
(b) liabilities for taxes payable by or attributable to us or our retained
subsidiaries; (c) our expenses of negotiating and documenting the proposed
transaction; (d) any brokerage, finder's or advisory fee payable by us; (e)
possible claims by our stockholders relating to the proposed transaction; (f)
all litigation matters pending on the date of the Acquisition Agreement, other
than two specified matters that will be assumed by Hexagon; (g) claims relating
to non-compliance with the bulk sales laws of the United States; (h) all
liabilities under our Umbrella Supplemental Executive Retirement Plan to persons
who do not accept employment with Hexagon; (i) all liabilities under our Profit
Incentive Plan in respect of year 2000 cash bonuses; (j) all liabilities under
our Long-Term Deferred Cash Incentive Plan in respect of year 2000 cash bonuses;
(k) all of our liabilities to participants in our regular Supplemental Executive
Retirement Plans; (l) all liabilities for outplacement assistance; (m) all
liabilities under our employee stock option plans; (n) all liabilities under
employee change in control contracts (except with regard to executives hired or
retained at the closing or within one year thereafter by Hexagon or its
affiliates, and employees of our transferred subsidiaries on the closing date);
(o) all liabilities for "Honoraria" payments to former employees of us or our
affiliates; (p) cash redemption obligations through the closing date under any
stock bonus or option plan; (q) any United Kingdom tax liability of our
transferred subsidiaries with respect to the dividend of the Heathrow Airport
property to us, if applicable; (r) all liabilities, commitments, obligations,
claims or expenses, whether known or unknown, absolute or contingent, accrued or
unaccrued, relating to the excluded assets (including possible environmental
claims relating to our North Kingstown, RI facility arising out of pre-closing
activities on the site) or otherwise, not directly resulting from the conduct of
the transferred business as it has been directly or indirectly conducted by us,
including without limitation any claims by employees or former employees of
Brown & Sharpe Aftermarket Services, Inc. relating to events occurring prior to
the closing; and (s) certain of our corporate overhead liabilities.
THE CLOSING
It is anticipated that the closing will take place at the offices of Ropes
& Gray, One International Place, Boston, MA at 10:00 a.m. (local time), within
five business days following the date on which all closing conditions contained
in the Acquisition Agreement have been satisfied or waived, or at such other
place, time or date as may be mutually agreed upon by us and Hexagon.
REPRESENTATIONS AND WARRANTIES BY US
We have made certain representations and warranties on behalf of ourselves
and our subsidiaries relating to, among other things, (i) corporate
organization; (ii) our authority relative to the Acquisition Agreement; (iii)
noncontravention of the Company's charter and by-laws, laws to which the Company
is subject and agreements to which the Company is a party; (iv) the brokers used
in connection with the transactions contemplated by the Acquisition Agreement;
(v) the ownership and condition of the transferred assets and the transferred
stock; (vi) capitalization; (vii) our financial statements; (vii) any change in
our financial condition and
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assets; (viii) taxes; (ix) real properties; (x) patents, trademarks and other
intellectual property; (xi) our contracts and commitments; (xii) outstanding
powers of attorney; (xiii) the existence of any litigation; (xiv) compliance
with agreements and laws, including environmental laws; (xv) our employee
relations and benefit plans; (xvi) any required consents; (xvii) the absence of
undisclosed liabilities; (xviii) transactions with our affiliates; (xix) any
outstanding guarantees; (xx) absence of any improper payments; (xxi) insurance;
and (xxii) restrictions on our business activities.
REPRESENTATIONS AND WARRANTIES BY HEXAGON
Hexagon has made certain representations and warranties on behalf of itself
and its affiliates relating to, among other things, (i) its corporate
organization; (ii) its authority relative to the Acquisition Agreement; (iii)
noncontravention of Hexagon's charter and by-laws, laws to which Hexagon is
subject, and agreements to which Hexagon is party; (iv) its investment intent;
(v) the brokers used in connection with the transactions contemplated by the
Acquisition Agreement; (vi) any required consents; and (vii) its financial
capacity to consummate the proposed transaction.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
With the exception of representations and warranties relating to authority
relative to the Acquisition Agreement, brokers and title to assets and stock,
which shall survive indefinitely, all representations and warranties of the
parties shall terminate upon the closing.
INDEMNIFICATION
Pursuant to the Acquisition Agreement, we have agreed to indemnify Hexagon
from and against any liability, damages, losses, expenses and costs as a result
of or arising out of (i) the inaccuracy of any our representations or warranties
that survive the closing; (ii) any breach or nonfulfillment after the closing of
any of our agreements or covenants contained in the Acquisition Agreement or in
any agreement or instrument required to be entered into in connection with the
Acquisition Agreement that survives the closing; (iii) any lawsuit or claim by
any of our stockholders in their capacity as our stockholders relating or in any
way arising out of the transactions contemplated by the Acquisition Agreement,
except to the extent any such lawsuit or claim arises from a breach by Hexagon;
(iv) any excluded liability; (v) any tax liability arising out of a transfer of
the Heathrow Airport property to us or our designee; (vi) any violation of the
Worker Adjustment and Restraining Notification Act of 1988 or any state plant
closing or notification law, or similar law in jurisdictions outside the United
States, arising out of, or relating to, any actions to close a plant taken by us
or one of our retained subsidiaries prior to, at or after the closing; (vii) any
tax liability that any of our transferred subsidiaries incurs in respect of the
liability of us or any of our retained subsidiaries in a United States,
consolidated, combined or unitary tax return we file for periods ending or
before the closing date; or (viii) non-compliance with applicable bulk sales
laws of the United States.
Hexagon has agreed to indemnify us from and against any liability, damages,
losses, expenses and costs as a result of or arising out of (i) the inaccuracy
of any its representations or
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warranties that survive the closing; (ii) any breach or nonfulfillment after the
closing of any of its agreements or covenants contained in the Acquisition
Agreement or in any agreement or instrument required to be entered into in
connection with the Acquisition Agreement that survives the closing, including
its agreement to assume the assumed liabilities; (iii) any violation of the
Worker Adjustment and Restraining Notification Act of 1988 or any state plant
closing or notification law, or similar law in jurisdictions outside the United
States, arising out of, or relating to, any actions taken by Hexagon or its
affiliates on or after the closing; (iv) all severance or termination payments
payable to all individuals employed by us in the transferred business (whether
or not receiving an offer of employment from Hexagon), other than such employees
who have change in control or severance agreements with us; or (vi) any tax
resulting from any action taken without our written consent by Hexagon or any of
our transferred subsidiaries after the closing.
Neither party has any obligation to indemnify the other from and against
any claim based on the inaccuracy of a representation or warranty until and then
only to the extent that the aggregate amount of losses suffered by such other
party is in excess of $1,000,000, in which case the indemnifying party will be
liable for the amount of such losses in excess of $1,000,000.
CONDUCT OF THE BUSINESS PENDING THE CLOSING
We have agreed that, pending the closing, we shall operate the transferred
business only in ordinary course consistent with past practice and consult with
Hexagon and keep it informed as to all changes in policies or practices material
to the transferred business as a whole. We have also agreed not to take, or
allow our transferred subsidiaries to take, the following specified actions
without the consent of Hexagon: (i) allow any of our transferred subsidiaries to
issue or sell any shares of any class of its capital stock, or any securities
convertible into or exchangeable for any such shares, or issue, sell, grant or
enter into any subscriptions, options, warrants, conversion or other rights,
agreements, commitments, arrangement or understandings of any kind, contingently
or otherwise, to purchase or otherwise acquire any such shares or any securities
convertible into or exchangeable for any such shares; (ii) incur any
indebtedness (other than any borrowings from or prepayments to any of our
affiliates) except in the ordinary course of business consistent with past
practice; (iii) pay or commit to pay any bonus, other incentive compensation,
change-in-control or similar compensation to any officer, director, employee,
sales representative, agent or consultant or grant or commit to grant to any
officer, director, employee, sales representative, agent, consultant or
affiliate any other increase in, or additional, compensation in any form, other
than those made under existing plans or programs; (iv) enter into, institute,
adopt or materially amend or commit to enter into, institute, adopt or
materially amend any employment, consulting, retention, change-in-control,
collective bargaining, bonus or other incentive compensation, profit-sharing,
health or other welfare, stock option or other equity, pension, retirement,
vacation, severance, deferred compensation or other employment, compensation or
benefit plan, policy, agreement trust, fund or arrangement in respect of or for
the benefit of any officer, director, employee, sales representative, agent or
consultant or affiliate (whether or not legally binding), except as contemplated
by the Acquisition Agreement; (v) sell, transfer, assign, mortgage, pledge,
hypothecate, grant any security interest in, or otherwise subject to any other
lien, any of our assets other than inventory in the ordinary course of business
consistent with past practice and other than in accordance with existing
agreements, provided, however, that this clause shall not prohibit Brown &
-------- -------
Sharpe Aftermarket Services, Inc. from
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<PAGE>
selling its shares of Wilcox Associates, Inc. to the other stockholders of
Wilcox Associates, Inc. in the event that such stockholders elect to exercise
their right of first refusal (as described under "Wilcox Associates, Inc."
above); (vi) enter into or assume any contract providing for the payment of an
amount in excess of $1,000,000 per year, or enter into or permit any amendment,
supplement, waiver or other modification in respect thereof other than in the
ordinary course of business consistent with past practice; (vii) cause or permit
any amendment, supplement, waiver or modification to or of any of our
certificate of incorporation, by-laws or other organizational documents; (viii)
merge or consolidate with, or agree to merge or consolidate with, or purchase
substantially all of the assets of, or otherwise acquire, any business, business
organization or division thereof, or any other person, other than with respect
to excluded assets; (ix) agree or otherwise commit to take any of the actions
described in the foregoing clauses (i) through (viii); (x) accelerate,
terminate, make material modifications to, or cancel any contract to which we
are a party or by which we are bound, except where such acceleration,
modification or cancellation would not have a material adverse effect on the
transferred business; (xi) make any capital expenditures or commitments in
excess of $9,000,000 in the aggregate; (xii) make any material investment in, or
any loan to, any other person (other than our existing subsidiaries); (xiii)
grant any license or sublicense of any rights under or with respect to any of
our intellectual property, except where the grants (individually or in the
aggregate) would not have a material adverse effect on the transferred business;
(xiv) settle, release or forgive any claim or litigation or waive any right,
except where such settlement, release, forgiveness or waiver would not have a
material adverse effect on the transferred business; (xv) make any changes in
any method of accounting, or accounting principles, which would increase the
purchase price or the timing of the payment thereof or which our independent
certified public accountant would consider material, other than changes related
to Staff Accounting Bulletin No. 101, which shall be disregarded for all
purposes of the Acquisition Agreement; and (xvi) increase in any material
respect the average time of payment of our United States accounts payable to
vendors beyond the level applicable at September 30, 2000.
Pending the closing, we have also agreed to (i) use commercially reasonable
efforts to keep in full force and effect insurance comparable in amount and
scope of coverage to insurance carried by us as of the date of the Acquisition
Agreement; (ii) maintain our books of account and records in the ordinary course
of business consistent with past practice; (iii) maintain our properties and
facilities in as good working order and condition as at the date of the
Acquisition Agreement, ordinary wear and tear excepted; (iv) abide by, carry out
and fully perform in all material respects the terms, covenants, provisions,
conditions and agreements contained in our real property leases, and to not
cause, allow or suffer any material breach or default thereof to occur; (v)
provide Hexagon and its representatives to have reasonable access to our
premises, properties, books records and documents pertaining to the transferred
business; (vi) call and hold a special meeting of stockholders for the purpose
of voting on the Acquisition Agreement and the transactions contemplated
thereby; and (vii) discuss in good faith with Hexagon the possibility of
altering the structure of the transactions contemplated by the Acquisition
Agreement for tax planning purposes.
EMPLOYEE MATTERS
Hexagon has agreed that either it or one or more of its affiliates will
offer employment, effective as of the closing date, to substantially all
individuals employed by us in the transferred
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business other than those employees who have change in control or severance
agreements with us,(except such as Hexagon has agreed to continue their
employment) and Hexagon shall be responsible for and indemnify us against all
severance or termination amounts payable to all individuals employed by us in
the transferred business (whether or not receiving an offer from Hexagon), other
than such employees who have change in control or severance agreements with us
(except such as Hexagon has agreed to continue their employment). Each such
individual who accepts such offer of employment with Hexagon or one of its
affiliates and each individual who, as of the closing date, is employed by one
of our transferred subsidiaries shall be referred to herein as a "Transferred
Employee". On the closing date, Hexagon shall provide all Transferred Employees
with employment on substantially the same terms and conditions with, at a
minimum, substantially the same compensation and substantially the same or
comparable benefits as are provided to such employees by us or one of the
transferred subsidiaries immediately prior to the closing date.
As of the closing date, all Transferred Employees shall cease to
participate in our welfare benefit plans and shall commence to participate in
welfare benefit plans of Hexagon. Hexagon shall cause the replacement plans to
(i) waive all limitations as to pre-existing condition exclusions and actively
at work requirements as to each Transferred Employee except to the extent such
exclusions or requirements had not been satisfied with respect to such
Transferred Employee's participation under the comparable benefit plan in which
such Transferred Employee was a participant immediately prior to his
commencement of participation in the applicable replacement plan, (ii) recognize
the service of each Transferred Employee with the us or one of the transferred
subsidiaries completed prior to the closing date for purposes of any waiting
period or other eligibility requirements under the replacement plans to the
extent such service would have been taken into account under the comparable
benefit plan in which such Transferred Employee was a participant immediately
prior to his commencement of participation in the applicable replacement plan
and (iii) for purposes of satisfying any deductible or out-of-pocket
requirements under each replacement plan for the year in which the closing date
falls, provide each Transferred Employee with credit for any co-payments and
deductibles paid during such year and prior to the closing date under the terms
of the comparable benefit plan in which such Transferred Employee was a
participant immediately prior to his commencement of participation in the
applicable replacement plan.
Hexagon has also agreed to cause the trustee of one or more defined
contribution plans of Hexagon or Hexagon's United States affiliate that qualify
under section 401(a) of the Internal Revenue Code to accept rollovers, including
"direct rollovers" described in Section 401(a)(31) of the Code, of all or any
portion of any "eligible rollover distribution" described in Section 402(c)(4)
of the Code or Section 408(d)(3) of the Code with respect to the benefits of a
Transferred Employee under any our benefit plans that is a defined contribution
plan qualifying under section 401(a) of the Code. In the case of any such
Transferred Employee whose interest in a transferor plan includes one or more
outstanding participant loans, Hexagon shall cause the applicable transferee
plan to accept in kind, as part of a direct rollover described in the preceding
sentence, the promissory note(s) representing such loan(s) and to facilitate the
continuation of such outstanding loan in accordance with its terms.
Notwithstanding the foregoing, Hexagon shall not accept a rollover of our
employee stock option plans and shall not assume any liabilities under our
Umbrella Supplemental Executive Retirement Plan except with respect to employees
of us or one of our transferred
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<PAGE>
subsidiaries that Hexagon or its affiliates hire or retain on the closing date
without giving a termination notice in respect thereto. Hexagon shall not assume
any liabilities under the Company's Employee Stock Ownership Plan, which shall
be terminated.
CONDITIONS TO THE PROPOSED SALE
Pursuant to the Acquisition Agreement, the obligations of Hexagon to effect
the proposed transaction are subject to, among other things, (i) our
representations and warranties being true in all respects as set forth in the
Acquisition Agreement at and as of the date of the Acquisition Agreement and on
and as of the closing date, except for such failures to be true and correct as
do not, in the aggregate, have a "material adverse effect" (as defined in the
Acquisition Agreement) on the transferred business; (ii) our having performed
and complied with all of our covenants and agreements under the Acquisition
Agreement through the closing in all material respects; (iii) the receipt by us
and Hexagon of all requisite consents and approvals of all third parties whose
consent or approval is required in order to consummate the transactions
contemplated by the Acquisition Agreement; (iv) there being no action, suit or
proceeding pending or threatened before any governmental entity wherein an
unfavorable injunction, judgment, order, decree, ruling or charge would prevent
consummation of any material transactions contemplated by the Acquisition
Agreement, or any such injunction, judgment, order, decree, ruling or charge in
effect; (v) the delivery by us to Hexagon of a certificate to the effect that
each of the conditions specified in clauses (i) and (ii) above have been
satisfied in all respects; (vi) the execution and delivery by us of a lease with
Hexagon or one of its affiliates for real property located in Precision Park,
North Kingstown, RI; (vii) all applicable waiting periods under the Hart-Scott-
Rodino Act (and the applicable antitrust laws of Germany) with respect to all
contemplated transactions under the Acquisition Agreement having expired or been
terminated; (viii) the approval and adoption of the Acquisition Agreement and
the transactions contemplated thereby by the requisite vote of our stockholders;
(ix) the receipt by Hexagon of an opinion from our counsel; (x) the receipt by
Hexagon of the resignations of the directors of our transferred subsidiaries;
(xi) the delivery by us of the required transfer documentation; (xii) the
execution and delivery by us and BSIS of a stock purchase agreement and
stockholders' agreement in connection with the BSIS stock purchase and related
matters described above under "Purchase of Stock in BSIS, Inc."; and (xiii)
since September 30, 2000, no event having occurred and no condition having
arisen which has had or is reasonably likely to result in a material adverse
effect on the transferred business, except as previously disclosed.
Our obligation to effect the proposed transaction is subject to, among
other things, (i) the representations and warranties of Hexagon being true in
all respects as set forth in the Acquisition Agreement at and as of the date of
the Acquisition Agreement and on and as of the closing date; (ii) Hexagon having
performed and complied with all of its covenants and agreements under the
Acquisition Agreement through the closing in all material respects, and having
paid the purchase price; (iii) the receipt by us and Hexagon of all requisite
consents and approvals of all third parties whose consent or approval is
required in order to consummate the transactions contemplated by the Acquisition
Agreement; (iv) there being no action, suit or proceeding pending or threatened
before any governmental entity wherein an unfavorable injunction, judgment,
order, decree, ruling or charge would prevent consummation of any material
transactions contemplated by the Acquisition Agreement, or any such injunction,
judgment, order, decree, ruling or charge in effect; (v) the delivery by Hexagon
to us of a certificate to the effect that each of the conditions specified in
clauses (i) and (ii) above have
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<PAGE>
been satisfied in all respects; (vi) the execution and delivery by Hexagon or
one of its affiliates of a lease with us for real property located in Precision
Park, North Kingstown, RI; (vii) all applicable waiting periods under the Hart-
Scott-Rodino Act (and the applicable antitrust laws of Germany) with respect to
all contemplated transactions under the Acquisition Agreement having expired or
been terminated; (viii) the approval and adoption of the Acquisition Agreement
and the transactions contemplated thereby by the requisite vote of our
stockholders; (ix) the receipt by us of an opinion from counsel to Hexagon; (x)
Hexagon having paid or made arrangements satisfactory to us to permit us to pay
in full simultaneously with the closing all of our indebtedness under the Credit
Agreement dated as of November 10, 1997 between us, certain lenders and The
Chase Manhattan Bank, as amended, and the Note Agreement dated November 10, 1997
between us and certain insurance company lenders, as amended, and having
released us and our retained subsidiaries from any guarantees of obligations of
our transferred subsidiaries; (xi) the delivery by Hexagon of the required
assumption documentation; and (xii) the execution and delivery by Hexagon of a
stock purchase agreement and stockholders' agreement in connection with the BSIS
stock purchase and related matters described above under "Purchase of Stock in
BSIS, Inc.", and the payment by Hexagon of the required initial $2.5 million
investment in BSIS.
SOLICITATION OF ALTERNATIVE TRANSACTIONS
Under the Acquisition Agreement, we and our subsidiaries may not take, or
permit any of our directors, officers, employees, agents or representatives to
take, directly or indirectly, any action to solicit, encourage, negotiate,
assist or otherwise facilitate (including by furnishing confidential information
with respect to the transferred business or the transferred assets or permitting
access to the transferred assets and business) any alternate proposal for
acquisition of any of the transferred stock or all or a material portion of the
transferred business or of the transferred assets. However, if, at any time
prior to the closing of the sale and purchase of the transferred assets and
stock contemplated by the Acquisition Agreement, our Board of Directors
determines in good faith, upon the advice of outside counsel, that it would be a
violation of its fiduciary duties to our stockholders under applicable law not
to do so, we may, in response to an alternative proposal for acquisition of any
of the transferred stock or all or a material portion of the transferred
business or of the transferred assets, furnish information to and participate in
negotiations with the third party making such superior proposal. See the related
discussions below under "Termination" and "Fees and Expenses."
NON-COMPETITION AND NON-SOLICITATION
We have agreed that neither us nor BSIS shall, on or prior to the date that
is five years after the closing date, directly or indirectly, own, manage,
operate, control or invest in any business or venture engaged in whole or in
part in the transferred business or any portion thereof. However, neither we nor
BSIS shall be precluded from developing and marketing the XactMeasure or other
software products of BSIS, other than the legacy software derivatives being
transferred to Hexagon at the closing.
In addition, we have agreed that for five years neither we nor BSIS will
directly or indirectly, without the prior written consent of Hexagon, recruit,
offer employment, employ,
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<PAGE>
engage as a consultant, lure or entice away or in any other manner persuade or
attempt to persuade any person who is an employee or full-time or half-time
consultant of Hexagon or its affiliates to leave the employ of Hexagon or such
affiliate, unless such person has been terminated by Hexagon or one of its
affiliates. These restrictions shall not prohibit us from employing employees
who are not specifically recruited or solicited in any way and who seek
employment with us or BSIS on their own initiative or in response to general
advertising or a recruiting firm not targeted on hiring any particular
individual or any employees of Hexagon or its affiliates. Hexagon has agreed to
similar restrictions on its ability to hire employees of us or BSIS.
TERMINATION
The Acquisition Agreement may be terminated at any time prior to the
closing:
(i) by mutual written consent of us and Hexagon;
(ii) by Hexagon by giving written notice to us (a) in the event we have
breached any representation, warranty or covenant contained in the Acquisition
Agreement in a manner that has caused or is reasonably likely to result in a
material adverse effect on the transferred business, Hexagon has notified us of
the breach, and the breach has continued without cure for a period of ten days
after the notice of breach or (b) if the closing shall not have occurred on or
before April 30, 2001 by reason of the failure of any condition precedent to
Hexagon's obligations to close (unless the failure results primarily from
Hexagon itself breaching any representation, warranty or covenant contained in
the Acquisition Agreement); or
(iii) by us by giving written notice to Hexagon (a) in the event Hexagon has
breached any representation, warranty or covenant contained in the Acquisition
Agreement in a manner that has caused or is reasonably likely to result in a
material adverse effect on Hexagon's ability to satisfy its obligations under
the Acquisition Agreement, we have notified Hexagon of the breach, and the
breach has continued without cure for a period of ten days after the notice of
breach or (b) if the closing shall not have occurred on or before April 30, 2001
by reason of the failure of any condition precedent to our obligations to close
(unless the failure results primarily from we ourselves breaching any
representation, warranty or covenant contained in the Acquisition Agreement); or
(iv) by us or Hexagon, if: (a) our Board of Directors shall have recommended
to our stockholders an Alternative Transaction (as defined below); or (b) a
tender offer or exchange offer for 15% or more of the outstanding shares of our
capital stock is commenced (other than by Hexagon or an affiliate of Hexagon)
and our Board of Directors recommends that our stockholders tender their shares
in such tender or exchange offer; provided, that, we shall not be entitled to
exercise any termination rights under this paragraph unless (x) any action of
our Board of Directors referred to in either such clause is required to be taken
by our Board of Directors in order to properly discharge its fiduciary duties
and (y) we have complied with our obligations described under "Solicitation of
Alternative Transactions" above.
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<PAGE>
As used herein, "Alternative Transaction" means any of (1) a transaction
or series of transactions pursuant to which any person (or group of persons)
other than Hexagon or its affiliates (a "Third Party") acquires or would acquire
more than 15% of the outstanding shares of our capital stock, whether from us or
pursuant to a tender offer or exchange offer or otherwise, (2) any acquisition
or proposed acquisition of us or any of our significant subsidiaries or the
transferred business by a merger or other business combination (including any
so-called "merger of equals" and whether or not we or any of our significant
subsidiaries is the entity surviving any such merger or business combination) or
(3) any other transaction pursuant to which any Third Party acquires or would
acquire control of assets (including for this purpose the outstanding equity
securities of subsidiaries of us and any entity surviving any merger or business
combination including any of them) of us or any of our subsidiaries having a
fair market value equal to more than 35% of the fair market value of all the
assets of us and our subsidiaries, taken as a whole, immediately prior to such
transaction.
EFFECT OF TERMINATION
In the event of the termination of the Acquisition Agreement, the Merger
Agreement shall forthwith become void and there shall be no liability on the
part of any party thereto or any of its affiliates, directors, officers or
stockholders except (i) as otherwise set forth under "Fees and Expenses" below,
and (ii) nothing in the Acquisition Agreement shall relieve any party from
liability for any breach thereof occurring prior to termination.
FEES AND EXPENSES
Except as set forth below, all fees and expenses incurred in connection
with the Acquisition Agreement and the transactions contemplated thereby shall
be paid by the party incurring such expenses, whether or not the transaction is
consummated.
The Acquisition Agreement requires us to pay Hexagon a fee of $4 million
(the "Fee"), plus actual, documented out-of-pocket expenses of Hexagon relating
to the transactions contemplated by the Acquisition Agreement not in excess of
$2 million in the aggregate (including, but not limited to, reasonable fees and
expenses of Hexagon's counsel, accountants and financial advisers) ("Expenses"),
upon the termination of the Acquisition Agreement by us or Hexagon on the basis
described under clause (iv) of "Termination" above.
The Acquisition Agreement requires us to pay Hexagon the Fee plus the
Expenses if all of the following events have occurred:
(i) a bona fide Alternative Transaction is publicly commenced, publicly
disclosed, publicly proposed or publicly communicated to us at any time on or
after the date of the Acquisition Agreement and on or prior to the date of the
meeting of our stockholders (including the last date on which any adjourned
session thereof is reconvened);
(ii) either we or Hexagon terminates the Acquisition Agreement pursuant to the
sections of the Acquisition Agreement described under clauses (ii) and (iii) of
"Termination" above if, in the
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case of termination under either such clause, the requisite vote for approval
and adoption of the Acquisition Agreement by our stockholders shall not have
been obtained by April 30, 2001; and
(iii) thereafter on or prior to the anniversary of the date of
termination, (A) such Alternative Transaction is consummated or (B) there is
consummated any transaction, whether or not commenced, publicly disclosed,
publicly proposed or communicated to us prior to such termination, that would
constitute an Alternative Transaction (provided that for purposes of this clause
the reference to the percentage of outstanding shares of our capital stock in
clause (1) of the definition of Alternative Transaction specified above under "
Termination" shall be 50% instead of 15%).
In the event that our stockholders' meeting for the approval of the
transactions contemplated by the Acquisition Agreement is held and the requisite
vote for approval and adoption shall not have been obtained at such meeting or
any adjournment thereof other than as a result of Hexagon being in material
breach of its obligations under the Acquisition Agreement, we shall reimburse
Hexagon for (x) Hexagon's verifiable expenses relating to the due diligence,
negotiation and documentation of the transactions contemplated by the
Acquisition Agreement (including without limitation accounting, legal and
investment banking fees and expenses) not to exceed $1,000,000 and (y) expenses
related to commitments (not to exceed $1,000,000) made by Hexagon to individuals
hired specifically to work in the transferred business, less mitigation if any
such individual obtains other employment.
In no event shall be we be required to pay Hexagon more than one fee
pursuant to these termination provisions. In the event that more than one fee
would be applicable, we will be required to pay the highest of such fees.
NAME CHANGE
We have agreed that, immediately following the closing, we shall change our
corporate name and the names of any of our retained subsidiaries to eliminate
any reference to "Brown & Sharpe", and to adopt corporate names that would not
be reasonably likely to cause confusion with the Brown & Sharpe name
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<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following are our selected historical financial data on a consolidated
basis for the years ended December 31, 1999, 1998, 1997, 1996 and 1995. You
should read this selected historical consolidated financial data with our
Financial Statements, and with the Notes to Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in our 1999 Form 10-K and in our Reports on Form 10Q for
the periods ending March 31, June 30 and September 30, 2000, all as filed with
the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Year Ended December 31,
(in thousands except per share
information)
Sept. 30 2000
1995 1996 1997 1998 1999 Unaudited
--------- ---------- --------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net Sales $ 332,950 $ 342,684 $ 329,760 $ 339,030 $ 323,300 $ 207,371
Total operating expenses 320,603 326,515 331,666 318,521 356,664 (224,017)
Profit (loss) from operations 12,347 16,169 (1,906) 20,509 (33,364) (16,646)
Interest expense 9,129 8,280 6,380 6,164 7,534 6,903
Other income 688 462 1,044 949 374 757
--------- ---------- --------- --------- ---------- -------
Income (loss) before income taxes 3,906 8,351 (7,242) 15,294 (40,524) (22,792)
--------- ---------- --------- --------- ---------- -------
Income taxes 1,038 919 1,922 3,365 2,350 2,106
--------- ---------- --------- --------- ---------- -------
Net income (loss) $ 2,868 $ 7,432 $ (9,164) $ 11,929 $ (42,874) $ (24,898)
========= ========== ========= ========= ========== ========
Net income (loss) per share
Basic $ 0.33 $ 0.77 $ (0.69) $ 0.89 $ (3.19) $ (1.82)
Diluted $ 0.33 $ 0.75 $ (0.69) $ 0.88 ($3.19) $ (1.82)
Average shares outstanding 8,773 9,670 13,257 13,387 13,456 13,701
BALANCE SHEET DATA
Cash $ 6,262 $ 20,158 $ 20,458 $ 12,290 $ 36,643 $ 29,794
Working capital (deficit) 71,356 102,793 109,703 111,848 9,691 (12,681)
Total assets 290,600 309,229 296,593 317,778 302,177 245,948
Long-term debt including current maturity 74,007 68,497 76,062 74,705 69,030 65,300
Stockholders' equity 82,332 136,502 113,966 129,655 71,534 33,670
</TABLE>
(1) The 2000 operating loss includes provisions amounting to $13.3 million for
impaired assets related to its Electronics Division and its investment in a
Joint Venture dedicated to the development of noncontact sensor technology.
In addition, 2000 operating loss includes a $1.2 million restructuring
benefit and a $3.5 million charge for fees related to refinancing
activities that occurred throughout 2000.
(2) The 1999 and 1997 operating losses include a $38,268 and $16,220
restructuring charge, respectively. In addition to the restructuring
charge, the 1997 net loss includes a $1,346 loss arising from the sale of
the Company's wholly-owned subsidiary, Technicomp, Inc., and a $1,224 gain
resulting from an exchange of shares of common stock, which were held for
investment.
(3) Net income for 1995 includes a $640 adjustment relating to a revaluation of
a 1994 foreign denominated liability recorded at an incorrect foreign
exchange rate.
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PRO FORMA FINANCIAL INFORMATION
The following describes the pro forma effect of the sale of substantially
all of the Company's business and assets on (1) the unaudited consolidated
balance sheet information as of September 30, 2000 and (2) the unaudited
consolidated statement of operations information for the nine months ended
September 30, 2000. The unaudited pro forma consolidated financial information
is provided for informational purposes only and does not purport to represent
what the financial position and results of operations of the Company would
actually have been had the sale in fact occurred at the date indicated. The
unaudited pro forma consolidated balance sheet and consolidated statement of
operations information illustrate the estimated effects of the sale as if that
transaction had occurred at the end of the period presented for the consolidated
balance sheet and at the beginning of the period for the consolidated statement
of operations.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
(2)
Proceeds and
Historical Adjustments (3)
Balance Resulting from Use of Pro Forma
as of Sale of Certain Sale Balance
9/30/00 Assets & Liabilities Proceeds As of 9/30/00
---------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 29,794 $136,265/(1)/ $(79,116) $86,943
Accounts receivable 68,993 (67,753) 1,240
Inventories 59,853 (59,853) -
Prepaid expenses and other current assets 5,853 (5,531) 322
---------------------------------------------------------------
Total current assets $164,493 $ 3,128 $(79,116) 88,505
Property, plant and equipment, net 38,659 (34,282) 0 4,377
Goodwill, net 8,665 (8,665)
Other assets 34,131 (29,771) 4,360
---------------------------------------------------------------
$245,948 $(69,590) $(79,116) $97,242
===============================================================
LIABILITIES AND SHAREOWNERS' EQUITY
Current Liabilities:
Notes payable to banks, including in 2000,
$27,400 in default $ 38,445 $(11,045) $(27,400) $ -
Accounts payable 39,466 (39,148) 318
Accrued expenses and income taxes 44,883 (28,587) (1,716) 14,580
Notes payable and current
installments of long-term debt 54,380 (3,515) (50,000) 865
---------------------------------------------------------------
Total Current liabilities $177,174 $(82,295) $(79,116) $15,763
Long-term debt 10,920 (7,375) 3,545
Long-term liabilities 24,184 (12,677) 11,507
Total shareowners' equity 33,670 32,757 - 66,427/(4)/
---------------------------------------------------------------
$245,948 $(69,590) $(79,116) $97,242
===============================================================
</TABLE>
(1) Represents proceeds amounting to $162.5 million, net of $24.9 million of
cash for fees paid for the transaction and cash transferred to Hexagon, for
sale of the Metrology Business and an investment by Hexagon for a 16.7%
interest in BSIS Inc. on the Closing Date which is described in this Proxy
Statement. The Acquisition Agreement also provides for a possible
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<PAGE>
additional payment in amounts not to exceed an additional $20 million,
depending upon certain levels of defined operating profits for the Metrology
Business in 2000 and provides for an additional adjustment depending on the
net cash (as defined) transferred to Hexagon at the Closing. The pro forma
Balance Sheet does not reflect the effect of this contingent payment and
assumes no net cash adjustment after the Closing.
(2) The adjustments represent the transfer of assets and assumption of
liabilities upon the closing of the transaction as contemplated in the
Acquisition Agreement and realized gain on the transaction, net of $9.9
million of costs relating to accelerated obligations under a defined benefit
plan and several change in control contract costs that become effective on
the date of the closing of the transaction with Hexagon and an $.8 million
write-off of debt acquisition costs relating to the revolving credit
agreement and private placement senior notes discussed below. Shareowners'
equity also includes the $2.5 million investment for BSIS, Inc. discussed
above.
(3) Represents disbursements for principal and interest for the $27.4 million
revolving line of credit with certain banks and a $50 million private
placement of senior notes which will be paid as part of the Closing on the
Closing Date under the Acquisition Agreement. The payments do not reflect
any possible payments for costs and fees relating to the early payment of
the private placement loans.
(4) Includes $2.5 million investment by Hexagon to acquire 16.7% interest in
BSIS, Inc. on the Closing Date, but does not include the additional $4.5
million in investments by Hexagon in BSIS, Inc.
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<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Historical Pro Forma
Balance Balance
Nine Months Nine Months
Ended (2) Ended
9/30/00 Reclassifications Adjustments 9/30/00
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 207,371 $ 1,642/(1)/ $(207,156) $ 1,857
Cost of sales 141,316 (138,913) 2,403
Research and development 9,813 (4,746) 5,067
Selling, general and administrative expenses 57,296 (1,081)/(1)/ (35,093)/(3)/ 23,284
Provision for impaired assets of
Electronics Division 7,637 7,637
Refinancing Fees 3,506 3,506
Restructuring (benefits) charges (1,238) 1,238 --
Impairment of partially-owned affiliate 5,687 5,687
Gain on sale of metrology business -- 40,992 40,992
------------------------------------------------------------------
Operating loss (16,646) 561 11,350 (4,735)
------------------------------------------------------------------
Interest expense 6,903 (368) 6,535
Other (income), net (757) 561/(1)/ 181/(4)/ (15)
------------------------------------------------------------------
Loss before income taxes (22,792) 11,537 (11,255)
------------------------------------------------------------------
Income tax provision 2,106 (2,106) --
------------------------------------------------------------------
Net loss ($24,898) $ 0 $ 13,643 $(11,255)
==================================================================
Net loss per common share:
Basic and diluted ($1.82) ($0.82)
Weighted average shares outstanding 13,700,847 13,700,847
</TABLE>
(1) Represents the reclassification of $1 million of rental income for North
Kingstown facility and $.6 million of fees from gravel pit located in the
United Kingdom, both of which will be retained by the Company.
(2) Represents the elimination of sales, cost of sales, and other costs, net of
certain costs resulting from the transaction, associated with the Metrology
Business, which will be sold to Hexagon.
(3) Net of a $9.9 million charge to the Company's pro forma results of
operations for the nine-month period ended September 30, 2000 resulting from
accelerated costs of a defined benefit plan and change in control contracts
of certain key members of management that became effective as a result of
the sale of the Metrology Business.
(4) Net of an $.8 million charge to the Company resulting from the write-off of
deferred debt costs related to revolving line of credit and private
placement debt described above.
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<PAGE>
NO DISSENTERS' RIGHTS
Any of our stockholders who do not approve of the proposed sale and related
matters are not entitled to appraisal or dissenter's rights with respect to the
proposed sale and related matters under Delaware law or our Certificate of
Incorporation.
ACCOUNTING TREATMENT
The proposed sale will be accounted for as a sale of certain assets,
including the stock of certain subsidiary corporations and assumption of certain
liabilities. Upon consummation of the proposed sale, the Company will recognize
financial reporting gain equal to the net proceeds (the sum of the purchase
price received less the expenses relating to the proposed sale) less the closing
net book value of the assets sold and liabilities assumed.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the principal United States federal income
tax considerations relating to the sale and distribution. This summary does not
purport to be a complete analysis of tax considerations. The considerations
pertaining to shareholders relate only to shareholders that hold their shares as
a capital asset and are either citizens or residents of the United States,
entities taxable as corporations organized under the laws of the United States,
and estates or trusts that are treated as United States persons pursuant to the
Internal Revenue Code. The summary does not consider the effect of any
applicable foreign, state local or other tax laws nor does it address tax
considerations applicable to investors that may be subject to special federal
income tax rules.
The federal, state or foreign tax consequences of the distribution to you
will depend on the facts of your own situation. You should consult your tax
advisors for a full understanding of the tax consequences of the contemplated
distribution to you.
Corporate Tax Considerations. From a federal income tax perspective the
proposed transaction will predominantly be treated as a sale of corporate
assets, including the stock of certain subsidiary corporations, in exchange for
cash and the assumption of certain liabilities. As a consequence of the
anticipated tax loss that will be incurred in connection with the transaction
and other losses previously incurred by the Company the proposed transaction
should not have any material federal income tax consequences to the Company.
Shareholder Tax Considerations. The Company has estimated that it will
have neither current earnings and profits nor accumulated earnings and profits
at either the time of distribution in 2001 or for the year (2001) in which the
initial distribution is expected to be made, in which case the contemplated
distribution would not be treated as a dividend for federal income tax purposes.
Instead, the distribution would first be treated as non-taxable return of each
shareholders adjusted basis in the stock of the Company to the extent of such
basis . Any distribution in excess of a shareholder's basis will be treated as
capital gain from the exchange of the respective shares. Distributions to
shareholders that are corporations will not qualify for the dividend received
deduction.
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<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION AGREEMENT
In the past, we have granted stock options to our directors, officers and
employees, some of which are currently exercisable. Because the exercise price
of these options has been greater than the trading price of the Common Stock,
these options generally remained unexercised. It is expected that all options
which are not currently exercisable will become exercisable at or shortly before
the Closing Date. If the Acquisition Agreement is approved, it is anticipated
that the amount ultimately distributed with respect to each share of Common
Stock may be greater than the exercise price of some of the stock options. In
that event, it is likely that some or all of those stock options would be
exercised. Information regarding our stock options as of December 31, 1999 is
set forth in our Form 10-K for the fiscal year ended December 31, 2000.
BUSINESS ACTIVITIES FOLLOWING THE PROPOSED SALE AND RELATED TRANSACTIONS: BSIS
We are presently operating in the measuring systems and precision measuring
instruments industry. After the consummation of the proposed sale to Hexagon, we
will no longer operate in the measuring systems and precision measuring
instruments industry. We will retain ownership of our embryonic software
development business, BSIS, Inc. ("BSIS"). BSIS formed in December 1997. At
that time, BSIS Inc.'s primary mission was to consolidate the several
independent software development groups of Brown & Sharpe into a single global
software development organization which would provide next generation metrology
software applications for the various Metrology Business units. As its
secondary mission, BSIS, Inc. was to establish and execute a software business
strategy, which would ultimately lead to the formulation of a software business
that could spin-off as an independent business separated from the metrology
manufacturing businesses. Accordingly, BSIS is now focused on the
commercialization of its new XACTMEASURE Measuring Software, in development for
approximately three years and nearing introduction.
BSIS is an early stage software development company formed in December 1997
and focused on commercialization of metrology (the science of measuring physical
attributes) software (sometimes referred to as "measuring software"). BSIS
currently has approximately 40 employees. Of those twenty-six are software
development professionals, four are software quality assurance professionals,
five are sales and marketing and three are administration and information
technology (IT) professionals. BSIS's vision is to successfully commercialize a
metrology operating system software standard for use in multiple inspection
devices used in worldwide manufacturing operations and to market a variety of
applications that run on such standard metrology operating system. BSIS believes
that it is possible and preferable for the manufacturer who uses multiple
inspection devices to operate all of those devices with a single metrology
operating system and will market XactMOS as such a single operating system.
The CMM Inspection software market is shared by two classes of
participants; those that produce measurement system hardware and software
including Zeiss, Mitutoyo, MS-Mexagon (formerly MS-Brown Sharpe), LK, Sheffield,
Starrett, IMS and Wentzel, and those that produce software only including
Metrologic, Wilcox and Associates, Inc., AAT, Tecnomatix, Silma and Dassault
(Deneb).
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<PAGE>
The Vision Inspection software market consists primarily of participants
that produce measurement system hardware and customized software to run their
hardware. Each of the major OEMs; OGP & View Engineering (both now held by
QVII), Sony, Nikon, MicroVu, and J-mar, all produce their own non-contact
systems including software. In addition, Metronics - Metronics markets Quandra-
Check(R) both as OEM and retrofit software in the lower end of the Vision
software segment. The principal competition in the CNC Inprocess Inspection
software market is Renishaw, which produces an inspection probe, controller card
and software macros to run an inspection cycle from within an NC-Gcode program.
BSIS has not generated any revenue and has recorded operating losses of
$1.0 million, $5.2 million and $5.1 million in the years 1997, 1998 and 1999,
and operating losses of $5.6 million for the nine months ended September 30,
2000.
The BSIS metrology operating system is called XactMOS. BSIS has developed
and built two metrology applications to run on XactMOS to date, XactMeasure
which is an application for CMM Inspection, or inspection by coordinated
measuring machines and XactVision for Non-Contact Inspection. BSIS expects
XactMeasure and XactVision to be ready for commercial release in the first
quarter of 2001 and the third quarter of 2001, respectively. BSIS is in the
process of developing its third and fourth applications, XactCut for CNC Machine
tools, or computer numerical controlled machines and XactGage for hand tools and
fixture gages. BSIS targets XactCut and XactGage to be ready for commercial
release in the third quarter of 2001 and the third quarter of 2002,
respectively. Other products planned for development are XactRevEng for the
reverse engineering of component parts, XactVPA for assembly analysis of
multiple measured components and XactB2B for enabling e-commerce of manufactured
component parts based on certified measurement information.
BSIS plans to initially target sales of its software products to
manufacturers located in the United States, Europe and Asia using established
Hexagon distribution channels. BSIS also plans to establish an original
equipment manufacturer relationship with a leading vision systems manufacturer
for distribution of XactVision and plans ultimately to establish a network of
independent dealers which will sell, install and provide first line support for
XactMeasure, XactVision and XactCut products.
The BSIS Stockholders' Agreement includes license and royalty arrangements
between BSIS and Hexagon which provide that, for a period of five years from the
date of the Closing under the Acquisition Agreement, Hexagon may purchase
XactMeasure licenses from BSIS for $1,500 per unit and that BSIS will pay
Hexagon a royalty of $5,000 per unit for any XactMeasure licenses sold by BSIS
through a distribution channel other than Hexagon. However, there are no
purchase commitments from Hexagon.
There can be no assurance that BSIS will be able to complete the
commercialization of its first two products, XactMeasure and XactVision, or that
such products will be accepted by customers on a basis that is profitable to
BSIS or that BSIS will be able to commercialize successfully its other planned
products or establish the distribution network contemplated by its business
plan.
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<PAGE>
The operating capital for BSIS will initially be provided by the Company
and by Hexagon's investments under the Acquisition Agreement. The Company will
hold back an amount to be determined by the Board of Directors from the
Distribution to Stockholders of proceeds from the sale to Hexagon under the
Acquisition Agreement, for use together with funds to be provided by Hexagon, to
fund operating requirements of BSIS for an estimated two years. Hexagon has
agreed to invest $2.5 million at the Closing of the Acquisition Agreement for a
16.7% ownership stake and will invest an additional $1.5 million on each of the
next three anniversaries of the Closing, raising its ultimate stake up to as
much as 46.7% of the equity of BSIS. There can be no assurance that said
aggregate funding will be sufficient to fund the contemplated operations of BSIS
for two years or that, if needed and determined appropriate at that time by the
Company and Hexagon, the two stockholders of BSI, additional funding could be
raised. Moreover, the Company may entertain offers to purchase BSIS as an
alternative to the proposed execution of the BSIS business plan described above.
(See the "Pro Forma Balance Sheet" and "Pro forma Statement of Operations" which
gives effect to the sale under the Acquisition Agreement and shows the financial
position of the Company prior to the Distribution to Stockholders. The Company
will retain a portion, to be determined by the Board of Directors, of the cash
disclosed on the pro forma balance sheet for the operations of BSIS, plus an
amount for the estimated expenses of "public company overhead" for some period
of time, estimated at about two years.)
In connection with Hexagon's investment in BSIS, the Company and BSIS, on
_________, 2001, entered into the BSIS Stockholders' Agreement with Hexagon.
Such BSIS Stockholders' Agreement gives Hexagon the right to designate two of
the five candidates for the Board of Directors of BSIS, gives BSIS a right of
first refusal on any transfer of BSIS shares by Hexagon, at the same terms as
the proposed transfer by Hexagon, and gives Hexagon a right of first refusal on
any transfer of BSIS shares by the Company, at the same terms as the proposed
transfer by the Company.
The Company will continue as a publicly-owned corporation after the Closing
and the contemplated Distribution to Stockholders, and the transactions will not
change the number of outstanding shares of the Company. However, the size and
composition of the Board of Directors may change. The 2001 Annual Meeting of
Stockholders is scheduled to be held on ________ 2001.
RISK FACTORS RELATING TO BSIS
The business of BSIS is subject to a variety of risks and special
considerations. As a result, stockholders of the Company should carefully
consider the risks described below and the other information in the Proxy
Statement before voting at the Special Meeting.
As noted, this Proxy Statement contains certain forward-looking statements
that involve risks and uncertainties. See "Forward Looking Statements". The
Company's actual results after the Closing under the Acquisition Agreement could
differ materially from those discussed in this Proxy Statement. Factors that
could contribute to such differences include, but are not limited to, those
discussed below and elsewhere in this Proxy Statement.
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<PAGE>
1. BSIS Software Product is Still in Development; Uncertainty of Market
Acceptance. BSIS was formed in December, 1997. BSIS has not yet completed or
sold a software product, other than sales to the Metrology Business of Legacy
derivative software based on prior software of the Metrology Business to be sold
to Hexagon. There can be no assurance that BSIS will be able to complete its
development of a software product that is accepted by consumers on a basis which
is profitable to BSIS. Market acceptance of the new software products is
dependent in part on our ability to demonstrate the cost effectiveness, ease of
use and technological advantages of our products over competing products.
2. History of Losses; No Revenues to Date. Since BSIS has not yet
completed development of a product for sale to customers, BSIS has had no
revenues, and hence its operating results to date (losses) does not form any
basis for conclusion that BSIS will become profitable. During fiscal 1999 and
for the nine months ended September 30, 2000, BSIS had operating losses of
$5.1 million and $5.6 million, respectively, and as of September 30, 2000 BSIS
has an accumulated deficit of $19.0 million.
3. Limited Resources. We have substantially more limited financial and
other resources than all, or most, of our competitors and potential competitors
and we may be unable to compete significantly against them. Hexagon has
committed to invest an aggregate of $7 million over the next three years. The
Company will have limited funds available for investment in BSIS after the
payment of the contemplated distribution(s) to stockholders following the
Closing, and there can be no assurance that BSIS, or the Company, will be able
to raise additional funds for funding BSIS operations. There can be no assurance
that Hexagon, which is expected to own up to as much as 47% of BSIS once it
makes its investment and which may view BSIS as a competitor, would want to, or
be able to raise, additional funds for BSIS.
4. Competition; Inability to Use "Brown & Sharpe" Name. In addition to the
significant competition for software products, with many offerings in the
marketplace, the software products to be developed by BSIS are expected at the
outset to compete with software used by the Metrology Business sold to Hexagon,
and may be competitive with software developed in the future by the Metrology
Business of Hexagon. In addition, BSIS must, as a practical matter, concentrate
initially on selling to businesses, including automotive and airplane
manufacturers, who are customers of the Metrology Business sold to Hexagon; and
in its marketing efforts BSIS will not be able to use the "Brown & Sharpe" name
or the aftermarket sales force of the Metrology Business as an entree to
prospective customers. Increased competition may result in lower prices for our
products and reduced opportunities for growth and profitability.
5. Royalty and Other Obligations of BSIS to the Metrology Business Sold to
Hexagon. For five years after the Closing, BSIS is required to sell its
XactMeasure software products to Hexagon , on a non-exclusive basis, for use in
coordinated measuring machine ("CMM") applications at a price per unit of
$1,500, which is expected to be substantially below the price charged by BSIS to
other customers for CMM applications. In addition, BSIS is required for the five
year period to pay a royalty to Hexagon of $5,000 per unit of software sold to
persons other than Hexagon for CMM market applications. The effect of these
provisions may be materially adverse to the business of BSIS.
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<PAGE>
6. The Relationship Between BSIS and Wilcox Associates, Inc. Ends With the
Closing Under the Acquisition Agreement. The Company's Metrology Business has
been significantly dependent on a software license from Wilcox Associates, Inc.
and the service of William Wilcox, its President, and the Company has owned 30%
of the stock of Wilcox Associates, Inc. A number of software products used by
the Metrology Business sold to Hexagon were based on PCDIMIS, a software product
developed by Wilcox Associates, Inc. The Company's license rights from Wilcox
Associates and its relationship with William Wilcox are being acquired by
Hexagon. While BSIS believes that its software products under development are
and will be completely independent of PCDIMIS, the ending of this relationship
may be materially adverse to the business of BSIS.
7. Management of BSIS. While BSIS has significant software business
experience, there is no assurance the Company and BSIS will be able successfully
to manage a "software company" and the possible loss of the services of any
member of the management team may be materially adverse to the business of BSIS.
8. Future Development of Software Products for Markets Other Than CMM
Applications. The BSIS business plan contemplates the development of additional
software products for markets other than CMM applications, including primarily
Vision (non-contract) and CNC applications. There can be no assurance such
additional software products will be developed, or, if developed, will be of
interest to customers in fields beyond those in which the Metrology Business has
been engaged in.
9. Need for Additional Qualified Employees, Potential Loss of Foreign
Employees of the Metrology Business Sold to Hexagon. In order to grow our
business, we will have to hire additional employees. Our future success,
therefore, will depend, in part, on attracting and retaining additional
qualified management, marketing and technical personnel. We do not know whether
we will be successful in hiring or retaining qualified personnel. Competition
for qualified personnel throughout the software industry is intense. In
addition, BSIS has been using the services of __ employees resident in Europe
who had formerly been employees of the Metrology Business to be sold to Hexagon.
The inability to hire additional qualified employees or the loss of the services
of some of these foreign technical employees could have a material adverse
effect on the business of BSIS.
10. Implementation of BSIS Strategy, Uncertain Ability to Develop Strategic
Relationships The BSIS business plan calls for BSIS to establish marketing,
development and distribution relationships through strategic alliance with other
companies, there can be no assurance that BSIS will be able to achieve its
planned objectives for the year 2001 or establish a software business that will
grow and be profitable.
11. Intellectual Property Risks. If we become subject to intellectual
property infringement claims, or if we are unable to protect important
intellectual property, we could incur significant expenses and be prevented from
offering specific products, and we may lose prospective sales to competitors.
12. International Business Risks. Our financial condition and results of
operations may be adversely affected by international business risks, including
currency exchange rate
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<PAGE>
fluctuation, inflation, import and export controls, exchange controls and other
business factors in foreign countries that may complicate BSIS operations,
including the fact that the protection of copyrights and other intellectual
property is difficult to achieve under the laws of certain foreign countries.
13. Sales of Company Stock in the Market Before and After the Closing May
Adversely Impact this Market. The market price of the Company's Common Stock
could decline as a result of sales of shares by the Company's existing
stockholders before or after the Closing under the Acquisition Agreement,
including sales by trustees under the Company's Employee Stock Ownership Plan,
(which will be terminated in connection with the Closing) and sales by trustees
of the Company's other employee benefit plans (or of employees benefit plans of
Hexagon which receive shares of stock of the Company previously held in accounts
under the Company's other employee benefit plans), or sales by Metrology
Business employees or other former employees of the Company having accounts
under these other plans, could further adversely affect the market price for the
Company's stock. Approximately ____ shares of Company Common Stock were held
under the ESOP and approximately ______ shares were held under the Company's
other employee benefit plans at __________, 2001.
14. Possible DeListing of Company Stock by NYSE. Although we expect, based
on informal discussions with representatives of the New York Stock Exchange, the
Company's Common Stock to continue to be listed on the New York Stock Exchange,
it is possible that future results of the Company (which will be engaged only in
the software business conducted by BSIS or future discussions with the NYSE),
may lead to delisting of the Company's stock by the New York Stock Exchange, in
which event the Company may not be able to have its shares quoted on another
stock exchange. Consequently, an active trading market for the Company's shares
may not be sustained following the Closing under the Acquisition Agreement.
15. Change in Capital Structure After the Closing. Other than the
reduction in par value per share of the Common Stock, and the amount distributed
in the contemplated distribution to stockholders, there will be no change in the
equity of the Company. The proposed sale to Hexagon and related transactions and
the related Distribution to Stockholders will not affect the number of
outstanding shares of Common Stock of the Company; however, the Board of
Directors may, after the Closing, depending on developments with BSIS and other
factors, decide to recommend some change in the capital structure, which may
include consideration of a "reverse stock split" pursuant to a further amendment
of the Certificate of Incorporation requiring stockholders approval in the
future.
REGULATORY APPROVALS
We are not aware of any governmental or regulatory approvals required in
connection with the proposed sale other than compliance with applicable
securities laws, and expiration or early termination of the applicable thirty
day waiting period under Hart-Scott-Rodino Act of 1976, as amended and the Act
Against Restraints of Competition of the Federal Republic of Germany. On January
__, 2001, Brown & Sharpe and Hexagon made the required filings under the HSR
Act.
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<PAGE>
REFERENCE TO FINANCIAL STATEMENTS
For more information please refer to Financial Statements filed with the
SEC in the Company's 10-K for the year ended December 31, 1999 and the Company's
10-Qs, for the three months ended March 31, 2000, six months ended June 30,
2000 and nine months ended September 30, 2000. You can obtain copies of such
documents at the SEC's website at www.sec.gov or you can contact us at (401)
886-2000. You are encouraged to read such documents in their entirety.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
I. Security Ownership of Certain Beneficial Owners
Set forth below, as of [March 2, 2000, numbers need to be updated by
Company] are the persons or groups known to the Company who beneficially own,
under the applicable rules and regulations of the Securities and Exchange
Commission, more than 5% of any class of the Company's voting securities.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Ownership
------------------------
Percent of
Name and Address Title of Class Percent Combined
of Beneficial Owner of Common Stock Direct Indirect of Class Voting Power
------------------- --------------- ------ -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Fiduciary Trust Company Class A 168,196 -- 1.2 3.9
Two World Trade Center Class B 56,064 -- 11.1
New York, NY 10048-0074
Henry D. Sharpe, Jr. (2) Class A 476,766 7,200 3.6 11.4
Pojac Point, RFD No. 2 Class B 158,920 2,400 32.0
North Kingstown, RI 02852
Frank T. Curtin (3) Class A 920,465 -- 6.9 14.1
c/o Brown & Sharpe Manufacturing Company Class B 166,063 -- 32.9
Precision Park
200 Frenchtown Road
N. Kingstown, RI 02852-1700
Edward D. DiLuigi (3) Class A 697,986 -- 5.2 13.0
c/o Brown & Sharpe Manufacturing Company Class B 169,332 -- 33.6
Precision Park
200 Frenchtown Road
N. Kingstown, RI 02852-1700
Andrew C. Genor (3) Class A 660,465 -- 4.9 12.6
c/o Brown & Sharpe Manufacturing Company Class B 166,063 -- 32.9
Precision Park
200 Frenchtown Road
N. Kingstown, RI 02852-1700
Putnam Fiduciary Trust(4) Company Class A 409,893 -- 3.0 5.1
859 Williard Street Class B 52,744 -- 10.4
Quincy, MA 02169
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
David L. Babson (5) & Co., Inc. Class A 1,009,500 -- 7.5 5.5
One Memorial Dirve Class B -- -- --
Cambridge, MA 02141-1300
Merill Lynch & Co., Inc. (6) Class A 1,276,200 -- 9.6 6.9
On behalf of Merrill Lynch Asset Class B -- -- --
Management Group
World Financial Center
North Tower
250 Vesey Street
New York, NY 10381
Merrill Lynch Special Value Fund, Inc. (6) Class A 846,900 -- 7.0 5.1
800 Scudders Mill Road Class B -- - --
Plainsboro, NJ 08536
Dimensional Fund (7) Advisors Inc. Class A 939,174 -- 7.0 5.1
1299 Ocean Avenue Class B -- -- --
11/th/ Floor
Santa Monica, CA 90401
</TABLE>
(1) Fiduciary Trust Company International, a bank, by virtue of various
investment management contracts and trust agreements with members of the
Sharpe family, including Henry D. Sharpe, III, a Director, holds the shares
of Class A and Class B Stock in the Table. See Footnote (2) below.
(2) Various members of Henry D. Sharpe, Jr.'s family beneficially own an
aggregate of 645,286 shares of common stock of the Company comprised of
483,966 shares of Class A Stock and 161,320 shares of Class Stock of the
Company. These holdings amount to 3.6% and 32.0%, respectively, of each
class of stock and represent 11.4% of the combined voting power of the
Class A Stock and Class B Stock. The table includes (a) an aggregate of
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, including Henry D. Sharpe, III, a
Director of the Company, and by trusts, of which they are beneficiaries
under agreements with Fiduciary Trust Company International and under which
they each have sole voting and dispositive power with respect to their
shares and with respect to which Mr. Sharpe, Jr. disclaims beneficial
ownership; (b) 120 shares of Class A Stock and 40 shares of Class B Stock
held by the Sharpe Family Foundation, a charitable foundation, held by
Fiduciary Trust Company International with whom Mr. Sharpe, Jr. shares
voting power and with respect to which beneficial ownership is disclaimed;
(c) 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.; and (d) 308,570 shares of Class A Stock and 102,856
shares of Class B Stock held by Fiduciary Trust Company International as to
which Henry D. Sharpe, Jr. has sole voting and dispositive power.
(3) Messrs. Curtin, DiLuigi, and Genor are Executive Officers of the Company
and serve as co-Trustees of the Brown & Sharpe Employee Stock Ownership and
Profit Participation Plan (the "ESOP"). The Table includes (i) 660,465
shares of Class A Stock and 166,063 shares of Class B Stock held by the
ESOP, which are deemed to be beneficially owned by each of the foregoing
persons, but as to all of which ESOP shares, except, with respect to their
own vested shares of Class A Stock and Class B Stock in such plan, they
disclaim beneficial ownership; and (ii) shares of Class A Stock issuable
upon exercise of stock options held by such Executive Officers. (See II.
Security Ownership of Management Footnote (3) and Aggregated Options
Table.)
(4) Putnam Fiduciary Trust Company acts as Trustee of the Brown & Sharpe
Savings and Retirement Plan and the Brown & Sharpe Savings and Retirement
Plan for Management Employees (together referred to as the "SARP"),
substantially similar tax qualified 401-K savings plans covering the
Company's U.S. employees, and in that capacity shares voting power with
respect to the shares of Class A Stock and Class B Stock with and subject
to direction from participants in the SARP as to all of which shares Putnam
disclaims beneficial ownership.
(5) David L. Babson & Co. Inc., an investment advisor, holds the reported
shares for the benefit of its clients and has sole voting and dispositive
power with respect to such shares.
-53-
<PAGE>
(6) Merrill Lynch & Co. Inc. is a parent holding company and Merrill Lynch
Special Value Fund, Inc. is a subsidiary of such company, and such
companies, as registered investment advisors, share voting and dispositive
control over such shares with certain clients.
(7) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, has sole voting and dispositive control over such shares and is
deemed to have beneficial ownership of the reported shares, all of which
shares are held in portfolios of DFA Investment Dimensions Group Inc., a
registered open-end investment company, or in series of the DFA Investment
Trust Company, a Delaware business trust, or the DFA Group Trust and DFA
Participation Group Trust, investment vehicles for qualified employee
benefit plans, as to all of which Dimensional Fund Advisors Inc. serves as
investment manager. Dimensional disclaims beneficial ownership of all such
shares.
II. Security Ownership of Management
The following table and accompanying footnotes set forth certain
information about the beneficial ownership of the Company's Class A Stock and
Class B Stock as of [March 2, 2000: numbers need to be updated by Company] by
the Directors and Nominees and the named Executive Officers included in the
Summary Compensation Table and all Directors and Executive Officers as a group.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Ownership
-----------------------
Percent of
Name and Address Title of Class of Percent Combined
of Beneficial Owner Common Stock Direct Indirect of Class Voting Power
------------------- ------------ ------ -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Class A 920,465 -- 6.9 14.1
Frank T. Curtin (1) Class B 166,063 -- 32.9
Class A 55,145 2,400 * 1.3
Henry D. Sharpe, III (2) Class B 18,381 800 3.6
Class A
John M. Nelson Class B 6,553 -- * *
Class A 1,000 -- *
Howard K. Fuguet Class B -- -- -- *
Class A 8,00 -- *
Russell A. Boss Class B -- -- -- *
Class A 705 -- *
Paul R. Tregurtha Class B 13 -- * *
Class A 7,000 -- *
Harry A. Hammerly Class B -- -- -- *
Class A 5,000 -- *
J. Robert Held Class B -- -- *--
Class A 2,000 -- *
Roger E. Levien Class B -- -- -- *
Class A -- -- -- --
Richard A. Donnelly Class B -- -- -- --
Class A -- -- -- --
Kenneth N. Kermes Class B -- -- -- --
Class A 98,725 *
Charles A. Junkunc Class B 685 -- -- *
Class A 60,778 *
Philip James Class B 921 -- -- *
Class A 70,000 -- *
Antonio Aparicio Class B -- -- -- *
</TABLE>
-54-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Class A 660,465 -- 4.9
Andrew C. Genor (1) Class B 166,063 -- 32.9 12.6
Class A 697,986 -- 5.2
Edward D. DiLuigi (1) Class B 169,332 -- 33.6 13.0
All Directors, Nominees
and Executive Officers Class A 1,750,597 2,400 13.1
as a Group 19 persons) (3) Class B 329,823 800 65.6 27.5
Less than one percent (1%)
</TABLE>
(1) See Footnote (3) I. Security Ownership of Certain Beneficial Owners.
(2) See Footnote (2) I. Security Ownership of Certain Beneficial Owners.
(3) With respect to Executive Officers who are not Directors, includes
(i) 133,500 shares of Class A Stock as to which four of the named
Executive Officers have sole voting and investment power; (ii) 38,644
vested shares of Class A Stock and 6,876 vested shares of Class B
Stock in the aggregate as to which certain Executive Officers have
shared voting power as participants in the SARP and ESOP; and (iii)
for Messrs. Curtin, Junkunc, Aparicio, and DiLuigi includes 200,000,
65,000, 58,000, and 15,000 shares, respectively, of Class A Stock and
57,500 shares of Class A stock for three other Executive Officers,
which are subject to stock options presently exercisable or
exercisable within sixty (60) days of the expected March 31, 2000 date
of mailing of this Proxy Statement, granted to such Executive Officers
pursuant to the Company's 1989 Equity Incentive Plan. (See Options and
SAR Table under the heading "Executive Compensation".)
PROPOSAL 2
AMENDMENT TO THE ARTICLES OF INCORPORATION
TO CHANGE THE COMPANY'S NAME FROM
BROWN & SHARPE MANUFACTURING COMPANY TO ______________
NAME CHANGE
On _______, 2001, our Board of Directors unanimously approved the
Amendment to the Certificate of Incorporation to change the name of
Brown & Sharpe to "___________________." or such other name as our Board of
Directors may decide, and recommended that the Amendment be submitted to
stockholders for approval, so that we can fulfill our obligation under the
Acquisition Agreement to sell and assign the name "Brown & Sharpe Manufacturing
Company" to Hexagon.
Vote Required. A majority vote of the entitled votes of the shares of
Brown & Sharpe Class A Common Stock and Class B Common Stock outstanding on the
record date, voting together as a single class, is required to approve
Proposal 2.
PROPOSAL 3
AMENDMENT TO ARTICLES OF INCORPORATION TO
REDUCE PAR VALUE PER SHARE OF CLASS A COMMON STOCK
General. On ______________, 2001, the Board of Directors unanimously
voted to approve amendments to the Company's Certificate of Incorporation to
reduce the par value per share of its Class A Common Stock and its Class B
Common Stock from $1.00 to $0.01 per share, and to submit such amendments to the
Company's shareholders with the Board's recommendation that they be approved.
The proposed amendments are attached as Annex C. Approval of the Amendments will
permit the Company to reduce the amount required to be
-55-
<PAGE>
allocated to capital when it issues any shares of Class A Common Stock or
Class B Common Stock, as the case may be, in the future and will also permit the
Board of Directors, following the effectiveness of such Amendments, to review
the Company's liabilities and financial position and vote at that time to
transfer from stated capital to surplus (capital surplus in this case) an amount
equal to the difference between $1.00 and $0.01 times the number of previously
issued shares of Class A Common Stock and Class B Common Stock.
Under the present provisions of the Delaware General Corporation Law, the
par value of shares determines the amount of a corporation's stated capital,
but, as a general matter, stated capital has little practical significance.
However, Section 170 of the Delaware General Corporation Law provides, in
relevant part, that the directors may pay dividends out of surplus as defined
and not out of capital. A reduction in par value per share and a later decision
by the Board of Directors to make such transfers from capital to capital surplus
will increase the amount of surplus by the amount of $0.99 times the number of
issued shares of Common Stock. Such transfers may be appropriate, depending on
other relevant factors, to reduce the risk that the amount of the distribution
to stockholders contemplated by Proposal 1 would have to be cut back as a result
of the limitations of Section 170 of the Delaware General Corporation Law.
The proposed Amendments reducing the par value per share of the Company's
Common Stock will have no effect on the value of such stock or the number of
authorized, issued or outstanding shares of stock.
Vote Required. A majority vote of the entitled votes of the Class A Common
Stock outstanding on the record date and a majority vote of the entitled votes
of the shares of Class A and Class B Common Stock outstanding on the record
date, voting together as a single class, is required to approve Proposal 3: the
reduction in the par value per share of the Class A Common Stock.
Recommendation. The Board of Directors recommends that the stockholders
vote FOR approval of the proposed amendment to the Articles of Incorporation
under this Proposal 3, reducing the par value per share of the Company's Class A
Common Stock.
PROPOSAL 4
AMENDMENT TO ARTICLES OF INCORPORATION TO REDUCE PAR VALUE
PER SHARE OF CLASS B COMMON STOCK
General. See "General" above under Proposal 3 which discusses the
reduction in the par value per share of the Class A Common Stock and the Class B
Common Stock.
Vote Required. A majority vote of the entitled votes of the Class B Common
Stock outstanding on the record date and a majority vote of the entitled votes
of the shares of Class A and Class B Common Stock outstanding on the record
date, voting together as a single class, is required to approve Proposal 4: the
reduction in the par value per share of the Class B Common Stock.
-56-
<PAGE>
Recommendation. The Board of Directors recommends that the stockholders
vote FOR approval of the proposed amendment to the Articles of Incorporation
under this Proposal 4, reducing the par value per share of the Company's Class B
Common Stock.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, which requires us to file reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC"). You
may inspect and request copies of our reports, proxy statements and other
information filed by us at the public reference facilities at the SEC's office
at Judiciary Plaza, 450 Fifth Street, N. W., Room 1024, Washington, D.C. 20549,
at the SEC's Regional Office at Seven World Trade Center, Suite 1300, New York,
New York 10048 and at the SEC's Regional Office at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. You may also obtain a copy of such material
from the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth
Street, N. W., Room 1024, Washington, D.C. 20549, at prescribed rates. Our
reports, proxy statements and other information can also be inspected and copied
at the offices of The New York Stock Exchange, 11 Wall Street, New York, New
York 10005 or be accessed electronically by means of the SEC's home page on the
Internet at http://www.sec.gov.
-57-
<PAGE>
BROWN & SHARPE MANUFACTURING COMPANY
PROXY CARD FOR SPECIAL MEETING _____________, 2001
The undersigned hereby appoints ___________ and __________ or any one of
them acting in the absence of the other, as attorneys and proxies of the
undersigned, with full power of substitution, for and in the name of the
undersigned, to represent the undersigned at the Special Meeting of Stockholders
of Brown & Sharpe Manufacturing Company, a Delaware corporation (the "Company"),
to be held at ____________________, at _______[10:00] a.m. local time on
_________________, 2001, and at any adjournment or adjournments thereof, and to
vote all shares of stock of the Company standing in the name of the undersigned,
with all of the powers the undersigned would possess if personally present at
such meeting.
1. To approve and adopt the Acquisition Agreement and the related transactions
and related distribution to stockholders contemplated therein.
[_] FOR [_] AGAINST [_] ABSTAIN
2. To approve an Amendment to the Certificate of Incorporation to change the
name of the Company.
[_] FOR [_] AGAINST [_] ABSTAIN
3. To approve an Amendment to the Certificate of Incorporation to reduce par
value per share of Class A Common Stock.
[_] FOR [_] AGAINST [_] ABSTAIN
4. To approve an Amendment to the Certificate of Incorporation to reduce par
value per share of Class B Common Stock.
[_] FOR [_] AGAINST [_] ABSTAIN
5. Such other business as may properly come before the meeting or any
adjournment thereof.
MANAGEMENT AND THE BOARD OF DIRECTORS RECOMMEND A VOTE FOR THE APPROVAL OF THE
FOREGOING PROPOSALS.
This Proxy is solicited on behalf of the Board of Directors of the Company.
This Proxy when properly executed will be voted in the manner directed herein by
the undersigned. If no direction is made, this Proxy will be voted for the above
Proposals.
Date:____________________ Signature:_______________________
Signature:_______________________
NOTE: Please sign exactly as your name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.
-58-
<PAGE>
Annex A
-------
ACQUISITION AGREEMENT
BETWEEN
HEXAGON AB
AND
BROWN & SHARPE MANUFACTURING COMPANY
November 16, 2000
<PAGE>
ACQUISITION AGREEMENT
This Acquisition Agreement (the "Agreement") is made as of November 16,
---------
2000, by and between HEXAGON AB, a limited liability company existing under the
laws of Sweden ("Buyer"), on behalf of itself and any of its Affiliates to which
-----
it assigns its rights and obligations hereunder pursuant to Section 10.4, and
BROWN & SHARPE MANUFACTURING COMPANY, a Delaware, U.S.A. corporation ("Seller").
------
Buyer and Seller are referred to collectively herein as the "Parties."
-------
This Agreement contemplates a transaction in which Buyer will, in
consideration of the Purchase Price (as hereinafter defined), acquire the
Metrology Stock and the Metrology Assets (each as hereinafter defined) and will
assume the Metrology Liabilities (as hereinafter defined).
Now, therefore, in consideration of these premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1 Definitions.
-----------
"1999 Year End Balance Sheet" has the meaning set forth in Section 3.9(a).
"Acquisition Proposal" has the meaning set forth in Section 5.8.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Aftermarket Services" means Brown & Sharpe Aftermarket Services, Inc., a
Delaware corporation that owns 30% of the outstanding capital stock of WAI.
"Agreement" has the meaning set forth in the preamble.
"Alternative Transaction" has the meaning set forth in Section 9.1(d).
"Auditor" has the meaning set forth in Section 2.4(b).
"Bank and Insurance Company Debt" means all Indebtedness (including all
outstanding principal, prepayment premiums, if any, and accrued interest, fees
and expenses relating thereto) of Seller and the Transferred Companies under
that certain Credit Agreement dated as of November 10, 1997 between Seller,
certain lenders and The Chase Manhattan Bank, as amended, and that certain Note
Agreement dated November 10, 1997 between Seller and certain lenders, as
amended.
"BSICC" means Brown & Sharpe International Capital Corporation, a Delaware
corporation and wholly-owned subsidiary of Seller.
1
<PAGE>
"BSIS" means BSIS, Inc., a Delaware corporation.
"BSIS Stock Purchase Agreement" has the meaning set forth in Section 5.16.
"BSIS Stockholders' Agreement" has the meaning set forth in Section 5.16.
"Buyer" has the meaning set forth in the preamble.
"Buyer Affiliate" means any Affiliate of Buyer now or hereafter formed, the
obligations of which are guaranteed (by a guarantee of payment and performance)
by Buyer in form and substance satisfactory to Seller.
"Buyer Employee" has the meaning set forth in Section 5.5(a).
"Buyer Indemnitees" has the meaning set forth in Section 8.2.
"Buyer Lease" has the meaning set forth in Section 7.1.
"Buyer Required Approvals" has the meaning set forth in Section 4.6.
"Cash" means cash and cash equivalents (including marketable securities and
short term investments) calculated in accordance with GAAP applied on a basis
consistent with the preparation of the Metrology Unaudited Financial Statements.
"Cash Amount" has the meaning set forth in Section 2.4(b).
"Closing" has the meaning set forth in Section 2.6.
"Closing Date" has the meaning set forth in Section 2.6.
"Code" means the Internal Revenue Code of 1986, as amended.
"Comparable Benefit Plan" has the meaning set forth in Section 5.5(c).
"Consent" means any consent, approval, authorization, waiver, permit,
grant, franchise, concession, agreement, license, certificate, exemption, order,
registration, declaration, filing, report or notice of, with or to any Person.
"Consolidated Audited Financial Statements" has the meaning set forth in
Section 3.9(a).
"Consolidated Unaudited Balance Sheet" has the meaning set forth in Section
3.9(b).
"Consolidated Unaudited Financial Statements" has the meaning set forth in
Section 3.9(b).
2
<PAGE>
"Copyrights" means all copyrights and registrations thereof, including but
not limited to computer software and related documentation, product brochures
and training materials.
"Dispute" means any opposition, interference, reexamination, injunction,
claim, lawsuit, proceeding, hearing, investigation, complaint, arbitration,
mediation, demand, decree and any other dispute, disagreement or claim involving
the Metrology Intellectual Property.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation
plan or retirement plan or arrangement which is an Employee Pension Benefit
Plan; (b) qualified defined contribution retirement plan or arrangement which is
an Employee Pension Benefit Plan; (c) qualified defined benefit retirement plan
or arrangement which is an Employee Pension Benefit Plan (including any
multiemployer plan as defined in ERISA Section 3(37)); or (d) Employee Welfare
Benefit Plan or material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Section
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section
3(1).
"Environmental Law" means any Law relating to pollution, or protection or
cleanup of the environment and to human health and safety, including, without
limitation, any Law relating to Releases or threatened Releases of Hazardous
Substances into the environment (including, without limitation, ambient air,
surface water, groundwater, land, surface and subsurface strata) or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
Release, transport or handling of Hazardous Substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any person who is in the same controlled group of
corporations or who is under common control with Seller (within the meaning of
Section 414 of the Code).
"Estimated Cash Amount" has the meaning set forth in Section 2.4(a).
"Excluded Assets" means (a) the outstanding capital stock and all assets of
the Retained Subsidiaries (other than the XactMeasure legacy derivatives (e.g.
XactQuindos, Chorus X, MM4X, Tutor X) of BSIS, which shall be transferred by
BSIS to Seller prior to Closing, shall constitute Metrology Assets and shall
thereafter be subject to the provisions of the BSIS Stockholders' Agreement);
(b) the real property owned by Seller that is located in North Kingstown, Rhode
Island, U.S.A. known as Precision Park; (c) subject to the provisions of Section
5.12 of this Agreement, the real estate owned by Brown & Sharpe Group Ltd. that
is located at Heathrow Airport, London, England and operated as a gravel pit;
and (d) the assets set forth on Schedule 1-A hereto and the WAI Stock (if the
------------
WAI Stockholders exercise the "Right of First Refusal" described in Section 5.16
and purchase the WAI stock).
3
<PAGE>
"Excluded Liabilities" means (a) Liabilities of the Retained Entities to
the extent relating to the Excluded Assets; (b) Liabilities set forth on
Schedule 1-B; and (c) Liabilities for any Taxes payable by or attributable to
any Retained Entity.
"Fee" has the meaning set forth in Section 9.2(b).
"GAAP" means United States generally accepted accounting principles as in
effect at the time of the preparation of the Consolidated Audited Financial
Statements, Consolidated Unaudited Financial Statements or Metrology Unaudited
Financial Statements, as applicable.
"Governmental Approval" means any Consent of, with or to any Governmental
Entity.
"Governmental Entity" means any nation or government, any state or other
political subdivision thereof; any entity, authority or body exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, including, without limitation, any government
authority, agency, department, board, commission or instrumentality of the
United States or any foreign country, any State of the United States or any
foreign country, or any political subdivision thereof; any court, tribunal or
arbitrator; and any self-regulatory organization.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Hazardous Substance" means any substance that: (a) is or contains
asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls,
petroleum or petroleum-derived substances or wastes, radon gas or related
materials; (b) requires investigation, removal or remediation under any
Environmental Law, or is defined, listed or identified as a "hazardous waste" or
---------------
"hazardous substance" thereunder; or (c) is toxic, explosive, corrosive,
-------------------
flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise
hazardous and is regulated by any Governmental Entity or Environmental Law.
"Heathrow Property" has the meaning set forth in Section 5.12.
"Income Tax" means any income, alternative, minimum, accumulated earnings,
personal holding company, franchise, capital stock, net worth, capital, profits
or windfall profits Tax or other similar Tax, including any interest, penalties
or additions attributable thereto.
"Income Tax Returns" means Tax Returns in respect of Income Tax.
"Indebtedness" means (a) any indebtedness for borrowed money; (b) any
obligations evidenced by a note, bond, debenture, letter of credit, draft or
similar instrument; (c) that portion of obligations with respect to capital
leases that is properly classified as a liability on a balance sheet in
conformity with GAAP; (d) notes payable and drafts accepted representing
extensions of credit; and (e) any obligation owed for all or any part of the
deferred purchase price of property or services, which purchase price is due
more than six months from the date of incurrence of the
4
<PAGE>
obligations of the type described in the foregoing clauses (a) through (d) to
the extent secured by any Lien on any property or asset owned or held by any of
the Transferred Companies or on any Metrology Assets.
"Indemnified Losses" has the meaning set forth in Section 8.6.
"Indemnified Party" has the meanings set forth in Sections 8.5 and 8.6.
"Indemnifying Party" has the meanings set forth in Sections 8.5 and 8.6.
"Intellectual Property" means Patents, Copyrights, Trademarks, trade
secrets, Internet domain names, proprietary technology, product specifications,
confidential business information, processes, inventions, works of authorship,
databases, semiconductor chip/mask work rights, designs, slogans, packaged
designs, product designs, other design (model) rights, formulae and know-how,
intellectual property rights similar to any of the foregoing, copies and
tangible embodiments thereof in any form or media (including electronic media)
and licenses of any of the foregoing.
"June 30 Metrology Unaudited Balance Sheet" means the balance sheet
contained within the Metrology Unaudited Financial Statements.
"Knowledge of Seller" means the best knowledge of any officer of Seller
after due inquiry, where applicable, of the chief officer in charge of,
respectively, the Metrology Business in the United Kingdom, Germany, Italy,
Switzerland and the United States.
"Law" means all applicable provisions of all (a) constitutions, treaties,
-
statutes, laws (including the common law), codes, rules, regulations, ordinances
or orders of any Governmental Entity, (b) Governmental Approvals and (c) orders,
- -
decisions, injunctions, judgments, awards and decrees of or agreements with any
Governmental Entity.
"Leases" has the meaning set forth in Section 3.12.
"Liability" means any liability, commitment or obligation (whether known or
unknown, whether absolute or contingent, whether accrued or unaccrued, and
whether due or to become due).
"Lien" means any mortgage, pledge, lien, security interest, charge,
encumbrance, restriction on transfer, conditional sale or other title retention
device or arrangement (including, without limitation, a capital lease) or other
adverse claim of any kind.
"Litigation" means any action, cause of action, claim, demand, suit,
proceeding, citation, summons, subpoena, inquiry or investigation of any nature,
civil, criminal or regulatory or otherwise, in law or in equity, by or before
any Governmental Entity.
"Losses" has the meaning set forth in Section 8.2.
5
<PAGE>
"Material Adverse Effect" means a material adverse effect on the condition
(financial or otherwise), assets, liabilities or operating profit of the
Metrology Business, taken as a whole. For purposes of this definition, the
parties acknowledge that the Metrology Business typically does less well in
terms of operating profit/loss in any interim portion of a quarter than in such
quarter as a whole and that the results of the Metrology Business in terms of
operating profit/loss are significantly strongest in the fourth quarter.
"Metrology Assets" means all assets, properties and rights of Seller of
every nature, kind and description, tangible and intangible (including
goodwill), whether real, personal or mixed, whether accrued, contingent or
otherwise and whether now existing or hereinafter acquired as the same may exist
on the Closing Date, other than the Metrology Stock and the Excluded Assets.
"Metrology Business" means the Measuring Systems, Precision Measuring
Instruments and Custom Metrology businesses as conducted by the Transferred
Companies and Seller using the Metrology Assets, and does not include the
Excluded Assets or the Excluded Liabilities.
"Metrology Intellectual Property" means the entire right, title and
interest in and to all Intellectual Property rights of every kind and nature and
owned, held for use or under development by Seller or the Transferred Companies,
all applications therefor and registrations thereof, all goodwill associated
therewith, and any licenses or agreements granting rights related thereto or to
a third party's Intellectual Property, including, without limitation, all
Intellectual Property identified on Schedule 3.13, provided, however, that
------------- -------- -------
Metrology Intellectual Property shall exclude Seller Retained Intellectual
Property.
"Metrology Liabilities" means all Liabilities of Seller and the Transferred
Companies, other than the Excluded Liabilities.
"Metrology Stock" means the number and percentage of shares of outstanding
capital stock set forth on Schedule 1-C of BSICC, Brown & Sharpe DEA S.p.A.,
------------
BSP, Inc., Brown & Sharpe Foreign Sales Corp., Brown & Sharpe Finance Company,
Borel & Dunner, Inc., Qingdao Brown & Sharpe Qianshao Trading Company Limited,
Qingdao Brown & Sharpe Qianshao Technology Company Limited and Aftermarket
Services (subject to Section 5.16).
"Metrology Unaudited Financial Statements" has the meaning set forth in
Section 3.9(c).
"Party" has the meaning set forth in the preamble.
"Patents" means any patents, patent applications and patent disclosures
awaiting filing determination (including all reissuances, continuations,
continuations-in-part, revisions, extensions and reexaminations thereof).
"Permitted Lien" means (a) statutory liens for Taxes to the extent that the
payment thereof is not in arrears or otherwise due or is being contested in good
faith and by appropriate proceedings if adequate reserves with respect thereto
are maintained on the June 30 Metrology
6
<PAGE>
Unaudited Balance Sheet; (b) encumbrances in the nature of zoning restrictions,
easements, rights or restrictions of record on the uses of real property if the
same do not materially adversely impair the use of such property in the
Metrology Business as currently conducted; (c) statutory or common law liens to
secure landlords, lessors or rents under leases or rental agreements to the
extent such liens are confined to the premises rented and to the extent that no
payment or performance under any such lease or rental agreement is in arrears;
(d) purchase money liens and liens securing rental payments under capital lease
arrangements; (e) deposits or pledges made in connection with, or to secure
payment of, worker's compensation, unemployment insurance, old age pension
programs mandated under applicable laws or other social security regulations;
(f) statutory or common law liens incurred in the ordinary course of business in
favor of carriers, warehousemen, mechanics and materialmen, statutory or common
law liens to secure claims for labor, materials or supplies and other like
liens, which secure obligations to the extent that payment thereof is not in
arrears or otherwise due; (g) liens for judgments being appealed in good faith
or not exceeding $500,000 in the aggregate; and (h) liens in favor of customs
and revenue authorities arising as a matter of law to secure payment of custom
duties in connection with the importation of goods.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization,
a limited liability company, a Governmental Entity or other entity.
"Purchased Assets" means, collectively, the Metrology Assets and the
assets, properties and rights of the Transferred Companies as the same exist on
the Closing Date.
"Purchase Price" has the meaning set forth in Section 2.3.
"Real Property" has the meaning set forth in Section 3.12.
"Release" means any releasing, disposing, discharging, injecting, spilling,
leaking, leaching, pumping, dumping, emitting, escaping, emptying, seeping,
dispersal, migration, transporting, placing and the like, including without
limitation, the moving of any materials through, into or upon, any land, soil,
surface water, ground water or air, or otherwise entering into the environment.
"Replacement Welfare Plans" has the meaning set forth in Section 5.5(c).
"Retained Entities" means Seller and the Retained Subsidiaries.
"Retained Subsidiaries" means BSIS and Brown & Sharpe Surface Inspection
Systems Inc., a Delaware corporation (and its subsidiaries).
"Right of First Refusal" has the meaning set forth in Section 5.16.
"Securities Act" means the Securities Act of 1933, as amended.
7
<PAGE>
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Seller" has the meaning set forth in the preamble.
"Seller Indemnitees" has the meaning set forth in Section 8.4.
"Seller Required Approvals" has the meaning set forth in Section 3.19.
"Seller Retained Intellectual Property" means the entire right, title and
interest of the Retained Subsidiaries in and to all Intellectual Property rights
of every kind and nature, all applications therefore and registrations thereof,
all goodwill associated therewith, and any licenses or agreements related to the
foregoing or to a third party's Intellectual Property, and all Intellectual
Property of Seller that constitutes an Excluded Asset.
"Subsidiary" means any corporation with respect to which a specified Person
directly or indirectly owns a majority of the common stock, has the power to
vote or direct the voting of sufficient securities to elect a majority of the
directors or otherwise controls the management policies of such Person, whether
through the ownership of voting securities, by contract or otherwise.
"Taxes" means all taxes, charges, fees, levies, penalties or other
assessments imposed by any United States federal, state or local or foreign
taxing authority, including, but not limited to, income, excise, property,
sales, value added, transfer, franchise, payroll, withholding, social security
or other taxes, including any interest, penalties or additions attributable
thereto.
"Tax Return" means any return, report, information return or other document
(including any related or supporting information) required to be supplied to any
authority with respect to Taxes.
"Third Party" has the meaning set forth in Section 9.1(d).
"Third Party Claim" has the meaning set forth in Section 8.5
"Trademarks" means any trademarks, service marks, trade dress, trade names,
business and product names and logos, and registrations and applications for
registration thereof together with all translations, adaptations, and
combinations thereof.
"Transferred Companies" means the companies designated as such on Schedule
--------
3.8, which exclude Seller and the Retained Subsidiaries.
---
"WAI" means Wilcox Associates Inc., a Delaware corporation.
"WAI Purchase Price" has the meaning set forth in Section 5.16.
"WAI Stockholders" means William Wilcox and Mark Cluff.
8
<PAGE>
"WARN Act" has the meaning set forth in Section 5.5(e).
2 Acquisition of Metrology Stock and Metrology Assets by Buyer Affiliates.
-----------------------------------------------------------------------
2.1 Purchase and Sale. Seller agrees to sell and transfer to Buyer or the
-----------------
applicable Buyer Affiliate, and Buyer agrees to acquire, and to cause the Buyer
Affiliates to acquire, from Seller at the Closing, subject to and upon the terms
and conditions contained herein, (a) the Metrology Stock free and clear of any
Lien and (b) the Metrology Assets free and clear of any Liens other than
Permitted Liens.
2.2 Assumption of Liabilities. On the terms and subject to the conditions
-------------------------
set forth herein, from and after the Closing, Buyer or the applicable Buyer
Affiliate will assume and satisfy or perform when due the Metrology Liabilities,
and Seller will assume and satisfy or perform when due the Excluded Liabilities.
2.3 Purchase Price. In consideration of the sale and transfer of the
--------------
Metrology Stock and the Metrology Assets by Seller to Buyer, at the Closing
Buyer agrees to pay, or cause Buyer Affiliates to pay, an aggregate amount (the
"Purchase Price") equal to $160,000,000 plus or minus the Estimated Cash Amount
-------------- -------------
plus any supplemental amount which may be payable for the Heathrow Property
----
pursuant to Section 5.12 plus the Metrology Business Operating Profit Contingent
Payment (to the extent it has been determined as of the Closing Date) minus the
-----
WAI Purchase Price, if any, paid by the WAI Stockholders upon exercise of the
Right of First Refusal described in Section 5.16. The Purchase Price shall be
payable at the Closing (i) by wire transfer of immediately available funds, to
such accounts as the holders of the Bank and Insurance Company Debt may specify
to Buyer at least three business days prior to the Closing, of payment in full
of the outstanding Bank and Insurance Company Debt and (ii) by wire transfer of
immediately available funds, to such account or accounts as Seller may specify
to Buyer at least three business days prior to the Closing, of the balance of
the Purchase Price.
2.4 Determination of Cash Amount.
----------------------------
(a) Estimated Cash Amount. Seller will deliver to Buyer, on or prior to the
---------------------
third business day preceding the scheduled Closing Date, an estimate of the Cash
Amount to be calculated pursuant to Section 2.4(b) below. The amount of such
estimate is referred to in this Agreement as the "Estimated Cash Amount".
---------------------
(b) Determination of Cash Amount. As promptly as practicable, and in any
----------------------------
event within 30 days of the Closing, Buyer and Seller shall jointly prepare or
cause to be prepared a written statement calculating the amount of Cash held by
the Transferred Companies as of the Closing calculated in a manner reasonably
satisfactory to Buyer minus the amount of Indebtedness of the Transferred
-----
Companies as of the Closing (giving effect to the payment of the Bank and
Insurance Company Debt pursuant to Section 2.3) (the "Cash Amount"). If Buyer
-----------
and Seller cannot agree on the calculation of the Cash Amount within 30 days
after the Closing, either Party may submit the dispute to a "Big Five"
accounting firm selected upon mutual
9
<PAGE>
agreement of the Parties (the "Auditor"), for resolution within 30 days or as
-------
soon thereafter as reasonably practicable. The Auditor shall determine the
amount of the Cash Amount, and the decision by the Auditor shall be final and
binding on the Parties. The costs and expenses of the Auditor shall be paid
equally by Buyer and Seller. Buyer and Seller shall make available to the
Auditor all relevant books and records relating to the determination of the Cash
Amount, and all other information reasonably requested by the Auditor.
(c) Adjustment to Purchase Price. Upon final determination of the Cash
----------------------------
Amount, either by agreement between Buyer and Seller or determination in
accordance with Section 2.4(b): (i) if the Cash Amount exceeds the Estimated
Cash Amount, the Purchase Price shall be increased by the amount of such excess;
and (ii) if the Cash Amount is less than the Estimated Cash Amount, the Purchase
Price shall be decreased by the amount of such shortfall. Within ten business
days after the final determination of the Cash Amount, Buyer (in the case of any
increase in the Purchase Price) or Seller (in the case of any decrease in the
Purchase Price) shall pay to the other an amount equal to the amount of such
increase or decrease.
2.5 Metrology Business Operating Profit Contingent Payment.
------------------------------------------------------
(a) As soon as reasonably practicable following the receipt of its audited
financial statements for the year ended December 31, 2000, Seller shall cause to
be prepared and delivered to Buyer a draft statement of the Business Operating
Profit of the Metrology Business for the year ended December 31, 2000, adjusted
as follows (the "Metrology Adjusted Business Operating Profit Statement"): (i)
------------------------------------------------------
all effects of Staff Accounting Bulletin No. 101 shall be disregarded; (ii) all
income or gains and expenses or losses attributable to the Excluded Assets or
the Excluded Liabilities shall be excluded; (iii) all accruals for royalty
payments made or to be made by Seller or any of its Affiliates to WAI shall be
included; and (iv) the sum of $8.5 million shall be deducted as the agreed
amount of corporate expenses not allocable to the Metrology Business. All
calculations to be made pursuant to the preceding sentence shall be done in
accordance with GAAP consistent with Seller's past practice in connection with
the preparation of the Metrology Business Operating Profit as set out on the
Metrology Business Operating Profit Statement for the six months ended June 30,
2000, a form of which is attached as Exhibit A (collectively the "Existing
--------- --------
Company Practice"). For avoidance of doubt it is agreed that changes in the
----------------
restructuring reserves during the period are not included in the calculation of
Metrology Business Operating Profit.
If Buyer shall have any objections to the draft Metrology Adjusted Business
Operating Profit Statement, it will deliver a written notice describing in
detail its objections to Seller within 15 days after receiving the draft
Metrology Adjusted Business Operating Profit Statement. The sole permissible
grounds for objection shall be inconsistency with the terms of this Agreement or
Existing Company Practice, or computational errors.
Buyer and Seller will use their reasonable best efforts to resolve any such
objections. If a final resolution is not obtained within 15 days after Seller
has received the notice of such objections, the Auditor will resolve any
remaining such objections. The Auditor shall, upon a review of the draft
Metrology Adjusted Business Operating Profit Statement and consideration of
10
<PAGE>
Buyer's objections thereto, resolve any such objections that have not been
resolved by Buyer and Seller and revise the draft Metrology Adjusted Business
Operating Profit Statement (which, as so revised shall constitute the Final
Metrology Adjusted Business Operating Profit Statement (the "Final Adjusted
--------------
Metrology Business Operating Profit Statement")), determine the Metrology
---------------------------------------------
Adjusted Business Operating Profit Contingent Payment, and communicate the
foregoing to Buyer and Seller in writing, not later than 15 days following the
date of its receipt of such dispute. Buyer and Seller shall share equally in the
payment of all fees of the Auditor incurred in the resolution of such
objections.
(b) If Buyer and Seller resolve all such objections, if any, without resort
to the Auditor, Seller will, within five days of such resolution, cause the
draft Metrology Adjusted Business Operating Profit Statement to be revised as
appropriate to reflect such resolution (as agreed upon by the parties) and
deliver it to Buyer. Such revised Adjusted Metrology Business Operating Profit
Statement (or the draft Metrology Adjusted Business Operating Profit Statement
prepared by Seller, if Buyer does not object thereto in accordance with Section
2.5(a)) shall constitute the Final Adjusted Metrology Business Operating Profit
Statement. The Final Adjusted Metrology Business Operating Profit Statement as
determined under Sections 2.5(a) or (b) shall be conclusive and binding upon the
parties hereto.
(c) If the Adjusted Metrology Business Operating Profit shown on the Final
Adjusted Metrology Business Operating Profit Statement (the "Final Adjusted
--------------
Metrology Business Operating Profit") is equal to or less than $15 million,
-----------------------------------
there shall be no adjustment to the Purchase Price pursuant to this Section 2.5.
If the Final Adjusted Metrology Business Operating Profit is equal to or greater
than $17 million and equal to or less than $20 million, the Purchase Price shall
be increased by $10 million. If the Final Adjusted Metrology Business Operating
Profit is equal to or greater than $22 million, the Purchase Price shall be
increased by $20 million. If the Final Adjusted Metrology Business Operating
Profit is greater than $15 million but less than $17 million, the Purchase Price
shall be increased by an amount equal to the product of (i) five multiplied by
-------------
(ii) the difference between the Final Adjusted Metrology Business Operating
Profit and $15 million. If the Final Adjusted Metrology Business Operating
Profit is greater than $20 million but less than $22 million, the Purchase Price
shall be increased by an amount equal to $10 million plus the product of
----
(x) five multiplied by (y) the difference between the Final Adjusted Metrology
-------------
Business Operating Profit and $20 million. Any increase in the Purchase Price
pursuant to this Section 2.5(c) is referred to herein as the "Metrology Business
------------------
Operating Profit Contingent Payment." The Metrology Business Operating Profit
-----------------------------------
Contingent Payment, if any, shall be paid in cash, on the later of (A) the
Closing Date or (B) within five days of the delivery of the Final Adjusted
Metrology Business Operating Profit Statement.
2.6 The Closing. Upon the terms and subject to the satisfaction of the
-----------
conditions contained in Section 7 of this Agreement, the closing of the
transactions contemplated by this Agreement (the "Closing") will take place at
-------
the offices of Ropes & Gray, One International Place, Boston, Massachusetts at
10:00 A.M. (local time) on such date as the Parties may agree, which date shall
be as soon as practicable but no later than five Business Days following the
date on which all of the closing conditions set forth in Section 7 have been
satisfied or waived; or at
11
<PAGE>
such other place or time as the Parties may agree. The date and time at which
the Closing actually occurs is hereinafter referred to as the "Closing Date."
------------
2.7 Deliveries at the Closing. At the Closing, (a) Seller will deliver or
-------------------------
cause to be delivered to Buyer the various certificates, instruments, and
documents referred to in Section 7.1, including without limitation the Buyer
Lease, the BSIS Stock Purchase Agreement and the BSIS Stockholders' Agreement;
(b) Seller will execute and deliver to Buyer or the appropriate Buyer Affiliate:
(i) stock certificates duly endorsed (or such other instrument of transfer as
may be necessary or appropriate under Law) for transfer of the Metrology Stock
(including in accordance with Section 5.16 with respect to the WAI Stock); (ii)
bulk bills of sale (or such other instrument of transfer as may be necessary or
appropriate under Law) for the Metrology Assets which constitute personal
property; (iii) general assignments of the Metrology Intellectual Property owned
by Seller; (iv) a Foreign Investment in Real Property Tax Act Certification and
Affidavit with respect to the sale of Metrology Assets which constitute U.S.
real property; and (v) all such other instruments of assignment or conveyance as
shall, in the reasonable opinion of Buyer and its counsel, be necessary to
transfer to Buyer or the appropriate Buyer Affiliate the Metrology Stock and the
Metrology Assets in accordance with this Agreement; (c) Buyer and/or the
appropriate Buyer Affiliates will execute, acknowledge and deliver (i) an
assumption agreement of the Metrology Liabilities; and (ii) all such other
instruments of assumption as shall, in the reasonable opinion of Seller and its
counsel, be necessary for Buyer to assume the Metrology Liabilities in
accordance with this Agreement; (d) Buyer will deliver or cause to be delivered
to Seller the various certificates, instruments and documents referred to in
Section 7.2, including without limitation the Buyer Lease, the BSIS Stock
Purchase Agreement and the BSIS Stockholders' Agreement; and (e) Buyer will
deliver to Seller and the designated entities the consideration specified in
Section 2.3. At any time and from time to time after the Closing, at the request
of Buyer and at Seller's expense, Seller will execute and deliver or cause to be
executed and delivered, such other instruments of sale, transfer, conveyance,
assignment and confirmation and take such action as Buyer may reasonably
determine is necessary to transfer, convey and assign to Buyer or the
appropriate Buyer Affiliate the Metrology Stock and the Metrology Assets, all
such instruments and action to be in form and substance reasonably acceptable to
Seller. At any time and from time to time after the Closing, at the request of
Seller and at Buyer's expense, Buyer will execute and deliver or cause to be
executed and delivered, such other instruments of assumption and confirmation
and take such action as Buyer may reasonably determine is necessary to assume
the Metrology Liabilities, all such instruments and action to be in form and
substance reasonably acceptable to Buyer. At the Closing, Buyer or a Buyer
Affiliate shall also invest $2.5 million cash for the purchase of stock of BSIS.
3 Representations and Warranties of Seller.
----------------------------------------
Seller represents and warrants to Buyer as follows:
3.1 Organization of Seller and the Transferred Companies. Each of Seller
----------------------------------------------------
and the Transferred Companies is duly organized, validly existing, and in good
standing under the laws of its respective jurisdiction of incorporation. Copies
of the charter and bylaws (or equivalent documents) of each of the Transferred
Companies, in each case as in effect on the date hereof,
12
<PAGE>
have been made available to Buyer. Seller and each Transferred Company is
qualified to do business as a foreign corporation in every jurisdiction in the
United States in which it is required to be so qualified with respect to the
Metrology Business except for those jurisdictions where the failure to be so
qualified will not have a Material Adverse Effect. Each of Seller and the
Transferred Companies has full corporate power and authority and all material
Consents necessary to carry on the Metrology Business in which it is engaged and
to own and use the properties owned and used by it.
3.2 Authorization of Transaction. Seller has full corporate power and
----------------------------
authority to execute and deliver this Agreement and to perform its obligations
hereunder. Other than the approval by the holders of a majority of the issued
and outstanding shares of capital stock of Seller of the transactions
contemplated by this Agreement, all corporate and other actions or proceedings
to be taken by or on the part of Seller to authorize and permit the execution
and delivery by Seller of this Agreement and the instruments required to be
executed and delivered or caused to be executed and delivered by Seller pursuant
hereto, the performance by Seller of its obligations hereunder, and the
consummation by Seller of the transactions contemplated herein, have been duly
and properly taken. This Agreement has been duly executed and delivered by
Seller and, assuming the due authorization, execution and delivery by Buyer,
constitutes a legal, valid and binding obligation of Seller, enforceable against
Seller in accordance with its terms. Subject only to receiving the
aforementioned approval by Seller's shareholders, Seller has taken (and has
caused BSICC to take) all corporate action necessary to authorize the transfer
of the Metrology Assets and the Metrology Stock.
3.3 Noncontravention. Except as set forth on Schedule 3.3, neither the
---------------- ------------
execution and the delivery of this Agreement nor the consummation of the
transactions contemplated hereby, will (with or without the giving of notice or
the lapse of time or both) (a) violate any provision of the charter, by-laws or
other organizational document of any of Seller or the Transferred Companies; (b)
violate any Law to which any of Seller or the Transferred Companies is subject;
or (c) conflict with, result in a breach of, constitute a default under, result
in the acceleration of, create in any party the right to accelerate, terminate
or modify, or require any notice under any agreement, contract, lease, license,
instrument, indenture, note, mortgage or other arrangement to which any of
Seller or the Transferred Companies is a party or by which any is bound or to
which any of the assets of any such Person is subject if, in the case of clauses
(b) and (c), such violation, conflict, breach, default, acceleration or other
right could reasonably be expected to have a Material Adverse Effect or to
impair materially Seller's ability to consummate the transactions contemplated
by this Agreement. None of Seller or the Transferred Companies is required to
give any notice to, make any filing with, or obtain any Consent in order for any
of them to consummate the transactions contemplated by this Agreement (including
the assignments referred to in Section 2) except for the filings and Consents
set forth on Schedule 3.19 and except for such filings and Consents which, if
-------------
not made or obtained, would not reasonably be expected to have a Material
Adverse Effect.
3.4 Brokers' Fees, etc. Except as set forth on Schedule 3.4, none of Seller
------------------ ------------
or any Transferred Company has any Liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement, and the
13
<PAGE>
consummation of the transactions contemplated hereby will not give rise to any
valid claim against Buyer, any Buyer Affiliate or any Transferred Company for
any brokerage or finder's commission, fee or similar compensation.
3.5 Assets. Except as set forth on Schedule 3.5, each of Seller and the
------ ------------
Transferred Companies has good title to, or a valid leasehold interest in, or
legal right to use, the properties and assets used by it in the Metrology
Business and shown on the June 30 Metrology Unaudited Balance Sheet, or acquired
after the date thereof, free and clear of all Liens (other than Permitted
Liens), other than properties and assets disposed of in the ordinary course of
business since the date of the June 30 Metrology Unaudited Balance Sheet.
3.6 Business Conveyed. Except as set forth on Schedule 3.6, the Purchased
----------------- ------------
Assets include all of the assets reflected in the June 30 Metrology Unaudited
Balance Sheet (other than properties and assets disposed of in the ordinary
course of business since the date of the June 30 Metrology Unaudited Balance
Sheet) and constitute all of the assets used by Seller and the Transferred
Companies in the Metrology Business.
3.7 Title to Shares. Except as set forth in Schedule 3.7, Seller owns
--------------- ------------
directly or indirectly all of the outstanding shares of each Transferred
Company, free and clear of any restrictions on transfer, Liens, options,
equities, claims, and demands.
3.8 Capitalization of Transferred Companies. Schedule 3.8 sets forth for
--------------------------------------- ------------
each of the Transferred Companies (a) its name and jurisdiction of
incorporation; (b) the number of shares of authorized capital stock of each
class of its capital stock; (c) the number of issued and outstanding shares of
each class of its capital stock, and the names of the holders thereof. All of
the issued and outstanding shares of capital stock of each Transferred Company
have been duly authorized and are validly issued, fully paid, and nonassessable.
There are no preemptive or similar rights on the part of any holders of any
class of securities of any Transferred Company. Except for this Agreement, no
subscriptions, options, warrants, conversion or other rights, agreements,
commitments, arrangements or understandings of any kind obligating any
Transferred Company contingently or otherwise, to issue or sell, or caused to be
issued or sold, any shares of capital stock of any class of any Transferred
Company or any securities convertible into or exchangeable for any such shares,
are outstanding, and no authorization therefor has been given. There are no
outstanding contractual or other rights or obligations to or of any Person to
repurchase, redeem or otherwise acquire any outstanding shares or other equity
interests of any Transferred Company.
3.9 Financial Statements. (a) Seller has furnished Buyer with the following
--------------------
audited financial statements (collectively, the "Consolidated Audited Financial
------------------------------
Statements"): (i) an audited consolidated balance sheet for Seller and its
----------
Subsidiaries as of December 31, 1999 (the "1999 Year End Balance Sheet"); and
---------------------------
(ii) an audited consolidated statement of operating income for Seller and its
Subsidiaries for the year ended December 31, 1999. The Consolidated Audited
Financial Statements have been prepared in accordance with GAAP applied on a
consistent basis throughout the period covered thereby, the balance sheet
included in the Consolidated Audited Financial Statements presents fairly in all
material respects the financial
14
<PAGE>
condition of Seller and its Subsidiaries as of the date thereof, and the
statement of operating income included in the Consolidated Audited Financial
Statements presents fairly in all material respects the results of operations of
the Seller and its Subsidiaries for the period thereof. There is no material
Liability that was required to be reflected in the 1999 Year End Balance Sheet
in accordance with GAAP and that was not reserved against or reflected in such
balance sheet.
(b) Seller has furnished Buyer with the following unaudited financial
statements (collectively, the "Consolidated Unaudited Financial Statements"):
-------------------------------------------
(i) an unaudited consolidated balance sheet for Seller and its Subsidiaries as
-
of June 30, 2000; and (ii) an unaudited consolidated statement of operating
--
income Seller and its Subsidiaries for the six months ended June 30, 2000 (the
"Consolidated Unaudited Balance Sheet"). The Consolidated Unaudited Financial
------------------------------------
Statements have been prepared in accordance with GAAP applied on a consistent
basis throughout the period covered thereby, the balance sheet included in the
Consolidated Unaudited Financial Statements present fairly in all material
respects the financial condition of Seller and its Subsidiaries as of the date
thereof, and the statement of operating income included in the Consolidated
Unaudited Financial Statements presents fairly in all material respects the
results of operations of Seller and its Subsidiaries for the period thereof,
subject to normal and recurring year end adjustments and the absence of notes.
There is no material Liability that was required to be reflected in the
Consolidated Unaudited Balance Sheet in accordance with GAAP and that was not
reserved against or reflected in such balance sheet.
(c) Seller has furnished Buyer with the following unaudited financial
statements (collectively, the "Metrology Unaudited Financial Statements"): (i)
---------------------------------------- -
an unaudited consolidated balance sheet for the Metrology Business as of June
30, 2000 (the "June 30 Metrology Unaudited Balance Sheet"); and (ii) an
----------------------------------------- --
unaudited consolidated statement of operating income for the Metrology Business
for the six months ended June 30, 2000. The Metrology Unaudited Financial
Statements have been prepared in accordance with GAAP applied on a consistent
basis throughout the period covered thereby, the balance sheet included in the
Metrology Unaudited Financial Statements presents fairly in all material
respects the financial condition of the Metrology Business as of the dates
thereof, and the statement of operating income included in the Metrology
Unaudited Financial Statements presents fairly in all material respects the
results of operations of the Metrology Business for the period thereof, subject
to normal and recurring year end adjustments and the absence of notes. There is
no material Liability that was required to be reflected in the June 30 Metrology
Unaudited Balance Sheet in accordance with GAAP and that was not reserved
against or reflected in such balance sheet.
3.10 Absence of Changes. Since September 30, 2000, there has not been any
------------------
Material Adverse Effect, except as disclosed in this Agreement or the schedules
attached hereto. Except as set forth on Schedule 3.10, since June 30, 2000 the
-------------
Metrology Business has been carried on only in the ordinary course of business
consistent with past practice. Without limiting the foregoing, except as
disclosed on Schedule 3.10, since June 30, 2000:
-------------
(a) Seller has not sold, leased, transferred or assigned any assets
(individually or in the aggregate), tangible or intangible, in excess of
$1,000,000, other than inventory in the ordinary course of business
consistent with past practice;
15
<PAGE>
(b) Seller has not entered into any contract, whether oral or written,
which involves obligations in excess of $1,000,000 in the aggregate, other
than purchase obligations in the ordinary course of business consistent
with past practice;
(c) No Person, including Seller, has accelerated, terminated, made
material modifications to, or canceled any contract to which Seller is a
party or by which it is bound, except where the acceleration, modification
or cancellation would not have a Material Adverse Effect;
(d) No Person, including Seller, has imposed any Lien (other than
Permitted Liens) upon any of Seller's assets, tangible or intangible,
except pursuant to existing agreements;
(e) Seller has not made any capital expenditures or commitments in
excess of $9,000,000 in the aggregate;
(f) Seller has not made any investment in, or any loan to, any other
Person, other than its existing Subsidiaries;
(g) Seller has not incurred any Indebtedness (other than borrowings
from or prepayments to any of its Affiliates) except in the ordinary course
of business consistent with past practice;
(h) Seller has not granted any license or sublicense of any rights
under or with respect to any Intellectual Property, except where such
grants (individually or in the aggregate) would not have a Material Adverse
Effect:
(i) There has been no change made or authorized in the Certificate of
Incorporation or in the by-laws or other organizational documents of Seller
or of any of the Transferred Companies;
(j) Seller has not experienced any damage, destruction or loss
(whether or not covered by insurance) to any of its properties or assets in
excess of $1,000,000;
(k) Seller has not entered into any employment, severance, change in
control or similar contract or any collective bargaining agreement, written
or oral, or modified the terms of any existing such contract or agreement;
(l) Seller has not lost the employment services of any employee whose
annual salary exceeds $200,000;
(m) Seller has not granted any increase in the base compensation of
any of its directors, officers, employee or group of employees, other than
in the ordinary course of business consistent with past practice;
(n) Except as contemplated by the provisions of this Agreement, Seller
has not adopted, amended, modified, or terminated any bonus,
profit-sharing, incentive,
16
<PAGE>
severance, change in control or other plan, contract or commitment for the
benefit of any of its directors, officers, employee or group of employees
(or taken any such action with respect to any other employee benefit plan,
contract or arrangement);
(o) Seller has kept in full force and effect insurance comparable in
amount and scope to coverage maintained by it as of December 31, 1999 and
required pursuant to any material agreement, instrument or document to
which it is a party;
(p) Seller has not settled, released or forgiven any claim or
Litigation or waived any right, except where such settlement, release,
forgiveness or waiver would not have a Material Adverse Effect; and
(q) The Seller has not committed to do any of the foregoing.
3.11 Taxes. Except as set forth on Schedule 3.11:
----- -------------
(a) All Income Tax Returns required to be filed by Seller and the
Transferred Companies have been filed and were correct and complete in all
material respects. All Taxes shown to be due on such Income Tax Returns
have been paid. All other Tax Returns required to be filed by Seller and
the Transferred Companies have been filed, other than those Tax Returns as
to which the failure to file would not reasonably be expected to have a
Material Adverse Effect, and all material Taxes shown as due thereon have
been paid.
(b) There are no outstanding liens for Taxes (other than Permitted
Liens) upon the assets of any of the Transferred Companies or on the
Metrology Assets which would reasonably be expected to have a Material
Adverse Effect.
(c) There is no outstanding dispute or claim concerning any Tax for
which a Transferred Company could be liable which would reasonably be
expected to have a Material Adverse Effect.
(d) None of any Transferred Company, Seller or, with respect to the
conduct of the Metrology Business or the ownership of the Metrology Assets,
any member of any group of which any of the foregoing was a member (i) has
-
received any written notice of deficiency or assessment from any taxing or
other governmental authority with respect to Income Taxes or any written
notice of material deficiency or assessment from any taxing or other
governmental authority with respect to any other Taxes, (ii) is currently
--
under, or has received notice of commencement of, any audit by any taxing
or other governmental authority concerning any Income Taxes or any material
audit by any taxing or other governmental authority concerning any other
Taxes or (iii) has executed any waiver of the statute of limitations with
---
respect to the taxable period.
17
<PAGE>
(e) No Transferred Company is a party to any Tax sharing agreement,
Tax indemnification agreement or similar arrangement that will remain in
effect subsequent to the Closing.
(f) The unpaid Taxes of the Transferred Companies do not exceed by any
material amount the provision for such Taxes determined in accordance with
GAAP set forth in the Metrology Unaudited Financial Statements as said
provision is adjusted for operations and transactions through the Closing
Date in accordance with past customs and practices of Seller and its
Subsidiaries. For the avoidance of doubt, it is acknowledged that the term
"unpaid Taxes" shall not include deferred taxes.
(g) No Transferred Company has filed a consent under Code Section
341(f) relating to collapsible corporations. None of the Transferred
Companies has made any material payments, is obligated to make any material
payment, or is a party to any agreement that under certain circumstances
could obligate it to make any material payments that will not be deductible
under Code Section 280G.
3.12 Real Property, Plant and Equipment.
----------------------------------
(a) Schedule 3.12 hereto sets forth a complete and correct list of all
-------------
real property owned by Seller or any of the Transferred Companies, and each
agreement (including all amendments) under which any real property is
leased by Seller or any of the Transferred Companies (the "Leases", and
------
together with the real property owned by Seller or any of the Transferred
Companies, the "Real Property"). Seller and each Transferred Company has
-------------
good and valid title to all the real property listed in Schedule 3.12 as
-------------
owned by it, and valid leasehold interests in all real property listed in
Schedule 3.12 as leased by it, free and clear of all Liens other than
-------------
Permitted Liens. Each of Seller and the Transferred Companies enjoys
peaceful and undisturbed possession under all Leases under which it
operates. Neither Seller nor any Transferred Company has received written
notice that, and Seller has no Knowledge that, the ownership or lease of
the Real Property by Seller or a Transferred Company or the use thereof, as
presently used by Seller or a Transferred Company, violates any local
zoning or similar land use laws or governmental regulations. Neither Seller
nor any Transferred Company has received written notice of, and Seller has
no Knowledge of, any presently existing, violation of or noncompliance with
any covenant, condition, restriction, order or easement affecting the Real
Property. Neither Seller nor any Transferred Company has received written
notice of, and Seller has no Knowledge of, any presently pending or
threatened, condemnation affecting the Real Property. Seller has made
available to the Buyer complete and correct copies of the Leases referred
to in Schedule 3.12. To the Knowledge of Seller, there are no material
-------------
defects in any buildings, structures and appurtenances thereto located on
the Real Property. Seller affirms that on the date hereof no material
breach or default under any material Lease has occurred and that the Leases
and the terms, conditions, covenants, agreements and provisions contained
therein are in full force and effect in all material respects.
18
<PAGE>
(b) The tangible personal property included in the Purchased Assets,
taken as a whole, is in all material respects adequate for the purpose for
which it is currently used or held for use, has been maintained in
accordance with normal industry practice and is in satisfactory repair and
operating condition (subject to normal wear and tear).
3.13 Intellectual Property. Schedule 3.13 sets forth a list of all
--------------------- -------------
registered Patents and Trademarks owned by Seller and the Transferred Companies,
and such Patents and Trademarks, together with all other Metrology Intellectual
Property, represent all such rights related to the Metrology Business. Except as
set forth in such Schedule 3.13, with respect to each such item of Metrology
-------------
Intellectual Property:
(a) to the Knowledge of Seller, Seller and the Transferred Companies
have sole, exclusive, valid and unencumbered title to such Metrology
Intellectual Property, and have not granted any Liens, licenses or other
agreements thereon or thereto;
(b) Seller and the Transferred Companies have not undertaken or
omitted to undertake any acts, and Seller knows of no circumstances or
grounds that would render unenforceable, invalidate, reduce or eliminate,
in whole or in part, such Metrology Intellectual Property or Seller's title
thereto;
(c) to the Knowledge of Seller, no Dispute exists which challenges the
legality, validity, enforceability or uses of such Metrology Intellectual
Property, and Seller knows of no circumstances or grounds that exist that
would give rise to such Disputes;
(d) Seller knows of no third party that has infringed such Metrology
Intellectual Property, except where such infringement of such item,
individually or in the aggregate, is not reasonably likely to have a
Material Adverse Effect;
(e) such Metrology Intellectual Property is not subject to any
outstanding injunction, judgment, order, decree, ruling, charge, settlement
or other disposition of Dispute, and Seller has fully complied with, paid
and otherwise satisfied all such obligations, if any; and
(f) to the Knowledge of Seller, Seller and the Transferred Companies
have full right, power and authority to grant all of the rights, title and
interests with respect to such Metrology Intellectual Property granted in
this Agreement.
3.14 Contracts. Schedule 3.14 lists the following contracts, agreements,
--------- -------------
commitments or obligations (whether written or oral) to which any Transferred
Company or, with respect to the Metrology Business, Seller is a party:
(a) any agreement under which it has created, incurred, assumed, or
guaranteed any Indebtedness or under which a Lien has been imposed on any
of its assets, tangible or intangible with a value in excess of $200,000 in
the case of any agreement in Italy,
19
<PAGE>
Germany, Switzerland or the United States or with a value in excess of
$1,000,000 in the case of other agreements;
(b) any distribution or selling agreement under which revenues
exceeded $1,000,000 in 1999;
(c) any agreement or commitment for capital expenditures in excess of
$1,000,000 for any single project;
(d) any agreement for the lease of personal property to or from any
Person providing for lease payments in excess of $100,000 per year in the
case of any agreement in Italy, Germany, Switzerland or the United States
or providing for lease payments in excess of $1,000,000 in the case of
other agreements;
(e) any agreement for the purchase or sale of raw materials,
commodities, supplies, products, or other personal property, or for the
furnishing or receipt of services, the performance of which will extend
over a period of more than one year and which involves or is reasonably
expected to involve consideration in excess of $1,000,000;
(f) any agreement containing a material noncompetition provision;
(g) any collective bargaining or similar labor agreement;
(h) any employment agreement providing for consideration in excess of
$150,000 per annum or providing severance compensation and benefits having
an aggregate value in excess of $150,000 in the case of any agreement in
Italy, Germany, Switzerland or the United States or providing for
consideration in excess of $1,000,000 per annum or providing severance
compensation and benefits having an aggregate value in excess of $1,000,000
in the case of any other agreement and any consultant agreement providing
for consideration in excess of $200,000 per annum in the case of agreements
in Italy, Germany, Switzerland or the United States or providing for
consideration in excess of $1,000,000 per annum in the case of all other
agreements;
(i) any brokerage or finder's agreement which involves or is
reasonably expected to involve consideration in excess of $200,000;
(j) any joint venture, partnership or similar agreement involving
sharing of profits or expenses (including joint research and development
and joint marketing contracts) which is material to the Metrology Business;
(k) any material operating lease (as lessor, lessee, sublessor or
sublessee) of any real property (other than Excluded Assets);
(l) any license (as licensor, licensee, sublicensor or sublicensee) of
any Intellectual Property which involves or is reasonably expected to
involve consideration in
20
<PAGE>
excess of $100,000 in any one year in the case of agreements in Italy,
Germany, Switzerland or the United States or in excess of $1,000,000 in any
one year in the case of all other agreements; and
(m) any other agreement which is material to the Metrology Business
and which involves or is reasonably expected to involve consideration in
excess of $500,000 in the case of agreements in Italy, Germany, Switzerland
or the United States or in excess of $1,000,000 in the case of all other
agreements.
Seller has made available to Buyer a copy of each such written agreement and a
written summary setting forth the terms and conditions of each such oral
agreement. Except as disclosed in Schedule 3.14, with respect to each such
-------------
agreement: (A) the agreement is in full force and effect and (B) the Transferred
- -
Company or Seller, as applicable, which is a party to such agreement and, to the
Knowledge of Seller, each other party thereto, is not in breach or default
thereof, except for breaches or defaults that would not reasonably be expected
to have a Material Adverse Effect. No Consent of any third party is required
under any such agreement as a result or in connection with the execution of or
the consummation of the transactions contemplated by this Agreement except for
Consents set forth on Schedule 3.19 or Consents which, if not obtained, would
-------------
not have a Material Adverse Effect or materially impair the ability of Seller to
consummate the transactions contemplated hereby or thereby.
3.15 Powers of Attorney. Schedule 3.15 sets forth a list of outstanding
------------------ -------------
powers of attorney executed on behalf of the Transferred Companies or by which
any Purchased Asset is bound.
3.16 Litigation. Except as set forth in Schedule 3.16, and other than
---------- -------------
Excluded Liabilities, Seller is not a party to any suit, claim, action,
proceeding or, to Seller's Knowledge, investigation before any Governmental
Entity or before any arbitrator, and to the Knowledge of Seller, no material
suit, claim, action, proceeding or investigation has been threatened, and to
Seller's Knowledge, there is no reasonable basis for any such material suit,
claim, action, proceeding or investigation. Except as set forth on Schedule
--------
3.16, Seller is adequately insured against any matter listed on Schedule 3.16.
----
Seller is not subject to any outstanding order, writ, injunction or decree that,
individually or in the aggregate, could have a Material Adverse Effect on the
Metrology Business or the Purchased Assets or that could prevent or
significantly delay the consummation of the transactions contemplated by this
Agreement.
3.17 Compliance with Law; Environmental Matters. (a) Except as set forth on
------------------------------------------
Schedule 3.17, each of Seller and its Subsidiaries is not, and has not been, in
-------------
conflict with or in violation or breach of or default under (and there exists no
event that, with notice or passage of time or both, would constitute a conflict,
violation, breach or default with, of or under) any Law applicable to it or any
of its properties, assets, operations or business, except for any such conflict,
breaches, violations and defaults that, individually or in the aggregate, would
not reasonably be expected to have or result in a Material Adverse Effect or to
impair materially the ability of Seller to consummate the transactions
contemplated hereby. Without limiting the foregoing, to the Knowledge of Seller,
the Transferred Companies and, with respect to the
21
<PAGE>
Metrology Business, Seller are in compliance with all applicable Laws regarding
employment practices, terms and conditions of employment, wages and hours and
have not been and are not engaged in any unfair labor practice, except where a
failure to comply or engaging in such practice would not reasonably be expected
to have a Material Adverse Effect.
(b) Except as set forth on Schedule 3.17, to the Knowledge of Seller, the
-------------
Transferred Companies and, with respect to the Metrology Business, Seller are in
material compliance with all applicable Environmental Laws, except where the
failure to be in such compliance would not reasonably be expected to have a
Material Adverse Effect, and no notice of such non-compliance has been received
by Seller or any of its Affiliates.
3.18 Employee Benefits. (a) Schedule 3.18 lists each Employee Benefit Plan
----------------- -------------
maintained or with respect to which contributions are made by Seller or any of
its Affiliates in respect of any employees of the Transferred Companies or, with
respect to the Metrology Business, Seller, and any other profit-sharing, stock
option, stock purchase, stock appreciation, deferred compensation, severance or
other material plan or arrangement for the benefit of such employees. Except as
set forth in Schedule 3.18, (i) each such Employee Benefit Plan (and each
-------------
related trust, insurance contract or fund) complies in form and in operation in
all material respects with the applicable requirements of ERISA, the Code, and
other applicable Laws; (ii) all contributions which are due have been paid to
each such Employee Benefit Plan which is an Employee Pension Benefit Plan and
all contributions for any period ending on or before the Closing Date which are
not yet due have been paid to each such Employee Pension Benefit Plan or accrued
in accordance with the past custom and practice; and (iii) all premiums or other
payments for all periods ending on or before the Closing Date have been paid
with respect to each such Employee Benefit Plan which is an Employee Welfare
Benefit Plan. Seller has made available to Buyer copies of the plan documents
and summary plan descriptions, the most recent determination letter received
from the Internal Revenue Service, the most recent Internal Revenue Service Form
5500 Annual Report, all related trust agreements, insurance contracts, and other
funding agreements which implement or relate to each such Employee Benefit Plan.
(b) Neither Seller nor any ERISA Affiliate has maintained an Employee
Pension Benefit Plan subject to Title IV of ERISA or any such plan maintained by
the Seller or any ERISA Affiliate has been terminated on a fully funded basis
and termination was approved by both Pension Benefit Guaranty Corporation and
the Internal Revenue Service and there is no post termination audit or review by
any government agency in progress as of the date of closing.
(c) There are no liens on the assets of any Employee Pension Benefit Plan.
(d) There are no withdrawal liabilities of Seller or an ERISA Affiliate for
any multiemployer pension plan other than as shown on Schedule 3.18.
-------------
(e) There have been no prohibited transactions (as defined in Section 4975
of the Code) with respect to any Employee Pension Benefit Plan and no
transaction which could give rise to any tax or penalty under Section 4975 of
the Code or Section 502 of ERISA, except as shown on Schedule 3.18.
-------------
22
<PAGE>
(f) No Employee Benefit Plan contains a provision which will cause
forfeitures of account balances of Buyer Employees whose benefits are
transferred to a transferee plan of Buyer.
(g) All Employee Pension Benefit Plans containing assets which will be
transferred to a plan maintained by Buyer have been administered and are in
compliance in all material respects with ERISA and the Code.
3.19 Consents. Schedule 3.19 sets forth a list of the material Consents
-------- -------------
(collectively, the "Seller Required Approvals") required for the consummation by
-------------------------
Seller or its Affiliates of the transactions contemplated hereby.
3.20 Absence of Undisclosed Liabilities. Except for Liabilities (a)
----------------------------------
incurred since June 30, 2000 in the ordinary course of business and consistent
with past practice, (b) otherwise disclosed in Schedule 3.20, or (c) reserved
-------------
against or reflected in the June 30 Metrology Unaudited Balance Sheet, none of
the Transferred Companies or, with respect to the Metrology Business, Seller has
any Liabilities (other than Excluded Liabilities) that, individually or in the
aggregate, have had or would be reasonably likely to have a Material Adverse
Effect.
3.21 Affiliate Transactions. Schedule 3.21 sets forth all material
---------------------- -------------
agreements, contracts, transactions or commitments therefor by which any of the
Transferred Companies on the one hand, and any of the Retained Entities on the
other hand, are a party or are otherwise bound which were in effect prior to the
Closing and which will continue to be in effect after the Closing Date.
3.22 No Guarantees. Except as set forth in Schedule 3.22, (a) none of the
------------- -------------
Liabilities of the Metrology Business or of Seller or any of the Transferred
Companies incurred in connection with the operation of the Metrology Business is
guaranteed by or subject to a similar contingent obligation of any other Person
and (b) none of Seller or any of the Transferred Companies has guaranteed or
become subject to a similar contingent obligation in respect of the Liabilities
of any other Person in connection with the operations of the Metrology Business.
3.23 No Improper Payments. Neither Seller nor any agent of Seller, or any
--------------------
person or entity associated with or acting on behalf of Seller, has directly or
indirectly (a) made any material contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any person or entity, private
or public, regardless of what form, whether in money, property or services (i)
to obtain favorable treatment for business secured, (ii) to pay for favorable
treatment for business secured, (iii) to obtain special concessions or for
special concessions already obtained, or (iv) in violation of any legal
requirement, or (b) established or maintained any fund or asset that has not
been recorded in the books and records of Seller. Seller and all agents,
employees and other parties who have acted on behalf of Seller have acted in
full compliance in all material respects with the Prohibited Foreign Trade
Practices Act.
23
<PAGE>
3.24 Insurance. Seller maintains insurance with respect to the Metrology
---------
Business, and Seller is in compliance with all material requirements and
provisions of their insurance policies. No notice of cancellation has been given
to or received by Seller with respect to lapse and no such insurance policy is
subject to any retroactive rate or audit adjustment or coinsurance arrangement.
Seller will provide to Buyer within 30 days after the date of this Agreement a
complete and accurate list of all insurance policies maintained by Seller with
respect to the Metrology Business.
3.25 Restrictions on Business Activities. Except as set forth on Schedule
----------------------------------- --------
3.25, there is no judgment, injunction, order or decree binding upon Seller or
----
any Transferred Company or, to the Knowledge of Seller, threatened that has or
could reasonably be expected to have the effect of prohibiting or impairing any
business practice of Seller or a Transferred Company (either individually or in
the aggregate), any acquisition of property by Seller or a Transferred Company
(either individually or in the aggregate), providing of any service by Seller or
a Transferred Company or the hiring of employees or the conduct of business by
Seller or a Transferred Company (either individually or in the aggregate), as
currently conducted, except for such prohibitions or impairments which would not
reasonably be expected to have a Material Adverse Effect.
3.26 Disclosure and Duty of Inquiry. Buyer is not nor will it be required
------------------------------
to undertake any independent investigation to determine the truth, accuracy and
completeness of the representations and warranties made by Seller pursuant to
this Article 3.
4 Representations and Warranties of Buyer.
---------------------------------------
Buyer represents and warrants to Seller as follows:
4.1 Organization of Buyer. Buyer is a limited liability company duly
---------------------
organized, validly existing, and in good standing under the laws of Sweden. As
of the Closing Date, each of the Buyer Affiliates will be an entity duly
organized, validly existing and in good standing under the laws of its
respective jurisdiction of organization and a wholly-owned subsidiary of Buyer.
4.2 Authorization of Transaction. Buyer and each Buyer Affiliate have full
----------------------------
corporate power and authority to execute and deliver this Agreement and to
perform their respective obligations hereunder. All corporate and other actions
or proceedings to be taken by or on the part of Buyer or any Buyer Affiliate to
authorize and permit the execution and delivery by Buyer and any Buyer Affiliate
of this Agreement and the instruments required to be executed and delivered or
caused to be executed and delivered by Buyer and the Buyer Affiliates pursuant
hereto, the performance by Buyer and the Buyer Affiliates of their obligations
hereunder, and the consummation by Buyer and the Buyer Affiliates of the
transactions contemplated herein, have been duly and properly taken. This
Agreement has been duly executed and delivered by Buyer and any applicable Buyer
Affiliate and, assuming the due authorization, execution and delivery by Seller,
constitutes a legal, valid and binding obligation of Buyer and the Buyer
Affiliates, enforceable against Buyer and the Buyer Affiliates in accordance
with its terms.
24
<PAGE>
4.3 Noncontravention. Neither the execution and the delivery of this
----------------
Agreement by Buyer, nor the consummation by Buyer or the Buyer Affiliates of the
transactions contemplated hereby will (i) violate any provision of its charter,
by-laws or other organizational document, (ii) violate any Law to which Buyer or
any Buyer Affiliate is subject or (iii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other arrangement
to which Buyer or any Buyer Affiliate is a party or by which it is bound or to
which any of its assets is subject if, in the case of clauses (ii) and (iii),
such violation, conflict, breach, default, acceleration or other right could
reasonably be expected to impair materially Buyer's or any Buyer Affiliate's
ability to consummate the transactions contemplated by this Agreement. None of
Buyer or any of the Buyer Affiliates needs to give any notice to, make any
filing with, or obtain any Consent in order for it to consummate the
transactions contemplated by this Agreement (including the assumptions referred
to in Section 2), except for the filings and Consents listed in Schedule 4.6.
------------
4.4 Purchase for Investment. Buyer (and/or any Buyer Affiliate) is
-----------------------
purchasing the shares of the Transferred Companies for its own account for
investment and not with a view to the disposition thereof or with any present
intention of distribution or selling any of such shares.
4.5 Brokers' Fees. Buyer has no liability or obligation to pay any fees or
-------------
commissions to any broker, finder, or agent with respect to the transactions
contemplated by this Agreement for which Seller or any Retained Subsidiary could
become liable or obligated.
4.6 Consents. Schedule 4.6 sets forth a list of the material Consents
-------- ------------
(collectively, the "Buyer Required Approvals") required for the consummation by
------------------------
Buyer and the Buyer Affiliates of the transactions contemplated hereby,
including without limitation all non-United States jurisdictions in which the
approval of any antitrust or similar authority is required for consummation of
the transactions contemplated by this Agreement.
4.7 Financing. Buyer has sufficient financial resources available to it so
---------
as to enable Buyer to satisfy its obligations under this Agreement.
5 Covenants.
---------
5.1 General. Each of the Parties will use its reasonable best efforts to
-------
take all actions and to do all things necessary, proper, or advisable in order
to consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 7 below and including reasonable best efforts to achieve prompt
termination of the waiting period under the Hart-Scott-Rodino Act and other
similar laws in other jurisdictions with respect to all transactions
contemplated hereby, including sale of the WAI Stock and obtain all consents to
transfer to the Buyer the Seller's interests in two Chinese joint ventures
listed in the definition of Metrology Stock.
25
<PAGE>
Buyer will, within ten days after execution and delivery of this Agreement
advise the Seller in writing of any such similar laws in jurisdictions outside
the United States
5.2 Notices and Consents; Stockholder Meeting. Seller and Buyer will use
-----------------------------------------
their reasonable best efforts to obtain or make the Seller Required Approvals
and the Buyer Required Approvals, as the case may be. Seller shall call and hold
a special meeting of stockholders as promptly as practicable and in accordance
with applicable laws for the purpose of voting upon the approval of this
Agreement and the transactions contemplated hereby. Unless otherwise required
under the applicable fiduciary duties of the directors of Seller, as determined
by such directors in good faith after consultation with and based upon the
written advice of their outside legal counsel, Seller shall (i) recommend
approval of the transactions contemplated by this Agreement by the stockholders
of Seller and (ii) use all reasonable best efforts to solicit from its
stockholders proxies in favor of adoption of this Agreement and approval of the
transactions contemplated hereby and shall take all other action necessary or
advisable to secure the vote or consent of stockholders to obtain such approval.
5.3 Operation of Business. Pending the Closing, Seller shall, and shall
---------------------
cause the Transferred Companies to, operate the Metrology Business only in the
ordinary course consistent with past practice and to consult with and keep Buyer
fully informed as to all changes in policies or practices material to the
Metrology Business as a whole. Without limiting the generality of the foregoing,
(x) Seller will cause each Transferred Company not to issue or sell any shares
-
of any class of its capital stock, or any securities convertible into or
exchangeable for any such shares, or issue, sell, grant or enter into any
subscriptions, options, warrants, conversion or other rights, agreements,
commitments, arrangement or understandings of any kind, contingently or
otherwise, to purchase or otherwise acquire any such shares or any securities
convertible into or exchangeable for any such shares and (y) each Transferred
-
Company and, with respect to the Metrology Business, Seller (other than with the
consent of Buyer) agree:
(a) not to incur any Indebtedness (other than any borrowings from or
prepayments to any of its Affiliates) except in the ordinary course of
business consistent with past practice;
(b) not to pay or commit to pay any bonus, other incentive
compensation, change-in-control or similar compensation to any officer,
director, employee, sales representative, agent or consultant or grant or
commit to grant to any officer, director, employee, sales representative,
agent, consultant or Affiliate any other increase in, or additional,
compensation in any form, other than those made under existing plans or
programs or the increases, bonuses and other items listed on Schedule 5.3;
------------
(c) not to enter into, institute, adopt or materially amend or commit
to enter into, institute, adopt or materially amend any employment,
consulting, retention, change-in-control, collective bargaining, bonus or
other incentive compensation, profit-sharing, health or other welfare,
stock option or other equity, pension, retirement, vacation, severance,
deferred compensation or other employment, compensation or benefit plan,
policy, agreement trust, fund or arrangement in respect of or for the
benefit of any officer,
26
<PAGE>
director, employee, sales representative, agent or consultant or Affiliate
(whether or not legally binding), except as contemplated by this Agreement
or as listed on Schedule 5.3;
------------
(d) not to sell, transfer, assign, mortgage, pledge, hypothecate,
grant any security interest in, or otherwise subject to any other Lien, any
of its assets other than inventory in the ordinary course of business
consistent with past practice and other than in accordance with existing
agreements; provided, however, that this clause shall not prohibit
-------- -------
Aftermarket Services from selling its shares of WAI in accordance with the
Right of First Refusal described in Section 5.16 or transferring the
proceeds from any such sale to Seller;
(e) not to enter into or assume any contract providing for the payment
of an amount in excess of $1,000,000 per year, or enter into or permit any
amendment, supplement, waiver or other modification in respect thereof
other than in the ordinary course of business consistent with past
practice;
(f) not to cause or permit any amendment, supplement, waiver or
modification to or of any of its certificate of incorporation, by-laws or
other organizational documents;
(g) not to merge or consolidate with, or agree to merge or consolidate
with, or purchase substantially all of the assets of, or otherwise acquire,
any business, business organization or division thereof, or any other
Person, other than with respect to Excluded Assets;
(h) not to agree or otherwise commit to take any of the actions
described in the foregoing paragraphs (a) through (g);
(i) to use commercially reasonable efforts to keep in full force and
effect insurance comparable in amount and scope of coverage to insurance
carried by it as of the date hereof;
(j) to maintain its books of account and records in the ordinary
course of business consistent with past practice;
(k) to maintain its properties and facilities in as good working order
and condition as at present, ordinary wear and tear excepted;
(l) not to accelerate, terminate, make material modifications to, or
cancel any contract to which Seller is a party or by which it is bound,
except where such acceleration, modification or cancellation would not have
a Material Adverse Effect;
(m) not to make any capital expenditures or commitments in excess of
$9,000,000 in the aggregate;
27
<PAGE>
(n) not to make any material investment in, or any loan to, any other
Person (other than its existing Subsidiaries);
(o) not to grant any license or sublicense of any rights under or with
respect to any Intellectual Property, except where the grants (individually
or in the aggregate) would not have a Material Adverse Effect;
(p) not to settle, release or forgive any claim or litigation or waive
any right, except where such settlement, release, forgiveness or waiver
would not have a Material Adverse Effect;
(q) not to make any changes in any method of accounting, or accounting
principles, which would increase the Purchase Price or the timing of the
payment thereof or which Seller's independent certified public accountant,
which is of nationally recognized standing, would consider material, other
than changes related to Staff Accounting Bulletin No. 101 which shall be
disregarded for all purposes of this Agreement; and
(r) not to increase in any material respect the average time of
payment of its U.S. accounts payable to vendors beyond the level applicable
at September 30, 2000, which level the parties acknowledge and agree was 63
days.
5.4 Access. Subject to the Confidentiality Agreement dated August 3, 2000
------
between Seller and Buyer, Seller will permit representatives of Buyer to have
full access at all reasonable times before and after the Closing, upon
reasonable notice, and in a manner so as not to interfere with the normal
business operations of the Metrology Business, to all premises, properties,
books, records, and documents of or pertaining to the Metrology Business.
5.5 Employee Matters. (a) Buyer shall, or shall cause a Buyer Affiliate to,
----------------
offer employment, effective as of the Closing Date, to substantially all
individuals employed by Seller in the Metrology Business other than those
employees who have change in control or severance agreements with the Seller and
Buyer shall be responsible for and indemnify Seller against all severance or
termination amounts payable to all individuals employed by Seller in the
Metrology Business (whether or not receiving an offer from Buyer), other than
such employees who have change in control or severance agreements with the
Seller. Each such individual who accepts such offer of employment with Buyer or
a Buyer Affiliate pursuant to this Section 5.5(a) and each individual who, as of
the Closing Date, is employed by a Transferred Company shall be referred to
herein as a "Buyer Employee".
--------------
(b) On the Closing Date, Buyer shall provide all Buyer Employees with
employment on substantially the same terms and conditions with, at a minimum,
substantially the same compensation and substantially the same or comparable
benefits as are provided to such employees by Seller or a Transferred Company
immediately prior to the Closing Date.
28
<PAGE>
(c) In the case of each Employee Benefit Plan listed on Schedule 3.18 that
-------------
is an Employee Welfare Benefit Plan, as of the Closing Date, all Buyer Employees
shall cease to participate in such Employee Benefit Plan and shall commence to
participate in welfare benefit plans of Buyer (the "Replacement Welfare Plans").
-------------------------
Buyer shall cause the Replacement Welfare Plans to (i) waive all limitations as
-
to pre-existing condition exclusions and actively at work requirements as to
each Buyer Employee except to the extent such exclusions or requirements had not
been satisfied with respect to such Buyer Employee's participation under the
comparable Employee Benefit Plan in which such Buyer Employee was a participant
immediately prior to his commencement of participation in the applicable
Replacement Welfare Plan (the "Comparable Benefit Plan"), (ii) recognize the
----------------------- --
service of each Buyer Employee with the Transferred Companies or Seller
completed prior to the Closing Date for purposes of any waiting period or other
eligibility requirements under the Replacement Welfare Plans to the extent such
service would have been taken into account under the Comparable Benefit Plan and
(iii) for purposes of satisfying any deductible or out-of-pocket requirements
---
under each Replacement Welfare Plan for the year in which the Closing Date
falls, provide each Buyer Employee with credit for any co-payments and
deductibles paid under the terms of the Comparable Benefit Plan during such year
and prior to the Closing Date.
(d) Buyer shall cause the trustee of one or more defined contribution plans
of Buyer or Buyer's United States Affiliate that qualify under section 401(a) of
the Code (the "transferee plan") to accept rollovers, including "direct
rollovers" described in Section 401(a)(31) of the Code, of all or any portion of
any "eligible rollover distribution" described in Section 402(c)(4) of the Code
or Section 408(d)(3) of the Code with respect to the benefits of a Buyer
Employee under any Employee Benefit Plan listed on Schedule 3.18 that is a
-------------
defined contribution plan qualifying under section 401(a) of the Code (the
"transferor plan"). In the case of any such Buyer Employee whose interest in a
transferor plan includes one or more outstanding participant loans, Buyer shall
cause the applicable transferee plan to accept in kind, as part of a direct
rollover described in the preceding sentence, the promissory note(s)
representing such loan(s) and to facilitate the continuation of such outstanding
loan in accordance with its terms.
Notwithstanding the foregoing, Buyer shall not accept a rollover of the
Seller's ESOP and shall not assume any liabilities under Seller's Umbrella SERP
except with respect to employees of Seller or Transferred Companies that Buyer
or its Affiliates hire or retain on the Closing Date without giving a
termination notice in respect thereto.
(e) Buyer shall indemnify Seller and its Affiliates and defend and hold
each of them harmless from and against any Losses which may be incurred by any
of them under the Worker Adjustment and Restraining Notification Act of 1988
(the "WARN Act"), or any state plant closing or notification law, or similar law
--------
in jurisdictions outside the United States, arising out of, or relating to, any
actions taken by Buyer or its Affiliates on or after the Closing Date. Seller
shall indemnify Buyer and its Affiliates and defend and hold each of them
harmless from and against any Losses which may be incurred by any of them under
the WARN Act or any state plant closing or notification law, or similar law in
jurisdictions outside the United States, arising
29
<PAGE>
out of, or relating to, any actions to close a plant taken by Seller or the
Retained Entities prior to, at or after the Closing.
5.6 Bulk Sales Compliance. Buyer hereby waives compliance by Seller with
---------------------
the provisions of any bulk sales or similar law of any jurisdiction.
5.7 Notice of Developments. Prior to the Closing Date, Seller or Buyer
----------------------
shall promptly notify the other party in writing of any development causing a
breach of any of its own representations and warranties contained in this
Agreement.
5.8 No Solicitation. (a) During the term of this Agreement, Seller shall
---------------
not, and shall cause each of its Subsidiaries and its and their respective
directors, officers, employees, agents and representatives not to (x) solicit,
-
initiate or encourage the initiation of any inquiries or proposals regarding the
acquisition by any Person of any of the Metrology Stock, or all or a material
portion of the Metrology Business or of the Purchased Assets (any of the
foregoing inquiries or proposals being referred to herein as an "Acquisition
-----------
Proposal"), (y) engage in negotiations or discussions concerning, or furnish or
-------- -
permit to be furnished any non-public information concerning the Metrology
Business to any Person relating to, any Acquisition Proposal, or (z) agree to,
-
approve or recommend any Acquisition Proposal. Nothing contained in this Section
5.8(a) shall prevent the Board of Directors of Seller from considering,
negotiating, discussing, approving and recommending to the stockholders of
Seller a bona fide Acquisition Proposal not solicited, initiated or encouraged
in violation of this Agreement, provided the Board of Directors of Seller
determines in good faith (upon the advice of outside counsel) that it is
required to do so in order to discharge properly its fiduciary duties. Nothing
contained in this Section 5.8 shall prohibit the Board of Directors of Seller
from complying with Rule 14e-2 promulgated under the Exchange Act with regard to
a tender or exchange offer.
(b) Seller shall immediately notify Buyer after receipt of any Acquisition
Proposal, or any modification of or amendment to any Acquisition Proposal, or
any request for non-public information relating to the Metrology Business in
connection with an Acquisition Proposal or for access to the properties, books
or records of Seller or any of its Subsidiaries by any person or entity that
informs the Board of Directors of Seller or such Subsidiary that it is
considering making, or has made, an Acquisition Proposal. Such notice to Buyer
shall be made orally and in writing, and shall indicate whether Seller is
providing or intends to provide the Person making the Acquisition Proposal with
access to information concerning Seller as provided in Section 5.8(c).
(c) If the Board of Directors of Seller receives a request for material
non-public information by a Person who makes, or indicates that it is
considering making, a bona fide Acquisition Proposal, and the Board of Directors
of Seller determines in good faith and upon the advice of outside counsel that
it is required to cause Seller to act as provided in this Section 5.8(c) in
order to discharge properly the directors' fiduciary duties, then, provided such
Person has executed a confidentiality agreement substantially similar to the one
then in effect between Seller and Buyer, Seller may provide such Person with
access to information regarding the Metrology Business.
30
<PAGE>
(d) Seller shall immediately cease and cause to be terminated any existing
discussions or negotiations with any Persons (other than Buyer) conducted
heretofore with respect to any of the foregoing. Seller agrees not to release
any third party from the confidentiality provisions of any confidentiality
agreement to which Seller is a party.
5.9 Noncompetition; Nonsolicitation. Seller agrees that, in consideration
-------------------------------
of the purchase of the Metrology Stock and the Metrology Assets by Buyer
hereunder, neither it nor BSIS shall, on or prior to the date which is five (5)
years after the Closing Date, directly or indirectly, own, manage, operate,
control or invest in any business or venture engaged in whole or in part in the
Metrology Business or any portion thereof; provided, however, that this Section
-------- -------
5.9 shall not preclude Seller or BSIS, together with their respective
Affiliates, from developing and marketing the XactMeasure or other software
products of BSIS (but not the legacy software derivatives referred to in the
third paragraph of Section 5.13). The restrictions contained in this Section 5.9
shall apply to any successors to the business of Seller or BSIS.
Reference is made to the BSIS Stockholders' Agreement for certain royalty
obligations of BSIS to the Buyer and related matters.
Seller further agrees that, on or prior to the date which is five (5) years
after the Closing Date, neither Seller nor BSIS will directly or indirectly
without the prior written consent of Buyer, recruit, offer employment, employ,
engage as a consultant, lure or entice away or in any other manner persuade or
attempt to persuade any person who is an employee or full-time or half-time
consultant of Buyer or any of its Affiliates, to leave the employ of Buyer or
such Affiliate unless such person has been terminated by Buyer or an Affiliate
of Buyer; provided, however, that this provision shall not prohibit Seller or
-------- -------
BSIS from employing employees of Buyer or its Affiliates who are not
specifically recruited or solicited in any way and who seek employment with
Seller or BSIS on their own initiative or in response to general advertising or
a recruiting firm not targeted on hiring any particular individual or any
employees of Buyer or its Affiliates. The BSIS Stock Purchase Agreement shall
contain substantially identical restrictions on the ability of Buyer and its
Affiliates to solicit or hire employees of BSIS following the Closing.
5.10 Real Property. Seller hereby covenants and agrees at all times through
-------------
the Closing faithfully to abide by, carry out and fully perform in all material
respects the terms, covenants, provisions, conditions and agreements contained
in the Leases and agrees not to cause, allow or suffer any material breach or
default thereof to occur.
5.11 Change of Name. Immediately following the Closing, Seller shall change
--------------
its corporate name and the names of any Retained Subsidiaries to eliminate any
reference to Brown & Sharpe and to adopt corporate names which would not be
reasonably likely to cause confusion with the Brown & Sharpe name.
5.12 Heathrow Airport Property. By written notice to Seller no less than
-------------------------
thirty (30) days prior to the Closing, Buyer shall have the option to have Brown
& Sharpe Group Ltd. retain
31
<PAGE>
ownership of the Heathrow Airport Property and the related rights more
particularly described on Schedule 5.12 (the "Heathrow Property"). In the event
------------- -----------------
that Buyer exercises such option, Buyer shall be obligated to pay Seller an
additional $5 million of Purchase Price at Closing. In the event that Buyer does
not exercise such option, Seller or its designee shall acquire for no payment
the Heathrow Property from Brown & Sharpe Group Ltd. prior to the Closing and
shall be responsible for any Taxes arising out of such acquisition.
5.13 BSIS. At the Closing, Buyer or its designated Affiliate shall purchase
----
and BSIS shall sell shares of its authorized but unissued common stock of BSIS
representing 16.7% of the issued and outstanding common stock of BSIS for a BSIS
Stock Purchase Price of $2.5 million payable in cash. Such purchase and sale
will be made pursuant to a purchase agreement mutually acceptable to Buyer and
Seller to be entered into within 15 days after the execution and delivery of
this Agreement (the "BSIS Stock Purchase Agreement") and at the Closing Buyer
-----------------------------
and Seller shall enter into a stockholders' agreement mutually acceptable to
Buyer and Seller relating to the shares of BSIS, such agreement (the "BSIS
----
Stockholders' Agreement") to contain investment restrictions necessary for a
-----------------------
"private placement" under U.S. securities law, transfer restrictions, voting
provisions and a Buyer right of first refusal in connection with offers by a
third party to Seller or BSIS for the acquisition of BSIS (by sale of stock,
merger or otherwise), the form of which shall be agreed within 15 days after the
execution and delivery of this Agreement.
On each of the first three anniversaries of the Closing, Buyer shall
purchase additional shares of BSIS for a purchase price of $1.5 million on each
such anniversary. The number of shares sold to the Buyer shall be the lesser of
(a) 10% of the outstanding common stock of BSIS or (b) a percentage of the
outstanding common stock of BSIS equal to the quotient of $1.5 million divided
by the fair market value of BSIS determined as of a date which is 30 days prior
to the scheduled additional purchase date (or, if the shares of BSIS are at the
time publicly traded, determined by reference to the average of the closing
prices of such BSIS shares on the applicable exchange over the thirty-day period
ending three (3) days prior to the scheduled purchase date). If Buyer and Seller
cannot agree as to the fair market value as of any date, such determination
shall be made by the Auditor, whose determination shall be final and binding on
the Parties and whose fees shall be shared equally by the Parties. Buyer shall
have the right to accelerate the timing of the purchases it is obligated to make
pursuant to this Section 5.13.
The parties acknowledge and agree that (i) the legacy software (e.g.
Quindos, Tutor, Chorus, MM4) owned by Seller and/or its Subsidiaries is
currently and shall continue to be after the Closing an exclusive asset of the
Metrology Business, (ii) the XactMeasure legacy derivatives (e.g. XactQuindos,
Chorus X, MM4X, Tutor X) of BSIS shall be transferred by BSIS to the appropriate
unit in the Metrology Business the core legacy software prior to the Closing
(with BSIS retaining rights to its XactMeasure MR1 and MR2 Technology) and BSIS
shall have no right to sell or license the XactMeasure legacy derivatives
software (iii) the XactMeasure product is currently and shall continue to be
after the Closing an exclusive asset of BSIS, and BSIS's rights to use the
legacy software and XactMeasure legacy derivatives in connection with the
development of XactMeasure and its progeny (but not the derivatives transferred
as part of the Metrology Business above), as embodied in Software Programming
Services Agreements
32
<PAGE>
between BSIS and the Transferred Companies, will continue in full force and
effect following the Closing. The parties agree to make such mutually agreed
changes to Section 6.4 of the various Software Programming Services Agreements
as may be necessary to protect the proprietary rights of Buyer and the
Transferred Companies in the legacy software products.
The BSIS Stockholders' Agreement shall provide that for a five year period
following the Closing, (a) BSIS shall sell XactMeasure licenses to Buyer and its
Affiliates for OEM use and for distribution in connection with the Metrology
Business at a price of $1,500 per unit for coordinate measuring machine ("CMM")
applications and (b) BSIS shall pay to Buyer a royalty of $5,000 per unit for
XactMeasure licenses sold by BSIS through distribution channels other than Buyer
or its Affiliates for CMM applications.
5.14 North Kingstown Lease (sometimes referred to as the "Buyer Lease"). At
------------------------------------------------------------------
the Closing, Buyer and Seller shall enter into a lease with respect to a portion
of Seller's facility at Precision Park. The lease will provide for: (a) a term
of five (5) years; (b) a declining amount of space rented over the term; (c) the
tenant bearing no responsibility for structural repairs; (d) a rental rate
consisting of a base rent with appropriate charges for taxes, utilities and
insurance calculated in a manner consistent with past practice; and (e) such
other terms as are mutually acceptable to Buyer and Seller, said lease to be in
the form of Exhibit B.
---------
5.15 Closing Balance Sheet. Following the Closing, Buyer and Seller (to the
---------------------
extent Seller has available staff, computer or other equipment at the time)
shall cooperate in the preparation of Buyer's Closing Date balance sheet for the
Metrology Business which, at the option of Buyer, may be audited. In furtherance
of the foregoing, Buyer shall have the access provided by Section 5.4.
5.16 WAI. The parties acknowledge that the transfer of the shares of WAI
---
held by Aftermarket Services, whether directly or indirectly through the
transfer of the shares of Aftermarket Services, is subject to a right of first
refusal (the "Right of First Refusal") contained in the Incorporation Agreement
----------------------
dated as of August 10, 1990 among WAI, Aftermarket Services and the WAI
Stockholders. Within a reasonable time after the date of execution and delivery
of this Agreement, Buyer shall provide to Seller a written notice setting forth
the dollar amount of the Purchase Price that will be allocated to the shares of
WAI held by Aftermarket Services. Buyer shall promptly offer to the WAI
Stockholders the right to purchase the shares of WAI held by Aftermarket
Services in accordance with terms of the Right of First Refusal and a form of
Purchase and Sale Agreement acceptable to Buyer and Seller for such shares of
WAI. If the Right of First Refusal is exercised in accordance with its terms,
the Purchase Price shall be reduced by the amount paid by the WAI Stockholders
to Aftermarket Services for the WAI shares (the "WAI Purchase Price"), and any
------------------
portion of the WAI Purchase Price held by Aftermarket Services at the Closing
shall be included in the calculation of the Cash Amount pursuant to Section 2.4.
If the Right of First Refusal is not exercised in accordance with its terms by
the WAI Stockholders, Aftermarket Services shall continue to hold the shares of
WAI through the Closing (at which Closing Buyer shall purchase the shares of
Aftermarket Services, and indirectly the shares of WAI) and there shall be no
adjustment to the Purchase Price.
33
<PAGE>
All other provisions of this Agreement shall be interpreted consistently
with the results obtained under this Section 5.16 after the date hereof and
prior to the Closing hereunder.
5.17 Deal Structure. The parties agree to discuss in good faith the
--------------
possibility of altering the structure of the transactions contemplated by this
Agreement for tax planning purposes. In no event shall either party be obligated
to agree to any change in the terms of the structure of such transactions is
such change might reasonably be expected to have an adverse economic impact on
such party.
5.18 Termination of Intercompany Agreements. Effective as of the Closing,
--------------------------------------
Seller and the Retained Entities shall enter into a mutual termination and
release with the Transferred Companies providing for the termination of all
agreements and receivables and payables between Seller or a Retained Entity, on
the one hand, and a Transferred Company, on the other hand, other than the
agreements set forth on Schedule 3.21, any agreements entered into in connection
-------------
with the transactions contemplated by this Agreement and receivables and
payables between BSIS and any Transferred Company.
6 Tax Matters
-----------
6.1 Tax Returns. (a) Seller shall be responsible for preparing and filing
-----------
the Tax Returns of, or which include, Seller or any Retained Subsidiary and
shall be responsible for the payment of any Tax due thereon.
(b) Buyer shall be responsible for preparing and filing the Tax Returns of,
or which include, any of the Transferred Companies for all tax periods ending on
or prior to the Closing Date which are required to be filed after the Closing
Date and for all tax periods ending after the Closing Date, and shall be
responsible in each case for the payment of all Taxes due thereon, other than
Income Tax Returns with respect to which consolidated, combined or unitary Tax
Returns of the Seller are required to be filed for periods ending on or before
the Closing Date and which include the operations of the Transferred Companies.
Buyer shall permit Seller to review and comment on each such Tax Return
described in the preceding sentence prior to filing and shall make such
revisions to such Tax Returns as are reasonably requested by Seller.
6.2 Tax Indemnities. Buyer shall indemnify and hold Seller harmless from
---------------
(i) all deficiencies in Tax of the Transferred Companies and (ii) all Taxes
resulting from any action taken without Seller's written consent by Buyer or any
Transferred Company after the Closing (including, without limitation, actions
taken outside the ordinary course of business and occurring on the Closing
Date). No loss, credit or other item of a Transferred Company may be carried
back without Seller's written consent, which Seller may withhold in its sole and
absolute discretion, to a taxable period for which Seller or any Subsidiary of
Seller filed a consolidated, unitary or combined Tax Return with the Transferred
Companies unless such carryback is required by law. Seller shall promptly pay
over to Buyer the amount of any refund (including interest) received as a result
of such a permitted carryback but may retain any refund (including interest)
resulting from a carryback not so permitted. Seller agrees to indemnify Buyer
and any Transferred Company for any tax liability any Transferred Company incurs
in respect of the
34
<PAGE>
liability of Seller and any Retained Entity in a United States consolidated,
combined or unitary Tax Return of Seller filed for periods ending on or before
the Closing Date.
6.3 Certain Taxes. All transfer, documentary, sales, use, stamp,
-------------
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any Rhode Island
and New York State Gains Tax, Sales Tax and any similar tax imposed in other
states or subdivisions), shall be paid by Buyer or a Buyer Affiliate when due,
and Buyer and the Buyer Affiliates will, at their own expense, file all
necessary Tax Returns and other documentation with respect to all such transfer,
documentary, sales, use, stamp, registration and other Taxes and fees, and, if
required by applicable law, Seller will, and will cause its Affiliates to, join
in the execution of any such Tax Returns and other documentation.
6.4 Cooperation on Tax Matters. (a) Buyer, the Transferred Companies, and
--------------------------
Seller shall cooperate fully, as and to the extent reasonably requested by the
other party, in connection with the filing of Tax Returns pursuant to this
Section and any audit, litigation or other proceeding with respect to Taxes.
Such cooperation shall include the retention and (upon the other party's
request) the provision of records and information which are reasonably relevant
to any such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and explanation
of any material provided hereunder. The Transferred Companies and Seller agree
(i) to retain all books and records with respect to Tax matters pertinent to the
Transferred Companies relating to any taxable period beginning before the
Closing Date until the expiration of the statute of limitations (and, to the
extent notified by Buyer or Seller, any extensions thereof) of the respective
taxable periods, and to abide by all record retention agreements entered into
with any taxing authority, and (ii) to give the other party reasonable written
notice prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, the Transferred Companies or
Seller, as the case may be, shall allow the other party to take possession of
such books and records.
(b) Buyer and Seller further agree, upon request, to use their best efforts
to obtain any certificate or other document from any governmental authority or
any other Person as may be necessary to mitigate, reduce or eliminate any Tax
that could be imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
6.5 Tax Sharing Agreements. All Tax sharing agreements or similar
----------------------
agreements with respect to or involving the Transferred Companies shall be
terminated as of the Closing Date and, after the Closing Date, none of Seller,
the Retained Entities or the Transferred Companies shall be bound thereby or
have any liability thereunder.
7 Conditions to Obligation to Close.
---------------------------------
7.1 Conditions to Obligation of Buyer. The obligation of Buyer to
---------------------------------
consummate the transactions to be performed by it in connection with the Closing
is, at the option of Buyer, subject to satisfaction of the following conditions:
35
<PAGE>
(a) Representations and Warranties. The representations and warranties
------------------------------
set forth in Section 3 shall be true and correct in all respects as set
forth therein at and as of the date hereof and on and as of the Closing
Date with the same effect as though made at and as of the Closing Date,
except for such failures to be true and correct as do not, in the
aggregate, have a Material Adverse Effect;
(b) Performance by Seller. Seller shall have performed and complied
---------------------
with all of its covenants and agreements hereunder through the Closing in
all material respects;
(c) Consents. Seller and Buyer shall have made or obtained all Seller
--------
Required Approvals and Buyer Required Approvals;
(d) Absence of Litigation. No action, suit, or proceeding shall be
---------------------
pending or threatened before any Governmental Entity wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would prevent
consummation of any material transactions contemplated by this Agreement
(and no such injunction, judgment, order, decree, ruling, or charge shall
be in effect);
(e) Certificates. Seller shall have delivered to Buyer a certificate
------------
to the effect that each of the conditions specified above in Section 7.1(a)
and (b) is satisfied in all respects;
(f) Lease. Seller shall have executed and delivered to Buyer (or one
-----
of its Affiliates) the lease for real property located in Precision Park
contemplated by Section 5.14 (the "Buyer Lease");
-----------
(g) Antitrust Matters. All applicable waiting periods (and any
-----------------
extensions thereof) under the Hart-Scott-Rodino Act (and the applicable
antitrust laws of jurisdictions other than the United States set forth on
Schedule 4.6) with respect to all contemplated transactions hereunder,
------------
including the sale of the stock of WAI under Section 5.16 shall have
expired or otherwise been terminated;
(h) Stockholder Approval. This Agreement and the transactions
--------------------
contemplated hereby shall have been approved and adopted by the requisite
vote of the stockholders of Seller;
(i) Opinion. Buyer shall have received from counsel to Seller an
-------
opinion in form and substance as set forth in Exhibit C attached hereto,
---------
addressed to Buyer and dated as of the Closing Date;
(j) Resignations. Buyer shall have received the resignations, dated as
------------
of the Closing Date, of each director of the Transferred Companies;
36
<PAGE>
(k) Transfer Documents. Seller shall have delivered to Buyer, the
------------------
appropriate Buyer Affiliate or the relevant Transferred Company at the
Closing the documents required by Section 2.7(b);
(l) BSIS Stockholders' Agreement. Seller and BSIS shall have executed
----------------------------
and delivered to Buyer (or one of its Affiliates) the BSIS Stock Purchase
Agreement and the BSIS Stockholders' Agreement contemplated by Section
5.13; and
(m) Material Adverse Effect. Since September 30, 2000, no event shall
-----------------------
have occurred and no condition shall have arisen which has had or is
reasonably likely to result in a Material Adverse Effect, except as
disclosed in the Agreement or the schedules attached hereto.
7.2 Conditions to Obligations of Seller. The obligation of Seller to
-----------------------------------
consummate the transactions to be performed by them in connection with the
Closing is at the option of Seller subject to satisfaction of the following
conditions:
(a) Representations and Warranties. The representations and warranties
------------------------------
set forth in Section 4 shall be true and correct in all respects as set
forth therein (in the case of any representation or warranty containing any
materiality qualification) or in all material respects (in the case of any
representation or warranty without any materiality qualification) at and as
of the date hereof and on and as of the Closing Date with the same effect
as though made at and as of the Closing Date;
(b) Performance by Buyer. Buyer shall have performed and complied with
--------------------
all of its covenants and agreements hereunder in all material respects
through the Closing, and shall have paid the Purchase Price in accordance
with Section 2.3;
(c) Consents. Seller and Buyer shall have made or obtained all Seller
--------
Required Approvals and Buyer Required Approvals;
(d) Absence of Litigation. No action, suit, or proceeding shall be
---------------------
pending or threatened before any Governmental Entity wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would prevent
consummation of any material transactions contemplated by this Agreement
(and no such injunction, judgment, order, decree, ruling, or charge shall
be in effect);
(e) Antitrust Matters. All applicable waiting periods (and any
-----------------
extensions thereof) under the Hart-Scott-Rodino Act (and the applicable
antitrust laws of jurisdictions other than the United States set forth on
Schedule 4.6) with respect to all contemplated transactions, hereunder
------------
including the sale of stock of WAI, shall have expired or otherwise been
terminated;
37
<PAGE>
(f) Stockholder Approval. This Agreement and the transactions
--------------------
contemplated hereby shall have been approved and adopted by the requisite
vote of the stockholders of Seller;
(g) Certificates. Buyer shall have delivered to Seller a certificate
------------
to the effect that each of the conditions specified above in Sections
7.2(a) and (b) is satisfied in all respects;
(h) Lease. Buyer (or one of its Affiliates) shall have executed and
-----
delivered to Seller the Buyer Lease contemplated by Section 5.14;
(i) Payment of Bank and Insurance Company Debt; Release of Guarantees.
-----------------------------------------------------------------
Buyer shall have paid or made arrangements satisfactory to Seller to permit
Seller to pay in full simultaneously with the Closing on the Closing Date
all Bank and Insurance Company Debt then outstanding and shall have
obtained releases of all guarantees by the Retained Entities set forth on
Schedule 3.22;
-------------
(j) Opinion. Seller shall have received from counsel to Buyer an
-------
opinion in form and substance as set forth in Exhibit D attached hereto,
---------
addressed to Seller and dated as of the Closing Date;
(k) Assumption Agreements. Buyer or a Buyer Affiliate shall have
---------------------
delivered to Seller at the Closing the documents required by Section
2.7(c); and
(l) BSIS Stockholders' Agreement. Buyer (or one of its Affiliates)
----------------------------
shall have executed and delivered to Seller and BSIS the BSIS Stock
Purchase Agreement, invested $2.5 Million cash for shares of stock of BSIS
and executed and delivered the BSIS Stockholders' Agreement contemplated by
Section 5.13
8 Indemnification.
---------------
8.1 Survival of Representations, Warranties, Agreements and Covenants.
-----------------------------------------------------------------
Except as otherwise provided in this Section 8.1, the representations,
warranties and agreements of each party hereto shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any other party hereto, any person controlling any such party or any of their
officers or directors, whether prior to or after the execution of this
Agreement. The representations, warranties and agreements in this Agreement
shall terminate at the Closing or upon the earlier termination of this Agreement
pursuant to Section 9.1, as the case may be, except that the representations and
warranties set forth in Sections 3.2, 3.4, 3.5, 3.7, 4.2, 4.4 and 4.5 and the
agreements set forth in Sections 2.2, 2.4, 2.5, 5.4, 5.5, 5.6, 5.9, 5.11, 5.13,
5.15, 6, 8 and 10 shall survive the Closing indefinitely and those set forth in
Section 9.2 shall survive such termination indefinitely. Nothing in this Section
8.1 shall relieve any party for any breach of any representation, warranty or
agreement in this Agreement occurring prior to termination.
38
<PAGE>
8.2 Indemnity by Seller. Seller hereby agrees to indemnify, defend and hold
-------------------
harmless Buyer, the Transferred Companies, and its and their directors,
officers, employees, agents and Affiliates (the "Buyer Indemnitees") against and
-----------------
in respect of, and pay and reimburse the Buyer Indemnitees for, all Liabilities,
damages, losses, expenses, and costs (including reasonable attorneys' and
accountants' fees and expenses), whether or not resulting from third party
claims (collectively, "Losses"), as a result of or arising out of (a) the
------
inaccuracy of any representation or warranty made by Seller herein that survives
the Closing; (b) any breach or nonfulfillment after the Closing of any agreement
or covenant of Seller contained herein or in any agreement or instrument
required to be entered into in connection herewith that survives the Closing;
(c) any lawsuit or claim by any shareholder of Seller in its capacity as a
shareholder of Seller relating to or in any way arising out of the transactions
contemplated by this Agreement, except to the extent any such lawsuit or claim
arises from a breach of this Agreement by Buyer; (d) non-compliance with
applicable bulk sales laws of the United States; (e) any Excluded Liability; (f)
any Tax liability arising out of a transfer of the Heathrow Property to Seller
or its designee pursuant to Section 5.12 or (g) any breach or nonfulfillment of
the Seller's indemnity in Section 5.5(e); provided, however, that Seller shall
-------- -------
have no Liability under clause (a) of this Section 8.2 in respect of Losses
until and then only to the extent that the aggregate of such Losses exceeds
$1,000,000, in which case Seller will be liable for the amount of such Losses in
excess of $1,000,000.
8.3 Exclusive Remedy. Except for Tax matters, which shall also be governed
----------------
by the provisions of Section 6, and the indemnities set forth in Section 5.5,
this Section 8 shall provide the sole and exclusive remedy for any and all
Losses sustained or incurred by Buyer or Seller or their successors and assigns;
provided that the foregoing shall not limit the right of the Parties to such
--------
equitable remedies as may be available or any Party's remedies in respect of
fraud by the other Party in connection herewith.
8.4 Indemnity by Buyer. Buyer hereby agrees to indemnify, defend and hold
------------------
harmless Seller and its directors, officers, employees, agents and Affiliates
(the "Seller Indemnitees") against and in respect of, and pay and reimburse the
------------------
Seller Indemnitees for, all Losses resulting from or arising out of (a) the
inaccuracy of any representation or warranty made by Buyer herein that survives
the Closing or (b) any breach or nonfulfillment after the Closing of any
agreement or covenant of Buyer, including Buyer's or Buyer Affiliate's agreement
to assume the Metrology Liabilities pursuant to Section 2.3, contained herein or
in any agreement or instrument required to be entered into in connection
herewith that survives the Closing or (c) any breach or nonfulfillment of the
Buyer's indemnity in Section 5.5(a) or Section 5.5(e); provided, however, that
-------- -------
Buyer shall have no Liability under clause (a) of this Section 8.4 in respect of
Losses until and then only to the extent that the aggregate of such Losses
exceeds $1,000,000, in which case Buyer will be liable for the amount of such
Losses in excess of $1,000,000.
8.5 Matters Involving Third Parties. (a) If any third party shall notify
-------------------------------
any Party (the "Indemnified Party") with respect to any matter (a "Third Party
----------------- -----------
Claim") which may give rise to a claim for indemnification against any other
-----
Party (the "Indemnifying Party") under this
------------------
39
<PAGE>
Section 8, then the Indemnified Party shall promptly notify the Indemnifying
Party thereof in writing; provided, however, that a delay on the part of the
-------- -------
Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder only to the extent the
Indemnifying Party thereby is materially prejudiced.
(a) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
so long as (i) the Indemnifying Party notifies the Indemnified Party in
-
writing of its election to defend and (ii) the Indemnifying Party conducts
--
the defense of the Third Party Claim diligently. In the event that the
Indemnified Party shall in good faith determine that it may have available
to it one or more defenses or counterclaims that are inconsistent with one
or more of those that may be available to the Indemnifying Party in respect
of a claim subject to indemnification hereunder, the Indemnified Party
shall have the right at all times to take over and assume control of the
defense, settlement, negotiations or litigation relating to any such claim
at the sole cost of the Indemnifying Party, provided that if the
--------
Indemnified Party does so take over and assume control, the Indemnified
Party shall not settle such claim or litigation without the written consent
of the Indemnifying Party, such consent not to be unreasonably withheld.
(b) So long as the Indemnifying Party is conducting the defense of the
Third Party Claim diligently, (i) the Indemnified Party may retain separate
-
co-counsel at its sole cost and expense and participate in the defense of
the Third Party Claim, and (ii) the Indemnified Party will not consent to
--
the entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnifying
Party, such consent not to be unreasonably withheld.
(c) In the event that the Indemnifying Party does not diligently
conduct the defense, (i) the Indemnified Party may defend against the Third
Party Claim and (ii) the Indemnifying Party will remain responsible for any
losses the Indemnified Party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by the Third Party Claim to the
extent provided in this Section 8.
(d) Except with the prior written consent of the Indemnified Party,
which shall not be unreasonably withheld, no Indemnifying Party, in the
defense of any such claim or litigation, shall consent to entry of any
judgment or enter into any settlement if such judgment or settlement
provides for injunctive or other nonmonetary relief affecting the
Indemnified Party or that does not include as an unconditional term thereof
the giving by each claimant or plaintiff to such Indemnified Party of a
release from all liability with respect to such claim or litigation.
8.6 Insurance Proceeds. If a party entitled to indemnification under
------------------
Section 8.2 or 8.4 (an "Indemnified Party") receives, subsequent to its receipt
-----------------
of any indemnification from the party required to provide indemnification under
Section 8.2 or 8.4 (an "Indemnifying Party"), an amount in respect of the Losses
------------------
for which it has received indemnification (the "Indemnified Losses") under
------------------
insurance coverage, then such Indemnified Party shall promptly reimburse the
40
<PAGE>
Indemnifying Party for any indemnification payment made by such Indemnifying
Party up to such amount received under such insurance coverage. If any Losses
for which an Indemnifying Party is responsible or allegedly responsible pursuant
to Section 8.2 or 8.4 are recoverable or potentially recoverable under insurance
coverage at the time when payment is due hereunder, following payment by the
Indemnifying Party for such Losses, (a) the Indemnified Party shall attempt in
good faith to collect any and all such Losses under such insurance coverage or
(b) at the request of the Indemnifying Party, the Indemnified Party shall assign
any and all rights that it may have to recover such Losses to the Indemnifying
Party, or, if such rights are not assignable under applicable law or otherwise,
the Indemnified Party shall continue to attempt in good faith to collect any and
all such Losses under such insurance coverage for the benefit of, and at the
expense and direction of, the Indemnifying Party.
9 Termination.
-----------
9.1 Termination of Agreement. The Parties may terminate this Agreement as
------------------------
provided below:
(a) the Parties may terminate this Agreement by mutual written consent
at any time prior to the Closing;
(b) Buyer may terminate this Agreement by giving written notice to
Seller at any time prior to the Closing (i) in the event Seller has
breached any representation, warranty, or covenant contained in this
Agreement in a manner that has caused or is reasonably likely to result in
a Material Adverse Effect, Buyer has notified Seller of the breach, and the
breach has continued without cure for a period of 10 days after the notice
of breach or (ii) if the Closing shall not have occurred on or before April
30, 2001, by reason of the failure of any condition precedent under Section
7.1 hereof (unless the failure results primarily from Buyer itself
breaching any representation, warranty, or covenant contained in this
Agreement);
(c) Seller may terminate this Agreement by giving written notice to
Buyer at any time prior to the Closing (i) in the event Buyer has breached
any representation, warranty, agreement or covenant contained in this
Agreement in a manner that has caused or is reasonably likely to result in
a material adverse effect on Buyer's ability to satisfy its obligations
under this Agreement, Seller has notified Buyer of the breach, and the
breach has continued without cure for a period of 10 days after the notice
of breach or (ii) if the Closing shall not have occurred on or before April
30, 2001, by reason of the failure of any condition precedent under Section
7.2 hereof (unless the failure results primarily from Seller itself
breaching any representation, warranty, or covenant contained in this
Agreement); and
(d) Either Seller or Buyer may terminate this Agreement by giving
written notice to the other party prior to the Closing if: (i) the Board of
Directors of Seller shall have recommended to the stockholders of Seller an
Alternative Transaction (as defined below) or resolves to do so; or (ii) a
tender offer or exchange offer for 15% or more of the
41
<PAGE>
outstanding shares of capital stock of Seller is commenced (other than by
Buyer or an Affiliate of Buyer) and the Board of Directors of Seller
recommends that the stockholders of Seller tender their shares in such
tender or exchange offer; provided, that Seller shall not be entitled to
exercise any termination rights under this Section 9.1(d) unless (x) any
action of the Board of Directors of Seller referred to in either such
clause is required to be taken by the Board of Directors in order to
properly discharge its fiduciary duties as determined in good faith by the
Board of Directors upon the written advice of outside counsel and (y)
Seller has complied with its obligations in Section 5.8.
As used herein, "Alternative Transaction" means any of (i) a
-----------------------
transaction or series of transactions pursuant to which any Person (or
group of Persons) other than Buyer or its Affiliates (a "Third Party")
-----------
acquires or would acquire more than 15% of the outstanding shares of
capital stock of Seller, whether from Seller or pursuant to a tender offer
or exchange offer or otherwise, (ii) any acquisition or proposed
acquisition of Seller or any of its significant Subsidiaries or the
Metrology Business by a merger or other business combination (including any
so-called "merger of equals" and whether or not Seller or any of its
significant Subsidiaries is the entity surviving any such merger or
business combination) or (iii) any other transaction pursuant to which any
Third Party acquires or would acquire control of assets (including for this
purpose the outstanding equity securities of Subsidiaries of Seller and any
entity surviving any merger or business combination including any of them)
of Seller or any of its Subsidiaries having a fair market value equal to
more than 35% of the fair market value of all the assets of Seller and its
Subsidiaries, taken as a whole, immediately prior to such transaction. An
Alternative Transaction shall also include a transaction resulting from an
Acquisition Proposal under Section 5.8 to the extent that such transaction
meets the criteria set forth in this Section 9.1(d).
9.2 Effect of Termination. (a) If any Party terminates this Agreement
---------------------
pursuant to Section 9.1 above, all rights and obligations of the Parties
hereunder shall terminate without any Liability of any Party to any other Party
except (i) as set forth in clauses (b), (c) or (d) below and (ii) nothing herein
shall relieve any Party from liability for any breach hereof occurring prior to
termination.
(b) Seller shall pay Buyer a fee of $4,000,000 plus Buyer's verifiable
expenses relating to the due diligence, negotiation and documentation of the
transactions contemplated by this Agreement (including without limitation
accounting, legal and investment banking fees and expenses) not to exceed
$2,000,000 (the "Fee") upon the termination of this Agreement by Seller or Buyer
---
pursuant to Section 9.1(d).
(c) Seller shall pay Buyer the Fee if all of the following events have
occurred:
(1) a bona fide Alternative Transaction is publicly commenced,
publicly disclosed, publicly proposed or publicly communicated to Seller at
any time on or after the date of this Agreement and on or prior to the date
of the meeting of the stockholders
42
<PAGE>
of Seller referred to in Section 5.2 hereof (including the last date on
which any adjourned session thereof is reconvened);
(2) either Seller or Buyer terminates this Agreement pursuant to
Section 9.1(b)(ii) or 9.1(c)(ii) if, in the case of termination under
either such Section, the requisite vote for approval and adoption of this
Agreement and the transactions contemplated hereby by the stockholders of
Seller shall not have been obtained by April 30, 2001; and
(3) thereafter on or prior to the anniversary of the date of
termination, (A) such Alternative Transaction is consummated or (B) there
is consummated any transaction, whether or not commenced, publicly
disclosed, publicly proposed or communicated to Seller prior to such
termination, that would constitute an Alternative Transaction (provided
that for purposes of this clause (3) of Section 9.2(c) the reference to the
percentage of outstanding shares of capital stock of Seller in clause (i)
of the definition of Alternative Transaction shall be 50% instead of 15%).
In no event shall the Fee be payable more than once pursuant to this
Section 9.2.
(d) In the event that the shareholders meeting contemplated by Section 5.2
is held and the requisite vote for approval and adoption of this Agreement and
the transactions contemplated hereby by the shareholders of Seller shall not
have been obtained at such meeting or any adjournment thereof other than as a
result of Buyer being in material breach of its obligations under this
Agreement, Seller shall reimburse Buyer for (i) Buyer's verifiable expenses
relating to the due diligence, negotiation and documentation of the transactions
contemplated by this Agreement (including without limitation accounting, legal
and investment banking fees and expenses) not to exceed $1,000,000 and (ii)
expenses related to commitments (not to exceed $1,000,000) made by Buyer to
individuals hired specifically to work in the Metrology Business, less
mitigation if any such individual obtains other employment.
(e) The Fee payable pursuant to Section 9.2(b) shall be paid within one
business day after the first to occur of any of the events described in Section
9.2(b). The Fee payable pursuant to Section 9.2(c) shall be paid within one
business day following the consummation of any such Alternative Transaction. The
expenses payable under Section 9.2(d) shall be payable at such time as the
shareholders of Seller vote on this Agreement and the transactions contemplated
hereby with the result that the requisite vote in favor is not obtained.
Notwithstanding the preceding sentences, in no event shall Seller be required to
pay any such Fee or expenses to Buyer if, immediately prior to the termination
of this Agreement, Seller had the right to terminate this Agreement under
Section 9.1(c)(i). In no event shall Buyer be entitled to payment under both
Sections 9.2(b) or 9.2(c) and 9.2(d); provided, however, that if Buyer would
-------- -------
otherwise be entitled to fees under more than one of such sections, Buyer shall
be entitled to receive the higher of such fees.
10 Miscellaneous.
-------------
10.1 Press Releases and Public Announcements. No Party shall issue any
---------------------------------------
press release or make any public announcement relating to the subject matter of
this Agreement prior to the
43
<PAGE>
Closing without the prior written approval of the other Party; provided,
--------
however, that any Party may make any public disclosure it believes in good faith
is required by applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
reasonable efforts to advise the other Party prior to making the disclosure).
10.2 No Third Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
10.3 Entire Agreement. This Agreement (including the documents referred to
----------------
herein) constitutes the entire agreement between the Parties and supersedes any
prior understandings, agreements, or representations by or between the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof, except for the Confidentiality Agreement dated August 3, 2000 which
remains in full force and effect.
10.4 Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party; provided, however, that Buyer may (i) assign any or all of
-------- -------
its rights and interests hereunder to one or more of its Affiliates and (ii)
designate one or more of its Affiliates to perform its obligations hereunder,
provided in each case that Buyer continues to be responsible for and guarantees
all of its obligations hereunder.
10.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
10.6 Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7 Notices. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given (i) upon
confirmation of facsimile, (ii) when sent by overnight delivery and (iii) when
mailed by registered or certified mail return receipt requested and postage
prepaid at the following address:
If to Seller:
------------
Brown & Sharpe Manufacturing Company
Precision Park
200 Frenchtown Road
North Kingstown, RI 02852-1700
Attn: James W. Hayes, III, Esq.
44
<PAGE>
Facsimile: 401-886-2214
with a copy to:
--------------
Ropes & Gray
One International Place
Boston, MA 02110
Attn: Howard K. Fuguet, Esq.
Facsimile: 617-951-7050
If to Buyer:
-----------
Hexagon AB
Kronobryggan, S-261 31
Landskrona, Sweden
Attention: Ola Rollen
Facsimile: +46 418 44 92 08
with a copy to:
--------------
Jones, Damia, Kaufman, Borofsky & DePaul, LLC
301 Main Street, P.O. Box 157
Danbury, CT 06813-0157
Attn: Sanford D. Kaufman, Esq.
Facsimile: 203-797-8403
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
10.8 Governing Law; Consent to Jurisdiction. This Agreement shall be
--------------------------------------
governed by and construed in accordance with the internal laws of the State of
Delaware without giving effect to any choice or conflict of law provision or
rule (whether of the State of Delaware or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Delaware. Each of Seller and Buyer, by its execution hereof, (a) hereby
irrevocably submits to the exclusive jurisdiction of the state courts of the
State of New York sitting in the County of New York or the United States
District Court for the Southern District of New York for the purpose of any
action, claim, cause of action or suit (in contract, tort or otherwise),
inquiry, proceeding or investigation arising out of or based upon this Agreement
or relating to the subject matter hereof, (b) hereby waives to the extent not
prohibited by applicable law, and agrees not to assert, and agrees not to allow
any of its subsidiaries to assert, by way of motion, as a defense or
45
<PAGE>
otherwise, in any such action, any claim that it is not subject personally to
the jurisdiction of the above-named courts, that its property is exempt or
immune from attachment or execution, that any such proceeding brought in one of
the above-named courts is improper, or that this Agreement or the subject matter
hereof or thereof may not be enforced in or by such court and (c) hereby agrees
not to commence or maintain any action, claim, cause of action or suit (in
contract, tort or otherwise), inquiry, proceeding or investigation arising out
of or based upon this Agreement or relating to the subject matter hereof or
thereof other than before one of the above-named courts nor to make any motion
or take any other action seeking or intending to cause the transfer or removal
of any such action, claim, cause of action or suit (in contract, tort or
otherwise), inquiry, proceeding or investigation to any court other than one of
the above-named courts whether on the grounds of inconvenient forum or
otherwise. Notwithstanding the foregoing, to the extent that any party hereto is
or becomes a party in any litigation in connection with which it may assert
indemnification rights set forth in this agreement, the court in which such
litigation is being heard shall be deemed to be included in clause (a) above.
Each party hereto hereby consents to service of process in any such proceeding
in any manner permitted by New York law, and agrees that service of process by
personal delivery, expedited courier or messenger service, at its address
specified pursuant to Section 10.7 hereof is reasonably calculated to give
actual notice. The provisions of this Section 10.8 shall not restrict the
ability of any party to enforce in any court any judgment obtained in the
federal or state courts of the State of New York.
10.9 Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by Buyer
and Seller. No waiver by any Party of any default, misrepresentation, or breach
of warranty or covenant hereunder, whether intentional or not, shall be deemed
to extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
10.10 Severability. Any term or provision of this Agreement that is invalid
------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
10.11 Expenses. Each of Buyer and Seller will bear its own costs and
--------
expenses (including legal fees and expenses) and Seller will bear all of the
costs and expenses (including legal fees and expenses) of the Transferred
Companies in connection with the preparation of this Agreement and the
transactions contemplated hereby, except as otherwise expressly provided in
Section 9.
10.12 Staff Accounting Bulletin. The parties acknowledge and agree that for
-------------------------
all purposes under this Agreement, no effect shall be given to Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements."
[Remainder of page intentionally left blank]
46
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first above written.
HEXAGON AB
By /s/ Ola Rollen
----------------------------------------
Name: Ola Rollen
Title: President and Chief Executive
Officer
BROWN & SHARPE MANUFACTURING
COMPANY
By /s/ Kenneth N. Kermes
----------------------------------------
Name: Kenneth N. Kermes
Title: President
[Signature page to Acquisition Agreement]
<PAGE>
Schedule 1-A
------------
EXCLUDED ASSETS
. Stock of BSIS including all of its products and rights owned or licensed,
including without limitation all rights under the Software Programming
Development Agreements between BSIS and each of Brown & Sharpe GmbH, Brown
& Sharpe DEA SpA, Brown & Sharpe SA (France), Brown & Sharpe Limited, Brown
& Sharpe TESA SA, and Brown & Sharpe Aftermarket Services Inc., and its
employees (a list of whom has been previously to Buyer) and assets which
are on the date of this Agreement employed and utilized by Seller and the
Transferred Companies in the Metrology Business except as otherwise
provided in Section 5.13
. Real Estate owned by Seller in North Kingstown R.I. and landlord leasehold
interests with respect to tenants occupying the building
. Heathrow Airport property owned by Brown & Sharpe Group Ltd. (unless Buyer
exercises its option to purchase under Section 5.12)
. Cash of Seller and the Retained Entities
. Patents, Trademarks and other intellectual property, including know-how,
owned by Seller which are not employed in the operation of the MS, PMI and
CM businesses
. All corporate records, including corporate financial and accounting
records, income tax returns, and corporate minute books of meetings of the
Board of Directors and Stockholders of Seller
. U.S. federal and State income tax, credits and net operating loss
carryforwards
. Third party accounts, notes, investments and other receivables of Seller
unrelated to the operation of the MS, PMI and CM businesses and assets sold
. Metroptic investment 50% ownership interest and Seller notes receivable due
from Metroptic
. Inventory and any fixed assets relating to or utilized in the development
of the turbine blade measuring machine situated at Telford, UK
. Insurance policies relating to funding of the Umbrella SERP, except those
that do not relate to Excluded Liabilities.
<PAGE>
Schedule 1-B
------------
EXCLUDED LIABILITIES
. Seller expenses of negotiating and documenting the Transaction
. Any brokerage, finder's or advisory fee, including without limitation any
such fee payable to Chase
. Claims by stockholders of Seller relating to the transactions contemplated
by this Agreement
. Litigation matters set forth on Attachment I hereto that are assigned to
Seller (namely all such matters except the Colletta matter, an employment
termination case, and the Swiss/Italian terminated distributor, Amos,
matter).
. Claims relating to non-compliance with the bulk sales law in the United
States
. All liabilities under the Umbrella SERP of Seller to persons who do not
accept employment with Buyer
. All liabilities under the PIP of Seller in respect of year 2000 cash
bonuses
. All liabilities under the LTDCIP of Seller in respect of year 2000 cash
bonuses
. All liabilities of the Seller to participants in Seller's regular
Supplemental Executive Retirement Plans
. All liabilities for outplacement assistance
. All liabilities under Seller's ESOP
. All liabilities under the Change in Control Contracts (except with regard
to executives hired at the Closing or within one year thereafter by Buyer's
subsidiary purchasing the U.S. Metrology assets or remaining at the Closing
or within one year thereafter, per agreement reached between any such
executive and Buyer, and employees of the Transferred Companies on the
Closing Date)
. All liabilities for "Honoraria" payments to former employees of Seller and
its Affiliates
. Cash redemption obligations through the Closing Date under any stock bonus
or option plan
. Any U.K. tax liability of the Transferred Companies with respect to the
dividend of the gravel pit to Seller
<PAGE>
. All liabilities, commitments, obligations, claims, expenses, etc., whether
known or unknown, absolute or contingent, accrued or unaccrued, relating to
the Excluded Assets (including environmental claims relating to the North
Kingstown, Rhode Island facility arising out of pre-closing activities on
this site) or otherwise, not directly resulting from the conduct of the
Metrology Business as has been directly or indirectly conducted by Seller
(such as, for example, product liabilities or environmental liabilities
relating to Seller businesses other than the Metrology Business as has been
directly or indirectly conducted by Seller), including without limitation
any claims (whether or not the subject of pending litigation) by employees
or former employees of BSAS relating to events occurring prior to the
Closing
. Attachment II hereto is an illustration of categories generally keyed to
people in the Metrology Business or "other corporate items" not in the
Metrology Business, which are Excluded Liabilities
. Excluded Liabilities do not include, except as set forth above or except as
otherwise provided in the Agreement all liabilities, commitments,
obligations, claims, expenses, etc., known or unknown, absolute or
contingent, accrued or unaccrued, directly relating to the conduct of the
Metrology Business as has been directly or indirectly conducted by Seller
-51-
<PAGE>
Attachment I to Schedule 1-B
----------------------------
Litigation
----------
UNINSURED
---------
Commercial/Contract Damage Suits/ Claims
----------------------------------------
1.) Gervais v. Brown & Sharpe Manufacturing Company
2.) Bryn Edwards and Thomas Kuneman v. Brown & Sharpe Aftermarket Services,
Inc.
3.) Stephen Logee v. Brown & Sharpe Aftermarket Services, Inc.
4.) Magnetic Recording Solutions, Inc. v. Brown & Sharpe Manufacturing Company,
Brown & Sharpe Surface Inspection Systems Inc, et al
5.) Poli - Patent Infringement Claim
6.) Outillac - Distributor Claim
Environmental Claims
--------------------
7.) FICA Landfill, Poughkeepsie, NY
8.) In re: Cranston Sanitary Landfill
Employment/Labor Claims
-----------------------
9.) In re: Closing of the Roch, France operations (Employee Termination claim)
10.) Tourtellott v. Brown & Sharpe Manufacturing Company
11.) Prendergast, Roland v. Brown & Sharpe Manufacturing Company
12.) Sherman v. Brown & Sharpe Manufacturing Company
<PAGE>
13.) 1981 Individual Strike Claims:
a.) Maureen Anderson
b.) Vern Leigh
c.) Michilina Rossi
d.) Clairice Wolfe
e.) David Swider and Howard Fields
f.) Willie Jones
g.) Brian Croft, Donald Snow, William Tobias
h.) E.V. Regnault, P.J. Tesier, D. Cullinane
Other
-----
14.) Claim of Arnold Nelson Mahler
INSURED
-------
Product Liability Claims
------------------------
15.) Product Liability Cases - there are approximately 38 cases pending relating
legacy ASM and SGM products and claims of toxic tort injury for which
insurance is providing a defense and indemnification.
a.) James C. & Rosemary Adams v. Brown & Sharpe Mfg. Co., et al
b.) Richard & Nancy Andersen v. Brown & Sharpe Mfg. Co., et al
c.) William & Barbara Anderson v. Brown & Sharpe Mfg. Co., et al
d.) Kenneth Bishop v. Brown & Sharpe Mfg. Co., et al
e.) Harry & Betty Bunning v. Brown & Sharpe Mfg. Co., et al
f.) Robert C. & Betty Lou Cahall v. Brown & Sharpe Mfg. Co., et al
g.) Herman Carroll v. Brown & Sharpe Mfg. Co., et al
h.) Michael & Rose Marie Conda v. Brown & Sharpe Mfg. Co., et al
i.) Harry Crump v. Brown & Sharpe Mfg. Co., et al
j.) Wesley & Thelma Espenchied v. Brown & Sharpe Mfg. Co., et al
k.) Clifton & Mildred Frake v. Brown & Sharpe Mfg. Co., et al
l.) Malcolm & Janie Graham v. Brown & Sharpe Mfg. Co., et al
m.) Clarence & Elsie Greene v. Brown & Sharpe Mfg. Co., et al
n.) Joseph & Martha Horn v. Brown & Sharpe Mfg. Co., et al
o.) Oscar & Carol Jackson v. Brown & Sharpe Mfg. Co., et al
p.) Samuel & Leona Jacoby v. Brown & Sharpe Mfg. Co., et al
-53-
<PAGE>
q.) Gerald Kapica v. Brown & Sharpe Mfg. Co., et al
r.) Walter & Dorothy Koons v. Brown & Sharpe Mfg. Co., et al
s.) John & Lorraine Kovach v. Brown & Sharpe Mfg. Co., et al
t.) Donald & Nancy Lenox v. Brown & Sharpe Mfg. Co., et al
u.) James Loveland v. Brown & Sharpe Mfg. Co., et al
v.) Richard & Martha McConnell v. Brown & Sharpe Mfg. Co., et al
w.) Kenneth & Francis Moore v. Brown & Sharpe Mfg. Co., et al
x.) Leonard & Judith Phillips v. Brown & Sharpe Mfg. Co., et al
y.) Louis & Virginia Powell v. Brown & Sharpe Mfg. Co., et al
z.) Peter & Vonda Salaga v. Brown & Sharpe Mfg. Co., et al
aa.) Minnie & Leroy Sanders v. Brown & Sharpe Mfg. Co., et al
bb.) Ernest Scott v. Brown & Sharpe Mfg. Co., et al
cc.) Jasper & Maryetta Scott v. Brown & Sharpe Mfg. Co., et al
dd.) Lewis & Jacqueline Stayton v. Brown & Sharpe Mfg. Co., et al
ee.) Hobart & Josephine Stecher v. Brown & Sharpe Mfg. Co., et al
ff.) John & Beatrice Thomas v. Brown & Sharpe Mfg. Co., et al
gg.) Dorothy Tokarski v. Brown & Sharpe Mfg. Co., et al
hh.) Joseph & Rose Wallace v. Brown & Sharpe Mfg. Co., et al
ii.) William & Dolores Wallace v. Brown & Sharpe Mfg. Co., et al
jj.) Ronald Warren v. Brown & Sharpe Mfg. Co., et al
kk.) Nicholas & Shirley Zacchie v. Brown & Sharpe Mfg. Co., et al
ll.) Michael Butler, et al v. Brown & Sharpe Mfg. Co., et al
16.) Stephen & Nancy Sendecki v. Brown & Sharpe Manufacturing Company
17.) Kenneth Hickey v. Brown & Sharpe Manufacturing Company
18.) Sandy Lewis v. Brown & Sharpe Manufacturing Company
Premises Liability
------------------
19.) Adams v. Brown & Sharpe Manufacturing Company
20.) Fumo and Gomes v. Brown & Sharpe Manufacturing Company
21.) Ritacco v. Brown & Sharpe Manufacturing Company
Other
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22.) In re: Avtar Singh Sekhon
-54-
<PAGE>
Attachment II to Schedule 1-B
-----------------------------
Accrued Expenses
----------------
North Kingstown
Corporate Employee Payroll Withholdings
Severance Payments to F. Curtin & C. Junkunc
Audit Fees
Legal Fees
Shareholder Service Fees
Consulting Fees
Utilities
Unclaimed Wages
Corporate Employee Travel Expenses
Internal Audit Costs
Advance Rent
Directors' Fees
Pensions - Liabilities to F. Curtin & C. Junkunc
Corporate Employee Profit Incentive Plan
Corporate Employee Payroll Tax
Federal Income Tax Payable
State Income Tax Payable
Interest Payable for Revolving Credit Agreement,
Private Placement Debt and Mortgage on
North Kingstown Property
BSIS Liabilities
SIS Liabilities
<PAGE>
Annex B
November 16, 2000
To The Board of Directors of
Brown & Sharpe Manufacturing Company
Gentlemen:
We understand that Brown & Sharpe Manufacturing Company ("BNS" or the "Company")
has entered into a non-binding agreement with Hexagon A.B., a publicly traded
limited liability company existing under the laws of Sweden ("HEX"), whereby HEX
will acquire (i) the Worldwide Measuring Systems and Precision Measuring
Instrument businesses of the Company, (ii) BNS's 30% interest in Wilcox
Associates Inc., (iii) a 46.7% interest in Brown & Sharpe Information Systems,
Inc. (for an additional $7.0 million), and (iv) an option to purchase real
estate located in London, England operating as a gravel pit for $5.0 million,
for an aggregate purchase price of $160.0 million in cash. Additionally, there
is a potential earn-out payment of up to $20.0 million based on certain
operating profits as of December 31, 2000 (adjusted for agreed upon items).
Such transaction and all related transactions are referred to collectively
herein as the "Transaction." The Company has requested that Houlihan Lokey
render an opinion (the "Opinion") as to the fairness, from a financial point of
view, to the Company of the consideration to be received in connection with the
Transaction.
You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested to, and did not, solicit
third party indications of interest in acquiring all or any part of the Company.
Furthermore, at your request, we have not negotiated the Transaction or advised
you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the annual audited financial statements on Form 10-K for BNS
for the fiscal years ended December 31, 1997, 1998 and 1999 and
unaudited quarterly financial statements on Form 10-Q for the quarters
ended March 31, 2000, June 30, 2000 and September 30, 2000;
2. reviewed drafts of certain documents to be delivered at the closing of
the Transaction;
3. met with certain members of the senior management of the Company to
discuss the operations, financial condition, future prospects and
projected operations and performance of the
<PAGE>
The Board of Directors of
Brown & Sharpe Manufacturing Company -2-
November 16, 2000
Company, and spoke with representatives of the Company's investment
banker to discuss certain matters;
4. visited certain facilities and business offices of the Company;
5. reviewed forecasts and projections prepared by the Company's
management with respect to the Company for the years ended December
31, 2000 through 2004;
6. reviewed the historical market prices and trading volume for the
Company's publicly traded securities;
7. reviewed documents pertaining to Company's businesses and assets which
will not be purchased and acquired by HEX;
8. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company, and publicly
announced transactions that we considered similar to the Transaction;
and
9. conducted such other studies, analyses and inquiries as we have deemed
appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company, and that there has been no material change
in the assets, financial condition, business or prospects of the Company since
the date of the most recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company. Our
opinion is necessarily based on business, economic, market and other conditions
as they exist and can be evaluated by us at the date of this letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that the
consideration to be received by the Company in connection with the Transaction
is fair to the Company from a financial point of view.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
/s/ Houlihan Lokey Howard & Zukin Financial Advisors, Inc.
<PAGE>
Annex C
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PROPOSED AMENDMENT TO ARTICLE FOURTH OF THE CERTIFICATE OF INCORPORATION OF
BROWN & SHARPE MANUFACTURING COMPANY:
Replace the first paragraph of Article FOURTH that currently reads:
"FOURTH: The aggregate number of shares of capital stock which this
Corporation shall have authority to issue is 33,000,000 shares of which
30,000,000 shares shall be Class A Common Stock, $1.00 par value per share,
2,000,000 shares shall be Class B Common Stock, $1.00 par value per share, and
1,000,000 shares shall be Preferred Stock, $1.00 par value per share. The Class
A Common Stock and the Class B Common Stock are sometimes hereinafter referred
to together as the "Common Stock"."
With the following paragraph:
"FOURTH: The aggregate number of shares of capital stock which this
Corporation shall have authority to issue is 33,000,000 shares of which
30,000,000 shares shall be Class A Common Stock, $0.01 par value per share,
2,000,000 shares shall be Class B Common Stock, $0.01 par value per share, and
1,000,000 shares shall be Preferred Stock, $1.00 par value per share. The Class
A Common Stock and the Class B Common Stock are sometimes hereinafter referred
to together as the "Common Stock"."
[The remainder of Article FOURTH remains unchanged.]
