<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 27, 1995
REGISTRATION NO. 33-62527
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE DURIRON COMPANY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
NEW YORK 3491 31-0267900
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
</TABLE>
------------------------
3100 RESEARCH BOULEVARD
DAYTON, OHIO 45420
(513) 476-6100
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
RONALD F. SHUFF, ESQ.
VICE PRESIDENT-SECRETARY AND GENERAL COUNSEL
THE DURIRON COMPANY, INC.
3100 RESEARCH BOULEVARD
DAYTON, OHIO 45420
(513) 476-6100
(Name, including zip code, and telephone number, including
area code, of agent for service)
------------------------
COPY TO:
J. MICHAEL HERR, ESQ.
THOMPSON, HINE AND FLORY
P.O. BOX 8801
2000 COURTHOUSE PLAZA, NORTHEAST
DAYTON, OHIO 45401
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of the registration
statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
------------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
=========================================================================================================
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
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<S> <C> <C> <C> <C>
Common Stock (4)..................... 6,468,411 $25.875 $167,370,134.63 $13,269
=========================================================================================================
</TABLE>
(1) The number of shares being registered is based upon the number of shares of
Common Stock, $5.00 par value per share, of Durametallic Corporation (the
"Durametallic Common Shares") presently outstanding or reserved for issuance
under various plans and the maximum possible conversion ratio in the merger.
(2) Estimated solely based upon the reported average of the high and low prices
of a share of Duriron Common Stock on September 7, 1995.
(3) The registration fee is based on the book value of the Durametallic Common
Shares (for which no market exists) as of June 30, 1995 (the latest
practicable date prior to the filing), in accordance with Rule 457(f)(2).
The registration fee was paid with the original filing of the Registration
Statement.
(4) There also are being registered hereunder an equal number of Preferred Stock
Purchase Rights which currently are attached to and are transferable only
with the shares of Common Stock registered hereunder.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
THE DURIRON COMPANY, INC.
CROSS REFERENCE SHEET FOR
REGISTRATION STATEMENT ON FORM S-4
<TABLE>
<CAPTION>
ITEMS OF FORM S-4 PROSPECTUS CAPTION OR LOCATION
------------------------------------------- -------------------------------------------
<S> <C> <C>
INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..... Facing Page of Registration Statement;
Outside Front Cover Page of Joint Proxy
Statement/ Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front Cover Page of Joint Proxy
Statement/Prospectus; Available
Information; Incorporation of Certain
Documents by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.............. Summary
4. Terms of the Transaction................... Summary; Background of and Reasons for the
Merger; Terms of the Merger; Federal Income
Tax Consequences; Comparison of Rights of
Holders of Durametallic Common Stock and
Duriron Common Stock
5. Pro Forma Financial Information............ Summary; Unaudited Pro Forma Condensed
Combined Financial Statements
6. Material Contacts with the Company
Being Acquired............................. Summary; Background of and Reasons for the
Merger
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters............................ Not Applicable
8. Interests of Named Experts and Counsel..... Legal Opinions; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3
Registrants................................ Available Information; Incorporation of
Certain Documents by Reference; Summary;
Information concerning Duriron
11. Incorporation of Certain Information by
Reference.................................. Incorporation of Certain Documents by
Reference; Summary
12. Information with Respect to S-2 or S-3
Registrants................................ Not Applicable
13. Incorporation of Certain Information by
Reference.................................. Not Applicable
14. Information with Respect to Registrants
Other than S-2 or S-3 Registrants.......... Not Applicable
INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3
Companies.................................. Not Applicable
16. Information with Respect to S-2 or S-3
Companies.................................. Not Applicable
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEMS OF FORM S-4 PROSPECTUS CAPTION OR LOCATION
------------------------------------------- -------------------------------------------
<S> <C> <C>
17. Information with Respect to Companies Other
than S-2 or S-3 Companies.................. Summary; Information Concerning
Durametallic; Selected Financial Data of
Durametallic; Durametallic Management's
Discussion and Analysis of Financial
Condition and Results of Operation; Market
Prices and Dividend History
VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited......... Incorporation of Certain Documents by
Reference; Summary; Special Meetings of
Duriron and Durametallic Shareholders;
Background of and Reasons for the Merger;
Terms of the Merger; Beneficial Ownership
of Voting Securities of Durametallic
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer....................... Not Applicable
</TABLE>
<PAGE> 4
[DURIRON LOGO]
THE DURIRON COMPANY, INC.
3100 RESEARCH BOULEVARD
DAYTON, OHIO 45420
October 30, 1995
Dear Fellow Shareholder:
You are invited to attend a special meeting of shareholders which the Board
has called to vote upon a proposed merger agreement between the Company and
Durametallic Corporation. This meeting will be held at the Company's
headquarters on Thursday, November 30, 1995 at 1:30 p.m. EST.
The Board is excited to recommend that you support and vote for the
proposed merger by signing and returning your enclosed proxy card. Durametallic
has been a valued supplier of mechanical seals to the Company for many years.
These seals are a key component of the process pumps manufactured by the
Company. The Board believes that the proposed merger will strengthen the
Company's competitiveness in the marketplace.
Under the proposed merger agreement, the Company will acquire Durametallic
for a consideration of $150,000,000 through a tax-free exchange of common stock
with the Durametallic shareholders. Durametallic has been a successful company
for many years. If the merger is approved, the combination of Durametallic with
the Company should help to assure the continued success of the Company.
You will also be asked at the meeting to approve an increase in the
authorized number of shares of the Company's common stock. The requested
increase is from 30,000,000 to 60,000,000 shares. If the merger is completed as
requested, there will be as few as 3,213,000 shares left for issuance by the
Company. The Board believes that the requested increase is necessary to have
adequate shares available for general corporate needs, including possible future
stock splits.
Both the merger agreement and the increase in authorized common stock are
described in more detail in the attached Joint Proxy Statement/Prospectus.
The Board strongly believes that both the merger agreement and the share
increase are essential to the long-term success of the Company. The Board thus
urges you to vote "FOR" both proposals on the enclosed proxy card.
Your vote, regardless of your amount of shareholdings, is very important.
Please promptly sign, date and return the enclosed proxy in the enclosed
envelope.
Sincerely,
WILLIAM M. JORDAN
President and Chief Executive Officer
<PAGE> 5
[DURIRON LOGO]
THE DURIRON COMPANY, INC.
3100 RESEARCH BOULEVARD
DAYTON, OHIO 45420
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 30, 1995
NOTICE HEREBY IS GIVEN that a Special Meeting of Shareholders of The
Duriron Company, Inc. ("Duriron") will be held at Duriron's headquarters, 3100
Research Boulevard, Dayton, Ohio on Thursday, November 30, 1995, commencing at
1:30 p.m. EST, for the following purposes:
1. To consider and vote upon approval of the Agreement and Plan of
Merger (the "Merger Agreement") dated as of September 11, 1995 among
Duriron, Wolverine Acquisition Corp., a wholly-owned subsidiary of Duriron
("Merger Sub"), and Durametallic Corporation ("Durametallic") (a copy of
which is attached as Annex A to the enclosed Joint Proxy
Statement/Prospectus), which provides for the merger of Merger Sub into
Durametallic. As a result of the merger, Durametallic will become a
wholly-owned subsidiary of Duriron and each outstanding share of Common
Stock of Durametallic will be converted into shares of Duriron Common Stock
with a market value (determined as provided in the Merger Agreement) of
$85.30, subject to adjustment as provided in the Merger Agreement, with
cash paid in lieu of fractional shares.
2. To consider and vote upon adoption of an amendment to Duriron's
Restated Certificate of Incorporation, as amended, to increase the
authorized number of shares of Duriron Common Stock from 30,000,000 to
60,000,000.
3. To consider and act upon such other business as properly may come
before the meeting or any adjournment or postponement thereof.
Only the holders of record of Duriron Common Stock as of the close of
business on October 24, 1995 are entitled to notice of and to vote at the
Special Meeting of Shareholders and any adjournments or postponements thereof.
The Joint Proxy Statement/Prospectus enclosed with this notice is a joint
proxy statement of Duriron and Durametallic for their respective special
shareholders meetings and also constitutes the prospectus of Duriron for the
shares of Duriron Common Stock to be issued in the proposed merger.
By Order of the Board of Directors
RONALD F. SHUFF
Secretary
Dayton, Ohio
October 30, 1995
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE COMPLETE, SIGN, DATE
AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE, TO WHICH NO POSTAGE
NEED BE AFFIXED IF MAILED IN THE UNITED STATES.
<PAGE> 6
[DURAMETALLIC LOGO]
DURAMETALLIC CORPORATION
2100 FACTORY STREET
KALAMAZOO, MICHIGAN 49001
October 30, 1995
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of
Durametallic Corporation ("Durametallic") to be held at 9:00 a.m., local time,
on November 30, 1995 at the Radisson Plaza Hotel, 100 West Michigan Avenue,
Kalamazoo, Michigan (the "Special Meeting").
At the Special Meeting, you will be asked to approve an Agreement and Plan
of Merger (the "Merger Agreement") between Durametallic, The Duriron Company,
Inc. ("Duriron") and a subsidiary of Duriron, pursuant to which the subsidiary
of Duriron will be merged with and into Durametallic (the "Merger"). The Board
of Directors of Durametallic has carefully reviewed and considered the terms and
conditions of the Merger and has received the opinion of William Blair & Company
as to the fairness of the Merger to the shareholders of Durametallic from a
financial point of view. The full text of the opinion of William Blair & Company
is attached to the Joint Proxy Statement/Prospectus as Annex C. The Board of
Directors of Durametallic has concluded that the Merger is fair to and in the
best interests of Durametallic and Durametallic shareholders and recommends that
you vote FOR the approval of the Merger Agreement.
If the Merger Agreement is approved by the shareholders of Durametallic and
the Merger is consummated, Durametallic will become a wholly-owned subsidiary of
Duriron, and each share of Durametallic Common Stock outstanding at the time the
Merger becomes effective will be converted into shares of Duriron Common Stock
with a market value of $85.30, subject to adjustments under certain
circumstances, all as more fully described in the attached Joint Proxy
Statement/Prospectus.
THE DETAILS OF THE MERGER AGREEMENT ARE DISCUSSED IN THE JOINT PROXY
STATEMENT/PROSPECTUS WHICH ACCOMPANIES THIS LETTER. YOU ARE URGED TO REVIEW IT
CAREFULLY. A COPY OF DURIRON'S 1994 ANNUAL REPORT TO SHAREHOLDERS AND ITS
QUARTERLY REPORT TO SHAREHOLDERS FOR THE PERIOD ENDED SEPTEMBER 30, 1995 ALSO
ARE ENCLOSED FOR YOUR INFORMATION.
Under Michigan law, the Merger Agreement must be approved by the
affirmative vote of the holders of at least a majority of the outstanding shares
of Durametallic Common Stock. Therefore, whether or not you personally will
attend the meeting, please vote for the proposed transaction by signing, dating,
and promptly mailing the enclosed proxy form. You may always revoke your proxy
at or prior to the time of the meeting if you wish to vote in person. Regardless
of the number of shares you own, your vote is important.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. Immediately
after the Merger is consummated, you will be sent instructions regarding the
mechanics of exchanging your existing Durametallic stock certificates for new
certificates representing shares of Duriron.
Sincerely,
JAMES S. WARE
President and Chief Executive Officer
<PAGE> 7
[DURAMETALLIC LOGO]
DURAMETALLIC CORPORATION
2100 FACTORY STREET
KALAMAZOO, MICHIGAN 49001
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 30, 1995
To the Shareholders of Durametallic Corporation:
A Special Meeting of Shareholders of Durametallic Corporation
("Durametallic") will be held at the Radisson Plaza Hotel, 100 West Michigan
Avenue, Kalamazoo, Michigan on November 30, 1995, at 9:00 a.m., local time, for
the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and
Plan of Merger dated as of September 11, 1995, among The Duriron Company,
Inc. ("Duriron"), Wolverine Acquisition Corp., a wholly-owned subsidiary of
Duriron ("Merger Sub"), and Durametallic, which provides for the merger of
Merger Sub into Durametallic. As a result of the merger, Durametallic will
become a wholly-owned subsidiary of Duriron and each outstanding share of
common stock of Durametallic will be converted into shares of common stock
of Duriron, subject to certain conditions and limitations described in the
Joint Proxy Statement/Prospectus.
2. To transact such other business as properly may come before the
meeting.
The Board of Directors has established the close of business on October 24,
1995, as the record date for the determination of the shareholders entitled to
notice of and to vote at the meeting and any adjournments thereof.
By Order of the Board of Directors
CLARK D. HURLBERT
Senior Vice President
Finance/Corporate Secretary
Kalamazoo, Michigan
October 30, 1995
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE
COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE.
NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED STATES.
<PAGE> 8
[DURAMETALLIC LOGO]
DURAMETALLIC CORPORATION
2100 FACTORY STREET
KALAMAZOO, MICHIGAN 49001
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 30, 1995
To the Participants in the R.D. Hall Employee Stock Ownership Plan:
A Special Meeting of Shareholders of Durametallic Corporation
("Durametallic") will be held at the Radisson Plaza Hotel, 100 West Michigan
Avenue, Kalamazoo, Michigan on November 30, 1995, at 9:00 a.m., local time, for
the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and
Plan of Merger dated as of September 11, 1995, among The Duriron Company,
Inc. ("Duriron"), Wolverine Acquisition Corp., a wholly-owned subsidiary of
Duriron ("Merger Sub"), and Durametallic, which provides for the merger of
Merger Sub into Durametallic. As a result of the merger, Durametallic will
become a wholly-owned subsidiary of Duriron and each outstanding share of
common stock of Durametallic will be converted into shares of common stock
of Duriron, subject to certain conditions and limitations described in the
Joint Proxy Statement/Prospectus.
2. To transact such other business as properly may come before the
meeting.
The Board of Directors has established the close of business on October 24,
1995, as the record date for the determination of the shareholders entitled to
notice of and to vote at the meeting and any adjournments thereof.
By Order of the Board of Directors
CLARK D. HURLBERT
Senior Vice President
Finance/Corporate Secretary
Kalamazoo, Michigan
October 30, 1995
YOUR VOTE DIRECTION IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING VOTE DIRECTION FORM IN THE ENCLOSED ENVELOPE. NO POSTAGE IS
NECESSARY IF MAILED IN THE UNITED STATES.
<PAGE> 9
THE DURIRON COMPANY, INC.
AND
DURAMETALLIC CORPORATION
JOINT PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS OF THE DURIRON COMPANY, INC.
TO BE HELD ON
NOVEMBER 30, 1995
AND
SPECIAL MEETING OF SHAREHOLDERS OF DURAMETALLIC CORPORATION
TO BE HELD ON
NOVEMBER 30, 1995
------------------------
THE DURIRON COMPANY, INC.
PROSPECTUS
FOR
6,468,411 SHARES OF COMMON STOCK,
$1.25 PAR VALUE PER SHARE
------------------------
The Duriron Company, Inc., a New York corporation ("Duriron"), and
Durametallic Corporation, a Michigan corporation ("Durametallic"), are
furnishing this Joint Proxy Statement/Prospectus to their respective
shareholders in connection with
(i) the solicitation of proxies by the Board of Directors of Duriron for use at
a special meeting of the shareholders of Duriron to be held at 1:30 p.m. EST on
November 30, 1995 at 3100 Research Boulevard, Dayton, Ohio and at any
adjournments or postponements thereof, and (ii) the solicitation of proxies by
the Board of Directors of Durametallic for use at a special meeting of the
shareholders of Durametallic to be held at 9:00 a.m. EST on November 30, 1995 at
the Radisson Plaza Hotel, 100 West Michigan Avenue, Kalamazoo, Michigan and at
any adjournments or postponements thereof (the "Durametallic Meeting").
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
Duriron with respect to up to 6,458,558 shares of Duriron Common Stock, $1.25
par value per share ("Duriron Common Stock"), to be issued in connection with
the proposed merger (the "Merger") of Wolverine Acquisition Corp., a
wholly-owned subsidiary of Duriron, with and into Durametallic. Upon
consummation of the Merger, except as otherwise described herein, the
outstanding shares of Durametallic's Common Stock, $5.00 par value per share
("Durametallic Common Shares"), will be converted into shares of Duriron Common
Stock on the following basis:
(i) if the average of the closing sale prices of a share of Duriron
Common Stock during the first 10 of the last 15 trading days immediately
preceding the date of the Durametallic Meeting (the "Market Value"), as
reported on the Nasdaq National Market ("NASDAQ"), is more than $23.225 and
less than $29.225, each Durametallic Common Share will be converted into a
number of shares of Duriron Common Stock determined by dividing $85.30 by
the Market Value of a share of Duriron Common Stock; or
(ii) if the Market Value of a share of Duriron Common Stock is less
than or equal to $23.225, each Durametallic Common Share will be converted
into 3.6728 shares of Duriron Common Stock; or
(iii) if the Market Value of a share of Duriron Common Stock is
greater than or equal to $29.225, each Durametallic Common Share will be
converted into 2.9187 shares of Duriron Common Stock.
If the Market Value had been determined as of October 23, 1995, it would
have been $28.0781, and each Durametallic Common Share would have been converted
into 3.0380 shares of Duriron Common Stock in the Merger.
The Duriron Common Stock is quoted on NASDAQ. The closing sale price of a
share of Duriron Common Stock on October 23, 1995, as reported on NASDAQ, was
$26.75.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------
The date of this Joint Proxy Statement/Prospectus is October 30, 1995.
<PAGE> 10
AVAILABLE INFORMATION
Duriron is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "SEC"). Duriron has filed a Registration
Statement on Form S-4 (the "Registration Statement") with the SEC under the
Securities Act of 1933, as amended (the "Securities Act"), covering the Duriron
Common Stock to be issued in the Merger. As permitted by the rules and
regulations of the SEC, this Joint Proxy Statement/Prospectus omits certain
information, exhibits, and undertakings contained in the Registration Statement.
Reference is made to the Registration Statement and to the exhibits thereto for
further information. Statements contained herein concerning such documents are
not necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference.
The Registration Statement and the exhibits thereto, as well as the
reports, proxy statements, and other information filed with the SEC by Duriron
under the Exchange Act, may be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC
located in the R.J. Donnelly Building, 75 Park Place, New York, New York 10007,
and the Kluczynski Building, Room 3190, 230 South Dearborn Street, Chicago,
Illinois 60604. Copies of such material may also be obtained at prescribed rates
from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES CERTAIN DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
(WITHOUT EXHIBITS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE INTO THIS JOINT PROXY STATEMENT/PROSPECTUS) ARE AVAILABLE WITHOUT
CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM A COPY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST.
REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED TO RONALD F. SHUFF, VICE
PRESIDENT-SECRETARY AND GENERAL COUNSEL OF DURIRON, 3100 RESEARCH BOULEVARD,
DAYTON, OHIO 45420 (TELEPHONE 513/476-6175). IN ORDER TO ENSURE TIMELY DELIVERY
OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE MADE BY NOVEMBER 22, 1995.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Duriron with the SEC under the Exchange
Act are hereby incorporated by reference into this Joint Proxy
Statement/Prospectus:
(a) Duriron's Annual Report on Form 10-K for the year ended December
31, 1994.
(b) Duriron's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1995 and June 30, 1995.
(c) Duriron's Current Report on Form 8-K filed with the SEC on
September 11, 1995.
(d) The description of Duriron's Common Stock contained in the
Registration Statement filed with the SEC under the Exchange Act for the
purpose of registering such stock (and any amendment or report filed for
the purpose of updating the description).
(e) The description of the rights to purchase Duriron's Series A
Junior Participating Preferred Stock contained in the Registration
Statement on Form 8-A dated August 13, 1986 filed with the SEC.
All documents filed by Duriron under Sections 13(a), 13(c), 14, or 15(d) of
the Exchange Act after the date of this Joint Proxy Statement/Prospectus and
prior to the date of the Durametallic Meeting shall be deemed to be incorporated
by reference in this Joint Proxy Statement/Prospectus and to be a part hereof
from the date of filing of such documents. Any statement contained herein or in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of
2
<PAGE> 11
this Joint Proxy Statement/Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which is also incorporated or
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Joint Proxy
Statement/Prospectus.
The information relating to Duriron contained in this Joint Proxy
Statement/Prospectus should be read together with the information in the
documents incorporated by reference.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY DURIRON OR DURAMETALLIC. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS JOINT PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER, SOLICITATION OF AN OFFER, OR PROXY
SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR
ANY DISTRIBUTION OF THE SECURITIES OFFERED PURSUANT TO THIS JOINT PROXY
STATEMENT/PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS
OF DURIRON OR DURAMETALLIC OR ANY OF THEIR RESPECTIVE SUBSIDIARIES SINCE THE
DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
3
<PAGE> 12
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
AVAILABLE INFORMATION............................................................. 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................... 2
SUMMARY........................................................................... 6
SPECIAL MEETINGS OF DURIRON AND DURAMETALLIC SHAREHOLDERS......................... 13
Duriron Meeting................................................................. 13
Durametallic Meeting............................................................ 14
BACKGROUND OF AND REASONS FOR THE MERGER.......................................... 15
Background of the Merger........................................................ 15
Reasons for the Merger.......................................................... 17
Opinions of Financial Advisors.................................................. 19
Recommendations of Boards of Directors of Durametallic and Duriron.............. 25
Interests of Certain Persons in the Merger...................................... 25
TERMS OF THE MERGER............................................................... 28
General......................................................................... 28
Conversion of Durametallic Common Shares into Duriron Common Stock.............. 28
Manner of Exchanging Durametallic Certificates for Duriron Certificates......... 29
Conditions to the Merger........................................................ 30
Certain Covenants............................................................... 32
Amendment and Termination....................................................... 33
Expenses of the Merger; Termination Fee......................................... 35
Effective Time of the Merger.................................................... 35
Operation of Durametallic after the Merger...................................... 36
Regulatory Approvals............................................................ 36
Federal Income Tax Consequences of the Merger................................... 36
Accounting Treatment of the Merger.............................................. 38
NASDAQ Listing of Duriron Common Stock.......................................... 38
Resale of Duriron Common Stock Issued in the Merger; Affiliates................. 38
Dissenters' Rights.............................................................. 38
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS...................................................................... 39
INFORMATION CONCERNING DURIRON.................................................... 47
INFORMATION CONCERNING DURAMETALLIC............................................... 47
BENEFICIAL OWNERSHIP OF VOTING SECURITIES OF DURAMETALLIC......................... 51
SELECTED FINANCIAL DATA OF DURAMETALLIC........................................... 54
DURAMETALLIC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS........................................................... 55
DESCRIPTION OF DURIRON CAPITAL STOCK.............................................. 58
Duriron Common Stock......................................................... 58
Duriron Preferred Stock...................................................... 59
Provisions Affecting Control................................................. 59
Comparison of Rights of Durametallic and Duriron Shareholders................ 60
MARKET PRICES AND DIVIDEND MARKET PRICES AND DIVIDEND HISTORY..................... 62
Durametallic................................................................. 62
Duriron...................................................................... 62
LEGAL MATTERS..................................................................... 62
EXPERTS........................................................................... 62
PROPOSED AMENDMENT TO DURIRON CERTIFICATE OF INCORPORATION........................ 63
</TABLE>
4
<PAGE> 13
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
SHAREHOLDER PROPOSALS FOR 1996 DURIRON ANNUAL MEETING............................. 64
OTHER MATTERS..................................................................... 64
INDEX TO DURAMETALLIC CONSOLIDATED FINANCIAL STATEMENTS........................... F-1
ANNEX A -- Agreement and Plan of Merger......................................... A-1
ANNEX B -- Opinion of Donaldson, Lufkin & Jenrette Securities Corporation....... B-1
ANNEX C -- Opinion of William Blair & Company................................... C-1
</TABLE>
5
<PAGE> 14
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Joint Proxy Statement/Prospectus. This summary is not intended to be
complete and is qualified in its entirety by reference to the more detailed
information contained elsewhere in this Joint Proxy Statement/Prospectus, the
documents attached hereto and the documents incorporated herein. Shareholders
are urged to read this Joint Proxy Statement/Prospectus in its entirety.
INTRODUCTION
The Boards of Directors of The Duriron Company, Inc., a New York
corporation ("Duriron"), and Durametallic Corporation, a Michigan corporation
("Durametallic"), each have unanimously approved and adopted, respectively, the
Agreement and Plan of Merger dated as of September 11, 1995 (the "Merger
Agreement"), pursuant to which Wolverine Acquisition Corp., a Michigan
corporation and wholly-owned subsidiary of Duriron ("Merger Sub"), will be
merged (the "Merger") with and into Durametallic if the shareholders of both
Duriron and Durametallic approve the Merger by the requisite shareholder votes
and certain other conditions are satisfied. In the Merger, each share of
Durametallic's Common Stock, $5.00 par value per share ("Durametallic Common
Shares"), other than any Durametallic Common Shares held by Durametallic or held
by Duriron or any subsidiary of Duriron or Durametallic, will be converted into
shares of Duriron's Common Stock, $1.25 par value per share ("Duriron Common
Stock"). As a result of the Merger, Durametallic will become a wholly-owned
subsidiary of Duriron. No change will be effected in the terms of the
outstanding Duriron Common Stock. A copy of the Merger Agreement is attached as
Annex A and is incorporated herein by reference.
DURIRON. Duriron is principally engaged in the design, manufacture and
marketing of fluid handling equipment, primarily pumps and valves, for
industries that utilize difficult-to-handle and often corrosive fluids in
manufacturing processes. Duriron specializes in the development of
precision-engineered equipment that is capable of withstanding the severely
deteriorating effects associated with the flow of acids, chemical solutions,
slurries and gases. The address of Duriron's principal executive office is 3100
Research Boulevard, Dayton, Ohio 45420, and its telephone number is
513/476-6100.
DURAMETALLIC. Durametallic is a leading manufacturer of mechanical seals
and sealing systems used primarily in process pumps, compressors, mixing
equipment, agitators and other rotating equipment and is a major manufacturer of
specialty welded metal bellows products for use in various aerospace, vacuum and
electronics industries. The address of Durametallic's principal executive office
is 2100 Factory Street, Kalamazoo, Michigan 49001, and its telephone number is
616/381-2650.
SPECIAL MEETING OF DURIRON SHAREHOLDERS
A special meeting of the shareholders of Duriron (the "Duriron Meeting")
will be held at Duriron's headquarters, 3100 Research Boulevard, Dayton, Ohio on
November 30, 1995 at 1:30 p.m. EST, to consider and vote upon approval of the
Merger Agreement. In addition, the Duriron shareholders will be asked to
consider and vote upon adoption of an amendment to Duriron's Restated
Certificate of Incorporation, as amended, to increase the authorized number of
shares of Duriron Common Stock from 30,000,000 to 60,000,000 (the "Certificate
Amendment"). See "PROPOSED AMENDMENT TO DURIRON CERTIFICATE OF INCORPORATION."
The Board of Directors of Duriron has fixed the close of business on October 24,
1995 as the record date (the "Duriron Record Date") for the determination of the
holders of Duriron Common Stock entitled to notice of and to vote at the Duriron
Meeting.
The affirmative vote of the holders of a majority of the shares of Duriron
Common Stock voting at the Duriron Meeting is required to approve the Merger
Agreement, and the affirmative vote of the holders of a majority of the
outstanding shares of Duriron Common Stock is required to adopt the Certificate
Amendment. Approval of the Merger Agreement is not contingent on adoption of the
Certificate Amendment nor is adoption of the Certificate Amendment contingent on
approval of the Merger Agreement. On the Duriron Record Date, there were
19,045,508 shares of Duriron Common Stock outstanding and entitled to vote, held
6
<PAGE> 15
by approximately 2,130 holders of record, of which 358,764 (approximately 1.9%
of the outstanding shares) were beneficially owned by directors and executive
officers of Duriron.
SPECIAL MEETING OF DURAMETALLIC SHAREHOLDERS
A special meeting of shareholders of Durametallic (the "Durametallic
Meeting") will be held at the Radisson Plaza Hotel, 100 West Michigan Avenue,
Kalamazoo, Michigan on November 30, 1995 at 9.00 a.m. EST, to consider and vote
upon the approval of the Merger Agreement. The Board of Directors of
Durametallic has fixed the close of business on October 24, 1995 as the record
date (the "Durametallic Record Date") for the determination of the holders of
Durametallic Common Shares entitled to notice of and to vote at the Durametallic
Meeting.
Under Michigan law, the affirmative vote of the holders of a majority of
the outstanding Durametallic Common Shares is required for approval of the
Merger Agreement. On the Durametallic Record Date, there were 1,716,884
Durametallic Common Shares outstanding and entitled to vote and held by
approximately 267 holders of record, of which 426,665 (approximately 24.85% of
the outstanding shares) were beneficially owned by directors and executive
officers of Durametallic. See "BENEFICIAL OWNERSHIP OF VOTING SECURITIES OF
DURAMETALLIC."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF DURAMETALLIC AND DURIRON
The Boards of Directors of Duriron and Durametallic, by unanimous votes,
have approved and adopted, respectively, the Merger Agreement, determined that
the Merger is fair to, and in the best interests of, their respective companies
and shareholders and recommended to their respective shareholders that the
shareholders vote FOR approval of the Merger Agreement. For a discussion of the
factors taken into consideration by the respective Boards of Directors of
Duriron and Durametallic in making their determinations, see "BACKGROUND OF AND
REASONS FOR THE MERGER."
OPINIONS OF FINANCIAL ADVISORS
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), financial
advisor to the Board of Directors of Duriron in connection with the Merger, has
delivered to the Duriron Board of Directors its written opinion dated September
9, 1995 (which it confirmed as of October 30, 1995) to the effect that, as of
the date of the opinion, the consideration to be paid by Duriron in the Merger
is fair to Duriron and Duriron's shareholders from a financial point of view.
William Blair & Company ("Blair"), financial advisor to the Board of
Directors of Durametallic in connection with the Merger, has delivered to the
Durametallic Board of Directors its written opinion dated September 10, 1995
(which it confirmed as of October 30, 1995) to the effect that, as of the date
of the opinion, the consideration to be received by the holders of the
Durametallic Common Shares in the Merger is fair to such shareholders from a
financial point of view.
For a description of the matters considered and the assumptions made by DLJ
and Blair in reaching their respective opinions and the fees to be received by
DLJ and Blair, see "BACKGROUND OF AND REASONS FOR THE MERGER -- Opinions of
Financial Advisors."
TERMS OF THE MERGER
MERGER CONSIDERATION. Each Durametallic Common Share outstanding at the
time of the Merger will be converted into shares of Duriron Common Stock (the
"Merger Consideration"), as follows:
(i) if the average of the closing sale prices (the "Market Value") of
a share of Duriron Common Stock during the first 10 of the last 15 trading
days immediately preceding the date of the Durametallic Meeting, as
reported on NASDAQ, is more than $23.225 and less than $29.225, each
Durametallic Common Share will be converted into a number of shares of
Duriron Common Stock determined by dividing $85.30 by the Market Value of a
share of Duriron Common Stock; or
7
<PAGE> 16
(ii) if the Market Value of a share of Duriron Common Stock is less
than or equal to $23.225, each Durametallic Common Share will be converted
into 3.6728 shares of Duriron Common Stock; or
(iii) if the Market Value of a share of Duriron Common Stock is
greater than or equal to $29.225, each Durametallic Common Share will be
converted into 2.9187 shares of Duriron Common Stock.
No fractional shares of Duriron Common Stock will be issued in the Merger,
and each holder of Durametallic Common Shares who otherwise would be entitled to
receive a fractional share of Duriron Common Stock in the Merger will be paid,
in lieu of a fractional share, an amount in cash equal to the closing sale price
of a share of Duriron Common Stock on the trading day immediately preceding the
Effective Time (as hereinafter defined) of the Merger, multiplied by the
fractional interest of one share of Duriron Common Stock to which the holder
otherwise would be entitled.
Each Durametallic stock option which is outstanding immediately prior to
the Effective Time (as hereinafter defined) of the Merger will be converted in
the Merger into an option to purchase, on the same terms and conditions as the
Durametallic option, a number of shares of Duriron Common Stock determined by
multiplying the number of Durametallic Common Shares subject to the option by
the Conversion Ratio (as hereinafter defined), at an exercise price per share
determined by dividing the exercise price per Durametallic Common Share under
the option by the Conversion Ratio. Shares of Duriron Common Stock into which
restricted Durametallic Common Shares issued under the Durametallic Executive
Incentive Bonus Plan are converted will be subject to the same restrictions as
the restricted Durametallic Common Shares. The "Conversion Ratio" is the number
of shares of Duriron Common Shares to be issued in the Merger for each
Durametallic Common Share.
Each share of Duriron Common Stock issued in the Merger will be accompanied
by a right issued under the Rights Agreement dated as of August 1, 1986, between
Duriron and Society National Bank, as amended (the "Duriron Rights Agreement"),
to purchase 1/225 of a share of Duriron's Series A Junior Participating
Preferred Stock, $1.00 par value per share, at a price of $13.33 per share. See
"DESCRIPTION OF DURIRON CAPITAL STOCK -- Duriron Rights Plan."
INFORMATION ON THE CONVERSION RATIO. SHAREHOLDERS OF BOTH DURAMETALLIC AND
DURIRON MAY CALL TOLL FREE 1-800-443-8726 ANY TIME BETWEEN 8:30 A.M. AND 4:30
P.M. EST ON OR AFTER OCTOBER 31, 1995 THROUGH AND INCLUDING NOVEMBER 30, 1995
FOR THE THEN CURRENT AVERAGE CLOSING SALE PRICE ON NASDAQ OF SHARES OF DURIRON
COMMON STOCK FOR THE FIRST 10 OF THE LAST 15 CONSECUTIVE TRADING DAYS
IMMEDIATELY PRECEDING THE DATE THE CALL IS PLACED TO THE TOLL FREE NUMBER AND
THE CONVERSION RATIO THAT WOULD BE IN EFFECT IF SUCH AVERAGE WERE THE MARKET
VALUE OF A SHARE OF DURIRON COMMON STOCK. THE ACTUAL MARKET VALUE OF A SHARE OF
DURIRON COMMON STOCK AND THE ACTUAL CONVERSION RATIO WILL BE CALCULATED BASED ON
THE FIRST 10 OF THE LAST 15 CONSECUTIVE TRADING DAYS IMMEDIATELY PRECEDING THE
DATE OF THE DURAMETALLIC MEETING, AS DESCRIBED ABOVE. THE ACTUAL CONVERSION
RATIO WILL BE AVAILABLE TO CALLERS BEGINNING ON NOVEMBER 22, 1995.
EFFECTIVE TIME. The Merger will become effective at such time (the
"Effective Time") as a Certificate of Merger is filed with the Department of
Commerce of the State of Michigan in accordance with the Michigan Business
Corporation Act (the "Michigan BCA"). It is anticipated that this filing will be
made as soon as practicable after the Merger Agreement is approved by the
shareholders of Duriron and Durametallic and all other conditions to the
consummation of the Merger are satisfied or waived. See "TERMS OF THE
MERGER -- Effective Time of the Merger." After the Effective Time, Durametallic
shareholders will be given transmittal forms and instructions for surrender of
their stock certificates representing Durametallic Common Shares. DURAMETALLIC
SHAREHOLDERS SHOULD NOT SEND IN THEIR SHARE CERTIFICATES WITH THEIR PROXY CARDS.
See "TERMS OF THE MERGER -- Manner of Exchanging Durametallic Certificates for
Duriron Certificates."
CONDITIONS TO CONSUMMATION OF THE MERGER. The respective obligations of
Duriron, Merger Sub and Durametallic to consummate the Merger are subject to the
satisfaction, at or before the Effective Time, of certain conditions, including
approval of the Merger Agreement by the shareholders of Duriron and
Durametallic. See "TERMS OF THE MERGER -- Conditions of the Merger."
8
<PAGE> 17
TERMINATION OF THE MERGER AGREEMENT; FEES AND EXPENSES. The Merger
Agreement may be terminated: (i) by mutual consent of Duriron and Durametallic,
(ii) by either Duriron or Durametallic, if the Merger is not consummated before
April 30, 1996 (or such later date as Duriron and Durametallic may agree), (iii)
by Duriron, if the average of the closing prices of a share of Duriron Common
Stock during the first 10 of the last 15 trading days immediately preceding the
date of the Durametallic Meeting exceeds $31.225, (iv) by Durametallic, if the
average of the closing prices of a share of Duriron Common Stock during the
first 10 of the last 15 trading days immediately preceding the date of the
Durametallic Meeting is less than $21.225 and (iv) by one or both of Duriron and
Durametallic in certain other circumstances. See "TERMS OF THE
MERGER -- Amendment and Termination."
If either Duriron or Durametallic terminates the Merger Agreement as a
result of a material breach of a representation, warranty or agreement by the
other, the other party may be required to reimburse the terminating party for
all of its out-of-pocket expenses, up to a maximum of $600,000, unless the other
party is receiving a termination fee. If the Merger Agreement is terminated
under certain circumstances involving a party's knowing breach of a
representation or warranty or an intentional breach of a covenant or agreement
or the withdrawal or change (in a manner adverse to the other party) by the
Board of Directors of the party of its recommendation to the shareholders of the
party to approve the Merger Agreement, that party may be required to pay the
other party a termination fee in the amount of $3,000,000. Also, under certain
circumstances, if the Merger Agreement is terminated and Durametallic
consummates a change of control transaction yielding consideration greater than
the Merger Consideration within 365 days thereafter, Durametallic may be
required to pay Duriron a termination fee of $5,250,000 (less the amount of any
other termination fee paid to Duriron). See "TERMS OF THE MERGER -- Expenses of
the Merger; Termination Fee."
TAX AND ACCOUNTING TREATMENT OF THE MERGER
Consummation of the Merger is conditioned upon receipt by Duriron and
Durametallic of an opinion of Thompson, Hine and Flory, counsel to Duriron, to
the effect that the Merger will constitute a tax-free reorganization for federal
income tax purposes. Consummation of the Merger also is conditioned upon receipt
by Duriron of a letter from Ernst & Young LLP, and upon receipt by Durametallic
of a letter from KPMG Peat Marwick LLP based upon its review of relevant
Durametallic financial transactions and agreements, to the effect that, for
financial accounting purposes, the Merger qualifies for "pooling-of-interests"
accounting treatment. See "TERMS OF THE MERGER -- Federal Income Tax
Consequences of the Merger" and "-- Accounting Treatment of the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
If the Merger is consummated, James S. Ware and Clark D. Hurlbert will
become entitled to certain benefits. See "BACKGROUND OF AND REASONS FOR THE
MERGER -- Interests of Certain Persons in the Merger."
DISSENTERS' RIGHTS
The holders of the Duriron Common Stock will not be entitled to dissenters'
rights with respect to the Merger or any other matter to be considered at the
Duriron Meeting. See "TERMS OF THE MERGER -- Dissenters' Rights."
The holders of the Durametallic Common Shares will not be entitled to
dissenters' rights in connection with the Merger. See "TERMS OF THE
MERGER -- Dissenters' Rights."
OPERATIONS OF DURAMETALLIC AFTER THE MERGER
Duriron has informed Durametallic that Duriron currently intends that,
following consummation of the Merger, Durametallic's business will be carried on
as a subsidiary of Duriron under its present name and management and with its
current facilities. Duriron and the management of Durametallic will continue to
evaluate Durametallic's business operations, corporate structure and
organization after the Merger, however, and will make such changes as are deemed
appropriate. In addition, James S. Ware has announced that he will retire as
President and Chief Executive Officer of Durametallic, effective April 12, 1996,
and Clark D.
9
<PAGE> 18
Hurlbert has announced that he will retire as Senior Vice President
Finance/Corporate Secretary of Durametallic, effective June 30, 1996, in each
case, subject to consummation of the Merger. Upon retirement of Mr. Ware, Thomas
E. Haan, presently Executive Vice President and Chief Operating Officer of
Durametallic, will become the President and Chief Executive Officer of
Durametallic. See "TERMS OF THE MERGER -- Operation of Durametallic after the
Merger" and "BACKGROUND OF AND REASONS FOR THE MERGER -- Interests of Certain
Persons in the Merger."
COMPARISON OF RIGHTS OF SHAREHOLDERS OF DURAMETALLIC AND DURIRON
The rights of holders of Duriron Common Stock differ in certain respects
from the rights of holders of Durametallic Common Shares, including the fact
that Duriron is subject to the informational requirements of the Exchange Act,
and trading in Duriron's Common Stock is reported on NASDAQ. For a comparison of
these rights, see "DESCRIPTION OF DURIRON CAPITAL STOCK -- Comparison of Rights
of Durametallic and Duriron Shareholders."
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
10
<PAGE> 19
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The summary financial data set forth below is selected historical financial
information of Duriron and Durametallic, and selected unaudited pro forma
financial data for Duriron and Durametallic after giving effect to the Merger on
a pooling-of-interests accounting basis, assuming the Merger had been effective
during the periods presented. The unaudited pro forma information is not
necessarily indicative of the results of operations or the financial condition
that actually would have been reported had the Merger been in effect during
those periods or which will occur in the future. Actual performance will differ,
and the differences may be material. The information presented below is based on
and should be read in conjunction with the consolidated financial statements of
Duriron and the notes thereto which are incorporated by reference in this Joint
Proxy Statement/Prospectus from Duriron's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, and its Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995 (see "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE") and the consolidated financial statements of Durametallic and the
notes thereto, which are included in this Joint Proxy Statement/Prospectus under
"FINANCIAL STATEMENTS OF DURAMETALLIC."
THE DURIRON COMPANY, INC. AND DURAMETALLIC CORPORATION
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
THE DURIRON COMPANY, INC.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $190,622 $163,708 $345,388 $313,920 $300,357 $296,489 $296,787
Earnings from continuing
operations....................... 11,739 7,777 17,158 16,492 13,229 19,601 20,910
Total assets....................... 291,097 272,213 274,104 247,940 250,560 213,385 206,395
Long-term debt..................... 43,528 41,444 39,032 34,925 41,963 21,064 26,786
</TABLE>
DURAMETALLIC CORPORATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 63,888 $ 56,578 $116,557 $109,138 $105,577 $102,238 $ 92,413
Earnings from continuing
operations....................... 3,941 3,424 7,238 5,078 7,275 6,227 4,226
Total assets....................... 75,849 66,729 70,162 66,568 65,123 68,820 67,977
Long-term debt..................... 4,422 6,270 3,966 360 519 7,658 8,120
</TABLE>
THE DURIRON COMPANY, INC.
AND DURAMETALLIC CORPORATION
UNAUDITED PRO FORMA COMBINED
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------- ------------------------------
1995 1994 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $253,760 $219,566 $460,507 $421,838 $403,984
Earnings from continuing
operations....................... 15,680 11,201 24,396 21,570 19,793
Total assets....................... 366,946 340,272 338,942 314,508 319,528
Long-term debt..................... 47,950 47,714 42,998 35,285 42,482
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
COMPARATIVE PER SHARE DATA
The following table presents historical per share data and unaudited pro
forma condensed combined per share data for Duriron and Durametallic adjusted to
reflect consummation of the Merger. The unaudited pro forma information is not
necessarily indicative of the results of operations or the financial condition
that actually would have been reported had the Merger been in effect during
those periods or which will occur in the future. Actual performance will differ,
and the differences may be material. The information presented below is based on
and should be read in conjunction with the Unaudited Pro Forma Condensed
Combined Financial Information and the separate historical financial statements
of Duriron and of Durametallic and the
11
<PAGE> 20
notes thereto, all of which are included elsewhere in this Joint Proxy
Statement/Prospectus or incorporated herein by reference. The Duriron per share
information is adjusted to give effect retroactively to the three-for-two stock
split paid by Duriron on March 25, 1994 in the form of a 50% stock dividend. The
Durametallic per share information is adjusted to give effect retroactively to
the four-for-one stock split paid by Durametallic to shareholders of record on
May 29, 1992 in the form of a stock dividend. Pro forma amounts were calculated
based on the minimum Conversion Ratio of 2.9187 shares of Duriron Common Stock
for each Durametallic Common Share and the maximum Conversion Ratio of 3.6728
shares of Duriron Common Stock for each Durametallic Common Share, assuming in
each case that no cash would be paid for fractional shares.
THE DURIRON COMPANY, INC. AND DURAMETALLIC CORPORATION
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
--------------- ---------------------------------------------
1995 1994 1994 1993 1992 1991 1990
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Duriron per share data:
Earnings from continuing operations....... $0.61 $0.41 $0.90 $0.86 $0.69 $1.03 $1.11
Cash dividends............................ 0.23 0.21 0.42 0.40 0.40 0.37 0.33
Book value................................ 7.79 6.98 7.32 6.73 6.36 7.26 6.62
Durametallic per share data:
Earnings from continuing operations....... $2.30 $1.84 $4.05 $2.81 $4.02 $3.14 $2.09
Cash dividends............................ 0.40 0.54 1.04 0.99 0.90 0.62 0.52
Book value................................ 22.41 17.77 20.55 18.52 21.77 18.99 17.00
Unaudited pro forma combined per share data
based upon maximum Conversion Ratio of
3.6728:
Earnings from continuing operations....... $0.61 $0.43 $0.95 $0.84 $0.77
Cash dividends............................ 0.20 0.19 0.39 0.37 0.36
Book value................................ 7.19 6.89
Unaudited pro forma combined per share data
based upon minimum Conversion Ratio of
2.9187:
Earnings from continuing operations....... $0.65 $0.46 $1.00 $0.89 $0.81
Cash dividends............................ 0.21 0.20 0.41 0.39 0.38
Book value................................ 7.57 7.26
Unaudited pro forma per share equivalent
data for Durametallic based upon maximum
Conversion Ratio of 3.6728(1):
Earnings from continuing operations....... $2.24 $1.58 $3.49 $3.09 $2.83
Cash dividends............................ 0.73 0.70 1.43 1.36 1.32
Book value................................ 26.41 25.31
Unaudited pro forma per share equivalent
data for Durametallic based upon minimum
Conversion Ratio of 2.9187(1):
Earnings from continuing operations....... $1.90 $1.34 $2.92 $2.60 $2.36
Cash dividends............................ 0.61 0.58 1.20 1.14 1.11
Book value................................ 22.09 21.19
</TABLE>
- ---------------
(1) The pro forma per share equivalent data for Durametallic sets forth pro
forma combined per share data based on the shares of Duriron Common Stock
for which each Durametallic Common Share will be exchanged in the Merger.
Per share amounts are calculated by multiplying the pro forma combined per
share data by the maximum and minimum Conversion Ratios.
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
RECENT DEVELOPMENTS
On October 20, 1995, Duriron announced its consolidated financial results
for the third quarter and the nine months ended September 30, 1995. Net sales
and net earnings were at record levels for the quarter and the nine months
period, reflecting a greater volume of goods being sold as a result of the
continuing strength of Duriron's global process industries marketplace,
including expanding business activity in Europe, Asia Pacific and the Americas.
International sales constituted approximately 39% of net sales during the
quarter and the nine months period. Net sales for the third quarter increased 9%
to $100 million, compared with $91.8 million in 1994. Net earnings for the
quarter were $6.9 million, or $.36 per share, reflecting an increase of 49.1%
over reported earnings of $4.6 million, or $.24 per share, in 1994. Net sales
for the nine months ended September 30, 1995 were $290.7 million, reflecting an
increase of 14% over net sales of $255.5 million for the same period in 1994.
Net earnings for the nine months increased 50% over the same period in 1994 to a
record $18.6 million, or $.97 per share. Net earnings in 1994 were $12.4
million, or $.65 per share.
12
<PAGE> 21
SPECIAL MEETINGS OF DURIRON AND
DURAMETALLIC SHAREHOLDERS
This Joint Proxy Statement/Prospectus is being furnished to the
shareholders of Duriron in connection with the solicitation of proxies by the
Board of Directors of Duriron from the holders of Duriron Common Stock for use
at the Duriron Meeting to consider and vote on: (i) approval of the Merger
Agreement, and (ii) adoption of the Certificate Amendment to increase the number
of authorized shares of Duriron Common Stock from 30,000,000 to 60,000,000. This
Joint Proxy Statement/Prospectus also is being furnished to the shareholders of
Durametallic in connection with the solicitation of proxies by the Board of
Directors of Durametallic from the holders of Durametallic Common Shares for use
at the Durametallic Meeting to consider and vote on approval of the Merger
Agreement. This Joint Proxy Statement/Prospectus is first being mailed to
shareholders of Duriron and Durametallic on or about October 30, 1995.
All information contained in this Joint Proxy Statement/Prospectus relating
to Duriron has been furnished by Duriron, and Durametallic is relying on the
accuracy of that information. All information contained in this Joint Proxy
Statement/Prospectus relating to Durametallic has been furnished by
Durametallic, and Duriron is relying on the accuracy of that information.
DURIRON MEETING
DATE, TIME AND PLACE. The Duriron Meeting will be held on November 30,
1995, commencing at 1:30 p.m. EST, at Duriron's headquarters at 3100 Research
Boulevard, Dayton, Ohio.
PURPOSES OF MEETING. The purpose of the Duriron Meeting is to consider and
vote upon (i) approval of the Merger Agreement, and (ii) adoption of the
Certificate Amendment, which would increase the number of authorized shares of
Duriron Common Stock from 30,000,000 to 60,000,000.
RECORD DATE. The close of business on October 24, 1995, has been fixed by
the Executive Committee of the Board of Directors of Duriron as the record date
for the determination of the holders of Duriron Common Stock entitled to notice
of and to vote at the Duriron Meeting (the "Duriron Record Date"). At the close
of business on October 24, 1995, there were 19,045,508 shares of Duriron Common
Stock issued and outstanding and held by approximately 2,130 holders of record.
Holders of record of Duriron Common Stock on the record date are entitled to one
vote per share.
QUORUM; VOTE REQUIRED. The presence in person or by proxy of the holders
of a majority of the outstanding shares of Duriron Common Stock is necessary to
constitute a quorum for the transaction of business at the Duriron Meeting. The
affirmative vote of the holders of a majority of the shares of Duriron Common
Stock voting at the Duriron Meeting is required to approve the Merger Agreement
and the affirmative vote of the holders of a majority of the shares of Duriron
Common Stock outstanding on the Duriron Record Date is required to adopt the
Certificate Amendment. Abstentions, failures to vote and broker non-votes will
not be counted as votes either in favor of or against approval of the Merger
Agreement or adoption of the Certificate Amendment. Since adoption of the
Certificate Amendment requires the affirmative vote of a majority of the
outstanding shares of Duriron Common Stock, however, a shareholder who fails to
return a proxy or otherwise to vote or who abstains from voting on the
Certificate Amendment will have effectively voted against the proposal for
purposes of determining the number of votes needed for approval of the
Certificate Amendment at the Duriron Meeting.
Approval of the Merger Agreement is not contingent on adoption of the
Certificate Amendment, and adoption of the Certificate Amendment is not
contingent on approval of the Merger Agreement.
As of October 24, 1995, the directors and executive officers of Duriron
beneficially owned a total of 358,764 shares of Duriron Common Stock entitled to
vote at the Duriron Meeting, constituting approximately 1.9% of the outstanding
shares of Duriron Common Stock entitled to vote.
VOTING; SOLICITATION AND REVOCATION OF PROXIES. Proxies for use at the
Duriron Meeting accompany copies of this Joint Proxy Statement/Prospectus
delivered to record holders of shares of Duriron Common Stock. Shares of Duriron
Common Stock which are represented by properly executed proxies, unless such
proxies previously have been revoked, will be voted in accordance with the
instructions indicated in such proxies. If no instructions are indicated, such
shares will be voted FOR approval of the Merger Agreement and adoption of the
Certificate Amendment and in the discretion of the proxy holder as to any other
matter which
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may properly come before the Duriron Meeting. A shareholder who has given a
proxy may revoke it at any time prior to its exercise at the Duriron Meeting by
filing with the Secretary of Duriron, at the address set forth in the "Summary,"
a written revocation bearing a later date than a proxy being revoked, or by
submission of a validly executed proxy bearing a later date than the proxy being
revoked, or by voting the shares of Duriron Common Stock covered thereby in
person at the Duriron Meeting.
Duriron shareholders are requested to complete, sign, date and return
promptly the enclosed proxy in the postage prepaid envelope provided for this
purpose, regardless of whether they plan to attend the Duriron Meeting, to
ensure that their shares are voted.
If a quorum is not obtained, or if fewer shares of Duriron Common Stock are
voted in favor of the Merger Agreement or the Certificate Amendment than the
number required for approval or adoption, the Duriron Meeting will be postponed
or adjourned for the purpose of allowing additional time for obtaining
additional proxies or votes, and, at any subsequent reconvening of the Duriron
Meeting, all proxies will be voted in the same manner as such proxies would have
been voted at the original convening of the meeting (except for any proxies
which have theretofore effectively been revoked), notwithstanding that they
might have been effectively voted on the same or any other matters.
In addition to soliciting proxies by mail, officers and employees of
Duriron may solicit proxies personally or by telephone, telegram or other forms
of wire or facsimile communication with no additional compensation for their
solicitation efforts; however, they may be reimbursed for their out-of-pocket
expenses. Banks, brokerage firms, other institutions, nominees and fiduciaries
will be requested to forward their proxy soliciting materials to their
principals and obtain authorizations for execution of proxies. Duriron will bear
the cost of the Duriron Meeting and of soliciting proxies, including the cost of
printing and mailing the proxy materials and the reasonable expenses incurred by
brokerage firms, custodians, nominees and fiduciaries in forwarding proxy
materials to beneficial owners of Duriron Common Stock. In addition, Duriron has
retained D. F. King & Co., Inc. to assist in its solicitation. The fee of D. F.
King & Co., Inc. is estimated not to exceed $5,000 plus reasonable out-of-pocket
costs and expenses.
DURAMETALLIC MEETING
DATE, TIME AND PLACE. The Durametallic Meeting will be held on November
30, 1995, commencing at 9:00 a.m. EST, at the Radisson Plaza Hotel, 100 West
Michigan Avenue, Kalamazoo, Michigan.
PURPOSE OF MEETING. The purpose of the Durametallic Meeting is to consider
and vote upon approval of the Merger Agreement.
RECORD DATE. The close of business on October 24, 1995, has been fixed by
the Board of Directors of Durametallic as the record date for the determination
of the holders of Durametallic Common Shares entitled to notice of and to vote
at the Durametallic Meeting (the "Durametallic Record Date"). At the close of
business on October 24, 1995, there were 1,716,884 Durametallic Common Shares
issued and outstanding and held by 267 holders of record. Holders of record of
Durametallic Common Shares on the record date are entitled to one vote per
share.
QUORUM; VOTE REQUIRED. The presence in person or by proxy of the holders
of a majority of the outstanding Durametallic Common Shares is necessary to
constitute a quorum for the transaction of business at the Durametallic Meeting.
The affirmative vote of the holders of at least a majority of the Durametallic
Common Shares outstanding on the Durametallic Record Date is required to approve
the Merger Agreement. Abstentions, failures to vote and broker non-votes will
not be counted as votes either in favor of or against approval of the Merger
Agreement. Since approval of the Merger Agreement requires the affirmative vote
of the holders of a majority of the outstanding Durametallic Common Shares,
however, a shareholder who fails to return a proxy or otherwise to vote or who
abstains from voting on the Merger Agreement will have effectively voted against
the proposal.
As of the Durametallic Record Date, the directors and executive officers of
Durametallic beneficially owned a total of 426,665 Durametallic Common Shares
entitled to vote at the Durametallic Meeting,
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constituting approximately 24.85% of the outstanding Durametallic Common Shares
entitled to vote. See "BENEFICIAL OWNERSHIP OF VOTING SECURITIES OF
DURAMETALLIC."
VOTING; SOLICITATION AND REVOCATION OF PROXIES. Proxies for use at the
Durametallic Meeting accompany copies of this Joint Proxy Statement/Prospectus
delivered to record holders of Durametallic Common Shares. Durametallic Common
Shares which are represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted in accordance with the instructions
indicated in such proxies. If no instructions are indicated, such shares will be
voted FOR approval of the Merger Agreement and in the discretion of the proxy
holder as to any other matter which may properly come before the Durametallic
Meeting. A shareholder who has given a proxy may revoke it at any time prior to
its exercise at the Durametallic Meeting by filing with the Secretary of
Durametallic, at the address set forth in the "Summary" above, a written
revocation bearing a later date than a proxy being revoked, or by submission of
a validly executed proxy bearing a later date than the proxy being revoked, or
by voting the Common Shares covered thereby in person at the Durametallic
Meeting.
Durametallic shareholders are requested to complete, sign, date and return
promptly the enclosed proxy in the postage prepaid envelope provided for this
purpose, regardless of whether they plan to attend the Durametallic Meeting, to
ensure that their shares are voted.
If a quorum is not obtained, or if fewer Durametallic Common Shares are
voted in favor of the Merger Agreement than the number required for approval, it
is expected that the Durametallic Meeting will be postponed or adjourned for the
purpose of allowing additional time for obtaining additional proxies or votes,
and, at any subsequent reconvening of the Durametallic Meeting, all proxies will
be voted in the same manner as such proxies would have been voted at the
original convening of the meeting (except for any proxies which have theretofore
effectively been revoked), notwithstanding that they might have been effectively
voted on the same or any other matter.
Officers and employees of Durametallic may solicit proxies personally, by
mail, or by telephone, telegram or other forms of wire or facsimile
communication with no additional compensation for their solicitation efforts.
They may be reimbursed, however, for their out-of-pocket expenses. Banks,
brokerage firms, other institutions, nominees and fiduciaries will be requested
to forward their proxy soliciting materials to their principals and obtain
authorizations for execution of proxies. Durametallic will bear the cost of the
Durametallic Meeting and of soliciting proxies, including the cost of printing
and mailing the proxy materials, and the reasonable expenses incurred by
brokerage firms, custodians, nominees, and fiduciaries in forwarding proxy
materials to owners of Durametallic Common Shares.
BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND OF THE MERGER
The Merger evolved from many years of joint business activities between
Duriron and Durametallic, which included a long-term customer/vendor
relationship. Durametallic is a supplier of mechanical seals that are used in
the process pumps manufactured by Duriron, and Duriron therefore has been an
important original equipment manufacturer customer of Durametallic over the
years. Recent activities have evolved into a higher level of business
collaboration. The parties' engineering groups have worked together in designing
a "pump of the future" involving the joint design of advanced technology in
mechanical seals within process pumps. They also have collaborated in a joint
business arrangement in Singapore in repairing process pumps and seals.
Both Durametallic and Duriron have recognized that many mutual customers
are increasingly seeking a single source of responsibility for their process
equipment maintenance needs, including the base pump provided by Duriron and the
mechanical seal for the pump provided by Durametallic. There are increased
marketplace pressures to coordinate the responsibilities for maintenance of both
process pumps and mechanical seals. The parties have discussed this emerging
market trend over the recent past.
In September 1993, Durametallic engaged Blair to act as its financial
advisor with respect to Durametallic's strategic alternatives and any possible
sale, merger or other business combination of Durametallic.
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<PAGE> 24
On October 29, 1993, at a special meeting of the Durametallic Board of
Directors, representatives of Blair discussed with the Board various strategic
alternatives, including the alternatives of continuing its business unaffiliated
with another company, offering its common stock to the public, pursuing a
transaction with its management, or pursuing a business affiliation with another
company, and the potential advantages and disadvantageous of each alternative.
The Board of Directors discussed Durametallic's market, its position in the
industry, its financial condition and the best interests of Durametallic's
shareholders, employees and customers. The Board of Directors concluded that
management should continue to review and analyze strategic alternatives,
including the possibility of a business affiliation with another company, to
determine which alternative, if any, would be in the best interests of
Durametallic's shareholders, employees and customers. The Board preliminarily
determined that a business affiliation with another company appeared to offer
the most favorable opportunities for the company to achieve its business
strategies and increase its shareholders' short-term and long-term value. As a
result, the Board authorized management to pursue a possible affiliation with
another company.
In November 1993, Duriron and Durametallic signed confidentiality
agreements permitting each company to review additional financial information
provided by the other company. John S. Haddick, Chairman of Duriron, sent a
letter to Blair dated November 30, 1993, describing the potential business
advantages of a consolidation of the two companies. The letter noted that a
merger of Duriron and Durametallic would provide a strong single source that
could supply their mutual customers with both the base pump manufactured by
Duriron and the mechanical seal manufactured by Durametallic.
On December 10, 1993, Duriron, after interviewing several candidates,
engaged DLJ to assist to evaluating the possible business combination with
Durametallic. DLJ thereafter provided to Duriron several financial analyses of
the business valuation of Durametallic using various valuation techniques. On
December 16, 1993, the Board of Directors of Duriron reviewed and considered a
potential merger with Durametallic. As part of this review, the Board of
Directors of Duriron examined certain preliminary financial analyses prepared by
DLJ. At this meeting, the Board of Directors expressed its interest in the
possible business combination with Durametallic. The Board authorized Duriron's
management to continue its investigation and negotiations with Durametallic.
On December 17, 1993, at a special meeting, the Board of Directors of
Durametallic reviewed and analyzed various strategic business alternatives,
including a potential business affiliation between Durametallic and either
Duriron or another company with which Durametallic had held discussions. The
Board of Directors authorized management to continue discussion with both
companies.
After Duriron conducted further inquiries and analyses regarding
Durametallic, Mr. Haddick sent a letter to James S. Ware, Chairman, President
and Chief Executive Officer of Durametallic, dated January 10, 1994, which
outlined a proposal for a combination of Duriron and Durametallic on the basis
of a pooling of interests. The letter provided certain strategic business
reasons for the Merger and proposed certain terms and conditions, including
financial terms based upon a tax-free exchange of shares.
On January 21, and 31, 1994, the Board of Directors of Durametallic met to
consider and evaluate, among other strategic business alternatives, the
proposals received from Duriron and the other company. Blair was present at the
meetings and reviewed the two proposals with the Board of Directors. Blair
presented analyses of the business and financial condition of each company. Each
company was offered the opportunity to review and improve its proposal.
On February 8 and 24, 1994, the Board of Directors of Durametallic met with
representatives of Blair to review and discuss the improved proposals of each
company. Blair provided financial analyses of the improved proposals. As a
result of its deliberations, the Board of Directors determined that it would be
in the best interests of Durametallic's shareholders, employees and customers to
negotiate further the business combination proposed by Duriron.
On February 9, 1994, Mr. Ware met with the Board of Directors of Duriron at
a regularly scheduled meeting to discuss Durametallic and to confirm
Durametallic's interest in a possible business combination
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with Duriron. After Mr. Ware departed, DLJ presented an updated financial
analysis of Durametallic and reviewed this analysis with the Duriron Board of
Directors.
In early March 1994, Duriron terminated the negotiations with Durametallic
as a result of Duriron's inability to assess to its satisfaction the likely
effects on Durametallic of the asbestos litigation involving Durametallic (see
"Legal Proceedings" on page 50 for further information on this topic). In June
1995, Durametallic provided Duriron updated information as to the then status of
the litigation, including historical settlement amounts, number of pending cases
and the insurance coverage for the claims. The information enabled Duriron to
assess to its satisfaction that the litigation was not likely to be material.
Accordingly, in June 1995, representatives of Duriron and Durametallic began
informal meetings to again discuss a business combination.
On July 21, 1995, Mr. William M. Jordan, Duriron's President and Chief
Executive Officer discussed with the Duriron Board of Directors at a regularly
scheduled meeting the merits of reopening discussions with Durametallic. Mr.
Jordan provided an updated preliminary financial analysis of a proposed pooling
of interests transaction with Durametallic. Following the meeting, Mr. Jordan
sent a letter to Blair dated July 21, 1995, with a revised proposal for a
business combination of Durametallic and Duriron through a pooling of interests
and tax-free exchange of shares.
During the following week, Duriron, Durametallic and their advisors engaged
in negotiations regarding the significant terms of the proposed transaction,
including the appropriate business valuation of Durametallic. Based on these
discussions, Mr. Jordan sent a revised proposal to Durametallic's counsel,
Warner Norcross & Judd LLP, dated July 28, 1995, reaffirming Duriron's interest
in proceeding with the proposed transaction.
On July 28 and August 18, 1995, the Board of Directors of Durametallic
discussed with Blair the terms of Duriron's proposal and whether to proceed with
a business combination with Duriron. During the month of August 1995, Duriron
and Durametallic engaged in further negotiations, document preparation and due
diligence investigations.
The Board of Directors of Duriron met on September 9, 1995, and the Board
of Directors of Durametallic met on September 10, 1995, in separate special
meetings, to review the Merger Agreement that had been negotiated between the
companies. Legal counsel and financial advisors for each company were present at
these meetings and reviewed the proposed Merger Agreement with the respective
Boards of Directors. DLJ provided its opinion to the Duriron Board of Directors
that the consideration to be paid by Duriron to the shareholders of Durametallic
in the proposed Merger was fair to Duriron and its shareholders from a financial
point of view. Blair provided its opinion to the Durametallic Board of Directors
that the consideration to be received in the proposed Merger was fair to
Durametallic's shareholders from a financial point of view. DLJ and Blair
discussed their respective financial analyses and other factors considered by
each in rendering their opinions. The Board of Directors of each company
discussed the Merger Agreement, the results of each company's due diligence,
related legal and financial matters, and the potential effects of the Merger on
the shareholders, employees and customers of the respective companies.
Following these discussions, the Board of Directors of Durametallic and the
Board of Directors of Duriron each voted unanimously to adopt the Merger and to
authorize execution of the Merger Agreement and submission of the Merger
Agreement for approval by their respective shareholders.
Prior to the opening of business on September 11, 1995, Duriron and
Durametallic executed the definitive Merger Agreement and issued a joint press
release announcing the Merger Agreement.
REASONS FOR THE MERGER
DURIRON'S REASONS FOR THE MERGER. At a meeting held on September 9, 1995,
the Board of Directors of Duriron, with the assistance of its financial and
legal advisors, considered the terms of the Merger and reviewed the business,
financial, legal, accounting and other considerations involved in the Merger. In
determining to enter into the Merger Agreement and to recommend that Duriron's
shareholders approve the
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Merger Agreement, the Duriron Board of Directors considered, among other things,
the following (without assigning any relative or specific weights):
(i) the business, results of operations, assets and financial
condition of Duriron and Durametallic, on an historical and prospective
basis, including information concerning the two companies on a pro forma
combined basis;
(ii) the enhanced ability of Duriron, after the Merger, to respond to
customer demands for: (1) a single-source of supply for pumps and the
associated mechanical seals, (2) vendor assistance with the design of
complete pumping systems, and (3) more extensive pumping system operational
training and maintenance services;
(iii) the opportunity for greater penetration of foreign markets by
combining the foreign operations of Durametallic and Duriron;
(iv) a Conversion Ratio, including an upper and lower collar which
would set a minimum and maximum number of shares of Duriron Common Stock to
be issued, and a "walk-away" right that would permit Duriron to terminate
the Merger Agreement if the price per share of the Duriron Common Stock
increases above an established maximum price per share;
(v) the results of an extensive due diligence investigation of
Durametallic which provided the basis for the conclusion that the business,
asset quality and financial condition of Durametallic would enhance the
profitability and growth potential of Duriron after the Merger;
(vi) the probability that the business combination with Durametallic
would provide greater short-term and long-term value to the Duriron
shareholders by improving the competitiveness of Duriron; and
(vii) the opinion of DLJ to the effect that the consideration payable
by Duriron in connection with the Merger is fair to Duriron and the
shareholders of Duriron from a financial point of view.
DURAMETALLIC'S REASONS FOR THE MERGER. The terms of the Merger and the
Merger Agreement, including the Conversion Ratio, were the result of arms-length
negotiations between Durametallic and Duriron and their respective
representatives. In the course of reaching its decision to approve the Merger
Agreement, the Board of Directors of Durametallic consulted with its legal and
financial advisors as well as with management of Durametallic and, without
assigning any relative or specific weights, considered numerous factors,
including but not limited to the following:
(i) the business, results of operations, asset quality and financial
condition of Duriron, the future growth prospects of Duriron and
Durametallic following the Merger and the potential synergies expected to
be realized from the Merger;
(ii) the probability that a business combination with a larger
company, such as Duriron, would provide both greater short-term and
long-term value to Durametallic's shareholders than other alternatives
available (including a continuation of business unaffiliated with another
company, a public offering of stock, or a transaction with Durametallic's
management) and would enhance Durametallic's competitiveness and its
ability to serve its customers;
(iii) a Conversion Ratio, including an upper and lower collar which
would set a minimum and maximum number of shares of Duriron Common Stock to
be issued, and a "walk-away" right that would permit Durametallic to
terminate the Merger Agreement if the price per share of the Duriron Common
Stock declines below an established minimum price per share;
(iv) receipt by Durametallic shareholders of a tax-deferred gain as a
result of the Merger;
(v) the prospect for Durametallic shareholders receiving higher
dividends, greater liquidity for their shares and more achievable prospects
for future growth than if Durametallic were to remain independent;
(vi) the business efficiencies, cost savings and enhanced customer
service resulting from the ability of Duriron and Durametallic to jointly
design advanced pumping systems and to supply mutual customers with a final
product integrating both Duriron pumps and Durametallic mechanical seals;
and
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(vii) the presentations of Blair, Durametallic's financial advisor,
and the opinion it rendered to the effect that the Merger Consideration was
fair, from a financial point of view, to the holders of Durametallic Common
Shares.
OPINIONS OF FINANCIAL ADVISORS
DURIRON. In its role as financial advisor to Duriron, DLJ was asked by
Duriron to render its opinion to the Duriron Board of Directors as to the
fairness from a financial point of view to Duriron and its shareholders of the
consideration to be paid by Duriron to the shareholders of Durametallic pursuant
to the Merger Agreement. In connection with such request, there were furnished
to DLJ certain financial projections relating to Duriron and Durametallic for
the period beginning January 1, 1995 and ending December 31, 2000, which
projections were prepared by the managements of Duriron and Durametallic. The
projections were also furnished to Blair, Durametallic's advisor. The estimated
future revenues included in the projections were derived by the managements of
Duriron and Durametallic based upon a combination of factors. Those factors
included historical annual and average annual sales growth rates (including
approximately 14% and 7% for Duriron during the 12 months ended June 30, 1995
and for the two years ended December 31, 1994, respectively; and approximately
13% and 5%, respectively, for Durametallic during the same periods), with the
more recent rates being more heavily weighted in estimating near term growth
rates; and published estimates of projected capital spending by the U.S.
chemical process industries (being the principal industries served by both
Duriron and Durametallic). It was also assumed that there would be continued
moderate expansion of the U.S. and global economies. Margin rates slightly in
excess of recent historical rates were applied in arriving at projected income
to reflect favorable trends in market conditions. The projections prepared by
managements of Duriron and Durametallic, while believed to be reasonable, are
estimates only, and actual results will differ from the projections, and the
differences may be material.
DLJ issued to the Duriron Board of Directors its written opinion (the "DLJ
Opinion") on September 9, 1995, that the consideration to be paid by Duriron to
the shareholders of Durametallic pursuant to the Merger Agreement is fair to
Duriron and its shareholders from a financial point of view.
A COPY OF THE DLJ OPINION IS ATTACHED HERETO AS ANNEX B. SHAREHOLDERS ARE
URGED TO READ THE OPINION IN ITS ENTIRETY FOR ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, OTHER MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY DLJ. THE SUMMARY
OF THE OPINION OF DLJ SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. THE DLJ
OPINION WAS PREPARED FOR THE DURIRON BOARD OF DIRECTORS AND IS DIRECTED ONLY TO
THE FAIRNESS AS OF SEPTEMBER 9, 1995, FROM A FINANCIAL POINT OF VIEW, OF THE
CONSIDERATION TO BE PAID BY DURIRON TO THE DURAMETALLIC SHAREHOLDERS PURSUANT TO
THE MERGER AGREEMENT AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER
AS TO HOW TO VOTE AT EITHER THE DURIRON MEETING OR THE DURAMETALLIC MEETING. DLJ
CONFIRMED ITS OPINION TO THE BOARD OF DIRECTORS AS OF OCTOBER 30, 1995.
The DLJ Opinion does not constitute an opinion as to the price at which
Duriron Common Stock will actually trade at any time. No restrictions or
limitations were imposed by the Duriron Board of Directors upon DLJ with respect
to the investigations made or the procedures followed by DLJ in rendering its
opinion.
In arriving at its opinion, DLJ reviewed a final draft of the Merger
Agreement dated September 7, 1995. Changes subsequently made to the draft Merger
Agreement prior to or on the date of the DLJ opinion did not affect DLJ's
opinion. DLJ also reviewed financial and other information regarding Duriron and
Durametallic that was publicly available or furnished to DLJ by Duriron,
including information provided during discussions with Duriron and Durametallic
managements. Included in the information provided during discussions with
Duriron and Durametallic managements were the above described financial
projections for the period beginning January 1, 1995, and ending December 31,
2000, prepared by the managements of Duriron and Durametallic.
In rendering its opinion, DLJ relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information
available to it from public sources that was provided to DLJ by Duriron or
Durametallic and their respective representatives or that was otherwise reviewed
by DLJ. With respect to the financial projections supplied to DLJ, DLJ assumed
that they were reasonably prepared on the basis reflecting
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the best currently available estimates and judgments of the managements of
Duriron and Durametallic as to the future operating and financial performance of
both companies. DLJ made no independent investigation of any legal matters
affecting Duriron or Durametallic and assumed the correctness of all legal,
accounting and tax advice given to the Duriron Board of Directors by their
counsel and accountants.
The consideration referenced in the DLJ Opinion is based on the number of
shares of Duriron Common Stock into which the Durametallic Common Shares would
be converted pursuant to the draft Merger Agreement plus the total debt of
Durametallic to be outstanding at its Effective Time. Duriron and Durametallic
estimated that this debt would approximate $21,000,000, which was the parties'
mutual estimate of the amount of such debt that would be outstanding at the
Effective Time. Such debt could be greater than or lower than such estimate,
which could result in a consideration that is higher or lower. At September 30,
1995, the amount of the outstanding Durametallic debt was approximately
$21,000,000. Duriron and Durametallic continue to anticipate that this also will
be the amount of Durametallic debt outstanding at the Effective Time of the
Merger.
DLJ did not consider, and, therefore, did not render an opinion as to the
fairness from a financial point of view to Duriron and its shareholders of the
consideration to be paid by Duriron in the event that the average of the closing
sale prices of Duriron Common Stock during the first 10 of the last 15 trading
days immediately preceding the date of the Durametallic Meeting, as reported on
NASDAQ, were to exceed $31.225 or be less than $21.225.
COMPARABLE COMPANY ANALYSIS. DLJ reviewed and analyzed certain publicly
available financial and market information for meter and flow control companies,
including Duriron, BWIP Inc., Goulds Pumps Incorporated, Keystone International,
Inc., Parker Hannifin Corporation, and Watts Industries, Inc. (collectively, the
"Comparable Companies") that, in DLJ's judgment, were comparable to Durametallic
for purposes of this analysis. DLJ noted that no company reviewed was identical
to Durametallic and that, accordingly, the Comparable Company analysis
necessarily involves complex considerations and judgments concerning differences
in financial and operating characteristics of Durametallic and other factors
that would affect the value of the companies to which it is being compared. The
Comparable Companies were selected on the basis of, among other factors, having
similar product lines or customers, exhibiting similar demand characteristics,
or having similar manufacturing processes. Such financial and market information
included, among other things, market value, earnings per share, market price as
a multiple of earnings per share and aggregate enterprise value (defined as
equity value, plus long-term debt and short-term debt, less cash and cash
equivalents (the "Aggregate Enterprise Value") as a multiple of revenue,
earnings before interest, taxes, depreciation and amortization ("EBITDA") and
earnings before interest and taxes ("EBIT"). The analysis indicated that, based
on Durametallic's actual latest twelve months ("LTM") ended June 30, 1995
financial results and projected 1995 financial results, taking into account the
effect of the acquisition of Pac Seal, Inc. and two affiliated corporations
("Pac Seal") by Durametallic, the aggregate equity purchase price of
$150,000,000 for Durametallic represented an Aggregate Enterprise Value multiple
of 1.2x revenue, 8.7x EBITDA, 11.5x EBIT, and an equity value multiple of 17.5x
net income for the LTM, and 16.9x projected 1995 net income. These multiples
compared to the Comparable Companies range of multiples of 0.8x to 1.4x revenue,
with a mean of 1.2x (excluding minimum and maximum), a range of 6.9x to 8.4x
EBITDA for the Comparable Companies with a mean of 7.8x (excluding minimum and
maximum) and a range of 9.2x to 11.9x EBIT for the Comparable Companies with a
mean of 10.7x (excluding minimum and maximum). In addition, the Comparable
Companies' range of multiples for LTM net income were 14.9x to 19.2x with a mean
of 16.7x (excluding minimum and maximum) and for 1995 projected net income were
12.5x to 17.6x with a mean of 15.4x (excluding minimum and maximum).
ANALYSIS OF COMPARABLE ACQUISITION TRANSACTIONS. DLJ reviewed the
financial terms, to the extent publicly available, of seven selected completed
merger and acquisition transactions of companies engaged in meter and flow
control manufacturing that were announced since January 1, 1990 (collectively,
the "Comparable Acquisition Transactions"). DLJ reviewed the price paid in such
transactions in terms of the equity value as a multiple of LTM earnings, and in
terms of Aggregate Enterprise Value as a multiple of LTM revenue, as a multiple
of LTM EBITDA and as a multiple of LTM EBIT. DLJ noted that no transaction
reviewed was identical to the Merger and that, accordingly, the comparable
acquisition analysis necessarily
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involves complex consideration and judgments concerning differences in financial
and operating characteristics of Durametallic and other factors that would
affect the acquisition value of the Comparable Companies. The analysis indicated
that, for the Comparable Acquisition Transactions, the range of multiples of
equity value to LTM earnings was 9.2x to 59.5x, with a mean (excluding minimum
and maximum) of 23.9x, and the range of multiples of Aggregate Enterprise Value
to LTM revenue was 0.9x to 1.7x with a mean (excluding minimum and maximum) of
1.5x. In addition, the range of multiples of Aggregate Enterprise Value to LTM
EBITDA was 6.3x to 13.9x with a mean (excluding minimum and maximum) of 9.7x,
and the range of multiples of Aggregate Enterprise Value to LTM EBIT was 7.6x to
23.2x with a mean (excluding minimum and maximum) of 15.3x.
DISCOUNTED CASH FLOW ANALYSIS. DLJ calculated the estimated unlevered
after-tax cash flows over the five-year period ending December 31, 2000,
resulting from Durametallic management's projections of Durametallic's future
financial performance as provided to DLJ and reviewed by Duriron's management.
Projected synergies to be realized from the Merger were not material to the DLJ
Opinion and, therefore, are not discussed in detail herein. Using the
projections provided by management and reducing the projected synergies by 50%
to allow for the possibility of more conservative results, DLJ then calculated
terminal values for Durametallic at the end of the five-year period reflecting
Durametallic's weighted average cost of capital and the application of a range
of anticipated growth rates of 2% to 4% to Durametallic's fiscal year ending
December 31, 2000 unlevered after-tax cash flow, as estimated by Duriron's and
Durametallic's respective management. The unlevered after-tax cash flows for the
projected five-year period and the range of terminal values were then discounted
to December 31, 1995 using annual discount rates ranging from 10.0% to 12%
(chosen to reflect the weighted average cost of capital of Durametallic and
other similar industrial and manufacturing companies). Projected synergies to be
realized from the Merger were not material to the DLJ Opinion and, therefore,
are not discussed herein. This analysis resulted in a range of discounted
present Aggregate Enterprise Values of approximately $146 million to $234
million.
CONTRIBUTION ANALYSIS. DLJ analyzed Duriron's and Durametallic's
relative contribution to the combined companies with respect to revenues,
EBITDA, EBIT, net income and various balance sheet measures. Such analysis was
performed in both absolute dollar terms and on a percentage basis and was made,
where applicable, for the twelve months ended June 30, 1995 (based on Duriron
and Durametallic unaudited financial results), and for the periods covered by
the projections. As a result of the Merger, Durametallic shareholders will own
approximately 22.9% of the outstanding Duriron Common Stock assuming a Market
Value of $26.225 per share of Duriron Common Stock. This compares with
Durametallic's contribution to the combined companies' pro forma results for the
twelve-month period ended June 30, 1995, taking into account the effect of the
acquisition of Pac Seal, of 26.6% of revenues, 26.4% of EBITDA, and 20.6% of
shareholders' book value of equity.
In connection with the review of the Merger by the Duriron Board of
Directors, DLJ performed a variety of financial and comparative analyses for
purposes of its opinion given in connection therewith, all of which are
summarized above. The summary set forth above does not purport to be a complete
description of the presentation by DLJ to the Duriron Board of Directors or the
analyses performed by DLJ in arriving at its opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. DLJ
believes 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 analyses and factors, could create a misleading view of the
processes underlying its opinion. In addition, DLJ may have given various
analyses more or less weight than other analyses, and may have deemed various
assumptions more or less probable than other assumptions, so that the range of
valuations resulting from any particular analysis described above should not be
taken to be DLJ's view of the actual value of Durametallic. In performing its
analyses, DLJ made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of Durametallic.
DLJ's opinion is necessarily based on economic, market, financial and other
conditions as they existed on, and on the information made available to DLJ as
of September 8, 1995. It should be understood that, although
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subsequent developments may affect this opinion, DLJ does not have any
obligation to update, revise or reaffirm this opinion.
DLJ, as part of its investment banking services, is regularly engaged in
the valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. In the ordinary course of its business, DLJ makes a market in Duriron
Common Stock and trades such stock for its own account and for the account of
its customers and may at any time hold a long or short position in such stock.
For its services as financial advisor, Duriron has paid DLJ a retainer fee
of $50,000 and a fee of $250,000 at the time DLJ delivered its opinion to the
Duriron Board of Directors, and has agreed to pay to DLJ a transaction fee of
$800,000 (against which the other fees will be credited) and to reimburse DLJ
for its reasonable out-of-pocket expenses. In addition, Duriron has agreed to
indemnify DLJ against certain liabilities, including liabilities under the
federal securities laws, except in any case where it is found that any such loss
resulted primarily from DLJ's bad faith or gross negligence.
DURAMETALLIC. Blair acted as exclusive financial advisor to Durametallic
in connection with the Merger and has assisted the Board of Directors in its
examination of the fairness, from a financial point of view, of the
consideration to be received by Durametallic's shareholders in the Merger (the
"Merger Consideration").
BLAIR DELIVERED ITS WRITTEN OPINION TO THE BOARD OF DIRECTORS TO THE EFFECT
THAT, AS OF SEPTEMBER 10, 1995, THE MERGER CONSIDERATION WAS FAIR, FROM A
FINANCIAL POINT OF VIEW, TO DURAMETALLIC'S SHAREHOLDERS. THE FULL TEXT OF THE
WRITTEN OPINION OF BLAIR SETTING FORTH THE ASSUMPTIONS MADE, PROCEDURES
FOLLOWED, MATTERS CONSIDERED, AND LIMITATION ON AND SCOPE OF THE REVIEW BY BLAIR
IN RENDERING ITS OPINION IS ATTACHED AS ANNEX C AND IS INCORPORATED HEREIN BY
REFERENCE. DURAMETALLIC'S SHAREHOLDERS ARE URGED TO READ THIS OPINION IN ITS
ENTIRETY. THE OPINION IS DIRECTED TO THE BOARD OF DIRECTORS AND RELATES SOLELY
TO THE MERGER CONSIDERATION AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER.
BLAIR CONFIRMED ITS OPINION TO THE BOARD OF DIRECTORS AS OF OCTOBER 30, 1995.
In connection with its opinion, Blair presented a written report to the
Board of Directors dated September 10, 1995. Blair reviewed a final draft of the
Merger Agreement, a final draft of this Joint Proxy Statement/Prospectus and
certain financial and other information that was publicly available or furnished
to Blair by Durametallic and Duriron, including certain internal financial
analyses, financial forecasts, reports and other information prepared by
management of Durametallic and Duriron. Blair held discussions with members of
management of Durametallic and Duriron concerning each company's historical and
current operations, financial conditions and prospects. In addition, Blair (i)
compared the financial position and operating results of Durametallic with those
of publicly traded companies Blair deemed relevant for its opinion; (ii)
compared certain financial terms of the Merger to certain financial terms of
other selected business combinations Blair deemed relevant for its opinion; and
(iii) conducted such other financial studies, analyses and investigations and
reviewed such other factors as Blair deemed appropriate for the purposes of
rendering its opinion.
In rendering its opinion, Blair relied, without independent verification,
on the accuracy and completeness of all financial and other information that was
publicly available or furnished or otherwise communicated to Blair by
Durametallic or Duriron. Blair assumed that the financial forecasts which it
examined were reasonably prepared on bases reflecting the best currently
available estimates and good faith judgment of Durametallic's management as to
the future performance of Durametallic. Blair did not make and was not provided
with an independent evaluation or appraisal of the assets or liabilities of
Durametallic and assumed that all material assets and liabilities (contingent or
otherwise, known or unknown) of Durametallic are as set forth in the
consolidated financial statements of Durametallic. Blair's opinion is based upon
economic, monetary and market conditions existing on the date of such opinion.
Durametallic did not place any limitation upon Blair with respect to the
procedures followed or factors considered by Blair in rendering its opinion.
Blair believes 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 a misleading view of the
processes underlying its opinion. The preparation of a fairness opinion is a
complex process and is not
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necessarily susceptible to partial analysis or summary description. In its
analysis, Blair made assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond
Durametallic's control. Any estimates contained in Blair's analyses are not
necessarily indicative of future results or accrual values, which may be
significantly more or less favorable than such estimates. Estimates of values of
companies or assets do not purport to be appraisals or necessarily reflect the
prices at which companies or assets may actually be sold. Because such estimates
are inherently subject to uncertainty, none of Durametallic, Blair or any other
person assumes responsibility for their accuracy.
In connection with rendering its written opinion and preparing its written
and oral reports to the Durametallic Board of Directors, Blair performed a
variety of financial analyses and considered a variety of factors, including
those summarized below. The summary set forth below does not purport to be a
complete description of the analyses performed or factors considered by Blair in
this regard.
SUMMARIES OF VALUATION ANALYSES. In connection with its opinion and the
presentation of its opinion to the Board of Directors of Durametallic, Blair
performed certain valuation analyses, including: (1) a comparison with
comparable publicly traded companies (2) an analysis of certain comparable
acquisitions (3) a discounted cash flow analysis and (4) a combination analysis.
Such analyses are summarized below.
COMPARABLE PUBLIC COMPANIES. Blair analyzed the relative performance
and valuation of Durametallic by comparing certain financial information for
Durametallic with the corresponding data and statistics of 17 publicly traded
companies similar to Durametallic. These included Baldor Electric, Briggs &
Stratton, BWIP, Gorman-Rupp, Goulds Pumps, Graco, Idex, Keystone, Magnetek,
Met-Pro, Regal Beloit, Robbins & Myers, Roper, Sundstrand, Tecumseh Products,
and Watts Industries. While no company in the comparable group is identical to
Durametallic, they were chosen principally because they are engaged, to some
degree, in the manufacture of industrial fluid handling products or related
components. All but Gorman-Rupp, Met-Pro and Roper are substantially larger than
Durametallic. Among the information considered were revenues, gross profits,
earnings before interest and taxes ("EBIT"), EBIT before depreciation and
amortization ("EBITDA") and net income; gross profit margins, EBIT margins and
net income margins; growth in revenues and net income; return on assets and
equity; and capital structure. It was noted that if the median of six revenue
and earnings multiples of the comparable companies were applied to the
corresponding data of Durametallic, the implied valuation of Durametallic Common
Shares would range from $87.81 to $61.32 per share, with a median of $75.40 per
share, compared to $85.30 implied by the terms of the Merger. Blair observed
that the multiples of total enterprise value (defined as the market value of the
common equity plus total debt less cash and equivalents) to EBIT and EBITDA and
multiples of equity value to net income implied by the terms of the Merger
compared favorably, from Durametallics perspective, to the median of
corresponding multiples of the comparable companies. Specifically, the terms of
the Merger implied 1.4 times revenues for the latest 12 months ("LTM"),
(compared to multiples of the comparable companies ranging from 0.5 to 3.6, with
a median of 1.2); 13.7 times LTM EBIT (4.5 to 18.8, with a median of 10.8); 10.1
times LTM EBITDA (3.3 to 15.8, with a median of 8.1); 19.3 times LTM net income
(8.0 to 28.8, with a median of 18.4); 17.9 times estimated 1995 net income (8.2
to 21.6, with a median of 15.2); and 13.9 times estimated 1996 net income (8.5
to 19.0, with a median of 12.8). It also was noted that, in making these
comparisons with the comparable group of publicly traded companies, no change of
control premium was implied in the prevailing average of the aforementioned
values.
COMPARABLE ACQUISITIONS. Blair reviewed the acquisitions of 30
companies engaged in the manufacture of a variety of engineered metal industrial
products. These transactions occurred during the period 1989-1995. Among the
statistics considered by Blair were the multiples of total enterprise value to
LTM revenues, EBIT and EBITDA, and equity value to net income, in each such
acquisition. If the median of the observed multiples of the comparable
acquisitions were applied to the corresponding data of Durametallic, the implied
valuation of Durametallic Common Shares would range from $84.67 to $66.68 per
share, with a median of $73.00 per share, compared to $85.30 implied by the
terms of the Merger. The multiples of revenue, EBIT, EBITDA and net income
implied by the Merger Consideration compared favorably, from Durametallic's
perspective, to the corresponding multiples for the transactions reviewed.
Specifically, the terms of the Merger implied 1.4 times LTM revenues (compared
to multiples of the comparable acquisitions ranging from 0.3 to 2.2, with a
median of 1.1); 13.7 times LTM EBIT (2.2 to 30.0, with a median of 11.3); 10.1
times LTM
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EBITDA (1.8 to 73.1, with a median of 9.3); and 19.3 times LTM net income (7.2
to 82.3, with a median of 19.2).
The companies and transactions used in the foregoing analyses of comparable
public companies and comparable acquisitions are not necessarily substantially
comparable to Durametallic or the Merger. Accordingly, an analysis of the
results of the foregoing involves complex considerations and judgments
concerning differences in financial and operating characteristics of
Durametallic and other factors that could affect the public trading value of
companies to which Durametallic is being compared.
DISCOUNTED CASH FLOW. Using a discounted cash flow ("DCF") analysis,
Blair calculated the net present value of the unleveraged free cash flows that
Durametallic would produce over a five-year period from calendar years 1995
through 1999 if Durametallic performed in accordance with the forecasts of
Durametallic's management for such years. Blair considered two additional
scenarios of Durametallic's operating performances, which assumed variants of
projected growth in revenues and variants of projected profit margins. In each
case projections were made as to income, depreciation expense, capital
expenditures and working capital changes, resulting in projections of annual
free cash flow. In calculating the terminal value, Blair assumed such multiples
of total enterprise value to EBIT ranging from 7.0 to 11.0, as were believed by
Blair to be appropriate for such an analysis. The annual and terminal year free
cash flows were discounted to determine a net present value of the unleveraged
equity value of Durametallic. Discount rates ranging from 11.2% to 13.2% were
chosen based upon an analysis of the weighted average cost of capital for an
industry peer group of Durametallic. The DCF analyses indicated a mid-point
valuation of the equity of Durametallic ranging from $81.77 to $57.32 per
Durametallic Common Share, with a median of $75.09 per Durametallic Common
Share. As a result, Blair believes that the Merger Consideration compares
favorably, from Durametallic's perspective, to the range of values indicated by
the DCF analyses.
COMBINATION ANALYSIS. Blair compared certain financial attributes of
ownership of Durametallic Common Shares to those of shares of Duriron Common
Stock to be received in the Merger. Such comparisons observed that the most
tangible factors of market value and cash dividends per share would be
significantly increased by 116% and 33%, respectively, as a result of the
Merger. Among less tangible factors, shareholders' equity per share would be
increased by 7%, but estimated 1995 earnings per share would be decreased by 9%.
Blair noted that the opportunity for liquidity of the shares would be greatly
enhanced, as there is no active market for the Durametallic Common Shares. The
aggregate number of shares of Duriron Common Stock to be issued in the Merger
equates to the average volume of Duriron Common Stock on NASDAQ over a recent
period of approximately 2.5 months.
The above factors provided Blair with a factual predicate and basis of
understanding which, when taken together with the conclusions drawn from the
analyses previously discussed, supported Blair's opinion that the Merger
Consideration was fair, from a financial point of view, to Durametallic's
shareholders.
The analyses set forth above are not necessarily indicative of actual
values, which may be significantly more or less than suggested by the analyses.
The preparation of a fairness opinion is not necessarily susceptible to partial
analysis. Blair believes that its analyses must be considered as a whole and
that selecting portions of its analyses, would create an incomplete view of the
process underlying its opinion.
Blair is a nationally recognized investment banking firm, and as part of
its investment banking business, is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. Durametallic selected Blair as its financial advisor because of
Blair's experience and expertise in transactions similar to the Merger as well
as Blair's prior relationship and familiarity with Durametallic.
In the past, Blair has performed investment banking and financial advisory
services for Durametallic for which it has received customary compensation.
Prior to its engagement by Durametallic, Blair advised Durametallic that it had
previously provided similar services to, and received compensation from, Duriron
in unrelated transactions. In the ordinary course of its business, Blair also
makes a market in Duriron Common
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Stock and trades such stock for its own account and for the account of its
customers and may at any time hold a long or short position in such stock.
In connection with its engagement of Blair, Durametallic has paid Blair as
of the date of this Joint Proxy Statement/Prospectus retainers totalling
$100,000 and a fee of $150,000 for the preparation and delivery of its opinion
as to the fairness of the Merger Consideration. If the Merger is consummated,
Durametallic will pay Blair an additional fee of approximately $1,465,000. In
addition, Durametallic has agreed to reimburse Blair and, to the full extent
lawful, to indemnify and hold harmless Blair and certain related parties against
certain liabilities in connection with Blair's engagement.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF DURIRON AND DURAMETALLIC
DURIRON. Duriron's Board of Directors has determined that the
consideration to be paid in the Merger is fair to Duriron and its shareholders
and is in the best interests of such shareholders, and, therefore, has approved
the Merger Agreement. THE BOARD OF DIRECTORS OF DURIRON UNANIMOUSLY RECOMMENDS
THAT THE DURIRON SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
DURAMETALLIC. Durametallic's Board of Directors has determined that the
consideration to be paid in the Merger is fair to, and in the best interests of
the Durametallic shareholders and, therefore, has adopted the Merger Agreement.
THE BOARD OF DIRECTORS OF DURAMETALLIC UNANIMOUSLY RECOMMENDS THAT THE
DURAMETALLIC SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT. The
Durametallic Board of Directors has the right, under certain circumstances, to
withdraw the foregoing recommendation. See "TERMS OF THE MERGER -- Certain
Agreements."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Durametallic Board of Directors
with respect to the Merger, shareholders should be aware that members of
Durametallic's management and Board of Directors have certain interests which
may present them with potential conflicts of interest in connection with the
Merger, as summarized below.
As of October 24, 1995 the directors and executive officers of
Durametallic, together with their affiliates and associates, as a group, were
entitled to vote approximately 426,665 Durametallic Common Shares representing
approximately 24.85% of the Durametallic Common Shares outstanding. These
persons will be entitled to receive the same consideration for their shares as
any other Durametallic shareholder upon approval of the Merger. These directors
and executive officers are expected to vote their Durametallic Common Shares in
favor of the Merger. After the Merger, Durametallic's directors and executive
officers will own approximately 6.1% of the shares of Duriron Common Stock
outstanding, assuming that the Market Value of a share of Duriron Common Stock
will be $26.225 (the midpoint in the range of Market Values between $23.225 and
$29.225 per share to be used to calculate the actual Conversion Ratio).
DURIRON BOARD OF DIRECTORS AFTER THE MERGER. The Merger Agreement provides
that, as promptly as practicable after the Effective Time, the Board of
Directors of Duriron will elect Mr. Ware, the current Chairman, President and
Chief Executive Officer of Durametallic, as a director of Duriron.
Mr. Ware, who is 60 years old, has served Durametallic as a director since
1976, as the President since 1982 and as the Chief Executive Officer and
Chairman of the Board since 1983. Mr. Ware also has been a director of First of
America Bank Corporation since 1990.
As a director of Duriron, Mr. Ware will be entitled to receive the same
compensation as other non-employee directors, including an annual retainer of
$12,600, plus $750 for each meeting of the Board of Directors and $600 for each
meeting of a committee of the Board which he attends as a committee member. If
he attends a meeting of a committee on which he does not serve, he will receive
one-half of the regular meeting fee.
Mr. Ware also will receive under Duriron's 1989 Restricted Stock Plan, 300
shares of Restricted Duriron Common Stock per year of the term for which he is
elected to the Board at an Annual Meeting of Shareholders. Dividend and voting
rights attach upon receipt of the Restricted Duriron Common Stock, and
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the Restricted Duriron Common Stock vests at the rate of 300 shares per year,
unless forfeited due to earlier termination of Board service.
Under Duriron's current deferred compensation agreements for directors, Mr.
Ware may elect to defer, in the form of cash and with interest, the receipt of
the annual retainer and other meeting attendance fees payable to him as a
director, until he terminates Board service. He also may elect to have the
deferred compensation invested in Duriron Common Stock to be received after
termination of Board service.
Under Duriron's Retirement Compensation Plan for Directors, Mr. Ware will
receive an annual amount of $1,500 which will be placed into a trust and
deferred with interest until he terminates Board service. He may elect to
receive such deferred payments either in a lump sum or in certain installments
after leaving the Board of Directors.
Mr. Ware also may elect to receive discounted stock options under Duriron's
1989 Stock Option Plan, which will be in lieu of and have a fair market value at
the time of grant equal to a selected portion of the annual retainer otherwise
payable to him.
Duriron maintains a liability insurance policy with the Chubb Group of
Insurance Companies covering part of the Duriron's statutory rights and
obligations to indemnify directors and officers and partially covering directors
and officers in some instances in which they might not otherwise be indemnified
by Duriron. The current policy is for a one year term (expiring July 29, 1996)
at a cost of approximately $93,119.
EMPLOYMENT ARRANGEMENTS. Under the Merger Agreement, Duriron is obligated
to cause Durametallic, after the Effective Time, to honor its obligations with
respect to compensation and benefits for certain employees of Durametallic under
certain pre-existing agreements between Durametallic and those employees.
Under a Consulting Agreement between Durametallic and Mr. Ware dated April
12, 1991, Mr. Ware has agreed to provide consulting services to Durametallic for
ten years following his retirement, for which he will receive compensation in
the amount of $110,000 per year. Under a Senior Executive Death Benefit
Agreement between Durametallic and Mr. Ware dated April 12, 1991, Durametallic
is obligated to pay to Mr. Ware's designated beneficiary or estate $100,000 per
year if he dies while employed by Durametallic or while acting as a consultant
for a period ending upon the tenth anniversary of his retirement as an employee.
Duriron has agreed to cause Durametallic to honor this Consulting Agreement and
Senior Executive Death Benefit Agreement after the Effective Time. Duriron and
Mr. Ware also have agreed that Mr. Ware will, at Duriron's option, continue for
at least three years as Chairman of Durametallic after his retirement as
President and Chief Executive Officer of Durametallic and that he will provide
expanded consulting services under a new consulting agreement (the "New
Consulting Agreement") directly to the Chief Executive Officer of Duriron. In
return, Duriron will procure an executive "split dollar" life insurance policy
for him with a death benefit of $5,000,000, payable to a trust to be established
by Mr. Ware upon the last to die of him and his wife, provided that the
continuation of such policy is contingent upon Mr. Ware not refusing to perform
such services without good cause. Duriron and Mr. Ware have further agreed that
Mr. Ware will retire as President and Chief Executive of Durametallic effective
April 12, 1996 and begin providing services under the Consulting Agreement and
the New Consulting Agreement. Mr. Ware will be entitled to receive certain
severance benefits upon retirement. See "Severance Agreements."
Durametallic also is a party to Senior Executive Death Benefit Agreements
dated April 12, 1991 with each of Messrs. Haan and Hurlbert which provide that
Durametallic will pay the designated beneficiary or estate of the respective
executive $60,000 per year for ten years if he dies before reaching age 62 while
still employed by Durametallic, provided that his right to payment also will
vest if he is involuntarily terminated without cause prior to age 62. In
addition, under 1991 Deferred Compensation Agreements with Mr. Haan and Mr.
Hurlbert, respectively, Durametallic is required to pay the respective executive
$60,000 per year for ten years, beginning six months after the later of the date
he terminates his employment or the date he reaches age 62, provided that he
remains in employment until age 62 unless his employment is terminated prior to
age 62 due to his disability or by Durametallic without cause.
Duriron and Mr. Hurlbert have agreed that his Senior Executive Death
Benefit Agreement and his Deferred Compensation Agreement will be canceled
effective upon his anticipated retirement on June 30,
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1996. Mr. Hurlbert will be entitled to receive certain severance benefits upon
his retirement. See "Severance Agreements." Mr. Hurlbert and Duriron also have
agreed to enter into a Consulting Agreement to become effective July 1, 1996
under which Mr. Hurlbert will provide services directly to Duriron in connection
with the financial integration of Durametallic into Duriron subsequent to the
Merger. Under this Agreement, Mr. Hurlbert will be required to provide or be
available to provide at least 80 hours of service each month in return for
compensation of $4,000 per month. The Consulting Agreement will extend until
June 30, 1999. Durametallic also entered into a non-competition agreement with
Mr. Hurlbert that will pay him $10,000 per year during this three-year period,
contingent upon his compliance with its terms.
Mr. Ware, Mr. Haan and Mr. Hurlbert also participate in Durametallic's
Executive Incentive Bonus Plan, as amended (the "Incentive Plan"). Each
participant is allocated points at the beginning of each year representing a
portion of a bonus pool established by the Durametallic Board of Directors.
Based on a percentage of Durametallic adjusted consolidated income for the year
(the short-term portion of the Incentive Plan) and the return on shareholders'
equity over the preceding five years (the long-term portion of the Incentive
Plan). Amounts earned under the short-term portion of the Incentive Plan are
payable in cash following the end of the year in which earned. Amounts earned
under the long-term portion of the Incentive Plan are payable 50% in cash over a
period of four years and 50% in stock which is restricted for three years.
Durametallic has agreed under the Merger Agreement to use its best efforts to
obtain the consent of the participants in the Incentive Plan to receive Duriron
Common Stock in lieu of such restricted stock in an amount determined by the
Conversion Ratio. Messrs. Ware, Haan and Hurlbert hold 1,455, 774, and 969
restricted shares granted under the Incentive Plan, respectively.
STOCK OPTIONS. As of the record date for the Durametallic Meeting, options
to purchase 41,582 Durametallic Common Shares were outstanding under the
Durametallic Corporation 1991 Stock Option Plan (the "Durametallic Option Plan")
at exercise prices ranging between $18.52 and $35.25 per Durametallic Common
Share. The directors and executive officers of Durametallic held options
covering 37,450 Durametallic Common Shares as of the Durametallic Record Date.
The Merger Agreement prohibits Durametallic from granting any additional options
for Durametallic Common Shares. Messrs. Ware, Haan and Hurlbert hold options to
acquire 9,668, 5,500 and 5,200 Durametallic Common Shares, respectively.
The Merger Agreement provides that, at the Effective Time, each then
outstanding stock option to purchase Durametallic Common Shares granted under
the Durametallic Option Plan will be converted into an option to purchase shares
of Duriron Common Stock on the same terms and conditions. See "TERMS OF THE
MERGER -- Conversion of Durametallic Common Shares into Duriron Common Stock."
SEVERANCE AGREEMENTS. On January 6, 1994, Durametallic entered into
Executive Severance Agreements with each of Messrs. Ware, Haan and Hurlbert and
three other current Durametallic officers. In August, 1995, Durametallic entered
into identical Executive Severance Agreements with the three Durametallic
executives who became officers of Durametallic subsequent to January 6, 1994.
The agreements are in effect for the longer of a period of three years or 36
months following a change of control of Durametallic which occurs during the
initial three year term. If, during the term of the agreements, the employment
of the executive is terminated other than (i) as a result of death or
disability, (ii) by Durametallic for cause or (iii) by the executive other than
for good reason, the executive is entitled to receive three times his average
compensation during the preceding five years and continuation of his benefits
for three years after employment is terminated. Amounts payable under the
agreements are capped at 2.99 times the executive's "base amount." Under these
Agreements, Mr. Ware would be entitled to receive $1,087,000, Mr. Haan would be
entitled to receive $511,000 and Mr. Hurlbert would be entitled to receive
$625,000 (or, in each case, the equivalent present value in installment
payments) if their employment were terminated following the Merger under
circumstances entitling them to payment under the agreements. Duriron has agreed
that Messrs. Ware and Hurlbert may retire as employees after the Merger
(effective April 12, 1996 and June 30, 1996, respectively) and receive such
severance benefits from Durametallic, due to Duriron's acknowledgement that the
change in responsibilities of these executives as a result of Durametallic
becoming a subsidiary of Duriron would allow them to terminate their employment
and receive benefits under the Severance Agreements.
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INDEMNIFICATION. Under the Merger Agreement, Duriron has acknowledged that
all rights of indemnification existing in favor the directors, officers and
employees of Durametallic and its subsidiaries will survive the Merger and will
continue with respect to acts and omissions occurring prior to the Effective
Time. In addition, subject to availability, Duriron will use reasonable efforts
to maintain for a period of six years after the Effective Time a policy or
policies of directors' and officers' liability insurance protecting (to the
extent customary) the directors and officers of Durametallic at the time the
Merger Agreement was executed with respect to acts or omissions occurring prior
to the Effective Time on terms providing for at least $10,000,000 in coverage
(or lesser coverage if required) in order that the premiums, or incremental
premiums, would exceed $100,000 per year, or $600,000 in the aggregate. Duriron
may, at its option, elect to self insure such risk.
The Merger Agreement also provides for a waiver by Duriron and Durametallic
of any claim or action against any officer or director of Durametallic in office
as of September 11, 1995 which arises out of or pertains to the Merger Agreement
or the Merger.
TERMS OF THE MERGER
The description of the Merger Agreement set forth in this section does not
purport to be complete and is qualified in its entirety by reference to the
Merger Agreement, which is attached as Annex A to this Joint Proxy
Statement/Prospectus and is incorporated herein in its entirety.
GENERAL
The Merger Agreement sets forth the terms and conditions upon which the
Merger is to be effected. If the Merger Agreement is approved at the Duriron
Meeting and at the Durametallic Meeting by the requisite votes and if all other
conditions to the obligations of the parties thereto to consummate the Merger
are satisfied or waived, the Merger will be consummated. At the Effective Time,
Merger Sub will merge with and into Durametallic, and Durametallic, which will
be the surviving corporation in the Merger, will thereby become a wholly-owned
subsidiary of Duriron.
CONVERSION OF DURAMETALLIC COMMON SHARES INTO DURIRON COMMON STOCK
Pursuant to the Merger Agreement, each Durametallic Common Share which is
outstanding immediately prior to the Effective Time (other than Durametallic
Common Shares that are held by Durametallic or are held by Duriron or any
subsidiary of Duriron or Durametallic) will be cancelled and converted into the
Merger Consideration. Upon consummation of the Merger, holders of Durametallic
Common Shares will possess no further interest in, or rights as shareholders of,
Durametallic.
The Merger Consideration for each Durametallic Common Share will be as
follows:
(i) if the Market Value of a share of Duriron Common Stock is more
than $23.225 and less than $29.225, each Durametallic Common Share will be
converted into a number of shares of Duriron Common Stock determined by
dividing $85.30 by the Market Value of a share of Duriron Common Stock; or
(ii) if the Market Value of a share of Duriron Common Stock is less
than or equal to $23.225, each Durametallic Common Share will be converted
into 3.6728 shares of Duriron Common Stock; or
(iii) if the Market Value of a share of Duriron Common Stock is
greater than or equal to $29.225, each Durametallic Common Share will be
converted into 2.9187 shares of Duriron Common Stock.
"Market Value" is the average of the closing sale prices of a share of Duriron
Common Stock during the first 10 of the last 15 trading days immediately
preceding the date of the Durametallic Meeting, as reported on NASDAQ. The
number of shares of Duriron Common Stock into which the Durametallic Common
Shares are to be converted in the Merger and the Conversion Ratio are subject to
adjustment in the event that the outstanding shares of Duriron Common Stock are
changed into a different number of shares prior to the Effective Time by reason
of any stock split, reclassification, recapitalization, split-up, combination or
exchange
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of shares or if the record date for a stock dividend occurs prior to the
Effective Time, as well as if the number of outstanding Durametallic Common
Shares and options is greater than as warranted by Durametallic.
In addition, the Merger Agreement provides that each Durametallic stock
option granted under the Durametallic Option Plan which is outstanding
immediately prior to the Effective Time will be converted in the Merger into an
option to purchase, on the same terms and conditions as the Durametallic option,
a number of shares of Duriron Common Stock (rounded down to the next full share)
determined by multiplying the number of Durametallic Common Shares subject to
the option by the Conversion Ratio, at an exercise price per share (rounded to
the nearest whole cent) determined by dividing the exercise price per
Durametallic Common Share of the Durametallic stock option by the Conversion
Ratio. As of the Durametallic Record Date, options to purchase 41,582
Durametallic Common Shares were outstanding, with exercise prices ranging from
$18.52 to $35.25 per share.
Based on the number of Durametallic Common Shares outstanding on the
Durametallic Record Date and assuming that the Market Value of a share of
Duriron Common Stock will be $26.225 (the midpoint in the range of Market Values
between $23.225 and $29.225 per share to be used to calculate the actual
Conversion Ratio) and that the conversion of Durametallic Common Shares into
shares of Duriron Common Stock will result in no fractional shares, 5,584,337
shares of Duriron Common Stock will be issued upon conversion of Durametallic
Common Shares in the Merger, representing approximately 23.1% of the outstanding
shares of Duriron Common Stock as of the Duriron Record Date, after giving
effect to the Merger. An additional 135,230 shares of Duriron Common Stock
(approximately 0.5% of the outstanding shares of Duriron Common Stock as of the
Duriron Record Date, after giving effect to the Merger) will be available for
issuance under Durametallic stock options that are converted into options to
purchase shares of Duriron Common Stock (assuming no Durametallic stock options
are exercised after the Durametallic Record Date and prior to the Effective
Time). No assurance can be given that the Market Value of a share of Duriron
Common Stock will be $26.225, and such price will be influenced by a number of
factors both before and during the period in which such Market Value will be
determined. If the Market Value of a share of Duriron Common Stock had been
determined as of October 23, 1995, it would have been $28.0781, and the
resultant Merger Consideration for a Durametallic Share would have been 3.0380
shares of Duriron Common Stock.
Shares of Duriron Common Stock into which restricted Durametallic Common
Shares issued under the Incentive Plan are converted will be subject to the same
restrictions as the restricted Durametallic Common Shares.
No fractional shares of Duriron Common Stock will be issued in the Merger.
Each holder of a Durametallic Common Share who otherwise would have been
entitled to receive a fractional share of Duriron Common Stock will be paid an
amount in cash, without interest, upon surrender of such holder's
certificate(s), determined by multiplying the closing sale price of a share of
Duriron Common Stock on the trading day immediately preceding the day of the
Effective Time, as reported on NASDAQ, by the fraction of such share of Duriron
Common Stock to which such holder otherwise would have been entitled.
MANNER OF EXCHANGING DURAMETALLIC CERTIFICATES FOR DURIRON CERTIFICATES
As soon as practicable after the Effective Time, the exchange agent
selected by Duriron (the "Exchange Agent"), will mail or otherwise deliver a
transmittal form and instructions to each holder of record of certificates which
immediately prior to the Effective Time represented outstanding Durametallic
Common Shares (the "Durametallic Certificates") to be used in forwarding the
Durametallic Certificates for surrender and exchange for (i) certificates
representing the number of whole shares of Duriron Common Stock which such
holder has the right to receive and (ii) cash for any fractional shares of
Duriron Common Stock to which such holder otherwise would be entitled. From and
after the Effective Time and until surrendered and exchanged as provided above,
Durametallic Certificates will be deemed to represent for all purposes (other
than payment of dividends or other distributions, if any, to shareholders of
Duriron) the right to receive the Merger Consideration upon surrender of the
Certificate and compliance with the other terms of the transmittal form and
instructions. Upon surrender of a Durametallic Certificate, there shall be paid
to the
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person in whose name the Duriron Common Stock is issued any dividends or other
distributions declared and paid to shareholders of record subsequent to the
Effective Time with respect to the number of whole shares of Duriron Common
Stock represented by such Durametallic Certificate. In no event shall the
persons entitled to receive such dividends or other distributions be entitled to
receive interest on such dividends or other distributions. The Exchange Agent
will provide appropriate instructions for shareholders whose Durametallic
Certificates have been lost, stolen or destroyed.
Any dividends or other distributions held by the Exchange Agent for payment
or delivery to the holders of unsurrendered Durametallic Certificates and
unclaimed at the end of 180 days from the Effective Time will be repaid or
redelivered by the Exchange Agent to Duriron, after which time any holder of
Durametallic Certificates who has not theretofore surrendered such Durametallic
Certificates to the Exchange Agent, subject to applicable law, will look as a
general creditor only to Duriron for payment or delivery of such dividends or
distributions, as the case may be. Notwithstanding the foregoing, none of
Duriron, the Merger Sub, the Exchange Agent or Durametallic will be liable to a
holder of Durametallic Common Stock for any Duriron Common Stock or dividends or
distributions thereon delivered to a public official pursuant to applicable
escheat or unclaimed funds laws.
CONDITIONS TO THE MERGER
Under the Merger Agreement, the obligations of Duriron, Merger Sub and
Durametallic to consummate the Merger are subject to the satisfaction, at or
before the Effective Time, of certain conditions or the waiver thereof. Among
such conditions are: (i) the Merger Agreement shall have been approved by the
requisite vote of the shareholders of Duriron and Durametallic; (ii) no
injunction, restraining order or other order issued by a court, governmental
authority or other regulatory or administrative agency or commission that
adversely affects the Merger shall be in effect and no suit, action or
proceeding seeking to prohibit consummation of the Merger or have it declared
illegal shall be pending by or with any governmental authority; (iii) the
registration statement of which this Joint Proxy Statement/Prospectus is a part
shall have become effective and shall not be subject to a stop order; and (iv)
receipt by Duriron and Durametallic shall have received the Tax Opinion (as
hereinafter defined) from Thompson, Hine and Flory.
The obligations of Duriron and Merger Sub to effect the Merger are further
subject to the fulfillment at or prior to the Effective Time of certain
additional conditions, any one or more of which may be waived by Duriron and
Merger Sub. Such conditions include (but are not limited to) the following: (i)
all agreements, covenants and conditions of the Merger Agreement to be complied
with or performed or fulfilled by Durametallic at or prior to the Effective Time
shall have been complied with, performed and fulfilled in all material respects;
(ii) the representations and warranties of Durametallic contained in the Merger
Agreement shall be true and correct in all material respects at and as of the
Effective Time as if made at and as of such time, except (a) for changes
resulting from the exercise of Durametallic stock options disclosed in the
Merger Agreement, (b) insofar as any of such representations or warranties
relate solely to a particular date or period in which case they shall be true
and correct in all material respects as related to such date or period, and (c)
such other exceptions as do not, in the aggregate, have a material adverse
effect on Durametallic; (iii) since December 31, 1994, there shall have been no
change, except as disclosed by Durametallic in the schedules to the Merger
Agreement, in the financial condition, results of operations, business,
properties or prospects of Durametallic and specified subsidiaries that, when
aggregated with all such changes, would have a material adverse effect on
Durametallic, (iv) there shall be no pending action or proceeding by any
governmental entity seeking to prohibit, and no action shall have been taken or
statute, rule, regulation or order enacted or applied which would prohibit, the
ownership or operation by Duriron or the surviving corporation in the Merger of
all or a material portion of Durametallic's business or assets or seeking to
compel, or which would compel, Duriron to dispose or hold separate all or a
material portion of the business or assets of Duriron or Durametallic as a
result of the Merger which, in the reasonable judgment of Duriron based on a
legal opinion, could result in the relief sought or could render Duriron or
Durametallic unable to consummate the Merger; (v) each Durametallic affiliate
shall have entered into a pooling of interests agreement in the form of Exhibit
A to the Merger Agreement; (vi) Duriron shall have received a certificate of the
chief executive officer and the chief financial officer of Durametallic,
certifying satisfaction of the conditions set forth in
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clauses (i), (ii) and (iii) above; (vii) all filings and registrations with, and
notifications to, all federal, state, local and foreign authorities, required
for consummation of the Merger shall have been made by Durametallic, and all
waivers, approvals, consents, licenses, permits and authorizations of all
federal, state, local and foreign authorities required for consummation of the
Merger shall have been received and shall be in full force and effect, except
for such filings, registrations, notifications, approvals, licenses, permits and
authorizations, the absence of which would not in the aggregate prevent the
Merger from becoming effective or have a material adverse effect on the business
or financial condition of Durametallic; (viii) Duriron shall have received a
letter from Ernst & Young LLP, and Durametallic shall have received a letter
from KPMG Peat Marwick LLP based upon its review of relevant Durametallic
financial transactions and agreements, to the effect that the Merger qualifies
for pooling-of-interests accounting treatment; (ix) Duriron shall have received
an opinion from Warner, Norcross and Judd LLP, counsel to Durametallic, in
substantially the form attached to the Merger Agreement; (x) Duriron shall have
received resignations or other evidence of removal of certain directors of
Durametallic and its subsidiaries; (xi) the number of Durametallic Common Shares
as to which dissenters' rights (if applicable) shall have been asserted and not
withdrawn or forfeited or as to which dissenters' rights yet may be asserted
shall not exceed 5% of the outstanding Durametallic Common Shares; (xii) Duriron
shall have received a certificate of Durametallic's officer responsible for its
stock transfer records setting forth the number of issued and outstanding
Durametallic Common Shares; (xiii) Duriron shall have received evidence
satisfactory to it that persons holding Durametallic stock options and persons
entitled to receive Durametallic Common Shares under the Incentive Plan shall
have agreed to the substitution of shares of Duriron Common Stock for the
Durametallic Common Shares on the terms set forth in the Merger Agreement and
that the persons entitled to receive Durametallic Common Shares under the
Incentive Plan shall have agreed, without cost or liability to Duriron,
Durametallic or any Durametallic subsidiary, that the forfeiture provisions or
restrictions on disposition to which such shares are subject will not cease to
apply as a result of the Merger; and (xiv) DLJ (or another financial advisor
satisfactory to the Board of Directors of Duriron) and Blair shall have
delivered, and not withdrawn, their opinions with respect to the fairness of the
Merger, from a financial point of view.
The obligation of Durametallic to effect the Merger is further subject to
the fulfillment at or prior to the Effective Time of certain additional
conditions, any one or more of which may be waived by Durametallic. Such
conditions include (but are not limited to) the following: (i) all agreements,
covenants and conditions of the Merger Agreement to be complied with or
performed or fulfilled by Duriron or Merger Sub at or prior to the Effective
Time shall have been complied with, performed and fulfilled in all material
respects; (ii) the representations and warranties of Duriron or Merger Sub
contained in the Merger Agreement shall be true and correct in all material
respects at and as of the Effective Time as if made at and as of such time,
except (a) as disclosed on the schedules to the Merger Agreement, (b) insofar as
any of such representations or warranties relate solely to a particular date or
period, in which case the same shall be true and correct in all material
respects as related to such date or period, and (c) such other exceptions as do
not, in the aggregate, have a material adverse effect on Durametallic; (iii)
since December 31, 1994, there has been no change, except as disclosed by
Duriron in the schedules to the Merger Agreement, in the financial condition,
results of operations, business, properties or prospects of Duriron and
specified subsidiaries that, when aggregated with all such changes, would have a
material adverse effect on Duriron, (iv) there is no pending action or
proceeding before any governmental entity seeking to prohibit, and no action has
been taken or statute, rule, regulation or order enacted or applied which would
prohibit, the ownership or operation by Duriron or the surviving corporation in
the Merger of all or a material portion of Duriron's business or assets or
seeking to compel, or which would compel, Durametallic to dispose or hold
separate all or a material portion of the business or assets of Durametallic or
Duriron as a result of the Merger which, in the reasonable judgment of
Durametallic based on a legal opinion, could result in the relief sought or
could render Durametallic or Duriron unable to consummate the Merger, (v)
Durametallic shall have received a certificate of the chief executive officer
and chief fiscal officer of Duriron, certifying satisfaction of the conditions
set forth in clauses (i), (ii) and (iii) above; (vi) all filings and
registrations with, and notifications to, all federal, state, local and foreign
authorities, required for consummation of the Merger shall have been made by
Duriron, and all waivers, approvals, consents, licenses, permits and
authorizations of all federal, state, local and foreign authorities required for
consummation of the Merger shall have been received and shall be in full force
and
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effect, except for such filings, registrations, notifications, approvals,
licenses, permits and authorizations, the absence of which would not in the
aggregate prevent the Merger from becoming effective or have a material adverse
effect on the business or financial condition of Duriron; (vii) Durametallic
shall have received the opinion of Thompson, Hine and Flory, counsel for
Duriron, in substantially the form attached to the Merger Agreement; (viii) the
Duriron Common Stock to be issued in the Merger shall have been listed on
NASDAQ, if required by applicable rules; and (ix) Blair and DLJ (or another
financial advisor satisfactory to the Board of Directors of Duriron) shall have
delivered, and not withdrawn, their opinions with respect to the fairness of the
Merger, from a financial point of view.
The Merger Agreement includes (in Articles IV and V, respectively) various
representations and warranties of Durametallic and of Duriron and Merger Sub
which are typical in such agreements.
The Merger Agreement provides that, at any time prior to the Effective
Time, any party may waive compliance with any obligation, covenant, agreement or
condition contained therein. The Merger Agreement also provides that, subject to
applicable law, it may be amended by the parties at any time before or after
approval of the Merger by the shareholders of either Durametallic or Duriron.
After such approval, however, no amendment may be made that modifies the
consideration to be given to the holders of Durametallic Common Shares without
the further approval of the shareholders of both companies.
CERTAIN COVENANTS
DURAMETALLIC CHANGE OF CONTROL PROPOSALS. The Merger Agreement provides
that neither Durametallic nor any of its subsidiaries, officers, directors,
employees, representatives or agents, directly or indirectly, may (i) solicit or
initiate any proposals or offers relating to certain significant mergers, sales
of assets, sales of shares or similar transactions involving Durametallic (a
"Durametallic Change of Control Transaction"), or (ii) except to the extent the
Board of Directors of Durametallic determines (based upon written advice of
legal counsel) that it is required to do so in order to discharge its fiduciary
duties in accordance with applicable law, participate in any discussions or
negotiations regarding, or furnish to any other person any information or
assistance with respect to, a Durametallic Change of Control Transaction.
Durametallic has agreed promptly to notify Duriron of any Durametallic Change of
Control Transaction which is proposed to Durametallic or, to the best of
Durametallic's knowledge, to any other persons and whether Durametallic intends
to participate in any such discussions or negotiations or to furnish any such
information (and, if so, Durametallic is required to inform Duriron of the
nature and substance of such discussions, negotiations and information).
CONDUCT OF DURAMETALLIC'S BUSINESS PRIOR TO THE MERGER. The Merger
Agreement provides that, prior to the Effective Time, except as otherwise
contemplated by the Merger Agreement, as required by law or as agreed to in
writing by Duriron, Durametallic will (and will cause each designated subsidiary
to): (i) conduct its business and the business of its subsidiaries only in the
regular course in substantially the same manner as heretofore conducted, and
will use its best efforts to preserve intact its present business organization,
keep available the services of its present officers and employees, and preserve
its relationship with its franchisees, customers, suppliers and others having
business dealings with it to the end that its goodwill and business will be
unimpaired at the Effective Time, (ii) not make any change or amendment to or
repeal its Articles of Incorporation or Bylaws or comparable governing
documents, (iii) not issue or sell shares of capital stock or other securities
(other than to Durametallic or to certain designated subsidiaries or pursuant to
the exercise of certain Durametallic stock options) or issue any securities
convertible into or exchangeable for, or any rights to purchase, any such
shares, or enter into certain other transactions with respect to such shares or
any Durametallic stock options, (iv) not declare, set aside or pay any dividend
or other distribution or payment (whether in cash, stock or property) with
respect to, or purchase or redeem, any shares of Durametallic's capital stock,
other than regular quarterly cash dividends (commencing with a record date not
earlier than October 1, 1995) in an amount not to exceed $.20 per Durametallic
Common Share and an annual extra year-end cash dividend (with a record date not
earlier than November 15, 1995) in an amount not to exceed $.32 per share, (v)
adopt or amend any bonus, profit sharing, compensation, severance, stock option,
pension, retirement or other employee benefit agreement, trust plan or
arrangement for the benefit of any present or former director, officer or
employee or increase the compensation or fringe benefits of any such person
(except for individual merit increases and promotional increases not to exceed
10% of salary in accordance with past
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practices for non-officer employees) or pay any bonus, compensation or benefit
not required by any existing plan or arrangement, or hire any employee at an
annual rate of compensation in excess of $75,000, or enter into any agreement to
do any of the foregoing, or (vi) other than in the ordinary course of business,
not purchase, lease, sell or dispose of, or contract to purchase, lease, sell or
dispose of, any asset or group of assets, in any single transaction or series of
related transactions, having a value in excess of $250,000, or (vii) not make
capital investments in, or loan or advance to, or enter into or renew any
guarantee on behalf of, any person other than a direct or indirect wholly-owned
subsidiary, or (viii) not take any action that would cause any of Durametallic's
representations or warranties to be untrue as of the Effective Time.
CONDUCT OF DURIRON'S BUSINESS PRIOR TO THE MERGER. The Merger Agreement
provides that, prior to the Effective Time, except as contemplated by the Merger
Agreement, as required by law or as agreed to in writing by Durametallic,
Duriron will not declare or pay any dividend or make any distribution with
respect to, or purchase or redeem, any of its capital stock, other than
quarterly cash dividends in an amount not to exceed $.13 per share, an annual
extra year-end cash dividend in an amount not to exceed $.20 per share, a stock
dividend payable in Duriron Common Stock, and issuance of rights pursuant to the
Rights Plan upon issuance of Duriron Common Stock, (ii) amend its Certificate of
Incorporation or By-laws in any manner adverse to the interests of the Duriron
shareholders, and (iii) take any action, or permit any subsidiary to take any
action, which would cause any of the representations and warranties made by
Duriron in the Merger Agreement to be untrue as of the Effective Time.
CERTAIN AGREEMENTS. The Merger Agreement contains a number of other
covenants of the parties that are typical for such agreements, including,
without limitation, agreements of the parties: (i) to provide each other with
access to information and to maintain the confidentiality of information, (ii)
to take certain actions with respect to their respective shareholder meetings,
(iii) for their respective Boards of Directors to recommend that their
respective shareholders vote in favor of and approve the Merger Agreement
(unless the Board determines that it is required to withdraw the recommendation,
based on written advice of its legal counsel, in the discharge of its fiduciary
obligations under applicable law), (iv) not intentionally to take any action
that would disqualify the Merger as a "pooling of interests" for accounting
purposes or as a "reorganization" under the meaning of Section 368(a) of the
Code; (v) to give notice to each other of certain matters; and (vi) to use
reasonable efforts to take all actions necessary to consummate the Merger.
The Merger Agreement also requires that Durametallic: (i) amend the
Durametallic Executive Incentive Bonus Plan to provide for the substitution of
Duriron Common Stock for Durametallic Common Shares under the plan after the
Effective Time (and to use its best efforts to obtain from each person entitled
to receive Durametallic Common Shares under the plan a binding agreement to
accept Duriron Common Stock and to agree that any forfeiture provisions or
restrictions on disposition which would cease to apply as a result of the Merger
will not cease to apply as a result of the Merger), and (ii) use its best
efforts to obtain the binding agreement of each holder of a Durametallic stock
option to the conversion of the option into an option to receive shares of
Duriron Common Stock in accordance with the Merger Agreement.
AMENDMENT AND TERMINATION
Subject to applicable law, the Merger Agreement may be amended by agreement
of the parties thereto at any time before or after approval by the shareholders
of Duriron and Durametallic; however, the Merger Agreement provides that, after
approval of the Merger Agreement by the shareholders of Duriron or Durametallic,
it may not be amended to alter or change the form of consideration payable in
the Merger or to alter or change any terms of the Merger Agreement if such
alteration or change would adversely affect such shareholders.
The Merger Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, whether before or after approval of the
Merger by the shareholders of Duriron or Durametallic: (a) by the mutual written
consent authorized by the Boards of Directors of Duriron and Durametallic; or
(b) by either Duriron or Durametallic, if the Merger is not consummated on or
before April 30, 1996 (or such later date as Duriron and Durametallic may agree
in writing) so long as any failure of
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the terminating party to perform any material obligation or fulfill any material
condition within the control of such party has not been the proximate cause of,
or resulted in, the failure of the Merger to be consummated.
ADDITIONAL DURIRON TERMINATION RIGHTS. In addition, Duriron may terminate
the Merger Agreement if: (i) the Board of Directors of Durametallic (or any
committee of such Board of Directors) withdraws or changes in a manner adverse
to Duriron its recommendation to the shareholders of Durametallic to approve the
Merger Agreement and the Merger, or recommends, approves or authorizes any
Control Acquisition Transaction; (ii) the shareholders of Durametallic fail to
approve the Merger Agreement and the Merger at the Durametallic Meeting; (iii)
Durametallic enters into, or announces its intention to enter into, an
agreement, letter of intent or agreement in principle regarding a Control
Acquisition Transaction; (iv) events occur that render one or more of the
conditions to the obligations of Duriron and Merger Sub under the Merger
Agreement impossible of satisfaction, and such condition or conditions is not
waived by Duriron and Merger Sub; (v) a material breach by Durametallic of any
representation, warranty, covenant or agreement in the Merger Agreement occurs
and is not cured as soon as reasonably practicable after written notice thereof
is given to Durametallic; (vi) the average of the closing sale prices of a share
of Duriron Common Stock during the first 10 of the last 15 trading days
immediately preceding the date of the Durametallic Meeting, as reported on
NASDAQ, exceeds $31.225; or (vii) any person or group (as defined in Section
13(d)(3) of the Exchange Act), other than Duriron or any of its affiliates,
shall have become the beneficial owner (as defined in Rule 13d-3 promulgated
under the Exchange Act) of more than 40% of the Durametallic Common Shares (on
either a primary or fully diluted basis), and (viii) any change shall occur or
any condition shall exist which, individually or in the aggregate and
irrespective of any disclosure, has a material adverse effect on Durametallic at
any time prior to the Effective Time.
ADDITIONAL DURAMETALLIC TERMINATION RIGHTS. In addition, Durametallic may
terminate the Merger Agreement if: (i) the Board of Directors of Duriron (or any
committee of such Board of Directors) withdraws or changes in a manner adverse
to Durametallic its recommendation to the shareholders of Duriron to approve the
Merger Agreement and the Merger; (ii) the shareholders of Duriron fail to
approve the Merger Agreement or the Merger at the Duriron Meeting; (iii) Duriron
enters into, or announces its intention to enter into, an agreement, letter of
intent or agreement in principle regarding certain significant mergers, sales of
assets, sales of shares or similar transactions involving Duriron (a "Duriron
Change of Control Transaction") or Duriron enters into a formal written
confidentiality agreement in connection with and for the purpose of pursuing a
Duriron Change of Control Transaction, or a Duriron Change of Control
Transaction occurs; (iv) events occur that render one or more of the conditions
to the obligations of Durametallic as set forth in the Merger Agreement
impossible of satisfaction, and such condition or conditions is not waived by
Durametallic; (v) a material breach by Duriron or Merger Sub of any
representation, warranty, covenant or agreement in the Merger Agreement occurs
and is not cured as soon as reasonably practicable after written notice thereof
is given to Duriron or Merger Sub, as the case may be; (vi) the average of the
closing sale prices of a share of Duriron Common Stock during the first 10 of
the last 15 trading days immediately preceding the date of the Durametallic
Meeting, as reported on NASDAQ, is less than $21.225; (vii) following the
withdrawal by the Durametallic Board of Directors of its recommendation to the
shareholders of Durametallic to approve the Merger Agreement (in the
circumstances in which the Merger Agreement permits such withdrawal),
Durametallic enters into, or publicly announces its intention to enter into, an
agreement, letter of intent or agreement in principle regarding a Durametallic
Change of Control Transaction, if Durametallic pays the termination fee
described under "Expenses of the Merger; Termination Fee;" (viii) any person
(other than Durametallic or any affiliate of Durametallic or any person acting
in concert with Durametallic or any affiliate of Durametallic) becomes the
beneficial owner of more than 15% of the outstanding shares of Duriron Common
Stock and such person shall have expressly stated that the shares were acquired
for the purpose of changing or influencing the control of Duriron; or (ix) any
change shall occur or any condition shall exist which, individually, or in the
aggregate and irrespective of any disclosure, has a material adverse effect on
Duriron at any time prior to the Effective Time.
In the event the Merger Agreement is terminated by either Duriron or
Durametallic, neither Duriron or Durametallic will have any liability or further
obligation thereunder, other than pursuant to the confidentiality, expenses and
termination fee provisions described below, which will survive the termination.
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<PAGE> 43
If the Merger Agreement is terminated as provided therein, no party thereto
shall have any liability or further obligation to any other party to the Merger
Agreement other than as results from a breach thereof and except that the
provisions with respect to fees and expenses (see "Expenses of the Merger;
Termination Fee") shall remain in full force and effect.
EXPENSES OF THE MERGER; TERMINATION FEE
The Merger Agreement provides that, whether or not the Merger is
consummated, all out-of-pocket costs and expenses incurred in connection with
the Merger will be paid by the party incurring such expenses. The Merger
Agreement further provides that, without Duriron's consent, Durametallic will
not pay or incur obligations to investment bankers, outside legal counsel,
outside accountants, other advisors and finders or business brokers for services
in connection with the Merger Agreement and the transactions contemplated
thereby in excess of $2,000,000.
Durametallic is required to pay Duriron a termination fee of $3,000,000 if
(a) the Merger Agreement is terminated by Duriron for the reasons set forth in
(i) or (iii) above under "Additional Duriron Termination Rights", (b) the Merger
Agreement is terminated by Durametallic for the reason set forth in (vii) above
under "Additional Durametallic Termination Rights" or (c) the Merger Agreement
is terminated by Duriron for the reason set forth in (v) above under "Additional
Duriron Termination Rights", but only if the breach of the representation or
warranty by Durametallic is knowing or the breach of the covenant by
Durametallic is intentional.
In addition, Durametallic also is required to pay Duriron a termination fee
of $5,250,000 (reduced by the amount of fee paid as described in the preceding
paragraph) if, within 365 days after termination of the Merger Agreement,
Durametallic consummates a Durametallic Change of Control Transaction yielding
consideration per Durametallic Common Share greater than the Merger
Consideration per Durametallic Share and either (i) a termination fee otherwise
is payable to Duriron under the Merger Agreement as described above, (ii) the
Merger Agreement is terminated by Duriron for the reason set forth in (vii)
above under "Additional Duriron Termination Rights" and the person or group
referred to therein is a party to the Durametallic Change of Control
Transaction; or (iii) the Durametallic shareholders fail to approve the Merger
Agreement at the Durametallic Meeting, and, at such time, a Durametallic Change
of Control Transaction has been publicly announced or an officer of Durametallic
has received a proposal for a Durametallic Change of Control Transaction.
Duriron is required to pay Durametallic a termination fee of $3,000,000 if
the Merger Agreement is terminated by Durametallic for the reason set forth in
(i) above under "Additional Durametallic Termination Rights" or for the reason
set forth in (v) of the same section, but only if the breach of the
representation or warranty by Duriron or Merger Sub is knowing or the breach of
the covenant or agreement by Duriron or Merger Sub is intentional.
If Duriron or Merger Sub or Durametallic terminates the Merger Agreement
based upon a material breach of any representation, warranty, covenant or
agreement of the other party, the breaching party is required to reimburse the
terminating party for all of its documented out-of-pocket expenses in connection
with the transactions contemplated by the Merger Agreement (including, without
limitation, due diligence expenses and fees and expenses of professional
advisors) up to a maximum of $600,000 ("Transaction Expenses"), but only if the
terminating party is not entitled to a termination fee, as previously described.
In addition, if Durametallic terminates the Merger Agreement for the reason set
forth in (iii) above under "Additional Durametallic Termination Rights," Duriron
is required to pay and reimburse Durametallic for its Transaction Expenses.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective at such time as a Certificate of Merger
with respect to the Merger is filed with the Department of Commerce of the State
of Michigan in accordance with the Michigan BCA. The filing is expected to be
made as soon as practicable after the Merger Agreement is approved by the
35
<PAGE> 44
shareholders of Duriron and Durametallic and all of the other conditions to
consummation of the Merger are satisfied or waived. See "Conditions to the
Merger."
OPERATION OF DURAMETALLIC AFTER THE MERGER
Duriron has informed Durametallic that, following consummation of the
Merger, it currently intends that Durametallic's business will be carried on
under its present name and management (except as described below) and with its
present facilities as a subsidiary of Duriron and that its headquarters will
remain in Kalamazoo, Michigan. In addition, Duriron has stated that it intends
that, after the Merger, Durametallic will provide its key employees with total
compensation no less favorable than that provided under Durametallic's past
practices, taking into account all forms of incentive compensation and fringe
benefits. Durametallic's business will be conducted under the direction of its
Board of Directors, the members of which will be designated by Duriron and which
are expected to include Mr. Ware.
Duriron and the management of Durametallic are not presently considering
any material changes to Durametallic's business operations, corporate structure
or organization, and it is expected that following the Merger the business and
operations of Durametallic will be continued substantially as they are currently
being conducted. However, Duriron and the management of Durametallic will
continue to evaluate Durametallic's business operations, corporate structure and
organization after the Merger and to make such changes as are deemed
appropriate. In addition, Mr. Ware and Mr. Hurlbert have announced that if the
Merger is consummated, they will retire as President and Chief Executive Officer
of Durametallic and as Senior Vice President Finance/Corporate Secretary of
Durametallic, respectively, on April 12, 1996 and June 30, 1996, respectively.
REGULATORY APPROVALS
The Hart-Scott-Rodino Antitrust Improvements Act of 1974, as amended (the
"HSR Act"), provides that certain acquisition transactions (including the
Merger) may not be consummated unless certain information has been furnished to
the Antitrust Division of the Department of Justice ("Justice") and the Federal
Trade Commission ("FTC") and certain waiting period requirements have been
satisfied. At any time before or after the consummation of the Merger, Justice
or the FTC or some other person could seek to enjoin or rescind the Merger on
antitrust grounds. Duriron and Durametallic filed information with Justice and
the FTC with respect to the Merger on September 13, 1995, and on September 25,
1995 the Federal Trade Commission granted early termination of the applicable
waiting period. See "CONDITIONS TO THE MERGER."
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
THE FEDERAL INCOME TAX CONSEQUENCES TO EACH DURAMETALLIC SHAREHOLDER MAY
VARY DEPENDING UPON HIS OR HER PARTICULAR CIRCUMSTANCES. FOR EXAMPLE, THE
FOLLOWING DISCUSSION MAY NOT BE APPLICABLE TO A DURAMETALLIC SHAREHOLDER WHO
ACQUIRED HIS OR HER SHARES PURSUANT TO THE EXERCISE OF STOCK OPTIONS, THE
VESTING OF RESTRICTED SHARES OR OTHERWISE AS COMPENSATION. EACH SHAREHOLDER IS
URGED TO CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX
CONSEQUENCES OF THE MERGER TO HIM OR HER, INCLUDING THE APPLICABILITY AND EFFECT
OF STATE, LOCAL, FOREIGN AND OTHER TAXES.
Thompson, Hine and Flory has delivered to Duriron an opinion stating that
the federal income tax consequences of the Merger will be as follows:
(1) The Merger will constitute a "reorganization" within the meaning
of Internal Revenue Code Sections 368(a)(1)(A) and 368(a)(2)(E), and
Durametallic, Merger Sub and Duriron will be parties to such
reorganization.
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<PAGE> 45
(2) Except for cash received in lieu of fractional shares of Duriron
Common Stock, any Durametallic shareholder whose Durametallic Common Shares
are converted solely into shares of Duriron Common Stock pursuant to the
Merger will not recognize gain or loss.
(3) No gain or loss will be recognized by Durametallic, Duriron or
Merger Sub on the merger of Merger Sub into Durametallic pursuant to the
Merger Agreement.
(4) The aggregate tax basis of the shares of Duriron Common Stock
(including fractional share interests deemed received) to be received by a
holder of Durametallic Common Shares will be the same as the aggregate tax
basis of the Durametallic Common Shares to be converted in exchange
therefor.
(5) The holding period of the shares of Duriron Common Stock
(including fractional share interests deemed received) to be received by
the Durametallic shareholders will include the holding period during which
the Durametallic Common Shares were held, provided such Durametallic Common
Shares were held as a capital asset on the date of the exchange.
(6) Any cash received by a shareholder of Durametallic in lieu of a
fractional share of Duriron Common Stock will be treated as if a fractional
share were distributed as part of the exchange and then a cash distribution
is received in redemption of such fractional share qualifying for capital
gain treatment, provided that the Durametallic Common Shares exchanged were
held as a capital asset on the date of the exchange.
(7) No gain or loss will be recognized by the holders of nonqualified
stock options to purchase Durametallic Common Shares upon the conversion of
such options into nonqualified stock options to purchase shares of Duriron
Common Stock.
Thompson, Hine and Flory's opinion that the Merger will qualify as a
tax-free reorganization is based on the assumption that the Durametallic
shareholders will (a) be treated as the "historic shareholders" of Durametallic
and (b) retain a "continuing interest" in Duriron through the ownership of
shares of Duriron Common Stock. In order for the Merger to qualify as a tax-free
reorganization, both of these component parts of the continuity of interest
requirement must be met.
The historic shareholder component requires that Durametallic shareholders
who participate in the Merger have held their interest in Durametallic Common
Shares for a substantial period of time prior to the execution of the Merger
Agreement. The continuing interest component as applied by the Internal Revenue
Service requires that the historic Durametallic shareholders as a group receive
shares of Duriron Common Stock which are equal in value to at least 50% of the
value of the outstanding Durametallic Common Shares immediately prior to the
Merger and that such shares of Duriron Common Stock will be retained by the
former historic Durametallic shareholders for a significant period of time.
Thompson, Hine and Flory's opinion with respect to the continuity of
interest requirement assumes that over 50% of the total outstanding Durametallic
Common Shares have been held by the same Durametallic shareholders for the
five-year period preceding the Merger and that the Durametallic shareholders
have no plan or intention to sell or otherwise dispose of shares of Duriron
Common Stock. Thompson, Hine and Flory has not requested a representation to
this effect from the approximately 250 shareholders of Durametallic.
The Internal Revenue Service has not issued specific guidance as to how to
apply the continuity of interest requirement in a situation where the shares of
a corporation, like Durametallic, are held by many shareholders each holding a
relatively small interest. Thompson, Hine and Flory's opinion is based on the
assumption that the Durametallic shareholders will act in a manner consistent
with the continuity of interest requirement.
Thompson, Hine and Flory's opinion also is based on an assumption that (i)
the representations and warranties set forth in the Merger Agreement are true
and correct, the conditions to the parties' obligations under the Merger
Agreement will be satisfied, and the parties to the Merger Agreement will comply
with their respective covenants thereunder, and (ii) following the Merger,
Duriron will continue to operate Durametallic as a wholly-owned subsidiary.
Thompson, Hine and Flory's opinion discusses only the principal federal
income tax consequences that are expected to apply to United States persons
(e.g., citizens of the United States, trusts and domestic corporations). It does
not discuss the special tax consequences that might apply to shareholders
entitled to
37
<PAGE> 46
special treatment under the Code (such as foreign persons, tax-exempt
organizations, retirement plans, life insurance companies, regulated investment
companies and S corporations) or to shareholders who acquired their shares as
compensation. It also does not address state, local and foreign tax
consequences.
The preceding discussion should not be considered as a substitute for an
individual analysis of the tax consequences of the Merger to each Durametallic
shareholder. Durametallic shareholders are urged to consult their own tax
advisors as to the particular tax consequences to them of the Merger.
ACCOUNTING TREATMENT OF THE MERGER
The Merger is intended to qualify as a "pooling-of-interests" for
accounting and financial reporting purposes. Under this method of accounting,
the recorded assets and liabilities of Durametallic and Duriron will be carried
forward at their recorded amounts to the consolidated financial statements of
Duriron following the Merger. Consummation of the Merger is conditioned upon
receipt by Duriron of a letter from Ernst & Young LLP, and by Durametallic of a
letter from KPMG Peat Marwick LLP based upon its review of relevant Durametallic
financial transactions and agreements, stating that the Merger, in their
respective opinions, will qualify as a pooling-of-interests for accounting
purposes. Each holder of Durametallic Common Shares identified by Durametallic
in the Merger Agreement as being an affiliate of Durametallic has entered into a
pooling-of-interest agreement with Duriron as described below under "Resale of
Duriron Common Stock Issued in the Merger; Affiliates." Representatives of Ernst
& Young LLP are expected to be present at the Duriron Meeting, will have the
opportunity to make a statement if they desire to do so and are expected to be
available to respond to appropriate questions. At the Durametallic Meeting,
representatives of KPMG Peat Marwick LLP will have the opportunity to make a
statement if they desire to do so and are expected to respond to appropriate
questions. See "Conditions to the Merger."
NASDAQ LISTING OF DURIRON COMMON STOCK
Duriron will use its best efforts to have the shares of Duriron Common
Stock to be issued in the Merger listed on NASDAQ if so required by applicable
rules.
RESALE OF DURIRON COMMON STOCK ISSUED IN THE MERGER; AFFILIATES
The Duriron Common Stock to be issued to the holders of Durametallic Common
Shares in the Merger will be freely transferable under the Securities Act,
except for Duriron Common Stock issued to any person deemed to be an affiliate
of Durametallic for purposes of Rule 145 under the Securities Act at the time of
the Durametallic Meeting ("Affiliates"). Affiliates may not sell their shares of
Duriron Common Stock acquired in connection with the Merger except pursuant to
an effective registration statement under the Securities Act covering such
shares, or in compliance with Rule 145 promulgated under the Securities Act or
another applicable exemption from the registration requirements of the
Securities Act. Durametallic has represented to Duriron in the Merger Agreement
that each director and executive officer and Thomas R. Ware are the only
Affiliates of Durametallic. Each has entered into an agreement with Duriron and
Durametallic which provides that the Affiliate will not, without prior consent,
transfer any shares of Duriron Common Stock or any Durametallic Common Shares
prior to the earlier of the expiration or termination of the Merger Agreement or
the date after the Effective Time on which quarterly financial results
(including a quarterly earnings report that includes combined sales and net
income) covering at least 30 days of post-Merger combined operations of Duriron
and Durametallic have been published by Duriron.
DISSENTERS' RIGHTS
Because outstanding shares of Duriron Common Stock will not be exchanged in
the Merger, holders of Duriron Common Stock are not entitled to dissenters'
rights with respect to the Merger or any of the other actions to be taken at the
Duriron Special Meeting.
The Michigan BCA does not provide a shareholder with dissenters' rights
with respect to any merger in which the holders receive stock of a corporation
which, at the record date for the shareholder meeting to act upon the merger, is
held of record by not less than 2,000 persons. The Duriron Common Stock was, on
the record date for the Durametallic Meeting, held of record by approximately
2,130 persons. Accordingly, Durametallic shareholders do not have dissenters'
rights with respect to the Merger.
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<PAGE> 47
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet as of
June 30, 1995 and the pro forma condensed combined statements of operations for
the six months ended June 30, 1995 and 1994, and for each of the three years in
the period ended December 31, 1994 give effect to the Merger accounted for as a
pooling of interests. This pro forma information is based on the historical
consolidated financial statements of Duriron and Durametallic and their
subsidiaries under the assumptions and adjustments set forth in the accompanying
notes.
The unaudited pro forma condensed combined financial statements have been
prepared by the managements of Duriron and Durametallic based upon their
respective historical consolidated financial statements. Pro forma per share
amounts are based on the minimum Conversion Ratio in the Merger of 2.9187 shares
of Duriron Common Stock for each Durametallic Common Share and the maximum
Conversion Ratio in the Merger of 3.6728 shares of Duriron Common Stock for each
Durametallic Common Share. The pro forma condensed combined financial
statements, which include results of operations as if the Merger had been
consummated on January 1, 1992, do not reflect the Merger expenses expected to
be incurred by Duriron and Durametallic, or any anticipated cost savings. As a
result, the pro forma condensed combined financial condition and results of
operations of Duriron as of and after the Effective Time may not be indicative
of the results that actually would have occurred if the Merger had been in
effect during the periods presented or which may be attained in the future.
Actual performance will differ, and the differences may be material. The pro
forma condensed combined financial statements should be read in conjunction with
the historical consolidated financial statements and notes thereto of Duriron
incorporated by reference herein, the historical consolidated financial
statements and notes thereto of Durametallic contained herein and the unaudited
consolidated condensed historical information, including the notes thereto,
appearing elsewhere herein. The Duriron per share information is adjusted to
give effect retroactively for the three-for-two stock split paid by Duriron on
March 25, 1994 in the form of a 50% stock dividend. The Durametallic per share
information is adjusted to give effect retroactively to the four-for-one stock
split paid by Durametallic to shareholders of record on May 29, 1992 in the form
of a stock dividend. See "SUMMARY -- Selected Financial Data."
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<PAGE> 48
THE DURIRON COMPANY, INC. AND DURAMETALLIC CORPORATION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1995
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1995
---------------------------------------------------
PRO
PRO FORMA FORMA
DURIRON DURAMETALLIC ADJUSTMENTS COMBINED
-------- --------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 17,662 $ 2,949 $20,611
Accounts receivable..................... 73,879 21,482 95,361
Inventories............................. 68,474 14,291 82,765
Prepaid expenses........................ 5,736 3,381 9,117
-------- ------- --------
Total current assets................. 165,751 42,103 207,854
Property, plant and equipment, at cost.... 193,697 46,351 240,048
Less accumulated depreciation and
amortization......................... 112,047 25,420 137,467
-------- ------- --------
Net property, plant and equipment....... 81,650 20,931 102,581
Intangibles and other assets.............. 43,696 12,815 56,511
-------- ------- --------
Total assets......................... $291,097 $75,849 $366,946
======== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................ $ 20,708 $ 6,432 $27,140
Notes payable........................... 3,072 4,017 7,089
Income taxes............................ 942 1,066 2,008
Accrued liabilities..................... 28,320 9,127 $ 4,600(6) 42,047
Long-term debt due within one year...... 4,069 91 4,160
-------- ------- ------- --------
Total current liabilities............ 57,111 20,733 4,600 82,444
Long-term debt due after one year......... 43,528 4,422 47,950
Postretirement benefits and other
deferred items.......................... 42,271 12,213 54,484
Shareholders' equity:
Serial preferred stock, $1.00 par value,
no shares issued..................... -- -- --
Common stock, $1.25 par value........... 23,788 8,584 (1,434)(5) 31,108
Capital in excess of par value.......... 3,817 1,434(5) 5,081
Retained earnings....................... 119,090 30,347 (4,600)(6) 144,837
-------- ------- ------- --------
146,695 38,931 (4,600) 181,026
Foreign currency and other equity
adjustments............................. 1,492 (450) 1,042
-------- ------- ------- --------
Total shareholders' equity........... 148,187 38,481 (4,600) 182,068
-------- ------- ------- --------
Total liabilities and shareholders'
equity.................................. $291,097 $75,849 $ 0 $366,946
======== ======= ======= ========
</TABLE>
See Notes To Unaudited Pro Forma Condensed Combined Financial Statements.
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<PAGE> 49
THE DURIRON COMPANY, INC. AND DURAMETALLIC CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1995
---------------------------------------------------
PRO
PRO FORMA FORMA
DURIRON DURAMETALLIC ADJUSTMENTS COMBINED
-------- --------- ----------- --------
<S> <C> <C> <C> <C>
Net sales...................................... $190,622 $63,888 $(750)(4) $253,760
Costs and expenses:
Cost of sales................................ 118,155 32,826 $ (5)(2,4) 150,976
Selling and administrative................... 45,151 20,503 (542)(3) 65,112
Research, engineering and development........ 4,258 3,788 (745)(2) 7,301
Interest..................................... 2,074 375 2,449
Other, net................................... 2,345 (95) 542(3) 2,792
-------- ------- ----- --------
171,983 57,397 228,630
Earnings before income taxes................... 18,639 6,491 25,130
Provision for income taxes..................... 6,900 2,550 9,450
-------- ------- ----- --------
Net earnings................................... $ 11,739 $ 3,941 $ 0 $ 15,680
======== ======= ===== ========
Per share data:
Based upon maximum Conversion Ratio of 3.6728
Net earnings per share....................... $ 0.61 $ 2.30 $ 0.61
Average shares outstanding................... 19,245 1,716 25,549
Based upon minimum Conversion Ratio of 2.9187
Net earnings per share....................... $ 0.61 $ 2.30 $ 0.65
Average shares outstanding................... 19,245 1,716 24,255
</TABLE>
See Notes To Unaudited Pro Forma Condensed Combined Financial Statements.
41
<PAGE> 50
THE DURIRON COMPANY, INC. AND DURAMETALLIC CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1994
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1994
-----------------------------------------------------
PRO
PRO FORMA FORMA
DURIRON DURAMETALLIC ADJUSTMENTS COMBINED
-------- --------- ----------- --------
<S> <C> <C> <C> <C>
Net sales.................................... $163,708 $56,578 $(720)(4) $219,566
Costs and expenses:
Cost of sales.............................. 102,839 28,279 $(110)(2,4) 131,008
Selling and administrative................. 40,843 19,448 (505)(3) 59,786
Research, engineering and development...... 4,780 3,173 (610)(2) 7,343
Interest................................... 1,978 252 2,230
Other, net................................. 831 (55) 505(3) 1,281
-------- ------- ---- --------
151,271 51,097 201,648
Earnings before income taxes................. 12,437 5,481 17,918
Provision for income taxes................... 4,660 2,057 6,717
-------- ------- ---- --------
Net earnings................................. $ 7,777 $ 3,424 $ 0 $ 11,201
======== ======= ==== ========
Per share data:
Based upon maximum Conversion Ratio of 3.6728
Net earnings per share..................... $ 0.41 $ 1.84 $ 0.43
Average shares outstanding................. 19,145 1,857 25,965
Based upon minimum Conversion Ratio of 2.9187
Net earnings per share..................... $ 0.41 $ 1.84 $ 0.46
Average shares outstanding................. 19,145 1,857 24,565
</TABLE>
See Notes To Unaudited Pro Forma Condensed Combined Financial Statements.
42
<PAGE> 51
THE DURIRON COMPANY, INC. AND DURAMETALLIC CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994
---------------------------------------------------
PRO
PRO FORMA FORMA
DURIRON DURAMETALLIC ADJUSTMENTS COMBINED
-------- --------- ----------- --------
<S> <C> <C> <C> <C>
Net sales...................................... $345,388 $ 116,557 $(1,438)(4) $460,507
Costs and expenses:
Cost of sales................................ 217,249 58,046 $ (218)(2,4) 275,077
Selling and administrative................... 85,345 40,745 (1,009)(3) 125,081
Research, engineering and development........ 9,613 6,520 (1,220)(2) 14,913
Interest..................................... 4,346 555 4,901
Other, net................................... 1,897 (942) 1,009(3) 1,964
-------- -------- ------- --------
318,450 104,924 421,936
Earnings before income taxes................... 26,938 11,633 38,571
Provision for income taxes..................... 9,780 4,395 14,175
-------- -------- ------- --------
Net earnings................................... $ 17,158 $ 7,238 $ 0 $ 24,396
======== ======== ======= ========
Per share data:
Based upon maximum Conversion Ratio of 3.6728
Net earnings per share....................... $ 0.90 $ 4.05 $ 0.95
Average shares outstanding................... 19,147 1,787 25,711
Based upon minimum Conversion Ratio of 2.9187
Net earnings per share....................... $ 0.90 $ 4.05 $ 1.00
Average shares outstanding................... 19,147 1,787 24,364
</TABLE>
See Notes To Unaudited Pro Forma Condensed Combined Financial Statements.
43
<PAGE> 52
THE DURIRON COMPANY, INC. AND DURAMETALLIC CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1993
----------------------------------------------------
PRO
FORMA
DURIRON DURAMETALLIC ELIMINATIONS COMBINED
-------- --------- ------------ --------
<S> <C> <C> <C> <C>
Net sales.......................................... $313,920 $109,138 $ (1,220)(4) $421,838
Costs and expenses:
Cost of sales.................................... 195,837 53,975 $ (33)(2,4) 249,779
Selling and administrative....................... 78,969 37,969 (2,259)(3) 114,679
Research, engineering and development............ 9,178 5,881 (1,187)(2) 13,872
Interest......................................... 3,852 700 4,552
Other, net....................................... (309) 937 2,259(3) 2,887
-------- -------- ------- --------
287,527 99,462 385,769
Earnings before income taxes....................... 26,393 9,676 36,069
Provision for income taxes......................... 9,901 4,598 14,499
-------- -------- ------- --------
Earnings from continuing operations................ 16,492 5,078 21,570
======== ======== ======= ========
Per share data:
Based upon maximum Conversion Ratio of 3.6728
Earnings per share from continuing operations.... $ 0.86 $ 2.81 $ 0.84
Average shares outstanding....................... 19,078 1,809 25,721
Based upon minimum Conversion Ratio of 2.9187
Earnings per share from continuing operations.... $ 0.86 $ 2.81 $ 0.89
Average shares outstanding....................... 19,078 1,809 24,357
</TABLE>
See Notes To Unaudited Pro Forma Condensed Combined Financial Statements.
44
<PAGE> 53
THE DURIRON COMPANY, INC. AND DURAMETALLIC CORPORATION
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1992
(DOLLARS IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1992
-----------------------------------------------------
PRO
PRO FORMA FORMA
DURIRON DURAMETALLIC ADJUSTMENTS COMBINED
-------- --------- ----------- --------
<S> <C> <C> <C> <C>
Net sales........................................ $300,357 $ 105,577 $(1,950)(4) $403,984
Costs and expenses:
Cost of sales.................................. 188,857 51,281 $ (276)(1,2,4) 240,414
Selling and administrative..................... 72,169 36,528 (1,086)(3) 107,611
Research, engineering and development.......... 9,193 5,300 (1,097)(2) 13,396
Interest....................................... 2,916 1,065 3,981
Other, net..................................... 598 (1,061) 1,086(3) 623
Restructuring.................................. 5,965 -- 5,965
-------- -------- ------- --------
279,698 93,113 1,129 371,990
Earnings before income taxes..................... 20,659 12,464 (1,129) 31,994
Provision for income taxes....................... 7,430 5,189 (418)(1) 12,201
-------- -------- ------- --------
Earnings from continuing operations.............. 13,229 7,275 (711) 19,793
======== ======== ======= ========
Per share data:
Based upon maximum Conversion Ratio of 3.6728
Earnings per share from continuing
operations.................................. $ 0.69 $ 4.02 $ 0.77
Average shares outstanding..................... 19,070 1,808 25,709
Based upon minimum Conversion Ratio of 2.9187
Earnings per share from continuing
operations.................................. $ 0.69 $ 4.02 $ 0.81
Average shares outstanding..................... 19,070 1,808 24,346
</TABLE>
See Notes To Unaudited Pro Forma Condensed Combined Financial Statements.
45
<PAGE> 54
THE DURIRON COMPANY, INC. AND DURAMETALLIC CORPORATION
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(1) In 1992, Duriron early complied with SFAS No. 106, "Employers Accounting for
Postretirement Benefits". Durametallic complied with this accounting
principle in 1993. Pro forma financial results reflect an adjustment to
record Durametallic's compliance with the accounting principle as of January
1, 1992. The adjustment increased postretirement benefit expense in 1992 by
an after tax amount of $.7 million.
(2) Certain Durametallic research and development expenses have been
reclassified to cost of sales to reflect consistent accounting policies on a
pro forma combined basis.
(3) Durametallic management incentive compensation and goodwill amortization
have been reclassified from selling and administrative expenses to other,
net costs and expenses to reflect consistent accounting policies on a pro
forma combined basis.
(4) To eliminate intercompany transactions between Durametallic and Duriron.
(5) The pro forma condensed combined financial statements reflect the issuance
of 5,719,587 shares of Duriron Common Stock in exchange for all the
outstanding Durametallic Common Shares. This reflects a 3.2526 exchange
ratio of Duriron for Durametallic shares, which assumes that the Market
Value of a Share of Duriron Common Stock will be $26.225 (the midpoint in
the range of Market Values between $23.225 and $29.225 per share to be used
to calculate the actual Conversion Ratio).
(6) Total costs to be incurred by Duriron and Durametallic in connection with
the Merger are estimated at $4.6 million after tax. Approximately $3.3
million of these costs relate to financial advisory, legal, accounting,
printing and other related services. These non-tax deductible costs will be
charged against income of the combined company in the period of
consummation. The remaining costs of $1.3 million after tax include
termination fees for James S. Ware and Clark D. Hurlbert related to their
retirement as detailed in "TERMS OF THE MERGER -- Operation of Durametallic
after the Merger" and "BACKGROUND OF AND REASONS FOR THE MERGER -- Interests
of Certain Persons in the Merger" and will be charged against income of the
combined company in the period of consummation. The liabilities associated
with these costs have been applied to reduce shareholders' equity in the pro
forma financial statements. The costs related to the Merger incurred for
these services by each company were not material to pro forma condensed net
income in the six months ended June 30, 1995.
46
<PAGE> 55
INFORMATION CONCERNING DURIRON
Duriron was incorporated under the laws of the State of New York on May 1,
1912. Duriron principally is engaged in the design, manufacture and marketing of
fluid handling equipment, primarily pumps and valves, for industries that
utilize difficult to handle and often corrosive fluids in manufacturing
processes. Duriron specializes in the development of precision-engineered
equipment that is capable of withstanding the severely deteriorating effects
associated with the flow of acids, chemical solutions, slurries and gases.
Based upon its analysis of trade association data and other market
information, Duriron considers itself a leading supplier of corrosion resistant
fluid movement and control equipment to the chemical process industries.
Duriron's materials expertise, design and engineering capabilities and
applications know-how have enabled it to develop product lines that are
responsive to the chemical process industries' desire to achieve manufacturing
efficiencies, avoid premature equipment failure and reduce maintenance cost.
INFORMATION CONCERNING DURAMETALLIC
GENERAL
Durametallic is a leading manufacturer of mechanical seals and sealing
systems used primarily in process pumps, compressors, mixing equipment,
agitators and other rotating equipment and is a major manufacturer of specialty
welded metal bellows products for use in various aerospace, vacuum and
electronics industries.
Durametallic was incorporated in 1917 under the laws of the State of
Michigan. Self-lubricated metallic foil packings were Durametallic's first
products. In the early 1940's, Durametallic started an entirely new concept in
shaft sealing with the introduction of the Dura Seal mechanical seal. This
special mechanical seal, which rotates with the shaft, gained wide acceptance in
the industry and now represents approximately 90% of Durametallic's business.
The balance of Durametallic's business today is comprised of sales of auxiliary
sealing products and welded metal bellows.
Durametallic sells its mechanical sealing products worldwide, with a small
percentage of the welded metal bellows products sold outside the United States.
Durametallic estimates that its international sales accounted for approximately
31% of its consolidated sales in 1994. Durametallic distributes its products
through approximately 135 direct-sales employees and through approximately 110
independent sales agents.
In September 1983, Durametallic acquired all the outstanding stock of Metal
Fab Machine Corporation ("Metal Fab") and two affiliated companies. Both
affiliated companies were subsequently merged into Metal Fab. Metal Fab
manufactures welded metal bellows used in the aerospace, vacuum, and electronics
industries and manufactures welded metal bellows mechanical seals. Metal Fab is
located in Ormond Beach, Florida.
In September, 1988, Durametallic acquired a mechanical seal company located
in Australia, with operations in both Australia and New Zealand. In January,
1990, Durametallic acquired a 40% interest in Korea Seal Master Co. Ltd, a
Korean corporation. Both of these organizations are engaged in the manufacture
and sale of mechanical seals and related products.
In August 1995, Durametallic acquired all of the outstanding stock in Pac
Seal, Inc. and two affiliated companies for approximately $13 million. Pac Seal
is located in Burr Ridge, Illinois, and is engaged in the manufacture and sale
of mechanical seals used primarily in water pump applications.
MECHANICAL SEALS
Sales of mechanical seals or sealing systems constituted approximately 90%
of Durametallic's sales in fiscal year 1994. Durametallic sells mechanical seals
to several thousand user, resale and original equipment manufacturing groups.
User groups basically consist of chemical, petrochemical, petroleum refiners,
pulp and paper processors, power companies and miscellaneous other users.
Resalers consist of contracted and uncontracted distributors, pump repair houses
and miscellaneous other wholesalers. Original equipment manufacturers consist of
pump manufacturers, mixing equipment manufacturers and miscellaneous other
47
<PAGE> 56
rotating equipment manufacturers. Durametallic estimates that its current share
of the domestic market in mechanical seals is approximately 18%.
The production of mechanical seals involves various metal machining
processes, grinding, lapping and welding. Mechanical seal components can consist
of a variety of raw materials and purchased parts. Raw materials can be
specialty high alloy metals, tungsten carbide, high grade carbons and teflon.
Purchased parts can be various types of O-rings, ceramic, silicon carbide, and
various other minor parts. Metal Fab supplies the welded metal bellows for
Durametallic's mechanical seals.
Approximately 33% of Durametallic's sales of mechanical seals are to
customers located outside the United States. Durametallic estimates that its
share of the foreign market in mechanical seals is approximately 12%.
Competition in the manufacture and sale of mechanical seals outside the United
States varies by region. The Canadian and European market are well established
and very competitive. Some other areas of the world are not as competitive.
Durametallic considers the processing industries as its major markets for
mechanical seals. Durametallic faces substantial competition in the domestic and
foreign markets in its mechanical seal products. Durametallic faces competition
from many entities smaller than it, and also from entities which have resources
and annual sales substantially exceeding those of Durametallic.
Durametallic has identified that some pump companies are marketing sealless
pumps which do not use mechanical seals. Market analyses show that currently
less than 10% of all pumps sold in the United States are sealless pumps.
Management believes that sealless pumps will grow slightly as a percentage of
total pump population, but will be restricted primarily to hazardous or toxic
applications.
Principal elements of competition in the mechanical seal business include
product availability, timely delivery, a high degree of quality control and
pricing. Management believes that Durametallic's high quality and innovative
product lines, its ability to produce a high quality product at a reasonable
cost and its worldwide distribution network enable Durametallic to compete
favorably.
SPECIALTY WELDED METAL BELLOWS
Specialty welded metal bellows constituted approximately 5% of
Durametallic's sales in 1994. In 1983, Durametallic acquired Metal Fab, a
manufacturer of specialty welded metal bellows. Metal Fab sells welded metal
bellows to the aerospace, electronic, vacuum and other high technology
industries. Metal Fab estimates that it has approximately 14% of the estimated
$50 million specialty welded metal bellows market in the United States. Metal
Fab is not actively engaged in foreign markets and does not anticipate becoming
actively engaged in such markets in the near future.
The production of welded metal bellows involves the process of welding thin
gauge metal leaflets together to form bellows. Also, various metal end pieces
are machined to fit onto the bellows to make complete units sold to various
customers throughout the United States.
Durametallic faces substantial competition in its specialty welded metal
bellows products. Durametallic faces competition from many entities smaller than
it, and also from entities which have resources and annual sales substantially
exceeding those of Durametallic. Principal elements of competition in the welded
metal bellows business include a high degree of quality control, timely
deliveries and price.
RAW MATERIALS
Durametallic buys various raw materials to manufacture its products.
Durametallic believes that substantially all these raw materials are readily
available from a number of suppliers.
INVENTORY
In accordance with what Durametallic believes to be the industry standard
and practice, Durametallic generally maintains significant amounts of inventory
to meet rapid delivery requirements of its customers.
48
<PAGE> 57
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
Durametallic currently holds numerous patents covering its products or the
processes it uses to manufacture its products. Durametallic believes that such
patents do not contribute significantly to Durametallic's competitive position
in the industry. Also, substantial information concerning Durametallic's
manufacturing processes is readily available to Durametallic's competitors.
Durametallic has registered its "Dura Seal" series of names as trademarks
covering its products.
Durametallic has ongoing research and development activities devoted to new
product development, design of special products to meet the special needs of
customers, and the continuous upgrading of existing products. Currently,
Durametallic is developing additional products and enhancing existing products.
Durametallic expects such products to contribute toward sales growth in the
years to come.
Durametallic's research and development expenditures incurred aggregated
approximately $2.3 million in 1994, $1.8 million in 1993, and $1.5 million in
1992.
EMPLOYEES
At December 31, 1994, Durametallic employed 1,114 persons worldwide. In the
United States, 613 persons worked for Durametallic's mechanical seal group and
115 persons worked for Metal Fab. Outside the United States, Durametallic
employed 386 persons. Durametallic's acquisition of Pac Seal, Inc. in August
1995 added an additional 90 employees to the company.
FINANCING
As of June 30, 1995, Durametallic had lines of credit and other term loan
financing with foreign and domestic banks amounting to approximately $18 million
at short-term floating interest rates. At June 30, 1995, approximately $10
million of such lines of credit were unused.
At December 31, 1994, Durametallic had aggregate long-term debt of $4
million, which consisted primarily of an unsecured bank term loan of $3.7
million. This long-term debt also included an Industrial Development Revenue
Bond of $313,000. Title of the property, plant and equipment financed by this
bond is held by the issuing municipality and will be deeded to Durametallic upon
retirement of the bond in 1999.
Durametallic's aggregate maturities of its long-term debt are as follows
for the years indicated:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
(IN THOUSANDS)
<S> <C>
1995............................................. $ 100
1996............................................. 79
1997............................................. 569
1998............................................. 1,674
Later years...................................... 1,644
------
Total.................................. $4,066
======
</TABLE>
Certain long-term debt and line of credit agreements contain restrictive
covenants relating to payments of dividends and maintenance of working capital
and debt to equity relationships. As of the date of this Joint Proxy
Statement/Prospectus, Durametallic was in compliance with these covenants.
PROPERTIES AND OPERATIONS
Durametallic's principal executive offices and research facilities are
located at 2100 Factory Street, Kalamazoo, Michigan 49001. Durametallic
maintains major manufacturing facilities in Kalamazoo, Michigan and Burr Ridge,
Illinois for mechanical sealing products and in Ormond Beach, Florida for metal
bellows products.
49
<PAGE> 58
Durametallic leases and subleases certain facilities, vehicles and
equipment under noncancelable operating leases. Generally, Durametallic may
renew these leases at its option. Rental expenses for these leases were
approximately $1.7 million for each of the three years ended December 31, 1994,
1993 and 1992. Minimum payments under noncancelable operating leases are as
follows for the years indicated:
<TABLE>
<CAPTION>
YEAR
----------------------------------------------- RENTAL
AMOUNT
(IN THOUSANDS)
<S> <C>
1995........................................... $1,327
1996........................................... 811
1997........................................... 371
1998........................................... 99
1999........................................... 37
------
Total................................ $2,645
======
</TABLE>
Durametallic has branch and service center facilities in the following
locations in the United States: Carson, California; Posen, Illinois; Baton
Rouge, Louisiana; Bridgeport, New Jersey; Matthews, North Carolina; Cincinnati,
Ohio; Houston, Texas; and Vancouver, Washington.
Durametallic has seven other inventory warehousing facilities in the United
States and a service center in Caguas, Puerto Rico. Durametallic has sales
offices located in 59 countries.
Durametallic also has foreign subsidiary operations in Buenos Aires,
Argentina (100% owned); Sydney, Australia (100% owned); Auckland, New Zealand
(100% owned); Sao Paulo, Brazil (99.9% owned); St. Thomas, Virgin Islands (100%
owned); Ontario, Canada (100% owned); Gent, Belgium (100% owned); Frankfurt,
Germany (100% owned); Singapore (70.6% owned); and Tlaxcala TL, Mexico (100%
owned). Durametallic has joint ventures in Madras, India (40% owned); Seoul,
Korea (40% owned); Damman, Saudi Arabia (40% owned); and Kuala Lumpur, Malaysia
(28.24% owned). Durametallic has branch operations in Manchester, England and
Milan, Italy. Approximately 31% of Durametallic's sales were outside the United
States during 1994.
LEGAL PROCEEDINGS
Durametallic is a defendant in numerous lawsuits that seek to recover
damages for alleged personal injury allegedly resulting from alleged exposure to
asbestos containing products manufactured and distributed by Durametallic prior
to 1986. All such products were used within self-contained process equipment,
and management does not believe that there was any emission of ambient asbestos
fiber during the operation of this equipment.
In 1994, Durametallic received approximately 3,500 new asbestos liability
claims and resolved approximately 8,100 claims. During the past three years,
Durametallic has resolved approximately 9,300 claims at an average of $132 per
claim. Durametallic continues to have a substantial amount of available
insurance from financially solvent carriers to cover such claims.
Durametallic has reviewed its policies of insurance, historical settlement
amounts and the number of pending cases. Based upon such reviews, Durametallic
has estimated its potential liability for such claims to be approximately
$875,000 at June 30, 1995. The cases are expected to be paid or dismissed within
the next two years. Under the terms of its insurance policies, Durametallic
estimates its insurance proceeds to be approximately $875,000 at June 30, 1995.
The coverage for such claims, including defense costs and case resolution costs,
has not been disputed by Durametallic's insurance carriers. While there is
inherent uncertainty in litigation of this type and it is possible that past
costs may not necessarily be indicative of future costs, Durametallic's
management does not believe that these claims will have a material adverse
effect on Durametallic's financial position or results of operations.
Durametallic is the defendant in lawsuits and other claims in the normal
course of business. Durametallic's management believes that Duremetallic has
adequate insurance protection to cover the costs of defense, settlements or
awards.
50
<PAGE> 59
BENEFICIAL OWNERSHIP OF VOTING SECURITIES OF DURAMETALLIC
The following table presents the beneficial ownership of each shareholder
known to management to be the beneficial owner of more than 5% of the voting
shares of Durametallic, based on information supplied by them or obtained from
the stock records of Durametallic.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
------------------------------------------ ----------------------- --------
<S> <C> <C>
R. D. Hall Employee Stock Ownership
Plan(2) 135,535 7.89%
2100 Factory Street
Kalamazoo, Michigan 49001
Stanley R. Hall 110,096(3) 6.41%
1304 Reycraft
Kalamazoo, Michigan 49001
Estate of Edith M. Huysman 95,260 5.55%
1700 Bronson Way #238
Kalamazoo, Michigan 49009
James S. Ware 364,027(4) 21.08%
1009 Essex Drive
Kalamazoo, Michigan 49008
Thomas R. Ware 183,899(5) 10.71%
8 Chickadee Lane
North Oaks, Minnesota 55127
</TABLE>
- ---------------
(1) The number of shares listed includes shares personally owned of record by
each person and shares which under applicable regulations are deemed to be
otherwise beneficially owned by each person. Under these regulations, a
beneficial owner of a security includes any person who, directly or
indirectly, through any contract, arrangement, understanding, relationship
or otherwise has or shares voting power or investment power with respect to
the security. Voting power includes the power to vote or to direct the
voting of the security. Investment power includes the power to dispose or to
direct the disposition of the security. A person also will be considered the
beneficial owner of a security if the person has a right to acquire
beneficial ownership of the security within 60 days. Listed persons may
disclaim beneficial ownership of certain shares.
(2) The full board of directors of Durametallic comprises the Administrative
Committee which administers the R.D. Hall Employee Stock Ownership Plan (the
"ESOP"). Mr. James S. Ware is the trustee of the ESOP Trust, which holds
Durametallic Common Shares for the ESOP. The trustee has voting and limited
investment power over the shares held by the ESOP Trust which have not been
allocated to individual accounts and limited investment power over shares
which have been allocated to individual accounts. The Administrative
Committee has the power to direct the trustee as to the voting of the shares
held by the ESOP Trust that have not been allocated to individual accounts.
As of October 24, 1995, 4,704 Durametallic Common Shares held by the ESOP
Trust had not been allocated to individual accounts. The trustee and each of
the members of the Administrative Committee disclaim beneficial ownership of
shares held by the ESOP (except shares allocated to the person's individual
account under the ESOP), and the ESOP shares are not reported as
beneficially owned by the trustee or the members of the Administrative
Committee as individuals unless the shares have been allocated to the
person's individual account under the ESOP.
(3) This number includes 40,390 shares held in a charitable remainder trust,
30,229 shares held in a generation skipping trust and 39,477 shares held in
a revocable trust. First of America Bank is a trustee of each of these
trusts. First of America Bank and Mr. Hall share voting and dispositive
power with respect to all shares in the trusts.
51
<PAGE> 60
(4) This number includes 1,455 shares held as Trustee of the James S. Ware
Trust; 50,000 shares held as Trustee of the T. R. Ware Grantor Retained
Annuity Trust ("GRAT"); 50,000 shares held as Trustee of the J. A. Ware
GRAT; 53,577 shares held as Trustee of the Margaret M. Ware Trust; 97,789
shares held as Custodian of the James S. Ware Agency Account; 50,000 shares
held as beneficiary of the S. D. Ware GRAT; 50,000 shares held as
beneficiary of the J. S. Ware GRAT; 1,538 shares allocated to the individual
account of James S. Ware under the ESOP; and 9,668 shares held in stock
options under the Durametallic Option Plan. The 100,000 shares in the S. D.
Ware GRAT and J. S. Ware GRAT also are listed as beneficially owned by
Thomas R. Ware. See note (5) below.
(5) This number includes 50,000 shares held as Trustee of the S. D. Ware GRAT;
50,000 shares held as Trustee of the J. S. Ware GRAT; and 83,899 shares held
as Trustee of the Thomas R. Ware Agency Account. The 100,000 shares in the
S. D. Ware GRAT and J. S. Ware GRAT also are listed as beneficially owned by
James S. Ware. See note (4) above.
The following table discloses the total number of Durametallic Common
Shares beneficially owned by each director and executive officer of
Durametallic, according to information furnished to Durametallic by the
directors and executive officers, and the percentage of ownership of each
director and executive officer in relation to the total Durametallic Common
Shares outstanding as of October 24, 1995:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT
NAME OF BENEFICIAL OWNER OWNERSHIP(1)(2) OF CLASS
- ---------------------------- -------------------- --------
<S> <C> <C>
William V. Adams 13,694 *
John L. Bowden 7,011 *
Edwin W. Carpenter 12,515 *
S. Gopinath 750 *
Thomas E. Haan 20,580 1.19 %
Clark D. Hurlbert 25,980 1.51 %
Valda I. Karlsons 1,797 *
Robert W. McLean 10,300 *
Albert C. Schauer 500 *
Dana A. Walters 2,661 *
James S. Ware 364,027 21.08 %
Carl D. Wisner 4,300 *
All Directors and Executive
Officers as a Group
(12 persons) 464,115 26.46 %
</TABLE>
- ---------------
* Less than 1 percent
(1) The numbers of shares listed includes shares personally owned of record by
each person and shares which under applicable regulations are deemed to be
otherwise beneficially owned by each person. This includes shares allocated
to individual accounts under the ESOP. Each listed beneficial owner, except
James S. Ware, either shares voting and dispositive power with a spouse or
has sole voting and dispositive power with respect to the listed shares. See
note (4) to the previous table for a description of the nature of beneficial
ownership of shares beneficially owned by James S. Ware.
(2) The number of shares in this column includes all shares that may be acquired
through the exercise of stock options. Some options are presently
exercisable within 60 days (as set forth below). Other options will vest at
the Effective Time of the Merger pursuant to accelerated vesting provisions
in the
52
<PAGE> 61
Durametallic Option Plan. The number of Durametallic Common Shares subject
to stock options for each listed person is shown below:
<TABLE>
<CAPTION>
EXERCISABLE WITHIN TOTAL SHARES
NAME 60 DAYS SUBJECT TO OPTIONS
--------------------------------------- ------------------ ------------------
<S> <C> <C>
William V. Adams 1,332 2,332
John L. Bowden 1,334 5,000
Edwin W. Carpenter 1,332 2,332
S. Gopinath -- 750
Thomas E. Haan 4,000 5,500
Clark D. Hurlbert 4,000 5,200
Valda I. Karlsons -- 750
Robert W. McLean 2,668 3,168
Albert C. Schauer -- 500
Dana A. Walters -- 750
James S. Ware 6,668 9,668
Carl D. Wisner 1,000 1,500
All Directors and Executive
Officers as a Group
(12 persons) 22,334 37,450
</TABLE>
53
<PAGE> 62
SELECTED FINANCIAL DATA OF DURAMETALLIC
The following selected financial data, insofar as it relates to each of the
five years in the period ended December 31, 1994, has been derived from the
consolidated financial statements of Durametallic audited by KMPG Peat Marwick
LLP, to the extent set forth in their report. The report of KPMG Peat Marwick
LLP covering the December 31, 1993 financial statements refers to a change in
the method of accounting for income taxes; to a change in the method of
accounting for post-retirement benefits other than pensions; and to a change in
the method of accounting for post-employment benefits. Consolidated balance
sheets of Durametallic at December 31, 1994 and 1993 and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1994 and notes thereto and
consolidated balance sheets (unaudited) of Durametallic at June 30, 1995 and the
related consolidated statements of earnings, shareholders' equity and cash flows
(unaudited) for the six months ended June 30, 1995 are attached to this Joint
Proxy Statement/Prospectus. This data should be read in conjunction with such
consolidated financial statements and notes thereto. The Durametallic per share
information is adjusted to give effect retroactively to the four-for-one stock
split paid by Durametallic to shareholders of record on May 29, 1992 in the form
of a stock dividend. See "Financial Statements of Durametallic."
DURAMETALLIC CORPORATION
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
--------------------- ------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. $ 63,888 $ 56,578 $116,557 $109,138 $105,577 $102,238 $ 92,413
Earnings from
continuing
operations........... 3,941 3,424 7,238 5,078 7,275 6,227 4,266
Total assets........... 75,849 66,729 70,162 66,568 65,123 68,820 67,977
Long-term debt......... 4,422 6,270 3,966 360 519 7,658 8,120
Earnings per share from
continuing
operations........... 2.30 1.84 4.05 2.81 4.02 3.14 2.09
Cash dividends per
share................ 0.40 0.54 1.04 0.99 0.90 0.62 0.52
Book value at period
end per share........ 22.41 17.77 20.55 18.52 21.77 18.99 17.00
</TABLE>
54
<PAGE> 63
DURAMETALLIC MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following management's discussion and analysis reviews Durametallic's
operating results for the three years ended December 31, 1994, and the six
months ended June 30, 1995 and its financial condition at December 31, 1994 and
June 30, 1995. This review should be read in conjunction with the Selected
Financial Data, the Consolidated Financial Statements and the Notes to the
Consolidated Financial Statements included elsewhere in this Joint Proxy
Statement/Prospectus and the tabular information set forth below.
ANALYSIS OF OPERATIONS
The following table sets forth for the years indicated the relationship
between certain income and expense items as a percentage of sales and the
percentage increase or decrease of such items for the three years ended December
31, 1994:
<TABLE>
<CAPTION>
PERCENT OF SALES PERCENT INCREASE
YEAR ENDED DECEMBER 31, (DECREASE)
------------------------- -------------------------------
1994 1993 1992 1994 VS. 1993 1993 VS. 1992
----- ----- ----- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Sales........................................ 100.0% 100.0% 100.0% 6.8% 3.4%
Cost of goods sold............................... 49.8 49.5 48.6 7.5 5.3
Operating expenses
before goodwill write-off...................... 40.6 40.2 39.6 7.8 4.8
Goodwill write-off............................... * 1.2 * * *
Profit from operations........................... 9.6 9.1 11.8 13.1 (20.3)
Other (expense) items............................ * * (0.2) * *
Income taxes..................................... 3.8 4.2 4.9 (4.4) (11.4)
Income from continuing operations................ 6.2 4.7 6.9 42.5 (30.2)
Loss from discontinued operations................ * (2.7) (0.3) * *
Cumulative effect of changes in accounting
principles..................................... * (5.9) * * *
Net income (loss)................................ 6.2% (3.9%) 6.6% * *
- ---------------
<FN>
* Percentage not meaningful.
</TABLE>
NET SALES
Net sales were a record $116.6 million in 1994, reflecting increases of
6.8% over $109.1 million in 1993 and 10.4% over $105.6 million in 1992. New
product introductions, strengthening of capital spending in the North American
markets, a recovering European economy and stabilization of the Brazilian
economy which led to improvements in that market contributed to the record sales
in 1994. Net sales for 1993 were 3.4% over 1992 sales. Weakness in the
international marketplace contributed to the lower sales growth during 1993.
Domestic sales of mechanical seals increased to $76.4 million in 1994,
reflecting an increase of 5.1% from 1993 and 4.8% from 1992. Durametallic was
able to realize this increase in domestic sales with new product introductions
and despite very competitive pricing pressures. International sales were $34.1
million in 1994, which represented an increase of 7.2% from 1993 sales of $31.8
million and 9.3% from 1992 sales of $31.2 million. The increase in sales was
realized primarily in the European and Brazilian markets, where sales improved
by 23.7% and 11.2%, respectively. Sales in Europe benefited from the improved
economy in that region.
COST OF GOODS SOLD AND OPERATING EXPENSES
The gross profit margin was 50.2% in 1994, compared with 50.5% in 1993 and
51.4% in 1992. Domestically, gross margins were unfavorably impacted in 1994 by
competitive pricing pressures which restricted Durametallic from realizing price
increases and prevented it from covering cost increases. In 1993, domestic gross
profits decreased by .9 percentage point due to competitive pricing pressures
and the change in
55
<PAGE> 64
accounting for postretirement health care costs. Internationally, gross margins
were negatively impacted in 1993 by provisions for obsolete inventories and by
weak local currencies.
Operating expenses for 1994 increased by $2.0 million, or 4.5% from 1993
and 13.0% from 1992. Operating expenses for 1994 included unusually high legal
costs related to corporate strategic planning alternatives and severance costs
of approximately $1.2 million. Operating expenses for 1993 included the
write-off of goodwill of $1.4 million related to Durametallic's Metal Fab
business, unusual bad debt expenses of $742,000, and costs of $214,000 incurred
for a realignment of personnel.
Excluding the effects of the expenses mentioned in the prior paragraph,
operating expenses for 1994 increased by $3.4 million, or by 7.9% from the
restated operating expenses for 1993. Domestically, a significant portion of the
cost increases related to Durametallic's continued research and development
efforts for the new gas seal business and increased efforts to improve customer
service. Internationally, most of the increases were realized in Europe and
Brazil and in Argentina with the start-up of the new Argentinean facility.
Approximately one-half of the 1993 operating expense increase was realized
domestically and related to the research and development of gas seal technology
and increased efforts to improve customer service. Furthermore, the cost of
medical benefits increased significantly due to the change in accounting for
post-retirement health care costs. Internationally, the operating cost increases
for 1993 were realized in Mexico and Asia. The increase in Asia primarily
relates to the write-off of a large trade receivable. In Mexico, the increase
primarily relates to increased personnel costs.
During 1993, Durametallic determined that goodwill allocable to the
specialty bellows business could not be recovered based upon projected future
losses for this business. Accordingly, Durametallic wrote-off the remaining
goodwill balance of $1.4 million. Goodwill related to Metal Fab's mechanical
seal business is forecasted to be fully recoverable.
OTHER INCOME (EXPENSE) ITEMS AND INCOME TAXES
Other income (expense) increased operating profit by $580,000 in 1994,
compared with reducing profit by $83,000 in 1993. Other income was $262,000 in
1992. The improvement in other income in 1994 was due primarily to the gain of
$452,000 realized on sale of certain assets of Durametallic, including the sale
of a New Jersey facility for a gain of $350,000. In 1993, Durametallic realized
a loss on disposal of assets of $11,000.
The effective income tax rate decreased significantly to 37.2% in 1994,
which compares to 46.6% in 1993 and 40.8% in 1992. The primary reason for this
decrease in 1994 was the significant improvement in operating results in Europe,
where operating losses were substantially reduced. The effective income tax rate
was high in 1993 primarily because of a significant increase in losses in
Durametallic's European operations where no tax benefits were realized and a
write-off of goodwill that had no income tax benefit.
DISCONTINUED OPERATION
In 1992, Durametallic sold its 80% ownership in Leap Technologies, Inc. and
deferred any gain realized on the sale due to concern for the significant
financial leverage of the acquiring company. Durametallic guaranteed $3.3
million of the debt of the acquiring company, which went out of business in
1993. As a result, the loan guaranty was called and paid in full by Durametallic
in 1993. This resulted in a net loss from discontinued operations of $2.9
million in 1993. Leap Technologies, Inc. was engaged in the design, manufacture
and sale of injection molds and parts for the plastics industry. Its revenues
were $2.8 million and $7.6 million for 1992 and 1991, respectively.
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1993, Durametallic adopted the principles of
Statements of Financial Accounting Standards (SFAS) No. 106, 109 and 112. SFAS
No. 106 requires a company to record a liability for its obligation for
postretirement health care benefits, which are primarily health care costs.
Durametallic recognized a $9.5 million pretax cumulative charge in 1993 for this
change in accounting principle. Additionally, this change increased 1993
operating costs by $615,000. During the fourth quarter of 1993,
56
<PAGE> 65
Durametallic implemented changes in its health care plan. These changes reduced
the Durametallic's post-retirement health care obligation which had the effect
of reducing operating expenses by $430,000 in 1994.
SFAS No. 109 requires a change in the method of accounting for income taxes
from the deferred method to the liability method. The impact of this change in
accounting principle resulted in recording a cumulative credit to income of
$121,000 in 1993.
SFAS No. 112 requires a change in the method of accounting for
post-employment benefits. The company recognized a cumulative pretax charge of
$890,000 for this change in accounting principle. Compliance with SFAS No. 112
did not impact 1994 earnings and is not expected to materially impact future
earnings.
NET INCOME
Net income was $7.2 million for 1994, or $4.05 per share. This compares to
income from continuing operations of $5.1 million, or $2.81 per share in 1993
and $7.3 million, or $4.02 per share in 1992. Improved business conditions
partially offset by competitive pricing pressures contributed to the improvement
in net income in 1994.
COMMITMENTS AND CONTINGENCIES
Durametallic enters into forward foreign currency exchange contracts to
hedge foreign currency transactions related to intercompany inventory purchases
and intercompany loans. It does not engage in speculation. The effect of this
practice is to reduce the impact of foreign exchange rate movements on the
Durametallic's operating results. As of December 31, 1994, Durametallic had
approximately $1.1 million in forward contracts outstanding, with maturities not
exceeding twelve months. All contracts were in European currencies.
RESULTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 30, 1995
Net sales for the six months ended June 30, 1995 were a record of $63.9
million compared to net sales of $56.6 million for the same period in 1994. The
12.9% increase in net sales reflects an increase in shipments to original
equipment manufacturers ("OEM") and resalers as well as an increase in specialty
metal bellow sales. Foreign contributions to consolidated net sales were 30.6%
and 29.1% for the six month periods ended June 30, 1995 and 1994, respectively.
Total net sales to foreign customers including export sales from the U.S. were
33.1% and 31.3% for the first six months of 1995 and 1994, respectively.
The gross profit margin was 48.6% for the six months ended June 30, 1995.
This compares to 50% for the same period in 1994. The decline in the gross
margin is a result of an increase in sales to OEM customers and resalers at a
higher discount. In addition to this, raw material costs have increased
approximately 2% over the prior year.
Selling and administrative expense represented 32.1% of net sales for the
six months ended June 30, 1995, compared to 34.4% for the same period in 1994.
Consistent with corporate strategy, the decrease in expense as a percentage of
net sales is due to an increase in sales volumes not matched by a like increase
in expenses. The increase in expense of $1.1 million or 5.4% represents
continued efforts to further improve customer service in the U.S. as well as an
increase in costs in U.S. dollars for the European and Brazilian subsidiaries
due to a strengthening of their currency against the U.S dollar.
Research and engineering expense was $3.8 million for the first six months
of 1995, compared with $3.2 million for the same period in 1994. The increase in
expense of $600,000 or 18.8% relates to efforts to improve responsiveness. In
addition, Durametallic has ongoing research and development activities devoted
to new product development, design of special products to meet the special needs
of customers and the continuous updating of existing products.
57
<PAGE> 66
The effective tax rate for the first six months of 1995 was 39.3%, compared
with 37.5% in 1994. The increase in the tax rate from 1994 is due to greater
losses in Europe and Australia compared to the same period in 1994, which
yielded no tax benefits due to tax loss carryforward positions.
Net earnings for the six month period ended June 30, 1995 were $3.9 million
or $2.30 per share, which compares to 1994 earnings of $3.4 million, or $1.84
per share. The 15% increase in profits resulted from increased revenues on a
global basis combined with a decrease in operating expenses as a percentage of
sales.
CAPITAL RESOURCES AND LIQUIDITY
Durametallic's capital structure, consisting of long-term debt and
shareholders' equity, continues to enable Durametallic to finance short and long
range business objectives. At June 30, 1995, long-term debt was 8.3% of
Durametallic's capital structure, compared to 7.9% at December 31, 1994. Based
upon a twelve month rolling average, the interest coverage ratio of
Durametallic's indebtedness was 5.4 at June 30, 1995, compared with 4.4 for the
twelve months ended December 31, 1994.
Capital spending in 1995 is expected to approximate 1994 levels of $5.0
million. The 1995 expenditures will be invested in equipment and research
facilities to enable Durametallic to lower its product costs and to maintain its
technological advantage in the marketplace.
Durametallic's liquidity position is reflected in a current ratio of 2.1 to
1 at June 30, 1995. This compares to 2 to 1 at December 31, 1994. Cash and cash
equivalents decreased to $3.0 million from $3.3 million at December 31, 1994.
Durametallic currently has lines of credit and other term loan financing
arrangements amounting to $10.0 million, and believes that available cash and
these lines of credit arrangements will be adequate to fund operating and
capital expenditure cash requirements through the remainder of 1995.
SUBSEQUENT EVENT
In August of 1995, Durametallic acquired all of the outstanding stock in
Pac Seal, Inc., and two affiliated companies for $13 million, which was funded
primarily through bank borrowings. Pac Seal is located in Burr Ridge, Illinois,
and is engaged in the design, manufacture and sale of mechanical seals used
primarily in water pump applications.
DESCRIPTION OF DURIRON CAPITAL STOCK
Duriron has authorized 30,000,000 shares of Duriron Common Stock, of which
19,045,508 were outstanding as of the Duriron Record Date, and 1,000,000 shares
of Junior Preferred Stock, $1.00 par value per share ("Duriron Preferred
Stock"), including 150,000 shares of Series A Junior Participating Preferred
Stock, none of which is outstanding. If the Certificate Amendment is adopted,
the authorized number of shares of Duriron Common Stock will be increased to
60,000,000. See "PROPOSED AMENDMENT TO DURIRON CERTIFICATE OF INCORPORATION."
DURIRON COMMON STOCK
Each share of Duriron Common Stock is entitled to participate equally in
dividends as and when declared by the Board of Directors, after payment of any
dividends on any outstanding Duriron Preferred Stock and subject to limitations
for dividends contained in certain of Duriron's debt instruments, and is
entitled to participate equally in the distribution of assets in the event of
liquidation, after payment of any liquidation preference of any outstanding
Duriron Preferred Stock. All shares of Duriron Common Stock, when issued and
fully paid, are nonassessable and not subject to redemption or conversion and
have no conversion rights. Holders of Duriron Common Stock have no preemptive
right to subscribe for any additional shares of any class of capital stock of
Duriron, whether now or hereafter authorized.
TRANSFER AGENT. The transfer agent for the Duriron Common Stock is KeyCorp
Shareholder Services, Inc.
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<PAGE> 67
DURIRON PREFERRED STOCK
The Duriron Preferred Stock may be issued from time to time in one or more
series and the Board of Directors, without further approval of shareholders, is
authorized to fix the dividend rights and terms, any conversion rights, any
voting rights, any redemption rights and terms, liquidation preferences, sinking
funds and any other rights, preferences, privileges and restrictions applicable
to each series of Duriron Preferred Stock. The issuance of such stock could,
among other things, adversely affect the voting, dividend, and liquidation
rights of the holders of Duriron Common Stock. As described below, 150,000
shares of Duriron Preferred Stock have been designated as Series A Junior
Participating Preferred Stock.
PROVISIONS AFFECTING CONTROL
The Duriron's Restated Certificate of Incorporation and Rights Plan contain
provisions that could be utilized to impede efforts to acquire control of
Duriron.
DURIRON RIGHTS PLAN. Under the Duriron Rights Agreement, one Preferred
Stock Purchase Right was distributed in August, 1986 with respect to each
outstanding share of Duriron Common Stock. The Duriron Rights Agreement provides
that, unless the rights have been redeemed, one right will be granted for each
additional share of Duriron Common Stock issued after August 1986 and prior to
the earlier of the time the rights become exercisable or August 13, 1996, the
termination date of the Duriron Rights Agreement. Accordingly, each of the
shares of Duriron Common Stock issued in the Merger will be accompanied by a
right.
The rights are not currently exercisable and trade in tandem with the
Duriron Common Stock. The rights become exercisable and trade separately from
the Duriron Common Stock ten days after a person or group acquires 20% or more
of the outstanding shares of Duriron Common Stock or commences a tender offer
which would result in the ownership of 30% or more of the outstanding shares of
Duriron Common Stock. Upon their becoming exercisable, each right entitles the
registered holder to purchase 1/225 of a share of Series A Junior Participating
Preferred Stock at a price of $13.33 per 1/225 of a share. Generally, each share
of Duriron Series A Preferred Stock carries voting, dividend and liquidation
rights equal to 100 shares of Duriron Common Stock. The rights provide that if
Duriron were to be acquired in a merger or business combination after the rights
become exercisable, each right may be exercised to purchase common stock of the
acquiring company at a 50% discount. In addition, if a 20% shareholder
(determined as provided in the Duriron Rights Agreement) either acquires Duriron
by means of a reverse merger in which Duriron survives or engages in certain
other transactions with Duriron, each right (other than rights held by the 20%
shareholder) may be exercised to purchase shares of Duriron Series A Junior
Participating Preferred Stock at a price equal to 50% of the market value of the
shares. The rights are redeemable by Duriron for $.022 per right at any time
prior to their becoming exercisable and will expire on August 13, 1996.
The summary description of the rights set forth above does not purport to
be complete and is qualified in its entirety by reference to the Duriron Rights
Agreement.
RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS. Duriron's Restated
Certificate of Incorporation (i) requires that certain business combinations
with persons who hold 10% or more of the outstanding shares of Duriron Common
Stock be approved by the holders of at least 80% of the outstanding shares of
Duriron Common Stock, and (ii) does not provide for cumulative voting. Duriron's
By-Laws divide the Board of Directors into three classes, one of which is
elected at each annual meeting of shareholders, and provide that a director may
be removed only for cause. The By-Laws also provide that a shareholder intending
to nominate a director must give written notice of such intention to Duriron's
Secretary not less than 50 days prior to the meeting (or if fewer than 60 days'
notice or prior public disclosure of the meeting date is given or made to
shareholders, not later than the tenth day following the day on which the notice
of the date of the meeting was mailed or such public disclosure was made).
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<PAGE> 68
COMPARISON OF RIGHTS OF
DURAMETALLIC AND DURIRON SHAREHOLDERS
If the Merger is consummated, all holders of Durametallic Common Shares
will become holders of shares of Duriron Common Stock. Duriron is a corporation
organized under, and governed by, New York law, its Restated Certificate of
Incorporation, as amended, and its Bylaws. Durametallic is a corporation
organized under, and governed by, Michigan law, its Restated Articles of
Incorporation, as amended, and its Bylaws. The rights of a holder of Duriron
Common Stock are similar in some respects and different in other respects from
the rights of a holder of Durametallic Common Shares. Certain of these
similarities and differences are summarized below. THIS SUMMARY IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE NEW YORK BUSINESS CORPORATION LAW, THE MICHIGAN
BCA, DURIRON'S RESTATED CERTIFICATE OF INCORPORATION, AS AMENDED, AND BYLAWS AND
DURAMETALLIC'S RESTATED ARTICLES OF INCORPORATION, AS AMENDED, AND BYLAWS.
VOTING RIGHTS. Under Michigan law, most corporate actions on which
shareholders are entitled to vote must be approved by the holders of a majority
of the outstanding shares. Under New York law, most corporate actions on which
shareholders are entitled to vote must be approved by the holders of at least a
majority of the votes cast on the matter; however Duriron's Restated Certificate
of Incorporation requires that (i) adoption, amendment or repeal of any by-law
or any provision of the certificate of incorporation relating to: (a) the
number, classification and terms of office of directors; (b) filling any newly
created directorship and vacancies occurring in the Board of Directors, or (c)
the power of the Board of Directors to adopt, amend or repeal by-laws, and (ii)
any amendment or repeal of the foregoing provisions must be approved by the
holders of at least two-thirds of the outstanding shares.
Under Michigan law, both the shareholders and the directors may adopt and
amend the by-laws of the corporation. Under New York law, only the shareholders
may adopt and amend the by-laws, unless the certificate of incorporation or
by-laws adopted by the shareholders provide that the Board of Directors may
adopt and amend by-laws. Duriron's By-laws provide that the Board of Directors
may adopt and amend by-laws.
SUPERMAJORITY VOTE REQUIREMENTS. Certain provisions of the Michigan BCA
establish a statutory scheme similar to the supermajority and fair price
provisions found in many corporate charters (the "Fair Price Act"). The Fair
Price Act provides that the holders of 90% of the outstanding shares and the
holders of no less than two-thirds of the shares held by noninterested
shareholders must approve a "business combination." The Fair Price Act defines a
"business combination" to encompass any merger, consolidation, share exchange,
sale of assets, stock issue, liquidation, or reclassification of securities
involving an "interested shareholder" or certain "affiliates." An "interested
shareholder" is generally any person who owns 10% or more of the outstanding
voting shares of the corporation. An "affiliate" is a person who directly or
indirectly controls, is controlled by, or is under common control with a
specified person.
The supermajority vote required by the Fair Price Act does not apply to
business combinations that satisfy certain conditions. These conditions include,
among others (i) the purchase price to be paid for the shares of the corporation
in the business combination must be at least equal to the highest of either (a)
the market value of the shares or (b) the highest per share price paid by the
interested shareholder within the preceding two-year period or in the
transaction in which the shareholder became an interested shareholder, whichever
is higher; and (ii) once becoming an interested shareholder, the person may not
become the beneficial owner of any additional shares of the corporation except
as part of the transaction which result in the interested shareholder becoming
an interested shareholder or by virtue of proportionate stock splits or stock
dividends.
The requirements of the Fair Price Act do not apply to business
combinations with an interested shareholder that the board of directors has
approved or exempted from the requirements of the Fair Price Act by resolution
prior to the time that the interested shareholder first became an interested
shareholder.
As noted above under "DESCRIPTION OF DURIRON CAPITAL STOCK -- Provisions
Affecting Control," Duriron's Restated Certificate of Incorporation requires
that certain business combinations with
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<PAGE> 69
persons who hold 10% or more of the outstanding shares of Duriron Common Stock
must be approved by the holders of at least 80% of the outstanding shares of
Duriron Common Stock.
DISSENTERS' RIGHTS. Under both New York and Michigan law, a shareholder of
record who does not vote in favor of certain corporate actions may have the
right to obtain an appraisal of the holder's shares in certain circumstances and
receive in cash the fair value of the shares (sometimes referred to as
"dissenters' rights"). The New York Business Corporation law recognizes
dissenters' rights in connection with certain amendments to the certificate of
incorporation, mergers, consolidations, sales or other dispositions of all or
substantially all of the assets of the corporation. The Michigan BCA recognizes
dissenters' rights in connection with certain amendments to the articles of
incorporation, mergers, share exchanges, sales or other dispositions of all or
substantially all of the assets of the corporation and certain acquisitions for
stock. No dissenters' rights are available under the Michigan BCA with respect
to mergers, share exchanges and certain sales or other dispositions of all or
substantially all of the assets of the corporation if, among other things, the
shareholders receive in the transaction cash or shares listed on a national
securities exchange or held of record by not less than 2,000 persons on the
record date for the meeting at which the action will be considered by the
shareholders.
LIMITATION OF DIRECTOR LIABILITY. The New York Business Corporation Law
and the Michigan BCA both permit corporations to limit the personal liability of
their directors in certain circumstances. Duriron's Restated Certificate of
Incorporation and Durametallic's Restated Articles of Incorporation, as amended,
both provide that directors of the respective corporations will not be liable
for monetary damages for breaches of fiduciary duty, with certain exceptions.
These provisions eliminate the personal liability of directors of Duriron and
Durametallic in their capacity as directors (but not in their capacity as
officers) to the respective corporations and their shareholders to the full
extent permitted by New York and Michigan law, as the case may be.
OTHER. Duriron is subject to the informational requirements of the
Exchange Act, which require Duriron periodically to provide certain specified
information to its shareholders and to file specified reports with the SEC. In
addition, trading in Duriron Common Stock is reported on NASDAQ. Durametallic is
not subject to the informational requirements of the Exchange Act nor is there
an active market for the Durametallic Common Shares.
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<PAGE> 70
MARKET PRICES AND DIVIDEND MARKET PRICES AND DIVIDEND HISTORY
DURAMETALLIC
The Durametallic Common Shares are not traded on a national securities
exchange or in the over-the-counter market. Durametallic is not aware of any
public market for the Durametallic Common Shares. Annual dividends paid on each
Durametallic Common Share were $.90 in 1992, $0.99 in 1993 and $1.04 in 1994.
DURIRON
The Duriron Common Stock is traded on NASDAQ under the symbol "DURI." On
September 8, 1995, the last trading date preceding the public announcement of
the Merger, the last sale price for a share of Duriron Common Stock on NASDAQ
was $27.50.
The following table sets forth the reported high and low sales prices for
Duriron Common Stock on NASDAQ and the cash dividends declared per share of
Duriron Common Stock during the periods indicated. The amounts have been
restated to reflect the three-for-two stock split paid by Duriron on March 25,
1994 in the form of a 50% stock dividend.
<TABLE>
<CAPTION>
SALES PRICES CASH
------------------ DIVIDENDS
YEARS ENDED DECEMBER 31, HIGH LOW DECLARED
-------------------------------------------------- ------ ------- ---------
<S> <C> <C> <C>
1992
First Quarter..................................... $18.67 $14.67 $ 0.10
Second Quarter.................................... $19.00 $15.67 $ 0.10
Third Quarter..................................... $17.50 $14.50 $ 0.10
Fourth Quarter.................................... $17.92 $14.33 $ 0.10
1993
First Quarter..................................... $18.17 $14.50 $ 0.10
Second Quarter.................................... $17.17 $14.00 $ 0.10
Third Quarter..................................... $16.83 $14.07 $ 0.10
Fourth Quarter.................................... $15.83 $14.33 $ 0.10
1994
First Quarter..................................... $19.83 $14.83 $ 0.105
Second Quarter.................................... $18.00 $14.50 $ 0.105
Third Quarter..................................... $18.75 $15.00 $ 0.105
Fourth Quarter.................................... $18.25 $15.63 $ 0.105
1995
First Quarter..................................... $20.75 $17.00 $ 0.115
Second Quarter.................................... $23.50 $20.50 $ 0.115
Third Quarter..................................... $30.25 $22.50 $ 0.115
</TABLE>
LEGAL MATTERS
The legality of the Duriron Common Stock to be issued in connection with
the Merger and certain other legal matters relating to the Merger are being
passed upon by Thompson, Hine and Flory, Dayton, Ohio. Certain other legal
matters relating to the Merger will be passed upon for Durametallic by Warner,
Norcross and Judd LLP, Grand Rapids, Michigan. Attorneys at Thompson, Hine and
Flory owned 1,743 shares of Duriron Common Stock as of October 18, 1995.
EXPERTS
The consolidated financial statements (including schedules incorporated by
reference) of Duriron at December 31, 1994, and 1993, and for each of the three
years in the period ended December 31, 1994, incorporated by reference in this
Joint Proxy Statement/Prospectus and the Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon incorporated herein
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<PAGE> 71
by reference, and are incorporated by reference in reliance on their report
given on their authority as experts in accounting and auditing.
The consolidated financial statements and schedules of Durametallic as of
December 31, 1994 and 1993 and for each of the years in the three-year period
ended December 31, 1994, have been included in this Joint Proxy
Statement/Prospectus in reliance upon the report of KMPG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as expert in accounting and auditing. The report of
KPMG Peat Marwick LLP covering the December 31, 1993 financial statements refers
to a change in the method of accounting for income taxes, to a change in the
method of accounting for post-retirement benefits other than pensions, and to a
change in the method of accounting for post-employment benefits.
PROPOSED AMENDMENT TO DURIRON
CERTIFICATE OF INCORPORATION
The Duriron Board of Directors is proposing that the holders of Duriron
Common Stock adopt the Certificate Amendment, which will amend Article Third of
Duriron's Restated Certificate of Incorporation, as amended, to increase the
number of authorized shares of Duriron Common Stock from 30,000,000 to
60,000,000. If the Certificate Amendment is adopted, the first sentence of
Article Third will read as follows: "The aggregate number of shares which the
Corporation shall have authority to issue is 61,000,000, of which 1,000,000
shares, of the par value of $1.00 each, shall be Preferred Stock and 60,000,000
shares, of the par value of $1.25 each, shall be Common Stock." Adoption of the
Certificate Amendment requires the affirmative vote of the holders of a majority
of the outstanding shares of Duriron Common Stock.
Of the 30,000,000 shares of Duriron Common Stock presently authorized,
19,045,508 were issued and outstanding as of the Duriron Record Date and up to
6,468,411 will be issued if the Merger is consummated. An additional 1,053,498
shares of Duriron Common Stock are reserved for issuance under the Duriron
Option Plans and 219,438 shares of Common Stock are reserved for issuance under
Duriron's 1989 Restricted Stock Plan. This leaves 3,213,145 shares of Duriron
Common Stock available for issuance, out of the 30,000,000 shares presently
authorized (assuming shareholder approval of the Merger). Upon adoption of the
Certificate Amendment, 33,213,145 shares of Duriron Common Stock will be
available for issuance by the Board of Directors, assuming the Merger is so
approved.
While Duriron has no present intention to use the additional authorized
shares of Duriron Common Stock for any purpose and has not entered into any
understanding or agreement regarding the issuance of such shares, the proposed
increase in the number of authorized shares will make such shares available for
future issuance for cash, for acquisition of property or shares of other
corporations, for share dividends, and for other corporate purposes. The Duriron
Board of Directors would not seek from shareholders any authorization or
approval for the issuance of additional shares of Duriron Common Stock, unless
required to do so by law. Shareholders of Duriron do not have any preemptive
rights with regard to the issuance of the additional shares of Duriron Common
Stock authorized by the Certificate Amendment.
Adoption of the Certificate Amendment is not contingent on shareholder
approval of the Merger Agreement.
THE DURIRON BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE DURIRON
SHAREHOLDERS VOTE TO ADOPT THE CERTIFICATE AMENDMENT TO AMEND DURIRON'S RESTATED
CERTIFICATE OF INCORPORATION, AS AMENDED, TO INCREASE THE AUTHORIZED SHARES OF
DURIRON COMMON STOCK FROM 30,000,000 TO 60,000,000.
63
<PAGE> 72
SHAREHOLDER PROPOSALS FOR
1996 DURIRON ANNUAL MEETING
A proposal by a Duriron shareholder intended for inclusion in the Duriron
Proxy Statement and form of proxy for the 1996 Annual Meeting of Shareholders
must be received by Duriron at 3100 Research Boulevard, Dayton, Ohio 45420,
Attention: Secretary, on or before November 10, 1995 in order to be eligible for
such inclusion. The 1996 Annual Meeting of Shareholders of Duriron is
tentatively scheduled to be held on April 20, 1996, with such date being subject
to change.
OTHER MATTERS
The Boards of Directors of Duriron and Durametallic are not aware of any
matters to be presented for action at the Duriron Meeting or the Durametallic
Meeting, respectively, other than matters described in this Joint Proxy
Statement/Prospectus. If any other matter comes before the Duriron Meeting or
the Durametallic Meeting, it is the intention of the persons named in the
respective proxies to vote on such matter in accordance with their best judgment
unless authority therefor is withheld on the enclosed proxy card.
PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN
THE ENCLOSED POSTAGE-PAID ENVELOPE. DURAMETALLIC STOCK CERTIFICATES SHOULD NOT
BE SENT WITH THE PROXY. IF THE MERGER IS CONSUMMATED, DURAMETALLIC SHAREHOLDERS
WILL BE FURNISHED INSTRUCTIONS FOR EXCHANGING THEIR SHARE CERTIFICATES FOR
CERTIFICATES REPRESENTING SHARES OF DURIRON COMMON STOCK.
64
<PAGE> 73
FINANCIAL STATEMENTS OF DURAMETALLIC CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ANNUAL FINANCIAL STATEMENTS:
Report of Independent Auditors...................................................... F-2
Consolidated Balance Sheets at December 31, 1994 and 1993........................... F-3
Consolidated Statements of Income for the years ended December 31, 1994, 1993 and
1992............................................................................. F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1994, 1993 and 1992.............................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993
and 1992......................................................................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
INTERIM FINANCIAL STATEMENTS (UNAUDITED):
Consolidated Balance Sheet at June 30, 1995......................................... F-19
Consolidated Statements of Income for the six months ended June 30, 1995 and 1994... F-20
Consolidated Statements of Income for the quarters ended June 30, 1995 and 1994..... F-21
Consolidated Statements of Stockholders' Equity for the six months ended June 30,
1995 and 1994.................................................................... F-22
Consolidated Statements of Cash Flows for the six months ended June 30, 1995 and
1994............................................................................. F-23
Notes to Consolidated Financial Statements.......................................... F-24
</TABLE>
F-1
<PAGE> 74
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Durametallic Corporation:
We have audited the accompanying consolidated balance sheets of
Durametallic Corporation and subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1994.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Durametallic
Corporation and subsidiaries at December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in note 1 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. As discussed in notes
1 and 10 to the consolidated financial statements, the Company also adopted the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions, in 1993. As discussed in note 1 to the consolidated
financial statements, the Company also adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
112, Employers' Accounting for Postemployment Benefits, in 1993.
KPMG PEAT MARWICK LLP
Detroit, Michigan
February 17, 1995
F-2
<PAGE> 75
DURAMETALLIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 3,284 $ 3,613
Accounts receivable, less allowance for doubtful accounts of $589 in
1994 and $685 in 1993............................................... 19,916 16,647
Inventories............................................................ 11,556 12,531
Prepaid expenses and other............................................. 2,423 2,588
------- -------
Total current assets........................................... 37,179 35,379
------- -------
Investments in affiliated companies...................................... 3,782 3,462
Property, plant and equipment, net....................................... 20,714 19,955
Costs in excess of net assets of acquired subsidiaries, net of
accumulated amortization............................................... 2,014 2,105
Other assets............................................................. 6,473 5,667
------- -------
$70,162 $66,568
======= =======
LIABILITIES
Current liabilities:
Notes payable, banks................................................... $ 3,654 $ 6,131
Current maturities of long-term debt................................... 100 211
Accounts payable....................................................... 5,589 3,071
Income taxes payable................................................... 1,129 435
Accrued compensation................................................... 4,992 4,032
Accrued profit sharing contributions................................... 411 2,842
Other accrued liabilities.............................................. 2,901 3,592
------- -------
Total current liabilities...................................... 18,776 20,314
------- -------
Long-term debt, less current maturities.................................. 3,966 360
Deferred income taxes and other liabilities.............................. 744 704
Minority interest........................................................ 815 677
Postretirement and postemployment benefits............................... 10,587 10,232
STOCKHOLDERS' EQUITY
Common stock, $5 par value, 4,500,000 shares authorized; 1,716,426 and
1,851,081 shares issued and outstanding in 1994 and 1993,
respectively........................................................... 8,582 9,255
Paid-in capital.......................................................... -- 917
Retained earnings........................................................ 27,113 24,881
Cumulative translation adjustment........................................ (405) (745)
Stock subscriptions receivable........................................... (16) (27)
------- -------
35,274 34,281
------- -------
$70,162 $66,568
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 76
DURAMETALLIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Net sales............................................... $ 116,557 $ 109,138 $ 105,577
Cost of goods sold...................................... 58,046 53,975 51,281
---------- ---------- ----------
Gross profit....................................... 58,511 55,163 54,296
---------- ---------- ----------
Operating expenses:
Engineering...................................... 6,520 5,881 5,300
Selling.......................................... 22,451 21,031 20,316
Administration................................... 18,294 16,938 16,212
Goodwill write-off............................... -- 1,370 --
---------- ---------- ----------
47,265 45,220 41,828
---------- ---------- ----------
Profit from operations............................. 11,246 9,943 12,468
Other income (expense), net............................. 580 (83) 262
---------- ---------- ----------
Income from continuing operations, before income
taxes, minority interest, and cumulative effect
of accounting changes............................ 11,826 9,860 12,730
Provision for income taxes.............................. 4,395 4,598 5,189
---------- ---------- ----------
Income from continuing operations, before minority
interest, and cumulative effect of accounting
changes.......................................... 7,431 5,262 7,541
Minority interest....................................... (193) (184) (266)
---------- ---------- ----------
Income from continuing operations, before
cumulative effect of accounting changes.......... 7,238 5,078 7,275
Discontinued operation:
Loss from discontinued operation, net of income tax
benefit of $133.................................... -- -- (259)
Loss on disposal, net of income tax benefit of $362... -- (2,938) --
---------- ---------- ----------
Income before cumulative effect of accounting
changes.......................................... 7,238 2,140 7,016
Cumulative effect of accounting changes:
Postretirement benefits, net of income tax benefit.... -- (5,990) --
Postemployment benefits, net of income tax benefit.... -- (560) --
Income taxes.......................................... -- 121 --
---------- ---------- ----------
-- (6,429) --
---------- ---------- ----------
Net Income (Loss)....................................... $ 7,238 $ (4,289) $ 7,016
========== ========== ==========
Earnings per common share:
From continuing operations before cumulative effect
of accounting changes............................ $ 4.05 $ 2.81 $ 4.02
Loss from discontinued operation................... -- -- (0.14)
Loss on disposal of discontinued operation......... -- (1.63) --
Cumulative effect of accounting changes............ -- (3.55) --
---------- ---------- ----------
Net income (loss) per share............................. $ 4.05 $ (2.37) $ 3.88
========== ========== ==========
Average common shares outstanding....................... 1,787,000 1,809,000 1,808,000
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 77
DURAMETALLIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
CUMULATIVE STOCK
COMMON PAID-IN RETAINED TRANSLATION SUBSCRIPTIONS
STOCK CAPITAL EARNINGS ADJUSTMENT RECEIVABLE TOTAL
------ ------- -------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1991............. $2,262 $ 190 $ 32,272 $(292) $ (65) $34,367
Net income................................ -- -- 7,016 -- -- 7,016
Cash dividends paid, $0.90 per share...... -- -- (1,626) -- -- (1,626)
Purchase and retirement of common stock... (34 ) -- (154) -- -- (188)
Translation adjustments................... -- -- -- (392) -- (392)
Issuance of common stock:
Deferred compensation plan.............. 16 56 -- -- -- 72
Four-for-one stock dividend............. 6,777 (246) (6,531) -- -- --
Payments of stock subscriptions........... -- -- -- -- 21 21
------ ------- -------- ----------- ------ -------
Balances at December 31, 1992............. 9,021 -- 30,977 (684) (44) 39,270
Net loss.................................. -- -- (4,289) -- -- (4,289)
Cash dividends paid, $0.99 per share...... -- -- (1,801) -- -- (1,801)
Purchase and retirement of common stock... (9 ) (40) (6) -- -- (55)
Translation adjustments................... -- -- -- (61) -- (61)
Issuance of common stock:
Deferred compensation plan.............. 10 53 -- -- -- 63
Exercise of stock options............... 233 904 -- -- -- 1,137
Payments of stock subscriptions........... -- -- -- -- 17 17
------ ------- -------- ----------- ------ -------
Balances at December 31, 1993............. 9,255 917 24,881 (745) (27) 34,281
Net income................................ -- -- 7,238 -- -- 7,238
Cash dividends paid, $1.04 per share...... -- -- (1,861) -- -- (1,861)
Purchase and retirement of common stock... (708 ) (1,066) (3,145) -- -- (4,919)
Translation adjustments................... -- -- -- 340 -- 340
Issuance of common stock:
Deferred compensation plan.............. 8 47 -- -- -- 55
Exercise of stock options............... 27 102 -- -- -- 129
Payments of stock subscriptions........... -- -- -- -- 11 11
------ ------- -------- ----------- ------ -------
Balances at December 31, 1994............. $8,582 $ -- $ 27,113 $(405) $ (16) $35,274
====== ======= ======= ======== ========== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 78
DURAMETALLIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)........................................... $ 7,238 $(4,289) $ 7,016
Charges (credits) to income not requiring the use of cash:
Cumulative effect of accounting changes.................. -- 6,214 --
Depreciation and amortization............................ 4,296 3,749 3,335
Deferred taxes........................................... (711) (573) (992)
(Gain) loss on disposition of assets..................... (452) 27 (6)
Minority interests....................................... 193 184 266
Provisions for doubtful accounts and inventory........... 648 1,374 878
Postretirement benefits.................................. 180 -- --
Equity in income of affiliates, less dividends
received............................................... (269) (179) (40)
Exchange losses (gains).................................. -- (10) 16
Issuance of common stock as compensation................. 55 63 72
Goodwill write-off....................................... -- 1,370 --
Net cash effect of loss on disposal of discontinued
operation.............................................. -- (362) --
Changes in operating assets and liabilities:
Accounts receivable...................................... (3,310) (970) 1,055
Inventories.............................................. 597 411 286
Prepaid expenses and other current assets................ 581 441 (1,050)
Accounts payable and accrued liabilities................. 1,166 (294) 193
Income taxes payable..................................... 685 (763) (46)
------- ------- -------
Cash provided from operating activities................ 10,897 6,393 10,983
------- ------- -------
FINANCING ACTIVITIES:
Net change in notes payable, banks.......................... (3,023) (1,080) (795)
Proceeds from long-term debt................................ 3,645 40 1,953
Payment of long-term debt................................... (47) (196) (6,604)
Payments received on stock subscriptions.................... 11 17 21
Dividends paid.............................................. (1,861) (1,801) (1,626)
Purchase of common stock.................................... (4,919) (55) (188)
Proceeds from sale of common stock.......................... 129 1,137 --
------- ------- -------
Cash used for financing activities..................... (6,065) (1,938) (7,239)
------- ------- -------
INVESTING ACTIVITIES:
Additions to property, plant, and equipment................. (4,954) (3,315) (2,832)
Additions to software and patents........................... (664) (539) (402)
Proceeds from disposition of assets......................... 534 102 126
Investments in affiliated companies......................... -- (341) (455)
------- ------- -------
Cash used for investing activities..................... (5,084) (4,093) (3,563)
------- ------- -------
Effect of exchange rate changes on cash....................... (77) 72 (70)
------- ------- -------
Increase in cash and cash equivalents......................... (329) 434 111
Cash and cash equivalents at the beginning of the year........ 3,613 3,179 3,068
------- ------- -------
Cash and cash equivalents at the end of the year.............. $ 3,284 $ 3,613 $ 3,179
======= ======= =======
Supplemental cash flow disclosures:
Income taxes paid........................................... $ 4,250 $ 7,225 $ 6,145
======= ======= =======
Interest paid............................................... $ 560 $ 715 $ 1,157
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 79
DURAMETALLIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1994, 1993 AND 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of Durametallic Corporation (the
"Company") include the accounts of the Company and its wholly and majority-owned
subsidiaries. Investments in unconsolidated affiliated companies, which
represent all non-majority ownership interests, are carried on the equity basis,
which approximates the Company's equity in their underlying net book value.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
short-term investments with a maturity of 90 days or less at the date of
purchase to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. The cost of
inventories of the parent company is determined using the last-in, first-out
(LIFO) method. The cost of inventories held by subsidiaries is determined
primarily using the first-in, first-out (FIFO) method.
PROPERTY, PLANT AND EQUIPMENT
Properties, which include expenditures for new facilities and those which
significantly extend the useful lives of existing buildings and equipment, are
recorded at cost.
Depreciation of plant and equipment is provided over the estimated useful
lives of the respective assets and is computed using the straight line method.
GOODWILL
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is allocated to individual lines of business and amortized
on a straight-line basis over the expected periods to be benefited. The Company
continually assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through expected future operating results.
POSTRETIREMENT BENEFITS
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions, on the immediate recognition basis. Under this
accounting method, the Company records the cost of these benefits during an
employee's years of service, versus on a pay-as-you-go basis upon retirement.
INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which requires
the use of the liability method of accounting for deferred income taxes. Under
the provisions of SFAS 109, the Company elected not to restate prior years'
consolidated financial statements. The cumulative effect of initial adoption on
prior years' retained earnings was not significant. Additionally, the effect of
adoption of SFAS 109 upon income taxes for fiscal 1993 was not significant.
F-7
<PAGE> 80
DURAMETALLIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1994, 1993 AND 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
The provision for income taxes includes federal, foreign, state, and local
income taxes currently payable and those deferred because of temporary
differences between the financial statement and tax bases of assets and
liabilities. A substantial portion of the undistributed earnings of foreign
subsidiaries has been reinvested and is not expected to be remitted to the
parent company. Accordingly, no federal income taxes have been provided on such
earnings.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign affiliates, other than
those located in highly inflationary countries, are translated at current
exchange rates, while income and expenses are translated at average rates for
the period. For entities in highly inflationary countries, a combination of
current and historical rates is used to determine currency gains and losses
resulting from financial statement translation and those resulting from
transactions. Translation gains and losses are reported as a component of
stockholders' equity, except for those associated with highly inflationary
countries which are reported directly in the consolidated statements of income.
POSTEMPLOYMENT BENEFITS
Effective January 1, 1993, the Company adopted provisions of Statement of
Financial Accounting Standards (SFAS) No. 112, Employers' Accounting for
Postemployment Benefits. This standard requires that the cost of benefits
provided to former or inactive employees be recognized on the accrual basis of
accounting. Previously, the Company recognized postemployment benefit costs when
paid. These costs relate primarily to termination benefits, as well as medical
benefits provided to certain employees receiving workers' compensation or
long-term disability benefits. The cumulative effect of this change in
accounting principle, net of related tax benefits, was to reduce net income by
$560. Adoption of this standard did not materially affect 1993 income before
cumulative effect of changes in accounting principles.
RECLASSIFICATIONS
Certain amounts from prior years have been reclassified to be consistent
with current year presentation.
2. INVENTORIES:
The cost of parent company inventories stated using the LIFO method is
approximately 42 percent of the value of total inventories. Had these
inventories been valued on the FIFO method, total inventories would have been
$4,448 and $4,781 higher than reported at December 31, 1994 and 1993,
respectively.
During 1994 and 1993, the parent company inventory quantities and costs
were reduced. These reductions resulted in liquidations of LIFO inventory
quantities carried at lower costs prevailing in prior years as compared with the
cost of current purchases. The effect on earnings was not material for both
years.
F-8
<PAGE> 81
DURAMETALLIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1994, 1993 AND 1992
3. INVESTMENTS IN AFFILIATED COMPANIES:
The Company's investments in the following foreign affiliates are accounted
for under the equity method. The principal business activities of these foreign
affiliates involve the manufacture and sale of mechanical seals and related
products.
<TABLE>
<CAPTION>
INVESTMENT
BALANCE
OWNERSHIP -------------------
PERCENTAGE 1994 1993
--------- ------- -------
<S> <C> <C> <C>
Affiliate:
Durametallic (India) Ltd................... 40.00% $ 747 $ 615
Korea Seal Master Company, Ltd............. 40.00% 3,029 2,725
Arabian Seals Company, Ltd................. 40.00% (105) 51
Durametallic (Malaysia) SDN BHD............ 28.24% 111 71
------- -------
$ 3,782 $ 3,462
======= =======
</TABLE>
Summarized data for these foreign affiliates follow:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Current assets........................................... $11,992 $ 9,824
Property, plant and equipment (net)...................... 6,188 5,821
Current liabilities...................................... 5,084 4,009
Long-term debt........................................... 2,506 2,336
Net sales................................................ 17,040 14,099
Gross profit............................................. 6,457 5,632
Net income............................................... 1,360 1,131
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Land..................................................... $ 1,181 $ 1,317
Buildings and improvements............................... 11,855 11,848
Machinery and equipment.................................. 31,597 29,375
------- -------
44,633 42,540
Less accumulated depreciation............................ 23,919 22,585
------- -------
$20,714 $19,955
======= =======
</TABLE>
5. GOODWILL:
Goodwill relates to the cost in excess of net assets acquired in the
acquisition of Metal Fab Machine Corporation (Metal Fab) and Petch Corporation
Limited (Petch). Goodwill is comprised of the following:
<TABLE>
<CAPTION>
ACCUMULATED
GROSS AMORTIZATION NET
------- ------------ -------
<S> <C> <C> <C>
Balance, December 31, 1992.......................... $ 4,589 $ (976) $ 3,613
Amortization of goodwill.......................... -- (138) (138)
Goodwill write-off................................ (1,841) 471 (1,370)
------ ----- ------
Balance, December 31, 1993.......................... 2,748 (643) 2,105
Amortization of goodwill.......................... -- (91) (91)
------ ----- ------
Balance, December 31, 1994.......................... $ 2,748 $ (734) $ 2,014
====== ===== ======
</TABLE>
F-9
<PAGE> 82
DURAMETALLIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1994, 1993 AND 1992
5. GOODWILL -- CONTINUED
Metal Fab, acquired in 1983, consists of two lines of business -- the
mechanical seal bellows business and the specialty bellows business. Since the
acquisition, the specialty bellows business has not achieved expected results
due to a decline in revenues derived from the aerospace and defense industries,
combined with increased competitive pressures. In addition, Metal Fab suffered a
significant decline in its gross margin in 1993 and 1992. The Company determined
in 1993, based on the trend of actual results for those two years and industry
trends, that the forecasted results of Metal Fab's specialty bellows business
for the next 30 years on a discounted basis would not support the future
amortization of the remaining goodwill balance of $1,370. Accordingly, the
Company wrote-off this goodwill balance. Goodwill related to Petch and Metal
Fab's mechanical seal bellows business is forecasted to be fully recoverable.
6. NOTES PAYABLE -- BANKS:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Notes payable consist of:
UNITED STATES:
Bank note bearing interest at 7.6% at December 31, 1994, adjusted
each month based on the Treasury rate........................... $ 600 $1,060
SINGAPORE:
Bank note bearing interest at variable rates averaging 5.1% at
year-end........................................................ 1,017 1,429
GERMANY:
Bank notes bearing interest at variable rates averaging 7.1% at
December 31, 1993............................................... -- 1,670
AUSTRALIA:
Bank notes bearing interest at a variable rate which was 9.0% at
year-end........................................................ -- 77
NEW ZEALAND:
Bank notes bearing interest at variable rates averaging 9.0% at
year-end........................................................ 308 536
BELGIUM:
Bank notes bearing interest at variable rates averaging 7.0% at
December 31, 1994............................................... 1,618 1,328
ITALY:
Bank note bearing interest at 16.7% at December 31, 1994.......... 111 31
------ ------
$3,654 $6,131
====== ======
</TABLE>
The company has lines of credit and other term loan financing arrangements
with foreign and domestic banks amounting to $18,525 at short-term floating
interest rates. Of these lines, $7,720 was outstanding at December 31, 1994
($3,754 of short-term and $3,966 of long-term debt), and $10,805 was unused at
December 31, 1994.
7. LONG-TERM DEBT:
<TABLE>
<CAPTION>
1994 1993
------ ----
<S> <C> <C>
Unsecured bank term loan:
7.6% adjusted each month based on the Treasury bill
rate................................................... $3,700 $100
Industrial Development Revenue Bond:
6.4%, installments to 1999................................ 313 368
Equipment financing agreements with average interest at
6.4%, payable through 1996................................ 53 103
------ ----
4,066 571
Less current maturities..................................... 100 211
------ ----
$3,966 $360
====== ====
</TABLE>
F-10
<PAGE> 83
DURAMETALLIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1994, 1993 AND 1992
7. LONG-TERM DEBT -- CONTINUED
Agreements under the terms of the Industrial Development Revenue Bond
contain capital leases which have been accounted for as purchases. Title of the
property, plant and equipment financed by this bond is held by the issuing
municipality and will be deeded back to the Company upon the bond's retirement
in 1999.
The aggregate maturities of the long-term debt in future years are as
follows:
<TABLE>
<S> <C>
1995.............................................. $ 100
1996.............................................. 79
1997.............................................. 569
1998.............................................. 1,674
1999.............................................. 1,644
------
$4,066
======
</TABLE>
8. PROVISION FOR INCOME TAXES:
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Current:
Federal...................................... $2,909 $3,608 $3,804
Foreign...................................... 1,334 1,123 1,885
State........................................ 377 424 393
Deferred:
Federal...................................... (68) (351) (789)
Foreign...................................... (157) (206) (104)
------ ------ ------
$4,395 $4,598 $5,189
====== ====== ======
</TABLE>
The reconciliation of income tax attributable to continuing operations,
computed at the U.S. federal statutory tax rates, to income tax expense is as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
U.S. statutory federal rate.................................. 34.0% 34.0% 34.0%
State taxes, net of federal benefits......................... 2.1 3.0 2.1
Difference between U.S. and foreign tax rates................ 1.0 1.5 4.6
Effect of goodwill write off and other nondeductible
expenses................................................... 1.0 5.5 0.6
Other........................................................ (.9) 2.6 (0.5)
---- ---- ----
37.2% 46.6% 40.8%
==== ==== ====
</TABLE>
The cumulative undistributed earnings of foreign subsidiaries, which are
not expected to be remitted to the parent company and for which no additional
United States and/or foreign taxes have been provided, approximate $4,301 and
$3,813 at December 31, 1994 and 1993, respectively.
F-11
<PAGE> 84
DURAMETALLIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1994, 1993 AND 1992
8. PROVISION FOR INCOME TAXES -- CONTINUED
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The net deferred tax
assets and liabilities at December 31, 1994 and 1993, are as follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation.................................... $(1,623) $(1,621)
Undistributed earnings of foreign subsidiaries................ (184) (170)
Other......................................................... (222) (263)
------- -------
Total deferred tax liabilities............................. (2,029) (2,054)
------- -------
Deferred tax assets:
Postretirement medical benefits............................... 3,722 3,756
Reserve for obsolete inventory................................ 613 471
Accrued vacation pay.......................................... 385 359
Deferred compensation......................................... 520 316
Capital loss carryforward..................................... 1,197 1,263
Net operating loss carryforwards.............................. 2,317 1,892
Foreign tax credit carryforwards.............................. 1,601 1,596
Foreign currency cumulative translation adjustments........... 303 476
Other......................................................... 696 930
------- -------
Total deferred tax assets.................................. 11,354 11,059
Valuation allowance for deferred tax assets..................... (5,045) (4,796)
------- -------
Net deferred tax assets......................................... 6,309 6,263
------- -------
Deferred tax asset, net of liabilities..................... $ 4,280 $ 4,209
======= =======
</TABLE>
The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets which may not be realized due to the expiration of
capital loss, net operating loss and foreign tax credit carryforwards. The
change in the valuation allowance for the year ended December 31, 1994 is as
follows:
<TABLE>
<S> <C>
Balance at December 31, 1993....................................... $(4,796)
Increase in nonutilization of net operating loss carryforwards,
foreign tax credit carryforwards and nonrecognition of deferred
tax asset due to uncertainty of recovery......................... (459)
Utilization of capital loss carryforwards.......................... 66
Utilization of net operating loss carryforwards.................... 144
-------
Balance at December 31, 1994....................................... $(5,045)
=======
</TABLE>
At December 31, 1994, the Company has a net capital loss carryforward of
approximately $3,234 for income tax purposes that will expire in 1998. A
valuation allowance of $1,197 has been recognized to offset the deferred tax
asset related to the capital loss carryforward due to the uncertainty of its
ultimate realization.
At December 31, 1994, foreign affiliates in Australia, Germany and Belgium
have net operating loss carryforwards of approximately $4,511 for income tax
purposes. The net operating loss carryforwards in Germany and Belgium can be
carried forward indefinitely. A portion of the Australian net operating loss
F-12
<PAGE> 85
DURAMETALLIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1994, 1993 AND 1992
8. PROVISION FOR INCOME TAXES -- CONTINUED
carryforward expires in 1996, while the majority can be carried forward
indefinitely. A deferred tax asset of $2,317 has been established in regard to
the net operating loss carryforwards and a valuation allowance of $2,173 has
been recognized due to the uncertainty of the ultimate realization of the net
operating loss carryforwards.
At December 31, 1994, the Company has foreign tax credit carryforwards of
$1,601 for U.S. income tax purposes that will expire over the period 1995-1999.
A valuation allowance of $1,601 has been recognized to offset the deferred tax
asset related to the foreign tax credit carryforwards due to the uncertainty of
their ultimate realization.
The net deferred tax asset is included in the accompanying consolidated
balance sheet as follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Prepaid expenses and deposits...................... $ 739 $ 638
Other assets....................................... 3,655 3,798
Deferred income taxes.............................. (114) (227)
------ ------
Net deferred tax asset........................ $4,280 $4,209
====== ======
</TABLE>
Management has determined, based on the Company's history of taxable income
and its expectation in the future, that taxable income of the Company will
likely be sufficient to fully recognize the resulting net deferred tax assets.
9. INFORMATION ABOUT CONSOLIDATED FOREIGN OPERATIONS:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Assets........................................... $24,503 $22,824
Liabilities...................................... 8,776 9,568
Net sales........................................ 34,127 31,829
Net income, including minority interest of $193
in 1994 and $184 in 1993....................... 1,430 864
</TABLE>
The Company's Brazilian subsidiary operates in a highly inflationary
economy. The financial statement translation yields translation loss, components
of which were reclassified against related income statement line items. The
aggregate amounts of exchange loss recognized for the years ended December 31,
1994, 1993 and 1992, were $1,522, $3,375 and $2,881, respectively.
10. EMPLOYEE RETIREMENT PLANS:
The Company provides certain health care benefits for qualified retired
employees in the United States. Most retired Company employees in the United
States are eligible for these benefits. This plan is contributory, and
generally, employees who have attained age 65 and rendered 15 years of service
are eligible.
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
106, Employers' Accounting for Postretirement Benefits Other Than Pensions, as
of January 1, 1993. This accounting change resulted in a one-time charge to
earnings of $5,990, net of taxes of $3,518.
F-13
<PAGE> 86
DURAMETALLIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1994, 1993 AND 1992
10. EMPLOYEE RETIREMENT PLANS -- CONTINUED
The retiree medical benefit cost for the year ended December 31, 1994
consisted of the following:
<TABLE>
<CAPTION>
1994 1993
----- ----
<S> <C> <C>
Benefits earned during the period.................... $ 130 $289
Amortization of prior year service cost.............. (363) --
Interest cost on accumulated retiree medical
benefits........................................... 413 656
---- ----
Retiree medical benefit cost......................... $ 180 $945
==== ====
</TABLE>
The Company's retiree medical benefits are not funded. The following table
presents the actuarial present value of the obligation at December 31, 1994:
Accumulated retiree medical benefit obligations:
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Retirees......................................... $ 3,434 $ 3,092
Fully eligible, active plan participants......... 273 1,132
Other active employees........................... 1,858 1,333
------- -------
5,565 5,557
Unrecognized net loss............................ (233) (499)
Unrecognized net reduction in prior service
costs.......................................... 4,728 5,092
------- -------
Accrued retiree medical benefit cost included in
the balance sheet.............................. $10,060 $10,150
======= =======
</TABLE>
The assumed medical costs trend rate used in measuring the accumulated
postretirement benefit obligation was 15.4 percent for 1994, grading down to 5.6
percent by 2008, and remaining at that level thereafter. A one-percentage point
increase in the assumed medical cost trend rate for each year would increase the
accumulated retiree medical benefit obligation as of December 31, 1994 by $356
and the aggregate of the service and interest cost components of the retiree
medical benefit cost for the year ended December 31, 1994 by approximately $29.
The assumed discount rate used in determining the accumulated retiree
medical benefit obligation was 7.25 percent at December 31, 1993 and 8 percent
at December 31, 1994. This change in discount rate resulted in an unrecognized
net gain of $266.
Effective October 1, 1993, the Company made modifications to its retiree
medical benefit plan. These changes consisted primarily of increased deductibles
for plan participants, a modification in the eligibility requirements, a change
in the method of Medicare payment integration, and adoption of a cap on Company-
paid premiums for post-1993 retirees. These plan changes resulted in a reduction
in prior service costs of $5,092. Beginning in 1994, the unrecognized net
reduction in prior service costs, net of the unrecognized loss, will be
amortized over the average remaining service period (14 years) of active plan
participants.
F-14
<PAGE> 87
DURAMETALLIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1994, 1993 AND 1992
10. EMPLOYEE RETIREMENT PLANS -- CONTINUED
The Company maintains profit sharing plans for all United States and
Canadian employees who meet prescribed service criteria. The plans provide for
Company contributions amounting to a percentage of earnings before income taxes
as defined annually by the board of directors. The Company's contributions
charged to expense under these plans are as follows:
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
United States...................................... $1,787 $2,569
Canada............................................. 176 129
Other.............................................. 91 144
------ ------
$2,054 $2,842
====== ======
</TABLE>
The Company also has an employee stock ownership plan (ESOP) covering
eligible employees in the United States. The board of directors determines
annually the amount of the aforementioned profit sharing contribution to be
allocated to the ESOP.
11. STOCKHOLDERS' EQUITY:
On April 23, 1992, the stockholders approved an increase in the authorized
shares from 1,500,000 to 4,500,000. The board of directors subsequently approved
a four-for-one split of the Company's common stock in the form of a stock
dividend, distributed to shareholders of record on May 29, 1992. The stated par
value per share of common stock was not changed from $5.
12. STOCK OPTION PLAN:
In June 1991, the board of directors approved a nonqualified stock option
plan, pursuant to which a maximum of 200,000 shares of common stock were
reserved for grant to executives, directors, and key employees. Under the terms
of the plan, the purchase price of the shares subject to each option granted
will be the fair market value at the date of grant. Options granted prior to
1994 become exercisable at the rate of 33 percent per year, commencing one year
after the date of grant, and expire ten years after the date of grant. Options
granted in 1994 become exercisable in 3 years and expire 6 years after the date
of grant. No charges to operations are recorded with respect to the grant or
exercise of these options.
Transactions involving the plan are summarized as follows:
<TABLE>
<CAPTION>
OPTION PRICE AVAILABLE
PER SHARE OUTSTANDING EXERCISABLE FOR GRANT
--------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1992.......... $18.52 76,000 25,344 124,000
Issued.................................. 35.25 4,000 -- (4,000)
Became exercisable...................... 18.52 -- 25,328 --
Exercised............................... 18.52 (46,672) (46,672) --
--------------- ------- ------- -------
Outstanding at December 31, 1993.......... 18.52-35.25 33,328 4,000 120,000
Issued.................................. 34.75 16,750 -- (16,750)
Became exercisable...................... 18.52 -- 26,662 --
Canceled................................ 18.52 (2,664) (2,664) 2,664
Exercised............................... 18.52 (5,332) (5,332) --
--------------- ------- ------- -------
Outstanding at December 31, 1994.......... $18.52-$35.25 42,082 22,666 105,914
</TABLE>
F-15
<PAGE> 88
DURAMETALLIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1994, 1993 AND 1992
13. FINANCIAL INSTRUMENTS:
The Company purchases forward foreign currency exchange contracts to reduce
the impact of foreign currency fluctuations on intercompany inventory purchases
and intercompany loans. Realized and unrealized gains and losses associated with
currency rate changes on these contracts are recorded currently in income. As of
December 31, 1994, the Company had approximately $1,142 in forward contracts
outstanding, with maturities not exceeding twelve months. All of these contracts
were in European currencies.
14. OTHER INCOME (EXPENSE):
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -------
<S> <C> <C> <C>
Interest expense................................. $(555) $(700) $(1,065)
Exchange gain (loss) on transactions in foreign
currency....................................... (154) (268) 156
Gain (loss) on disposal of assets................ 452 (11) 18
Equity in income of affiliates................... 550 437 360
Interest income.................................. 180 260 314
Other income, net................................ 107 199 479
---- ----- -------
$ 580 $ (83) $ 262
==== ===== =======
</TABLE>
15. RESEARCH AND DEVELOPMENT:
Research and development expenses incurred aggregated approximately $2,291,
$1,764 and $1,492 in 1994, 1993 and 1992, respectively.
16. LEASE COMMITMENTS:
The Company leases and subleases certain facilities, vehicles, and
equipment under noncancelable operating leases. Rental expense on these leases,
which are generally renewable at the Company's option, was $1,731, $1,678 and
$1,710 for the years ended December 31, 1994, 1993 and 1992, respectively.
Future minimum payments under operating leases are as follows:
<TABLE>
<S> <C>
1995................................................ $1,327
1996................................................ 811
1997................................................ 371
1998................................................ 99
1999................................................ 37
------
Total..................................... $2,645
======
</TABLE>
17. DISCONTINUED OPERATIONS
In 1992, the Company negotiated the sale of its 80 percent interest in Leap
Technologies, Inc. (Leap), for a note receivable of $1,075. As part of the sale
agreement, the Company committed to contingently guaranty $3,300 of bank debt of
the acquiring company, on a declining basis, through July 21, 1997. The sale
resulted in a pretax gain of $1,830, which was not recognized in the
consolidated statement of income in 1992 due to concern for the significant
financial leverage of the acquiring Company.
During 1993, the business of the acquiring company deteriorated to such a
point that the new owners ceased operations. The loan guaranty was enforced by
the bank, and as a result, the Company made full payment. In addition, the note
receivable and deferred gain were written off. These transactions resulted in a
F-16
<PAGE> 89
DURAMETALLIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1994, 1993 AND 1992
17. DISCONTINUED OPERATIONS -- CONTINUED
loss of $2,938, net of tax of $362. Revenues from Leap were $2,800 for fiscal
1992. Leap was engaged in the design, manufacture, and sale of injection molds
and parts for the plastics industry.
18. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a defendant in numerous lawsuits that seek to recover
damages for alleged personal injury allegedly resulting from exposure to
asbestos containing products manufactured and distributed by the Company prior
to 1986. All such products were used within self-contained process equipment,
and management does not believe that there was any emission of ambient asbestos
fiber during the operation of this equipment.
In 1994, the Company received approximately 3,500 new asbestos liability
claims and resolved approximately 8,100 claims. During the past three years, the
Company has resolved approximately 9,300 claims at an average of one hundred
thirty-two dollars per claim. The Company continues to have a substantial amount
of available insurance from financially solvent carriers to cover such claims.
The Company has reviewed its policies of insurance, historical settlement
amounts and the number of pending cases. Based upon such reviews, the Company
has estimated its potential liability for such claims to be approximately $780
and $1,382 at December 31, 1994 and 1993, respectively. The cases are expected
to be paid or dismissed within the next two years. Under terms of its insurance
policies, the Company estimates its insurance proceeds to be approximately $780
and $1,382 at December 31, 1994 and 1993, respectively. The coverage for such
claims, including defense costs and case resolution costs, has not been disputed
by the Company's insurance carriers. Accordingly, the gross liability and gross
insurance recovery related to these claims have been reflected in the
accompanying consolidated Balance Sheets. While management understands the
inherent uncertainty in litigation of this type and the possibility that past
costs may not necessarily be indicative of future costs, management does not
believe that these claims will have any material adverse effect on the Company's
financial position or results of operations.
The Company is the defendant in lawsuits and other claims in the normal
course of business. Management believes that the Company has adequate insurance
protection to cover the costs of defense, settlements or awards.
19. SUBSEQUENT EVENT
On December 20, 1994, the Mexican government executed a devaluation of the
Mexican Peso of approximately 13%. After that date, the government did not
support the Peso allowing it to devalue a further 30%. The pretax impact of this
rate change on unsettled balances pertaining to foreign currency transactions of
the Company's wholly owned subsidiary, Durametallic Mexicana, is approximately
$80.
20. INDUSTRY AND GEOGRAPHIC AREA INFORMATION
Industry Segment Data -- The Company is engaged principally in one line of
business -- the design, manufacture, and marketing of mechanical seals. The
Company also designs and manufactures welded metal bellows. The sale of metal
bellows represents less than 5 percent of consolidated revenues in each of the
three years.
Geographic Area Data -- The Company's export sales, other than those
intercompany sales reported below as sales between geographic areas, are not
significant. Sales between geographic areas consist of sales of
F-17
<PAGE> 90
DURAMETALLIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, 1994, 1993 AND 1992
20. INDUSTRY AND GEOGRAPHIC AREA INFORMATION -- (CONTINUED)
finished products, raw material and unfinished products, which are sold at
adjusted market prices. The Company does not derive more than 10 percent of its
revenue from any single customer.
The Company's geographic area data for the three years ended December 31,
1994, are as follows:
<TABLE>
<CAPTION>
NORTH AND
SOUTH
AMERICA
UNITED PACIFIC EXCEPT
STATES EUROPE RIM THE U.S. ELIMINATIONS CONSOLIDATED
------- ------- ------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1994
Sales to unaffiliated customers.... $82,452 $11,264 $ 9,399 $13,442 $ -- $116,557
Sales between geographic areas..... 4,786 39 710 225 (5,760) --
------- ------- ------- ------- ------- --------
Net sales.......................... $87,238 $11,303 $10,109 $13,667 $ (5,760) $116,557
======= ======= ======= ======= ======= ========
Operating profit(loss)............. 8,939 413 723 1,520 (349) 11,246
Interest expense................... (554)
Other, net......................... 1,134
--------
Income before taxes................ $ 11,826
========
Total assets............. $61,061 $ 6,824 $ 9,974 $ 8,491 $(16,968) $ 69,382
======= ======= ======= ======= ======= ========
1993
Sales to unaffiliated customers.... $77,308 $ 9,135 $ 9,151 $13,544 -- $109,138
Sales between geographic areas..... 4,636 17 534 166 (5,353) --
------- ------- ------- ------- ------- --------
Net sales.......................... $81,944 $ 9,152 $ 9,685 $13,710 $ (5,353) $109,138
======= ======= ======= ======= ======= ========
Operating profit................... 9,565 (318) 504 2,282 (2,090) 9,943
Interest expense................... (700)
Other, net......................... 617
--------
Income before taxes................ $ 9,860
========
Total assets............. $56,485 $ 5,575 $ 9,532 $ 8,411 $(14,817) $ 65,186
======= ======= ======= ======= ======= ========
1992
Sales to unaffiliated customers.... $73,053 $10,981 $ 8,817 $12,726 -- $105,577
Sales between geographic areas..... 4,395 31 662 238 (5,326) --
------- ------- ------- ------- ------- --------
Net sales.......................... $77,448 $11,012 $ 9,479 $12,964 $ (5,326) $105,577
======= ======= ======= ======= ======= ========
Operating profit(loss)............. 8,900 456 911 2,201 -- 12,468
Interest expense................... (1,065)
Other, net......................... 1,327
--------
Income before taxes................ $ 12,730
========
Total assets............. $42,488 $ 6,973 $ 9,758 $ 7,693 $ (1,789) $ 65,123
======= ======= ======= ======= ======= ========
</TABLE>
F-18
<PAGE> 91
DURAMETALLIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
UNAUDITED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1995
-------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 2,949
Accounts receivable, less allowance for doubtful accounts of $582 in 1995..... 21,482
Inventories................................................................... 14,291
Prepaid expenses and other.................................................... 3,381
-------
Total current assets.................................................. 42,103
-------
Investments in affiliated companies............................................. 4,114
Property, plant and equipment, net.............................................. 20,931
Costs in excess of net assets of acquired subsidiaries, net of
accumulated amortization...................................................... 2,025
Other assets.................................................................... 6,676
-------
$75,849
=======
LIABILITIES
Current liabilities:
Notes payable, banks.......................................................... $ 4,017
Current maturities of long-term debt.......................................... 91
Accounts payable.............................................................. 6,432
Income taxes payable.......................................................... 1,066
Accrued compensation.......................................................... 4,875
Accrued profit sharing contributions.......................................... 1,468
Other accrued liabilities..................................................... 2,784
-------
Total current liabilities............................................. 20,733
-------
Long-term debt, less current maturities......................................... 4,422
Deferred income taxes and other liabilities..................................... 709
Minority interest............................................................... 984
Postretirement and postemployment benefits...................................... 10,520
STOCKHOLDERS' EQUITY
Common stock.................................................................... 8,584
Paid-in capital................................................................. 40
Retained earnings............................................................... 30,347
Cumulative translation adjustment............................................... (478)
Stock subscriptions receivable.................................................. (12)
-------
38,481
-------
$75,849
=======
</TABLE>
F-19
<PAGE> 92
DURAMETALLIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Net sales............................................................. $ 63,888 $ 56,578
Cost of goods sold.................................................... 32,826 28,279
--------- ---------
Gross profit................................................ 31,062 28,299
--------- ---------
Operating expenses:
Engineering......................................................... 3,788 3,173
Selling............................................................. 11,789 11,105
Administration...................................................... 8,714 8,343
--------- ---------
24,291 22,621
--------- ---------
Profit from operations................................................ 6,771 5,678
Other (expense), net.................................................. (280) (197)
--------- ---------
Income from continuing operations, before income taxes.............. 6,491 5,481
Provision for income taxes............................................ 2,550 2,057
--------- ---------
Net Income.................................................. $ 3,941 $ 3,424
========= =========
Earnings per common share............................................. $ 2.30 $ 1.84
========= =========
Average common shares outstanding..................................... 1,716,443 1,857,196
========= =========
</TABLE>
F-20
<PAGE> 93
DURAMETALLIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
FOR THE QUARTERS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Net sales............................................................. $ 32,296 $ 28,968
Cost of goods sold.................................................... 17,101 14,206
---------- ----------
Gross profit........................................................ 15,195 14,762
---------- ----------
Operating expenses:
Engineering......................................................... 1,884 1,668
Selling............................................................. 6,016 5,664
Administration...................................................... 4,518 4,386
---------- ----------
12,418 11,718
---------- ----------
Profit from operations.............................................. 2,777 3,044
Other (expense), net.................................................. (135) (120)
---------- ----------
Income from continuing operations, before income taxes.............. 2,642 2,924
Provision for income taxes............................................ 1,146 1,081
---------- ----------
Net Income....................................................... $ 1,496 $ 1,843
========== ==========
Earnings per common share............................................. $ 0.87 $ 0.99
---------- ----------
Average common shares outstanding..................................... 1,717,017 1,857,978
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE> 94
DURAMETALLIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNAUDITED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
CUMULATIVE STOCK
COMMON PAID-IN RETAINED TRANSLATION SUBSCRIPTIONS
STOCK CAPITAL EARNINGS ADJUSTMENT RECEIVABLE TOTAL
------ ------- -------- ---------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993........ $9,255 $ 917 $ 24,881 $ (745) $ (27) $34,281
Net income........................... -- -- 3,424 -- -- 3,424
Cash dividends paid, $0.54 per
share.............................. -- -- (1,003) -- -- (1,003)
Purchase and retirement of common
stock.............................. (700) (1,066) (3,098) -- -- (4,864)
Translation adjustments.............. -- -- -- 245 -- 245
Issuance of common stock:
Deferred compensation plan......... 8 47 -- -- -- 55
Exercise of stock options.......... 27 102 -- -- -- 129
------ ------- ------- ----- ---- -------
Balances at June 30, 1994............ $8,590 $ 0 $ 24,204 $ (500) $ (27) $32,267
====== ======= ======= ===== ==== =======
Balances at December 31, 1994........ $8,582 -- $ 27,113 $ (405) $ (16) $35,274
Net income........................... -- -- 3,941 -- -- 3,941
Cash dividends paid, $0.40 per
share.............................. -- -- (686) -- -- (686)
Purchase and retirement of common
stock.............................. (6) -- (21) -- -- (27)
Translation adjustments.............. -- -- -- (73) -- (73)
Issuance of common stock:
Deferred compensation plan......... 8 40 -- -- -- 48
Payments of stock subscriptions...... -- -- -- -- 4 4
------ ------- ------- ----- ---- -------
Balances at June 30, 1995............ $8,584 $ 40 $ 30,347 $ (478) $ (12) $38,481
====== ======= ======= ===== ==== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE> 95
DURAMETALLIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(DOLLARS IN THOUSANDS)
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Operating activities:
Net income............................................................. $ 3,941 $ 3,424
Charges (credits) to income not requiring the use of cash:
Depreciation and amortization....................................... 2,066 1,917
Deferred taxes...................................................... (492) 182
(Gain) on disposition of assets..................................... (12) (24)
Minority interests.................................................. 118 64
Provisions for obsolete inventory and doubtful accounts............. 307 603
Postretirement benefits............................................. (67) 93
Equity in income of affiliates, less dividends received............. (120) 9
Exchange losses..................................................... 0 9
Issuances of common stock as compensation........................... 48 55
Changes in operating assets and liabilities:
Accounts receivable................................................. (1,614) (2,450)
Inventories......................................................... (2,694) (97)
Prepaid expenses and other current assets........................... (379) 443
Accounts payable and accrued liabilities............................ 1,354 (1,596)
Income taxes payable................................................ (117) 10
------- -------
Cash provided from operating activities........................ 2,339 2,642
------- -------
Financing activities:
Net change in notes payable, banks..................................... 478 (2,473)
Proceeds from long-term debt........................................... 462 6,812
Payment of long-term debt.............................................. (7) (17)
Payments received on stock subscriptions............................... 4 0
Dividends paid......................................................... (686) (1,003)
Purchase of common stock............................................... (27) (4,864)
Proceeds from sale of common stock..................................... 0 129
------- -------
Cash used for financing activities............................. 224 (1,416)
------- -------
Investing activities:
Additions to property, plant, and equipment............................ (2,398) (1,621)
Additions to software and patents...................................... (304) (376)
Proceeds from disposition of assets.................................... 303 144
Investments in affiliated companies.................................... (213) 0
------- -------
Cash used for investing activities............................. (2,612) (1,853)
------- -------
Effect of exchange rate changes on cash.................................. (286) (83)
------- -------
Increase in cash and cash equivalents.................................... (335) (710)
Cash and cash equivalents at the beginning of the year................... 3,284 3,613
------- -------
Cash and cash equivalents at the end of the period....................... $ 2,949 $ 2,903
======= =======
Supplemental cash flow disclosures:
Income taxes paid...................................................... $ 5,202 $ 1,526
======= =======
Interest paid.......................................................... $ 263 $ 304
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE> 96
DURAMETALLIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
1. INTERIM INFORMATION:
The financial information as of June 30, 1995, and for the three month and
six month periods ended June 30, 1994 and 1995, is derived from unaudited
financial statements that, in the opinion of management, include all adjustments
(consisting only of normal recurring accruals) necessary to present fairly such
information. Operating results for the three months and the six months ended
June 30, 1995 are not necessarily indicative of the results that may be expected
for the entire year ending December 31, 1995.
2. INVENTORY:
The cost of parent company inventories stated using the LIFO method was
approximately 52 percent of total inventories as of June 30, 1995. Had these
inventories been valued on the FIFO method, total inventories would have been
$4,584 higher than reported at June 30, 1995.
3. STOCKHOLDERS' EQUITY:
There are authorized 4,500,000 shares of $5 par value common stock. Changes
in the six months ended June 30, 1995 and 1994 are reflected in the Consolidated
Statements of Stockholders' Equity. At June 30, 1995, 22,666 options were
available for exercise under the 1991 nonqualified stock option plan.
4. COMMITMENTS AND CONTINGENT LIABILITIES:
The Company is a defendant in numerous lawsuits that seek to recover
damages for alleged personal injury allegedly resulting from exposure to
asbestos containing products manufactured and distributed by the Company prior
to 1986. All such products were used within self-contained process equipment,
and management does not believe that there was any emission of ambient asbestos
fiber during the operation of this equipment.
In 1994, the Company received approximately 3,500 new asbestos liability
claims and resolved approximately 8,100 claims. During the past three years, the
Company has resolved approximately 9,300 claims at an average of one hundred
thirty-two dollars per claim. The Company continues to have a substantial amount
of available insurance from financially solvent carriers to cover such claims.
The Company has reviewed its policies of insurance, historical settlement
amounts and the number of pending cases. Based upon such reviews, the Company
has estimated its potential liability for such claims to be approximately $875
and $780 at June 30, 1995 and December 31, 1994, respectively. The cases are
expected to be paid or dismissed within the next two years. Under terms of its
insurance policies, the Company estimates its insurance proceeds to be
approximately $875 and $780 at June 30, 1995 and December 31, 1994,
respectively. The coverage for such claims, including defense costs and case
resolution costs, has not been disputed by the Company's insurance carriers.
Accordingly, the gross liability and gross insurance recovery related to these
claims have been reflected in the accompanying consolidated Balance Sheets.
While management understands the inherent uncertainty in litigation of this type
and the possibility that past costs may not necessarily be indicative of future
costs, management does not believe that these claims will have any material
adverse effect on the Company's financial position or results of operations.
The Company is the defendant in lawsuits and other claims in the normal
course of business. Management believes that the Company has adequate insurance
protection to cover the costs of defense, settlements or awards.
5. SUBSEQUENT EVENT:
In August of 1995, the Company acquired all of the outstanding stock in Pac
Seal, Inc. and two affiliated companies for $13 million, which was funded
primarily through bank borrowings. Pac Seal is located in Burr Ridge, Illinois,
and is engaged in the design, manufacture and sale of mechanical seals used
primarily in water pump applications.
F-24
<PAGE> 97
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
THE DURIRON COMPANY, INC.
WOLVERINE ACQUISITION CORP.
AND
DURAMETALLIC CORPORATION
DATED AS OF SEPTEMBER 11, 1995
<PAGE> 98
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C> <C> <C>
LIST OF EXHIBITS.............................................................. (v)
LIST OF SCHEDULES............................................................. (vi)
I. DEFINITIONS................................................................... A-1
II. THE MERGER.................................................................... A-6
2.1 The Merger............................................................ A-6
2.2 Filing Certificate of Merger.......................................... A-6
2.3 Effective Time of the Merger.......................................... A-6
2.4 Further Assurances.................................................... A-6
2.5 Articles of Incorporation of Surviving Corporation.................... A-6
2.6 Bylaws of Surviving Corporation....................................... A-6
2.7 Directors of Surviving Corporation.................................... A-6
2.8 Officers of the Surviving Corporation................................. A-6
2.9 Vacancies............................................................. A-7
III. TERMS OF THE MERGER........................................................... A-7
3.1 Conversion and Exchange of Shares..................................... A-7
3.2 Stock Options......................................................... A-7
3.3 Conversion Ratio...................................................... A-7
3.4 Fractional Shares..................................................... A-8
3.5 Rights Plan........................................................... A-8
3.6 Exchange of Certificates; Payment for Fractional Shares............... A-8
3.7 Dissenting Shares..................................................... A-9
3.8 Limitations........................................................... A-9
3.9 No Further Rights..................................................... A-10
3.10 Closing of Transfer Books............................................. A-10
3.11 Certain Share Information............................................. A-10
IV. REPRESENTATIONS AND WARRANTIES OF DURAMETALLIC................................ A-10
4.1 Schedules............................................................. A-10
4.2 Corporate Organization................................................ A-10
4.3 Authority; Authorization; Enforceability.............................. A-11
4.4 Capitalization........................................................ A-11
4.5 Subsidiaries and Joint Venture Companies.............................. A-12
4.6 Information in Registration Statement and Other Documents............. A-12
4.7 Consents and Approval; No Violation................................... A-13
4.8 Reports and Financial Statements...................................... A-13
4.9 Taxes................................................................. A-13
4.10 Employee Plans........................................................ A-14
4.11 Durametallic Contracts................................................ A-15
4.12 Absence of Certain Changes or Events.................................. A-16
4.13 Litigation; Pending Decrees........................................... A-16
4.14 Compliance with Laws and Orders; Permits and Licenses................. A-16
</TABLE>
i
<PAGE> 99
<TABLE>
<CAPTION>
PAGE
------
<S> <C> <C> <C>
4.15 Pooling of Interests Accounting....................................... A-16
4.16 Certain Fees and Liabilities.......................................... A-17
4.17 Conduct to Date....................................................... A-17
4.18 Labor Matters......................................................... A-17
4.19 Undisclosed Liabilities............................................... A-18
4.20 Title to Properties; Absence of Liens, Etc............................ A-18
4.21 Receivables........................................................... A-18
4.22 Inventories........................................................... A-18
4.23 Proprietary Rights.................................................... A-19
4.24 Insurance............................................................. A-19
4.25 Environmental Matters................................................. A-19
4.26 Certain Transactions.................................................. A-20
4.27 Takeover Statutes..................................................... A-20
4.28 Disclosure............................................................ A-20
V. REPRESENTATIONS AND WARRANTIES OF DURIRON AND MERGER SUB...................... A-20
5.1 Duriron Schedules..................................................... A-20
5.2 Corporate Organization................................................ A-20
5.3 Authority; Authorization; Enforceability.............................. A-21
5.4 Capitalization........................................................ A-21
5.5 Information in Registration Statement and Other Documents............. A-21
5.6 Consents and Approval; No Violation................................... A-22
5.7 Reports and Financial Statements...................................... A-22
5.8 Absence of Certain Changes or Events.................................. A-22
5.9 Litigation; Pending Decrees........................................... A-22
5.10 Fees.................................................................. A-23
5.11 Undisclosed Liabilities............................................... A-23
5.12 Merger Sub; Surviving Corporation..................................... A-23
5.13 Compliance with Laws and Orders....................................... A-23
5.14 Environmental Matters................................................. A-23
5.15 Disclosure............................................................ A-24
VI. COVENANTS..................................................................... A-24
6.1 Change of Control Proposals........................................... A-24
6.2 Interim Operations of Durametallic.................................... A-24
6.2.1 Conduct of Business............................................ A-24
6.2.2 Governing Instruments.......................................... A-25
6.2.3 Capital Stock.................................................. A-25
6.2.4 Dividends...................................................... A-25
6.2.5 Employee Plans, Compensation, Etc.............................. A-25
6.2.6 Purchase or Sale of Assets..................................... A-25
6.2.7 Investments, Loans and Guarantees.............................. A-25
6.2.8 No Breach...................................................... A-25
</TABLE>
ii
<PAGE> 100
<TABLE>
<CAPTION>
PAGE
------
<S> <C> <C> <C>
6.3 Interim Operations of Duriron......................................... A-25
6.3.1 Dividends...................................................... A-26
6.3.2 Certain Amendments............................................. A-26
6.3.3 No Breach...................................................... A-26
6.4 Access, Information and Confidentiality............................... A-26
6.5 HSR Act Filing........................................................ A-26
6.6 Shareholder Meetings.................................................. A-26
6.7 Registration Statement and Joint Proxy Statement/Prospectus........... A-27
6.8 Durametallic Board Recommendation..................................... A-27
6.9 Duriron Board Recommendation.......................................... A-27
6.10 Merger Sub Shareholder Approval....................................... A-28
6.11 Publicity............................................................. A-28
6.12 Identification of Durametallic Affiliates............................. A-28
6.13 NASDAQ Listing........................................................ A-28
6.14 Pooling and Tax-Free Reorganization Treatment......................... A-28
6.15 Durametallic Financial Statements..................................... A-28
6.16 Duriron Reports....................................................... A-28
6.17 Limitation on Durametallic Expenses................................... A-29
6.18 Notice of Certain Events.............................................. A-29
6.19 Modification of Awards Under Executive Incentive Bonus Plan; Certain
Consents............................................................ A-29
6.20 Efforts to Consummate Transactions.................................... A-30
6.21 Election to Duriron Board............................................. A-30
6.22 Directors and Officers Liability Insurance............................ A-30
6.23 Durametallic Compensation Agreements.................................. A-31
VII. CONDITIONS.................................................................... A-31
7.1 Conditions to Each Party's Obligation................................. A-31
7.2 Pre-Closing Conditions to the Obligations of Duriron and Merger Sub... A-31
7.3 Other Conditions to the Obligations of Duriron and Merger Sub......... A-33
7.4 Pre-Closing Conditions to the Obligations of Durametallic............. A-33
7.5 Other Conditions to the Obligation of Durametallic.................... A-34
VIII. CLOSING....................................................................... A-35
8.1 Time and Place........................................................ A-35
8.2 Deliveries at the Closing............................................. A-35
IX. TERMINATION................................................................... A-35
9.1 Termination........................................................... A-35
9.2 Liabilities in Event of Termination................................... A-37
9.3 Termination Fee; Expenses............................................. A-37
X. MISCELLANEOUS................................................................. A-38
10.1 Employee Matters; Durametallic Headquarters........................... A-38
10.2 Non-Survival of Representations and Warranties........................ A-38
10.3 Waiver................................................................ A-38
</TABLE>
iii
<PAGE> 101
<TABLE>
<CAPTION>
PAGE
------
<S> <C> <C> <C>
10.4 Amendment............................................................. A-38
10.5 Entire Agreement...................................................... A-38
10.6 Governing Law......................................................... A-39
10.7 Interpretation........................................................ A-39
10.8 Notices............................................................... A-39
10.9 Counterparts.......................................................... A-39
10.10 Parties in Interest; Assignment....................................... A-39
10.11 Severability.......................................................... A-40
EXHIBITS...................................................................... A1-D3
</TABLE>
iv
<PAGE> 102
EXHIBITS
<TABLE>
<CAPTION>
SECTION
DESIGNATION DESCRIPTION REFERENCE
- ----------- ----------- ---------
<S> <C> <C>
A Agreement to be executed by each Durametallic Affiliate................. 6.12
B Tax Opinion of Thompson, Hine and Flory................................. 7.1(e)
C Opinion of Warner, Norcross & Judd...................................... 7.2(j)
D Opinion of Thompson, Hine and Flory..................................... 7.4(h)
</TABLE>
v
<PAGE> 103
DURAMETALLIC SCHEDULES
<TABLE>
<CAPTION>
DESIGNATION DESCRIPTION
- ----------- -----------
<S> <C>
4.2 Qualification To Do Business
4.4 Stock Options, Rights of Purchase, and Share Repurchases
4.5 Information Concerning Subsidiaries, Joint Venture Companies and Investments
4.7 Consents, Approvals and Violations
4.9 Tax Matters
4.10 Employee Plans
4.11 Contracts
4.12 Changes Since December 31, 1994
4.13 Litigation and Related Matters
4.14 Compliance with Laws; Investigations
4.17 Conduct Since December 31, 1994
4.18 Labor Matters
4.19 Liabilities and Obligations
4.20 Real Property; Title to Properties and Assets; Condition of Property
4.21 Receivables
4.23 Proprietary Rights; Infringement
4.24 Insurance
4.25 Environmental Matters
4.26 Certain Transactions
6.2 Information Concerning Interim Operations
6.12 Durametallic Affiliates
</TABLE>
DURIRON SCHEDULES
<TABLE>
<CAPTION>
DESIGNATION DESCRIPTION
- ----------- -----------
<S> <C>
5.2 Information Concerning Subsidiaries
5.9 Litigation and Related Matters
5.13 Compliance with Laws and Orders
5.14 Environmental Matters
6.3 Information Concerning Interim Operations
</TABLE>
vi
<PAGE> 104
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is being executed as of September 11,
1995 by THE DURIRON COMPANY, INC., a New York corporation ("Duriron"), WOLVERINE
ACQUISITION CORP., a Michigan corporation ("Merger Sub"), and DURAMETALLIC
CORPORATION, a Michigan corporation ("Durametallic"), under the following
circumstances:
A. Merger Sub is a wholly-owned subsidiary of Duriron.
B. The Boards of Directors of Duriron, Merger Sub and Durametallic
have determined that it is in the best interests of their respective
shareholders that Merger Sub be merged into Durametallic upon the terms and
subject to the conditions set forth herein. As a result of the merger,
shareholders of
Durametallic (other than those electing to exercise dissenters' rights, if
applicable) will become shareholders of Duriron, and Durametallic will
become a wholly-owned subsidiary of Duriron.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
For all purposes of this Agreement, the terms set forth below shall be
defined as follows:
1.1 "Agreement" shall mean this Agreement and Plan of Merger.
1.2 "Asset Acquisition" shall have the meaning given to such term in
Section 1.5.
1.3 "Business Combination" shall have the meaning given to such term in
Section 1.5.
1.4 "Certificate of Merger" shall have the meaning given to such term in
Section 2.2.
1.5 "Change of Control Transaction" shall mean any of the following:
(a) Any merger (other than the Merger), share exchange or
consolidation involving a corporation (either Duriron or Durametallic) or
its shareholders (a "Business Combination") other than (i) any merger the
sole purpose of which is to effectuate a change in the state of
incorporation of the corporation, or (ii) any merger in which the
corporation is the surviving entity if, immediately following such merger,
persons who were shareholders of the corporation immediately before the
merger continue to hold shares representing 67% or more of the voting power
of shares of all classes of the corporation then outstanding.
(b) The acquisition by any person (or group of persons acting in
concert) of beneficial ownership of shares of capital stock of a
corporation (either Duriron or Durametallic) (a "Stock Acquisition") which,
when combined with all other shares beneficially owned by such person (or
such group of persons), gives such person (or group) beneficial ownership
of 33% or more of the outstanding shares of the corporation. For purposes
of the foregoing, a person shall be considered to beneficially own, in
addition to other shares beneficially owned, any shares which such
individual has the right or option to purchase, whether or not such right
or option is immediately exercisable.
(c) The purchase, leasing or other acquisition of the ownership, use
or control by any person (or group of persons acting in concert) of any
assets of a corporation (either Duriron or Durametallic) or its
subsidiaries (an "Asset Acquisition") which constitute 33% or more
(determined on a book value basis) of the assets of the corporation and its
subsidiaries taken as a whole (it being understood that shares of
subsidiaries and other affiliates constitute assets of the corporation for
purposes of the foregoing).
(d) Any transaction, other than a Business Combination, Stock
Acquisition or Asset Acquisition, by which any person (or group of persons
acting in concert) not presently in control of a corporation (either
Duriron or Durametallic) acquires control of the corporation.
1.6 "Closing" shall mean the closing of the transactions contemplated by
this Agreement.
1.7 "Closing Date" shall have the meaning given to such term in Section
8.1.
A-1
<PAGE> 105
1.8 "Code" shall mean the Internal Revenue Code of 1986, as from time to
time amended.
1.9 "Commission" shall mean the Securities and Exchange Commission.
1.10 "Conversion Ratio" shall have the meaning given to such term in
Section 3.3.
1.11 "Durametallic Affiliates" shall have the meaning given such term in
Section 6.12.
1.12 "Durametallic Certificate" shall mean a certificate that, immediately
prior to the Effective Time, represented outstanding Durametallic Common Shares.
1.13 "Durametallic Change of Control Transaction" means any Change of
Control Transaction in which Durametallic is the corporation subject to the
change of control.
1.14 "Durametallic Common Shares" shall mean the Common Stock, $5.00 par
value per share, of Durametallic.
1.15 "Durametallic Contracts" shall mean and include all of the following
which Durametallic or any Durametallic Significant Subsidiary (or, where
specifically indicated in this definition, any other Durametallic Subsidiary or
Durametallic Joint Venture Company) is a party to, is bound or affected by, or
receives any benefits under, or by which any property or assets of any of them
may be bound: (i) all real property leases; (ii) all leases of equipment having
an original acquisition cost in excess of $250,000; (iii) all franchise, dealer,
or other distribution agreements pursuant to which Durametallic or any
Durametallic Subsidiary or Durametallic Joint Venture Company sells or otherwise
distributes its products or services or pursuant to which any person sells or
otherwise distributes products or services of Durametallic or any Durametallic
Subsidiary or any Durametallic Joint Venture Company and which may not be
terminated by Durametallic or such Durametallic Subsidiary or Durametallic Joint
Venture Company without penalty upon notice of 90 days or less; (iv) all supply
contracts or other such agreements or understandings pursuant to which
Durametallic or any Durametallic Subsidiary purchased in its last fiscal year,
or expects to purchase in this fiscal year, in excess of $100,000 worth of
products and which either provide for a price which is not comparable to the
price at which Durametallic or any Durametallic Significant Subsidiary could
obtain similar products in similar quantities from other sources or are for
quantities in excess of normal operating requirements (determined in accordance
with past practice) over the remaining term; (v) any agreement, arrangement, or
commitment which materially restricts the conduct of any line of business or
which imposes a confidentiality obligation upon Durametallic or any Durametallic
Subsidiary; (vi) any agreement with or benefiting any director or officer of
Durametallic or any Durametallic Subsidiary, or with or benefiting any person
who or which beneficially owns 5% or more of the capital stock of Durametallic
or any Durametallic Subsidiary, and which provides for aggregate payments in any
calendar year in excess of $50,000; (vii) any agreement, indenture or other
instrument relating to the borrowing of money by Durametallic or any
Durametallic Significant Subsidiary (other than trade payables and instruments
relating to transactions entered into in the ordinary course of business);
(viii) any agreement pursuant to which Durametallic or any Durametallic
Significant Subsidiary is obligated to lend money or make advances to any person
(other than routine advances to any employee not to exceed $10,000, deposits or
advances in respect of products purchased in the ordinary course of business,
and advances made to an employee in connection with the relocation of such
employee by Durametallic or any Durametallic Significant Subsidiary); (ix) any
agreement, arrangement or commitment to guarantee the obligations of or to
indemnify or exonerate from liability any person, including, without limitation,
any Durametallic Subsidiary and the directors or officers of Durametallic or any
Durametallic Subsidiary (other than pursuant to applicable law or the Articles
of Incorporation or By-laws of Durametallic or any Durametallic Subsidiary); (x)
any Tax allocation or Tax sharing agreement; (xi) any agreement or arrangement
relating to the operation, ownership or control of any Durametallic Subsidiary
or Durametallic Joint Venture Company; (xii) any other contract, commitment,
agreement, or understanding, whether written or oral, which involves more than
$150,000 or is not terminable without penalty upon not more than 90 days'
notice; and (xiii) any other contract or agreement not in the ordinary course of
business of Durametallic or any Durametallic Significant Subsidiary, other than
this Agreement.
1.16 "Durametallic Dissenting Shares" shall have the meaning given such
term in Section 3.7.
A-2
<PAGE> 106
1.17 "Durametallic Employee Plans" shall mean all employment, bonus,
deferred compensation, pension, retirement, profit sharing, stock option, stock
purchase, employee stock ownership, stock appreciation rights, savings,
consulting, severance, termination, collective bargaining, group insurance,
fringe benefit and other employee benefit, incentive and welfare plans,
policies, contracts and arrangements, formal or informal, written or oral, and
all trust agreements related thereto, relating to any present or former
directors, officers or employees of Durametallic or any Durametallic Subsidiary.
Notwithstanding the foregoing, "Durametallic Employee Plans" shall not include
employment related contracts deemed to have been created by conduct, oral
statements, written rules or policies or other publications, none of which were
published or uttered intending to create an employment related contract nor, to
the Knowledge of Durametallic, has been asserted as the basis for the claimed
existence of an employment related contract.
1.18 "Durametallic Entities" means Durametallic, the Durametallic
Subsidiaries and the Durametallic Joint Venture Companies.
1.19 "Durametallic Financial Statements" shall mean (i) the audited
consolidated financial statements, schedules and notes of Durametallic at and
for the years ended December 31, 1992, 1993 and 1994, (ii) the unaudited interim
financial statements and notes of Durametallic at and for the six months ended
June 30, 1995, and, (iii) those unaudited interim financial statements and notes
of Durametallic at and for the periods ending thereafter to be delivered by
Durametallic to Duriron pursuant to Section 6.15.
1.20 "Durametallic Joint Venture Company" shall mean Durametallic (India)
Limited, Korea Seal Master Co. Ltd., Arabian Seals Company Ltd., and
Durametallic Malaysia SDN BHD.
1.21 "Durametallic Meeting" shall mean the meeting of the Durametallic
shareholders to be called pursuant to Section 6.6 to consider approval of this
Agreement, and all adjournments thereof.
1.22 "Durametallic Schedules" shall mean the schedules of Durametallic
indicated in the Table of Contents to this Agreement.
1.23 "Durametallic Significant Subsidiary" shall mean Metal Fab Machine
Corporation, P-C Acquisition, Inc., Pac Seal, Inc., Pac-Seal Inc. International,
Lake Ann Manufacturing, Inc., Durametallic Canada, Inc., Durametallic Do Brasil
Ltd., Durametallic Europe N.V., Durametallic Asia Pte. Limited, and Durametallic
Mexicana S.A. de C.V.
1.24 "Durametallic Stock Options" shall mean the options to purchase
Durametallic Common Shares issued under the Durametallic Corporation 1991 Stock
Option Plan.
1.25 "Durametallic Subsidiary" shall mean any direct or indirect Subsidiary
of Durametallic.
1.26 "Duriron Change of Control Transaction" means any Change of Control
Transaction in which Duriron is the corporation subject to the change of
control.
1.27 "Duriron Common Stock" shall mean the Common Stock, $1.25 par value
per share, of Duriron.
1.28 "Duriron Financial Statements" shall mean the audited consolidated
financial statements, schedules and notes and the unaudited interim financial
statements and notes of Duriron included in the Duriron Reports or incorporated
therein by reference.
1.29 "Duriron Meeting" shall mean the meeting of the Duriron shareholders
to be called pursuant to Section 6.6 to consider approval of this Agreement, and
all adjournments thereof.
1.30 "Duriron Preferred Stock" shall mean the Preferred Stock, $1.00 par
value per share, of Duriron.
1.31 "Duriron Reports" shall mean all reports, registrations, and
statements, together with any amendments thereto, filed by Duriron with the
Commission since January 1, 1993, including but not limited to, Forms 10-K,
Forms 10-Q, Forms 8-K and proxy statements.
1.32 "Duriron Schedules" shall mean the schedules of Duriron indicated in
the Table of Contents to this Agreement.
1.33 "Duriron Stock Option Plan" shall mean the Duriron 1989 Stock Option
Plan, as amended.
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1.34 "Duriron Subsidiary" shall mean any direct or indirect Subsidiary of
Duriron.
1.35 "Effective Time" shall have the meaning given to such term in Section
2.3.
1.36 "Environmental Laws" shall mean any federal, state or local law,
statute, ordinance, rule, regulation or code, and any license, permit,
authorization, approval, consent, order, judgment, decree, injunction or
agreement with any Governmental Entity to which Durametallic or any Durametallic
Subsidiary on the one hand, or Duriron or any Duriron Subsidiary on the other
hand, is a party or subject, related to (i) the protection, preservation or
restoration of the environment (including, without limitation, air, water vapor,
surface water, ground water, drinking water supply, surface soil, subsurface
soil, plant and animal life or any other natural resource), and/or (ii) the use,
storage, recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances. The term
Environmental Law includes, without limitation: the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, 42 U.S.C. sec.9601, et
seq.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C.
sec.6901, et seq.; the Clean Air Act, as amended, 42 U.S.C. sec.7401, et seq.;
the Federal Water Pollution Control Act, as amended, 33 U.S.C. sec.1251, et
seq.; the Toxic Substances Control Act, as amended, 125 U.S.C. sec.9601, et
seq.; the Emergency Planning and Community Right to Know Act, 42 U.S.C.
sec.11001, et seq.; the Safe Drinking Water Act, 42 U.S.C. sec.300f, et seq.;
all comparable state and local laws; and any common law (including without
limitation, common law that may impose strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Substance.
1.37 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as from time to time amended.
1.38 "Exchange Act" shall mean the Securities and Exchange Act of 1934, as
from time to time amended.
1.39 "Exchange Agent" shall be Bank One, Indianapolis, N.A. or another bank
selected by Duriron.
1.40 "Fair Market Value of a share of Duriron Common Stock" (or "Fair
Market Value") means the average of the closing sale prices of a share of
Duriron Common Stock during the first 10 of the last 15 trading days immediately
preceding the date of the Durametallic Meeting, as reported on the NASDAQ
National Market; provided, however, that, for purposes of this Agreement and the
Merger, the Fair Market Value of a share of Duriron Common Stock shall in no
event be more than $29.225 nor less than $23.225 (subject, however, to
adjustment in accordance with Section 3.3).
1.41 "Governmental Entity" shall mean any court, governmental authority or
other regulatory or administrative agency or commission, domestic or foreign.
1.42 "Hazardous Substances" shall mean any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive, or otherwise
regulated, under any Environmental Law, whether by type or by quantity.
Hazardous Substances include, without limitation, petroleum or any derivative or
by-product thereof, asbestos, radioactive materials, and polychlorinated
biphenyls.
1.43 "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as from time to time amended.
1.44 "Immaterial Adverse Effect" shall mean, when used in defining or
limiting the representations and warranties of a party, an effect which, either
by itself or when combined with the effects of all other exceptions to the
representations and warranties of such party which are defined by or limited to
no worse than an Immaterial Adverse Effect, does not constitute a Material
Adverse Effect.
1.45 "IRS" shall mean the Internal Revenue Service.
1.46 "Joint Proxy Statement/Prospectus" shall mean the joint proxy
statement of Durametallic and Duriron, and all amendments or supplements
thereto, mailed to the shareholders of Durametallic and Duriron in connection
with the Merger.
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1.47 "Knowledge of Durametallic" shall mean actual knowledge of any person
who is a director, officer (other than an assistant officer), Corporate
Controller or Director of Taxation of Durametallic as of the time the
determination of knowledge is being made.
1.48 "Knowledge of Duriron" shall mean actual knowledge of a person who is
a director or officer of Duriron as of the time the determination of knowledge
is being made.
1.49 "Lien" shall mean any mortgage, pledge, charge, security interest or
other encumbrance upon or conditional assignment of any property or assets.
1.50 "Mailing Date" shall have the meaning given the term in Section
6.7(b).
1.51 "Material Adverse Effect" shall mean a material adverse effect on the
respective financial condition, results of operations, business or prospects of
Durametallic and the Durametallic Subsidiaries, taken as a whole, or Duriron and
the Duriron Subsidiaries, taken as a whole, as the case may be, or on the
ability of Durametallic or Duriron, as the case may be, to consummate the
transactions contemplated by this Agreement. In furtherance and not in
limitation of the foregoing, a change having a Material Adverse Effect shall be
considered to have occurred or been sustained (as to either Durametallic and the
Durametallic Subsidiaries or Duriron and the Duriron Subsidiaries, as the case
may be, and irrespective of any disclosure, historical or anticipatory, on any
schedule or otherwise) in the event of a material adverse change in the nature
or extent of litigation or claims (against Durametallic and the Durametallic
Subsidiaries or Duriron and the Duriron Subsidiaries, respectively) or a
material diminishment in the amount or scope of insurance coverage applicable to
litigation or claims including, without limitation, as a result of denial or
withdrawal of coverage by an insurer.
1.52 "Merger" shall have the meaning given to such term in Section 2.1.
1.53 "Merger Consideration" shall have the meaning given to such term in
Section 3.6(b).
1.54 "Michigan BCA" shall mean the Michigan Business Corporation Act, as
from time to time amended.
1.55 "PBGC" shall mean the Pension Benefit Guaranty Corporation.
1.56 "Proprietary Rights" shall mean patents, trademarks, trade names, and
copyrights, and all pending applications for any of the same.
1.57 "Real Property" shall mean all real property owned by Durametallic or
any Durametallic Significant Subsidiary, or any other Durametallic Subsidiary
which is directly or indirectly wholly-owned by Durametallic.
1.58 "Registration Statement" shall mean the Registration Statement on Form
S-4 to be filed with the Commission by Duriron under the Securities Act, and any
amendments thereto, for the purpose of registering the Duriron Common Stock to
be issued in connection with the transactions contemplated by this Agreement.
1.59 "Rights of Purchase" shall mean subscriptions, options, warrants,
scrip, rights, calls, convertible securities, commitments, promises or any other
similar agreements or arrangements of any character.
1.60 "Rights Plan" shall mean the Rights Agreement dated as of August 1,
1986 between Duriron and Bank One, Dayton, N.A., as amended.
1.61 "Securities Act" shall mean the Securities Act of 1933, as from time
to time amended.
1.62 "Stock Acquisition" shall have the meaning given such term in Section
1.5.
1.63 "Subsidiary" shall mean any corporation of which Durametallic or
Duriron, as the case may be (either alone or through or together with any other
subsidiary), owns, directly or indirectly, 50% or more of the stock or other
equity interests, the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation.
1.64 "Surviving Corporation" shall have the meaning given such term in
Section 2.1.
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1.65 "Taxes" shall mean federal, state, local or foreign income, franchise,
sales, use, excise, real and personal property, employment, social security,
unemployment and withholding, and other taxes or assessments and any interest or
penalties thereon.
1.66 "Tax Returns" shall mean federal, state, local and foreign income,
franchise, sales, use, excise, real and personal property, employment, social
security, unemployment, withholding, and other tax returns and reports.
ARTICLE II
THE MERGER
2.1 The Merger. At the Effective Time, Merger Sub shall be merged into
Durametallic, on the terms and conditions hereinafter set forth (the "Merger"),
as permitted by and in accordance with Sections 701 to 735 of the Michigan BCA,
and upon such Merger the separate existence of Merger Sub shall cease and
Durametallic shall be the surviving corporation in the Merger (the "Surviving
Corporation"). The Merger shall have the effects specified in Section 724 of the
Michigan BCA.
2.2 Filing Certificate of Merger. As soon as practicable following the
fulfillment or waiver of the conditions specified in Article VII, Merger Sub and
Durametallic shall cause a Certificate of Merger complying with the requirements
of Section 707 of the Michigan BCA and satisfactory to Duriron, Merger Sub and
Durametallic (the "Certificate of Merger") to be filed with the Department of
Commerce of the State of Michigan.
2.3 Effective Time of the Merger. The Merger shall become effective at the
time the Certificate of Merger is filed in accordance with Section 2.2 (the
"Effective Time").
2.4 Further Assurances. From time to time, as and when required by
Duriron, Durametallic and Merger Sub or by their respective successors or
assigns, there shall be executed and delivered on behalf of Duriron,
Durametallic and Merger Sub such deeds and other instruments, and there shall be
taken or caused to be taken, all such further and other action, as shall be
appropriate, advisable or necessary in order to vest, perfect or confirm, of
record or otherwise, in the Surviving Corporation the title to and possession of
all property, interests, assets, rights, privileges, immunities, powers,
franchises and authority of Durametallic and Merger Sub and otherwise to carry
out the purpose of this Agreement. After the Effective Time, the officers and
directors of the Surviving Corporation shall be fully authorized, in the name of
and on behalf of Durametallic and Merger Sub or otherwise, to take any and all
such action and to execute and deliver any and all such deeds and other
instruments.
2.5 Articles of Incorporation of Surviving Corporation. The Articles of
Incorporation of Durametallic as in effect immediately prior to the Effective
Time shall be the Articles of Incorporation of the Surviving Corporation until
the same shall thereafter be altered, amended or repealed in accordance with
law.
2.6 Bylaws of Surviving Corporation. The Bylaws of Durametallic as in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation until the same shall thereafter be altered, amended or
repealed in accordance with law, the Articles of Incorporation of the Surviving
Corporation, or such Bylaws.
2.7 Directors of Surviving Corporation. At the Effective Time, the
directors of the Surviving Corporation shall be those persons Duriron shall
designate, such directors to hold office until their successors shall have been
elected and shall qualify in accordance with law and the Articles of
Incorporation and Bylaws of the Surviving Corporation.
2.8 Officers of the Surviving Corporation. The officers of Durametallic in
office immediately prior to the Effective Time shall, after the Effective Time,
continue in office as the officers of the Surviving Corporation and shall hold
office until their successors shall have been elected and shall qualify in
accordance with law and the Articles of Incorporation and Bylaws of the
Surviving Corporation.
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2.9 Vacancies. If at the Effective Time any vacancy shall exist in the
Board of Directors or in any of the offices of the Surviving Corporation, such
vacancy may thereafter be filled in the manner provided in the Bylaws of the
Surviving Corporation.
ARTICLE III
TERMS OF THE MERGER
3.1 Conversion and Exchange of Shares. At the Effective Time, by virtue of
the Merger and without any action on the part of the holders thereof:
(a) Each Durametallic Common Share that is issued and outstanding
immediately prior to the Effective Time (other than (i) Durametallic
Dissenting Shares, if any, and (ii) any Durametallic Common Shares which
are owned by Duriron or any direct or indirect wholly-owned Subsidiary of
Duriron or Durametallic) shall be cancelled and converted into that number
of shares of Duriron Common Stock which results from multiplying a
Durametallic Common Share by the Conversion Ratio.
(b) Each Common Share, without par value, of Merger Sub that is issued
and outstanding immediately prior to the Effective Time shall be cancelled
and converted, without further action, into one share of Common Stock,
$5.00 par value per share, of the Surviving Corporation.
(c) All other shares of capital stock of Durametallic, including
without limitation each issued Durametallic Common Share that is owned by
Duriron or any direct or indirect wholly-owned Subsidiary of Duriron or
Durametallic immediately prior to the Effective Time, shall be cancelled
and cease to exist, and, except as provided in Section 3.7, no
consideration shall be paid with respect to any such share.
3.2 Stock Options. Each Durametallic Stock Option which is outstanding
immediately prior to the Effective Time shall become, as a result of the Merger,
an option to purchase from Duriron the number of shares of Duriron Common Stock
equal to the number of Durametallic Common Shares covered by such Durametallic
Stock Option immediately prior to the Effective Time multiplied by the
Conversion Ratio, at a price per share of Duriron Common Stock (rounded to the
nearest whole cent) determined by dividing the exercise price per Durametallic
Common Share under such Durametallic Stock Option by the Conversion Ratio, and
in all other respects shall remain unchanged.
3.3 Conversion Ratio. (a) The "Conversion Ratio" means the quotient
(carried to four decimal points) of (i) $150,000,000 divided by 1,758,466
(representing the number of Durametallic Common Shares outstanding on the date
of this Agreement plus the number of additional Durametallic Common Shares
issuable (presently or hereafter, and whether or not subject to any conditions
or restrictions) pursuant to any outstanding or existing Rights of Purchase as
represented by Durametallic and referred to herein as the "Durametallic
Outstanding Share Equivalents") divided by (ii) an amount equal to the Fair
Market Value of a share of Duriron Common Stock. In the event that the number of
Durametallic Common Shares outstanding on the date of this Agreement plus the
number of Durametallic Common Shares issuable pursuant to any Rights of Purchase
outstanding or existing as of the date of this Agreement is more than 1,758,466
(such excess being the "Pre-Agreement Additional Shares"), or in the event that
Durametallic, after the date of this Agreement, issues any additional Common
Shares or grant or creates any additional Rights of Purchase with respect to
Durametallic Common Shares in violation of the covenants of Durametallic set
forth in this Agreement (such additional shares and the shares subject to such
Rights of Purchase being referred to as the "Post-Agreement Additional Shares"),
then, for purposes of calculation of the Conversion Ratio, the number of
Durametallic Outstanding Share Equivalents shall be increased by the number of
Pre-Agreement Additional Shares and the number of Post-Agreement Additional
Shares.
(b) The stipulated range of the Fair Market Value of a share of
Duriron Common Stock (as set forth in Section 1.40) shall be subject to
appropriate and proportionate adjustment in the event that, subsequent to
the date hereof and prior to the Effective Time, the outstanding shares of
Duriron Common Stock are changed into a different number of shares by
reason of any stock split, stock dividend,
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reclassification, recapitalization, split-up, combination or exchange of
shares. The Conversion Ratio shall be subject to appropriate and
proportionate adjustment in the event that any such change in the
outstanding shares of Duriron Common Stock occurs on or after the fifteenth
trading day immediately preceding the date of the Durametallic Meeting and
prior to the Effective Time, or if a stock dividend shall be declared on
the outstanding shares of Duriron Common Stock with a record date
subsequent to the date hereof and prior to the Effective Time and a payment
date after the Effective Time.
3.4 Fractional Shares. No certificates or scrip representing fractional
shares of Duriron Common Stock shall be issued, but in lieu thereof each holder
of a Durametallic Common Share otherwise entitled to a fraction of a share of
Duriron Common Stock shall be entitled to receive a cash payment (without
interest) in an amount equal to the fraction of such share of Duriron Common
Stock to which such holder otherwise would be entitled multiplied by the closing
sale price of a share of Duriron Common Stock on the trading day immediately
preceding the day of the Effective Time, as reported on the NASDAQ National
Market.
3.5 Rights Plan. All shares of Duriron Common Stock issued to the former
holders of Durametallic Common Stock in the Merger shall be accompanied by a
right under the Rights Plan to purchase a fraction of a share of Duriron Junior
Preferred Stock in accordance with the Rights Plan.
3.6 Exchange of Certificates; Payment for Fractional Shares. (a) At or
prior to the Effective Time, Duriron shall appoint the Exchange Agent to act as
its agent for purposes of, among other things, mailing and receiving transmittal
letters and disbursing certificates for shares of Duriron Common Stock, and cash
in lieu of fractional shares, to the holders of Durametallic Certificates. Prior
to the Effective Time, Duriron and the Exchange Agent shall enter into an
exchange agent agreement providing for, among other things, the matters set
forth in this Section 3.6.
(b) Except as otherwise set forth herein, from and after the Effective
Time, each holder of a Durametallic Certificate shall be entitled to receive in
exchange therefor, upon surrender of such Durametallic Certificate to the
Exchange Agent, a certificate for the number of shares of Duriron Common Stock
(together with cash in lieu of a fractional share, if any) and including the
related rights issuable under the Rights Plan (the "Merger Consideration"), to
which such holder is entitled in accordance with the terms of this Agreement.
Each certificate representing Duriron Common Stock issued as Merger
Consideration to a Durametallic Affiliate shall bear an appropriate restrictive
legend reflecting the restrictions on transfer imposed by Rule 145 under the
Securities Act and the Commission's Accounting Series Releases 130 and 135, as
amended.
(c) Promptly after the Effective Time, Duriron shall cause the Exchange
Agent to mail and/or make available to each record holder of a Durametallic
Certificate a notice and letter of transmittal advising such holder of the
effectiveness of the Merger and the procedures to be used in effecting the
surrender of the Durametallic Certificates for exchange and specifying that
delivery shall be effected, and risk of loss and title to Durametallic
Certificates will pass, only upon proper delivery of the Durametallic
Certificates to the Exchange Agent, and such other matters as Duriron reasonably
shall specify. Upon surrender of a Durametallic Certificate to the Exchange
Agent, together with a letter of transmittal duly executed and completed in
accordance with its instructions, and such other documents as may be reasonably
requested by Duriron or the Exchange Agent, and subject to any withholding of
taxes, the Exchange Agent shall promptly deliver to the person entitled thereto
the appropriate Merger Consideration, and the surrendered Durametallic
Certificate thereupon automatically shall be cancelled.
(d) If delivery of all or part of the Merger Consideration is to be made to
a person other than the person in whose name a surrendered Durametallic
Certificate is registered, it shall be a condition to such delivery or exchange
that the Durametallic Certificate surrendered shall be properly endorsed or
shall be otherwise in proper form for transfer and that the person requesting
such delivery or exchange shall have paid any required transfer and other taxes.
(e) Until surrendered and exchanged in accordance with this Section 3.6,
each Durametallic Certificate shall, from and after the Effective Time, and for
all corporate purposes other than the payment of dividends or other
distributions, evidence the number of whole shares of Duriron Common Stock
included in the Merger
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Consideration to which the holder is entitled under this Section 3.6. No
dividends or other distributions, if any, with respect to the Duriron Common
Stock shall be paid to any holder with respect to the shares of Duriron Common
Stock represented by any unsurrendered Durametallic Certificate until the holder
of record of such Durametallic Certificate duly surrenders it for exchange in
accordance with this Section 3.6. Duriron shall from time to time deposit with
the Exchange Agent all dividends or other distributions payable within 180 days
after the Effective Time with respect to the Duriron Common Stock represented by
unsurrendered Durametallic Certificates, and the Exchange Agent shall pay,
without interest, the dividends or other distributions to the record holder of
those shares of Duriron Common Stock when the Durametallic Certificate with
respect thereto is duly surrendered in accordance with this Section 3.6. None of
Duriron, Merger Sub or Durametallic shall be liable to any holder of a
Durametallic Certificate for any Merger Consideration (or dividends,
distributions or interest with respect thereto) delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(f) Any funds (including any interest with respect thereto) remaining with
the Exchange Agent 180 days after the Effective Time shall be returned by the
Exchange Agent to Duriron, and thereafter holders of Durametallic Certificates
shall be entitled to look only to Duriron (subject to abandoned property,
escheat, or other similar laws) with respect to the Merger Consideration.
(g) In the event any Durametallic Certificate has been lost, stolen, or
destroyed and the holder thereof is unable to obtain a new certificate by reason
of the fact that there can be no further registration of transfers of such
certificate on the records of Durametallic pursuant to Section 3.10, the
Exchange Agent shall issue or pay in exchange therefor, upon receipt of an
affidavit by the holder thereof stating that such Durametallic Certificate has
been lost, stolen, or destroyed, the Merger Consideration to which the holder is
entitled under this Section 3.6; except that Duriron may, in its discretion and
as a condition precedent to the issuance or payment thereof, require the holder
to deliver a bond in such sum as Duriron reasonably may direct as indemnity
against any claim that may be made against the Surviving Corporation, Duriron,
or the Exchange Agent with respect to the Durametallic Certificates alleged to
have been lost, stolen, or destroyed.
3.7 Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, if the dissenters' rights provisions of the Michigan BCA are
applicable to the holders of Durametallic Common Shares in connection with the
Merger, no Durametallic Common Share which is held by a shareholder who shall
have properly exercised and perfected such dissenters' rights (the "Durametallic
Dissenting Shares") shall be converted into or be exchangeable for the Merger
Consideration, but the holder thereof shall be entitled to such rights as are
granted to such holder under Sections 761 to 774 of the Michigan BCA with
respect to such share; provided, however, that if any such holder fails to
perfect or effectively withdraws or otherwise loses such dissenters' rights
under the Michigan BCA, such holder's Durametallic Dissenting Shares thereupon
shall be deemed to have been converted into and to have become exchangeable for,
as of the Effective Time, the Merger Consideration, and such shares shall no
longer be Durametallic Dissenting Shares.
3.8 Limitations. (a) Notwithstanding any other provision of this
Agreement, there shall not be issued in connection with the Merger, and the
Durametallic Common Shares issued and outstanding immediately prior to the
Effective Time shall not be converted into, an aggregate number of shares of
Duriron Common Stock in excess of the number of shares which would be issued
(after taking into account any issuance of additional Durametallic Common Shares
permitted by this Agreement, any Durametallic Common Shares held by Duriron,
Durametallic, any Duriron Subsidiary or Durametallic Subsidiary which are
cancelled in the Merger, any Durametallic Common Shares which are retired prior
to the Effective Time, and any Durametallic Dissenting Shares) if there is no
breach of the representations and warranties of Durametallic set forth in
Section 4.4 or the covenants of Durametallic set forth in Subsection 6.2.3 and
Section 6.19(a).
(b) Notwithstanding any other provision of this Agreement, the number of
shares of Duriron Common Stock which, from and after the Effective Time, may be
purchased pursuant to the exercise of Durametallic Stock Options shall not
exceed, and the average option price per share of Duriron Common Stock pursuant
to such options shall not be less than, the number of shares of Duriron Common
Stock which would be subject to such Durametallic Stock Options, and the average
option price per share which would be in effect, if there is
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no breach of the representation and warranty of Durametallic set forth in
Section 4.4 or the covenants of Durametallic set forth in Section 6.2.3.
3.9 No Further Rights. At and after the Effective Time, each former holder
of Durametallic Common Shares shall cease to have any rights as a shareholder of
Durametallic, and shall instead have only such rights as are provided by this
Agreement and under applicable law.
3.10 Closing of Transfer Books. At the close of business on the business
day immediately preceding the day of the Effective Time, the stock transfer
books of Durametallic shall be closed and no transfers of Durametallic Common
Shares thereafter shall be made. If, after the Effective Time, any Durametallic
Certificates are presented to Durametallic or Duriron, they shall be cancelled
and exchanged as provided in this Article.
3.11 Certain Share Information. (a) Durametallic Common Shares are the
only class or series of shares of Durametallic outstanding and entitled to vote,
there being no other class or series of shares of Durametallic outstanding or
entitled to vote. The number of Durametallic Common Shares outstanding is as
indicated in Section 4.4(a). The number of Durametallic Common Shares
outstanding is subject to change prior to the Effective Time only (i) pursuant
to exercise of Durametallic Stock Options as referenced in Section 4.4(c) and
listed on Durametallic Schedule 4.4 (such options covering, as of the date of
this Agreement, 41,582 Durametallic Common Shares), and (ii) the issuance of
Durametallic Common Shares pursuant to the Durametallic Executive Bonus Plan
(subject, however, to the limitations set forth in Section 6.19(a)).
(b) Common Shares of Merger Sub are the only class or series of shares of
Merger Sub outstanding and entitled to vote, there being no other class or
series of shares of Merger Sub outstanding or entitled to vote. The number of
Common Shares of Merger Sub outstanding is as indicated in Section 5.4(a). The
number of Common Shares of Merger Sub outstanding is not subject to change prior
to the Effective Time.
(c) Shares of Duriron Common Stock are the only class or series of shares
of Duriron outstanding and entitled to vote, there being no other class or
series of shares of Duriron outstanding or entitled to vote. The number of such
shares is indicated in Section 5.4(b). The number of shares of Duriron Common
Stock outstanding is subject to change prior to the Effective Time as a result
of issuance of such shares pursuant to stock option plans, incentive
compensation plans or otherwise, but a change in the number of such outstanding
shares does not affect the Conversion Ratio.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF DURAMETALLIC
Durametallic represents and warrants to Merger Sub and Duriron as follows
(i) as of the date of this Agreement and (ii) as of the time of the Closing with
the same force and effect as if such representations and warranties were made at
and as of the time of the Closing:
4.1 Schedules. Durametallic has heretofore delivered to Duriron two sets
of each of the Durametallic Schedules. Each such set is identified by the
signature of an executive officer of Durametallic thereon. Each of such
Durametallic Schedules is true, accurate and complete.
4.2 Corporate Organization. Durametallic is a corporation duly organized,
validly existing and in good standing under the laws of the State of Michigan.
Except as set forth on Durametallic Schedule 4.2, Durametallic is duly qualified
to do business and is in good standing as a foreign corporation in each
jurisdiction in which its ownership or leasing of property or the nature of the
business conducted by it makes such qualification necessary, except for such
jurisdictions in which the failure to be so qualified would have no worse than
an Immaterial Adverse Effect on Durametallic. Durametallic has the requisite
corporate power and authority to own, lease and operate its properties and
assets and to carry on its business as it is now being conducted. Durametallic
has heretofore delivered to Duriron true and complete copies of Durametallic's
Articles of Incorporation and By-laws, both as currently in effect.
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4.3 Authority; Authorization; Enforceability. (a) Durametallic has the
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby.
(b) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized and approved by
the Board of Directors of Durametallic. The Board of Directors of Durametallic
has duly (i) adopted this Agreement; (ii) determined that the Merger is
advisable, is fair to the shareholders of Durametallic, and is in the best
interests of such shareholders and Durametallic; (iii) directed that the Merger
be submitted for consideration of approval by Durametallic's shareholders at the
Durametallic Meeting; and (iv) authorized and adopted this Agreement in
accordance with the provisions of Sections 701 through 735 of the Michigan BCA
with the result that, upon the satisfaction of the condition described in
Section 7.1(b) of this Agreement, Sections 790 through 799 of the Michigan BCA
will not apply to the Merger or any of the transactions contemplated by this
Agreement. No corporate proceedings on the part of Durametallic, other than
those previously described in this Section 4.3(b) and the affirmative vote of
the holders of a majority of the outstanding shares of Durametallic Common
Shares entitled to vote thereon, are necessary to authorize this Agreement and
to consummate the transactions so contemplated.
(c) This Agreement has been duly executed and delivered by Durametallic,
and constitutes a valid and binding obligation of Durametallic, enforceable
against it in accordance with its terms, except that the consummation of the
Merger is subject to the approval of Durametallic's shareholders as described in
Section 4.3(b).
4.4 Capitalization. (a) The authorized capital stock of Durametallic
consists of 4,500,000 Durametallic Common Shares. As of the date of this
Agreement, 1,716,884 Durametallic Common Shares are issued and outstanding.
(b) Set forth on Durametallic Schedule 4.4 is a complete list of (i) all
outstanding Durametallic Stock Options, together with the names of the holders
thereof, the number of shares subject thereto, per share exercise prices, and
dates of grant and expiration; and (ii) all agreements or other instruments
defining the rights of holders of Durametallic Stock Options. Copies of such
agreements and instruments have heretofore been delivered to Duriron.
(c) Except as described in Durametallic Schedule 4.4, there are no
outstanding Rights of Purchase relating to the issued or unissued capital shares
or other securities of Durametallic which obligate or may obligate Durametallic
to issue, deliver or sell, or cause to be issued, delivered or sold, additional
capital shares or other securities of Durametallic or to grant, extend or enter
into any such Rights of Purchase.
(d) To the Knowledge of Durametallic, there are no contracts, agreements or
understandings between or among any shareholders of Durametallic which limit,
restrict or otherwise affect the voting of any Durametallic Common Shares.
(e) The total number of Durametallic Common Shares outstanding immediately
prior to the Effective Time shall not exceed 1,716,884 shares, plus (i) the
number of shares, if any, issued after the date of this Agreement pursuant to
exercise of any Durametallic Stock Options, and (ii) the number of shares, if
any, issued after the date of this Agreement pursuant to the Durametallic
Executive Incentive Bonus Plan (as amended effective January 1, 1993) in
compliance with Section 6.19(a). The maximum number of Durametallic Common
Shares which may at any time hereafter be issued pursuant to the Durametallic
Executive Incentive Bonus Plan is 2,500.
(f) All outstanding Durametallic Common Shares are, and all Durametallic
Common Shares subject to issuance pursuant to outstanding Durametallic Stock
Options, upon issuance on the terms and conditions specified in the instruments
pursuant to which they are issuable, will be, duly authorized, validly issued,
fully paid and nonassessable, and not subject to any right of rescission. No
outstanding Durametallic Common Shares were issued in violation of any
preemptive right of any Durametallic shareholder, and no Durametallic
shareholder currently has any preemptive right with respect to any Durametallic
Common Shares. No person who holds any outstanding Durametallic Common Shares
has a valid claim or cause of action against
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Durametallic based on any violation of any applicable securities law which
violation occurred in connection with the issuance or other sale by Durametallic
of the Durametallic Common Shares to such person.
(g) Set forth on Durametallic Schedule 4.4 is a list of all repurchases or
other acquisitions by Durametallic or any Durametallic Subsidiary of capital
stock of Durametallic or any Durametallic Subsidiary since January 1, 1992. Such
list includes the identity of each party from whom the shares were acquired, a
description and the quantity of the shares acquired, a description of the
consideration given in exchange for the shares, and the date of the transaction.
There is no basis for the assertion by any party of any claim against
Durametallic or any Durametallic Subsidiary as a result of any such repurchase
or other acquisition.
4.5 Subsidiaries and Joint Venture Companies. (a) Set forth on
Durametallic Schedule 4.5 is the name, jurisdiction of organization, and
Durametallic's percentage ownership of each Durametallic Subsidiary and
Durametallic Joint Venture Company. Except as set forth on Durametallic Schedule
4.5, neither Durametallic nor to the Knowledge of Durametallic any Durametallic
Subsidiary has any investment in excess of $50,000 in or owns any securities of
any corporation, business, enterprise, entity, or organization except (i)
certificates of deposit, commercial paper, or similar money equivalents; and
(ii) its interest in the Durametallic Subsidiaries and Durametallic Joint
Venture Companies, as described in Durametallic Schedule 4.5.
(b) Except as set forth on Durametallic Schedule 4.5, each Durametallic
Subsidiary is duly organized, validly existing and in good standing under the
laws of its respective jurisdiction of organization. Except as set forth on
Durametallic Schedule 4.5, each Durametallic Subsidiary is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which its ownership or leasing of property or the nature of the business
conducted by it makes such qualification necessary, except for such
jurisdictions in which the failure to be so qualified would have no worse than
an Immaterial Adverse Effect on Durametallic.
(c) Except as set forth on Durametallic Schedule 4.5, all outstanding
shares of capital stock in each Durametallic Subsidiary are duly authorized,
validly issued, fully paid and nonassessable, and have not been issued in
violation of any preemptive right. The capital stock of each Durametallic
Subsidiary and Durametallic Joint Venture Company held by Durametallic or
another Durametallic Subsidiary is owned free and clear of all Liens. Except as
set forth on Durametallic Schedule 4.5, there are no outstanding Rights of
Purchase relating to the issued or unissued capital stock or other securities of
any Durametallic Subsidiary which obligate or may obligate Durametallic or any
Durametallic Subsidiary to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other securities or to
grant, extend or enter into any such Rights of Purchase. Except as set forth on
Durametallic Schedule 4.5, to the Knowledge of Durametallic there are no
outstanding Rights of Purchase relating to the issued or unissued capital stock
or other securities of any Durametallic Joint Venture Company which obligate or
may obligate any Durametallic Joint Venture Company to issue, deliver or sell,
or cause to be issued, delivered or sold, additional shares of capital stock or
other securities or to grant, extend or enter into any such Rights of Purchase.
4.6 Information in Registration Statement and Other Documents. (a) None of
the information provided by Durametallic for inclusion in the Registration
Statement will, at the time the Registration Statement becomes effective, at the
time of the Durametallic Meeting or at the time of the Duriron Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
(b) None of the information provided by Durametallic for inclusion in Joint
Proxy Statement/Prospectus will, at the time of the mailing of the same, at the
time of the Durametallic Meeting or at the time of the Duriron Meeting, contain
any statement which, at the time it is made and in light of the circumstances
under which it is made, is false or misleading with respect to any material
fact, or which omits to state any material fact necessary in order to make the
statements therein not false or misleading or necessary to correct any statement
in any earlier communication which has become false or misleading.
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(c) None of the information provided by Durametallic for inclusion in
any other document to be filed with any Governmental Entity in connection
with the transactions contemplated hereby will contain any statement of a
material fact which is untrue as of the time that such statement is made.
4.7 Consents and Approval; No Violation. Except as set forth on
Durametallic Schedule 4.7, neither the execution and delivery of this Agreement
by Durametallic, nor the consummation by Durametallic of the transactions
contemplated hereby, nor compliance by Durametallic with any of the provisions
hereof, will:
(a) Conflict with or result in any breach of any provision of
Durametallic's Articles of Incorporation or By-laws.
(b) Violate, conflict with, constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under,
result in the termination of, accelerate the performance required by,
result in a right of termination or acceleration of, or result in the
creation of any Lien upon any of the properties or assets of Durametallic
or any Durametallic Subsidiary under, any Durametallic Contract, except for
such violations, conflicts, defaults, terminations, or accelerations which
will have no worse than an Immaterial Adverse Effect on Durametallic.
(c) Violate any judgment, ruling, order, writ, injunction, decree,
statute, rule or regulation applicable to Durametallic, any Durametallic
Subsidiary, or any of their respective properties or assets.
(d) Have any adverse effect on the ownership, operations or financial
condition of any Durametallic Joint Venture Company, except for such
adverse effects as will have no worse than an Immaterial Adverse Effect on
Durametallic.
(e) Require any consent, approval, authorization or permit of or from,
or filing with or notification to, any Governmental Entity, except (i)
pursuant to the Exchange Act or the Securities Act; (ii) filing the
Certificate of Merger pursuant to the Michigan BCA; (iii) filings required
under the securities or Blue Sky laws of various states; (iv) filings
required under the HSR Act; and (v) any action, consent, approval or filing
required by any foreign Governmental Entity as a result of the change in
control of Durametallic or any Durametallic Subsidiary.
4.8 Reports and Financial Statements. (a) Neither Durametallic nor any
Durametallic Subsidiary is required to file any statements or reports with the
Commission.
(b) The Durametallic Financial Statements have been, and in the case of
Durametallic Financial Statements for periods ending after the date of this
Agreement, will be, prepared in accordance with generally accepted accounting
principles in the United States applied on a consistent basis (except as may be
indicated therein) and fairly present or will fairly present, as the case may
be, the consolidated financial position of Durametallic at the dates thereof and
the consolidated results of operations and cash flows for the periods then ended
subject, in the case of unaudited interim financial statements, to normal
year-end and audit adjustments and any other adjustments described therein,
which adjustments shall not, either individually or in the aggregate, be
materially adverse to Durametallic.
(c) All documents which Durametallic is responsible for filing with any
Governmental Entity in connection with the Merger will comply as to form in all
material respects with the provisions of applicable law or regulation.
4.9 Taxes. (a) Except as set forth on Durametallic Schedule 4.9,
Durametallic and, to the Knowledge of Durametallic, each Durametallic Subsidiary
and Durametallic Joint Venture Company, have prepared in good faith and duly and
timely filed, or caused to be duly and timely filed, all Tax Returns required to
be filed by it. Except as set forth on Durametallic Schedule 4.9 and for Taxes
as to which the assessment of deficiencies and other means of collection has
been barred by the applicable statute of limitations, Durametallic, each
Durametallic Subsidiary, and to the Knowledge of Durametallic, each Durametallic
Joint Venture Company, have paid, or have adequately reserved or made adequate
accruals (in accordance with generally accepted accounting principles) with
respect to, all Taxes due and payable pursuant to such Tax Returns or otherwise
owing by Durametallic or the Durametallic Subsidiary or Durametallic Joint
Venture Company, whether or not shown to be owing on such Tax Returns. Neither
Durametallic nor any
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Durametallic Subsidiary nor Durametallic Joint Venture Company has or will have
any liability for Taxes referable to any period to and including the Effective
Time, except for ordinary and normal Taxes which are not yet due and payable and
except for Taxes the liability for which would not have a Material Adverse
Effect on Durametallic.
(b) Durametallic Schedule 4.9 sets forth, as of the date of this Agreement,
the following information with respect to Durametallic and, to the Knowledge of
Durametallic, each Durametallic Subsidiary: (i) the most recent tax year through
which the IRS has completed its examination of such entity; (ii) whether there
is an examination pending by the IRS with respect to such entity, and, if so,
the tax years involved; (iii) whether such entity has executed or filed with the
IRS or any other Governmental Entity any agreement which is still in effect
extending the period for assessment and collection of any Tax and, if so, the
tax years covered by such agreement and expiration date of such extension; and
(iv) whether there are any existing disputes as to any Taxes. Except as set
forth on Durametallic Schedule 4.9, there are no Liens for Taxes upon the assets
of Durametallic or any Durametallic Subsidiary or, to the Knowledge of
Durametallic, any Durametallic Joint Venture Company, except for statutory Liens
for Taxes not yet delinquent.
(c) Except as set forth on Durametallic Schedule 4.9, neither Durametallic
nor any Durametallic Subsidiary is a party to any action or proceeding, nor to
the Knowledge of Durametallic is any such action or proceeding threatened, by
any Governmental Entity for the assessment or collection of Taxes, and no
deficiency notices or reports have been received by Durametallic or, to the
Knowledge of Durametallic, any Durametallic Subsidiary in respect of any
deficiencies for Taxes. After the date of this Agreement, Durametallic will
promptly notify Duriron of (i) the commencement or threat of any such action or
proceeding, (ii) the receipt by Durametallic or any Durametallic Subsidiary of
any such deficiency notice or report, and (iii) to the extent that the same is
within the Knowledge of Durametallic, the existence or commencement of any such
action or proceeding to which any Durametallic Joint Venture Company is a party
and the receipt by any Durametallic Joint Venture Company of any such deficiency
notice or report.
(d) Except as set forth on Durametallic Schedule 4.9, neither Durametallic
nor any domestic Durametallic Subsidiary has, or since January 1, 1991 has had,
a permanent establishment in any foreign country.
(e) Set forth on Durametallic Schedule 4.9 is information based upon the
Knowledge of Durametallic as of the most recent practicable date with respect to
Durametallic and each Durametallic Subsidiary concerning: (i) the amount and
date of expiration of any net operating loss, net capital loss, unused foreign
or other tax credit, or excess charitable contribution deduction; and (ii) a
list of jurisdictions in the United States in which Durametallic or any
Durametallic Subsidiary is required to file Tax Returns. Since January 1, 1993
no claim has been made by a taxing authority in a jurisdiction in the United
States where Durametallic or a Durametallic Subsidiary does not file Tax Returns
that Durametallic or a Durametallic Subsidiary is subject to taxation by such
jurisdiction.
(f) Durametallic has never been a member of an affiliated group within the
meaning of Code Section 1504 of which another corporation was the common parent.
With respect to the tax liability obligation under Federal Income Tax Regulation
Section 1.1502-6, except as set forth on Durametallic Schedule 4.9, (i)
Durametallic has not transferred the shares of a subsidiary corporation outside
the affiliated group of corporations of which Durametallic is the common parent,
and (ii) the affiliated group of corporations of which Durametallic is the
common parent has not acquired the shares of a subsidiary corporation.
4.10 Employee Plans. (a) Durametallic Schedule 4.10 sets forth a complete
list of all Durametallic Employee Plans relating to the domestic operations or
employees of Durametallic or any domestic Durametallic Significant Subsidiary.
Durametallic has previously delivered or made available to Duriron true and
complete copies of all such Durametallic Employee Plans, in each case as in
effect on the date of this Agreement.
(b) Each Durametallic Employee Plan relating to Durametallic and each
domestic Durametallic Significant Subsidiary and, to the Knowledge of
Durametallic, relating to each other Durametallic Subsidiary, has been
maintained, operated and administered in substantial compliance with its terms.
Durametallic and
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each Durametallic Employee Plan relating to Durametallic and each domestic
Durametallic Significant Subsidiary and, to the Knowledge of Durametallic, each
other Durametallic Subsidiary and each Durametallic Employee Plan relating to
each other Durametallic Subsidiary, currently complies, and has at all relevant
times complied, in all material respects with ERISA, the Code, and any other
applicable laws (including, without limitation, the provisions of ERISA relating
to fiduciary obligations and disclosure and reporting requirements).
(c) With respect to each Durametallic Employee Plan which is a pension
plan, as defined in Section 3(2) of ERISA and which is subject to any of the
provisions of ERISA: (i) each pension plan as amended (and any trust relating
thereto) intended to be a qualified plan under Section 401(a) of the Code either
has been determined by the IRS to be so qualified or is the subject of a pending
application for such a determination that was timely filed; (ii) there is no
accumulated funding deficiency (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, and no waiver of the minimum funding
standards of such sections has been requested from the IRS; (iii) no reportable
event described in Section 4043 of ERISA has occurred; (iv) no nonexempt
prohibited transaction (as defined in Section 4975 of the Code) has occurred;
(v) there is currently no active filing by Durametallic or any Durametallic
Subsidiary with the PBGC to terminate any defined benefit plan; (vi) no defined
benefit plan has been terminated; (vii) the PBGC has not instituted proceedings
to terminate a defined benefit plan or to appoint a trustee or administrator of
a defined benefit plan; and (viii) no circumstances exist that constitute
grounds under Section 4042 of ERISA entitling the PBGC to institute any such
proceedings. Neither Durametallic nor any Durametallic Subsidiary is a party to
or has completely or partially withdrawn from any multi-employer plan, within
the meaning of Section 3(37) of ERISA, which is subject to any of the provisions
of ERISA.
(d) Except as set forth on Durametallic Schedule 4.10, no Durametallic
Employee Plan relating to Durametallic or any domestic Durametallic Significant
Subsidiary or, to the Knowledge of Durametallic, relating to any other
Durametallic Subsidiary, provides benefits, including without limitation, death
or medical benefits (whether or not insured), with respect to current or former
employees beyond their retirement or other termination of service, other than
(i) temporary coverage mandated by applicable law, (ii) death benefits or
retirement benefits under any employee pension plan, as that term is defined in
Section 3(2) of ERISA, (iii) deferred compensation benefits accrued as
liabilities on the books of Durametallic or the Durametallic Subsidiary, or (iv)
benefits the full cost of which are borne by the current or former employee (or
his or her beneficiary).
(e) No Durametallic Employee Plan relating to Durametallic or any domestic
Durametallic Significant Subsidiary or, to the Knowledge of Durametallic,
relating to any other Durametallic Subsidiary, is involved in or is the subject
of any litigation or any claims other than routine benefit claims, and
Durametallic is not aware of any such litigation or claims which can reasonably
be expected to be filed.
(f) All required contributions to each Durametallic Employee Plan relating
to Durametallic or any domestic Durametallic Significant Subsidiary or, to the
Knowledge of Durametallic, relating to any other Durametallic Subsidiary, have
been made, except for current contributions not yet due and payable, all of
which through December 31, 1994 have been accrued and are reflected in the
Durametallic Financial Statements.
(g) With respect to each Durametallic Employee Plan, (i) to the Knowledge
of Durametallic, no event has occurred and no condition exists that would
subject Durametallic or Duriron to any tax under Sections 4971 through 4980B of
the Code or to a fine or liability under Section 502 of ERISA, and (ii) no
provision of any such Plan prevents Durametallic or Duriron from terminating
such Plan.
(h) Each voluntary employees beneficiary association, as described in
Section 501(c)(9) of the Code ("VEBA"), if any, has received a favorable ruling
or determination letter as to its tax-exempt status and nothing has occurred
which would cause the loss of such tax-exempt status, and the assets of such
VEBA are at least equal in value to the present value of the accrued benefits of
the participants in such VEBA.
4.11 Durametallic Contracts. Except for employment contracts deemed to
have been created by conduct, oral statements, written rules or policies or
other publications, none of which were published or
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uttered intending to create an employment contract nor, to the Knowledge of
Durametallic, has been asserted as the basis for the claimed existence of an
employment contract, set forth on Durametallic Schedule 4.11 is a complete list
of all Durametallic Contracts in force and effect on the date of this Agreement
relating to Durametallic or any Durametallic Subsidiary or, to the Knowledge of
Durametallic, relating to any Durametallic Joint Venture Company. Except as set
forth on Durametallic Schedule 4.11, Durametallic has delivered to Duriron true
and complete copies of all such Durametallic Contracts and will deliver to
Duriron true and complete copies of all Durametallic Contracts executed after
the date of this Agreement. Except as set forth on Durametallic Schedule 4.11,
none of the Durametallic Contracts will have a Material Adverse Effect on the
Durametallic Entity party thereto, and neither Durametallic nor any Durametallic
Subsidiary nor, to the Knowledge of Durametallic, any Durametallic Joint Venture
Company is in default under any Durametallic Contract, other than defaults which
would have no worse than an Immaterial Adverse Effect on Durametallic, and there
has not occurred any event that with the lapse of time or the giving of notice
or both would constitute such a default.
4.12 Absence of Certain Changes or Events. Except as set forth on
Durametallic Schedule 4.12, from December 31, 1994 to the date of this
Agreement, there has not been any adverse change in the financial condition,
results of operations or business or prospects of Durametallic or any
Durametallic Subsidiary or Durametallic Joint Venture Company, other than such
changes as will have no worse than an Immaterial Adverse Effect on Durametallic.
4.13 Litigation; Pending Decrees. (a) Except as disclosed in Durametallic
Schedule 4.13, there is no litigation, action, arbitration or proceeding pending
against Durametallic or, to the Knowledge of Durametallic, any other
Durametallic Subsidiary or any Durametallic Joint Venture Company, or, to the
Knowledge of Durametallic, threatened against or affecting Durametallic or any
Durametallic Subsidiary or any Durametallic Joint Venture Company, which is
having, or insofar as reasonably can be foreseen will have, any worse than an
Immaterial Adverse Effect on Durametallic.
(b) There is no judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against Durametallic or any
Durametallic Significant Subsidiary or, to the Knowledge of Durametallic, any
other Durametallic Subsidiary or any Durametallic Joint Venture Company, having,
or which, insofar as reasonably can be foreseen will have, any worse than an
Immaterial Adverse Effect on Durametallic.
4.14 Compliance with Laws and Orders; Permits and Licenses. (a) Except as
disclosed in Durametallic Schedule 4.14, the businesses of Durametallic and the
Durametallic Significant Subsidiaries and, to the Knowledge of Durametallic, the
other Durametallic Subsidiaries and the Durametallic Joint Venture Companies,
are not being conducted, and to the Knowledge of Durametallic, have not been
conducted since December 31, 1991, in violation of any law, ordinance,
regulation, judgment, order, decree, license or permit of any Governmental
Entity (including without limitation, zoning ordinances, building codes,
Environmental Laws, occupational health and safety laws and regulations, and
franchise laws and regulations), except for possible violations which have, and,
insofar as reasonably can be foreseen will have, no worse than an Immaterial
Adverse Effect on Durametallic. Except as set forth on Durametallic Schedule
4.14, to the Knowledge of Durametallic no investigation or review by any
Governmental Entity with respect to Durametallic or any Durametallic Subsidiary
or Durametallic Joint Venture Company is pending or threatened, nor has any
Governmental Entity indicated an intention to conduct the same.
(b) Except as disclosed in Durametallic Schedule 4.14, each of Durametallic
and any Durametallic Significant Subsidiary and, to the knowledge of
Durametallic, any other Durametallic Subsidiary or any Durametallic Joint
Venture Company, has, and each is in material compliance with the terms of, all
licenses and permits required for the operation of their respective businesses,
including without limitation all licenses and permits required by any
Environmental Laws.
4.15 Pooling of Interests Accounting. Neither Durametallic nor, to the
Knowledge of Durametallic, any of the Durametallic Affiliates, has taken or
agreed to take any action that would prevent Duriron from accounting for the
business combination to be effected by the Merger as a "pooling of interests."
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4.16 Certain Fees and Liabilities. Neither Durametallic nor any
Durametallic Subsidiary (i) has paid or is obligated to pay any fee or
commission to any broker, finder or intermediary in connection with the
transactions contemplated by this Agreement, except to William Blair & Company
under agreement dated September 10, 1993 as amended by letters dated December 9,
1993 and July 21, 1995; or (ii) has any liability to any person relating to any
other proposed Durametallic Change of Control Transaction.
4.17 Conduct to Date. Except as disclosed in Durametallic Schedule 4.17
and except for the transactions contemplated by this Agreement, from and after
December 31, 1994:
(a) Durametallic and the Durametallic Subsidiaries have carried on
their respective businesses in the ordinary and usual course consistent
with their current practices.
(b) Neither Durametallic nor any Durametallic Subsidiary has issued or
sold any of its capital stock (except Durametallic Common Shares issued
upon exercise of Durametallic Stock Options outstanding prior to December
31, 1994).
(c) Durametallic has not granted any Rights of Purchase with respect
to its capital stock or other securities which are not listed on
Durametallic Schedule 4.4; given any holder the right to exercise any
Durametallic Stock Options prior to the dates specified in the original
instrument creating such Rights of Purchase; or effected any stock split or
otherwise changed its authorized capitalization.
(d) Durametallic has not declared, set aside, or paid any dividend or
other distribution in respect of its capital stock, or, directly or
indirectly, redeemed or otherwise acquired any of its capital stock.
(e) Neither Durametallic nor any Durametallic Significant Subsidiary
has incurred or prepaid any corporate debt or instruments which are or
would be classified as long-term debt on its balance sheet, nor has
Durametallic or, to the Knowledge of Durametallic, any Durametallic
Subsidiary made any loan or advance to any person pursuant to a
Durametallic Contract which is not listed on Durametallic Schedule 4.11.
(f) Neither Durametallic nor any Durametallic Subsidiary nor, to the
Knowledge of Durametallic, any Durametallic Joint Venture Company has sold,
assigned, transferred, or otherwise disposed of any of its material
properties or assets other than in the ordinary course of its business.
(g) Neither Durametallic nor, to the Knowledge of Durametallic, any
Durametallic Subsidiary has purchased or otherwise acquired from a third
party assets constituting any other line of business or any material
properties or assets outside the ordinary course of its business.
(h) Neither Durametallic nor, to the Knowledge of Durametallic, any
Durametallic Subsidiary has entered into any supply contract or other such
agreement or understanding relating to the purchase of products by it which
would constitute a Durametallic Contract and which is not listed on
Durametallic Schedule 4.11.
(i) Neither Durametallic nor, to the Knowledge of Durametallic, any
Durametallic Subsidiary has increased the rate of compensation of, or paid
any bonus to, any of its directors, officers, or other employees, except as
required under existing Durametallic Employee Plans; secured,
collateralized, or funded any Durametallic Employee Plan not previously
secured, collateralized, or funded; entered into, terminated, or
substantially modified any Durametallic Employee Plan; or agreed to do any
of the foregoing.
(j) Neither Durametallic nor, to the Knowledge of Durametallic, any
Durametallic Significant Subsidiary has entered into, or amended, modified
or terminated, any Durametallic Contract outside the ordinary course of
business.
4.18 Labor Matters. Except as set forth on Durametallic Schedule 4.18, (i)
there are no controversies pending between Durametallic, any Durametallic
Subsidiary, and any of their respective employees, other than routine individual
grievances which will have no worse than an Immaterial Adverse Effect on
Durametallic, and (ii) no employee of Durametallic or any domestic Durametallic
Subsidiary is represented
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by any labor union and, to the Knowledge of Durametallic, no labor union is
attempting any such representation.
4.19 Undisclosed Liabilities. (a) Except as and to the extent disclosed,
reflected or reserved against in the Durametallic Financial Statements, neither
Durametallic nor the Durametallic Subsidiaries have or will have, as of the
respective dates thereof, any material liabilities or obligations (whether known
or unknown, accrued, absolute, contingent or otherwise) of the type which, if
known, would be required to be reflected on a balance sheet prepared in
accordance with generally accepted accounting principles in the United States or
disclosed in the notes thereto, and there was or will be no material loss
contingency, as defined in paragraph 1 of Statement of Financial Accounting
Standards No. 5, of Durametallic or the Durametallic Subsidiaries which was not
so reflected or disclosed as required by paragraphs 8 to 12, inclusive, of such
Statement or the Commission's Staff Accounting Bulletin No. 92. Except as set
forth on Durametallic Schedule 4.19, since December 31, 1994, neither
Durametallic nor any of the Durametallic Subsidiaries nor any of the
Durametallic Joint Venture Companies has incurred any such material liability or
obligation (other than liabilities and obligations voluntarily assumed in the
ordinary course of business), and no such material loss contingency has arisen.
(b) To the Knowledge of Durametallic, the warranty reserve set forth on the
most recent balance sheet included in the Durametallic Financial Statements is
adequate to satisfy in full all present and future warranty claims with respect
to products or services sold by Durametallic and the Durametallic Subsidiaries
as of the date of such balance sheet.
4.20 Title to Properties; Absence of Liens, Etc. (a) Set forth on
Durametallic Schedule 4.20 is a complete list of all Real Property.
(b) Except as disclosed in Durametallic Schedule 4.20, Durametallic and the
Durametallic Subsidiaries have good and marketable title to all the Real
Property and all of their other properties and assets, including without
limitation, those assets and properties reflected in the Durametallic Financial
Statements, free and clear of all Liens, except (i) the Lien of current Taxes
not yet delinquent or which are being contested in good faith by appropriate
proceedings; (ii) properties and assets disposed of since the dates of such
Durametallic Financial Statements in the ordinary course of business; (iii) such
secured indebtedness as is disclosed in the Durametallic Financial Statements;
(iv) Liens and imperfections of title which do not individually or in the
aggregate materially detract from the value, or impair the use, of the
properties as currently used; (v) inchoate mechanics and materialmen's Liens for
construction in progress; (vi) Liens of workmen, repairmen, warehousemen and
carriers arising in the ordinary course of business which are not, either
individually or in the aggregate, material in amount; and (vii) as to leased
real estate, Liens arising as a result of actions or inactions of the landlord
or owner of such properties unrelated to any default by Durametallic or any
Durametallic Subsidiary under the terms of occupancy of such property.
Durametallic and the Durametallic Subsidiaries own, or have valid and
enforceable rights as lessees to possess and use, all properties and assets used
in the conduct of their respective businesses since January 1, 1994, other than
any properties or assets disposed of since such date in the ordinary course of
business.
(c) Except as set forth on Durametallic Schedule 4.20, (i) all of the
buildings and material tangible personal property owned or leased by
Durametallic or any Durametallic Subsidiary are in good working condition
(normal wear and tear excepted) and adequate and suitable for the purposes for
which they are presently being used; and (ii) the assets of Durametallic and
each Durametallic Subsidiary are sufficient to operate their respective
businesses as presently conducted.
4.21 Receivables. Except as set forth in Durametallic's Schedule 4.21, all
of the accounts, notes and other receivables which are reflected in the most
recent balance sheet included in the Durametallic Financial Statements were
acquired in the ordinary and regular course of business and, except to the
extent reserved against on such balance sheet, have been collected in full, or
are expected to be collected in full, in the ordinary and regular course of
business.
4.22 Inventories. The inventories set forth on Durametallic's December 31,
1994 balance sheet which constitutes part of the Durametallic Financial
Statements and the inventories thereafter acquired or
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manufactured by Durametallic are or will be properly valued in accordance with
generally accepted accounting principles in the United States and consist of
items of a quality and quantity currently usable and saleable in the ordinary
course of business, and Durametallic has no reason to believe that they will not
be used in the business or sold within a reasonable period of time following the
Effective Time at not less than the amount reflected on such balance sheet or,
in the case of inventories acquired or manufactured after December 31, 1994, at
not less than the amount reflected on Durametallic's books, except for such
inventory the sale of which at less than such amounts would have no worse than
an Immaterial Adverse Effect on Durametallic.
4.23 Proprietary Rights. Set forth on Durametallic Schedule 4.23 is a
complete list of all Proprietary Rights used in or necessary for the conduct of
the businesses of Durametallic or the Durametallic Significant Subsidiaries as
heretofore conducted, together with a summary description of and full
information concerning the filing, registration, issuance, or licensing thereof.
Except as set forth in Durametallic Schedule 4.23, Durametallic or a
Durametallic Subsidiary owns or has the right to use all such Proprietary
Rights. Except as set forth in Durametallic Schedule 4.13 or Durametallic
Schedule 4.23, the use of such Proprietary Rights by Durametallic and the
Durametallic Subsidiaries does not infringe upon the rights of any other party,
and no claim of such infringement is pending or, to the Knowledge of
Durametallic, threatened. No licenses, sublicenses, or agreements with respect
to such Proprietary Rights have been granted or entered into by Durametallic or
the Durametallic Significant Subsidiaries, except as described in Durametallic
Schedule 4.23. Except as set forth in Durametallic Schedule 4.23, to the
Knowledge of Durametallic each other Durametallic Subsidiary and each
Durametallic Joint Venture Company owns or has the right to use all Proprietary
Rights used in or necessary for the conduct of its business as heretofore
conducted.
4.24 Insurance. Set forth on Durametallic Schedule 4.24 is a description
(including applicable deductible amounts and limitations) of all insurance
maintained by Durametallic. Except as set forth on Durametallic Schedule 4.24,
Durametallic has in place adequate insurance coverage with respect to all
litigation pending against Durametallic or, to the Knowledge of Durametallic,
any Durametallic Subsidiary.
4.25 Environmental Matters. Except as set forth in Durametallic Schedule
4.25, neither Durametallic nor any Durametallic Subsidiary nor any real property
previously or currently owned by any of them, has been or is in violation of or
liable under any Environmental Law, except for any such violation or liability
which would reasonably be expected to have no worse than an Immaterial Adverse
Effect on Durametallic. Except as set forth in Durametallic Schedule 4.25, (i)
there are no actions, suits, demands, notices, claims, or proceedings under any
Environmental Law pending or, to the Knowledge of Durametallic, threatened
against Durametallic or any Durametallic Subsidiary or relating to any real
property previously or currently owned by Durametallic or any Durametallic
Subsidiary, including without limitation, any notices, demand letters or
requests for information from any Governmental Entity making inquiries relating
to any Environmental Law or any notice that Durametallic or any Durametallic
Subsidiary is or may be a potentially responsible party under any Environmental
Law, and (ii) to the Knowledge of Durametallic, there are no investigations
pending or threatened against Durametallic or any Durametallic Subsidiary or
relating to any real property previously or currently owned by Durametallic or
any Durametallic Subsidiary. Except as set forth in Durametallic Schedule 4.25,
to the Knowledge of Durametallic, there are no past or present conditions,
circumstances, activities, practices, omissions, plans or contractual
undertakings that will interfere with or prevent continued compliance by
Durametallic or any Durametallic Subsidiary or any Durametallic Joint Venture
Company with Environmental Laws and the requirements of any permits or licenses
issued under any Environmental Law (other than any non-compliance which would
reasonably be expected to have no worse than an Immaterial Adverse Effect on
Durametallic), or that will give rise to any liability or other obligation under
any Environmental Law (other than any such liability or obligation which would
reasonably be expected to have no worse then an Immaterial Adverse Effect on
Durametallic). Except as set forth in Durametallic Schedule 4.25, (i) no Lien
exists, and no condition exists which could result in the filing of a Lien,
against any property of Durametallic or any Durametallic Subsidiary or any
Durametallic Joint Venture Company under any Environmental Law, and (ii) neither
Durametallic nor any Durametallic Subsidiary nor any Durametallic Joint Venture
Company has been requested or required by any Governmental Entity to perform any
investigatory or remedial activity under or in connection with any Environmental
Law.
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4.26 Certain Transactions. Except pursuant to the Durametallic Employee
Plans or as set forth on Durametallic Schedule 4.26, none of the officers,
directors or employees of Durametallic or any Durametallic Subsidiary is
currently a party to any transaction with Durametallic or any Durametallic
Subsidiary, including without limitation, any contract, agreement or other
arrangement (a) providing for the furnishing of services (other than as an
officer, director, or employee) to or by, (b) providing for rental of real or
personal property to or from, or (c) otherwise requiring payments to or from,
any such officer, director, or employee, any member of the family of any such
officer, director or employee, or any corporation, partnership, trust or other
entity in which any such officer, director or employee has a substantial
interest or which is an affiliate of such officer, director or employee.
4.27 Takeover Statutes. No "fair price" board of directors advisory
statement or shareholder super majority voting requirements or any "moratorium,"
"control share acquisition," or other form of anti-takeover statute or
regulation applies to the transactions contemplated by this Agreement if such
transactions are consummated in the manner contemplated by this Agreement.
4.28 Disclosure. The representations and warranties of Durametallic
contained in this Agreement and the information set forth on the Durametallic
Schedules do not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements contained herein or
therein not misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
DURIRON AND MERGER SUB
Duriron and Merger Sub each represents and warrants to Durametallic as
follows (i) as of the date of this Agreement and (ii) as of the time of the
Closing with the same force and effect as if such representations and warranties
were made at and as of the time of the Closing:
5.1 Duriron Schedules. Duriron has heretofore delivered to Durametallic
two sets of each of the Duriron Schedules. Each such set is identified by the
signature of an executive officer of Duriron thereon. Each of such Duriron
Schedules is true, accurate and complete.
5.2 Corporate Organization. (a) Duriron and Merger Sub are corporations
duly organized, validly existing and in good standing under the laws of their
respective states of incorporation. Duriron is duly qualified to do business and
is in good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of property or the nature of the business conducted by it
makes such qualification necessary, except for such jurisdictions in which the
failure to be so qualified would have no worse than an Immaterial Adverse Effect
on Duriron. Duriron has the requisite corporate power and authority to own,
lease and operate its properties and assets and to carry on its business as it
is now being conducted. Merger Sub has not engaged in any activities of any
nature other than in connection with the Merger or as contemplated by this
Agreement. Duriron has heretofore delivered to Durametallic true and complete
copies of the Charter and By-laws, both as currently in effect, of Duriron and
of Merger Sub.
(b) Except as set forth on Duriron Schedule 5.2, each Duriron Subsidiary is
duly organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation. Except as set forth on Duriron
Schedule 5.2, each Duriron Subsidiary is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of property or the nature of the business conducted by it
makes such qualification necessary, except for such jurisdictions in which the
failure to be so qualified would have no worse than an Immaterial Adverse Effect
on Duriron.
(c) Except as set forth on Duriron Schedule 5.2, all outstanding shares of
capital stock in each Duriron Subsidiary are duly authorized, validly issued,
fully paid and non- assessable, and have not been issued in violation of any
preemptive right. The capital stock of each Duriron Subsidiary held by Duriron
or another Duriron Subsidiary is owned free and clear of all Liens.
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5.3 Authority; Authorization; Enforceability. (a) Duriron and Merger Sub
each has the requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby.
(b) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized and approved by
the Boards of Directors of Duriron and Merger Sub. Each of the Boards of
Directors of Duriron and Merger Sub has duly adopted this Agreement. The Board
of Directors of Duriron has determined that the Merger is advisable and is fair
to and in the best interests of Duriron and its shareholders. Each of the Boards
of Directors of Duriron and Merger Sub has directed that the Merger be submitted
for consideration by the shareholders of Duriron at the Duriron Meeting and by
Merger Sub's sole shareholder, Duriron. No corporate proceedings on the part of
Duriron or Merger Sub other than those previously described in this Section
5.3(b) and the affirmative vote of the holders of a majority of the shares of
Duriron Common Stock voted on the Agreement at the Duriron Meeting and the
holders of a majority of the outstanding Common Shares of Merger Sub, are
necessary to authorize this Agreement or to consummate the transactions so
contemplated.
(c) This Agreement has been duly executed and delivered by, and constitutes
a valid and binding obligation of, Duriron and Merger Sub, enforceable against
Duriron and Merger Sub in accordance with its terms, except that the
consummation of the Merger is subject to the approval of the shareholders of
Duriron and Merger Sub as described in Section 5.3(b).
5.4 Capitalization. (a) The authorized capital stock of Merger Sub
consists of 60,000 Common Shares, without par value, of which 100 shares are
issued and outstanding. All of the issued and outstanding Common Shares of
Merger Sub are owned by Duriron.
(b) The authorized capital stock of Duriron consists of (i) 30,000,000
shares of Duriron Common Stock, of which 19,041,823 shares are issued and
outstanding as of the date of this Agreement, and (ii) 1,000,000 shares of
Duriron Preferred Stock (including 150,000 shares of Series A Junior
Participating Preferred Stock), none of which is outstanding as of the date of
this Agreement.
(c) All Duriron Common Stock to be issued in the Merger, and all Duriron
Common Stock issuable upon due exercise of the Durametallic Stock Options
converted in the Merger in accordance with Section 3.2, will be duly authorized,
validly issued, fully paid and nonassessable, and will not be subject to any
preemptive right.
5.5 Information in Registration Statement and Other Documents. (a) None of
the information provided by Duriron or Merger Sub for inclusion in the
Registration Statement will, at the time the Registration Statement becomes
effective, at the time of the Durametallic Meeting or at the time of the Duriron
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading.
(b) None of the information provided by Duriron or Merger Sub for inclusion
in the Joint Proxy Statement/Prospectus will, at the time of the mailing of the
same, at the time of the Durametallic Meeting or at the time of the Duriron
Meeting, contain any statement which, at the time it is made and in light of the
circumstances under which it is made, is false or misleading with respect to any
material fact, or which omits to state any material fact necessary in order to
make the statements therein not false or misleading or necessary to correct any
statement in any earlier communication which has become false or misleading.
(c) None of the information provided by Duriron or Merger Sub for inclusion
in any other document to be filed with any Governmental Entity in connection
with the transactions contemplated hereby will contain any statement of a
material fact which is untrue as of the time that such statement is made.
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5.6 Consents and Approval; No Violation. Neither the execution and
delivery of this Agreement by Duriron or Merger Sub, nor the consummation by
Duriron or Merger Sub of the transactions contemplated hereby, nor compliance by
Duriron or Merger Sub with any of the provisions hereof, will:
(a) Conflict with or result in any breach of any provision of the
Articles of Incorporation or By-laws of Duriron or Merger Sub.
(b) Violate, conflict with, constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under,
result in the termination of, accelerate the performance required by,
result in a right of termination or acceleration of, or result in the
creation of any Lien upon any of the properties or assets of Duriron or any
Duriron Subsidiary under, any note, bond, mortgage, indenture, deed of
trust, lease, agreement or other instrument or obligation to which Duriron
or any Duriron Subsidiary is a party or to which they or any of their
respective properties or assets may be subject, except for such violations,
conflicts, defaults, terminations or accelerations which will have no worse
than an Immaterial Adverse Effect on Duriron.
(c) Violate any judgment, ruling, order, writ, injunction, decree,
statute, rule or regulation applicable to Duriron or any Duriron Subsidiary
or any of their respective properties or assets.
(d) Require any consent, approval, authorization or permit of or from,
or filing with or notification to, any Governmental Entity, except (i)
pursuant to the Exchange Act or the Securities Act, (ii) filing the
Certificate of Merger pursuant to the Michigan BCA, (iii) filings required
under the securities or Blue Sky laws of various states, (iv) filings
required under the HSR Act; and (v) any action, consent, approval or filing
required by any foreign Governmental Entity as a result of the change in
control of Durametallic or any Durametallic Subsidiary.
5.7 Reports and Financial Statements. (a) Duriron has previously made
available or furnished to Durametallic, and with respect to Duriron Reports
filed after the date of this Agreement, will promptly furnish to Durametallic,
true and complete copies of each Duriron Report. As of their respective dates
(but taking into account any amendments filed prior to the date of this
Agreement), each Duriron Report complied, and with respect to any Duriron Report
filed after the date of this Agreement, will be filed in a timely manner and
comply, in all material respects with all rules and regulations promulgated by
the Commission, and did not contain, and with respect to any Duriron Report
filed after the date of this Agreement, will not contain, any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) The Duriron Financial Statements have been, and in the case of Duriron
Financial Statements included in Duriron Reports filed after the date of this
Agreement and prior to the Effective Time, will be, prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except
as may be indicated therein) and fairly present or will fairly present, as the
case may be, the consolidated financial position of Duriron at the dates thereof
and the consolidated results of operations and cash flows for the periods then
ended subject, in the case of unaudited interim financial statements, to normal
year-end and audit adjustments and any other adjustments described therein.
(c) All documents which Duriron is responsible for filing with the
Commission and any Governmental Entity in connection with the Merger will comply
as to form in all material respects with the provisions of applicable law or
regulation.
5.8 Absence of Certain Changes or Events. From December 31, 1994 to the
date of this Agreement, there has not been any adverse change in the financial
condition, results of operations or business of Duriron or any Duriron
Subsidiary that, when aggregated with all such changes, would have a Material
Adverse Effect on Duriron, whether or not arising from transactions in the
ordinary course of business.
5.9 Litigation; Pending Decrees. (a) Except as set forth in Duriron
Schedule 5.9, there is no litigation, action, arbitration or proceeding pending,
or, to the Knowledge of Duriron, threatened against or affecting Duriron or any
Duriron Subsidiary, which is having, or insofar as reasonably can be foreseen
will have, any worse than an Immaterial Adverse Effect on Duriron.
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(b) There is no judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against Duriron or, to the
Knowledge of Duriron, any Duriron Subsidiary having, or which, insofar as
reasonably can be foreseen will have, any worse than an Immaterial Adverse
Effect on Duriron.
5.10 Fees. Neither Duriron nor Merger Sub has paid or is obligated to pay
any fee or commission to any broker, finder or intermediary in connection with
the transactions contemplated by this Agreement, except Donaldson, Lufkin &
Jenrette Securities Corporation.
5.11 Undisclosed Liabilities. Except as and to the extent disclosed,
reflected or reserved against in the Duriron Financial Statements, neither
Duriron nor the Duriron Subsidiaries have or will have, as of the respective
dates thereof, any material liabilities or obligations (whether known or
unknown, accrued, absolute, contingent or otherwise) of the type which, if
known, would be required to be reflected on a balance sheet prepared in
accordance with generally accepted accounting principles or disclosed in the
notes thereto, and there was or will be no material loss contingency, as defined
in paragraph 1 of Statement of Financial Accounting Standards No. 5, of Duriron
or the Duriron Subsidiaries which was not so reflected or disclosed as required
by paragraphs 8 to 12, inclusive, of such Statement or the Commission's Staff
Accounting Bulletin No. 92. Since December 31, 1994, neither Duriron nor any of
the Duriron Subsidiaries has incurred any such material liability or obligation
(other than liabilities and obligations voluntarily assumed in the ordinary
course of business), and no such material loss contingency has arisen, other
than has been publicly disclosed or, with respect to matters occurring on or
after the date of this Agreement, shall have been publicly disclosed not less
than 15 business days in advance of the date of Durametallic Meeting.
5.12 Merger Sub; Surviving Corporation. (a) Except for obligations or
liabilities incurred in connection with its organization, the Merger, and the
negotiation and consummation of this Agreement, Merger Sub has neither incurred
any material obligations or liabilities nor engaged in any material business
activities or entered into any material agreements or arrangements.
(b) Duriron has no present plan or intention to liquidate the Surviving
Corporation, to sell or otherwise dispose of the stock of the Surviving
Corporation, or to cause the Surviving Corporation to sell or otherwise dispose
of any of the assets of Durametallic or any Durametallic Subsidiary to be
acquired in the Merger, except for dispositions in the ordinary course of
business.
5.13 Compliance with Laws and Orders. (a) Except as disclosed in Duriron
Schedule 5.13, the businesses of Duriron and, to the Knowledge of Duriron, the
Duriron Subsidiaries, are not being conducted, and, to the Knowledge of Duriron,
have not been conducted since December 31, 1991, in violation of any law,
ordinance, regulation, judgement, order, decree, license or permit of any
Governmental Entity (including, without limitation, zoning ordinances, building
codes, Environmental Laws, occupational health and safety laws and regulations,
and franchise laws and regulations), except for possible violations which have,
and, insofar as reasonably can be foreseen will have, no worse than an
Immaterial Adverse Effect on Duriron. Except as set forth on Duriron Schedule
5.13, no investigation or review by any Governmental Entity with respect to
Duriron or, to the Knowledge of Duriron, any Duriron Subsidiary, is pending or,
to the Knowledge of Duriron, threatened, nor to the Knowledge of Duriron has any
Governmental Entity indicated an intention to conduct the same.
(b) Except as disclosed in Duriron Schedule 5.13, each of Duriron and the
domestic Duriron Subsidiaries and, to the Knowledge of Duriron, the foreign
Duriron Subsidiaries, has, and each is in material compliance with the terms of,
all licenses and permits required for the operation of their respective
businesses, including without limitation all licenses and permits required by
any Environmental Laws.
5.14 Environmental Matters. Except as set forth in Duriron Schedule 5.14,
neither Duriron nor any Duriron Subsidiary nor any real property previously or
currently owned by any of them, has been or is in violation of or liable under
any Environmental Law, except for any such violation or liability which would
reasonably be expected to have no worse than an Immaterial Adverse Effect on
Duriron. Except as set forth in Duriron Schedule 5.14, there are no actions,
suits, demands, notices, claims, investigations or proceedings under any
Environmental Law pending or, to the Knowledge of Duriron, threatened against
Duriron or any Duriron Subsidiary or relating to any real property previously or
currently owned by Duriron or any Duriron
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Subsidiary, including, without limitation, any notices, demand letters or
requests for information from any Governmental Entity making inquiries relating
to any Environmental Law or any notice that Duriron or any Duriron Subsidiary is
or may be a potentially responsible party under any Environmental Law. Except as
set forth in Duriron Schedule 5.14, to the Knowledge of Duriron, there are no
past or present conditions, circumstances, activities, practices, omissions,
plans or contractual undertakings that will interfere with or prevent continued
compliance by Duriron or any Duriron Subsidiary with Environmental Laws and the
requirements of any permits or licenses issued under any Environmental Law
(other than any non-compliance which would reasonably be expected to have no
worse than an Immaterial Adverse Effect on Duriron), or that will give rise to
any liability or other obligation under any Environmental Law (other than any
such liability or obligation which would reasonably be expected to have no worse
than an Immaterial Adverse Effect on Duriron). Except as set forth in Duriron
Schedule 5.14, (i) no Lien exists, and no condition exists which could result in
the filing of a Lien, against any property of Duriron or any Duriron Subsidiary
under any Environmental Law, and (ii) neither Duriron nor any Duriron Subsidiary
has been requested or required by any Governmental Entity to perform any
investigatory or remedial activity under or in connection with any Environmental
Law.
5.15 Disclosure. The representations and warranties of Duriron and Merger
Sub contained in this Agreement do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements contained herein not misleading.
ARTICLE VI
COVENANTS
6.1 Change of Control Proposals. During the period from the date of this
Agreement to the earlier of the Effective Time or the termination of this
Agreement in accordance with Article IX, Durametallic shall not, directly or
indirectly, and shall instruct and otherwise use its best efforts to cause its
officers, directors, employees, agents, advisors, consultants and other
representatives not to, directly or indirectly: (i) solicit or initiate any
proposals or offers from any person relating to any Durametallic Change of
Control Transaction, or (ii) except to the extent required in the discharge of
its fiduciary duties in accordance with applicable law as determined by the
Board of Directors of Durametallic based upon the written advice of legal
counsel, participate in any discussions or negotiation regarding, or furnish to
any other person any information or assistance with respect to, any potential
Durametallic Change of Control Transaction. Durametallic promptly shall notify
Duriron of any Durametallic Change of Control Transaction proposed to
Durametallic (or to the Knowledge of Durametallic proposed to any other party)
and also promptly inform Duriron if Durametallic intends to participate in any
such discussions or negotiation or to furnish any such information (and, if so,
Durametallic shall inform Duriron of the nature and substance of such
discussions, negotiation and information).
6.2 Interim Operations of Durametallic. During the period from the date of
this Agreement to the earlier of the Effective Time or the termination of this
Agreement in accordance with Article IX, except as specifically contemplated by
this Agreement, as required by applicable laws or regulations or proper orders
of Governmental Entities, or as set forth in Durametallic Schedule 6.2 or any
other Durametallic Schedule, or as otherwise approved in writing by Duriron:
6.2.1 Conduct of Business. Durametallic shall, and shall cause each
Durametallic Subsidiary to, conduct its business in, and only in, the
regular course in substantially the same manner as heretofore conducted,
use its best efforts to preserve and protect its businesses, rights,
properties and assets, and, to the extent consistent with such businesses,
use its best efforts to preserve intact its present business organization,
keep available the services of its present officers and employees, and
preserve its relationships with franchisees, customers, suppliers and
others having business dealings with it to the end that its goodwill and
business shall be unimpaired at the Effective Time.
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6.2.2 Governing Instruments. Durametallic shall not, and shall not
permit any Durametallic Subsidiary to, make any change or amendment to or
repeal its respective Articles of Incorporation or By-laws or comparable
governing instruments.
6.2.3 Capital Stock. Durametallic shall not, and shall not permit any
Durametallic Subsidiary to, issue or sell shares of capital stock or any
other securities of any of them other than to Durametallic or any direct or
indirect wholly-owned Durametallic Subsidiary or pursuant to the
Durametallic Stock Options listed on Durametallic Schedule 4.4, or issue
any securities convertible into or exchangeable for, or Rights to Purchase
relating to, or enter into any contract, commitment or arrangement with
respect to the issuance of, any shares of capital stock or any other
securities of any of them, or enter into any arrangement, contract or
commitment with respect to the purchase or voting of shares of their
capital stock, or adjust, split, combine or reclassify any of their capital
stock or other securities, or amend, permit acceleration of, or otherwise
modify any Durametallic Stock Options or the conditions of exercise of the
same, or make any other changes in their capital structures.
6.2.4 Dividends. Durametallic shall not declare, set aside, pay or
make any dividend or other distribution or payment (whether in cash, stock
or property) with respect to, or purchase or redeem, any shares of its
capital stock other than (i) regular quarterly cash dividends (commencing
with a record date not earlier than October 1, 1995) in an amount not to
exceed $.20 per Durametallic Common Share, and (ii) an annual extra
year-end cash dividend (with record date not earlier than November 15,
1995) in an amount not to exceed $.32 per Durametallic Common Share.
6.2.5 Employee Plans, Compensation, Etc. Durametallic shall not, and
shall not permit any Durametallic Subsidiary to, adopt or amend any bonus,
profit sharing, compensation, severance, stock option, pension, retirement
or other employee benefit agreement, trust, plan or arrangement for the
benefit or welfare of any present or former director, officer or employee
of Durametallic or any Durametallic Subsidiary. Durametallic shall not, and
shall not permit any Durametallic Subsidiary to, increase the compensation
or fringe benefits of any present or former director, officer or employee
(except that, in the case of employees who are not officers, individual
merit increases and promotional increases, not to exceed 10% of salary, in
accordance with past practices may be granted, but no across-the-board or
generally applicable increases may be granted), or pay any bonus,
compensation or benefit not required by any existing plan or arrangement,
or hire any employee at an annual rate of compensation (including
anticipated incentive compensation, if any) in excess of $75,000, or enter
into any contract, agreement, commitment or arrangement to do any of the
foregoing.
6.2.6 Purchase or Sale of Assets. Other than in the ordinary course
of business Durametallic shall not, and shall not permit any Durametallic
Subsidiary to, purchase, lease, sell or dispose of, or contract to
purchase, lease, sell or dispose of, in any single transaction or series of
related transactions, any asset or group of assets having a value, purchase
or selling price, or aggregate rental, in excess of $250,000.
6.2.7 Investments, Loans and Guarantees. Durametallic shall not, and
shall not permit any Durametallic Subsidiary to, make any investment
(whether by acquisition of stock, capital contribution or otherwise) in, or
make any loan or advance to, or enter into or renew any guarantee on behalf
of, any person other than a directly or indirectly wholly-owned
Durametallic Subsidiary or become committed to do so.
6.2.8 No Breach. Without limiting the generality of the foregoing,
Durametallic shall not, and shall not permit any Durametallic Subsidiary
to, take any action which would cause any of the representations and
warranties of Durametallic set forth in Article IV to be untrue as of the
Effective Time.
6.3 Interim Operations of Duriron. During the period from the date of this
Agreement to the earlier of the Effective Time or the date of termination of
this Agreement in accordance with Article IX, except as
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specifically contemplated by this Agreement, as required by law, as set forth in
Duriron Schedule 6.3 or any other Duriron Schedule, or as otherwise approved in
writing by Durametallic:
6.3.1 Dividends. Duriron shall not declare, set aside, pay or make
any dividend or other distribution or payment (whether in cash, stock or
property) with respect to, or purchase or redeem, any shares of its capital
stock other than (i) quarterly cash dividends in an amount not to exceed
$.13 per share of Duriron Common Stock, (ii) an annual extra year-end cash
dividend in an amount not to exceed $.20 per Duriron Common Shares, (iii) a
stock dividend payable in Duriron Common Stock, and (iv) issuance of rights
pursuant to the Rights Plan upon issuance of Duriron Common Stock.
6.3.2 Certain Amendments. Duriron shall not amend its Certificate of
Incorporation or By-laws in any manner adverse to the interests of holders
of Duriron Common Stock.
6.3.3 No Breach. Without limiting the generality of the foregoing,
Duriron shall not, and shall not permit any Duriron Subsidiary to, take any
action which would cause any of the representations and warranties of
Duriron set forth in Article V to be untrue as of the Effective Time.
6.4 Access, Information and Confidentiality. (a) During the period from
the date of this Agreement to the earlier of the Effective Time or the
termination of this Agreement in accordance with Article IX, Durametallic shall
provide to Duriron and Duriron's authorized representatives reasonable access
during normal business hours to the facilities and to the books and records of
Durametallic and the Durametallic Subsidiaries and shall cause its officers and
the officers of the Durametallic Subsidiaries promptly to furnish Duriron with
such information with respect to the business and properties of Durametallic and
the Durametallic Subsidiaries as Duriron or its authorized representatives from
time to time may reasonably request.
(b) During the period from the date of this Agreement to the earlier of the
Effective Time or the termination of this Agreement in accordance with Article
IX, Duriron shall provide to Durametallic and Durametallic's authorized
representatives reasonable access during normal business hours to the facilities
and to the books and records of Duriron and the Duriron Subsidiaries and shall
cause its officers and the officers of the Duriron Subsidiaries promptly to
furnish Durametallic with such information with respect to the business and
properties of Duriron and the Duriron Subsidiaries as Durametallic or its
authorized representatives from time to time may reasonably request.
(c) Durametallic and Duriron shall, and each shall cause its officers,
employees and other representatives to, hold in confidence all confidential
information so obtained, other than any information (i) that is or becomes
publicly known otherwise than in violation of this Agreement, (ii) known to the
party to whom disclosed prior to such disclosure, or disclosed to such party by
a third party not under an obligation of confidentiality to the party to this
Agreement disclosing the same, (iii) developed by the party to whom disclosed
independently of the information so disclosed, or (iv) required to be disclosed
by law. Neither Durametallic nor Duriron shall (and each shall insure that such
other persons do not), without the prior written consent of the other, (i) use
such information other than in connection with this Agreement and the Merger, or
(ii) disclose such information to others.
(d) If this Agreement is terminated, Durametallic and Duriron shall, and
each shall cause its respective representatives to, promptly return or cause to
be destroyed all copies of confidential information furnished to it and its
representatives and all notes and summaries of the confidential information.
6.5 HSR Act Filing. Duriron and Durametallic each shall use its best
efforts to file as promptly as practicable after the date of this Agreement its
pre-merger notification under the HSR Act and thereafter to respond as promptly
as practicable to all inquiries and requests resulting from such filing. Duriron
and Durametallic each shall furnish to the other a copy of its filings and
otherwise shall cooperate with the other and keep the other informed concerning
the status of its filing and communications with any Government Entity relating
thereto.
6.6 Shareholder Meetings. Durametallic and Duriron each shall take all
action necessary to convene, respectively, the Durametallic Meeting and the
Duriron Meeting as promptly as practicable following the
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effectiveness of the Registration Statement for the purpose of approving this
Agreement and taking any other action contemplated by this Agreement which
requires the approval of its shareholders.
6.7 Registration Statement and Joint Proxy Statement/Prospectus. (a)
Duriron and Durametallic shall cooperate in preparing the Registration Statement
(including any amendments or supplements thereto) and the Joint Proxy
Statement/Prospectus to be included therein and each shall furnish to the other
for inclusion therein all such information relating to it as the other party or
its counsel reasonably request. Duriron shall file the Registration Statement
with the Commission promptly after completion, and Durametallic and Duriron
shall use all reasonable efforts to respond to any comments of the Commission
staff and to have the Registration Statement declared effective as promptly as
practicable and thereafter to maintain such effectiveness through the Effective
Time. Duriron agrees to provide to Durametallic the opportunity to review and
comment on the Registration Statement, each amendment or supplement to the
Registration Statement, each responsive correspondence to be sent to the
Commission, and each form of the Joint Proxy Statement/Prospectus at a
reasonable time before filing. Duriron shall (i) include in the Registration
Statement and each amendment and supplement information relating to
Durametallic, its business and financial condition only as authorized by
Durametallic, and (ii) provide to Durametallic copies of all correspondence
received from the Commission with respect to the Registration Statement and its
amendments or supplements and copies of all responsive correspondence to the
Commission. Duriron agrees to notify Durametallic of any stop orders or
threatened stop orders with respect to the Registration Statement. Duriron also
may file the Joint Proxy Statement/Prospectus with the Commission as preliminary
proxy material under Regulation 14A of the Exchange Act, if Duriron so
determines.
(b) Durametallic and Duriron shall not furnish to their respective
shareholders any proxy materials relating to this Agreement or the Merger until
the Registration Statement has become effective. Durametallic and Duriron each
shall mail to its shareholders (i) as promptly as practicable after the
Registration Statement becomes effective, the Joint Proxy Statement/Prospectus
(the date of such mailing hereinafter being referred to as the "Mailing Date"),
(ii) as promptly as practicable after receipt thereof, any supplemental or
amended Joint Proxy Statement/Prospectus, and (iii) such other supplementary
proxy materials as may be necessary, in light of the circumstances arising
subsequent to the mailing of the Joint Proxy Statement/Prospectus, to make the
Joint Proxy Statement/Prospectus, as theretofore supplemented or amended,
complete and correct. The Joint Proxy Statement/Prospectus and all amendments
and supplements thereto shall comply with applicable law and shall be in form
and substance satisfactory to Duriron and Durametallic.
(c) Duriron and Durametallic each shall advise the other if, at any time
before the effective date of the Registration Statement, the date of the Duriron
Meeting, the date of the Durametallic Meeting or the Effective Time, the
Registration Statement or the Joint Proxy Statement/Prospectus contains an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements contained therein, in
the light of the circumstances under which they were made, not misleading. In
such event, Duriron or Durametallic, as the case may be, shall provide the other
with the information needed to correct such misstatement or omission.
(d) Duriron shall take any action required to be taken under any applicable
state Blue Sky or securities laws in connection with the issuance of the Duriron
Common Stock pursuant to the Merger. Durametallic shall cooperate with Duriron
and take such action as Duriron reasonably may request to assist Duriron in
taking any required action under applicable state Blue Sky or securities laws.
6.8 Durametallic Board Recommendation. The Board of Directors of
Durametallic shall recommend that the holders of Durametallic Common Shares vote
in favor of and approve this Agreement; provided, however, that such
recommendation may be withdrawn if the Durametallic Board of Directors
determines that it is required to do so, based upon written advice of
Durametallic's legal counsel, in the discharge of its fiduciary obligations
under applicable law. Unless such recommendation is so withdrawn, Durametallic
shall use its best efforts to solicit and secure the approval of this Agreement
by its shareholders at the Durametallic Meeting.
6.9 Duriron Board Recommendation. The Board of Directors of Duriron shall
recommend that the holders of the Duriron Common Stock vote in favor of and
approve this Agreement; provided, however, that
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such recommendation may be withdrawn if the Duriron Board of Directors
determines that it is required to do so, based upon written advice of Duriron's
legal counsel, in the discharge of its fiduciary obligations under applicable
law. Unless such recommendation is so withdrawn, Duriron shall use its best
efforts to solicit and secure the approval of this Agreement by its shareholders
at the Duriron Meeting.
6.10 Merger Sub Shareholder Approval. Duriron, as the sole shareholder of
Merger Sub, shall approve, and hereby approves, this Agreement and the Merger.
6.11 Publicity. Duriron, Merger Sub, and Durametallic agree that no press
release with respect to the Merger and the transactions contemplated by this
Agreement shall be issued unless the content and timing thereof are mutually
agreed upon; provided, however, that nothing contained herein shall prohibit any
party from issuing any press release which such party in good faith believes is
required by applicable law or regulation or by a proper order of any
Governmental Entity. The initial press release announcing this Agreement shall
be a joint press release. Thereafter, Duriron and Durametallic shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and in making
any filings with any Governmental Entity. Without limiting the generality of the
foregoing, Durametallic shall consult with Duriron concerning the timing and
content of communications to Durametallic's customers concerning this Agreement
and the transactions contemplated hereby.
6.12 Identification of Durametallic Affiliates. Set forth on Durametallic
Schedule 6.12 is the name of each person whom Durametallic reasonably believes
to be an "affiliate" of Durametallic as that term is used in paragraph (c) of
Rule 145 under the Securities Act and/or the Commission's Accounting Series
Releases 130 and 135, as amended (the "Durametallic Affiliates"). Thereafter and
until the Effective Time, Durametallic shall identify to Duriron each additional
person whom Durametallic reasonably believes to have become a Durametallic
Affiliate. Durametallic shall use its best efforts to cause each Durametallic
Affiliate to execute and deliver to Duriron an agreement in the form of Exhibit
A to this Agreement within 10 days after the date this Agreement is executed or
the date such Durametallic Affiliate has become such, as the case may be.
6.13 NASDAQ Listing. Duriron shall use its best efforts to obtain the
listing of the Duriron Common Stock to be issued in the Merger, on the NASDAQ
National Market, if so required by applicable rules.
6.14 Pooling and Tax-Free Reorganization Treatment. Neither Duriron nor
Durametallic intentionally shall take or cause to be taken any action, whether
before or after the Effective Time, which would disqualify the Merger as a
"pooling of interests" for accounting purposes or as a "reorganization" within
the meaning of Section 368(a) of the Code.
6.15 Durametallic Financial Statements. As soon as practicable, but in any
event within 30 days after the end of each calendar month commencing with
August, 1995 and continuing through the Effective Time or earlier termination of
this Agreement in accordance with Article IX, Durametallic shall deliver to
Duriron unaudited balance sheets of Durametallic and the Durametallic
Subsidiaries as at the end of such calendar month and as at the end of the
comparative month of the preceding year, together with unaudited statements of
earnings of Durametallic and the Durametallic Subsidiaries for such calendar
month and for the period from the beginning of the year to the end of such
calendar month and the comparative calendar month and period of the preceding
year. Such balance sheets and statements of income shall be presented in
consolidated and consolidating form as of the end of each month which is also
the end of a calendar quarter. All quarterly financial statements so delivered
shall be prepared in accordance with generally accepted accounting principles in
the United States (except for the omission of certain footnotes which might be
required by such principles and subject to normal year-end adjustments) applied
on a consistent basis (except as may be indicated therein or in the notes
thereto) and fairly present the consolidated financial position of Durametallic
and the Durametallic Subsidiaries at the dates thereof and the consolidated
results of operations for the periods indicated.
6.16 Duriron Reports. After the date of this Agreement and until the
Effective Time or earlier termination of this Agreement in accordance with
Article IX, Duriron shall deliver to Durametallic a copy of all Duriron Reports
filed by Duriron with the Commission.
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6.17 Limitation on Durametallic Expenses. Except with the written consent
of Duriron and except for amounts expensed prior to June 30, 1995, Durametallic
and the Durametallic Subsidiaries shall not pay, or incur obligations to pay, to
investment bankers, outside legal counsel, outside accountants, other advisors,
and finders or business brokers for services (whether rendered before or after
the date of this Agreement) in connection with this Agreement and the
transactions contemplated hereby in the aggregate more than $2,000,000.
6.18 Notice of Certain Events. (a) Should any director or officer of
Durametallic acquire knowledge after the date of this Agreement of (i) any
matter which, if existing, occurring or known as of the date of this Agreement,
would have been required to be disclosed to Duriron, (ii) any occurrence,
omission or state of events which constitutes a breach of any representation,
warranty or covenant of Durametallic in this Agreement, (iii) any material
adverse change in the financial condition, results of operations, properties,
business or prospects of Durametallic, (iv) the institution or threat of
institution of any litigation or governmental investigation relating to the
Merger, or (v) the occurrence, or the failure to occur, of any other event if
such occurrence or failure is likely to result in the failure to satisfy any
condition specified in Article VII to the obligation of Duriron to consummate
the Merger, Durametallic shall, promptly after the director or officer of
Durametallic acquires such knowledge, notify Duriron thereof in writing, in
sufficient detail to permit a reasonable analysis thereof. Durametallic also
shall furnish to Duriron such additional information related to the matter in
question as Duriron reasonably may request.
(b) Should any director or officer of Duriron acquire knowledge after the
date of this Agreement of (i) any matter which, if existing, occurring or known
as of the date of this Agreement, would have been required to be disclosed to
Durametallic, (ii) any occurrence, omission or state of events which constitutes
a breach of any representation, warranty or covenant of Duriron in this
Agreement, (iii) any material adverse change in the financial condition, results
of operations, properties, business or prospects of Duriron, (iv) the
institution or threat of institution of any litigation or governmental
investigation relating to the Merger, or (v) the occurrence, or the failure to
occur, of any other event if such occurrence or failure is likely to result in
the failure to satisfy any condition specified in Article VII to the obligation
of Durametallic to consummate the Merger, Duriron shall, promptly after the
director or officer of Duriron acquires such knowledge, notify Durametallic
thereof in writing, in sufficient detail to permit a reasonable analysis
thereof. Duriron also shall furnish to Durametallic such additional information
related to the matter in question as Durametallic reasonably may request.
6.19 Modification of Awards Under Executive Incentive Bonus Plan; Certain
Consents. (a) Prior to the Closing, Durametallic shall (i) amend the
Durametallic Executive Incentive Bonus Plan to provide that, after the Effective
Time, no Durametallic Common Shares will be issued under such Plan, but instead
persons otherwise entitled to receive Durametallic Common Shares shall receive,
under the same terms and restrictions as would be applicable to the Durametallic
shares without regard to this Agreement or the Merger, that number of shares of
Duriron Common Stock (rounded down to the next full share) determined by
multiplying the number of Durametallic Common Shares otherwise issuable by the
Conversion Ratio, and (ii) use its best efforts to obtain from each person now
or hereafter entitled to receive Durametallic Common Shares under such plan the
binding agreement of such person to accept Duriron Common Stock (subject to such
terms and restrictions) in place of such Durametallic Common Shares. With regard
to the issuance of Durametallic Common Shares pursuant to such Plan prior to the
Effective Time, (i) no Durametallic Common Shares shall be issued under such
Plan prior to March 1, 1996, and (ii) not more than 2,500 Durametallic Common
Shares shall be issued under such Plan prior to the Effective Time.
(b) Durametallic shall use its best efforts to obtain, prior to the
Closing, (i) the binding agreement of each holder of a Durametallic Stock Option
to the conversion of such option into an option to purchase shares of Duriron
Common Stock in accordance with Section 3.2, and (ii) with respect to any
Durametallic Common Shares heretofore or hereafter issued under the Durametallic
Executive Incentive Bonus Plan as to which forfeiture provisions or restrictions
on disposition (collectively, "Restrictions") will cease to apply as a result of
the Merger, the binding agreement of each holder of such shares that the
Restrictions will not cease to apply as a result of the Merger.
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6.20 Efforts to Consummate Transactions. Subject to the terms and
conditions of this Agreement, each of the parties hereto shall use reasonable
efforts promptly to take or cause to be taken all actions, and to do or cause to
be done, all things, necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using reasonable efforts to obtain all necessary
actions or non-actions, extensions, waivers, consents and approvals from all
applicable Governmental Entities, effecting all necessary registrations and
filings, and obtaining any required contractual consents. In furtherance and not
in limitation of the foregoing, Duriron and Merger Sub on the one hand, and
Durametallic on the other, shall use reasonable efforts to cause the conditions
to the obligations of the other (as set forth in Article VII) to be satisfied.
Nothing contained in this Agreement, however, shall require any party to cure
any breach of this Agreement by any other party, or to waive any condition to
its obligations to effect the Merger.
6.21 Election to Duriron Board. As promptly as practicable after the
Effective Time, James S. Ware will be elected by the Board of Directors of
Duriron as a director of Duriron.
6.22 Directors and Officers Liability Insurance. (a) Duriron acknowledges
that any and all rights to indemnification now existing in favor of the
directors, officers or employees of Durametallic or the Durametallic
Subsidiaries under their respective Certificate or Articles of Incorporation,
Charter, Articles of Association or Bylaws shall survive the Merger and shall
continue with respect to actions or omissions occurring prior to the Effective
Time with the same force and effect as prior to the Effective Time. If any claim
or litigation giving rise to such indemnification occurs, Duriron will provide
the indemnified party with access to and the right to copy all documents and
other information reasonably required for the defense of the claim or
litigation, subject to reasonable precautions to prevent inappropriate use or
disclosure of the documents or information and will, other than in the case of a
claim by or in the right of Durametallic or any Durametallic Subsidiary, cause
Durametallic reasonably to cooperate in the defense of the claim or litigation.
If permitted by applicable law, a director, officer or employee of Durametallic
seeking indemnification pursuant to the Certificate or Articles of
Incorporation, Charter, Articles of Association or Bylaws of Durametallic or any
Durametallic Subsidiary shall be entitled to have the resolution of any dispute
regarding the right to and the extent of the indemnification, including, without
limitation, the right to the advancement of or the reimbursement of legal fees
and expenses related to the claim or the litigation, resolved by an arbitrator
selected by Duriron and the party seeking the indemnification in accordance with
the rules of the American Arbitration Association, and the arbitrator's ruling
shall be binding on the parties in any court of competent jurisdiction.
(b) After the Effective Time, the Surviving Corporation or Duriron shall,
subject to availability within the maximum premium limitation hereinafter set
forth, use reasonable efforts to maintain for a period of six years after the
Effective Time a policy or policies of directors' and officers' liability
insurance protecting (to the extent customary in such policies) the present
directors and officers of Durametallic with respect to actions or omissions
occurring prior to the Effective Time, on terms which shall provide for at least
$10,000,000 in coverage each year, or lesser coverage if required in order that
the premiums paid in respect of such insurance (or, if such insurance is
included in a policy covering directors and officers of Duriron, the incremental
premiums attributable to the inclusion of the officers and directors of
Durametallic) shall not exceed $100,000 per year or $600,000 in the aggregate.
In lieu of maintaining such insurance, Duriron may (but shall not be obligated
to) undertake to indemnify such directors and officers during such six year
period (or any part thereof) against substantially the same exposures, and under
substantially the same terms, and subject to the same dollar limitations, as
would be applicable under such directors' and officers' liability insurance
coverage.
(c) Each of the persons (and his or her successor) who is a beneficiary
under Section 6.22(a) and (b) shall be entitled to enforce the same following
the Effective Time against the corporation or corporations owing an obligation
to such person. If the enforcement action results in a final determination that
such corporation or corporations shall have breached its or their obligations
under this Section 6.22, the persons bringing the enforcement action shall be
reimbursed by such corporation or corporations for all costs including, without
limitation thereto, reasonable attorneys' fees, incident to such enforcement.
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(d) Except as set forth below, Duriron and the Surviving Corporation waive
any claim or action against any director or officer of Durametallic in office as
of the date of this Agreement arising out of or pertaining to this Agreement or
the Merger and shall not take any action to cause the benefits of any directors'
and officers' liability insurance policy not to extend to any such director or
officer. The foregoing waiver shall not apply, and Duriron and the Surviving
Corporation shall not be prohibited from or otherwise limited in taking any such
action as they or either of them deems appropriate in the case of fraud, willful
misconduct, knowing misrepresentation, bad faith, or breach of any
representation or warranty of Durametallic contained in this Agreement (which
representations and warranties shall be deemed to survive the Closing and
Effective Time for purposes of this Section).
6.23 Durametallic Compensation Agreements. Following the Effective Time,
Duriron will cause the Surviving Corporation to honor its obligations (relating
to compensation and benefits for certain employees of Durametallic) under the
contracts listed under the heading Compensation Agreements on Durametallic
Schedule 4.10.
ARTICLE VII
CONDITIONS
7.1 Conditions to Each Party's Obligation. The respective obligation of
each party to effect the Merger shall be subject to the fulfillment (or waiver
by such party) at or prior to the Closing of the following conditions:
(a) This Agreement shall have been approved by the requisite vote of
the shareholders of Duriron and Merger Sub.
(b) This Agreement shall have been approved by the requisite vote of
the shareholders of Durametallic.
(c) The Registration Statement shall have become effective and shall
not be subject to a stop order suspending its effectiveness.
(d) No injunction, restraining order or other order which adversely
affects the Merger shall have been issued by any Governmental Entity and
remain in effect, and no suit, action or proceeding which seeks to prohibit
consummation of the Merger or have it declared illegal shall be pending by
or with any Governmental Entity.
(e) Duriron and Durametallic shall have received an opinion of
Thompson, Hine and Flory, substantially to the effect set forth in Exhibit
B to this Agreement, relating to certain tax consequences of the Merger.
7.2 Pre-Closing Conditions to the Obligations of Duriron and Merger
Sub. The obligations of Duriron and Merger Sub to effect the Merger shall be
subject to the fulfillment (or waiver by Duriron) at or prior to the Closing of
the following additional conditions:
(a) All agreements, covenants and conditions required by this
Agreement to be complied with or performed or fulfilled by Durametallic at
or prior to the Closing shall have been complied with, performed or
fulfilled in all material respects.
(b) The representations and warranties of Durametallic set forth in
Section 4.4 shall be true and correct both as of the date of this Agreement
and as of the Closing, except for such changes as may result from the
exercise of Rights of Purchase described in Durametallic Schedule 4.4. All
other representations and warranties of Durametallic contained in this
Agreement shall be true and correct both as of the date of this Agreement
and as of the Closing as if made at and as of such time, except (i) insofar
as any of such representations or warranties relate solely to a particular
date or period, in which case the same shall remain true and correct as
related to such date or period, and (ii) to the extent that the
untruthfulness or inaccuracy of such representations or warranties,
considered without regard to any exception or
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qualification for materiality or immateriality or the like, shall not, in
the aggregate, have a Material Adverse Effect on Durametallic or Duriron.
(c) Except as disclosed in the Durametallic Schedules, since December
31, 1994, there shall have been no change in the financial condition,
results of operations, business, properties or prospects of Durametallic
and the Durametallic Subsidiaries and the Durametallic Joint Venture
Companies that (when aggregated with all such changes) would have a
Material Adverse Effect on Durametallic.
(d) There shall not be pending any action or proceeding by any
Governmental Entity seeking to prohibit Duriron or Surviving Corporation's
ownership or operation of all or a material portion of Durametallic's
business or assets, or to compel Duriron to dispose of or hold separate all
or a material portion of Duriron's or Durametallic's business or assets as
a result of the Merger, which, in any case, in the reasonable judgment of
Duriron based upon a legal opinion from an independent legal counsel, could
result in the relief sought being obtained.
(e) There shall not have been any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any Governmental Entity which would prohibit Duriron's or
Surviving Corporation's ownership or operation of all or a material portion
of Durametallic's business or assets, or compel Duriron to dispose of or
hold separate all or a material portion of Durametallic's business or
assets, or render Duriron or Durametallic unable to consummate the Merger.
(f) Each Durametallic Affiliate shall have executed and delivered to
Duriron an agreement in the form of Exhibit A.
(g) Durametallic shall have furnished to Duriron a certificate, dated
the Closing Date and signed on behalf of Durametallic by the Chief
Executive Officer and Chief Financial Officer of Durametallic, that, to the
best of the knowledge and belief of such officers after consultation with
the other officers of Durametallic, the conditions set forth in Sections
7.2(a), (b) and (c) have been satisfied.
(h) All filings and registrations with, and notifications to, all
Governmental Entities required for the consummation of the Merger (other
than the filing of the Certificate of Merger) shall have been made, and all
waivers, approvals, consents, licenses, permits and authorizations of all
Governmental Entities shall have been received and shall be in full force
and effect, and all waiting periods shall have expired, except for such
filings, registrations, notifications, approvals, consents, licenses,
permits, authorizations and waiting periods the absence of which would not
involve criminal liability and would not in the aggregate prevent the
Merger from becoming effective or have a Material Adverse Effect on Duriron
or Durametallic.
(i) Duriron shall have received a letter, dated the Closing Date, from
Ernst & Young, to the effect that, for financial reporting purposes, the
Merger qualifies for "pooling-of-interests" accounting treatment under
generally accepted accounting principles if consummated in accordance with
this Agreement.
(j) Duriron shall have received an opinion of Warner, Norcross and
Judd, counsel to Durametallic, dated the Closing Date and addressed to
Duriron, substantially to the effect set forth in Exhibit C to this
Agreement.
(k) Duriron shall have received letters of resignation, effective as
of the Effective Time, executed and tendered by each of the then incumbent
directors of Durametallic and each Durametallic Subsidiary (other than (i)
any directors who have been designated by Duriron to remain as directors of
Durametallic or any Durametallic Subsidiary, and (ii) any directors of any
Durametallic Subsidiary required by applicable local law to remain in
office until a successor is appointed), or, to the extent such resignations
are not obtained, such other evidence, satisfactory to Duriron, that such
directors shall have been duly and lawfully removed (without cost or other
liability to Duriron, Durametallic or any Durametallic Subsidiary)
effective as of the Effective Time.
(l) Durametallic shall have received a letter, dated the Closing Date,
from KPMG Peat Marwick LLP, to the effect that, for financial reporting
purposes, and based upon its review of relevant
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Durametallic transactions and agreements, the Merger qualifies for
"pooling-of-interests" accounting treatment under generally accepted
accounting principles if consummated in accordance with this Agreement.
(m) The number of Durametallic Common Shares as to which dissenters'
rights (if applicable) shall have been asserted and not withdrawn or
forfeited under applicable law, or as to which dissenters' rights then may
yet be asserted, shall not in the aggregate exceed 5% of the then
outstanding Durametallic Common Shares.
(n) Duriron shall have received a certificate of the officer of
Durametallic having custody of and responsibility for Durametallic's stock
records setting forth the number of issued and outstanding Durametallic
Common Shares and, as of the most recent practicable date, the record
holders thereof.
(o) Duriron shall have received evidence satisfactory to it that (i)
persons holding Durametallic Stock Options and persons entitled to receive
Durametallic Common Shares under the Durametallic Executive Bonus Plan
shall have agreed, without cost or other liability to Duriron, Durametallic
or any Durametallic Subsidiary, to the substitution of shares of Duriron
Common Stock for Durametallic Common Shares otherwise issuable or
deliverable pursuant to the Durametallic Stock Options or the Durametallic
Executive Incentive Bonus Plan, in accordance with Sections 3.2 and 6.19,
and (ii) the persons holding Durametallic Common Shares (issued under the
Durametallic Executive Incentive Plan) described in clause (ii) of Section
6.19(b) shall have agreed, without cost or liability to Duriron,
Durametallic or any Durametallic Subsidiary, that the Restrictions (as
described in such clause) will not cease to apply as a result of the
Merger.
(p) Duriron shall have received such other certificates and documents
(customary in similar transactions) relating to the satisfaction of the
conditions to the obligations of Duriron and Merger Sub as Duriron or its
counsel reasonably request.
7.3 Other Conditions to the Obligations of Duriron and Merger Sub. The
obligations of Duriron and Merger Sub to effect the Merger shall be subject to
the fulfillment (or waiver by Duriron) of the following additional conditions:
(a) On or prior to the Mailing Date, Duriron shall have received an
opinion of Donaldson, Lufkin & Jenrette Securities Corporation (or another
financial advisor satisfactory to the Board of Directors of Duriron), dated
the Mailing Date or a date not more than three days in advance of the
Mailing Date, and addressed to Duriron, to the effect that the
consideration paid in respect of the Merger is fair from a financial point
of view to Duriron and its shareholders.
(b) On or prior to the Mailing Date, Durametallic shall have provided
to Duriron a copy of the opinion referred to in Section 7.5(a).
(c) The opinion referred to in Section 7.3(a) shall not have been
withdrawn at or prior to the Closing.
(d) The opinion referred to in Section 7.5(a) shall not have been
withdrawn at or prior to the Closing.
7.4 Pre-Closing Conditions to the Obligations of Durametallic. The
obligations of Durametallic to effect the Merger shall be subject to the
fulfillment (or waiver by Durametallic) at or prior to the Closing of the
following additional conditions:
(a) All agreements, covenants and conditions required by this
Agreement to be complied with, performed or fulfilled by Duriron and Merger
Sub at or prior to the Closing shall have been complied with, performed or
fulfilled in all material respects.
(b) All of the representations and warranties of Duriron and Merger
Sub contained in this Agreement shall be true and correct both as of the
date of this Agreement and as of the Closing as if made at and as of such
time, except (i) insofar as any of such representations or warranties
relate solely to a particular date or period, in which case the same shall
remain true and correct as related to such date
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or period, (ii) to the extent that the untruthfulness or inaccuracy of such
representations or warranties, considered without regard to any exception
or qualification for materiality or immateriality or the like, shall not,
in the aggregate, have a Material Adverse Effect on Duriron, and (iii) the
number of authorized shares of Duriron Common Stock may have been increased
to 60,000,000.
(c) Except as disclosed on the Duriron Schedules, since December 31,
1994, there shall have been no change in the financial condition, results
of operations, business, properties or prospects of Duriron and the Duriron
Subsidiaries that (when aggregated with all such changes) would have a
Material Adverse Effect on Duriron.
(d) There shall not be pending any action or proceeding by any
Governmental Entity seeking to prohibit Duriron or the Surviving
Corporation's ownership or operation of all or a material portion of
Durametallic's business or assets, or to compel Duriron to dispose of or
hold separate all or a material portion of Duriron's or Durametallic's
business or assets as a result of the Merger, which, in any case, in the
reasonable judgement of Durametallic based upon a legal opinion from an
independent legal counsel, could result in the relief sought being
obtained.
(e) There shall not have been any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any Governmental Entity which would prohibit Duriron's or the
Surviving Corporation's ownership or operation of all or a material portion
of Durametallic's business or assets, or compel Duriron to dispose or hold
separate all or a material portion of Durametallic's business or assets, or
render Durametallic or Duriron unable to consummate the Merger.
(f) Duriron shall have furnished to Durametallic a certificate, dated
the Closing Date and signed on behalf of Duriron by the Chief Executive
Officer and the Chief Financial Officer of Duriron, that, to the best of
the knowledge and belief of such officers, the conditions set forth in
Sections 7.4(a), (b) and (c) have been satisfied.
(g) All filings and registrations with, and notifications to, all
Governmental Entities required for the consummation of the Merger (other
than the filing of the Certificate of Merger) shall have been made, and all
waivers, approvals, consents, licenses, permits and authorizations of all
Governmental Entities shall have been received and shall be in full force
and effect, except for such filings, registrations, notifications,
approvals, consents, licenses, permits and authorizations the absence of
which would not involve criminal liability and would not in the aggregate
prevent the Merger from becoming effective or have a Material Adverse
Effect on Duriron.
(h) Durametallic shall have received an opinion of Thompson, Hine and
Flory, counsel to Duriron and Merger Sub, dated the Closing Date and
addressed to Durametallic, substantially to the effect set forth in Exhibit
D to this Agreement.
(i) The Duriron Common Stock to be issued in the Merger shall have
been listed on the NASDAQ National Market, if required by applicable rules.
(j) Durametallic shall have received such other certificates and
documents (customary in similar transactions) relating to the satisfaction
of the conditions to the obligation of Durametallic as Durametallic or its
counsel reasonably request.
7.5 Other Conditions to the Obligation of Durametallic. The obligation of
Durametallic to effect the Merger shall be subject to the fulfillment or waiver
of the following additional conditions:
(a) On or prior to the Mailing Date, Durametallic shall have received
an opinion of William Blair & Company (or another financial advisor
satisfactory to the Board of Directors of Durametallic), dated the Mailing
Date or a date not more than three days in advance of the Mailing Date and
addressed to Durametallic, to the effect that the consideration paid in
respect of the Merger is fair from a financial point of view to the
shareholders of Durametallic.
(b) On or prior to the mailing date, Duriron shall have provided for
Durametallic a copy of the opinion referred to in Section 7.3(a).
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(c) The opinion referred to in Section 7.5(a) shall not have been
withdrawn at or prior to the Closing.
(d) Either (i) the opinion referred to in Section 7.3(a) shall not
have been withdrawn, or (ii) Duriron shall have received from another
financial advisor (satisfactory to the Board of Directors of Duriron) an
opinion to the effect set forth in Section 7.3(a) and such other opinion
shall not have been withdrawn.
ARTICLE VIII
CLOSING
8.1 Time and Place. The Closing shall take place at the offices of
Thompson, Hine and Flory, 2000 Courthouse Plaza NE, Dayton, Ohio at 11:00 a.m.,
local time, as soon as practicable after satisfaction or waiver of all of the
conditions contained in Article VII or at such other place or at such other time
as Duriron and Durametallic may mutually agree (the date of the Closing being
referred to herein as the "Closing Date").
8.2 Deliveries at the Closing. At the Closing, Duriron, Merger Sub and
Durametallic shall cause the Certificate of Merger to be filed in accordance
with the applicable provisions of the Michigan BCA and shall take any and all
other lawful actions and do all other lawful things called for by this Agreement
or necessary to cause the Merger to become effective and to consummate the
transactions contemplated by this Agreement (to the extent such transactions are
intended to be consummated as of the time of the Closing).
ARTICLE IX
TERMINATION
9.1 Termination. Notwithstanding anything in this Agreement to the
contrary, this Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time, whether before or after approval by the
shareholders of Durametallic or Duriron:
(a) By mutual written consent duly authorized by the Board of
Directors of Duriron and by the Board of Directors of Durametallic.
(b) By either Duriron or Durametallic if the Merger has not been
consummated on or before April 30, 1996, or such later date as Duriron and
Durametallic may agree to in writing, except that the right to terminate
this Agreement under this Section 9.1(b) shall not be available to any
party whose failure, under this Agreement, to perform any material
obligation or to fulfill any material condition within the control of such
party has been the proximate cause of, or resulted in, the failure of the
Merger to be consummated on or before that date.
(c) By Duriron, if:
(i) The Board of Directors of Durametallic (or any committee of
such Board of Directors) withdraws or changes in a manner adverse to
Duriron its recommendation to the shareholders of Durametallic to
approve this Agreement and the Merger, or such Board (or such committee)
recommends, approves or authorizes any Durametallic Change of Control
Transaction.
(ii) The shareholders of Durametallic fail to approve this
Agreement and the Merger at the Durametallic Meeting.
(iii) Durametallic enters into, or announces its intention to enter
into, an agreement, letter of intent or agreement in principle regarding
a Durametallic Change of Control Transaction, or a Durametallic Change
of Control Transaction occurs.
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(iv) Events occur that render one or more of the conditions to the
obligations of Duriron and Merger Sub set forth in Article VII
impossible of satisfaction, and such condition or conditions is not
waived by Duriron and Merger Sub.
(v) A material breach by Durametallic of any representation,
warranty, covenant or agreement in this Agreement occurs and is not
cured as soon as reasonably practicable after written notice thereof is
given to Durametallic.
(vi) The average of the closing sale prices of a share of Duriron
Common Stock during the first 10 of the last 15 trading days immediately
preceding the date of the Durametallic Meeting, as reported on the
NASDAQ National Market, exceeds $31.225.
(vii) Any person or group (as defined in Section 13(d)(3) of the
Exchange Act), other than Duriron or any of its affiliates, shall have
become the beneficial owner (as defined in Rule 13d-3 promulgated under
the Exchange Act) of more than 40% of the Durametallic Common Shares (on
either a primary or fully diluted basis).
(viii) Any change shall occur or any condition shall exist which,
individually or in the aggregate and irrespective of any disclosure
(historical or anticipatory) on any schedule or otherwise, has, at any
time prior to the Effective Time, a Material Adverse Effect on
Durametallic.
(d) By Durametallic, if:
(i) The Board of Directors of Duriron (or any committee of such
Board of Directors) withdraws or changes in a manner adverse to
Durametallic its recommendation to the shareholders of Duriron to
approve this Agreement and the Merger.
(ii) The shareholders of Duriron fail to approve this Agreement or
the Merger at the Duriron Meeting.
(iii) Duriron enters into, or announces its intention to enter
into, an agreement, letter of intent or agreement in principle regarding
a Duriron Change of Control Transaction, or Duriron enters into a formal
written confidentiality agreement in connection with and for the purpose
of pursuing a Duriron Change of Control Transaction, or a Duriron Change
of Control Transaction occurs.
(iv) Events occur that render one or more of the conditions to the
obligations of Durametallic as set forth in Article VII impossible of
satisfaction, and such condition or conditions is not waived by
Durametallic.
(v) A material breach by Duriron or Merger Sub of any
representation, warranty, covenant or agreement in this Agreement occurs
and is not cured as soon as reasonably practicable after written notice
thereof is given to Duriron or Merger Sub, as the case may be.
(vi) The average of the closing sale prices of a share of Duriron
Common Stock during the first 10 of the last 15 trading days immediately
preceding the date of the Durametallic Meeting, as reported on the
NASDAQ National Market, is less than $21.225.
(vii) Following withdrawal, under circumstances permitted by
Section 6.8, by the Durametallic Board of Directors of its
recommendation to the shareholders of Durametallic to approve this
Agreement and the Merger, Durametallic enters into, or publicly
announces its intention to enter into, an agreement, letter of intent or
agreement in principle regarding a Durametallic Change of Control
Transaction; provided, however, that Durametallic's right to terminate
pursuant to this paragraph (vii) is subject to and conditioned upon
Durametallic's compliance with the termination fee provisions of Section
9.3.
(viii) Any person (other than Durametallic or any affiliate of
Durametallic or any person acting in concert with Durametallic or any
affiliate of Durametallic) shall have become the beneficial owner of
more than 15% of the outstanding shares of Duriron Common Stock and such
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person shall have expressly stated that the shares were acquired for the
purpose of changing or influencing the control of Duriron.
(ix) Any change shall occur or any condition shall exist which,
individually or in the aggregate and irrespective of any disclosure
(historical or anticipatory) on any schedule or otherwise, has, at any
time prior to the Effective Time, a Material Adverse Effect on Duriron.
If either Duriron or Durametallic terminates this Agreement, notice of such
action shall be given promptly to the other party.
9.2 Liabilities in Event of Termination. In the event of the termination
of this Agreement and abandonment of the Merger, this Agreement shall be void
and have no effect, and Duriron, Merger Sub, and Durametallic and their
respective directors, officers and shareholders shall have no obligation or
liability to each other, except as provided in Sections 6.4 and 9.3.
9.3 Termination Fee; Expenses. (a) Durametallic shall pay to Duriron a
termination fee of $3,000,000 under any of the following circumstances:
(i) This Agreement is terminated by Duriron pursuant to Section
9.1(c)(i) or (iii), or by Durametallic pursuant to Section 9.1(d)(vii).
(ii) This Agreement is terminated by Duriron pursuant to Section
9.1(c)(v), but only if the breach of representation or warranty by
Durametallic is knowing or the breach of covenant or agreement by
Durametallic is intentional.
(b) Duriron shall pay to Durametallic a termination fee of $3,000,000 under
any of the following circumstances:
(i) This Agreement is terminated by Durametallic pursuant to Section
9.1(d)(i).
(ii) This Agreement is terminated by Durametallic pursuant to Section
9.1(d)(v), but only if the breach of representation or warranty by Duriron
or Merger Sub is knowing or the breach of covenant or agreement by Duriron
or Merger Sub is intentional.
(c) Durametallic shall pay to Duriron a termination fee of $5,250,000
(reduced by the amount of any termination fee paid or payable to Duriron
pursuant to Section 9.3(a)) if any of the following circumstances occurs and,
within 365 days after termination of this Agreement, Durametallic consummates a
Durametallic Change of Control Transaction yielding consideration per
Durametallic Common Share greater than the Merger Consideration per Durametallic
Common Share:
(i) A termination fee becomes payable to Duriron under Section 9.3(a).
(ii) This Agreement is terminated by Duriron pursuant to Section
9.1(c)(vii), and the person or group referred in such Section (or an
affiliate of such person or group) shall be a party to such Durametallic
Change of Control Transaction.
(iii) The shareholders of Durametallic fail to approve this Agreement
and the Merger at the Durametallic Meeting and, at the time of such
failure, there shall have been publicly announced a Durametallic Change of
Control Transaction or any director or officer of Durametallic shall be in
receipt of a written proposal for a Durametallic Change of Control
Transaction (whether or not such Durametallic Change of Control Transaction
is the Durametallic Change of Control Transaction entered into by
Durametallic within 365 days after termination of this Agreement).
(d) If the Merger becomes effective, Duriron, Durametallic and Merger Sub
shall pay their respective expenses (including, without limitation, fees and
disbursements of counsel, investment bankers and accountants) separately
incurred in connection herewith. If the Merger does not become effective or is
abandoned, Duriron, Merger Sub, and Durametallic each shall pay its own expenses
(including, without limitation, fees and disbursements of counsel, investment
bankers and accountants) incurred in connection herewith, except as provided in
Section 9.3(e). Printing expenses relating to the Registration Statement and the
Joint Proxy
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Statement/Prospectus shall be deemed to have been incurred one-half by Duriron
and one-half by Durametallic.
(e) If Duriron or Merger Sub on the one hand, or Durametallic on the other,
terminates this Agreement pursuant to Section 9.1, and if such termination by
the terminating party (the "Non-Defaulting Party") is based upon a material
breach of any representation, warranty, covenant or agreement by the other party
(the "Defaulting Party"), the Defaulting Party shall pay and reimburse the
Non-Defaulting Party for all of the Non-Defaulting Party's documented
out-of-pocket expenses incurred in connection with this Agreement, the
negotiation of this Agreement and the transactions contemplated hereby,
including, without limitation, its due diligence expenses and the fees and
expenses of its professional advisors (collectively "Transaction Expenses"). If
Durametallic terminates this Agreement pursuant to Section 9.1(d)(iii), then
Duriron shall pay and reimburse Durametallic for Transaction Expenses.
Reimbursement under this Section 9.3(e) shall not exceed $600,000 and shall not
be available to any party receiving a termination fee pursuant to this Section
9.3.
(f) Fees and expenses payable by any party pursuant to this Section 9.3
shall be paid within 10 days after receipt of written demand therefor, except
that $2,250,000 of the $5,250,000 fee payable pursuant to Section 9.3(c) shall
not be payable earlier than the date of consummation of the Durametallic Change
of Control Transaction.
ARTICLE X
MISCELLANEOUS
10.1 Employee Matters; Durametallic Headquarters. It is the intention of
Duriron that (i) the Surviving Corporation will provide its key employees with
total compensation no less favorable than that provided under Durametallic's
past practices, taking into account all forms of incentive compensation and
fringe benefits, and (ii) Durametallic's corporate headquarters will be
maintained in Kalamazoo, Michigan. The foregoing constitutes only a nonbinding
statement of intention, is subject to change at any time, and shall not create
rights in favor of or be relied upon by any party.
10.2 Non-Survival of Representations and Warranties. The representations
and warranties contained in this Agreement (or in any certificate or letter
delivered pursuant hereto) shall expire with, and be terminated and extinguished
by, the effectiveness of the Merger and shall not survive the Effective Time.
10.3 Waiver. Either Duriron and Merger Sub on the one hand, or
Durametallic on the other, may, by written notice to the other, (a) extend the
time for performance of any of the obligations or other actions of such other
party(ies) under this Agreement, (b) waive any inaccuracies in the
representations or warranties of such other party(ies) contained in this
Agreement or in any document delivered pursuant to this Agreement, (c) waive
compliance with any of the conditions or covenants of such other party(ies)
contained in this Agreement, or (d) waive or modify performance of any of the
obligations of such other party(ies) under this Agreement. Except as provided in
the preceding sentence, no action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of either party shall be
deemed to constitute a waiver by the party taking such action of compliance with
any of the representations, warranties, covenants, conditions, or agreements
contained in this Agreement. The waiver by any party hereto of a breach of this
Agreement shall not operate or be construed as a waiver of any subsequent
breach.
10.4 Amendment. Subject to applicable law, this Agreement may be amended
or supplemented by the parties hereto, by and only by written instrument
executed pursuant to authorization by their respective Boards of Directors, at
any time before or after approval of this Agreement by the shareholders of
Duriron and Durametallic; provided, however, that any such amendment or
supplement to this Agreement made subsequent to the approval of this Agreement
by the shareholders of Duriron or Durametallic shall not, except with the
requisite vote of such shareholders, (a) alter the amount or change the form of
the Merger Consideration, or (b) alter or change any of the terms of this
Agreement if such alteration or change would adversely affect such shareholders.
10.5 Entire Agreement. This Agreement, including the schedules hereto and
the agreements, documents and instruments referred to herein, embodies the
entire agreement and understanding of the parties
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with respect to the Merger and the other transactions contemplated hereby and
thereby, and supersedes all prior agreements among the parties with respect to
such matters.
10.6 Governing Law. Except with respect to matters controlled by the
Michigan BCA, this Agreement shall be construed and enforced in accordance with
the laws of the State of Ohio, as applicable to agreements executed and entirely
performed in such state.
10.7 Interpretation. The headings contained in this Agreement are for
convenience of reference only and shall in no way affect the meaning or
interpretation of this Agreement. Unless the context of this Agreement expressly
otherwise indicates, any singular term in this Agreement will include the
plural, and any plural term will include the singular.
10.8 Notices. All notices, requests, demands and other communications
pursuant to this Agreement will be in writing, will be deemed to have been
effectively given on the date of actual receipt by the recipient party, and
shall be either (i) delivered personally, (ii) transmitted by facsimile
transmission, (iii) mailed by registered or certified mail, postage prepaid, or
(iv) delivered by a recognized commercial carrier, as follows:
If to Duriron or Merger Sub:
The Duriron Company, Inc.
3100 Research Boulevard
Dayton, Ohio 45420
Telecopy: (513) 476-6247
Attn: Ronald F. Shuff, Esq.
With a required copy to:
Thompson, Hine and Flory
2000 Courthouse Plaza N.E.
Dayton, Ohio 45401-8801
Telecopy: (513) 443-6635
Attn: J. Michael Herr, Esq.
If to Durametallic:
Durametallic Corporation
2100 Factory Street
Kalamazoo, Michigan 49001
Telecopy: (616) 382-8726
Attn: Mr. Clark D. Hurlbert
With a required copy to:
Warner, Norcross & Judd
900 Old Kent Building
111 Lyon Street N.W.
Grand Rapids, Michigan 49503-2489
Telecopy: (616) 459-2170
Attn: Alex J. DeYonker, Esq.
Any party or other recipient may from time to time change its address and
telecopy number for purposes of this Agreement by giving notice of such change
as provided herein.
10.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original but all of which
together will constitute but one agreement.
10.10 Parties in Interest; Assignment. This Agreement shall be binding
upon and inure solely to the benefit of the parties hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement. Neither this Agreement nor any of the rights hereunder shall be
assigned by any of the parties hereto without the prior
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written consent of the other parties, except that Merger Sub's rights and
obligations can be assigned and assumed by another Duriron Subsidiary.
10.11 Severability. If any provision of this Agreement is invalid, illegal
or incapable of being enforced by any rule of law or public policy, all other
terms and provisions of this Agreement will nevertheless remain in full force
and effect so long as, and only so long as, the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party hereto or to the shareholders of Duriron or Durametallic.
Upon any determination that any provision is invalid, illegal or incapable of
being enforced and does not adversely affect the substance of these transactions
in a material way, the parties hereto will negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions contemplated
by this Agreement are consummated to the extent possible.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by its duly authorized officer(s), all as of the day and year first
written above.
THE DURIRON COMPANY, INC.
By /s/ WILLIAM M. JORDAN
-------------------------------------
William M. Jordan
President and Chief Executive Officer
WOLVERINE ACQUISITION CORP.
By /s/ WILLIAM M. JORDAN
-------------------------------------
William M. Jordan
President
DURAMETALLIC CORPORATION
By /s/ JAMES S. WARE
-------------------------------------
James S. Ware
Chairman and Chief Executive Officer
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EXHIBIT A
POOLING-OF-INTERESTS AGREEMENT
THIS AGREEMENT is made as of , 1995, among THE DURIRON COMPANY,
INC., a New York corporation ("Duriron"), DURAMETALLIC CORPORATION, a Michigan
corporation ("Durametallic"), and ("Affiliate"), under the
following conditions:
A. Duriron, Durametallic, and Wolverine Acquisition Corp., a Michigan
corporation ("Merger Sub"), have entered into an Agreement and Plan of
Merger dated September 11, 1995 (the "Merger Agreement"), which provides
for the merger (the "Merger") of Merger Sub into Durametallic, which will
be the surviving corporation in the Merger, and the conversion of the
outstanding shares of Durametallic's Common Stock, $5.00 par value per
share ("Durametallic Common Shares"), into shares of Duriron's Common
Stock, $1.25 par value per share ("Duriron Common Stock"), upon the terms
and subject to the conditions set forth in the Merger Agreement.
B. The Merger Agreement provides that, as a condition to the
obligation of the parties to proceed with the Merger, the Merger must be
accounted for as a "pooling-of-interests" under Accounting Principles Board
Opinion No. 16 which, under the interpretations thereof set forth in the
Securities and Exchange Commission's Accounting Series Releases No. 130 and
No. 135, precludes certain transactions involving Durametallic Common
Shares or Duriron Common Shares before and after the Merger by persons who
were affiliates of Durametallic prior to the Merger.
C. Affiliate is entering into this Agreement as an inducement to
Duriron and Durametallic to consummate the Merger and in satisfaction of a
condition to Duriron's obligations under the Merger Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
Section 1. Restrictions on Transfer. During the Restriction Period (as
defined in Section 4), Affiliate shall not, without the prior written consent of
Duriron and, prior to the Effective Time (as defined in the Merger Agreement),
the prior written consent of Durametallic, transfer, sell, assign, convey,
pledge, encumber or grant an option with respect to or any other right to
acquire (or agree to do any of the foregoing) any shares of Duriron Common Stock
or any Durametallic Common Shares held by Affiliate on the date of this
Agreement or hereafter acquired by Affiliate in any manner whatsoever
(collectively, the "Covered Securities"), other than (in the case of
Durametallic Common Shares) pursuant to the Merger Agreement.
Section 2. Representations and Warranties of Affiliate. Affiliate hereby
represents and warrants to Duriron and Durametallic as of the date of this
Agreement as follows:
(a) Affiliate, if an individual, has the full right, power, authority
and legal capacity or, if a corporation, has the full right, corporate
power and authority, to execute, deliver and perform this Agreement.
(b) This Agreement has been duly executed by Affiliate and is a legal,
valid and binding obligation of Affiliate, enforceable against Affiliate in
accordance with its terms.
(c) Affiliate has no plan or intention to transfer, sell, assign,
convey or otherwise dispose of the Duriron Common Stock to be received by
Affiliate in the Merger that would result in a reduction of the ownership
of Duriron Common Stock by the former holders of Durametallic Common Shares
to a number of shares which have a value, as of the Effective Time, of less
than 50% of the value of all of the Durametallic Common Shares outstanding
immediately prior to the Effective Time.
Section 3. Stop Transfer Instructions; Restrictive Legend. Duriron and
Durametallic shall be entitled to notify their respective transfer agent (or
officer responsible for maintaining stock transfer records) that the Covered
Securities are subject to the restrictions set forth in this Agreement. Duriron
and Durametallic also shall be entitled to place a restrictive legend reflecting
the restrictions set forth in this Agreement on the certificate or certificates
representing any shares of Duriron Common Stock or Durametallic Common Shares,
Ex. A-1
<PAGE> 145
as the case may be, acquired by Affiliate after the date of this Agreement and
prior to the expiration of the Restriction Period. Any such restrictive legend
shall be removed, at Affiliate's request, after expiration of the Restriction
Period.
Section 4. Restriction Period. Affiliate's obligations under Section 1 of
this Agreement shall commence on the date of this Agreement and shall continue
through the period (the "Restriction Period") ending on the earlier of (i) the
date, prior to the Effective Time, of the expiration or termination of the
Merger Agreement in accordance with Article IX of the Merger Agreement, or (ii)
the date, after the Effective Time, on which quarterly financial results
(including a quarterly earnings report that includes combined sales and net
income) covering at least 30 days of post-Merger combined operations of Duriron
and Durametallic have been published by Duriron. Duriron agrees to cause such
quarterly financial results to be published promptly after the same become
available.
Section 5. Injunctive Relief. Affiliate acknowledges that performance of
its obligations under this Agreement is necessary to protect the value of this
Agreement and the Merger Agreement to Duriron and Durametallic; that a breach of
such obligations may result in irreparable and continuing damage to Duriron and
Durametallic; and that money damages would not adequately compensate either
Duriron or Durametallic for any such breach and, therefore, that Duriron and
Durametallic would not have any adequate remedy at law for any such breach.
Affiliate hereby waives its right to assert, in any action or proceeding
instituted to enforce any provision of this Agreement, any claim or defense to
the effect that there is an adequate remedy at law available. In addition to any
and all remedies at law, Duriron and Durametallic each shall have the right,
without posting bond or other security, to an injunction, both temporary and
permanent, specific performance and/or other equitable relief to prevent the
violation by Affiliate of any of its obligations under this Agreement. The
remedies of Duriron and Durametallic for any breach of this Agreement shall be
cumulative, and seeking or obtaining injunctive or other equitable relief shall
not preclude the making of a claim for damages or other relief.
Section 6. Severability. If any provision of this Agreement, as applied to
any person or to any circumstance, is adjudged by a court to be invalid or
unenforceable, the same shall in no way affect any other provision of this
Agreement, the application of such provision in any other circumstances, or the
validity or enforceability of this Agreement.
Section 7. Amendment. This Agreement shall not be modified or amended
except in a writing duly executed by the party to be bound thereby.
Section 8. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be original, but all of which
together shall constitute one and the same instrument.
Section 9. Waiver. The failure of Duriron or Durametallic to enforce at
any time any of the provisions of this Agreement shall in no way be construed to
be a waiver of any such provision, nor in any way to affect the validity of this
Agreement or any part thereof or the right of such party thereafter to enforce
each and every such provision. No waiver of any breach of this Agreement shall
be held to be a waiver of any other or subsequent breach.
Section 10. Governing Law. This Agreement shall be construed in accordance
with, and the legal relations between the parties shall be governed by, the laws
of the State of Ohio as applicable to agreements executed and fully performed in
the State of Ohio.
Ex. A-2
<PAGE> 146
IN WITNESS WHEREOF, this Agreement has been executed by the parties as of
the date first above written.
THE DURIRON COMPANY, INC.
By
------------------------------------
Name:
Title:
DURAMETALLIC CORPORATION
By
------------------------------------
Name:
Title:
"Affiliate"
--------------------------------------
Name:
Ex. A-3
<PAGE> 147
EXHIBIT B
TAX OPINION OF THOMPSON, HINE AND FLORY
(1) The Merger constitutes a "reorganization" within the meaning of Code
Sections 368(a)(1)(A) and 368(a)(2)(E), and Durametallic, Merger Sub and Duriron
are parties to such reorganization.
(2) Except for cash received in lieu of fractional shares of Duriron Common
Stock, any Durametallic shareholder whose Durametallic Common Shares are
converted solely into shares of Duriron Common Stock pursuant to the Merger does
not recognize gain or loss.
(3) No gain or loss is recognized by Durametallic on the merger of Merger
Sub into Durametallic pursuant to the Plan of Merger.
(4) No gain or loss is recognized by Duriron in connection with the
conversion of the Merger Sub shares into Durametallic Common Shares or the
conversion of the Durametallic Common Shares into shares of Duriron Common Stock
pursuant to the Merger.
(5) No gain or loss is recognized by Merger Sub on its Merger into
Durametallic pursuant to the Plan of Merger.
(6) The aggregate tax basis of the shares of Duriron Common Stock to be
received by a holder of Durametallic Common Shares is the same as the aggregate
tax basis of the Durametallic Common Shares to be converted in exchange
therefor.
(7) The holding period of the shares of Duriron Common Stock to be received
by the Durametallic shareholders (including fractional share interests deemed
received) includes the holding period during which the Durametallic Common
Shares were held, provided such Durametallic Common Shares were held as a
capital asset on the date of the exchange.
(8) Any cash received by a shareholder of Durametallic in lieu of a
fractional share of Duriron Common Stock is treated as if a fractional share is
distributed as part of the exchange and then a cash distribution is received in
redemption of such fractional share qualifying for capital gain treatment,
provided that the Durametallic Common Shares exchanged were held as a capital
asset on the date of the exchange.
(9) Any cash received by the dissenting shareholders of Durametallic is
treated as received in a taxable distribution in redemption of their shares of
Durametallic and is subject to Code Section 302 (if dissenters' rights are
applicable).
(10) Duriron's tax basis in the Durametallic Common Shares immediately
following the Plan of Merger is an amount equal to either (a) the cash and tax
basis of assets held by Durametallic immediately following the Merger less
Durametallic's outstanding liabilities immediately following the Merger or (b)
the tax basis of the Durametallic Common Shares transferred pursuant to the
Merger, as provided in Section 1.358-6(c) of the Treasury Department Proposed
Federal Income Tax Regulations.
If the liabilities of Durametallic immediately following the Merger exceed
the cash and tax basis of the assets held by Durametallic immediately following
the Merger and the approach in (a) of this paragraph (10) is used to determine
Duriron's tax basis in the Durametallic Common Shares, Proposed Federal Income
Tax Regulations provide that the tax basis of the Durametallic Common Shares
held by Duriron immediately following the Merger is a negative number (i.e., an
excess loss account is established) equal to such excess. The section of the
applicable Proposed Federal Income Tax Regulations on this point is effective
only if the Merger occurs after such regulations are issued in final form.
(11) No gain or loss is recognized by the holders of nonqualified stock
options to purchase Durametallic Common Shares upon the conversion of such
options into nonqualified options to purchase shares of Duriron Common Stock.
Such firm's opinion that the Merger will qualify as a tax-free
reorganization will be based on the position that the Durametallic shareholders
will (a) be treated as the "historic shareholders" of Durametallic and
Ex. B-1
<PAGE> 148
(b) retain a "continuing interest" in Duriron through the ownership of shares of
Duriron Common Stock. In order for the Plan of Merger to qualify as a tax-free
reorganization, both of these component parts of the continuity of interest
requirement must be met.
The historic shareholder component requires that Durametallic shareholders
who participate in the Plan of Merger have held their interest in Durametallic
Common Shares for a substantial period of time prior to the execution of the
Plan of Merger. The continuing interest component as applied by the Internal
Revenue Service requires that the historic Durametallic shareholders as a group
receive shares of Duriron Common Stock which are equal in value to at least 50
percent of the value of the outstanding Durametallic Common Shares immediately
prior to the Merger and that such shares of Duriron Common Stock will be
retained by the former historic Durametallic shareholders for a significant
period of time.
Such firm's opinion with respect to the continuity of interest requirement
will be based on the representation of Durametallic that over 50 percent of the
total outstanding Durametallic Common Shares have been held by the same
Durametallic shareholders for the five-year period preceding the Merger and the
representation of Durametallic and Duriron that they have no knowledge of any
plan or intention by the Durametallic shareholders to sell or otherwise dispose
of shares of Duriron Common Stock. No representation to this effect will be
requested from the approximately 250 shareholders of Durametallic.
The Internal Revenue Service has not issued specific guidance as to how to
apply the continuity of interest requirement in a situation where the shares of
a corporation, like Durametallic, are held by many shareholders each holding a
relatively small interest. Such firm's opinion will be based on the premise that
the Durametallic shareholders will act in a manner consistent with the
representations given by Durametallic and Duriron with respect to the continuity
of interest requirement.
Ex. B-2
<PAGE> 149
EXHIBIT C
OPINION OF WARNER NORCROSS & JUDD
1. Each of Durametallic and the domestic Durametallic Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation, with full corporate power and authority to
own its properties and assets and to carry on its business as described in the
Registration Statement and the Joint Proxy Statement/Prospectus. Except as
otherwise set forth in Durametallic Schedule 4.2 or Durametallic Schedule 4.5,
Durametallic and each domestic Durametallic Subsidiary is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which its ownership or leasing of property or the nature of the business
conducted by it, as the same is know to such counsel, makes such qualification
necessary, except for such jurisdictions in which the failure to be so qualified
would not have a Material Adverse Effect on Durametallic.
2. The authorized capital stock of Durametallic is as set forth in Section
4.4 of the Agreement. To such counsel's knowledge, none of the outstanding
capital stock of Durametallic or the domestic Durametallic Subsidiaries was
issued in violation of any preemptive rights of any shareholder, and, to such
counsel's knowledge, all such outstanding capital stock is duly authorized,
validly issued, fully paid and nonassessable. Except as set forth in
Durametallic Schedule 4.4 or Durametallic Schedule 4.5, to such counsel's
knowledge, there are no outstanding Durametallic Stock Options or other Rights
to Purchase with respect to any capital stock of Durametallic or any
Durametallic Subsidiary.
3. Durametallic has the requisite corporate power and authority to execute
and deliver the Agreement and to consummate the transactions contemplated
thereby. The execution and delivery of the Agreement and the consummation of the
transactions contemplated hereby have been duly authorized and approved by all
necessary corporate action on the part of Durametallic.
4. The Agreement has been duly executed and delivered by Durametallic and
constitutes a valid and binding obligation of Durametallic, enforceable against
Durametallic in accordance with its terms, except as such enforceability may be
limited by (i) insolvency, reorganization, arrangement, fraudulent conveyance,
moratorium or other laws relating to or affecting creditors' rights generally,
and (ii) general principles of equity (regardless of whether such enforceability
is considered in a proceeding at law or in equity.)
5. The Agreement complies with the requirements of the Michigan BCA with
respect to the Merger and, upon filing the Certificate of Merger with the
Department of Commerce of the State of Michigan, the Merger will become
effective in accordance with the Michigan BCA.
6. Except as set forth on Durametallic Schedule 4.7, neither the execution
and delivery of the Agreement by Durametallic nor the consummation by
Durametallic of the transactions contemplated hereby will:
(a) conflict with or result in any breach of any provision of
Durametallic's Articles of Incorporation or By-laws;
(b) to such counsel's knowledge, violate, conflict with, constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, result in the termination of, accelerate the
performance required by, result in a right of termination or acceleration
of, or result in the creation of any Lien upon any of the properties or
assets of Durametallic or any Durametallic Subsidiary under, any
Durametallic Contract;
(c) to such counsel's knowledge, violate any judgment, ruling, order,
writ, injunction, decree, statute, rule or regulation applicable to
Durametallic, any Durametallic Subsidiary, or any of their respective
properties or assets; or
(d) give rise to dissenters' rights on behalf of shareholders of
Durametallic.
7. All requisite corporate action has been taken by the directors and
shareholders of Durametallic under the laws of the State of Michigan to enable
Durametallic to legally consummate the Merger.
Ex. C-1
<PAGE> 150
8. All consents, approvals, and authorizations of any governmental
authority required under the laws of the State of Michigan in order for
Durametallic to consummate the merger and the transactions contemplated by the
Agreement have been obtained. To such counsel's knowledge, all other consents,
approvals, and authorizations by any governmental authority required in order
for Durametallic to consummate the Merger and the transactions contemplated by
the Agreement have also been obtained.
9. Except as disclosed in Durametallic Schedule 4.13, to such counsel's
knowledge, there is no litigation, action, arbitration or proceeding pending or
threatened against or affecting Durametallic or any Durametallic Subsidiary,
which is having, or insofar as reasonably can be foreseen will have, a Material
Adverse Effect on Durametallic.
10. With respect to information relating to Durametallic and the
Durametallic Subsidiaries and their business, properties, management,
shareholders or securities provided by Durametallic in writing ("the
Durametallic Information"): (i) the Joint Proxy Statement/Prospectus, as of the
date of mailing or other delivery to the shareholders of Durametallic, appeared
on its face to comply as to form in all material respects with the requirements
of the Securities Act, and (ii) such counsel has participated in the preparation
of the Joint Proxy Statement/Prospectus and nothing has come to the attention of
such counsel to cause them to believe that the Joint Proxy Statement/Prospectus,
at the time the Registration Statement became effective, on the date of mailing
or other delivery or at the Effective Time contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading as it relates to the Durametallic
Information (it being understood that such counsel is not requested to and has
not and will not make any comment in this paragraph with respect to the
financial statements, supporting schedules, and other financial and statistical
information contained in the Registration Statement or the Joint Proxy
Statement/Prospectus or the information covering Duriron contained in the
Registration Statement or the Joint Proxy Statement/Prospectus).
In giving the opinions above with respect to the laws of any jurisdiction
other than Michigan, such counsel may rely on opinions of local and special
counsel, satisfactory in form and substance to such counsel, provided that
Duriron also is entitled to rely thereon.
Whenever the opinion of such counsel with respect to the existence or
absence of facts is indicated to be based upon such counsel's knowledge or
awareness, such counsel is referring to the actual knowledge of Warner Norcross
& Judd LLP attorneys who shall have given substantive attention to matters
concerning the Agreement and the Merger during such counsel's limited
representation of Durametallic. Except as otherwise expressly provided, it is
acknowledged that such counsel has not undertaken any independent investigation
to determine the existence or absence of such facts, and no inference as to the
knowledge of such counsel concerning such facts should be drawn from such
counsel's representation.
Ex. C-2
<PAGE> 151
EXHIBIT D
OPINION OF THOMPSON, HINE AND FLORY
1. Duriron and Merger Sub each is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
with full corporate power and authority to own its properties and assets and to
carry on its business as described in the Registration Statement and the Joint
Proxy Statement/Prospectus. Duriron is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of property or the nature of the business conducted by it,
as the same is known to such counsel, makes such qualification necessary, except
for such jurisdictions in which the failure to be so qualified would not have a
Material Adverse Effect on Duriron.
2. The authorized capital stock of Duriron and Merger Sub is as set forth
in Section 5.4 of the Agreement. To such counsel's knowledge, none of the
outstanding capital stock of Duriron or the domestic subsidiaries of Duriron was
issued in violation of any preemptive rights of any shareholder and, to such
counsel's knowledge, all of the outstanding capital stock of Duriron and Merger
Sub is duly authorized, validly issued, fully paid and nonassessable.
3. Duriron and Merger Sub each has the requisite corporate power and
authority to execute and deliver the Agreement and to consummate the
transactions contemplated thereby. The execution and delivery of the Agreement
and the consummation of the transactions contemplated thereby have been duly
authorized and approved by all necessary corporate action on the part of Duriron
and Merger Sub.
4. The Agreement has been duly executed and delivered by Duriron and Merger
Sub and constitutes a valid and binding obligation of each of them, enforceable
against each of them in accordance with its terms, except as such enforceability
may be limited by (i) insolvency, reorganization, arrangement, fraudulent
conveyance, moratorium or other laws relating to or affecting creditors' rights
generally, and (ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity.)
5. Neither the execution and delivery of the Agreement by Duriron and
Merger Sub nor the consummation by Duriron and Merger Sub of the transactions
contemplated thereby will:
(i) conflict with or result in any breach of any provision of their
respective Articles of Incorporation or By-laws;
(ii) to such counsel's knowledge, violate, conflict with, constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, result in the termination of, accelerate the
performance required by, result in a right of termination or acceleration
of, or result in the creation of any Lien upon any of the properties or
assets of Duriron or Merger Sub under, any note, bond, mortgage, indenture,
deed of trust, lease, agreement or other instrument or obligation to which
Duriron or Merger Sub is a party or to which either of them or any of their
respective properties may be subject; or
(iii) to such counsel's knowledge, violate any judgment, ruling,
order, writ, injunction, decree, statute, rule or regulation applicable to
Duriron or Merger Sub or any of their respective properties or assets.
6. All requisite corporate action has been taken by the directors and
shareholders of Duriron and Merger Sub to enable Duriron and Merger Sub to
legally consummate the Merger.
7. To such counsel's knowledge, all consents, approvals, and authorizations
of any governmental authority required in order for Duriron to consummate the
Merger or the transactions contemplated by the Agreement have been obtained.
8. Except as disclosed in Duriron Schedule 5.9, to the best of such
counsel's knowledge there is no litigation, action, arbitration or proceeding
pending or threatened against or affecting Duriron or Merger Sub which is
having, or insofar as reasonably can be foreseen will have, a Material Adverse
Effect on Duriron.
Ex. D-1
<PAGE> 152
9. With respect to information relating to Duriron and Merger Sub and their
business, properties, management, shareholders or securities provided by Duriron
in writing ("the Duriron Information"): (i) the Joint Proxy
Statement/Prospectus, as of the date of mailing or other delivery to the
shareholders of Duriron, appeared on its face to comply as to form in all
material respects with the requirements of the Securities Act, and (ii) such
counsel has participated in the preparation of the Joint Proxy
Statement/Prospectus and nothing has come to the attention of such counsel to
cause them to believe that the Joint Proxy Statement/Prospectus, at the time the
Registration Statement became effective, on the date of mailing or other
delivery to the shareholders of Duriron or at the Effective Time contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading as it relates to
the Duriron Information (it being understood that such counsel is not requested
to and has not and will not make any comment in this paragraph with respect to
the financial statements, supporting schedules, and other financial and
statistical information contained in the Registration Statement or the Joint
Proxy Statement/Prospectus or the information covering Durametallic or any of
the Durametallic Subsidiaries contained in the Registration Statement or the
Joint Proxy Statement/Prospectus).
In giving the opinions above with respect to the laws of any jurisdiction
other than Ohio, such counsel may rely on opinions of local and special counsel,
satisfactory in form and substance to such counsel, provided that Durametallic
also is entitled to rely thereon.
Whenever the opinion of such counsel with respect to the existence or
absence of facts is indicated to be based upon such counsel's knowledge or
awareness, such counsel is referring to the actual knowledge of Thompson, Hine
and Flory attorneys who shall have given substantive attention to matters
concerning the Agreement and the Merger during such counsel's representation of
Duriron. Except as otherwise expressly provided, it is acknowledged that such
counsel has not undertaken any independent investigation to determine the
existence or absence of such facts, and no inference as to the knowledge of such
counsel concerning such facts should be drawn from such counsel's
representation.
Ex. D-2
<PAGE> 153
ANNEX B
DONALDSON, LUFKIN & JENRETTE
Donaldson, Lufkin & Jenrette Securities / 140 Broadway, New York, NY 10005-1285
(212) 504-3000
September 9, 1995
Board of Directors
The Duriron Company, Inc.
3100 Research Boulevard
Dayton, OH 45420
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to The Duriron Company, Inc. (the "Company") and its shareholders of the
consideration to be paid by the Company in connection with the merger ("Merger")
contemplated by the Agreement and Plan of Merger to be dated as of September 11,
1995, between the Company and Durametallic Corporation ("Durametallic") (the
"Agreement").
Pursuant to the Agreement, the terms of which are more fully described in
the Joint Proxy Statement/Prospectus described below to be furnished to the
shareholders of both Duriron and Durametallic (the "Joint Proxy"), each share of
common stock of Durametallic will be converted into such number of shares of
common stock, $1.25 par value per share, of the Company, as specified in
accordance with the Agreement.
In arriving at our opinion, we have reviewed the September 7, 1995 draft
Agreement and the September 8, 1995 draft of the Joint Proxy, as proposed to be
filed with the Securities and Exchange Commission. We also have reviewed
financial and other information that was publicly available or furnished to us
by the Company and Durametallic, including information provided during
discussions with their respective managements. Included in the information
provided during discussions with the respective managements were certain
financial projections of Durametallic for the period beginning January 1, 1995
and ending December 31, 2000 prepared by the management of Durametallic, as
submitted to the Company's management, and certain financial projections of the
Company for the period beginning January 1, 1995 and ending December 31, 2000
prepared by the management of the Company. In addition, we have compared certain
financial and securities data of the Company and Durametallic with various other
companies whose securities are graded in public markets, reviewed the historical
stock prices and trading volumes of the common stock of the Company, reviewed
prices and premiums paid in other business combinations and conducted such other
financial studies, analyses and investigations as we deemed appropriate for
purposes of this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy,
completeness and fairness of all of the financial and other information that was
available to us from public sources, that was provided by the Company and
Durametallic and their respective representatives, and that was otherwise
reviewed by us. In particular, we have relied upon the estimates of the
management of the Company of the operating synergies achievable as a result of
the Merger and upon our discussion of such synergies with the management of
Durametallic. With respect to the financial projections supplied to us, we have
assumed that they have been reasonably prepared on the basis reflecting the best
currently available estimates and judgments of the managements of the Company
and Durametallic as to the future operating and financial performance of the
Company and Durametallic. We have not assumed any responsibility for making any
independent evaluation of Durametallic's assets or liabilities or for making any
independent verification of any of the information reviewed by us. We have
relied on the advice of counsel to the Company as to all legal matters, and in
particular as to the analysis and evaluation of the risks of litigation against
Durametallic. We have relied on the advice of Ernst & Young to the Company as to
the fact that the Merger will qualify for pooling accounting treatment.
B-1
<PAGE> 154
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
review or reaffirm this opinion. We are expressing no opinion as to the prices
at which the Company's common stock will actually trade at any time. Except with
regard to the fairness of the Company and its shareholders from a financial
point of view of the consideration to be paid by the Company pursuant to the
Transaction, our opinion does not address the relative merits of the Merger, nor
does it address the Board's decision to proceed with the Merger. Our opinion is
not intended as a recommendation to any shareholder as to how such shareholder
should vote on the proposed transaction.
Donaldson, Lufkin and Jenrette Securities Corporation ("DLJ"), as part of
its investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with the mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes. DLJ
has in the past published research reports and recommendations with regard to
the stock of the Company. In addition, DLJ has from time to time traded in and
made a market in the stock of the Company.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the consideration to be paid by the Company pursuant to the
Agreement is fair to the Company and its shareholders from a financial point of
view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By /s/ HERALD L. RITCH
-----------------------------
Herald L. Ritch
Managing Director
B-2
<PAGE> 155
ANNEX C
William Blair & Company
222 West Adams Street
Chicago, Illinois
60606
September 10, 1995
CONFIDENTIAL
Board of Directors
Durametallic Corporation
Kalamazoo, MI 49001
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the shareholders of Durametallic Corporation (the "Company") of the
consideration to be paid such shareholders in the transaction (as hereinafter
defined) pursuant to the Agreement and Plan of Merger dated September 11, 1995
(the "Agreement") among The Duriron Company, Inc. ("Duriron") and its subsidiary
and the Company. Pursuant to the terms of the Agreement, a Duriron subsidiary
will merge into the Company (the "Merger"), with such Duriron subsidiary
surviving the Merger. The Agreement provides, among other things, that each
share of Common Stock of the Company will be converted into that number of
shares of Duriron Common Stock equal to the quotient arrived at by dividing
$85.30 by the market value of Duriron Common Stock (as defined in the
Agreement), such quotient being the "Conversion Ratio", provided that the
Conversion Ratio shall be no more than 3.6728 and no less than 2.9187.
We have acted as financial advisor to the Company in connection with the
Merger. In connection with our review of the proposed Merger and the preparation
of our opinion herein, we have examined: (a) the financial terms and conditions
of the Merger as set forth in the Agreement and in a final draft of the Joint
Proxy Statement/Prospectus of Duriron and the Company; (b) audited financial
statements of the Company for each of the four fiscal years ended December 31,
1994; (c) audited financial statements included in the annual reports on Form
10-K of Duriron for each of the four fiscal years ended December 31, 1994; (d)
unaudited quarterly financial statements included in the quarterly reports on
Form 10-Q for Duriron for the periods ended March 31 and June 30, 1995; (e)
certain internal financial analyses and forecasts for the Company prepared by
the management of the Company; (f) certain internal financial information and
the 1995 budget of Duriron; and (g) certain other publicly available information
on the Company and Duriron. We have also held discussions with members of the
senior management of the Company and Duriron to discuss the foregoing and have
considered other matters which we have deemed relevant to our inquiry.
In conducting our investigation and analyses and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant,
including (a) historical revenue, operating earnings, net income, dividend
capacity and capitalization, as to the Company, as to Duriron and as to certain
publicly held companies in businesses we believe to be comparable to the
Company; (b) the current and prospective financial position and results of
operations of the Company and Duriron; (c) the historical market prices and
trading volume of the Common Stock of Duriron; (d) financial information
concerning selected business combinations which we believe to be relevant; and
(e) the general condition of the securities markets.
We have assumed the accuracy and completeness of all information provided
to us by the Company and have not attempted to verify independently any of such
information, nor have we made or obtained an independent valuation or appraisal
of any of the assets or liabilities of the Company. With respect to financial
forecasts and budgets, we have assumed that they have been reasonably prepared
on bases reflecting the best currently available estimates and judgment of the
Company's management. We assume no responsibility for,
C-1
<PAGE> 156
and express no view as to, such forecasts or the assumptions on which they are
based. Our opinion is necessarily based solely upon information available to us
and business, market, economic and other conditions as they exist on, and can be
evaluated as of, the date hereof.
William Blair & Company has been engaged in the investment banking business
since 1935. We undertake the valuation of investment securities in connection
with public offerings, private placements, business combinations, estate and
gift tax valuations and similar transactions. For our services, including the
rendering of this opinion, the Company will pay us a fee, a significant portion
of which is contingent upon consummation of the Merger, and will indemnify us
against certain liabilities. William Blair & Company has provided investment
banking and financial advisory services to the Company and to Duriron in the
past for which we have received customary compensation.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of September 10, 1995, the consideration to be paid to the
shareholders of the Company in the Merger is fair, from a financial point of
view, to such shareholders.
Very truly yours,
WILLIAM BLAIR & COMPANY
C-2
<PAGE> 157
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
See Exhibit Index at Page II-3.
II-1
<PAGE> 158
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dayton,
State of Ohio, on the 26th day of October, 1995.
THE DURIRON COMPANY, INC.
By: /s/ WILLIAM M. JORDAN
----------------------------------
William M. Jordan, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- ----------------------------------- --------------------
<C> <S> <C>
/s/ WILLIAM M. JORDAN President, Chief Executive Officer October 26, 1995
- ----------------------------------- and Director (principal executive
William M. Jordan officer)
/s/ BRUCE E. Senior Vice President and Chief October 26, 1995
HINES Administrative Officer (principal
- ----------------------------------- financial and accounting officer)
Bruce E. Hines
*HUGH K. COBLE Director October 26, 1995
- -----------------------------------
Hugh K. Coble
*ROBERT E. FRAZER Director October 26, 1995
- -----------------------------------
Robert E. Frazer
*ERNEST GREEN Director October 26, 1995
- -----------------------------------
Ernest Green
*JOHN S. HADDICK Director October 26, 1995
- -----------------------------------
John S. Haddick
__ Director
Diane C. Harris
*RICHARD L. MOLEN Director October 26, 1995
- -----------------------------------
Richard L. Molen
__ Director
James F. Schorr
*KEVIN E. SHEEHAN Director October 26, 1995
- -----------------------------------
Kevin E. Sheehan
__ Director
R. Elton White
</TABLE>
*The undersigned, by signing his name hereto, executes this amendment to
registration statement on behalf of each of the above-named directors of the
registrant pursuant to powers of attorney executed by the above-named persons
and filed with the Securities and Exchange Commission.
/s/ RONALD F. SHUFF
------------------------------------
Ronald F. Shuff, Attorney-in-Fact
II-2
<PAGE> 159
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ------- ----
<C> <S> <C>
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Successor
2.1 Agreement and Plan of Merger dated as of September 11, 1995 among The
Duriron Company, Inc., Wolverine Acquisition Corp. and Durametallic
Corporation [included as Annex A to the Joint Proxy
Statement/Prospectus constituting part of this Registration
Statement]. The Registrant agrees to furnish supplementally a copy of
any omitted schedule to the Agreement and Plan of Merger to the
Commission upon request.
(3) Instruments Defining the Rights of Security Holders, Including Indentures
4.1 Restated Certificate of Incorporation of The Duriron Company, Inc.
(as amended) [filed as an exhibit to the Company's Registration Statement
on Form S-4 (Reg. No. 33-62527)]*
4.2 By-Laws of The Duriron Company, Inc. (as amended) [filed as an
exhibit to the Company's Registration Statement on Form S-4 (Reg. No.
33-62527)]*
4.3 Form of Rights Agreement dated as of August 1, 1986 between The
Duriron Company, Inc. and Bank One, Indianapolis, National Association,
as Rights Agent [filed as an exhibit to the Company's Form 8-A dated
August 13, 1986]*
(5) Opinion re Legality
5.1 Opinion of Thompson, Hine and Flory..................................
(8) Opinion re Tax Matters
8.1 Opinion of Thompson, Hine and Flory..................................
(23) Consents of Experts and Counsel
23.1 Consent of Ernst & Young LLP........................................
23.2 Consent of KMPG Peat Marwick LLP [filed as an exhibit to Amendment
No. 1 to the Company's Registration Statement on Form S-4 (Reg. No. 33-
62527)]*
23.3 Consent of Thompson, Hine and Flory is included in Exhibits 5.1 and
8.1
23.4 Consent of Donaldson, Lufkin & Jenrette Securities Corporation
[filed as an exhibit to the Company's Registration Statement on Form S-4
(Reg. No. 33-62527)]*
23.5 Consent of William Blair & Company [filed as an exhibit to the
Company's Registration Statement on Form S-4 (Reg. No. 33-62527)]*
(24) Powers of Attorney
24.1 Powers of attorney of each person whose signature on this
registration statement was signed by another pursuant to a power of
attorney [filed as an exhibit to the Company's Registration
Statement on Form S-4 (Reg. No. 33-62527)]*
(99) Additional Exhibits
99.1 Form of Proxy to be used by The Duriron Company, Inc. [filed as an
exhibit to Amendment No. 1 to the Company's Registration Statement on
Form S-4 (Reg. No. 33-62527)]*
99.2 Form of Proxy to be used by Durametallic Corporation [filed as an
exhibit to Amendment No. 1 to the Company's Registration Statement on
Form S-4 (Reg. No. 33-62527)]*
99.3 Durametallic Corporation Financial Statement Schedule -- Valuation
and Qualifying Accounts [filed as an exhibit to the Company's
Registration Statement on Form S-4 (Reg. No. 33-62527)]*
99.4 Consent of James S. Ware [filed as an exhibit to Amendment No. 1 to
the Company's Registration Statement on Form S-4 (Reg. No. 33-62527)]*
99.5 Form of Request for Voting Instructions to be used by Durametallic
Corporation [filed as an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-4 (Reg. No. 33-62527)]*
</TABLE>
- ---------------
* Incorporated by reference to a document previously filed with the Securities
and Exchange Commission.
II-3
<PAGE> 1
EXHIBIT 5.1
-----------
THOMPSON, HINE AND FLORY
2000 Century Courthouse Plaza NE
Dayton, Ohio 45402
October 27, 1995
The Duriron Company, Inc.
3100 Research Boulevard
Dayton, Ohio 45420
Gentlemen:
We are acting as counsel to The Duriron Company, Inc., a New York corporation
("Duriron"), in connection with (i) the Agreement and Plan of Merger (the
"Agreement") dated as of September 11, 1995 between Duriron, Wolverine
Acquisition Corp. and Durametallic Corporation, and (ii) the registration of
6,458,558 shares of Common Stock, $1.25 par value per share, of Duriron (the
"Duriron Common Stock"), under the Securities Act of 1933, as amended, pursuant
to a Registration Statement on Form S-4 (the "Registration Statement").
We have examined the Agreement, the Registration Statement, the Amended and
Restated Certificate of Incorporation of Duriron and the By-Laws of Duriron and
such other proceedings and records of Duriron, and have made investigation of
such other matters, as in our judgment permit us to render an informed opinion
on the matters set forth herein. As to matters of fact relevant to our
opinion, to the extent deemed appropriate, we have relied upon representations
of officers of Duriron and upon certificates of public officials as to matters
stated therein. Furthermore, we have assumed the capacity to sign and the
genuineness of the signatures of all persons executing agreements, instruments,
or documents examined or relied upon by us.
Based upon the foregoing, it is our opinion that the shares of Duriron Common
Stock being registered pursuant to the Registration Statement, when issued in
accordance with the terms of the Agreement, will be validly issued, fully paid
and nonassessable.
We assume no obligation to advise you of changes in the foregoing opinion
that may hereafter be brought to our attention. Our opinion is based on
statutory laws and judicial decisions that are in effect on the date hereof,
and we do not opine with respect to any law, regulation, rule, or governmental
policy that may be enacted or adopted after the
<PAGE> 2
date hereof, nor do we assume any responsibility to advise you of future
changes in our opinion.
This opinion is solely for your information in connection with the
transactions contemplated by the Agreement and, except as hereinafter set
forth, is not to be quoted in whole or in part or otherwise referred to in any
of Duriron's financial statements or other public releases, nor is it to be
filed with any governmental agency or other person without the prior written
consent of this firm. This opinion may not be relied upon by any other person
or for any other purposes whatsoever.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement as filed with the Securities and Exchange Commission in
connection with the transactions contemplated by the Agreement and to the use
of our name in the Registration Statement and in the Joint Proxy
Statement/Prospectus constituting a part thereof.
Very truly yours,
/s/ Thompson, Hine and Flory
DAN:JMH
DAN2501.AGM
<PAGE> 1
EXHIBIT 8.1
-----------
THOMPSON, HINE AND FLORY
2000 Courthouse Plaza NE
Dayton, Ohio 45402
October 27, 1995
The Duriron Company, Inc.
3100 Research Blvd.
P. O. Box 8820
Dayton, Ohio 45401-8820
Ladies and Gentlemen:
You have requested our opinion with respect to certain of the Federal income
tax consequences of a proposed merger (the "Merger") pursuant to Ohio law, in
which Durametallic Corporation ("Durametallic"), a Michigan corporation, will
become a wholly-owned subsidiary of The Duriron Company, Inc. ("Duriron"), a New
York corporation.
This opinion discusses only the principal federal income tax consequences
that are expected to apply to United States persons (e.g., citizens of the
United States, trusts and domestic corporations). It does not discuss the
special tax consequences that might apply to shareholders entitled to special
treatment under the Code (such as foreign persons, tax-exempt organizations,
retirement plans, life insurance companies, regulated investment companies and
S corporations) or to shareholders who acquired their shares as compensation
through the exercise of stock options or the vesting of restricted shares.
This opinion letter does not address state, local and foreign tax consequences.
This opinion also is based on assumptions that: (i) the representations and
warranties set forth in the Plan of Merger are true and correct, the conditions
to the parties' obligations under the Merger Agreement will be satisfied, and
the parties to the Merger Agreement will comply with their respective covenants
thereunder, (ii) following the Merger, Duriron will continue to operate
Durametallic as a wholly-owned subsidiary, and (iii) the Durametallic
shareholders satisfy the continuity of interest requirement discussed herein.
The following opinion should not be considered as a substitute for an
individual analysis of the tax consequences of the Merger to each Durametallic
shareholder. Durametallic shareholders are urged to consult their own tax
advisors as to the particular tax consequences to them of the Merger
transaction.
<PAGE> 2
Durametallic is engaged in the design, manufacture and marketing of mechanical
seals and sealing systems used primarily in process pumps, compression and
mixing equipment, and is a manufacturer of specialty welded bellows products
used in the aerospace vacuum and electronics industries.
Duriron is engaged in the design, manufacture and marketing of fluid movement
and control equipment, primarily pumps and valves (and associated automation
equipment), for industries that utilize corrosive liquids and gases in
manufacturing processes. Duriron specializes in the development of
precision-engineered equipment that is capable of withstanding the severely
deteriorating effects associated with the flow of acids, chemical solutions,
slurries and gases. As of October 24, 1995, Duriron has (a) 30,000,000 shares
voting common stock authorized, of which 19,045,508 shares were issued and
outstanding, and (b) 1,000,000 preferred shares authorized, none of which are
issued and outstanding.
The management of Durametallic and Duriron have concluded that the best
interests of both corporations and the respective shareholders would be served
by the Merger. The Merger will combine the seals manufactured by Durametallic
with the pumps manufactured by Duriron. The resulting product synergy will
increase quality control and enhance customer satisfaction. Accordingly, the
merger will allow Duriron to compete more effectively for a broader range of
opportunities.
The Merger will be effected pursuant to an Agreement and Plan of Merger (the
"Plan of Merger") dated September 11, 1995 among Durametallic, Duriron, and
Wolverine Subsidiary Corp. ("Merger Sub"), a Michigan corporation, which is a
wholly-owned subsidiary of Duriron. Pursuant to the Plan of Merger, (1) Merger
Sub will be merged into Durametallic, (2) Durametallic will be the surviving
corporation in the Merger, (3) Durametallic Common Shares will be converted into
voting shares of Duriron Common Stock and (4) Merger Sub shares will be
converted into Durametallic Common Shares. As a result of the Merger,
Durametallic will become a wholly-owned subsidiary of Duriron, and the
shareholders of Durametallic will become shareholders of Duriron.
Pursuant to the Plan of Merger, each of the issued and outstanding
Durametallic Common Shares immediately prior to the Merger will be converted
into shares of Duriron Common Stock, and no dissenters' rights will be
exercised.
Pursuant to the Plan of Merger, the outstanding nonqualified stock options to
purchase Durametallic Common Shares are converted to nonqualified stock options
to purchase
<PAGE> 3
shares of Duriron Common Stock. With respect to the nonqualified options on
shares of Duriron Common Stock granted in the conversion, (1) such options have
the same terms as the outstanding nonqualified options to purchase Durametallic
Common Shares, (2) such options are granted based on the same conversion ratio
used to convert the Durametallic Common Shares into shares of Duriron Common
Stock pursuant to the Plan of Merger and (3) the excess of the aggregate fair
market value of the shares of Duriron Common Stock subject to options that are
granted in the conversion over the aggregate option price of such options is
equal to the aggregate fair market value of the Durametallic Common Shares
subject to options immediately before the conversion over the aggregate option
price of such options.
We have examined copies conforming to the executed originals of the Plan of
Merger and have made such examinations of law and fact as we have deemed
necessary for purposes of this opinion.
In addition, we have reviewed the representations, covenants and warranties
set forth in the Plan of Merger and the conditions to the parties' obligations
under the Plan of Merger, and have made certain assumptions discussed herein,
which have allowed us to reach the following conclusions:
(1) A valid business purpose is present to execute the Merger.
(2) The managements of Durametallic and Duriron believe that the aggregate
fair market value of the Durametallic Common Shares to be converted into
shares of Duriron Common Stock are approximately equal to the aggregate fair
market value of such shares of Duriron Common Stock.
<PAGE> 4
(3) Merger Sub was formed solely to effectuate the Merger and will not own
any assets (other than minimal cash) or have any liabilities prior to the
Merger.
(4) Prior to the Merger, Duriron will own Merger Sub shares constituting at
least 80 percent of the total combined voting power of all classes of stock
entitled to vote and at least 80 percent of the total number of shares of all
other classes of stock of Merger Sub.
(5) Pursuant to the Merger, the shareholders of Durametallic will have
Durametallic Common Shares representing control (i.e., at least 80 percent of
the total combined voting power of all classes of stock entitled to vote and
at least 80 percent of the total number of shares of all other classes of
stock of Durametallic) of Durametallic converted to voting shares of Duriron
Common Stock.
(6) Durametallic has no plan or intention to issue additional shares that
would cause the Durametallic Common Shares owned by Duriron after the Merger
to be reduced to less than 80 percent of the total combined voting power of
all classes of stock entitled to vote or less than 80 percent of the total
number of shares of all other classes of stock of Durametallic.
(7) At the time of the Merger, Durametallic will not have outstanding any
warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire shares in Durametallic that, if
exercised or converted, would affect Duriron's acquisition or retention of
control of Durametallic, as defined in Code Section 368(c).
(8) Duriron has no plan or intention to reacquire any of the shares of
Duriron Common Stock issued to the shareholders of Durametallic in the Merger.
(9) Duriron has no plan or intention to sell or otherwise dispose of the
Durametallic Common Shares.
(10) Except for the Merger of Merger Sub into Durametallic, Duriron has no
plan or intention to liquidate Durametallic or to merge Durametallic with or
into another corporation.
<PAGE> 5
(11) Following the Merger, Durametallic will (a) own assets having a
net fair market value equal to at least 90 percent of the net fair market
value of the assets owned by Durametallic immediately prior to the Merger and
(b) own assets having a gross fair market value equal to at least 70 percent
of the gross value of the assets owned by Durametallic immediately prior to
the Merger.
(12) Following the Merger, Durametallic will continue its historic
business or use its historic assets in a business enterprise in satisfaction
of the continuity of business enterprise requirement of Section 1.368-1(d) of
the Treasury Department Federal Income Tax Regulations.
(13) Durametallic has no plan or intention to sell, dispose of or otherwise
transfer any of the assets of Durametallic, other than dispositions made in
the ordinary course of business.
(14) There is no indebtedness existing between Duriron and Durametallic
that will be issued or acquired, or will be settled at a discount.
(15) Duriron does not own, nor has it owned during the five years preceding
the Merger, Durametallic Common Shares.
(16) Neither Duriron nor Durametallic is an investment company within the
meaning of Code Sections 368(a)(2)(F)(iii) and (iv).
(17) On the effective date of the Merger, the fair market value of
Durametallic's assets will exceed the sum of its liabilities.
(18) Any cash paid to Durametallic shareholders in lieu of fractional
shares of Durametallic will be for the purpose of saving Duriron the expense
and inconvenience of issuing and transferring fractional shares of Duriron and
does not represent separately bargained-for consideration.
(19) Durametallic is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Code Section 368(a)(3)(A).
(20) The nonqualified stock options to purchase shares of Duriron Common
Stock granted in substitution of the nonqualified stock
<PAGE> 6
options to purchase Durametallic Common Shares pursuant to the Plan of
Merger do not have a "readily ascertainable fair market value" within the
meaning of Section 1.83-7 of the Treasury Department Federal Income Tax
Regulations.
(21) There are no outstanding stock options to purchase Durametallic Common
Shares that qualify as incentive stock options within the meaning of Code
Section 422A.
Based on the foregoing conclusions, the Plan of Merger, our examination of
the present provisions of the Code, proposed, temporary and final Treasury
Department Regulations, and published judicial and administrative decisions
through October 15, 1995, and the assumptions set forth herein, it is our
opinion that:
(1) The Merger constitutes a "reorganization" within the meaning of
Code Sections 368(a)(1)(A) and 368(a)(2)(E), and Durametallic, Merger Sub and
Duriron are parties to such reorganization.
(2) Except for cash received in lieu of fractional shares of Duriron Common
Stock, any Durametallic shareholder whose Durametallic Common Shares are
converted solely into common shares of Duriron pursuant to the Merger does not
recognize gain or loss.
(3) No gain or loss is recognized by Durametallic on the merger of Merger
Sub into Durametallic pursuant to the Plan of Merger.
(4) No gain or loss is recognized by Duriron in connection with the
conversion of the Merger Sub shares into Durametallic Common Shares or the
conversion of the Durametallic Common Shares into shares of Duriron Common
Stock pursuant to the Merger.
(5) No gain or loss is recognized by Merger Sub on its Merger into
Durametallic pursuant to the Plan of Merger.
(6) The aggregate tax basis of the shares of Duriron Common Stock to be
received by a holder of Durametallic Common Shares is the same as the
aggregate tax basis of the Durametallic Common Shares to be converted in
exchange therefor.
<PAGE> 7
(7) The holding period of the common shares of Duriron Common Stock to
be received by the Durametallic shareholders (including fractional share
interests deemed received) includes the holding period during which the
Durametallic Common Shares were held, provided such Durametallic Common
Shares were held as a capital asset on the date of the exchange.
(8) Any cash received by a shareholder of Durametallic in lieu of a
fractional share of Duriron Common Stock is treated as if a fractional share
is distributed as part of the exchange and a cash distribution is received in
redemption of such fractional share qualifying for capital gain treatment,
provided that the Durametallic Common Shares exchanged were held as a capital
asset on the date of the exchange.
(9) Duriron's tax basis in the Durametallic Common Shares immediately
following the Plan of Merger is an amount equal to either (a) the cash and
tax basis of assets held by Durametallic immediately following the Merger less
Durametallic's
<PAGE> 8
outstanding liabilities immediately following the Merger or (b) the tax basis
of the Durametallic Common Shares transferred pursuant to the Merger, as
provided in Section 1.358-6(c) of the Treasury Department Proposed Federal
Income Tax Regulations.
If the liabilities of Durametallic immediately following the Merger
exceed the cash and tax basis of the assets held by Durametallic immediately
following the Merger and the approach in (a) of this paragraph (9) is used
to determine Duriron's tax basis in the Durametallic Common Shares, Proposed
Federal Income Tax Regulations provide that the tax basis of the Durametallic
Common Shares held by Duriron immediately following the Merger is a negative
number (i.e., an excess loss account is established) equal to such excess.
The section of the applicable Proposed Federal Income Tax Regulations on this
point is effective only if the Merger occurs after such regulations are
issued in final form.
(10) No gain or loss is recognized by the holders of nonqualified stock
options to purchase Durametallic Common Shares upon the conversion of such
options into nonqualified options to purchase shares of Duriron Common Stock.
Our opinion that the Merger will qualify as a tax-free reorganization is based
on the assumption that the Durametallic shareholders will (a) be treated as the
"historic shareholders" of Durametallic and (b) retain a "continuing interest"
in Duriron through the ownership of shares of Duriron Common Stock. In order
for the Plan of Merger to qualify as a tax-free reorganization, both of these
component parts of the continuity of interest requirement must be met.
The historic shareholder component requires that Durametallic shareholders who
participate in the Plan of Merger have held their interest in Durametallic
Common Shares for a substantial period of time prior to the execution of the
Plan of Merger. The continuing interest component as applied by the Internal
Revenue Service requires that the historic Durametallic shareholders as a group
receive shares of Duriron Common Stock which are equal in value to at least 50
percent of the value of the outstanding Durametallic Common Shares immediately
prior to the Merger and that such shares of Duriron Common Stock will be
retained by the former historic Durametallic shareholders for a significant
period of time.
We base our opinion with respect to the continuity of interest requirement on
the assumption that over 50 percent of the total outstanding Durametallic
Common Shares have been held by the same Durametallic shareholders for the
five-year period preceding the Merger and that the Durametallic shareholders
have no plan or intention to sell or otherwise
<PAGE> 9
dispose of shares of Duriron Common Stock. We have not requested a
representation to this effect from the approximately 250 shareholders of
Durametallic.
The Internal Revenue Service has not issued specific guidance as to how to
apply the continuity of interest requirement in a situation where the shares of
a corporation, like Durametallic, are held by many shareholders each holding a
relatively small interest. Our opinion is based on the assumption that the
Durametallic shareholders will act in a manner consistent with the
continuity of interest requirements.
Further, we note that Proposed Federal Income Tax Regulations (issued
December 22, 1994) supports our opinion with respect to Duriron's tax basis in
the shares of Durametallic following the Merger (Opinion No. 9). However, the
underlying regulation has been issued only in proposed form and might be
different when issued in final form.
Although we are confident of our opinions, our opinions represent only our
legal conclusions and are not binding upon the Internal Revenue Service.
We consent to the use of this opinion as an exhibit to Duriron's Registration
Statement on Form S-4 (Registration No. 33-62527) covering the Duriron Common
Stock to be issued in the Merger. We also consent to the reference to our
name and to this opinion under the caption "Federal Income Tax Consequences of
the Merger" in the Joint Proxy Statement/Prospectus constituting part of such
Registration Statement.
Very truly yours,
/s/ Thompson, Hine and Flory
-----------------------------
Thompson, Hine and Flory
<PAGE> 1
Exhibit 23.1
------------
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Experts," "Tax and
Accounting Treatment of the Merger," "Conditions of the Merger," and
"Accounting Treatment of the Merger" in the Registration Statement (Form S-4,
No. 33-62527) and related Prospectus of The Duriron Company, Inc. for the
registration of 6,458,558 shares of its common stock and to the incorporation
by reference therein of our report dated February 23, 1995, with respect to the
consolidated financial statements and schedules of The Duriron Company, Inc.
included in its Annual Report (Form 10-K) for the year ended December 31, 1994,
filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
Dayton, Ohio
October 25, 1995
