<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 19, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DURCO INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
3561, 3491 31-0267900
NEW YORK (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
(STATE OF INCORPORATION) CLASSIFICATION CODE NUMBERS) IDENTIFICATION NUMBER)
</TABLE>
3100 RESEARCH BOULEVARD
DAYTON, OHIO 45420
(937) 476-6100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RONALD F. SHUFF
VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
DURCO INTERNATIONAL INC.
3100 RESEARCH BOULEVARD
DAYTON, OHIO 45420
(937) 476-6100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
<TABLE>
<S> <C> <C>
COPIES TO:
JOHN D. HANNESSON
VICE PRESIDENT, SECRETARY
ROBERT A. KINDLER AND GENERAL COUNSEL CLARE O'BRIEN
CRAVATH, SWAINE & MOORE BW/IP, INC. SHEARMAN & STERLING
825 EIGHTH AVENUE 200 OCEANGATE BOULEVARD 599 LEXINGTON AVENUE
NEW YORK, NY 10019 SUITE 900 NEW YORK, NY 10022
(212) 474-1000 LONG BEACH, CA 90802 (212) 848-4000
(562) 435-3700
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the merger referred to herein (the "Merger").
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED(1) SECURITY(2) PRICE(2) FEE(3)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $1.25 per
share(4).................................. 18,154,798 $28.25 $512,948,599 $155,439
============================================================================================================
</TABLE>
(1) Based on the maximum number of shares to be issued in connection with the
Merger, calculated as the product of (a) 26,054,532, the aggregate number of
shares of BW/IP, Inc. Common Stock, par value $0.01 per share ("BW/IP Common
Stock") outstanding on a fully diluted basis as of June 17, 1997 and (b) an
exchange ratio of 0.6968 shares of Common Stock for each share of BW/IP
Common Stock.
(2) Estimated solely for purposes of calculating the registration fee required
by Section 6(b) of the Securities Act of 1933, as amended (the "Securities
Act"), and calculated pursuant to Rule 457(f) under the Securities Act.
Pursuant to Rule 457(f)(1) under the Securities Act, the proposed maximum
aggregate offering price of the Common Stock was calculated in accordance
with Rule 457(c) under the Securities Act as: (a) $19.6875, the average of
the high and low prices per share of BW/IP Common Stock on June 16, 1997 as
reported on the New York Stock Exchange Composite Transaction Tape,
multiplied by (b) 26,054,532, the aggregate number of shares of BW/IP Common
Stock outstanding on a fully diluted basis as of June 17, 1997.
(3) Pursuant to Rule 457(b) under the Securities Act, $92,819 of the
registration fee was paid as of May 15,1997 in connection with the filing of
preliminary proxy materials.
(4) This Registration Statement also covers the associated preferred stock
purchase rights (the "Rights") issued pursuant to a Rights Agreement dated
as of August 1, 1986 and amended as of August 1, 1996, between the
Registrant and National City Bank, as Rights Agent. Prior to the occurrence
of certain events, the Rights will not be exercisable or evidenced
separately from the Registrant's Common Stock.
----------------------------
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION
8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
DURCO INTERNATIONAL INC.
3100 RESEARCH BOULEVARD
DAYTON, OHIO 45420
JUNE 19, 1997
Dear Fellow Stockholder:
You are invited to attend a special meeting of stockholders which the Board
has called to vote upon the issuance of shares of our common stock in accordance
with the terms of the proposed merger agreement among Durco, Bruin Acquisition
Corp., a wholly owned subsidiary of Durco, and BW/IP. This meeting will be held
at Durco's World Headquarters, 3100 Research Boulevard, Dayton, Ohio 45420 on
July 22, 1997 at 2:00 p.m. local time.
The Board strongly recommends that you support and vote for the proposed
merger share issuance by signing and returning your enclosed proxy card. The
merger share issuance is necessary to complete the merger. As a result of the
merger, we plan to realize our vision of building a leading global supplier of
fluid handling and control equipment. The combination of our companies and our
highly complementary businesses will create a larger and more diversified
company uniquely qualified to capitalize on new opportunities domestically and
around the world. The combined company will be named Flowserve Corporation.
Under the merger agreement, each outstanding share of BW/IP common stock
will be converted into the right to receive 0.6968 shares of Durco common stock.
Each currently issued and outstanding share of Durco common stock will remain
outstanding following the merger. Through the merger, Durco will obtain broader
product offerings, more diverse market strengths, greater global operations and
new opportunities to grow in its business.
You will also be asked at the meeting to approve amendments to our
certificate of incorporation to (i) change our corporate name to Flowserve
Corporation and (ii) increase the authorized number of shares of our common
stock from 60,000,000 to 120,000,000 shares. We are proposing to change our
corporate name to Flowserve Corporation to better represent the combined
companies after the merger. The Board believes that the requested authorized
share increase is necessary to make shares available for future issuance for
cash, acquisitions, share dividends and other corporate purposes.
The merger share issuance, the name change and the increase in authorized
common stock are each described in more detail in the attached Joint Proxy
Statement/Prospectus.
The Board has unanimously approved the merger, the merger share issuance,
the name change and the authorized share increase. The Board unanimously
recommends that you vote "FOR" the merger share issuance, the name change and
the authorized share increase on the enclosed proxy card. Approval of the merger
share issuance and the name change are conditions to the merger.
Your vote, regardless of the number of shares you own, is very important.
Please promptly sign, date and return the enclosed proxy in the enclosed
envelope.
Sincerely
/s/ William M. Jordan
William M. Jordan
Chairman, President and Chief
Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE MERGER DESCRIBED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS OR THE DURCO COMMON STOCK TO BE ISSUED IN CONNECTION WITH
THE MERGER, NOR HAVE THEY DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. FURTHERMORE, THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT DETERMINED THE FAIRNESS OR MERITS OF THE MERGER. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Joint Proxy Statement/Prospectus is dated June 19, 1997 and is first
being mailed to stockholders on or about June 19, 1997.
<PAGE> 3
DURCO INTERNATIONAL INC.
3100 RESEARCH BOULEVARD
DAYTON, OHIO 45420
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 22, 1997
NOTICE HEREBY IS GIVEN that a Special Meeting of Stockholders of Durco
International Inc. ("Durco") will be held at Durco's World Headquarters, 3100
Research Boulevard, Dayton, Ohio 45420 on July 22, 1997, commencing at 2:00 p.m.
local time, for the following purposes:
1. To consider and vote upon approval of the issuance of shares of
Durco common stock in accordance with the terms of the Agreement and Plan
of Merger (the "Merger Agreement") dated as of May 6, 1997, among Durco,
Bruin Acquisition Corp., a wholly owned subsidiary of Durco ("Sub"), and
BW/IP, Inc. ("BW/IP") (a copy of which is attached as Annex I to the
enclosed Joint Proxy Statement/Prospectus), which provides for the merger
(the "Merger") of Sub with and into BW/IP, with BW/IP surviving as a wholly
owned subsidiary of Durco. As a result of the Merger, each outstanding
share of BW/IP common stock will be converted into the right to receive
0.6968 shares of Durco common stock, with cash paid in lieu of fractional
shares. In addition, each currently issued and outstanding share of Durco
common stock will remain outstanding following the Merger.
2. To consider and vote upon adoption of an amendment to Durco's
Restated Certificate of Incorporation, as amended, to change the corporate
name of Durco to Flowserve Corporation.
3. To consider and vote upon adoption of an amendment to Durco's
Restated Certificate of Incorporation, as amended, to increase the
authorized number of shares of Durco common stock from 60,000,000 to
120,000,000.
4. 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 Durco common stock as of the close of
business on June 17, 1997 are entitled to notice of and to vote at the Special
Meeting of Stockholders and any adjournments or postponements thereof.
The Joint Proxy Statement/Prospectus enclosed with this notice is a joint
proxy statement of Durco and BW/IP for their respective special stockholders'
meetings and also constitutes the prospectus of Durco for the shares of Durco
common stock to be issued in the proposed Merger.
By Order of the Board of Directors
/s/ Ronald F. Shuff
Ronald F. Shuff
Secretary
Dayton, Ohio
June 19, 1997
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> 4
BW/IP, INC.
200 OCEANGATE BOULEVARD
SUITE 900
LONG BEACH, CALIFORNIA 90802
JUNE 19, 1997
Dear BW/IP Stockholders:
You are invited to attend a special meeting of stockholders which the Board
has called to vote upon the adoption of the proposed merger agreement among
Durco International Inc., Bruin Acquisition Corp., a wholly owned subsidiary of
Durco, and BW/IP. This meeting will be held at The Long Beach Hilton Hotel, Two
World Trade Center, Long Beach, California on July 22, 1997 at 11:00 a.m. local
time.
The Board strongly recommends that you support and vote for the proposed
merger by signing and returning your enclosed proxy card. As a result of the
merger, we plan to realize our vision of building a leading global supplier of
fluid handling and control equipment. The combination of our companies and our
highly complementary businesses will create a larger and more diversified
company uniquely qualified to capitalize on new opportunities domestically and
around the world. The combined company will be named Flowserve Corporation.
Under the proposed merger agreement, each outstanding share of BW/IP common
stock will be converted into the right to receive 0.6968 shares of Durco common
stock. Each currently issued and outstanding share of Durco common stock will
remain outstanding following the merger.
We are excited about the opportunities this merger represents for each of
us as stockholders. The merger will create a much larger company with a wider
array of products and services to offer customers in the United States and
around the world. It will broaden our customer base and geographic coverage,
reduce our costs and accelerate research and the development of new products. We
expect these benefits to be manifested in both greater profitability and
increased sales growth as we better serve this expanded customer base around the
globe.
The merger is described in more detail in the attached Joint Proxy
Statement/Prospectus.
THE BOARD OF DIRECTORS OF BW/IP HAS DETERMINED THAT THE MERGER IS FAIR TO
YOU AND IN YOUR BEST INTERESTS. THE BOARD, BY A UNANIMOUS VOTE OF THOSE PRESENT,
HAS APPROVED THE MERGER AGREEMENT AND THE MERGER, AND RECOMMENDS THAT YOU VOTE
TO ADOPT THE MERGER AGREEMENT.
Because of the significance of the merger, your participation in the
special meeting, in person or by proxy, is especially important. We hope you
will be able to attend the special meeting. However, even if you anticipate
attending in person, we urge you to complete, sign and return the enclosed proxy
card promptly in the enclosed postage-paid envelope to ensure that the shares of
common stock you hold will be represented at the special meeting. If you do
attend, you will, of course, be able to vote your shares in person.
Thank you, and we look forward to seeing you at the special meeting.
Sincerely
Rethore signature
Bernard G. Rethore
Chairman, President and Chief
Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED THE MERGER DESCRIBED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS OR THE DURCO COMMON STOCK TO BE ISSUED IN CONNECTION WITH
THE MERGER, NOR HAVE THEY DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. FURTHERMORE, THE SECURITIES AND EXCHANGE COMMISSION HAS
NOT DETERMINED THE FAIRNESS OR MERITS OF THE MERGER. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
This Joint Proxy Statement/Prospectus is dated June 19, 1997 and is first
being mailed to stockholders on or about June 19, 1997.
<PAGE> 5
BW/IP, INC.
200 OCEANGATE BOULEVARD
SUITE 900
LONG BEACH, CALIFORNIA 90802
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 22, 1997
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of BW/IP,
Inc. ("BW/IP") will be held at The Long Beach Hilton Hotel, Two World Trade
Center, Long Beach, California on July 22, 1997, commencing at 11:00 a.m. local
time, for the following purposes:
1. To consider and vote upon the adoption of the Agreement and Plan of
Merger (the "Merger Agreement") dated as of May 6, 1997 among Durco
International Inc. ("Durco"), Bruin Acquisition Corp., a wholly owned
subsidiary of Durco ("Sub"), and BW/IP (a copy of which is attached as
Annex I to the enclosed Joint Proxy Statement/Prospectus), which provides
for the merger (the "Merger") of Sub with and into BW/IP, with BW/IP
surviving as a wholly owned subsidiary of Durco. As a result of the Merger
each outstanding share of BW/IP common stock will be converted into the
right to receive 0.6968 shares of Durco common stock, with cash paid in
lieu of fractional shares. Following the Merger, each currently issued and
outstanding share of Durco common stock will remain outstanding.
2. 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 BW/IP common stock as of the close of
business on June 17, 1997, are entitled to notice of and vote at the Special
Meeting of Stockholders and any adjournments or postponements thereof.
The Joint Proxy Statement/Prospectus enclosed with this notice is a joint
proxy statement of Durco and BW/IP for their respective special stockholders'
meetings.
Proxies and voting instructions that are timely received will be voted in
the manner directed thereon. If no direction is given, they will be voted (as to
the shares for which they are authorized to be voted) in accordance with the
recommendations of BW/IP's Board of Directors.
ALL STOCKHOLDERS, WHETHER OR NOT THEY PLAN TO ATTEND THE SPECIAL MEETING,
ARE ASKED TO COMPLETE, DATE AND SIGN THE ENCLOSED FORM OF PROXY AND MAIL IT
PROMPTLY IN THE ENCLOSED PREPAID RETURN ENVELOPE. YOUR VOTE IS VERY IMPORTANT.
BY ORDER OF THE BOARD OF DIRECTORS
HANNESSON SIGNATURE
JOHN D. HANNESSON
Secretary
Long Beach, California
June 19, 1997
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE
MERGER............................... 1
SUMMARY................................ 4
THE STOCKHOLDERS' MEETINGS............. 13
Date, Times and Places............... 13
Matters to be Considered at the
Stockholders' Meetings............ 13
Record Date; Vote Required........... 13
Share Ownership of Management........ 14
Voting; Revocation of Proxies;
Solicitation...................... 14
THE MERGER............................. 16
Background to the Merger............. 16
Reasons for the Merger and Board
Recommendations................... 18
Opinions of Financial Advisors....... 20
Accounting Treatment................. 25
Form of the Merger................... 26
Merger Consideration................. 26
Conversion of Shares; Procedures for
Exchange of Certificates;
Fractional Shares................. 26
Effective Time....................... 27
Stock Exchange Listings.............. 27
Federal Income Tax Considerations.... 27
Effect on Awards Outstanding Under
BW/IP Stock Plans................. 29
Regulatory Matters and Third Party
Approvals......................... 29
Certain Transactions; Conflicts of
Interest.......................... 29
Employment Agreements................ 30
Continuation of Compensation and
Benefits Programs................. 31
Appraisal and Dissenters' Rights..... 32
Delisting and Deregistration of BW/IP
Common Stock...................... 32
Resale of Flowserve Common Stock..... 32
CERTAIN PROVISIONS OF THE MERGER
AGREEMENT AND RELATED AGREEMENTS AND
DOCUMENTS............................ 33
General.............................. 33
Conditions to the Consummation of the
Merger............................ 33
No Solicitation...................... 34
Termination.......................... 35
<CAPTION>
PAGE
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<S> <C>
Termination Fees..................... 36
Conduct of Business Pending the
Merger............................ 36
Dividend Coordination................ 37
Amendment to Rights Plan............. 37
Assumption of BW/IP Stock Plans...... 38
Amendment and Waiver................. 38
Expenses............................. 38
Representations and Warranties....... 39
Certificate of Incorporation of
BW/IP............................. 39
By-laws of BW/IP..................... 39
Governing Law........................ 39
Reciprocal Stock Option Agreements... 40
THE COMPANIES.......................... 42
Durco................................ 42
BW/IP................................ 42
COMPARATIVE PER SHARE MARKET PRICE AND
DIVIDEND INFORMATION................. 43
Durco................................ 43
BW/IP................................ 44
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS................. 45
DIRECTORS AND EXECUTIVE OFFICERS OF
FLOWSERVE FOLLOWING THE MERGER....... 53
Directors............................ 53
Committees of the Flowserve Board.... 53
Executive Officers................... 53
Stock Ownership of Directors,
Executive Officers................ 53
DESCRIPTION OF FLOWSERVE CAPITAL STOCK
FOLLOWING THE MERGER................. 54
Authorized Capital Stock............. 54
Flowserve Common Stock............... 54
Flowserve Preferred Stock............ 54
Flowserve Rights Plan; Series A
Junior Participating Preferred
Stock............................. 55
COMPARISON OF RIGHTS OF BW/IP AND DURCO
STOCKHOLDERS......................... 55
Authorized Capital................... 55
Directors............................ 55
</TABLE>
i
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Amendments to Certificate of
Incorporation..................... 55
Amendment of By-Laws................. 56
Cumulative Voting.................... 56
Removal of Directors................. 56
Filling Vacancies on the Board of
Directors......................... 56
Stockholder Meetings and Provisions
for Notices....................... 56
Quorum............................... 57
Voting by Stockholders............... 57
Stockholder Action Without a
Meeting........................... 58
Rights Plan.......................... 58
Indemnification and Limitation of
Liability......................... 58
Dissenters' Rights................... 60
Right to Examine Stockholder List.... 61
Interested Director Transactions..... 61
LEGAL MATTERS.......................... 62
EXPERTS................................ 62
PROPOSED AMENDMENTS TO DURCO
CERTIFICATE OF INCORPORATION......... 62
FUTURE STOCKHOLDER PROPOSALS........... 63
OTHER MATTERS.......................... 63
WHERE YOU CAN FIND MORE INFORMATION.... 64
ANNEXES TO THE JOINT PROXY
STATEMENT/PROSPECTUS
Annex I Agreement and Plan of Merger
Annex II Durco Stock Option Agreement
Annex III BW/IP Stock Option Agreement
Annex IV Opinion of Salomon Brothers Inc
Annex V Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
Annex VI Durco Restated Certificate of Incorporation, as amended
Annex VII Durco By-Laws
</TABLE>
ii
<PAGE> 8
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE? HOW WILL I BENEFIT?
A: Our companies are proposing to merge because we believe the resulting
combination will provide our stockholders with substantial benefits and will
enable us to better serve our customers. We believe the merger will create a
leading global supplier of fluid handling and control equipment and will
create a larger and more diversified company uniquely qualified to
capitalize on new opportunities domestically and around the world. To review
the background and reasons for the merger in greater detail, see pages 16
through 19.
Q: WHAT IS "FLOWSERVE CORPORATION"?
A: Flowserve Corporation is the name that Durco and BW/IP have agreed to use
for the combined company after the merger.
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign and mail it
in the enclosed return envelope as soon as possible, so that your shares may
be represented at your stockholders' meeting. If you sign and send in your
proxy and do not indicate how you want to vote, your proxy will be counted
as a vote in favor of each proposal. The Durco special meeting and the BW/IP
special meeting will each take place on July 22, 1997. You may attend your
stockholders' meeting and vote your shares in person, rather than signing
and mailing your proxy card. In addition, you may take back your proxy up to
and including the day of your stockholders' meeting by following the
directions on pages 14 and 15 and either change your vote or attend your
stockholders' meeting and vote in person.
THE BOARD OF DIRECTORS OF DURCO, BY A UNANIMOUS VOTE, RECOMMENDS VOTING IN
FAVOR OF THE PROPOSED MERGER SHARE ISSUANCE, THE PROPOSED NAME CHANGE AND
THE PROPOSED AUTHORIZED SHARE INCREASE, AND THE BOARD OF DIRECTORS OF
BW/IP, BY A UNANIMOUS VOTE OF THOSE PRESENT, RECOMMENDS VOTING IN FAVOR OF
THE PROPOSED MERGER.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how to
vote. You should instruct your broker to vote your shares, following the
directions provided by your broker. Without instructions, your shares will
not be voted. For Durco stockholders being asked to vote on the merger share
issuance, abstentions will have the effect of votes cast against such
proposal and failures to vote and broker non-votes will have no effect on
such proposal. For Durco stockholders being asked to vote on the name change
or the authorized share increase, abstentions, failures to vote and broker
non-votes will have the effect of votes cast against such proposals. For
BW/IP stockholders being asked to vote on adoption of the merger agreement,
abstentions, failures to vote and broker non-votes will have the effect of
votes cast against such proposals.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send BW/IP stockholders written
instructions for exchanging their share certificates. Durco stockholders
will keep their certificates.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger is completed, BW/IP stockholders will have the right to
receive 0.6968 shares of Durco common stock, which we sometimes refer to in
this document as Flowserve Common Stock, in exchange for each share of BW/IP
common stock they own.
In addition, if the merger is completed, each currently issued share of
Durco common stock will remain outstanding.
We will not issue fractional shares. Instead, BW/IP stockholders will
receive cash for any fractional share of Flowserve Common Stock owed to
them based on the market value of such fractional share after the merger.
Example:
- If you currently own 100 shares of BW/IP common stock, then after the
merger you will receive 69 shares of Flowserve Common
1
<PAGE> 9
Stock and a check for the market value of the 0.68 fractional share.
- If you currently own 1 share of BW/IP common stock, then after the merger
you will receive a check for the market value of the 0.6968 fractional
share.
- If you currently own 100 shares of Durco common stock, those shares will
remain outstanding.
Q: AS A DURCO STOCKHOLDER, HOW WILL THE MERGER AFFECT ME?
A: Following the merger, each currently issued Durco share will remain
outstanding and current stockholders of Durco will own approximately 58% of
the common stock of the combined company, Flowserve.
Q: WHY WILL BW/IP STOCKHOLDERS RECEIVE SHARES OF THE COMBINED COMPANY, BUT
DURCO STOCKHOLDERS WILL NOT RECEIVE BW/IP SHARES?
A: Following the merger, BW/IP will become a wholly owned subsidiary of Durco
and will no longer be a separate publicly traded company. Durco will be the
surviving public company in the merger and will be renamed "Flowserve
Corporation." BW/IP stockholders will have the right to receive 0.6968
shares of common stock of the combined company for each share of BW/IP
common stock they own. Following the merger, current BW/IP stockholders will
own approximately 42% of the common stock of the combined company,
Flowserve. Each share held by a current Durco stockholder will remain
outstanding.
Q: WHAT HAPPENS TO MY FUTURE DIVIDENDS?
A: Following the merger, management expects to recommend that the combined
company pay dividends on the Flowserve Common Stock initially in the amount
of $0.14 per share per quarter, or $0.56 per share per year (which is equal
to the recent historical dividends of Durco). Although we currently expect
to pay such dividends, we cannot assure such payments. The combined
company's Board of Directors will use its discretion to decide whether to
declare dividends and the amount of any dividends. In making its decision,
the Board will consider various factors, including the earnings and
financial condition of Flowserve and its subsidiaries (including BW/IP).
Example:
- If you currently own 100 shares of BW/IP common stock, then after the
merger you will receive 69 shares of Flowserve Common Stock, and would
receive a total dividend payment of $9.66 per quarter, or $38.64 per
year, assuming continuation of the current Durco dividend rate.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. In
addition to stockholder approvals, we must also obtain regulatory approvals.
We hope to complete the merger as early as August 1997.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: The exchange of shares by BW/IP stockholders will be tax-free to BW/IP
stockholders for federal income tax purposes. However, BW/IP stockholders
may have to pay taxes on cash received for fractional shares and may have to
pay taxes as a result of the payment by Durco on their behalf of certain
transfer taxes. The merger will be tax-free to Durco stockholders for
federal income tax purposes. To review the tax consequences to stockholders
in greater detail, see pages 27 through 29.
2
<PAGE> 10
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the merger you should contact:
DURCO STOCKHOLDERS
Durco International Inc.
3100 Research Boulevard
Dayton, OH 45420
Attention: Investor Relations
Phone Number: (937) 476-6100
BW/IP STOCKHOLDERS
BW/IP, Inc.
200 Oceangate Boulevard
Suite 900
Long Beach, CA 90802
Attention: Investor Relations
Phone Number: (562) 435-3700
If you would like additional copies of the Joint Proxy Statement/Prospectus,
or if you have questions about the merger, you should contact:
DURCO STOCKHOLDERS
Corporate Investor Communications, Inc.
111 Commerce Road
Carlstadt, New Jersey 07072-2586
Toll Free: 1-800-346-7885
BW/IP STOCKHOLDERS
D. F. King & Co., Inc.
77 Water Street
New York, New York 10005
Toll Free: 1-800-859-8515
3
<PAGE> 11
SUMMARY
This summary highlights selected information from this document and does
not contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the documents to
which we have referred you. See "Where You Can Find More Information" (page 64).
We have included page references parenthetically to direct you to a more
complete description of the topics presented in this Summary.
THE COMPANIES (PAGE 42)
DURCO -- Durco International Inc. ("Durco" and formally named "The Duriron
Company, Inc.") is principally engaged in the design, manufacture and marketing
of fluid handling equipment, primarily pumps, control valves, valves and
mechanical seals, for industries that utilize difficult to handle and often
corrosive fluids in manufacturing processes. Durco 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, Durco considers itself a leading supplier of
corrosion resistant fluid movement and control equipment to the basic chemical
industry. Durco's materials expertise, design, 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.
BW/IP -- BW/IP, Inc. ("BW/IP") is a worldwide supplier of advanced
technology fluid transfer and control equipment, systems and services. The
principal products which BW/IP designs, manufactures, distributes and services
are centrifugal pumps, mechanical seals and valves. The pumps consist primarily
of highly engineered vertical and horizontal pumps and standard vertical pumps.
BW/IP's engineered pumps are commonly engineered to specific customer
requirements and frequently also manufactured to comply with American Petroleum
Institute standards or conform to the nuclear quality standards of the American
Society of Mechanical Engineers. BW/IP's mechanical seal products are comprised
principally of highly engineered mechanical seals and seal support systems
utilized to eliminate or reduce the leakage of fluids or gases around rotating
shafts in pumps, mixers and compressors in the petroleum, chemical and
petrochemical process industries. BW/IP produces a broad range of valves used in
the nuclear power industry as well as a variety of other commercial
applications.
BW/IP's pump, seal and valve products are commonly used in critical service
applications in oil refining, power generation and petrochemical processing,
where extreme reliability and robust design are required. BW/IP's reputation for
technical expertise, advanced research in pump and seal design, and engineering
knowledge make BW/IP a leading supplier of such critical service products. An
important element of BW/IP's business is its successful emphasis on the
provision of aftermarket products and services. These consist of supplying
parts, making repairs, providing a variety of technical services for upgrading
or retrofitting equipment, extending its useful life or improving its operating
characteristics. BW/IP has manufacturing plants in seven countries and service
centers in twenty countries.
OUR REASONS FOR THE MERGER (PAGE 18)
The merger of equals combination of BW/IP and Durco, pursuant to which
Bruin Acquisition Corp. ("Sub") will be merged with and into BW/IP, with BW/IP
surviving as a wholly owned subsidiary of Durco (the "Merger"), will combine our
companies' complementary strengths to create a leading global supplier of fluid
handling and control equipment. We believe the resulting combination will enable
us to better serve our customers and allow us to diversify product lines,
increase new product development, reduce costs, enhance profitability and
accelerate growth.
To review the background and reasons for the Merger in greater detail, see
pages 16 through 19.
THE STOCKHOLDERS' MEETINGS (PAGE 13)
The Durco Special Meeting will be held at Durco's World Headquarters, 3100
Research Boulevard, Dayton, Ohio 45420, at 2:00 p.m. local
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<PAGE> 12
time on July 22, 1997. At the Durco Special Meeting, stockholders will be asked:
- to approve the issuance of shares of Durco common stock, par value $1.25
per share ("Durco Common Stock"), in accordance with the terms of the
Agreement and Plan of Merger dated as of May 6, 1997 (the "Merger
Agreement"), among Durco, Sub and BW/IP;
- to approve an amendment to the certificate of incorporation to change the
corporate name to Flowserve Corporation ("Flowserve"); and
- to approve an amendment to the certificate of incorporation to increase
the authorized number of shares of Durco Common Stock from 60 million to
120 million.
The BW/IP Special Meeting will be held at The Long Beach Hilton Hotel, Two
World Trade Center, Long Beach, California, at 11:00 a.m. local time on July 22,
1997. At the BW/IP Special Meeting, stockholders will be asked to adopt the
Merger Agreement.
OUR RECOMMENDATIONS TO STOCKHOLDERS (PAGE 18)
To the Durco Stockholders:
The Board of Directors of Durco (the "Durco Board") believes that the
Merger is fair to you and in your best interest and has, by a unanimous vote,
approved the Merger and unanimously recommends that you vote "for" the proposal
to approve the issuance of shares of Durco Common Stock in accordance with the
terms of the Merger Agreement. The Durco Board also recommends, by unanimous
vote, that you vote "for" the proposals to amend the certificate of
incorporation to (i) change the corporate name to Flowserve Corporation and (ii)
increase the authorized number of shares of common stock.
To the BW/IP Stockholders:
The Board of Directors of BW/IP (the "BW/IP Board") believes that the
Merger is fair to you and in your best interest and, by a unanimous vote of
those present, recommends that you vote "for" the proposal to adopt the Merger
Agreement.
RECORD DATE; VOTING POWER (PAGE 13)
You are entitled to vote at your stockholders' meeting if you owned shares
as of the close of business on June 17, 1997 (the "Record Date").
On the Record Date, there were 23,542,831 shares of Durco Common Stock,
allowed to vote at the Durco Special Meeting. Durco stockholders will have one
vote at the special meeting for each share of Durco Common Stock they owned on
the Record Date for each of the proposals described above.
On the Record Date, there were 24,275,000 shares of BW/IP common stock, par
value $0.01 per share ("BW/IP Common Stock"), allowed to vote at the BW/IP
Special Meeting. BW/IP stockholders will have one vote at the special meeting
for each share of BW/IP Common Stock held of record on the Record Date for the
adoption of the Merger Agreement.
VOTES REQUIRED (PAGE 13)
A majority of the total votes cast is necessary to approve the issuance of
shares of Durco Common Stock in accordance with the terms of the Merger
Agreement. Abstentions will have the effect of votes cast against such proposal
and failures to vote and broker non-votes will have no effect on such proposal.
A majority of the shares of Durco Common Stock outstanding on the Record Date
must vote to amend the certificate of incorporation to (i) change the corporate
name to Flowserve Corporation and (ii) increase the authorized number of shares
of common stock. Abstentions, failures to vote and broker non-votes will have
the effect of votes cast against each such proposal.
A majority of the shares of BW/IP Common Stock outstanding on the Record
Date must vote to adopt the Merger Agreement. Abstentions, failures to vote and
broker non-votes will have the effect of votes cast against such proposal.
SHARE OWNERSHIP OF MANAGEMENT (PAGE 53)
On the Record Date, directors and executive officers of Durco and their
affiliates owned and were allowed to vote 1,490,111 shares of Durco Common
Stock, or approximately 6.3% of the shares of Durco Common Stock outstanding on
the Record Date.
On the Record Date, directors and executive officers of BW/IP and their
affiliates owned 530,362
5
<PAGE> 13
shares of BW/IP Common Stock, or approximately 2.2% of the shares of BW/IP
Common Stock outstanding on the Record Date.
The directors and executive officers of each company have indicated that
they intend to vote the Durco Common Stock or BW/IP Common Stock owned by him or
her "for" the proposals described above.
THE MERGER (PAGE 16)
The Merger Agreement is attached as ANNEX I to this document. We encourage
you to read the Merger Agreement. It is the legal document governing the Merger.
WHAT STOCKHOLDERS WILL RECEIVE IN THE MERGER (PAGE 26)
As a result of the Merger, Durco will change its name to Flowserve. We
sometimes refer to the combined company as Flowserve.
If the Merger is approved, holders of BW/IP Common Stock will have the
right to receive 0.6968 shares of Durco Common Stock (the "Exchange Ratio")
which we sometimes refer to as "Flowserve Common Stock", for each share of BW/IP
Common Stock they own. Fractional shares of Flowserve Common Stock will not be
issued. BW/IP stockholders will instead be paid cash for any fractional shares
of Flowserve Common Stock, based on the market value of Flowserve Common Stock
after the Merger.
After the Merger, each then currently issued share of Durco Common Stock
will remain outstanding.
Stockholders of BW/IP and Durco should not send in their stock certificates
until instructed to do so after the Merger is completed.
FLOWSERVE DIVIDEND POLICY FOLLOWING THE MERGER
Following the Merger, management expects to recommend that Flowserve pay
dividends on the Flowserve Common Stock initially in the amount of $0.14 per
share per quarter, or $0.56 per share per year (which is equal to the recent
historical dividends of Durco). Although we currently expect that Flowserve will
pay such dividends, we cannot assure such payments. The Board of Directors of
Flowserve (the "Flowserve Board") will use its discretion to decide whether to
declare dividends and the amount of any dividends. In making its decision, the
Flowserve Board will consider various factors, including the earnings and
financial condition of Flowserve and its subsidiaries (including BW/IP).
A holder of 100 shares of BW/IP Common Stock would be entitled to a
dividend in the amount of $9.66 per quarter, or $38.64 per year, following the
Merger. Such holder would have received a dividend of $11.00 pursuant to the
BW/IP dividend paid on April 14, 1997, $11.00 pursuant to the BW/IP dividend
declared on May 6, 1997 and $44.00 in 1997, assuming the same quarterly dividend
was paid in the remaining two quarters of 1997.
FEDERAL INCOME TAX CONSIDERATIONS (PAGE 27)
Each company must receive an opinion from its outside counsel that the
Merger qualifies as a tax-free reorganization within the meaning of Section
368(a) of the Code (as defined). As a result, it is anticipated that BW/IP
stockholders will not be taxed on the exchange of BW/IP Common Stock in the
Merger, except if they receive cash for fractional shares (and possibly with
respect to the payment of certain transfer taxes by Durco).
Durco stockholders will not be taxed as a result of the Merger.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO
BW/IP STOCKHOLDERS WILL DEPEND ON THE FACTS OF EACH BW/IP STOCKHOLDER'S
INDIVIDUAL SITUATION. BW/IP STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS
FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO THEM.
FAIRNESS OPINIONS OF FINANCIAL ADVISORS (PAGE 20)
In deciding to approve the Merger, each of the BW/IP Board and the Durco
Board considered the opinion of its financial advisor as to the fairness of the
Exchange Ratio to its stockholders from a financial point of view. Durco
received an opinion from its financial advisor, Salomon Brothers Inc
("Salomon"), and BW/IP received an opinion from its financial advisor, Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). These opinions are
attached as Annexes IV and V, respectively, to this Joint Proxy
Statement/Prospectus. We encourage you to read these opinions carefully.
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<PAGE> 14
The financial advisors performed several analyses in connection with
delivering their opinions. These analyses included comparing Durco and BW/IP
historical stock prices, discounted cash flow analyses and estimating the
relative values and contributions of Durco and BW/IP based on past and estimated
future performances.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
(PAGE 29)
Our stockholders should note that a number of directors and executive
officers of Durco and BW/IP have interests in the Merger as employees and/or
directors that are different from, or in addition to, yours as a stockholder. If
we complete the Merger, certain directors and members of the existing senior
management of each of Durco and BW/IP will be designated as members of the
initial Board of Directors and senior management of Flowserve. Also, certain
indemnification arrangements for existing directors and officers of Durco and
BW/IP will be continued. Please refer to pages 29 and 30 for more information
concerning these interests.
OWNERSHIP OF FLOWSERVE FOLLOWING THE MERGER
We anticipate that BW/IP stockholders, in the aggregate, will receive
approximately 16,915,000 shares of Flowserve Common Stock in the Merger. Based
on that number, following the Merger, current Durco stockholders will own
approximately 58%, and current BW/IP stockholders will own approximately 42%, of
the Flowserve Common Stock outstanding.
DIRECTORS AND EXECUTIVE OFFICERS OF FLOWSERVE FOLLOWING THE MERGER (PAGE 53)
If we complete the Merger, the Flowserve Board will initially consist of:
- Bernard G. Rethore, Chairman
- William H. Jordan
- Hugh K. Coble
- Diane C. Harris
- Michael F. Johnston
- James O. Rollans
- William C. Rusnack
- Kevin E. Sheehan
- R. Elton White
In addition, Durco will conduct a search for two independent directors
acceptable to Durco and BW/IP to be elected to the Flowserve Board as soon as
practicable following the Merger.
If we complete the Merger, the senior management of Flowserve is expected
to include:
- Bernard G. Rethore, Chief Executive Officer
- William H. Jordan, President and Chief Operating Officer
LISTING OF FLOWSERVE COMMON STOCK (PAGE 27)
Durco plans to list the Durco Common Stock (including shares issued to
BW/IP stockholders in connection with the Merger) on the New York Stock Exchange
(the "NYSE"). If we complete the Merger, Durco and BW/IP stockholders would then
be able to trade shares of Flowserve Common Stock on the NYSE. BW/IP
stockholders would no longer be able to trade BW/IP Common Stock because BW/IP
Common Stock would no longer be listed on the NYSE.
CONDITIONS TO THE MERGER (PAGE 33)
We will complete the Merger only if we satisfy or (in some cases) waive
several conditions, including the following:
- a majority of the total votes cast at the Durco Special Meeting approve
the merger share issuance, a majority of the outstanding shares of Durco
Common Stock vote to approve the name change and a majority of the
outstanding shares of BW/IP Common Stock adopt the Merger Agreement;
- no legal restraints or prohibitions exist which prevent the consummation
of the Merger, limit the conduct of a material portion of the business of
Durco or BW/IP, or are reasonably likely to have a material adverse
effect on Durco or BW/IP;
- there is no Material Adverse Effect (as defined on page 34) since May 6,
1997 with respect to the other company;
- shares of Durco Common Stock issuable to BW/IP's stockholders pursuant to
the Merger have been approved for issuance on the NYSE;
- our counsel deliver opinions in respect of certain Federal income tax
consequences of the Merger; and
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<PAGE> 15
- our independent accountants deliver letters stating that the Merger will
qualify for pooling-of-interests accounting treatment.
TERMINATION OF THE MERGER AGREEMENT (PAGE 35)
The Durco Board and the BW/IP Board can jointly agree to terminate the
Merger Agreement at any time without completing the Merger. Either company can
terminate the Merger Agreement if:
(1) the Merger is not completed by December 31, 1997;
(2) the Durco stockholders do not approve the merger share issuance or
the name change, or the BW/IP stockholders do not adopt the Merger
Agreement;
(3) a governmental authority or other legal action permanently
prohibits the Merger, limits the conduct of a material portion of the
business of either company, or is reasonably likely to have a material
adverse effect on either company;
(4) the other party breaches or materially fails to comply with any of
the representations or warranties it made or obligations it has under the
Merger Agreement, resulting in the inability to satisfy a condition to the
completion of the Merger and such breach is not cured within 30 days of
notice thereof;
(5) the other company's board of directors determines, during the 15
business days before its stockholders' meeting, that there is a substantial
probability that its stockholders will not approve the merger share
issuance/name change or adopt the Merger Agreement, as applicable, because
a third party has made a proposal to acquire a majority of their voting
power or a substantial portion of their assets on terms such board
determines are more favorable to its stockholders than the Merger; or
(6) the other company's board of directors engages in discussions with
third parties regarding certain takeover proposals or other business
transactions that are prohibited by the Merger Agreement.
TERMINATION FEES (PAGE 36)
If either of us receives a takeover proposal and that party or the other
party then terminates the Merger Agreement as described in the first, second or
sixth reasons above, and if the party receiving the takeover proposal agrees to
or effects a takeover transaction within 18 months, that party must pay the
other a termination fee of $12 million and costs and expenses not to exceed $3
million. In addition, if either of us terminates the Merger Agreement as
described in the fifth reason above, that party must at that time pay the other
the same termination fee and costs and expenses.
RECIPROCAL STOCK OPTION AGREEMENTS (PAGE 40)
We both signed reciprocal stock option agreements under which we each
granted an option to the other party to purchase approximately 19.9% of our
outstanding common stock if certain events occur that entitle the party
exercising the option to receive a termination fee in connection with the Merger
Agreement. Under the stock option agreements, Durco has an option to purchase
shares of BW/IP Common Stock at $16.525 per share and BW/IP has an option to
purchase shares of Durco Common Stock at $23.750 per share.
REGULATORY APPROVALS (PAGE 29)
We are prohibited by U.S. antitrust laws from completing the Merger until
after we have furnished certain information and materials to the Antitrust
Division of the Department of Justice and the Federal Trade Commission and a
required waiting period has expired. The required waiting period expired as of
June 14, 1997. However, the Department of Justice and the Federal Trade
Commission continue to have authority to challenge the Merger on antitrust
grounds before or after the Merger is completed.
We are both required to make filings with or obtain approvals from certain
other domestic and international regulatory authorities in connection with the
Merger. We cannot predict whether we will obtain all required regulatory
approvals before we complete the Merger, or whether any approvals will include
conditions that would be detrimental to BW/IP, Durco or Flowserve.
APPRAISAL RIGHTS (PAGE 31)
Neither of our stockholders will have the right to an appraisal of the
value of their shares in connection with the Merger.
ACCOUNTING TREATMENT (PAGE 25)
It is a condition to the Merger that it be accounted for as a
pooling-of-interests, which means that we will treat Durco and BW/IP as if
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<PAGE> 16
they had always been combined for accounting and financial reporting purposes.
We will each obtain from our independent accountants letters stating that the
Merger will qualify for pooling-of-interests accounting treatment.
FORWARD-LOOKING STATEMENTS MAY PROVE
INACCURATE
We have each made forward-looking statements in this document (and in
documents that are incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations of Durco, BW/IP or Flowserve.
Also, when we use words such as "believes," "expects," "anticipates" or similar
expressions, we are making forward-looking statements. Stockholders should note
that many factors, some of which are discussed elsewhere in this document and in
the documents which we incorporate by reference, could affect the future
financial results of Flowserve and could cause those results to differ
materially from those expressed in our forward-looking statements contained or
incorporated by reference in this document. These factors include the following:
- operating, legal and regulatory risks;
- economic, political and competitive forces affecting our businesses; and
- the risk that our analyses of these risks and forces could be incorrect
and/or that the strategies developed to address them could be
unsuccessful.
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<PAGE> 17
COMPARATIVE MARKET PRICES AND DIVIDENDS
Comparative Market Price Data
The following table presents trading information for Durco Common Stock and
BW/IP Common Stock on May 5, 1997 and June 17, 1997. May 5, 1997 was the last
full trading day prior to our announcement of the signing of the Merger
Agreement. June 17, 1997 was the last practicable trading day for which
information was available prior to the date of this Joint Proxy
Statement/Prospectus. You should read the information presented below in
conjunction with "Comparative Per Share Market Price and Dividend Information"
on pages 43 through 44.
<TABLE>
<CAPTION>
DURCO BW/IP
COMMON STOCK COMMON STOCK
DOLLARS PER SHARE DOLLARS PER SHARE
-------------------- --------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
<S> <C> <C> <C> <C>
May 5, 1997................................. $ 27.500 $ 26.250 $ 20.750 $ 18.500
June 17, 1997............................... 30.000 28.500 20.375 19.625
</TABLE>
On May 5, 1997, the last reported sale price per share of Durco Common
Stock on the Nasdaq Stock Market's National Market ("NASDAQ") was $26.625 and
the last reported sale price per share of BW/IP Common Stock on the NYSE
Composite Transaction Tape was $19.625. On June 17, 1997, the last reported sale
price per share of Durco Common Stock on the NASDAQ was $29.375, and the last
reported sale price per share of BW/IP Common Stock on the NYSE Composite
Transaction Tape was $20.125.
The market prices of shares of Durco Common Stock and BW/IP Common Stock
fluctuate. As a result, we urge you to obtain current market quotations.
On the Record Date, there were approximately 2,225 holders of record of
Durco Common Stock and approximately 4,100 holders of record or through nominee
or street name accounts with brokers of BW/IP Common Stock.
Comparative Dividend Data
The Durco Board declared a $0.14 per share dividend on February 18, 1997,
which was paid on March 18, 1997 to stockholders of record on March 4, 1997. The
Durco Board also declared a $0.14 per share dividend on April 25, 1997, which
was paid on June 6, 1997 to stockholders of record on May 9, 1997. The BW/IP
Board declared an $0.11 per share dividend on February 21, 1997, which was paid
on April 4, 1997 to stockholders of record on March 14, 1997. The BW/IP Board
also declared an $0.11 per share dividend on May 6, 1997, the record date for
which was June 3, 1997 and which will be paid on July 8, 1997.
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<PAGE> 18
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The summary financial data set forth below is selected historical financial
information of Durco and BW/IP, and selected unaudited pro forma financial data
for Durco and BW/IP after giving effect to the Merger on a pooling-of-interests
accounting basis, which means that for accounting and financial reporting
purposes, we will treat our companies as if they had always been combined. We
have included the selected pro forma financial information to give you a better
picture of what the results of operations and financial position of the combined
businesses of Durco and BW/IP might have been had the Merger occurred on an
earlier date. The unaudited pro forma condensed combined statement of income
data combines information from the historical consolidated statements of income
of Durco and BW/IP giving effect to the Merger as if the Merger had been
effective at January 1, 1994. The unaudited pro forma condensed combined
statement of financial condition data combine information from the historical
consolidated balance sheet of Durco and the historical consolidated balance
sheet of BW/IP giving effect to the Merger as if the Merger had been effective
at January 1, 1994.
We are providing the unaudited pro forma financial information for
illustrative purposes only. It does not necessarily reflect what the results of
operations or financial position of the combined company would have been if the
Merger had actually occurred at the beginning of the earliest period presented.
This information also does not necessarily indicate what the combined company's
future operating results or consolidated financial position will be. This
information does not reflect (a) the effect of any potential changes in revenues
or any operating synergies which we may achieve by combining the resources of
our companies, and (b) costs associated with the combining of our companies
which we cannot presently estimate.
Please see "Unaudited Pro Forma Condensed Combined Financial Statements" on
pages 45 through 52 for a more detailed explanation of this analysis.
DURCO INTERNATIONAL INC. AND BW/IP, INC.
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF AND FOR THE
THREE MONTHS AS OF AND FOR THE
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ------------------------------------------------------
DURCO INTERNATIONAL INC. 1997 1996 1996 1995 1994 1993 1992
-------- -------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales......................... $147,797 $149,193 $ 605,454 $532,726 $460,507 $421,838 $403,984
Earnings from continuing
operations...................... 11,051 10,114 43,251 30,672 24,396 21,691 19,793
Total assets...................... 420,115 400,496 425,490 395,373 344,266 314,508 319,251
Long-term debt.................... 61,350 52,156 63,239 51,756 42,998 35,285 42,482
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE
THREE MONTHS AS OF AND FOR THE
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ------------------------------------------------------
BW/IP, INC. 1997 1996 1996 1995 1994 1993 1992
-------- -------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales......................... $114,715 $121,938 $ 492,191 $451,191 $448,719 $427,192 $399,289
Earnings from continuing
operations...................... 5,753 6,070 27,846 23,349 26,836 17,854 40,807
Total assets...................... 411,453 408,994 404,286 405,747 367,894 341,288 327,822
Long-term debt.................... 89,696 84,606 80,723 74,175 52,973 54,471 66,024
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE
THREE MONTHS AS OF AND FOR THE
DURCO INTERNATIONAL INC. ENDED MARCH 31, YEARS ENDED DECEMBER 31,
AND BW/IP, INC. UNAUDITED ------------------- --------------------------------
PRO FORMA COMBINED 1997 1996 1996 1995 1994
-------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales......................... $262,512 $271,131 $1,097,645 $983,917 $909,226
Earnings from continuing
operations...................... 16,804 16,184 71,097 54,021 51,232
Total assets...................... 831,568 809,490 829,776 801,120 712,160
Long-term debt.................... 151,046 136,762 143,962 125,931 95,971
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
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<PAGE> 19
COMPARATIVE PER SHARE DATA
The following table presents historical per share data and unaudited pro
forma combined per share data for Durco and BW/IP after giving effect to the
Merger. The unaudited pro forma information does not necessarily reflect what
the results of operations or financial position of the combined company would
have been if the Merger had actually occurred at the beginning of the earliest
periods presented. 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 Durco and of
BW/IP and the notes thereto, all of which are included elsewhere in this Joint
Proxy Statement/Prospectus or incorporated herein by reference. The Durco per
share information is adjusted to give effect retroactively to the three-for-two
stock split paid by Durco on March 25, 1994 in the form of a 50% stock dividend.
The computation of unaudited pro forma book value per share reflects a reduction
in equity for the estimated transaction costs of approximately $10 million.
DURCO INTERNATIONAL INC. AND BW/IP, INC.
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
--------------- ---------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Durco per share data:
Earnings from continuing
operations................... $0.47 $0.41 $1.77 $1.24 $0.99 $0.88 $0.80
Cash dividends.................. 0.14 0.13 0.52 0.44 0.41 0.38 0.37
Book value...................... 8.71 8.28 8.51 8.02 7.16 6.55 6.26
BW/IP per share data:
Earnings from continuing
operations................... $0.24 $0.25 $1.15 $0.96 $1.11 $0.74 $1.68
Cash dividends.................. 0.11 0.11 0.44 0.43 0.38 0.30 0.22
Book value...................... 7.56 7.43 7.78 7.39 6.83 6.03 6.29
Unaudited pro forma combined per
share data based upon Exchange
Ratio of 0.6968:
Earnings from continuing
operations................... $0.41 $0.39 $1.72 $1.30 $1.23
Cash dividends.................. 0.15 0.14 0.57 0.51 0.47
Book value...................... 9.36 9.37
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
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<PAGE> 20
THE STOCKHOLDERS' MEETINGS
DATE, TIMES AND PLACES
Durco. The Durco Special Meeting will be held at Durco's World
Headquarters, 3100 Research Boulevard, Dayton, Ohio 45420, at 2:00 p.m. local
time on July 22, 1997.
BW/IP. The BW/IP Special Meeting will be held at The Long Beach Hilton
Hotel, Two World Trade Center, Long Beach, California, at 11:00 a.m. local time
on July 22, 1997.
MATTERS TO BE CONSIDERED AT THE STOCKHOLDERS' MEETINGS
Durco. The purpose of the Durco Special Meeting is to consider and vote
upon (i) approval of the issuance of shares of Durco Common Stock in accordance
with the terms of the Merger Agreement (the "Merger Share Issuance"), (ii)
adoption of an amendment to the certificate of incorporation to change the name
of Durco to Flowserve Corporation (the "Name Change") and (iii) adoption of an
amendment to the certificate of incorporation to increase the number of
authorized shares of Durco Common Stock from 60,000,000 to 120,000,000 (the
"Authorized Share Increase" and, together with the Name Change, the "Certificate
Amendments").
BW/IP. The purpose of the BW/IP Special Meeting is to consider and vote
upon adoption of the Merger Agreement.
RECORD DATE; VOTE REQUIRED
Durco. The close of business on June 17, 1997, has been fixed by the Durco
Board as the Record Date for the determination of the holders of Durco Common
Stock entitled to notice of and to vote at the Durco Special Meeting. At the
close of business on the Record Date, there were 23,542,831 shares of Durco
Common Stock issued and outstanding and held by approximately 2,225 holders of
record. Holders of record of Durco Common Stock on the Record Date are entitled
to one vote per share.
The presence in person or by proxy of the holders of a majority of the
outstanding shares of Durco Common Stock is necessary to constitute a quorum for
the transaction of business at the Durco Special Meeting. A majority of the
total votes cast at the Durco Special Meeting is necessary to approve the Merger
Share Issuance and the affirmative vote of the holders of a majority of the
shares of Durco Common Stock outstanding on the Record Date is required to adopt
each of the Certificate Amendments. Abstentions, failures to vote and broker
non-votes will not be counted as votes either in favor of or against approval of
the Merger Share Issuance or the Certificate Amendments. However, because the
Merger Share Issuance requires a majority of the total votes cast at the Durco
Special Meeting, an abstention from voting on the Merger Share Issuance will
have the effect of a vote cast against such proposal and the failure to vote or
a broker non-vote will have no effect on such vote. With respect to the
Certificate Amendments, because adoption of each of the Certificate Amendments
requires the affirmative vote of a majority of the shares of Durco Common Stock
outstanding on the Record Date, abstentions, failures to vote and broker
non-votes will have the effect of votes against such proposals.
Approval or adoption of each proposal at the Durco Special Meeting is not
contingent on approval or adoption of any other proposal at the Durco Special
Meeting. However, approval of the Merger Share Issuance and adoption of the Name
Change are each a condition to the Merger.
BW/IP. The close of business on June 17, 1997 has been fixed by the BW/IP
Board as the Record Date for the determination of the holders of BW/IP Common
Stock entitled to notice of and to vote at the BW/IP Special Meeting. At the
close of business on the Record Date, there were 24,275,000 shares of BW/IP
Common Stock issued and outstanding and held by approximately 4,100 holders of
record or through nominee or street name accounts with brokers. Holders of
record of BW/IP Common Stock on the Record Date are entitled to one vote per
share.
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The presence in person or by proxy of the holders of a majority of the
outstanding shares of BW/IP Common Stock is necessary to constitute a quorum for
the transaction of business at the BW/IP Special Meeting. The affirmative vote
of the holders of at least a majority of the shares of BW/IP Common Stock
outstanding and entitled to vote on the BW/IP Record Date is required to adopt
the Merger Agreement. Abstentions, failures to vote and broker non-votes will
not be counted as votes either in favor of or against adoption of the Merger
Agreement. Because adoption of the Merger Agreement requires the affirmative
vote of the holders of a majority of the outstanding shares of BW/IP Common
Stock, abstentions, failures to vote and broker non-votes will have the effect
of votes against such proposal.
SHARE OWNERSHIP OF MANAGEMENT
Durco. As of the close of business on the Record Date, the directors and
executive officers of Durco beneficially owned a total of 1,490,111 shares of
Durco Common Stock entitled to vote at the Durco Special Meeting, constituting
approximately 6.3% of the outstanding shares of Durco Common Stock entitled to
vote.
BW/IP. As of the Record Date, the directors and executive officers of
BW/IP beneficially owned a total of 530,362 shares of BW/IP Common Stock
entitled to vote at the BW/IP Special Meeting, constituting approximately 2.2%
of the outstanding shares of BW/IP Common Stock entitled to vote.
VOTING; REVOCATION OF PROXIES; SOLICITATION
Durco. Proxies for use at the Durco Special Meeting accompany copies of
this Joint Proxy Statement/ Prospectus delivered to record holders of shares of
Durco Common Stock. Shares of Durco Common Stock that 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 Share Issuance and adoption of each of the Certificate Amendments and in
the discretion of the proxy holder as to any other matter which may properly
come before the Durco Special Meeting. A stockholder who has given a proxy may
revoke it at any time prior to its exercise at the Durco Special Meeting by (i)
filing with the Secretary of Durco, at the address set forth in "THE COMPANIES,"
a written revocation bearing a later date than a proxy being revoked, (ii)
submitting a validly executed proxy bearing a later date than the proxy being
revoked or (iii) voting the shares of Durco Common Stock covered thereby in
person at the Durco Special Meeting.
Durco stockholders 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 Durco Special Meeting, to
ensure that their shares are voted.
If a quorum is not obtained, or if fewer shares of Durco Common Stock are
voted in favor of the Merger Share Issuance or any of the Certificate Amendments
than the number required for approval or adoption, the Durco Special 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
Durco Special 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.
Officers and employees of Durco 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; 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. Each of Durco and BW/IP will bear the cost of soliciting proxies
from its own stockholders, except that Durco and BW/IP will share equally the
cost of printing and mailing this Joint Proxy Statement/Prospectus and the
applicable fees associated with the filing of this Joint Proxy
Statement/Prospectus with the Securities and Exchange Commission ("SEC"). In
addition, Durco has retained Corporation Investor Communications, Inc. ("CIC")
to assist in its solicitation. The fee of CIC is estimated not to exceed $5,000
plus reasonable out-of-pocket costs and expenses.
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BW/IP. Proxies for use at the BW/IP Special Meeting accompany copies of
this Joint Proxy Statement/Prospectus delivered to record holders of BW/IP
Common Stock. Shares of BW/IP 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 adoption of the Merger
Agreement and in the discretion of the proxy holder as to any other matter which
may properly come before the BW/IP Special Meeting. A stockholder who has given
a proxy may revoke it at any time prior to its exercise at the BW/IP Special
Meeting by (i) filing with the Secretary of BW/IP, at the address set forth in
"THE COMPANIES", a written revocation bearing a later date than a proxy being
revoked, (ii) submitting a validly executed proxy bearing a later date than the
proxy being revoked or (iii) voting the shares of BW/IP Common Stock covered
thereby in person at the BW/IP Special Meeting.
BW/IP stockholders 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 BW/IP Special Meeting, to
ensure that their shares are voted.
If a stockholder of BW/IP is a participant in the BW/IP Capital
Accumulation Plan (the "CAP") and shares of BW/IP Common Stock have been
allocated to such person's account in the CAP, the proxy also serves as voting
instructions to the trustee of the CAP. The trustee will vote both allocated
shares of BW/IP Common Stock for which it has not received direction and
unallocated shares held by it in the same proportion as directed shares are
voted.
If a quorum is not obtained, or if fewer shares of BW/IP Common Stock are
voted in favor of the Merger Agreement than the number required for adoption, it
is expected that the BW/IP Special 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 BW/IP Special 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 BW/IP 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; 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. Each of BW/IP and Durco will bear the cost of soliciting proxies
from its own stockholders, except that Durco and BW/IP will share equally the
cost of printing and mailing this Joint Proxy Statement/Prospectus and the
applicable fees associated with the filing of this Joint Proxy
Statement/Prospectus with the SEC. In addition, BW/IP has retained D.F. King &
Co., Inc. ("D.F. King") to assist in its solicitation. The fee of D.F. King is
estimated not to exceed $5,000 plus reasonable out-of-pocket expenses.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
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THE MERGER
The discussion in this Joint Proxy Statement/Prospectus of the Merger and
the principal terms of the Merger Agreement is subject to, and qualified in its
entirety by reference to, the Merger Agreement, a copy of which is attached to
this Joint Proxy Statement/Prospectus as ANNEX I and is incorporated herein by
reference.
BACKGROUND TO THE MERGER
In November of 1990, Peter C. Valli, then Chairman, President and Chief
Executive Officer of BW/IP, approached John S. Haddick, then President and Chief
Executive Officer of Durco, about a possible strategic combination involving the
two companies. Subsequent meetings were held among Mr. Haddick, Mr. Valli, and
Mr. Bruce E. Hines and Mr. Gene Cross (the Chief Financial Officers of the
respective companies). A joint confidentiality agreement was executed by the
parties in January 1991 and a variety of financial and other information was
exchanged. Discussions were terminated in March 1991 when BW/IP determined to
pursue a possible initial public offering of BW/IP Common Stock. The initial
public offering occurred in May 1991.
In January of 1993, discussions commenced between the current Chairman,
President and Chief Executive Officer of Durco, William Jordan, and the then
President and Chief Operating Officer of BW/IP, Al Dubrow, about the potential
for some form of joint venture or other strategic alliance between the pump
operations of the two companies. Both companies thought substantial synergies
could result from a broader line of pump products and coordinated or combined
sales efforts with customers. These discussions evolved into a reconsideration
of a combination of both businesses. Meetings with Peter Valli, William Jordan
and other representatives of both companies were held to discuss and analyze the
benefits of a merger and specific synergy savings that would be derived from the
elimination of redundant operations, more efficient production capacity
utilization and other measures. These discussions were ultimately discontinued.
In March of 1995, William Jordan and Peter Valli met and outlined their
mutual vision of a new company that could be formed by the merger of Durco and
BW/IP, including certain significant organizational and governance issues. On
April 26, 1995, BW/IP and Durco signed new confidentiality agreements and
further discussions were held between William Jordan and Bruce Hines at Durco,
and Peter Valli and Gene Cross at BW/IP, concerning a possible merger of the
companies, potential synergies that would result from such a merger and the
benefits to stockholders of combining the businesses of BW/IP and Durco. These
discussions were discontinued in July of 1995.
There were no further strategic discussions between the two companies until
Mr. Jordan telephoned Peter Valli on September 17, 1995, and the two met on
Friday, September 22, to discuss whether to renew discussions of a strategic
combination of the companies. A subsequent meeting was held in New York between
Mr. Valli, Mr. Jordan and other representatives of both companies, at which it
was concluded that neither BW/IP nor Durco believed it was the appropriate time
to continue such discussions.
In April of 1996, William Jordan telephoned Bernard Rethore, the successor
to Peter Valli as President and CEO of BW/IP, and suggested they meet to get
acquainted and revisit earlier discussions of a strategic combination of the two
companies. Mr. Jordan and Mr. Rethore met later that month to discuss the
possibility of building a strong international company by joining the
complementary businesses of Durco and BW/IP. Follow up discussions were held in
May, and a further meeting between Mr. Jordan and Mr. Rethore was held on July
10, 1996, at which time a variety of conceptual issues were discussed, including
the need to obtain authorization from both boards of directors prior to
initiating any further work. On July 30, 1996, Mr. Jordan telephoned Mr. Rethore
to advise him that at that time the Durco Board did not wish to pursue a
strategic combination with BW/IP.
At a regularly scheduled meeting of the Durco Board held on February 17,
1997, the Durco Board reviewed the possibility of authorizing Mr. Jordan to
contact his counterpart at BW/IP to further explore a possible corporate
combination. Before authorizing such a conversation the Board requested a
specific financial analysis of such a corporate combination on a "pro forma"
basis, which the Durco Board reviewed at a special telephone meeting held on
February 28.
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On March 1, 1997, Mr. Jordan called Mr. Rethore to re-open the discussions.
At a meeting between Mr. Rethore and Mr. Jordan on March 6, 1997, they discussed
their common vision of the industry, the substantial benefits to stockholders of
merging the companies and the common values exemplified by the two companies.
Mr. Jordan reported the results of these discussions to the Durco Board in a
special telephone conference meeting held on March 10, 1997, and the Durco Board
authorized Mr. Jordan to continue these discussions. The Executive Committee of
the BW/IP Board met on March 11 and was briefed by Mr. Rethore on his
discussions with Mr. Jordan and the possible synergies that would result from a
strategic combination with Durco. The Executive Committee unanimously approved
the execution by Mr. Rethore of new confidentiality and standstill agreements
with Durco, and the use of Merrill Lynch to provide financial advisory services
in connection with analysis of a potential merger of equals with Durco.
On March 14, 1997, Mr. Rethore called Mr. Jordan to initiate a meeting
between working groups of both companies, which ultimately included Mr. Rethore
and other members of BW/IP senior management, and Mr. Jordan and other members
of Durco senior management. Mr. Jordan and Mr. Rethore met on March 31 to
confirm the general outline for a merger of equals and signed mutual
confidentiality and standstill agreements in anticipation of the working groups
meeting later that week. Prior to the working groups meeting, Mr. Jordan
conducted, on April 1, a telephonic meeting of the Durco Board to discuss the
tentatively resolved merger issues and the then open items. The working groups
met in New York during the days of April 2 and 3, at which time the groups
reviewed each other's strategic plans, vision of the industry, historical and
projected financial performance information, the rationale for the Merger and
the process for moving forward with the transaction. Frequent contacts between
members of the working groups continued as analytical work continued on the
synergy benefits of the proposed merger of equals.
The BW/IP Board conducted a telephonic meeting on April 7 to discuss the
governance of the combined company in the event the proposed transaction with
Durco was consummated. On April 9, Mr. Rethore and Mr. Jordan met to review the
status of the merger discussions and further discuss governance of the combined
company following the Merger.
On April 23, Mr. Rethore met with the Executive Committee of the Durco
Board and had dinner with the Durco Board. On the following day, Mr. Rethore and
Mr. Jordan made a joint presentation to the Durco Board that described both
companies, their products, markets, geographic coverage, future outlook and
certain historical and projected financial information, reasons for merging, and
synergy benefits of the Merger. On April 25, Mr. Jordan and Mr. Rethore made a
similar presentation to a special meeting of the BW/IP Board. Following the
joint presentation at both meetings, the Boards of Directors of Durco and BW/IP
engaged in an extended discussion with the other's chief executive officer
concerning their vision of the Merger, synergies and other aspects of the
proposed transaction. At the Durco Board meeting, one director raised for
discussion by the Durco Board his concerns that the Merger might be dilutive to
Durco shareholders, that the projected stand-alone financial prospects for Durco
might be overly conservative and those for BW/IP might be overly optimistic,
that Durco and BW/IP might have difficulty integrating their management in the
"merger of equals" structure of the Merger and that Mr. Rethore, who would be
the chief executive officer of the combined company, had been chief executive
officer of BW/IP for fewer than two years. This director asked the Board to
consider the proposed Merger as compared with two alternatives that might be
superior to a merger of equals transaction: (i) continued stand-alone operation
of Durco; and (ii) the possible outright sale of Durco. Those matters were fully
explored and discussed by the Durco Board.
Following the discussions at the two Board meetings, both Boards of
Directors endorsed moving forward with more detailed due diligence
investigations of the other company, and further negotiations of a proposed
merger agreement.
On April 30 and May 1, working groups from both companies, including
outside counsel, economists and representatives of Salomon and Merrill Lynch met
in St. Louis to review in detail the long range strategic plans and planning
process of the other, and the future outlook and synergy analysis that had been
previously done by members of the working group, as well as regulatory approvals
which would be required to effect the Merger. At these meetings the outside
legal counsel and general counsels of Durco and BW/IP discussed various
provisions in a draft Merger Agreement that had been previously circulated, as
well as drafts of the
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Stock Option Agreements. Salomon and Merrill Lynch participated in the review
and discussion of strategic plan information and various financial analyses.
Daily contacts between various members of the working groups and CEO's of both
companies continued during the period between the St. Louis working groups
meetings and May 5, 1997.
On the evening of May 5, at a special meeting, the Durco Board of Directors
was updated by its management, legal counsel, financial advisors and consultants
as to the status of previously unresolved issues. All Durco directors
participated in the special meeting in person or by telephone. In addition,
management and legal counsel reviewed the material terms of the Merger Agreement
and the terms of employment of Mr. Rethore and Mr. Jordan, and Salomon updated
financial and other information concerning Durco, BW/IP, the combined companies
and the Exchange Ratio. At the special meeting, Salomon orally delivered its
fairness opinion to the Durco Board to the effect that, as of May 5, the
Exchange Ratio of 0.6968 shares of Durco Common Stock for each share of BW/IP
Common Stock was fair to the holders of Durco Common Stock from a financial
point of view. The Durco Board reviewed the financial analyses utilized by
Salomon in arriving at its opinion, as well as Durco's historic performance,
shareholder returns and financial prospects as a stand-alone company. The Durco
Board also heard a report by legal counsel of the legal due diligence audit
conducted, as well as an analysis by Ernst & Young, Durco's independent public
auditors, of the financial due diligence work that Ernst & Young had conducted
on BW/IP. The Durco Board furthermore reviewed a report by Ernst & Young on the
qualification of the proposed transaction for "pooling-of-interests" accounting
treatment. After questioning the meeting's presenters, the Durco Board discussed
in detail the rationale for the Merger, the financial prospects of BW/IP and the
potential synergies available. Following extensive discussion and consideration
of the presentations and analyses delivered at the meeting and prior meetings,
the Durco Board, by unanimous vote, approved the Merger Agreement and the
transactions contemplated thereby and authorized the execution of the Merger
Agreement and the Stock Option Agreements.
On the evening of May 5, at a special meeting, the BW/IP Board was updated
by its management, legal counsel, financial advisors and consultants as to the
status of previously unresolved issues. All BW/IP directors participated in the
special meeting in person or by telephone, except one director who was
unavailable. Management and legal counsel reviewed and answered questions of
directors with respect to the material terms of the Merger Agreement, the terms
of employment of Mr. Jordan and Mr. Rethore, the Board's fiduciary duties and
other relevant legal issues. In addition Merrill Lynch summarized its analyses,
and updated financial and other information concerning Durco, BW/IP, the
combined companies and the Exchange Ratio. The Board also received and discussed
reports concerning the results of the due diligence review of the financial
condition, prospects and operations of Durco, and a further review of the
rationale for the Merger and the synergies anticipated. At the special meeting,
Merrill Lynch delivered a draft of its fairness opinion to the BW/IP Board to
the effect that the Exchange Ratio of 0.6968 shares of Durco Common Stock for
each share of BW/IP Common Stock was fair, from a financial point of view, to
the holders of BW/IP Common Stock. An additional special meeting was held by
telephone on the morning of May 6, except that, in addition to the director who
was unavailable, one director could not be contacted. Following discussion and
consideration of the presentations delivered and analyses considered at the
meeting and prior meetings, including the May 5 meeting, the BW/IP Board, by the
unanimous vote of those present, approved the Merger Agreement and the
transactions contemplated thereby and authorized the execution of the Merger
Agreement and the Stock Option Agreements. The executed written opinion of
Merrill Lynch, dated May 6, was delivered to the Board at the meeting.
On the morning of May 6, Durco and BW/IP executed and delivered the Merger
Agreement and the Stock Option Agreements.
REASONS FOR THE MERGER AND BOARD RECOMMENDATIONS
Reasons for the Merger and Accompanying Factors, Issues and Information
Considered by the Boards.
Each of the Durco Board, by a unanimous vote, and the BW/IP Board, by a
unanimous vote of those present (collectively, the "Boards") has approved the
Merger, and the Boards recommend that you vote "For" the proposals described in
this Joint Proxy Statement/Prospectus. The following briefly describes the
material
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reasons, factors, issues and information taken into account by the Boards in
reaching their conclusions in addition to the factors described above in "THE
MERGER -- Background to the Merger";
(i) the strategic fit between Durco and BW/IP, including the
opportunity for significant cost savings and estimated synergies of $35-$45
million over the next three years, and the fact that the Merger will create
a leading global supplier of both ANSI and API pumps and seals to an
enlarged customer base;
(ii) the shared vision of each company to build a leading global
supplier of fluid handling and control equipment by bringing together the
complementary product lines of both companies and the compatibility and
strengths of the senior management teams of the two companies;
(iii) the current industry, economic and market conditions, including
ITT Industries' pending acquisition of Goulds Pumps and the extent to which
that acquisition responds to trends in industry consolidation;
(iv) the extent to which business cycles could affect the combined
company's financial performance, including the Boards' belief that the
results of operations of the combined company are likely to be less
cyclical due to increased geographic and market diversity;
(v) the opportunity for enhanced research and development
capabilities, accelerated new product development and flexible adaptation
to global customer demands;
(vi) the fact that the combined company should have the size, broad
product range and increased local presence in many markets to increase
sales growth;
(vii) the terms and structure of the transaction and the terms and
conditions to the Merger Agreement, and fairness, from a financial
viewpoint, thereof, including the reasonableness of the transaction's
structure as a merger of equals rather than a sale or acquisition, the
integration of the management of Durco and BW/IP in the combined company
and, in the case of the Durco Board, the ability and past performance of
Mr. Rethore;
(viii) the intended tax and accounting treatment for the Merger;
(ix) the fact that the Exchange Ratio was based on the closing prices
of Durco Common Stock and BW/IP Common Stock over a period prior to the
execution of the Merger Agreement, the potential dilutive or accretive
effect, if any, of the Exchange Ratio and the fact that the Exchange Ratio
did not provide a premium to either the Durco Stockholders or BW/IP
Stockholders;
(x) the opinions of each company's financial advisor to the effect
that, as of the date of such advisors' opinion, the Exchange Ratio was fair
from a financial point of view to the stockholders of such company;
(xi) the forecasted financial prospects of Durco and BW/IP each as
stand-alone companies, including the reasonableness of those forecasts and
the likelihood that they would be achieved; and
(xii) the interests of each company's officers and directors in the
Merger, and the impact of the Merger on the customers and employees of each
company.
The foregoing discussion of the reasons, factors, issues and information
considered and given weight by each Board is not intended to be exhaustive. In
view of the variety of reasons, factors, issues and information considered in
connection with each Board's evaluation of the Merger, neither Board assigned
any relative or specific weight to those specific considerations and individual
directors may have given differing weights to different considerations.
Durco Board Recommendations. The Durco Board has determined that the
Merger is fair to, and in the best interests of, the Durco stockholders, and
has, by a unanimous vote, approved the Merger, the Merger Share Issuance, the
Name Change and the Authorized Share Increase. The Durco Board unanimously
recommends that the stockholders of Durco vote to approve each of the Merger
Share Issuance, the Name Change and the Authorized Share Increase.
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BW/IP Board Recommendation. The BW/IP Board has, by a unanimous vote of
those present, determined that the Merger is fair to, and in the best interests
of, the stockholders of BW/IP, and has approved the Merger Agreement and the
Merger. The BW/IP Board, by a unanimous vote of those present, recommends that
the stockholders of BW/IP vote to adopt the Merger Agreement.
OPINIONS OF FINANCIAL ADVISORS
Opinion of the Financial Advisor to Durco. Salomon has acted as a
financial advisor to Durco in connection with the Merger. Salomon was not
requested to recommend the amount of consideration to be received by Durco
stockholders; it was requested to evaluate the fairness from a financial point
of view of Exchange Ratio to the holders of Durco Common Stock, which Exchange
Ratio was determined by negotiation between Durco and BW/IP. At the meeting of
the Durco Board held on May 5, 1997, Salomon delivered its oral opinion, and
confirmed such opinion in writing that, as of such date, the Exchange Ratio was
fair, from a financial point of view, to the holders of Durco Common Stock.
Salomon has also delivered to the Durco Board a substantially identical opinion
dated June 17, 1997, to the same effect (the "Salomon Opinion"). No limitations
were imposed by the Durco Board upon Salomon with respect to the investigation
made or the procedures followed by Salomon in rendering the Salomon Opinion.
The full text of the Salomon Opinion is set forth as ANNEX IV to this Joint
Proxy Statement/ Prospectus and sets forth the assumptions made, procedures
followed and matters considered and limitations on the review undertaken by
Salomon. Holders of Durco Common Stock are urged to read the Salomon Opinion in
its entirety. The summary of the Salomon Opinion as set forth in this Joint
Proxy Statement/ Prospectus is qualified in its entirety by reference to the
full text of such opinion.
In connection with rendering the Salomon Opinion, Salomon, among other
things: (i) reviewed the Merger Agreement, including the exhibits thereto and
certain documents referred to therein; (ii) reviewed certain publicly available
business and financial information concerning Durco; (iii) reviewed certain
publicly available business and financial information concerning BW/IP; (iv)
reviewed certain publicly available information concerning the industry in which
Durco and BW/IP operate; (v) reviewed and analyzed certain financial forecasts
and other non-public financial and operating data concerning the businesses and
operations of Durco and BW/IP that were provided to or reviewed for Salomon by
managements of Durco and BW/IP, respectively; (vi) reviewed certain publicly
available financial forecasts of Durco and BW/IP; (vii) reviewed certain
publicly available information with respect to certain other companies that
Salomon believed to be comparable in certain respects to Durco and BW/IP and the
trading markets for such other companies' securities; (viii) reviewed and
analyzed certain publicly available and other information concerning the trading
of, and the trading market for, Durco Common Stock and BW/IP Common Stock; (ix)
analyzed certain information concerning cost savings and combination benefits
expected to result from the Merger that was provided to or reviewed for Salomon
by the managements of Durco and BW/IP; and (x) considered such other
information, financial studies, analyses, investigations and financial,
economic, market and trading criteria as Salomon deemed relevant to its inquiry.
Salomon also discussed with certain officers and employees of Durco and BW/IP
the foregoing, including the past and current business operations, financial
condition and prospects of Durco and BW/IP, respectively, before, and after
giving effect to, the Merger, as well as other matters Salomon believed to be
relevant to its inquiry. However, it should be noted that, within the context of
its engagement by Durco, Salomon was not authorized to and did not solicit
alternative offers for Durco or its assets, or investigate any other alternative
transactions which may be available to Durco.
In its review and analysis and in arriving at the Salomon Opinion, Salomon
assumed and relied upon, without assuming any responsibility for verification,
the accuracy and completeness of all of the financial and other information
provided to, discussed with, or reviewed by or for Salomon, or publicly
available. With respect to Durco's and BW/IP's financial projections, as well as
the information concerning cost savings and combination benefits provided to or
reviewed for Salomon by the managements of Durco and BW/IP, Salomon assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of Durco or BW/IP, as the
case may be, as to the future financial performance of Durco or BW/IP, as the
case may be, and as to the cost savings and combination benefits expected to
result from the Merger. Salomon expressed no view as to such information or the
assumptions on
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which they are based. Salomon did not assume any responsibility for making or
obtaining any independent evaluations or appraisals of any of the assets
(including properties and facilities) or liabilities of Durco or BW/IP.
For purposes of rendering the Salomon Opinion, Salomon assumed, in all
respects material to its analysis, that the representations and warranties of
each party contained in the Merger Agreement were true and correct, that each
party would perform all of the covenants and agreements required to be performed
by it under the Merger Agreement and that all conditions to the consummation of
the Merger would be satisfied without waiver thereof. Salomon also assumed that
all material governmental, regulatory or other consents and approvals would be
obtained and that in the course of obtaining any necessary governmental,
regulatory or other consents and approvals, or any amendments, modifications or
waivers to any documents to which either Durco or BW/IP is a party, as
contemplated by the Merger Agreement, no restrictions would be imposed or
amendments, modifications or waivers made that would have any material adverse
effect on the contemplated benefits of the Merger. In addition, Salomon assumed
that the Merger will qualify for pooling-of-interests accounting principles and
as a tax-free reorganization for United States Federal income tax purposes.
The following is a summary of the analyses performed by Salomon in
connection with the preparation of its opinion rendered to the Durco Board on
May 5, 1997.
Financial Valuation Analysis
Selected Public Company Operating Performance Analysis. Using publicly
available information, Salomon compared each of Durco and BW/IP to the following
five publicly traded pump and seal companies: Roper Industries, Inc., Watts
Industries Inc., IDEX Corp., Goulds Pumps, Inc. and Keystone International Inc.
(the "Selected Pump and Seal Companies"). With respect to Durco, BW/IP and the
Selected Pump and Seal Companies, Salomon compared: (i) 3 year revenue growth,
which ranged from 3.5% to 26.0% with a median (not including Durco and BW/IP) of
13.3%; latest twelve months ("LTM") earnings before interest and taxes ("EBIT")
margins, which ranged from 8.3% to 19.3% with a median (not including Durco and
BW/IP) of 11.7%; 3 year average EBIT margins, which ranged from 7.4% to 21.3%
with a median (not including Durco and BW/IP) of 13.5%; 3 year earnings per
share ("EPS") growth, which ranged from 4.2% to 25.0% with a median (not
including Durco and BW/IP) of 13.4%; 5 year projected EPS growth, which ranged
from 10.0% to 21.0% with a median (not including Durco and BW/IP) of 12.0%; and
market price to estimated 1997 EPS ("1997E EPS") ratios which ranged from 11.8x
to 15.4x with a median (not including Durco and BW/IP) of 14.2x.
Common Stock Trading Comparison. Salomon compared: (i) the stock prices;
(ii) market capitalization (defined as share price multiplied by total shares
outstanding); (iii) dividend yields; (iv) total debt to market capitalization
ratios; (v) stock price to LTM EPS ratios; (vi) stock price to 1997E EPS ratios;
(vii) stock price to estimated 1998 EPS ratios; (viii) firm values (defined as
market capitalization plus total debt, preferred stock and minority interest
less cash and cash equivalents); (ix) firm value to LTM revenues ratios; (x)
firm value to LTM earnings before interest, taxes, depreciation and amortization
("EBITDA") ratios; and (xi) firm value to LTM EBIT ratios of each of Durco and
BW/IP with such figures for each of the Selected Pump and Seal Companies and
with the mean and median of such figures for the Selected Pump and Seal
Companies.
Financial Contribution Analysis. Using management projections, Salomon
derived implied exchange ratios of Durco Common Stock to BW/IP Common Stock by
analyzing the contribution of each of Durco and BW/IP to (i) sales for 1996 and
1997, resulting in implied exchange ratios ranging from 0.8129x to 0.8613x; (ii)
EBIT for 1996 and 1997, resulting in implied exchange ratios ranging from
0.6472x to 0.6958x; (iii) net income for 1997 through 2001, resulting in implied
exchange ratios ranging from 0.6018x to 0.7513x; and (iv)cumulative net income
for 1996 through 2001, resulting in an implied exchange ratio of 0.6930. Salomon
also derived an implied exchange ratio of 0.7122x based on the market
capitalization of Durco and BW/IP as of May 2, 1997.
BW/IP Public Market Valuation. Salomon derived implied values per share of
BW/IP Common Stock by multiplying BW/IP's (i) LTM revenues, (ii) LTM EBITDA,
(iii) LTM EBIT, (iv) 1996 net income,
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(v) management's estimate of 1997 net income and (vi) management's estimate of
1998 net income by ranges of multiples it derived from its analysis described in
"-- Common Stock Trading Comparison" above.
Analysis of Merger Consequences
Pro Forma Combined Financial Summary. Assuming a 0.6968 Exchange Ratio of
Durco Common Stock for BW/IP Common Stock and pooling-of-interests accounting
treatment, including synergies and excluding restructuring and other one-time
costs, Salomon used management projections to arrive at sales, EBIT, net income,
EPS, free cash flow (defined as cash flow from operations less capital
expenditures) and the ratio of total debt to total capital for each of the
fiscal years from 1996 to 2001 on a pro forma basis.
Pro Forma Combination Analysis. Assuming a 0.6968 Exchange Ratio of Durco
Common Stock for BW/IP Common Stock, pooling-of-interests accounting treatment
and management projections, including synergies and excluding restructuring and
other one-time costs, Salomon analyzed projections of pro forma effect on
earnings per share for the fiscal years 1997 through 2001 both with and without
synergies.
The Salomon Opinion is necessarily based upon conditions as they existed
and could be evaluated on the date thereof. The Salomon Opinion does not imply
any conclusion as to the likely trading range for Flowserve Common Stock
following the consummation of the Merger, which may vary depending upon, among
other factors, changes in interest rates, dividend rates, market conditions,
general economic conditions and other factors that generally influence the price
of securities. The Salomon Opinion does not address Durco's underlying business
decision to effect the Merger. Further, the Salomon Opinion is directed only to
the fairness, from a financial point of view, of the Exchange Ratio to the
holders of Durco Common Stock and does not constitute a recommendation
concerning how holders of Durco Common Stock should vote with respect to the
Merger Share Issuance or each of the Certificate Amendments.
The preparation of a fairness opinion is a complex process not susceptible
to partial analysis or summary descriptions. The summary set forth above does
not purport to be a complete description of the analyses underlying the Salomon
Opinion or of Salomon's presentation to the Durco Board. Salomon believes that
its analysis and the summary set forth above must be considered as a whole and
that selecting portions of its analyses and the factors considered by it,
without considering all analyses and factors, could create an incomplete view of
the processes underlying the analysis set forth in its opinion.
In performing its analyses, Salomon made numerous assumptions with respect
to industry performance, general business, financial, market and economic
conditions and other matters, many of which are beyond the control of Durco or
BW/IP. The analyses which Salomon performed are not necessarily indicative of
actual values or factual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
part of Salomon's analysis of the fairness, from a financial point of view, of
the Exchange Ratio to the holders of Durco Common Stock. The analyses do not
purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at the present
time or any time in the future.
The projections furnished to Salomon and used in formulating the Salomon
Opinion were provided to Salomon by the management of each of Durco and BW/IP.
Durco and BW/IP do not publicly disclose internal management projections of the
type provided to Salomon in connection with the review of the Merger and,
accordingly, such projections were not prepared with a view toward public
disclosure. The projections were based on numerous variables and assumptions
which are inherently uncertain, including, without limitation, factors relating
to general economic and competitive conditions. Accordingly, actual results
could vary significantly from those set forth in such projections.
In the ordinary course of its business, Salomon may actively trade the
equity securities of Durco and BW/IP for its own account and the accounts of its
customers and, accordingly, may at any time hold a long or short position in
such securities. Pursuant to an engagement letter dated April 17, 1997, Durco
agreed to pay Salomon a fee of (i) $300,000 in connection with delivery of the
opinion dated May 5, 1997 plus (ii) an additional advisory fee payable upon the
closing of the Merger. Durco also agreed, under certain circumstances, to
reimburse Salomon for certain out-of-pockets expenses incurred by Salomon in
connection with
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the Merger, and agreed to indemnify Salomon and certain related persons against
certain liabilities, including liabilities under the Federal securities laws,
relating to or arising out of its engagement.
Salomon is an internationally recognized investment banking firm that
provides financial services in connection with a wide range of business
transactions. As part of its business, Salomon regularly engages in the
valuation of companies and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and other
purposes. The Durco Board retained Salomon based on Salomon's expertise in the
valuation of companies as well as its familiarity with companies in the fluid
handling industry.
Opinion of Financial Advisor to BW/IP. On May 6, 1997, Merrill Lynch
delivered its written opinion, which opinion was confirmed in a written opinion
dated the date of this Joint Proxy Statement/Prospectus, to the BW/IP Board to
the effect that, as of such dates, and based upon the assumptions made, matters
considered and limits of review set forth in such opinions, the Exchange Ratio
was fair from a financial point of view to holders of BW/IP Common Stock (other
than Durco and its affiliates). References herein to the "Merrill Lynch Opinion"
refer to the opinion dated the date of this Joint Proxy Statement/Prospectus.
A COPY OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN BY
MERRILL LYNCH, IS ATTACHED AS ANNEX V TO THIS JOINT PROXY STATEMENT/PROSPECTUS.
BW/IP STOCKHOLDERS ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY. THE MERRILL
LYNCH OPINION WAS INTENDED FOR THE USE AND BENEFIT OF THE BW/IP BOARD, WAS
DIRECTED ONLY TO THE FAIRNESS OF THE EXCHANGE RATIO TO THE HOLDERS OF BW/IP
COMMON STOCK (OTHER THAN DURCO AND ITS AFFILIATES) FROM A FINANCIAL POINT OF
VIEW, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER. THE SUMMARY OF THE MERRILL
LYNCH OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at the Merrill Lynch Opinion, Merrill Lynch, among other
things, (i) reviewed certain publicly available business and financial
information relating to BW/IP and Durco which Merrill Lynch deemed to be
relevant; (ii) reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and prospects
of BW/IP and Durco, as well as the amount of and timing of the cost savings and
related expenses and synergies expected to result from the Merger (the "Expected
Synergies") furnished to Merrill Lynch by BW/IP and Durco, respectively; (iii)
conducted discussions with members of senior management and representatives of
BW/IP and Durco concerning the matters described in clauses (i) and (ii) above,
as well as their respective businesses and prospects before and after giving
effect to the Merger, and the Expected Synergies; (iv) reviewed the market
prices and valuation multiples for the BW/IP Common Stock and the Durco Common
Stock and compared them with those of certain publicly traded companies which
Merrill Lynch deemed to be relevant; (v) reviewed the results of operations of
BW/IP and Durco and compared them with those of certain companies which Merrill
Lynch deemed to be relevant; (vi) reviewed the potential pro forma impact of the
Merger; (vii) reviewed the Merger Agreement; and (viii) reviewed such other
financial studies and analyses and took into account such other matters as
Merrill Lynch deemed necessary, including Merrill Lynch's assessment of general
economic, market and monetary conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to Merrill Lynch, discussed with or reviewed by or for Merrill Lynch,
or publicly available, and Merrill Lynch did not independently verify such
information or undertake an independent evaluation or appraisal of any of the
assets or liabilities of BW/IP or Durco and was not furnished with any such
evaluation or appraisal. In addition, Merrill Lynch did not conduct any physical
inspection of the properties or facilities of BW/IP or Durco. With respect to
the financial forecast information and the Expected Synergies furnished to or
discussed with Merrill Lynch by BW/IP or Durco, Merrill Lynch assumed that they
had been reasonably prepared and at that time reflected the best available
estimates and judgment of BW/IP's or Durco's management as to the expected
future financial performance of BW/IP or Durco, as the case may be, and the
Expected Synergies. Merrill Lynch further assumed that the Merger would be
accounted for as a pooling of interests under generally accepted accounting
principles and
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that it would qualify as a tax-free reorganization for U.S. federal income tax
purposes. The Merrill Lynch Opinion was necessarily based upon market, economic
and other conditions as they existed and could be evaluated on the date of the
Merrill Lynch Opinion. The Merrill Lynch Opinion did not address the merits of
the underlying decision by BW/IP to engage in the Merger.
Merrill Lynch assumed that in the course of obtaining the necessary
regulatory or other consents and approvals (contractual or otherwise) for the
Merger, no restrictions, including any divestiture requirements or amendments or
modifications, would be imposed that would have a material adverse effect on the
contemplated benefits of the Merger.
In connection with the preparation of the Merrill Lynch Opinion, Merrill
Lynch was not authorized by BW/IP or the BW/IP Board to solicit, nor did Merrill
Lynch solicit, third-party indications of interest for the acquisition of all or
any part of BW/IP. In addition, Merrill Lynch expressed no opinion as to the
prices at which the Durco Common Stock would trade following the announcement or
consummation of the Merger.
The following is a summary of certain financial and comparative analyses
performed by Merrill Lynch in arriving at its opinion dated May 6, 1997.
Trading Ratio Analysis. Merrill Lynch reviewed the per share daily closing
market price movements of BW/IP Common Stock and Durco Common Stock for the
one-year and three-year periods ending May 2, 1997. Merrill Lynch also compared
the per share daily closing market prices of BW/IP Common Stock and Durco Common
Stock during such periods to each other, the Standard & Poor's Index, and an
index composed of the following companies: IDEX Corporation, Keystone
International, Inc., Robbins & Myers, Inc. and Watts Industries, Inc.
(collectively, the "Comparable Companies").
Merrill Lynch also reviewed the historical ratios implied by the daily
closing prices per share of BW/IP Common Stock to those of Durco Common Stock
(the "Historical Trading Ratios") for the one-year period ending May 2, 1997,
and the average of such Historical Trading Ratios for the 5-day, 15-day, 30-day,
one-year and two-year periods ending May 2, 1997, and compared such Historical
Trading Ratios to the proposed Exchange Ratio of 0.6968. This analysis showed
that the average Historical Trading Ratios for the 5-day, 15-day, 30-day,
one-year and two-year periods ending May 2, 1997 were 0.675, 0.697, 0.694, 0.669
and 0.682, respectively, and that the maximum and minimum Historical Trading
Ratios during the period beginning January 1, 1997 and ending May 2, 1997 were
0.739 and 0.608, respectively.
Discounted Cash Flow Analysis. Merrill Lynch performed a DCF analysis for
each of BW/IP and Durco using both management projections (the "Management
Case") and publicly available research analyst projections (the "Street Case").
The DCF was calculated for each of BW/IP and Durco assuming discount rates
ranging from 10.5% to 12.5%, and was comprised of the sum of the present value
of (i) the projected unlevered free cash flows for fiscal years 1997 to 2001,
and (ii) the fiscal year 2001 terminal value based upon a range of multiples
from 6.0x to 8.0x of projected EBITDA for the fiscal year 2001.
Based upon the estimated valuation ranges of BW/IP and Durco set forth
above, Merrill Lynch calculated an implied exchange ratio of a share of BW/IP
Common Stock to a share of Durco Common Stock ranging from (i) 0.694 to 0.772
for the Management Case and 0.587 to 0.612 for the Street Case (obtained by
comparing the highest estimated valuation of BW/IP Common Stock to the highest
estimated valuation of Durco Common Stock and the lowest estimated valuation of
BW/IP Common Stock to the lowest estimated valuation of Durco Common Stock), and
(ii) 0.510 to 0.984 for the Management Case and 0.430 to 0.837 for the Street
Case (obtained by comparing the highest estimated valuation of BW/IP Common
Stock to the lowest estimated valuation of Durco Common Stock and the lowest
estimated valuation of BW/IP Common Stock to the highest estimated valuation of
Durco Common Stock), and in each case compared the range of implied exchange
ratios to the proposed Exchange Ratio of 0.6968.
Contribution Analysis. Merrill Lynch estimated the contribution of each of
BW/IP and Durco to the pro forma combined company (excluding Expected Synergies)
with respect to net income for fiscal years 1997 and 1998 for the Management
Case and the Street Case. The analysis yielded implied ratios of a share of
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BW/IP Common Stock to a share of Durco Common Stock of 0.604 and 0.648 for
fiscal years 1997 and 1998, respectively, for the Management Case, and 0.598 and
0.608 for fiscal years 1997 and 1998, respectively, for the Street Case.
The summary set forth above does not purport to be a complete description
of the analyses performed by Merrill Lynch in arriving at the Merrill Lynch
Opinion. Arriving at a fairness opinion is a complex process not necessarily
susceptible to partial analysis or summary description. Merrill Lynch believes
that its analysis must be considered as a whole and that selecting portions of
its analyses and of the factors considered by it, without considering all such
factors and analyses, could create a misleading view of the processes underlying
its opinion. Merrill Lynch did not assign relative weights to any of its
analyses in preparing its opinion. The matters considered by Merrill Lynch in
its analyses were based on numerous macroeconomic, operating and financial
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond BW/IP's and Durco's
control and involve the application of complex methodologies and educated
judgment. Any estimates incorporated in the analyses performed by Merrill Lynch
are not necessarily indicative of actual past or future results or values, which
may be significantly more or less favorable than such estimates. Estimated
values do not purport to be appraisals and do not necessarily reflect the prices
at which businesses or companies may be sold in the future, and such estimates
are inherently subject to uncertainty.
The BW/IP Board selected Merrill Lynch to act as its financial advisor on
the basis of Merrill Lynch's reputation as an internationally recognized
investment banking firm with substantial expertise in transactions similar to
the Merger and because it is familiar with BW/IP and its business. As part of
its investment banking business, Merrill Lynch is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions.
Pursuant to a letter agreement dated May 16, 1995 (the "Merrill Letter
Agreement"), BW/IP has agreed to pay Merrill Lynch (i) a fee of $250,000 payable
upon the execution of the Merger Agreement and (ii) an additional fee in an
amount equal to 0.75% of the aggregate purchase price payable upon the closing
of the Merger (for which purposes "purchase price" means the aggregate fair
market value of any securities issued in connection with the Merger, determined
by BW/IP and Merrill Lynch on the date of the closing of the Merger and the fair
market value of all indebtedness of BW/IP or any subsidiary of BW/IP, which is
assumed or acquired by Durco in the Merger or retired or defeased in connection
with the Merger), against which the fee described in clause (i) and an initial
retainer in the amount of $250,000 will be credited. Under the Merrill Letter
Agreement, Merrill Lynch was also retained to provide certain other financial
advisory services, including advice in connection with strategic, financial and
shareholder relations matters. In addition, BW/IP has agreed to reimburse
Merrill Lynch for its reasonable expenses (including the reasonable fees and
disbursements of its legal counsel) and to indemnify Merrill Lynch and certain
related parties from and against certain liabilities, including liabilities
under the federal securities laws, arising out of its engagement.
Merrill Lynch has, in the past, provided financial advisory services to
BW/IP and has received fees for rendering such services. In addition, in the
ordinary course of Merrill Lynch's business, Merrill Lynch may actively trade
BW/IP Common Stock, as well as Durco Common Stock and other securities of Durco,
for Merrill Lynch's own account and for the account of Merrill Lynch's customers
and, accordingly, may at any time hold a long or short position in such
securities.
ACCOUNTING TREATMENT
It is a condition to the Merger that it qualify as a "pooling of interests"
for accounting and financial reporting purposes. Under this method of
accounting, the recorded assets and liabilities of Durco and BW/IP will be
carried forward to the combined corporation at their recorded amounts, subject
to any adjustments required to conform the accounting policies of the two
companies; income of the combined corporation will include income of Durco and
BW/IP for the entire fiscal year in which the Merger occurs; and the reported
income of the separate corporations for prior periods will be combined and
restated as income of the combined corporation for those prior periods. Durco
and BW/IP will obtain from their respective independent accountants a letter
stating that the Merger will qualify for pooling-of-interests accounting
treatment.
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FORM OF THE MERGER
Subject to the terms and conditions of the Merger Agreement and in
accordance with the Delaware General Corporation Law (the "DGCL"), at the
Effective Time (as defined in the Merger Agreement), Sub will be merged with and
into BW/IP. BW/IP will be the surviving corporation in the Merger, and will
continue its corporate existence under Delaware law as a wholly owned subsidiary
of Durco. The certificate of incorporation of BW/IP as in effect as of the
Effective Time will become the certificate of incorporation of the surviving
corporation, and the by-laws of Sub as in effect as of the Effective Time will
become the by-laws of the surviving corporation. See "Certain Provisions of the
Merger Agreement and Related Agreements and Documents -- Certificate of
Incorporation of BW/IP" and "Certain Provisions of the Merger Agreement and
Related Agreements and Documents -- By-laws of BW/IP" below.
MERGER CONSIDERATION
At the Effective Time, each outstanding share of BW/IP Common Stock, other
than certain shares owned by BW/IP or Durco and treasury shares, will be
converted into the right to receive 0.6968 fully paid and nonassessable shares
of Flowserve Common Stock (except that cash will be paid in lieu of fractional
shares as described under "-- Conversion of Shares; Procedures for Exchange of
Certificates; Fractional Shares" below). As of the Effective Time, all such
shares of BW/IP Common Stock will no longer be outstanding and will
automatically be canceled and will cease to exist and each holder of a
certificate representing any shares of BW/IP Common Stock will cease to have any
rights in respect thereof. See "-- Conversion of Shares; Procedures for Exchange
of Certificates; Fractional Shares." The Exchange Ratio was determined through
arm's-length negotiations between BW/IP and Durco and is equal to the quotient
obtained by dividing (i) the average of the closing price of BW/IP Common Stock
for the 15 trading days ending on May 2, 1997 by (ii) the average of the closing
prices of Durco Common Stock for the 15 trading days ending May 2, 1997.
Any shares of BW/IP Common Stock owned immediately prior to the Effective
Time by BW/IP or Durco and treasury shares will be canceled and retired and
shall cease to exist, and no consideration shall be delivered in exchange
therefor.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
The conversion of BW/IP Common Stock into the right to receive Flowserve
Common Stock will occur automatically at the Effective Time. As soon as
practicable after the Effective Time, National City Bank, in its capacity as
Exchange Agent (the "Exchange Agent") will send a transmittal letter to each
former BW/IP stockholder. The transmittal letter will contain instructions with
respect to obtaining shares of Flowserve Common Stock in exchange for shares of
BW/IP Common Stock.
BW/IP STOCKHOLDERS AND DURCO STOCKHOLDERS SHOULD NOT RETURN STOCK
CERTIFICATES WITH THE ENCLOSED PROXY.
After the Effective Time, each certificate that previously represented
shares of BW/IP Common Stock will represent only the right to receive the
Flowserve Common Stock into which such shares were converted in the Merger and
the right to receive cash in lieu of fractional shares of Flowserve Common Stock
as described below.
Holders of certificates previously representing BW/IP Common Stock will not
be paid dividends or distributions on the Flowserve Common Stock into which such
shares have been converted with a record date after the Effective Time, and will
not be paid cash in lieu of fractional shares of Flowserve Common Stock, until
such certificates are surrendered to the Exchange Agent for exchange. When such
certificates are surrendered, any unpaid dividends and any cash in lieu of
fractional shares of Flowserve Common Stock payable as described below will be
paid without interest.
In the event of a transfer of ownership of BW/IP Common Stock which is not
registered in the records of BW/IP's transfer agent, a certificate representing
the proper number of shares of Flowserve Common Stock may be issued to a person
other than the person in whose name the certificate so surrendered is registered
if
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such certificate is properly endorsed or otherwise is in proper form for
transfer and the person requesting such issuance will pay any transfer or other
taxes required by reason of the issuance of shares of Flowserve Common Stock to
a person other than the registered holder of such certificate or establish to
the satisfaction of Flowserve that such tax has been paid or is not applicable.
All shares of Flowserve Common Stock issued upon conversion of shares of
BW/IP Common Stock (including any cash paid in lieu of any fractional shares of
Flowserve Common Stock), will be deemed to have been issued in full satisfaction
of all rights pertaining to such shares of BW/IP Common Stock, subject, however,
to Flowserve's obligation to pay any dividends or make any other distributions
with a record date prior to the Effective Time that may have been declared or
made by BW/IP on such shares of BW/IP Common Stock in accordance with the Merger
Agreement on or prior to the Effective Time and which remain unpaid at the
Effective Time.
No fractional shares of Flowserve Common Stock will be issued to any BW/IP
stockholder upon surrender of certificates previously representing BW/IP Common
Stock. Promptly after the Effective Time, the Exchange Agent will determine the
excess of (i) the number of whole shares of Flowserve Common Stock delivered to
the Exchange Agent by Flowserve over (ii) the aggregate number of whole shares
of Flowserve Common Stock to be distributed to former holders of BW/IP Common
Stock (such excess being the "Excess Shares"). The Exchange Agent will sell the
Excess Shares on the NYSE in accordance with the terms of the Merger Agreement
and will hold the proceeds in trust for the former holders of BW/IP Common Stock
(the "Common Shares Trust"). The Exchange Agent shall make available to each
former holder of BW/IP Common Stock the amount, if any, determined by
multiplying the amount comprising the Common Shares Trust by a fraction the
numerator of which is the fractional share interest to which such holder would
otherwise be entitled and the denominator of which is the aggregate amount of
fractional share interests to which all former holders of BW/IP Common Stock are
entitled. Alternatively, Flowserve may elect, for each fractional share that
would otherwise be issued, to make available to such stockholders an amount in
cash equal to the product obtained by multiplying the fractional share interest
to which such holder would otherwise be entitled by the closing price for a
share of Durco Common Stock on the NYSE on the date on which the Merger is
completed (the "Closing Date").
EFFECTIVE TIME
The Effective Time will be the time of the filing of the Certificate of
Merger with the Delaware Secretary of State or such later time as is agreed upon
by BW/IP and Sub and specified in the Certificate of Merger. The filing of the
Certificate of Merger will occur as soon as practicable, but no later than the
second business day, after satisfaction or waiver of the conditions to the
consummation of the Merger set forth in the Merger Agreement unless another date
is agreed to in writing by BW/IP and Durco.
STOCK EXCHANGE LISTINGS
It is a condition to the consummation of the Merger that all shares of
Flowserve Common Stock (including shares issued pursuant to the Merger) be
approved for listing on the NYSE, subject to official notice of issuance.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes all the material United States Federal
income tax consequences of the Merger assuming that it is consummated as
contemplated by this Joint Proxy Statement/Prospectus. This discussion is based
on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
regulations, judicial decisions and administrative rulings as of the date
hereof, all of which are subject to change, including changes with retroactive
effect. The discussion below does not address any state, local or foreign tax
consequences of the Merger. The tax treatment of a stockholder may vary
depending upon the stockholder's particular situation, and certain stockholders
(including individuals who hold options in respect of BW/IP Common Stock,
insurance companies, tax-exempt organizations, financial institutions or
broker-dealers, and persons who are neither citizens nor residents of the United
States or that are foreign corporations, foreign
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partnerships or foreign estates or trusts as to the United States) may be
subject to special rules not discussed below. Neither Durco nor BW/IP has
requested or will request an advance ruling from the Internal Revenue Service
(the "Service") as to the tax consequences of the Merger.
EACH BW/IP STOCKHOLDER IS URGED TO CONSULT HIS, HER OR ITS OWN TAX ADVISOR
AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM, HER OR IT OF THE MERGER, INCLUDING
THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS, AND OF CHANGES
IN APPLICABLE TAX LAWS.
Federal Income Tax Consequences of the Merger. Consummation of the Merger
is conditioned upon the receipt of opinions of Shearman & Sterling, counsel to
BW/IP, and Cravath, Swaine & Moore, counsel to Durco, as to the qualification of
the Merger as a tax-free reorganization under Section 368(a) of the Code. These
opinions will state that the Merger will qualify as a reorganization under
Section 368(a) of the Code and each of BW/IP and Durco will be a party to that
reorganization within the meaning of Section 368(b) of the Code.
An opinion of counsel is not binding on the Service or the courts. Further,
the opinions of Shearman & Sterling and Cravath, Swaine & Moore referred to
above are based on, among other things, current law and certain representations
as to factual matters made by, among others, BW/IP and Durco which, if incorrect
in certain material respects, would jeopardize the conclusions reached by
counsel in their opinions. Neither BW/IP nor Durco is currently aware of any
facts or circumstances that would cause any representations made by it to
Shearman & Sterling and Cravath, Swaine & Moore to be untrue or incorrect in any
material respect.
If, as anticipated, the Merger qualifies as a tax-free reorganization under
Section 368(a) of the Code:
(i) Except for any cash received in lieu of fractional shares and to
the extent that any payment by Durco of transfer taxes is treated as
taxable consideration received by the BW/IP stockholders, a stockholder
will not recognize any income, gain or loss as a result of the receipt of
Flowserve Common Stock.
(ii) A BW/IP stockholder's tax basis for the shares of Flowserve
Common Stock, including any fractional share interest for which cash is
received, will equal such stockholder's tax basis in shares of BW/IP Common
Stock held immediately before the Merger.
(iii) A BW/IP stockholder's holding period for the Flowserve Common
Stock, including any fractional share interest for which cash is received,
will include the period during which the shares of BW/IP Common Stock were
held, provided that the shares of BW/IP Common Stock were held as capital
assets at the Effective Time.
(iv) Cash received by a BW/IP stockholder in lieu of a fractional
share interest of Flowserve Common Stock will be treated as having been
received in exchange for the fractional share interest of Flowserve Common
Stock that the stockholder would otherwise have been entitled to receive.
This receipt of cash will result in gain or loss measured by the difference
between the tax basis allocable to the fractional share interest and the
amount of cash received. The gain or loss will be capital gain or loss to
the stockholder, provided that the BW/IP Common Stock was a capital asset
in the stockholder's hands at the Effective Time.
BW/IP believes that transfer taxes payable as a consequence of the Merger
should not be material. As a result, BW/IP stockholders should not recognize any
material amount of taxable consideration ("boot") in the Merger.
Durco stockholders will not be taxed as a result of the Merger.
Backup Withholding. Under the backup withholding rules, a holder of
Flowserve Common Stock may be subject to backup withholding at the rate of 31%
with respect to cash received in exchange for the fractional share interest
unless the stockholder (i) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact or (ii) provides a
taxpayer identification number and certifies that the taxpayer identification
number is correct and the taxpayer is not subject to backup withholding for
specified
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reasons, and otherwise complies with applicable requirements of the backup
withholding rules. Any amount withheld under these rules will be credited
against the stockholder's Federal income tax liability.
EFFECT ON AWARDS OUTSTANDING UNDER BW/IP STOCK PLANS
Under the Merger Agreement, outstanding employee options to purchase BW/IP
stock ("BW/IP Stock Options") will be amended and converted into an option to
acquire the same number of shares of Durco Common Stock as the holder of such
BW/IP Stock Options would have been entitled to receive pursuant to the Merger
had such holder exercised such BW/IP Stock Options in full immediately prior to
the Effective Time, at a price per share of Durco Common Stock equal to (A) the
aggregate exercise price for the share of BW/IP Common Stock otherwise
purchasable pursuant to such BW/IP Stock Options divided by (B) the aggregate
number of shares of Durco Common Stock deemed purchasable pursuant to such BW/IP
Stock Options; provided that adjustments with respect to any BW/IP Stock Options
which are "incentive stock options" as defined in Section 422 of the Code will
be effected in a manner which is consistent with Section 424(a) of the Code. In
addition, BW/IP's Board (or, if appropriate, any committee administering the
BW/IP Stock Plans) will take all reasonable efforts so that options and stock
appreciation rights granted under the BW/IP Stock Plans will not be cashed out
as a result of the transactions contemplated by the Merger Agreement.
The Merger Agreement further provides that, except to the extent required
under the Merger Agreement and to the extent required by the respective terms of
the BW/IP Stock Options, all restrictions or limitations on transfer and vesting
with respect to BW/IP Stock Options, to the extent that such restrictions or
limitations have not already lapsed, will remain in full force and effect with
respect to such options after giving effect to the Merger and the assumption by
Durco as set forth in the Merger Agreement.
REGULATORY MATTERS AND THIRD PARTY APPROVALS
Pursuant to the requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), Durco and BW/IP have each
filed a Notification and Report Form for review under the HSR Act with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice. The HSR Act waiting period expired on June 14, 1997.
However, the Federal Trade Commission and the Department of Justice continue to
have authority to challenge the Merger on antitrust grounds before or after the
Merger is completed.
Durco and BW/IP conduct operations in a number of foreign countries where
regulatory filings or approvals with applicable commissions and other
authorities will be required in connection with the consummation of the Merger.
BW/IP and Durco are parties to certain credit facilities, indentures,
guarantees, licensing arrangements and other similar agreements. Consummation of
the Merger may require the consent of, or waivers from, the other parties to
certain of such agreements and may constitute a default resulting in
termination, cancelation or acceleration thereunder if such consents or waivers
are not obtained. Pursuant to the Merger Agreement, BW/IP and Durco have agreed
to use best efforts to take all actions, and to cooperate with the other party
in doing all things, necessary or advisable to obtain all consents, approvals or
waivers from government authorities or third parties necessary for the
consummation of the Merger.
Consummation of the Merger is conditioned upon, among other things, the
absence of any preliminary or permanent injunction or other order issued by any
Federal or state court of competent jurisdiction which prohibits or restricts
the consummation of the Merger. Durco and BW/IP believe that all material
filings and approvals have been made or obtained, or will be made or obtained,
as the case may be.
CERTAIN TRANSACTIONS; CONFLICTS OF INTEREST
In considering the respective recommendations of the Durco Board and the
BW/IP Board with respect to the Merger, stockholders of Durco and BW/IP should
be aware that certain members of the Boards and management of Durco and BW/IP
have interests in the Merger that are different from, or in addition to, the
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interests of stockholders of Durco or BW/IP. Such interests relate to or arise
from, among other things, the terms of the Merger Agreement providing for (i)
the Flowserve Board to consist of eleven members, five of whom have been
designated by Durco, four of whom have been designated by BW/IP and the
remaining two of whom will be agreed upon by the Flowserve Board, after
consultation with the chief operating officer of Flowserve, from a targeted
search of independent candidates not previously associated with the two
companies, (ii) the division of certain senior management positions of Flowserve
among the existing senior management of each of the companies, (iii) the
indemnification of existing directors and officers of Durco and BW/IP and (iv)
as described in Section 5.06 of the Merger Agreement, the stock options held by
officers and directors of BW/IP will vest after the transaction. In addition,
BW/IP maintains a charitable gift plan for its non-employee directors and the
right of such directors to recommend a charitable gift will fully vest as a
result of the transaction. All such additional interests are described below, to
the extent material, and except as described below such persons have, to the
knowledge of Durco and BW/IP, no material interest in the Merger apart from
those of stockholders generally. The Durco Board and the BW/IP Board were each
aware of, and considered the interests of, their respective directors and
officers in approving the Merger Agreement and the Merger.
Flowserve Board of Directors. Following the Effective Time, the Flowserve
Board will consist of eleven directors, five of whom have been designated by
Durco and four of whom have been designated by BW/IP. The Merger Agreement also
requires that two mutually agreed upon "independent" directors who have not been
associated with either Durco or BW/IP be added to the Flowserve Board by January
1, 1998. See "Directors and Executive Officers of Flowserve Following the
Merger" for information pertaining to the initial members of the Flowserve
Board.
Flowserve Management. See "Directors and Executive Officers of Flowserve
Following the Merger -- Executive Officers" for a discussion of certain members
of the senior management of Flowserve.
EMPLOYMENT AGREEMENTS
The Merger Agreement provides that on or prior to the Closing Date, Durco
and BW/IP will enter into employment agreements with Messrs. William M. Jordan
and Bernard G. Rethore (the "Executives") under terms set forth in Exhibits to
the Merger Agreement (such agreements with Messrs. Jordan and Rethore, the
"Employment Agreements") and with other individuals to be agreed upon by Durco
and BW/IP in a form to be agreed upon by Durco and BW/IP. The Employment
Agreements will have a five year term (the "Term") and, in Mr. Jordan's case,
will automatically renew for one year periods unless notice is provided.
Under the Employment Agreements, Mr. Rethore will initially serve as
Chairman of the Board and Chief Executive Officer of Flowserve and Mr. Jordan
will initially serve as President and Chief Operating Officer of Flowserve.
After three years, Mr. Rethore will tender his resignation and, unless such
resignation is rejected by vote of the Flowserve Board, he will serve as a
consultant to the Flowserve Board for the final two years of his Employment
Agreement. Upon Mr. Rethore's resignation, Mr. Jordan is to be appointed as
Chairman of the Board and Chief Executive Officer of Flowserve.
Pursuant to the Employment Agreements, each Executive will receive an
annual base salary in an amount to be agreed on by the parties but in no event
less than his salary as of the Effective Time and will have an annual bonus
opportunity with a minimum target bonus of no less than 50% of base salary. The
Executives also will participate in all incentive, savings, retirement and
welfare benefit plans and programs applicable to other senior executives of
Flowserve and its affiliates and on a basis at least as favorable as provided to
other senior executives. In addition, Mr. Rethore will be provided full service
credit for his years of service at BW/IP for purposes of eligibility, vesting
and benefit accrual under the employee benefit plans and programs of Flowserve
which he will participate in, including a supplemental retirement benefit at
least as generous as that provided under his agreements with BW/IP.
Under the Employment Agreements, in the event an Executive's employment is
terminated by Flowserve without "Cause" or by the Executive for "Good Reason"
(as each such term is defined below), the Executive will receive (i) a lump sum
cash payment equal to the product of (A) the sum of salary and the highest
annual and, where applicable, long-term bonuses paid to the Executive in the two
years prior to termination,
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multiplied by (B) the greater of two and the number of full and partial years
remaining in the Term; (ii) an amount equal to the actuarial equivalent of the
additional pension benefit the Executive would have earned under Flowserve's
applicable qualified and non-qualified defined benefit plans if his employment
had continued for the longer of three years after termination or the end of the
Term; (iii) continued participation in Flowserve's welfare benefit programs
through the later of three years after termination or the end of the Term and
service credit through the end of the Term for purposes of determining
eligibility for retiree benefits under any applicable welfare benefit plan; (iv)
accrued salary and bonus; (v) any other amount the Executive is entitled to
receive under any applicable plan or program; and (vi) a gross-up payment for
any excise taxes imposed on "excess parachute payments" (as defined in Section
280G of the Code) under Section 4999 of the Code.
For purposes of the Employment Agreements, "Cause" will mean (i) the
Executive's continuing willful failure to perform his duties with Flowserve
after a written demand is delivered to the Executive by the Flowserve Board;
(ii) the Executive's willful engaging in illegal conduct or gross misconduct
which is materially and demonstrably injurious to Flowserve; (iii) the
Executive's conviction of a felony or guilty or nolo contendere plea to a
felony; or (iv) a material, willful breach by Executive of the confidentiality
provisions of the Employment Agreement. "Good Reason" will mean (i) the removal
of the Executive during the Term from his executive positions; the assignment of
duties inconsistent in any material respect with the Executive's position; any
action by Flowserve resulting in a material diminution of the Executive's
position or duties; (ii) Flowserve's material failure to comply with the
Employment Agreement; (iii) Flowserve requiring the Executive to be based at a
location more than 35 miles from the location of Flowserve's headquarters or to
travel on business materially more than required immediately before the
Effective Time; (iv) any termination of the Executive's employment by Flowserve,
other than as permitted in the Employment Agreement; or (v) Flowserve failing to
require a successor to assume and perform the Employment Agreement. The
definition of "Good Reason" for Mr. Jordan will also include the failure of
Flowserve to appoint him as a Chief Executive Officer and Chairman on the third
anniversary of the Effective Time. Any good faith determination of Good Reason
by the Executive will be conclusive.
The Employment Agreements also will contain other standard provisions
contained in similar contracts.
CONTINUATION OF COMPENSATION AND BENEFITS PROGRAMS
Pursuant to the Merger Agreement, Flowserve will maintain for a period of
twenty-four months immediately following the Effective Time employee benefit and
welfare plans, programs, contracts, agreements, policies and executive
incentives and perquisites for the benefit of active and retired employees of
BW/IP which provide benefits that are no less favorable to the benefits provided
to such active and retired employees as of the date of the Merger Agreement.
However, these benefits may be altered if the Flowserve Board unanimously
approves other benefits.
Indemnification and Insurance. The Merger Agreement provides that all
rights of indemnification and exculpation from liabilities existing in favor of
the current and former directors or officers of BW/IP and its subsidiaries as
provided in their respective certificates of incorporation and by-laws and
existing indemnification agreements of BW/IP shall survive the Merger, and
continue in full force and effect in accordance with their terms and directors
and officers of BW/IP who become directors and officers of Flowserve will be
entitled to the same indemnification rights as are afforded to other directors
and officers of Flowserve. The Merger Agreement provides that for three years
after the Effective Time, Flowserve will maintain directors' and officers'
liability insurance covering acts or omissions occurring prior to the Effective
Time with respect to those persons who were, as of the date of the Merger
Agreement, covered by BW/IP's directors' and officers' liability insurance
policy, on terms with respect to such coverage and amount no less favorable than
those in effect on the date of the Merger Agreement. In addition, the Flowserve
Certificate will provide for Flowserve to indemnify and advance litigation
expenses to directors and officers of Flowserve to the fullest extent permitted
by the New York Business Corporation Law (the "NYBCL").
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APPRAISAL AND DISSENTERS' RIGHTS
Because currently outstanding shares of Durco Common Stock will not be
exchanged by Durco stockholders in the Merger, holders of Durco Common Stock are
not entitled to appraisal or dissenters' rights with respect to the Merger or
any of the other actions to be taken at the Durco Special Meeting.
Under the DGCL, holders of BW/IP Common Stock are not entitled to appraisal
or dissenters' rights with respect to the Merger because the BW/IP Common Stock
is listed on a national securities exchange and the consideration which such
holders will be entitled to receive under the Merger Agreement will consist
solely of Durco Common Stock, which will also be listed on a national securities
exchange, and cash in lieu of fractional shares.
DELISTING AND DEREGISTRATION OF BW/IP COMMON STOCK
If the Merger is consummated, the shares of BW/IP Common Stock will be
delisted from the NYSE, and will be deregistered under the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
RESALE OF FLOWSERVE COMMON STOCK
The Flowserve Common Stock issued pursuant to the Merger will not be
subject to any restrictions on transfer arising under the Securities Act of
1933, as amended (the "Securities Act"), except for shares issued to any BW/IP
stockholder who may be deemed to be an "affiliate" of BW/IP or Durco for
purposes of Rule 145 under the Securities Act or for purposes of qualifying the
Merger for pooling-of-interests accounting treatment. It is expected that each
such affiliate will agree not to transfer any Flowserve Common Stock received in
the Merger except in compliance with the resale provisions of Rule 144 or 145
promulgated under the Securities Act or as otherwise permitted under the
Securities Act and will make no disposition of any Flowserve Common Stock (or
any interest therein) received in connection with the Merger unless, in the
opinion of counsel to Flowserve, the transaction will not have any adverse
consequences for Flowserve with respect to the treatment of the Merger for tax
purposes. In addition, it is expected that each such affiliate will agree not to
make any such disposition within the 30 days prior to the Effective Time, and,
until after such time as financial results covering at least 30 days of combined
operations of BW/IP and Durco after the Merger have been published. This Joint
Proxy Statement/Prospectus does not cover resales of Flowserve Common Stock
received by any person upon consummation of the Merger, and no person is
authorized to make any use of this Joint Proxy Statement/Prospectus in
connection with any such resale.
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CERTAIN PROVISIONS OF THE MERGER AGREEMENT
AND RELATED AGREEMENTS AND DOCUMENTS
GENERAL
The BW/IP Board and the Durco Board have approved the Merger Agreement
which provides for the Merger to occur at the Effective Time, with BW/IP
continuing as a wholly owned subsidiary of Durco. This section of the Joint
Proxy Statement/Prospectus describes certain aspects of the proposed Merger,
including certain provisions of the Merger Agreement and the Stock Option
Agreements (as defined below). The description of the Merger Agreement and the
Stock Option Agreements contained in this Joint Proxy Statement/Prospectus does
not purport to be complete and is qualified in its entirety by reference to the
Merger Agreement and the Stock Option Agreements, copies of which are attached
hereto as Annexes I, II and III and which are incorporated herein by reference.
All stockholders of BW/IP and Durco are urged to read carefully the Merger
Agreement and the Stock Option Agreements in their entirety.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Each party's obligation to effect the Merger is subject to the satisfaction
or waiver on or prior to the Closing Date of various conditions which include,
in addition to other customary closing conditions, the following:
(i) the Durco stockholders having approved the Merger Share Issuance
and the Name Change, and the BW/IP stockholders having adopted the Merger
Agreement;
(ii) the waiting period with respect to the Merger under the HSR Act
having expired or been terminated, which expiration occurred on June 14,
1997;
(iii) no judgment, order, decree, statute, law, ordinance, rule or
regulation enacted, entered, promulgated, enforced or issued by any court
or other governmental entity of competent jurisdiction or other legal
restraint or prohibition being in effect (a) preventing the consummation of
the Merger, (b) prohibiting or limiting the ownership or operation by BW/IP
or Durco and their respective subsidiaries of any material portion of the
business or assets of BW/IP or Durco and their respective subsidiaries
taken as a whole, or compelling BW/IP or Durco and their respective
subsidiaries to dispose of or hold separate any material portion of the
business or assets of BW/IP or Durco and their respective subsidiaries
taken as a whole, as a result of the Merger or any of the transactions
contemplated by the Merger Agreement or the Stock Option Agreements, or (c)
which otherwise is reasonably likely to have a Material Adverse Effect (as
defined below) on BW/IP or Durco ("Restraints");
(iv) the Registration Statement, of which this Joint Proxy
Statement/Prospectus is a part, having become effective under the
Securities Act and not being the subject of any stop order or proceedings
seeking a stop order;
(v) the shares of Durco Common Stock issuable to BW/IP's stockholders
pursuant to the Merger having been approved for listing on the NYSE,
subject to official notice of issuance; and
(vi) BW/IP and Durco each having received letters dated as of the
Closing Date from each of Price Waterhouse LLP and Ernst & Young LLP (the
independent accountants of BW/IP and Durco, respectively) to the effect
that the Merger qualifies for pooling-of-interests accounting treatment.
In addition, each party's obligation to effect the Merger is subject to the
satisfaction or waiver of the following additional conditions:
(i) the representations and warranties of the other party to the
Merger Agreement set forth in the Merger Agreement being true and correct
as of the date of the Merger Agreement and as of the Closing Date as though
made at and as of such time (except to the extent such representations and
warranties expressly relate to an earlier date, in which case as of such
date), except where the failure of such representations and warranties to
be so true and correct (without giving effect to any limitation as to
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"materiality" or "material adverse effect" set forth therein), does not
have, and is not likely to have, individually or in the aggregate, a
Material Adverse Effect on such other party;
(ii) the other party to the Merger Agreement having performed in all
material respects all obligations required to be performed by it under the
Merger Agreement on or prior to the Closing Date;
(iii) such party having received from its counsel on the Closing Date,
an opinion dated as of such date stating that the Merger will be treated
for Federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code and that BW/IP, Durco and Sub will each be a
party to that reorganization within the meaning of Section 368(b) of the
Code; and
(iv) at any time after the date of the Merger Agreement any Material
Adverse Change relating to the other party shall not have occurred.
A "Material Adverse Effect" means, when used in connection with BW/IP or
Durco, any change, effect, event, occurrence or state of facts that is, or would
reasonably be expected to be, materially adverse to the business or financial
condition of BW/IP or Durco and its respective subsidiaries taken as a whole, as
the case may be, other than any change, effect, event or occurrence relating to
(i) the United States economy in general, (ii) the Merger Agreement or the
transactions contemplated thereby or the announcement thereof, (iii) the failure
to obtain applicable regulatory or other third-party consents that may be
required in connection with the Merger Agreement or the transactions
contemplated thereby or (iv) the fluid handling and control industry in general,
and not specifically relating to BW/IP or Durco or their respective
subsidiaries, and the terms "material" and "materiality" have correlative
meanings.
NO SOLICITATION
The Merger Agreement provides that BW/IP and Durco will not, nor will they
permit any of their respective subsidiaries to, nor will they authorize or
permit any of their respective officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by them or any of their respective subsidiaries to,
directly or indirectly through another person, (i) solicit, initiate, encourage
(including by way of furnishing information), or take any other action designed
to facilitate, any inquiries or the making of any Takeover Proposal (as defined
below) or (ii) participate in any discussions or negotiations regarding any
Takeover Proposal; provided, however, that if, at any time during the 15
business days prior to the publicly announced date of the BW/IP Special Meeting
or the Durco Special Meeting, the BW/IP Board or the Durco Board, as the case
may be, determines in good faith, after consultation with outside counsel, that
it is necessary to do so in order to comply with its fiduciary duties to its
stockholders under applicable law, BW/IP or Durco, as the case may be, may, in
response to a Superior Proposal (as defined below) which was not solicited by it
or the result of any of the prohibited actions described above, subject to
providing prior oral and written notice of its decision to the other party to
take such action, for a period of five business days following delivery of the
written notice (x) furnish information with respect to it and its subsidiaries
to any person making a Superior Proposal pursuant to a customary confidentiality
agreement and (y) participate in negotiations regarding such Superior Proposal.
A "Takeover Proposal" is any inquiry, proposal or offer from any person relating
to any direct or indirect acquisition or purchase of a business that constitutes
15% or more of the net revenues, net income or assets of a party and its
subsidiaries, taken as a whole, or 15% or more of any class of equity securities
of such party or any of its subsidiaries, any tender offer or exchange offer
that if consummated would result in any person beneficially owning 15% or more
of any class of equity securities of such party or any of its subsidiaries, or
any merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction, involving such party or any of its
subsidiaries, other than the Merger. A "Superior Proposal" is any proposal made
by a third party to acquire, directly or indirectly, including pursuant to a
tender offer, exchange offer, merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction for
consideration consisting of cash and/or securities, more than 50% of the
combined voting power of the shares of the party then outstanding or all or
substantially all of the assets of a party, on terms that the board of directors
of the party subject to the proposal determines in its good faith judgment
(based on the advice of a financial advisor of nationally recognized reputation)
to be more favorable to its stockholders than the Merger and for which
financing, to the extent
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required, is then committed or which, in the good faith judgment of the board of
directors of the party subject to the proposal, is reasonably capable of being
obtained and for which no regulatory approvals are required that could not
reasonably be expected to be obtained.
Except as expressly permitted by the Merger Agreement, neither the BW/IP
Board nor the Durco Board, nor any committee thereof, will (i) withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to the
other party, the approval or recommendation by such board of directors or such
committee of the Merger or the Merger Agreement, and, in the case of Durco, the
issuance of Durco Common Stock in connection with the Merger, (ii) approve or
recommend, or propose publicly to approve or recommend, any Takeover Proposal or
(iii) cause such party to enter into any letter of intent, agreement in
principle, acquisition agreement or other similar agreement related to any
Takeover Proposal. Notwithstanding the foregoing, in the event that during the
15 business days prior to the publicly announced date of the BW/IP Special
Meeting or the Durco Special Meeting, the BW/IP Board or the Durco Board, as the
case may be, determines in good faith that there is a substantial probability
that the adoption of the Merger Agreement by the stockholders of BW/IP or
approval of the Merger Share Issuance and the Name Change by the stockholders of
Durco, as the case may be, will not be obtained due to the existence of a
Superior Proposal, the board of directors of such party may terminate the Merger
Agreement, but only at a time that is during the 15 business days prior to the
publicly announced date of either the Durco Special Meeting or the BW/IP Special
Meeting, as appropriate and that is after the fifth business day following the
other party's receipt of written notice advising such other party that the board
of directors of such party is prepared to accept a Superior Proposal. The
terminating party must pay a fee in the amount of $12 million (the "Termination
Fee") and certain expenses of the nonterminating party, not to exceed $3
million, to the nonterminating party upon such termination. See "Termination"
and "-- Termination Fees."
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after adoption thereof by the stockholders of BW/IP or
Durco:
(i) by mutual written consent of BW/IP, Sub and Durco;
(ii) by either party thereto, if the Merger has not been consummated
by the December 31, 1997; provided, however, that such right to terminate
the Merger Agreement will not be available to either party whose failure to
perform any of its obligations under the Merger Agreement has resulted in
the failure of the Merger to be consummated by that date;
(iii) by either party thereto, if the BW/IP stockholders have not
adopted the Merger Agreement or the Durco stockholders have not approved
the Merger Share Issuance and the Name Change at their respective
Stockholders' Meeting;
(iv) by either party thereto, if any Restraints are in effect and have
become final and nonappealable, provided that the party seeking to exercise
this right to terminate the Merger Agreement has used best efforts to
prevent the entry of and to remove such Restraint;
(v) by either BW/IP, on the one hand, or Durco, on the other hand, if
the other party has breached or failed to perform in any material respect
any of its representations, warranties, covenants or other agreements
contained in the Merger Agreement, which breach or failure to perform would
give rise to the failure of a condition to the Merger and is incapable of
being cured or is not cured within 30 days of notice of such breach or
failure;
(vi) by either BW/IP, on the one hand, or Durco, on the other hand, if
during the 15 business days prior to the publicly announced date of its
Stockholders' Meeting, its Board of Directors determines in good faith that
there is a substantial probability that its stockholders will not adopt the
Merger Agreement or approve the Merger Share Issuance and Name Change, as
the case may be, due to the existence of a Superior Proposal and if such
terminating party has complied with certain notice requirements; or
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(vii) by either BW/IP, on the one hand, or Durco, on the other hand,
if the other party or any of its officers or directors has taken any of the
actions that would be prohibited by the covenant described under "-- No
Solicitation" above.
TERMINATION FEES
The Merger Agreement provides that if a Takeover Proposal (except that for
purposes of this provision, all references to 15% in the definition of Takeover
Proposal shall be deemed to be 35%) is made known to any party or any of its
subsidiaries or has been made directly to its stockholders generally or any
person shall have publicly announced an intention to make a Takeover Proposal
and thereafter the Merger Agreement is terminated pursuant to the provisions
described in clause (ii), (iii) or (vii) under "-- Termination" above, then, if
within 18 months of the termination the party that was the subject of the
Takeover Proposal consummates, or enters into an agreement to consummate, a
Takeover Proposal, the party that was the subject of the Takeover Proposal must
then pay the other party the Termination Fee and certain expenses of the
nonterminating party not to exceed $3 million. If the Merger Agreement is
terminated pursuant to the provisions described in clause (vi) under
"-- Termination," then the terminating party must pay the nonterminating party
the Termination Fee and certain expenses of the nonterminating party not to
exceed $3 million upon such termination.
The Merger Agreement further provides that if one party should fail to pay
any Termination Fee due, the defaulting party must pay the costs and expenses in
connection with any action taken to collect payment, together with interest on
the amount of the Termination Fee.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, BW/IP and Durco have each agreed to carry
on their respective businesses in the ordinary course consistent with past
practice and in compliance in all material respects with applicable laws and
regulations and, to the extent consistent therewith, to use reasonable efforts
to preserve intact their current business organizations, to keep available the
services of their current officers and other key employees and preserve their
relationships with those persons having business dealings with them to the end
that their goodwill and ongoing businesses shall be unimpaired at the Effective
Time. In addition, BW/IP and Durco have each agreed that without the other's
consent, among other things, neither it nor any of its subsidiaries may:
(i) other than dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned subsidiary of BW/IP or
Durco to their respective parents, or by a subsidiary that is partially
owned by BW/IP or Durco or any of their respective subsidiaries, provided
that BW/IP, Durco or any such subsidiary receives or is to receive its
proportionate share thereof, and other than the regular quarterly cash
dividends with respect to the BW/IP Common Stock and Durco Common Stock,
(x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of their capital stock, (y) split, combine
or reclassify any of their capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of their capital stock, except for issuances of BW/IP Common Stock
or Durco Common Stock upon the exercise of BW/IP Stock Options or the Durco
Stock Options, as the case may be, outstanding as of the date of the Merger
Agreement in accordance with their present terms or issued pursuant to (ii)
below or (z) purchase, redeem or otherwise acquire any shares of capital
stock of BW/IP, Durco or any of their respective subsidiaries or any other
securities thereof or any rights, warrants or options to acquire any such
shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber or subject to
any lien any shares of their capital stock, any other voting securities or
any securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities
(other than (x) the issuance of BW/IP Common Stock or Durco Common Stock
upon the exercise of BW/IP Stock Options or Durco Stock Options, as the
case may be, outstanding as of the date of the Merger Agreement in
accordance with their present terms or, after consulting with the other
party, granted after the date of the Merger
36
<PAGE> 44
Agreement in the ordinary course of business consistent with past practice
(so long as such additional amount of BW/IP Common Stock subject to BW/IP
Stock Options or Durco Common Stock subject to Durco Stock Options issued
to employees does not exceed amounts historically granted), (y) in
accordance with the Rights Agreement between BW/IP Holding Inc. and the
American Stock Transfer & Trust Company, dated as of July 26, 1993 (the
"BW/IP Rights Agreement") or the Rights Agreement between The Duriron
Company and Bank One, N.A. dated August 1, 1996 (the "Durco Rights
Agreement" and together with the BW/IP Rights Agreement, the "Rights
Agreements") or (z) pursuant to the Stock Option Agreements);
(iii) except as contemplated by the Merger Agreement, amend its
certificate of incorporation, by-laws or other comparable organizational
documents;
(iv) sell, lease, license, mortgage or otherwise encumber, subject to
any lien or otherwise dispose of any properties or assets, other than in
the ordinary course of business consistent with past practice;
(v) (A) acquire (including, without limitation, by merger,
consolidation or acquisition of stock or assets) any interest in any
corporation, partnership, other business organization, person or any
division thereof or any assets, other than acquisitions of assets in the
ordinary course of business consistent with past practice and any other
acquisitions for consideration that is not, in the aggregate, in excess of
$1,000,000; (B) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person for
borrowed money, except for indebtedness for borrowed money incurred in the
ordinary course of business consistent with past practice or incurred to
refinance outstanding indebtedness for borrowed money existing on the date
of the Merger Agreement or other indebtedness for borrowed money with a
maturity of not more than one year in a principal amount not, in the
aggregate, in excess of $1,000,000; (C) terminate, cancel or request any
material change in, or agree to any material change in, any material
contract or enter into any contract or agreement material to the business,
results of operations or financial condition of the party and its
respective subsidiaries taken as a whole, in either case other than in the
ordinary course of business consistent with past practice; (D) make or
authorize any capital expenditure, other than capital expenditures that
were disclosed in writing; or (E) enter into or amend any contract,
agreement or arrangement to perform any of the above actions;
(vi) adopt or amend in any material respect any benefit plan or
increase the compensation of any officer or senior executive of it or any
of its subsidiaries, except that it may grant retention bonuses to key
employees, subject to certain limitations;
(vii) take any action that would cause the representations and
warranties described in clause (vii) under "-- Representations and
Warranties" below to no longer be true and correct; or
(viii) authorize, or commit or agree to take, any of the foregoing
actions.
DIVIDEND COORDINATION
The Merger Agreement requires BW/IP and Durco to coordinate with each other
the payment of dividends, and the designation of record and payment dates,
relating to BW/IP Common Stock and Durco Common Stock with the intent that
holders of BW/IP Common Stock will not receive two dividends, or fail to receive
one dividend, for any single calendar quarter as a result of the Merger.
AMENDMENT TO RIGHTS PLAN
BW/IP has amended its Rights Agreement to provide that (i) neither the
approval, execution or delivery of the Merger Agreement or the Stock Option
Agreements (as defined) nor the consummation of the transactions contemplated by
the Merger Agreement or the Stock Option Agreements will cause the rights issued
thereunder to become exercisable and (ii) the expiration date of the rights
issued thereunder shall be immediately prior to the Effective Time. See
"Comparison of Stockholders' Rights -- Rights Plan."
37
<PAGE> 45
ASSUMPTION OF BW/IP STOCK PLANS
As soon as practicable following the date of the Merger Agreement, the
BW/IP Board (or, if appropriate, any committee administering the BW/IP Stock
Plans) will adopt such resolutions or take such other actions as may be required
to effect the following:
(i) adjust the terms of all outstanding BW/IP Stock Options granted
under BW/IP Stock Plans, whether vested or unvested, as necessary to
provide that, at the Effective Time, each BW/IP Stock Option outstanding
immediately prior to the Effective Time will be amended and converted into
an option to acquire, on the same terms and conditions as were applicable
under such BW/IP Stock Option the same number of shares of Durco Common
Stock as the holder of such BW/IP Stock Option would have been entitled to
receive pursuant to the Merger had such holder exercised such BW/IP Stock
Option in full immediately prior to the Effective Time (rounding down to
the nearest whole share), at a price per share of Durco Common Stock equal
to (A) the aggregate exercise price for the shares of BW/IP Common Stock
otherwise purchasable pursuant to such BW/IP Stock Option divided by (B)
the aggregate number of shares of Durco Common Stock deemed purchasable
pursuant to such BW/IP Stock Option (each, as so adjusted, an "Adjusted
Option"); provided that such exercise price shall be rounded up to the
nearest whole cent;
(ii) take all reasonable efforts with respect to the BW/IP Stock Plans
so that options and stock appreciation rights granted thereunder will not
be cashed out as a result of the transactions contemplated by the Merger
Agreement; and
(iii) make such other changes to the BW/IP Stock Plans as BW/IP and
Durco may agree are appropriate to give effect to the Merger,
At the Effective Time, by virtue of the Merger and without the need of any
further corporate action, Flowserve will assume the BW/IP Stock Plans, with the
result that all obligations of BW/IP under the BW/IP Stock Plans, including with
respect to BW/IP Stock Options outstanding at the Effective Time under each
BW/IP Stock Plan, will be obligations of Flowserve following the Effective Time.
See "The Merger -- Effect of Awards Outstanding Under BW/IP Stock Plans".
AMENDMENT AND WAIVER
Subject to applicable law: (i) the Merger Agreement may be amended by an
instrument in writing signed on behalf of each party at any time (except that
after the Merger Agreement shall have been adopted by the stockholders of either
BW/IP or Durco, no amendment may be entered into which requires further approval
by such stockholders unless such further approval is obtained) and (ii) at any
time prior to the Effective Time, a party may, by written instrument signed on
behalf of such party, (a) extend the time for performance of the obligations of
the other party to the Merger Agreement, (b) waive inaccuracies in the
representations and warranties of the other party contained in the Merger
Agreement or in any document delivered pursuant thereto and (c) waive (except as
provided in the Merger Agreement) compliance by the other party with any
agreements or conditions for such party's benefit contained in the Merger
Agreement.
Pursuant to Section 251(d) of the DGCL, no amendment to the Merger
Agreement made subsequent to the adoption of the Merger Agreement by the
stockholders of BW/IP may, without further stockholder approval, alter or change
the amount or kind of shares, securities, cash, property and/or rights to be
received by such stockholders in the Merger, alter or change any term of the
Certificate of Incorporation of Flowserve (the "Flowserve Certificate") to be
effected by the Merger or alter or change any terms and conditions of the Merger
Agreement if such alteration or change would adversely affect the holders of any
class or series of stock of BW/IP.
EXPENSES
Whether or not the Merger is consummated, all fees and expenses incurred in
connection with the Merger Agreement, the Stock Option Agreements and the
transactions contemplated thereby will be paid by the party incurring such fees
or expenses, except as otherwise provided in the Merger Agreement and the
38
<PAGE> 46
Stock Option Agreements and except that BW/IP and Durco will share equally the
costs and expenses incurred in connection with (i) filing, printing and mailing
this Joint Proxy Statement/Prospectus and the Registration Statement of which it
is a part, (ii) the filings of the premerger notification and report forms under
the HSR Act (including filing fees), (iii) the retention of economists to
conduct various analyses of the effect of combining Durco and BW/IP and (iv) the
retention of a public relations firm. Durco will file any return with respect
to, and will pay, any state or local taxes (including any penalties or interest
with respect thereto), if any, which are attributable to the transfer of the
beneficial ownership of BW/IP's real property as a result of the Merger.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary mutual representations and
warranties relating to, among other things, (i) corporate organization and
similar corporate matters; (ii) subsidiaries; (iii) the capital structures of
each of BW/IP and Durco; (iv) authorization, execution, delivery, performance
and enforceability of, and required consents, approvals, orders and
authorizations of governmental authorities relating to, the Merger Agreement and
related matters; (v) documents filed by each of BW/IP and Durco with the SEC,
the accuracy of information contained therein and the absence of undisclosed
liabilities of each of BW/IP and Durco; (vi) the accuracy of information
supplied by each of BW/IP and Durco in connection with this Joint Proxy
Statement/Prospectus and the Registration Statement of which it is a part; (vii)
absence of material changes or events with respect to each of BW/IP and Durco;
(viii) compliance with applicable laws; (ix) absence of changes in benefit
plans; (x) Employee Retirement Income Security Act of 1974 matters and labor
matters; (xi) filing of tax returns and payment of taxes; (xii) required
stockholder votes; (xiii) the absence of actions that would prevent using the
"pooling of interests" method to account for the Merger; (xiv) engagement and
payment of fees of brokers, investment bankers, finders and financial advisors;
(xv) receipt of fairness opinions; (xvi) ownership by BW/IP of Durco Common
Stock and by Durco of BW/IP Common Stock; (xvii) all material contracts or
contracts that contain noncompete clauses have been disclosed and neither party
is in default or violation on any debt covenants or indentures; (xviii)
litigation; (xix) environmental matters; (xx) intellectual property matters;
(xxi) insurance; and (xxii) the inapplicability of the Rights Agreements to the
Merger Agreement, the Stock Option Agreements and certain related agreements and
transactions. In addition, BW/IP represents to Durco to the satisfaction of
certain state takeover requirements and Durco makes certain representations to
BW/IP concerning Sub.
CERTIFICATE OF INCORPORATION OF BW/IP
The certificate of incorporation of BW/IP, as in effect immediately prior
to the Effective Time, shall be amended and restated as of the Effective Time to
read as the Certificate of Incorporation of Sub as in effect immediately prior
to the Effective Time and, after the Effective Time, as so amended and restated,
such certificate of incorporation shall be the certificate of incorporation of
BW/IP until thereafter changed or amended as provided therein or by applicable
law.
BY-LAWS OF BW/IP
The by-laws of Sub, as in effect immediately prior to the Effective Time,
shall become the by-laws of BW/IP after the Effective Time and such by-laws
shall be the by-laws of BW/IP until thereafter changed or amended as provided
therein or by applicable law.
GOVERNING LAW
The Merger Agreement is governed by, and construed in accordance with, the
laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflict of laws thereof.
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<PAGE> 47
RECIPROCAL STOCK OPTION AGREEMENTS
General. Concurrently with the execution and delivery of the Merger
Agreement, BW/IP and Durco entered into (i) a stock option agreement (the "BW/IP
Stock Option Agreement") pursuant to which BW/IP granted Durco an option to
purchase up to such number of shares of BW/IP Common Stock as represents 19.9%
of the then-outstanding shares of BW/IP Common Stock at a price per share of
$16.525 and (ii) a stock option agreement (the "Durco Stock Option Agreement"
and together with the BW/IP Stock Option Agreement, the "Stock Option
Agreements") pursuant to which Durco granted BW/IP an option to purchase up to
such number of shares of Durco Common Stock as represents 19.9% of the
then-outstanding shares of Durco Common Stock at a price per share of $23.750.
The following is a summary of certain provisions of the BW/IP Stock Option
Agreement and the Durco Stock Option Agreement. The terms of the Stock Option
Agreements are identical in all material respects other than with respect to the
shares that may be purchased pursuant thereto and the exercise prices thereof.
The Stock Option Agreements are attached hereto as Annexes II and III and are
incorporated herein by reference.
Exercise of the Options. The options are exercisable with respect to any
or all of the shares subject thereto at any one time (except as described
below), after the occurrence of any event (an "Exercise Event") entitling the
party desiring to exercise the option to receive the Termination Fee pursuant to
the Merger Agreement. See "-- Termination Fees." The right to purchase shares
under each Stock Option Agreement will expire upon the earliest to occur of (i)
the Effective Time, (ii) 18 months after the first occurrence of an Exercise
Event and (iii) termination of the Merger Agreement prior to the occurrence of
an Exercise Event (unless the grantee under the Stock Option Agreement (the
"Grantee") has the right to receive a Termination Fee following such termination
upon the occurrence of certain events, in which case the option will not
terminate until the later of (a) six months following the time such Termination
Fee becomes payable and (b) the expiration of the period in which the Grantee
has such right to receive a Termination Fee). Any purchase of shares upon
exercise of an option is subject to compliance with the HSR Act and the
obtaining or making of any governmental or regulatory consents, approvals,
orders, notifications or authorizations, the failure of which to have obtained
or made would have the effect of making the issuance of shares subject to the
option illegal and that there shall be no preliminary or permanent injunction or
other final non-appealable judgment by a court of competent jurisdiction
preventing or prohibiting the exercise of the option.
Cash Payment in Respect of the Option. In lieu of purchasing shares of the
common stock of the issuer under the Stock Option Agreement (the "Issuer")
pursuant to the option, the Grantee may exercise its right (the "Cash-Out
Right") to have the Issuer pay to the Grantee an amount in cash equal to the
excess, if any, over the purchase price per option share of the higher of (x) if
applicable, the highest price per share of Issuer's common stock paid or to be
paid by any person in a Takeover Proposal and (y) the closing price of the
shares of Issuer's common stock on, as the case may be, the NASDAQ or the NYSE,
on the last trading day immediately prior to the date of the notice given by
Grantee that it wishes to exercise its Cash-Out Right, multiplied by such number
of option shares as Grantee shall specify.
Repurchase Election. Grantee shall have the option, at any time and from
time to time commencing upon the first occurrence of an Exercise Event in which
the consideration to be received by Issuer or its stockholders, as the case may
be, pursuant to a Takeover Proposal consists in whole or in part of shares of
capital stock of a third party and ending on the tenth business day after the
first mailing to Issuer's stockholders of a proxy statement, tender offer
statement or other disclosure or offering document relating to such Takeover
Proposal, to send a written notice to Issuer that it will require Issuer (or any
successor entity thereof) to repurchase from Grantee all shares of Issuer of
which Grantee has beneficial ownership for an amount equal to the sum of: (i)
the aggregate purchase price paid by Grantee for any shares of Issuer common
stock acquired pursuant to the Stock Option; and (ii) the spread, multiplied by
the number of shares of Issuer common stock with respect to which the Stock
Option has been exercised.
Adjustments to Number and Type of Shares. The Stock Option Agreements
contain antidilution provisions that provide that the number and type of
securities subject to the options and the purchase price therefor will be
adjusted (i) for any change in the common stock of the Issuer by reason of a
stock dividend,
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<PAGE> 48
split-up, recapitalization, combination, exchange of shares or similar
transaction or any other extraordinary change in the corporate or capital
structure of the Issuer, (ii) in the event the Issuer issues additional shares
of common stock, or, (iii) in the event that the Issuer enters into an agreement
concerning an extraordinary transaction such as a merger in which the Grantee
will not be the surviving corporation or a transaction involving more than 50%
of the voting stock of Issuer or substantially all of the assets of Issuer.
Registration Rights and Listing. The Grantee has certain rights to require
registration by the Issuer of any shares purchased pursuant to the option under
the securities laws if necessary for the Grantee to be able to sell such shares
and to require the listing of such shares on the NYSE, NASDAQ or other national
securities exchange, as the case may be.
Assignability. The provisions of the Stock Option Agreements shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, provided that no party to either Stock Option Agreement
may assign, delegate or otherwise transfer any of its rights or obligations
under such Stock Option Agreement without the consent of the other parties
thereto.
Effect of Stock Option Agreements. The Stock Option Agreements are
intended to increase the likelihood that the Merger will be consummated on the
terms set forth in the Merger Agreement. Consequently, certain aspects of the
Stock Option Agreements may have the effect of discouraging persons who might
now or prior to the Effective Time be interested in acquiring all of or a
significant interest in either BW/IP or Durco from considering or proposing such
an acquisition, even if such persons were prepared to offer higher consideration
per share for BW/IP Common Stock than that implicit in the Exchange Ratio or a
higher price per share for Durco Common Stock than the market price.
Fees and Expenses. Except as otherwise provided in the Stock Option
Agreements or in the Merger Agreement, all costs and expenses (including,
without limitation, all fees and disbursements of counsel, accountants,
investment bankers, experts and consultants to a party) incurred in connection
with the Stock Option Agreements and the transactions contemplated thereby shall
be paid by the party incurring such costs and expenses.
Governing Law. The Stock Option Agreements are governed by the laws of the
State of Delaware as applied to contracts executed and to be performed entirely
in such state.
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<PAGE> 49
THE COMPANIES
DURCO
Durco is principally engaged in the design, manufacture and marketing of
fluid handling equipment, primarily pumps, control valves, valves and mechanical
seals, for industries that utilize difficult to handle and often corrosive
fluids in manufacturing processes. Durco 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, Durco considers itself a leading supplier of corrosion resistant
fluid movement and control equipment to the basic chemical industry. Durco's
materials expertise, design, engineering capabilities and applications know-how
have enabled it to develop product lines that are responsive to the chemical
process industry's desire to achieve manufacturing efficiencies, avoid premature
equipment failure and reduce maintenance cost.
Durco was incorporated under the laws of the State of New York on May 1,
1912. Durco's principal executive offices are located at 3100 Research
Boulevard, Dayton, Ohio 45420, and its telephone number is (937) 476-6100.
BW/IP
BW/IP is a worldwide supplier of advanced technology fluid transfer and
control equipment, systems and services. The principal products which BW/IP
designs, manufactures, distributes and services are centrifugal pumps,
mechanical seals and valves. The pumps consist primarily of highly engineered
vertical and horizontal pumps and standard vertical pumps. BW/IP's engineered
pumps are commonly engineered to specific customer requirements and frequently
also manufactured to comply with American Petroleum Institute standards or
conform to the nuclear quality standards of the American Society of Mechanical
Engineers. BW/IP's mechanical seal products are comprised principally of highly
engineered mechanical seals and seal support systems utilized to eliminate or
reduce the leakage of fluids or gases around rotating shafts in pumps, mixers
and compressors in the petroleum, chemical and petrochemical process industries.
BW/IP produces a broad range of valves used in the nuclear power industry as
well as a variety of other commercial applications.
BW/IP's pump, seal and valve products are commonly used in critical service
applications in oil refining, power generation and petrochemical processing,
where extreme reliability and robust design are required. BW/IP's reputation for
technical expertise, advanced research in pump and seal design, and engineering
knowledge make BW/IP a leading supplier of such critical service products. An
important element of BW/IP's business is its successful emphasis on the
provision of aftermarket products and services. These consist of supplying
parts, making repairs, providing a variety of technical services for upgrading
or retrofitting equipment, extending its useful life or improving its operating
characteristics. BW/IP has manufacturing plants in seven countries and service
centers in twenty countries.
BW/IP was incorporated in Delaware on March 12, 1987 to acquire from
Borg-Warner Corporation the business of BW/IP International, Inc.
("International") and International's related subsidiaries and assets. All of
BW/IP's operations are conducted through International and International's
subsidiaries. BW/IP's principle executive offices are located at 200 Oceangate
Boulevard, Suite 900, Long Beach, California 90802, and its telephone number is
(562) 435-3700.
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<PAGE> 50
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
On the Record Date, there were approximately 2,225 holders of record of
Durco Common Stock and approximately 4,100 holders of record or through nominee
or street name accounts with brokers of BW/IP Common Stock.
DURCO
The Durco Common Stock is traded on NASDAQ under the symbol "DURI." On May
5, 1997, the last trading date preceding the public announcement of the Merger,
the last sale price for a share of Durco Common Stock on NASDAQ was $26.625.
The following table sets forth the reported high and low sales prices for
Durco Common Stock on NASDAQ and the cash dividends declared per share of Durco
Common Stock during the periods indicated. The amounts have been restated to
reflect the three-for-two stock dividend paid by Durco on March 25, 1994.
<TABLE>
<CAPTION>
SALES PRICES CASH
----------------- DIVIDENDS
HIGH LOW DECLARED
------ ------ ---------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31,
1994
First Quarter................................. $20.00 $14.83 $ 0.105
Second Quarter................................ $18.25 $14.38 $ 0.105
Third Quarter................................. $18.75 $15.25 $ 0.105
Fourth Quarter................................ $18.50 $15.50 $ 0.105
1995
First Quarter................................. $20.75 $17.00 $ 0.115
Second Quarter................................ $23.50 $20.50 $ 0.115
Third Quarter................................. $30.25 $22.25 $ 0.115
Fourth Quarter................................ $29.25 $22.50 $ 0.115
1996
First Quarter................................. $29.25 $20.50 $ 0.13
Second Quarter................................ $29.38 $23.00 $ 0.13
Third Quarter................................. $27.50 $19.25 $ 0.13
Fourth Quarter................................ $28.50 $25.25 $ 0.13
1997
First Quarter................................. $27.12 $21.88 $ 0.14
Second Quarter (through June 17).............. $30.00 $21.25 $ 0.14
</TABLE>
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<PAGE> 51
BW/IP
The BW/IP Common Stock is traded on the NYSE under the symbol "BWF." On May
5, 1997, the last trading date preceding the public announcement of the Merger,
the last sale price for a share of BW/IP Common Stock on the NYSE was $19.625.
<TABLE>
<CAPTION>
SALES PRICES CASH
----------------- DIVIDENDS
HIGH LOW DECLARED
------ ------ ---------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31,
1994
First Quarter................................. $25.75 $15.75 $ .08
Second Quarter................................ $19.00 $15.00 $ .10
Third Quarter................................. $19.50 $15.75 $ .10
Fourth Quarter................................ $19.75 $16.25 $ .10
1995
First Quarter................................. $17.25 $14.00 $ .10
Second Quarter................................ $19.00 $16.00 $ .11
Third Quarter................................. $20.25 $17.25 $ .11
Fourth Quarter................................ $18.75 $14.50 $ .11
1996
First Quarter................................. $18.25 $13.50 $ .11
Second Quarter................................ $21.50 $17.88 $ .11
Third Quarter................................. $20.00 $15.13 $ .11
Fourth Quarter................................ $16.63 $12.75 $ .11
1997
First Quarter................................. $17.38 $14.63 $ .11
Second Quarter (through June 17).............. $20.75 $15.00 $ .11
</TABLE>
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<PAGE> 52
UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
DURCO INTERNATIONAL INC. AND BW/IP, INC.
The following unaudited pro forma condensed combined balance sheet as of
March 31, 1997 and the pro forma condensed combined statements of income for the
three months ended March 31, 1997 and 1996, and for each of the three years in
the period ended December 31, 1996, 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 Durco and BW/IP 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 management of Durco and BW/IP based upon their respective
historical consolidated financial statements. Pro forma per share amounts are
based on the Exchange Ratio of 0.6968 shares of Durco Common Stock for each
share of BW/IP Common Stock. The pro forma condensed combined statements of
income, which include results of operations as if the Merger had been
consummated on January 1, 1994, do not reflect the merger expenses expected to
be incurred by Durco and BW/IP or any anticipated cost savings. As a result, the
pro forma condensed combined financial condition and results of operations of
Flowserve as of and after the Effective Date 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 for Durco and
BW/IP incorporated by reference herein.
45
<PAGE> 53
DURCO INTERNATIONAL INC. AND BW/IP, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------------------------------------------
PRO FORMA PRO FORMA
DURCO BW/IP ADJUSTMENTS(1),(2) COMBINED
-------- -------- ------------------ ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 20,014 $ 11,456 $ 31,470
Accounts receivable.................... 112,072 112,709 224,781
Inventories (5)........................ 106,089 85,382 191,471
Prepaid expenses....................... 10,743 16,663 27,406
-------- -------- -------- --------
Total current assets........... 248,918 226,210 475,128
Property, plant and equipment, at
cost................................ 257,930 199,630 457,560
Less accumulated depreciation and
amortization........................ 159,958 86,955 246,913
-------- -------- -------- --------
Net property, plant and
equipment.................... 97,972 112,675 210,647
Intangibles and other assets........... 73,225 72,568 145,793
-------- -------- -------- --------
Total assets........................... $420,115 $411,453 $ -- $ 831,568
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 31,980 $ 34,999 $ 66,979
Notes payable.......................... 6,636 0 6,636
Income taxes........................... 8,626 1,527 10,153
Accrued liabilities.................... 35,826 47,928 $ 10,000(4) 93,754
Long-term debt due within one year..... 5,697 8,955 14,652
-------- -------- -------- --------
Total current liabilities...... 88,765 93,409 10,000 192,174
Long-term debt due after one year...... 61,350 89,696 151,046
Postretirement benefits and other
deferred items...................... 65,192 44,782 109,974
Shareholders' equity:
Serial preferred stock, $1.00 par
value, no shares issued........... -- -- -- --
Common stock........................ 30,710 245 20,899(3) 51,854
Capital in excess of par value...... 8,212 85,763 (20,899)(3) 73,076
Retained earnings................... 197,151 112,256 (10,000)(4) 299,407
-------- -------- -------- --------
236,073 198,264 (10,000) 424,337
Treasury stock...................... (26,993) (613) (27,606)
Foreign currency and other equity
adjustments....................... (4,272) (14,085) (18,357)
-------- -------- -------- --------
Total shareholders' equity..... 204,808 183,566 (10,000) 378,374
-------- -------- -------- --------
Total liabilities and shareholders'
equity.............................. $420,115 $411,453 $ -- $ 831,568
======== ======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
46
<PAGE> 54
DURCO INTERNATIONAL INC. AND BW/IP, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997
----------------------------------------------------------
PRO FORMA PRO FORMA
DURCO BW/IP ADJUSTMENTS(1),(2) COMBINED
--------- --------- ------------------ ---------
<S> <C> <C> <C> <C>
Net sales................................ $ 147,797 $ 114,715 $ 262,512
Cost of sales............................ 87,751 70,612 158,363
-------- -------- ------ --------
Gross profit........................... 60,046 44,103 104,149
Selling and administrative............... 35,629 33,485 $ (1,174) 67,940
Research, engineering and development.... 4,381 -- 1,869 6,250
-------- -------- ------ --------
Operating earnings..................... 20,036 10,618 (695) 29,959
Interest expense......................... 1,475 1,618 241 3,334
Other, net............................... 737 149 (936) (50)
-------- -------- ------ --------
Earnings before income taxes............. 17,824 8,851 26,675
Provision for income taxes............... 6,773 3,098 9,871
-------- -------- ------ --------
Net earnings............................. $ 11,051 $ 5,753 $ -- $ 16,804
======== ======== ====== ========
Per share data based upon Exchange Ratio
of 0.6968:
Net earnings per share................. $ 0.47 $ 0.24 $ 0.41
Average shares outstanding............. 23,766 24,275 40,681
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
47
<PAGE> 55
DURCO INTERNATIONAL INC. AND BW/IP, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
----------------------------------------------------------
PRO FORMA PRO FORMA
DURCO BW/IP ADJUSTMENTS(1),(2) COMBINED
-------- -------- ------------------ ---------
<S> <C> <C> <C> <C>
Net sales................................ $149,193 $121,938 $ 271,131
Cost of sales............................ 89,279 75,160 164,439
-------- -------- ------- --------
Gross profit........................... 59,914 46,778 106,692
Selling and administrative............... 36,460 34,840 $ (52) 71,248
Research, engineering and development.... 4,269 -- 2,061 6,330
-------- -------- ------- --------
Operating earnings..................... 19,185 11,938 (2,009) 29,114
Interest expense......................... 1,394 1,714 149 3,257
Other, net............................... 1,737 274 (2,158) (147)
-------- -------- ------- --------
Earnings before income taxes............. 16,054 9,950 26,004
Provision for income taxes............... 5,940 3,880 9,820
-------- -------- ------- --------
Net earnings............................. $ 10,114 $ 6,070 $ -- $ 16,184
======== ======== ======= ========
Per share data based upon Exchange Ratio
of 0.6968:
Net earnings per share................. $ 0.41 $ 0.25 $ 0.39
Average shares outstanding............. 24,793 24,275 41,708
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
48
<PAGE> 56
DURCO INTERNATIONAL INC. AND BW/IP, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------------------
PRO FORMA PRO FORMA
DURCO BW/IP ADJUSTMENTS(1),(2) COMBINED
-------- -------- ------------------ ----------
<S> <C> <C> <C> <C>
Net sales............................... $605,454 $492,191 $1,097,645
Cost of sales........................... 361,354 307,364 668,718
-------- -------- ------- ----------
Gross profit.......................... 244,100 184,827 428,927
Selling and administrative.............. 147,223 132,745 $ (440) 279,528
Research, engineering and development... 15,482 -- 8,672 24,154
-------- -------- ------- ----------
Operating earnings.................... 81,395 52,082 (8,232) 125,245
Interest................................ 4,921 6,628 595 12,144
Other, net.............................. 6,545 1,254 (8,827) (1,028)
Restructuring........................... 5,778 -- 5,778
-------- -------- ------- ----------
Earnings before income taxes............ 64,151 44,200 108,351
Provision for income taxes.............. 20,900 16,354 37,254
-------- -------- ------- ----------
Net earnings............................ $ 43,251 $ 27,846 $ -- $ 71,097
======== ======== ======= ==========
Per share data based upon Exchange Ratio
of 0.6968:
Net earnings per share................ $ 1.77 $ 1.15 $ 1.72
Average shares outstanding............ 24,448 24,275 41,363
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
49
<PAGE> 57
DURCO INTERNATIONAL INC. AND BW/IP, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------
PRO FORMA PRO FORMA
DURCO BW/IP ADJUSTMENTS(1),(2) COMBINED
-------- -------- ------------------ ---------
<S> <C> <C> <C> <C>
Net sales................................... $532,726 $451,191 $ 983,917
Cost of sales............................... 317,306 274,244 591,550
-------- -------- ------ --------
Gross profit.............................. 215,420 176,947 392,367
Selling and administrative.................. 137,346 131,133 $ (4,053) 264,426
Research, engineering and development....... 14,972 -- 9,677 24,649
-------- -------- ------ --------
Operating earnings........................ 63,102 45,814 (5,624) 103,292
Interest.................................... 5,179 6,075 1,039 12,293
Other, net.................................. 2,759 1,449 (6,663) (2,455)
Merger transaction expenses................. 5,042 -- 5,042
-------- -------- ------ --------
Earnings before income taxes................ 50,122 38,290 88,412
Provision for income taxes.................. 19,450 14,941 34,391
-------- -------- ------ --------
Net earnings................................ $ 30,672 $ 23,349 $ -- $ 54,021
======== ======== ====== ========
Per share data based upon Exchange Ratio of
0.6968:
Net earnings per share.................... $ 1.24 $ 0.96 $ 1.30
Average shares outstanding................ 24,737 24,275 41,652
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
50
<PAGE> 58
DURCO INTERNATIONAL INC. AND BW/IP, INC.
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1994
-------------------------------------------------------
PRO FORMA PRO FORMA
DURCO BW/IP ADJUSTMENTS(1),(2) COMBINED
-------- -------- ------------------ ---------
<S> <C> <C> <C> <C>
Net sales................................... $460,507 $448,719 $ 909,226
Cost of sales............................... 275,077 279,630 554,707
-------- -------- ------ --------
Gross profit.............................. 185,430 169,089 354,519
Selling and administrative.................. 125,081 119,861 $ (3,811) 241,131
Research, engineering and development....... 14,913 -- 9,615 24,528
-------- -------- ------ --------
Operating income.......................... 45,436 49,228 (5,804) 88,860
Interest.................................... 4,901 6,280 1,033 12,214
Other, net.................................. 1,964 686 (6,837) (4,187)
-------- -------- ------ --------
Earnings before income taxes................ 38,571 42,262 80,833
Provision for income taxes.................. 14,175 15,426 29,601
-------- -------- ------ --------
Earnings from continuing operations......... $ 24,396 $ 26,836 $ -- $ 51,232
======== ======== ====== ========
Per share data based upon Exchange Ratio of
0.6968:
Earnings per share from continuing
operations............................. $ 0.99 $ 1.11 $ 1.23
Average shares outstanding................ 24,711 24,275 41,626
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
51
<PAGE> 59
DURCO INTERNATIONAL INC. AND BW/IP INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. Certain Durco and BW/IP expenses have been reclassified to reflect consistent
reporting on a pro forma combined basis, as follows:
(a) BW/IP interest income has been reclassified from interest expense, net to
other, net.
(b) Durco incentive compensation expenses and goodwill amortization expenses
have been reclassified from other, net to selling and administrative
expense.
(c) BW/IP foreign currency transaction gains and losses have been reclassified
from selling, administrative and operating expenses to other, net.
(d) BW/IP research, engineering and development expenses have been
reclassified and shown separately from selling, administrative and
operating expenses.
2. Intercompany transactions between Durco and BW/IP are immaterial.
3. The pro forma condensed combined financial statements reflect the issuance of
16,914,820 shares of Durco Common Stock in exchange for all the outstanding
BW/IP Common Stock. This reflects a 0.6968 exchange ratio of Durco for BW/IP
shares.
4. Total costs incurred by Durco and BW/IP in connection with the Merger are
estimated at $10.0 million. 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 liabilities associated with these costs have been applied
to reduce shareholders' equity in the pro forma financial statements. Actual
costs related to the Merger incurred by each company were not significant
during the three months ended March 31, 1997. The combined company also
expects to incur substantial costs relating to termination benefits paid to
certain employees and other costs necessary to combine and realign
operations. Because decisions have not yet been made regarding specific
employee terminations or the manner or extent of operational realignment that
will be necessary to effect the combination, these costs cannot be reasonably
estimated at this time. Accordingly, no such costs have been included in the
adjustments to shareholders' equity in the pro forma condensed combined
balance sheet.
5. Inventories of both Durco and BW/IP are stated at the lower of cost or
market. For Durco, cost is determined for all domestic inventories using the
last-in, first-out (LIFO) method and for foreign inventories using the
first-in, first-out (FIFO) method. For BW/IP, cost is determined for all
inventories using the FIFO method. Decisions as to possible combination of
certain domestic units after the Merger have not yet been made and,
accordingly, it is not possible currently to determine the costing method or
methods that will be used for computing domestic inventories of the combined
company. As such, adjustments relating to these matters have not been made in
preparing the pro forma condensed combined financial statements.
52
<PAGE> 60
DIRECTORS AND EXECUTIVE OFFICERS OF FLOWSERVE FOLLOWING THE MERGER
DIRECTORS
The Flowserve Certificate will provide that the Flowserve Board will
consist of eleven members, five of whom have been designated by Durco and four
of whom have been designated by BW/IP. The Merger Agreement also requires that
two mutually agreed upon "independent" directors be added to the Flowserve Board
by January 1, 1998. At the Effective Time, the BW/IP designees will become
directors of the Flowserve Board pursuant to the Merger Agreement.
The Flowserve Certificate will provide that the Flowserve Board will be
divided into three classes consisting of four, four and three directors,
respectively, with initial terms expiring at the annual meetings of stockholders
to be held in 1998, 1999 and 2000, respectively. Each class of directors elected
at an annual meeting of Flowserve stockholders after the Effective Time will be
elected for a three-year term.
Set forth below is certain information with respect to the nine individuals
who have been designated as the initial members of the Flowserve Board:
<TABLE>
<CAPTION>
POSITION WITH FLOWSERVE TERM
NAME AGE FOLLOWING THE MERGER EXPIRING
- ----------------------------------- --- -------------------------------------------- --------
<S> <C> <C> <C>
Bernard G. Rethore 56 Chairman of the Board 2000
William M. Jordan 53 Director 2000
Diane C. Harris 54 Director 2000
James O. Rollans 54 Director 2000
Michael F. Johnston 49 Director 1999
Kevin E. Sheehan 51 Director 1999
R. Elton White 54 Director 1999
Hugh K. Coble 62 Director 1998
William C. Rusnack 54 Director 1998
</TABLE>
COMMITTEES OF THE FLOWSERVE BOARD
The Flowserve By-Laws will provide for an executive/nominating committee,
an audit and finance committee and a compensation committee. Mr. Coble will be
the chairman of the executive/nominating committee; Mr. Rusnack will be the
chairman of the audit and finance committee; and Mr. Sheehan will be the
chairman of the compensation committee.
EXECUTIVE OFFICERS
The following will be executive officers of Flowserve:
<TABLE>
<CAPTION>
POSITION WITH FLOWSERVE
NAME AGE FOLLOWING THE MERGER
- ----------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Bernard G. Rethore 55 Chief Executive Officer of Flowserve
William M. Jordan 53 President and Chief Operating Officer of Flowserve
</TABLE>
STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS
No director or executive officer of Flowserve is expected to own more than
0.3% of the outstanding shares of Flowserve Common Stock after giving effect to
the Merger. The directors and executive officers of Flowserve as a group are
expected to own approximately 3.7% of the outstanding shares of Flowserve Common
Stock after giving effect to the Merger.
53
<PAGE> 61
DESCRIPTION OF FLOWSERVE CAPITAL STOCK
FOLLOWING THE MERGER
The following summary of the terms of the capital stock of Flowserve does
not purport to be complete and is qualified in its entirety by reference to the
Durco Certificate and the Durco By-Laws. A copy of the Durco Certificate is
attached as Annex VI and a copy of the Durco By-laws is attached as Annex VII.
AUTHORIZED CAPITAL STOCK
As of the Effective Time, the Durco Certificate will be amended to, among
other things (i) change the name of Durco to Flowserve and (ii) increase the
number of authorized shares of all classes of capital stock that Flowserve will
have authority to issue from 61,000,000 to 121,000,000, of which 120,000,000
will be shares of Flowserve Common Stock, par value $1.25 per share, and
1,000,000 will be shares of Flowserve preferred stock, par value $1.00 per share
("Flowserve Preferred Stock"). The Flowserve Certificate will provide that the
terms of the Flowserve Preferred stock will be established when issued in one or
more series by the Flowserve Board.
The Durco Certificate currently authorizes the issuance of 60,000,000
shares of Durco Common Stock and 1,000,000 shares of Durco preferred stock. On
the Record Date, there were 23,542,831 shares of Durco Common Stock issued and
outstanding. Durco expects to issue approximately 16,915,000 shares of Flowserve
Common Stock to holders of BW/IP Common Stock in the Merger. Although it is not
necessary that the Durco Certificate be amended to authorize additional shares
of Durco Common Stock to complete the Merger, the Durco Board and BW/IP Board
believe it is desirable to authorize additional shares so that there will be
sufficient shares available for issuance after the Merger for purposes that the
Flowserve Board may hereafter determine to be in the best interests of Flowserve
and its stockholders. Such purposes could include the offer of shares for cash,
acquisitions, share dividends and other corporate purposes. In many situations,
prompt action may be required that would not permit seeking stockholder approval
to authorize additional shares for the specific transaction on a timely basis.
The BW/IP Board and Durco Board believe the Flowserve Board should have the
flexibility to act promptly in the best interests of its stockholders. The terms
of any future issuance of shares of Flowserve Common Stock will be dependent
largely on market and financial conditions and other factors existing at the
time of issuance. See "PROPOSED AMENDMENT TO DURCO CERTIFICATE OF
INCORPORATION".
FLOWSERVE COMMON STOCK
Holders of Flowserve Common Stock will be entitled to participate equally
in dividends as and when declared by the Flowserve Board, after payment of any
dividends on any outstanding Flowserve Preferred Stock and subject to
limitations for dividends contained in certain of Flowserve's debt instruments,
and will be entitled to participate equally in the distribution of assets in the
event of liquidation, after payment of any liquidation preference of any
outstanding Flowserve Preferred Stock. All shares of Flowserve Common Stock,
when issued and fully paid, will be nonassessable and not subject to redemption
or conversion and will have no conversion rights. Holders of Flowserve Common
Stock will have no preemptive right to subscribe for any additional shares of
any class of capital stock of Flowserve, whether now or hereafter authorized.
Transfer Agent. The transfer agent for the Flowserve Common Stock will be
National City Bank, Cleveland, Corporate Trust Operations, P.O. Box 92301,
Cleveland, Ohio 44193-0900 (Telephone: (800) 622-6757).
FLOWSERVE PREFERRED STOCK
The Flowserve Certificate will provide that Flowserve Preferred Stock may
be issued from time to time in one or more series and the Flowserve Board,
without further approval of stockholders, will be 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 Flowserve
Preferred Stock. The issuance of such stock could, among other things, adversely
affect the voting, dividend, and liquidation rights of the holders of Flowserve
Common Stock.
54
<PAGE> 62
FLOWSERVE RIGHTS PLAN; SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
Under the current Durco Rights Agreement, one preferred stock purchase
right was distributed in August 1986 with respect to each outstanding share of
Durco Common Stock. The Durco Rights Agreement provides that, unless the rights
have been redeemed, one right will be granted for each additional share of Durco
Common Stock issued after August 1986 and prior to the earlier of the time the
rights become exercisable or August 13, 2006, the termination date of the Durco
Rights Agreement. Accordingly, each of the shares of Flowserve Common Stock
issued in the Merger will be accompanied by a right.
The rights are not currently exercisable and trade in tandem with the Durco
Common Stock. The rights become exercisable and trade separately from the Durco
Common Stock ten days after a person or group acquires 20% or more of the
outstanding shares of Durco Common Stock or commences a tender offer which would
result in the ownership of 30% or more of the outstanding shares of Durco Common
Stock. Upon their becoming exercisable, each right entitles the registered
holder to purchase a fraction of a share of Series A Junior Participating
Preferred Stock. Generally, each share of Series A Junior Participating
Preferred Stock carries voting, dividend and liquidation rights equal to 100
shares of Durco Common Stock. The rights provide that if Durco 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 Durco Rights Agreement) either acquires Durco by
means of a reverse merger in which Durco survives or engages in certain other
transactions with Durco, each right (other than rights held by the 20%
shareholder) may be exercised to purchase shares of Series A Junior
Participating Preferred Stock at a price equal to 50% of the market value of the
shares. The rights are redeemable by Durco at any time prior to becoming
exercisable and will expire on August 13, 2006.
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 Durco Rights
Agreement.
COMPARISON OF RIGHTS OF BW/IP AND DURCO STOCKHOLDERS
If the Merger is consummated, all holders of BW/IP Common Stock will become
holders of shares of Flowserve Common Stock. Flowserve will be a corporation
organized under and governed by New York law, the Durco Certificate and the
Durco By-laws. BW/IP is a corporation organized under and governed by Delaware
law, the Third Restated Certificate of Incorporation of BW/IP (the "BW/IP
Certificate") and the Amended and Restated By-laws of BW/IP (the "BW/IP
By-laws"). The rights of a holder of Durco Common Stock are similar in some
respects and different in other respects from the rights of a holder of BW/IP
Common Stock. Certain of these similarities and differences are summarized
below. THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE NYBCL, THE
DGCL, DURCO'S CERTIFICATE AND BY-LAWS AND BW/IP'S CERTIFICATE AND BY-LAWS.
Authorized Capital. The total number of authorized shares of capital stock
of Durco is 61,000,000, consisting of 60,000,000 shares of common stock, par
value $1.25 per share, and 1,000,000 shares of preferred stock, par value $1.00
per share. The total number of authorized shares of capital stock of BW/IP is
50,000,000, consisting of 40,000,000 shares of common stock, par value $.01 per
share, and 10,000,000 shares of preferred stock, par value $.01 per share.
Directors. The Durco Certificate provides for not less than three
directors, which number is determined in the Durco By-laws. The Durco By-laws
provide for eleven directors. The BW/IP By-laws provide for nine directors,
which number may be modified from time to time by the BW/IP Board.
The Durco Board consists of three separate classes, consisting, as nearly
as possible, of equal numbers and does not include fewer than three directors
per class. At each annual meeting of stockholders, successors to the class of
directors whose term expires at the annual meeting are elected for a three year
term. The BW/IP Board is not divided into separate classes.
Amendments to Certificate of Incorporation. Under the NYBCL and the DGCL,
the affirmative vote of a majority of the outstanding shares entitled to vote is
required to amend a certificate of incorporation. In
55
<PAGE> 63
addition, amendments which make changes relating to the capital stock by
increasing or decreasing the par value or the aggregate number of authorized
shares of a class, or otherwise adversely affecting the rights of such class,
must be approved by the majority vote of each class or series of stock affected,
even if such stock would not otherwise have such voting rights. The Durco
Certificate additionally requires (i) a four-fifths vote of the outstanding
stock of Durco entitled to vote thereon to amend certain provisions in the Durco
Certificate restricting transactions with a Related Corporation (as defined
therein) and (ii) a two-thirds vote to amend certain provisions in the Durco
Certificate and Durco By-laws relating to the Durco Board.
Amendment of By-laws. Subject to provisions in the Durco Certificate
requiring a greater proportion of votes, the Durco By-laws can be amended or
repealed, or new Bylaws can be adopted, by either the holders of a majority of
the outstanding shares of capital stock entitled to vote thereon or by
two-thirds of the entire Durco Board; provided, that a two-thirds vote of the
outstanding capital stock will be required to amend certain provisions with
respect to the Durco Board. The BW/IP By-laws provide that such By-laws may be
adopted, amended or repealed by holders of a majority of the outstanding capital
stock entitled to vote thereon or by a majority of the entire BW/IP Board.
Cumulative Voting. The Durco Certificate and the BW/IP Certificate do not
provide for cumulative voting for directors.
Removal of Directors. The NYBCL provides that any or all of the directors
may be removed for cause by vote of the stockholders. The NYBCL further allows
an action to procure a judgment removing a director for cause to be brought by
the attorney-general or by holders of 10% of the outstanding shares, whether or
not entitled to vote. The Durco By-laws provide that a director may be removed
from office, but only for cause, by action of the Durco stockholders or the
Durco Board.
The DGCL and the BW/IP Certificate provide that any director or the entire
board of directors may be removed with or without cause by holders of a majority
of the outstanding shares entitled to vote generally in an election of
directors.
Filling Vacancies on the Board of Directors. The NYBCL provides that,
unless a corporation's certificate of incorporation or by-laws provide otherwise
(the Durco Certificate and the Durco By-laws do not), newly created
directorships resulting from an increase in the number of directors and
vacancies occurring on the board for any other reason except the removal of
directors without cause may be filled by vote of the board. Under the BW/IP
By-laws, if any vacancy occurs on the BW/IP Board, the directors then in office
will continue to act. Such vacancy (or a newly created directorship) may only be
filled by a majority of the directors then in office, although less than a
quorum.
Stockholder Meetings and Provisions for Notices. Under the NYBCL,
stockholders may not call a special meeting unless there is a failure to elect a
sufficient number of directors to conduct the business of the corporation or
unless specifically authorized to do so by the corporation's certificate of
incorporation or by-laws. The Durco By-laws provide that special meetings of
stockholders may be called only by the board of directors, the executive
committee, the chairman of the board or the president and shall be called by the
secretary at the request in writing of a majority of the directors then in
office. Under the DGCL, special meetings of stockholders may be called by the
board of directors or by such person or persons as may be authorized by the
certificate of incorporation or by-laws. The BW/IP By-laws provide that special
meetings may be called only by (i) the chairman, (ii) the board of directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors or (iii) the president or the secretary (or, in the event of their
absence or disability, any vice president).
The Durco By-laws provide that the secretary must give personally or by
mail, not less than ten nor more than fifty days before the date of any meeting
of stockholders, to each stockholder entitled to vote at such meeting, written
notice stating the place, date, hour and purpose or purposes of the meeting. Any
and all notices of a meeting may be waived by a stockholder by submitting a
signed waiver either before or after the meeting. The attendance of any
stockholder at a meeting, in person or by proxy, without protesting prior to the
conclusion of the meeting the lack of notice of such meeting, will constitute a
waiver of notice.
56
<PAGE> 64
Under the BW/IP By-laws, written notice of the place, date and hour of each
meeting of the stockholders, and, in the case of a special meeting, the purpose
or purposes for which such meeting is called, must be given personally or by
mail, not less than ten nor more than sixty days prior to the meeting to each
stockholder of record entitled to vote at such meeting. No notice of any meeting
of stockholders need be given to any stockholder who submits a signed waiver of
notice, whether before or after the meeting. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in a written waiver of notice. The attendance of
any stockholder at a meeting of stockholders will constitute a waiver of notice
of such meeting, except when the stockholder attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
Quorum. The Durco By-laws provide that the holders of record of a majority
of the outstanding shares of Durco Common Stock entitled to vote at such
meeting, whether present in person or represented by proxy, constitutes a quorum
for the purposes of transacting business at any stockholder meeting. However,
NYBCL provides that in the case of a special meeting for the election of
directors called by the stockholders, the stockholders attending, in person or
by proxy, and entitled to vote in the election of directors, constitute a quorum
solely for the purpose of electing directors. Under the BW/IP By-laws, the
presence in person or by proxy of the holders of record of a majority of shares
entitled to vote at a meeting of stockholders constitutes a quorum for the
transaction of business at such meeting.
The Durco By-laws provide that one-third of the entire board of directors,
but not less than three, constitutes a quorum for the transaction of business by
the Durco Board. Under the BW/IP By-laws, the presence of a majority of the
total authorized number of directors constitutes a quorum for the transaction of
business by the BW/IP Board.
Voting by Stockholders. Except as otherwise required by the Durco
Certificate or the Durco By-laws, action by Durco stockholders can be taken by
the vote of the holders of a majority of the stock entitled to vote at a meeting
of stockholders at which a quorum is present. However, the Durco Certificate
requires (i) the vote of four-fifths of the outstanding stock entitled to vote
thereon for certain significant transactions with a Related Corporation (as
defined therein) and (ii) a two-thirds vote to amend certain provisions of the
Durco Certificate and By-laws relating to the Durco Board.
Under the NYBCL, corporate action generally must be authorized by a
majority of the votes cast at a meeting of stockholders by the holders of shares
entitled to vote thereon. The NYBCL provides that directors are elected by a
plurality of the votes cast at a meeting of stockholders by the holders of
shares entitled to vote in such election. Additionally, the NYBCL requires the
vote of two-thirds of all outstanding shares entitled to vote thereon for a plan
of merger or consolidation adopted by the board of directors of a New York
corporation, a guarantee given by a New York corporation not in furtherance of
its corporate purposes, a disposition of substantially all the assets of a New
York corporation if not made in the usual course of business, or a dissolution
of a New York corporation. Under the DGCL, corporate action generally must be
authorized by a majority of the shares represented, in person or by proxy, at
any meeting in which a quorum is present.
Under the NYBCL, but not the DGCL, the issuance, by a corporation to its
directors, officers or employees of rights or options (other than substituted
rights or options issued in connection with a business combination) to purchase
from the corporation any of its shares, as an incentive to service or continued
service with the corporation, or the adoption of a plan providing for such
issuance, must be authorized by the vote of the holders of a majority of all
outstanding shares entitled to vote thereon.
The NYBCL prohibits a New York corporation from making loans to its
directors without authorization by vote of the shareholders (excluding from such
vote the affected director's shares). The DGCL has no comparable voting
requirement but instead permits loans to, and guarantees on behalf of, officers
and employees of a Delaware corporation, including those officers and employees
who are also directors of the corporation, if, in the judgment of the board,
such loan or guarantee may reasonably be expected to benefit the corporation.
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Stockholder Action Without a Meeting. Under the NYBCL, any required or
permitted action to be taken by stockholders may be taken without a meeting with
the written consent of all outstanding shares entitled to vote thereon, unless
the certificate of incorporation provides for a lesser number. The Durco
Certificate does not contain provisions with respect to stockholder action in
lieu of a meeting.
Under the DGCL, unless otherwise provided by a corporation's certificate of
incorporation, any action which is to be taken by stockholders may be taken
without a meeting if such action is authorized by written consents signed by
stockholders having not less than the minimum number of votes necessary to take
such action at a meeting at which all shares were present and voting. The BW/IP
Certificate does not include provisions relating to stockholder action through
written consent, but the BW/IP By-laws contain notice requirements and provide
for the BW/IP Board to set a record date with respect to such action.
Rights Plan. For a description of the Durco Rights Agreement, see
"DESCRIPTION OF FLOWSERVE CAPITAL STOCK FOLLOWING THE MERGER -- Flowserve Rights
Plan; Series A Junior Participating Preferred Stock".
Under the BW/IP Rights Agreement, which expires August 10, 2003, if there
is an announcement or notice to BW/IP that a person or group has acquired 15% or
more of the outstanding shares of BW/IP Common Stock (except pursuant to a
tender offer for all such shares at a price and on terms determined to be fair
and in the best interests of BW/IP and its stockholders by a majority of the
directors who are not nominees of, or affiliated or associated with, the 15%
holder), each holder of a right, other than rights beneficially owned by the 15%
holder, will thereafter have the right to purchase for $85.00 a number of shares
of BW/IP Common Stock having a market value of $170.00, or twice the right's
exercise price. All rights that were beneficially owned by the 15% holder will
thereafter be void.
Each right will entitle a BW/IP stockholder to buy one one-hundredth of a
share of BW/IP junior participating cumulative preferred stock at an exercise
price of $85.00. The rights will become exercisable after the earlier to occur
of (i) 10 business days following a public announcement or notice to BW/IP that
a person or group has acquired 15% or more of the outstanding shares of BW/IP
Common Stock or (ii) 10 business days, or such later date as the BW/IP directors
determine, after a person commences a tender offer which, if accepted, would
result in the person's owning 15% or more of the outstanding shares of BW/IP
Common Stock.
The rights are redeemable at $0.01 per right until 10 business days after a
public announcement or notice to BW/IP that a person or group has acquired 15%
or more of the outstanding shares of BW/IP Common Stock. The redemption period
can be extended by the BW/IP Board before such an announcement or notice. If the
BW/IP Board redeems the rights after such an announcement or notice, the
redemption requires concurrence of a majority of the continuing directors who
are not nominees of, or affiliated or associated with, the 15% stockholder. In
addition, after a person or group acquires 15% or more (but less than 50%) of
the outstanding shares of BW/IP Common Stock, the BW/IP Board may, with such a
concurrence by the continuing directors, exchange one share of BW/IP Common
Stock for each outstanding right, except for rights held by the 15% holder,
which will become void.
Under the BW/IP Rights Agreement, BW/IP will not effect a merger or certain
other kinds of business combination transactions after a public announcement or
notice to BW/IP that a person or group has acquired 15% or more of the
outstanding shares of BW/IP Common Stock, unless provision is made so that after
the transaction a holder of a right would be able to buy for $85.00 stock of the
acquiring company having a market value of $170.00, or twice the exercise price
of the right.
On May 6, 1997, the BW/IP Rights Agreement was amended to provide that (i)
neither the approval, execution or delivery of the Merger Agreement or the Stock
Option Agreements nor the consummation of the transactions contemplated by the
Merger Agreement or the Stock Option Agreements will cause the rights issued
thereunder to become exercisable and (ii) the expiration date of the rights
issued thereunder shall be immediately prior to the Effective Time.
Indemnification and Limitation of Liability. Delaware and New York have
similar laws respecting indemnification by a corporation of its officers,
directors, employees and other agents. The laws of both states
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also permit, with certain exceptions, corporations to adopt a provision in their
certificate of incorporation eliminating the liability of a director to the
corporation or its stockholders for monetary damages for breach of the
director's fiduciary duty of care. There are, nonetheless, certain differences
between the laws of the two states respecting indemnification and limitation of
liability.
The Durco By-laws provide for the indemnification of any present or future
director or officer of Durco to the broadest and maximum extent permitted by New
York law (described below). The Durco Certificate provides that no director
shall be personally liable to Durco or its stockholders for damages for any
breach of duty as a director, except for liability for (i) acts or omissions in
bad faith or involving intentional misconduct or a knowing violation of law,
(ii) personally gaining in fact a financial profit or other advantage to which
such director was not legally entitled, or (iii) violating Section 719 of the
NYBCL which imposes director liability for a variety of unlawful actions. Durco
has entered into written agreements with all its current directors and officers
which require Durco to indemnify such individuals from any such liability to the
maximum extent allowed by New York law.
The NYBCL authorizes a New York corporation to indemnify any person who is,
or is threatened to be made, a party in any civil or criminal proceeding (other
than an action by or in the right of the corporation) by reason of the fact that
he is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another entity, against judgments, fines, amounts paid in settlement
and reasonable expenses (including attorneys' fees) actually and necessarily
incurred by such person as a result of such action or proceeding or any appeal
therein. With respect to actions by or in the rights of the corporation, the
NYBCL authorizes indemnification of such person against reasonable expenses
including attorneys' fees and amounts paid in settlement. To be entitled to
indemnification, a person must have acted in good faith, for a purpose which he
reasonably believed to be in, or in the case of service for another
organization, not opposed to, the best interests of the corporation and, with
respect to any criminal action or proceeding, in addition, had no reasonable
cause to believe his conduct was unlawful. Court approval is required as a
prerequisite to indemnification of expenses in respect of any claim as to which
a person has been adjudged liable to the corporation.
The NYBCL requires indemnification against expenses actually and reasonably
incurred by any director, officer, employee or agent in connection with a
proceeding against such person for action in such capacity to the extent that
the person has been successful on the merits or otherwise. Advancement of
expenses (i.e., payment prior to a determination on the merits) is permitted,
but not required, by the NYBCL, which further requires that any director or
officer must undertake to repay such expenses if it is ultimately determined
that he is not entitled to indemnification. The disinterested members of the
board of directors (or independent legal counsel or the shareholders) must
determine, in each instance where indemnification is not required by the NYBCL,
that such director, officer, employee or agent is entitled to indemnification.
The NYBCL provides that the indemnification provided by statute is not
exclusive.
The BW/IP Certificate provides that no director will be liable to BW/IP or
its stockholders for monetary damages for breach of his or her fiduciary duty as
a director, provided that nothing in the BW/IP Certificate eliminates or limits
the liability of a director (i) for any breach of the director's duty of loyalty
to BW/IP or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of the law, (iii)
under Section 174 of the DGCL which, among other things, imposes liability upon
directors for unlawful payment of dividends, stock purchase or redemption or
(iv) for any transaction from which the director derives an improper personal
benefit.
The BW/IP By-laws provide that BW/IP will indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was or has agreed to become a
director or officer of BW/IP, or is or was serving or has agreed to serve at the
request of BW/IP as a director or officer, of another corporation, partnership,
joint venture, trust or other enterprise, or by reason of any action alleged to
have been taken or omitted in such capacity, and may indemnify any person who
was or is a party or is threatened to be made a party to such an action, suit or
proceeding by reason of the fact that he is or was or has agreed to become an
employee or agent of BW/IP, or is or was serving or has agreed to serve at the
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request of BW/IP as an employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom, if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of BW/IP,
and, with respect to any criminal action or proceeding had no reasonable cause
to believe his conduct was unlawful; except that in the case of an action or
suit by or in the right of BW/IP to procure a judgment in its favor (i) such
indemnification shall be limited to expenses (including attorneys' fees)
actually and reasonably incurred by such person in the defense or settlement of
such action or suit, and (ii) no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to BW/IP unless and only to the extent that the Delaware Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court shall deem proper. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of BW/IP, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his conduct was
unlawful. To the extent that a director, officer, employee or agent of BW/IP has
been successful on the merits or otherwise in defense of such actions, he shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
In addition, BW/IP entered into an Indemnification Agreement with Clayton &
Dubilier and certain of its affiliates ("C&D") on May 9, 1991, whereby BW/IP
agreed to indemnify C&D against certain claims, which indemnification agreement
will remain in effect following the Merger.
The DGCL authorizes a Delaware corporation to indemnify any person who is,
or is threatened to be made, a party in any civil, criminal, administrative or
investigative, pending or completed action, suit or proceeding (other than an
action by or in the right of the corporation) by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another entity, against judgments, fines, amounts paid in settlement
and expenses (including attorneys' fees), actually and reasonably incurred by
such person in connection with any threatened, pending or completed action, suit
or proceeding. With respect to actions by or in the right of the corporation,
the DGCL authorizes indemnification of such person against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action, suit or proceeding. To be entitled to
indemnification, a person must have acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful with respect to actions
taken by or in the right of the corporation. With respect to actions by or in
the right of the corporation, court approval is required as a prerequisite to
indemnification of expenses in respect of any claim as to which a person has
been adjudged liable to the corporation.
The DGCL requires indemnification against expenses actually and reasonably
incurred by any director, officer, employee or agent in connection with a
proceeding against such person for actions in such capacity to the extent that
the person has been successful on the merits or otherwise. Advancement of
expenses (i.e. payment prior to a determination on the merits) is permitted, but
not required by the DGCL, which further requires that any director or officer
must undertake to repay such expenses if it is ultimately determined that he is
not entitled to indemnification. The disinterested members of the board of
directors (or independent legal counsel or the stockholders) must determine, in
each instance where indemnification is not required by the DGCL, that such
director, officer, employee or agent is entitled to indemnification. The DGCL
provides that the indemnification provided by statute is not exclusive.
Dissenters' Rights. The NYBCL provides dissenters' rights to holders
entitled to vote thereon for (i) certain mergers and consolidations; (ii)
dispositions of assets requiring shareholder approval; and (iii) certain
amendments to the certificate of incorporation which adversely affect the rights
of such shareholders. The procedures for perfecting dissenters' rights are
similar under the DGCL and the NYBCL,
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except that the NYBCL provides a procedure for the corporation to make a written
offer prior to the commencement of litigation (the "Offer") to each dissenting
shareholder to pay cash for his shares at a specified, uniform price which the
corporation considers to be the fair value of the shares. If the effective date
of the corporate action dissented from has occurred, the Offer must be
accompanied by an advance payment of 80% of the Offer price to each dissenting
shareholder who has submitted his or her stock certificates. If the effective
date has not yet occurred, such advance payment shall be sent forthwith upon its
occurrence. If the corporation and a dissenting shareholder agree upon a price
to be paid for such dissenting shareholder's shares within 30 days after the
making of the Offer, payment in full must be made by the corporation within 60
days of the date on which the Offer was made or within 60 days of the effective
date, whichever is later. If any dissenting shareholder fails to agree with the
corporation during the aforesaid 30-day period, or if an Offer is not made
within a specified period of time, only then may a proceeding for judicial
appraisal be commenced.
Under the DGCL, a stockholder of a corporation who does not vote in favor
of certain merger transactions and who demands appraisal of his shares in
connection therewith may, under varying circumstances, be entitled to
dissenters' rights pursuant to which such stockholder may receive cash in the
amount of the fair value of his shares (as determined by a Delaware court) in
lieu of the consideration he would otherwise receive in the transaction. Unless
the corporation's certificate of incorporation provides otherwise (the BW/IP
Certificate has no such provision), such appraisal rights are not available in
certain circumstances, including without limitation (a) the sale, lease or
exchange of all or substantially all of the assets of a corporation, (b) the
merger or consolidation by a corporation the shares of which are either listed
on a national securities exchange or the NASDAQ or are held of record by more
than 2,000 holders if such stockholders receive only shares of the surviving
corporation or shares of any other corporation which are either listed on a
national securities exchange or the NASDAQ or held of record by more than 2,000
holders, plus cash in lieu of fractional shares or (c) to stockholders of a
corporation surviving a merger if no vote of the stockholders of the surviving
corporation is required to approve the merger because the merger agreement does
not amend the existing certificate of incorporation, each share of the surviving
corporation outstanding prior to the merger is an identical outstanding or
treasury share after the merger, and the number of shares to be issued in the
merger does not exceed 20% of the shares of the surviving corporation
outstanding immediately prior to the merger and if certain other conditions are
met.
The concept of "fair value" in payment for shares upon exercise of
appraisal rights is different under the DGCL and the NYBCL. Under the DGCL,
"fair value" must be determined exclusive of any element of value arising from
the accomplishment or expectation of the relevant transaction. The NYBCL does
not exclude such element of value but mandates that the court should consider
the nature of the transaction, its effect on the corporation and its
shareholders, and the concepts and methods of valuation then customary in the
relevant financial and securities markets.
Right To Examine Stockholder List. Under the NYBCL, any person who shall
have been a shareholder for at least six months preceding his demand, or any
person holding, or thereunto authorized in writing by the holders of, at least
five percent of any class of the outstanding shares, upon at least five days'
written demand shall have the right to examine, during usual business hours, the
corporation's minutes of proceedings of its shareholders and record of
shareholders.
Under the DGCL, stockholders, during usual business hours, have a right,
for a period of at least ten days prior to any stockholder meeting and during
such meeting, to examine a list of stockholders, arranged in alphabetical order
and showing the address and the number of shares held by such stockholder, for
any purpose germane to such meeting. The DGCL further provides that any
stockholder, following a written request, has the right to inspect the
corporation's books and records, including the stockholder list, during usual
business hours for a proper purpose.
Interested Director Transactions. Under both the NYBCL and the DGCL,
certain contracts or transactions in which one or more of a corporation's
directors has an interest are not void or voidable solely by reason of such
interest provided that one of the following conditions is met: (i) such contract
or transaction is approved by the stockholders or by a majority of disinterested
members of the board of directors (under the NYBCL, if a quorum of the board is
not present at such time, a unanimous vote of the disinterested directors
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is required) or, in certain circumstances, a committee thereof, if the material
facts are disclosed (under the NYBCL, in good faith) or known thereto, or (ii)
the contract or transaction was fair (and, under the NYBCL, reasonable) to the
corporation at the time it was approved.
LEGAL MATTERS
Certain legal matters with respect to the validity of the securities
offered hereby will be passed upon for Durco by Cravath, Swaine & Moore. Certain
legal matters in connection with the Merger will be passed upon for BW/IP by
Shearman & Sterling.
EXPERTS
The consolidated financial statements incorporated in this Joint Proxy
Statement/Prospectus by reference to the Annual Report on Form 10-K of Durco for
the fiscal year ended December 31, 1996 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon and incorporated
herein by reference. Such consolidated financial statements have been
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements incorporated in this Joint Proxy
Statement/Prospectus by reference to the Annual Report on Form 10-K of BW/IP for
the fiscal year ended December 31, 1996 have been so incorporated in reliance on
the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
PROPOSED AMENDMENTS TO DURCO
CERTIFICATE OF INCORPORATION
The Durco Board is proposing that the holders of Durco Common Stock adopt
each of the Certificate Amendments, which would amend the Durco Certificate to
(i) change the corporate name to Flowserve Corporation and (ii) increase the
number of authorized shares of Durco Common Stock from 60,000,000 to
120,000,000. If the Name Change is adopted, Article First of the Durco
Certificate will read as follows: "The name of the corporation is Flowserve
Corporation." If the Authorized Share Increase is adopted, the first sentence of
Article Third of the Durco Certificate will read as follows: "The aggregate
number of shares which the Corporation shall have authority to issue is
121,000,000, of which 1,000,000 shares, of the par value of $1.00 each, shall be
Preferred Stock and 120,000,000 shares, of the par value of $1.25 each, shall be
Common Stock." Adoption of each of the Certificate Amendments requires the
affirmative vote of the holders of a majority of the outstanding shares of Durco
Common Stock.
Of the 60,000,000 shares of Durco Common Stock presently authorized,
23,542,831 were issued and outstanding as of the Record Date and up to
16,914,820 will be issued if the Merger is consummated. An additional 1,155,490
shares of Durco Common Stock are reserved for issuance under the Durco Option
Plans. This will leave 18,386,859 shares of Flowserve Common Stock available for
issuance after the Merger (assuming the Merger is completed and not including
any shares which may need to be reserved pursuant to existing BW/IP stock plans
or otherwise). Upon adoption of the Authorized Share Increase, 78,386,859 shares
of Flowserve Common Stock will be available for issuance by the Flowserve Board
(assuming the Merger is completed and not including any shares which may need to
be reserved pursuant to existing BW/IP stock plans or otherwise).
While Durco has no present intention to use the additional authorized
shares of Flowserve Common Stock for any purpose and has not entered into any
understanding or agreement regarding the issuance of such shares, the Durco
Board and the BW/IP Board believe it is desirable to authorize additional shares
of Flowserve Common Stock so that there will be sufficient shares available for
issuance after the Merger for purposes that the Flowserve Board may hereafter
determine to be in the best interests of Flowserve and its stockholders. Such
purposes could include the offer of shares for cash, acquisitions, share
dividends and other corporate purposes. In many situations, prompt action may be
required that would not permit seeking
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stockholder approval to authorize additional shares for the specific transaction
on a timely basis. The BW/IP Board and the Durco Board believe the Flowserve
Board should have the flexibility to act promptly in the best interests of its
stockholders. The terms of any future issuance of shares of Flowserve Common
Stock will be dependent largely on market and financial conditions and other
factors existing at the time of issuance.
THE DURCO BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE DURCO
STOCKHOLDERS VOTE TO ADOPT AMENDMENTS TO DURCO'S RESTATED CERTIFICATE OF
INCORPORATION, AS AMENDED, TO (I) CHANGE THE CORPORATE NAME TO FLOWSERVE
CORPORATION AND (II) INCREASE THE AUTHORIZED SHARES OF DURCO COMMON STOCK.
FUTURE STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1998 Annual Meeting
of Stockholders of Durco must be received by the Secretary of Durco (or, if the
Merger is consummated prior thereto, by the Secretary of Flowserve) not later
than November 13, 1997 for inclusion in the proxy materials for such meeting.
If the Merger is not consummated, BW/IP will hold a 1998 Annual Meeting of
Stockholders. If such meeting is held, stockholder proposals intended to be
presented at such meeting must be received by the Secretary of BW/IP no later
than December 3, 1997 to be included in BW/IP's proxy, notice of meeting and
proxy statement relating to such meeting.
OTHER MATTERS
The Durco Board and BW/IP Board are not aware of any matters to be
presented for action at the Durco Special Meeting or the BW/IP Special Meeting,
respectively, other than matters described in this Joint Proxy
Statement/Prospectus. If any other matter comes before the Durco Special Meeting
or the BW/IP Special 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. BW/IP STOCK CERTIFICATES SHOULD NOT BE SENT
WITH THE PROXY. IF THE MERGER IS CONSUMMATED, BW/IP STOCKHOLDERS WILL BE
FURNISHED INSTRUCTIONS FOR EXCHANGING THEIR SHARE CERTIFICATES FOR CERTIFICATES
REPRESENTING SHARES OF FLOWSERVE COMMON STOCK.
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WHERE YOU CAN FIND MORE INFORMATION
Durco and BW/IP file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference rooms.
Our SEC filings are also available to the public from commercial document
retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov."
Durco filed a Registration Statement on Form S-4 to register with the SEC
the Durco Common Stock to be issued to BW/IP stockholders in the Merger. This
Joint Proxy Statement/Prospectus is a part of that Registration Statement and
constitutes a prospectus of Durco in addition to being a proxy statement of
Durco and BW/IP for their respective Special Meetings. As allowed by SEC rules,
this Joint Proxy Statement/Prospectus does not contain all the information you
can find in the Registration Statement or the exhibits to the Registration
Statement.
The SEC allows us to "incorporate by reference" information into this Joint
Proxy Statement/Prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
Joint Proxy Statement/Prospectus, except for any information superseded by
information in this Joint Proxy Statement/Prospectus. This Joint Proxy
Statement/Prospectus incorporates by reference the documents set forth below
that we have previously filed with the SEC. These documents contain important
information about our companies and their financial performance.
<TABLE>
<CAPTION>
DURCO SEC FILINGS (FILE NO. 0-325) PERIOD
- -------------------------------------------------------- --------------------------------------
<S> <C>
Annual Report on Form 10-K.............................. Fiscal Year Ended December 31, 1996
Quarterly Report on Form 10-Q........................... Quarterly period ended March 31, 1997
Current Report on Form 8-K.............................. Dated May 15, 1997
</TABLE>
<TABLE>
<CAPTION>
BW/IP SEC FILINGS (FILE NO. 1-11897) PERIOD
- -------------------------------------------------------- --------------------------------------
<S> <C>
Annual Report on Form 10-K.............................. Fiscal Year Ended December 31, 1996
Quarterly Report on Form 10-Q........................... Quarterly period ended March 31, 1997
Current Report on Form 8-K.............................. Dated May 15, 1997
</TABLE>
We are also incorporating by reference additional documents that we file
with the SEC between the date of this Joint Proxy Statement/Prospectus and the
dates of Durco's and BW/IP's respective Special Meetings of stockholders.
Durco has supplied all information contained or incorporated by reference
in this Joint Proxy Statement/Prospectus relating to Durco, and BW/IP has
supplied all such information relating to BW/IP.
If you are a stockholder, you may have previously received some of the
documents incorporated by reference. You may still obtain such documents through
us or the SEC. Documents incorporated by reference are available from us without
charge, excluding all exhibits unless we have specifically incorporated by
reference an exhibit in this Joint Proxy Statement/Prospectus. Stockholders may
obtain documents incorporated by reference in this Joint Proxy
Statement/Prospectus by requesting them in writing or by telephone from the
appropriate party at the following addresses:
<TABLE>
<S> <C>
Durco International Inc. BW/IP, Inc.
Attention: Ronald F. Shuff Attention: John D. Hannesson
3100 Research Boulevard 200 Oceangate Boulevard
Dayton, Ohio 45420 Suite 900
Telephone: (937) 476-6100 Long Beach, California 90802
Telephone: (562) 435-3700
</TABLE>
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If you would like to request documents from us, please do so by July 14,
1997 to receive them before Durco's and BW/IP's respective Special Meetings.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE ON THE PROPOSALS
DESCRIBED HEREIN. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS. THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED JUNE 19,
1997. WE HAVE TRIED TO MAKE THE JOINT PROXY STATEMENT/PROSPECTUS AS ACCURATE AS
POSSIBLE, BUT WE CANNOT ASSURE THAT THIS DOCUMENT REMAINS ACCURATE AFTER SUCH
DATE. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THE JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE, AND
NEITHER THE MAILING OF THE JOINT PROXY STATEMENT/PROSPECTUS TO STOCKHOLDERS NOR
THE ISSUANCE OF DURCO COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO
THE CONTRARY.
<TABLE>
<S> <C>
By Order of the Board of Directors of By Order of the Board of Directors of
Durco International Inc. BW/IP, Inc.
Ronald F. Shuff John D. Hannesson
Vice President, Secretary and Vice President, Secretary and
General Counsel General Counsel
</TABLE>
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ANNEXES TO THE JOINT PROXY STATEMENT/PROSPECTUS
<TABLE>
<S> <C>
Annex I Agreement and Plan of Merger
Annex II Durco Stock Option Agreement
Annex III BW/IP Stock Option Agreement
Annex IV Opinion of Salomon Brothers Inc
Annex V Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
Annex VI Durco Restated Certificate of Incorporation, as amended
Annex VII Durco By-Laws
</TABLE>
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ANNEX I
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
DURCO INTERNATIONAL, INC.,
BRUIN ACQUISITION CORP.
AND
BW/IP, INC.
DATED AS OF MAY 6, 1997
<PAGE> 75
TABLE OF CONTENTS
<TABLE>
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ARTICLE I
THE MERGER
SECTION 1.01. The Merger............................................................ 1
SECTION 1.02. Closing............................................................... 1
SECTION 1.03. Effective Time........................................................ 2
SECTION 1.04. Effects of the Merger................................................. 2
SECTION 1.05. Certificate of Incorporation and By-laws of Surviving Corporation..... 2
SECTION 1.06. Directors of Surviving Corporation.................................... 2
SECTION 1.07. Officers of Surviving Corporation..................................... 2
SECTION 1.08. Boards, Committees and Officers of Durco.............................. 2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF
CERTIFICATES
SECTION 2.01. Effect on Capital Stock............................................... 2
SECTION 2.02. Exchange of Certificates.............................................. 3
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of BW/IP............................... 6
SECTION 3.02. Representations and Warranties of Durco and Sub....................... 14
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01. Conduct of Business................................................... 22
SECTION 4.02. No Solicitation by BW/IP.............................................. 26
SECTION 4.03. No Solicitation by Durco.............................................. 27
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Preparation of the Form S-4 and the Joint Proxy Statement;
Stockholders Meetings................................................. 28
SECTION 5.02. Letters of BW/IP's Accountants........................................ 29
SECTION 5.03. Letters of Durco's Accountants........................................ 29
SECTION 5.04. Access to Information; Confidentiality................................ 30
SECTION 5.05. Best Efforts.......................................................... 30
SECTION 5.06. Stock Options......................................................... 31
SECTION 5.07. Certain Employee Matters.............................................. 32
SECTION 5.08. Indemnification, Exculpation and Insurance............................ 32
SECTION 5.09. Fees and Expenses..................................................... 32
SECTION 5.10. Public Announcements.................................................. 34
SECTION 5.11. Affiliates............................................................ 34
SECTION 5.12. Stock Listing......................................................... 34
SECTION 5.13. Stockholder Litigation................................................ 34
SECTION 5.14. Tax Treatment......................................................... 34
SECTION 5.15. Pooling of Interests.................................................. 34
SECTION 5.16. BW/IP Rights Agreement................................................ 34
</TABLE>
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<TABLE>
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PAGE
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<S> <C> <C>
SECTION 5.17. Durco Rights Agreement................................................ 35
SECTION 5.18. Standstill Agreements; Confidentiality Agreements..................... 35
SECTION 5.19. Headquarters; Name.................................................... 35
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. Conditions to Each Party's Obligation to Effect the Merger............ 35
SECTION 6.02. Conditions to Obligations of Durco and Sub............................ 36
SECTION 6.03. Conditions to Obligations of BW/IP.................................... 36
SECTION 6.04. Frustration of Closing Conditions..................................... 37
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination........................................................... 37
SECTION 7.02. Effect of Termination................................................. 38
SECTION 7.03. Amendment............................................................. 38
SECTION 7.04. Extension; Waiver..................................................... 38
SECTION 7.05. Procedure for Termination, Amendment, Extension or Waiver............. 38
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Nonsurvival of Representations and Warranties......................... 38
SECTION 8.02. Notices............................................................... 38
SECTION 8.03. Definitions........................................................... 39
SECTION 8.04. Interpretation........................................................ 40
SECTION 8.05. Counterparts.......................................................... 40
SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries........................ 40
SECTION 8.07. Governing Law......................................................... 40
SECTION 8.08. Assignment............................................................ 40
SECTION 8.09. Enforcement........................................................... 41
SECTION 8.10. WAIVER OF JURY TRIAL.................................................. 41
SECTION 8.11. Headings.............................................................. 41
SECTION 8.12. Severability.......................................................... 41
EXHIBIT A -- Corporate Governance of Durco Following the Effective Time
EXHIBIT B -- Form of Affiliate Letter
EXHIBIT C -- Form of Durco and Sub Tax Representation Letter
EXHIBIT D -- Form of BW/IP Tax Opinion Representation Letter
EXHIBIT E -- Form of Company Stockholder Representation Letter
EXHIBIT F -- Term Sheet for Employment Agreement for Chief Executive Officer
EXHIBIT G -- Term Sheet for Employment Agreement for Chief Operating Officer
BW/IP DISCLOSURE SCHEDULE
BW/IP Stock Options............................................................... sec.3.01(c)
Authority; Noncontravention....................................................... sec.3.01(d)
ERISA Compliance; Labor Contracts................................................. sec.3.01(j)
Contracts; Debt Instruments....................................................... sec.3.01(r)
Litigation........................................................................ sec.3.01(s)
Environmental Matters............................................................. sec.3.01(t)
</TABLE>
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<TABLE>
<S> <C>
Trademarks, Patents and Copyrights................................................ sec.3.01(u)
Insurance......................................................................... sec.3.01(v)
Conduct of Business by BW/IP...................................................... sec.5.07(a)
Employment Agreements............................................................. sec.5.07(a)
DURCO DISCLOSURE SCHEDULE
Durco Stock Options............................................................... sec.3.02(c)
ERISA Compliance; Labor Contracts................................................. sec.3.02(j)
Contracts; Debt Instruments....................................................... sec.3.02(q)
Litigation........................................................................ sec.3.02(r)
Environmental Matters............................................................. sec.3.01(s)
Trademarks, Patents and Copyrights................................................ sec.3.02(t)
Insurance......................................................................... sec.3.02(v)
Conduct of Business by Durco...................................................... sec.5.07(a)
Employment Agreements............................................................. sec.5.07(a)
</TABLE>
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<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ---------------------------------------------------------------------------- ---------
<S> <C>
Adjusted Option............................................................. sec. 5.06(a)(i)
BW/IP....................................................................... PREAMBLE
BW/IP Acquisition Agreement................................................. sec. 4.02(b)
BW/IP Applicable Period..................................................... sec. 4.02(a)
BW/IP Benefit Plans......................................................... sec. 3.01(i)
BW/IP Common Stock.......................................................... PREAMBLE
BW/IP Disclosure Schedule................................................... sec. 3.01
BW/IP Filed SEC Documents................................................... sec. 3.01(g)
BW/IP Junior Preferred Stock................................................ sec. 3.01(c)
BW/IP Material Contract..................................................... sec. 3.01(r)
BW/IP Notice................................................................ sec. 4.02(a)
BW/IP Option................................................................ PREAMBLE
BW/IP Out-of-Pocket Expenses................................................ sec. 5.09(c)
BW/IP Permits............................................................... sec. 3.01(h)
BW/IP Preferred Stock....................................................... sec. 3.01(c)
BW/IP Rights................................................................ sec. 3.01(c)
BW/IP Rights Agreement...................................................... sec. 3.01(c)
BW/IP Rights Plan Amendment................................................. sec. 3.01(w)
BW/IP SEC Documents......................................................... sec. 3.01(e)
BW/IP Stock Option Agreement................................................ PREAMBLE
BW/IP Stock Options......................................................... sec. 3.01(c)
BW/IP Stock Plans........................................................... sec. 3.01(c)
BW/IP Stockholder Approval.................................................. sec. 3.01(l)
BW/IP Stockholders Meeting.................................................. sec. 5.01(b)
BW/IP Superior Proposal..................................................... sec. 4.02(b)
BW/IP Takeover Proposal..................................................... sec. 4.02(a)
CERCLA...................................................................... sec. 3.01(t)
Certificate of Merger....................................................... sec. 1.03
Certificates................................................................ sec. 2.02(b)
Closing..................................................................... sec. 1.02
Closing Date................................................................ sec. 1.02
Code........................................................................ PREAMBLE
Common Shares Trust......................................................... sec. 2.02(e)(iii)
Confidentiality Agreements.................................................. sec. 5.04
DGCL........................................................................ sec. 1.01
Effective Time.............................................................. sec. 1.03
Environmental Laws.......................................................... sec. 3.01(t)
Environmental Permits....................................................... sec. 3.01(t)
ERISA....................................................................... sec. 3.01(j)
Excess Shares............................................................... sec. 2.02(e)(ii)
Exchange Act................................................................ sec. 3.01(d)
Exchange Agent.............................................................. sec. 2.02(a)
Exchange Fund............................................................... sec. 2.02(a)
Exchange Ratio.............................................................. sec. 2.01(c)
Durco....................................................................... PREAMBLE
Durco Acquisition Agreement................................................. sec. 4.03(b)
Durco Applicable Period..................................................... sec. 4.03(a)
</TABLE>
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<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ---------------------------------------------------------------------------- ---------
<S> <C>
Durco Benefit Plans......................................................... sec. 3.02(i)
Durco Common Stock.......................................................... PREAMBLE
Durco Disclosure Schedule................................................... sec. 3.02
Durco Filed SEC Documents................................................... sec. 3.02(g)
Durco Junior Preferred Stock................................................ sec. 3.02(c)
Durco Material Contract..................................................... sec. 3.02(q)
Durco Notice................................................................ sec. 4.03(a)
Durco Option................................................................ PREAMBLE
Durco Out-of-Pocket Expenses................................................ sec. 5.09(b)
Durco Permits............................................................... sec. 3.02(h)
Durco Preferred Stock....................................................... sec. 3.02(c)
Durco Rights................................................................ sec. 3.02(c)
Durco Rights Agreement...................................................... sec. 3.02(c)
Durco SEC Documents......................................................... sec. 3.02(e)
Durco Stock Option Agreement................................................ PREAMBLE
Durco Stock Options......................................................... sec. 3.02(c)
Durco Stock Plans........................................................... sec. 3.02(c)
Durco Stockholder Approval.................................................. sec. 3.02(l)
Durco Stockholders Meeting.................................................. sec. 5.01(c)
Durco Superior Proposal..................................................... sec. 4.03(b)
Durco Takeover Proposal..................................................... sec. 4.03(a)
Form S-4.................................................................... sec. 3.01(f)
Governmental Entity......................................................... sec. 3.01(d)
Hazardous Materials......................................................... sec. 3.01(t)
HSR Act..................................................................... sec. 3.01(d)
Liens....................................................................... sec. 3.01(b)
Merger...................................................................... PREAMBLE
Merger Consideration........................................................ sec. 2.01(c)
Merrill Lynch............................................................... sec. 3.01(o)
NYSE........................................................................ sec. 2.02(e)(ii)
Option Agreements........................................................... PREAMBLE
Real Estate Transfer Taxes.................................................. sec. 5.09(a)
Restraints.................................................................. sec. 6.01(c)
SEC......................................................................... sec. 3.01(b)
Securities Act.............................................................. sec. 3.01(e)
Salomon..................................................................... sec. 3.02(n)
Sub......................................................................... PREAMBLE
Surviving Corporation....................................................... sec. 1.01
Termination Fee............................................................. sec. 5.09(b)
</TABLE>
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AGREEMENT AND PLAN OF MERGER dated as of May 6, 1997, between DURCO
INTERNATIONAL, INC., a New York corporation ("Durco"), BRUIN ACQUISITION CORP.,
a Delaware corporation and a wholly owned subsidiary of Durco ("Sub"),and BW/IP,
INC., a Delaware corporation ("BW/IP").
WHEREAS, the respective Boards of Directors of Durco, Sub and BW/IP, and
Durco acting as the sole stockholder of Sub, have approved the merger of Sub
with and into BW/IP (the "Merger"), upon the terms and subject to the conditions
set forth in this Agreement, whereby each issued and outstanding share of common
stock, par value $.01 per share, of BW/IP ("BW/IP Common Stock"), other than
shares owned by Durco or BW/IP, will be converted into the right to receive the
Merger Consideration (as defined in Section 2.01(c));
WHEREAS, the respective Boards of Directors of Durco and BW/IP have each
determined that the Merger and the other transactions contemplated hereby are
consistent with, and in furtherance of, their respective business strategies and
goals;
WHEREAS, Durco, Sub and BW/IP desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger;
WHEREAS, for Federal income tax purposes, it is intended that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, for financial accounting purposes, it is intended that the Merger
will be accounted for as a pooling of interests transaction;
WHEREAS, concurrently with the execution and delivery of this Agreement,
BW/IP and Durco will enter into a stock option agreement (the "BW/IP Stock
Option Agreement"), pursuant to which BW/IP will grant Durco the option (the
"BW/IP Option") to purchase shares of BW/IP Common Stock, together with the
associated BW/IP Rights (as defined in Section 3.01(c)), upon the terms and
subject to the conditions set forth therein; and
WHEREAS, concurrently with the execution and delivery of this Agreement,
Durco and BW/IP will enter into a stock option agreement (the "Durco Stock
Option Agreement" and, together with the BW/IP Stock Option Agreement, the
"Option Agreements"), pursuant to which Durco will grant BW/IP the option (the
"Durco Option") to purchase shares of common stock, par value $1.25 per share,
of Durco ("Durco Common Stock") together with the associated Durco Rights (as
defined in Section 3.02(c)), upon the terms and subject to the conditions set
forth therein.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the Delaware General
Corporation Law (the "DGCL"), Sub shall be merged with and into BW/IP at the
Effective Time (as defined in Section 1.03). Following the Effective Time, the
separate corporate existence of Sub shall cease and BW/IP shall be the surviving
corporation (the "Surviving Corporation") and shall succeed to and assume all
the rights and obligations of Sub in accordance with the DGCL.
SECTION 1.02. Closing. The closing of the Merger (the "Closing") will
take place at 10:00 a.m. on a date to be specified by the parties (the "Closing
Date"), which shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article VI, unless another time or date
is agreed to by the parties hereto. The Closing will be held at such location in
the City of New York as is agreed to by the parties hereto.
<PAGE> 81
SECTION 1.03. Effective Time. Subject to the provisions of this
Agreement, as soon as practicable on or after the Closing Date, the parties
shall file a certificate of merger (the "Certificate of Merger") executed in
accordance with the relevant provisions of the DGCL and shall make all other
filings or recordings required under the DGCL. The Merger shall become effective
at such time as the Certificate of Merger is duly filed with the Delaware
Secretary of State, or at such subsequent date or time as Sub and BW/IP shall
agree and specify in the Certificate of Merger (the time the Merger becomes
effective being hereinafter referred to as the "Effective Time").
SECTION 1.04. Effects of the Merger. The Merger shall have the effects
set forth in Section 259 of the DGCL.
SECTION 1.05. Certificate of Incorporation and By-laws of Surviving
Corporation. (a) The certificate of incorporation of BW/IP, as in effect
immediately prior to the Effective Time, shall be amended and restated as of the
Effective Time to read as the Certificate of Incorporation of Sub as in effect
immediately prior to the Effective Time and, as so amended and restated, such
certificate of incorporation shall be the certificate of incorporation of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law.
(b) The by-laws of Sub, as in effect immediately prior to the Effective
Time, shall become the by-laws of the Surviving Corporation and such by-laws
shall be the by-laws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
SECTION 1.06. Directors of Surviving Corporation. The directors of BW/IP
immediately prior to the Effective Time shall be the directors of the Surviving
Corporation, until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.
SECTION 1.07. Officers of Surviving Corporation. The officers of BW/IP
immediately prior to the Effective Time shall be the officers of the Surviving
Corporation, until the earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the case may be.
SECTION 1.08. Boards, Committees and Officers of Durco. Immediately
following the Effective Time, the Board of Directors of Durco, committees of the
Board of Directors of Durco, composition of such committees (including
chairpersons thereof) and officers of Durco shall be as set forth on or
designated in accordance with Exhibit A hereto until the earlier of the
resignation or removal of any individual set forth on or designated in
accordance with Exhibit A or until their respective successors are duly elected
and qualified, as the case may be, it being agreed that if any director shall be
unable to serve as a director (including as a member or chairperson of any
committee) at the Effective Time the party which designated such individual as
indicated in Exhibit A shall designate another individual to serve in such
individual's place. If any officer set forth on or designated in accordance with
Exhibit A ceases to be a full-time employee of either BW/IP or Durco at or
before the Effective Time, the parties will agree upon another person to serve
in such person's stead.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.01. Effect on Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of BW/IP Common Stock or any shares of capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of
capital stock of Sub shall be converted into and become one validly issued,
fully paid and nonassessable share of common stock, par value $.01 per
share, of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Durco-Owned Stock. Each share
of BW/IP Common Stock that is owned by BW/IP or by any subsidiary of BW/IP
and each share of BW/IP Common Stock
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that is owned by Durco, Sub or any other subsidiary of Durco shall
automatically be canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor.
(c) Conversion of BW/IP Common Stock. Subject to Section 2.02(e),
each issued and outstanding share of BW/IP Common Stock (other than shares
to be canceled in accordance with Section 2.01(b)) shall be converted into
the right to receive 0.6968 (the "Exchange Ratio") fully paid and
nonassessable shares of Durco Common Stock (the "Merger Consideration"). As
of the Effective Time, all such shares of BW/IP Common Stock shall no
longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each holder of a certificate representing any
such shares of BW/IP Common Stock shall cease to have any rights with
respect thereto, except the right to receive the Merger Consideration and
any cash in lieu of fractional shares of Durco Common Stock to be issued or
paid in consideration therefor upon surrender of such certificate in
accordance with Section 2.02, without interest.
SECTION 2.02. Exchange of Certificates. (a) Exchange Agent. As of the
Effective Time, Durco shall enter into an agreement with such bank or trust
company as may be designated by Durco and reasonably satisfactory to BW/IP (the
"Exchange Agent"), which shall provide that Durco shall deposit with the
Exchange Agent as of the Effective Time, for the benefit of the holders of
shares of BW/IP Common Stock, for exchange in accordance with this Article II,
through the Exchange Agent, certificates representing the shares of Durco Common
Stock (such shares of Durco Common Stock, together with any dividends or
distributions with respect thereto with a record date after the Effective Time,
any Excess Shares (as defined in Section 2.02(e)) and any cash (including cash
proceeds from the sale of the Excess Shares) payable in lieu of any fractional
shares of Durco Common Stock being hereinafter referred to as the "Exchange
Fund") issuable pursuant to Section 2.01 in exchange for outstanding shares of
BW/IP Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of BW/IP Common Stock (the "Certificates") whose
shares were converted into the right to receive the Merger Consideration
pursuant to Section 2.01, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Durco and BW/IP may reasonably
specify) and (ii) instructions for use in surrendering the Certificates in
exchange for the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Exchange Agent, together with such letter of transmittal,
duly executed, and such other documents as may reasonably be required by the
Exchange Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole shares of
Durco Common Stock which such holder has the right to receive pursuant to the
provisions of this Article II, certain dividends or other distributions in
accordance with Section 2.02(c) and cash in lieu of any fractional share of
Durco Common Stock in accordance with Section 2.02(e), and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of BW/IP Common Stock which is not registered in the transfer records of BW/IP,
a certificate representing the proper number of shares of Durco Common Stock may
be issued to a person other than the person in whose name the Certificate so
surrendered is registered if such Certificate shall be properly endorsed or
otherwise be in proper form for transfer and the person requesting such issuance
shall pay any transfer or other taxes required by reason of the issuance of
shares of Durco Common Stock to a person other than the registered holder of
such Certificate or establish to the satisfaction of Durco that such tax has
been paid or is not applicable. Until surrendered as contemplated by this
Section 2.02, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the Merger
Consideration which the holder thereof has the right to receive in respect of
such Certificate pursuant to the provisions of this Article II, certain
dividends or other distributions in accordance with Section 2.02(c) and cash in
lieu of any fractional share of Durco Common Stock in accordance with Section
2.02(e). No interest shall be paid or will accrue on any cash payable to holders
of Certificates pursuant to the provisions of this Article II.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Durco Common Stock with a record date after
the Effective Time shall be paid to the holder of any
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unsurrendered Certificate with respect to the shares of Durco Common Stock
represented thereby, and, in the case of Certificates representing BW/IP Common
Stock, no cash payment in lieu of fractional shares shall be paid to any such
holder pursuant to Section 2.02(e), and all such dividends, other distributions
and cash in lieu of fractional shares of Durco Common Stock shall be paid by
Durco to the Exchange Agent and shall be included in the Exchange Fund, in each
case until the surrender of such Certificate in accordance with this Article II.
Subject to the effect of applicable escheat or similar laws, following surrender
of any such Certificate there shall be paid to the holder of the certificate
representing whole shares of Durco Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Durco Common Stock and, in the case of
Certificates representing BW/IP Common Stock, the amount of any cash payable in
lieu of a fractional share of Durco Common Stock to which such holder is
entitled pursuant to Section 2.02(e) and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time but prior to such surrender and with a payment date subsequent to
such surrender payable with respect to such whole shares of Durco Common Stock.
(d) No Further Ownership Rights in BW/IP Common Stock. All shares of Durco
Common Stock issued upon the surrender for exchange of Certificates in
accordance with the terms of this Article II (including any cash paid pursuant
to this Article II) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of BW/IP Common Stock
theretofore represented by such Certificates, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any other distributions
with a record date prior to the Effective Time which may have been declared or
made by BW/IP on such shares of BW/IP Common Stock which remain unpaid at the
Effective Time, and there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of BW/IP Common
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation or
the Exchange Agent for any reason, they shall be canceled and exchanged as
provided in this Article II, except as otherwise provided by law.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of Durco Common Stock shall be issued upon the surrender for
exchange of Certificates, no dividend or distribution of Durco shall relate to
such fractional share interests and such fractional share interests will not
entitle the owner thereof to vote or to any rights of a stockholder of Durco.
(ii) As promptly as practicable following the Effective Time, the
Exchange Agent shall determine the excess of (A) the number of whole shares
of Durco Common Stock delivered to the Exchange Agent by Durco pursuant to
Section 2.02(a) over (B) the aggregate number of whole shares of Durco
Common Stock to be distributed to former holders of BW/IP Common Stock
pursuant to Section 2.02(b) (such excess being herein called the "Excess
Shares"). Following the Effective Time, the Exchange Agent shall, on behalf
of former stockholders of BW/IP, sell the Excess Shares at then-prevailing
prices on the New York Stock Exchange ("NYSE"), all in the manner provided
in Section 2.02(e)(iii).
(iii) The sale of the Excess Shares by the Exchange Agent shall be
executed on the NYSE and shall be executed in round lots to the extent
practicable. The Exchange Agent shall use reasonable efforts to complete
the sale of the Excess Shares as promptly following the Effective Time as,
in the Exchange Agent's sole judgment, is practicable consistent with
obtaining the best execution of such sales in light of prevailing market
conditions. Until the net proceeds of such sale or sales have been
distributed to the holders of Certificates formerly representing BW/IP
Common Stock, the Exchange Agent shall hold such proceeds in trust for such
holders (the "Common Shares Trust"). The Surviving Corporation shall pay
all commissions, transfer taxes and other out-of-pocket transaction costs,
including the expenses and compensation of the Exchange Agent incurred in
connection with such sale of the Excess Shares. The Exchange Agent shall
determine the portion of the Common Shares Trust to which each former
holder of BW/IP Common Stock is entitled, if any, by multiplying the amount
of the aggregate net proceeds comprising the Common Shares Trust by a
fraction, the numerator of which is the amount of the fractional share
interest to which such former holder of BW/IP Common Stock is entitled
(after taking into account all shares of BW/IP Common Stock held at the
Effective Time by such holder) and the
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denominator of which is the aggregate amount of fractional share interests
to which all former holders of BW/IP Common Stock are entitled.
(iv) Notwithstanding the provisions of Section 2.02(e)(ii) and (iii),
the Surviving Corporation may elect at its option, exercised prior to the
Effective Time, in lieu of the issuance and sale of Excess Shares and the
making of the payments hereinabove contemplated, to pay each former holder
of BW/IP Common Stock an amount in cash equal to the product obtained by
multiplying (A) the fractional share interest to which such former holder
(after taking into account all shares of BW/IP Common Stock held at the
Effective Time by such holder) would otherwise be entitled by (B) the
closing price for a share of Durco Common Stock as reported on the NASDAQ
National Market System (as reported in The Wall Street Journal, or, if not
reported thereby, any other authoritative source) on the Closing Date, and,
in such case, all references herein to the cash proceeds of the sale of the
Excess Shares and similar references shall be deemed to mean and refer to
the payments calculated as set forth in this Section 2.02(e)(iv).
(v) As soon as practicable after the determination of the amount of
cash, if any, to be paid to holders of Certificates formerly representing
BW/IP Common Stock with respect to any fractional share interests, the
Exchange Agent shall make available such amounts to such holders of
Certificates formerly representing BW/IP Common Stock subject to and in
accordance with the terms of Section 2.02(c).
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time shall be delivered to Durco, upon demand, and any holders of
the Certificates who have not theretofore complied with this Article II shall
thereafter look only to Durco for payment of their claim for Merger
Consideration, any dividends or distributions with respect to Durco Common Stock
and any cash in lieu of fractional shares of Durco Common Stock.
(g) No Liability. None of Durco, Sub, BW/IP or the Exchange Agent shall be
liable to any person in respect of any shares of Durco Common Stock, any
dividends or distributions with respect thereto, any cash in lieu of fractional
shares of Durco Common Stock or any cash from the Exchange Fund, in each case
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. If any Certificate shall not have been surrendered prior
to two years after the Effective Time (or immediately prior to such earlier date
on which any Merger Consideration, any dividends or distributions payable to the
holder of such Certificate or any cash payable to the holder of such Certificate
formerly representing BW/IP Common Stock pursuant to this Article II, would
otherwise escheat to or become the property of any Governmental Entity (as
defined in Section 3.01(d)), any such Merger Consideration, dividends or
distributions in respect of such Certificate or such cash shall, to the extent
permitted by applicable law, become the property of the Surviving Corporation,
free and clear of all claims or interest of any person previously entitled
thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by Durco, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
Durco.
(i) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificate the
Merger Consideration and, if applicable, any unpaid dividends and distributions
on shares of Durco Common Stock deliverable in respect thereof and any cash in
lieu of fractional shares, in each case pursuant to this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of BW/IP. Except as
disclosed in the BW/IP Filed SEC Documents (as defined in Section 3.01(g)) or as
set forth on the Disclosure Schedule delivered by BW/IP to Durco prior to the
execution of this Agreement (the "BW/IP Disclosure Schedule") and making
reference to the particular subsection of this Agreement to which exception is
being taken, BW/IP represents and warrants to Durco and Sub as follows:
(a) Organization, Standing and Corporate Power. Each of BW/IP and its
subsidiaries (as defined in Section 8.03) is a corporation or other legal
entity duly organized, validly existing and in good standing (with respect
to jurisdictions which recognize such concept) under the laws of the
jurisdiction in which it is organized and has the requisite corporate or
other power, as the case may be, and authority to carry on its business as
now being conducted. Each of BW/IP and its subsidiaries is duly qualified
or licensed to do business and is in good standing (with respect to
jurisdictions which recognize such concept) in each jurisdiction in which
the nature of its business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary, except for
those jurisdictions where the failure to be so qualified or licensed or to
be in good standing individually or in the aggregate would not have a
material adverse effect (as defined in Section 8.03) on BW/IP. BW/IP has
made available to Durco prior to the execution of this Agreement complete
and correct copies of its certificate of incorporation and by-laws, as
amended to date.
(b) Subsidiaries. Exhibit 21.a to BW/IP's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 includes all the subsidiaries
of BW/IP which as of the date of this Agreement are Significant
Subsidiaries (as defined in Rule 1-02 of Regulation S-X of the Securities
and Exchange Commission (the "SEC")). All the outstanding shares of capital
stock of, or other equity interests in, each such Significant Subsidiary
have been validly issued and are fully paid and nonassessable and are owned
directly or indirectly by BW/IP, free and clear of all pledges, claims,
liens, charges, encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens") and free of any other restriction
(including any restriction on the right to vote, sell or otherwise dispose
of such capital stock or other ownership interests).
(c) Capital Structure. The authorized capital stock of BW/IP consists
of 40,000,000 shares of BW/IP Common Stock and 10,000,000 shares of
preferred stock, $.01 par value, of BW/IP ("BW/IP Preferred Stock").At the
close of business on May 5, 1997, (i) 24,275,000 shares of BW/IP Common
Stock were issued and outstanding; (ii) 175,000 shares of BW/IP Common
Stock were held by BW/IP in its treasury; (iii) 1,779,532 shares of BW/IP
Common Stock were reserved for issuance pursuant to the BW/IP
International, Inc. Capital Accumulation Plan, the BW/IP International Inc.
1996 Long-Term Incentive Plan, the BW/IP Holding, Inc. Non Employee
Directors' Stock Option Plan, the BW/IP, Inc. 1996 Management Long-Term
Incentive Plan and the BW/IP, Inc. 1996 Stock and Deferred Compensation
Plan (such plans, collectively, the "BW/IP Stock Plans"); (iv) no shares of
Junior Participating Cumulative Preferred Stock, par value $.01 per share
(the "BW/IP Junior Preferred Stock"), were issued and outstanding and (v)
other than the BW/IP Junior Preferred Stock, no other shares of BW/IP
Preferred Stock have been designated or issued. Section 3.01(c) of the
BW/IP Disclosure Schedule sets forth a complete and correct list, as of May
2, 1997, of the number of shares of BW/IP Common Stock subject to employee
stock options or other rights to purchase or receive BW/IP Common Stock
granted under the BW/IP Stock Plans (collectively, "BW/IP Stock Options")
and the exercise prices thereof. All outstanding shares of capital stock of
BW/IP are, and all shares which may be issued will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except for the BW/IP Stock Option Agreement and as set
forth in this Section 3.01(c) and except for changes since May 2, 1997
resulting from the issuance of shares of BW/IP Common Stock pursuant to the
options and other rights referred to above in this Section 3.01(c), for the
issuance of BW/IP Rights (as defined below) or BW/IP Common Stock in
respect of BW/IP Rights pursuant to the BW/IP Rights Agreement (as defined
below), or as permitted by Sec-
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tion 4.01(a)(i)(y) and 4.01(a)(ii), (x) there are not issued, reserved for
issuance or outstanding (A) any shares of capital stock or other voting
securities of BW/IP, (B) any securities of BW/IP convertible into or
exchangeable or exercisable for shares of capital stock or voting
securities of BW/IP, (C) any warrants, calls, options or other rights to
acquire from BW/IP or any BW/IP subsidiary, and no obligation of BW/IP or
any BW/IP subsidiary to issue, any capital stock, voting securities or
securities convertible into or exchangeable or exercisable for capital
stock or voting securities of BW/IP and (y) there are not any outstanding
obligations of BW/IP or any BW/IP subsidiary to repurchase, redeem or
otherwise acquire any such securities or to issue, deliver or sell, or
cause to be issued, delivered or sold, any such securities. BW/IP is not a
party to any voting agreement with respect to the voting of any such
securities. Except for the BW/IP Stock Option Agreement and pursuant to
agreements entered into with respect to the BW/IP Stock Plans as of the
close of business on May 5, 1997, there are no outstanding (A) securities
of BW/IP or any BW/IP subsidiary convertible into or exchangeable or
exercisable for shares of capital stock or other voting securities or
ownership interests in any BW/IP subsidiary, (B) warrants, calls, options
or other rights to acquire from BW/IP or any BW/IP subsidiary, and no
obligation of BW/IP or any BW/IP subsidiary to issue, any capital stock,
voting securities or other ownership interests in, or any securities
convertible into or exchangeable or exercisable for any capital stock,
voting securities or ownership interests in, any BW/IP subsidiary or (C)
obligations of BW/IP or any BW/IP subsidiary to repurchase, redeem or
otherwise acquire any such outstanding securities of BW/IP subsidiaries or
to issue, deliver or sell, or cause to be issued, delivered or sold, any
such securities. Other than the subsidiaries of BW/IP listed in Section
3.01(c)(i) of the BW/IP Disclosure Schedule, BW/IP does not own, directly
or indirectly, any securities or other beneficial ownership interests in
any entity. Except as set forth in Section 3.01(c)(ii) of the BW/IP
Disclosure Schedule, there are no material outstanding contractual
obligations of BW/IP or any subsidiary to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in,
any BW/IP subsidiary or any other person (as defined in Section 8.03),
other than guarantees by BW/IP of any indebtedness of any BW/IP subsidiary.
BW/IP has made available to Durco a complete and correct copy of the Rights
Agreement (the "BW/IP Rights Agreement"), between BW/IP and American Stock
Transfer & Trust Company, relating to rights ("BW/IP Rights") to purchase
BW/IP Junior Preferred Stock.
(d) Authority; Noncontravention. BW/IP has all requisite corporate
power and authority to enter into this Agreement and, subject to the BW/IP
Stockholder Approval (as defined in Section 3.01(l)), to consummate the
transactions contemplated by this Agreement. BW/IP has all requisite
corporate power and authority to enter into the Option Agreements and to
consummate the transactions contemplated thereby. The execution and
delivery of this Agreement and the Option Agreements by BW/IP and the
consummation by BW/IP of the transactions contemplated by this Agreement
and the Option Agreements have been duly authorized by all necessary
corporate action on the part of BW/IP, subject, in the case of this
Agreement, to the BW/IP Stockholder Approval. This Agreement and the Option
Agreements have been duly executed and delivered by BW/IP and, assuming the
due authorization, execution and delivery by each of the other parties
thereto, constitute legal, valid and binding obligations of BW/IP,
enforceable against BW/IP in accordance with their terms. The execution and
delivery of this Agreement and the Option Agreements do not, and the
consummation of the transactions contemplated by this Agreement and the
Option Agreements and compliance with the provisions of this Agreement and
the Option Agreements will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, cancellation or acceleration of any
obligation or loss of a benefit under, or result in the creation of any
Lien upon any of the properties or assets of BW/IP or any of its
subsidiaries under, (i) the certificate of incorporation or by-laws of
BW/IP or the comparable organizational documents of any of its
subsidiaries, subject in the case of BW/IP with respect to this Agreement
to the BW/IP Stockholder Approval, (ii) except as set forth in Section
3.01(d)(ii) of the Bruin Disclosure Schedule any loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument,
permit, concession, franchise, license or similar authorization applicable
to BW/IP or any of its subsidiaries or their respective properties or
assets or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to BW/IP or any of
its
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subsidiaries or their respective properties or assets, other than, in the
case of clauses (ii) and (iii), any such conflicts, violations, defaults,
rights, losses or Liens that individually or in the aggregate would not (x)
have a material adverse effect on BW/IP or (y) reasonably be expected to
impair the ability of BW/IP to perform its obligations under this Agreement
or the Option Agreements. No consent, approval, order or authorization of,
action by or in respect of, or registration, declaration or filing with,
any Federal, state, local or foreign government, any court, administrative,
regulatory or other governmental agency, commission or authority or any
nongovernmental self-regulatory agency, commission or authority (a
"Governmental Entity") is required by or with respect to BW/IP or any of
its subsidiaries in connection with the execution and delivery of this
Agreement or the Option Agreements by BW/IP or the consummation by BW/IP of
the transactions contemplated by this Agreement or the Option Agreements,
except for (1) the filing of a premerger notification and report form by
BW/IP under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"); (2) the filing with the SEC of (A) a proxy
statement relating to the BW/IP Stockholders Meeting (as defined in Section
5.01(b)) (such proxy statement, together with the proxy statement relating
to the Durco Stockholders Meeting (as defined in Section 5.01(c)), in each
case as amended or supplemented from time to time, the "Joint Proxy
Statement"), and (B) such reports under Section 13(a), 13(d), 15(d) or
16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as may be required in connection with this Agreement, the Option
Agreements and the transactions contemplated by this Agreement and the
Option Agreements; (3) the filing of the Certificate of Merger with the
Delaware Secretary of State and appropriate documents with the relevant
authorities of other states in which BW/IP is qualified to do business and
such filings with Governmental Entities to satisfy the applicable
requirements of state securities or "blue sky" laws; (4) such filings with
and approvals of the NYSE to permit the shares of BW/IP Common Stock that
are to be issued pursuant to the BW/IP Stock Option Agreement to be listed
on the NYSE; and (5) such consents, approvals, orders or authorizations the
failure of which to be made or obtained individually or in the aggregate
would not have a material adverse effect on BW/IP.
(e) SEC Documents; Undisclosed Liabilities. BW/IP has filed all
required reports, schedules, forms, statements and other documents
(including exhibits and all other information incorporated therein) with
the SEC since January 1, 1994 (the "BW/IP SEC Documents"). As of their
respective dates, the BW/IP SEC Documents complied in all material respects
with the requirements of the Securities Act of 1933, as amended (the
"Securities Act"), or the Exchange Act, as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to such BW/IP
SEC Documents, and none of the BW/IP SEC Documents when filed contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except to the extent that information contained in any BW/IP
SEC Document has been revised or superseded by a later filed BW/IP SEC
Document, none of the BW/IP SEC Documents contains any untrue statement of
a material fact or omits 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 were made, not misleading. The financial
statements of BW/IP included in the BW/IP SEC Documents comply as to form,
as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with United States generally accepted accounting principles
(except, in the case of unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and fairly present in all
material respects the consolidated financial position of BW/IP and its
consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal recurring year-end
audit adjustments which were not and are not expected individually or in
the aggregate to have a material adverse effect on BW/IP). Except (i) as
reflected in such financial statements or in the notes thereto or (ii) for
liabilities incurred in connection with this Agreement or the Option
Agreements or the transactions contemplated hereby or thereby, neither
BW/IP nor any of its subsidiaries has any liabilities or obligations of any
nature which, individually or in the aggregate, would have a material
adverse effect on BW/IP.
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(f) Information Supplied. None of the information supplied or to be
supplied by BW/IP specifically for inclusion or incorporation by reference
in (i) the registration statement on Form S-4 to be filed with the SEC by
Durco in connection with the issuance of Durco Common Stock in the Merger
(the "Form S-4") will, at the time the Form S-4 becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein not misleading or (ii) the Joint Proxy Statement
will, at the date it is first mailed to BW/IP's stockholders or at the time
of the BW/IP Stockholders 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. The Joint
Proxy Statement will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations thereunder,
except that no representation or warranty is made by BW/IP with respect to
statements made or incorporated by reference therein based on information
supplied by Durco or Sub specifically for inclusion or incorporation by
reference in the Joint Proxy Statement.
(g) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement or the Option Agreements or the
transactions contemplated hereby or thereby, since December 31, 1996 and
through the date hereof, BW/IP and its subsidiaries have conducted their
business only in the ordinary course, and there has not been (i) any
material adverse change in BW/IP, (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of BW/IP's capital stock, other than a
regular quarterly cash dividend of $.11 per share on the BW/IP Common
Stock, (iii) any split, combination or reclassification of any of BW/IP's
capital stock or any issuance or the authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for shares of
BW/IP's capital stock, except for issuances of BW/IP Common Stock upon the
exercise of BW/IP Stock Options awarded prior to the date hereof in
accordance with their present terms or issued pursuant to Section 4.01(a)
or for issuances of BW/IP Rights or BW/IP Common Stock in respect of BW/IP
Rights pursuant to the BW/IP Rights Agreement, (iv) (A) any granting by
BW/IP or any of its subsidiaries to any current or former director,
executive officer or other key employee of BW/IP or its subsidiaries of any
increase in compensation, bonus or other benefits, except for normal
increases in the ordinary course of business consistent with past practice
or as was required under any employment agreements in effect as of the date
of the most recent audited financial statements included in the BW/IP SEC
Documents filed and publicly available prior to the date of this Agreement
(as amended to the date of this Agreement, the "BW/IP Filed SEC
Documents"), (B) any granting by BW/IP or any of its subsidiaries to any
such current or former director, executive officer or key employee of any
increase in severance or termination pay, except as was required under any
employment, severance or termination agreements in effect as of the date of
the most recent audited financial statements included in the BW/IP Filed
SEC Documents filed and publicly available prior to the date of this
Agreement, or (C) any entry by BW/IP or any of its subsidiaries into, or
any amendments of, any employment, deferred compensation, consulting,
severance, termination or indemnification agreement with any such current
or former director, executive officer or key employee, (v) except insofar
as may have been disclosed in the BW/IP Filed SEC Documents or required by
a change in United States generally accepted accounting principles, any
change in accounting methods, principles or practices by BW/IP materially
affecting its assets, liabilities or business, (vi) except insofar as may
have been disclosed in the BW/IP Filed SEC Documents, any tax election that
individually or in the aggregate would have a material adverse effect on
BW/IP or any of its tax attributes or any settlement or compromise of any
material income tax liability, (vii) any waiver, settlement, assignment,
release or compromise of any material claims or litigation or (viii) any
revaluation in any material respect of any of BW/IP's or its subsidiaries'
assets, including writing down of inventory or writing-off notes or
accounts receivable other than in the ordinary course of business.
(h) Compliance with Applicable Laws. BW/IP and its subsidiaries hold
all permits, licenses, variances, exemptions, orders, registrations and
approvals of all Governmental Entities which are required for the operation
of the businesses of BW/IP and its subsidiaries (the "BW/IP Permits"),
except where the failure to have any such BW/IP Permits individually or in
the aggregate would not have a material
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adverse effect on BW/IP. BW/IP and its subsidiaries are in compliance with
the terms of the BW/IP Permits and all applicable statutes, laws,
ordinances, rules and regulations, except where the failure so to comply
individually or in the aggregate would not have a material adverse effect
on BW/IP. As of the date of this Agreement, except as disclosed in the
BW/IP Filed SEC Documents, no action, demand, requirement or investigation
by any Governmental Entity with respect to BW/IP or any of its subsidiaries
or any of their respective properties is pending or, to the knowledge (as
defined in Section 8.03) of BW/IP, threatened, other than, in each case,
those the outcome of which individually or in the aggregate would not (i)
have a material adverse effect on BW/IP or (ii) reasonably be expected to
impair the ability of BW/IP to perform its obligations under this Agreement
or the Option Agreements or prevent or materially delay the consummation of
any of the transactions contemplated by this Agreement or the Option
Agreements. This paragraph does not relate to environmental matters which
are exclusively the subject of Section 3.01(t).
(i) Absence of Changes in Benefit Plans. Since the date of the most recent
audited financial statements included in the BW/IP Filed SEC Documents, there
has not been any adoption or amendment in any material respect by BW/IP or any
of its subsidiaries of any collective bargaining agreement or any material
bonus, pension, profit sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom stock, retirement,
vacation, severance, disability, death benefit, hospitalization, medical or
other plan, arrangement or understanding providing benefits to any current or
former employee, officer or director of BW/IP or any subsidiary that, together
with BW/IP, would be considered a single employer under Section 414(b), (c) or
(m) of the Code (collectively, the "BW/IP Benefit Plans"), or any material
change in any actuarial or other assumption used to calculate funding
obligations with respect to any BW/IP pension plans, or any change in the manner
in which contributions to any BW/IP pension plans are made or the basis on which
such contributions are determined.
(j) ERISA Compliance. (i) Except as disclosed in Section 3.01(j) of the
BW/IP Disclosure Schedule, with respect to the BW/IP Benefit Plans, no event has
occurred and, to the knowledge of BW/IP, there exists no condition or set of
circumstances, in connection with which BW/IP or any of its subsidiaries could
be subject to any liability that individually or in the aggregate would have a
material adverse effect on BW/IP under the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), the Code or any other applicable law.
(ii) Each BW/IP Benefit Plan has been administered in accordance with
its terms, except for any failures so to administer any BW/IP Benefit Plan
that individually or in the aggregate would not have a material adverse
effect on BW/IP. BW/IP, its subsidiaries and all the BW/IP Benefit Plans
are in compliance with the applicable provisions of ERISA, the Code and all
other applicable laws and the terms of all applicable collective bargaining
agreements, except for any failures to be in such compliance that
individually or in the aggregate would not have a material adverse effect
on BW/IP. Each BW/IP Benefit Plan that is intended to be qualified under
Section 401(a) or 401(k) of the Code has received a favorable determination
letter from the IRS that it is so qualified and each trust established in
connection with any BW/IP Benefit Plan that is intended to be exempt from
Federal income taxation under Section 501(a) of the Code has received a
determination letter from the IRS that such trust is so exempt. To the
knowledge of BW/IP, no fact or event has occurred since that date of any
determination letter from the IRS which is reasonably likely to affect
adversely the qualified status of any such BW/IP Benefit Plan or the exempt
status of any such trust.
(iii) Neither BW/IP nor any of its subsidiaries has incurred any
liability under Title IV of ERISA (other than liability for premiums to the
Pension Benefit Guaranty Corporation arising in the ordinary course). No
BW/IP Benefit Plan has incurred an "accumulated funding deficiency" (within
the meaning of Section 302 of ERISA or Section 412 of the Code) whether or
not waived. To the knowledge of BW/IP, there are not any facts or
circumstances that would materially change the funded status of any BW/IP
Benefit Plan that is a "defined benefit" plan (as defined in Section 3(35)
of ERISA) since the date of the most recent actuarial report for such plan.
No BW/IP Benefit Plan is a "multiemployer plan" within the meaning of
Section 3(37) of ERISA.
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(iv) Neither BW/IP nor any of its subsidiaries is a party to any
collective bargaining or other labor union contract applicable to persons
employed by BW/IP or any of its subsidiaries and no collective bargaining
agreement is being negotiated by BW/IP or any of its subsidiaries. As of
the date of this Agreement, there is no labor dispute, strike or work
stoppage against BW/IP or any of its subsidiaries pending or, to the
knowledge of BW/IP, threatened which may interfere with the respective
business activities of BW/IP or any of its subsidiaries, except where such
dispute, strike or work stoppage individually or in the aggregate would not
have a material adverse effect on BW/IP. As of the date of this Agreement,
to the knowledge of BW/IP, none of BW/IP, any of its subsidiaries or any of
their respective representatives or employees has committed any unfair
labor practice in connection with the operation of the respective business
of BW/IP or any of its subsidiaries, and there is no charge or complaint
against BW/IP or any of its subsidiaries by the National Labor Relations
Board or any comparable governmental agency pending or threatened in
writing.
(v) No employee of BW/IP will be entitled to any additional benefits
or any acceleration of the time of payment or vesting of any benefits under
any BW/IP Benefit Plan as a result of the transactions contemplated by this
Agreement or the Option Agreements.
(k) Taxes. (i) Each of BW/IP and its subsidiaries has filed all material
tax returns and reports required to be filed by it and all such returns and
reports are complete and correct in all material respects, or requests for
extensions to file such returns or reports have been timely filed, granted and
have not expired, except to the extent that such failures to file, to be
complete or correct or to have extensions granted that remain in effect
individually or in the aggregate would not have a material adverse effect on
BW/IP. BW/IP and each of its subsidiaries has paid (or BW/IP has paid on its
behalf) all taxes (as defined in Section 3.01(k)(v)) shown as due on such
returns, and the most recent financial statements contained in the BW/IP Filed
SEC Documents reflect an adequate reserve for all taxes payable by BW/IP and its
subsidiaries for all taxable periods and portions thereof accrued through the
date of such financial statements.
(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against BW/IP or any of its subsidiaries that are not adequately
reserved for, except for deficiencies that individually or in the aggregate
would not have a material adverse effect on BW/IP. The Federal income tax
returns of BW/IP and each of its subsidiaries consolidated in such returns
have closed by virtue of the applicable statute of limitations.
(iii) Neither BW/IP nor any of its subsidiaries has taken any action
or knows of any fact, agreement, plan or other circumstance that is
reasonably likely to prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.
(iv) The BW/IP Benefit Plans and other BW/IP compensation arrangements
in effect as of the date of this Agreement have been designed so that the
disallowance of a deduction under Section 162(m) of the Code for employee
remuneration will not apply to any amount paid or payable by BW/IP or any
of its subsidiaries under any such plan or arrangement and, to the
knowledge of BW/IP, no fact or circumstance exists that would cause such
disallowance to apply to any such amount.
(v) As used in this Agreement, "taxes" shall include all (x) Federal,
state, local or foreign income, property, sales, excise and other taxes or
similar governmental charges, including any interest, penalties or
additions with respect thereto, (y) liability for the payment of any
amounts of the type described in (x) as a result of being a member of an
affiliated, consolidated, combined or unitary group, and (z) liability for
the payment of any amounts as a result of being party to any tax sharing
agreement or as a result of any express or implied obligation to indemnify
any other person with respect to the payment of any amounts of the type
described in clause (x) or (y).
(l) Voting Requirements. The affirmative vote of the holders of a majority
of the voting power of all outstanding shares of BW/IP Common Stock, voting as a
single class (with each share of BW/IP Common Stock having one vote per share),
at the BW/IP Stockholders Meeting to adopt this Agreement (the "BW/IP
Stockholder Approval") is the only vote of the holders of any class or series of
BW/IP's capital stock necessary to approve and adopt this Agreement and the
transactions contemplated hereby.
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(m) State Takeover Statutes. The Board of Directors of BW/IP has
unanimously approved the terms of this Agreement and the Option Agreements and
the consummation of the Merger and the other transactions contemplated by this
Agreement and the Option Agreements and, assuming the accuracy of Durco's
representation and warranty contained in Section 3.02(p), such approval
constitutes approval of the Merger and the other transactions contemplated by
this Agreement and the Option Agreements by the BW/IP Board of Directors under
the provisions of Section 203 of the DGCL, and represents all the actions
necessary to ensure that such Section 203 does not apply to Durco or Sub in
connection with the Merger and the other transactions contemplated hereby and by
the Option Agreements. To BW/IP's knowledge, no other state takeover statute or
similar statute or regulation is applicable to the Merger or the other
transactions contemplated hereby and by the Option Agreements.
(n) Accounting Matters. Neither BW/IP nor any of its affiliates (as
defined in Section 8.03) has taken or agreed to take any action that would
prevent the business combination to be effected by the Merger to be accounted
for as a pooling of interests.
(o) Brokers. No broker, investment banker, financial advisor or other
person, other than Merrill Lynch & Co. ("Merrill Lynch"), the fees and expenses
of which will be paid by BW/IP, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement and the Option Agreements based upon arrangements
made by or on behalf of BW/IP. BW/IP has furnished to Durco true and complete
copies of all agreements under which any such fees or expenses are payable and
all indemnification and other agreements related to the engagement of the
persons to whom such fees are payable.
(p) Opinion of Financial Advisor. BW/IP has received the opinion of
Merrill Lynch, dated the date of this Agreement, to the effect that, as of such
date, the Exchange Ratio is fair from a financial point of view to holders of
shares of BW/IP Common Stock (other than Durco and its affiliates), a signed
copy of which opinion has been delivered to Durco.
(q) Ownership of Durco Common Stock. Other than pursuant to the Durco
Stock Option Agreement and except for shares owned by BW/IP Benefit Plans, as of
the date hereof, neither BW/IP nor, to its knowledge, any of its affiliates, (i)
beneficially owns (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, or (ii) is party to any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of, in each case, shares
of capital stock of Durco.
(r) Contracts; Debt Instruments. Except as disclosed in the BW/IP Filed
SEC Reports or in Section 3.01(r) of the BW/IP Disclosure Schedule, there is no
contract or agreement (i) that is material to the business, financial condition
or results of operations of BW/IP and its subsidiaries taken as a whole or (ii)
that purports to limit in any material respect the manner in which or the
geographic locations in which BW/IP and its subsidiaries conduct or may conduct
their business (each, a "BW/IP Material Contract"). Neither BW/IP nor any BW/IP
subsidiary is in violation of or in default under (nor does there exist any
condition which with the passage of time or the giving of notice would cause
such a violation of or default under) any loan or credit agreement, note, bond,
mortgage, indenture or lease, or any other contract, agreement, arrangement or
understanding to which it is a party or by which it or any of its properties or
assets is bound, except for violations or defaults that would not individually
or in the aggregate result in a material adverse effect on BW/IP. Set forth in
Section 3.01(r) of the BW/IP Disclosure Schedule is a description of any
material changes to the amount and terms of the indebtedness of BW/IP and its
subsidiaries as described in the notes to the financial statements incorporated
in BW/IP's Form 10-K for the year ended December 31, 1996.
(s) Litigation. Except as disclosed in the BW/IP Filed SEC Reports or in
Section 3.01(s) of the BW/IP Disclosure Schedule, there is no suit, claim,
action, proceeding or investigation pending or threatened in writing against
BW/IP or any subsidiary before any Governmental Entity that, individually or in
the aggregate, is reasonably likely to have a material adverse effect on BW/IP.
Except as disclosed in the BW/IP Filed SEC Reports or in Section 3.01(s) of the
BW/IP Disclosure Schedule, neither BW/IP nor any BW/IP subsidiary is subject to
any outstanding order, writ, injunction or decree which, insofar as can be
reasonably foreseen, individually or in the aggregate, would have a material
adverse effect on BW/IP.
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(t) Environmental Matters. Except as disclosed in the BW/IP Filed SEC
Reports or in Section 3.01(t) of the BW/IP Disclosure Schedule:
(a) Each of BW/IP and its subsidiaries (i) is in compliance with all
applicable Environmental Laws (defined below), (ii) holds all Environmental
Permits (defined below) required for the operation of the businesses of
BW/IP and its subsidiaries as currently conducted, and (iii) is in
compliance with such Environmental Permits, except as in each case would
not, individually or in the aggregate, have a material adverse effect on
BW/IP.
(b) Neither BW/IP nor any BW/IP subsidiary has received any written
request for information, or been notified that it is a potentially
responsible party, under CERCLA (defined below) or any similar state, local
or foreign Environmental Law.
(c) Neither BW/IP nor any BW/IP subsidiary has entered into or agreed
to any consent decree or order or is subject to any pending judgment,
decree or judicial order relating to compliance with Environmental Laws,
Environmental Permits or the investigation, sampling, monitoring,
treatment, remediation, removal or cleanup of Hazardous Materials (defined
below), and, to the best knowledge of BW/IP, no investigation, litigation
or other proceeding is pending or threatened in writing with respect
thereto.
(d) None of the real property owned or leased by BW/IP or any BW/IP
subsidiary is listed or, to the best knowledge of BW/IP, proposed for
listing on the "National Priorities List" under CERCLA, as updated through
the date hereof, or any similar state or foreign list of sites requiring
investigation or cleanup.
(e) No Hazardous Material has been released at, or transported to or
from, any real property currently or, to the best knowledge of BW/IP,
formerly owned or operated by BW/IP or any BW/IP subsidiary, except as
would not, individually or in the aggregate, have a material adverse effect
on BW/IP.
For purposes of this Agreement:
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended as of the date hereof.
"Environmental Laws" means any federal, state, local or foreign statute,
law, ordinance, regulation, rule or code, any enforceable judicial or
administrative interpretation thereof, including any judicial or administrative
order, decree or judgment, relating to pollution or protection of the
environment or natural resources, including, without limitation, those relating
to the use, handling, transportation, treatment, storage, disposal, release or
discharge of, or exposure to, Hazardous Materials, as in effect as of the date
hereof.
"Environmental Permits" means any permit, approval, identification number,
license and other authorization required under applicable Environmental Law.
"Hazardous Materials" means (a) any petroleum, petroleum products,
by-products or breakdown products, radioactive materials, asbestos-containing
materials or polychlorinated biphenyls or (b) any chemical, material or
substance defined or regulated as toxic or hazardous or as a pollutant or
contaminant or waste under any applicable Environmental Law.
(u) Trademarks, Patents and Copyrights. Except as set forth in Section
3.01(u) of the BW/IP Disclosure Schedule, or to the extent the inaccuracy of any
of the following (or the circumstances giving rise to such inaccuracy)
individually or in the aggregate would not have a material adverse effect on
BW/IP, BW/IP and each of its subsidiaries owns or possesses adequate licenses or
other legal rights to use all patents, patent rights, trademarks, trademark
rights, trade names, trade dress, trade name rights, copyrights, service marks,
trade secrets, applications for trademarks and for service marks, mask works,
know-how and other proprietary rights and information used or held for use in
connection with the business of BW/IP and its subsidiaries as currently
conducted or as contemplated to be conducted, and BW/IP is unaware of any
assertion or claim challenging the validity of any of the foregoing. The conduct
of the business of BW/IP and
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BW/IP subsidiaries as currently conducted and as contemplated to be conducted
did not, does not and will not infringe in any way any patent, patent right,
license, trademark, trademark right, trade dress, trade name, trade name right,
service mark, mask work or copyright of any third party that, individually or in
the aggregate, could have a material adverse effect on BW/IP. To BW/IP's
knowledge, there are no infringements of any proprietary rights owned by or
licensed by or to BW/IP or any BW/IP subsidiary that individually or in the
aggregate could have a material adverse effect on BW/IP.
(v) Insurance. Except as set forth on Section 3.01(v) of the BW/IP
Disclosure Schedule, each of BW/IP and its subsidiaries is, and has been
continuously since January 1, 1994, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary for
companies conducting the business as conducted by BW/IP and its subsidiaries
during such time period. Except as set forth on Schedule 3.01(v) of the BW/IP
Disclosure Schedule, neither BW/IP nor its subsidiaries has received any notice
of cancellation or termination with respect to any material insurance policy of
BW/IP or its subsidiaries. The insurance policies of BW/IP and each of its
subsidiaries are valid and enforceable policies in all material respects.
(w) BW/IP Rights Agreement. The BW/IP Rights Agreement has been amended
(the "BW/IP Rights Plan AmendmenT) to (i) render the BW/IP Rights Agreement
inapplicable to the Merger and the other transactions contemplated by this
Agreement and the Option Agreements, (ii) ensure that (y) none of Durco, its
wholly owned subsidiaries, or its permitted assignees or transferees under the
BW/IP Stock Option Agreement is an Acquiring Person (as defined in the BW/IP
Rights Agreement) pursuant to the BW/IP Rights Agreement and (z) a Distribution
Date, a Section 11(a)(ii) Event or Section 13 Event or Stock Acquisition Date
(as such terms are defined in the BW/IP Rights Agreement) does not occur solely
by reason of the execution of this Agreement and the Option Agreements, the
consummation of the Merger, or the consummation of the other transactions
contemplated by this Agreement and the Option Agreements and (iii) to provide
that the Final Expiration Date (as defined in the BW/IP Rights Agreement) shall
occur immediately prior to the Effective Time, and the BW/IP Rights Plan
Agreement may not be further amended by BW/IP without the prior consent of Durco
in its sole discretion.
SECTION 3.02. Representations and Warranties of Durco and Sub. Except as
disclosed in the Durco Filed SEC Documents (as defined in Section 3.02(g)) or as
set forth on the Disclosure Schedule delivered by Durco to BW/IP prior to the
execution of this Agreement (the "Durco Disclosure Schedule") and making
reference to the particular subsection of this Agreement to which exception is
being taken, Durco and Sub represent and warrant to BW/IP as follows:
(a) Organization, Standing and Corporate Power. Each of Durco, Sub
and Durco's other subsidiaries is a corporation or other legal entity duly
organized, validly existing and in good standing (with respect to
jurisdictions which recognize such concept) under the laws of the
jurisdiction in which it is organized and has the requisite corporate or
other power, as the case may be, and authority to carry on its business as
now being conducted. Each of Durco, Sub and Durco's other subsidiaries is
duly qualified or licensed to do business and is in good standing (with
respect to jurisdictions which recognize such concept) in each jurisdiction
in which the nature of its business or the ownership, leasing or operation
of its properties makes such qualification or licensing necessary, except
for those jurisdictions where the failure to be so qualified or licensed or
to be in good standing individually or in the aggregate would not have a
material adverse effect on Durco. Durco has made available to BW/IP prior
to the execution of this Agreement complete and correct copies of its
certificate of incorporation and by-laws and the certificate of
incorporation and by-laws of Sub, in each case as amended to date.
(b) Subsidiaries. Exhibit 21 to Durco's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 includes all the subsidiaries
of Durco which as of the date of this Agreement are Significant
Subsidiaries. All the outstanding shares of capital stock of, or other
equity interests in, each such Significant Subsidiary have been validly
issued and are fully paid and nonassessable and are owned directly or
indirectly by Durco, free and clear of all Liens and free of any other
restriction (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or otherwise ownership interests).
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(c) Capital Structure. The authorized capital stock of Durco consists
of 60,000,000 shares of Durco Common Stock and 1,000,000 shares of
preferred stock, par value $1.00 per share, of Durco ("Durco Preferred
Stock"). At the close of business on May 5, 1997, (i) 23,489,819 shares of
Durco Common Stock were issued and outstanding, (ii) 1,062,876 shares of
Durco Common Stock were held by Durco in its treasury, (iii) 1,184,000
shares of Durco Common Stock were reserved for issuance pursuant to Durco's
1989 Stock Option Plan, 1997 Stock Option Plan and 1989 Restricted Stock
Plan (such plans, collectively, the "Durco Stock Plans"), (iv) no shares of
Series A Junior Participating Preferred Stock (the "Durco Junior Preferred
Stock") were issued and outstanding and (v) other than the Durco Junior
Preferred Stock, no other shares of Durco Preferred Stock have been
designated or issued. Section 3.02(c) of the Durco Disclosure Schedule sets
forth a complete and correct list, as of April 29, 1997, of the number of
shares of Durco Common Stock subject to employee stock options or other
rights to purchase or receive Durco Common Stock granted under the Durco
Stock Plans (collectively, "Durco Stock Options") and the exercise prices
thereof. All outstanding shares of capital stock of Durco are, and all
shares which may be issued will be, when issued, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
Except as set forth in this Section 3.02(c) and except for changes since
April 29, 1997 resulting from the issuance of shares of Durco Common Stock
pursuant to the options and other rights referred to above in this Section
3.02(c), for the issuance of Durco Rights (as defined below) or Durco
Common Stock in respect of Durco Rights pursuant to the Durco Rights
Agreement (as defined below) or as permitted by Section 4.01(b)(i)(y) and
4.01(b)(ii), (x) there are not issued, reserved for issuance or outstanding
(A) any shares of capital stock or other voting securities of Durco, (B)
any securities of Durco convertible into or exchangeable or exercisable for
shares of capital stock or voting securities of Durco, (C) any warrants,
calls, options or other rights to acquire from Durco, or any Durco
subsidiary and no obligation of Durco or any Durco subsidiary to issue, any
capital stock, voting securities or securities convertible into or
exchangeable or exercisable for capital stock or voting securities of
Durco, (y) there are no outstanding obligations of Durco or any Durco
subsidiary to repurchase, redeem or otherwise acquire any such securities
or to issue, deliver or sell, or cause to be issued, delivered or sold, any
such securities. Durco is not a party to any voting agreement with respect
to the voting of any such securities. Except for the Durco Stock Option
Agreement and pursuant to agreements entered into with respect to the Durco
Stock Plans as of the close of business on May 5, 1997, there are no
outstanding (A) securities of Durco or any Durco subsidiary convertible
into or exchangeable or exercisable for shares of capital stock or other
voting securities or ownership interests in any Durco subsidiary, (B)
warrants, calls, options or other rights to acquire from Durco or any Durco
subsidiary, and no obligation of Durco or any Durco subsidiary to issue,
any capital stock, voting securities or other ownership interests in, or
any securities convertible into or exchangeable or exercisable for any
capital stock, voting securities or ownership interests in, any Durco
subsidiary or (C) obligations of Durco or any Durco subsidiary to
repurchase, redeem or otherwise acquire any such outstanding securities of
Durco subsidiaries or to issue, deliver or sell, or cause to be issued,
delivered or sold, any such securities. Other than the subsidiaries of
Durco referred to in Section 3.02(b), Durco does not own, or directly or
indirectly, any securities or other beneficial ownership interests in any
entity. Except as set forth in Section 3.02(c) of the Durco Disclosure
Schedule, there are no material outstanding contractual obligations of
Durco or any Durco subsidiary to provide funds to, or make any investment
(in the form of a loan, capital contribution or otherwise) in, any Durco
subsidiary or any other person, other than guarantees by Durco of any
indebtedness of any Durco subsidiary. Durco has made available to BW/IP a
complete and correct copy of the Rights Agreement, as amended, (the "Durco
Rights Agreement"), between Durco and Keybank National Association (as
successor to Bank One) relating to rights ("Durco Rights") to purchase
Durco Junior Preferred Stock. As of the date of this Agreement, the
authorized capital stock of Sub consists of 1,000 shares of common stock,
par value $1.00 per share, all of which have been validly issued, are fully
paid and nonassessable and are owned by Durco free and clear of any Lien.
(d) Authority; Noncontravention. Each of Durco and Sub has all
requisite corporate power and authority to enter into this Agreement and,
subject to the Durco Stockholder Approval (as defined in Section 3.02(l)),
to consummate the transactions contemplated by this Agreement. Durco has
all
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requisite corporate power and authority to enter into the Option Agreements
and to consummate the transactions contemplated thereby. The execution and
delivery of this Agreement and the Option Agreements by Durco and Sub, as
applicable, and the consummation by Durco and Sub of the transactions
contemplated by this Agreement and the Option Agreements, as applicable,
have been duly authorized by all necessary corporate action on the part of
Durco and Sub subject, in the case of the issuance of Durco Common Stock in
connection with the Merger, to the Durco Stockholder Approval. This
Agreement and the Option Agreements have been duly executed and delivered
by Durco and Sub, as applicable, and, assuming the due authorization,
execution and delivery by each of the other parties thereto, constitute
legal, valid and binding obligations of Durco and Sub, as applicable,
enforceable against Durco and Sub, as applicable, in accordance with their
terms. The execution and delivery of this Agreement and the Option
Agreements do not, and the consummation of the transactions contemplated by
this Agreement and the Option Agreements and compliance with the provisions
of this Agreement and the Option Agreements will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation
or acceleration of any obligation or loss of a benefit under, or result in
the creation of any Lien upon any of the properties or assets of Durco, Sub
or any of Durco's other subsidiaries under, (i) the certificate of
incorporation or by-laws of Durco, Sub or the comparable organizational
documents of any such other subsidiary, subject in the case of Durco with
respect to this Agreement to the Durco Stockholder Approval, (ii) any loan
or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise, license or similar
authorization applicable to Durco, Sub or any such other subsidiary or any
of their respective properties or assets or (iii) subject to the
governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Durco, Sub or any such other subsidiary or any of
their respective properties or assets, other than, in the case of clauses
(ii) and (iii), any such conflicts, violations, defaults, rights, losses or
Liens that individually or in the aggregate would not (x) have a material
adverse effect on Durco or (y) reasonably be expected to impair the ability
of Durco and Sub to perform their respective obligations under this
Agreement or the Option Agreements, as applicable. No consent, approval,
order or authorization of, action by, or in respect of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Durco, Sub or any such other subsidiary in connection with the
execution and delivery of this Agreement or the Option Agreements by Durco
or Sub, as applicable, or the consummation by Durco or Sub of the
transactions contemplated by this Agreement or the Option Agreements, as
applicable, except for (1) the filing of a premerger notification and
report form by Durco under the HSR Act; (2) the filing with the SEC of (A)
the Joint Proxy Statement relating to the Durco Stockholders Meeting, (B)
the Form S-4 and (C) such reports under Section 13(a), 13(d), 15(d) or
16(a) of the Exchange Act as may be required in connection with this
Agreement, the Option Agreements and the transactions contemplated by this
Agreement and the Option Agreements; (3) the filing of the Certificate of
Merger with the Delaware Secretary of State and appropriate documents with
the relevant authorities of other states in which Durco is qualified to do
business and such filings with Governmental Entities to satisfy the
applicable requirements of state securities or "blue sky" laws; (4) such
filings with and approvals of the NYSE to permit the shares of Durco Common
Stock that are outstanding, and that are to be issued in the Merger, under
the BW/IP Stock Plans and pursuant to the Durco Stock Option Agreement to
be listed on the NYSE; and (5) such consents, approvals, orders or
authorizations the failure of which to be made or obtained individually or
in the aggregate would not have a material adverse effect on Durco.
(e) SEC Documents; Undisclosed Liabilities. Durco has filed all
required reports, schedules, forms, statements and other documents
(including exhibits and all other information incorporated therein) with
the SEC since January 1, 1994 (the "Durco SEC Documents"). As of their
respective dates, the Durco SEC Documents complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such Durco SEC Documents, and none of the Durco
SEC Documents when filed contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
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circumstances under which they were made, not misleading. Except to the
extent that information contained in any Durco SEC Document has been
revised or superseded by a later filed Durco SEC Document, none of the
Durco SEC Documents contains any untrue statement of a material fact or
omits 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 were made, not misleading. The financial statements of
Durco included in the Durco SEC Documents comply as to form, as of their
respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with
United States generally accepted accounting principles (except, in the case
of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in
the notes thereto) and fairly present in all material respects the
consolidated financial position of Durco and its consolidated subsidiaries
as of the dates thereof and the consolidated results of their operations
and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal recurring year-end audit adjustments which
were not and are not expected individually or in the aggregate to have a
material adverse effect on Durco). Except (i) as reflected in such
financial statements or in the notes thereto or (ii) for liabilities
incurred in connection with this Agreement or the Option Agreements or the
transactions contemplated hereby or thereby, neither Durco nor any of its
subsidiaries has any material liabilities or obligations of any nature
which, individually or in the aggregate, would have a material adverse
effect on Durco.
(f) Information Supplied. None of the information supplied or to be
supplied by Durco or Sub specifically for inclusion or incorporation by
reference in (i) the Form S-4 will, at the time the Form S-4 becomes
effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or (ii)
the Joint Proxy Statement will, at the date it is first mailed to Durco's
stockholders or at the time of the Durco Stockholders 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. The Form S-4 and the Joint Proxy Statement will comply as to
form in all material respects with the requirements of the Exchange Act and
the rules and regulations thereunder, except that no representation or
warranty is made by Durco or Sub with respect to statements made or
incorporated by reference therein based on information supplied by BW/IP
specifically for inclusion or incorporation by reference in the Form S-4 or
the Joint Proxy Statement, (vii) any waiver, settlement, assignment,
release or compromise of any material claims or litigation, or (viii) any
revaluation in any material respect of any of Durco's or its subsidiaries'
assets including writing down of inventory or writing-off notes or accounts
receivable other than in the ordinary course of business.
(g) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement or the Option Agreements or the
transactions contemplated hereby or thereby and except for Durco's
announcement on March 5, 1997 of the execution of a letter of intent to
divest Filtration Systems Division, since December 31, 1996 and through the
date hereof, Durco and its subsidiaries have conducted their business only
in the ordinary course, and there has not been (i) any material adverse
change in Durco, (ii) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with
respect to any of Durco's capital stock, other than a regular quarterly
cash dividend of $.14 per share on the Durco Common Stock, (iii) any split,
combination or reclassification of any of Durco's capital stock or any
issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of Durco's capital
stock, except for issuances of Durco Common Stock upon the exercise of
Durco Stock Options awarded prior to the date hereof in accordance with
their present terms or issued pursuant to Section 4.01(b) or for issuances
of Durco Rights or Durco Common Stock in respect of Durco Rights pursuant
to the Durco Rights Agreement, (iv) (A) any granting by Durco or any of its
subsidiaries to any current or former director, executive officer or other
key employee of Durco or its subsidiaries of any increase in compensation,
bonus or other benefits, except pursuant to Durco's Equity Incentive Plan
to Reid D. Wayman as a new officer of Durco effective April 30, 1997 and
for normal increases in the ordinary course of business
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consistent with past practice or as was required under any employment
agreements in effect as of the date of the most recent audited financial
statements included in the Durco SEC Documents filed and publicly available
prior to the date of this Agreement (as amended to the date of this
Agreement, the "Durco Filed SEC Documents"), (B) any granting by Durco or
any of its subsidiaries to any such current or former director, executive
officer or key employee of any increase in severance or termination pay,
except as was required under any employment, severance or termination
agreements in effect as of the date of the most recent audited financial
statements included in the Durco Filed SEC Documents filed and publicly
available prior to the date of this Agreement, or (C) any entry by Durco or
any of its subsidiaries into, or any amendment of, any employment, deferred
compensation consulting, severance, termination or indemnification
agreement with any such current or former director, executive officer or
key employee, (v) except insofar as may have been disclosed in the Durco
Filed SEC Documents or required by a change in generally accepted
accounting principles, any change in United States accounting methods,
principles or practices by Durco materially affecting its assets,
liabilities or business, (vi) except insofar as may have been disclosed in
the Durco Filed SEC Documents, any tax election that individually or in the
aggregate would have a material adverse effect on Durco or any of its tax
attributes or any settlement or compromise of any material income tax
liability, (vii) any waiver, settlement, assignment, release or compromise
of any material claims or litigation, or (viii) any revaluation in any
material respect of any of Durco's or its subsidiaries' assets including
writing down of inventory or writing-off of notes or accounts receivable
other than in the ordinary course of business.
(h) Compliance with Applicable Laws. Durco and its subsidiaries hold
all permits, licenses, variances, exemptions, orders, registrations and
approvals of all Governmental Entities which are required for the operation
of the businesses of Durco and its subsidiaries (the "Durco Permits")
except where the failure to have any such Durco Permits individually or in
the aggregate would not have a material adverse effect on Durco. Durco and
its subsidiaries are in compliance with the terms of the Durco Permits and
all applicable statutes, laws, ordinances, rules and regulations, except
where the failure so to comply individually or in the aggregate would not
have a material adverse effect on Durco. As of the date of this Agreement,
except as disclosed in the Durco Filed SEC Documents, no action, demand,
requirement or investigation by any Governmental Entity with respect to
Durco or any of its subsidiaries or any of their respective properties is
pending or, to the knowledge of Durco, threatened, other than, in each
case, those the outcome of which individually or in the aggregate would not
(i) have a material adverse effect on Durco or (ii) reasonably be expected
to impair the ability of Durco or Sub to perform its obligations under this
Agreement or the Option Agreements, as applicable, or prevent or materially
delay the consummation of any of the transactions contemplated by this
Agreement or the Option Agreements. This paragraph does not relate to
environmental matters which are exclusively the subject of Section 3.02(t).
(i) Absence of Changes in Benefit Plans. Except for the Durco
shareholder approval of Durco's 1997 Stock Option Plan on April 24, 1997,
since the date of the most recent audited financial statements included in
the Durco Filed SEC Documents, there has not been any adoption or amendment
in any material respect by Durco or any of its subsidiaries of any
collective bargaining agreement or any material bonus, pension, profit
sharing, deferred compensation, incentive compensation, stock ownership,
stock purchase, stock option, phantom stock, retirement, vacation,
severance, disability, death benefit, hospitalization, medical or other
plan, arrangement or understanding providing benefits to any current or
former employee, officer or director of Durco or any subsidiary that,
together with Durco, would be considered a single employer under Section
414(b), (c) or (m) of the Code (collectively, the "Durco Benefit Plans"),
or any material change in any actuarial or other assumption used to
calculate funding obligations with respect to any Durco pension plans, or
any change in the manner in which contributions to any Durco pension plans
are made or the basis on which such contributions are determined.
(j) ERISA Compliance. (i) Except as disclosed in Section 3.02(j) of
the Durco Disclosure Schedule, with respect to the Durco Benefit Plans, no
event has occurred and, to the knowledge of Durco, there exists no
condition or set of circumstances, in connection with which Durco or any of
its subsidiaries
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could be subject to any liability that individually or in the aggregate
would have a material adverse effect on Durco under ERISA, the Code or any
other applicable law.
(ii) Each Durco Benefit Plan has been administered in accordance
with its terms, except for any failures so to administer any Durco
Benefit Plan that individually or in the aggregate would not have a
material adverse effect on Durco. Durco, its subsidiaries and all the
Durco Benefit Plans are in compliance with the applicable provisions of
ERISA, the Code and all other applicable laws and the terms of all
applicable collective bargaining agreements, except for any failures to
be in such compliance that individually or in the aggregate would not
have a material adverse effect on Durco. Each Durco Benefit Plan that is
intended to be qualified under Section 401(a) or 401(k) of the Code has
received a favorable determination letter from the IRS that it is so
qualified and each trust established in connection with any Durco
Benefit Plan that is intended to be exempt from Federal income taxation
under Section 501(a) of the Code has received, or expects to receive
based upon the advice of Durco's external employee benefits counsel, a
determination letter from the IRS that such trust is so exempt. To the
knowledge of Durco, no fact or event has occurred since that date of any
determination letter from the IRS which is reasonably likely to affect
adversely the qualified status of any such Durco Benefit Plan or the
exempt status of any such trust.
(iii) Neither Durco nor any of its subsidiaries has incurred any
liability under Title IV of ERISA (other than liability for premiums to
the Pension Benefit Guaranty Corporation arising in the ordinary
course). No Durco Benefit Plan has incurred an "accumulated funding
deficiency" (within the meaning of Section 302 of ERISA or Section 412
of the Code) whether or not waived. To the knowledge of Durco, there are
not any facts or circumstances that would materially change the funded
status of any Durco Benefit Plan that is a "defined benefit" plan (as
defined in Section 3(35) of ERISA) since the date of the most recent
actuarial report for such plan. No Durco Benefit Plan is a
"multiemployer plan" within the meaning of Section 3(37) of ERISA.
(iv) Except as listed on Schedule 3.02(j) neither Durco nor any of
its subsidiaries is a party to any collective bargaining or other labor
union contract applicable to persons employed by Durco or any of its
subsidiaries and no collective bargaining agreement is being negotiated
by Durco or any of its subsidiaries. As of the date of this Agreement,
there is no labor dispute, strike or work stoppage against Durco or any
of its subsidiaries pending or, to the knowledge of Durco, threatened
which may interfere with the respective business activities of Durco or
any of its subsidiaries, except where such dispute, strike or work
stoppage individually or in the aggregate would not have a material
adverse effect on Durco. As of the date of this Agreement, to the
knowledge of Durco, none of Durco, any of its subsidiaries or any of
their respective representatives or employees has committed any unfair
labor practice in connection with the operation of the respective
businesses of Durco or any of its subsidiaries, and there is no charge
or complaint against Durco or any of its subsidiaries by the National
Labor Relations Board or any comparable governmental agency pending or
threatened in writing, except as listed on Schedule 3.02(j).
(v) No employee of Durco will be entitled to any additional
benefits or any acceleration of the time of payment or vesting of any
benefits under any Durco Benefit Plan as a result of the transactions
contemplated by this Agreement or the Option Agreements.
(k) Taxes. (i) Each of Durco and its subsidiaries has filed all
material tax returns and reports required to be filed by it and all such
returns and reports are complete and correct in all material respects, or
requests for extensions to file such returns or reports have been timely
filed, granted and have not expired, except to the extent that such
failures to file, to be complete or correct or to have extensions granted
that remain in effect individually or in the aggregate would not have a
material adverse effect on Durco. Durco and each of its subsidiaries has
paid (or Durco has paid on its behalf) all taxes shown as due on such
returns, and the most recent financial statements contained in the Durco
Filed SEC Documents reflect an adequate reserve for all taxes payable by
Durco and its subsidiaries for all taxable periods and portions thereof
accrued through the date of such financial statements.
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(ii) No deficiencies for any taxes have been proposed, asserted or
assessed against Durco or any of its subsidiaries that are not
adequately reserved for, except for deficiencies that individually or in
the aggregate would not have a material adverse effect on Durco. The
Federal income tax returns of Durco and each of its subsidiaries
consolidated in such returns have closed by virtue of the applicable
statute of limitations.
(iii) Neither Durco nor any of its subsidiaries has taken any
action or knows of any fact, agreement, plan or other circumstance that
is reasonably likely to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
(iv) The Durco Benefit Plans and other Durco compensation
arrangements in effect as of the date of this Agreement have been
designed (including the provisions allowing the deferral of payments
until after the executive's retirement) so that the disallowance of a
deduction under Section 162(m) of the Code for employee remuneration
will not apply to any amount paid or payable by Durco or any of its
subsidiaries under any such plan or arrangement and, to the knowledge of
Durco, no fact or circumstance exists that would cause such disallowance
to apply to any such amount.
(l) Voting Requirements. The affirmative vote at the Durco
Stockholders Meeting of the holders of a majority of all shares of Durco
Common Stock casting votes is the only vote of the holders of any class or
series of Durco's capital stock necessary to approve, in accordance with
the applicable rules of the NASD, the issuance of Durco Common Stock
pursuant to the Merger and the affirmative vote of the holders of a
majority of all outstanding shares of Durco Common Stock is the only vote
of the holders of any Class or series of Durco's capital stock necessary to
approve the change of Durco's name in accordance with Section 5.19 (such
votes being collectively referred to as the "Durco Stockholder Approvals").
(m) Accounting Matters. Neither Durco nor any of its affiliates has
taken or agreed to take any action that would prevent the business
combination to be effected by the Merger to be accounted for as a pooling
of interests.
(n) Brokers. No broker, investment banker, financial advisor or other
person, other than Salomon Brothers Inc ("Salomon"), the fees and expenses
of which will be paid by Durco or, if the Merger occurs, the Surviving
Corporation, is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions
contemplated by this Agreement and the Option Agreements based upon
arrangements made by or on behalf of Durco or Sub. Durco has furnished to
BW/IP true and complete copies of all agreements under which any such fees
or expenses are payable and all indemnification and other agreements
related to the engagement of the persons to whom such fees are payable.
(o) Opinion of Financial Advisor. Durco has received the opinion of
Salomon, dated the date of this Agreement, to the effect that, as of such
date, the Exchange Ratio for the conversion of BW/IP Common Stock into
Durco Common Stock pursuant to the Merger is fair to Durco's stockholders
from a financial point of view, a signed copy of which opinion has been
delivered to BW/IP.
(p) Ownership of BW/IP Common Stock. Other than pursuant to the BW/IP
Stock Option Agreement and except for shares owned by Durco Benefit Plans,
as of the date hereof, neither Durco nor, to its knowledge, any of its
affiliates, (i) beneficially owns (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, or (ii) is party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting
or disposing of, in each case, shares of capital stock of BW/IP.
(q) Contracts; Debt Instruments. Except as disclosed in the Durco
Filed SEC Reports or in Section 3.02(q) of the Durco Disclosure Schedule,
there is no contract or agreement (i) that is material to the business,
financial condition or results of operations of Durco and the Durco
subsidiaries taken as a whole or (ii) that purports to limit in any
material respect the manner in which or the geographic locations in which
Durco and its subsidiaries conduct or may conduct their business (each, a
"Durco Material Contract"). Neither Durco or any Durco subsidiary is in
violation of or in default under (nor
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does there exist any condition which with the passage of time or the giving
of notice would cause such a violation of or default under) any loan or
credit agreement, note, bond, mortgage, indenture or lease, or any other
contract, agreement, arrangement or understanding to which it is a party or
by which it or any of its properties or assets is bound, except for
violations or defaults that would not individually or in the aggregate
result in a material adverse effect on Durco. Set forth in Section 3.02(q)
of the Durco Disclosure Schedule is a description of any material changes
to the amount and terms of the indebtedness of Durco and its subsidiaries
as described in the notes to the financial statements incorporated in
Durco's Form 10-K for the year ended December 31, 1996.
(r) Litigation. Except as disclosed in the Durco Filed SEC Reports or
in Section 3.02(r) of the Durco Disclosure Schedule, there is no suit,
claim, action, proceeding or investigation pending or threatened in writing
against Durco or any Durco subsidiary before any Governmental Entity that
individually or in the aggregate is reasonably likely to have a material
adverse effect on Durco. Except as disclosed in the Durco Filed SEC Reports
or in Section 3.02(r) of the Durco Disclosure Schedule, neither Durco nor
any Durco subsidiary is subject to any outstanding order, writ, injunction
or decree which, insofar as can be reasonably foreseen, individually or in
the aggregate would have a material adverse effect on Durco.
(s) Environmental Matters. Except as disclosed on the Durco Filed SEC
Reports or in Section 3.02(s) of the Durco Disclosure Schedule:
(a) Each of Durco and its subsidiaries (i) is in compliance with
all applicable Environmental Laws, (ii) holds all Environmental Permits
required for the operation of the business of Durco and its subsidiaries
as currently conducted and (iii) is in compliance with such
Environmental Permits, except in each case as would not, individually or
in the aggregate, have a material adverse effect on Durco.
(b) Neither Durco nor any Durco subsidiary has received any written
request for information, or been notified that it is a potentially
responsible party, under CERCLA or any similar state, local or foreign
Environmental Law.
(c) Neither Durco nor any Durco subsidiary has entered into or
agreed to any consent decree or order or is subject to any pending
judgment, decree or judicial order relating to compliance with
Environmental Laws, Environmental Permits or the investigation,
sampling, monitoring, treatment, remediation, removal or cleanup of
Hazardous Materials, and, to the best knowledge of Durco, no
investigation, litigation or other proceeding is pending or threatened
in writing with respect thereto.
(d) None of the real property owned or leased by Durco or any Durco
subsidiary is listed or, to the best knowledge of Durco, proposed for
listing on the "National Priorities List" under CERCLA, as updated
through the date hereof, or any similar state or foreign list of sites
requiring investigation or cleanup.
(e) No Hazardous Material has been released at, or transported to
or from, any real property currently or, to the best knowledge of Durco,
formerly owned or operated by Durco or any Durco subsidiary, except as
would not, individually or in the aggregate, have a material adverse
effect on Durco.
(t) Trademarks, Patents and Copyrights. Except as set forth in
Section 3.02(t) of the Durco Disclosure Schedule, or to the extent the
inaccuracy of any of the following (or the circumstances giving rise to
such inaccuracy), individually or in the aggregate, would not have a
material adverse effect on Durco, Durco and each of the Durco subsidiaries
own or possess adequate licenses or other legal rights to use all patents,
patent rights, trademarks, trademark rights, trade names, trade dress,
trade name rights, copyrights, service marks, trade secrets, applications
for trademarks and for service marks, mask works, know-how and other
proprietary rights and information used or held for use in connection with
the business of Durco and the Durco subsidiaries as currently conducted or
as contemplated to be conducted, and Durco is unaware of any assertion or
claim challenging the validity of any of the foregoing. The conduct of the
business of Durco and the Durco subsidiaries as currently conducted and as
contemplated
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to be conducted did not, does not and will not infringe in any way any
patent, patent right, license, trademark, trademark right, trade dress,
trade name, trade name right, service mark, mask work or copyright of any
third party that individually or in the aggregate could have a material
adverse effect on Durco. To Durco's knowledge, there are no infringements
of any proprietary rights owned by or licensed by or to Durco or any Durco
subsidiary that individually or in the aggregate could have a material
adverse effect on Durco.
(u) Ownership of Sub; No Prior Activities. (i) Sub was formed solely
for the purpose of engaging in the transactions contemplated by this
Agreement.
(ii) As of the Effective Time, all of the outstanding capital stock
of Sub will be owned directly by Durco. As of the Effective Time, there
will be no options, warrants or other rights (including registration
rights), agreements, arrangements or commitments to which Sub is a party
of any character relating to the issued or unissued capital stock of, or
other equity interests in, Sub or obligating Sub to grant, issue or sell
any shares of the capital stock of or other equity interests in, Sub, by
sale, lease, license or otherwise. There are no obligations, contingent
or otherwise, of Sub to repurchase, redeem or otherwise acquire any
shares of the capital stock of Sub.
(v) Insurance. Except as set forth on Section 3.02(v) of the Durco
Disclosure Schedule, each of Durco and its subsidiaries is, and has been
continuously since January 1, 1994, insured with financially responsible
insurers in such amounts and against such risks and losses as are customary
for companies conducting the business as conducted by Durco and its
subsidiaries during such time period. Except as set forth on Schedule
3.02(v) of the Durco Disclosure Schedule, neither Durco nor its
subsidiaries has received any notice of cancellation or termination with
respect to any material insurance policy of Durco or its subsidiaries. The
insurance policies of Durco and each of its subsidiaries are valid and
enforceable policies in all material respects.
(w) Durco Rights Agreement. The Durco Rights Agreement is
inapplicable to the Merger and the other transactions contemplated by this
Agreement and the Option Agreements, and none of BW/IP, its wholly owned
subsidiaries, its permitted assignees or transferees under the Durco Stock
Option Agreement will become an Acquiring Person (as defined in the Durco
Rights Agreement) pursuant to the Durco Rights Agreement and a Distribution
Date or Stock Acquisition Date (as such terms are defined in the Durco
Rights Agreement) or any event described in Sections 11(a)(ii) or 13(a) of
the Durco Rights Agreement will not occur solely by reason of the execution
of this Agreement and the Option Agreements, the consummation of the
Merger, or the consummation of the other transactions contemplated by this
Agreement and the Option Agreements.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 4.01. Conduct of Business. (a) Conduct of Business by
BW/IP. Except as set forth in Section 4.01(a) of the BW/IP Disclosure Schedule,
as otherwise expressly contemplated by this Agreement or the Option Agreements
or as consented to by Durco, such consent not to be unreasonably withheld or
delayed, during the period from the date of this Agreement to the Effective
Time, BW/IP shall, and shall cause its subsidiaries to, carry on their
respective businesses in the ordinary course consistent with past practice and
in compliance in all material respects with all applicable laws and regulations
and, to the extent consistent therewith, use all reasonable efforts to preserve
intact their current business organizations, use reasonable efforts to keep
available the services of their current officers and other key employees and
preserve their relationships with those persons having business dealings with
them to the end that their goodwill and ongoing businesses shall be unimpaired
at the Effective Time. Without limiting the generality of the foregoing (but
subject to the above exceptions), during the period from the date of this
Agreement to the Effective Time, BW/IP shall not, and shall not permit any of
its subsidiaries to:
(i) other than dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned subsidiary of BW/IP to
its parent, or by a subsidiary that is partially owned by BW/IP or
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any of its subsidiaries, provided that BW/IP or any such subsidiary
receives or is to receive its proportionate share thereof, and other than
the regular quarterly cash dividends of $.11 per share with respect to the
BW/IP Common Stock, (x) declare, set aside or pay any dividends on, or make
any other distributions in respect of, any of its capital stock, (y) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, except for issuances of BW/IP
Common Stock upon the exercise of BW/IP Stock Options outstanding as of the
date hereof in accordance with their present terms or issued pursuant to
Section 4.01(a)(ii) or (z) purchase, redeem or otherwise acquire any shares
of capital stock of BW/IP or any of its subsidiaries or any other
securities thereof or any rights, warrants or options to acquire any such
shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber or subject to
any Lien any shares of its capital stock, any other voting securities or
any securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities
(other than (x) the issuance of BW/IP Common Stock upon the exercise of
BW/IP Stock Options outstanding as of the date hereof in accordance with
their present terms or, after consulting with Durco, granted after the date
hereof in the ordinary course of business consistent with past practice (so
long as such additional amount of BW/IP Common Stock subject to BW/IP Stock
Options issued to employees does not exceed amounts historically granted),
(y) in accordance with the BW/IP Rights Agreement or (z) pursuant to the
BW/IP Stock Option Agreement;
(iii) except as contemplated hereby, amend its certificate of
incorporation, by-laws or other comparable organizational documents;
(iv) sell, lease, license, mortgage or otherwise encumber or subject
to any Lien or otherwise dispose of any of its properties or assets
(including securitizations), other than in the ordinary course of business
consistent with past practice;
(v) (A) acquire (including, without limitation, by merger,
consolidation or acquisition of stock or assets) any interest in any
corporation, partnership, other business organization, person or any
division thereof or any assets, other than acquisitions of assets in the
ordinary course of business consistent with past practice and any other
acquisitions for consideration that is not, in the aggregate, in excess of
$1,000,000; (B) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person for
borrowed money, except for indebtedness for borrowed money incurred in the
ordinary course of business consistent with past practice or incurred to
refinance outstanding indebtedness for borrowed money existing on the date
of this Agreement or other indebtedness for borrowed money with a maturity
of not more than one year in a principal amount not, in the aggregate, in
excess of $1,000,000; (C) terminate, cancel or request any material change
in, or agree to any material change in, any BW/IP Material Contract or
enter into any contract or agreement material to the business, results of
operations or financial condition of BW/IP and the BW/IP subsidiaries taken
as a whole, in either case other than in the ordinary course of business
consistent with past practice; (D) make or authorize any capital
expenditure, other than capital expenditures that are disclosed on the
capital expenditure schedule for BW/IP and its subsidiaries previously
provided to Durco; or (E) enter into or amend any contract, agreement,
commitment or arrangement that, if fully performed, would not be permitted
under this Section 4.01(a)(v);
(vi) adopt or amend in any material respect any BW/IP Benefit Plan or
increase the compensation of any officer or senior executive of BW/IP or
any of its subsidiaries, except that BW/IP may grant retention bonuses to
key employees in an aggregate amount and to an aggregate number of
employees to be approved by Durco, such approval not to be unreasonably
withheld;
(vii) take any action that would cause the representations and
warranties set forth in Section 3.01(g)(iv)-(viii) (with each reference
therein to "ordinary course of business" being deemed for purposes of this
Section 4.01(a)(vii) to be immediately followed by "consistent with past
practice") to no longer be true and correct; or
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(viii) authorize, or commit or agree to take, any of the foregoing
actions;
provided that the limitations set forth in this Section 4.01(a) (other than
clause (iii)) shall not apply to any transaction between BW/IP and any wholly
owned subsidiary or between any wholly owned subsidiaries of BW/IP.
(b) Conduct of Business by Durco. Except as set forth in Section 4.01(b)
of the Durco Disclosure Schedule, as otherwise expressly contemplated by this
Agreement or the Option Agreement or as consented to by BW/IP, such consent not
to be unreasonably withheld or delayed, during the period from the date of this
Agreement to the Effective Time, Durco shall, and shall cause its subsidiaries
to, carry on their respective businesses in the ordinary course consistent with
past practice and in compliance in all material respects with all applicable
laws and regulations and, to the extent consistent therewith, use all reasonable
efforts to preserve intact their current business organizations, use reasonable
efforts to keep available the services of their current officers and other key
employees and preserve their relationships with those persons having business
dealings with them to the end that their goodwill and ongoing businesses shall
be unimpaired at the Effective Time. Without limiting the generality of the
foregoing (but subject to the above exceptions), during the period from the date
of this Agreement to the Effective Time, Durco shall not, and shall not permit
any of its subsidiaries to:
(i) other than dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned subsidiary of Durco to
its parent, or by a subsidiary that is partially owned by Durco or any of
its subsidiaries, provided that Durco or any such subsidiary receives or is
to receive its proportionate share thereof, and other than the regular
quarterly cash dividends of $.14 per share with respect to the Durco Common
Stock, (x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, (y) split, combine
or reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution for
shares of its capital stock, except for issuances of Durco Common Stock
upon the exercise of Durco Stock Options outstanding as of the date hereof
in accordance with their present terms or issued pursuant to Section
4.01(b)(ii) or (z) purchase, redeem or otherwise acquire any shares of
capital stock of Durco or any of its subsidiaries or any other securities
thereof or any rights, warrants or options to acquire any such shares or
other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber or subject to
any Lien any shares of its capital stock, any other voting securities or
any securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities
(other than (x) the issuance of Durco Common Stock upon the exercise of
Durco Stock Options outstanding as of the date hereof in accordance with
their present terms or, after consulting with BW/IP, granted after the date
hereof in the ordinary course of business consistent with past practice (so
long as such additional amount of Durco Common Stock subject to Durco Stock
Options issued to employees does not exceed amounts historically granted),
(y) in accordance with the Durco Rights Agreement or (z) pursuant to the
Durco Stock Option Agreement;
(iii) except as contemplated hereby, amend its certificate of
incorporation, by-laws or other comparable organizational documents;
(iv) sell, lease, license, mortgage or otherwise encumber or subject
to any Lien or otherwise dispose of any of its properties or assets
(including securitizations), other than in the ordinary course of business
consistent with past practice, except pursuant to the letter of intent
executed by Durco on March 5, 1997 concerning the divestiture of Durco's
Filtration Systems Division;
(v) (A) acquire (including, without limitation, by merger,
consolidation or acquisition of stock or assets) any interest in any
corporation, partnership, other business organization, person or any
division thereof or any assets, other than acquisitions of assets in the
ordinary course of business consistent with past practice and any other
acquisitions for consideration that is not, in the aggregate, in excess of
$1,000,000; (B) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any
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person for borrowed money, except for indebtedness for borrowed money
incurred in the ordinary course of business consistent with past practice
or incurred to refinance outstanding indebtedness for borrowed money
existing on the date of this Agreement or other indebtedness for borrowed
money with a maturity of not more than one year in a principal amount not,
in the aggregate, in excess of $1,000,000; (C) terminate, cancel or request
any material change in, or agree to any material change in, any Durco
Material Contract or enter into any contract or agreement material to the
business, results of operations or financial condition of Durco and the
Durco subsidiaries taken as a whole, in either case other than in the
ordinary course of business consistent with past practice; (D) make or
authorize any capital expenditure, other than capital expenditures that are
disclosed on the capital expenditure schedule for Durco and its
subsidiaries previously provided to BW/IP; or (E) enter into or amend any
contract, agreement, commitment or arrangement that, if fully performed,
would not be permitted under this Section 4.01(b)(v);
(vi) adopt or amend in any material respect any Durco Benefit Plan or
increase the compensation of any officer or senior executive of Durco or
any of its subsidiaries, except that BW/IP may grant retention bonuses to
key employees in an aggregate amount and to an aggregate number of
employees to be approved by BW/IP, such approval not to be unreasonably
withheld;
(vii) take any action that would cause the representations and
warranties set forth in Section 3.02(g)(iv)-(viii) (with each reference
therein to "ordinary course of business" being deemed for purposes of this
Section 4.01(b)(vii) to be immediately followed by "consistent with past
practice") to no longer be true and correct; or
(viii) authorize, or commit or agree to take, any of the foregoing
actions;
provided that the limitations set forth in this Section 4.01(b) (other than
clause (iii)) shall not apply to any transaction between Durco and any wholly
owned subsidiary or between any wholly owned subsidiaries of Durco.
(c) Coordination of Dividends. Each of Durco and BW/IP shall coordinate
with the other regarding the declaration and payment of dividends in respect of
the Durco Common Stock and the BW/IP Common Stock and the record dates and
payment dates relating thereto, it being the intention of Durco and BW/IP that
any holder of BW/IP Common Stock shall not receive two dividends, or fail to
receive one dividend, for any single calendar quarter with respect to its shares
of BW/IP Common Stock and/or any shares of Durco Common Stock any such holder
receives in exchange therefor pursuant to the Merger.
(d) Other Actions. Except as required by law, BW/IP and Durco shall not,
and shall not permit any of their respective subsidiaries to, voluntarily take
any action that would, or that could reasonably be expected to, result in (i)
any of the representations and warranties of such party set forth in this
Agreement or the Option Agreements that are qualified as to materiality becoming
untrue at the Effective Time, (ii) any of such representations and warranties
that are not so qualified becoming untrue in any material respect at the
Effective Time, or (iii) any of the conditions to the Merger set forth in
Article VI not being satisfied.
(e) Advice of Changes. BW/IP and Durco shall promptly advise the other
party orally and in writing to the extent it has knowledge of (i) any
representation or warranty made by it contained in this Agreement or the Option
Agreements that is qualified as to materiality becoming untrue or inaccurate in
any respect or any such representation or warranty that is not so qualified
becoming untrue or inaccurate in any material respect, (ii) the failure by it to
comply in any material respect with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement or the Option Agreements and (iii) any change or event having, or
which, insofar as can reasonably be foreseen, could reasonably be expected to
have a material adverse effect on such party or on the truth of their respective
representations and warranties or the ability of the conditions set forth in
Article VI to be satisfied; provided, however, that no such notification shall
affect the representations, warranties, covenants or agreements of the parties
(or remedies with respect thereto) or the conditions to the obligations of the
parties under this Agreement or the Option Agreements.
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SECTION 4.02. No Solicitation by BW/IP. (a) BW/IP shall not, nor shall it
permit any of its subsidiaries to, nor shall it authorize or permit any of its
directors, officers or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or any of its
subsidiaries to, directly or indirectly through another person, (i) solicit,
initiate or encourage (including by way of furnishing information), or take any
other action designed to facilitate, any inquiries or the making of any proposal
which constitutes any BW/IP Takeover Proposal (as defined below) or (ii)
participate in any discussions or negotiations regarding any BW/IP Takeover
Proposal; provided, however, that if, at any time during the 15 business days
prior to the publicly announced date of the BW/IP Stockholders Meeting (as
defined in Section 5.01(b)) (the "BW/IP Applicable Period"), the Board of
Directors of BW/IP determines in good faith, after consultation with outside
counsel, that it is necessary to do so in order to comply with its fiduciary
duties to BW/IP's stockholders under applicable law, BW/IP may, in response to a
BW/IP Superior Proposal (as defined in Section 4.02(b)) which was not solicited
by it or which did not otherwise result from a breach of this Section 4.02(a),
and subject to providing prior written notice of its decision to take such
action to Durco (the "BW/IP Notice") and compliance with Section 4.02(c), for a
period of five business days following delivery of the BW/IP Notice (x) furnish
information with respect to BW/IP and its subsidiaries to any person making a
BW/IP Superior Proposal pursuant to a customary confidentiality agreement (as
determined by BW/IP after consultation with its outside counsel) and (y)
participate in discussions or negotiations regarding such BW/IP Superior
Proposal. For purposes of this Agreement, "BW/IP Takeover Proposal" means any
inquiry, proposal or offer from any person relating to any direct or indirect
acquisition or purchase of a business that constitutes 15% or more of the net
revenues, net income or the assets of BW/IP and its subsidiaries, taken as a
whole, or 15% or more of any class of equity securities of BW/IP or any of its
subsidiaries, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 15% or more of any class of equity
securities of BW/IP or any of its subsidiaries, or any merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving BW/IP or any of its subsidiaries, other than the
transactions contemplated by this Agreement. BW/IP shall be permitted to deliver
only one BW/IP Notice with respect to each person making a BW/IP Superior
Proposal.
(b) Except as expressly permitted by this Section 4.02, neither the Board
of Directors of BW/IP nor any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to Durco, the
approval or recommendation by such Board of Directors or such committee of the
Merger or this Agreement, (ii) approve or recommend, or propose publicly to
approve or recommend, any BW/IP Takeover Proposal, or (iii) cause BW/IP to enter
into any letter of intent, agreement in principle, acquisition agreement or
other similar agreement (each, a "BW/IP Acquisition Agreement") related to any
BW/IP Takeover Proposal. Notwithstanding the foregoing, in the event that during
the BW/IP Applicable Period the Board of Directors of BW/IP determines in good
faith that there is a substantial probability that the adoption of this
Agreement by holders of BW/IP Common Stock will not be obtained due to the
existence of a BW/IP Superior Proposal, the Board of Directors of BW/IP may
(subject to this and the following sentences) terminate this Agreement (and
concurrently with or after such termination, if it so chooses, cause BW/IP to
enter into any BW/IP Acquisition Agreement with respect to any BW/IP Superior
Proposal), but only at a time that is during the BW/IP Applicable Period and is
after the fifth business day following Durco's receipt of written notice
advising Durco that the Board of Directors of BW/IP is prepared to accept a
BW/IP Superior Proposal, specifying the material terms and conditions of such
BW/IP Superior Proposal and identifying the person making such BW/IP Superior
Proposal. For purposes of this Agreement, a "BW/IP Superior Proposal" means any
proposal made by a third party (i) to acquire, directly or indirectly, including
pursuant to a tender offer, exchange offer, merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction,
for consideration consisting of cash and/or securities, more than 50% of the
combined voting power of the shares of BW/IP Common Stock then outstanding or
all or substantially all the assets of BW/IP, (ii) that is otherwise on terms
which the Board of Directors of BW/IP determines in its good faith judgment
(based on the advice of a financial advisor of nationally recognized reputation)
to be more favorable to BW/IP's stockholders than the Merger, (iii) for which
financing, to the extent required, is then committed or which, in the good faith
judgment of the Board of Directors of BW/IP, is reasonably capable of being
obtained by such third party and (iv) for which, in the good faith judgment of
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the Board of Directors of BW/IP, no regulatory approvals are required, including
antitrust approvals, that could not reasonably be expected to be obtained.
(c) In addition to the obligations of BW/IP set forth in paragraphs (a) and
(b) of this Section 4.02, BW/IP shall immediately advise Durco orally and in
writing of any request for information or of any BW/IP Takeover Proposal, the
material terms and conditions of such request or BW/IP Takeover Proposal and the
identity of the person making such request or BW/IP Takeover Proposal. BW/IP
will keep Durco reasonably informed of the status and details (including
amendments or proposed amendments) of any such request or BW/IP Takeover
Proposal.
(d) Nothing contained in this Section 4.02 shall prohibit BW/IP from taking
and disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to BW/IP's
stockholders if, in the good faith judgment of the Board of Directors of BW/IP,
after consultation with outside counsel, failure so to disclose would be
inconsistent with its obligations under applicable law; provided, however, that
neither BW/IP nor its Board of Directors nor any committee thereof shall
withdraw or modify, or propose publicly to withdraw or modify, its position with
respect to this Agreement or the Merger or approve or recommend, or propose
publicly to approve or recommend, a BW/IP Takeover Proposal.
SECTION 4.03. No Solicitation by Durco. (a) Durco shall not, nor shall it
permit any of its subsidiaries to, nor shall it authorize or permit any of its
directors, officers or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or any of its
subsidiaries to, directly or indirectly through another person, (i) solicit,
initiate or encourage (including by way of furnishing information), or take any
other action designed to facilitate, any inquiries or the making of any proposal
which constitutes any Durco Takeover Proposal (as defined below) or (ii)
participate in any discussions or negotiations regarding any Durco Takeover
Proposal; provided, however, that if, at any time during the 15 business days
prior to the publicly announced date of the Durco Stockholders Meeting (as
defined in Section 5.01(c)) (the "Durco Applicable Period"), the Board of
Directors of Durco determines in good faith, after consultation with outside
counsel, that it is necessary to do so in order to comply with its fiduciary
duties to Durco's stockholders under applicable law, Durco may, in response to a
Durco Superior Proposal (as defined in Section 4.03(b)) which was not solicited
by it or which did not otherwise result from a breach of this Section 4.03(a),
and subject to providing prior written notice of its decision to take such
action to BW/IP (the "Durco Notice") and compliance with Section 4.03(c), for a
period of five business days following delivery of the Durco Notice (x) furnish
information with respect to Durco and its subsidiaries to any person making a
Durco Superior Proposal pursuant to a customary confidentiality agreement (as
determined by Durco after consultation with its outside counsel) and (y)
participate in discussions or negotiations regarding such Durco Superior
Proposal. For purposes of this Agreement, "Durco Takeover Proposal" means any
inquiry, proposal or offer from any person relating to any direct or indirect
acquisition or purchase of a business that constitutes 15% or more of the net
revenues, net income or the assets of Durco and its subsidiaries, taken as a
whole, or 15% or more of any class of equity securities of Durco or any of its
subsidiaries, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 15% or more of any class of equity
securities of Durco or any of its subsidiaries, or any merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving Durco or any of its subsidiaries, other than the
transactions contemplated by this Agreement. Durco shall be permitted to deliver
only one Durco Notice with respect to each person making a Durco Superior
Proposal.
(b) Except as expressly permitted by this Section 4.03, neither the Board
of Directors of Durco nor any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to BW/IP, the
approval or recommendation by such Board of Directors or such committee of the
Merger, this Agreement or the issuance of Durco Common Stock in connection with
the Merger, (ii) approve or recommend, or propose publicly to approve or
recommend, any Durco Takeover Proposal, or (iii) cause Durco to enter into any
letter of intent, agreement in principle, acquisition agreement or other similar
agreement (each, a "Durco Acquisition Agreement") related to any Durco Takeover
Proposal. Notwithstanding the foregoing, in the event that during the BW/IP
Applicable Period the Board of Directors of Durco determines in good faith that
there is a substantial probability that the Durco Stockholder Approvals will not
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be obtained due to the existence of a Durco Superior Proposal, the Board of
Directors of Durco may (subject to this and the following sentences) terminate
this Agreement (and concurrently with or after such termination, if it so
chooses, cause Durco to enter into any Durco Acquisition Agreement with respect
to any Durco Superior Proposal), but only at a time that is during the BW/IP
Applicable Period and is after the fifth business day following BW/IP's receipt
of written notice advising BW/IP that the Board of Directors of Durco is
prepared to accept a Durco Superior Proposal, specifying the material terms and
conditions of such Durco Superior Proposal and identifying the person making
such Durco Superior Proposal. For purposes of this Agreement, a "Durco Superior
Proposal" means any proposal made by a third party (i) to acquire, directly or
indirectly, including pursuant to a tender offer, exchange offer, merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction, for consideration consisting of cash and/or securities,
more than 50% of the combined voting power of the shares of Durco Common Stock
then outstanding or all or substantially all the assets of Durco, (ii) that is
otherwise on terms which the Board of Directors of Durco determines in its good
faith judgment (based on the advice of a financial advisor of nationally
recognized reputation) to be more favorable to Durco's stockholders than the
Merger, (iii) for which financing, to the extent required, is then committed or
which, in the good faith judgment of the Board of Directors of Durco, is
reasonably capable of being obtained by such third party and (iv) for which, in
the good faith judgment of the Board of Directors of Durco, no regulatory
approvals are required, including antitrust approvals, that could not reasonably
be expected to be obtained.
(c) In addition to the obligations of Durco set forth in paragraphs (a) and
(b) of this Section 4.03, Durco shall immediately advise BW/IP orally and in
writing of any request for information or of any Durco Takeover Proposal, the
material terms and conditions of such request or Durco Takeover Proposal and the
identity of the person making such request or Durco Takeover Proposal. Durco
will keep BW/IP reasonably informed of the status and details (including
amendments or proposed amendments) of any such request or Durco Takeover
Proposal.
(d) Nothing contained in this Section 4.03 shall prohibit Durco from taking
and disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to Durco's
stockholders if, in the good faith judgment of the Board of Directors of Durco,
after consultation with outside counsel, failure so to disclose would be
inconsistent with its obligations under applicable law; provided, however, that
neither Durco nor its Board of Directors nor any committee thereof shall
withdraw or modify, or propose publicly to withdraw or modify, its position with
respect to this Agreement, the Merger, the issuance of Durco Common Stock in
connection with the Merger, or approve or recommend, or propose publicly to
approve or recommend, a Durco Takeover Proposal.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Preparation of the Form S-4 and the Joint Proxy Statement;
Stockholders Meetings. (a) As soon as practicable following the date of this
Agreement, BW/IP and Durco shall prepare and file with the SEC the Joint Proxy
Statement and Durco shall prepare and file with the SEC the Form S-4, in which
the Joint Proxy Statement will be included as a prospectus. Each of BW/IP and
Durco shall use best efforts to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after such filing. BW/IP will use all
best efforts to cause the Joint Proxy Statement to be mailed to BW/IP's
stockholders, and Durco will use all best efforts to cause the Joint Proxy
Statement to be mailed to Durco's stockholders, in each case as promptly as
practicable after the Form S-4 is declared effective under the Securities Act.
Durco shall also take any action (other than qualifying to do business in any
jurisdiction in which it is not now so qualified or to file a general consent to
service of process) required to be taken under any applicable state securities
laws in connection with the issuance of Durco Common Stock in the Merger and
BW/IP shall furnish all information concerning BW/IP and the holders of BW/IP
Common Stock as may be reasonably requested in connection with any such action.
No filing of, or amendment or supplement to, the Form S-4 or the Joint Proxy
Statement will be made by Durco without providing BW/IP the opportunity to
review and comment thereon. Durco will advise BW/IP, promptly after it receives
notice thereof, of the time
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when the Form S-4 has become effective or any supplement or amendment has been
filed, the issuance of any stop order, the suspension of the qualification of
the Durco Common Stock issuable in connection with the Merger for offering or
sale in any jurisdiction, or any request by the SEC for amendment of the Joint
Proxy Statement or the Form S-4 or comments thereon and responses thereto or
requests by the SEC for additional information. If at any time prior to the
Effective Time any information relating to BW/IP or Durco, or any of their
respective affiliates, officers or directors, should be discovered by BW/IP or
Durco which should be set forth in an amendment or supplement to any of the Form
S-4 or the Joint Proxy Statement, so that any of such documents would not
include any misstatement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, the party which discovers such information
shall promptly notify the other parties hereto and an appropriate amendment or
supplement describing such information shall be promptly filed with the SEC and,
to the extent required by law, disseminated to the stockholders of BW/IP and
Durco.
(b) BW/IP shall, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "BW/IP Stockholders Meeting") for the purpose of obtaining the
BW/IP Stockholder Approval and shall, through its Board of Directors, recommend
to its stockholders the approval and adoption of this Agreement, the Merger and
the other transactions contemplated hereby. Without limiting the generality of
the foregoing but subject to its rights to terminate this Agreement pursuant to
Section 4.02(b), BW/IP agrees that its obligations pursuant to the first
sentence of this Section 5.01(b) shall not be affected by the commencement,
public proposal, public disclosure or communication to BW/IP of any BW/IP
Takeover Proposal.
(c) Durco shall, as soon as practicable following the date of this
Agreement, duly call, give notice of, convene and hold a meeting of its
stockholders (the "Durco Stockholders Meeting") for the purpose of obtaining the
Durco Stockholder Approval and shall, through its Board of Directors, recommend
to its stockholders the approval and adoption of this Agreement, the Merger and
the other transactions contemplated hereby. Without limiting the generality of
the foregoing but subject to its rights to terminate this Agreement pursuant to
Section 4.03(b), Durco agrees that its obligations pursuant to the first
sentence of this Section 5.01(c) shall not be affected by the commencement,
public proposal, public disclosure or commencement to Durco of any Durco
Takeover Proposal.
(d) Durco and BW/IP will use best efforts to hold the BW/IP Stockholders
Meeting and the Durco Stockholders Meeting on the same date and as soon as
practicable after the date hereof.
SECTION 5.02. Letters of BW/IP's Accountants. (a) BW/IP shall use best
efforts to cause to be delivered to Durco two letters from BW/IP's independent
accountants, one dated a date within two business days before the date on which
the Form S-4 shall become effective and one dated a date within two business
days before the Closing Date, each addressed to Durco, in form and substance
reasonably satisfactory to Durco and customary in scope and substance for
comfort letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
(b) BW/IP shall use best efforts to cause to be delivered to Durco a letter
from BW/IP's independent accountants addressed to Durco and BW/IP, dated as of
the Closing Date, stating that the Merger will qualify as a pooling of interests
transaction under Opinion 16 of the Accounting Principles Board and applicable
SEC rules and regulations.
SECTION 5.03. Letters of Durco's Accountants. (a) Durco shall use best
efforts to cause to be delivered to BW/IP two letters from Durco's independent
accountants, one dated a date within two business days before the date on which
the Form S-4 shall become effective and one dated a date within two business
days before the Closing Date, each addressed to BW/IP, in form and substance
reasonably satisfactory to BW/IP and customary in scope and substance for
comfort letters delivered by independent public accountants in connection with
registration statements similar to the Form S-4.
(b) Durco shall use best efforts to cause to be delivered to BW/IP a letter
from Durco's independent accountants, addressed to BW/IP and Durco, dated as of
the Closing Date, stating that the Merger will
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qualify as a pooling of interests transaction under Opinion 16 of the Accounting
Principles Board and applicable SEC rules and regulations.
SECTION 5.04. Access to Information; Confidentiality. Subject to the
Confidentiality Agreements dated March 31, 1997 between Durco and BW/IP (the
"Confidentiality Agreements"), each of BW/IP and Durco shall, and shall cause
each of its respective subsidiaries to, afford to the other party and to the
officers, employees, accountants, counsel, financial advisors and other
representatives of such other party, reasonable access during normal business
hours during the period prior to the Effective Time to all their respective
properties, books, contracts, commitments, personnel and records and, during
such period, each of BW/IP and Durco shall, and shall cause each of its
respective subsidiaries to, furnish promptly to the other party (a) a copy of
each report, schedule, registration statement and other document filed by it
during such period pursuant to the requirements of Federal or state securities
laws and (b) all other information concerning its business, properties and
personnel as such other party may reasonably request. No review pursuant to this
Section 5.04 shall have an effect for the purpose of determining the accuracy of
any representation or warranty given by either party hereto to the other party
hereto. Each of BW/IP and Durco will hold, and will cause its respective
officers, employees, accountants, counsel, financial advisors and other
representatives and affiliates to hold, any nonpublic information in accordance
with the terms of the Confidentiality Agreements.
SECTION 5.05. Best Efforts. (a) Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use best
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement and the Option Agreements, including (i) the
obtaining of all necessary actions or nonactions, waivers, consents and
approvals from Governmental Entities and the making of all necessary
registrations and filings and the taking of all steps as may be necessary to
obtain an approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity, (ii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iii) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the Option Agreements or the consummation of the transactions contemplated by
this Agreement or the Option Agreements, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement and the Option Agreements.
Nothing set forth in this Section 5.05(a) shall require BW/IP or Durco to agree
to anything prohibiting or limiting the ownership or operation by BW/IP or Durco
and their respective subsidiaries of any material portion of the business or
assets of BW/IP and Durco and their respective subsidiaries taken as a whole, or
compelling BW/IP or Durco and their respective subsidiaries to dispose of or
hold separate any material portion of the business or assets of BW/IP or Durco
taken as a whole.
(b) In connection with and without limiting the foregoing, BW/IP and Durco
shall (i) take all action necessary to ensure that no state takeover statute or
similar statute or regulation is or becomes applicable to the Merger, this
Agreement, the Option Agreements or any of the other transactions contemplated
by this Agreement or the Option Agreements and (ii) if any state takeover
statute or similar statute or regulation becomes applicable to the Merger, this
Agreement, the Option Agreements or any other transaction contemplated by this
Agreement or the Option Agreements, take all action necessary to ensure that the
Merger and the other transactions contemplated by this Agreement and the Option
Agreements may be consummated as promptly as practicable on the terms
contemplated by this Agreement and the Option Agreements and otherwise to
minimize the effect of such statute or regulation on the Merger and the other
transactions contemplated by this Agreement and the Option Agreements. Durco
agrees to make all required filings (if any), pursuant to, and to otherwise
comply with, the Industrial Site Recovery Act of New Jersey in connection with
the transactions contemplated by this Agreement and the Option Agreements.
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SECTION 5.06. Stock Options. (a) As soon as practicable following the
date of this Agreement, the Board of Directors of BW/IP (or, if appropriate, any
committee administering the BW/IP Stock Plans) shall adopt such resolutions or
take such other actions as may be required to effect the following:
(i) adjust the terms of all outstanding BW/IP Stock Options granted
under BW/IP Stock Plans, whether vested or unvested, as necessary to
provide that, at the Effective Time, each BW/IP Stock Option outstanding
immediately prior to the Effective Time shall be amended and converted into
an option to acquire, on the same terms and conditions as were applicable
under such BW/IP Stock Option the same number of shares of Durco Common
Stock as the holder of such BW/IP Stock Option would have been entitled to
receive pursuant to the Merger had such holder exercised such BW/IP Stock
Option in full immediately prior to the Effective Time (rounding down to
the nearest whole share), at a price per share of Durco Common Stock equal
to (A) the aggregate exercise price for the shares of BW/IP Common Stock
otherwise purchasable pursuant to such BW/IP Stock Option divided by (B)
the aggregate number of shares of Durco Common Stock deemed purchasable
pursuant to such BW/IP Stock Option (each, as so adjusted, an "Adjusted
Option"): provided that such exercise price shall be rounded up to the
nearest whole cent;
(ii) take all reasonable efforts with respect to the BW/IP Stock Plans
so that options and stock appreciation rights granted thereunder will not
be cashed out as a result of the transactions contemplated by this
Agreement; and
(iii) make such other changes to the BW/IP Stock Plans as BW/IP and
Durco may agree are appropriate to give effect to the Merger,
(b) The adjustments provided herein with respect to any BW/IP Stock Options
which are "incentive stock options" as defined in Section 422 of the Code shall
be and are intended to be effected in a manner which is consistent with Section
424(a) of the Code.
(c) At the Effective Time, by virtue of the Merger and without the need of
any further corporate action, Durco shall assume the BW/IP Stock Plans, with the
result that all obligations of BW/IP under the BW/IP Stock Plans, including with
respect to BW/IP Stock Options outstanding at the Effective Time under each
BW/IP Stock Plan, shall be obligations of Durco following the Effective Time.
(d) No later than the Effective Time, Durco shall prepare and file with the
SEC a registration statement on Form S-8 (or another appropriate form)
registering a number of shares of Durco Common Stock equal to the number of
shares subject to the Adjusted Options. Such registration statement shall be
kept effective (and the current status of the prospectus or prospectuses
required thereby shall be maintained) at least for so long as any Adjusted
Options may remain outstanding.
(e) As soon as practicable after the Effective Time, Durco shall deliver to
the holders of BW/IP Stock Options appropriate notices setting forth such
holders' rights pursuant to the respective BW/IP Stock Plans and the agreements
evidencing the grants of such BW/IP Stock Options and that such BW/IP Stock
Options and agreements shall be assumed by Durco and shall continue in effect on
the same terms and conditions (subject to the adjustments required by this
Section 5.06 after giving effect to the Merger).
(f) A holder of an Adjusted Option may exercise such Adjusted Option in
whole or in part in accordance with its terms by delivering a properly executed
notice of exercise to Durco, together with the consideration therefor and the
Federal withholding tax information, if any, required in accordance with the
related BW/IP Stock Plan.
(g) Except as otherwise contemplated by this Section 5.06 and except to the
extent required under the respective terms of the BW/IP Stock Options, all
restrictions or limitations on transfer and vesting with respect to BW/IP Stock
Options awarded under the BW/IP Stock Plans or any other plan, program or
arrangement of BW/IP or any of its subsidiaries, to the extent that such
restrictions or limitations shall not have already lapsed, shall remain in full
force and effect with respect to such options after giving effect to the Merger
and the assumption by Durco as set forth above.
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SECTION 5.07. Certain Employee Matters. (a) Employment Agreements.
Subject to the provisions of Section 5.15, the parties shall, prior to the
Closing Date, enter into employment agreements with: (i) the Chief Executive
Officer of BW/IP and the Chief Executive Officer of Durco having the terms set
forth on Exhibits F and G respectively; and (ii) certain individuals to be
agreed upon by BW/IP and Durco in a form to be agreed by them.
(b) Continuation of Certain Plans and Benefits. For a period of twenty-four
months immediately following the Effective Time, Durco shall maintain employee
benefit and welfare plans, programs, contracts, agreements policies and
executive incentives and perquisites for the benefit of active and retired
employees of BW/IP which provide benefits that are no less favorable than the
benefits provided to such active and retired employees on the date hereof;
except where the Board of Durco unanimously approves any such less favorable
benefits.
SECTION 5.08. Indemnification, Exculpation and Insurance. (a) Durco and
Sub agree that all rights to indemnification and exculpation from liabilities
for acts or omissions occurring at or prior to the Effective Time now existing
in favor of the current or former directors or officers of BW/IP and its
subsidiaries as provided in their respective certificates of incorporation or
by-laws (or comparable organizational documents) and any indemnification
agreements of BW/IP, the existence of which does not constitute a breach of this
Agreement, shall survive the Merger and shall continue in full force and effect
in accordance with their terms. In addition, from and after the Effective Time,
directors and officers of BW/IP who become directors or officers of Durco will
be entitled to the same indemnity rights and protections as are afforded to
other directors and officers of Durco.
(b) In the event that Durco or any of its successors or assigns (i)
consolidates with or merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, proper provision will be made so that
the successors and assigns of Durco assume the obligations set forth in this
Section 5.08.
(c) For three years after the Effective Time, Durco shall maintain in
effect BW/IP's current directors' and officers' liability insurance covering
acts or omissions occurring prior to the Effective Time with respect to those
persons who are currently covered by BW/IP's directors' and officers' liability
insurance policy on terms with respect to such coverage and amount no less
favorable than those of such policy in effect on the date hereof.
(d) The provisions of this Section 5.08 (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her heirs
and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
SECTION 5.09. Fees and Expenses. (a) Except as provided in this Section
5.09, all fees and expenses incurred in connection with the Merger, this
Agreement, the Option Agreements and the transactions contemplated by this
Agreement and the Option Agreements shall be paid by the party incurring such
fees or expenses, whether or not the Merger is consummated, except that each of
Durco and BW/IP shall bear and pay one-half of the costs and expenses incurred
in connection with (i) the filing, printing and mailing of the Form S-4 and the
Joint Proxy Statement (including SEC filing fees), (ii) the filings of the
premerger notification and report forms under the HSR Act (including filing
fees), (iii) the retention of economists to conduct various analyses of the
effect of the combining of the two companies and (iv) the retention of a public
relations firm. Durco shall file any return with respect to, and shall pay, any
state or local taxes (including any penalties or interest with respect thereto),
if any, which are attributable to the transfer of the beneficial ownership of
BW/IP's real property (collectively, the "Real Estate Transfer Taxes") as a
result of the Merger. BW/IP shall cooperate with Durco in the filing of such
returns including, in the case of BW/IP, supplying in a timely manner a complete
list of all real property interests held by BW/IP and any information with
respect to such property that is reasonably necessary to complete such returns.
The fair market value of any real property of BW/IP subject to the Real Estate
Transfer Taxes shall be as agreed to between Durco and BW/IP.
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(b) In the event that (i) a BW/IP Takeover Proposal shall have been made
known to BW/IP or any of its subsidiaries or has been made directly to its
stockholders generally or any person shall have publicly announced an intention
(whether or not conditional) to make a BW/IP Takeover Proposal and thereafter
this Agreement is terminated by either Durco or BW/IP pursuant to Section
7.01(b)(i) or (ii) or (ii) this Agreement is terminated (x) by BW/IP pursuant to
Section 7.01(g) or (y) by Durco pursuant to Section 7.01(e), then BW/IP shall
promptly, but in no event later than two days after the date of such
termination, pay Durco a fee equal to the sum of $12 million (the "Termination
Fee") and the Durco Out-of-Pocket Expenses payable by wire transfer of same day
funds; provided, however, that no Termination Fee or Durco Out-of-Pocket
Expenses shall be payable to Durco pursuant to clause (i) of this paragraph (b)
or pursuant to a termination by Durco pursuant to Section 7.01(e) unless and
until within 18 months of such termination BW/IP or any of its subsidiaries
enters into any BW/IP Acquisition Agreement or consummates any BW/IP Takeover
Proposal (for the purposes of the foregoing proviso the terms "BW/IP Acquisition
Agreement" and "BW/IP Takeover Proposal" shall have the meanings assigned to
such terms in Section 4.02 except that the references to 15% in the definition
of "BW/IP Takeover Proposal" in Section 4.02(a) shall be deemed to be references
to 35% and "BW/IP Takeover Proposal" shall only be deemed to refer to a
transaction involving BW/IP, or with respect to assets (including the shares of
any subsidiary), BW/IP and its subsidiaries, taken as a whole, and not any of
its subsidiaries alone), in which event the Termination Fee shall be payable
upon the first to occur of such events. "Durco Out-of-Pocket Expenses" means the
lesser of (A) all documented out-of-pocket expenses and fees incurred by Durco
(including, without limitation, fees and expenses payable to all legal,
accounting, financial, public relations and other professional advisers) arising
out of, in connection with or related to this Agreement and the Option
Agreements and the transactions contemplated herein and therein and (B) $3
million. BW/IP acknowledges that the agreements contained in this Section
5.09(b) are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, Durco would not enter into this Agreement;
accordingly, if BW/IP fails promptly to pay the amount due pursuant to this
Section 5.09(b), and, in order to obtain such payment, Durco commences a suit
which results in a judgment against BW/IP for the fee set forth in this Section
5.09(b), BW/IP shall pay to Durco its costs and expenses (including attorneys'
fees and expenses) in connection with such suit, together with interest on the
amount of the fee at the prime rate of Citibank N.A. in effect on the date such
payment was required to be made.
(c) In the event that (i) a Durco Takeover Proposal shall have been made
known to Durco or any of its subsidiaries or has been made directly to its
stockholders generally or any person shall have publicly announced an intention
(whether or not conditional) to make a Durco Takeover Proposal and thereafter
this Agreement is terminated by either Durco or BW/IP pursuant to Section
7.01(b)(i) or (iii) or (ii) this Agreement is terminated (x) by Durco pursuant
to Section 7.01(d) or (y) by BW/IP pursuant to Section 7.01(h), then Durco shall
promptly, but in no event later than two days after the date of such
termination, pay BW/IP the sum of the Termination Fee and the BW/IP
Out-of-Pocket Expenses, payable by wire transfer of same day funds; provided,
however, that no Termination Fee or BW/IP Out-of-Pocket Expenses shall be
payable to BW/IP pursuant to clause (i) of this paragraph (c) or pursuant to a
termination by BW/IP pursuant to Section 7.01(h) unless and until within 18
months of such termination Durco or any of its subsidiaries enters into any
Durco Acquisition Agreement or consummates any Durco Takeover Proposal (for the
purposes of the foregoing proviso the terms "Durco Acquisition Agreement" and
"Durco Takeover Proposal" shall have the meanings assigned to such terms in
Section 4.03 except that the references to 15% in the definition of "Durco
Takeover Proposal" in Section 4.03(a) shall be deemed to be references to 35%
and "Durco Takeover Proposal" shall only be deemed to refer to a transaction
involving Durco, or with respect to assets (including the shares of any
subsidiary), Durco and its subsidiaries, taken as a whole, and not any of its
subsidiaries alone), in which event the Termination Fee shall be payable upon
the first to occur of such events. "BW/IP Out-of-Pocket Expenses" means the
lesser of (A) all documented out-of-pocket expenses and fees incurred by BW/IP
(including, without limitation, fees and expenses payable to all legal,
accounting, financial, public relations and other professional advisers) arising
out of, in connection with or related to this Agreement and the Option
Agreements and the transactions contemplated herein and therein and (B) $3
million. Durco acknowledges that the agreements contained in this Section
5.09(c) are an integral part of the transactions contemplated by this Agreement,
and that, without these agreements, BW/IP would not
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enter into this Agreement; accordingly, if Durco fails promptly to pay the
amount due pursuant to this Section 5.09(c), and, in order to obtain such
payment, BW/IP commences a suit which results in a judgment against Durco for
the fee set forth in this Section 5.09(c), Durco shall pay to BW/IP its costs
and expenses (including attorneys' fees and expenses) in connection with such
suit, together with interest on the amount of the fee at the prime rate of
Citibank N.A. in effect on the date such payment was required to be made.
SECTION 5.10. Public Announcements. Durco and Sub, on the one hand, and
BW/IP, on the other hand, will consult with each other before issuing, and
provide each other the opportunity to review, comment upon and concur with, any
press release or other public statements with respect to the transactions
contemplated by this Agreement, including the Merger, and the Option Agreements,
and shall not issue any such press release or make any such public statement
prior to such consultation, except as either party may determine is required by
applicable law, court process or by obligations pursuant to any listing
agreement with any national securities exchange. The parties agree that the
initial press release to be issued with respect to the transactions contemplated
by this Agreement and the Option Agreements shall be in the form heretofore
agreed to by the parties.
SECTION 5.11. Affiliates. As soon as practicable after the date hereof,
BW/IP shall deliver to Durco a letter identifying all persons who are, at the
time this Agreement is submitted for adoption by the stockholders of BW/IP,
"affiliates" of BW/IP for purposes of Rule 145 under the Securities Act or for
purposes of qualifying the Merger for pooling of interests accounting treatment
under Opinion 16 of the Accounting Principles Board and applicable SEC rules and
regulations. BW/IP shall use best efforts to cause each such person to deliver
to Durco as of the Closing Date, a written agreement substantially in the form
attached as Exhibit C hereto. Durco shall use best efforts to cause all persons
who are "affiliates" of Durco for purposes of qualifying the Merger for pooling
of interests accounting treatment under Opinion 16 of the Accounting Principles
Board and applicable SEC rules and regulations to comply with paragraph I.F. of
Exhibit B hereto.
SECTION 5.12. Stock Listing. Durco shall use best efforts to cause all
issued and outstanding shares of Durco Common Stock to be approved for listing
on the NYSE, subject to official notice of issuance, as promptly as practicable
after the date hereof, and in any event prior to the Closing Date. Durco and
BW/IP shall use best efforts to cause the shares of Durco Common Stock and BW/IP
Common Stock, respectively, to be issued pursuant to the Durco Stock Option
Agreement and the BW/IP Stock Option Agreement, respectively, to be approved for
listing on the NNMS and the NYSE, respectively, subject to official notice of
issuance, as promptly as practicable after the date hereof, and in any event
prior to the Closing Date.
SECTION 5.13. Stockholder Litigation. Each of BW/IP and Durco shall give
the other the reasonable opportunity to participate in the defense of any
stockholder litigation against BW/IP or Durco, as applicable, and its directors
relating to the transactions contemplated by this Agreement and the Option
Agreements.
SECTION 5.14. Tax Treatment. Each of Durco and BW/IP shall use best
efforts to cause the Merger to qualify as a reorganization under the provisions
of Section 368 of the Code and to obtain the opinions of counsel referred to in
Sections 6.02(c) and 6.03(c).
SECTION 5.15. Pooling of Interests. Each of BW/IP and Durco shall use
best efforts to cause the transactions contemplated by this Agreement, including
the Merger, and the Option Agreements to be accounted for as a pooling of
interests under Opinion 16 of the Accounting Principles Board and applicable SEC
rules and regulations, and such accounting treatment to be accepted by each of
BW/IP's and Durco's independent certified public accountants, and by the SEC,
respectively, and each of BW/IP and Durco agrees that it shall voluntarily take
no action that would cause such accounting treatment not to be obtained.
SECTION 5.16. BW/IP Rights Agreement. The Board of Directors of BW/IP
shall take all further action (in addition to that referred to in Section
3.01(t)) reasonably requested in writing by Durco in order to render the BW/IP
Rights inapplicable to the Merger and the other transactions contemplated by
this Agreement and the Option Agreements to the extent provided herein and in
the BW/IP Rights Plan Amendment. Except as provided above with respect to the
Merger and the other transactions contemplated by
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this Agreement and the Option Agreements, the Board of Directors of BW/IP shall
not, without the consent of Durco (a) amend the BW/IP Rights Agreement or (b)
take any action with respect to, or make any determination under, the BW/IP
Rights Agreement, including a redemption of the BW/IP Rights or any action to
facilitate a BW/IP Takeover Proposal.
SECTION 5.17. Durco Rights Agreement. The Board of Directors of Durco
shall take all further action (in addition to that referred to in Section
3.02(r)) reasonably requested in writing by BW/IP in order to render the Durco
Rights inapplicable to the Merger and the other transactions contemplated by
this Agreement and the Option Agreements to the extent provided herein and in
the Durco Rights Plan Amendment. Except as provided above with respect to the
Merger and the other transactions contemplated by this Agreement and the Option
Agreements, the Board of Directors of Durco shall not, without the consent of
BW/IP (a) amend the Durco Rights Agreement or (b) take any action with respect
to, or make any determination under, the Durco Rights Agreement, including a
redemption of the Durco Rights or any action to facilitate a Durco Takeover
Proposal.
SECTION 5.18. Standstill Agreements; Confidentiality Agreements. During
the period from the date of this Agreement through the Effective Time, neither
BW/IP nor Durco shall terminate, amend, modify or waive any provision of any
confidentiality or standstill agreement to which it or any of its respective
subsidiaries is a party other than confidentiality agreements entered into in
the ordinary course of business in connection with licensing or other technology
transfer arrangements. During such period, BW/IP or Durco, as the case may be,
shall enforce, to the fullest extent permitted under applicable law, the
provisions of any such agreement, including by obtaining injunctions to prevent
any breaches of such agreements and to enforce specifically the terms and
provisions thereof in any court of the United States of America or of any state
having jurisdiction.
SECTION 5.19. Headquarters; Name. As soon as practicable following the
Effective Time, Durco and BW/IP shall take all action necessary such that their
combined headquarters shall be located at a location to be agreed by BW/IP and
Durco. Effective as of the Effective Time, Durco shall amend its Articles of
Incorporation such that its name shall be a name to be agreed by BW/IP and
Durco.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approvals. Each of the BW/IP Stockholder Approval and
the Durco Stockholder Approval shall have been obtained.
(b) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired.
(c) No Injunctions or Restraints. No judgment, order, decree,
statute, law, ordinance, rule or regulation, entered, enacted, promulgated,
enforced or issued by any court or other Governmental Entity of competent
jurisdiction or other legal restraint or prohibition (collectively,
"Restraints") shall be in effect (i) preventing the consummation of the
Merger (ii) prohibiting or limiting the ownership or operation by BW/IP or
Durco and their respective subsidiaries of any material portion of the
business or assets of BW/IP or Durco and their respective subsidiaries
taken as a whole, or compelling BW/IP or Durco and their respective
subsidiaries to dispose of or hold separate any material portion of the
business or assets of BW/IP or Durco and their respective subsidiaries
taken as a whole, as a result of the Merger or any of the other
transactions contemplated by this Agreement or the Option Agreements or
(iii) which otherwise is reasonably likely to have a material adverse
effect on BW/IP or Durco, as applicable; provided, however, that each of
the parties shall have used its best efforts to prevent the entry of any
such Restraints and to appeal as promptly as possible any such Restraints
that may be entered.
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(d) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or
proceedings seeking a stop order.
(e) NYSE Listing. All shares of Durco Common Stock issuable,
including those to BW/IP's stockholders as contemplated by this Agreement,
shall have been approved for listing on the NYSE, subject to official
notice of issuance.
(f) Pooling Letters. Durco and BW/IP shall have received letters from
each of BW/IP's independent accountants and Durco's independent
accountants, dated as of the Closing Date, in each case addressed to Durco
and BW/IP, stating in substance that the Merger will qualify as a pooling
of interests transaction under Opinion 16 of the Accounting Principles
Board and applicable SEC rules and regulations.
SECTION 6.02. Conditions to Obligations of Durco and Sub. The obligation
of Durco and Sub to effect the Merger is further subject to satisfaction or
waiver of the following conditions:
(a) Representations and Warranties. The representations and
warranties of BW/IP set forth herein shall be true and correct both when
made and at and as of the Closing Date, as if made at and as of such time
(except to the extent expressly made as of an earlier date, in which case
as of such date), except where the failure of such representations and
warranties to be so true and correct (without giving effect to any
limitation as to "materiality" or "material adverse effect" set forth
therein) does not have, and is not likely to have, individually or in the
aggregate, a material adverse effect on BW/IP.
(b) Performance of Obligations of BW/IP. BW/IP shall have performed
in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing Date.
(c) Tax Opinions. Durco shall have received from Cravath, Swaine &
Moore, counsel to Durco, on the Closing Date, an opinion, dated as of such
date and stating that the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code and that Durco, Sub and BW/IP will each be a party to that
reorganization within the meaning of Section 368(b) of the Code. In
rendering such opinion, counsel for Durco shall be entitled to rely upon
representations of officers of Durco, Sub, BW/IP and stockholders of BW/IP
substantially in the form of Exhibits C, D and E hereto.
(d) No Material Adverse Change. At any time after the date of this
Agreement there shall not have occurred any material adverse change
relating to BW/IP.
SECTION 6.03. Conditions to Obligations of BW/IP. The obligation of BW/IP
to effect the Merger is further subject to satisfaction or waiver of the
following conditions:
(a) Representations and Warranties. The representations and
warranties of Durco and Sub set forth herein shall be true and correct both
when made and at and as of the Closing Date, as if made at and as of such
time (except to the extent expressly made as of an earlier date, in which
case as of such date), except where the failure of such representations and
warranties to be so true and correct (without giving effect to any
limitation as to "materiality" or "material adverse effect" set forth
therein) does not have, and is not likely to have, individually or in the
aggregate, a material adverse effect on Durco.
(b) Performance of Obligations of Durco and Sub. Durco and Sub shall
have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date.
(c) Tax Opinions. BW/IP shall have received from Shearman & Sterling,
counsel to BW/IP, on the Closing Date, an opinion dated as of such date and
stating that the Merger will be treated for Federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code and that
Durco, Sub and BW/IP will each be a party to that reorganization within the
meaning of Section 368(b) of the Code. In rendering such opinion, counsel
for BW/IP shall be entitled to rely upon representations of officers of
Durco, Sub, BW/IP and stockholders of BW/IP substantially in the form of
Exhibits C, D and E hereto.
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(d) Name. Durco shall have changed its name in accordance with
Section 5.19.
(e) No Material Adverse Change. At any time after the date of this
Agreement there shall not have occurred any material adverse change
relating to Durco.
SECTION 6.04. Frustration of Closing Conditions. Neither Durco nor BW/IP
may rely on the failure of any condition set forth in Section 6.01, 6.02 or
6.03, as the case may be, to be satisfied if such failure was caused by such
party's failure to use best efforts to consummate the Merger and the other
transactions contemplated by this Agreement and the Option Agreements, as
required by and subject to Section 5.05.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after the BW/IP Stockholder
Approval or the Durco Stockholder Approval:
(a) by mutual written consent of Durco, Sub and BW/IP;
(b) by either Durco or BW/IP:
(i) if the Merger shall not have been consummated by December 31,
1997; provided, however, that the right to terminate this Agreement
pursuant to this Section 7.01(b)(i) shall not be available to any party
whose failure to perform any of its obligations under this Agreement
results in the failure of the Merger to be consummated by such time;
(ii) if the BW/IP Stockholder Approval shall not have been obtained
at a BW/IP Stockholders Meeting duly convened therefor or at any
adjournment or postponement thereof;
(iii) if the Durco Stockholder Approval shall not have been
obtained at a Durco Stockholders Meeting duly convened therefor or at
any adjournment or postponement thereof; or
(iv) if any Restraint having any of the effects set forth in
Section 6.01(c) shall be in effect and shall have become final and
nonappealable; provided that the party seeking to terminate this
Agreement pursuant to this Section 7.01(b)(iv) shall have used best
efforts to prevent the entry of and to remove such Restraint;
(c) by Durco, if BW/IP shall have breached or failed to perform in any
material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform
(A) would give rise to the failure of a condition set forth in Section
6.02(a) or (b), and (B) is incapable of being cured by BW/IP or is not
cured within 30 days of notice of such breach or failure;
(d) by Durco in accordance with Section 4.03(b); provided that, in
order for the termination of this Agreement pursuant to this paragraph (d)
to be deemed effective, Durco shall have complied with all provisions
contained in Section 4.03, including the notice provisions therein, and
with applicable requirements, including the payment of the Termination Fee
and BW/IP Out-of Pocket Expenses, of Section 5.09;
(e) by Durco, if BW/IP or any of its directors or officers shall
participate in discussions or negotiations in breach of Section 4.02;
(f) by BW/IP, if Durco shall have breached or failed to perform in any
material respect any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform
(A) would give rise to the failure of a condition set forth in Section
6.03(a) or (b), and (B) is incapable of being cured by Durco or is not
cured within 30 days of notice of such breach or failure;
(g) by BW/IP in accordance with Section 4.02(b); provided that, in
order for the termination of this Agreement pursuant to this paragraph (g)
to be deemed effective, BW/IP shall have complied with
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all provisions of Section 4.02, including the notice provisions therein,
and with applicable requirements, including the payment of the Termination
Fee and Durco Out-of-Pocket Expenses, of Section 5.09; or
(h) by BW/IP, if Durco or any of its directors or officers shall
participate in discussions or negotiations in breach of Section 4.03.
SECTION 7.02. Effect of Termination. In the event of termination of this
Agreement by either BW/IP or Durco as provided in Section 7.01, this Agreement
shall forthwith become void and have no effect, without any liability or
obligation on the part of Durco, Sub or BW/IP, other than the provisions of
Section 3.01(o), Section 3.02(n), the last sentence of Section 5.04, Section
5.09, this Section 7.02 and Article VIII, which provisions will survive such
termination, and except to the extent that such termination results from the
willful and material breach by a party of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
SECTION 7.03. Amendment. This Agreement may be amended by the parties at
any time before or after the BW/IP Stockholder Approval or the Durco Stockholder
Approval; provided, however, that after any such approval, there shall not be
made any amendment that by law requires further approval by the stockholders of
BW/IP or Durco without the further approval of such stockholders. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties.
SECTION 7.04. Extension; Waiver. At any time prior to the Effective Time,
a party may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained in this Agreement
or in any document delivered pursuant to this Agreement or (c) subject to the
proviso of Section 7.03, waive compliance by the other party with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
SECTION 7.05. Procedure for Termination, Amendment, Extension or
Waiver. A termination of this Agreement pursuant to Section 7.01, an amendment
of this Agreement pursuant to Section 7.03 or an extension or waiver pursuant to
Section 7.04 shall, in order to be effective, require, in the case of Durco, Sub
or BW/IP, action by its Board of Directors or, except in the case of Sub, with
respect to any amendment to this Agreement, the duly authorized committee of its
Board of Directors to the extent permitted by law.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.01
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time.
SECTION 8.02. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is
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confirmed) or sent by overnight courier (providing proof of delivery) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Durco or Sub, to
Durco International, Inc.
Miami Valley Research Park
3100 Research Boulevard
Dayton, Ohio 45420
Telecopy No.: (937) 476-6294
Attention: Ronald F. Shuff
Vice President, Secretary & General Counsel
with a copy to:
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Telecopy No.: (212) 474-3700
Attention: Robert A. Kindler; and
(b) if to BW/IP, to
BW/IP Inc.
200 Oceangate Boulevard
Suite 900
Long Beach, CA 90802
Telecopy No.: (562) 435-0316
Attention: John D. Hannesson
Vice President, Secretary & General Counsel
with copies to:
Shearman & Sterling
599 Lexington Avenue
New York, New York 10022
Telecopy No.: (212) 848-7179
Attention: Clare O'Brien
SECTION 8.03. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person, where "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a person, whether through the
ownership of voting securities, by contract, as trustee or executor, or
otherwise;
(b) "material adverse change" or "material adverse effect" means, when
used in connection with BW/IP or Durco, any change, effect, event,
occurrence or state of facts that is, or would reasonably be expected to
be, materially adverse to the business or financial condition of such party
and its subsidiaries taken as a whole other than any change, effect, event
or occurrence relating to (i) the United States economy in general, (ii)
this Agreement or the transactions contemplated hereby or the announcement
thereof, (iii) the failure to obtain applicable regulatory or other third
party consents that may be required
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in connection with this Agreement or the transactions contemplated hereby
or (iv) to the fluid handling and control industry in general, and not
specifically relating to BW/IP or Durco or their respective subsidiaries,
and the terms "material" and "materially" have correlative meanings;
(c) "person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity;
(d) a "subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board
of Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person; and
(e) "knowledge" of any person which is not an individual means the
knowledge of such person's executive officers after reasonable inquiry.
SECTION 8.04. Interpretation. When a reference is made in this Agreement
to an Article, Section or Exhibit, such reference shall be to an Article or
Section of, or an Exhibit to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation". The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement. All terms defined in this
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the singular as well
as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that is referred
to herein means such agreement, instrument or statute as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes and references to all attachments thereto and
instruments incorporated therein. References to a person are also to its
permitted successors and assigns.
SECTION 8.05. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 8.06. Entire Agreement; No Third-Party Beneficiaries. This
Agreement (including the documents and instruments referred to herein), the
Option Agreements and the Confidentiality Agreements (a) constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter of this Agreement
and (b) except for the provisions of Article II, Section 5.06 and Section 5.08,
are not intended to confer upon any person other than the parties any rights or
remedies.
SECTION 8.07. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflict of
laws thereof.
SECTION 8.08. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by either of the parties hereto without
the prior written consent of the other party, except that Sub may assign, in its
sole discretion, any of or all its rights, interests and obligations under this
Agreement to Durco or to any direct or indirect wholly owned subsidiary of
Durco, but no such assignment shall relieve Sub or any of its obligations under
this Agreement. Any assignment in violation of the preceding sentence shall be
void. Subject to the preceding two sentences, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the parties and their
respective successors and assigns.
40
<PAGE> 120
SECTION 8.09. Enforcement. The parties agree that irreparable damage
would occur and that the parties would not have any adequate remedy at law in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any Federal court located in the
State of Delaware or in Delaware state court, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal jurisdiction
of any Federal court located in the State of Delaware or any Delaware state
court in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, (b) agrees that it will not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court, and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated by this
Agreement in any court other than a Federal court sitting in the State of
Delaware or a Delaware state court.
SECTION 8.10. WAIVER OF JURY TRIAL. EACH OF BW/IP, DURCO AND SUB HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT,
TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OPTION
AGREEMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
SECTION 8.11. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.12. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
41
<PAGE> 121
IN WITNESS WHEREOF, Durco, Sub and BW/IP have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
BW/IP, INC.
By: /s/ BERNARD G. RETHORE
------------------------------------
Name: Bernard G. Rethore
Title: Chairman, President
& Chief Executive Officer
BRUIN ACQUISITION CORP.
By: /s/ WILLIAM M. JORDAN
------------------------------------
Name: William M. Jordan
Title: President
DURCO INTERNATIONAL, INC.
By: /s/ WILLIAM M. JORDAN
------------------------------------
Name: William M. Jordan
Title: Chairman, President
& Chief Executive Officer
42
<PAGE> 122
EXHIBIT A
CORPORATE GOVERNANCE OF DURCO
FOLLOWING THE EFFECTIVE TIME
The Board of Directors of Durco following the Effective Time will consist
of 11 members. Five of Durco's directors shall be designated by Durco (including
William M. Jordan), four of Durco's directors shall be designated by BW/IP
(including Bernard G. Rethore) and the remaining two Durco directors shall be
agreed to by the Board of Durco. These two directors will be nominated by the
executive committee of Durco, after consultation with the chief operating
officer of Durco, from a targeted search of independent candidates not
previously associated with the two companies. It is the intention of the parties
that such independent directors will be elected to the board as promptly as
possible following the Effective Time but in any event not later than January 1,
1998. The chief executive officer of Durco (formerly CEO of BW/IP) will also
serve as chairman of the Board of Directors of Durco. Each of Mr. Rethore and
Mr. Jordan will serve in Class III of Durco's Board of Directors and one of each
of the other three nominees of BW/IP will be elected to Class I, Class II, and
Class III, respectively.
COMMITTEES OF THE BOARD OF DIRECTORS AND CHAIRPERSONS OF COMMITTEES
Following the Effective Time, the Board of Directors shall initially have
three committees: the executive committee, the audit/finance committee and the
compensation committee. The executive committee will be comprised of four
directors: the chairman of the board and the chairpersons of the three board
committees. Other than as stated in the preceding sentence with respect to the
executive committee, each of the directors will serve on only one committee and
the chief executive officer and the chief operating officer will not serve on
any committee. Durco shall appoint the initial chairperson of the executive
committee. Durco and BW/IP shall each appoint one initial chairperson of the
other two committees. Unless otherwise agreed by BW/IP and Durco, the audit
committee will initially be composed of one designee of each of Durco and BW/IP
and the two new independent directors, and the compensation committee will
initially be composed of two nominees of each of BW/IP and Durco.
OFFICERS
The current chief executive officer of BW/IP will serve as chairman of the
board of directors and chief executive officer of Durco immediately following
the Effective Time for three years. He will then resign as Chairman and CEO and,
unless such resignation is rejected by vote of the Board, he will serve Durco
for the next two years in the capacity and on the terms set forth in Exhibit F
to the Agreement. The current chief executive officer of Durco will serve as
president and chief operating officer of Durco while Mr. Rethore is the chief
executive officer and chairman and, following the board's acceptance of the
resignation of Mr. Rethore, will serve as chairman and CEO. Other senior
officers of Durco shall be identified elsewhere and receive a four year
employment agreement with Durco, it being agreed by Durco and BW/IP that the
senior officers of Durco will be composed of approximately equal numbers of
Durco and BW/IP officers.
GOVERNANCE GUIDELINES
The board of directors of Durco will adopt a new set of governance
guidelines for the guidance of its actions as a newly composed board of
directors and for its committees as soon as possible following the Effective
Time. The process of developing these governance guidelines will recognize the
governance guidelines developed by the previous board of directors of Durco, as
well as the governance practices of the board of directors of BW/IP, as
important elements to be considered in the process.
<PAGE> 123
EXHIBIT B
FORM OF AFFILIATE LETTER
Durco International, Inc.
Miami Valley Research Park
3100 Research Boulevard
Dayton, Ohio 45420
Gentlemen:
I have been advised that as of the date of this letter I may be deemed to
be an "affiliate" of Durco International, Inc., a New York corporation
("Durco"), as the term "affiliate" is (i) defined for purposes of paragraphs (c)
and (d) of Rule 145 of the rules and regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), and/or (ii) used in and for
purposes of Accounting Series Releases 130 and 135, as amended, of the
Commission. The Agreement and Plan of Merger, dated as of May 6, 1997, among
Durco, BW/IP, Inc. ("BW/IP"), a Delaware corporation and Bruin Acquisition Corp.
("Sub"), a Delaware corporation and a wholly-owned subsidiary of Durco (the
"Merger Agreement"), contemplates that Sub will be merged with and into BW/IP
(the "Merger").
As a result of the Merger, I may receive shares of common stock, par value
$1.25 per share, of Durco (the "New Shares"). I would receive such New Shares in
exchange for shares (or upon exercise of options for shares) owned by me of
common stock, par value $0.01 per share, of BW/IP (the "BW/IP Shares").
1. If I receive any New Shares as a result of the Merger, then:
A. I will not make any sale, pledge, transfer or other disposition or
encumbrance of the New Shares in violation of the Act or the Rules and
Regulations.
B. I acknowledge that the issuance of the New Shares to me pursuant to
the Merger has been registered with the Commission under the Act. I also
acknowledge (a) I may be deemed to be an affiliate of Durco and (b) the
distribution by me of the New Shares has not been registered under the Act,
and, accordingly, I may not sell, transfer or otherwise dispose of the New
Shares issued to me into the Merger unless (i) such sale, transfer or other
disposition is made in conformity with the volume and other limitations of
Rule 145 promulgated by the Commission under the Act, (ii) such sale,
transfer or other disposition has been registered under the Act or (iii) in
the opinion of counsel reasonably acceptable to Durco, such sale, transfer
or other disposition is otherwise exempt from registration under the Act.
C. I acknowledge that except as provided for in the Merger Agreement,
Durco is under no obligation to register the sale, transfer or other
disposition of the New Shares by me or on my behalf under the Act or,
except as provided in paragraph 2(A) below, to take any other action
necessary in order to make compliance with an exemption from such
registration available.
D. I acknowledge that stop transfer instructions will be given to
Durco's transfer agents with respect to the New Shares and that there will
be placed on the certificates for the New Shares issued to me, or any
substitutions therefor, a legend stating in substance:
" THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF A LETTER AGREEMENT DATED
[ ], 1997, BETWEEN THE REGISTERED HOLDER HEREOF AND DURCO, A
COPY OF WHICH LETTER AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF
DURCO."
<PAGE> 124
E. I acknowledge that unless a sale or transfer is made in conformity
with the provisions of Rule 145, or pursuant to a registration statement
under the Act, Durco reserves the right to put the following legend on the
certificates issued to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO
RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 UNDER THE
SECURITIES ACT OF 1933 APPLIES. THE SHARES HAVE BEEN ACQUIRED BY THE
HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933
AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN
ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933."
F. I agree that I will, not during the 30 days prior to the Effective
Time (as defined in the Merger Agreement), sell, transfer, pledge,
hypothecate or otherwise dispose of shares of the capital stock of Durco
that I may hold and, furthermore, that I will not sell, transfer or
otherwise dispose of the New Shares received by me in the Merger or any
other shares of the capital stock of Durco until after such time as results
covering at least 30 days of combined operations of BW/IP and Durco have
been published by Durco, in the form of a quarterly earnings report, and
effective registration statement filed with the Commission, or a report on
Form 10-K, 10-Q, or 8-K.
G. Execution of this letter should not be considered an admission on
my part that I am an "affiliate" of Durco as described in the first
paragraph of this letter, nor as a waiver of any rights I may have to
object to any claim that I am such an affiliate on or after the date of
this letter.
2. Durco hereby agrees as follows:
A. For so long as and to the extent necessary to permit the
undersigned to sell the New Shares pursuant to Rule 145 and, to the extent
applicable, Rule 144 under the Act, Durco shall (a) use its reasonable best
efforts to (i) file, on a timely basis, all reports and data required to be
filed with the Commission by it pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended, and (ii) furnish to the undersigned upon
request a written statement as to whether Durco has complied with such
reporting requirements during the 12 months preceding any proposed sale of
the New Shares by the undersigned under Rule 145 and (b) otherwise use its
reasonable efforts to permit such sales pursuant to Rule 145 and Rule 144.
B. It is understood and agreed that the legends set forth in
paragraphs D and E above shall be removed by delivery of substitute
certificates without such legend if (i) one year shall have elapsed from
the date the undersigned acquired the New Shares received in the Merger and
the provisions of Rule 145(d)(2) are then available to the undersigned,
(ii) two years shall have elapsed from the date the undersigned acquired
the New Shares received in the Merger and the provisions of Rule 145(d)(3)
are then applicable to the undersigned, or (iii) Durco has received either
an opinion of counsel, which opinion of counsel shall be reasonably
satisfactory to Durco, or a "no action" letter from the staff of the
Commission, to the effect that the restrictions imposed by Rule 145 under
the Act no longer apply to the undersigned.
Very truly yours,
Name:
Agreed and accepted this ____ day
of [ ], 1997, by
DURCO INTERNATIONAL, INC.
By
-----------------------------------
Name: William M. Jordan
Title: President and Chief Executive Officer
2
<PAGE> 125
EXHIBIT C
FORM OF DURCO AND SUB TAX OPINION REPRESENTATION LETTER
, 1997
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
Ladies and Gentlemen:
On behalf of the Durco International, Inc. ("Durco") and Bruin Acquisition
Corp. ("Sub"), the undersigned in connection with the opinions to be delivered
by your firms pursuant to Sections 6.02(c) and 6.03(c) of the Merger Agreement
dated as of May [6], 1997, among Durco, Sub and BW/IP, Inc. ("BW/IP"),* hereby
certifies that, to the extent the facts relate to Durco and Sub to his knowledge
and after due diligence, and to the extent otherwise without knowledge to the
contrary:
1. The consideration received by each BW/IP stockholder pursuant to
the Merger Agreement is the result of arm's-length negotiations between the
parties to such Agreement.
2. Following the Merger, BW/IP will hold at least 90 percent of the
fair market value of its net assets and at least 70 percent of the fair
market value of its gross assets and at least 90 percent of the fair market
value of Sub's assets and at least 70 percent of the fair market value of
Sub's gross assets held immediately prior to the Merger. For purposes of
this representation, amounts paid by BW/IP or Sub to dissenters, amounts
paid by BW/IP or Sub to shareholders who receive cash or other property,
amounts used by BW/IP or Sub to pay reorganization expenses, and all
redemptions or distributions (except for regular, normal dividends) made by
BW/IP will be included as assets of BW/IP or Sub, respectively, immediately
prior to the Merger.
3. Prior to the Merger, Durco will be in control of Sub within the
meaning of section 368(c)(1) of the Internal Revenue Code.
4. Durco has no plan or intention to reacquire any of the Durco stock
issued in the Merger.
5. Durco has no plan or intention to liquidate BW/IP; to merge BW/IP
with or into another corporation; to sell or otherwise dispose of the stock
of BW/IP except for transfers of stock to corporations controlled by Durco;
or to cause BW/IP to sell or otherwise dispose of any of its assets or any
of the assets acquired from Sub, except for dispositions made in the
ordinary course of business; provided, however, that notwithstanding the
foregoing Durco may transfer (or cause BW/IP to transfer) assets or stock
of BW/IP in a manner that is consistent with Section 368(a)(2)(C) of the
Code.
6. Sub will have no liabilities assumed by BW/IP, and will not
transfer to BW/IP any assets subject to liabilities, in the Merger.
7. There is no intercorporate indebtedness existing between Durco and
BW/IP or between Sub and BW/IP that was issued, acquired, or will be
settled at a discount.
- ---------------
* For purposes of this certificate, capitalized terms used and not otherwise
defined herein shall have the meaning ascribed thereto in the Merger
Agreement.
<PAGE> 126
8. In the Merger, shares of BW/IP stock representing control of
BW/IP, as defined in section 368(c)(1) of the Internal Revenue Code, will
be exchanged solely for voting stock of Durco. For purposes of this
representation, shares of BW/IP stock exchanged for cash or other property
originating with Durco will be treated as outstanding BW/IP stock on the
date of the Merger.
9. Neither Durco, Sub nor any other subsidiary of Durco owns, or has
owned during the past five years except as a result of the Merger, any
shares of BW/IP, provided that for purposes of this representation shares
held by any pension fund that is under independent management are not
treated as being owned by Durco or any of its subsidiaries.
10. Following the Merger, BW/IP will continue its historic business or
use a significant portion of its historic business assets in a business.
11. Neither Durco nor Sub is an investment company as defined in
section 368(a)(2)F)(iii) and (iv) of the Internal Revenue Code.
12. The payment of cash in lieu of fractional shares of Durco stock is
solely for the purpose of avoiding the expense and inconvenience to Durco
of issuing fractional shares and does not represent separately bargained
for consideration. The total cash consideration that will be paid in the
Merger to BW/IP shareholders instead of issuing fractional shares of Durco
stock will not exceed one percent of the total consideration that will be
issued in the Merger to BW/IP shareholders in exchange for their shares of
BW/IP stock. The fractional share interests of each BW/IP shareholder will
be aggregated, and no BW/IP shareholder will receive cash in an amount
equal to or greater than the value of one full share of Durco stock.
13. Subject to Section 5.09 of the Merger Agreement, Durco and Sub
will pay their respective expenses, if any, incurred in connection with the
Merger.
14. None of the compensation received by any stockholder-employees of
BW/IP will be separate consideration for, or allocable to, any of their
shares of BW/IP stock; none of the shares of Durco stock received by any
stockholder-employees will be separate consideration for or allocable to,
any employment agreement; and the compensation paid to any
stockholder-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's length
for similar services.
15. The facts relating to the Merger of Sub with and into BW/IP
pursuant to the Merger Agreement, as described in the Merger Agreement, the
documents described in Section 5 of the Merger Agreement and the joint
proxy statement/prospectus prepared by Durco and BW/IP, are, insofar as
such facts pertain to Durco and Sub, true, correct and complete in all
material respects.
16. Neither Durco nor Sub will take any position on any Federal, state
or local income or franchise tax return, or take any other tax reporting
position, that is inconsistent with the treatment of the Merger as a
reorganization within the meaning of Sections 368(a) of the Code, unless
otherwise required by a "determination" (as defined in Section 1313(a)(1)
of the Code) or by applicable state or local income or franchise tax law.
17. The Merger Agreement and the documents described in Section 5 of
the Merger Agreement represent the entire understanding of BW/IP, Durco and
Sub with respect to the Merger.
I understand that Cravath, Swaine & Moore, as counsel for Durco, and
Shearman & Sterling, as counsel for BW/IP, will rely on this certificate in
rendering their respective opinions concerning certain of the federal income tax
consequences of the Merger and hereby commit to inform them if, for any reason,
any of the foregoing representations ceases to be true prior to the [Closing
Date].
DURCO INTERNATIONAL, INC.
By:
--------------------------------------
Name: William M. Jordan
Title: President and Chief Executive
Officer
2
<PAGE> 127
EXHIBIT D
FORM OF BW/IP TAX OPINION REPRESENTATION LETTER
, 1997
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
Ladies and Gentlemen:
On behalf of BW/IP, Inc. ("BW/IP"), the undersigned in connection with the
opinions to be delivered by your firms pursuant to Sections 6.02(c) and 6.03(c)
of the Merger Agreement dated as of May [6], 1997, among Durco International,
Inc. ("Durco"), Bruin Acquisition Corp. ("Sub") and BW/IP,** hereby certifies
that, to the extent the facts relate to BW/IP to [his] knowledge and after due
diligence, and to the extent otherwise without knowledge to the contrary:
1. The consideration received by each BW/IP stockholder pursuant to
the Merger Agreement is the result of arm's-length negotiations between the
parties to such Agreement.
2. There is no plan or intention by the shareholders of BW/IP who own
5 percent or more of BW/IP stock, and to the best of the knowledge of the
management of BW/IP, there is no plan or intention on the part of the
remaining shareholders of BW/IP to sell, exchange, or otherwise dispose of,
reduce the risk of loss (by short sale or otherwise) of the holding of,
enter into any contract or other arrangement with respect to the sale,
exchange or other disposition of (each of the foregoing, a "disposition"),
any interest in the shares of Durco Common Stock received in the Merger in
exchange for such BW/IP Stock that would reduce the ownership of Durco
Common Stock by former holders of BW/IP Stock to a number of shares having
a value, as of immediately prior to the Merger, of less than 50% of the
value of all of the outstanding shares of BW/IP Stock as of the Closing
Date. For purposes of this representation, any "disposition" (as defined
above) of Durco Common Stock will be treated as a reduction in ownership
thereof. In addition, for purposes of this representation, shares of BW/IP
stock exchanged for cash or other property surrendered by Dissenters or
exchanged for cash in lieu of fractional shares of Durco stock will be
treated as outstanding BW/IP stock on the date of the Merger. Moreover,
shares of BW/IP stock and shares of Durco stock held by BW/IP shareholders
and otherwise sold, redeemed, or disposed of prior or subsequent to the
Merger will be considered in making this representation. Except as set
forth on Annex I to this letter, to the knowledge of the management of
BW/IP there are no shareholders who own 5 percent or more of the BW/IP
stock on the date hereof. For purposes of this representation we have
assumed that each person listed on Annex I as a 5% or greater shareholder
of BW/IP has a plan or intention to sell for cash all the Durco stock that
it will receive in the Merger unless we have received from such person a
letter substantially in the form of Exhibit [E] to the Merger Agreement
with respect to such Durco Stock.
3. Following the Merger, BW/IP will hold at least 90 percent of the
fair market value of its net assets and at least 70 percent of the fair
market value of its gross assets and at least 90 percent of the fair market
value of Sub's net assets and at least 70 percent of the fair market value
of Sub's gross assets held immediately prior to the Merger. For purposes of
this representation, amounts paid by BW/IP or Sub to
- ---------------
** For purposes of this certificate, capitalized terms used and not
otherwise defined herein shall have the meaning ascribed thereto in the
Merger Agreement.
<PAGE> 128
dissenters, amounts paid by BW/IP or Sub to shareholders who receive cash
or other property, amounts used by BW/IP or Sub to pay reorganization
expenses, and all redemptions or distributions (except for regular, normal
dividends) made by BW/IP will be included as assets of BW/IP or Sub,
respectively, immediately prior to the Merger.
4. BW/IP has no plan or intention to issue additional shares of its
stock that would result in Durco losing control of BW/IP within the meaning
of section 368(c)(1) of the Internal Revenue Code.
5. Sub will have no liabilities assumed by BW/IP, and will not
transfer to BW/IP any assets subject to liabilities, in the Merger.
6. Following the Merger, BW/IP will continue its historic business or
use a significant portion of its historic business assets in a business.
7. Subject to Section 5.09 of the Merger Agreement, BW/IP and its
shareholders will pay their respective expenses, if any, incurred in
connection with the Merger.
8. There is no intercorporate indebtedness existing between Durco and
BW/IP or between Sub and BW/IP that was issued, acquired, or will be
settled at a discount.
9. In the Merger, shares of BW/IP stock representing control of BW/IP,
as defined in section 368(c)(1) of the Internal Revenue Code, will be
exchanged solely for voting stock of Durco. For purposes of this
representation, shares of BW/IP stock exchanged for cash or other property
originating with Durco will be treated as outstanding BW/IP stock on the
date of the Merger.
10. At the time of the Merger, BW/IP will not have outstanding any
warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock in BW/IP that, if
exercised or converted, would affect Durco's acquisition or retention of
control of BW/IP, as defined in section 368(c)(1) of the Internal Revenue
Code.
11. BW/IP is not an investment company as defined in section
368(a)(2)F)(iii) and (iv) of the Internal Revenue Code.
12. On the date of the Merger, the fair market value of the assets of
BW/IP will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
13. BW/IP is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 368(a)(3)(A) of the Internal
Revenue Code.
14. The payment of cash in lieu of fractional shares of Durco stock is
solely for the purpose of avoiding the expense and inconvenience to Durco
of issuing fractional shares and does not represent separately bargained
for consideration. The total cash consideration that will be paid in the
Merger to BW/IP shareholders instead of issuing fractional shares of Durco
stock will not exceed one percent of the total consideration that will be
issued in the Merger to BW/IP shareholders in exchange for their shares of
BW/IP stock. The fractional share interests of each BW/IP shareholder will
be aggregated, and no BW/IP shareholder will receive cash in an amount
equal to or greater than the value of one full share of Durco stock.
15. None of the compensation received by any stockholder-employees of
BW/IP will be separate consideration for, or allocable to, any of their
shares of BW/IP stock; none of the shares of Durco stock received by any
stockholder-employees will be separate consideration for, or allocable to,
any employment agreement; and the compensation paid to any
stockholder-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's length
for similar services.
16. The facts relating to the Merger of Sub with and into BW/IP
pursuant to the Merger Agreement, as described in the Merger Agreement, the
documents described in Section 5 of the Merger Agreement and the joint
proxy statement/prospectus prepared by Durco and BW/IP, are, insofar as
such facts pertain to BW/IP, true, correct and complete in all material
respects.
2
<PAGE> 129
17. BW/IP will not take, and BW/IP is not aware of any plan or
intention of BW/IP stockholders to take, any position on any Federal, state
or local income or franchise tax return, or take any other tax reporting
position, that is inconsistent with the treatment of the Merger as a
reorganization within the meaning of Sections 368(a) of the Code, unless
otherwise required by a "determination" (as defined in Section 1313(a)(1)
of the Code) or by applicable state or local income or franchise tax law.
18. The Merger Agreement and the documents described in Section 5 of
the Merger Agreement represent the entire understanding of BW/IP, Durco and
Sub with respect to the Merger.
I understand that Cravath, Swaine & Moore, as counsel for Durco, and
Shearman & Sterling, as counsel for BW/IP, will rely on this certificate in
rendering their respective opinions concerning certain of the federal income tax
consequences of the Merger and hereby commit to inform them if, for any reason,
any of the foregoing representations ceases to be true prior to the [Closing
Date].
BW/IP, INC.
By:
--------------------------------------
Name: Bernard G. Rethore
Title: President & Chief Executive
Officer
3
<PAGE> 130
ANNEX I
<TABLE>
<CAPTION>
BENEFICIALLY PERCENT
BENEFICIAL OWNER* OWNED SHARES OF CLASS
- ---------------------------------------------------------------------- ------------ --------
<S> <C> <C>
Pioneering Management Corporation
60 State Street
Boston, MA 02114.................................................... 2,006,000 8.27%
</TABLE>
- ---------------
* [Attach SEC filings]
4
<PAGE> 131
EXHIBIT E
[LETTERHEAD OF]
[COMPANY STOCKHOLDER]
, 1997
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019-7475
Ladies and Gentlemen:
In connection with the opinion to be delivered by you pursuant to the
Agreement and Plan of Merger (the "Merger Agreement") dated as of May [6], 1997,
by and among Durco International, Inc., a New York corporation ("Durco"), BW/IP,
Inc., a Delaware corporation ("BW/IP"), and Bruin Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Durco ("Sub"), the undersigned
certifies (to the best of its knowledge and belief, where indicated), after due
inquiry and investigation, as follows (any capitalized term used but not defined
herein shall have the meaning given to such term in the Merger Agreement):
1. The undersigned has no present plan or intention to sell, exchange
or otherwise dispose of, reduce the risk of loss (by short sale or
otherwise) of the holding of, enter into any contract or other arrangement
with respect to, the sale, exchange or other disposition of (each of the
foregoing, a "disposition"), any interest in the shares of Durco common
stock received in the merger contemplated by the Merger Agreement (the
"Merger"). For purposes of this representation, any "disposition" (as
defined above) of Durco common stock will be treated as a reduction in
ownership thereof.
2. The undersigned will not take any position on any Federal, state or
local income or franchise tax return, or take any other tax reporting
position, that is inconsistent with the treatment of the Merger as a
reorganization within the meaning of Sections 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), unless otherwise required by
a "determination" (as defined in Section 1313(a)(1) of the Code) or by
applicable state or local income or franchise tax law.
3. The undersigned shall immediately notify the Chief Financial
Officer of the Company in writing via facsimile, of any change, on or prior
to the Effective Time, of the plans or intentions of the undersigned as set
forth above.
[COMPANY STOCKHOLDER]
By:
--------------------------------------
Name:
Title:
<PAGE> 132
EXHIBIT F
RETHORE EMPLOYMENT AGREEMENT ("AGREEMENT") TERM SHEET
Parties: Durco International, Inc. (the "Company") and
Bernard G. Rethore (the "Executive").
Term: Begins on the effective time of the merger, as
defined in the merger agreement by and among the
Company, a subsidiary of the Company and BW/IP,
Inc. (the "Effective Date") and ends on the fifth
anniversary of the Effective Date.
Employment Terms: The Executive will serve as Chairman and Chief
Executive Officer of the Company for at least three
years, in which capacity he will have such
authority and duties commensurate with his position
and will have general charge, supervision and
control of the business and affairs of the Company
and of the officers and employers of the Company.
On the third anniversary of the Effective Date, the
Executive will resign and, unless such resignation
is rejected by vote of the Board of Directors,
shall thereafter serve as a consultant to the Board
until the fifth anniversary of the Effective Date.
In such capacity, he shall provide such consulting
and advisory services as may be reasonably
requested by the Board, to the extent consistent
with the Executive's other obligations.
Compensation as Chairman
and CEO: Base Salary: An amount to be agreed by the parties
but in no event less than his salary as of the
Effective Date which is to be reviewed annually
(and no more than 12 months after the last salary
increase awarded prior to the Effective Date) and
may be increased, but not decreased.
Bonus: An annual bonus opportunity with a minimum
target bonus of no less than 50% of the base
salary.
Incentive, Savings, Retirement and Welfare Benefit
Plans: The Executive is entitled to participate in
all such plans and programs applicable to other
senior executives of the Company and its affiliates
and on a basis at least as favorable as provided to
other senior executives.
Other: The Executive is entitled to an office,
reimbursement of reasonable expenses, payment of
club dues, automobile payments if applicable,
vacation time and other fringe benefits on a basis
no less favorable than provided to other senior
executives of the Company and it affiliates,
provided that vacation time will not be less than
four weeks.
Service Credit and Post-Employment Benefits: The
Executive will be provided full service credit for
his years of service at BW/IP for purposes of
eligibility, vesting and benefit accrual under the
employee benefit plans and programs of the Company
which he participates in, provided that benefit
accrued under a defined benefit pension plan of
BW/IP prior to becoming a participant in the
Company defined benefit pension plan will be
offset. Notwithstanding the foregoing, the
Executive will be entitled to a SERP benefit at
least as generous as that provided under his
agreements with BW/IP had such agreements remained
in effect, taking into account, among other things,
the double service crediting provided thereunder.
<PAGE> 133
Compensation as a
Consultant: During the Executive's consulting period, he will
be paid a consulting fee, payable in accordance
with the Company's customary payroll practices with
respect to salary, at an annual rate equal to the
Executive's salary as in effect at the time of his
resignation as Chairman and CEO. In addition, the
Executive will continue to have the same bonus
opportunity as during his period of employment.
During such consulting period, the Executive will
also (i) participate in all benefit plans in which
he participated as an employee (excluding any
stock-based or other long-term incentive plans),
and (ii) continue to hold, and be credited with
vesting service with respect to, all stock options
that were outstanding as of the date of his
resignation as Chairman and CEO.
Location of Services: During his period of employment as Chairman and
CEO, in lieu of relocating to the Company's
headquarters, the Executive will continue to have
his permanent residence in Phoenix, Arizona and
will commute each week to the Company's
headquarters at the Company's expense. The Company
also will provide the Executive with a suitable
apartment in the headquarters city and shall bear
all reasonable living expenses of the Executive in
the headquarters city.
During the consulting period, the Executive will
not be required to perform services at the
Company's headquarters or to travel on the
Company's behalf.
Termination of Employment: Upon a termination without Cause or resignation for
Good Reason the Executive will be entitled to: (1)
a lump sum cash payment equal to the product of (A)
the sum of salary and the highest annual bonus paid
to the Executive in the two years prior to
termination, multiplied by (B) the greater of two
and the number of full and partial years remaining
in the five year term under the Agreement; (2) the
difference in the value of the actuarial equivalent
of the benefit the Executive would have received
under the Company's qualified defined benefit plan
and excess or supplemental retirement plan in which
the Executive participates and which the Executive
would have received had his employment continued
for the longer of three years after the termination
date or the end of the term under the Agreement
(assuming that all accrued benefit are fully
vested) and the actuarial equivalent of the actual
benefits paid or payable under these plans on the
termination date; (3) benefits under any welfare
benefit plan or program through the later of three
years after the termination date or the end of the
employment term under the Agreement, these benefits
will be considered secondary if the Executive
receives benefits from another employer and credit
under any plan for employment as if the Executive
had remained employed through the end of the term
of employment under the Agreement; (4) earned but
unpaid annual base salary, earned but unpaid annual
bonus based upon the days worked in that year and
the highest bonus of the previous two years, and
any previously deferred compensation; (5) any other
amount the Executive is entitled to receive under
any plan or program including all amounts earned,
but unpaid and any amounts which would have been
paid or vested in the calendar year in which the
Executive's termination of employment occurs; (6)
all stock based awards will become immediately
vested and where applicable remain exercisable for
the later of 90 days following the termination date
or any period provided for in any applicable plan
or agreement; (7) an office and administrative
assistance
2
<PAGE> 134
and other benefits and perquisites as provided by
Company practice to its ex-Chairman as of the date
of the agreement.
Definition of Cause: Cause is defined as (1) the Executive's continuing
failure to perform his duties with the Company or
its affiliates (other than as a result of
incapacity due to mental or physical illness) after
a written demand is delivered to the Executive by
the Board; (2) the Executive's wilful engaging in
illegal conduct or gross misconduct which is
materially and demonstrably injurious to the
Company; (3) the Executive's conviction of a felony
or guilty or nolo contendere plea to a felony or
(4) a material, wilful breach of the
confidentiality portion of the Agreement.
The definition of "wilful" is limited to those
cases in which the Executive acts in bad faith or
without reasonable belief that his action or
omission was in the Company best interest. In order
for the Executive to be terminated for Cause the
Board must adopt and deliver to the Executive a
resolution by at least 3/4 of the entire membership
of the Board, at a meeting held for such a purpose,
after the Executive is given reasonable notice and
opportunity with counsel to be heard before the
Board, finding that in the Board's good faith
opinion, the Executive is guilty of the conduct
described above and specifying the details and that
the Executive failed to cure such conduct within 30
days of receipt of such notice from the Company
detailing such conduct.
Definition of Good Reason: Any good faith determination of Good Reason by the
Executive will be conclusive. Good Reason is
defined as (1) the removal of the Executive during
the employment period from the position of Chief
Executive Officer or Chairman of the Board; the
assignment of duties inconsistent in a material
respect with the Executive's position; any action
by the Company resulting in a material diminution
of the Executive's position or duties other than an
isolated, insubstantial and inadvertent failure,
not in bad faith which is remedied by the Company
after notice by the Executive; (2) the Company's
material failure to comply with any of the
Agreement's provisions other than an isolated,
insubstantial and inadvertent failure, not in bad
faith which is remedied by the Company after notice
by the Executive; (3) the Company requiring the
Executive to be based at a location more than 35
miles from the location of the Company's
headquarters or the Company requiring that the
executive to travel in business more than required
immediately before the Effective Date; (4) any
termination of the Executive employment by the
Company, other than permitted in the Agreement; (5)
any failure of the Company to fail to require a
successor to assume and perform the Agreement.
Excise Tax Gross-Up: The Executive will be entitled to receive a gross
up for any excise tax imposed under Section 4999 of
the Internal Revenue Code.
Governing Law: New York.
Confidentiality: The Executive agrees to hold secret or confidential
information in a fiduciary capacity. Violation of
the confidentiality provision will not constitute a
basis for deferring or withholding amounts
otherwise payable under the Agreement.
3
<PAGE> 135
Miscellaneous: This Agreement will supersede the Employment
Continuation Agreement and the Employment Agreement
between the Executive and BW/IP.
Legal Fees: The Company will reimburse the Executive for all
reasonable legal fees incurred by him in the
negotiation and preparation of the final Agreement.
4
<PAGE> 136
EXHIBIT G
JORDAN EMPLOYMENT AGREEMENT ("AGREEMENT") TERM SHEET
Parties: Durco International, Inc. (the "Company") and
William M. Jordan (the "Executive")
Term: Begins on the effective time of the merger, as
defined in the merger agreement by and among the
Company, a subsidiary of the Company and BW/IP,
Inc. (the "Effective Date") and ends on the fifth
anniversary of the Effective Date. The Agreement
will be automatically renewed thereafter for one
year periods unless either party gives the other
notice three months prior to the end of the initial
or extended term.
Employment Terms: For the first part of the employment term, which
will end upon the resignation of Bernard G. Rethore
as the Chairman and Chief Executive Officer of the
Company, the Executive will serve as President and
Chief Operating Officer of the Company with the
heads of each operating unit reporting to him, with
such authority and duties commensurate with his
position and such additional duties as may be
assigned by the Board. As President and Chief
Operating Officer of the Company, the Executive
will report to the Chairman and Chief Executive
Officer. For the remainder of the employment term,
the Executive will serve as Chief Executive Officer
of the Company and Chairman of the Board of the
Company with such authority, duties and
responsibilities commensurate with such position
and consistent with such positions as may be
assigned to him by the Board. The Company will use
its best efforts to have the Executive elected as a
director of the Company and will appoint the
Executive as Chief Executive Officer and Chairman
of the Board immediately upon vacancy by the
current individual serving in those positions, but
no later than at the time described above.
Compensation: Base Salary: An amount to be agreed by the parties
but in no event less than his salary as of the
Effective Date which is to be reviewed annually
(and no more than 12 months after the last salary
increase awarded prior to the Effective Date) and
may be increased, but not decreased.
Bonus: An annual bonus opportunity with a minimum
target bonus of no less than 50% of base salary.
Incentive, Savings, Retirement and Welfare Benefit
Plans: The Executive is entitled to participate in
all such plans and programs applicable to other
senior executives of the Company and its affiliates
and on a basis no less favorable to other senior
executives.
Other: The Executive is entitled to an office,
reimbursement of reasonable expenses, payment of
club dues, automobile payments if applicable,
vacation time and other fringe benefits on a basis
no less favorable than provided to other senior
executives of the Company and it affiliates,
provided that vacation time will not be less than
four weeks.
Termination of Employment: Upon a termination without Cause or resignation for
Good Reason the Executive will be entitled to: (1)
a lump sum cash payment equal to the product of (A)
the sum of salary and the highest annual bonus paid
to the Executive in the two years prior to
termination, multiplied by (B) the greater of two
and the number of full and partial years remaining
<PAGE> 137
in the five year term under the Agreement; (2) the
difference in the value of the actuarial equivalent
of the benefit the Executive would have received
under the Company's qualified defined benefit plan
and excess or supplemental retirement plan in which
the Executive participates and which the Executive
would have received had his employment continued
for the longer of three years after the termination
date or the end of the term under the Agreement
(assuming that all accrued benefit are fully
vested) and the actuarial equivalent of the actual
benefits paid or payable under these plans on the
termination date; (3) benefits under any welfare
benefit plan or program through the later of three
years after the termination date or the end of the
employment term under the Agreement, these benefits
will be considered secondary if the Executive
receives benefits from another employer and credit
under any plan for employment as if the Executive
had remained employed through the end of the term
of employment under the Agreement; (4) earned but
unpaid annual base salary, earned but unpaid annual
bonus based upon the days worked in that year and
the highest bonus of the previous two years, and
any previously deferred compensation; (5) any other
amount the Executive is entitled to receive under
any plan or program including all amounts earned,
but unpaid and any amounts which would have been
paid or vested in the calendar year in which the
Executive's termination of employment occurs; (6)
all stock based awards will become immediately
vested and where applicable remain exercisable for
the later of 90 days following the termination date
or any period provided for in any applicable plan
or agreement.
Definition of Cause: Cause is defined as (1) the Executive's continuing
failure to perform his duties with the Company or
its affiliates (other than as a result of
incapacity due to mental or physical illness) after
a written demand is delivered to the Executive by
the Board; (2) the Executive's wilful engaging in
illegal conduct or gross misconduct which is
materially and demonstrably injurious to the
Company; (3) the Executive's conviction of a felony
or guilty or nolo contendere plea to a felony or
(4) a material, wilful breach of the
confidentiality portion of the Agreement.
The definition of "wilful" is limited to those
cases in which the Executive acts in bad faith or
without reasonable belief that his action or
omission was in the Company best interest. In order
for the Executive to be terminated for Cause the
Board must adopt and deliver to the Executive a
resolution by at least 3/4 of the entire membership
of the Board, at a meeting held for such a purpose,
after the Executive is given reasonable notice and
opportunity with counsel to be heard before the
Board, finding that in the Board's good faith
opinion, the Executive is guilty of the conduct
described above and specifying the details and that
the Executive failed to cure such conduct within 30
days of receipt of such notice from the Company
detailing such conduct.
Definition of Good Reason: Any good faith determination of Good Reason by the
Executive will be conclusive. Good Reason is
defined as (1) the removal of the Executive during
the employment period from the position of
President, Chief Operating Officer, Chief Executive
Officer or Chairman of the Board; the assignment of
duties inconsistent in a material respect with the
Executive's position; any action by the Company
resulting in a material diminution of the
Executive's position or duties other than an
isolated,
2
<PAGE> 138
insubstantial and inadvertent failure, not in bad
faith which is remedied by the Company after notice
by the Executive; (2) the Company's material
failure to comply with any of the Agreement's
provisions other than an isolated, insubstantial
and inadvertent failure, not in bad faith which is
remedied by the Company after notice by the
Executive; (3) the Company requiring the Executive
to be based at a location more than 35 miles from
the location of the Company's headquarters or the
Company requiring that the executive to travel in
business more than required immediately before the
Effective Date; (4) any termination of the
Executive employment by the Company, other than
permitted in the Agreement; (5) any failure of the
Company to require a successor to assume and
perform the Agreement and (6) the failure of the
Company to appoint the Executive as Chief Executive
Officer and Chairman of the Board on the third
anniversary of the Effective Date.
Excise Tax Gross-Up: The Executive will be entitled to receive a gross
up for any excise tax imposed under Section 4999 of
the Internal Revenue Code.
Governing Law: New York
Confidentiality: The Executive agrees to hold secret or confidential
information in a fiduciary capacity. Violation of
the confidentiality provision will not constitute a
basis for deferring or withholding amounts
otherwise payable under the Agreement.
Miscellaneous: This Agreement will supersede the agreement between
the Executive and the Company dated as of January
2, 1997.
Legal Fees: The Company will reimburse the Executive for all
reasonable legal fees incurred by him in the
negotiation and preparation of the final Agreement.
3
<PAGE> 139
ANNEX II
DURCO STOCK OPTION AGREEMENT
BETWEEN
DURCO INTERNATIONAL, INC.
AND
BW/IP, INC.
DATED AS OF MAY 6, 1997
<PAGE> 140
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<C> <S> <C>
ARTICLE I
THE STOCK OPTION
1.01. Grant of Stock Option.......................................................... 1
1.02. Exercise of Stock Option....................................................... 1
1.03. Conditions to Closing.......................................................... 2
1.04. Closings....................................................................... 2
1.05. Adjustments upon Share Issuances, Changes in Capitalization, Etc............... 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ISSUER
2.01. Authority Relative to this Agreement........................................... 4
2.02. Authority to Issue Shares...................................................... 4
2.03. No Conflict; Required Filings and Consents..................................... 4
2.04. Rights Agreement............................................................... 4
ARTICLE III
COVENANTS OF ISSUER
3.01. Listing; Other Action.......................................................... 5
3.02. Registration................................................................... 5
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GRANTEE
4.01. Authority Relative to this Agreement........................................... 6
4.02. No Conflict; Required Filings and Consents..................................... 6
ARTICLE V
COVENANTS OF GRANTEE
5.01. Distribution................................................................... 7
ARTICLE VI
REPURCHASE ELECTION
6.01. Repurchase Election............................................................ 7
ARTICLE VII
MISCELLANEOUS
7.01. Amendment; No Waiver........................................................... 8
7.02. Fees and Expenses.............................................................. 8
7.03. Notices........................................................................ 8
7.04. Severability................................................................... 8
7.05. Assignment; Binding Effect; Benefit............................................ 8
7.06. Specific Performance........................................................... 8
7.07. Governing Law.................................................................. 8
7.08. Headings....................................................................... 8
7.09. Counterparts................................................................... 8
7.10. Entire Agreement............................................................... 9
</TABLE>
i
<PAGE> 141
STOCK OPTION AGREEMENT, dated as of May 6, 1997 (this "Agreement"), between
BW/IP, INC., a Delaware corporation ("Grantee"), and DURCO INTERNATIONAL, INC.,
a New York corporation ("Issuer").
W I T N E S S E T H:
WHEREAS, Grantee, Issuer and BRUIN ACQUISITION CORP., a wholly owned
subsidiary of Issuer ("Sub"), propose to enter into, simultaneously herewith, an
Agreement and Plan of Merger (the "Merger Agreement"; terms used but not defined
in this Agreement shall have the meanings ascribed to them in the Merger
Agreement), which provides, upon the terms and subject to the conditions
thereof, for, among other things, the merger of Sub with and into Grantee; and
WHEREAS, as a condition to the willingness of Grantee to enter into the
Merger Agreement and the BW/IP Stock Option Agreement, Grantee has required that
Issuer agree, and in order to induce Grantee to enter into the Merger Agreement
and the BW/IP Stock Option Agreement, Issuer has agreed, to grant Grantee an
option to purchase up to such number of newly issued or treasury shares of
common stock, par value $1.25 per share, of Issuer ("Issuer Common Stock") as
equals 19.9% of the issued and outstanding shares of Issuer Common Stock at the
first time of exercise of the Stock Option (as defined below), in accordance
with the terms of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement and in the Merger Agreement, the parties hereto agree as follows:
ARTICLE I
THE STOCK OPTION
SECTION 1.01. Grant of Stock Option. Issuer hereby grants to Grantee an
irrevocable option (the "Stock Option") to purchase up to such number of shares
of Issuer Common Stock as equals 19.9% of the issued and outstanding shares of
Issuer Common Stock at the first time of exercise of the Stock Option (the
"Option Shares") at a cash purchase price per Option Share equal to $23.750 (the
"Purchase Price"), subject to the terms and conditions set forth herein.
SECTION 1.02. Exercise of Stock Option. (a) Subject to the conditions set
forth in Section 1.03 and to any additional requirements of any applicable laws,
statutes, ordinances, regulations, rules, codes, orders or other requirement or
rule of law ("Laws"), the Stock Option may be exercised by Grantee, in whole or
in part, if Grantee has not materially breached the Merger Agreement or is not
in material breach of the BW/IP Stock Option Agreement, at any time or from time
to time after the occurrence of an Exercise Event (as defined below); provided
that, except as provided in the last sentence of this Section 1.02(a), the Stock
Option shall terminate and be of no further force and effect upon the earliest
to occur of (i) the Effective Time, (ii) 18 months after the occurrence of an
Exercise Event (unless prior thereto the Stock Option shall have been exercised)
and (iii) the termination of the Merger Agreement prior to the occurrence of an
Exercise Event unless, in the case of clause (iii), the Grantee has the right to
receive a Termination Fee following such termination upon the occurrence of
certain events, in which case the Stock Option will not terminate until the
later of (x) six months following the time such Termination Fee becomes payable
and (y) the expiration of the period in which the Grantee has such right to
receive a Termination Fee. Notwithstanding the termination of the Stock Option,
Grantee shall be entitled to purchase those Option Shares with respect to which
it has exercised the Stock Option in accordance with the terms hereof prior to
the termination of the Stock Option. The termination of the Stock Option shall
not affect any rights hereunder which by their terms extend beyond the date of
such termination.
(b) An "Exercise Event" shall occur for purposes of this Agreement
upon the occurrence of any event as a result of which the Grantee is
entitled to receive the Termination Fee pursuant to Section 5.09(c) of the
Merger Agreement.
<PAGE> 142
(c) In the event Grantee wishes to exercise the Stock Option, Grantee
shall send a written notice (a "Stock Exercise Notice") to Issuer
specifying the total number of Option Shares Grantee wishes to purchase,
the denominations of the certificate or certificates evidencing such Option
Shares that Grantee wishes to receive, a date (subject to the earlier
satisfaction or waiver of the conditions set forth in Section 1.03) (a
"Closing Date"), which shall be a Business Day which is not later than 10
Business Days and not earlier than the fifth Business Day after delivery of
such notice, and place for the closing of such purchase (a "Closing").
(d) If at any time the Stock Option is then exercisable pursuant to
the terms of Section 1.02(a) hereof, Grantee may elect, in lieu of
exercising the Stock Option to purchase Option Shares as provided in
Section 1.02(a) hereof, to send a written notice to Issuer (a "Cash
Exercise Notice") specifying a date not later than 10 Business Days and not
earlier than the fifth Business Day after delivery of such notice, on which
date Issuer shall pay to Grantee an amount in cash equal to the Spread (as
defined below) multiplied by such number of Option Shares as Grantee shall
specify in the Cash Exercise Notice. As used in this Agreement, "Spread"
shall mean the excess, if any, over the Purchase Price of the higher of (x)
if applicable, the highest price per share of Issuer Common Stock paid or
to be paid by any person in a Durco Takeover Proposal (the "Competing
Purchase Price") and (y) the closing price of the shares of Issuer Common
Stock on the Nasdaq National Market System (the "NNMS") on the last trading
day immediately prior to the date of the Cash Exercise Notice (for purposes
of this Section 1.02) or the Repurchase Notice (for purposes of Section
6.01) (the "Closing Price"). If the Competing Purchase Price includes any
property other than cash, the Competing Purchase Price shall be the sum of
(i) the fixed cash amount, if any, included in the Competing Purchase Price
plus (ii) the fair market value of such other property. If such other
property consists of securities with an existing public trading market, the
average of the closing prices (or the average of the closing bid and asked
prices if closing prices are unavailable) for such securities in their
principal public trading market on the five trading days ending five days
prior to the date of the Cash Exercise Notice (for purposes of this Section
1.02) or the Repurchase Notice (for purposes of Section 6.01) shall be
deemed to equal the fair market value of such property. If such other
property consists of something other than cash or securities with an
existing public trading market and, as of the payment date for the Spread,
agreement on the value of such other property has not been reached, the
Competing Purchase Price shall be deemed to be the amount of any cash
included in the Competing Purchase Price plus the fair market value of such
other property (as determined by a nationally recognized investment banking
firm jointly selected by Grantee and Issuer). For this purpose, the parties
shall use their reasonable commercial efforts to cause any determination of
the fair market value of such other property to be made within three
Business Days after the date of delivery of the Cash Exercise Notice (for
purposes of this Section 1.02) or the Repurchase Notice (for purposes of
Section 6.01). Upon exercise of its right to receive the Spread pursuant to
this Section 1.02(e), the obligations of Issuer to deliver Option Shares
pursuant to Section 1.03 shall be terminated with respect to such number of
Option Shares subject to the Cash Exercise Notice.
SECTION 1.03. Conditions to Closing. The obligation of Issuer to deliver
Option Shares or pay the Spread, as applicable, upon any exercise of the Stock
Option is subject to the conditions that:
(a) all waiting periods, if any, under the HSR Act applicable to the
issuance of Option Shares hereunder shall have expired or have been
terminated, and all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any governmental body, agency,
official or authority, if any, required in connection with the issuance of
Option Shares hereunder, the failure of which to have obtained or made
would have the effect of making the issuance of Option Shares hereunder
illegal, shall have been obtained or made, as the case may be; and
(b) there shall be no preliminary or permanent injunction or other
final, non-appealable judgment by a court of competent jurisdiction
preventing or prohibiting such exercise of the Stock Option, the delivery
of the Option Shares or payment of the Spread in respect of such exercise.
SECTION 1.04. Closings. At each Closing, (i) in the event of a Closing
pursuant to Section 1.02(c), Issuer shall deliver to Grantee a certificate or
certificates evidencing the applicable number of Option Shares
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(in the denominations specified in the Stock Exercise Notice), and Grantee shall
purchase each such Option Share from Issuer at the Purchase Price, or (ii) in
the event of a Closing pursuant to Section 1.02(d), Issuer shall deliver to
Grantee cash in an amount determined pursuant to Section 1.02(d). If at the time
of issuance of Option Shares pursuant to Section 1.02(c), Issuer shall not have
redeemed the rights under the Durco Rights Agreement, or the rights issued
pursuant to such agreement shall not have expired, or shall have issued any
similar securities, then each Option Share issued pursuant hereto will also
represent a corresponding right under the Durco Rights Agreement or new rights
with terms substantially the same as and at least as favorable to Grantee as are
provided under the Durco Rights Agreement or any similar agreement then in
effect. All payments made pursuant to this Agreement shall be made by wire
transfer of immediately available funds to an account designated in writing by
Grantee to Issuer. Certificates evidencing Option Shares delivered hereunder
may, at Issuer's election, contain the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933 OR AN EXEMPTION THEREFROM.
Issuer shall, upon the written request of the holder thereof, issue such holder
a new certificate evidencing such Option Shares without such legend in the event
(x) such Option Shares have been registered pursuant to the Securities Act, (y)
such Option Shares have been sold in reliance on and in accordance with Rule 144
under the Securities Act or (z) such holder shall have delivered to Issuer an
opinion of counsel, which opinion shall, in Issuer's reasonable judgment, be
satisfactory in form and substance to Issuer, to the effect that subsequent
transfers of such Option Shares may be effected without registration under the
Securities Act.
SECTION 1.05. Adjustments upon Share Issuances, Changes in Capitalization,
Etc. (a) In the event of any change in Issuer Common Stock or in the number of
outstanding shares of Issuer Common Stock by reason of a stock dividend,
split-up, recapitalization, combination, exchange of shares or similar
transaction or any other extraordinary change in the corporate or capital
structure of Issuer (including, without limitation, the declaration or payment
of an extraordinary dividend of cash, securities or other property), the type
and number of shares or securities to be issued by Issuer upon exercise of the
Stock Option shall be adjusted appropriately, and proper provision shall be made
in the agreements governing such transaction, so that Grantee shall receive upon
exercise of the Stock Option the number and class of shares or other securities
or property that Grantee would have received in respect of Issuer Common Stock
if Grantee had exercised the Stock Option immediately prior to such event or the
record date therefor, as applicable, and had elected (to the fullest extent it
would have been permitted to elect) to receive such securities, cash or other
property.
(b) In the event that Issuer shall enter into an agreement (other than
the Merger Agreement) (i) to consolidate with or merge into any person,
other than Grantee or any BW/IP subsidiary, and shall not be the continuing
or surviving corporation of such consolidation or merger, (ii) to permit
any person, other than Grantee or any BW/IP subsidiary, to merge into
Issuer and Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Issuer Common
Stock shall be changed into or exchanged for stock or other securities of
Issuer or any other person or cash or any other property or then
outstanding shares of Issuer Common Stock shall after such merger represent
less than 50% of the outstanding shares and share equivalents of the
surviving corporation or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or any
BW/IP Subsidiary, then, and in each such case, proper provision shall be
made in the agreements governing such transaction so that Grantee shall
receive upon exercise of the Stock Option the number and class of shares or
other securities or property that Grantee would have received in respect of
Issuer Common Stock if Grantee had exercised the Stock Option immediately
prior to such transaction or the record date therefor, as applicable, and
had elected (to the fullest extent it would have been permitted to elect)
to receive such securities, cash or other property.
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(c) The provisions of this Agreement, including, without limitation,
Sections 1.01, 1.02, 1.04, 3.01 and 3.02, shall apply with appropriate
adjustments to any securities for which the Stock Option becomes
exercisable pursuant to this Section 1.05.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ISSUER
Issuer hereby represents and warrants to Grantee as follows:
SECTION 2.01. Authority Relative to this Agreement. Issuer is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of New York. The execution, delivery and performance by Issuer
of this Agreement and the consummation by Issuer of the transactions
contemplated hereby are within Issuer's corporate powers and have been duly
authorized by all necessary corporate action. This Agreement has been duly and
validly executed and delivered by Issuer and, assuming the due authorization,
execution and delivery by Grantee, constitutes a valid and binding agreement of
Issuer enforceable against Issuer in accordance with its terms.
SECTION 2.02. Authority to Issue Shares. Issuer has taken all necessary
corporate action to authorize and reserve and permit it to issue, and at all
times from the date hereof until its obligation to deliver shares of Issuer
Common Stock upon the exercise of the Stock Option terminates, shall have
reserved, all the Option Shares issuable pursuant to this Agreement, and Issuer
shall take all necessary corporate action to authorize and reserve and permit it
to issue all additional shares of Issuer Common Stock or other securities which
may be issued pursuant to Section 1.05, all of which, upon their issuance and
delivery in accordance with the terms of this Agreement, shall be duly
authorized, validly issued, fully paid and nonassessable and free of preemptive
rights.
SECTION 2.03. No Conflict; Required Filings and Consents. (a) The
execution, delivery and performance by Issuer of this Agreement and the
consummation by Issuer of the transactions contemplated hereby require no action
by or in respect of, or filing with, any governmental body, agency, official or
authority (insofar as such action or filing relates to Issuer) other than (i)
compliance with any applicable requirements of the HSR Act, (ii) compliance with
any applicable requirements of the Exchange Act, (iii) approvals and
authorizations of self-regulatory organizations in the securities field and (iv)
such other consents, approvals and filings which, if not obtained or made, would
not, individually or in the aggregate, have a material adverse effect on Issuer
or materially impair the ability of Issuer to consummate the transactions
contemplated hereby.
(b) The execution, delivery and performance by Issuer of this
Agreement and the consummation by Issuer of the transactions contemplated
hereby do not and will not (i) contravene or conflict with the certificate
of incorporation or bylaws (or equivalent organizational documents) of
Issuer, Sub or any Issuer subsidiary, (ii) assuming receipt of or
compliance with all matters referred to in Section 2.03(a), contravene or
conflict with or constitute a violation of any provision of any law,
regulation, judgment, injunction, order or decree binding upon or
applicable to Issuer, Sub or any Issuer subsidiary, (iii) constitute a
breach of or a default under or give rise to a right of termination,
cancellation or acceleration of any right or obligation of Issuer, Sub or
any Issuer subsidiary or to a loss of any benefit to which Issuer, Sub or
any Issuer subsidiary is entitled under any provision of any agreement,
contract or other instrument binding upon Issuer, Sub or any Issuer
subsidiary or any license, franchise, permit or other similar authorization
held by Issuer, Sub or any Issuer subsidiary or (iv) result in the creation
or imposition of any Lien on any asset of Issuer, Sub or any Issuer
subsidiary other than, in the case of each of (ii) and (iii), any such
items that, individually or in the aggregate, would not have a material
adverse effect on Durco or materially impair the ability of Issuer to
consummate the transactions contemplated by this Agreement.
SECTION 2.04. Rights Agreement. (a) The Durco Rights Agreement is
inapplicable to this Agreement and none of BW/IP, its wholly owned subsidiaries,
its permitted assignees or transferees under this Agreement is an Acquiring
Person (as defined in the Durco Rights Agreement) pursuant to the Durco Rights
Agreement and a Distribution Date or Stock Acquisition Date (as such terms are
defined in the Durco Rights
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Agreement) or any event described in Sections 11(a)(ii) or 13(a) of the Durco
Rights Agreement does not occur solely by reason of the execution of this
Agreement, or the consummation of the other transactions contemplated by this
Agreement and the Merger Agreement, and such amendment may not be further
amended by Durco without the prior consent of BW/IP in its sole discretion.
(b) To the knowledge of Issuer, no state takeover statute is
applicable to the Merger or the purchase by Grantee pursuant to this
Agreement of shares of Issuer Common Stock.
ARTICLE III
COVENANTS OF ISSUER
SECTION 3.01. Listing; Other Action. (a) Issuer shall, at its expense, use
its best efforts to cause the Option Shares to be approved for listing on the
NNMS, subject to notice of issuance, as promptly as practicable following an
Exercise Event, and shall provide prompt notice to the NNMS of the issuance of
each Option Share, except to the extent the delivery of the Option Shares can be
satisfied with shares of Issuer Common Stock held in treasury by Issuer.
(b) Issuer shall use its best efforts to take, or cause to be taken,
all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable Laws to consummate and make
effective the transactions contemplated hereunder, including, without
limitation, using its best efforts to obtain all licenses, permits,
consents, approvals, authorizations, qualifications and orders of
Governmental Entities. Without limiting the generality of the foregoing,
Issuer shall, when required in order to effect the transactions
contemplated hereunder, make all necessary filings, and thereafter make any
other required or appropriate submissions, under the HSR Act and shall
supply as promptly as practicable to the appropriate Governmental Entity
any additional information and documentary material that may be requested
pursuant to the HSR Act.
SECTION 3.02. Registration. (a) In the event that Grantee shall desire to
sell any of the Option Shares within three years after the purchase of such
Option Shares pursuant hereto, and such sale requires, in the opinion of counsel
to Grantee (which opinion shall be, in the reasonable judgment of Issuer and its
counsel, satisfactory in form and substance to Issuer and its counsel)
registration of such Option Shares under the Securities Act, Issuer shall
cooperate with Grantee and any underwriters in registering such Option Shares
for resale, including, without limitation, promptly filing a registration
statement which complies with the requirements of applicable federal and state
securities laws and entering into an underwriting agreement with such
underwriters upon such terms and conditions as are customarily contained in
underwriting agreements with respect to secondary distributions; provided,
however, that Issuer shall not be required to have declared effective more than
four registration statements hereunder and shall be entitled to delay the filing
or effectiveness of any registration statement for up to 90 days if the offering
would, in the judgment of the Board of Directors of Issuer, require premature
disclosure of any material corporate development or otherwise interfere with or
adversely affect any pending or proposed offering of securities of Issuer or any
other material transaction involving Issuer. Grantee agrees to use all
reasonable efforts to cause, and to cause any underwriters of any sale or other
disposition to cause, any sale or other disposition pursuant to such
registration statement to be effected on a widely distributed basis so that upon
consummation thereof no purchaser or transferee shall acquire beneficially more
than 1% of the then outstanding voting power of Issuer.
(b) If Issuer at any time after the exercise of the Stock Option
proposes to register any shares of Issuer Common Stock under the Securities
Act in connection with an underwritten public offering of such Issuer
Common Stock, Issuer will promptly give written notice to Grantee of its
intention to do so and, upon the written request of Grantee given within 30
days after receipt of any such notice (which request shall specify the
number of shares of Issuer Common Stock intended to be included in such
underwritten public offering by Grantee), Issuer will cause all such shares
for which Grantee requests participation in such registration, to be so
registered and included in such underwritten public offering; provided,
however, that Issuer may elect not to cause any such shares to be so
registered (i) if the underwriters in good faith object for valid business
reasons or (ii) in the case of a registration solely to
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implement an employee benefit plan or a registration statement filed on
Form S-4 of the Securities Act (or any successor form thereto); provided
further that Issuer may make an election pursuant to clause (i) not more
than two times.
(c) If the Issuer Common Stock is registered pursuant to the
provisions of this Section 3.02, Issuer agrees (i) to furnish copies of the
registration statement and prospectus relating to the Option Shares covered
thereby in such numbers as Grantee may from time to time reasonably request
and (ii) if any event shall occur as a result of which it becomes necessary
to amend or supplement any registration statement or prospectus, to prepare
and file under the applicable securities laws such amendments and
supplements as may be necessary to keep available for at least 90 days a
prospectus covering the Issuer Common Stock meeting the requirements of
such securities laws, and to furnish Grantee such numbers of copies of the
registration statement and prospectus as amended or supplemented as may
reasonably be requested. Issuer shall bear the cost of the registration,
including, but not limited to, all registration and filing fees, printing
expenses, and fees and disbursements of counsel and accountants for Issuer,
except that Grantee shall pay the fees and disbursements of its counsel and
the underwriting fees and selling commissions applicable to the shares of
Issuer Common Stock sold by Grantee. Issuer shall indemnify and hold
harmless Grantee, its affiliates and its officers and directors from and
against any and all losses, claims, damages, liabilities and expenses
(including, without limitation, reasonable attorney's fees) arising out of
or based upon any statements contained in, omissions or alleged omissions
from, each registration statement filed pursuant to this Section 3.02;
provided, however, that this provision shall not apply to any loss,
liability, claim, damage or expense to the extent it arises out of any
untrue statement or omission made in reliance upon and in conformity with
written information furnished to Issuer by Grantee, its affiliates and its
officers and other representatives expressly for use in any registration
statement (or any amendment thereto) or any preliminary prospectus filed
pursuant to this Section 3.02. Issuer shall also indemnify and hold
harmless each underwriter and each person who controls any underwriter
within the meaning of either the Securities Act or the Exchange Act against
any and all losses, claims, damages, liabilities and expenses (including,
without limitation, reasonable attorney's fees) arising out of or based
upon any statements contained in, omissions or alleged omissions from, each
registration statement filed pursuant to this Section 3.02; provided,
however, that this provision shall not apply to any loss, liability, claim,
damage or expense to the extent it arises out of any untrue statement or
omission made in reliance upon and in conformity with written information
furnished to Issuer by the underwriters expressly for use in any
registration statement (or any amendment thereto) or any preliminary
prospectus filed pursuant to this Section 3.02.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GRANTEE
Grantee hereby represents and warrants to Issuer as follows:
SECTION 4.01. Authority Relative to this Agreement. Grantee is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. The execution, delivery and performance by
Grantee of this Agreement and the consummation by Grantee of the transactions
contemplated hereby are within Grantee's corporate powers and have been duly
authorized by all necessary corporate action. This Agreement has been duly and
validly executed and delivered by Grantee and, assuming the due authorization,
execution and delivery by Issuer, constitutes a valid and binding agreement of
Grantee enforceable against Issuer in accordance with its terms.
SECTION 4.02. No Conflict; Required Filings and Consents. (a) The
execution, delivery and performance by Grantee of this Agreement and the
consummation by Grantee of the transactions contemplated hereby require no
action by or in respect of, or filing with, any governmental body, agency,
official or authority (insofar as such action or filing relates to Grantee)
other than (i) compliance with any applicable requirements of the HSR Act, (ii)
compliance with any applicable requirements of the Exchange Act, (iii) approvals
and authorizations of self-regulatory and governmental organizations in the
securities and commodities field and (iv) such other consents, approvals and
filings which, if not obtained or made, would
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not, individually or in the aggregate, have a material adverse effect on Grantee
or materially impair the ability of Grantee to consummate the transactions
contemplated hereby.
(b) The execution, delivery and performance by Grantee of this
Agreement and the consummation by Grantee of the transactions contemplated
hereby do not and will not (i) contravene or conflict with the certificate
of incorporation or bylaws (or equivalent organizational documents) of
Grantee or any Grantee subsidiary, (ii) assuming receipt of or compliance
with all matters referred to in Section 4.02(a), contravene or conflict
with or constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to Grantee
or any Grantee subsidiary, (iii) constitute a breach of or a default under
or give rise to a right of termination, cancellation or acceleration of any
right or obligation of Grantee or any Grantee subsidiary or to a loss of
any benefit to which Grantee or any Grantee subsidiary is entitled under
any provision of any agreement, contract or other instrument binding upon
Grantee or any Grantee subsidiary or any license, franchise, permit or
other similar authorization held by Grantee or any Grantee subsidiary or
(iv) result in the creation or imposition of any Lien on any asset of
Grantee or any Grantee subsidiary other than, in the case of each of (ii)
and (iii), any such items that, individually or in the aggregate, would not
have a material adverse effect on BW/IP or materially impair the ability of
Grantee to consummate the transactions contemplated by this Agreement.
ARTICLE V
COVENANTS OF GRANTEE
Grantee hereby covenants and agrees as follows:
SECTION 5.01. Distribution. Grantee shall acquire the Option Shares for
investment purposes only and not with a view to any distribution thereof in
violation of the Securities Act, and shall not sell any Option Shares purchased
pursuant to this Agreement except in compliance with the Securities Act and
applicable state securities and "blue sky" laws.
ARTICLE VI
REPURCHASE ELECTION
SECTION 6.01. Repurchase Election. (a) Grantee shall have the option, at
any time and from time to time commencing upon the first occurrence of an
Exercise Event in which the consideration to be received by Issuer or its
stockholders, as the case may be, pursuant to a Durco Takeover Proposal consists
in whole or in part of shares of capital stock of a third party and ending on
the tenth Business Day after the first mailing to Issuer's stockholders of a
proxy statement, tender offer statement or other disclosure or offering document
relating to such Durco Takeover Proposal, to send a written notice to Issuer (a
"Repurchase Notice") that it will require Issuer (or any successor entity
thereof) to pay to Grantee the Repurchase Fee (as defined below) as provided in
Section 6.01(b) below, upon delivery by Grantee of the shares of Issuer Common
Stock acquired hereunder with respect to which Grantee then has beneficial
ownership. The date on which Grantee delivers the Repurchase Notice under this
Section 6.01 is referred to as the "Repurchase Request Date". The "Repurchase
Fee" shall be equal to the sum of the following:
(i) the aggregate Purchase Price paid by Grantee for any shares of
Issuer Common Stock acquired pursuant to the Stock Option with respect to
which Grantee then has beneficial ownership; and
(ii) the Spread, multiplied by the number of shares of Issuer Common
Stock with respect to which the Stock Option has been exercised and with
respect to which Grantee then has beneficial ownership.
(b) If Grantee exercises its rights under this Section 6.01, within five
Business Days after the Repurchase Request Date, (i) Issuer shall pay by wire
transfer to Grantee the Repurchase Fee in immediately available funds to an
account designated in writing by Grantee to Issuer, and (ii) Grantee shall
surrender to Issuer certificates evidencing the shares of Issuer Common Stock
acquired hereunder with respect to which
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Grantee then has beneficial ownership, and Grantee shall warrant that it has
sole record and beneficial ownership of such shares and that the same are then
free and clear of all liens, claims, charges and encumbrances of any kind
whatsoever.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendment; No Waiver. (a) Any provision of this Agreement
may be amended or waived if, and only if, such amendment or waiver is in writing
and signed, in the case of an amendment, by Issuer and Grantee or in the case of
a waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 7.02. Fees and Expenses. Except as otherwise provided herein or
in Section 5.09 of the Merger Agreement, all costs and expenses (including,
without limitation, all fees and disbursements of counsel, accountants,
investment bankers, experts and consultants to a party) incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses.
SECTION 7.03. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
or facsimile, by registered or certified mail (postage prepaid, return receipt
requested) or by a nationally recognized courier service to the respective
parties at their addresses as specified in Section 8.02 of the Merger Agreement.
SECTION 7.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner to the fullest extent permitted by applicable Law in order that the
transactions contemplated hereby may be consummated as originally contemplated
to the fullest extent possible.
SECTION 7.05. Assignment; Binding Effect; Benefit. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other parties hereto.
SECTION 7.06. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement were
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
SECTION 7.07. Governing Law. This Agreement shall be governed by the Laws
of the State of Delaware as applied to contracts executed and to be performed
entirely in such state.
SECTION 7.08. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 7.09. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same
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instrument. This Agreement shall become effective when each party hereto shall
have received counterparts hereof signed by the other party hereto.
SECTION 7.10. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings between the parties with
respect thereto. No addition to or modification of any provision of this
Agreement shall be binding upon either party hereto unless made in writing and
signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
BW/IP, INC.
By: /s/ BERNARD G. RETHORE
-----------------------------------
Name: Bernard G. Rethore
Title: Chairman, President &
Chief Executive Officer
DURCO INTERNATIONAL, INC.
By: /s/ WILLIAM M. JORDAN
-----------------------------------
Name: William M. Jordan
Title: Chairman, President &
Chief Executive Officer
9
<PAGE> 150
ANNEX III
BW/IP STOCK OPTION AGREEMENT
BETWEEN
BW/IP, INC.
AND
DURCO INTERNATIONAL, INC.
DATED AS OF MAY 6, 1997
<PAGE> 151
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
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<C> <S> <C>
ARTICLE I
THE STOCK OPTION
1.01. Grant of Stock Option.......................................................... 1
1.02. Exercise of Stock Option....................................................... 1
1.03. Conditions to Closing.......................................................... 2
1.04. Closings....................................................................... 2
1.05. Adjustments upon Share Issuances, Changes in Capitalization, Etc............... 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ISSUER
2.01. Authority Relative to this Agreement........................................... 4
2.02. Authority to Issue Shares...................................................... 4
2.03. No Conflict; Required Filings and Consents..................................... 4
2.04. Rights Agreement; Board Action................................................. 4
ARTICLE III
COVENANTS OF ISSUER
3.01. Listing; Other Action.......................................................... 5
3.02. Registration................................................................... 5
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GRANTEE
4.01. Authority Relative to this Agreement........................................... 6
4.02. No Conflict; Required Filings and Consents..................................... 6
ARTICLE V
COVENANTS OF GRANTEE
5.01. Distribution................................................................... 7
ARTICLE VI
REPURCHASE ELECTION
6.01. Repurchase Election............................................................ 7
ARTICLE VII
MISCELLANEOUS
7.01. Amendment; No Waiver........................................................... 8
7.02. Fees and Expenses.............................................................. 8
7.03. Notices........................................................................ 8
7.04. Severability................................................................... 8
7.05. Assignment; Binding Effect; Benefit............................................ 8
7.06. Specific Performance........................................................... 8
7.07. Governing Law.................................................................. 9
7.08. Headings....................................................................... 9
7.09. Counterparts................................................................... 9
7.10. Entire Agreement............................................................... 9
</TABLE>
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STOCK OPTION AGREEMENT, dated as of May 6, 1997 (this "Agreement"), between
DURCO INTERNATIONAL, INC., a New York corporation ("Grantee"), and BW/IP, INC.,
a Delaware corporation ("Issuer").
W I T N E S S E T H:
WHEREAS, Grantee, Issuer and BRUIN ACQUISITION CORP., a wholly owned
subsidiary of Grantee ("Sub"), propose to enter into, simultaneously herewith,
an Agreement and Plan of Merger (the "Merger Agreement"; terms used but not
defined in this Agreement shall have the meanings ascribed to them in the Merger
Agreement), which provides, upon the terms and subject to the conditions
thereof, for, among other things, the merger of Sub with and into Grantee; and
WHEREAS, as a condition to the willingness of Grantee to enter into the
Merger Agreement and the Durco Stock Option Agreement, Grantee has required that
Issuer agree, and in order to induce Grantee to enter into the Merger Agreement
and the Durco Stock Option Agreement, Issuer has agreed, to grant Grantee an
option to purchase up to such number of newly issued or treasury shares of
common stock, par value $0.01 per share, of Issuer ("Issuer Common Stock") as
equals 19.9% of the issued and outstanding shares of Issuer Common Stock at the
first time of exercise of the Stock Option (as defined below), in accordance
with the terms of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement and in the Merger Agreement, the parties hereto agree as follows:
ARTICLE I
THE STOCK OPTION
SECTION 1.01. Grant of Stock Option. Issuer hereby grants to Grantee an
irrevocable option (the "Stock Option") to purchase up to such number of shares
of Issuer Common Stock as equals 19.9% of the issued and outstanding shares of
Issuer Common Stock at the first time of exercise of the Stock Option (the
"Option Shares") at a cash purchase price per Option Share equal to $16.525 (the
"Purchase Price"), subject to the terms and conditions set forth herein.
SECTION 1.02. Exercise of Stock Option. (a) Subject to the conditions set
forth in Section 1.03 and to any additional requirements of any applicable laws,
statutes, ordinances, regulations, rules, codes, orders or other requirement or
rule of law ("Laws"), the Stock Option may be exercised by Grantee, in whole or
in part, if Grantee has not materially breached the Merger Agreement or is not
in material breach of the Durco Stock Option Agreement, at any time or from time
to time after the occurrence of an Exercise Event (as defined below); provided
that, except as provided in the last sentence of this Section 1.02(a), the Stock
Option shall terminate and be of no further force and effect upon the earliest
to occur of (i) the Effective Time, (ii) 18 months after the occurrence of an
Exercise Event (unless prior thereto the Stock Option shall have been exercised)
and (iii) the termination of the Merger Agreement prior to the occurrence of an
Exercise Event unless, in the case of clause (iii), the Grantee has the right to
receive a Termination Fee following such termination upon the occurrence of
certain events, in which case the Stock Option will not terminate until the
later of (x) six months following the time such Termination Fee becomes payable
and (y) the expiration of the period in which the Grantee has such right to
receive a Termination Fee. Notwithstanding the termination of the Stock Option,
Grantee shall be entitled to purchase those Option Shares with respect to which
it has exercised the Stock Option in accordance with the terms hereof prior to
the termination of the Stock Option. The termination of the Stock Option shall
not affect any rights hereunder which by their terms extend beyond the date of
such termination.
(b) An "Exercise Event" shall occur for purposes of this Agreement
upon the occurrence of any event as a result of which the Grantee is
entitled to receive the Termination Fee pursuant to Section 5.09(b) of the
Merger Agreement.
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(c) In the event Grantee wishes to exercise the Stock Option, Grantee
shall send a written notice (a "Stock Exercise Notice") to Issuer
specifying the total number of Option Shares Grantee wishes to purchase,
the denominations of the certificate or certificates evidencing such Option
Shares that Grantee wishes to receive, a date (subject to the earlier
satisfaction or waiver of the conditions set forth in Section 1.03) (a
"Closing Date"), which shall be a Business Day which is not later than 10
Business Days and not earlier than the fifth Business Day after delivery of
such notice, and place for the closing of such purchase (a "Closing").
(d) If at any time the Stock Option is then exercisable pursuant to
the terms of Section 1.02(a) hereof, Grantee may elect, in lieu of
exercising the Stock Option to purchase Option Shares as provided in
Section 1.02(a) hereof, to send a written notice to Issuer (a "Cash
Exercise Notice") specifying a date not later than 10 Business Days and not
earlier than the fifth Business Day after delivery of such notice, on which
date Issuer shall pay to Grantee an amount in cash equal to the Spread (as
defined below) multiplied by such number of Option Shares as Grantee shall
specify in the Cash Exercise Notice. As used in this Agreement, "Spread"
shall mean the excess, if any, over the Purchase Price of the higher of (x)
if applicable, the highest price per share of Issuer Common Stock paid or
to be paid by any person in a BW/IP Takeover Proposal (the "Competing
Purchase Price") and (y) the closing price of the shares of Issuer Common
Stock on the New York Stock Exchange ("NYSE") Composite Tape on the last
trading day immediately prior to the date of the Cash Exercise Notice (for
purposes of this Section 1.02) or the Repurchase Notice (for purposes of
Section 6.01) (the "Closing Price"). If the Competing Purchase Price
includes any property other than cash, the Competing Purchase Price shall
be the sum of (i) the fixed cash amount, if any, included in the Competing
Purchase Price plus (ii) the fair market value of such other property. If
such other property consists of securities with an existing public trading
market, the average of the closing prices (or the average of the closing
bid and asked prices if closing prices are unavailable) for such securities
in their principal public trading market on the five trading days ending
five days prior to the date of the Cash Exercise Notice (for purposes of
this Section 1.02) or the Repurchase Notice (for purposes of Section 6.01)
shall be deemed to equal the fair market value of such property. If such
other property consists of something other than cash or securities with an
existing public trading market and, as of the payment date for the Spread,
agreement on the value of such other property has not been reached, the
Competing Purchase Price shall be deemed to be the amount of any cash
included in the Competing Purchase Price plus the fair market value of such
other property (as determined by a nationally recognized investment banking
firm jointly selected by Grantee and Issuer). For this purpose, the parties
shall use their reasonable commercial efforts to cause any determination of
the fair market value of such other property to be made within three
Business Days after the date of delivery of the Cash Exercise Notice (for
purposes of this Section 1.02) or the Repurchase Notice (for purposes of
Section 6.01). Upon exercise of its right to receive the Spread pursuant to
this Section 1.02(e), the obligations of Issuer to deliver Option Shares
pursuant to Section 1.03 shall be terminated with respect to such number of
Option Shares subject to the Cash Exercise Notice.
SECTION 1.03. Conditions to Closing. The obligation of Issuer to deliver
Option Shares or pay the Spread, as applicable, upon any exercise of the Stock
Option is subject to the conditions that:
(a) all waiting periods, if any, under the HSR Act applicable to the
issuance of Option Shares hereunder shall have expired or have been
terminated, and all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any governmental body, agency,
official or authority, if any, required in connection with the issuance of
Option Shares hereunder, the failure of which to have obtained or made
would have the effect of making the issuance of Option Shares hereunder
illegal, shall have been obtained or made, as the case may be; and
(b) there shall be no preliminary or permanent injunction or other
final, non-appealable judgment by a court of competent jurisdiction
preventing or prohibiting such exercise of the Stock Option, the delivery
of the Option Shares or payment of the Spread in respect of such exercise.
SECTION 1.04. Closings. At each Closing, (i) in the event of a Closing
pursuant to Section 1.02(c), Issuer shall deliver to Grantee a certificate or
certificates evidencing the applicable number of Option Shares
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(in the denominations specified in the Stock Exercise Notice), and Grantee shall
purchase each such Option Share from Issuer at the Purchase Price, or (ii) in
the event of a Closing pursuant to Section 1.02(d), Issuer shall deliver to
Grantee cash in an amount determined pursuant to Section 1.02(d). If at the time
of issuance of Option Shares pursuant to Section 1.02(c), Issuer shall not have
redeemed the rights under the BW/IP Rights Agreement, or the rights issued
pursuant to such agreement shall not have expired, or shall have issued any
similar securities, then each Option Share issued pursuant hereto will also
represent a corresponding right under the BW/IP Rights Agreement or new rights
with terms substantially the same as and at least as favorable to Grantee as are
provided under the BW/IP Rights Agreement or any similar agreement then in
effect. All payments made pursuant to this Agreement shall be made by wire
transfer of immediately available funds to an account designated in writing by
Grantee to Issuer. Certificates evidencing Option Shares delivered hereunder
may, at Issuer's election, contain the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933 OR AN EXEMPTION THEREFROM.
Issuer shall, upon the written request of the holder thereof, issue such holder
a new certificate evidencing such Option Shares without such legend in the event
(x) such Option Shares have been registered pursuant to the Securities Act, (y)
such Option Shares have been sold in reliance on and in accordance with Rule 144
under the Securities Act or (z) such holder shall have delivered to Issuer an
opinion of counsel, which opinion shall, in Issuer's reasonable judgment, be
satisfactory in form and substance to Issuer, to the effect that subsequent
transfers of such Option Shares may be effected without registration under the
Securities Act.
SECTION 1.05. Adjustments upon Share Issuances, Changes in Capitalization,
Etc. (a) In the event of any change in Issuer Common Stock or in the number of
outstanding shares of Issuer Common Stock by reason of a stock dividend,
split-up, recapitalization, combination, exchange of shares or similar
transaction or any other extraordinary change in the corporate or capital
structure of Issuer (including, without limitation, the declaration or payment
of an extraordinary dividend of cash, securities or other property), the type
and number of shares or securities to be issued by Issuer upon exercise of the
Stock Option shall be adjusted appropriately, and proper provision shall be made
in the agreements governing such transaction, so that Grantee shall receive upon
exercise of the Stock Option the number and class of shares or other securities
or property that Grantee would have received in respect of Issuer Common Stock
if Grantee had exercised the Stock Option immediately prior to such event or the
record date therefor, as applicable, and had elected (to the fullest extent it
would have been permitted to elect) to receive such securities, cash or other
property.
(b) In the event that Issuer shall enter into an agreement (other than
the Merger Agreement) (i) to consolidate with or merge into any person,
other than Grantee or any Durco Subsidiary, and shall not be the continuing
or surviving corporation of such consolidation or merger, (ii) to permit
any person, other than Grantee or any Durco Subsidiary, to merge into
Issuer and Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Issuer Common
Stock shall be changed into or exchanged for stock or other securities of
Issuer or any other person or cash or any other property or then
outstanding shares of Issuer Common Stock shall after such merger represent
less than 50% of the outstanding shares and share equivalents of the
surviving corporation or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person, other than Grantee or any
Durco subsidiary, then, and in each such case, proper provision shall be
made in the agreements governing such transaction so that Grantee shall
receive upon exercise of the Stock Option the number and class of shares or
other securities or property that Grantee would have received in respect of
Issuer Common Stock if Grantee had exercised the Stock Option immediately
prior to such transaction or the record date therefor, as applicable, and
had elected (to the fullest extent it would have been permitted to elect)
to receive such securities, cash or other property.
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(c) The provisions of this Agreement, including, without limitation,
Sections 1.01, 1.02, 1.04, 3.01 and 3.02, shall apply with appropriate
adjustments to any securities for which the Stock Option becomes
exercisable pursuant to this Section 1.05.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ISSUER
Issuer hereby represents and warrants to Grantee as follows:
SECTION 2.01. Authority Relative to this Agreement. Issuer is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. The execution, delivery and performance by Issuer
of this Agreement and the consummation by Issuer of the transactions
contemplated hereby are within Issuer's corporate powers and have been duly
authorized by all necessary corporate action. This Agreement has been duly and
validly executed and delivered by Issuer and, assuming the due authorization,
execution and delivery by Grantee, constitutes a valid and binding agreement of
Issuer enforceable against Issuer in accordance with its terms.
SECTION 2.02. Authority to Issue Shares. Issuer has taken all necessary
corporate action to authorize and reserve and permit it to issue, and at all
times from the date hereof until its obligation to deliver shares of Issuer
Common Stock upon the exercise of the Stock Option terminates, shall have
reserved, all the Option Shares issuable pursuant to this Agreement, and Issuer
shall take all necessary corporate action to authorize and reserve and permit it
to issue all additional shares of Issuer Common Stock or other securities which
may be issued pursuant to Section 1.05, all of which, upon their issuance and
delivery in accordance with the terms of this Agreement, shall be duly
authorized, validly issued, fully paid and nonassessable and free of preemptive
rights.
SECTION 2.03. No Conflict; Required Filings and Consents. (a) The
execution, delivery and performance by Issuer of this Agreement and the
consummation by Issuer of the transactions contemplated hereby require no action
by or in respect of, or filing with, any governmental body, agency, official or
authority (insofar as such action or filing relates to Issuer) other than (i)
compliance with any applicable requirements of the HSR Act, (ii) compliance with
any applicable requirements of the Exchange Act, (iii) approvals and
authorizations of self-regulatory organizations in the securities field and (iv)
such other consents, approvals and filings which, if not obtained or made, would
not, individually or in the aggregate, have a material adverse effect on Issuer
or materially impair the ability of Issuer to consummate the transactions
contemplated hereby.
(b) The execution, delivery and performance by Issuer of this
Agreement and the consummation by Issuer of the transactions contemplated
hereby do not and will not (i) contravene or conflict with the certificate
of incorporation or bylaws (or equivalent organizational documents) of
Issuer, Sub or any Issuer subsidiary, (ii) assuming receipt of or
compliance with all matters referred to in Section 2.03(a), contravene or
conflict with or constitute a violation of any provision of any law,
regulation, judgment, injunction, order or decree binding upon or
applicable to Issuer, Sub or any Issuer subsidiary, (iii) constitute a
breach of or a default under or give rise to a right of termination,
cancellation or acceleration of any right or obligation of Issuer, Sub or
any Issuer subsidiary or to a loss of any benefit to which Issuer, Sub or
any Issuer subsidiary is entitled under any provision of any agreement,
contract or other instrument binding upon Issuer, Sub or any Issuer
subsidiary or any license, franchise, permit or other similar authorization
held by Issuer, Sub or any Issuer subsidiary or (iv) result in the creation
or imposition of any Lien on any asset of Issuer, Sub or any Issuer
subsidiary other than, in the case of each of (ii) and (iii), any such
items that, individually or in the aggregate, would not have a material
adverse effect on Issuer or materially impair the ability of Issuer to
consummate the transactions contemplated by this Agreement.
SECTION 2.04. Rights Agreement; Board Action. (a) The BW/IP Rights
Agreement has been amended to (i) render the BW/IP Rights Agreement inapplicable
to this Agreement, (ii) ensure that (y) none of Durco, its wholly owned
subsidiaries, or its permitted assignees or transferees under the BW/IP Stock
Option Agreement is an Acquiring Person (as defined in the BW/IP Rights
Agreement) pursuant to
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the BW/IP Rights Agreement and (z) a Distribution Date, a Section 11(a)(ii)
Event or Section 13 Event or Stock Acquisition Date (as such terms are defined
in the BW/IP Rights Agreement) does not occur solely by reason of the execution
of this Agreement, or the consummation of the other transactions contemplated by
this Agreement and the Merger Agreement and (iii) to provide that the Expiration
Date (as defined in the BW/IP Rights Agreement) shall occur immediately prior to
the Effective Time, and such amendment may not be further amended by BW/IP
without the prior consent of Durco in its sole discretion.
(b) The Board of Directors of Issuer has taken all action necessary to
ensure that the restrictions on business combinations contained in Section
203 of the Delaware General Corporation Law will not apply to the Merger or
the purchase by Grantee pursuant to this Agreement of shares of Issuer
Common Stock. To the knowledge of Issuer, no other state takeover statute
is applicable to the Merger or the purchase by Grantee pursuant to this
Agreement of shares of Issuer Common Stock.
ARTICLE III
COVENANTS OF ISSUER
SECTION 3.01. Listing; Other Action. (a) Issuer shall, at its expense,
use its best efforts to cause the Option Shares to be approved for listing on
the NYSE, subject to notice of issuance, as promptly as practicable following an
Exercise Event, and shall provide prompt notice to the NYSE of the issuance of
each Option Share, except to the extent the delivery of the Option Shares can be
satisfied with shares of Issuer Common Stock held in treasury by Issuer.
(b) Issuer shall use its best efforts to take, or cause to be taken,
all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable Laws to consummate and make
effective the transactions contemplated hereunder, including, without
limitation, using its best efforts to obtain all licenses, permits,
consents, approvals, authorizations, qualifications and orders of
Governmental Entities. Without limiting the generality of the foregoing,
Issuer shall, when required in order to effect the transactions
contemplated hereunder, make all necessary filings, and thereafter make any
other required or appropriate submissions, under the HSR Act and shall
supply as promptly as practicable to the appropriate Governmental Entity
any additional information and documentary material that may be requested
pursuant to the HSR Act.
SECTION 3.02. Registration. (a) In the event that Grantee shall desire to
sell any of the Option Shares within three years after the purchase of such
Option Shares pursuant hereto, and such sale requires, in the opinion of counsel
to Grantee (which opinion shall be, in the reasonable judgment of Issuer and its
counsel, satisfactory in form and substance to Issuer and its counsel)
registration of such Option Shares under the Securities Act, Issuer shall
cooperate with Grantee and any underwriters in registering such Option Shares
for resale, including, without limitation, promptly filing a registration
statement which complies with the requirements of applicable federal and state
securities laws and entering into an underwriting agreement with such
underwriters upon such terms and conditions as are customarily contained in
underwriting agreements with respect to secondary distributions; provided,
however, that Issuer shall not be required to have declared effective more than
four registration statements hereunder and shall be entitled to delay the filing
or effectiveness of any registration statement for up to 90 days if the offering
would, in the judgment of the Board of Directors of Issuer, require premature
disclosure of any material corporate development or otherwise interfere with or
adversely affect any pending or proposed offering of securities of Issuer or any
other material transaction involving Issuer. Grantee agrees to use all
reasonable efforts to cause, and to cause any underwriters of any sale or other
disposition to cause, any sale or other disposition pursuant to such
registration statement to be effected on a widely distributed basis so that upon
consummation thereof no purchaser or transferee shall acquire beneficially more
than 1% of the then outstanding voting power of Issuer.
(b) If Issuer at any time after the exercise of the Stock Option
proposes to register any shares of Issuer Common Stock under the Securities
Act in connection with an underwritten public offering of such Issuer
Common Stock, Issuer will promptly give written notice to Grantee of its
intention to do so and, upon the written request of Grantee given within 30
days after receipt of any such notice (which
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request shall specify the number of shares of Issuer Common Stock intended
to be included in such underwritten public offering by Grantee), Issuer
will cause all such shares for which Grantee requests participation in such
registration, to be so registered and included in such underwritten public
offering; provided, however, that Issuer may elect not to cause any such
shares to be so registered (i) if the underwriters in good faith object for
valid business reasons or (ii) in the case of a registration solely to
implement an employee benefit plan or a registration statement filed on
Form S-4 of the Securities Act (or any successor form thereto); provided
further that Issuer may make an election pursuant to clause (i) not more
than two times.
(c) If the Issuer Common Stock is registered pursuant to the
provisions of this Section 3.02, Issuer agrees (i) to furnish copies of the
registration statement and prospectus relating to the Option Shares covered
thereby in such numbers as Grantee may from time to time reasonably request
and (ii) if any event shall occur as a result of which it becomes necessary
to amend or supplement any registration statement or prospectus, to prepare
and file under the applicable securities laws such amendments and
supplements as may be necessary to keep available for at least 90 days a
prospectus covering the Issuer Common Stock meeting the requirements of
such securities laws, and to furnish Grantee such numbers of copies of the
registration statement and prospectus as amended or supplemented as may
reasonably be requested. Issuer shall bear the cost of the registration,
including, but not limited to, all registration and filing fees, printing
expenses, and fees and disbursements of counsel and accountants for Issuer,
except that Grantee shall pay the fees and disbursements of its counsel and
the underwriting fees and selling commissions applicable to the shares of
Issuer Common Stock sold by Grantee. Issuer shall indemnify and hold
harmless Grantee, its affiliates and its officers and directors from and
against any and all losses, claims, damages, liabilities and expenses
(including, without limitation, reasonable attorney's fees) arising out of
or based upon any statements contained in, omissions or alleged omissions
from, each registration statement filed pursuant to this Section 3.02;
provided, however, that this provision shall not apply to any loss,
liability, claim, damage or expense to the extent it arises out of any
untrue statement or omission made in reliance upon and in conformity with
written information furnished to Issuer by Grantee, its affiliates and its
officers and other representatives expressly for use in any registration
statement (or any amendment thereto) or any preliminary prospectus filed
pursuant to this Section 3.02. Issuer shall also indemnify and hold
harmless each underwriter and each person who controls any underwriter
within the meaning of either the Securities Act or the Exchange Act against
any and all losses, claims, damages, liabilities and expenses (including,
without limitation, reasonable attorney's fees) arising out of or based
upon any statements contained in, omissions or alleged omissions from, each
registration statement filed pursuant to this Section 3.02; provided,
however, that this provision shall not apply to any loss, liability, claim,
damage or expense to the extent it arises out of any untrue statement or
omission made in reliance upon and in conformity with written information
furnished to Issuer by the underwriters expressly for use in any
registration statement (or any amendment thereto) or any preliminary
prospectus filed pursuant to this Section 3.02.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GRANTEE
Grantee hereby represents and warrants to Issuer as follows:
SECTION 4.01. Authority Relative to this Agreement. Grantee is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware. The execution, delivery and performance by
Grantee of this Agreement and the consummation by Grantee of the transactions
contemplated hereby are within Grantee's corporate powers and have been duly
authorized by all necessary corporate action. This Agreement has been duly and
validly executed and delivered by Grantee and, assuming the due authorization,
execution and delivery by Issuer, constitutes a valid and binding agreement of
Grantee enforceable against Issuer in accordance with its terms.
SECTION 4.02. No Conflict; Required Filings and Consents. (a) The
execution, delivery and performance by Grantee of this Agreement and the
consummation by Grantee of the transactions contem-
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plated hereby require no action by or in respect of, or filing with, any
governmental body, agency, official or authority (insofar as such action or
filing relates to Grantee) other than (i) compliance with any applicable
requirements of the HSR Act, (ii) compliance with any applicable requirements of
the Exchange Act, (iii) approvals and authorizations of self-regulatory and
governmental organizations in the securities and commodities field and (iv) such
other consents, approvals and filings which, if not obtained or made, would not,
individually or in the aggregate, have a material adverse effect on Grantee or
materially impair the ability of Grantee to consummate the transactions
contemplated hereby.
(b) The execution, delivery and performance by Grantee of this
Agreement and the consummation by Grantee of the transactions contemplated
hereby do not and will not (i) contravene or conflict with the certificate
of incorporation or bylaws (or equivalent organizational documents) of
Grantee or any Grantee subsidiary, (ii) assuming receipt of or compliance
with all matters referred to in Section 4.02(a), contravene or conflict
with or constitute a violation of any provision of any law, regulation,
judgment, injunction, order or decree binding upon or applicable to Grantee
or any Grantee subsidiary, (iii) constitute a breach of or a default under
or give rise to a right of termination, cancellation or acceleration of any
right or obligation of Grantee or any Grantee subsidiary or to a loss of
any benefit to which Grantee or any Grantee subsidiary is entitled under
any provision of any agreement, contract or other instrument binding upon
Grantee or any Grantee subsidiary or any license, franchise, permit or
other similar authorization held by Grantee or any Grantee subsidiary or
(iv) result in the creation or imposition of any Lien on any asset of
Grantee or any Grantee subsidiary other than, in the case of each of (ii)
and (iii), any such items that, individually or in the aggregate, would not
have a material adverse effect on Grantee or materially impair the ability
of Grantee to consummate the transactions contemplated by this Agreement.
ARTICLE V
COVENANTS OF GRANTEE
Grantee hereby covenants and agrees as follows:
SECTION 5.01. Distribution. Grantee shall acquire the Option Shares for
investment purposes only and not with a view to any distribution thereof in
violation of the Securities Act, and shall not sell any Option Shares purchased
pursuant to this Agreement except in compliance with the Securities Act and
applicable state securities and "blue sky" laws.
ARTICLE VI
REPURCHASE ELECTION
SECTION 6.01. Repurchase Election. (a) Grantee shall have the option, at
any time and from time to time commencing upon the first occurrence of an
Exercise Event in which the consideration to be received by Issuer or its
stockholders, as the case may be, pursuant to a BW/IP Takeover Proposal consists
in whole or in part of shares of capital stock of a third party and ending on
the tenth Business Day after the first mailing to Issuer's stockholders of a
proxy statement, tender offer statement or other disclosure or offering document
relating to such BW/IP Takeover Proposal, to send a written notice to Issuer (a
"Repurchase Notice") that it will require Issuer (or any successor entity
thereof) to pay to Grantee the Repurchase Fee (as defined below) as provided in
Section 6.01(b) below, upon delivery by Grantee of the shares of Issuer Common
Stock acquired hereunder with respect to which Grantee then has beneficial
ownership. The date on which Grantee delivers the Repurchase Notice under this
Section 6.01 is referred to as the "Repurchase Request Date". The "Repurchase
Fee" shall be equal to the sum of the following:
(i) the aggregate Purchase Price paid by Grantee for any shares of
Issuer Common Stock acquired pursuant to the Stock Option with respect
to which Grantee then has beneficial ownership; and
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(ii) the Spread, multiplied by the number of shares of Issuer
Common Stock with respect to which the Stock Option has been exercised
and with respect to which Grantee then has beneficial ownership.
(b) If Grantee exercises its rights under this Section 6.01, within
five Business Days after the Repurchase Request Date, (i) Issuer shall pay
by wire transfer to Grantee the Repurchase Fee in immediately available
funds to an account designated in writing by Grantee to Issuer, and (ii)
Grantee shall surrender to Issuer certificates evidencing the shares of
Issuer Common Stock acquired hereunder with respect to which Grantee then
has beneficial ownership, and Grantee shall warrant that it has sole record
and beneficial ownership of such shares and that the same are then free and
clear of all liens, claims, charges and encumbrances of any kind
whatsoever.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendment; No Waiver. (a) Any provision of this Agreement
may be amended or waived if, and only if, such amendment or waiver is in writing
and signed, in the case of an amendment, by Issuer and Grantee or in the case of
a waiver, by the party against whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single
or partial exercise thereof preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
SECTION 7.02. Fees and Expenses. Except as otherwise provided herein or
in Section 5.09 of the Merger Agreement, all costs and expenses (including,
without limitation, all fees and disbursements of counsel, accountants,
investment bankers, experts and consultants to a party) incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses.
SECTION 7.03. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
or facsimile, by registered or certified mail (postage prepaid, return receipt
requested) or by a nationally recognized courier service to the respective
parties at their addresses as specified in Section 8.02 of the Merger Agreement.
SECTION 7.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner to the fullest extent permitted by applicable Law in order that the
transactions contemplated hereby may be consummated as originally contemplated
to the fullest extent possible.
SECTION 7.05. Assignment; Binding Effect; Benefit. The provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, provided that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other parties hereto.
SECTION 7.06. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement were
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
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SECTION 7.07. Governing Law. This Agreement shall be governed by the Laws
of the State of Delaware as applied to contracts executed and to be performed
entirely in such state.
SECTION 7.08. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 7.09. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by the other party hereto.
SECTION 7.10. Entire Agreement. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings between the parties with
respect thereto. No addition to or modification of any provision of this
Agreement shall be binding upon either party hereto unless made in writing and
signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
DURCO INTERNATIONAL, INC.
By: /s/ WILLIAM M. JORDAN
------------------------------------
Name: William M. Jordan
Title: Chairman, President &
Chief Executive Officer
BW/IP, INC.
By: /s/ BERNARD G. RETHORE
------------------------------------
Name: Bernard G. Rethore
Title: Chairman, President &
Chief Executive Officer
9
<PAGE> 161
ANNEX IV
[SALOMON BROTHERS LOGO]
JUNE 17, 1997
[SALOMON BROTHERS LETTERHEAD]
BOARD OF DIRECTORS
DURCO INTERNATIONAL INC.
MIAMI VALLEY RESEARCH PARK
DAYTON, OHIO 45401-8820
MEMBERS OF THE BOARD:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the holders of common stock of Durco
International Inc. (the "Company") of the Exchange Ratio (as defined below)
pursuant to the Agreement and Plan of Merger dated as of May 6, 1997 (the
"Merger Agreement"), among the Company, Bruin Acquisition Corp., a wholly owned
subsidiary of the Company ("Merger Sub"), and BW/IP, Inc. ("BW/IP"). The Merger
Agreement provides for, among other things, the merger (the "Merger") of Merger
Sub with and into BW/IP, pursuant to which each share of common stock, par value
$0.01 per share, of BW/IP issued and outstanding immediately prior to the
effective time of the Merger, subject to certain exceptions specified in the
Merger Agreement, will be canceled and extinguished and be converted into the
right to receive 0.6968 shares (the "Exchange Ratio") of common stock, par value
of $1.25 per share, of the Company.
We understand that the Merger is intended to qualify as a tax-free
reorganization under the Internal Revenue Code of 1986, as amended, and to be
accounted for as a pooling-of-interests in accordance with generally accepted
accounting principles as described in Accounting Principles Board Opinion Number
16.
In connection with rendering our opinion, we have, among other things: (i)
reviewed the Merger Agreement, including the exhibits thereto and certain
documents referred to therein; (ii) reviewed certain publicly available business
and financial information concerning the Company; (iii) reviewed certain
publicly available business and financial information concerning BW/IP; (iv)
reviewed certain publicly available information concerning the industry in which
the Company and BW/IP operate; (v) reviewed and analyzed certain financial
forecasts and other non-public financial and operating data concerning the
businesses and operations of the Company and BW/IP that were provided to or
reviewed for us by managements of the Company and BW/IP, respectively; (vi)
reviewed certain publicly available financial forecasts of the Company and
BW/IP; (vii) reviewed certain publicly available information with respect to
certain other companies that we believe to be comparable in certain respects to
the Company and BW/IP and the trading markets for such other companies'
securities; (viii) reviewed and analyzed certain publicly available and other
information concerning the trading of, and the trading market for, the Company's
common stock and BW/IP's common stock; (ix) analyzed certain information
concerning cost savings and combination benefits expected to result from the
Merger that was provided to or reviewed for us by the managements of the Company
and BW/IP; and (x) considered such other information, financial studies,
analyses, investigations and financial, economic, market and trading criteria as
we deemed relevant to our inquiry. We have also discussed with certain officers
and employees of the Company and BW/IP the foregoing, including the past and
current business operations, financial condition and prospects of the Company
and BW/IP, respectively, before or after giving effect to the Merger, as well as
other matters we believe relevant to our inquiry. However, it should be noted
that, within the context of our current engagement by the Company, we have not
been authorized to and have not solicited alternative offers for the Company or
its assets, or investigated any other alternative transactions which may be
available to the Company.
[SALOMON BROTHERS LETTERHEAD]
<PAGE> 162
In our review and analysis and in arriving at our opinion, we have assumed
and relied upon, without assuming any responsibility for verification, the
accuracy and completeness of all of the financial and other information provided
to, discussed with, or reviewed by or for us, or publicly available. With
respect to the Company's and BW/IP's financial projections, as well as the
information concerning cost savings and combination benefits provided to or
reviewed for us by the managements of the Company and BW/IP, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the Company's or BW/IP's, as the case may
be, management as to the future financial performance of the Company or BW/IP,
as the case may be, and as to the cost savings and combination benefits expected
to result from the Merger. We express no view as to such information or the
assumptions on which they are based. We have not assumed any responsibility for
making or obtaining any independent evaluations or appraisals of any of the
assets (including properties and facilities) or liabilities of the Company or
BW/IP.
Our opinion necessarily is based upon conditions as they exist and can be
evaluated on the date hereof, and we assume no responsibility to update or
revise our opinion based upon circumstances or events occurring after the date
hereof. Our opinion does not address the Company's underlying business decision
to effect the Merger or constitute a recommendation to any holder of common
stock of the Company as to how such holder should vote with respect to the
Merger. Our opinion as expressed below does not imply any conclusion as to the
likely trading range for the common stock of the Company following the
consummation of the Merger, which may vary depending upon, among other factors,
changes in interest rates, dividend rates, market conditions, general economic
conditions and other factors that generally influence the price of securities.
For purposes of rendering our opinion, we have assumed, in all respects
material to our analysis, that the representations and warranties of each party
contained in the Merger Agreement are true and correct, that each party will
perform all of the covenants and agreements required to be performed by it under
the Merger Agreement and that all conditions to the consummation of the Merger
will be satisfied without waiver thereof. We have also assumed that all material
governmental, regulatory or other consents and approvals will be obtained and
that in the course of obtaining any necessary governmental, regulatory or other
consents and approvals, or any amendments, modifications or waivers to any
documents to which either the Company or BW/IP is a party, as contemplated by
the Merger Agreement, no restrictions will be imposed or amendments,
modifications or waivers made that would have any material adverse effect on the
contemplated benefits of the Merger.
As you are aware, we have acted as the financial advisor to the Company in
connection with the Merger and will receive fees from the Company for our
services, a portion of which is contingent upon consummation of the Merger. In
addition, the Company has agreed to indemnify us for certain liabilities arising
out of our engagement. In addition, in the ordinary course of our business, we
or our affiliates may actively trade the securities of the Company and BW/IP for
our own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities.
Based upon and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Exchange Ratio is fair, from a financial point of view, to
the holders of common stock of the Company.
Very truly yours,
/s/ Salomon Brothers Inc
--------------------------------------
SALOMON BROTHERS INC
<PAGE> 163
ANNEX V
[MERRILL LYNCH LETTERHEAD]
June 19, 1997
[MERRILL LYNCH LOGO]
Board of Directors
BW/IP, Inc.
200 Oceangate Boulevard
Suite 900
Long Beach, CA 90802
Members of the Board of Directors:
BW/IP, Inc. (the "Company"), Durco International Inc. (the "Merger
Partner") and Sub, a wholly owned subsidiary of the Merger Partner ("Sub"), have
entered into an Agreement and Plan of Merger, dated as of May 6, 1997 (the
"Agreement"), pursuant to which Sub will be merged with and into the Company in
a transaction (the "Merger") in which each outstanding share of the Company's
common stock, par value $0.01 per share (the "Company Shares"), other than any
Company Shares owned by the Company, the Merger Partner or any of their
respective subsidiaries, all of which shall be canceled or retired, will be
converted into the right to receive 0.6968 shares (the "Exchange Ratio") of the
common stock of the Merger Partner, par value $1.25 per share (the "Merger
Partner Shares").
You have asked us whether, in our opinion, the Exchange Ratio is fair from
a financial point of view to the holders of the Company Shares, other than the
Merger Partner and its affiliates.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to the Company and the Merger Partner which we deemed to be
relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects
of the Company and the Merger Partner, as well as the amount and timing
of the cost savings and related expenses and synergies expected to
result from the Merger (the "Expected Synergies") furnished to us by
the Company and the Merger Partner, respectively;
(3) Conducted discussions with members of senior management and
representatives of the Company and the Merger Partner concerning the
matters described in clauses (1) and (2) above, as well as their
respective businesses and prospects before and after giving effect to
the Merger, and the Expected Synergies;
(4) Reviewed the market prices and valuation multiples for the Company
Shares and the Merger Partner Shares and compared them with those of
certain publicly traded companies which we deemed to be relevant;
(5) Reviewed the results of operations of the Company and the Merger
Partner and compared them with those of certain companies which we
deemed to be relevant;
(6) Reviewed the potential pro forma impact of the Merger;
(7) Reviewed the Agreement; and
(8) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
<PAGE> 164
[MERRILL LYNCH LOGO]
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company or the Merger Partner or been furnished with any such
evaluation or appraisal. In addition, we have not conducted any physical
inspection of the properties or facilities of the Company or the Merger Partner.
With respect to the financial forecast information and the Expected Synergies
furnished to or discussed with us by the Company or the Merger Partner, we have
assumed that they have been reasonably prepared and reflect the best currently
available estimates and judgment of the Company's or the Merger Partner's
management as to the expected future financial performance of the Company or the
Merger Partner, as the case may be, and the Expected Synergies. We have further
assumed that the Merger will be accounted for as a pooling-of-interests under
generally accepted accounting principles and that it will qualify as a tax-free
reorganization for U.S. Federal income tax purposes.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that in the course of obtaining the
necessary regulatory or other consents and approvals (contractual or otherwise)
for the Merger, no restrictions, including any divestiture requirements or
amendments or modifications, will be imposed that will have a material adverse
effect on the contemplated benefits of the Merger.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Board of Directors to solicit, nor have we
solicited, third-party indications of interest for the acquisition of all or any
part of the Company.
We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee from the Company for our services, a significant
portion of which is contingent upon the consummation of the Merger. In addition,
the Company has agreed to indemnify us for certain liabilities arising out of
our engagement. We have, in the past, provided financial advisory services to
the Company and have received fees for rendering of such services. In addition,
in the ordinary course of our business, we may actively trade the Company Shares
or other securities of the Company, as well as the Merger Partner Shares and
other securities of the Merger Partner, for our own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position in
such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company. Our opinion does not address the merits of the underlying decision by
the Company to engage in the Merger, and does not constitute a recommendation to
any shareholder as to how such shareholder should vote on the proposed Merger.
We are not expressing any opinion herein as to the prices at which the
Merger Partner Shares will trade following the announcement or consummation of
the Merger.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Exchange Ratio is fair from a financial point of view
to the holders of the Company Shares, other than the Merger Partner and its
affiliates.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
<PAGE> 165
ANNEX VI
RESTATED
CERTIFICATE OF INCORPORATION
OF
THE DURIRON COMPANY, INC.
FIRST: The name of the corporation is
THE DURIRON COMPANY, INC.
SECOND: The purposes for which the corporation is formed are as follows:
To manufacture, fabricate, cast, machine, mold, develop, process, assemble,
purchase or otherwise acquire, sell, lease or otherwise dispose of, and in all
ways handle and deal in any or all of the following, and to carry on any trade
or business incident thereto, connected therewith or in furtherance thereof:
(a) Pumps, valves, pipe and fittings, filters, anodes, fans, heat
exchangers, castings, motors and chemical and other process equipment
of all kinds;
(b) All kinds of equipment, castings, molded products, articles and
supplies used or useful in the manufacturing, transferring, handling or
disposal of corrosive or erosive compounds, liquids, or gases or in
controlling corrosive or erosive environments of any kind;
(c) All kinds of equipment, components, parts, articles and supplies used
or useful in controlling friction or any other mechanical property,
function, action or performance or to seal, lubricate or otherwise
control or promote movement or flow of solids, liquids and gases of
every kind or nature;
(d) Metals, metallurgical alloys and any article in the manufacture or
composition of which any alloy or metallurgical compound is a factor;
(e) Non-metallic molded and machined products of all compositions and
types and chemicals, chemical compounds and related products of all
kinds, including any article in the manufacture or composition of
which chemicals, chemical compounds or related products are a factor.
To purchase or otherwise acquire, hold, own, sell or otherwise dispose of
real property, improved or unimproved and personal property, tangible or
intangible, including, without limitation, goods, wares and merchandise of every
description and the securities and obligations of any issuer.
In addition to the foregoing, the purpose for which the corporation is
formed is to engage in any lawful act or activity; provided, however, the
corporation is not formed to engage in any act or activity requiring the consent
or approval of any state official, department, board, agency or other body
without such consent or approval first being obtained.
THIRD:
(a) The aggregate number of shares which the corporation shall have
authority to issue is 15,500,000 of which 500,000 shares, of the par value of
$1.00 each, shall be Preferred Stock and 15,000,000 shares, of the par value of
$1.25 each, shall be Common Stock. The Preferred Stock may be issued from time
to time in one or more series with such distinctive designations as shall
distinguish the shares thereof from the shares of all other series and (i) may
have such number of shares to constitute each series, which number may be from
time to time increased or decreased, but not below the number of shares thereof
then outstanding; (ii) may have such voting powers, full or limited, or may be
without voting powers; (iii) may be subject to redemption at such time or times
and at such prices and on such terms; (iv) may have the benefit of a sinking
fund to be applied to the purchase or redemption of such shares, in such amount
and applied in such manner; (v) may be entitled to receive dividends (which may
be cumulative or noncumulative) at such rate or rates, on such conditions, and
at such times, and payable in preference to, or in such relation to, the
dividends on any other
<PAGE> 166
class or classes or series of stock of the corporation; (vi) may have such
rights upon the dissolution of, or upon any distribution of assets of, the
corporation; (vii) may be made convertible into, or exchangeable for, shares of
any other class or classes or of any other series of the same or any other class
or classes of stock of the corporation at such price or prices or at such rates
of exchange, and with such adjustments; and (viii) shall have such other
relative rights, preferences and limitations, all as shall hereafter be fixed by
the resolution or resolutions providing for the issue of such shares of
Preferred Stock from time to time adopted by the Board of Directors of the
corporation pursuant to authority so to do which is hereby expressly vested in
said Board of Directors.
(b) There is hereby established a series of the Corporation's authorized
shares of Preferred Stock of the par value of $1.00 each ("Preferred Stock"),
and the authorized number of shares of that series, the designation, relative
rights, preferences, and limitations thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" ("Series A
Preferred Stock"), and the number of shares constituting such series shall be
150,000.
Section 2. Dividends and Distributions.
(A) Subject to the provisions for adjustment hereinafter set forth, the
holders of shares of Series A Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, (i) cash dividends in an amount per share (rounded to
the nearest cent) equal to 100 times the aggregate per share amount of all cash
dividends declared or paid on the Common Stock, presently of $1.25 par value, of
the corporation ("Common Stock") and (ii) a preferential cash dividend
("Preferential Dividends"), if any, on the fifth day of March, June, September
and December of each year (each a "Quarterly Dividend Payment Date"), commencing
on the first Quarterly Dividend Payment Date after the first issuance of a share
or fraction of a share of Series A Preferred Stock, in an amount equal to $14.00
per share of Series A Preferred Stock less the per share amount of all cash
dividends declared on the Series A Preferred Stock pursuant to clause (i) of
this sentence since the immediately preceding Quarterly Dividend Payment Date
or, with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred Stock. In the
event the corporation shall, at any time after the issuance of any share or
fraction of a share of Series A Preferred Stock, make any distribution on the
shares of Common Stock of the corporation, whether by way of a dividend or a
reclassification of stock, a recapitalization, reorganization or partial
liquidation of the corporation or otherwise, which is payable in cash or any
debt security, debt instrument, real or personal property or any other property
(other than cash dividends subject to clause (i) the immediately preceding
sentence and other than a distribution of shares of Common Stock or other
capital stock of the corporation and other than distribution of rights or
warrants to acquire any such share, including any debt security convertible into
or exchangeable for any such share, at a price less than the Current Market
Price of such share), then and in each such event the corporation shall
simultaneously pay on each then outstanding share of Series A Preferred Stock of
the corporation a distribution, in like kind, of 100 times (subject to the
provisions for adjustment hereinafter set forth) such distribution paid on a
share of Common Stock. The dividends and distributions on the Series A Preferred
Stock to which holders thereof are entitled pursuant to clause (i) of the first
sentence of this paragraph and pursuant to the second sentence of this paragraph
are hereinafter referred to as "Participating Dividends" and the multiple of
such cash and non-cash dividends on the Common Stock applicable to the
determination of the Participating Dividends, which shall be 100 initially but
shall be adjusted from time to time as hereinafter provided, is hereinafter
referred to as the "Dividend Multiple". In the event the corporation shall at
any time after August 13, 1986 declare or pay any dividend or make any
distribution on Common Stock payable in shares of Common Stock, or effect a
subdivision or split or a combination, consolidation or reverse split of the
outstanding shares of Common Stock into a greater or lesser number of shares of
Common Stock, then in each such case the Dividend Multiple thereafter applicable
to the determination of the amount of Participating Dividends which holders of
shares of Series A Preferred Stock shall be entitled to receive shall be the
Dividend Multiple applicable immediately prior to such event multiplied by a
fraction the numerator of which is the number of shares of Common Stock
outstanding
2
<PAGE> 167
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Corporation shall declare each Participating Dividend at the same
time it declares any cash or non-cash dividend or distribution on the Common
Stock in respect of which a Participating Dividend is required to be paid. No
cash or non-cash dividend or distribution on the Common Stock in respect of
which a Participating Dividend is required to be paid shall be paid or set aside
for payment on the Common Stock unless a Participating Dividend in respect of
such dividend or distribution on the Common Stock shall be simultaneously paid,
or set aside for payment, on the Series A Preferred Stock.
(C) Preferential Dividends shall begin to accrue on outstanding shares of
Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding
the date of issuance of any shares of Series A Preferred Stock unless the date
of issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends will begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid Preferential
Dividends shall cumulate but shall not bear interest. Preferential Dividends
paid on the shares of Series A Preferred Stock to an amount less than the total
amount of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding.
Section 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(A) Subject to the provisions for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 100 votes
on all matters submitted to a vote of the shareholders of the corporation. The
number of votes which a holder of Series A Preferred Stock is entitled to cast,
as the same may be adjusted from time to time as hereinafter provided, is
hereinafter referred to as the "Vote Multiple". In the event the corporation
shall at any time after August 13, 1986 declare or pay any dividend on Common
Stock payable in shares of Common Stock, or effect a subdivision or split or a
combination, consolidation or reverse split of the outstanding shares of Common
Stock into a greater or lesser number of shares of Common Stock, then in each
such case the Vote Multiple thereafter applicable to the determination of the
number of votes per share to which holders of shares of Series A Preferred Stock
shall be entitled after such event shall be the Vote Multiple immediately prior
to such event multiplied by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of shares of
Series A Preferred Stock and the holders of shares of Common Stock shall vote
together as one class on all matters submitted to a vote of shareholders of the
corporation.
(C) In the event that the Preferential Dividends accrued on the Series A
Preferred Stock for four or more quarterly dividend periods, whether consecutive
or not, shall not have been declared and paid or set apart for payment, the
holders of record of preferred stock of the corporation of all series (including
the Series A Preferred Stock), other than any series in respect of which the
right is expressly withheld by the Certificate of Incorporation or the
authorizing resolutions included in the Certificate of Designation therefor,
shall have the right at the next meeting of shareholders called for the election
of directors, voting as a class to elect two members to the Board of Directors,
which directors shall be in addition to the number provided for under the
By-Laws prior to such event, to serve until the next Annual Meeting and until
their successors are elected and qualified or their earlier resignation, removal
or incapacity or until such earlier time as all accrued and unpaid Preferential
Dividends upon the outstanding shares of Series A Preferred Stock shall have
been paid (or set aside for payment) in full. The holders of shares of Series A
Preferred Stock shall continue to have the right to elect directors as provided
by the immediately preceding sentence until all accrued and unpaid Preferential
Dividends upon the outstanding shares of Series A Preferred Stock shall have
been paid (or set aside for payment) in full. Such directors may be removed and
replaced by such shareholders, and vacancies in such
3
<PAGE> 168
directorships may be filled only by such shareholders (or by the remaining
director elected by such shareholders, if there be one) in the manner permitted
by law; provided, however, that any such action by shareholders shall be taken
at a meeting of shareholders and shall not be taken by written consent thereof.
(D) Except as otherwise required by law or set forth herein, holders of
Series A Preferred Stock shall have no special voting rights and their consent
shall not be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for the taking of any corporate
action.
Section 4. Certain Restrictions.
(A) Whenever Preferential Dividends or Participating Dividends are in
arrears or the corporation shall be in default in payment thereof, thereafter
and until all accrued and unpaid Preferential Dividends and Participating
Dividends, whether or not declared, on shares of Series A Preferred Stock,
outstanding shall have been paid or set aside for payment in full, and in
addition to any and all other rights which any holder of shares of Series A
Preferred Stock may have in such circumstances, the corporation shall not:
(i) declare or pay dividends on, make any other distribution on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to, the Series A Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity as to dividends with the Series A
Preferred Stock, unless dividends are paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are payable or
in arrears in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) except as permitted by subparagraph (iv) of this paragraph 4(A),
redeem or purchase or otherwise acquire for consideration shares of any
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, provided that
the corporation may at any time redeem, purchase or otherwise acquire
shares of any such parity stock in exchange for shares of any stock of the
corporation ranking junior (both as to dividends and upon liquidation,
dissolution or winding up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock, or any shares of stock ranking on a parity with
the Series A Preferred Stock (either as to dividends or upon liquidation,
dissolution or winding up), except in accordance with a purchase offer made
in writing or by publication (as determined by the Board of Directors) to
all holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative
rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(B) The corporation shall not permit any subsidiary of the corporation to
purchase or otherwise acquire for consideration any shares of stock of the
corporation unless the corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
(C) The corporation shall not issue any shares of Series A Preferred Stock
except upon exercise of Rights issued pursuant to that certain Rights Agreement
dated as of August 1, 1986 between the corporation and Bank One, Indianapolis,
NA (the "Rights Agreement"), a copy of which is on file at the corporation's
principal executive office and shall be made available to shareholders of record
without charge upon written request to the Secretary of the corporation.
Notwithstanding the foregoing sentence, nothing contained in the provisions
hereof shall prohibit or restrict the corporation from issuing for any purpose
any series of preferred stock with rights and privileges similar to, different
from, or greater than, those of the Series A Preferred Stock.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. The
corporation shall cause all such shares upon their retirement and cancellation
to become authorized but unissued shares of preferred stock, without designation
as to series, and such shares may be
4
<PAGE> 169
reissued as part of a new series of preferred stock to be created by resolution
or resolutions of the Board of Directors.
Section 6. Liquidation, Dissolution or Winding Up. Upon any voluntary or
involuntary liquidation, dissolution or winding up of the corporation, no
distribution shall be made (i) to the holders of shares of stock ranking junior
to the Series A Preferred Stock upon liquidation, dissolution or winding up
unless the holders of shares of Series A Preferred Stock shall have received,
subject to adjustment as hereinafter provided, the greater of either (A) $3.000
per share plus an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment, or (B) the amount
equal to 100 times the aggregate amount to be distributed per share to holders
of Common Stock, or (ii) to the holders of stock ranking on a parity upon
liquidation, dissolution or winding up with the Series A Preferred Stock, unless
simultaneously therewith distributions are made ratably on the Series A
Preferred Stock and all other shares of such parity stock in proportion to the
total amounts to which the holders of shares of Series A Preferred Stock are
entitled under clause (i)(A) of this sentence and to which the holders of such
parity shares are entitled, in each case upon such liquidation, dissolution or
winding up. The amount to which holders of Series A Preferred Stock shall be
entitled upon liquidation, dissolution or winding up of the corporation pursuant
to clause (i)(B) of the foregoing sentence is hereinafter referred to as the
"Participating Liquidation Amount" and the multiple of the amount to be
distributed to holders of shares of Common Stock upon the liquidation,
dissolution or winding up of the corporation applicable pursuant to said clause
to the determination of the Participating Liquidation Amount, which shall be 100
initially but shall be adjusted from time to time as hereinafter provided, is
hereinafter referred to as the "Liquidation Multiple". In the event the
corporation shall at any time after August 13, 1986 declare or pay any dividend
on Common Stock payable in shares of Common Stock, or effect a subdivision or
split or a combination, consolidation or reverse split of the outstanding shares
of Common Stock into a greater or lesser number of shares of Common Stock, then
in each such case the Liquidation Multiple thereafter applicable to the
determination of the Participating Liquidation Amount to which holders of Series
A Preferred Stock shall be entitled after such event shall be the Liquidation
Multiple applicable immediately prior to such event multiplied by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Certain Reclassifications and Other Events.
(A) In the event that holders of shares of Common Stock of the corporation
receive after August 13, 1986 in respect of their shares of Common Stock any
share of capital stock of the corporation (other than any share of Common Stock
of the corporation), whether by way of reclassification, recapitalization,
reorganization, dividend or other distribution or otherwise ("Transaction"),
then and in each such event the dividend rights, voting rights and rights upon
the liquidation, dissolution or winding up of the corporation of the shares of
Series A Preferred Stock shall be adjusted so that after such event the holders
of Series A Preferred Stock shall be entitled, in respect to each share of
Series A Preferred Stock held, in addition to such rights in respect thereof to
which such holder was entitled immediately prior to such adjustment, to (i) such
additional dividends as equal the Dividend Multiple in effect immediately prior
to such Transaction multiplied by the additional dividends which the holder of a
share of Common Stock shall be entitled to receive by virtue of the receipt in
the Transaction of such capital stock, (ii) such additional voting rights as
equal the Vote Multiple in effect immediately prior to such Transaction
multiplied by the additional voting rights which the holder of a share of Common
Stock shall be entitled to receive by virtue of the receipt in the Transaction
of such capital stock and (iii) such additional distributions upon liquidation,
dissolution or winding up of the corporation as equal the Liquidation Multiple
in effect immediately prior to such Transaction multiplied by the additional
amount which the holder of a share of Common Stock shall be entitled to receive
upon liquidation, dissolution or winding up of the corporation by virtue of the
receipt in the Transaction of such capital stock, as the case may be, all as
provided by the terms of such capital stock.
(B) In the event that holders of shares of Common Stock of the corporation
receive after August 13, 1986 in respect of their shares of Common Stock any
right or warrant to purchase Common Stock (including as such a right, for all
purposes of this paragraph, any security convertible into or exchangeable for
Common
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Stock) at a purchase price per share less than the Current Market Price (as
hereinafter defined) of a share of Common Stock on the date of issuance of such
right or warrant, then and in each such event the dividend rights, voting rights
and rights upon the liquidation, dissolution or winding up of the corporation of
the shares of Series A Preferred Stock shall each be adjusted so that after such
event the Dividend Multiple, the Vote Multiple and the Liquidation Multiple
shall each be the product of the Dividend Multiple, the Vote Multiple and the
Liquidation Multiple, as the case may be, in effect immediately prior to such
event multiplied by a fraction the numerator of which shall be the number of
shares of Common Stock outstanding immediately before such issuance of rights or
warrants plus the maximum number of shares of Common Stock which could be
acquired upon exercise in full of all such rights or warrants and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately before such issuance of rights or warrants plus the number of shares
of Common Stock which could be purchased at the Current Market Price of the
Common Stock at the time of such issuance, by the maximum aggregate
consideration payable upon exercise in full of all such rights or warrants.
(C) In the event that holders of shares of Common Stock of the corporation
receive after August 13, 1986 in respect of their shares of Common Stock any
right or warrant to purchase capital stock of the corporation (other than shares
of Common Stock), including as such a right, for all purposes of this paragraph,
any security convertible into or exchangeable for capital stock of the
corporation (other than Common Stock), at a purchase price per share less than
the Current Market Price of such shares of capital stock on the date of issuance
of such right or warrant, then and in each such event the dividend rights,
voting rights and rights upon liquidation, dissolution or winding up of the
corporation of the shares of Series A Preferred Stock shall each be adjusted so
that after such event each holder of a share of Series A Preferred Stock shall
be entitled, in respect of each share of Series A Preferred Stock held, in
addition to such rights in respect thereof to which such holder was entitled
immediately prior to such event, to receive (i) such additional dividends as
equal the Dividend Multiple in effect immediately prior to such event
multiplied, first, by the additional dividends to which the holder of a share of
Common Stock shall be entitled upon exercise of such right or warrant by virtue
of the capital stock which could be acquired upon such exercise and multiplied
again by the Discount Fraction (as hereinafter defined) and (ii) such additional
voting rights as equal the Vote Multiple in effect immediately prior to such
event multiplied, first, by the additional voting rights to which the holder of
a share of Common Stock shall be entitled upon exercise of such right or warrant
by virtue of the capital stock which could be acquired upon such exercise and
multiplied again by the Discount Fraction and (iii) such additional
distributions upon liquidation, dissolution or winding up of the corporation as
equal the Liquidation Multiple in effect immediately prior to such event
multiplied, first, by the additional amount which the holder of a share of
Common Stock shall be entitled to receive upon liquidation, dissolution or
winding up of the corporation upon exercise of such right or warrant by virtue
of the capital stock which could be acquired upon such exercise and multiplied
again by the Discount Fraction. For purposes of this paragraph, the "Discount
Fraction" shall be a fraction the numerator of which shall be the difference
between the Current Market Price (as hereinafter defined) of a share of the
capital stock subject to a right or warrant distributed to holders of shares of
Common Stock of the corporation as contemplated by this paragraph immediately
after the distribution thereof and the purchase price per share for such share
of capital stock pursuant to such right or warrant and the denominator of which
shall be the Current Market Price of a share of such capital stock immediately
after the distribution of such right or warrant.
(D) For purposes of this Section 7, the "Current Market Price" of a share
of capital stock of the corporation (including a share of Common Stock) on any
date shall be deemed to be the average of the daily closing prices per share
thereof over the 30 consecutive Trading Days (as such term is hereinafter
defined) immediately prior to such date; provided, however, that, in the event
that such Current Market Price of any such share of capital stock is determined
during a period which includes any date that is within 30 Trading Days after the
ex-dividend date for (i) a dividend or distribution on stock payable in shares
of such stock or securities convertible into shares of such stock, or (ii) any
subdivision, split, combination, consolidation, reverse stock split or
reclassification of such stock, then, and in each such case, the Current Market
Price shall be appropriately adjusted by the Board of Directors of the
corporation to reflect the Current Market Price of such stock to take into
account ex-dividend trading. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices,
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regular way in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading on the
New York Stock Exchange or, if the shares are not listed or admitted to trading
on the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the shares are listed or admitted to
trading or, if the shares are not listed or admitted to trading on any national
securities exchange, the last quoted price or, if not so quoted, the average of
the high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") or such other system then in use, or if on any such date the shares
are not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
shares selected by the Board of Directors of the corporation. The term "Trading
Day" shall mean a day on which the principal national securities exchange on
which the shares are listed or admitted to trading is open for the transaction
of business or, if the shares are not listed or admitted to trading on any
national securities exchange, on which the New York Stock Exchange or such other
national securities exchange as may be selected by the Board of Directors of the
corporation is open. If the shares are not publicly held or not so listed or
traded on any day within the period of 30 Trading Days applicable to the
determination of Current Market Price thereof as aforesaid, "Current Market
Price" shall mean the fair market value thereof per share as determined in good
faith by the Board of Directors of the corporation. In either case referred to
in the foregoing sentence, the determination of Current Market Price shall be
described in a statement filed with the Secretary of the corporation.
Section 8. Consolidation, Merger, etc. In case the corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each
outstanding share of Series A Preferred Stock shall at the same time be
similarly exchanged for or changed into the aggregate amount of stock,
securities, cash and/or other property (payable in like kind), as the case may
be, for which or into which each share of Common Stock is changed or exchanged
multiplied by the highest of the Vote Multiple, the Dividend Multiple or the
Liquidation Multiple in effect immediately prior to such event.
Section 9. Effective Time of Adjustments.
(A) Adjustments to the Series A Preferred Stock required by the provisions
hereof shall be effective as of the time at which the event requiring such
adjustment occurs.
(B) The corporation shall give prompt written notice to each holder of a
share of Series A Preferred Stock of the effect of any adjustment to the voting
rights, dividend rights or rights upon liquidation, dissolution or winding up of
the corporation of such shares required by the provisions hereof.
Notwithstanding the foregoing sentence, the failure of the corporation to give
such notice shall not affect the validity of or the force or effect of or the
requirement for such adjustment.
Section 10. No Redemption. The shares of Series A Preferred Stock shall
not be redeemable at the option of the corporation or any holder thereof.
Notwithstanding the foregoing sentence of this Section, the corporation may
acquire shares of Series A Preferred Stock in any other manner permitted by law,
the provisions hereof and the Restated Certificate of Incorporation of the
corporation.
Section 11. Ranking. Unless otherwise provided in the Certificate of
Incorporation of the corporation or a Certificate of Amendment relating to a
subsequent series of preferred stock of the corporation, the Series A Preferred
Stock shall rank junior to all other series of the corporation's preferred stock
(as to the payment of dividends and the distribution of assets on liquidation,
dissolution or winding up) and senior to the Common Stock.
Section 12. Amendment. Subsequent to the issuance of any shares of Series
A Preferred Stock, the provisions hereof and the Certificate of Incorporation of
the corporation shall not be amended in any manner which would materially affect
the rights, privileges or powers of the Series A Preferred Stock without, in
addition to any other vote of shareholders required by law, the affirmative vote
of the holders of eighty percent or more of the outstanding shares of Series A
Preferred Stock, voting separately as a class.
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FOURTH: No holder of shares of any class of the corporation shall have any
preemptive rights with respect to, or any preemptive rights to purchase or
subscribe for, any shares of any class or other securities of any kind of the
corporation.
FIFTH: The office of the corporation is to be located in the Town of Evans,
Erie County, State of New York.
SIXTH: The corporation hereby designates the Secretary of State of New York
as its agent upon whom process in any action or proceeding against it may be
served within the State of New York and the address to which the Secretary of
State shall mail a copy of any process against the corporation which may be
served upon him pursuant to law is:
The Duriron Company, Inc.
c/o Smith & Schnacke
2000 Courthouse Plaza NE
P.O. Box 1817
Dayton, Ohio 45401-1817
SEVENTH: Its duration is to be perpetual.
EIGHTH: The number of Directors of the corporation shall be such as from
time to time shall be fixed by the By-Laws of the corporation, but shall not be
less than three. Any of the following actions may be taken by the shareholders
of the corporation only by vote of the holders of two-thirds of all outstanding
shares entitled to vote thereon: (a) adoption, amendment or repeal of any
by-law, or any provision of this Certificate of Incorporation, relating to (i)
the number, classification and terms of office of Directors, (ii) the filing of
newly created directorships and vacancies occurring in the Board of Directors,
(iii) the removal of Directors, or (iv) the power of the Board of Directors to
adopt, amend or repeal by-laws of the corporation or the vote of the Board of
Directors required for any such adoption, amendment or repeal; or (b) any
amendment or repeal of this Article EIGHTH. Nothing contained in this Article
EIGHTH shall in any way limit the power of the Board of Directors to adopt,
amend or repeal by-laws of the corporation.
NINTH:
(A) The affirmative vote of the holders of at least 80% of the shares of
capital stock entitled to vote thereon shall be required to authorize, adopt or
approve any of the following:
(i) Any plan of merger or consolidation of the corporation with or
into any Related Corporation or any affiliate of a Related Corporation;
(ii) Any sale, lease, exchange or other disposition of all or
substantially all the assets of the corporation to or with any Related
Corporation or any affiliate of a Related Corporation;
(iii) Any issuance or delivery of capital stock or other securities of
the corporation in exchange or payment for all or substantially all the
assets of any Related Corporation or any affiliate of a Related
Corporation; and
(iv) Any amendment or deletion of this Article NINTH.
(B) As used in this Article NINTH, the following terms shall have the
following meanings:
(i) "Related Corporation" shall mean any corporation which, together
with its affiliates and associated persons, owns as of the record date for
the determination of stockholders entitled to vote on the transaction in
question, of record or beneficially, directly or indirectly, 10% or more of
the shares of capital stock of the corporation entitled to vote on such
transaction;
(ii) An "affiliate" of a Related Corporation shall mean any
individual, partnership, joint venture, trust, corporation or other entity
which, directly or indirectly through one or more intermediaries, controls,
is controlled by, or is under common control with, such Related
Corporation; and
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(iii) An "associated person" of a Related Corporation shall mean any
officer or director of, or any beneficial owner, directly or indirectly, of
10% or more of any class of equity security of such Related Corporation or
any of its affiliates.
(C) Any determination made in good faith by the Board of Directors, on the
basis of information at the time available to it, as to whether any corporation
is a Related Corporation or whether any person is an affiliate or an associated
person of a Related Corporation, shall be conclusive and binding for all
purposes of this Article NINTH.
TENTH: The corporation hereby designates CT Corporation System, having an
office at 277 Park Avenue, New York, New York 10017, as its registered agent
upon whom process against it may be served.
ELEVENTH: No director of this corporation shall be personally liable to
this corporation or its shareholders for damages for any breach of duty as a
director; provided, however, that, to the extent required by applicable law, the
foregoing clause shall not apply to any liability of a director if a judgment or
other final adjudication adverse to him establishes (i) that his acts or
omissions were in bad faith or involved intentional misconduct or a knowing
violation of law, (ii) that he personally gained in fact or financial profit or
other advantage to which he was not legally entitled, or (iii) that his acts
violated Section 719 of the New York Business Corporation Law. Any repeal or
modification of this Article ELEVENTH shall not adversely affect any right or
protection of a director of the corporation existing hereunder with respect to
any act or omission occurring prior to or at the time of such repeal or
modification.
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CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE DURIRON COMPANY, INC.
UNDER
SECTION 805 OF THE BUSINESS CORPORATION LAW
Pursuant to the provisions of Section 805 of the Business Corporation Law,
the undersigned, William M. Jordan, President, and Ronald F. Shuff, Secretary,
of THE DURIRON COMPANY, INC., a New York corporation (the "Corporation"), do
hereby certify as follows:
FIRST: The name of the corporation is The Duriron Company, Inc. The name
under which the corporation was formed was Duriron Castings Company.
SECOND: The Certificate of Incorporation of the Corporation was filed by
the Department of State on May 1, 1912.
THIRD: The amendments to the Certificate of Incorporation affected by this
Certificate are as follows:
Article THIRD of the Certificate of Incorporation is hereby amended by
deleting the first sentence of Article THIRD and by replacing such deleted
sentence with the following sentence:
"THIRD: 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."
FOURTH: No change in the number of outstanding shares of Common Stock or
Preferred Stock of the Corporation resulted from the above amendment. However,
as the result of such amendment, the total number of authorized shares of the
Corporation is increased from 31,000,000 to 61,000,000 with the number of shares
of Preferred Stock, of the par value of $1.00 each, being unchanged from
1,000,000 shares and the number of shares of Common Stock, of the par value of
$1.25 each, being increased from 30,000,000 to 60,000,000 shares.
FIFTH, the foregoing amendment to the Certificate of Incorporation was
authorized by the unanimous vote of the Directors present at a meeting of the
Board of Directors duly convened and held on September 9, 1995, and such
amendment was thereafter approved by an affirmative vote of a majority of all
the outstanding shares of the Common Stock at a Special Meeting of Shareholders
of the Corporation held on November 30, 1995.
IN WITNESS WHEREOF, we hereunto sign our respective names and affirm that
the statements made herein are true under penalties of perjury, this 3rd day of
January, 1996.
/s/ WILLIAM M. JORDAN
--------------------------------------
William M. Jordan,
President
/s/ RONALD F. SHUFF
--------------------------------------
Ronald F. Shuff,
Secretary
<PAGE> 175
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE DURIRON COMPANY, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
Pursuant to the provisions of Section 805 of the Business Corporation Law,
the undersigned, Bruce E. Hines and Ronald F. Shuff, being respectively the
Senior Vice President and Secretary of The Duriron Company, Inc., a New York
corporation (the "Corporation") hereby certify:
FIRST: The name of the Corporation is The Duriron Company, Inc. The name
under which the corporation was formed was: Duriron Castings Company.
SECOND: The Certificate of Incorporation of the Corporation was filed by
the Department of State on May 1, 1912.
THIRD: The amendment to the Certificate of Incorporation effected by this
Certificate is as follows:
ARTICLE FIRST is hereby amended and restated in its entirety to read as
follows:
"FIRST: The name of the Corporation is: Durco International Inc.
FOURTH: The foregoing amendment to the Certificate of Incorporation was
authorized by the unanimous vote of the directors present at a meeting of the
Board of Directors duly held and convened on February 17, 1997, and such
amendment was thereafter approved by an affirmative vote of a majority of all
the outstanding shares of the Common Stock of the Corporation at the Annual
Meeting of Shareholders of the Corporation held on April 24, 1997.
IN WITNESS WHEREOF, we hereunto sign our respective names and affirm that
the statements made herein are true under penalties of perjury, this 24th day of
April, 1997.
/s/ BRUCE E. HINES
-------------------------------------
Bruce E. Hines
Senior Vice President
/s/ RONALD F. SHUFF
-------------------------------------
Ronald F. Shuff
Secretary
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ANNEX VII
BY-LAWS
OF
THE DURIRON COMPANY, INC.
ARTICLE I
OFFICE
The principal business office of the Company shall be located in the City
of Dayton, Montgomery County, Ohio, and at such place therein as may be
determined and designated from time to time by the Board of Directors. The Board
of Directors may, from time to time, designate other offices as the business of
the Company may require.
ARTICLE II
SHAREHOLDERS MEETINGS
SECTION 1. ANNUAL MEETING. The annual meeting of shareholders of the
Company for the purpose of electing directors and for the transaction of such
other business as may properly come before the meeting shall be held during the
month of April or May on such date and at such hour and place, within or without
the State of New York, as shall be determined by the Board of Directors and
stated in the notice of the meeting.
SECTION 2. SPECIAL MEETINGS. Special Meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the Board of Directors, the
Executive Committee, the Chairman of the Board or the President and shall be
called by the Secretary at the request in writing of a majority of the Directors
then in office. Such request shall state the purpose or purposes and the place,
date and hour of the meeting to be called. Special meetings shall be held on
such date and at such hour and place, within or without the State of New York,
as may be stated in the notice of meeting given in accordance with the call and
these By-Laws.
SECTION 3. NOTICE OF MEETINGS. The Secretary shall give personally or by
mail, not less than ten nor more than fifty days before the date of any meeting
of shareholders, to each shareholder entitled to vote at such meeting written
notice stating the place, date, hour and purpose or purposes of the meeting. If
mailed, the notice shall be addressed to the shareholder at his address as it
appears on the record of shareholders of the Company, unless he shall have filed
with the Secretary of the Company a written request that notices intended for
him be mailed to a different address, in which case it shall be mailed to the
address designated in such request. Any and all notices of a meeting may be
waived by a shareholder by submitting a signed waiver either before or after the
meeting. The attendance of any shareholder at a meeting in person or by proxy,
without protesting prior to the conclusion of the meeting the lack of notice of
such meeting shall constitute a waiver of notice by him.
SECTION 4. QUORUM. Except as otherwise provided by law, at every meeting
of the shareholders the holders of record of a majority of the outstanding
shares of stock of the Company, entitled to vote at such meeting, whether
present in person or represented by proxy, shall constitute a quorum. If at any
meeting there shall be no quorum, such holders of a majority of the outstanding
shares of stock so present or represented may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until such quorum
shall have been obtained, when any business may be transacted which might have
been transacted at the meeting as first convened had there been a quorum.
SECTION 5. VOTING AND INSPECTORS. At all meetings of the shareholders,
each holder of record of outstanding shares of capital stock of the Company may
vote such shares either in person or by proxy appointed by instrument in writing
executed by such holder or by his duly authorized attorney. No proxy shall
<PAGE> 177
be valid after the expiration of eleven months from the date of its execution
unless the shareholder executing it shall have specified therein the length of
time it is to continue in force which shall be for some limited period.
At all elections of directors the voting shall be by ballot and a plurality
of the votes cast thereat shall elect. At all such elections the chairman of the
meeting may appoint two inspectors of election who, before entering upon the
discharge of their duties, shall take and subscribe an oath faithfully to
execute the duties of inspector at such meeting with strict impartiality and
according to the best of their ability, and who shall take charge of the polls
and after the balloting shall make a certificate of the result of the vote
taken; but no officer or director of the Company or candidate for the office of
director shall be appointed as such inspector.
SECTION 6. RECORD OF SHAREHOLDERS. The Board of Directors may prescribe a
period not exceeding fifty days, prior to any meeting of the shareholders or the
last day on which the consent or dissent of shareholders may be effectively
expressed for any purpose without a meeting or any date fixed from the payment
of any dividend or the making of any distribution or for the allotment of rights
or interests arising out of any change, conversion or exchange of capital stock,
during which no transfer of stock on the books of the Company may be made. In
lieu of prohibiting the transfer of stock as aforesaid, the Board of Directors
may fix a time not more than fifty days prior to the date of any meeting of the
shareholders or prior to the last day on which the consent or dissent of
shareholders may be effectively expressed for any purpose without a meeting or
any date fixed for the payment of any dividend or the making of any distribution
or for the allotment of rights or interests arising out of any change,
conversion or exchange of capital stock, as the record time as of which
shareholders entitled to notice of and to vote at such meeting or whose consent
or dissent is required or may be expressed for any purpose or entitled to
receive such dividend distribution, rights or interests, as the case may be,
shall be determined; and in such case only holders of record of stock at the
time so fixed shall be entitled to notice of or to vote at such meeting or
express their consent or dissent, or to receive such dividend distribution,
rights or interests, as the case may be.
ARTICLE III
BOARD OF DIRECTORS AND COMMITTEES
SECTION 1. NUMBER, CLASSIFICATION AND TERMS OF DIRECTORS. Until changed in
the manner hereinafter set forth, the number of Directors of the Company shall
be eleven. The number of Directors of the Company may be increased or decreased
by amendment of these By-Laws adopted by the shareholders or the Board of
Directors.
The Directors shall be classified with respect to their terms of office by
dividing them into three classes. All classes shall be nearly equal in number as
possible, and no class shall include less than three directors. Subject to such
limitations, the size of each class may be fixed by action of the shareholders
or of the Board of Directors.
No decrease in the number of Directors, and no change in the size of any
class, shall shorten the term of any incumbent Director.
The terms of office of the Directors initially classified shall be as
follows: that of the first class shall expire at the next annual meeting of
shareholders; that of the second class at the second succeeding annual meeting
of shareholders; and that of the third class at the third succeeding annual
meeting of shareholders. At each annual meeting of shareholders after such
annual initial classification, Directors to replace those whose terms expire at
such annual meeting shall be elected to hold office until the third succeeding
annual meeting. Any other Director elected at any meeting of shareholders shall
hold office until the expiration of the term in office of the other members of
the same class to which he is elected.
Each Director shall hold office until the expiration of the term for which
he is elected, and until his successor has been elected and qualified.
SECTION 2. NOMINATIONS. After December 31, 1986, only persons who are
nominated in accordance with the following procedures shall be eligible for
election by the shareholders as Directors. Nominations of persons for election
as Directors of the Company may be made at a meeting of shareholders at
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which Directors are being elected (i) by or at the direction of the Board of
Directors and/or by or at the direction of any committee or person authorized or
appointed by the Board of Directors or (ii) by any shareholder of the Company
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 2. Any nomination other than
those governed by clause (i) of the preceding sentence shall be made pursuant to
timely notice in writing to the Secretary of the Company. To be timely, a
shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Company not less than 50 days prior to the
meeting; provided, however, that in the event that less than 60 days' notice or
prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
Such shareholder's notice to the Secretary shall set forth (a) as to each person
whom the shareholder proposes to nominate for election as a Director (i) the
name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number of
any shares of the Company or any subsidiary of the Company which are
beneficially owned by such person, and (iv) any other information relating to
such person that is required to be disclosed in solicitations for proxies for
election of Directors pursuant to any then existing rule or regulation
promulgated under the Securities Exchange Act of 1934, as amended; and (b) as to
the shareholder giving the notice (i) the name and record address of such
shareholder and (ii) the class and number of shares of the Company which are
beneficially owned by such shareholder. The Company may require any proposed
nominee to furnish such other information as may reasonably be required by the
Company to determine the eligibility of such proposed nominee as a Director. No
person shall be eligible for election as a Director unless nominated as set
forth herein.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
SECTION 3. MEETINGS OF THE BOARD. Regular meetings of the Board of
Directors shall be held at such times as may from time to time be fixed by
resolution of the Board of Directors, and notice of such meetings need not be
given. All such meetings shall be held at the principal business office of the
Company unless otherwise specified by the resolution.
Special meetings of the Board of Directors may be called by the Chairman of
the Board or the President at any time, and shall be called by the Secretary of
the Company when requested to do so in a writing or writings signed by a
majority of the entire Board of Directors.
Notice of the place, date and hour of each special meeting of the Board of
Directors shall be given to each Director personally, by mail, by telegram, or
by telephone. If mailed or telegraphed, the notice shall be addressed to the
Director at his last known address as it appears on the records of the Secretary
of the Company; and if given by mail, shall be mailed not less than three days
before the date of the meeting, and if given by telegram shall be telegraphed
not less than twenty-four hours before the time of the meeting. If given
personally or by telephone, the notice shall be given not less than eight hours
before the time of the meeting. An affidavit of the person giving notice stating
that notice has been given as herein required, and the manner in which given,
shall be filed with the Secretary of the Company and shall, in the absence of
fraud, be prima facie evidence of the facts therein stated.
SECTION 4. QUORUM. One third ( 1/3) of the entire Board of Directors, but
not less than three, shall constitute a quorum for the transaction of business,
but if at any meeting of the Board of Directors there shall be less than a
quorum present, a majority of the directors present may adjourn the meeting from
time to time without notice other than announcement at the meeting, until a
quorum shall have been obtained, when any business may be transacted which might
have been transacted at the meeting as first convened had there been a quorum.
The acts of a majority of the directors present at any meeting at which there is
a quorum shall, unless otherwise provided by law, by the Certificate of
Incorporation or by the By-Laws, be the acts of the Board.
SECTION 5. ANNUAL MEETING OF DIRECTORS. A stated meeting of the Board of
Directors, to be known as their annual meeting, shall be held in each year after
the adjournment of the annual
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shareholders' meeting and on the same day, and at such meeting the officers of
the Company for the ensuing year shall be elected. If a quorum of the directors
be not present on the date appointed for the annual meeting, the meeting shall
be adjourned to some convenient day.
SECTION 6. COMMITTEES. The Board of Directors, by resolution adopted by a
majority of the entire Board, may designate from among its members an executive
committee and other committees, each consisting of three or more Directors. The
resolution designating any such committee shall fix its powers and authority.
Any such committee may have all or any of the authority of the Board of
Directors to the extent provided in the resolution designating such committee,
except that no such committee shall have authority as to the following matters:
1. The submission to shareholders of any action that needs
shareholders' approval.
2. The filling of vacancies in the Board of Directors or in any
committee of the Board of Directors.
3. The fixing of compensation of the Directors for serving on the
Board of Directors or any committee of the Board of Directors.
4. The amendment or repeal of the By-Laws of the Company, or the
adoption of new By-Laws.
5. The amendment or repeal of any resolution of the Board of Directors
which by its terms shall not be so amendable or repealable.
The Board of Directors may designate one or more Directors as alternate
members of any such committee, who may replace any absent member or members at
any meeting of such committee.
Each such committee and the members thereof shall serve at the pleasure of
the Board of Directors; and the Board of Directors may at any time fill
vacancies in, change the membership of, or dissolve any such committee. Each
such committee shall act only in the intervals between meetings of the Board of
Directors, and shall be subject to the control and direction of the Board of
Directors. All actions by any such committee shall be subject to revision and
alteration by the Board of Directors provided that no rights of third persons
shall be adversely affected by any such revision or alteration.
Subject to the foregoing, each such committee and the members thereof shall
serve until the first meeting of the Board of Directors following the next
annual meeting of shareholders.
An act or authorization of an act by any such committee within the
authority of the committee provided for in the resolution designating such
committee shall be as effective for all purposes as the act or authorization of
the Board of Directors.
Any such committee may act by a majority of its members at a meeting. The
Chairman of each such committee shall be designated by the Board of Directors.
The Secretary or an Assistant Secretary of the Company shall act as Secretary of
each such committee unless another person shall be designated by the committee
to so act.
SECTION 7. ACTION BY UNANIMOUS WRITTEN CONSENT. Any action required or
permitted to be taken by the Board of Directors or any committee thereof may be
taken without a meeting if all members of the Board of Directors or the
committee consent in writing to the adoption of a resolution authorizing the
action. The resolution and the written consents thereto by the members of the
Board of Directors or committee shall be filed with the minutes of the
proceedings of the Board of Directors or committee.
SECTION 8. COMPENSATION. Each director of the Company who is not a
salaried officer or employee of the Company may receive a reasonable
compensation for his services as director as determined by the Board.
SECTION 9. REMOVAL. A Director may be removed from office as a Director,
but only for cause, by action of the shareholders or of the Board of Directors.
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SECTION 10. MEETINGS BY TELEPHONE PARTICIPATION. Any one or more members
of the Board of Directors or any committee thereof may participate in a meeting
of the Board of Directors or such committee by means of a conference telephone
or similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means shall
constitute presence in person at a meeting.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS AND QUALIFICATIONS. The officers of the Company shall
be a President, one or more Vice Presidents, any one or more of whom may be
designated an Executive Vice President, a Secretary, a Treasurer and such other
officers, subordinate officers and assistants as the Board of Directors may
determine. Any two offices, except the offices of President and Secretary, may
be held by the same person.
SECTION 2. ELECTION, TERM, AND COMPENSATION. All officers of the Company,
and the Chairman of the Board, shall be elected annually by the Board of
Directors at its annual meeting. Each such individual shall hold office until
the next annual meeting of the Board of Directors and until his successor has
been elected and qualified; but any such individual may be removed at any time
with or without cause, by the affirmative vote of a majority of the members of
the Board of Directors then in office. The Board of Directors shall determine
the compensation to be paid to the officers and to the Chairman of the Board.
SECTION 3. CHIEF EXECUTIVE OFFICER. Either the Chairman of the Board or
the President shall be designated by the Board of Directors as the chief
executive officer of the Company. The chief executive officer shall have general
charge, supervision and control of the business and affairs of the Company, and
of the officers and employees of the Company, all subject to such limitations as
the Board of Directors may from time to time prescribe.
SECTION 4. CHAIRMAN OF THE BOARD. The Board of Directors shall, at the
time of election of the Chairman of the Board, state whether the Chairman of the
Board shall be, in such capacity, an officer of the Company. Whether or not an
officer, the Chairman of the Board shall preside at all meetings of shareholders
and directors, and shall perform such other and further duties as may from time
to time be required of him by the Board of Directors. If an officer, the
authority of the Chairman of the Board to execute certificates for shares,
contracts, deeds, notes, mortgages, bonds, other obligations, and other
documents and papers in the name of the Company shall be co-ordinate with like
authority of the President.
SECTION 5. PRESIDENT. If the President is designated by the Board of
Directors as chief executive officer, he shall have the authority set forth in
Section 3. If the President is not designated as the chief executive officer, he
shall, unless otherwise provided by resolution of the Board of Directors, be the
chief operating officer of the Company, subject to the supervision and control
of the Chairman of the Board and subject to such limitations as the Board of
Directors may from time to time prescribe. The President shall preside at all
meetings of shareholders and directors in the absence of the Chairman of the
Board. The President shall perform such other and further duties as may from
time to time be required of him by the Board of Directors.
SECTION 6. OTHER OFFICERS. Subject to such limitations as the Board of
Directors may from time to time prescribe, all of the other officers of the
Company shall each have such powers and duties as generally pertain to their
respective offices, as well as such powers and duties as from time to time may
be conferred by the Board of Directors.
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ARTICLE V
CAPITAL STOCK
SECTION 1. CERTIFICATES FOR SHARES. The interest of each shareholder shall
be evidenced by a certificate or certificates for shares of stock of the Company
in such form as the Board of Directors may from time to time prescribe. The
certificates of stock shall be signed by the Chairman of the Board, President or
a Vice President and the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary and sealed with the seal of the Company, and shall be
countersigned and registered in such manner, if any, as the Board of Directors
may by resolution prescribe; provided that, in case such certificates are
required by such resolution to be signed by a transfer agent and a registrar,
the signatures of the Chairman of the Board or the President and of the
Treasurer or the Secretary, and the seal of the Company upon such certificates,
may be facsimiles, engraved or printed.
SECTION 2. TRANSFER OF SHARES. Shares in the capital stock of the Company
shall be transferred on the books of the Company, only by the holder in person
or by his attorney, upon surrender and cancellation of certificates for a like
number of shares with duly executed power to transfer endorsed thereon or
attached thereto.
SECTION 3. LOST OR DESTROYED STOCK CERTIFICATES. No certificate for shares
of stock of the Company shall be issued in place of any certificate alleged to
have been lost, stolen or destroyed, except upon production of such evidence of
the loss, theft or destruction, and upon indemnification of the Company and its
agents to such extent and in such manner as the Board of Directors may from time
to time prescribe.
ARTICLE VI
CHECKS, NOTES, ETC.
All checks and drafts on the Company's bank accounts and all bills of
exchange and promissory notes, and all acceptances, obligations and other
instruments for the payment of money, shall be signed by such officer or
officers, employee or employees, or agent or agents as shall be designated from
time to time either by (i) the Board of Directors or (ii) by any officer or
officers specifically authorized by the Board of Directors to make such
designations. The signatures of any or all of such signatories may be facsimile
signatures and printed, engraved, stamped or otherwise placed upon any such
instrument or writing.
ARTICLE VII
FISCAL
The fiscal year of the Company shall commence with the 1st day of January
and end with the last day of December in each year.
ARTICLE VIII
CORPORATE SEAL
The Board of Directors shall provide a suitable seal, containing the name
of the Company.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. INDEMNIFICATION RIGHTS. The Company shall indemnify any present
or future director or officer from and against any and all liabilities and
expenses to the broadest and maximum extent permitted by the New York Business
Corporation Law as the same presently exists or to the greater extent permitted
by any amendment hereafter adopted.
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SECTION 2. INDEMNIFICATION AGREEMENTS. The Company is hereby authorized to
enter into indemnification agreements with directors and officers, when and as
determined by the Board of Directors.
SECTION 3. NONEXCLUSIVITY. The indemnification and advancement of expenses
conferred by Section I of this Article IX shall not be deemed exclusive of any
other rights of indemnification or advancement of expenses which any director or
officer may have or hereafter acquire under any statute or which the Company may
confer by means of the Certificate of Incorporation, these-by-laws, a resolution
of stockholders or directors, or an agreement providing for indemnification or
advancement of expenses or otherwise.
ARTICLE X
ADOPTION, AMENDMENT OR REPEAL OF BY-LAWS
Subject to any provisions of the Certificate of Incorporation of the
Company requiring a greater proportion of votes, by-laws of the Company may be
adopted, amended or repealed at any meeting of shareholders at which a quorum is
present by vote of the holders of a majority of the shares voted thereon. Notice
of the proposed change shall be given in the notice of such meeting. The Board
of Directors may, by vote of two-thirds of the entire Board, adopt, amend or
repeal by-laws of the Company and may amend or repeal these By-Laws.
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AMENDMENT NO. 1
TO
RESTATED BY-LAWS
OF
THE DURIRON COMPANY, INC.
RESOLVED, that Section 1 and Section 2 of Article V of the By-Laws of the
Company shall be amended and restated in their entirety to read as follows:
Section 1. Certificates for Shares. The interest of each shareholder shall
either be uncertificated or evidenced by a certificate or certificates for
shares of stock of the Company in such form as the Board of Directors may
from time to time prescribe. The certificates of stock shall be signed by
the Chairman of the Board, President or a Vice President and the Treasurer
or an Assistant Treasurer or the Secretary or an Assistant Secretary and
sealed with the seal of the Company, and shall be countersigned and
registered in such manner, if any, as the Board of Directors may by
resolution prescribe; provided that, in case such certificates are required
by such resolution to be signed by a transfer agent and a registrar, the
signatures of the Chairman of the Board or the President and of the
Treasurer or the Secretary, and the seal of the Company upon such
certificates, may be facsimiles, engraved or printed.
Section 2. Transfer of Shares. Shares in the capital stock of the Company
shall be transferred on the books of the Company, either by the holder in
person or by his attorney, upon surrender and cancellation of certificates
for a like number of shares with duly executed power to transfer endorsed
thereon or attached thereto, or upon proper assignment in the case of
uncertificated shares.
FURTHER RESOLVED, that the remainder of the By-Laws shall remain unchanged and
in full force and effect.
<PAGE> 184
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Business Corporation Law of the State of New York ("BCL") provides that
if a derivative action is brought against a director or officer, the Registrant
may indemnify him or her against amounts paid in settlement and reasonable
expenses, including attorneys' fees incurred by him or her in connection with
the defense or settlement of such action, if such director or officer acted in
good faith for a purpose which he or she reasonably believed to be in the best
interests of the Registrant, except that no indemnification shall be made
without court approval in respect of a threatened action, or a pending action
settled or otherwise disposed of, or in respect of any matter as to which such
director or officer has been found liable to the Registrant. In a nonderivative
action or threatened action, the BCL provides that the Registrant may indemnify
a director or officer against judgments, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees incurred by him or her in
defending such action if such director or officer acted in good faith for a
purpose which he or she reasonably believed to be in the best interests of the
Registrant.
Under the BCL, a director or officer who is successful, either in a
derivative or nonderivative action, is entitled to indemnification as outlined
above. Under any other circumstances, such director or officer may be
indemnified only if certain conditions specified in the BCL are met. The
indemnification provisions of the BCL are not exclusive of any other rights to
which a director or officer seeking indemnification may be entitled pursuant to
the provisions of the certificate of incorporation or the by-laws of a
corporation or, when authorized by such certificate of incorporation or by-laws,
pursuant to a shareholders' resolution, a directors' resolution or an agreement
providing for such indemnification.
The above is a general summary of certain indemnity provisions of the BCL
and is subject, in all cases, to the specific and detailed provisions of
Sections 721-725 of the BCL.
Article IX, Section 1 of the Registrant's By-laws provide that the
Registrant shall indemnify any future director or officer from and against any
and all liabilities and expenses to the maximum extent permitted by the BCL as
the same presently exists or to the greater extent permitted by any amendment
hereafter adopted.
Section 726 of the BCL also contains provisions authorizing the Registrant
to obtain insurance on behalf of any such director and officer against
liabilities, whether or not the Registrant any would have the power to indemnify
against such liabilities. As permitted by law, the Registrant maintains and pays
premiums for directors' and officers' liability insurance policies.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
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2.1 Agreement and Plan of Merger (the "Merger Agreement") dated as of May 6, 1997,
among the Registrant, Bruin Acquisition Corp. and BW/IP, Inc. ("BW/IP") (included
as Annex I to the Joint Proxy Statement/Prospectus which is a part of this
Registration Statement on Form S-4).
2.2 Durco Stock Option Agreement dated as of May 6, 1997, between the Registrant, as
issuer, and BW/IP, as grantee (included as Annex II to the Joint Proxy
Statement/Prospectus which is a part of this Registration Statement on Form S-4).
2.3 BW/IP Stock Option Agreement dated as of May 6, 1997, between BW/IP, as issuer, and
the Registrant, as grantee (included as Annex III to the Joint Proxy
Statement/Prospectus which is a part of this Registration Statement on Form S-4).
3.1 Restated Certificate of Incorporation of the Registrant, as amended (included as
Annex VI to the Joint Proxy Statement/Prospectus which is a part of this
Registration Statement on Form S-4).
3.2 By-laws of the Registrant (included as Annex VII to the Joint Proxy
Statement/Prospectus which is a part of this Registration Statement on Form S-4).
</TABLE>
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4.1* Rights Agreement dated as of August 1, 1986, between the Registrant and BankOne,
N.A., as Rights Agent, which includes as Exhibit B thereto the Form of Rights
Certificate (incorporated by reference to Exhibit 1 to the Registrant's
Registration Statement on Form 8-A, filed with the Commission on August 13, 1986).
4.2* Amendment dated as of August 1, 1996, to the Rights Agreement dated as of August 1,
1986 (incorporated by reference to Exhibit 4.5 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996).
4.3 Except as set forth below, there are no instruments with respect to long-term debt
of the Registrant that involve securities authorized thereunder exceeding 10% of
the total assets of the Registrant and its subsidiaries on a consolidated basis.
The Registrant agrees to provide to the Securities and Exchange Commission, upon
request, a copy of instruments defining the rights of holders of long-term debt of
the Registrant and its subsidiaries.
(1)* Interest Rate and Currency Exchange Agreement between the Registrant and Barclays
Bank PLC dated November 17, 1992 in the amount of $25,000,000 (incorporated by
reference to Exhibit 4.9 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992 (the "1992 Form 10-K")).
(2)* Credit Facility between the Registrant and National City Bank, as Agent, in the
amount of $100,000,000, dated December 3, 1996 (incorporated by reference to
Exhibit 4.8 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 (the "1996 Form 10-K")).
(3)* Rate Swap Agreement in the amount of $25,000,000 between the Registrant and
National City Bank dated November 14, 1996 (incorporated by reference to Exhibit
4.9 to the Registrant's 1996 Form 10-K).
(4)* Rate Swap Agreement in the amount of $25,000,000 between the Registrant and Key
Bank National Association dated October 28, 1996 (incorporated by reference to
Exhibit 4.10 to the Registrant's 1996 Form 10-K).
5.1 Opinion of Cravath, Swaine & Moore regarding the legality of securities being
issued.
10.1* The Duriron Company, Inc. Incentive Compensation Plan (the "Incentive Plan") for
Senior Executives, as amended and restated effective January 1, 1994 (incorporated
by reference to Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993 (the "1993 Form 10-K")).
10.2* Amendment No. 1 to the Incentive Plan (incorporated by reference to Exhibit 10.2 to
the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995
(the "1995 Form 10-K")).
10.3* The Duriron Company, Inc. Supplemental Pension Plan for Salaried Employees
(incorporated by reference to Exhibit 10.4 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1987 (the "1987 Form 10-K")).
10.4* The Duriron Company, Inc. amended and restated Director Deferral Plan (incorporated
by reference to Attachment A to the Registrant's definitive 1996 Proxy Statement
filed on March 10, 1996).
10.5* Change in Control Agreement ("CIC") between The Duriron Company, Inc. and William
M. Jordan, Chairman, President and CEO (incorporated by reference to Exhibit 10.5
to the Registrant's 1996 Form 10-K).
10.6* Form of CIC Agreement between all other executive officers of the Company
(incorporated by reference to Exhibit 10.6 to the Registrant's 1996 Form 10-K).
10.7* The Duriron Company, Inc. First Master Benefit Trust Agreement dated October 1,
1987 (incorporated by reference to Exhibit 10.24 to the Registrant's 1987 Form
10-K).
10.8* Amendment #1 to the First Master Benefit Trust Agreement dated October 1, 1987
(incorporated by reference to Exhibit 10.24 to the Registrant's 1993 Form 10-K).
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10.9* Amendment #2 to the First Master Benefit Trust Agreement (incorporated by reference
to Exhibit 10.25 to the Registrant's 1993 Form 10-K).
10.10* The Duriron Company, Inc. Second Master Benefit Trust Agreement dated October 1,
1987 (incorporated by reference to Exhibit 10.12 to the Registrant's 1987 Form
10-K).
10.11* First Amendment to Second Master Benefit Trust Agreement (incorporated by reference
to Exhibit 10.26 to the Registrant's 1993 Form 10-K).
10.12* The Duriron Company, Inc. Long-Term Incentive Plan (the "Long-Term Plan"), as
amended and restated effective November 1, 1993 (incorporated by reference to
Exhibit 10.8 to the Registrant's 1993 Form 10-K).
10.13* Amendment No. 1 to the Long-Term Plan (incorporated by reference to Exhibit 10.13
to the Registrant's 1995 Form 10-K).
10.14* The Duriron Company, Inc. 1989 Stock Option Plan, as amended and restated effective
January 1, 1997 (incorporated by reference to Exhibit 10.14 to the Registrant's
1996 Form 10-K).
10.15* The Duriron Company, Inc. 1989 Restricted Stock Plan (the "Restricted Stock Plan"),
as amended and restated effective January 1, 1997 (incorporated by reference to
Exhibit 10.15 to the Registrant's 1996 Form 10-K).
10.16* The Duriron Company, Inc. Retirement Compensation Plan for Directors (the "Director
Retirement Plan") (incorporated by reference to Exhibit 10.15 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1988).
10.17* Amendment No. 1 to the Director Retirement Plan (incorporated by reference to
Exhibit 10.21 to the Registrant's 1995 Form 10-K).
10.18* The Registrant's Benefit Equalization Pension Plan (the "Equalization Plan")
(incorporated by reference to Exhibit 10.16 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1989).
10.19* Amendment #1 dated December 15, 1992 to the Equalization Plan (incorporated by
reference to Exhibit 10.18 to the Registrant's 1992 Form 10-K).
10.20* The Registrant's Equity Incentive Plan, as amended and restated effective July 21,
1995 (incorporated by reference to Exhibit 10.25 to the Registrant's 1995 Form
10-K).
10.21* Supplemental Pension Agreement between the Registrant and William M. Jordan dated
January 18, 1993 (incorporated by reference to Exhibit 10.15 to the Registrant's
1992 Form 10-K).
10.22* 1979 Stock Option Plan, as amended and restated April 23, 1991, and Amendment #1
thereto dated December 15, 1992 (incorporated by reference to Exhibit 10.17 to the
Registrant's 1992 Form 10-K).
10.23* Deferred Compensation Plan for Executives (incorporated by reference to Exhibit
10.19 to the Registrant's 1992 Form 10-K).
10.24* Executive Life Insurance Plan of The Duriron Company, Inc. (incorporated by
reference to Exhibit 10.29 to the Registrant's 1995 Form 10-K).
10.25* Executive Long-Term Disability Plan of The Duriron Company, Inc. (incorporated by
reference to Exhibit 10.30 to the Registrant's 1995 Form 10-K).
10.26* Consulting Agreement between James S. Ware and Durametallic Corporation dated April
21, 1991 (incorporated by reference to Exhibit 10.31 to the Registrant's 1995 Form
10-K).
10.27* Senior Executive Death Benefit Agreement between James S. Ware and Durametallic
Corporation dated April 12, 1991 (incorporated by reference to Exhibit 10.32 to the
Registrant's 1995 Form 10-K).
10.28* Executive Severance Agreement between James S. Ware and Durametallic Corporation
dated January 6, 1994 (incorporated by reference to Exhibit 10.33 to the
Registrant's 1995 Form 10-K).
10.29* Agreement between James S. Ware and the Registrant dated September 11, 1995
(incorporated by reference to Exhibit 10.34 to the Registrant's 1995 Form 10-K).
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10.30* Agreement and Plan of Merger among The Duriron Company, Inc., Wolverine Acquisition
Corporation and Durametallic Corporation, dated as of September 11, 1995
(incorporated by reference to Annex A to the Form S-4 Registration Statement filed
by the Registrant on September 11, 1995).
10.31* Split-Dollar Life Insurance Agreement between the Registrant and James S. and
Sheila D. Ware Irrevocable Trust II signed March 6, 1996 (incorporated by reference
to Exhibit 10.36 to the Registrant's quarterly report on Form 10-Q for the quarter
ended March 31, 1996).
10.32* Employee Protection Plan, as revised effective March 1, 1997 (which provides
certain severance benefits to employees upon a change of control of the Registrant)
(incorporated by reference to Exhibit 10.32 to the Registrant's 1996 Form 10-K).
21.1* Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 to the
Registrant's 1996 Form 10-K).
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Cravath, Swaine & Moore (contained in Exhibit 5.1).
23.4 Consent of Shearman & Sterling.
24.1 Powers of Attorney (included on the signature page of this Registration Statement
on Form S-4).
99.1 Consents of persons named to become directors of the Registrant who have not signed
this Registration Statement on Form S-4.
99.2 Form of Proxy for the Special Meeting of Stockholders of the Registrant.
99.3 Form of Proxy for the Special Meeting of Stockholders of BW/IP.
</TABLE>
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* Incorporated herein by reference.
(B) FINANCIAL STATEMENT SCHEDULES
None
ITEM 22. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes: (a) to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar amount of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated offering range may be
reflected in the form of prospectus filed with the SEC pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price present no
more than a 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
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<PAGE> 188
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(2) The undersigned Registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through the use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(3) The undersigned Registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(4) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(5) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(6) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by a registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(7) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 189
SIGNATURES OF DURCO INTERNATIONAL INC.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE
REQUIREMENTS FOR FILING THIS FORM S-4 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF DAYTON AND STATE OF OHIO, ON THE 18TH DAY OF JUNE,
1997.
Durco International Inc.
(Registrant)
By: /s/ WILLIAM M. JORDAN
------------------------------------
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below hereby constitutes and appoints William M. Jordan and Ronald F. Shuff, and
each of them singly, his or her true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all
amendments, including post-effective amendments, to this Registration Statement
(any of which amendments may make such changes and additions to this
Registration Statement as such attorneys-in-fact may deem necessary or
appropriate) and to file the same, with all exhibits thereto, and any and other
documents that may be required in connection therewith, granting unto said
attorneys-in-fact and agents full power and authority to be done in and about
the premises, as fully to all intents and purposes as he or she might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or their substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THE 18TH DAY OF JUNE, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ WILLIAM M. JORDAN Chairman of the Board, President and
- --------------------------------------------- Chief Executive Officer
William M. Jordan
/s/ HUGH K. COBLE Director
- ---------------------------------------------
Hugh K. Coble
Director
- ---------------------------------------------
Ernest Green
/s/ JOHN S. HADDICK Director
- ---------------------------------------------
John S. Haddick
/s/ DIANE C. HARRIS Director
- ---------------------------------------------
Diane C. Harris
/s/ RICHARD L. MOLEN Director
- ---------------------------------------------
Richard L. Molen
/s/ JAMES F. SCHORR Director
- ---------------------------------------------
James F. Schorr
</TABLE>
II-6
<PAGE> 190
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<C> <S>
/s/ KEVIN E. SHEEHAN Director
- ---------------------------------------------
Kevin E. Sheehan
/s/ R. ELTON WHITE Director
- ---------------------------------------------
R. Elton White
/s/ JAMES S. WARE Director
- ---------------------------------------------
James S. Ware
</TABLE>
II-7
<PAGE> 191
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
- ---------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger (the "Merger Agreement") dated as of May 6, 1997,
among the Registrant, Bruin Acquisition Corp. and BW/IP, Inc. ("BW/IP") (included
as Annex I to the Joint Proxy Statement/Prospectus which is a part of this
Registration Statement on Form S-4).
2.2 Durco Stock Option Agreement dated as of May 6, 1997, between the Registrant, as
issuer, and BW/IP, as grantee (included as Annex II to the Joint Proxy
Statement/Prospectus which is a part of this Registration Statement on Form S-4).
2.3 BW/IP Stock Option Agreement dated as of May 6, 1997, between BW/IP, as issuer, and
the Registrant, as grantee (included as Annex III to the Joint Proxy
Statement/Prospectus which is a part of this Registration Statement on Form S-4).
3.1 Restated Certificate of Incorporation of the Registrant, as amended (included as
Annex VI to the Joint Proxy Statement/Prospectus which is a part of this
Registration Statement on Form S-4).
3.2 By-laws of the Registrant (included as Annex VII to the Joint Proxy
Statement/Prospectus which is a part of this Registration Statement on Form S-4).
4.1* Rights Agreement dated as of August 1, 1986, between the Registrant and BankOne,
N.A., as Rights Agent, which includes as Exhibit B thereto the Form of Rights
Certificate (incorporated by reference to Exhibit 1 to the Registrant's
Registration Statement on Form 8-A, filed with the Commission on August 13, 1986).
4.2* Amendment dated as of August 1, 1996, to the Rights Agreement dated as of August 1,
1986 (incorporated by reference to Exhibit 4.5 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996).
4.3 Except as set forth below, there are no instruments with respect to long-term debt
of the Registrant that involve securities authorized thereunder exceeding 10% of
the total assets of the Registrant and its subsidiaries on a consolidated basis.
The Registrant agrees to provide to the Securities and Exchange Commission, upon
request, a copy of instruments defining the rights of holders of long-term debt of
the Registrant and its subsidiaries.
(1)* Interest Rate and Currency Exchange Agreement between the Registrant and Barclays
Bank PLC dated November 17, 1992 in the amount of $25,000,000 (incorporated by
reference to Exhibit 4.9 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992 (the "1992 Form 10-K")).
(2)* Credit Facility between the Registrant and National City Bank, as Agent, in the
amount of $100,000,000, dated December 3, 1996 (incorporated by reference to
Exhibit 4.8 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 (the "1996 Form 10-K")).
(3)* Rate Swap agreement in the amount of $25,000,000 between the Registrant and
National City Bank dated November 14, 1996 (incorporated by reference to Exhibit
4.9 to the Registrant's 1996 Form 10-K).
(4)* Rate Swap Agreement in the amount of $25,000,000 between the Registrant and Key
Bank National Association dated October 28, 1996 (incorporated by reference to
Exhibit 4.10 to the Registrant's 1996 Form 10-K).
5.1 Opinion of Cravath, Swaine & Moore regarding the legality of securities being
issued.
10.1* The Duriron Company, Inc. Incentive Compensation Plan (the "Incentive Plan") for
Senior Executives, as amended and restated effective January 1, 1994 (incorporated
by reference to Exhibit 10.1 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993 (the "1993 Form 10-K")).
10.2* Amendment No. 1 to the Incentive Plan (incorporated by reference to Exhibit 10.2 to
the Registrant's Annual Report on Form 10-K for the year ended December 31, 1995
(the "1995 Form 10-K")).
</TABLE>
II-8
<PAGE> 192
<TABLE>
<S> <C>
10.3* The Duriron Company, Inc. Supplemental Pension Plan for Salaried Employees
(incorporated by reference to Exhibit 10.4 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1987 (the "1987 Form 10-K")).
10.4* The Duriron Company, Inc. amended and restated Director Deferral Plan (incorporated
by reference to Attachment A to the Registrant's definitive 1996 Proxy Statement
filed on March 10, 1996).
10.5* Change in Control Agreement ("CIC") between The Duriron Company, Inc. and William
M. Jordan, Chairman, President and CEO (incorporated by reference to Exhibit 10.5
to the Registrant's 1996 Form 10-K).
10.6* Form of CIC Agreement between all other executive officers of the Company
(incorporated by reference to Exhibit 10.6 to the Registrant's 1996 Form 10-K).
10.7* The Duriron Company, Inc. First Master Benefit Trust Agreement dated October 1,
1987 (incorporated by reference to Exhibit 10.24 to the Registrant's 1987 Form
10-K).
10.8* Amendment #1 to the First Master Benefit Trust Agreement dated October 1, 1987
(incorporated by reference to Exhibit 10.24 to the Registrant's 1993 Form 10-K).
10.9* Amendment #2 to the First Master Benefit Trust Agreement (incorporated by reference
to Exhibit 10.25 to the Registrant's 1993 Form 10-K).
10.10* The Duriron Company, Inc. Second Master Benefit Trust Agreement dated October 1,
1987 (incorporated by reference to Exhibit 10.12 to the Registrant's 1987 Form
10-K).
10.11* First Amendment to Second Master Benefit Trust Agreement (incorporated by reference
to Exhibit 10.26 to the Registrant's 1993 Form 10-K).
10.12* The Duriron Company, Inc. Long-Term Incentive Plan (the "Long-Term Plan"), as
amended and restated effective November 1, 1993 (incorporated by reference to
Exhibit 10.8 to the Registrant's 1993 Form 10-K).
10.13* Amendment No. 1 to the Long-Term Plan (incorporated by reference to Exhibit 10.13
to the Registrant's 1995 Form 10-K).
10.14* The Duriron Company, Inc. 1989 Stock Option Plan, as amended and restated effective
January 1, 1997 (incorporated by reference to Exhibit 10.14 to the Registrant's
1996 Form 10-K).
10.15* The Duriron Company, Inc. 1989 Restricted Stock Plan (the "Restricted Stock Plan"),
as amended and restated effective January 1, 1997 (incorporated by reference to
Exhibit 10.15 to the Registrant's 1996 Form 10-K).
10.16* The Duriron Company, Inc. Retirement Compensation Plan for Directors (the "Director
Retirement Plan") (incorporated by reference to Exhibit 10.15 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1988).
10.17* Amendment No. 1 to the Director Retirement Plan (incorporated by reference to
Exhibit 10.21 to the Registrant's 1995 Form 10-K).
10.18* The Registrant's Benefit Equalization Pension Plan (the "Equalization Plan")
(incorporated by reference to Exhibit 10.16 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1989).
10.19* Amendment #1 dated December 15, 1992 to the Equalization Plan (incorporated by
reference to Exhibit 10.18 to the Registrant's 1992 Form 10-K).
10.20* The Registrant's Equity Incentive Plan, as amended and restated effective July 21,
1995 (incorporated by reference to Exhibit 10.25 to the Registrant's 1995 Form
10-K).
10.21* Supplemental Pension Agreement between the Registrant and William M. Jordan dated
January 18, 1993 (incorporated by reference to Exhibit 10.15 to the Registrant's
1992 Form 10-K).
10.22* 1979 Stock Option Plan, as amended and restated April 23, 1991, and Amendment #1
thereto dated December 15, 1992 (incorporated by reference to Exhibit 10.17 to the
Registrant's 1992 Form 10-K).
</TABLE>
II-9
<PAGE> 193
<TABLE>
<S> <C>
10.23* Deferred Compensation Plan for Executives (incorporated by reference to Exhibit
10.19 to the Registrant's 1992 Form 10-K).
10.24* Executive Life Insurance Plan of The Duriron Company, Inc. (incorporated by
reference to Exhibit 10.29 to the Registrant's 1995 Form 10-K).
10.25* Executive Long-Term Disability Plan of The Duriron Company, Inc. (incorporated by
reference to Exhibit 10.30 to the Registrant's 1995 Form 10-K).
10.26* Consulting Agreement between James S. Ware and Durametallic Corporation dated April
21, 1991 (incorporated by reference to Exhibit 10.31 to the Registrant's 1995 Form
10-K).
10.27* Senior Executive Death Benefit Agreement between James S. Ware and Durametallic
Corporation dated April 12, 1991 (incorporated by reference to Exhibit 10.32 to the
Registrant's 1995 10-K).
10.28* Executive Severance Agreement between James S. Ware and Durametallic Corporation
dated January 6, 1994 (incorporated by reference to Exhibit 10.33 to the
Registrant's 1995 Form 10-K).
10.29* Agreement between James S. Ware and the Registrant dated September 11, 1995
(incorporated by reference to Exhibit 10.34 to the Registrant's 1995 Form 10-K).
10.30* Agreement and Plan of Merger among The Duriron Company, Inc., Wolverine Acquisition
Corporation and Durametallic Corporation, dated as of September 11, 1995
(incorporated by reference to Annex A to the Form S-4 Registration Statement filed
by the Registrant on September 11, 1995).
10.31* Split-Dollar Life Insurance Agreement between the Registrant and James S. and
Sheila D. Ware Irrevocable Trust II signed March 6, 1996 (incorporated by reference
to Exhibit 10.36 to the Registrant's quarterly report on Form 10-Q for the quarter
ended March 31, 1996).
10.32* Employee Protection Plan, as revised effective March 1, 1997 (which provides
certain severance benefits to employees upon a change of control of the Registrant)
(incorporated by reference to Exhibit 10.32 to the Registrant's 1996 Form 10-K).
21.1* Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 to the
Registrant's 1996 Form 10-K).
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Cravath, Swaine & Moore (contained in Exhibit 5.1).
23.4 Consent of Shearman & Sterling.
24.1 Powers of Attorney (included on the signature page of this Registration Statement
on Form S-4).
99.1 Consents of persons named to become directors of the Registrant who have not signed
this Registration Statement on Form S-4.
99.2 Form of Proxy for the Special Meeting of Stockholders of the Registrant.
99.3 Form of Proxy for the Special Meeting of Stockholders of BW/IP.
</TABLE>
- ---------------
* Incorporated herein by reference.
II-10
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF CRAVATH, SWAINE & MOORE]
[NEW YORK OFFICE]
June 18, 1997
DURCO INTERNATIONAL INC.
BW/IP, INC.
Dear Ladies & Gentlemen:
We have acted as counsel for Durco International Inc., a New York
corporation ("Durco"), in connection with the Agreement and Plan of Merger dated
as of May 6, 1997, (the "Merger Agreement"), by and among Durco, Bruin
Acquisition Corp., a Delaware corporation and wholly owned subsidiary of Durco
("Bruin"), and BW/IP, Inc., a Delaware corporation ("BW/IP"). The Merger
Agreement provides for, among other things, the merger of Bruin with and into
BW/IP (the "Merger"), with BW/IP surviving as a wholly owned subsidiary of
Durco. Pursuant to the Merger Agreement, each outstanding share of common stock,
par value $0.01 per share, of BW/IP will be converted, upon the effectiveness of
the Merger (the "Effective Time"), into the right to receive 0.6968 shares of
common stock, par value $1.25 per share, of Durco ("Durco Common Stock"). The
shares of Durco Common Stock that are to be issued at the Effective Time in
connection with the Merger are referred to herein as the "Shares".
We have examined such corporate records, certificates and other documents
as we have considered necessary or appropriate for the purposes of this opinion.
In such examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
originals of all documents submitted to us as copies. We have relied, to the
extent that we deemed such reliance proper, upon certificates of public
officials with respect to the accuracy of material factual matters contained
therein which were not independently established.
Based on such examination, we are of opinion that the Shares, when issued
at the Effective Time in accordance with the Merger Agreement, will be legally
issued, fully paid and nonassessable.
We hereby consent to the inclusion of this opinion as an exhibit to the
registration statement on Form S-4 filed with the Securities and Exchange
Commission with respect to the Merger and the issuance of the Shares in
connection therewith and consent to the reference to this opinion under the
heading "Legal Matters" in the Joint Proxy Statement/Prospectus included
therein.
Very truly yours,
/s/ CRAVATH, SWAINE & MOORE
--------------------------------------
Durco International Inc.
3100 Research Boulevard
Dayton, Ohio 45420
294A
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Durco
International, Inc. of our report dated January 28, 1997, which appears on page
34 of BW/IP, Inc.'s 1996 Annual Report to Shareholders, which is incorporated by
reference in its Annual Report on Form 10-K for the year ended December 31,
1996. We also consent to the incorporation by reference of our report on the
Financial Statement Schedules, which appear on page F-2 of such Annual Report on
Form 10-K. We also consent to the reference to us under the heading "Experts" in
such Prospectus.
PRICE WATERHOUSE LLP
Los Angeles, California
June 17, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 5, 1997, incorporated by reference in the
Joint Proxy Statement/Prospectus of Durco International Inc. and BW/IP, Inc.
that is made part of the Registration Statement on Form S-4 for the registration
of securities of Durco International Inc.
ERNST & YOUNG LLP
Dayton, Ohio
June 17, 1997
<PAGE> 1
EXHIBIT 23.4
[SHEARMAN & STERLING LETTERHEAD]
(212) 848-8966
June 18, 1997
Board of Directors
BW/IP Inc.
200 Oceangate Boulevard
Suite 900
Long Beach, California 90802
Board of Directors
Durco International, Inc.
3100 Research Boulevard
Dayton, Ohio 45420
Ladies and Gentlemen:
We consent to the references to our firm under the captions "THE MERGER
Federal Income Tax Considerations" and "LEGAL MATTERS" in the Joint Proxy
Statement/Prospectus which is a part of the Registration Statement of Durco
International Inc. on Form S-4 dated June 19, 1997. In giving such consent, we
do not thereby admit that we come within the category of persons whose consent
is required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
SHEARMAN & STERLING
By: /S/ CLARE O'BRIEN
_____________________________
Clare O'Brien
<PAGE> 1
EXHIBIT 99.1(a)
CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, William C. Rusnack, hereby consent to be named as a person about to
become a director of Flowserve Corporation in the Registration Statement on Form
S-4 of Durco International, Inc. dated June 19, 1997.
Dated: June 18, 1997 /s/ WILLIAM C. RUSNACK
----------------------
William C. Rusnack
<PAGE> 2
EXHIBIT 99.1(b)
CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, Michael F. Johnston, hereby consent to be named as a person about to
become a director of Flowserve Corporation in the Registration Statement on Form
S-4 of Durco International, Inc. dated June 19, 1997.
Dated: June 17, 1997 /s/ MICHAEL F. JOHNSTON
-----------------------
Michael F. Johnston
<PAGE> 3
EXHIBIT 99.1(c)
CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, James O. Rollans, hereby consent to be named as a person about to
become a director of Flowserve Corporation in the Registration Statement on Form
S-4 of Durco International, Inc. dated June 19, 1997.
Dated: June 18, 1997 /s/ JAMES O. ROLLANS
--------------------
James O. Rollans
<PAGE> 4
EXHIBIT 99.1(d)
CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as
amended, I, Bernard G. Rethore, hereby consent to be named as a person about to
become a director of Flowserve Corporation in the Registration Statement on Form
S-4 of Durco International, Inc. dated June 19, 1997.
Dated: June 17, 1997 /s/ BERNARD G. RETHORE
----------------------
Bernard G. Rethore
<PAGE> 1
Exhibit 99.2
DETACH CARD
- --------------------------------------------------------------------------------
DURCO INTERNATIONAL INC.
3100 RESEARCH BOULEVARD
DAYTON, OHIO 45420
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DURCO
INTERNATIONAL INC.
The undersigned hereby appoints William M. Jordan and Hugh K. Coble, and each of
them with full power to act without the other, as proxies with full power of
substitution, to represent and to vote on behalf of the undersigned all of the
shares of common stock of Durco International Inc. ("Durco") which the
undersigned is entitled in any capacity to vote if personally present at the
Special Meeting of Stockholders of Durco to be held on July 22, 1997 at 2:00
P.M., local time, and at any and all adjournments or postponements thereof, upon
the proposals listed on the reverse side of this Proxy and more fully described
in the Notice of Special Meeting of Stockholders dated June 19, 1997 and the
Durco and BW/IP, Inc. ("BW/IP") Joint Proxy Statement/Prospectus dated June 19,
1997 and upon all matters presented at the Special Meeting but which were not
known to the Board of Directors at a reasonable time before the solicitation of
this proxy.
THIS PROXY REVOKES ALL PRIOR PROXIES GIVEN BY THE UNDERSIGNED AND, WHEN PROPERLY
EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED
STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR EACH
PROPOSAL SET FORTH ON THE REVERSE HEREOF AND IN THE DISCRETION OF THE PROXIES ON
ALL OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING.
IMPORTANT -- THIS PROXY MUST BE SIGNED AND DATED ON THE REVERSE SIDE.
(CONTINUED ON REVERSE SIDE)
<PAGE> 2
DETACH CARD
- --------------------------------------------------------------------------------
PROXY NO. SHARES
THE DURCO BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
FOR EACH OF THE FOLLOWING PROPOSALS:
1. To approve the issuance of shares of Durco common stock in accordance with
the terms of the Agreement and Plan of Merger, dated as of May 6, 1997, by
and among Durco, Bruin Acquisition Corp. and BW/IP.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. To adopt an amendment to Durco's Restated Certificate of Incorporation, as
amended, to change the corporate name to Flowserve Corporation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To adopt an amendment to Durco's Restated Certificate of Incorporation, as
amended, to increase the authorized number of shares of Durco common stock to
120,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IF YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE CHECK THIS BOX [ ]
Dated , 1997
Please sign name exactly as
imprinted (do not print). If
shares are held jointly, EACH
holder should sign.
Executors, administrators,
trustees, guardians and
others signing in a
representative capacity
should indicate the capacity
in which they sign. An
authorized officer may sign
on behalf of a corporation
and should indicate the name
of the corporation and his or
her capacity.
-----------------------------
Signature
-----------------------------
Signature if held jointly
Please indicate any changes
in address below.
PLEASE MARK, DATE AND RETURN THIS PROXY PROMPTLY.
<PAGE> 1
EXHIBIT 99.3
BW/IP, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 22, 1997.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BW/IP, INC.
200 OCEANGATE BOULEVARD, SUITE 200, LONG BEACH, CALIFORNIA 90802
The undersigned hereby appoints John D. Hannesson, John M. Nanos and
M.J. Young, and each or any of them, as proxy or proxies of the undersigned,
with full power of substitution, to represent the undersigned and to vote all
of the shares of the Common Stock of BW/IP, Inc., which the undersigned is
entitled in any capacity to vote if personally present at the Special Meeting
of Stockholders of BW/IP, Inc. to be held at The Long Beach Hilton Hotel, Two
World Trade Center, Long Beach, California, on July 22, 1997, at 11:00 a.m.
local time, and at any and all adjournments or postponements thereof, with
respect to all matters set forth in the Joint Proxy Statement/Prospectus dated
June 19, 1997, and all supplements and amendments thereto and, in their
discretion, upon all matters incidental to the conduct of the Special Meeting
and all matters presented at the meeting but which are not known to the Board
of Directors at the time of solicitation of this proxy. The undersigned hereby
revokes any proxy or proxies heretofore given by the undersigned to vote at
said meeting or any adjournment thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
1. PROPOSAL TO ADOPT THE AGREEMENT AND PLAN OF MERGER, DATED AS OF MAY 6,
1997, AMONG BW/IP, INC., DURCO INTERNATIONAL INC., AND BRUIN
ACQUISITION CORP.
FOR / / AGAINST / / ABSTAIN / /
(Continued, and to be signed and dated, on other side.)
<PAGE> 2
Shares represented by all properly executed proxies will be voted in
accordance with instructions appearing on the proxy and at the discretion of the
proxy holders as to any other matters that may properly come before the Special
Meeting of Stockholders. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROXIES WILL
BE VOTED FOR PROPOSAL 1 AND AT THE DISCRETION OF THE PROXY HOLDERS AS TO ANY
OTHER MATTER THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING OF STOCKHOLDERS.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and of the Joint Proxy Statement/Prospectus (with all enclosures
and attachments) dated June 19, 1997, relating to the Special Meeting.
Please mark, sign, date and return this proxy in the enclosed white
postage prepaid envelope as soon as possible, even if you plan to attend the
Special Meeting.
Dated:__________________, 1997
______________________________
______________________________
Signature(s)
NOTE: Please sign this proxy exactly as
your name appears hereon. Joint owners
should each sign personally. Attorneys,
administrators, trustees, guardians and
others signing in a representative
capacity should indicate this capacity. An
authorized officer may sign on behalf of a
corporation and should indicate the name
of the corporation and his or her
capacity.
