<PAGE>
REGISTRATION NO. 33-58133
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
KUHLMAN CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3612 58-2058047
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of Classification Code Number) Identification No.)
incorporation or
organization)
</TABLE>
1 SKIDAWAY VILLAGE WALK, SUITE 201
SAVANNAH, GEORGIA 31411
(912) 598-7809
(Address, including ZIP Code, and telephone number, including
area code, of registrant's principal executive offices)
RICHARD A. WALKER, ESQ.
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
1 SKIDAWAY VILLAGE WALK, SUITE 201
SAVANNAH, GEORGIA 31411
(912) 598-7809
(Name, address, including ZIP Code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
STEPHEN A. LANDSMAN, ESQ. THOMAS A. COLE, ESQ.
RUDNICK & WOLFE SIDLEY & AUSTIN
203 NORTH LASALLE STREET, SUITE 1800 ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60601 CHICAGO, ILLINOIS 60603
(312) 368-4050 (312) 853-7473
(312) 236-7516 (TELECOPIER) (312) 853-7036 (TELECOPIER)
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, APRIL 20, 1995
PRELIMINARY COPY
[LOGO]
KUHLMAN CORPORATION
1 SKIDAWAY VILLAGE WALK, SUITE 201
SAVANNAH, GEORGIA 31411
____________ , 1995
Dear Stockholder:
You are cordially invited to attend the annual meeting of stockholders of
Kuhlman Corporation ("Kuhlman") to be held at the Hyatt Regency Hotel, 2 West
Bay Street, Savannah, Georgia 31401 on May 31, 1995, at 9:30 a.m., local time
("Kuhlman Annual Meeting").
At the Kuhlman Annual Meeting, you will be asked to approve the issuance of
shares of common stock of Kuhlman in connection with the merger ("Merger") of a
wholly-owned subsidiary of Kuhlman with Schwitzer, Inc. ("Schwitzer"). As a
result of the Merger, Schwitzer will become a wholly-owned subsidiary of
Kuhlman. In the Merger, each outstanding share of common stock of Schwitzer will
be converted into 0.9615 ("Exchange Ratio") share of common stock of Kuhlman.
Details of the proposed Merger and information regarding Kuhlman and
Schwitzer are contained in the attached Joint Proxy Statement/Prospectus ("Proxy
Statement/Prospectus"), which you are encouraged to read carefully.
Your Board of Directors believes that the proposed combination of Schwitzer
with Kuhlman through the Merger will benefit Kuhlman by making the resulting
company better equipped to meet the competitive challenges that it is certain to
face in the future.
YOUR BOARD OF DIRECTORS HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE MERGER AND HAS RECEIVED AND CONSIDERED THE WRITTEN OPINION OF
THE CHASE MANHATTAN BANK, N.A. ("CHASE MANHATTAN") DATED FEBRUARY 25, 1995
(WHICH OPINION HAS BEEN RECONFIRMED AS OF THE DATE OF THE PROXY STATEMENT/
PROSPECTUS) TO THE EFFECT THAT, AS OF THE DATE OF SUCH OPINION AND BASED UPON
AND SUBJECT TO CERTAIN MATTERS STATED THEREIN, THE EXCHANGE RATIO WAS FAIR TO
KUHLMAN FROM A FINANCIAL POINT OF VIEW. A COPY OF THE WRITTEN OPINION OF CHASE
MANHATTAN DATED THE DATE OF THE PROXY STATEMENT/PROSPECTUS IS INCLUDED AS
APPENDIX B THERETO AND SHOULD BE READ CAREFULLY IN ITS ENTIRETY. YOUR BOARD OF
DIRECTORS HAS APPROVED THE MERGER AND BELIEVES THE MERGER IS IN THE BEST
INTERESTS OF KUHLMAN AND ITS STOCKHOLDERS, AND RECOMMENDS THAT ALL STOCKHOLDERS
VOTE FOR APPROVAL OF THE ISSUANCE OF SHARES OF COMMON STOCK OF KUHLMAN IN
CONNECTION WITH THE MERGER.
The Kuhlman Annual Meeting will also be held for the following purposes (i)
to elect four directors; (ii) to vote on a proposed amendment to the Certificate
of Incorporation of Kuhlman to increase the number of authorized shares of
common stock of Kuhlman from 10,000,000 to 20,000,000 and to eliminate the
designation of shares of Preferred Stock as Junior Participating Preferred
Stock, Series A, (iii) to vote on a proposed 1994 Stock Option Plan; and (iv) to
ratify the appointment of Arthur Andersen LLP as independent auditors to conduct
the annual examination of the financial statements of Kuhlman and its
subsidiaries for the current year.
YOUR BOARD OF DIRECTORS HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF EACH OF THE PROPOSALS IN THE FOREGOING PARAGRAPH. YOUR BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED EACH SUCH PROPOSAL AND BELIEVES EACH IS IN
THE BEST INTERESTS OF KUHLMAN AND ITS STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS
THAT ALL STOCKHOLDERS VOTE FOR APPROVAL OF THE PROPOSALS.
Under the rules of the New York Stock Exchange, approval of the issuance of
Kuhlman Common Stock in the Merger requires the affirmative vote of a majority
of the votes cast on this proposal, provided that the total vote cast with
respect thereto represents a majority of the Kuhlman Common Stock entitled to
vote. Accordingly, whether or not you plan to attend the Kuhlman Annual Meeting,
please complete, sign and date the accompanying proxy card and return it in the
enclosed prepaid envelope. You may revoke your proxy in the manner described in
the accompanying Proxy Statement/ Prospectus at any time before it has been
voted at the Kuhlman Annual Meeting. If you attend the Kuhlman Annual Meeting,
you may vote in person even if you have previously returned your proxy card.
Your prompt cooperation will be greatly appreciated.
Sincerely,
Robert S. Jepson, Jr.
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
<PAGE>
PRELIMINARY COPY
[LOGO]
SCHWITZER, INC.
HIGHWAY 191, BREVARD ROAD
P.O. BOX 15075
ASHEVILLE, NC 28813
____________ , 1995
To the Stockholders of Schwitzer, Inc.:
You are cordially invited to attend the annual meeting of stockholders of
Schwitzer, Inc. ("Schwitzer") to be held at the Northbrook Hilton Hotel, 2855
North Milwaukee Avenue, Northbrook, Illinois 60062, on May 31, 1995, at 9:30
a.m., local time ("Schwitzer Annual Meeting").
At the Schwitzer Annual Meeting, you will be asked to adopt an Agreement and
Plan of Merger that provides for the merger ("Merger") of a wholly-owned
subsidiary of Kuhlman Corporation ("Kuhlman") with and into Schwitzer. As a
result of the Merger, Schwitzer will become a wholly-owned subsidiary of
Kuhlman. In the Merger, each outstanding share of common stock of Schwitzer will
be converted into 0.9615 share of common stock of Kuhlman.
Details of the proposed Merger and information regarding Kuhlman and
Schwitzer are contained in the attached Joint Proxy Statement/Prospectus ("Proxy
Statement/Prospectus"), which you are encouraged to read carefully.
YOUR BOARD OF DIRECTORS HAS CAREFULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE MERGER AND HAS RECEIVED AND CONSIDERED THE OPINION OF J. P.
MORGAN SECURITIES INC. DATED FEBRUARY 25, 1995 (WHICH OPINION HAS BEEN
RECONFIRMED AS OF THE DATE OF THE PROXY STATEMENT/PROSPECTUS) TO THE EFFECT THAT
THE CONSIDERATION TO BE RECEIVED BY THE STOCKHOLDERS OF SCHWITZER PURSUANT TO
THE MERGER IS FAIR TO SUCH HOLDERS FROM A FINANCIAL POINT OF VIEW. A COPY OF THE
WRITTEN OPINION OF J. P. MORGAN SECURITIES INC. DATED THE DATE OF THE PROXY
STATEMENT/PROSPECTUS IS INCLUDED AS APPENDIX C THERETO AND SHOULD BE READ
CAREFULLY IN ITS ENTIRETY. YOUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AND
BELIEVES THE MERGER IS IN THE BEST INTERESTS OF SCHWITZER AND ITS STOCKHOLDERS,
AND RECOMMENDS THAT ALL STOCKHOLDERS VOTE FOR ADOPTION OF THE MERGER AGREEMENT.
Pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation and Bylaws of Schwitzer, the Agreement and Plan of Merger must be
adopted by the affirmative vote of the holders of a majority of the outstanding
shares of Schwitzer common stock. Accordingly, whether or not you plan to attend
the Schwitzer Annual Meeting, please complete, sign and date the accompanying
proxy card and return it in the enclosed prepaid envelope. You may revoke your
proxy in the manner described in the accompanying Proxy Statement/Prospectus at
any time before it has been voted at the Schwitzer Annual Meeting. If you attend
the Schwitzer Annual Meeting, you may vote in person even if you have previously
returned your proxy card. Your prompt cooperation will be greatly appreciated.
The Schwitzer Annual Meeting will also be held for the following purposes:
(i) to elect three directors and (ii) to ratify the appointment of Arthur
Andersen LLP as independent auditors to audit the financial statements of
Schwitzer and its subsidiaries for the current year. YOUR BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR APPROVAL OF THESE PROPOSALS.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. IMMEDIATELY AFTER
THE MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE MECHANICS
OF EXCHANGING YOUR EXISTING SCHWITZER STOCK CERTIFICATES FOR NEW CERTIFICATES
REPRESENTING SHARES OF COMMON STOCK OF KUHLMAN.
Sincerely,
Gary G. Dillon
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE>
KUHLMAN CORPORATION
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------
NOTICE IS HEREBY GIVEN that the annual meeting of stockholders ("Kuhlman
Annual Meeting") of Kuhlman Corporation ("Kuhlman") will be held at the Hyatt
Regency Hotel, 2 West Bay Street, Savannah, Georgia 31401 on May 31, 1995, at
9:30 a.m., local time, for the following purposes:
1. To elect four directors;
2. To consider and vote on the issuance of shares of common stock of Kuhlman in
the merger of Spinner Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Kuhlman, with and into Schwitzer, Inc., a
Delaware corporation;
3. To consider and vote on an amendment to the Certificate of Incorporation of
Kuhlman to (a) increase the number of authorized shares of common stock, par
value $1.00 per share, from 10,000,000 to 20,000,000 and (b) to eliminate
the designation of shares of Preferred Stock as Junior Participating
Preferred Stock, Series A;
4. To consider and vote on the 1994 Stock Option Plan;
5. To ratify the appointment of Arthur Andersen LLP as the independent auditors
for Kuhlman and its subsidiaries for the current year; and
6. To transact such other business as may properly come before the meeting.
Only stockholders of record at the close of business on April 18, 1995 will
be entitled to notice of and to vote at the Kuhlman Annual Meeting.
By Order of the Board of Directors,
Richard A. Walker
SECRETARY
Savannah, Georgia
, 1995
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PLEASE DATE, SIGN AND RETURN YOUR KUHLMAN PROXY PROMPTLY IN THE ENCLOSED,
SELF-ADDRESSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES
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<PAGE>
SCHWITZER, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
------------------------
NOTICE IS HEREBY GIVEN that an annual meeting of stockholders ("Schwitzer
Annual Meeting") of Schwitzer, Inc. ("Schwitzer") will be held at the Northbrook
Hilton Hotel, 2855 North Milwaukee Avenue, Northbrook, Illinois 60062, on May
31, 1995, at 9:30 a.m., local time, for the following purposes:
1. To elect three directors;
2. To consider and vote on the adoption of an Agreement and Plan of Merger
providing for the merger of Spinner Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Kuhlman Corporation, with and
into Schwitzer.
3. To ratify the appointment of Arthur Andersen LLP as independent auditors for
Schwitzer for the current year; and
4. To transact such other business as may properly come before the meeting.
Only stockholders of record at the close of business on April 18, 1995 will
be entitled to notice of and to vote at the Schwitzer Annual Meeting.
By Order of the Board of Directors,
Richard H. Prange
SECRETARY
Asheville, North Carolina
, 1995
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PLEASE DATE, SIGN AND RETURN YOUR SCHWITZER PROXY PROMPTLY IN THE ENCLOSED,
SELF-ADDRESSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES
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<PAGE>
KUHLMAN CORPORATION
AND
SCHWITZER, INC.
JOINT PROXY STATEMENT
---------------------
KUHLMAN CORPORATION
PROSPECTUS
This Joint Proxy Statement/Prospectus ("Proxy Statement/Prospectus") is
being furnished to the stockholders of Kuhlman Corporation, a Delaware
corporation ("Kuhlman"), in connection with the solicitation of proxies on
behalf of the Board of Directors of Kuhlman ("Kuhlman Board of Directors") for
use at the annual meeting of Kuhlman stockholders to be held on May 31, 1995 and
at any adjournment thereof ("Kuhlman Annual Meeting"). At the Kuhlman Annual
Meeting, Kuhlman stockholders will be asked to approve the issuance of shares of
common stock of Kuhlman, par value $1.00 per share ("Kuhlman Common Stock"), in
connection with the merger ("Merger") of Spinner Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Kuhlman ("Spinner"), with and into
Schwitzer, Inc., a Delaware corporation ("Schwitzer"), pursuant to an Agreement
and Plan of Merger dated as of February 25, 1995 among Kuhlman, Schwitzer and
Spinner ("Merger Agreement"). A copy of the Merger Agreement (and the related
Certificate of Merger) is attached hereto as Appendix A. At the Kuhlman Annual
Meeting, Kuhlman stockholders also will be asked to (i) elect four directors;
(ii) approve an amendment to the Certificate of Incorporation of Kuhlman
increasing the number of authorized shares of Kuhlman Common Stock from
10,000,000 to 20,000,000 and to eliminate the designation of shares of Preferred
Stock as Junior Participating Preferred Stock, Series A ("Kuhlman Amendment");
(iii) approve the Kuhlman Corporation 1994 Stock Option Plan ("Kuhlman 1994
Option Plan"); and (iv) ratify the appointment of Arthur Andersen LLP as the
independent auditors to conduct the annual examination of the financial
statements of Kuhlman and its subsidiaries for the current year.
This Proxy Statement/Prospectus also is being furnished to the stockholders
of Schwitzer in connection with the solicitation of proxies on behalf of the
Board of Directors of Schwitzer ("Schwitzer Board of Directors") for use at the
annual meeting of Schwitzer stockholders ("Schwitzer Annual Meeting" and,
together with the Kuhlman Annual Meeting, the "Meetings of Stockholders") to be
held on May 31, 1995 and at any adjournment(s) thereof. At the Schwitzer Annual
Meeting, Schwitzer stockholders will be asked to (i) adopt the Merger Agreement;
(ii) elect three directors; and (iii) ratify the appointment of Arthur Andersen
LLP as the independent auditors for Schwitzer and its subsidiaries for the
current year.
This Proxy Statement/Prospectus also constitutes a prospectus of Kuhlman
relating to the respective shares of Kuhlman Common Stock issuable to the
stockholders of Schwitzer upon consummation of the Merger. On ,
1995, the last reported sales price of Kuhlman Common Stock on the New York
Stock Exchange Composite Tape was $ .
This Proxy Statement/Prospectus and the forms of proxy for use at the
Meetings of Stockholders are first being mailed to stockholders of Kuhlman and
stockholders of Schwitzer on or about April , 1995.
------------------------
THE SECURITIES TO WHICH THIS PROXY STATEMENT/PROSPECTUS RELATES HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS , 1995.
1
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AVAILABLE INFORMATION
Kuhlman has filed a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended ("Securities Act"),
with the Securities and Exchange Commission (the "Commission") covering the
shares of Kuhlman Common Stock to be issued in connection with the Merger. As
permitted by the rules and regulations of the Commission, this Proxy Statement/
Prospectus omits certain information, exhibits and undertakings contained in the
Registration Statement. For further information pertaining to the securities
offered hereby, reference is made to the Registration Statement, including the
exhibits filed as a part thereof.
Kuhlman and Schwitzer are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance
therewith, file reports, proxy statements and other information with the
Commission. Reports, proxy statements and other information filed by Kuhlman and
Schwitzer can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
and at its Regional Offices located at Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661; and Seven World Trade Center, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Kuhlman Common Stock and Schwitzer Common Stock are listed on the New York Stock
Exchange ("NYSE") and such reports, proxy statements and other information
concerning Kuhlman and Schwitzer can be inspected at the offices of the NYSE, 20
Broad Street, New York, New York 10005.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS, OR INCORPORATED
IN IT BY REFERENCE, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROXY STATEMENT/PROSPECTUS,
OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, OR SOLICITATION OF AN OFFER, OR PROXY
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF THE SECURITIES OFFERED PURSUANT TO
THIS PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF KUHLMAN, SCHWITZER
OR SPINNER SINCE THE DATE OF THIS PROXY STATEMENT/PROSPECTUS.
2
<PAGE>
INFORMATION INCORPORATED
BY REFERENCE HEREIN AND DOCUMENTS ACCOMPANYING
THIS PROXY STATEMENT/PROSPECTUS
The following documents filed with the Commission by Kuhlman or by Schwitzer
pursuant to the Exchange Act are hereby incorporated by reference in this Proxy
Statement/Prospectus:
(a) Kuhlman's Annual Report on Form 10-K for the fiscal year ended December
31, 1994.
(b) Kuhlman's Current Report on Form 8-K dated December 15, 1993, Amendment
No. 1 to Kuhlman's Current Report on Form 8-K/A dated February 25, 1994,
Kuhlman's Current Report on Form 8-K dated February 25, 1995 and Kuhlman's
Current Report on Form 8-K dated March 28, 1995.
(c) Information contained in Kuhlman's Annual Report to Stockholders for the
fiscal year ended December 31, 1994 under Note 13 entitled "Business
Segment Information" on page 26 thereof; under the caption "Common Stock
Price Ranges and Dividends" on page 2 thereof; under the caption "Kuhlman
Electric Continues to Respond to Industry Challenges" (first two
paragraphs thereunder only) on page 6 thereof; under the caption "Coleman
Cable Systems Continues to Grow" (first three paragraphs thereunder only)
on page 8 thereof; under the caption "Emtec Products: Diversification
Opens New Markets" (first paragraph thereunder only) on page 10 thereof;
under the caption "Five-Year Selected Financial Data" on page 12 thereof
and under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 13, 14 and 15 thereof.
(d) Schwitzer's Annual Report on Form 10-K for the fiscal year ended January
1, 1995.
(e) Schwitzer's Current Report on Form 8-K dated February 25, 1995.
(f) Information contained in Schwitzer's Annual Report to Stockholders for the
fiscal year ended January 1, 1995 under Note 13 entitled "Geographic
Segments" on page 19 thereof; under the caption "Corporate Information" on
the inside back cover page thereof; under the caption "Selected Financial
Data" on page 1 thereof; under Note 15 entitled "Quarterly Financial Data
(Unaudited)" on page 20 thereof; and under the caption "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
on pages 8, 9 and 10 thereof.
Except for the portions of the Kuhlman 1994 Annual Report to Shareholders
that are specifically incorporated by reference herein and in its Annual Report
on Form 10-K for the fiscal year ended December 31, 1994 and the portions of the
Schwitzer 1994 Annual Report to Stockholders that are specifically incorporated
by reference herein and in its Annual Report on Form 10-K for the fiscal year
ended January 1, 1995, the Kuhlman 1994 Annual Report to Shareholders and the
Schwitzer 1994 Annual Report to Stockholders are not part of the Registration
Statement of which this Proxy Statement/Prospectus is a part.
Any statement contained herein or in a document incorporated by reference or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement/Prospectus to the extent that a
statement contained in this Proxy Statement/ Prospectus or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference in this Proxy Statement/Prospectus modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement/Prospectus.
This Proxy Statement/Prospectus is accompanied by a copy of the Annual
Report to Shareholders of Kuhlman for the year ended December 31, 1994 and by a
copy of the Annual Report to Stockholders of Schwitzer for the fiscal year ended
January 1, 1995.
ALL DOCUMENTS THAT ARE INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS BUT WHICH ARE NOT DELIVERED HEREWITH ARE AVAILABLE WITHOUT
CHARGE (OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY
INCORPORATED BY REFERENCE THEREIN) UPON REQUEST FROM, IN THE CASE OF DOCUMENTS
RELATING TO KUHLMAN, KUHLMAN CORPORATION, INVESTOR RELATIONS, 1 SKIDAWAY VILLAGE
WALK, SUITE 201, SAVANNAH, GEORGIA 31411, AND, IN THE CASE OF DOCUMENTS RELATING
TO SCHWITZER , SCHWITZER, INC., INVESTOR RELATIONS, HIGHWAY 191, BREVARD ROAD,
P.O. BOX 15075, ASHEVILLE, NORTH CAROLINA 28813. IN ORDER TO INSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MAY 23, 1995.
3
<PAGE>
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SUMMARY.............................................................................. 7
The Merger......................................................................... 7
Introduction and Terms of the Merger............................................. 7
Parties to the Merger............................................................ 7
Reasons for the Merger........................................................... 7
Recommendations of the Boards of Directors....................................... 8
Opinions of Financial Advisors................................................... 9
Effective Time of the Merger..................................................... 9
Conditions to the Merger......................................................... 9
Appraisal Rights................................................................. 9
Termination Provisions........................................................... 10
Certain Federal Income Tax Consequences.......................................... 10
Anticipated Accounting Treatment................................................. 10
No Solicitation of Other Transactions............................................ 10
Conversion of Shares; Exchange of Certificates................................... 11
Interests of Certain Persons..................................................... 11
Meetings of Stockholders........................................................... 12
Other Kuhlman Proposals............................................................ 13
Election of Directors............................................................ 13
The Kuhlman Amendment............................................................ 13
The Kuhlman 1994 Option Plan..................................................... 14
Appointment of Independent Auditors.............................................. 14
Other Schwitzer Proposals.......................................................... 14
Election of Directors............................................................ 14
Appointment of Independent Auditors.............................................. 15
Selected Financial Data............................................................ 15
Selected Pro Forma Combined Financial Data....................................... 16
Kuhlman Selected Financial Data.................................................. 17
Schwitzer Selected Financial Data................................................ 18
Selected Historical and Pro Forma Comparative Per Share Data..................... 19
Comparative Stock Prices........................................................... 20
MEETINGS OF STOCKHOLDERS............................................................. 21
Kuhlman............................................................................ 21
Schwitzer.......................................................................... 22
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
THE MERGER........................................................................... 24
Terms of the Merger................................................................ 24
Background of the Merger........................................................... 24
Kuhlman's Reasons for the Merger; Recommendation of the Kuhlman Board of
Directors......................................................................... 26
Schwitzer's Reasons for the Merger; Recommendation of the Schwitzer Board of
Directors......................................................................... 28
Opinions of Financial Advisors..................................................... 29
Effective Time of the Merger....................................................... 39
Conditions to the Merger........................................................... 39
Appraisal Rights................................................................... 40
Regulatory Matters................................................................. 40
Termination Provisions............................................................. 41
Certain Federal Income Tax Consequences............................................ 41
No Solicitation of Other Transactions.............................................. 44
Conversion of Shares............................................................... 45
Appointment of Exchange Agent...................................................... 45
Exchange of Certificates........................................................... 45
Interests of Certain Persons....................................................... 46
Conduct of Business Pending the Merger............................................. 47
Waiver and Amendment............................................................... 48
Stock Options...................................................................... 48
Warrants........................................................................... 49
Stock Exchange Listing............................................................. 49
Anticipated Accounting Treatment................................................... 49
Shares Available for Resale........................................................ 49
Expenses and Topping Fee........................................................... 50
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.......................... 51
APPROVAL OF AMENDMENT TO KUHLMAN CERTIFICATE OF INCORPORATION........................ 56
APPROVAL OF THE KUHLMAN 1994 OPTION PLAN............................................. 57
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP BY KUHLMAN.................... 59
ELECTION OF KUHLMAN DIRECTORS........................................................ 59
INFORMATION REGARDING KUHLMAN DIRECTORS, NOMINEES FOR DIRECTORS OF KUHLMAN AND
EXECUTIVE OFFICERS.................................................................. 60
Board of Directors and Committees.................................................. 62
Compensation of Directors.......................................................... 63
Compensation Committee Interlocks and Insider Participation........................ 63
Report of the Compensation Committee of the Kuhlman Board of Directors on Executive
Compensation...................................................................... 63
Executive Compensation............................................................. 67
Five-Year Cumulative Total Stockholder Return...................................... 71
Related Transactions............................................................... 72
Principal Stockholders and Beneficial Ownership of Management of Kuhlman........... 73
ELECTION OF SCHWITZER DIRECTORS...................................................... 75
</TABLE>
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<TABLE>
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PAGE
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<S> <C>
INFORMATION REGARDING SCHWITZER DIRECTORS, NOMINEES FOR DIRECTORS OF SCHWITZER AND
EXECUTIVE OFFICERS.................................................................. 76
Board of Directors and Committees.................................................. 77
Compensation of Directors.......................................................... 78
Compensation Committee Interlocks and Insider Participation........................ 78
Report of the Compensation Committee of the Schwitzer Board of Directors on
Executive Compensation............................................................ 79
Executive Compensation............................................................. 81
Five Year Cumulative Total Stockholder Return...................................... 86
Security Ownership of Management................................................... 87
Security Ownership of Certain Beneficial Owners.................................... 88
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP BY SCHWITZER.................. 89
BUSINESS OF KUHLMAN.................................................................. 89
General............................................................................ 89
Business Segments.................................................................. 90
BUSINESS OF SCHWITZER................................................................ 92
General............................................................................ 92
Products and Markets............................................................... 92
Customers.......................................................................... 94
Foreign Operations................................................................. 94
DESCRIPTION OF KUHLMAN CAPITAL STOCK................................................. 94
Kuhlman Common Stock............................................................... 94
Kuhlman Preferred Stock............................................................ 95
Series A Preferred Stock........................................................... 96
COMPARISON OF RIGHTS OF STOCKHOLDERS................................................. 97
Authorized and Issued Stock........................................................ 97
Voting Rights...................................................................... 97
Board of Directors................................................................. 98
Special Meetings of Stockholders................................................... 99
Stockholder Action By Written Consent.............................................. 99
LEGAL MATTERS........................................................................ 99
EXPERTS.............................................................................. 99
STOCKHOLDER PROPOSALS................................................................ 99
Appendix A. Agreement and Plan of Merger and form of Certificate of Merger.
Appendix B. Opinion of The Chase Manhattan Bank, N.A.
Appendix C. Opinion of J.P. Morgan Securities Inc.
Appendix D. Amendment to Certificate of Incorporation of Kuhlman.
Appendix E. Kuhlman Corporation 1994 Stock Option Plan.
Appendix F. Kuhlman Annual Report to Shareholders for the year ended December 31,
1994.
Appendix G. Schwitzer Annual Report to Stockholders for the year ended January 1,
1995.
</TABLE>
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT/ PROSPECTUS. CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY
ARE DEFINED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS. REFERENCE IS MADE TO,
AND THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION
AND FINANCIAL STATEMENTS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS, THE
APPENDICES HERETO AND THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN.
THE MERGER
INTRODUCTION AND TERMS OF THE MERGER
The Kuhlman Board of Directors and Schwitzer Board of Directors have each
adopted and approved the Merger Agreement pursuant to which, upon satisfaction
(or waiver) of the conditions set forth therein, Spinner will be merged with and
into Schwitzer, which will be the surviving corporation in the Merger and which
will become a wholly-owned subsidiary of Kuhlman. Upon consummation of the
Merger ("Effective Time"), each outstanding share of common stock of Schwitzer,
par value $.10 per share ("Schwitzer Common Stock") will be converted into
0.9615 share of Kuhlman Common Stock ("Exchange Ratio"). See "The Merger --
Terms of the Merger."
PARTIES TO THE MERGER
KUHLMAN. Kuhlman is a holding company which, through its subsidiaries,
designs, manufactures and markets electrical utility and industrial type
transformers for various markets and industries involved in electrical
distribution systems, and manufactures and distributes a wide variety of
electrical and electronic wire and cable products to a number of markets for
commercial, industrial and consumer uses. Kuhlman also manufactures and
distributes a variety of springs and metal parts used by other manufacturers in
their products or production processes. The principal executive offices of
Kuhlman are located at 1 Skidaway Village Walk, Suite 201, Savannah, Georgia
31411. Its telephone number is (912) 598-7809. See "Kuhlman."
SCHWITZER. Schwitzer designs, manufactures and markets industrial products,
including turbochargers, fan drives, cooling fans and crankshaft vibration
dampers, for enhancing the efficiency of diesel and gasoline engines. The
principal executive offices of Schwitzer are located at Highway 191, Brevard
Road, P.O. Box 15075, Asheville, North Carolina 28813. Its telephone number is
(704) 684-4014. See "Schwitzer."
SPINNER. Spinner is a Delaware corporation recently organized by Kuhlman to
effect the Merger. Spinner has no material assets and has not engaged in any
activities except in connection with the Merger.
REASONS FOR THE MERGER
The respective managements of Kuhlman and Schwitzer believe that the Merger
will create a larger, more diversified manufacturing organization capable of
providing the stockholders of the combined entity with more consistent earnings
growth and a platform on which to build greater stockholder value in the future.
The combined company will serve a diverse, worldwide customer base in two
principal market segments, Electrical products (primarily electrical equipment
and wire and cable products) and Industrial products (primarily engine
components), with pro forma sales of approximately $400 million and pro forma
assets in excess of $200 million as of fiscal year end 1994. Kuhlman's existing
operations will continue to focus predominately in the Electrical products
market segment while Schwitzer will continue to concentrate its efforts in the
Industrial products market segment.
The overall strategy of the combined company will be to increase its
investment and penetration in both of the market segments mentioned above,
thereby achieving a diversification which should help reduce the fluctuations in
earnings caused by the cyclicality which may be present in any single industry.
This strategy is consistent with both Kuhlman's and Schwitzer's desire to
participate in
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large market segments where they can pursue niche opportunities by
differentiating themselves from their competitors with proprietary products,
superior customer service, and product quality at prices that are both
competitive and sufficient to provide for an acceptable return on investment.
Kuhlman currently intends to expand the combined entity's presence in the
Electrical and Industrial products market segments through internal growth as
well as acquisitions that will build on each company's existing product base,
customer relationships, and distribution capabilities. Both Kuhlman and
Schwitzer believe that the size, diversity and financial resources of the
combined organization will provide a basis for each company to become a larger,
more competitive participant in its market.
Kuhlman and Schwitzer believe that certain growth opportunities exist today
that would not otherwise be available to each company operating independently,
including internal expansion programs that require the resources of a larger
organization, and the pursuit of acquisition candidates that offer synergistic
and accretive benefits. In particular, Kuhlman and Schwitzer believe that after
the Merger, Schwitzer will be in a stronger position to pursue a more aggressive
world-wide expansion program and introduce new products either developed
internally or obtained through acquisitions. As a consequence, Kuhlman and
Schwitzer each believes that the Merger will facilitate diversification while
mitigating the financial risks due to cyclical market trends but will allow each
company to expand its current operations by pursuing industry and
company-specific niche opportunities within the Electrical and Industrial
products markets.
Additionally, Kuhlman and Schwitzer believe that the combined entity's
larger base of operations and its financial size will afford it greater access
to the capital markets than either company enjoys today. Each believes that this
will make future funding choices for capital expansion programs and acquisitions
more available and cost effective. Kuhlman and Schwitzer also believe that the
Merger will eliminate certain expenses associated with dual reporting
requirements and other corporate expenses.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The Kuhlman Board of Directors believes that the Merger is in the best
interests of Kuhlman and its stockholders. THE KUHLMAN BOARD OF DIRECTORS HAS
APPROVED THE MERGER AND RECOMMENDS THAT THE STOCKHOLDERS OF KUHLMAN VOTE "FOR"
APPROVAL OF THE ISSUANCE OF KUHLMAN COMMON STOCK IN CONNECTION WITH THE MERGER.
In arriving at its recommendation, the Kuhlman Board of Directors considered,
among other things, the opinion of The Chase Manhattan Bank, N.A. ("Chase
Manhattan") to the effect that, as of the date of such opinion and based upon
and subject to certain matters stated therein, the Exchange Ratio was fair to
Kuhlman from a financial point of view.
The Kuhlman Board of Directors also believes that the election of its four
nominees as directors, the Kuhlman Amendment, the Kuhlman 1994 Option Plan and
appointment of Arthur Andersen LLP as Kuhlman's independent auditors are each in
the best interests of Kuhlman and its stockholders. THE KUHLMAN BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED EACH OF THE PROPOSALS IN THIS PARAGRAPH AND
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF KUHLMAN VOTE "FOR" APPROVAL OF
ALL SUCH KUHLMAN PROPOSALS.
The Schwitzer Board of Directors believes that the Merger is in the best
interests of Schwitzer and its stockholders. THE SCHWITZER BOARD OF DIRECTORS
HAS APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT THE STOCKHOLDERS OF
SCHWITZER VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT. In arriving at its
recommendation, the Schwitzer Board of Directors considered, among other things,
the opinion of its financial advisor, J. P. Morgan Securities, Inc., ("J.P.
Morgan"), that the consideration to be received by holders of Schwitzer Common
Stock pursuant to the Merger Agreement is fair to such holders from a financial
point of view. See "The Merger -- Opinions of Financial Advisors."
The Schwitzer Board of Directors also believes that the election of its
three nominees as directors and the appointment of Arthur Andersen LLP as
Schwitzer's independent auditors are each in the
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best interests of Schwitzer and its stockholders. THE SCHWITZER BOARD OF
DIRECTORS RECOMMENDS THAT THE SCHWITZER STOCKHOLDERS VOTE "FOR" APPROVAL OF ALL
OF THE PROPOSALS CONTAINED IN THE NOTICE OF ANNUAL MEETING OF SCHWITZER.
For a discussion of the circumstances surrounding and the reasons for the
respective recommendations of the Kuhlman Board of Directors and the Schwitzer
Board of Directors, see "The Merger -- Kuhlman's Reasons for the Merger;
Recommendation of the Kuhlman Board of Directors," and "The Merger --
Schwitzer's Reasons for the Merger; Recommendation of the Schwitzer Board of
Directors."
OPINIONS OF FINANCIAL ADVISORS
KUHLMAN. Chase Manhattan has delivered a written opinion, dated February
25, 1995, to the Board of Directors of Kuhlman to the effect that, as of the
date of such opinion and based upon and subject to certain matters stated
therein, the Exchange Ratio was fair, from a financial point of view, to
Kuhlman. Chase Manhattan has reconfirmed such opinion by delivery of a written
opinion dated the date of this Proxy Statement/Prospectus. Chase Manhattan's
opinion is directed only to the fairness of the Exchange Ratio from a financial
point of view and does not constitute a recommendation to any stockholder of
Kuhlman as to how such stockholder should vote at the Kuhlman Annual Meeting.
The full text of the written opinion of Chase Manhattan, dated the date of this
Proxy Statement/Prospectus, which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is attached as Appendix B
to this Proxy Statement/Prospectus and should be read carefully in its entirety.
See "The Merger -- Opinions of Financial Advisors -- Kuhlman."
SCHWITZER. J.P. Morgan has rendered a written opinion, dated the date of
this Proxy Statement/ Prospectus, to the Schwitzer Board of Directors that the
consideration to be received by the stockholders of Schwitzer pursuant to the
Merger is fair, from a financial point of view, to the holders of Schwitzer
Common Stock. A copy of such opinion, dated the date of this Proxy
Statement/Prospectus, is set forth in Appendix C and should be read carefully by
Schwitzer stockholders in its entirety with respect to the assumptions made,
other matters considered, and the scope of the review undertaken in arriving at
such opinion. See "The Merger -- Opinions of Financial Advisors -- Schwitzer."
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of the Certificate of
Merger with the Secretary of State of Delaware pursuant to the Delaware General
Corporation Law ("DGCL"); provided, however, that upon mutual consent of
Schwitzer and Spinner, the Certificate of Merger may provide for a later date of
effectiveness of the Merger not more than 30 days after the date the Certificate
of Merger is filed. It is currently anticipated that the Merger will be
effective on or about May 31, 1995. See "The Merger -- Effective Time of the
Merger."
CONDITIONS TO THE MERGER
The Merger will occur only if the Merger Agreement is adopted at the
Schwitzer Annual Meeting by the requisite vote of stockholders of Schwitzer and
the issuance of Kuhlman Common Stock in connection with the Merger and the
Kulhman Amendment are approved by the requisite vote of stockholders of Kuhlman.
In addition, the obligations of Kuhlman and Spinner, on the one hand, and
Schwitzer, on the other, to consummate the transactions contemplated by the
Merger Agreement are subject to the satisfaction of certain conditions (any of
which may be waived by the party or parties entitled to the benefit thereof). If
such conditions are not satisfied (or waived) and the Merger is not consummated
on or before September 30, 1995, Kuhlman or Schwitzer may terminate the Merger
Agreement. See "The Merger -- Conditions to the Merger."
APPRAISAL RIGHTS
Stockholders of Schwitzer do not have the right under Delaware law to
dissent with respect to the Merger and to be paid an appraised value for their
shares of Schwitzer Common Stock.
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TERMINATION PROVISIONS
The Merger Agreement provides that it may be terminated at any time prior to
the Effective Time, whether before or after adoption of the Merger Agreement by
the stockholders of Schwitzer or the approval of the Kuhlman Amendment and the
issuance of Kuhlman Common Stock in connection with the Merger by the
stockholders of Kuhlman, if certain specified events occur. Kulhman may
terminate the Merger Agreement if the average of the daily closing prices of
Kuhlman Common Stock during the 20 consecutive trading days ending on the third
trading day prior to the Meetings of Stockholders is more than $16.00 and
Schwitzer may terminate the Merger Agreement if such average is less than
$11.00. Either Kuhlman or Schwitzer may terminate the Merger Agreement if the
Effective Time has not occurred on or before September 30, 1995, unless the
failure to effect the Merger by such time is due to the failure to fulfill any
obligation of the Merger Agreement by the party seeking to terminate the Merger
Agreement. In addition, either Kuhlman or Schwitzer may terminate the Merger
Agreement if any court of competent jurisdiction takes any action permanently
prohibiting the transaction contemplated by the Merger Agreement and such action
has become nonappealable. See "The Merger -- Termination Provisions."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Sidley & Austin, special counsel to Schwitzer in connection with the Merger,
has rendered an opinion to Kuhlman and Schwitzer that (among other things) the
Merger will constitute a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), and that no gain or
loss for federal income tax purposes will be recognized by the stockholders of
Schwitzer upon the conversion of their Schwitzer Common Stock into shares of
Kuhlman Common Stock pursuant to the Merger (except for cash, if any, paid in
lieu of a fractional share of Kuhlman Common Stock). Such opinion of counsel is
based on representations from Kuhlman and Schwitzer and certain assumptions. It
is anticipated that in satisfaction of a condition to the consummation of the
Merger, Sidley & Austin will render an opinion to substantially the same effect
at the Effective Time of the Merger. Due to the individual nature of the tax
consequences of the Merger, it is recommended that each stockholder of Schwitzer
consult his or her own tax adviser concerning such tax consequences. See "The
Merger -- Certain Federal Income Tax Consequences."
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to be accounted for as a "pooling of interests" for
financial accounting purposes. See "The Merger -- Anticipated Accounting
Treatment."
NO SOLICITATION OF OTHER TRANSACTIONS
The Merger Agreement provides that neither Kuhlman nor Schwitzer shall
solicit or initiate nor will either of them permit any of its representatives or
those of any of its majority-owned subsidiaries to, directly or indirectly,
solicit or initiate, any takeover proposal or offer from any person, or engage
in discussions or negotiations relating to any such proposal or offer. However,
either Kuhlman or Schwitzer may engage in discussions or negotiations with a
third party who seeks to initiate such discussions or negotiations or may
furnish to such third party information concerning its business, properties or
assets. The Board of Directors of either Kuhlman or Schwitzer may withdraw or
modify its recommendation of the Merger, but only to the extent that they shall
conclude in good faith, after consultation with its outside counsel, that such
action is necessary in order for the Board of Directors to act in a manner which
is consistent with its fiduciary obligations under applicable law. If Schwitzer
terminates the Merger Agreement because the Schwitzer Board of Directors
believes another takeover proposal provides a higher value per share than the
consideration per share pursuant to the Merger Agreement, Schwitzer is obligated
to reimburse Kuhlman for up to $500,000 of expenses; provided, however, that if
prior to the expiration of one year after such termination, a merger,
consolidation or other business combination, or tender or exchange offer shall
occur which effects a change in control of Schwitzer, Schwitzer is obligated to
pay Kuhlman the excess of $2,000,000 over the expense reimbursements previously
made to Kuhlman. See "The Merger -- No Solicitation of Other Transactions."
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CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES
Each share of Schwitzer Common Stock outstanding immediately prior to the
Effective Time shall be converted into 0.9615 validly issued, fully paid and
nonassessable share of Kuhlman Common Stock. All such shares of Schwitzer Common
Stock, when so converted, shall no longer be outstanding and shall automatically
be cancelled and retired and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the right to
receive shares of Kuhlman Common Stock, cash in lieu of any fractional share and
certain dividends and other distributions as contemplated by the Merger
Agreement upon the surrender of such certificate in accordance with the Merger
Agreement.
Stockholders of Schwitzer should not tender their certificates for Schwitzer
Common Stock with their proxy. As promptly as practicable after the Effective
Time, Harris Trust and Savings Bank, as exchange agent ("Exchange Agent"), will
mail to the Schwitzer stockholders transmittal materials for use in exchanging
certificates evidencing Schwitzer Common Stock for certificates evidencing
Kuhlman Common Stock. See "The Merger -- Exchange of Certificates."
INTERESTS OF CERTAIN PERSONS
Kuhlman has agreed to indemnify past and present officers and directors of
Schwitzer to the full extent provided in the Certificate of Incorporation and
Bylaws of Schwitzer for acts or omissions occurring at or prior to the Effective
Time and to provide, for not less than six years from the Effective Time, to
Schwitzer's current directors and officers, insurance coverage for events
occurring through the Effective Time that is no less favorable than the existing
policy maintained by Schwitzer or, if substantially equivalent insurance
coverage is unavailable, the best available coverage. However, Kuhlman or
Schwitzer, after consummation of the Merger, is not required to pay an annual
premium for such coverage in excess of three times the last annual premium paid
prior to the date of the Merger Agreement.
Kuhlman has agreed to cause Schwitzer to honor all severance and employment
agreements with the officers and employees of Schwitzer and to maintain until at
least two years after the Effective Time, employee benefit plans and policies
for retirees, officers and employees (including terminated officers and
employees) of Schwitzer and any of its majority-owned subsidiaries that are no
less favorable than those being provided to such retirees, officers and
employees on the date of the Merger Agreement.
Mr. Gary G. Dillon, currently the Chairman of the Board, President and Chief
Executive Officer of Schwitzer and Schwitzer U.S. Inc., a wholly owned
subsidiary of Schwitzer ("Schwitzer U.S."), have been parties to an employment
agreement since 1989 (as amended from time to time prior to February 25, 1995,
the "Dillon Agreement"). On February 25, 1995, in order to provide Mr. Dillon an
incentive to remain in the employ of Schwitzer U.S. after the Effective Time and
to eliminate any incentive for Mr. Dillon to leave Schwitzer U.S. after the
Effective Time, Schwitzer U.S. and Mr. Dillon have amended the Dillon Agreement.
Under such amendment (the "Dillon Amendment"), Schwitzer U.S. will make certain
lump sum payments to Mr. Dillon at the Effective Time in lieu of making such
payments at Mr. Dillon's retirement or termination of employment as provided in
the Dillon Agreement. In addition, at the Effective Time, (i) his options to
purchase Schwitzer Common Stock will be converted into options to purchase
shares of Kuhlman Common Stock in accordance with the Exchange Ratio and
exercisable in accordance with the terms of the options to purchase Schwitzer
Common Stock and (ii) the phantom stock units based on the value of Schwitzer
Common Stock awarded to Mr. Dillon will be converted into the same number of
phantom stock units based on the value of Kuhlman Common Stock. Mr. Dillon's
annual salary was also increased by the Dillon Amendment from $297,000 to
$325,000.
As soon as practicable after the Merger is consummated, Kuhlman will cause
Mr. Dillon to be appointed to the Board of Directors of Kuhlman to serve until
the 1997 annual meeting of Kuhlman stockholders.
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See "Information Regarding Schwitzer Directors, Nominees for Directors of
Schwitzer and Executive Officers -- Executive Compensation and Severance
Agreements" and "The Merger -- Interests of Certain Persons" for additional
information with respect to the Dillon Agreement and the Dillon Amendment."
MEETINGS OF STOCKHOLDERS
KUHLMAN
The Kuhlman Annual Meeting has been called for the following purposes: (i)
to elect four directors; (ii) to consider and vote on the issuance of shares of
Kuhlman Common Stock in connection with the Merger; (iii) to consider and vote
on the Kuhlman Amendment, (iv) to consider and vote on the Kuhlman 1994 Option
Plan; and (v) to ratify the appointment of Arthur Andersen LLP as Kuhlman's
independent auditors for the current year. The Kuhlman Annual Meeting will be
held on May 31, 1995 at 9:30 a.m., local time, at the Hyatt Regency Hotel, 2
West Bay Street, Savannah, Georgia 31401. Only holders of record of Kuhlman
Common Stock at the close of business on April 18, 1995 will be entitled to
notice of and to vote at the Kuhlman Annual Meeting. Each holder of Kuhlman
Common Stock is entitled to one vote per share on each proposal contained in the
notice of the Kuhlman Annual Meeting. Kuhlman had outstanding 6,210,798 shares
of Kuhlman Common Stock as of the close of business on April 18, 1995, of which
222,549 shares (3.6%) (excludes 5,000 shares owned by spouses where beneficial
ownership is disclaimed) were owned beneficially by the officers and directors
of Kuhlman, and such persons have indicated their intention to vote such shares
in favor of each of the proposals. Approval of the issuance of shares of Kuhlman
Common Stock in the Merger requires the favorable vote of a majority of the
votes cast on the proposal, provided that the total vote cast with respect
thereto represents a majority of the Kuhlman Common Stock entitled to vote. The
affirmative vote of the holders of a majority of the outstanding shares of
Kuhlman Common Stock is required to approve the Kuhlman Amendment. Approval of
the Kuhlman 1994 Option Plan requires the affirmative vote of the holders of a
majority of the Kuhlman Common Stock present or represented by proxy and
entitled to vote at the Kuhlman Annual Meeting. Directors will be elected by a
plurality of the votes cast with respect thereto at the meeting. Ratification of
the appointment of Arthur Andersen LLP requires the affirmative vote of a
majority of the votes cast affirmatively or negatively with respect thereto at
the Kuhlman Annual Meeting.
SCHWITZER
The Schwitzer Annual Meeting has been called to (i) elect three directors,
(ii) consider and vote on the approval of the Merger Agreement; and (iii) to
ratify the appointment of Arthur Andersen LLP as Schwitzer's independent
auditors for the current year. The Schwitzer Annual Meeting will be held on May
31, 1995, at 9:30 a.m., local time, at the Northbrook Hilton Hotel, 2855 North
Milwaukee Avenue, Northbrook, Illinois. Only holders of record of Schwitzer
Common Stock at the close of business on April 18, 1995 will be entitled to
notice of and to vote at the Schwitzer Annual Meeting. Each holder of Schwitzer
Common Stock is entitled to one vote per share on each proposal contained in the
notice of the Schwitzer Annual Meeting. Schwitzer had outstanding 7,239,741
shares of Schwitzer Common Stock as of the close of business on April 18, 1995,
of which 151,801 shares (2.1%) were owned beneficially by the officers and
directors of Schwitzer, and such persons have indicated their intention to vote
such shares in favor of each of the proposals. The favorable vote of a majority
of the outstanding shares of Schwitzer Common Stock is required to adopt the
Merger Agreement. Directors will be elected by a plurality of the votes cast
with respect thereto at the meeting. The ratification of the appointment of
Arthur Anderson LLP as Schwitzer's independent auditors requires a majority of
the votes cast with respect thereto at the Schwitzer Annual Meeting.
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OTHER KUHLMAN PROPOSALS
ELECTION OF DIRECTORS
The Kuhlman Bylaws provide that the number of directors, as determined by
the Board of Directors, shall not be less than six nor more than eleven. The
Bylaws further provide that directors shall be divided into three classes
serving staggered three-year terms, with each class to be as nearly equal in
number as possible.
The terms of Curtis G. Anderson, William E. Burch, Alexander W. Dreyfoos,
Jr. and General H. Norman Schwarzkopf will expire at the Kuhlman Annual Meeting.
The Board of Directors has nominated Messrs. Anderson, Burch, Dreyfoos and
General Schwarzkopf for re-election as directors to serve until the 1998 annual
meeting of stockholders.
The proposed nominees for election as directors are willing to be elected as
such and it is intended that the persons named in the accompanying form of
Kuhlman proxy will vote for the election of such nominees, assuming authority to
vote is granted. If, as a result of circumstances not now known or foreseen, any
of such nominees shall be unavailable or unwilling to serve as a director, the
Kuhlman Board of Directors may select a substitute nominee and in that event the
proxies will vote for the person so selected. If a substitute nominee is not so
selected, the proxies will vote for the election of the remaining nominees.
THE BOARD OF DIRECTORS OF KUHLMAN UNANIMOUSLY RECOMMENDS THAT KUHLMAN
STOCKHOLDERS VOTE "FOR" THE ELECTION OF CURTIS G. ANDERSON, WILLIAM E. BURCH,
ALEXANDER W. DREYFOOS AND GENERAL H. NORMAN SCHWARZKOPF AS DIRECTORS OF KUHLMAN.
THE KUHLMAN AMENDMENT
The Certificate of Incorporation of Kuhlman ("Kuhlman Certificate")
currently authorizes the issuance of 10,000,000 shares of Kuhlman Common Stock.
As of April 18, 1995, there were 6,210,798 shares of Kuhlman Common Stock issued
and outstanding and 1,225,501 shares of Kuhlman Common Stock were reserved for
issuances pursuant to outstanding stock options. Under the Merger Agreement,
Kuhlman is obligated to issue 6,961,010 shares of Kuhlman Common Stock in
connection with the conversion in the Merger of the shares of Schwitzer Common
Stock outstanding as of April 18, 1995 and up to 1,001,514 shares of Kuhlman
Common Stock upon the exercise of Schwitzer stock options and warrants
outstanding as of such date. Unless the Kuhlman Amendment is adopted, Kuhlman
will not have sufficient authorized shares to meet its obligation to issue
shares pursuant to the Merger Agreement. In addition, the Kuhlman Board of
Directors believes it is desirable that a reasonable number of unissued and
unreserved shares be available for issuance should the occasion arise, such as
in possible acquisitions, and upon such terms as the Kuhlman Board of Directors
may deem appropriate without any further vote of Kuhlman stockholders. Kuhlman
has no current plans for the issuance of shares of Kuhlman Common Stock other
than pursuant to Kuhlman's obligations under the Merger Agreement and stock
options granted pursuant to Kuhlman's stock options plans. Accordingly, the
Kuhlman Board of Directors believes it advisable that the Kuhlman Certificate be
amended to increase the number of shares of Kuhlman Common Stock that Kuhlman
has the authority to issue to 20,000,000.
In addition, the Kuhlman Certificate authorizes 2,000,000 shares of
preferred stock, of which 200,000 shares have been designated in the Kuhlman
Certificate as Junior Participating Preferred Stock, Series A. The number of
shares designated as Junior Participating Preferred Stock, Series A and reserved
for issuance pursuant to the Kuhlman Rights (as defined in "Description of
Kuhlman Capital Stock"), must be adjusted from time to time to be at least 1% of
the number of outstanding shares of Kuhlman Common Stock. In order to clarify
the power of the Kuhlman Board of Directors to change the number of shares of
Preferred Stock designated as Junior Participating Preferred Stock, Series A
without the need for stockholder approval, the Kuhlman Board of Directors
believes it is
13
<PAGE>
advisable to delete the designation, in the Kuhlman Certificate, of the Kuhlman
Preferred Stock as Junior Participating Preferred Stock, Series A. See "Approval
of Amendment to Kuhlman Certificate of Incorporation."
THE BOARD OF DIRECTORS OF KUHLMAN UNANIMOUSLY RECOMMENDS THAT KUHLMAN
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE KUHLMAN AMENDMENT.
THE KUHLMAN 1994 OPTION PLAN
The Kuhlman Board of Directors believes that stock option plans are
important in attracting and retaining employees of high caliber and outstanding
capabilities. Accordingly, the Kuhlman Board of Directors on July 29, 1994
adopted a stock option plan designated as the 1994 Stock Option Plan. Under the
Kuhlman 1994 Option Plan, Kuhlman may from time to time on or before July 28,
2004 grant to key employees (including officers, whether or not directors) of
Kuhlman or any of its subsidiaries options to purchase shares of Kuhlman Common
Stock. Options may be granted on such terms and at such prices as determined
pursuant to the Kuhlman 1994 Option Plan, and on such other terms and conditions
as determined by the Compensation Committee of the Kuhlman Board of Directors
that are not inconsistent with the Kuhlman 1994 Option Plan. The aggregate
number of shares of such stock on which options may be granted or which may be
sold to all optionees pursuant to the Kuhlman 1994 Option Plan shall not exceed
500,000. Options granted under the Kuhlman 1994 Option Plan may be either
incentive stock options or options not intended to be incentive stock options.
See "Approval of the Kuhlman 1994 Option Plan."
THE BOARD OF DIRECTORS OF KUHLMAN UNANIMOUSLY RECOMMENDS THAT KUHLMAN
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE KUHLMAN 1994 OPTION PLAN.
APPOINTMENT OF INDEPENDENT AUDITORS
Pursuant to a recommendation of the Audit Committee of the Kuhlman Board of
Directors, Arthur Andersen LLP has been re-appointed by the Kuhlman Board of
Directors to serve as the independent auditors for Kuhlman for the year ending
December 31, 1995, subject to stockholder ratification at the Kuhlman Annual
Meeting.
THE BOARD OF DIRECTORS OF KUHLMAN UNANIMOUSLY RECOMMENDS THAT KUHLMAN
STOCKHOLDERS VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP
AS KUHLMAN'S INDEPENDENT AUDITORS FOR 1995.
OTHER SCHWITZER PROPOSALS
ELECTION OF DIRECTORS
Schwitzer's Bylaws provide for a board of directors, the number of which
shall be fixed from time to time by a resolution adopted by a majority of the
whole Schwitzer Board of Directors. The number of directors has currently been
fixed at six. Schwitzer's Bylaws also provide that the Board of Directors is to
be divided into three classes with respect to the time for which the directors
hold office.
At each annual meeting of stockholders of Schwitzer, successors of the class
whose terms of office expire in that year are to be elected for three-year terms
and until their successors have been duly elected and qualified. The terms of
three directors, Donald C. Clark, Gary G. Dillon and Willard R. Hildebrand, will
expire at the Schwitzer Annual Meeting. The Schwitzer Board of Directors has
nominated Donald C. Clark, Gary G. Dillon and Willard R. Hildebrand for
re-election to the Schwitzer Board of Directors. Directors are elected by a
plurality of votes which are present in person or represented by proxy at the
Schwitzer Annual Meeting. If elected, Messrs. Clark, Dillon and Hildebrand will
serve until the 1998 annual meeting of stockholders of Schwitzer and until their
successors have been duly elected and qualified. However, if the Merger is
consummated, all directors of Schwitzer, except for Robert S. Jepson, Jr. and
Gary G. Dillon, have agreed to resign effective as of the Effective Time.
14
<PAGE>
The proposed nominees for election as directors are willing to be elected as
such and it is intended that the persons named in the accompanying form of proxy
will vote for the election of such nominees, assuming authority to vote is
granted. If, as a result of circumstances not now known or foreseen, any of such
nominees shall be unavailable or unwilling to serve as a director, the Schwitzer
Board of Directors may select a substitute nominee and in that event the proxies
will vote for the person so selected. If a substitute nominee is not so
selected, the proxies will vote for the election of the remaining nominees.
THE BOARD OF DIRECTORS OF SCHWITZER UNANIMOUSLY RECOMMENDS THAT SCHWITZER
STOCKHOLDERS VOTE "FOR" THE ELECTION OF DONALD C. CLARK, GARY G. DILLON AND
WILLARD R. HILDEBRAND AS DIRECTORS OF SCHWITZER.
APPOINTMENT OF INDEPENDENT AUDITORS
Arthur Andersen LLP has been reappointed by the Schwitzer Board of Directors
to serve as the independent auditors for Schwitzer for the fiscal year ending
December 31, 1995, subject to stockholder ratification at the Schwitzer Meeting.
THE BOARD OF DIRECTORS OF SCHWITZER UNANIMOUSLY RECOMMENDS THAT SCHWITZER
STOCKHOLDERS VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP
AS SCHWITZER'S INDEPENDENT AUDITORS FOR 1995.
SELECTED FINANCIAL DATA
The following table captioned "Kuhlman Corporation and Subsidiaries and
Schwitzer, Inc. and Subsidiaries -- Selected Pro Forma Combined Financial Data"
sets forth pro forma combined selected income statement data for each of the
three years in the period ended December 31, 1994, and balance sheet and other
data at or for the year ended December 31, 1994, as applicable, giving effect to
the Merger on the basis described in the notes to the unaudited pro forma
condensed combined financial statements included elsewhere herein. Certain pro
forma combined selected financial data are derived from the unaudited pro forma
condensed combined financial statements included elsewhere in this Proxy
Statement/Prospectus and should be read in conjunction with those statements.
See "Kuhlman Corporation and Subsidiaries and Schwitzer, Inc. and Subsidiaries
Pro Forma Condensed Combined Financial Statements." Pro forma per share amounts
are presented based on the Exchange Ratio of 0.9615 share of Kuhlman Common
Stock for each outstanding share of Schwitzer Common Stock. The pro forma data
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. See "Notes To Unaudited Pro Forma Condensed Combined Financial
Statements."
The following tables captioned "Kuhlman Selected Financial Data" and
"Schwitzer Selected Financial Data" set forth selected historical financial data
for Kuhlman and Schwitzer for each of the five years in the period ended
December 31, 1994. Such data have been derived from, and should be read in
conjunction with, the audited consolidated financial statements of Kuhlman and
Schwitzer, including notes thereto, incorporated by reference in this Proxy
Statement/Prospectus. See "Documents Accompanying this Proxy
Statement/Prospectus and Information Incorporated by Reference Herein."
15
<PAGE>
KUHLMAN CORPORATION AND SUBSIDIARIES
AND SCHWITZER, INC. AND SUBSIDIARIES
SELECTED PRO FORMA COMBINED FINANCIAL DATA (UNAUDITED) (A)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1994 1993 1992
----------------- ----------- -----------
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C>
INCOME STATEMENT DATA
Net sales......................................................... $ 396,117 $ 242,221 $ 231,426
Gross profit (% net of sales)..................................... 19.2% 17.9% 20.2%
Operating profit.................................................. 23,284 2,779 12,351
Income from continuing operations................................. 9,970 310 4,864
EARNINGS PER SHARE
Income from continuing operations................................. $ 0.73 $ 0.02 $ 0.37
<CAPTION>
AS OF
DECEMBER 31,
1994
-----------------
IN THOUSANDS
<S> <C> <C> <C>
BALANCE SHEET DATA
Working capital................................................... $ 46,321
Net plant and equipment........................................... 64,750
Total assets...................................................... 229,185
Total debt........................................................ 84,773
Shareholders' equity.............................................. 70,036
<CAPTION>
FOR THE
YEAR ENDED
DECEMBER 31, 1994
-----------------
IN THOUSANDS,
EXCEPT PER SHARE
AND EMPLOYEE DATA
<S> <C> <C> <C>
OTHER DATA
Capital expenditures.............................................. $ 13,048
Depreciation and amortization..................................... 11,207
Dividends paid.................................................... 3,640
Net book value per share.......................................... 5.35
Cash dividends declared per share................................. 0.60
Total debt as a percentage of total capitalization................ 55 %
Number of employees............................................... 2,370
Shares outstanding................................................ 13,100
<FN>
- ------------------------
(a) The income statement data presented in this table excludes the effect of
the estimated merger expenses expected to be recorded in the first
reporting period of the combined entity. See "Notes to Unaudited Pro Forma
Condensed Combined Financial Statements."
</TABLE>
16
<PAGE>
KUHLMAN SELECTED FINANCIAL DATA
The following selected financial data for Kuhlman is qualified in its
entirety by the financial statements and related notes included in the documents
incorporated herein by reference. See "Documents Accompanying this Proxy
Statement/Prospectus and Information Incorporated by Reference Herein."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1994 1993(A) 1992 1991 1990
-------- -------- -------- -------- --------
IN THOUSANDS, WHERE APPLICABLE
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales.................................................................. $242,846 $118,097 $121,734 $126,181 $142,195
Sales, continuing operations............................................... 242,846 118,097 121,734 126,181 117,578
Gross profit (% of sales, continuing operations)........................... 16.7% 15.2% 19.9% 21.3% 22.0%
Operating profit (loss).................................................... 6,265 (6,799) 7,460 9,967 11,486
Income (loss) from continuing operations................................... 1,617 (1,709) 6,224 7,192 5,807
Earnings per share:
Income (loss) from continuing operations................................. 0.27 (0.29) 1.05 1.21 1.03
BALANCE SHEET DATA
Working capital............................................................ 27,969 41,960 38,502 38,626 37,937
Net plant and equipment.................................................... 34,449 31,870 21,331 18,987 15,972
Total assets............................................................... 146,563 164,042 78,030 74,585 75,374
Total debt................................................................. 62,228 74,569 9,052 9,614 10,008
Shareholders' equity....................................................... 48,672 48,914 52,690 49,804 46,009
OTHER DATA
IBITDA(b).................................................................. $ 12,549 $ 6,629 $ 12,813 $ 15,389 $ 15,896
Capital expenditures....................................................... 7,019 2,794 5,175 6,460 5,213
Depreciation and amortization.............................................. 5,575 2,768 2,756 3,354 4,565
Net book value per share................................................... 7.92 8.12 9.15 8.71 8.06
Total debt as a percentage of total capitalization......................... 56.1% 60.4% 14.7% 16.2% 17.9%
Number of employees........................................................ 1,235 1,290 861 889 828
Shares outstanding......................................................... 6,146 6,023 5,757 5,721 5,706
<FN>
- ------------------------
(a) Includes a restructuring charge of $8,650 ($5,304 after tax, or $0.90 per
share).
(b) Income before interest and taxes plus depreciation and amortization,
excluding restructuring costs.
</TABLE>
17
<PAGE>
SCHWITZER SELECTED FINANCIAL DATA
The following selected financial data for Schwitzer is qualified in its
entirety by financial statements and related notes included in the documents
incorporated herein by reference. See "Documents Accompanying this Proxy
Statement/Prospectus and Information Incorporated by Reference Herein."
<TABLE>
<CAPTION>
1994 1993 1992* 1991 1990
-------- -------- -------- -------- --------
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C> <C>
Net sales.................................................................. $153,271 $124,124 $109,692 $111,035 $114,384
Income from operations..................................................... 17,019 9,578 4,891 9,694 11,290
Income (loss) before income taxes.......................................... 12,680 3,535 (487) 3,222 6,028
Income (loss) before cumulative effect of accounting changes............... 8,930 2,530 (1,360) 1,687 3,719
Per common share......................................................... 1.21 0.35 (0.19) 0.23 0.52
Total assets............................................................... 82,622 78,302 77,001 87,039 89,371
Long-term debt............................................................. 21,910 30,466 29,991 32,915 38,827
-------- -------- -------- -------- --------
<FN>
- ------------------------
* Includes a restructuring charge of $1.65 million ($1.0 million after tax).
</TABLE>
18
<PAGE>
SELECTED HISTORICAL AND PRO FORMA COMPARATIVE PER SHARE DATA (A)
Based upon the Exchange Ratio of 0.9615 share of Kuhlman Common Stock for
each outstanding share of Schwitzer Common Stock immediately prior to the
Merger, the following table sets forth comparative per common share net income
(loss) from continuing operations, dividends declared (if applicable) and book
value of (a) Kuhlman, (b) Kuhlman Pro Forma adjusted to give effect to the
Merger, (c) Schwitzer and (d) the equivalent pro forma of one share of Schwitzer
Common Stock. The following information should be read in conjunction with the
historical financial statements of Kuhlman and Schwitzer incorporated herein by
reference and the unaudited pro forma condensed combined financial statements
giving effect to the Merger appearing elsewhere herein. The following data is
not necessarily 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.
<TABLE>
<CAPTION>
SCHWITZER
KUHLMAN --------------------------
------------------------ EQUIVALENT
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
----------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)(D)
<S> <C> <C> <C> <C>
NET INCOME (LOSS) FROM CONTINUING OPERATIONS PER
SHARE:
Fiscal year:
1994......................................... $ 0.27 $ 0.73 $ 1.21 $ 0.70
1993 (b)..................................... (0.29) 0.02 0.35 0.02
1992 (c)..................................... 1.05 0.37 (0.19) 0.36
DIVIDENDS DECLARED PER SHARE:
Fiscal year:
1994......................................... $ 0.60 $ 0.60 $ -- $ 0.58
1993......................................... 0.60 0.60 -- 0.58
1992......................................... 0.60 0.60 -- 0.58
BOOK VALUE PER SHARE:
December 31, 1994.............................. $ 7.92 $ 5.35 $ 3.39 $ 5.14
<FN>
- ------------------------
(a) The pro forma net income (loss) from continuing operations per share data
presented in this table excludes the effect of the estimated merger
expenses expected to be recorded in the first reporting period of the
combined entity. Such adjustments have been included in the pro forma book
value per share data. See "Notes to Unaudited Pro Forma Condensed Combined
Financial Statements."
(b) Includes a restructuring charge described in Kuhlman's consolidated
financial statements and notes thereto incorporated herein by reference.
(c) Includes a restructuring charge described in Schwitzer's consolidated
financial statements and notes thereto incorporated herein by reference.
(d) The equivalent pro forma per share amounts for Schwitzer represent, in
cases of net income (loss) from continuing operations and book value, the
pro forma amounts for Kuhlman Common Stock multiplied by 0.9615 (the
Exchange Ratio) and, in the case of dividends declared, the historical data
for Kuhlman Common Stock multiplied by 0.9615.
</TABLE>
19
<PAGE>
COMPARATIVE STOCK PRICES
KUHLMAN
Kuhlman Common Stock is traded on the New York Stock Exchange under the
symbol "KUH." The following table sets forth, for the periods indicated, the
high and low sales prices as reported in THE WALL STREET JOURNAL for the fiscal
years ended December 31, 1993 and 1994 and for the quarter ended March 31, 1995.
<TABLE>
<CAPTION>
1993 HIGH LOW
- --------------------------------------------------------------------------- ------- -------
<S> <C> <C>
First Quarter.............................................................. $16 1/2 $13 1/4
Second Quarter............................................................. 16 1/8 13 1/2
Third Quarter.............................................................. 14 7/8 13 5/8
Fourth Quarter............................................................. 17 1/4 14 3/8
<CAPTION>
1994 HIGH LOW
- --------------------------------------------------------------------------- ------- -------
<S> <C> <C>
First Quarter.............................................................. $19 3/8 $15
Second Quarter............................................................. 18 3/8 14 3/4
Third Quarter.............................................................. 15 3/8 14 1/8
Fourth Quarter............................................................. 16 11
<CAPTION>
1995 HIGH LOW
- --------------------------------------------------------------------------- ------- -------
<S> <C> <C>
First Quarter.............................................................. 13 1/2 10 3/4
</TABLE>
SCHWITZER
Schwitzer Common Stock is traded on the New York Stock Exchange under the
symbol "SCZ." The following table sets forth, for the periods indicated, the
high and low sales prices as reported in THE WALL STREET JOURNAL for the fiscal
years ended January 2, 1994 ("Fiscal 1993") and January 1, 1995 ("Fiscal 1994")
and for the quarter ended April 2, 1995.
<TABLE>
<CAPTION>
FISCAL 1993 HIGH LOW
- --------------------------------------------------------------------------- ------- -------
<S> <C> <C>
First Quarter.............................................................. 7 3/4 5 5/8
Second Quarter............................................................. 7 1/8 5 3/4
Third Quarter.............................................................. 7 3/4 7
Fourth Quarter............................................................. 7 1/2 5 3/4
<CAPTION>
FISCAL 1994 HIGH LOW
- --------------------------------------------------------------------------- ------- -------
<S> <C> <C>
First Quarter.............................................................. 10 3/4 6 1/8
Second Quarter............................................................. 10 5/8 6 3/4
Third Quarter.............................................................. 9 5/8 6 7/8
Fourth Quarter............................................................. 10 1/8 7 1/2
<CAPTION>
FISCAL 1995 HIGH LOW
- --------------------------------------------------------------------------- ------- -------
<S> <C> <C>
First Quarter.............................................................. 10 5/8 7 3/4
</TABLE>
On February 24, 1995, the last trading date immediately preceding the public
announcement of the Merger, the last sale price per share of Kuhlman Common
Stock and Schwitzer Common Stock, as reported on the New York Stock Exchange,
and the equivalent pro forma price of Schwitzer Common Stock was as follows:
<TABLE>
<CAPTION>
SCHWITZER
------------------------
EQUIVALENT
KUHLMAN HISTORICAL PRO FORMA
- --------- ----------- -----------
<S> <C> <C>
$13.125 $ 9.75 $ 12.62
</TABLE>
20
<PAGE>
MEETINGS OF STOCKHOLDERS
KUHLMAN
The Kuhlman Annual Meeting has been called by the Kuhlman Board of Directors
for the following purposes: (i) to elect four directors; (ii) to consider and
vote on the issuance of shares of Kuhlman Common Stock in connection with the
Merger, (iii) to consider and vote on the Kuhlman Amendment, (iv) to vote on the
Kuhlman 1994 Option Plan, and (v) ratify the appointment of Arthur Andersen LLP
as Kuhlman's independent auditors for the current year. Each such proposal is
independent, and Kuhlman intends to adopt each proposal approved by its
stockholders even if all proposals are not so approved. However, both the
Kuhlman Amendment and the issuance of Kuhlman Common Stock in connection with
the Merger must be approved in order to consummate the Merger. The Kuhlman
Annual Meeting will be held on May 31, 1995, at 9:30 a.m., local time, at the
Hyatt Regency Hotel, 2 West Bay Street, Savannah, Georgia 31401. Only
stockholders of record of Kuhlman Common Stock at the close of business on April
18, 1995 will be entitled to notice of and to vote at the Kuhlman Annual
Meeting. Kuhlman had outstanding 6,210,798 shares of Kuhlman Common Stock as of
the close of business on April 18, 1995, of which 222,549 shares (3.6%)
(excludes 5,000 shares owned by spouses where beneficial ownership is
disclaimed) were owned beneficially by the officers and directors of Kuhlman,
and such persons have indicated their intention to vote such shares in favor of
each of the proposals set forth in the notice of the Kuhlman Annual Meeting.
There are no other voting securities outstanding. Each stockholder is entitled
to one vote per share on each proposal contained in the notice of the Kuhlman
Annual Meeting. If the accompanying proxy form is signed and returned, the
shares represented thereby will be voted in accordance with any direction on the
proxy form, or in the absence of a direction as to any proposal, they will be
voted FOR the proposal. The stockholder may revoke the proxy at any time prior
to the voting thereof by giving written notice of such revocation to Kuhlman, by
executing and delivering a proxy bearing a later date or by attending the
Kuhlman Annual Meeting and voting in person.
The expenses of the solicitation of Kuhlman stockholders will be paid by
Kuhlman. In addition to the use of the mail, proxies may be solicited by
directors, officers, or regular employees of Kuhlman in person, by telegraph or
by telephone. Arrangements will also be made with brokerage firms and other
custodians, nominees and fiduciaries to forward solicitation material to the
beneficial owners of the shares of Kuhlman Common Stock held of record by such
persons, and Kuhlman will reimburse such brokerage firms, custodians, nominees
and fiduciaries for reasonable out-of-pocket expenses incurred by them in
connection therewith. Kuhlman has retained Georgeson & Company Inc. to assist in
the solicitation of proxies. The fee of such firm is estimated to be $7,500,
plus reimbursement for out-of-pocket costs and expenses.
The presence at the Kuhlman Annual Meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of Kuhlman Common Stock is
necessary to constitute a quorum under Delaware law and the Bylaws of Kuhlman.
Votes cast by proxy or in person at the meeting will be tabulated by election
inspectors appointed for the meeting and will determine whether or not a quorum
is present. The election inspectors will treat abstentions and "broker
non-votes" (i.e., proxies of brokers who have limited authority to vote on
specified proposals) as shares that are present and entitled to vote for
purposes of determining the presence of a quorum at the meeting.
A plurality of the votes cast for the election of directors will be required
to elect Kuhlman directors at the meeting. In the absence of an election
contest, withholding authority to vote and broker non-votes with respect to a
nominee will have no effect on the election of such nominee.
Although the holders of Kuhlman Common Stock are not required to approve the
Merger under Delaware law, the rules of the New York Stock Exchange ("NYSE"), on
which Kuhlman Common Stock is listed, require that such holders approve the
issuance of shares when the number of such shares to be issued exceeds 20% of
the number of shares then outstanding. Under the rules of the
21
<PAGE>
NYSE, approval of the issuance of Kuhlman Common Stock in the Merger requires
the affirmative vote of a majority of the votes cast on this proposal, provided
that the total vote cast with respect thereto represents a majority of the
Kuhlman Common Stock entitled to vote.
The affirmative vote of the holders of a majority of the outstanding shares
of Kuhlman Common Stock is required to approve the Kuhlman Amendment. Approval
of the Kuhlman 1994 Option Plan requires the affirmative vote of the holders of
a majority of the Kuhlman Common Stock present or represented by proxy and
entitled to vote at the Kuhlman Annual Meeting. To ratify the appointment of
Arthur Andersen LLP as Kuhlman's auditors, the affirmative vote of a majority of
the votes cast affirmatively or negatively with respect thereto is required.
Kuhlman stockholders may mark the accompanying Kuhlman proxy to vote their
shares FOR or AGAINST or to ABSTAIN with respect to each proposal, except that
with respect to the election of directors, Kuhlman stockholders may either vote
FOR the nominees named herein or to WITHHOLD authority to vote for one or more
of such nominees. Abstentions and broker non-votes will be counted in
determining the presence of a quorum and will have the effect of a vote against
approval of the Kuhlman Amendment. Abstentions (but not broker non-votes) will
be considered entitled to vote for purposes of the proposal to approve the
Kuhlman 1994 Option Plan. Neither abstentions nor broker non-votes will have any
effect on the proposal to approve the issuance of Kuhlman Common Stock in the
Merger or the ratification of the appointment of auditors.
THE BOARD OF DIRECTORS OF KUHLMAN RECOMMENDS THAT KUHLMAN STOCKHOLDERS VOTE
"FOR" APPROVAL OF EACH PROPOSAL CONTAINED IN THE ACCOMPANYING NOTICE OF ANNUAL
MEETING OF STOCKHOLDERS OF KUHLMAN.
The management of Kuhlman knows of no business other than that stated in
this Proxy Statement/Prospectus which will be presented for stockholder vote at
the Kuhlman Annual Meeting. If other business should properly come before such
meeting, however, the persons designated in the enclosed Kuhlman proxy will vote
or refrain from voting in respect thereof in accordance with their best
judgment.
SCHWITZER
The Schwitzer Annual Meeting has been called by the Schwitzer Board of
Directors to (i) elect three directors; (ii) consider and vote on the adoption
of the Merger Agreement providing for the merger of Spinner with and into
Schwitzer; and (iii) to ratify the appointment of Arthur Andersen LLP as
independent auditors for Schwitzer for the current year. The Schwitzer Annual
Meeting will be held on May 31, 1995, at 9:30 a.m., local time, at the
Northbrook Hilton Hotel, 2855 North Milwaukee Avenue, Northbrook, Illinois
60062. Only holders of record of Schwitzer Common Stock at the close of business
on April 18, 1995 will be entitled to notice of and to vote at the Schwitzer
Annual Meeting. Schwitzer had outstanding 7,239,741 shares of Schwitzer Common
Stock as of the close of business on April 18, 1995, of which 151,801 shares
(2.1%) were owned beneficially by the officers and directors of Schwitzer, and
such persons have indicated their intention to vote such shares in favor of each
of the proposals set forth in the notice of the Schwitzer Annual Meeting. There
are no other voting securities outstanding. Each stockholder is entitled to one
vote per share on each proposal contained in the notice of the Schwitzer Annual
Meeting. If the accompanying proxy form is signed and returned, the shares
represented thereby will be voted in accordance with any direction on the proxy
form, or in the absence of a direction as to any proposal, they will be voted
FOR the proposal. The stockholder may revoke the proxy at any time prior to the
voting thereof by giving written notice of such revocation to Schwitzer, by
executing and delivering a proxy bearing a later date, or by attending the
Schwitzer Annual Meeting and voting in person.
The expenses of the solicitation of Schwitzer stockholders will be paid by
Schwitzer. In addition to the use of the mail, proxies may be solicited by
directors, officers, or regular employees of Schwitzer in person, by telegraph
or by telephone. Arrangements will also be made with brokerage firms and other
custodians, nominees and fiduciaries to forward solicitation material to the
beneficial owners of the
22
<PAGE>
shares of Schwitzer Common Stock held of record by such persons, and Schwitzer
will reimburse such brokerage firms, custodians, nominees and fiduciaries for
reasonable out-of-pocket expenses incurred by them in connection therewith.
Schwitzer has retained Morrow & Co., Inc. to assist in the solicitation of
proxies. The fee of such firm is estimated to be $4,000, plus reimbursement for
out-of-pocket costs and expenses.
The presence at the Schwitzer Annual Meeting, in person or by proxy, of the
holders of a majority of the outstanding shares of Schwitzer Common Stock is
necessary to constitute a quorum. Under Delaware law and the Certificate of
Incorporation and the Bylaws of Schwitzer, the favorable vote of the holders of
a majority of the outstanding shares of Schwitzer Common Stock is required to
approve the Merger Agreement. A plurality of the votes cast for the elections of
directors will be required to elect the directors at the meeting. To ratify the
appointment of Arthur Andersen LLP, as Schwitzer's auditors, the favorable vote
of a majority of the votes cast with respect thereto is required.
Schwitzer stockholders may mark the accompanying Schwitzer proxy to vote
their shares FOR or AGAINST or to ABSTAIN from voting with respect to each
proposal, except that with respect to the election of directors, Schwitzer
stockholders may either vote FOR the nominees named herein or WITHHOLD authority
to vote for one or more of such nominees. In the absence of an election contest,
withholding authority to vote and broker non-votes with respect to a nominee
will have no effect on the election of such nominee. Abstentions and broker
non-votes will be counted in determining the presence of a quorum and will have
the effect of a vote against approval of the Merger Agreement, but will have no
effect on the ratification of the appointment of auditors.
THE BOARD OF DIRECTORS OF SCHWITZER RECOMMENDS THAT SCHWITZER STOCKHOLDERS
VOTE "FOR" APPROVAL OF EACH PROPOSAL CONTAINED IN THE ACCOMPANYING NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS OF SCHWITZER.
The management of Schwitzer knows of no business other than that stated in
this Proxy Statement/Prospectus which will be presented for stockholder vote at
the Schwitzer Annual Meeting. If other business should properly come before such
meeting, however, the persons designated in the enclosed Schwitzer proxy will
vote or refrain from voting in respect thereof in accordance with their best
judgment.
23
<PAGE>
THE MERGER
WHILE KUHLMAN AND SCHWITZER BELIEVE THAT THE DESCRIPTION OF THE MERGER
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE AND COMPLETE IN ALL
MATERIAL RESPECTS, SUCH DESCRIPTION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE MERGER AGREEMENT AND THE FORM OF CERTIFICATE OF MERGER, THE FULL TEXT OF
EACH OF WHICH IS ATTACHED AS APPENDIX A AND INCORPORATED HEREIN BY REFERENCE.
TERMS OF THE MERGER
The Merger Agreement provides that, upon satisfaction (or waiver) of the
conditions set forth therein, Spinner will be merged with and into Schwitzer,
which will be the surviving corporation in the Merger and become a wholly-owned
subsidiary of Kuhlman. At the Effective Time, each outstanding share of
Schwitzer Common Stock will be converted into 0.9615 share of Kuhlman Common
Stock, provided that in lieu of fractional shares of Kuhlman Common Stock,
Schwitzer stockholders who would otherwise be entitled to a fractional share
shall be paid an amount of cash (without interest) equal to the value of such
fractional share based on the closing price of Kuhlman Common Stock on the
business day immediately preceding the Effective Time.
BACKGROUND OF THE MERGER
Schwitzer became a public company by means of a tax-free spin-off by
Household International, Inc. ("Household") in April, 1989. Shortly after the
spin-off, it became apparent that Schwitzer's industry was declining from a peak
in its business cycle. By the fall of 1989, Schwitzer was compelled to
renegotiate its bank covenants.
Certain of Schwitzer's major customers expressed concerns about its ability
to withstand a prolonged business down-cycle and actively encouraged Schwitzer
to consider strategic alliances or other business combinations. During 1990,
Schwitzer's management had discussions with seven different companies, none of
which expressed a serious interest in a transaction. At the end of 1990 and the
beginning of 1991, Schwitzer had its first serious discussions with the
subsidiary of a large European corporation. The discussions focused on a sale of
Schwitzer for cash, but the other party never came forward with an offer. In
1991, Schwitzer's management had a series of serious discussions with another
potential acquiror. Due to concerns about possible antitrust issues, the other
potential partner withdrew from the discussions without making an offer.
In the 1992 to 1993 period, brief discussions were held with four additional
parties, none of which displayed a serious interest. In the 1993 to 1994 period,
Schwitzer's management engaged in serious discussions with a potential
stock-for-stock merger partner. Those discussions terminated in the summer of
1994 when it became apparent that the parties would not be able to reach
agreement as to value. The other party in these discussions never indicated a
willingness to propose a transaction which could be valued as high as the value
of the Merger.
In mid-1994, as part of its strategy to increase stockholder value through
both growth in earnings and diversification of stockholder risk through a
planned acquisition program, Kuhlman identified Schwitzer as one of several
organizations that, if combined with Kuhlman, could possibly further strengthen
and diversify Kuhlman. At Kuhlman's regularly scheduled Board of Directors
meeting in July 1994, the possible combination of Kuhlman and Schwitzer was one
of several such combinations that was favorably discussed. Potential future
contacts between the companies were also discussed, as well as the fact that Mr.
Jepson, Kuhlman's Chairman and Chief Executive Officer, was also a member of the
Board of Directors of Schwitzer.
In October of 1994, after it had become clear that Schwitzer's latest set of
discussions had terminated, Mr. Jepson expressed to Mr. Dillon an interest in
exploring a possible business combination of Kuhlman and Schwitzer. Beginning in
October, 1994, representatives of Kuhlman and Schwitzer engaged in a variety of
discussions, visited each other's facilities and generally explored the
possibility of a transaction between the two companies. During this period, the
Schwitzer Board of
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Directors and the Kuhlman Board of Directors were continually updated on the
status of events. At all times, Mr. Jepson did not participate in discussions by
the Schwitzer Board of Directors relating to the possible business combination
with Kuhlman or vote with respect to the Merger Agreement.
Late in 1994, Mr. Dillon and Mr. Jepson discussed various structure and
pricing issues for a possible combination of Schwitzer and Kuhlman, but reached
no agreement. When Mr. Jepson indicated that he thought a transaction was
possible, Schwitzer retained J.P. Morgan and began a more detailed due diligence
investigation.
In early January, 1995, Mr. Dillon presented Mr. Jepson with a term sheet
summarizing various non-financial terms and conditions of a possible definitive
merger agreement. On January 17, 1995, the Schwitzer Board of Directors was
apprised of the state of negotiations, received preliminary financial advice
from J.P. Morgan and authorized continued discussions. On January 18, 1995,
Kuhlman and Schwitzer entered into a confidentiality agreement relating to the
exchange of confidential business information. Counsel for each of Schwitzer and
Kuhlman met on January 23, 1995, and it was agreed that counsel for Schwitzer
would begin to draft a definitive merger agreement generally following the terms
and conditions set forth on the term sheet which had been presented earlier.
On February 1, 1995, the Schwitzer Board of Directors met by telephonic
conference call. The Schwitzer Board of Directors was again updated on the
status of negotiations and reviewed counsel's draft of a definitive merger
agreement. Thereupon the Schwitzer Board of Directors authorized counsel to
submit the draft contract to counsel for Kuhlman and to commence detailed
negotiations. At a special meeting held by telephone conference call on February
6, 1995, the Kuhlman Board of Directors reviewed the proposed transaction with
Schwitzer and authorized Kuhlman's management to continue negotiations with
Schwitzer. An executive summary regarding the proposed transaction with
Schwitzer was provided to the Kuhlman Directors in advance of this meeting.
Although Mr. Jepson participated in discussions regarding the proposed
transaction with Schwitzer at such Kuhlman Board of Directors meeting, he later
excused himself from the meeting and did not vote on authorizing the management
of Kuhlman to continue negotiations with Schwitzer. Following the meeting on
February 6, 1995, Chase Manhattan was retained by Kuhlman to review the fairness
from a financial point of view to Kuhlman of the consideration to be paid by
Kuhlman in the Merger. Kuhlman management and outside legal counsel, accountants
and consultants also intensified their due diligence review efforts and the
parties commenced the negotiations of a merger agreement.
On February 13, 1995, the Schwitzer Board of Directors again met by
telephonic conference call and reviewed in detail the status of the negotiations
of the definitive merger agreement. During this period, the discussions between
Mr. Dillon and Mr. Jepson narrowed the pricing and structure issues for the
proposed transaction.
At a regular meeting of the Kuhlman Board of Directors, held on February 22,
1995, following a report by management of Kuhlman regarding the progress of
negotiations, the results of the ongoing due diligence review, and the
likelihood that a successful transaction could be concluded substantially in
accordance with the terms of the proposed Merger Agreement that had been
reviewed by them, as well as a review by Chase Manhattan as to the financial
analyses which it had conducted in evaluating the fairness, from a financial
point of view, to Kuhlman of the consideration proposed to be paid by Kuhlman
pursuant to the proposed Merger Agreement, the Kuhlman Board of Directors
approved the transaction provided for in the proposed Merger Agreement, subject
to the negotiation of an exchange ratio and certain other terms of the Merger,
and authorized certain officers of Kuhlman to execute the Merger Agreement, when
finalized, on behalf of Kuhlman, and to prepare other related documentation for
the proposed transaction. Although Mr. Jepson participated in the discussions
regarding the proposed transaction with Schwitzer at the Kuhlman Board of
Directors meeting on February 22, 1995, he abstained from voting on the proposed
transaction.
During the late afternoon on February 24, 1995, after trading on the NYSE
had closed, Mr. Dillon, Mr. Jepson, their respective outside counsel and
representatives of J.P. Morgan participated in a
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telephone conference call in which Mr. Jepson proposed on behalf of Kuhlman the
Exchange Ratio whereby each share of Schwitzer Common Stock would be converted
by the Merger into 0.9615 share of Kuhlman Common Stock and certain other terms
of the Merger Agreement.
On February 25, 1995, the Schwitzer Board of Directors met to consider
Kuhlman's proposal. During the course of the meeting, they received a value
presentation and written fairness opinion from J.P. Morgan, reviewed in detail
the final draft of the definitive Merger Agreement, considered the history of
contacts which had been made with other potential parties to a business
combination, considered the other factors described below under "Schwitzer's
Reasons for the Merger; Recommendation of the Schwitzer Board of Directors" and
considered alternatives to the Merger. The Schwitzer Board of Directors then
approved the Merger Agreement. Immediately after the conclusion of the meeting,
the Merger Agreement was executed and delivered by Kuhlman, Schwitzer and
Spinner.
On Monday, February 27, 1995, prior to the opening of trading on the NYSE,
Kuhlman and Schwitzer issued separate press releases announcing the execution of
the definitive Merger Agreement.
On April 10, 1995, Mr. Dillon received a letter from an investment banker
requesting a meeting between the banker's client and Mr. Dillon to discuss "the
possibility of making a significantly higher offer for Schwitzer, Inc. than is
embodied in" the Merger Agreement. On April 12, 1995, after reviewing with
counsel provisions of the Merger Agreement described under "The Merger -- No
Solicitation of Other Transactions" and the principles of Delaware law
applicable thereto, the Schwitzer Board of Directors (with Mr. Jepson absent)
authorized Mr. Dillon to arrange to meet with the banker's client. When later
that day Mr. Dillon called the client to make arrangements for such meeting, Mr.
Dillon informed the client that Schwitzer's Board had determined to pursue a
strategic merger and not a sale or other change in control transaction. Mr.
Dillon stated further that, in light of the imminent mailing of this Proxy
Statement/Prospectus to Schwitzer's stockholders, he would want such a meeting
to be productive and, accordingly, to include at least a preliminary indication
from the client of the amount and form of consideration contemplated by the
client. Mr. Dillon was informed by the client that he was not prepared to
provide such an indication. Also on April 12, 1995, representatives of J.P.
Morgan, acting upon instructions given by Mr. Dillon after further consultation
with counsel, contacted the client's investment banker and reaffirmed Mr.
Dillon's willingness to meet when and if the banker's client was able to provide
the requested preliminary indication. On April 13, 1995, the client's investment
banker informed J.P. Morgan that he hoped to provide the requested preliminary
indication by April 21, 1995, but as of the date of this Proxy
Statement/Prospectus, no such preliminary indication has been received, nor has
any meeting with the banker's client taken place.
KUHLMAN'S REASONS FOR THE MERGER; RECOMMENDATION OF THE KUHLMAN BOARD OF
DIRECTORS
Kuhlman believes that the combination of Schwitzer with Kuhlman through the
Merger would benefit Kuhlman by providing its stockholders with what Kuhlman's
management believes will be a more diversified corporation capable of delivering
more consistent earnings growth and better equipped to meet the competitive
challenges that it is certain to face in the future. More specifically, Kuhlman
believes that the Merger would provide opportunities for both companies that
would not be available to either organization if they were not combined. Kuhlman
has strategic objectives of increasing long-term shareholder value by increasing
earnings and diversifying shareholder risk through a program of expansion.
Kuhlman's management believes the combination with Schwitzer meets both of these
criteria. Schwitzer also adds product lines and markets not currently served by
Kuhlman, thereby further diversifying Kuhlman's current products and markets. In
addition, Kuhlman believes that the combination with Schwitzer will assist
Kuhlman in building a manufacturing organization focused on the sale and
distribution of products to certain targeted industrial markets and customers.
Kuhlman anticipates growing Schwitzer's business both through internal expansion
by strengthening its capital investment program, and by initiating an
acquisition program that further enhances Schwitzer's market presence in its key
product areas. Kuhlman believes that these
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efforts will further serve to enhance Schwitzer's future growth and earnings
potential by adding greater resources in its core product areas. Because
Schwitzer participates in a cyclical industry, the diversification provided by
the Merger is expected to counter such cyclicality to the benefit of
stockholders. Kuhlman believes that Schwitzer's organization will be able to
concentrate its efforts on the growth opportunities and synergies that exist
within its marketplace without the diversions which occur in trying to diversify
a company which operates in a cyclical environment. In addition, following the
combination, the combined company is expected to have access to the greater
financial resources of a larger company with which to support its growth
opportunities within the markets it currently serves. It is anticipated that
following the Merger, the combined companies will be able to capitalize on the
opportunities available to a much larger company in the capital markets.
Robert S. Jepson, Jr., the Chairman of the Board and Chief Executive Officer
of Kuhlman, has been a director of Schwitzer, Inc. since June, 1994. Although
Mr. Jepson attended, and participated in, the meetings of the Kuhlman Board of
Directors during which the Merger was discussed, he abstained from voting on the
Merger. All of the remaining members of the Kuhlman Board of Directors voted to
approve the issuance of shares of Kuhlman Common Stock in connection with the
Merger.
THE KUHLMAN BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED TRANSACTION IS IN
THE BEST INTERESTS OF KUHLMAN AND ITS STOCKHOLDERS, HAS APPROVED THE MERGER, AND
RECOMMENDS THAT THE STOCKHOLDERS OF KUHLMAN VOTE "FOR" APPROVAL OF THE ISSUANCE
OF SHARES OF KUHLMAN COMMON STOCK IN CONNECTION WITH THE MERGER.
The Kuhlman Board of Directors, in reaching its conclusion at its meeting on
February 22, 1995 that the proposed transaction is in the best interests of
Kuhlman and its stockholders, considered, among other things, the following
factors:
(i) the fact that the proposed Merger fit Kuhlman's strategic objectives; (ii)
the historical market prices of Kuhlman Common Stock and the number of shares of
Schwitzer Common Stock outstanding; (iii) the Kuhlman Board of Directors belief
that the proposed merger would be beneficial to Kuhlman's stockholders since
Kuhlman's market capitalization would be significantly greater following the
Merger than the market capitalization before the Merger; (iv) the Kuhlman Board
of Directors belief that the premium over the current market price being paid to
the Schwitzer stockholders was reasonable in view of the benefits that are
expected to accrue to Kuhlman from the Merger; (v) the Kuhlman Board of
Directors belief that Kuhlman's earnings per share including Schwitzer's
projected earnings will increase over time following the Merger; (vi) the
Kuhlman Board of Directors belief that the Merger would be accretive rather than
dilutive to Kuhlman's earnings per share and that any potential dilution was
believed to be reasonable based on the benefits the Merger would be expected to
have on Kuhlman and the ultimate expected increase in Kuhlman earnings per
share; (vii) the Kuhlman Board of Directors belief that Schwitzer's prospects
for growth, when viewed in light of Schwitzer's historical financial condition
and results of operations, should further improve when Schwitzer is combined
with Kuhlman; (viii) the Kuhlman Board of Directors belief that Schwitzer's
business, when combined with Kuhlman's business, should provide various cost
savings to the combined businesses (for example, Schwitzer will no longer need
to prepare the numerous documents required of a publicly-held company); (ix) the
Kuhlman Board of Directors belief that Schwitzer's business is expected to grow,
particularly in Europe; (x) the Kuhlman Board of Directors belief that the
benefits to the Schwitzer stockholders of a tax-free reorganization would
encourage them to approve the transaction (without a tax-free reorganization,
Kuhlman may have had to pay an increased price to encourage Schwitzer's
stockholders to approve the transaction); (xi) the Kuhlman Board of Directors
belief that the terms of the Agreement, including representations and warranties
and covenants, provided the basis for a successful merger transaction (the
Agreement provides provisions which are fair and equitable to both parties and
are customary in transactions such as the Merger); (xii) the current and
projected economic market conditions used in analyzing both Schwitzer's business
and the combined companies; (xiii) reports from Kuhlman's management concerning
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the results of due diligence performed on Schwitzer, and (xiv) the written
opinion of Chase Manhattan, dated February 25, 1995, to the effect that, based
upon and subject to certain matters stated in such opinion, the Exchange Ratio
was fair to Kuhlman from a financial point of view.
The Kuhlman Board of Directors attached no specific relative weights to
these or other factors in reaching its determination to approve the proposed
transaction.
SCHWITZER'S REASONS FOR THE MERGER; RECOMMENDATION OF THE SCHWITZER BOARD OF
DIRECTORS
The Merger, including the Merger Agreement and the transactions contemplated
thereby, was submitted to Schwitzer's Board of Directors and unanimously
approved at a special meeting held on February 25, 1995 attended by all members
of the Board except for Robert S. Jepson, Jr. Mr. Jepson did not participate in
the Schwitzer Board deliberations or vote on the Merger. THE SCHWITZER BOARD OF
DIRECTORS BELIEVES THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF,
SCHWITZER AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS TO THE HOLDERS OF
SCHWITZER COMMON STOCK THAT THEY VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT. As
described above under "The Merger -- Background of the Merger," sales prices for
Schwitzer Common Stock prior to public announcement of the Merger Agreement have
remained well below levels reflective of stockholder value. By contrast,
Schwitzer's management believes that the recommended Merger with Kuhlman has
been structured to produce Schwitzer stockholder value which is fair to
Schwitzer's stockholders and which Schwitzer's management sought to achieve.
Accordingly, Schwitzer's Board of Directors and management concluded that it was
appropriate to enter into the Merger Agreement.
In addition, the Schwitzer Board of Directors considered, among other
things, the following factors in approving and recommending the Merger: (i) the
written opinion of J.P. Morgan dated February 25, 1995 that, as of such date,
the Exchange Ratio was fair from a financial point of view to the holders of
Schwitzer Common Stock (see "The Merger -- Opinions of Financial Advisors");
(ii) information with respect to the historical financial condition, results of
operations, business and prospects of Schwitzer and of Kuhlman, together with
current industry, economic and market conditions; (iii) information with respect
to the pro forma financial condition and results of operations of Kuhlman,
assuming consummation of the Merger; (iv) recent and historical trading prices
of Schwitzer Common Stock, and ratios at which common stock of similar companies
(see "The Merger -- Opinions of Financial Advisers -- Schwitzer") had been
trading; (v) the fact that the Kuhlman Common Stock to be received by the
holders of Schwitzer Common Stock in the Merger was trading at prices
substantially in excess of the trading prices of Schwitzer Common Stock prior to
the February 25, 1995 Schwitzer Board meeting; (vi) the history of unsolicited
indications of interest from several companies (including companies which were
among those that J.P. Morgan later identified as being the most likely to have
an interest in acquiring Schwitzer) and the opinion of Schwitzer's Board of
Directors that none of the other interests expressed was at the level of value
provided by the Merger Agreement on February 25, 1995; (vii) reports from
various members of Schwitzer's management concerning the results of the due
diligence they performed as to Kuhlman; (viii) the fact that Kuhlman Common
Stock has reasonable trading liquidity; (ix) the structure of the Merger, which
would permit holders of Schwitzer Common Stock to exchange such Schwitzer Common
Stock for shares of Kuhlman Common Stock without, in general, recognizing gain
or loss for U.S. federal income tax purposes; (x) Schwitzer management's view
that the information provided to Kuhlman in its due diligence investigation of
Schwitzer would not reasonably be expected to result in appreciably enhanced
expressions of interest if provided to other companies; (xi) the fact that there
are no dissenters' rights for holders of Schwitzer Common Stock; (xii) the
terms, and the course of negotiations resulting in the financial and other
terms, of the Merger Agreement; (xiii) Schwitzer's ability to accept a superior
offer (subject to certain restrictions and fees); (xiv) alternatives available
to Schwitzer; and (xv) Schwitzer management's recommendation and the knowledge
and experience of the members of Schwitzer's Board of Directors.
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Although basing its conclusion upon the different considerations discussed
above, the Schwitzer Board of Directors did not assign any relative weight to
the various factors it considered in reaching its decision. The Board of
Directors, however, placed emphasis on the fact that the Kuhlman offer was the
highest proposal received, the firmness of the Kuhlman proposal and the high
degree of interest of Kuhlman in accomplishing the transaction, together with
its belief, as supported by the J.P. Morgan opinion, that, as of the date of
J.P. Morgan's opinion, the consideration to be received by the stockholders of
Schwitzer pursuant to the Merger was fair, from a financial point of view, to
the stockholders of Schwitzer. In light of such factors, the Schwitzer Board
determined that the Merger is in the best interests of Schwitzer and the holders
of Schwitzer Common Stock.
It is expected that if the Merger is not approved by the holders of
Schwitzer Common Stock, or if the other conditions to the consummation of the
Merger are not satisfied or waived, Schwitzer's management, under the general
direction of the Board of Directors of Schwitzer, will continue to manage
Schwitzer as an ongoing business and may seek other purchasers for Schwitzer. No
assurance can be given that another offer for Schwitzer will be made or, if
made, whether the consideration would be more or less than that offered by
Kuhlman.
OPINIONS OF FINANCIAL ADVISORS
KUHLMAN
Chase Manhattan was retained by Kuhlman to evaluate the fairness, from a
financial point of view, to Kuhlman of the consideration to be paid by Kuhlman
in the Merger. On February 25, 1995, Chase Manhattan delivered a written opinion
to the Board of Directors of Kuhlman to the effect that, as of such date and
based upon and subject to certain matters stated in such opinion, the Exchange
Ratio was fair, from a financial point of view, to Kuhlman. Chase Manhattan has
reconfirmed such opinion by delivery of a written opinion dated the date of this
Proxy Statement/Prospectus. The assumptions made, matters considered and
limitations on the review undertaken in the February 25, 1995 opinion are
substantially the same as those contained in the opinion dated the date of this
Proxy Statement/Prospectus and attached hereto as Appendix B. In connection with
its written opinion dated the date of this Proxy Statement/Prospectus, Chase
Manhattan confirmed the appropriateness of its reliance on the analyses used to
render its written opinion dated February 25, 1995 (which analyses are described
more fully below) by performing procedures to update such analyses.
In arriving at its opinion, Chase Manhattan reviewed the Merger Agreement
and certain publicly available business and historical financial information
relating to Kuhlman and Schwitzer. Chase Manhattan also reviewed certain other
information provided to Chase Manhattan by Kuhlman and Schwitzer, including
financial forecasts prepared by Kuhlman and Schwitzer, and held discussions with
representatives of Kuhlman and Schwitzer concerning the businesses and prospects
of Kuhlman and Schwitzer, including information relating to certain potential
strategic and financial implications of the Merger. Chase Manhattan also
considered certain financial and stock market data of Kuhlman and Schwitzer and
compared that data with similar data for other publicly held companies in
businesses which Chase Manhattan deemed comparable to those of Kuhlman and
Schwitzer and considered, to the extent publicly available, the financial terms
of certain other similar transactions recently effected which Chase Manhattan
deemed relevant in evaluating the Merger. Chase Manhattan also considered the
pro forma effect of the Merger on Kuhlman and such other information, financial
studies, analyses and investigations and financial, economic and market criteria
as Chase Manhattan deemed relevant for purposes of its opinion. Chase Manhattan
noted that its opinion was necessarily based upon information available to Chase
Manhattan, and economic and market conditions and other circumstances as they
existed and could be evaluated, on the date of its opinion.
In rendering its opinion, Chase Manhattan assumed and relied, without
independent verification, upon the accuracy and completeness of all information
reviewed by Chase Manhattan. With respect to financial forecasts reviewed by
Chase Manhattan, the managements of Kuhlman and Schwitzer advised Chase
Manhattan that such forecasts were reasonably prepared on bases reflecting the
best
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currently available estimates and judgments of the respective managements of
Kuhlman and Schwitzer as to the future financial performance of Kuhlman and
Schwitzer and the potential strategic and financial implications of the Merger.
Chase Manhattan assumed, with the consent of the Board of Directors of Kuhlman,
that the Merger will be treated as a pooling of interests in accordance with
generally accepted accounting principles and as a tax-free reorganization for
federal income tax purposes. Chase Manhattan was not requested to, and did not,
participate in the negotiation or structuring of the Merger, nor did Chase
Manhattan make or obtain an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Kuhlman or Schwitzer. Chase Manhattan's
opinion relates to the relative values of Kuhlman and Schwitzer. Chase Manhattan
did not express any opinion as to what the value of the Kuhlman Common Stock
actually will be when issued to Schwitzer stockholders pursuant to the Merger or
the price at which Kuhlman Common Stock will trade subsequent to the Merger. In
addition, although Chase Manhattan evaluated the Exchange Ratio from a financial
point of view, Chase Manhattan was not asked to and did not recommend the
specific consideration payable in the Merger. No other limitations were imposed
by Kuhlman on Chase Manhattan with respect to the investigations made or
procedures followed by Chase Manhattan in rendering its opinion within the scope
of its engagement.
The full text of the written opinion of Chase Manhattan dated the date of
this Proxy Statement/ Prospectus, which sets forth the assumptions made, matters
considered and limitations on the review undertaken, is attached hereto as
Appendix B and is incorporated herein by reference. KUHLMAN STOCKHOLDERS ARE
URGED TO READ THIS OPINION CAREFULLY IN ITS ENTIRETY. Chase Manhattan's opinion
is directed only to the fairness of the Exchange Ratio from a financial point of
view and has been provided solely for the use of the Board of Directors of
Kuhlman in its evaluation of the Merger, does not address any other aspect of
the Merger or related transactions and does not constitute a recommendation to
any Kuhlman stockholder as to how such stockholders should vote at the Kuhlman
Annual Meeting. The summary of the opinion of Chase Manhattan set forth in this
Proxy Statement/Prospectus is qualified in its entirety by reference to the full
text of such opinion.
In preparing its opinion to the Board of Directors of Kuhlman, Chase
Manhattan performed a variety of financial and comparative analyses, including
those described below. The summary of such analyses, which does not purport to
be a complete description of the analyses underlying Chase Manhattan's opinion,
sets forth the material aspects of the analyses performed and factors considered
by Chase Manhattan in connection with its opinion. The preparation of a fairness
opinion is a complex analytic process involving various determinations as to the
most appropriate and relevant methods of financial analyses and the application
of those methods to the particular circumstances and, therefore, such an opinion
is not readily susceptible to summary description. In arriving at its opinion,
Chase Manhattan did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Chase
Manhattan believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors, without considering all analyses
and factors, could create a misleading or incomplete view of the processes
underlying such analyses and its opinion. In its analyses, Chase Manhattan made
numerous assumptions with respect to Kuhlman, Schwitzer, industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of Kuhlman and Schwitzer. The estimates
contained in such analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by such analyses. In addition, analyses relating
to the value or businesses or securities do not purport to be appraisals or to
reflect the prices at which businesses or securities actually may be sold.
Accordingly, because such estimates are inherently subject to substantial
uncertainty, none of Kuhlman, Schwitzer or Chase Manhattan or any other person
assumes responsibility for their accuracy.
COMPARABLE COMPANY ANALYSIS. Chase Manhattan reviewed and compared publicly
available information relating to certain financial, operating and stock market
information of Schwitzer and Kuhlman with corresponding information of selected
companies whose operations Chase Manhattan
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deemed reasonably comparable to those of Schwitzer and Kuhlman. The companies
selected for comparison to Schwitzer were: Arvin Industries, Inc.; Dana
Corporation; Eaton Corporation; Echlin Inc.; Federal-Mogul Corporation; Modine
Manufacturing Company; Simpson Industries, Inc.; Standard Motor Products, Inc.;
Varity Corporation; and Walbro Corporation (collectively, the "Schwitzer
Comparable Companies"). The companies selected for comparison to Kuhlman were:
AFC Cable Systems, Inc.; Belden Inc.; Cable Design Technologies Corporation;
Communication Cable, Inc.; Encore Wire Corporation; General Signal Corporation;
Hubbell Incorporated; and Magnetek, Inc. (collectively, the "Kuhlman Comparable
Companies"). Chase Manhattan compared, among other things, market value as a
multiple of latest twelve months ("LTM") net income and estimated 1994 and,
where available, 1995 net income, and market capitalization (market value of
common stock, plus preferred stock, plus interest-bearing liabilities, less cash
in excess of 1% of revenues) as a multiple of LTM revenue, LTM operating profit,
and LTM operating profit plus LTM depreciation and amortization expense ("LTM
operating cash flow"). All net income projections were based on the consensus of
publicly available analysts' estimates. All multiples were based on closing
stock prices as of February 17, 1995. This analysis resulted in per share equity
valuation reference ranges of approximately $10.00 to $18.00 for Schwitzer, and
approximately $10.00 to $15.00 for Kuhlman.
No company utilized in the Comparable Company Analysis as a comparison is
identical to Schwitzer or Kuhlman. Accordingly, an analysis of the results of
the foregoing is not entirely mathematical. Rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies and other factors that could affect
the public trading value of the comparable companies or company to which they
are being compared.
COMPARABLE TRANSACTION ANALYSIS. Using publicly available information,
Chase Manhattan reviewed the purchase prices and multiples paid in selected
merger and acquisition transactions announced between 1989 and February 14, 1995
which Chase Manhattan deemed relevant in evaluating the Merger. Transactions
reviewed, in reverse chronological order of announcement date, included: the
acquisition of Neway Anchorlok by Kohlberg Kravis Roberts & Co.; the acquisition
of Heinrich Gillet GmbH & Company by Tenneco Inc.; the acquisition of Purolator
Products Company by Mark IV Industries, Inc.; the acquisition of John Cotton
(Colne) Limited by Automotive Industries Holding, Inc.; the acquisition of a
unit of the Delco Chassis Division of the Automotive Components Group of General
Motors Corporation by ITT Corporation; the acquisition of Pirelli Transmissioni
Industriali S.p.A. by Mark IV Industries, Inc.; the acquisition of Goetze, A.G.
by T&N PLC; the acquisition of Moog Automotive Group, Inc. (INFINT SA) by Cooper
Industries, Inc.; the acquisition of the automotive aftermarket business of TRW
Inc. by Federal-Mogul Corporation; the acquisition of Prestolite Electric Inc.
by Genstar Capital Corporation; the acquisition of the brake linings business of
Valeo SA by Allied Signal, Inc.; the acquisition of the three Automotive
Aftermarket Divisions of Parker-Hannifin Corporation by an investor group; the
acquisition of Blackstone Corp. (Mark IV Industries, Inc.) by Valeo SA; the
acquisition of the radiator business of IMI PLC by Nippondenso Co. Ltd.; and the
acquisition of certain automotive original equipment manufacturing businesses of
SPX Corporation by an investor group (collectively, the "Comparable
Transactions"). Chase Manhattan compared, to the extent information was
available, equity purchase prices as a multiple of LTM net income and tangible
book value, and total consideration (equity purchase price, plus assumed
liabilities, less cash in excess of 1% of revenues) as a multiple of LTM
revenue, LTM operating profit, and LTM operating cash flow. This analysis
resulted in a per share equity valuation reference range for Schwitzer of
approximately $12.00 to $20.00.
No company or transaction utilized in the Comparable Transaction Analysis is
identical to Schwitzer or the Merger. Accordingly, an analysis of the results of
the foregoing is not entirely mathematical. Rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies included in the Comparable Transaction Analysis
and other factors that could affect the equity purchase prices and total
consideration payable in such transactions.
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<PAGE>
DISCOUNTED CASH FLOW ANALYSIS. Chase Manhattan performed a discounted cash
flow analysis of the projected unlevered cash flows of Schwitzer and Kuhlman for
the fiscal years ended 1995 through 2004, based upon certain operating and
financial assumptions, forecasts and other information provided by the
managements of Kuhlman and Schwitzer. Chase Manhattan performed such analyses,
for each company, based on two sets of financial projections, one of which was
provided by Kuhlman management for fiscal years 1995 through 2000 and then
extrapolated by Chase Manhattan for fiscal years 2001 through 2004 consistent
with the operating and financial assumptions and other information presented by
Kuhlman management (as such projections related to Schwitzer or Kuhlman, as the
case may be, the "Expected Case" and, collectively, the "Expected Cases"), and
the other of which was prepared by Chase Manhattan and reviewed by Kuhlman
management assuming decreased financial performance of each of Schwitzer and
Kuhlman as a result of, among other things, a more pronounced cyclical downturn
in Schwitzer's business and lower overall sales and operating profitability in
Kuhlman's business (as such projections related to Schwitzer or Kuhlman, as the
case may be, the "Downside Case" and, collectively, the "Downside Cases"). In
both the Expected Cases and Downside Cases, it was assumed that neither
Schwitzer nor Kuhlman would consummate any acquisitions during the projected
period. In the Expected Case for Schwitzer, Kuhlman management assumed that
effects of Schwitzer's expected cyclical downturns would be significantly
mitigated by, among other things, a more aggressive world-wide expansion effort,
greater sales to emerging third-world markets, and the introduction of new
products. For purposes of such analyses, Chase Manhattan utilized discount rates
of 8% to 13% and terminal year operating profit multiples of 5.0x to 8.0x in the
case of Schwitzer and 6.0x to 9.0x in the case of Kuhlman. Based on discount
rates of 10% to 12%, and terminal year operating profit multiples of 5.0x to
7.0x in the case of Schwitzer and 6.0x to 8.0x in the case of Kuhlman, these
analyses resulted in equity valuation reference ranges for Schwitzer of
approximately $17.75 to $24.75 in the Expected Case and approximately $13.50 to
$18.75 in the Downside Case, and per share equity valuation reference ranges for
Kuhlman of approximately $13.50 to $20.25 in the Expected Case and approximately
$11.50 to $17.50 in the Downside Case.
PRO FORMA MERGER ANALYSIS. Chase Manhattan analyzed certain pro forma
effects resulting from the Merger on the earnings per share and debt-to-equity
ratio of Kuhlman, based both on the Expected Cases (collectively, the "Pro Forma
Expected Case") and the Downside Cases (collectively, the "Pro Forma Downside
Cases") and assuming, in each case, no synergies from the Merger. This analysis
suggested that (i) under the Pro Forma Expected Cases, the Merger would be
accretive in fiscal years 1995 through 1998, neutral in fiscal 1999, and
dilutive in fiscal years 2000 through 2004 and (ii) under the Pro Forma Downside
Cases, the Merger would be accretive in fiscal years 1995 through 1997 and
dilutive in fiscal years 1998 through 2004. This analysis also suggested that,
under both cases, the Merger would improve Kuhlman's debt-to-equity ratio for
the projected period. Actual results achieved by the combined company may vary
from projected results and the variations may be material.
CONTRIBUTION ANALYSIS. Chase Manhattan analyzed and compared the respective
contributions of Schwitzer and Kuhlman to the revenue and operating profit of
the combined company for the fiscal years 1995 and 2000, based both on the Pro
Forma Expected Cases and the Pro Forma Downside Cases. Under the Pro Forma
Expected Cases, Kuhlman and Schwitzer would contribute approximately (i) 61% and
39%, respectively, of total revenue in fiscal year 1995, (ii) 62% and 38%,
respectively, of total revenue in fiscal year 2000, (iii) 42% and 58%,
respectively, of total operating profit in fiscal year 1995, and (iv) 46% and
54%, respectively, of total operating profit in fiscal year 2000. Under the Pro
Forma Downside Cases, Kuhlman and Schwitzer would contribute approximately (i)
61% and 39%, respectively, of total revenue in fiscal year 1995, (ii) 65% and
35%, respectively, of total revenue of fiscal year 2000, (iii) 35% and 65%,
respectively, of total operating profit in fiscal year 1995, and (iv) 52% and
48%, respectively, of total operating profit in fiscal year 2000. Immediately
following consummation of the Merger, stockholders of Kuhlman and Schwitzer
would own approximately 45% and 55%, respectively, of the combined company.
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<PAGE>
PREMIUMS PAID ANALYSIS. Chase Manhattan reviewed the premiums paid in
merger and acquisition transactions since 1984 for which public information was
available, based on the target company's closing stock price five days prior to
the announcement of a transaction. The range of premiums for such transactions
were between approximately 35% and 42%, as compared to the premium of
approximately 39% payable in the Merger implied by the Exchange Ratio and a
closing price for Schwitzer Common Stock on February 17, 1995 of $9.00.
STOCK TRADING HISTORY. Chase Manhattan also reviewed the history of trading
prices and volume for the Kuhlman Common Stock and Schwitzer Common Stock, and
the relationship between movements of such common stock, the common stock of the
Comparable Companies, and movements in the S&P 400 Index.
Pursuant to the terms of Chase Manhattan's engagement, Kuhlman has agreed to
pay Chase Manhattan an opinion fee of $200,000. Kuhlman also has agreed to
reimburse Chase Manhattan for reasonable expenses incurred by Chase Manhattan in
performing its services, including the reasonable fees and expenses of its legal
counsel, and to indemnify Chase Manhattan and related persons against certain
liabilities, including liabilities under the federal securities laws, arising
out of Chase Manhattan's engagement.
Chase Manhattan has advised Kuhlman that, in the ordinary course of
business, Chase Manhattan and its affiliates may actively trade the securities
of Kuhlman and Schwitzer for their own account or for the account of customers
and, accordingly, may at any time hold a long or short position in such
securities. Chase Manhattan has in the past provided, and is currently
providing, commercial banking and other services to Kuhlman and its affiliates
unrelated to the Merger, including acting as managing agent for, and
participating as a syndicate member in, a $78 million bank credit facility made
available to Kuhlman in connection with its acquisition of Coleman Holding
Company, and have received, and will receive, fees for the rendering of such
services.
Chase Manhattan was selected by Kuhlman based on Chase Manhattan's expertise
and familiarity with Kuhlman and its business. Chase Manhattan is a nationally
recognized commercial banking firm and, in the course of business, Chase
Manhattan and its affiliates engage in the valuation of businesses and their
securities in connection with mergers and acquisitions and for other purposes.
SCHWITZER
In connection with the Merger, Schwitzer engaged J.P. Morgan to render its
opinion (the "J.P. Morgan Opinion") as to the fairness, from a financial point
of view, of the consideration to be received by the holders of Schwitzer Common
Stock, based on the Exchange Ratio set forth in the Merger Agreement. Except as
noted below, no limitations were imposed on J.P. Morgan by the Schwitzer Board
of Directors or management of Schwitzer with respect to the investigations made
or procedures followed by J.P. Morgan in preparing and rendering the J.P. Morgan
Opinion, and Schwitzer and its management cooperated fully with J.P. Morgan in
connection therewith. J.P. Morgan stated in the J.P. Morgan Opinion rendered to
the Schwitzer Board of Directors on February 25, 1995, and confirmed on the date
hereof, its opinion that such consideration is fair, from a financial point of
view, to Schwitzer's stockholders.
A copy of the J.P. Morgan Opinion, which sets forth the assumptions made,
matters considered, and limits on the review undertaken, is attached as Appendix
C to this Proxy Statement/Prospectus and is incorporated herein by reference.
The Schwitzer stockholders are urged to read the J.P. Morgan Opinion in its
entirety. While Schwitzer believes that the description of the J.P. Morgan
Opinion set forth herein is accurate and complete in all material respects, such
description is qualified in its entirety by reference to the full text of such
opinion set forth herein. The J.P. Morgan Opinion is addressed only to the
Schwitzer Board of Directors, is directed only to the consideration to be
received by Schwitzer in the Merger, and does not constitute a recommendation to
any Schwitzer stockholder as to how such stockholder should vote at the
Schwitzer Annual Meeting.
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<PAGE>
In arriving at the J.P. Morgan Opinion, J.P. Morgan reviewed (i) the Merger
Agreement; (ii) certain publicly available information concerning the business
of Schwitzer, Kuhlman, and certain other companies engaged in businesses
comparable to Schwitzer and Kuhlman, and the reported market prices for certain
other companies' securities deemed comparable; (iii) publicly available terms of
certain transactions involving companies comparable to Schwitzer and Kuhlman and
the consideration received for such companies; (iv) current and historical
market prices of Schwitzer Common Stock and of Kuhlman Common Stock, (v) the
audited financial statements of Schwitzer and Kuhlman for the periods ended
January 2, 1994 and December 31, 1993 respectively; and the unaudited financial
statements of Schwitzer and of Kuhlman for the periods ended January 1, 1995 and
December 31, 1994, respectively; (vi) certain internal financial analyses and
forecasts prepared by Schwitzer and Kuhlman and their respective managements;
(vii) the terms of other business combinations that J.P. Morgan deemed relevant;
and (viii) the currently contemplated capital structure and the anticipated
credit standing of the merged companies upon consummation of the Merger.
In addition, J.P. Morgan held discussions with certain members of the
management of Schwitzer and Kuhlman with respect to certain aspects of the
Merger and the past and current business operations of Schwitzer and Kuhlman,
the financial condition and future prospects and operations of Schwitzer and
Kuhlman, the effects of the Merger on the financial condition and future
prospects of the merged company, and certain other matters deemed necessary or
appropriate to the inquiry. J.P. Morgan visited certain representative
facilities of Schwitzer and Kuhlman and reviewed such other financial studies
and analyses and considered such other information as deemed appropriate for the
purposes of the J.P. Morgan Opinion.
J.P. Morgan applied generally accepted valuation methods in reaching the
J.P. Morgan Opinion, including (i) discounted cash flow analysis, which
consisted of discounting to present value the projected future free cash flows
of Schwitzer and of Schwitzer and Kuhlman combined (the "Combined Company");
(ii) comparable company trading analysis, which consisted of reviewing market
statistics and financial and operating information with respect to selected
publicly traded companies considered for comparability to Schwitzer to derive an
implied value for Schwitzer, and for comparability to Kuhlman's various
operating businesses to derive an implied value for the Combined Company; (iii)
comparable acquisition transaction analysis, which consisted of reviewing
operating statistics and purchase price information with respect to selected
acquisitions of assets or businesses similar to those of Schwitzer to derive an
implied value for Schwitzer; (iv) a transaction premium analysis, which
consisted of reviewing premiums over pre-announcement trading prices obtained in
acquisitions of publicly traded companies, each as described below and in the
presentation dated February 25, 1995 made by J.P. Morgan to the Schwitzer Board
of Directors; (v) a stock trading history of Schwitzer's price/volume
performance; and (vi) certain other analyses, including a contribution analysis,
a residual ownership structure analysis, and an accretion/(dilution) analysis.
Schwitzer has received from J.P. Morgan the following summary of the
material analyses that J.P. Morgan performed and the material factors that it
considered in arriving at the J.P. Morgan Opinion. While Schwitzer believes that
the following summary is accurate and complete in all material respects,
Schwitzer has been advised by J.P. Morgan that the following summary does not
purport to be a complete description of the analyses performed or the matters
considered by J.P. Morgan in arriving at the J.P. Morgan Opinion.
SCHWITZER STAND-ALONE
DISCOUNTED CASH FLOW ANALYSIS. For the discounted cash flow analysis of
Schwitzer, J.P. Morgan analyzed the unlevered free cash flows estimated to be
generated by Schwitzer from 1995 through 2004. Cash flow estimates were based on
forecasts developed by J.P. Morgan in conjunction with Schwitzer's management.
J.P. Morgan discounted Schwitzer's future cash flows at a 9.9% to 10.9% rate,
which was estimated to represent a range for Schwitzer's weighted average cost
of capital. In calculating Schwitzer's weighted average cost of capital, J.P.
Morgan considered current market conditions and Schwitzer's current capital
structure and beta (a coefficient measuring a stock's
34
<PAGE>
relative volatility). To determine the terminal value for Schwitzer beyond 2004,
J.P. Morgan utilized two methodologies: (i) an analysis of Schwitzer's unlevered
free cash flows beyond 2004 assuming a 2.5% to 3.5% sales growth rate in
perpetuity, and a 7.0% to 8.0% operating margin in perpetuity; and (ii) the
application of an operating profit multiple of 7.0x to 8.0x to Schwitzer's
terminal operating profit. Based on these assumptions, J.P. Morgan calculated an
implied fully diluted per share value ranging from approximately $7.70 to
approximately $9.35 for Schwitzer Common Stock, and deemed this value a
conservative forecast. In its presentation to the Schwitzer Board of Directors,
J.P. Morgan also outlined an upside forecast, which contained more aggressive
assumptions about new product sales growth and operating profitability. This
upside forecast yielded an implied fully diluted per share value ranging from
approximately $10.95 to approximately $13.80 for Schwitzer Common Stock.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPARABLE COMPANIES. J.P. Morgan
reviewed certain publicly available financial, operating and stock market
information as of February 23, 1995 for Schwitzer and for certain selected
publicly traded companies. The selected trucking and automotive parts
manufacturers included in this analysis (collectively, the "Schwitzer Comparable
Group") were: Arvin Industries Inc., Dana Corp., Eaton Corp., Mascotech Inc.,
Modine Manufacturing Co., Simpson Industries Inc., A.O. Smith Corp., and Walbro
Corp. For Schwitzer and for each comparable company, J.P. Morgan calculated,
among other things: (i) multiples of Firm Value (defined as the market value of
equity plus net debt) to LTM sales, LTM earnings before interest and taxes
("EBIT"), LTM earnings before interest, taxes, depreciation and amortization
("EBITDA"); (ii) multiples of Firm Value to 1995 estimated EBITDA; (iii)
multiples of Market Price to LTM earnings per share ("EPS"); and (iv) multiples
of Market Price to 1995 estimated EPS. The 1995 EBITDA and EPS estimates for the
Schwitzer Comparable Group were derived from a composite of research analysts'
estimates. The 1995 EBITDA and EPS estimates for Schwitzer were taken from
Schwitzer's forecast developed by J.P. Morgan in conjunction with Schwitzer's
management, and described in the "Discounted Cash Flow Analysis" paragraph
above. Since Schwitzer historically has traded at a 15% to 35% discount to the
Schwitzer Comparable Group, J.P. Morgan then applied a 25% discount to the
results of such analyses for the Schwitzer Comparable Group. The following CHART
A presents the median discounted multiples and the ranges of discounted
multiples for the Schwitzer Comparable Group.
CHART A
VALUATION MULTIPLES OF SCHWITZER COMPARABLE GROUP
AS OF FEB. 23, 1995
<TABLE>
<CAPTION>
DISCOUNTED MEDIAN DISCOUNTED RANGE
OF SCHWITZER OF SCHWITZER
COMPARABLE GROUP COMPARABLE GROUP
------------------- ------------------
<S> <C> <C>
Firm Value/LTM Sales....................................................... 0.5x 0.4x - 0.7x
Firm Value/LTM EBIT........................................................ 6.3x 5.9x - 7.4x
Firm Value/LTM EBITDA...................................................... 4.8x 3.8x - 5.6x
Firm Value/1995E EBITDA.................................................... 2.7x 2.3x - 3.3x
Market Price/LTM EPS....................................................... 9.1x 7.5x - 11.0x
Market Price/1995E EPS..................................................... 6.8x 6.3x - 7.4x
</TABLE>
Applying the appropriate range of multiples to Schwitzer's corresponding
results, J.P. Morgan calculated an implied primary value per share ranging from
approximately $8.00 to approximately $11.00 per share for Schwitzer Common
Stock.
ANALYSIS OF SELECTED COMPARABLE ACQUISITION TRANSACTIONS. J.P. Morgan
reviewed the merger and acquisition activity in the trucking and automotive
parts manufacturing industry for the period from June 1989 to February 1995.
After analyzing the publicly available information, J.P. Morgan determined that
seven transactions (for which sufficient financial information necessary to
determine valuation multiples was available) were comparable to the proposed
Merger. These transactions were:
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<PAGE>
Kohlberg Kravis Roberts & Co.'s acquisition of Neway Anchorlok International,
Penske Transportation Inc.'s acquisition of Kuhnle, Kopp und Kausch,
Frankenthal, Dina's acquisition of Motor Coach International, Inc., Titan Wheel
International, Inc.'s acquisition of Dyneer Corp., Tomkins PLC's acquisition of
Philips Industries, Inc., T & N PLC's acquisition of J.P. Industries, Inc., and
Varity Corp.'s acquisition of Kelsey-Hayes. J.P. Morgan calculated, among other
things, multiples of Firm Value to LTM sales, LTM EBIT, and LTM EBITDA. J.P.
Morgan then applied a 25% discount to the results of such analyses, in keeping
with the methodology described above under "Analysis of Selected Publicly Traded
Comparable Companies." The following CHART B presents the median discounted
multiples and the ranges of discounted multiples for the seven acquisition
transactions deemed comparable to the proposed Merger.
CHART B
VALUATION MULTIPLES OF COMPARABLE ACQUISITION TRANSACTIONS
<TABLE>
<CAPTION>
DISCOUNTED MEDIAN DISCOUNTED RANGE
OF COMPARABLE OF COMPARABLE
TRANSACTIONS TRANSACTIONS
----------------- ----------------
<S> <C> <C>
Firm Value/LTM Sales....................................................... 0.6x 0.4x - 0.6x
Firm Value/LTM EBIT........................................................ 6.9x 5.9x - 7.8x
Firm Value/LTM EBITDA...................................................... 4.7x 3.4x - 5.3x
</TABLE>
Applying the appropriate range of multiples to Schwitzer's corresponding
results, J.P. Morgan calculated an implied primary value per share ranging from
approximately $9.00 to approximately $14.00 for Schwitzer Common Stock.
ACQUISITION TRANSACTION PREMIUM ANALYSIS. J.P. Morgan examined the premiums
paid in stock-for-stock mergers completed during the period from January 1992 to
January 1995 and in publicly announced acquisition transactions over $50 million
during the period from January 1991 to December 1994, and concluded that the
premium received by Schwitzer's shareholders was within the range of the
majority of such transactions.
STOCK TRADING HISTORY. J.P. Morgan reviewed the closing prices of Schwitzer
Common Stock for the sixty trading days prior to February 25, 1995, the date on
which the Merger Agreement was signed and announced ("Merger Announcement").
J.P. Morgan then applied a premium to this trading range. Utilizing this
methodology, J.P. Morgan calculated an implied primary value per share ranging
from approximately $9.00 to approximately $13.13 for Schwitzer Common Stock.
SCHWITZER AND KUHLMAN COMBINED
CONVERSION RATIO PROFILE. In its financial analyses of the Combined
Company, J.P. Morgan based its implied values per share of Schwitzer Common
Stock on the Exchange Ratio of 0.9615 share of Kuhlman Common Stock for every
outstanding share of Schwitzer Common Stock set forth in the Merger Agreement.
DISCOUNTED CASH FLOW ANALYSIS. J.P. Morgan created two forecasts, an upside
forecast and a conservative forecast, for the Combined Company. These combined
forecasts were based, respectively, on Schwitzer upside and conservative
stand-alone forecasts which J.P. Morgan developed in conjunction with
Schwitzer's management, and on separate upside and conservative Kuhlman
stand-alone forecasts which J.P. Morgan developed based upon due diligence work
and examination of Kuhlman management's forecasts. As in the Schwitzer
stand-alone upside forecast, the combined upside forecast contains more
aggressive assumptions about sales growth and operating profitability than the
combined conservative forecast. In each case, J.P. Morgan analyzed the unlevered
free cash flows estimated to be generated by the Combined Company from 1995
through 2004. In each case, J.P. Morgan discounted the Combined Company's future
cash flows at a 9.0% to 10.0% rate, which was estimated to represent a range for
the Combined Company's weighted average cost of capital. To determine the
terminal value for the Combined Company, J.P. Morgan utilized two methodologies:
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<PAGE>
(i) an analysis of the Combined Company's unlevered free cash flows beyond 2004
assuming a 2.5% to 3.5% sales growth rate in perpetuity and a 7.25% to 8.5%
operating margin in perpetuity; and (ii) the application of an operating profit
multiple of 8.0x to 9.0x to the Combined Company's terminal operating profit.
Based on these assumptions, and on the 0.9615 Exchange Ratio, J.P. Morgan
calculated for the Combined Company an implied fully diluted value per share
ranging from approximately $10.85 to approximately $14.70 in the conservative
forecast, and ranging from approximately $15.30 to approximately $20.40 in the
upside forecast.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPARABLE COMPANIES. In addition to
reviewing certain publicly available financial, operating and stock market
information as of February 23, 1995 for Schwitzer, as described above under
"Schwitzer Stand-Alone -- Analysis of Selected Publicly Traded Comparable
Companies," J.P. Morgan also reviewed similar information for Kuhlman and for
certain comparable companies. The two industry sectors J.P. Morgan reviewed in
this analysis for Kuhlman were certain cable and wire companies (collectively,
the "Kuhlman Cable and Wire Comparable Group") and certain manufacturers that
supply public electric utilities (collectively, the "Kuhlman Electric Comparable
Group"). The companies that comprised the Kuhlman Cable and Wire Comparable
Group were: AFC Cable, Amphenol Corp., Belden Inc., Cable Design Technologies
Corp. and Encore Wire Corp. The companies that comprised the Kuhlman Electric
Comparable Group were: Hubbell, Joslyn Corp., MagneTek Inc., Powell Industries
Inc., Thomas and Betts Corp. and Woodhead Industries Inc. For Kuhlman and for
each comparable company, J.P. Morgan calculated the same multiples that it
calculated for Schwitzer as described above under "Schwitzer Stand-Alone --
Analysis of Selected Publicly Traded Comparable Companies." The following CHART
C presents the median discounted multiples for Schwitzer, and the median
multiples for the Kuhlman Cable and Wire Comparable Group and for the Kuhlman
Electric Comparable Group.
CHART C
VALUATION MULTIPLES OF THE COMBINED COMPANY'S SEGMENT
COMPARABLE GROUPS AS OF FEBRUARY 23, 1995
<TABLE>
<CAPTION>
SCHWITZER
ELECTRIC CABLE AND WIRE (DISCOUNTED)
-------- -------------- ------------
<S> <C> <C> <C>
Firm Value/LTM EBIT........................................................ 9.6x 9.9x 6.3x
Firm Value/LTM EBITDA...................................................... 8.2x 8.5x 4.8x
Firm Value/1995E EBITDA.................................................... 7.6x 7.3x 2.7x
Market Price/1995E EPS..................................................... 13.2x 13.3x 6.8x
</TABLE>
Applying the appropriate range of multiples to Schwitzer's and Kuhlman's
segment results, J.P. Morgan determined that the Combined Company's primary
implied equity value per share to Schwitzer's stockholders ranged from
approximately $11.00 to approximately $13.50 per share.
OTHER ANALYSES. J.P. Morgan conducted a variety of other financial analyses
in its examination of the Combined Company, including: (i) a contribution
analysis, which outlined Schwitzer's and Kuhlman's respective contributions to
the Combined Company's 1995 pro forma financial results; (ii) analysis of
residual ownership structure in the Combined Company; (iii) accretion/(dilution)
analysis, which examined the degree of EPS accretion/(dilution) which the
proposed Merger would involve for Schwitzer's stockholders. J.P. Morgan also
examined the impact on the Combined Company of transaction fees in 1995,
possible cost savings in tax, legal, audit, insurance and filing fees and a
potential reduction in the Combined Company's cost of borrowing.
As a result of the above analyses, J.P. Morgan concluded that the
consideration to be received by the stockholders of Schwitzer pursuant to the
Merger is fair, from a financial point of view, to the stockholders of
Schwitzer. However, no company or transaction used in the above analyses is
identical to Schwitzer or Kuhlman or the proposed transaction, respectively.
Accordingly, an analysis of the results of the foregoing is not mathematical;
rather, it involves complex considerations and judgments
37
<PAGE>
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading values of the
company or companies to which they are being compared.
J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or was
furnished to it by Schwitzer and Kuhlman or otherwise reviewed by J.P. Morgan,
and J.P. Morgan has not assumed any responsibility or liability therefor. J.P.
Morgan has not conducted any valuation or appraisal of any assets or
liabilities, nor have any valuations or appraisals been provided to it. In
relying on financial analyses and forecasts provided to it, J.P. Morgan has
assumed that they have been reasonably prepared based on assumptions reflecting
the best currently available estimates and judgments by management as to the
expected future results of operations and financial condition of Schwitzer and
Kuhlman to which such analyses or forecasts relate. J.P. Morgan also has assumed
that the Merger will have the tax consequences described in this Proxy
Statement/Prospectus, and in discussions with, and materials furnished to it by,
representatives of Schwitzer and that the other transactions contemplated by the
Merger Agreement will be consummated as provided for in the Merger Agreement and
described in this Proxy Statement/Prospectus.
The J.P. Morgan Opinion is necessarily based upon economic, market and other
conditions as in effect on and the information available to it as of the date
hereof. Subsequent developments may affect its opinion and J.P. Morgan does not
have any obligation to update, revise or reaffirm its opinion.
J.P. Morgan was not authorized to and did not solicit any expressions of
interest from any other parties with respect to the sales of all or any part of
the stock, assets or business of Schwitzer. In addition, J.P. Morgan expressed
no opinion as to the price at which Kuhlman Common Stock will trade at any
future time or as to the effect of the Merger on the trading price of shares of
Kuhlman Common Stock. Such trading price may be affected by a number of factors,
including but not limited to (i) the extent to which holders of Schwitzer Common
Stock dispose of all or part of their Kuhlman Common Stock received in the
Merger within a short period of time after the Effective Time, (ii) changes in
prevailing interest rates and other factors which generally influence the prices
of securities, (iii) adverse changes in the current capital markets, (iv) the
occurrence of adverse changes in the financial condition, business, assets,
results of operations or prospects of Schwitzer or Kuhlman, (v) any necessary
actions by or restrictions of federal, state, or other governmental agencies or
regulatory authorities and (vi) timely execution of all necessary instruments to
complete the Merger on terms and conditions that are acceptable to all parties
in interest.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. J.P. Morgan
believes that the summary set forth above and their analyses must be considered
as a whole and that selecting portions thereof, without considering all of their
analyses, could create an incomplete view of the processes underlying its
analyses and opinion. J.P. Morgan based its analyses on assumptions that it
deemed reasonable, including assumptions concerning general business and
economic conditions and industry-specific factors. The other principal
assumptions upon which J.P. Morgan based its analyses are set forth above under
the description of each such analysis. J.P. Morgan analyses are not necessarily
indicative of actual values or actual future results that might be achieved,
which values may be higher or lower than those indicated. Moreover, J.P.
Morgan's analyses are not and do not purport to be appraisals or otherwise
reflective of the prices at which businesses actually could be bought or sold.
As part of its investment banking business, J.P. Morgan and its affiliates
are continually engaged in valuation of businesses and their securities in
connection with mergers and acquisitions, investments for passive and control
purposes, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes.
J.P. Morgan acted as the exclusive financial advisor to Schwitzer with
respect to the Merger and accordingly assisted Schwitzer in negotiating the
terms of the Merger Agreement, including the Exchange Ratio. Schwitzer selected
J.P. Morgan to be its exclusive financial advisor because of J.P.
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Morgan's expertise and familiarity with Schwitzer and its business. J.P. Morgan
acted as the financial advisor to Household in connection with the 1989 spin-off
of Schwitzer and such firm has since provided certain other advisory services to
Schwitzer.
Pursuant to the terms of J.P. Morgan's engagement agreement, Schwitzer has
agreed to pay J.P. Morgan advisory fees of $50,000 per month commencing January
1, 1995 and, if the Merger is consummated, a transaction fee equal to the excess
of $500,000 (or in certain circumstances, $600,000) over the total advisory fees
previously paid by Schwitzer to J.P. Morgan. Schwitzer also has agreed to
reimburse J.P. Morgan for its expenses incurred by J.P. Morgan in performing its
services, including the fees and expenses of its legal counsel, and to indemnify
J.P. Morgan and certain other entities and persons against certain liabilities,
including liabilities under the federal securities laws, arising out of J.P.
Morgan's engagement.
EFFECTIVE TIME OF THE MERGER
If the Merger Agreement is approved by the requisite vote of stockholders of
Schwitzer and the Kuhlman Amendment and the issuance of Kuhlman Common Stock in
connection with the Merger are approved by the requisite vote of stockholders of
Kuhlman, and the other conditions to the Merger are satisfied or waived, the
Merger will become effective upon the filing of the Certificate of Merger with
the Secretary of State of Delaware; provided, however, that upon mutual consent
of Spinner and Schwitzer, the Certificate of Merger may provide for a later date
of effectiveness of the Merger not more than thirty days after the Certificate
of Merger is filed. It is presently anticipated that such filing will be made on
or about May 31, 1995, and that the Effective Time will occur on such date,
although there can be no assurance as to whether or when the Merger will occur.
See "The Merger -- Conditions to the Merger."
CONDITIONS TO THE MERGER
The Merger will occur only if: (i) the Merger Agreement is duly adopted at
the Schwitzer Annual Meeting by the holders of Schwitzer Common Stock; (ii) the
issuance of Kuhlman Common Stock in connection with the Merger is duly approved
by the holders of Kuhlman Common Stock; and (iii) the Kuhlman Amendment is duly
approved by the holders of Kuhlman Common Stock. In addition, the obligations of
Kuhlman and Spinner, on the one hand, and Schwitzer, on the other, to consummate
the transactions contemplated by the Merger Agreement are subject to the
satisfaction of certain conditions (any of which may be waived by the party or
parties entitled to the benefit thereof), including (i) the effectiveness of the
Registration Statement, the absence of any stop order relating thereto and
receipt of any necessary state securities approvals, (ii) the approval, subject
to official notice of issuance, of the listing on the NYSE of the shares of
Kuhlman Common Stock issuable in connection with the Merger, (iii) the
expiration or termination of all applicable waiting periods under the HSR Act
(as defined below), (iv) the receipt by Kuhlman and Schwitzer of a legal opinion
of Sidley & Austin that, among other things, the Merger will qualify as a
reorganization under Section 368(a) of the Code (see "The Merger -- Certain
Federal Income Tax Consequences"), (v) the absence of any law, rule, regulation
or order (whether temporary, preliminary or permanent) which is then in effect
and has the effect of making the Merger Agreement and the transactions
contemplated thereby illegal, (vi) the resignation of each of the directors of
Schwitzer, other than Gary G. Dillon and Robert S. Jepson, Jr., effective as of
the Effective Time; and (vii) the receipt of all authorizations, consents,
orders, declarations or approvals of, or the making of all filings with and the
termination or expiration of all waiting periods imposed by, any Governmental
Entity (as defined in the Merger Agreement), the failure to obtain which would
have a Material Adverse Effect (as defined in the Merger Agreement) on Kuhlman
(on a consolidated basis, assuming the Merger had taken place).
The obligations of Kuhlman and Spinner to effect the Merger are subject to
the following additional conditions (any of which may be waived by Kuhlman and
Spinner): (i) Schwitzer shall have performed in all material respects each of
its agreements under the Merger Agreement required to be performed on or prior
to the Effective Time, (ii) each of the representations and warranties of
Schwitzer that is qualified by materiality shall be true and correct on and as
of the Effective Time as if
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made on and as of such time, (iii) each of the representations and warranties of
Schwitzer that is not qualified by materiality shall be true and correct in all
material respects on and as of the Effective Time as if made on and as of such
time, (iv) all required authorizations, consents or approvals of any third party
(other than a Governmental Entity, the failure to obtain which would have a
Material Adverse Effect on Kuhlman (on a consolidated basis, assuming the Merger
had taken place), shall have been obtained, (v) Schwitzer shall have redeemed
all outstanding common stock purchase rights of Schwitzer (the "Schwitzer
Rights") immediately prior to the Effective Time, (vi) Kuhlman shall have no
reasonable basis for believing that following the Merger, the combination of
Schwitzer and Spinner may not be accounted for as a "pooling of interests" in
accordance with generally accepted accounting principles, (vii) Kuhlman shall
have received the opinion of Chase Manhattan (attached hereto as Appendix B)
dated the date of this Proxy Statement/Prospectus and such opinion shall not
have been withdrawn or modified in any material respect as of the Effective
Time, (viii) Kuhlman shall have received an opinion letter in specified form,
dated the Effective Time, from Sidley & Austin, special counsel to Schwitzer,
(ix) Kuhlman shall have received an opinion letter in specified form, dated the
Effective Time, from Schiff Hardin & Waite, regular outside counsel to
Schwitzer, and (x) Schwitzer shall have furnished to Kuhlman at the closing of
the transactions contemplated by the Merger Agreement ("Closing") such other
customary documents, certificates or instruments as Kuhlman may reasonably
request evidencing compliance by Schwitzer with the terms of the Merger
Agreement.
The obligation of Schwitzer to effect the Merger is subject to the following
additional conditions (any of which may be waived by Schwitzer): (i) Kuhlman and
Spinner shall have performed in all material respects each of their agreements
contained in the Merger Agreement required to be performed on or prior to the
Effective Time, (ii) each of the representations and warranties of Kuhlman and
Spinner that is qualified by materiality shall be true and correct on and as of
the Effective Time as if made on and as of such time, (iii) each of the
representations and warranties that is not qualified by materiality shall be
true and correct in all material respects on and as of the Effective Time as if
made on and as of such time, (iv) Schwitzer shall have received the opinion of
J. P. Morgan (attached hereto as Appendix C) dated the date of this Proxy
Statement/Prospectus and such opinion shall not have been withdrawn or modified
in any material respect as of the Effective Time, (v) Schwitzer shall have
received a legal opinion in specified form, dated the Effective Time, from
Rudnick & Wolfe, special counsel to Kuhlman, and (vi) Kuhlman and Spinner shall
have furnished to Schwitzer at Closing such other customary documents,
certificates or instruments as Schwitzer may reasonably request evidencing
compliance by Kuhlman and Spinner with the terms of the Merger Agreement.
APPRAISAL RIGHTS
Under Delaware law, stockholders of Schwitzer do not have the right to
dissent with respect to the Merger and to be paid an appraised value for their
shares of Schwitzer Common Stock.
REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), certain acquisition transactions may not be consummated unless
specified information has been furnished to the Antitrust Division of the United
States Department of Justice (the "Antitrust Division") and the Federal Trade
Commission ("FTC") and certain waiting period requirements have been satisfied.
Pursuant to the HSR Act, on March 10, 1995, Kuhlman and Schwitzer filed with the
Antitrust Division and the FTC certain required information and documentary
material concerning the proposed Merger. Kuhlman and Schwitzer have been advised
by letters dated March 20, 1995 from the FTC that their request for early
termination of such waiting period requirements has been granted effective March
20, 1995.
Under the HSR Act, the Antitrust Division and the FTC are charged with
review of transactions such as the Merger from the perspective of the federal
antitrust laws. At any time before or after the Effective Time, either the
Antitrust Division or the FTC could take such action under the antitrust laws as
it deems necessary or desirable in the public interest, or certain other persons
could take
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action under the antitrust laws, including seeking to enjoin the Merger. Kuhlman
and Schwitzer believe that consummation of the Merger would not violate any
antitrust laws. However, there can be no assurance that a challenge to the
Merger on antitrust grounds will not be made or, if a challenge is made, what
the result will be.
TERMINATION PROVISIONS
The Merger Agreement provides that it may be terminated at any time prior to
the Effective Time, whether before or after approval of the Merger Agreement by
the Schwitzer stockholders or approval of the Amendment and the issuance of
Kuhlman Common Stock in connection with the Merger by the Kuhlman stockholders:
(i) by the mutual written consent of Schwitzer and Kuhlman; (ii) by either
Schwitzer or Kuhlman if the Merger has not been effected on or prior to the
close of business on September 30, 1995, provided that the terminating party was
not the cause of such delay; (iii) by Schwitzer, if the average of the daily
closing prices of a share of Kuhlman Common Stock reported as "New York Stock
Exchange Composite Transactions" by THE WALL STREET JOURNAL (Midwest Edition)
during the 20 consecutive trading day period ending at the end of the third
trading day prior to the Meetings of Stockholders ("Average Kuhlman Common Stock
Price"), is less than $11.00; (iv) by Kuhlman if the Average Kuhlman Common
Stock Price is more than $16.00; (v) by Kuhlman, (a) if Schwitzer shall have
failed to comply in any material respect with any of its covenants or agreements
contained in the Merger Agreement required to be complied with by Schwitzer
prior to the date of such termination and such failure shall not have been
cured, (b) the stockholders of Schwitzer shall have failed to adopt the Merger
Agreement at the Schwitzer Annual Meeting or (c) the stockholders of Kuhlman
shall have failed to approve the Kuhlman Amendment and the issuance of Kuhlman
Common Stock pursuant to the Merger Agreement at the Kuhlman Annual Meeting;
(vii) by Schwitzer, (a) if Kuhlman or Spinner shall have failed to comply in any
material respect with any of its covenants or agreements contained in the Merger
Agreement required to be complied with by Kuhlman or Spinner prior to the date
of such termination and such failure has not been cured, (b) if the stockholders
of Schwitzer shall have failed to adopt the Merger Agreement at the Schwitzer
Annual Meeting or (c) if the stockholders of Kuhlman shall have failed to
approve the Kuhlman Amendment and the issuance of the shares of Kuhlman Common
Stock pursuant to the Merger Agreement at the Kuhlman Annual Meeting; (ix) by
either Kuhlman or Schwitzer, if any court of competent jurisdiction shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the transactions contemplated by
the Merger Agreement and such order, decree, ruling or other action shall have
become final and nonappealable; (x) by either Kuhlman or Schwitzer, if there has
been (a) a material breach by the other of any of its representations or
warranties contained in the Merger Agreement that is not qualified as to
materiality or (b) any breach by the other of any of its representations or
warranties contained in the Merger Agreement that is qualified as to
materiality, and in each case such breach shall not have been cured; (xi) by
Kuhlman, if the Schwitzer Board of Directors shall not have recommended or shall
have resolved not to recommend or shall have materially modified or withdrawn
its recommendation of the Merger or if the Schwitzer Board of Directors shall
have recommended or shall have resolved to recommend to the stockholders of
Schwitzer any takeover proposal or offer of any other person; (xii) by
Schwitzer, if there is a takeover proposal or offer relating to (a) a tender or
exchange offer for all or substantially all of the outstanding shares of
Schwitzer Common Stock, (b) a merger, consolidation or other business
combination involving Schwitzer, or (c) an acquisition of all or substantially
all of the outstanding shares of Schwitzer Common Stock or all or substantially
all of the assets of Schwitzer, in each case for a consideration that provides
to the stockholders of Schwitzer a value per share of Schwitzer Common Stock
which, in the good faith judgment of the Schwitzer Board of Directors, provides
a higher value per share than the consideration per share pursuant to the Merger
Agreement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material United States federal
income tax consequences of the Merger to holders of Schwitzer Common Stock,
Schwitzer Warrants (defined below) and Schwitzer Stock Options (defined below)
and is based upon current provisions of the Code,
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existing, temporary and final regulations thereunder and current administrative
rulings and court decisions, all of which are subject to change (possibly on a
retroactive basis). No attempt has been made to comment on all United States
federal income tax consequences of the Merger that may be relevant to particular
holders, including holders that are subject to special tax rules such as dealers
in securities, mutual funds, insurance companies, tax-exempt entities, holders
who do not hold their Schwitzer Common Stock or Schwitzer Warrants as capital
assets and holders that, for United States federal income tax purposes, are
non-resident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts.
THE TAX DISCUSSION SET FORTH BELOW IS INCLUDED FOR GENERAL INFORMATION ONLY.
IT IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE
TO ANY PARTICULAR HOLDER OF SCHWITZER COMMON STOCK, SCHWITZER WARRANTS OR
SCHWITZER STOCK OPTIONS. HOLDERS OF SCHWITZER COMMON STOCK, SCHWITZER WARRANTS
AND SCHWITZER STOCK OPTIONS ARE ADVISED AND EXPECTED TO CONSULT WITH THEIR OWN
LEGAL AND TAX ADVISERS REGARDING THE UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AND ANY
OTHER CONSEQUENCES TO THEM OF THE MERGER UNDER STATE, LOCAL AND FOREIGN TAX
LAWS.
EXCHANGE OF SCHWITZER STOCK PURSUANT TO THE MERGER. Sidley & Austin,
special counsel to Schwitzer in connection with the Merger, has rendered an
opinion to Kuhlman and Schwitzer substantially to the effect that the United
States federal income tax consequences of the Merger will be as follows:
(i) the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and Schwitzer, Kuhlman and Spinner will each be
a party to such reorganization within the meaning of Section 368(b) of the
Code;
(ii) no gain or loss will be recognized by Schwitzer as a result of the
Merger;
(iii) no gain or loss will be recognized by the stockholders of Schwitzer
upon the conversion of their Schwitzer Common Stock into shares of Kuhlman
Common Stock pursuant to the Merger (except for cash paid in lieu of a
fractional share of Kuhlman Common Stock);
(iv) the aggregate tax basis of the shares of Kuhlman Common Stock
received in exchange for shares of Schwitzer Common Stock pursuant to the
Merger (including any fractional share of Kuhlman Common Stock for which
cash is paid) will be the same as the aggregate tax basis of such shares of
Schwitzer Common Stock;
(v) the holding period for shares of Kuhlman Common Stock received in
exchange for shares of Schwitzer Common Stock pursuant to the Merger will
include the period that such shares of Schwitzer Common Stock were held by
the holder, provided such shares of Schwitzer Common Stock were held as
capital assets by the holder at the Effective Time; and
(vi) a stockholder of Schwitzer who receives cash in lieu of a fractional
share of Kuhlman Common Stock will recognize gain or loss equal to the
difference, if any, between such stockholder's basis in the fractional share
(as described in clause (iv) above) and the amount of cash received.
It is anticipated that in satisfaction of a condition to the consummation of
the Merger, Sidley & Austin will render an opinion to substantially the same
effect at the Effective Time of the Merger. Stockholders of Schwitzer should be
aware that an opinion of counsel is not binding on the United States Internal
Revenue Service ("IRS"), and no assurance is or will be given that the IRS would
not adopt a contrary position or that the IRS position would not be sustained by
a court. No rulings from the IRS have been or will be requested in connection
with the Merger.
The opinion rendered by Sidley & Austin is subject to certain assumptions
and based on certain representations of Kuhlman and Schwitzer. The opinion
assumes that, as of the Effective Time of the Merger, there will be no plan or
intention on the part of the holders of Schwitzer Common Stock to sell, exchange
or otherwise dispose of a number of shares of Kuhlman Common Stock received in
the Merger that would reduce the Schwitzer stockholders' ownership of Kuhlman
Common Stock to a number of shares having a value, as of the Effective Time of
the Merger, of less than 50 percent of the
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value of all the formerly outstanding shares of Schwitzer Common Stock as of the
Effective Time of the Merger. For purposes of this assumption, shares of
Schwitzer Common Stock exchanged for cash or other property or exchanged for
cash in lieu of fractional shares of Kuhlman Common Stock will be treated as
outstanding Schwitzer Common Stock as of the Effective Time of the Merger.
Moreover, shares of Schwitzer Common Stock held by holders of Schwitzer Common
Stock and sold, redeemed or disposed of prior to the Merger in anticipation of
the Merger will also be considered for purposes of this assumption. To the best
of the knowledge of the management of Schwitzer, such assumption is correct as
of the date hereof. However, if a significant portion of the Kuhlman Common
Stock received by the Schwitzer stockholders in the Merger is sold shortly after
the Merger, it might be determined that such assumption is not correct, and the
Merger therefore could be treated as a taxable transaction in which all
stockholders of Schwitzer (including stockholders who did not sell their Kuhlman
Common Stock) would recognize gain or loss equal to the difference between the
fair market value of the Kuhlman Common Stock received (plus cash received in
lieu of a fractional share of Kuhlman Common Stock) and the basis of the
Schwitzer Common Stock surrendered in the Merger.
Dividends and other distributions paid with respect to the shares of Kuhlman
Common Stock issued upon exchange of the Schwitzer Common Stock, as described
below under "The Merger -- Exchange of Certificates", will generally be taxable
as dividend income to the extent of Kuhlman's current and accumulated earnings
and profits.
REDEMPTION OF SCHWITZER RIGHTS. As a condition to the consummation of the
Merger, a payment of $.01 per share of Schwitzer Common Stock (the "Rights
Payment") will be made by Schwitzer to the Schwitzer stockholders in connection
with the redemption of the Schwitzer Rights. The Rights Payment will likely be
treated as a dividend to the Schwitzer stockholders for United States federal
income tax purposes.
CONVERSION OF SCHWITZER WARRANTS PURSUANT TO THE MERGER. Holders of
Schwitzer Warrants that are converted into New Kuhlman Warrants as described and
defined below under "The Merger -- Warrants" generally will recognize gain or
loss upon such conversion. The amount of such gain or loss will equal the
difference between the fair market value of the New Kuhlman Warrants and the
adjusted basis of the Schwitzer Warrants. The basis of the New Kuhlman Warrants
received by the holders of the Schwitzer Warrants will be the fair market value
of the New Kuhlman Warrants and the holding period of the New Kuhlman Warrants
will begin the day after the Effective Time. The basis of the Kuhlman Common
Stock received upon the exercise of the New Kuhlman Warrants will be the basis
of the New Kuhlman Warrants plus the exercise price under the New Kuhlman
Warrants (with the exercise price computed net of any cash received for the
portion of the exercise price attributable to, and received in lieu of, a
fractional share of Kuhlman Common Stock).
CONVERSION OF SCHWITZER STOCK OPTIONS PURSUANT TO THE MERGER. Holders of
Schwitzer Stock Options which are converted into New Kuhlman Stock Options as
described and defined below under "The Merger--Stock Options" generally will not
recognize income or gain for United States federal income tax purposes upon such
conversion.
A holder of a New Kuhlman Stock Option generally will recognize ordinary
compensation income on the date such option is exercised in an amount equal to
the excess of the fair market value on such date of the Kuhlman Common Stock
acquired by exercise of such option over the exercise price of such shares of
Kuhlman Common Stock. Kuhlman generally will be entitled to a deduction for
federal income tax purposes on such date in the amount of such ordinary
compensation income, subject to the rules of Section 162(m) of the Code which in
certain circumstances disallow deductions for compensation to a covered employee
in excess of $1,000,000 per year. However, if the holder is at the time of
exercise of the New Kuhlman Stock Option an executive officer or director of
Kuhlman or holder of more than 10% of the outstanding shares of Kuhlman Common
Stock (an "Insider"), and if the option is exercised at a time when the
restrictions imposed by Section 16(b) of the Exchange Act (the "Section 16(b)
Restrictions") would apply to the sale of the Kuhlman Common Stock so acquired
(generally only for six months after the Effective Time), the holder will
recognize, in lieu of the
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compensation described in the immediately preceding sentence, taxable
compensation at the time the Section 16(b) Restrictions lapse in an amount equal
to the excess, if any, of the fair market value (determined as of the time the
Section 16(b) Restrictions lapse) of the Kuhlman Common Stock acquired over the
exercise price of such shares of Kuhlman Common Stock. Notwithstanding the
foregoing, a holder who is an Insider can elect to be treated in the same manner
as a holder who is not an Insider (I.E., to recognize income on the date of
exercise and by reference to the fair market value of the Kuhlman Common Stock
as of the date of exercise of the New Kuhlman Stock Option) by filing an
election to such effect with the IRS within 30 days after the shares acquired
are transferred to the holder.
The tax basis of the Kuhlman Common Stock acquired by exercise of a New
Kuhlman Stock Option will be its fair market value used to determine the amount
of ordinary compensation income arising from the exercise of the New Kuhlman
Stock Option (or the lapse of Section 16(b) Restrictions, if applicable). The
holding period for purposes of determining whether a subsequent sale of the
Kuhlman Common Stock would result in the recognition of short-term or long-term
capital gain or loss will commence on the date of issuance of the Kuhlman Common
Stock to the holder of the option (or, for an Insider who does not make an
election to recognize income earlier, at the time the Section 16(b) Restrictions
lapse, if later than such date of issuance).
A holder of a New Kuhlman Stock Option will also recognize ordinary
compensation income, and Schwitzer will be allowed a deduction for federal
income tax purposes, on the date such option is exercised in an amount equal to
the cash, if any, paid by Schwitzer to such holder in lieu of any fractional
share of Kuhlman Common Stock which was eliminated upon the conversion of a
Schwitzer Stock Option to such New Kuhlman Stock Option pursuant to the Merger
Agreement.
Under current law, the tax rate imposed on long-term capital gains of
individuals cannot exceed 28%. The Code imposes limitations on the amount of
capital loss which can be deducted in a taxable year.
If the holder of a New Kuhlman Stock Option delivers shares of Kuhlman
Common Stock in payment of the exercise price of such New Kuhlman Stock Option,
such holder will not recognize any taxable income by reason of such delivery.
The holder's basis and holding period for the number of shares of Kuhlman Common
Stock received equal to the number of shares delivered will be the same as the
shares delivered. The holder's basis for shares of Kuhlman Common Stock received
in excess of the number of shares delivered will equal to the fair market value
of such shares of Kuhlman Common Stock used to determine the amount of taxable
compensation arising from the exercise of such option. The holding period for
such excess shares of Kuhlman Common Stock will commence on the date the shares
of Kuhlman Common Stock are transferred to the holder (or, for an Insider who
does not make an election to recognize income earlier, at the time the Section
16(b) Restrictions lapse, if later than such date of issuance).
Amounts described above as being treated as compensation income upon the
exercise of a New Kuhlman Stock Option will be subject to tax at rates
applicable to ordinary income and will be subject to the tax under the Federal
Insurance Contributions Act (I.E., FICA tax), subject to certain limitations in
the case of the old-age, survivors and disability insurance portions of the FICA
tax.
NO SOLICITATION OF OTHER TRANSACTIONS
The Merger Agreement provides that neither Schwitzer nor Kuhlman will
solicit or initiate, nor will either Schwitzer or Kuhlman permit any of its
officers, directors, employees, agents and other representatives or those of any
of its majority-owned subsidiaries to, directly or indirectly, solicit or
initiate, any takeover proposal or offer from any person, or engage in
discussions or negotiations relating to any such proposal or offer. Either
Kuhlman or Schwitzer may engage in discussions or negotiations with a third
party who seeks to initiate such discussions or negotiations or may furnish to
such third party information concerning such party and its business, properties
or assets and, following receipt of a takeover proposal, the Board of Directors
of either Schwitzer or Kuhlman may
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withdraw or modify its recommendations with respect to the Merger but in each
case only to the extent that the Board of Directors of such party shall conclude
in good faith after consultation with its outside counsel that such action is
necessary in order for the Board of Directors of such party to act in a manner
which is consistent with its fiduciary obligations under applicable law.
Schwitzer and Kuhlman are obligated to promptly notify the other of any takeover
proposal or offer, including the material terms and conditions thereof, but need
not identify the person or group making such takeover proposal or offer. As used
in the Merger Agreement, "takeover proposal" or "offer" means any proposal or
offer, other than a proposal or offer by Kuhlman, Schwitzer or any of their
respective affiliates, for a tender or exchange offer, a merger, consolidation
or other business combination involving Schwitzer, Kuhlman or any of their
respective subsidiaries or any proposal to acquire in any manner a substantial
equity interest in, or a substantial portion of the assets of, Schwitzer,
Kuhlman or any of their respective subsidiaries. If the Schwitzer Board of
Directors shall withdraw or materially modify its recommendation to the
stockholders of Schwitzer to adopt the Merger Agreement, or if Schwitzer
terminates the Merger Agreement because the Schwitzer Board of Directors
believes another takeover proposal provides a higher value per share than the
consideration per share pursuant to the Merger Agreement, Schwitzer is obligated
to reimburse Kuhlman for up to $500,000 of expenses incurred by Kuhlman in
connection with the Merger Agreement and transactions contemplated thereby;
provided, however, that if prior to the expiration of one year after any such
withdrawal, modification or termination, a merger, consolidation or other
business combination, or tender or exchange offer shall occur which effects a
change in control of Schwitzer, Schwitzer is obligated to pay Kuhlman the excess
of $2,000,000 over the total expense reimbursements previously made by
Schwitzer. See "The Merger -- Expenses and Topping Fee."
CONVERSION OF SHARES
Each share of Schwitzer Common Stock outstanding immediately prior to the
Effective Time shall be converted into 0.9615 validly issued, fully paid and
nonassessable share of Kuhlman Common Stock, except that pursuant to the Merger,
all shares of Schwitzer Common Stock held in the treasury of Schwitzer or by any
wholly-owned subsidiary of Schwitzer and any shares of Schwitzer Common Stock
owned by Kuhlman, Spinner or any wholly-owned subsidiary of Kuhlman shall be
cancelled at the Effective Time. All such shares of Schwitzer Common Stock, when
so converted, shall no longer be outstanding and shall automatically be
cancelled and retired and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the right to
receive certain dividends and other distributions as contemplated by the Merger
Agreement and nonassessable shares of Kuhlman Common Stock and any cash, without
interest, in lieu of fractional shares to be issued or paid in consideration
therefor upon the surrender of such certificate in accordance with the Merger
Agreement.
APPOINTMENT OF EXCHANGE AGENT
In order to facilitate distribution of certificates evidencing Kuhlman
Common Stock to Schwitzer stockholders, Kuhlman will appoint Harris Trust and
Savings Bank to act as Exchange Agent in connection with the Merger. The
Exchange Agent will enter into an agreement with Kuhlman and Schwitzer pursuant
to which it will agree to act as agent for purposes of distributing the Kuhlman
Common Stock to Schwitzer stockholders.
EXCHANGE OF CERTIFICATES
Stockholders should not tender their certificates for Schwitzer Common Stock
with their proxy. As promptly as practicable after the Effective Time, the
Exchange Agent will mail to all Schwitzer stockholders transmittal materials,
including a Letter of Transmittal (the "Letter of Transmittal") for use in
exchanging certificates evidencing Schwitzer Common Stock for certificates
evidencing Kuhlman Common Stock. As soon as practicable after the Letter of
Transmittal is properly completed and returned, along with the certificates
evidencing Schwitzer Common Stock, to the Exchange Agent, the person specified
in the Letter of Transmittal shall receive certificates for the number of whole
shares of Kuhlman Common Stock and, to the extent applicable, cash in lieu of a
fractional share of Kuhlman Common Stock and any accrued dividends and other
distributions on such whole
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shares without interest, to which such person is entitled as a result of the
Merger. The Letter of Transmittal is expected to provide instructions for
Schwitzer stockholders who have lost or misplaced their certificates and wish to
tender their shares.
Each share of Kuhlman Common Stock for which shares of Schwitzer Common
Stock are converted in the Merger will be deemed to have been issued at the
Effective Time. Accordingly, Schwitzer stockholders who receive Kuhlman Common
Stock in the Merger will be entitled to receive any dividends or other
distributions which may be payable to all holders of record of Kuhlman Common
Stock with respect to any record date after the Effective Time. No holder of
Schwitzer Common Stock will be entitled to receive shares of Kuhlman Common
Stock or cash in lieu of fractional shares, and no dividends or other
distributions actually will be paid with respect to any shares of Kuhlman Common
Stock, until the certificate or certificates formerly representing such holder's
shares of Schwitzer Common Stock have been surrendered in accordance with the
procedures described above. At the time such surrender has been accomplished, a
certificate representing the appropriate number of whole shares of Kuhlman
Common Stock will be issued and any cash in lieu of any fractional share of
Kuhlman Common Stock and any accrued dividends and other distributions on such
shares of Kuhlman Common Stock will be paid without interest.
INTERESTS OF CERTAIN PERSONS
The Merger Agreement provides that effective as of the Effective Time, the
directors of Schwitzer shall be three in number and shall be Gary G. Dillon,
Robert S. Jepson, Jr. and Curtis G. Anderson and the officers of Schwitzer shall
be those persons who are then serving as officers of Schwitzer immediately prior
to the Effective Time (including Richard H. Prange as a Vice President, Chief
Financial Officer and Secretary of Schwitzer), and, in addition, that Vernon J.
Nagel will be a Vice President and Assistant Treasurer, Ward D. Richards will be
an Assistant Secretary, Jeffrey R. Samuels will be an Assistant Treasurer and
Richard A. Walker will be an Assistant Secretary.
Pursuant to the Merger Agreement, Kuhlman has agreed to indemnify and hold
harmless all past and present officers and directors of Schwitzer and its
majority-owned subsidiaries to the full extent such persons may be indemnified
by Schwitzer pursuant to the Certificate of Incorporation and Bylaws of
Schwitzer for acts or omissions occurring at or prior to the Effective Time. In
addition, Kuhlman has agreed to provide, for a period of not less than six years
from the Effective Time, to Schwitzer's current directors and officers an
insurance and indemnification policy that provides coverage for events occurring
through the Effective Time that is no less favorable than the existing policy
or, if substantially equivalent insurance coverage is unavailable, the best
available coverage. After consummation of the Merger, however, neither Kuhlman
nor Schwitzer shall be required to pay an annual premium for such insurance and
indemnification policy in excess of three times the last annual premium paid
prior to the date of the Merger Agreement, but in such case is obligated to
purchase as much coverage as possible for such amount.
Pursuant to the Merger Agreement, Kuhlman has agreed to cause Schwitzer and
its majority-owned subsidiaries to honor all severance and employment agreements
with the officers and employees of Schwitzer or any of its majority-owned
subsidiaries and to maintain until at least two years after the Effective Time,
employee benefit plans and policies for retirees, officers and employees
(including terminated officers and employees) of Schwitzer and any of its
majority-owned subsidiaries that are no less favorable than those being provided
to such retirees, officers and employees on the date of the Merger Agreement.
In order to provide Gary G. Dillon, currently the Chairman of the Board,
President and Chief Executive Officer of Schwitzer, with an incentive to remain
in the employ of Schwitzer U.S. after the closing of the Merger and in order to
eliminate any incentive for Mr. Dillon to leave Schwitzer U.S. after such
closing, Schwitzer U.S. and Mr. Dillon have amended the Dillon Agreement. Under
the Dillon Amendment, Schwitzer is obligated to make a payment of $731,250 to
Mr. Dillon at the Effective Time in lieu of Schwitzer's obligation under the
Dillon Agreement to continue to pay salary and bonuses to Mr. Dillon upon his
termination of employment or resignation regardless of the reason
46
<PAGE>
therefor. The Dillon Amendment also obligates Schwitzer U.S. to make an
additional payment of $731,250 to Mr. Dillon at the Effective Time in lieu of
Schwitzer U.S.'s obligation under the Dillon Agreement to make certain payments
upon Mr. Dillon's termination or resignation after a change in control of
Schwitzer U.S. The Dillon Amendment terminates any other severance pay
obligations of Schwitzer to Mr. Dillon. In addition, at the Effective Time, (i)
each Schwitzer Stock Option held by Mr. Dillon will be converted by the Merger
into an option to purchase shares of Kuhlman Common Stock in accordance with the
Exchange Ratio and each such option shall continue to become exercisable in
accordance with such option's terms and (ii) the 75,000 units of phantom stock
of Schwitzer awarded to Mr. Dillon pursuant to an agreement dated as of October
18, 1994 will be converted into 75,000 units of phantom stock of Kuhlman and
shall continue to vest on October 18, 1997 and be subject to the same risks of
forfeiture and other conditions. Mr. Dillon's annual salary effective January 1,
1995 was increased to $325,000 from $297,000. See "Information Regarding
Schwitzer Directors, Nominees for Directors of Schwitzer and Executive Officers
- -- Executive Compensation and Severance Agreements."
Pursuant to specific provisions of the Merger Agreement, as soon as
practicable after the Merger is consummated, Kuhlman will cause Mr. Dillon to be
appointed to the Board of Directors of Kuhlman to serve until the 1997 annual
meeting of Kuhlman stockholders.
CONDUCT OF BUSINESS PENDING THE MERGER
The Merger Agreement provides that during the period from the date of the
Merger Agreement through the Effective Time, each of Schwitzer and Kuhlman
shall, and each shall cause its respective subsidiaries to, in all material
respects carry on its respective businesses in, and not enter into any material
transaction other than in the ordinary course and, to the extent consistent
therewith, use all reasonable efforts to preserve intact its current business
organizations, keep available the services of its current officers and employees
and preserve its relationships with customers, suppliers and others having
business dealings with it to the end that its goodwill and ongoing businesses
shall be unimpaired at the Effective Time.
Except as otherwise expressly contemplated by the Merger Agreement, each of
Schwitzer and Kuhlman has agreed that it will not, and that each will not permit
any of its respective majority-owned subsidiaries to, without the prior written
consent of the other parties to the Merger Agreement:
(i) (A) declare, set aside or pay any dividends on, or make any
distributions in respect of, any of its respective capital stock, or
otherwise make any payments to its respective stockholders in their capacity
as such, other than (1) ordinary quarterly dividends by Kuhlman consistent
with past practice, each in an amount not in excess of $.15 per share with
respect to Kuhlman Common Stock, (2) dividends declared by Kuhlman prior to
the date of the Merger Agreement and (3) dividends payable to Schwitzer
declared by any of Schwitzer's subsidiaries or to Kuhlman declared by any of
Kuhlman's subsidiaries, (B) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities with
respect to shares of its capital stock, and (C) purchase, redeem or
otherwise acquire any shares of capital stock of each of Schwitzer or
Kuhlman, or any of its respective majority-owned subsidiaries or any rights,
warrants or options to acquire any such shares or other securities, other
than Schwitzer's redemption of the outstanding Schwitzer Rights prior to the
Effective Time;
(ii) issue, deliver, sell, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or equity equivalent or any
securities convertible into, or any rights, warrants or options to acquire,
any such shares, voting securities, equity equivalent or convertible
securities other than upon the exercise of outstanding options or warrants
with respect to Kuhlman Common Stock or Schwitzer Common Stock or in
accordance with Kuhlman's or Schwitzer's employee benefit plans;
(iii) amend its Certificate of Incorporation (other than, in the case of
Kuhlman, to approve and adopt the Kuhlman Amendment) or amend in any
material respects its Bylaws;
47
<PAGE>
(iv) acquire or agree to acquire by merging or consolidating with, or by
purchasing a portion of the assets of or equity in, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to acquire
any assets, in each case that are material or substantial, individually or
in the aggregate, to Schwitzer and its subsidiaries taken as a whole, and to
Kuhlman and its subsidiaries taken as a whole, respectively;
(v) sell, lease or otherwise dispose of or agree to sell, lease or
otherwise dispose of, any of its assets (other than sales or other
dispositions of inventory in the ordinary course of business) that are
material, individually or in the aggregate, to Schwitzer and its
subsidiaries taken as a whole, or to Kuhlman and its subsidiaries taken as a
whole, respectively;
(vi) except in the ordinary course of business consistent with past
practice, (A) incur or assume any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others or (B) make any loans, advances or
capital contributions to, or investments in, any other person, other than to
Schwitzer or any wholly-owned subsidiary of Schwitzer or to Kuhlman or any
wholly-owned subsidiary of Kuhlman, respectively;
(vii) alter through merger, liquidation, reorganization, restructuring or
in any other fashion the corporate structure or ownership of any subsidiary
of Schwitzer or any subsidiary of Kuhlman, respectively; or
(viii) enter into or adopt, or amend any existing severance plan,
agreement or arrangement or, other than in the ordinary course of business,
enter into or amend any employee benefit plan, or any employment or
consulting agreement, except compensation increases associated with
promotions and annual reviews in the ordinary course of business consistent
with past practice.
Schwitzer and Kuhlman must promptly advise the other of any change or event
having, or which, insofar as can reasonably be foreseen, would have, a Material
Adverse Effect on Schwitzer or Kuhlman, respectively.
WAIVER AND AMENDMENT
The Merger Agreement provides that, at any time prior to the Effective Time,
Kuhlman, Schwitzer or Spinner may (i) extend the time for the performance of any
of the obligations or other acts of the other parties, (ii) waive any
inaccuracies in the representations and warranties contained in the Merger
Agreement or in any document delivered pursuant thereto and (iii) waive
compliance with any of the agreements or conditions contained in the Merger
Agreement which may legally be waived.
The Merger Agreement may be amended by Kuhlman, Schwitzer and Spinner, at
any time before or after approval of the Merger Agreement by the stockholders of
Schwitzer or the approval of the Kuhlman Amendment and the issuance of shares of
Kuhlman Common Stock pursuant to the Merger Agreement by the stockholders of
Kuhlman. After any such approval by the stockholders of Schwitzer or the
stockholders of Kuhlman, no amendment to the Merger Agreement shall be made
which changes the Exchange Ratio or which in any way materially adversely
affects the rights of the stockholders of Schwitzer or the stockholders of
Kuhlman, as the case may be, without the further approval of such stockholders.
STOCK OPTIONS
Each option to purchase shares of Schwitzer Common Stock (a "Schwitzer Stock
Option") outstanding immediately prior to the Effective Time pursuant to the
Schwitzer Long-Term Executive Incentive Compensation Plan (the "Schwitzer
Incentive Plan") shall be converted into an option (a "New Kuhlman Stock
Option") to purchase, in lieu of the shares of Schwitzer Common Stock
purchasable thereunder immediately prior to the Effective Time, the number of
whole shares of Kuhlman Common Stock into which the shares of Schwitzer Common
Stock subject to such Schwitzer Stock Option would have been converted had such
Schwitzer Stock Option been exercised in full
48
<PAGE>
immediately prior to the Effective Time, without any change in the aggregate
option exercise price. Each New Kuhlman Stock Option will otherwise be upon the
same terms and conditions as set forth in the Schwitzer Incentive Plan and
related option agreement. Fractional shares will not be issued upon the exercise
of any New Kuhlman Stock Option, but upon the exercise of any New Kuhlman Stock
Option for the largest number of whole shares of Kuhlman Common Stock then
subject thereto, Schwitzer will pay to the holder of such New Kuhlman Stock
Option a sum in cash equal to the proportional part of the per share exercise
price of such New Kuhlman Stock Option represented by such fractional share.
Kuhlman will use its best efforts to file a registration statement on Form S-8
covering the shares of Kuhlman Common Stock issuable upon exercise of the New
Kuhlman Stock Options concurrently with the closing of the Merger or as soon
thereafter as practicable.
WARRANTS
Each warrant to purchase shares of Schwitzer Common Stock (a "Schwitzer
Warrant") outstanding immediately prior to the Effective Time pursuant to the
Note Agreement dated as of April 15, 1992 among Schwitzer, Schwitzer U.S. Inc.
and Massachusetts Mutual Life Insurance Company (the "Schwitzer Warrant
Agreement") shall be converted into a warrant (a "New Kuhlman Warrant") to
purchase, in lieu of the shares of Schwitzer Common Stock purchasable under the
Schwitzer Warrant immediately prior to the Effective Time, the number of whole
shares of Kuhlman Common Stock into which the shares of Schwitzer Common Stock
subject to such Schwitzer Warrant would have been converted had such Schwitzer
Warrant been exercised in full immediately prior to the Effective Time, without
any change in the aggregate warrant exercise price. Fractional shares shall not
be issued upon the exercise of any New Kuhlman Warrant, but upon the exercise of
any New Kuhlman Warrant for the largest number of whole shares of Kuhlman Common
Stock then subject to such warrant, Schwitzer shall pay to the holder of such
New Kuhlman Warrant a sum in cash equal to the proportional part of the per
share exercise price of such New Kuhlman Warrant represented by such fractional
share. Each New Kuhlman Warrant shall otherwise be upon the same terms and
conditions as set forth in the Schwitzer Warrant Agreement.
STOCK EXCHANGE LISTING
Kuhlman has applied to list the shares of Kuhlman Common Stock issuable in
connection with the Merger on the NYSE. Approval of the listing of such shares
on the NYSE, subject to official notice of issuance, is a condition to the
respective obligations of Kuhlman, Schwitzer and Spinner to consummate the
Merger.
ANTICIPATED ACCOUNTING TREATMENT
Kuhlman and Schwitzer expect the Merger to qualify as a pooling of interests
for accounting and financial reporting purposes. Under the pooling of interests
method of accounting, the recorded assets and liabilities of Kuhlman and
Schwitzer will be carried forward to the combined companies at their recorded
amounts; income of the combined companies will include income of Kuhlman and
Schwitzer 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 companies. A condition of Kuhlman's and
Spinner's obligation to consummate the Merger is that Kuhlman shall have no
reasonable basis, based on the advice of Arthur Andersen LLP and such other
advice that Kuhlman may reasonably deem relevant, to believe that following the
Merger, the Merger may be not be accounted for as a pooling of interests.
SHARES AVAILABLE FOR RESALE
The issuance of shares of Kuhlman Common Stock to stockholders of Schwitzer
upon consummation of the Merger will be registered under the Securities Act.
Such shares may under the Securities Act be traded freely and without
restriction by those stockholders not deemed to be "affiliates" of Schwitzer as
that term is defined in the rules and regulations promulgated pursuant to the
Securities Act. "Affiliates" are generally defined as persons who control, are
controlled by or are under common control with an issuer. To enable the Merger
to qualify as a pooling of interests for accounting and financial reporting
purposes, neither Kuhlman Common Stock received by those stockholders of
49
<PAGE>
Schwitzer who are deemed to be affiliates of Schwitzer nor shares of Kuhlman
Common Stock owned by persons deemed to be affiliates of Kuhlman may be sold by
such persons, and such persons may not otherwise reduce their risk relative to
shares of Kuhlman Common Stock received in the Merger, until such time as
financial results covering at least 30 days of post-Merger combined operations
have been published. It is currently expected that such publication will be made
by means of Kuhlman's periodic filings with the SEC. Once such period has
expired such securities may be resold without registration as provided for by
Rule 145(d), or as otherwise permitted under the Securities Act. This Proxy
Statement/Prospectus does not cover any resales of Kuhlman Common Stock received
by affiliates of Schwitzer. Schwitzer is obligated to use its best efforts to
cause its affiliates to deliver to Kuhlman on or prior to the Effective Time a
written agreement that such affiliate will not sell, pledge, transfer or
otherwise dispose of any shares of Kuhlman Common Stock issued to such affiliate
pursuant to the Merger, except pursuant to an effective registration statement
under the Securities Act or in compliance with Rule 145(d) under the Securities
Act or another exemption from the registration requirements of the Securities
Act. As described above under "The Merger -- Certain Federal Income Tax
Consequences", sales of a significant portion of the shares of Kuhlman Common
Stock issued in the Merger may adversely affect the qualification of the Merger
as a tax-free "reorganization" for federal income tax purposes.
EXPENSES AND TOPPING FEE
The Merger Agreement provides that, whether or not the Merger is
consummated, all costs and expenses incurred in connection with the Merger
Agreement and the transactions contemplated thereby shall be paid by the party
incurring such costs and expenses, except as Kuhlman and Schwitzer shall
otherwise agree in writing. The Merger Agreement also provides that if the
Schwitzer Board of Directors withdraws or materially modifies its recommendation
to Schwitzer stockholders to adopt the Merger Agreement as provided for therein,
or Schwitzer terminates the Merger Agreement because the Schwitzer Board of
Directors believes another takeover proposal provides a higher value per share
than the consideration per share pursuant to the Merger Agreement, Schwitzer is
obligated to reimburse Kuhlman for up to $500,000 of such expenses actually
incurred by Kuhlman, including legal, accounting and investment banking fees and
expenses. In addition, if prior to the expiration of one year after any such
withdrawal, modification or termination, a merger, consolidation or other
business combination, or a tender or exchange offer, shall occur which effects a
change of control of Schwitzer, on the third business day after the closing of
such transaction, Schwitzer would be obligated to pay to Kuhlman in lieu of its
obligation to make any further expense reimbursements, an amount equal to the
excess of $2,000,000 over the total expense reimbursements previously made by
Schwitzer to Kuhlman.
50
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet as of
December 31, 1994 and the unaudited pro forma condensed combined statements of
income for each of the three years in the period ended December 31, 1994
captioned "Kuhlman Corporation and Subsidiaries and Schwitzer, Inc. and
Subsidiaries" give effect to the Merger accounted for as a pooling of interests.
The pro forma information is based on the historical consolidated financial
statements of Kuhlman and Schwitzer and their subsidiaries under the assumptions
and adjustments set forth in the accompanying notes to the unaudited pro forma
condensed combined financial statements.
The unaudited pro forma condensed combined financial statements have been
prepared by the managements of Kuhlman and Schwitzer based upon their respective
consolidated financial statements. Pro forma per share amounts are based on the
Exchange Ratio of 0.9615 share of Kuhlman Common Stock for each outstanding
share of Schwitzer Common Stock. The unaudited pro forma condensed combined
statements of income, which include results of operations as if the Merger had
been consummated on January 1, 1992, do not reflect the merger expenses
anticipated to be incurred or the benefits anticipated to result from the
Merger. As a result, the unaudited pro forma condensed combined financial
statements prior to the Effective Time may not be indicative of the results that
actually would have occurred or which may be attained in the future if the
Merger had been in effect during the periods presented. The unaudited pro forma
condensed combined financial statements should be read in conjunction with the
historical consolidated financial statements and notes thereto of Kuhlman and
Schwitzer incorporated herein by reference. See "Summary -- Selected Pro Forma
Financial Data."
51
<PAGE>
KUHLMAN CORPORATION AND SUBSIDIARIES
AND SCHWITZER, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1994
ASSETS
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
KUHLMAN SCHWITZER ADJUSTMENTS COMBINED
--------- --------- ----------- ---------
(NOTE 3)
IN THOUSANDS
<S> <C> <C> <C> <C>
Current assets
Cash, restricted cash and cash equivalents...... $ 622 $ 2,414 $ -- $ 3,036
Accounts receivable............................. 36,004 23,888 -- 59,892
Inventories..................................... 24,067 19,646 -- 43,713
Other current assets............................ 7,996 3,962 -- 11,958
--------- --------- ----------- ---------
Total current assets.......................... 68,689 49,910 -- 118,599
--------- --------- ----------- ---------
Plant and equipment -- net........................ 34,449 30,301 -- 64,750
--------- --------- ----------- ---------
Intangible assets and other long-term assets...... 43,425 2,411 -- 45,836
--------- --------- ----------- ---------
$ 146,563 $ 82,622 $ -- $ 229,185
--------- --------- ----------- ---------
--------- --------- ----------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt............... $ 7,243 $ 635 $ -- $ 7,878
Accounts payable................................ 19,331 11,293 -- 30,624
Accrued liabilities............................. 14,146 16,450 3,180 33,776
--------- --------- ----------- ---------
Total current liabilities..................... 40,720 28,378 3,180 72,278
--------- --------- ----------- ---------
Long-term debt.................................... 54,985 21,910 -- 76,895
--------- --------- ----------- ---------
Other long-term liabilities....................... 2,186 7,790 -- 9,976
--------- --------- ----------- ---------
Total liabilities............................. 97,891 58,078 3,180 159,149
--------- --------- ----------- ---------
Total shareholders' equity........................ 48,672 24,544 (3,180) 70,036
--------- --------- ----------- ---------
$ 146,563 $ 82,622 $ -- $ 229,185
--------- --------- ----------- ---------
--------- --------- ----------- ---------
</TABLE>
The Notes to Unaudited Pro Forma Condensed Combined Financial Statements
should be read in conjunction with this balance sheet
52
<PAGE>
KUHLMAN CORPORATION AND SUBSIDIARIES,
AND SCHWITZER, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
KUHLMAN SCHWITZER ADJUSTMENTS COMBINED
-------- --------- ----------- ---------
(NOTE 4)
IN THOUSANDS
<S> <C> <C> <C> <C>
Net sales.................................................................. $242,846 $ 153,271 $-- $ 396,117
Cost of goods sold......................................................... 202,363 117,869 -- 320,232
-------- --------- ----------- ---------
Gross profit........................................................... 40,483 35,402 -- 75,885
Operating expenses:
Selling, general and administrative; research and development.............. 34,218 18,383 -- 52,601
-------- --------- ----------- ---------
Operating profit........................................................... 6,265 17,019 -- 23,284
Other income (expense):
Interest expense, net...................................................... (4,051) (2,918) -- (6,969)
Other, net................................................................. 709 (1,421) -- (712)
-------- --------- ----------- ---------
Total other income (expense), net...................................... (3,342) (4,339) -- (7,681)
-------- --------- ----------- ---------
Income before taxes........................................................ 2,923 12,680 -- 15,603
Taxes on income............................................................ 1,306 3,750 577 5,633
-------- --------- ----------- ---------
Income from continuing operations.......................................... $ 1,617 $ 8,930 $ (577) $ 9,970
-------- --------- ----------- ---------
-------- --------- ----------- ---------
Income from continuing operations per share................................ $ 0.27 $ 1.21 $-- $ 0.73
-------- --------- ----------- ---------
-------- --------- ----------- ---------
Weighted average common shares and common stock equivalents................ 6,097 7,404 -- 13,647
-------- --------- ----------- ---------
-------- --------- ----------- ---------
</TABLE>
The Notes to Unaudited Pro Forma Condensed Combined Financial Statements
should be read in conjunction with this statement
53
<PAGE>
KUHLMAN CORPORATION AND SUBSIDIARIES,
AND SCHWITZER, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
PRO FORMA
KUHLMAN SCHWITZER COMBINED
-------- --------- PRO FORMA ---------
ADJUSTMENTS
---------
(NOTE 4)
<S> <C> <C> <C> <C>
IN THOUSANDS
Net sales.................................................................. $118,097 $ 124,124 $-- $ 242,221
Cost of goods sold......................................................... 100,150 98,773 -- 198,923
-------- --------- --------- ---------
Gross profit........................................................... 17,947 25,351 -- 43,298
-------- --------- --------- ---------
Operating expenses:
Selling, general and administrative; research and development.............. 16,096 15,773 -- 31,869
Cost of restructuring...................................................... 8,650 -- -- 8,650
-------- --------- --------- ---------
Total operating expenses............................................... 24,746 15,773 -- 40,519
-------- --------- --------- ---------
Operating profit (loss).................................................... (6,799) 9,578 -- 2,779
Other income (expense):
Interest expense net....................................................... (312) (4,211) -- (4,523)
Other, net................................................................. 2,010 (1,832) -- 178
-------- --------- --------- ---------
Total other income (expense), net...................................... 1,698 (6,043) -- (4,345)
-------- --------- --------- ---------
Income (loss) before taxes................................................. (5,101) 3,535 -- (1,566)
Taxes (benefit) on income (loss)........................................... (3,392) 1,005 511 (1,876)
-------- --------- --------- ---------
Income (loss) from continuing operations................................... $ (1,709) $ 2,530 $(511) $ 310
-------- --------- --------- ---------
-------- --------- --------- ---------
Income (loss) from continuing operations per share......................... $ (0.29) $ 0.35 $-- $ 0.02
-------- --------- --------- ---------
-------- --------- --------- ---------
Weighted average common shares and common stock equivalents................ 5,926 7,250 -- 13,484
-------- --------- --------- ---------
-------- --------- --------- ---------
</TABLE>
The Notes to Unaudited Pro Forma Condensed Combined Financial Statements
should be read in conjunction with this statement
54
<PAGE>
KUHLMAN CORPORATION AND SUBSIDIARIES,
AND SCHWITZER, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
PRO FORMA
KUHLMAN SCHWITZER COMBINED
-------- --------- -----------
IN THOUSANDS
<S> <C> <C> <C>
Net sales.................................................................. $121,734 $ 109,692 $ 231,426
Cost of goods sold......................................................... 97,546 87,078 184,624
-------- --------- -----------
Gross profit........................................................... 24,188 22,614 46,802
-------- --------- -----------
Operating expenses:
Selling, general and administrative; research and development.............. 16,728 16,073 32,801
Cost of restructuring...................................................... -- 1,650 1,650
-------- --------- -----------
Total operating expenses............................................... 16,728 17,723 34,451
-------- --------- -----------
Operating profit........................................................... 7,460 4,891 12,351
Other income (expense):
Interest expense, net...................................................... 266 (4,251) (3,985)
Other, net................................................................. 2,597 (1,127) 1,470
-------- --------- -----------
Total other income (expense), net...................................... 2,863 (5,378) (2,515)
-------- --------- -----------
Income (loss) before taxes................................................. 10,323 (487) 9,836
Taxes on income (loss)..................................................... 4,099 873 4,972
-------- --------- -----------
Income (loss) from continuing operations................................... $ 6,224 $ (1,360) $ 4,864
-------- --------- -----------
-------- --------- -----------
Income (loss) from continuing operations per share......................... $ 1.05 $ (0.19) $ 0.37
-------- --------- -----------
-------- --------- -----------
Weighted average common shares and common stock equivalents................ 5,940 7,140 13,286
-------- --------- -----------
-------- --------- -----------
</TABLE>
The Notes to Unaudited Pro Forma Condensed Combined Financial Statements
should be read in conjunction with this statement
55
<PAGE>
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
1. Kuhlman operates and reports on a December 31 calendar year basis.
Schwitzer's fiscal year ends on the Sunday closest to December 31;
Schwitzer's fiscal years 1994 and 1993 included 52 weeks, and fiscal year
1992 included 53 weeks. The pro forma condensed combined balance sheet
combines the balance sheet of Kuhlman as of December 31, 1994 with the
balance sheet of Schwitzer as of January 1, 1995. The pro forma condensed
combined statements of income combine the statements of income of Kuhlman
for the years ended December 31, 1994, 1993 and 1992 with the statements of
operations of Schwitzer for the fiscal years ended January 1, 1995, January
2, 1994 and January 3, 1993. The Schwitzer historical statement of income
and balance sheet classifications presented herein were reclassified, where
necessary, to be consistent with the presentation used by Kuhlman.
2. The pro forma combined net income (loss) per share is based on the weighted
average number of common and common equivalent shares of Kuhlman and
Schwitzer for each period assuming an Exchange Ratio of 0.9615 share of
Kuhlman Common Stock for each outstanding share and common equivalent share
of Schwitzer Common Stock. Common stock equivalents consist of dilutive
shares issuable upon the exercise of stock options for Kuhlman and stock
options and warrants for Schwitzer.
3. The pro forma combined balance sheet includes transaction costs associated
with the Merger, which are estimated to be approximately $3,750,000,
partially offset by $570,000 of anticipated tax effect on those costs.
Transaction costs include salaries and other expenses related to services of
employees, professional fees and other related expenses. Certain of the
transaction costs may not be tax deductible, so no tax effect has been
assumed for those items. All of the transaction costs are expected to be
charged against income of the combined company immediately upon closing the
Merger, which is currently expected to be in Kuhlman's second quarter ending
June 30, 1995. Accordingly, the effects of these costs have not been
reflected in the pro forma condensed combined statements of income.
4. The tax provisions in 1994 and 1993 have been adjusted to reflect changes in
the valuation allowance required under SFAS No. 109 as if the companies had
been combined at January 1, 1992.
APPROVAL OF AMENDMENT TO KUHLMAN
CERTIFICATE OF INCORPORATION
The Kuhlman Certificate currently authorizes the issuance of 10,000,000
shares of Kuhlman Common Stock. As of April 18, 1995, there were 6,210,798
shares of Kuhlman Common Stock issued and outstanding and 1,225,501 shares of
Kuhlman Common Stock were reserved for issuance pursuant to outstanding stock
options. Under the Merger Agreement, Kuhlman is obligated to issue up to
6,961,010 shares of Kuhlman Common Stock in connection with the conversion in
the Merger of the shares of Schwitzer Common Stock outstanding as of April 18,
1995 and up to 1,001,514 shares of Kuhlman Common Stock upon the exercise of
Schwitzer stock options and warrants outstanding as of such date. Thus, Kuhlman
does not currently have sufficient authorized shares to meet its obligations to
issue shares pursuant to the Merger Agreement. In addition, the Kuhlman Board of
Directors believes it is desirable that a reasonable number of unissued and
unreserved shares be available for issuance should the occasion arise, such as
in possible acquisitions, and upon such terms as the Kuhlman Board of Directors
may deem appropriate without any further vote of Kuhlman stockholders.
Accordingly, the Kuhlman Board of Directors believes it advisable that the
Kuhlman Certificate be amended to increase the number of shares of Kuhlman
Common Stock that Kuhlman shall have the authority to issue to 20,000,000.
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If the proposal is approved, additional authorized shares may be issued
without further action by stockholders of Kuhlman (subject to rules of the NYSE
that could require stockholder approval to issue such stock). The possible
issuance of the additional shares of Kuhlman Common Stock authorized by the
Amendment and the lack in the Kuhlman Certificate of a provision for cumulative
voting in the election of directors could impede efforts by a third party to
obtain control of Kuhlman. The issuance of additional shares would also dilute
the percentage ownership interests of present stockholders and could dilute the
ownership interests of a party seeking to obtain control of Kuhlman. The Kuhlman
Board of Directors has no present plans to adopt any additional amendments to
Kuhlman's Bylaws or to recommend that Kuhlman's stockholders approve any other
amendments to the Kuhlman Certificate that could reasonably be expected to
dilute the interests of the present stockholders. Furthermore, except for the
Merger and Kuhlman stock option plans and Schwitzer stock options to be assumed
by Kuhlman in the Merger, there are no agreements, arrangements, plans,
understandings or pending negotiations regarding the issuance of any such
additional authorized but unissued shares. Under the Kuhlman Certificate the
stockholders of Kuhlman have no pre-emptive rights with respect to the issuance
of authorized but unissued shares.
In addition, the Kuhlman Certificate authorizes 2,000,000 shares of
preferred stock, of which 200,000 shares have been designated in the Kuhlman
Certificate as Junior Participating Preferred Stock, Series A. In order to
clarify the power of the Kuhlman Board of Directors to change the number of
shares of Preferred Stock designated as Junior Participating Preferred Stock,
Series A, from time to time, the Kuhlman Board of Directors believes it is
advisable to delete the designation, in the Kuhlman Certificate, of certain
shares of Kuhlman Preferred Stock as Junior Participating Preferred Stock,
Series A. Kuhlman intends that the number of shares designated as Junior
Participating Preferred Stock, Series A and reserved for issuance pursuant to
the Kuhlman Rights (as defined in "Description of Kuhlman Common Stock"), be
adjusted from time to time to be equal to 1% or more of the number of
outstanding shares of Kuhlman Common Stock. After the Effective Time, Kuhlman
will have 200,000 shares of Kuhlman Preferred Stock designated as Series A
Preferred Stock.
THE BOARD OF DIRECTORS OF KUHLMAN UNANIMOUSLY RECOMMENDS THAT KUHLMAN
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE KUHLMAN AMENDMENT.
APPROVAL OF THE KUHLMAN 1994 OPTION PLAN
The Board of Directors believes that stock option plans are important in
attracting and retaining employees of high caliber and outstanding capabilities.
Accordingly, the Board of Directors on July 29, 1994 adopted the Kuhlman 1994
Option Plan. Under the Kuhlman 1994 Option Plan, Kuhlman may from time to time
on or before July 28, 2004 grant to key employees (including officers, whether
or not directors) of Kuhlman or any of its subsidiaries options to purchase
shares of Kuhlman Common Stock. There are approximately 100 persons currently
eligible to participate in the Kuhlman 1994 Option Plan and after the Effective
Time there will be approximately 30 additional persons so eligible. Options are
granted on such terms and at such prices as determined pursuant to the Kuhlman
1994 Option Plan, and on such other terms and conditions as determined by the
Compensation Committee of Kuhlman's Board of Directors that are not inconsistent
with the Kuhlman 1994 Option Plan. The aggregate number of shares of such stock
on which options may be granted or which may be sold to all optionees pursuant
to the Kuhlman 1994 Option Plan shall not exceed 500,000; however, if an
outstanding option under the Kuhlman 1994 Option Plan (or portion thereof)
expires, or is cancelled, surrendered, or terminated, the shares of Kuhlman
Common Stock allocable to the unexercised portion of such option may again be
made subject to an option to be granted under the Kuhlman 1994 Option Plan.
Under the Kuhlman 1994 Option Plan, options for no more than 100,000 shares
of Kuhlman Common Stock may be allocated to any one person in any year, and the
aggregate fair market value (as of the date an option is granted) of shares with
respect to which incentive stock options are exercisable for the first time by
an optionee during any calendar year under all incentive stock option plans of
Kuhlman, and any parent and subsidiary corporations of Kuhlman, may not exceed
$100,000. Options
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granted under the Kuhlman 1994 Option Plan may be either options which are
intended to be incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended ("incentive stock options"), or
options which are not intended to be incentive stock options ("non-qualified
options"). Options granted under the Kuhlman 1994 Option Plan will expire not
more than ten years from the date of the grant, and the purchase price per share
to be specified in each option will be not less than the fair market value of a
share of Kuhlman's Common Stock on the date the option is granted. Options
granted under the Kuhlman 1994 Option Plan are not transferable other than by
will or the laws of descent and distribution, except that the Kuhlman
Compensation Committee may, if certain conditions have been satisfied, permit an
optionee to transfer a non-qualified option to members of the optionee's
immediate family, including trusts for the benefit of such family members and
partnerships in which such family members are the only partners.
Options may not be exercised by an optionee more than three months after
termination of employment, except that the optionee may exercise such options up
to twelve months after termination of employment that results from death or
permanent disability, but in no event may an option be exercised later than its
expiration date. Options granted to an optionee under the Kuhlman 1994 Option
Plan will immediately terminate and be null and void if the Kuhlman Compensation
Committee determines, either before or after such optionee's employment with
Kuhlman is terminated, that such optionee has engaged in fraud, dishonesty,
conduct in violation of Kuhlman policy or similar acts at any time while in the
employ of Kuhlman or any of its subsidiaries, or in an activity directly or
indirectly in competition with any business of Kuhlman or any of its
subsidiaries, or in other conduct detrimental to the best interests of Kuhlman
or any of its subsidiaries.
The Kuhlman 1994 Option Plan provides that the Compensation Committee shall
administer such plan. The members of the Compensation Committee must be
"disinterested persons" within the meaning of Rule 16b-3 under the Exchange Act.
The duties of such committee include (i) determining the number of shares which
may be purchased by each optionee and (ii) determining whether incentive stock
options or non-qualified stock options are to be granted to an optionee. The
Compensation Committee may make such rules and regulations and establish such
procedures for the administration of the Kuhlman 1994 Option Plan as it deems
appropriate. The Kuhlman Board of Directors may amend the Kuhlman 1994 Option
Plan without stockholder approval, except that any amendment that would (i)
materially increase the benefits accruing to participants under the Kuhlman 1994
Option Plan, (ii) materially increase the number of shares which may be issued
under the Kuhlman 1994 Option Plan, or (iii) materially modify the requirements
as to eligibility for participation under the Kuhlman 1994 Option Plan, must be
approved by a vote of stockholders of Kuhlman.
Under present law, upon the grant and exercise of an incentive stock option,
an optionee will not recognize taxable income for federal income tax purposes.
However, the amount by which the fair market value of the shares at the time of
exercise exceeds the exercise price will be treated as an adjustment to taxable
income for alternative minimum tax purposes. If the optionee does not dispose of
the shares so acquired until more than one year after its receipt (and until
more than two years after the option was granted), gain or loss recognized on
the subsequent disposition of the shares will be treated as long-term capital
gain or loss. Such gain or loss is computed as the difference between the
exercise price and the sale price. If the shares are disposed of prior to those
times, the optionee will recognize compensation income taxable as ordinary
income for federal income tax purposes in an amount equal to the lesser of (i)
the excess of the fair market value of the shares on the date of exercise over
the exercise price or (ii) the amount of gain recognized if the disposition is a
taxable sale or exchange. To the extent individual optionees qualify for capital
gain treatment, neither Kuhlman nor its subsidiaries will be entitled to a
deduction for federal income tax purposes in connection with the grant or
exercise of the option. In other cases, Kuhlman or its subsidiaries will receive
a federal income tax deduction at the same time and in the same amount that the
employee recognizes compensation income taxable as ordinary income for federal
income tax purposes.
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Upon the grant of a non-qualified option, an optionee will not recognize
taxable income for federal income tax purposes. Upon the exercise of a
non-qualified option, the optionee will recognize compensation income taxable as
ordinary income in an amount equal to the excess of the fair market value of the
shares acquired, determined at the time of exercise, over the exercise price.
Kuhlman will be entitled to a federal income tax deduction to the extent the
employee recognizes compensation income taxable as ordinary income for federal
income tax purposes. Special rules govern the recognition of income by optionees
subject to Section 16(b) of the Exchange Act.
The Revenue Reconciliation Act of 1990 set a maximum tax rate on the net
capital gains of individuals, trusts and estates of 28%. Therefore, recognized
net long-term capital gains will be taxed at the lesser of (i) the highest
marginal tax rate applied to the individual's income for such taxable year or
(ii) 28%. Notwithstanding the foregoing capital gains treatment for incentive
stock options, as stated above, the amount by which the fair market value of the
shares at the time of exercise exceeds the exercise price will be treated as an
adjustment to taxable income for alternative minimum tax purposes. This
adjustment to taxable income may be significant to an optionee. The optionee may
be entitled to a credit against his or her regular tax liability in subsequent
years for the amount of alternative minimum tax liability incurred in the year
of exercise attributable to such adjustment. Moreover, solely for the purpose of
determining alternative minimum tax liability, the basis of the shares will be
increased by the amount of such adjustment.
If the Kuhlman 1994 Option Plan is not approved by the stockholders, (i) no
options will thereafter be granted under the Kuhlman 1994 Option Plan, and (ii)
any option granted under the Kuhlman 1994 Option Plan will by its terms become
void. Kuhlman has granted options under the Kuhlman 1994 Option Plan for an
aggregate of 298,337 shares, including 100,000 to Mr. Jepson, 82,337 to Mr.
Anderson, 20,000 each to Messrs. Nagel and Walker and 8,000 to Mr. Coleman.
THE BOARD OF DIRECTORS OF KUHLMAN UNANIMOUSLY RECOMMENDS THAT KUHLMAN
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE KUHLMAN 1994 OPTION PLAN.
RATIFICATION OF THE APPOINTMENT OF
ARTHUR ANDERSEN LLP BY KUHLMAN
Pursuant to a recommendation of the Audit Committee of the Kuhlman Board of
Directors, Arthur Andersen LLP has been re-appointed by the Kuhlman Board of
Directors to serve as the independent auditors for Kuhlman for the year ending
December 31, 1995, subject to stockholder ratification at the Kuhlman Annual
Meeting. A representative of Arthur Anderson LLP will be present at the Kuhlman
Annual Meeting, will have the opportunity to make a statement if he desires to
do so and will be available to respond to appropriate questions by stockholders.
If such appointment is not ratified, the Board of Directors will appoint another
firm as Kuhlman's independent auditors for the year ending December 31, 1995.
THE BOARD OF DIRECTORS OF KUHLMAN UNANIMOUSLY RECOMMENDS THAT KUHLMAN
STOCKHOLDERS VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP
AS KUHLMAN'S INDEPENDENT AUDITORS FOR 1995.
ELECTION OF KUHLMAN DIRECTORS
The Kuhlman Bylaws provide that the number of directors, as determined by
the Kuhlman Board of Directors, shall not be less than six nor more than eleven.
The Kuhlman Bylaws further provide that directors shall be divided into three
classes serving staggered three year terms, with each class to be as nearly
equal in number as possible.
The terms of Curtis G. Anderson, William E. Burch, Alexander W. Dreyfoos,
Jr. and General H. Norman Schwarzkopf will expire at the Kuhlman Annual Meeting.
The Kuhlman Board of Directors has nominated Messrs. Anderson, Burch, Dreyfoos
and General Schwarzkopf for re-election as directors to serve until the 1998
annual meeting of stockholders.
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The proposed nominees for election as directors are willing to be elected as
such and it is intended that the persons named in the accompanying form of proxy
will vote for the election of such nominees, assuming authority to vote is
granted. If, as a result of circumstances not now known or foreseen, any of such
nominees shall be unavailable or unwilling to serve as a director, the Kuhlman
Board of Directors may select a substitute nominee and in that event the proxies
will vote for the person so selected. If a substitute nominee is not so
selected, the proxies will vote for the election of the remaining nominees.
Directors are elected by a plurality of the votes cast at the meeting.
THE KUHLMAN BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT KUHLMAN
STOCKHOLDERS VOTE "FOR" THE ELECTION OF CURTIS G. ANDERSON, WILLIAM E. BURCH,
ALEXANDER W. DREYFOOS, JR. AND GENERAL H. NORMAN SCHWARZKOPF AS DIRECTORS OF
KUHLMAN.
INFORMATION REGARDING KUHLMAN DIRECTORS, NOMINEES FOR
DIRECTORS OF KUHLMAN AND EXECUTIVE OFFICERS
The following information is furnished with respect to each person who is
currently a director of Kuhlman whose term of office will continue after the
Kuhlman Annual Meeting, as well as those persons who have been nominated for
election as a director, each of whom is currently a director of Kuhlman, and
each person who is an executive officer of Kuhlman:
<TABLE>
<CAPTION>
DIRECTOR
OR OFFICER
OF KUHLMAN
NAME AGE SINCE POSITION
- -------------------------- --- ---------- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Curtis G. Anderson 53 1993 President, Chief Operating Officer and Director of Kuhlman (3)(4)
Graham J. Beare 50 1993 President and Chief Executive Officer of Kuhlman Electric Corporation
William E. Burch 70 1993 Director of Kuhlman (1)(4)
Steve Cenko 69 1987 Director of Kuhlman (2)
James H. Coleman 41 1993 President and Chief Executive Officer of Coleman Holding Company and Coleman Cable
Systems, Inc.
Alexander W. Dreyfoos, Jr. 63 1993 Director of Kuhlman (1)(4)
Robert S. Jepson, Jr. 52 1993 Chairman of the Board, Chief Executive Officer and Director of Kuhlman
William M. Kearns, Jr. 59 1993 Director of Kuhlman (3)
Robert D. Kilpatrick 71 1993 Director of Kuhlman (2)
John L. Marcellus, Jr. 72 1982 Director of Kuhlman (1)
George J. Michel, Jr. 63 1985 Director of Kuhlman (3)
Vernon J. Nagel 37 1993 Executive Vice President of Finance, Chief Financial Officer and Treasurer of Kuhlman
General H. Norman 60 1994 Director of Kuhlman (2)(4)
Schwarzkopf
Richard A. Walker 43 1984 Executive Vice President, Chief Administrative Officer, General Counsel and Secretary
<FN>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Finance Committee.
(4) Nominated for election as a director.
</TABLE>
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The current term of Messrs. Anderson, Burch, Dreyfoos and Schwarzkopf
expires in 1995; of Messrs. Cenko, Jepson and Marcellus, in 1996; and of Messrs.
Kearns, Kilpatrick and Michel, in 1997.
Pursuant to specific provisions of the Merger Agreement, as soon as
practicable after the consummation of the Merger, Gary G. Dillon, the current
Chairman of the Board, President and Chief Executive Officer of Schwitzer, will
be appointed as a member of the Kuhlman Board of Directors to serve until the
1997 annual meeting of Kuhlman stockholders.
Mr. Anderson, who was elected President and Chief Operating Officer of
Kuhlman on April 26, 1994, and a director on September 8, 1993, founded and has
been, since 1986, Chairman of Anderson Capital Corporation, a private investment
company. Prior thereto, he spent 19 years in corporate and investment banking,
including 14 years with Citibank and five years with The First National Bank of
Chicago where he served as Executive Vice President, Head of Financial Products
Department.
Mr. Beare, who was named President and Chief Executive Officer of the
Kuhlman Electric Division of Kuhlman on February 10, 1993, and was elected to
his current position on June 9, 1993, was President of the International
Division of Danaher Tool Group, an operating division of Danaher Corporation
(diversified manufacturing), from 1992 until 1993. From 1986 until 1992, Mr.
Beare was the President of Holo-Krome Company, a subsidiary of Danaher
Corporation.
Mr. Burch served as counsel to the law firm of Lukins & Annis in Spokane,
Washington from 1984 to 1993. From 1981 to 1984, he served as Vice Chairman and
from 1975 to 1981, as President and Chief Executive Officer of Fred S. James &
Co. (insurance brokers). He has been a consultant from 1982 to the present and
currently serves as a director of Atkinson Company.
Mr. Cenko has been a consultant from 1985 to the present. From 1980 to 1985
he served as President of Lamb Systems Group (engineering, manufacturing, and
marketing of machine tools) and as a director and Executive Vice President of
Lamb Technicon Corporation (holding company).
Mr. Coleman has served as President of Coleman Cable Systems, Inc. since
1990 and Vice President of Coleman Holding Company prior to its acquisition by
Kuhlman. Prior thereto, Mr. Coleman served in various executive management
capacities with Coleman, its subsidiaries and their various business units.
Mr. Dreyfoos is currently serving as Chairman of the Board of Photo
Electronics Corporation (broadcasting) and WPEC TV (Palm Beach, Florida) and has
served continuously in those positions since 1963 and 1973, respectively.
Mr. Jepson, who was elected President and Chief Executive Officer of Kuhlman
on February 10, 1993, and Chairman of the Board on June 9, 1993, founded and was
Chairman and Chief Executive Officer of The Jepson Corporation from 1983 until
its sale in 1989. The Jepson Corporation was a diversified manufacturing company
listed on the New York Stock Exchange. Immediately preceding his election as
President and Chief Executive Officer of Kuhlman, Mr. Jepson was, and is
currently, Chairman and Chief Executive Officer of Jepson Associates, Inc., a
private investment company. Mr. Jepson currently serves as a director of
Schwitzer, Inc., The Washington Water Power Company and Savannah Foods &
Industries, Inc.
Mr. Kearns is currently President of W.M. Kearns & Co., Inc. (private
investment company). He was associated with Lehman Brothers (investment banking)
and its predecessor firms for more than 33 years. From 1992 to 1994 he was an
Advisory Director of Lehman Brothers and from 1969 through 1992 he was a
Managing Director of that firm. He also serves as a director of Selective
Insurance Group, Inc. and Mountasia Entertainment International, Inc.
Mr. Kilpatrick retired as Chairman of the Board and Chief Executive Officer
of CIGNA Corporation (insurance) in 1989 and 1988, respectively. He served in
various executive positions with CIGNA prior thereto. He currently serves as a
director of United Companies Financial Corporation.
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Mr. Marcellus retired as Chairman, President and Chief Executive Officer of
Oneida Ltd. (tableware manufacturing) in 1986. He currently serves as a director
of Southern Financial Federal Savings Bank.
Mr. Michel has been a private investor and consultant and Chairman of
Windstar International, Inc. (management consulting) from 1990 to the present.
Prior to 1990, he was Chairman of Stanadyne, Inc. (diversified manufacturer of
fabricated metal products) from 1985 to 1989, and Chief Executive Officer of the
same corporation from 1988 to 1989.
Mr. Nagel joined Kuhlman on April 5, 1993 and was elected Vice President of
Finance, Chief Financial Officer and Treasurer of Kuhlman on June 9, 1993 and
Executive Vice President of Finance on February 22, 1994. He was the Vice
President of Finance, Chief Financial Officer and Secretary of Stericycle, Inc.
(medical waste management) from 1990 until 1993. Prior thereto, Mr. Nagel served
as a Vice President of The Jepson Corporation from 1985 until 1990, including
Chief Financial Officer from 1989 until 1990 and Controller from 1986 until
1989.
General Schwarzkopf is currently active as an author, lecturer and TV
consultant. He retired in August 1991 as a Four-Star General in the U.S. Army
after having served as Commander in Chief, United States Central Command,
Department of Defense, and Commander of Operations Desert Shield and Desert
Storm. He currently serves as a director of Borg Warner Security Corporation and
The Washington Water Power Company.
Mr. Walker has served as an Executive Vice President or similar position
with Kuhlman since 1991. From 1984 until 1991, Mr. Walker served as Vice
President, General Counsel and Secretary of Kuhlman. Prior thereto, Mr. Walker
was a partner in the law firm of Harness, Dickey & Pierce.
BOARD OF DIRECTORS AND COMMITTEES
Kuhlman currently has standing Audit, Compensation and Finance Committees of
the Board of Directors and the functions of the former Nominating Committee are
performed under the direction of Steve Cenko.
The members of the Audit Committee are William E. Burch, Chairman, Alexander
W. Dreyfoos, Jr. and John L. Marcellus, Jr. The Audit Committee, which met twice
during 1994, recommends the appointment, subject to approval by the Board of
Directors and ratification by the stockholders, of Kuhlman's independent
auditors. The Committee meets with representatives of Kuhlman's independent
auditors to review the scope and effectiveness of the auditing functions, makes
appropriate reports and recommendations to the Board of Directors, approves the
fees to be paid to the independent auditors and considers the effect of
non-audit services on the independence of the independent auditors.
The members of the Compensation Committee are Robert D. Kilpatrick,
Chairman, Steve Cenko and General H. Norman Schwarzkopf. The Committee, which
met four times during 1994, reviews and establishes all forms of compensation,
including periodic adjustments, for officers and certain other key employees of
Kuhlman. This Committee also administers the stock option and stock appreciation
rights plans of Kuhlman and grants options and stock appreciation rights
thereunder.
The Finance Committee is composed of George J. Michel, Jr., Chairman, Curtis
G. Anderson and William M. Kearns, Jr. This Committee, which met once during
1994, provides advice to the officers of Kuhlman as to the investment of funds
held by Kuhlman and as to capitalization and the financial resources needed by
Kuhlman to meet its short-term and long-term needs. The Committee also reviews
the investment policies and performance of the employee benefit plans of
Kuhlman.
A stockholder of Kuhlman may nominate persons for election to the Board of
Directors of Kuhlman if such stockholder submits such nomination, together with
certain related information required by Kuhlman's Bylaws, in writing to the
Secretary of Kuhlman not less than 60 days nor more than 90 days prior to the
first anniversary of the preceding year's annual meeting of Stockholders;
provided, that in the event the date of the annual meeting is advanced by more
than 30 days or delayed
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by more than 60 days from such anniversary date, the nomination must be
submitted not earlier than the 90th day prior to such annual meeting and not
later than the 60th day prior to such annual meeting or the 10th day following
the date on which public announcement of the date of such meeting is first made.
Four meetings of the Board of Directors were held during 1994. Each director
attended at least seventy-five percent of the aggregate of the total number of
meetings of the Board of Directors of Kuhlman held in 1994 during the time that
the person served as a director, and the total number of meetings held by all
committees of the Board on which they served during the periods that they served
in 1994.
COMPENSATION OF DIRECTORS
Prior to June 1993, non-employee directors received an annual retainer of
$18,000, $600 for each meeting of the Board of Directors attended, $500 for each
Committee meeting attended, plus fees for consulting services. Commencing in
June 1993, and currently, non-employee directors receive an annual retainer of
$24,000 which covers all Board of Directors meetings, Committee meetings and
consulting services (however, additional payments for financial advisory
services rendered to Kuhlman by an affiliate of Mr. Kearns will also be made).
See "Information Regarding Kuhlman Directors, Nominees for Directors of Kuhlman
and Executive Officers -- Related Transactions." In addition, under Kuhlman's
Non-Employee Directors Stock Plan which was approved by stockholders in 1993,
non-employee directors receive annually a number of shares of Kuhlman's Common
Stock equal to an aggregate Fair Market Value of $24,000 concurrent with the
meeting of the Board of Directors held each year after the Annual Meeting of
Stockholders. Fair Market Value is defined as the closing price of the Common
Stock on the New York Stock Exchange on the date of such directors' meeting.
Pursuant to such Plan, Messrs. Burch, Cenko, Dreyfoos, Kearns, Kilpatrick,
Marcellus, Michel and General Schwarzkopf each received 1,352 shares of Kuhlman
Common Stock as of April 26, 1994.
All non-employee directors are reimbursed for travel and other expenses
related to attendance at meetings and receive term life insurance and accidental
death and disability coverage in the amount of $50,000. The cost to the
Corporation for this insurance coverage is approximately $400 per year for each
director. During 1994, the Corporation provided medical and dental insurance
coverage to Messrs. Anderson, Burch, Dreyfoos, Kearns, Kilpatrick, Michel and
General Schwarzkopf. The total compensation, including insurance benefits, but
excluding the stock referred to above, paid to each non-employee director during
1994 was as follows: Curtis G. Anderson -- $12,672; William E. Burch -- $33,362;
Steve Cenko -- $24,297; Alexander W. Dreyfoos, Jr. -- $33,362; William M.
Kearns, Jr. -- $33,362; Robert D. Kilpatrick -- $33,362; John L. Marcellus, Jr.
- -- $24,297; George J. Michel, Jr. -- $33,362; and General Schwarzkopf --
$28,689.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Kuhlman Compensation Committee during the fiscal year
ended December 31, 1994 were Robert D. Kilpatrick (Chairman), Curtis G.
Anderson, Steve Cenko and General H. Norman Schwarzkopf. On April 25, 1994,
General Schwarzkopf became a member of the Kuhlman Compensation Committee and on
April 26, 1994, Mr. Anderson ceased serving as a member of the Kuhlman
Compensation Committee concurrently with his election as President and Chief
Operating Officer of Kuhlman.
REPORT OF THE COMPENSATION COMMITTEE OF THE KUHLMAN BOARD OF DIRECTORS ON
EXECUTIVE COMPENSATION
Kuhlman's executive compensation program is administered by the Compensation
Committee of the Kuhlman Board of Directors. The Compensation Committee is
composed entirely of non-employee directors of Kuhlman.
OVERALL POLICY. The Compensation Committee determines the compensation of
the officers of Kuhlman, including the individuals named in the Summary
Compensation Table. The compensation
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of the corporation's Chief Executive Officer is ratified by the Board of
Directors. Kuhlman's compensation program for officers is designed to be linked
to corporate performance and to returns to stockholders. To this end, Kuhlman
has developed an overall compensation strategy and specific compensation plans
that tie a very significant portion of executive compensation to Kuhlman's and
the individual's success in meeting specified performance objectives and to
appreciation in Kuhlman's stock price. In 1994, as in 1993, the specific
performance objectives included reducing inventory, reducing overhead costs by
improving operating efficiencies which included a reduction of salaried
workforce, implementing an acquisition strategy, and implementing new business
practices, policies and procedures with a management team consisting mostly of
relatively new members. Subjective discretionary factors were utilized in
determining cash bonus awards, as well as other elements of officer
compensation. The overall objectives of this strategy are to attract and retain
the best possible executive talent, to motivate these executives to achieve the
objectives inherent in Kuhlman's business strategy, to link executive and
stockholder interests through equity-based plans, and finally to provide a
compensation package that recognizes individual contributions as well as overall
business results.
The key elements of Kuhlman's officer compensation program presently consist
of base salary, annual bonus, stock options and cash-only stock appreciation
rights (SAR's). The Compensation Committee's policies with respect to each of
these elements, including the bases for the compensation awarded to Mr. Jepson,
Kuhlman's chief executive officer, are discussed below. Also as noted below, the
Compensation Committee believed that the interests of stockholders would be best
served by awarding Mr. Jepson shares of Kuhlman's Common Stock in 1993, first,
as a signing incentive, and second, in place of a cash bonus. In addition, while
the elements of compensation described below are considered separately, the
Compensation Committee takes into account the full compensation package afforded
by Kuhlman to the individual, including pension benefits, severance plans,
insurance and other benefits, as well as the programs described below. The
Compensation Committee retains the discretion to keep individual items of
compensation constant so long as total compensation fairly reflects overall
corporate performance and individual achievement.
BASE SALARIES. Base salaries for new officers are initially determined by
evaluating the responsibilities of the position held and the experience of the
individual, and by reference to the competitive marketplace for executive
talent, including a comparison of median base salaries for similar positions at
other comparable companies. Companies believed to be comparable include
similarly-sized (based on annual revenues) basic manufacturing companies, other
than so-called "high-technology" manufacturing companies, as well as holding
companies with subsidiaries involved in manufacturing.
Annual salary adjustments are determined by evaluating the performance of
Kuhlman and of each officer versus various performance objectives, and also take
into account new responsibilities and subjective discretionary factors. In the
case of officers with responsibility for particular division or subsidiary (a
"Business Unit"), the financial results of that Business Unit are also
considered. The Compensation Committee, where appropriate, also considers
non-financial performance measures. These include increase in market share,
manufacturing efficiency gains, improvements in product quality and improvements
in relations with customers, suppliers and employees.
Mr. Jepson's base salary of $300,000 per year was established in 1993 at the
commencement of his employment. In arriving at the base salary amount, the
Compensation Committee took into account a comparison of median base salaries
for chief executive officers of comparable manufacturing companies, as referred
to above, and the assessment by the Compensation Committee of Mr. Jepson's
individual performance expected in 1993 and beyond. Mr. Jepson's base salary was
not changed in 1994. At the commencement of his employment, Mr. Jepson was also
granted 50,000 shares of Kuhlman Common Stock (with a restrictive legend
thereon) as a signing incentive. The Compensation Committee believed that such
an immediate further alignment of Mr. Jepson's and the stockholders' interest
was in the best interests of Kuhlman's stockholders. The base salary of Mr.
Anderson, Kuhlman's President and Chief Operating Officer, was established at
the commencement of his employment in 1994 and was based on the same type of
factors as those described above for
64
<PAGE>
Mr. Jepson. At the commencement of his employment, Mr. Anderson was also granted
28,169 shares of Kuhlman's Common Stock (with a restrictive legend thereon) as a
signing incentive. As with Mr. Jepson, the Compensation Committee believed that
such an immediate further alignment of Mr. Anderson's and the stockholders'
interest was in the best interests of Kuhlman's stockholders. The base salaries
of the other three named executives were increased in 1994 to reflect the
performance and increased responsibilities of such officers, as well as by
reference to the competitive marketplace including median base salaries for
similar positions at other comparable companies.
ANNUAL BONUS. Kuhlman officers are eligible for an annual cash bonus. As in
the case of base salary, the Compensation Committee may consider individual
non-financial performance measures and subjective discretionary factors
including significant accomplishments and/or increased responsibilities,
leadership, and, where appropriate, Business Unit and line item performance
measures (such as reduction of inventory and reduction of overhead) in
determining bonuses. Based on these measures, in 1993 Mr. Jepson was awarded a
bonus of $300,000 which was issued to him in the form of shares of Kuhlman
Common Stock (with a restrictive legend thereon) rather than in cash, again for
the purpose of further aligning his interests with those of Kuhlman
stockholders. The Compensation Committee believed that this bonus to Mr. Jepson
was justified in view of Mr. Jepson's leadership of the reorganization of
Kuhlman in 1993 which included reincorporating in Delaware, moving the corporate
headquarters, expanding and strengthening the Kuhlman Board of Directors,
bringing in certain new management, improving Kuhlman's balance sheet,
completing the acquisition of Coleman Cable Systems, Inc., and restructuring
Kuhlman Electric. Although the cost of this restructuring was the main reason
for Kuhlman's loss of approximately $3,000,000 in 1993, Kuhlman believed such
restructuring was necessary to improve future operations. Mr. Jepson's bonus
amount in 1993, as well as the bonuses received in 1993 by Messrs. Beare, Nagel
and Walker, were determined on a discretionary basis, keeping in mind median
total cash compensation levels at comparable manufacturing companies, as
referred to above. The Compensation Committee believed that the bonuses paid to
Messrs. Beare, Nagel and Walker were justified based on each of said executive's
key role in the implementation of the foregoing reorganization activities.
In 1994, in view of Kuhlman's performance, no cash bonuses were paid to
Messrs. Jepson, Anderson and Beare, the President and Chief Executive Officer of
Kuhlman Electric Corporation. Mr. Nagel, Kuhlman's Executive Vice President of
Finance, Chief Financial Officer and Treasurer and Mr. Walker, Kuhlman's
Executive Vice President, Chief Administrative Officer, General Counsel, and
Secretary each received a cash bonus in 1994 smaller than that in 1993. Mr.
Coleman, President and Chief Executive Officer of Kuhlman's subsidiary, Coleman
Cable Systems, Inc., received a cash bonus based on the excellent performance of
this subsidiary in 1994.
STOCK OPTIONS. Under Kuhlman's stock option plans, which were approved by
stockholders, stock options are granted to Kuhlman officers and other key
employees. Stock options are also designed to further align the interests of
officers with those of stockholders. The Compensation Committee sets guidelines
for the size of stock option awards based on factors similar to those used to
determine base salaries and annual bonuses, including general competitive
compensation practices regarding stock option awards. In the event of poor
corporate performance, the Compensation Committee can elect not to award
options. The Committee also considers grants in previous years. The grants in
1994, as in 1993, took into account the number of relatively new executives at
Kuhlman, with a desire on the part of the Compensation Committee to further
align their interests with those of Kuhlman stockholders as quickly as possible.
Stock options are granted with an exercise price equal to the market price of
the Kuhlman Common Stock on the date of grant. In 1994, as part of his signing
incentive, Mr. Anderson received options to purchase 100,000 shares of Kuhlman
Common Stock, of which 32,337 shares were granted under the Kuhlman 1994 Option
Plan subject to shareholder approval. Also in 1994, Mr. Jepson and the three
other named executives also received options to purchase shares of Kuhlman
Common Stock.
STOCK APPRECIATION RIGHTS. Under Kuhlman's Stock Appreciation Rights Plan
adopted by the Board of Directors in 1994, SARs may be granted to Kuhlman
officers and other key employees. The
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<PAGE>
SARs are automatically exercised on the fifth anniversary of grant and pay in
cash the difference between the price of Kuhlman Common Stock on the date of
exercise versus the price of such stock on the date of grant of the SAR. The
Compensation Committee sets guidelines for the size of SAR grants based on
factors similar to those used for stock options. During 1994, each of Messrs.
Jepson, Anderson, Coleman, Nagel and Walker received an SAR grant. One factor
considered in making these grants was the fact that no cash bonuses were paid in
1994 to Messrs. Jepson and Anderson, while the cash bonus to Messrs. Nagel and
Walker in 1994 was smaller than the cash bonus in 1993. In addition, the
Compensation Committee believed that such further alignment of these executives'
and the stockholders' interests was in the best interests of Kuhlman's
stockholders.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(m). Section 162(m) of the
Code, enacted in 1993 and effective for fiscal years beginning on or after
January 1, 1994, generally disallows a tax deduction to public companies for
compensation over $1 million paid to a corporation's chief executive officer and
four other most highly compensated executive officers. Qualifying
performance-based compensation will not be subject to the deduction limit if
certain requirements are met. Kuhlman currently intends to continue to review
the performance-based portion of the compensation of its executive officers in
view of this statute and regulations relating thereto.
CONCLUSION. Through the programs described above, a very significant
portion of Kuhlman's executive compensation is linked directly to corporate and
individual performance and stock price appreciation. In 1994, as in previous
years, a significant portion of Kuhlman officers' compensation consisted of
these variable performance-based elements. The Compensation Committee intends to
continue the policy of linking executive compensation to corporate performance
and returns to stockholders, recognizing that the fluctuations of a business
cycle may from time to time result in an imbalance for a particular period.
COMPENSATION COMMITTEE
Robert D. Kilpatrick, Chairman
Steve Cenko
General H. Norman Schwarzkopf
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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth certain
information regarding compensation paid during each of Kuhlman's last three
fiscal years to its Chief Executive Officer, and the four most highly
compensated persons serving as executive officers of Kuhlman ("Named
Executives") at December 31, 1994 whose salary and bonus for fiscal 1994
exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------
AWARDS
--------------------------
NUMBER OF
ANNUAL COMPENSATION(1) SECURITIES
RESTRICTED UNDERLYING
---------------------- OTHER ANNUAL STOCK OPTIONS/SARS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (2) AWARDS GRANTED (3) COMPENSATION (4)
- ------------------------------ --------- --------- ----------- ----------------- ----------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert S. Jepson, Jr. 1994 $ 300,000 $ -- $ -- $ -- 135,000 $ 4,482
Chairman of the Board and 1993 267,045 300,000(5) -- -- 100,000 753,695(6)
Chief Executive Officer 1992 -- -- -- -- -- --
Curtis G. Anderson (7) 1994 204,282 -- -- 500,000(8) 135,000 4,374
President and 1993 -- -- -- -- -- --
Chief Operating Officer 1992 -- -- -- -- -- --
James H. Coleman (7) 1994 209,668 161,330 -- -- 45,000 2,223
President and Chief Executive 1993 7,692 20,000 -- -- 10,000 71
Officer of Coleman Holding 1992 -- -- -- -- -- --
Company and Coleman Cable
Systems, Inc.
Graham J. Beare 1994 241,667 -- 8,958 -- 25,000 4,844
President and Chief Executive 1993 179,545 100,000 14,083 -- 50,000 3,635
Officer of Kuhlman Electric 1992 -- -- -- -- -- --
Corporation
Richard A. Walker 1994 183,333 10,000 4,592 -- 30,000 4,526
Executive Vice President, 1993 137,500 45,000 4,124 -- 10,000 3,707
Chief Administrative Officer, 1992 120,000 40,103 2,629 -- 7,142 3,508
General Counsel and Secretary
<FN>
- ------------------------------
(1) The aggregate amount of perquisites and other personal benefits for any
named executive did not exceed $50,000 or 10% of the total of annual salary
and bonus for any such named executive, and is therefore not reflected in
the table.
(2) Represents amounts reimbursed during the referenced years for the payment
of taxes as to relocation expenses.
(3) Represents the number of option shares granted under Kuhlman's stock option
plans and stock appreciation rights granted under the Kuhlman Corporation
Stock Appreciation Rights Plan.
(4) The amounts shown in this column include the following:
(a) Amounts which Kuhlman contributed to the Kuhlman Electric Corporation
("Kuhlman Electric") Savings Maximizer Plan ("Savings Maximizer Plan"),
and, in the case of Mr. Coleman, to the Coleman Cable Systems, Inc.
401(k) Profit Sharing Plan ("Coleman Plan"). Under the Savings
Maximizer Plan, participants contribute through payroll deductions
amounts that vary from 1% to 16% of their compensation. Kuhlman or a
participant's employer, as the case may be, contributes to the Savings
Maximizer Plan on behalf of each participant a minimum amount equal to
15% of the participant's before-tax contributions, which do not exceed
6% of the participant's compensation. Kuhlman Electric may also make a
discretionary matching annual contribution to the Savings Maximizer
Plan, which when made for plan years prior to January 1, 1995 were
divided equally among qualifying participants on a per capita basis.
Each participant is immediately vested in all contributions made on his
or her behalf. The amount of the contribution to the Savings Maximizer
Plan for 1994 was $0 for Mr. Jepson; $1,386 for Mr. Anderson; $518 for
Mr. Beare; and $1,386 for Mr. Walker. Under the Coleman Plan,
participants can elect to make salary deferral contributions not to
exceed 12% of their compensation. Coleman may make a discretionary
matching contribution in an amount not to exceed 20% of each
participant's first 5% of compensation contributed to the Coleman Plan
as salary deferral contributions. Coleman may also make discretionary
profit sharing contributions to the Coleman Plan which are allocated in
the ratio that each participant's compensation bears to the
compensation of all participants entitled to share in the contribution
for
</TABLE>
67
<PAGE>
<TABLE>
<S> <C>
<FN>
the plan year. Participants are 100% vested in matching contributions.
Profit sharing contributions are vested on a graded schedule of 20%
after 3 years of vesting service and 20% for each additional year of
vesting service. For 1994, $1,848 was contributed to the Coleman Plan
on behalf of Mr. Coleman.
(b) The dollar value of insurance premiums for group term life. The amount
of Kuhlman's payment for group term life insurance premiums for 1994
was $4,482 for Mr. Jepson; $2,988 for Mr. Anderson; $375 for Mr.
Coleman; $4,326 for Mr. Beare; and $3,140 for Mr. Walker.
(5) This bonus was awarded to Mr. Jepson in the form of shares of Kuhlman
Common Stock.
(6) Includes 50,000 shares of Kuhlman Common Stock valued at $15.00 per share
or $750,000 in the aggregate issued to Mr. Jepson as a signing incentive at
the commencement of his employment by Kuhlman.
(7) On April 26, 1994, Curtis G. Anderson was named as President and Chief
Operating Officer of Kuhlman. Options/SARs granted to Mr. Anderson include
the grant of an option for 32,337 shares pursuant to the Kuhlman 1994
Option Plan and is subject to the approval of that plan by the stockholders
of Kuhlman. On December 15, 1993, Kuhlman acquired all of the outstanding
stock of Coleman Holding Company ("Coleman Holding") of which Mr. Coleman
is the President and Chief Executive Officer. In addition, Mr. Coleman
serves as President and Chief Executive Officer of Coleman Cable Systems,
Inc., which is Coleman Holding Company's principal direct subsidiary. The
1993 amounts listed for Mr. Coleman were earned during the period December
15, 1993 (the date of the referenced acquisition) through December 31,
1993. The $20,000 bonus was earned as a result of the consummation of the
referenced acquisition.
(8) Includes 28,169 shares of Kuhlman Common Stock valued at $17.75 per share
or approximately $500,000 in the aggregate issued to Mr. Anderson as a
signing incentive at the commencement of his employment by Kuhlman. These
shares would have to be returned to Kuhlman in the event Mr. Anderson
leaves Kuhlman within one year from the time of the issuance. Dividends are
paid on such shares when and as paid on other shares of Kuhlman Common
Stock. Prior to being named as President and Chief Operating Officer of
Kuhlman, Mr. Anderson served as a non-employee director of Kuhlman and
received in 1994 total compensation of $12,672 for his services in that
capacity. (see "Information Regarding Kuhlman Directors, Nominees for
Directors of Kuhlman and Executive Officers -- Compensation of Directors").
</TABLE>
SALARIED EMPLOYEES' PENSION PLAN. The Salaried Employees' Pension Plan
maintained by Kuhlman Electric covers certain hourly and all salaried employees
employed by Kuhlman Electric, certain salaried employees employed by the
TRANS-PAK Spring Assembly Division of Emtec Products Corporation, and the
salaried employees of Kuhlman.
The Pension Plan provides for an individual account for each participant and
for a benefit based upon the value of such account, subject to the minimum
benefit and grandfathering provisions described below. Commencing in 1987, the
accounts of participants are credited annually with an amount equal to 3% of
salary plus an additional 3% of salary in excess of one-quarter of the maximum
amount of wages subject to FICA taxes. Accounts also are credited with a
guaranteed rate of interest. The accumulated account may be converted to an
annuity at retirement. The account of each individual who was a participant
prior to January 1, 1987 was also credited with an amount equal to the value of
such participant's accrued benefit as of December 31, 1986 determined under the
defined benefit formula then in effect.
A minimum pension of 1.2% of average compensation multiplied by credited
service (limited to 20 years) is payable if it would provide a larger benefit.
In addition, certain "grandfathering" provisions apply to avoid a loss of
benefits as a result of the transition to the revised benefit structure.
As of December 31, 1994, the estimated annual pension benefits payable upon
retirement at age 65 for certain of the individuals named in the Summary
Compensation Table are as follows: $20,571 for Mr. Jepson; $16,023 for Mr.
Anderson; $24,769 for Mr. Beare; and $80,085 for Mr. Walker. These estimates are
based on the assumptions that the officer will remain in Kuhlman's employ until
age 65 without an increase in pensionable compensation, there is no increase in
the FICA wage base or the limitations on benefits imposed by the Internal
Revenue Code, the annual guaranteed rate of interest credited by the Pension
Plan to a participant's account is 3.5% for 1995 and 5.0% thereafter, and a 7.0%
interest rate will be used when converting the officer's projected account to an
annuity.
OFFICER AGREEMENTS. On February 22, 1994, the Board of Directors of Kuhlman
approved a severance policy applicable to certain executive officers designated
by the Kuhlman Board of Directors. The severance policy supersedes any existing
severance arrangements with individual officers of Kuhlman. The severance policy
provides that if an executive officer's employment with Kuhlman is terminated by
Kuhlman for any reason other than the conviction of a felony involving Kuhlman,
the executive's base salary will be continued for a period of twenty-four (24)
months after such termination. Such officer will also be entitled during the
same period to the continuation of certain benefits that such officer was
receiving at the time of termination, including, but not limited to, medical and
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<PAGE>
dental coverage, health and accident insurance, and disability and group life
insurance. No continuation of salary and benefits are payable under the
severance policy if an executive officer dies, retires, or voluntarily
terminates employment with Kuhlman. Furthermore, under the severance policy,
salary and benefits payable under such severance policy will terminate if an
executive officer performs services for a competitor of Kuhlman and will be
reduced or eliminated entirely if services are performed for a non-competitor.
The severance policy will be administered by the Compensation Committee of the
Board of Directors of Kuhlman. As of December 31, 1994, the highest monthly
salary for the purpose of determining the severance pay for the Chief Executive
Officer and the Named Executives was as follows: Mr. Jepson -- $25,000; Mr.
Anderson -- $25,000; Mr. Coleman -- $25,833; Mr. Beare -- $20,833; and Mr.
Walker -- $15,833.
STOCK OPTION PLANS. Currently there are options outstanding under Kuhlman's
1983 Stock Option Plan ("1983 Plan") and 1986 Stock Option Plan ("1986 Plan")
approved by stockholders. The Plans provide for such options to be granted to
officers and other key executive employees of Kuhlman and its subsidiaries at
not less than 100% of the market value of Kuhlman's Common Stock (as defined in
the Plans) at date of grant and with an expiration no later than ten years from
date of grant. Options may be granted currently under the 1986 Plan. No new
options may be granted under the 1983 Plan, but the 1983 Plan continues as to
outstanding stock options.
OPTION/SAR GRANTS DURING 1994. The following table sets forth information
on stock options granted during 1994 under the 1986 Plan to the executive
officers named in the Summary Compensation Table.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION/ SAR TERM (2)
OPTIONS/SARS EMPLOYEES BASE PRICE EXPIRATION ----------------------
NAME GRANTED DURING 1994 (1) PER SHARE (3) DATE 5% 10%
- -------------------------------------------- ------------ ---------------- -------------- ---------- ---------- ----------
INDIVIDUAL GRANTS
-------------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert S. Jepson, Jr. 100,000(3) 19.0% 17.00 02/21/04 $1,071,000 $2,703,000
35,000(4) 6.6% 13.88 11/16/99 306,054 772,422
Curtis G. Anderson 67,663(3) 12.8% 17.75 04/25/04 756,641 1,909,619
32,337(5) 6.1% 13,88 11/15/04 282,768 713,652
35,000(4) 6.6% 13.88 11/16/99 306,054 772,422
James H. Coleman 25,000(3) 4.7% 17.00 02/21/04 267,750 675,750
20,000(4) 3.8% 13.88 11/16/99 174,888 441,384
Graham J. Beare 25,000(3) 4.7% 17.00 02/21/04 267,750 675,750
Richard A. Walker 10,000(3) 1.9% 17.00 02/21/04 107,100 270,300
20,000(4) 3.8% 13.88 11/16/99 174,888 441,384
<FN>
- ------------------------------
(1) Kuhlman granted options aggregating 376,000 shares (including the grant of
32,337 shares to Mr. Anderson which is subject to shareholder approval of
the Kuhlman 1994 Option Plan) and granted SARs aggregating 151,000 rights
to employees during 1994. The options for 32,337 shares granted to Mr.
Anderson under the Kuhlman 1994 Option Plan were the only options granted
in 1994 that are subject to stockholder approval of that plan. The table
does not include options for 100,000 shares to Mr. Jepson, for 50,000
shares to Mr. Anderson, for 8,000 shares to Mr. Coleman and for 20,000
shares to Mr. Walker which were granted in 1995 under the Kuhlman 1994
Option Plan and are also subject to the approval of that plan by the
stockholders of Kuhlman.
(2) As required by rules of the Securities and Exchange Commission, potential
values stated are based on the prescribed assumption that Kuhlman Common
Stock will appreciate in value from the date of grant to the end of the
option or SAR term at the annualized rates of 5% and 10% (total
appreciation of 63% and 159%), respectively, and therefore are not intended
to forecast possible future appreciation, if any, in the price of Kuhlman
Common Stock.
(3) These options were granted pursuant to the 1986 Plan which does not provide
for the grant of SARs. The exercise price may be paid by delivery of shares
of Kuhlman Common Stock already owned by the optionee. These options became
exercisable on October 26, 1994.
(4) On November 17, 1994, the Kuhlman Board of Directors adopted the Kuhlman
Corporation Stock Appreciation Rights Plan (the "SAR Plan") to motivate key
employees of Kuhlman and its subsidiaries to increase stockholder value by
further aligning such employees' interests with those of stockholders. The
SAR Plan is a non-qualified, unfunded incentive compensation plan
administered by the Compensation Committee of Kuhlman Board of Directors.
The SAR Plan provides
</TABLE>
69
<PAGE>
<TABLE>
<S> <C>
for discretionary grants to key employees of cash-only SARs based on shares
of Kuhlman's Common Stock. Each SAR measures the change in value of a share
of Kuhlman Common Stock. The SARs are automatically exercised on the fifth
anniversary of grant. Payment is made only in cash, in a lump sum as soon
as practicable after exercise. For each SAR exercised, the payment equals
the fair market value of a share of Kuhlman Common Stock at the date of
exercise MINUS the fair market value of a share of Kuhlman Common Stock at
the date of grant. These grants were made under the SAR Plan.
(5) This option was granted pursuant to the Kuhlman 1994 Option Plan and is
subject to the approval of that plan by the stockholders of Kuhlman. If
Kuhlman stockholders approve the 1994 Kuhlman Option Plan this option would
become exercisable six months after the date of such stockholder approval.
</TABLE>
AGGREGATED OPTION/SAR EXERCISES DURING 1994 AND 1994 YEAR-END OPTION/SAR
VALUES. The following table sets forth certain information on stock
options/SARs exercised during 1994 by the executive officers named in the
Summary Compensation Table along with the number and dollar value of
options/SARs remaining unexercised at December 31, 1994.
AGGREGATED FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY STOCK OPTIONS/
AT SARS AT
SHARES DECEMBER 31, 1994 DECEMBER 31, 1994
ACQUIRED ON VALUE --------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------- ------------ --------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Robert S. Jepson, Jr. 0 0 200,000 35,000 0 0
Curtis G. Anderson 0 0 67,663 67,337(1) 0 0
James H. Coleman 0 0 35,000 20,000 0 0
Graham J. Beare 0 0 75,000 0 0 0
Richard A. Walker 0 0 96,291 20,000 154,074 0
<FN>
- ------------------------------
(1) Includes an option of 32,337 shares granted in 1994 pursuant to the 1994
Kuhlman Option Plan which is subject to approval of such plan by the
Kuhlman stockholders.
</TABLE>
70
<PAGE>
FIVE-YEAR CUMULATIVE TOTAL STOCKHOLDER RETURN
The following indexed graph indicates Kuhlman's total return to its
stockholders for the past five years as compared to total return for the
Standard & Poor's 500 Composite Index and the Standard & Poor's Electrical
Equipment Index, assuming a common starting point of $100. Total stockholder
return for Kuhlman as well as for the Indexes are determined by adding (a) the
cumulative amount of dividends for a given year (assuming dividend reinvestment)
and (b) the difference between the share price at the beginning and at the end
of the year, the sum of which is then divided by the share price at the
beginning of such year. The stock price performance shown on the graph below is
not necessarily indicative of future price performance.
CUMULATIVE TOTAL RETURN
BASED ON REINVESTMENT OF $100 BEGINNING DECEMBER 31, 1989
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DEC-89 DEC-90 DEC-91 DEC-92 DEC-93 DEC-94
<S> <C> <C> <C> <C> <C> <C>
Kuhlman $100 $92 $146 $133 $166 $132
S&P 500 $100 $97 $126 $136 $150 $152
S&P Electrical Equipment In-
dex $100 $92 $122 $133 $161 $163
</TABLE>
71
<PAGE>
RELATED TRANSACTIONS
At various times during 1994, Kuhlman utilized an aircraft owned by Jepson
Associates, Inc., a company of which Robert S. Jepson, Jr. is the sole
stockholder. Kuhlman reimbursed Jepson Associates, Inc. $131,208 in 1994 for
certain costs incurred in connection with such use, and comparable data
indicates that such reimbursements were and are substantially below market
value.
On December 15, 1993 Kuhlman acquired Coleman Cable Systems, Inc. ("Coleman
Cable"), a manufacturer of a broad range of electrical wire and cable products.
Prior to the acquisition, Coleman Cable had entered into five leases with James
H. Coleman, the President of Coleman Cable, his sister and his brother-in-law
pursuant to which Coleman Cable leased several manufacturing plants and
warehouses. The properties are located in Waukegan and DeKalb, Illinois; the
lease commencement dates ranged from July 1980 to July 1992; and the lease
termination dates range from June 1995 to October 2009. The aggregate annual
base rental under all of the leases is currently $783,825 with annual
adjustments at various dates based on the Consumer Price Index. Four of the
leases contain a purchase option as well as a right of first refusal and under
such leases Coleman Cable is responsible for all capital improvements.
In addition to the foregoing leases, Coleman Cable, again prior to the
acquisition of Coleman Cable by Kuhlman, had entered into two leases with the
father of James H. Coleman, as to several facilities in North Chicago, Illinois.
The leases commenced in July 1989 and terminate in July 2001 and provide for a
current aggregate annual base rental of $678,212. The leases also provide for an
annual adjustment to rental based on the Consumer Price Index, contain a
purchase option as well as a right of first refusal and provide that Coleman
Cable is responsible for all capital improvements.
Kuhlman has obtained an opinion from a real estate brokerage firm that the
terms of the above leases as well as the rental rates payable thereunder are
fair and reasonable and no less favorable to Coleman Cable than could have been
obtained through arm's-length negotiations with an independent third party.
In September 1992, Coleman Cable, again prior to the acquisition of Coleman
Cable by Kuhlman, had entered into an agreement with Coleman International Inc.
("Coleman International"), a corporation owned by the father and brother-in-law
of James H. Coleman, and with Mr. Coleman's father and brother-in-law
individually. The agreement provided that Coleman Cable, wishing to reduce its
costs of sourcing imported products, engaged Coleman International as its
exclusive agent to procure for it certain wire and cable products outside of the
United States. The fees paid to Coleman International are based on a percentage
of the total purchases made by Coleman Cable. The fees paid to Coleman
International by Coleman Cable in 1994 aggregated $459,799. The agreement was
renegotiated effective September 1, 1994. The term of the agreement will
terminate on June 30, 1995, but shall be automatically renewed for successive
six-month periods, unless one party notifies the other of its desire to
terminate the agreement. Under the renegotiated agreement, Coleman International
will serve as a non-exclusive agent for Coleman Cable and one of its
subsidiaries, but will have a right of first opportunity to supply products if
Coleman Cable or such subsidiary finds another vendor for such products.
Kuhlman entered into an agreement ("Kearns Agreement") dated as of August 1,
1994, with W.M. Kearns & Co., Inc., a corporation controlled by William M.
Kearns, Jr. ("Kearns & Co."), pursuant to which Kearns & Co. will serve as a
non-exclusive financial advisor to Kuhlman on a part-time basis to assist
Kuhlman in developing corporate strategy and arranging acquisition, merger,
joint venture, investment or divestiture transactions for Kuhlman. Kearns & Co.
will give Kuhlman a "right of first refusal" on all such transactions of which
Kearns & Co. becomes aware which appear to fit Kuhlman's acquisition guidelines.
The Kearns Agreement has a term of two years and will expire on July 31, 1996,
unless extended by agreement of the parties. Kuhlman will pay Kearns & Co. each
month a cash advisory fee of $20,000 during the term of the Kearns Agreement and
will reimburse
72
<PAGE>
Kearns & Co. for reasonable out-of-pocket expenses directly related to its
activities under the Kearns Agreement in an amount not to exceed $1,000 per
month. In 1994, Kearns & Co. was paid $100,000 in cash advisory fees and
reimbursed for out-of-pocket expenses in the amount of approximately $1,500.
PRINCIPAL STOCKHOLDERS AND BENEFICIAL OWNERSHIP OF MANAGEMENT OF KUHLMAN
MANAGEMENT
The following table sets forth, as of April 18, 1995 the number of shares of
Kuhlman Common Stock beneficially owned by each director, each current executive
officer, including those named in the Summary Compensation Table, and all
directors and executive officers as a group as well as the number of shares and
percent of class owned by such persons after giving effect to the Merger.
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF PERCENT SHARES AFTER PERCENT OF
SHARES OF CLASS MERGER CLASS AFTER
(1)(2) (3) (1)(2) MERGER (3)
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Curtis G. Anderson.................................................... 109,473 1.7 109,473 *
Graham J. Beare....................................................... 76,347 1.2 76,347 *
William E. Burch...................................................... 9,107 * 9,107 *
Steve Cenko........................................................... 16,927 * 16,927 *
James H. Coleman...................................................... 40,000 * 40,000 *
Alexander W. Dreyfoos, Jr............................................. 12,485 * 12,485 *
Robert S. Jepson, Jr.................................................. 313,714 4.9 315,811 2.4
William M. Kearns, Jr................................................. 13,007 * 13,007 *
Robert D. Kilpatrick.................................................. 3,007(4) * 3,007(4) *
John L. Marcellus, Jr................................................. 16,109 * 16,109 *
George J. Michel, Jr.................................................. 23,186(4) * 23,186(4) *
Vernon J. Nagel....................................................... 50,167 * 50,167 *
H. Norman Schwarzkopf................................................. 2,802 * 2,802 *
Richard A. Walker..................................................... 92,288 1.5 92,288 *
All Directors and Executive Officers as a Group (14 Persons).......... 778,619 11.5 780,716 5.7
<FN>
- ------------------------
* Less than one percent
(1) Includes shares in Kuhlman's Employees' Stock Purchase Plan, Dividend
Reinvestment Plan and the Savings Maximizer Plan.
(2) Includes shares which the following persons have the right to acquire upon
the exercise of stock options as of April 18, 1995 or at any time within 60
days thereafter: Curtis G. Anderson -- 67,663 shares; Graham J. Beare --
75,000 shares; Steve Cenko -- 12,359 shares; James H. Coleman -- 35,000
shares; Robert S. Jepson, Jr. -- 200,000 shares; John L. Marcellus, Jr. --
12,359 shares; George J. Michel, Jr. -- 12,359 shares; Vernon J. Nagel --
50,000 shares; and Richard A. Walker -- 91,330 shares.
(3) Each respective individual's shares included in note (2) were deemed to be
outstanding as of April 18, 1995 for the purpose of computing the
percentage applicable to the person owning such shares but were not deemed
to be outstanding for the purpose of computing the percent of class owned
by any other person. The total number of shares included in note (2) were
deemed to be outstanding for the purpose of computing the percent of class
for all directors and executive officers as a group.
(4) These numbers exclude 5,000 shares owned by spouses where beneficial
ownership is disclaimed.
</TABLE>
73
<PAGE>
SECTION 16(A) REPORTING DELINQUENCIES.
Kuhlman's directors and executive officers are required to file reports of
ownership and changes in ownership of Kuhlman Common Stock with the Commission
and the New York Stock Exchange. William E. Burch, a director of Kuhlman, on
behalf of a trust of which he is trustee, filed one late report pertaining to
holdings of Kuhlman Common Stock. The acquisition of these trust holdings was
timely reported by Mr. Burch individually. Additionally, Mr. Burch filed one
late report relating to one individual transaction and one transaction by the
referenced trust. George J. Michel, Jr., a director of Kuhlman, on behalf of a
trust of which he is co-trustee, filed one late report pertaining to holdings of
Kuhlman Common Stock. The acquisiton of these trust holdings was timely reported
by Mr. Michel individually. Alexander W. Dreyfoos, Jr., a director of Kuhlman,
failed to include in three otherwise timely filed reports, the amount of Kuhlman
Common Stock held by a general partnership of which Mr. Dreyfoos is one of seven
general partners. Mr. Dreyfoos also failed to include the partnership holdings
and one subsequent transaction by that partnership in one otherwise timely filed
report. Amended forms have been filed by Mr. Dreyfoos to rectify those
omissions.
CERTAIN BENEFICIAL OWNERS
The following table sets forth the only persons known by Kuhlman to own of
record or beneficially, as of April 18, 1995, five percent or more of the
outstanding Common Stock of Kuhlman as well as the number of shares and percent
of class owned by such persons after giving effect to the Merger:
<TABLE>
<CAPTION>
NAME OF PERSON NUMBER OF SHARES PERCENT OF CLASS
- -------------------------------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
David L. Babson & Co., Inc. .................................................... 404,200(1) 6.5%
One Memorial Drive
Cambridge, Massachusetts 02142-1300
Dimensional Fund Advisors Inc. ................................................. 348,254(3) 5.6%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Mitchell Hutchins Institutional Investors Inc. ................................. 568,934(4) 9.2%
1285 Avenue of the Americas
New York, New York 10019
<CAPTION>
NUMBER OF SHARES PERCENT OF CLASS
NAME OF PERSON AFTER MERGER AFTER MERGER
- -------------------------------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
David L. Babson & Co., Inc. .................................................... 1,178,784(2) 8.9
One Memorial Drive
Cambridge, Massachusetts 02142-1300
Dimensional Fund Advisors Inc. ................................................. 348,254(3) 2.6
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Mitchell Hutchins Institutional Investors Inc. ................................. 568,934(4) 4.3
1285 Avenue of the Americas
New York, New York 10019
<FN>
- ------------------------
(1) Based solely on information set forth in a Schedule 13G dated February 10,
1995 filed with the Commission.
(2) Based solely on information set forth in a Schedule 13G dated February 10,
1995 filed with the Commission reflecting beneficial ownership of shares of
Kuhlman Common Stock and a Schedule 13G dated February 10, 1995 filed with
the Commission reflecting beneficial ownership of shares of Schwitzer
Common Stock.
(3) Based solely on information set forth in a Schedule 13G dated January 31,
1995 filed with the Commission. Dimensional Fund Advisors Inc.
("Dimensional"), a registered investment advisor, is deemed to have
beneficial ownership of these shares as of December 31, 1994, all of which
shares are held in portfolios of DFA Investment Dimensions Group Inc., a
registered open-end investment company, or in a series of the DFA
Investment Trust Company, a Delaware business trust, or the DFA Group Trust
and DFA Participation Group Trust, investment vehicles for qualified
employee benefit plans, all of which Dimensional serves as investment
manager. Dimensional disclaims beneficial ownership of all such shares.
(4) Based solely on information set forth in a Schedule 13G dated February 13,
1995 filed with the Commission.
</TABLE>
74
<PAGE>
ELECTION OF SCHWITZER DIRECTORS
Schwitzer's Bylaws provide for a Board of Directors, the number of which
shall be fixed from time to time by a resolution adopted by a majority of the
whole Board of Directors. The number of Schwitzer Directors has currently been
fixed at six. Schwitzer's Bylaws also provide that the Board of Directors is to
be divided into three classes with respect to the time for which the directors
hold office. At each annual meeting of stockholders of Schwitzer, successors of
the class whose terms of office expire in that year are to be elected for
three-year terms and until their successors have been duly elected and
qualified.
The terms of three directors, Donald C. Clark, Gary G. Dillon and Willard R.
Hildebrand, will expire at the Schwitzer Annual Meeting. The Company's Board of
Directors has nominated Messrs. Clark, Dillon and Hildebrand for re-election to
the Schwitzer Board of Directors. If elected, Messrs. Clark, Dillon and
Hildebrand will serve until the 1998 annual meeting of stockholders of Schwitzer
and until their successors have been duly elected and qualified, except that if
the Merger is consummated, all directors of Schwitzer, other than Gary G. Dillon
and Robert S. Jepson, Jr., have agreed to resign effective as of the Effective
Time.
Since three positions are to be filled on the Schwitzer Board of Directors,
the three nominees receiving the highest number of votes cast at a meeting at
which a quorum is present will be elected as directors.
It is the intention of the parties named in the enclosed Schwitzer proxy to
vote the shares represented thereby for the election of the nominees listed
below unless the proxy is marked otherwise. The nominees have agreed to serve as
directors if elected, and Schwitzer has no reason to believe that the nominees
will be unable to serve. In the event that one or more nominees should become
unwilling or unable to accept the nomination for election, however, the persons
named in the enclosed proxy will vote such proxy for such other persons as may
be nominated for director by the Schwitzer Board of Directors. For information
concerning procedures established by Schwitzer's Bylaws for stockholder
nomination of directors, see "Comparison of Rights of Stockholders -- Board of
Directors."
THE SCHWITZER BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SCHWITZER
STOCKHOLDERS VOTE "FOR" THE ELECTION OF DONALD C. CLARK, GARY G. DILLON AND
WILLARD R. HILDEBRAND AS DIRECTORS OF SCHWITZER.
75
<PAGE>
INFORMATION REGARDING SCHWITZER DIRECTORS, NOMINEES FOR DIRECTORS OF SCHWITZER
AND EXECUTIVE OFFICERS
The following information is furnished with respect to each person who is
currently a director of Schwitzer whose term of office will continue after the
Schwitzer Annual Meeting, as well as those persons who have been nominated for
election as a director, each of whom is currently a director of Schwitzer, and
each person who is an executive officer of Schwitzer.
<TABLE>
<CAPTION>
DIRECTOR
OR OFFICER OF
NAME AGE SCHWITZER SINCE POSITION
- ----------------------- --- --------------- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Donald C. Clark 63 1989 Director of Schwitzer (1)(2)(3)(4)
Joseph D. Corso 53 1989 Director of Schwitzer (1)(2)(3)
Gary G. Dillon 60 1989 Chairman, President, Chief Executive Officer and Director (3)(4)
Januario Do Carmo 46 1989 Vice President - General Manager (South America)
Claudio R. da Fonseca 51 1989 Director of Finance (South America)
Willard R. Hildebrand 55 1994 Director of Schwitzer (1)(2)(3)(4)
J. Richard Hull 61 1994 Director of Schwitzer (1)(2)(3)
Robert S. Jepson, Jr. 53 1994 Director of Schwitzer (1)(2)(3)
Richard H. Prange 48 1989 Vice President, Chief Financial Officer and Secretary
Peter G. Sanderson 45 1989 Vice President - General Manager (Europe)
Martin G. Spencer 50 1989 Vice President - Sales and Marketing
Peter F. Spratt 57 1989 Director of Finance (Europe)
Leonildo Zyngier 53 1989 Director of Sales and Marketing (South America)
<FN>
- ------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Nominating Committee.
(4) Nominated for election as a director.
</TABLE>
The current term of Messrs. Clark, Dillon and Hildebrand expires in 1995; of
Messrs. Corso and Hull, in 1996; and of Mr. Jepson, in 1997.
The Merger Agreement provides that effective upon consummation of the
Merger, Messrs. Clark, Hildebrand, Corso and Hull will resign from the Board of
Directors of Schwitzer, and Curtis G. Anderson will be appointed to the Board of
Directors of Schwitzer.
Mr. Clark is Chairman of the Board and a director of Household
International, Inc., a financial services business. Mr. Clark had been Chief
Executive Officer of Household from 1982 until September, 1994. He has been
Chairman of the Board of Household since 1984. He served as President of
Household from 1977 through 1987. Mr. Clark is also a director of Scotsman
Industries, Inc., Ameritech Corporation and Warner-Lambert Co. He has been a
director of Schwitzer since April, 1989 and served as Chairman of the Board of
Schwitzer until June, 1991.
Mr. Corso is President and Chief Executive Officer of McLouth Steel Company,
an employee-owned integrated steel company. He has been a director on the Board
of McLouth since July, 1992. He was formerly a principal of Corso Associates, a
consulting firm. He is also past President of Inland Steel Flat Products
Company, a division of Inland Steel Industries, Inc. He has been a director of
Schwitzer since April, 1989.
76
<PAGE>
Mr. Dillon is Chairman of the Board, President and Chief Executive Officer
of Schwitzer. Mr. Dillon has served in his present capacity since June, 1991,
having served as President and Chief Executive Officer since April, 1989. Prior
to April, 1989 he served as President and Chief Executive Officer of Household
Manufacturing, Inc. Mr. Dillon is also a director of Household International,
Inc. He has been a director of Schwitzer since April, 1989.
Mr. Do Carmo is Vice President - General Manager (South America) of
Schwitzer and has served in his present capacity since January 1990. Mr. Do
Carmo was the Director of Manufacturing (South America) of Schwitzer from April,
1989 until 1990.
Mr. da Fonseca is Director of Finance (South America) of Schwitzer. He has
served in his present capacity since April, 1989.
Mr. Hildebrand is the President and Chief Executive Officer of Great Dane
Trailers, Inc. a manufacturer of semi-truck trailers. Mr. Hildebrand joined
Great Dane in November, 1991 and was appointed to his current position in
January, 1992. Mr. Hildebrand had served as President and Chief Operating
Officer of Fiatallis North America, Inc., a manufacturer of heavy construction
and agricultural equipment, for more than five years prior thereto. He has
served as a director of Schwitzer since February, 1994.
Mr. Hull resigned in December, 1993 as Senior Vice President, General
Counsel and Corporate Secretary of Household International, Inc., a financial
services business. He had served in that capacity since June of 1984. He
continued to serve as Senior Vice President and "of counsel" to Household until
his retirement from Household in June, 1994. He is a member of the American,
Illinois, Florida and Chicago Bar Associations and is an emeritus member of the
Board of Trustees of Illinois Wesleyan University. Mr. Hull has served as a
director of Schwitzer since January, 1994.
Mr. Jepson is Chairman of the Board and Chief Executive Officer of Kuhlman
Corporation, a holding company with subsidiaries involved in manufacturing. He
was elected President and Chief Executive Officer of Kuhlman Corporation in
February, 1993 and Chairman of the Board in June, 1993. For more than the past
five years, Mr. Jepson was, and is currently, Chairman and Chief Executive
Officer of Jepson Associates, Inc., a private investment company. From 1983
until 1989, Mr. Jepson was Chairman and Chief Executive Officer of The Jepson
Corporation, which, until its sale in 1989, was a diversified manufacturing
company listed on the New York Stock Exchange. Mr. Jepson currently serves as a
director of Kuhlman Corporation, The Washington Water Power Company and Savannah
Foods & Industries, Inc.
Mr. Prange is Vice President, Chief Financial Officer and Secretary of
Schwitzer. He has held such position since June, 1989.
Mr. Sanderson is Vice President - General Manager (Europe) of Schwitzer and
has served in his present capacity since April, 1989.
Mr. Spencer is Vice-President - Sales and Marketing of Schwitzer. He has
held such position since April, 1989.
Mr. Spratt is Director of Finance (Europe) of Schwitzer and has served in
his present capacity since April, 1989.
Mr. Zyngier is Director of Sales and Marketing (South America) of Schwitzer.
He has served in his present capacity since April, 1989.
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors of Schwitzer held six meetings during 1994. Each of
the directors attended at least 75% of the meetings of the Board and of any of
its committees on which that director served. Attendance at meetings of the
Board and its committees as a whole averaged 96%. The Board of Directors has
standing Audit, Compensation and Nominating Committees.
77
<PAGE>
The Audit Committee is composed of Mr. Corso, Mr. Clark, Mr. Hildebrand, Mr.
Hull and Mr. Jepson. Mr. Hildebrand was the Chairman of the Committee. The Audit
Committee's duties and functions include reviewing the internal accounting
controls and audit functions of Schwitzer and its subsidiaries, Schwitzer's
accounting principles, policies and practices and financial reporting, the scope
of the audits conducted by Schwitzer's independent and internal auditors, and
the annual financial statements of Schwitzer and its subsidiaries. The Audit
Committee is responsible for informing the Chief Executive Officer of Schwitzer
and the Board of Directors of any material concerns that may arise in connection
with its review. The Audit Committee also recommends to the Board of Directors
the selection of Schwitzer's principal independent auditors and reviews their
professional services to determine if their independence may have been impaired
by the performance of any non-audit services. The Audit Committee met once
during 1994.
The Schwitzer Compensation Committee is composed of Mr. Corso, Mr. Clark,
Mr. Hildebrand, Mr. Hull and Mr. Jepson. Mr. Hull is Chairman of the Committee.
The Compensation Committee is responsible for determining the salaries, salary
ranges and bonuses of the five highest paid executive officers of Schwitzer and
its subsidiaries. It also recommends to the Board of Directors the adoption of,
or any substantive amendments to, any pension, profit-sharing, employee benefit
or long-term executive compensation plan or program in which senior management
participates. The Compensation Committee is also responsible for the granting of
stock options, stock appreciation rights and other awards under any long-term
executive incentive compensation plan or program of Schwitzer. The Compensation
Committee met twice during 1994.
The Nominating Committee is composed of Mr. Clark, Mr. Corso, Mr. Dillon,
Mr. Hildebrand, Mr. Hull and Mr. Jepson. Mr. Corso is the Chairman. The
Committee recommends to the Board the slate of directors to be nominated for
election to the Board at each Annual Meeting of Stockholders and recommends the
election of individuals to fill any vacancies which may occur on the Board.
Additionally, the Nominating Committee reviews annually the size and composition
of the Board of Directors. The Nominating Committee did not meet during 1994. A
stockholder of Schwitzer may nominate persons for election to the Board of
Directors of Schwitzer if such stockholder submits such nomination, together
with certain related information required by Schwitzer's Bylaws, in writing to
the Secretary of Schwitzer, which notice must be received at the principal
executive offices of Schwitzer not less than 30 days prior to the date of the
meeting at which directors are to be elected; PROVIDED, HOWEVER, that in the
event that less than 40 days' notice or prior disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the tenth day
following the day on which notice of the date of the meeting was mailed or such
public disclosure was made.
COMPENSATION OF DIRECTORS
Each non-management director of Schwitzer receives for his services (1) an
annual retainer fee paid in shares of Common Stock of Schwitzer having an
aggregate market value of $16,000 (rounded to avoid any fractional shares),
determined as of the day immediately preceding the date of the annual meeting of
stockholders of Schwitzer, and (2) a fee of $800 paid in cash for each Board of
Directors and Committee meeting attended. In addition, any non-management
director who serves as chairman of the Audit, Compensation or Nominating
Committee of the Board of Directors receives as compensation for those services
additional shares of Schwitzer Common Stock having a market value of
approximately $2,000. Schwitzer transfers shares of treasury stock to the
directors in payment of such fees at the time of, or shortly after, the first
meeting of the Board of Directors following the annual meeting of the
stockholders of Schwitzer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As a member of the Board of Directors of Household, Mr. Dillon serves on the
Audit, Finance and Nominating Committees of Household. Mr. Dillon does not serve
on the Compensation Committee of Household, and therefore does not actively
participate in the determination of salaries, bonuses and incentive awards to
members of Household's senior management, including Mr. Clark.
78
<PAGE>
Mr. Clark became a member of the Compensation Committee of Schwitzer in
June, 1994. As a member of Schwitzer's Compensation Committee, Mr. Clark is
actively involved in the determination of salaries, bonuses and incentive awards
to members of Schwitzer's senior management, including Mr. Dillon.
REPORT OF THE COMPENSATION COMMITTEE OF THE SCHWITZER BOARD OF DIRECTORS ON
EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors of Schwitzer is
responsible for developing Schwitzer executive compensation philosophies,
determining the executive compensation program components and assuring that the
program is administered consistent with the program's philosophies and
objectives. The Committee also reviews and approves the compensation of each of
Schwitzer's five most highly compensated executive officers and approves all
grants of stock options or other awards to any employee under the Schwitzer
Incentive Plan. None of the Committee members are employed by Schwitzer.
The Committee believes that since executive officers are in positions to
make substantial contributions to the long-term success of Schwitzer, the
executive compensation program should be structured to provide meaningful
incentives to increase stockholder value. On an annual basis, the Committee
reviews the performance of each of the five most highly compensated executive
officers against the objectives established by, and for, such executive officer
for the preceding year. The Committee also reviews the program components and
plan for each such executive officer for the upcoming year. The Committee
approves each plan with such modifications as it deems appropriate. During the
year, the Committee reviews individual salaries of the five most highly
compensated executive officers in conjunction with criteria set forth for base
salaries listed below, taking into account any significant event that could
affect program objectives and design.
Schwitzer's executive officer compensation program is generally comprised of
a base salary, an annual cash incentive compensation program and participation
in the Schwitzer Incentive Plan through grants of stock options. Stock
appreciation rights, restricted stock and restricted stock rights also are
compensation components available to be used at the discretion of the
Compensation Committee. In addition, executives are eligible to participate in
various benefits, including insurance protection, retirement plans and
vacations/holidays generally available to employees of Schwitzer.
BASE SALARY. The annual base salaries of Schwitzer's executive officers are
determined by reference to surveys of the compensation of executives with
similar responsibilities employed by companies that the Committee believes are
comparable to Schwitzer. The Committee first establishes from such surveys a
minimum and maximum salary range for each executive and then determines the base
salary for such executive within such range based on the Committee's assessment
of the executive's individual performance and other factors deemed relevant by
the Committee.
At the end of the first quarter of 1994, Mr. Dillon's annual base salary was
increased from $280,000 to $297,000 per year, or approximately 6.1%. His
cumulative average base salary increase during the past three years has been 4%.
In setting Mr. Dillon's salary, the Committee took into account a survey of the
combined salary and bonus compensation paid to the chief executive officers of
41 durable goods manufacturing companies with sales between $100 million and
$250 million. Giving effect to such increase, Mr. Dillon's salary is less than
two-thirds of the average combined salary and bonus reported in such survey. The
Committee has set Mr. Dillon's salary at such level because it believes that
significant emphasis should be placed on the incentive compensation portion of
his total compensation.
EXECUTIVE INCENTIVE COMPENSATION PROGRAM. Schwitzer's executive incentive
compensation program is designed to provide increased incentives to key
executives to meet or exceed aggressive financial targets and to complete
significant projects contributing to Schwitzer's success. The Committee sets the
target or "par" amount for cash bonuses under this program as a percentage of
the annual salary of such executive, with a maximum bonus for 1994 equal to
between 30% and 75% of the
79
<PAGE>
executive's annual salary, depending on the office held, and a minimum bonus of
zero. Bonuses are earned based primarily on performance compared with financial
goals established by the Committee for Schwitzer or one of its subsidiaries.
Such financial goals include targets for earnings and return on investment or
return on equity. A portion of each bonus opportunity is based on discretionary
factors to reflect individual contributions to Schwitzer's short-term and
long-term programs for success.
Mr. Dillon's cash incentive compensation for a given fiscal year may range
from 0% to 75% (up to 80% beginning in 1995) of his annual base salary, with a
target or "par" bonus of 50% of his annual base salary. Based on the factors
described above, Mr. Dillon earned a bonus of 75% of his annual base salary in
1994 and 56.8% of his annual base salary in 1993.
LONG-TERM EXECUTIVE INCENTIVE COMPENSATION PLAN. The Committee believes
that long-term incentives should provide significant portions of total
compensation for executives while encouraging long-term stock ownership. The
objective of the Schwitzer Incentive Plan is to align executive and shareholder
long-term interests by creating a strong and direct link between executive pay
and shareholder return. The Committee endorses the value of stock ownership as
an incentive for Company executives to increase stockholder value through
improved executive performance.
The Schwitzer Incentive Plan meets these objectives by permitting Schwitzer
to make annual grants of non-qualified stock options to participants who can
make significant contributions to the long-term success of Schwitzer. The
Schwitzer Incentive Plan also permits Schwitzer to reward executives through
other forms of stock grants such as restricted stock, restricted stock rights
and stock appreciation rights.
The Committee has established programs for each executive officer under the
Schwitzer Incentive Plan which provide for stock option grants as a portion of
each participant's total compensation. The stock option price is equal to the
fair market value on the day of grant. Value to the executive is dependent upon
an increase in the share price above the stock option price. The 1994 program
established for Mr. Dillon under the Schwitzer Incentive Plan included options
to purchase 10,000 shares at $9.375 each which will create value directly
relating to future stock price trends. In addition, in 1994, Mr. Dillon received
1,500 performance units under the Schwitzer Performance Unit Plan, all of which
relate to Schwitzer's return on investment during the period 1995-1997, and
75,000 phantom shares, all of which vest only if he continues to be employed
until at least October 18, 1997. The Committee believes that an appropriate
portion of Mr. Dillon's total compensation is tied directly to stockholder value
and financial performance.
BENEFIT PROGRAMS. Schwitzer provides its executive officers with insurance
protection plans including medical, dental, life, accidental death and
dismemberment, travel and accident and disability insurance, retirement programs
and vacation and holiday plans. These plans are generally available to Company
employees.
COMPENSATION COMMITTEE
J. Richard Hull, CHAIRMAN
Donald C. Clark
Joseph D. Corso
Willard R. Hildebrand
Robert S. Jepson, Jr.
80
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table summarizes the total
compensation of the Chief Executive Officer and the five other most highly
compensated executive officers of Schwitzer for fiscal years 1994, 1993 and
1992.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------
ANNUAL COMPENSATION (1)
------------------------------------- AWARDS
OTHER -------------------------
ANNUAL RESTRICTED SECURITIES ALL OTHER
COMPEN- STOCK UNDERLYING COMPEN-
SALARY BONUS SATION AWARDS OPTIONS/ SATION (2)
NAME PRINCIPAL POSITION YEAR ($) ($) ($) ($) SARS(#) ($)
- -------------- ------------------------ ------ -------- -------- -------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
G.G. Dillon Chairman of the Board,
President & CEO 1994 294,167 222,750 0 712,500(3) 10,000 20,041
Chairman, President &
CEO 1993 280,000 159,000 0 0 12,000 14,761
Chairman, President &
CEO 1992 275,683 58,720 0 0 15,000 14,369
R.G. Adams EVP, General Mgr. (N.A.) 1994 190,000 41,375 88,578 0 5,000 11,136
(resigned 8/15/94) 1993 190,000 81,890 0 0 9,000 9,352
EVP, General Mgr. (N.A.) 1992 190,000 22,420 0 0 8,000 8,454
EVP, General Mgr. (N.A.)
J. Do Carmo VP, General Mgr. (S.A.) 1994 149,682 87,722 0 0 3,000 0
VP, General Mgr. (S.A.) 1993 115,730 32,520 0 0 3,000 0
VP, General Mgr. (S.A.) 1992 100,542 16,035 0 0 3,000 0
R.H. Prange VP, CEO & Secretary 1994 95,808 47,904 10,492 0 5,000 4,181
VP, CEO & Secretary 1993 88,170 29,010 0 0 7,000 3,253
VP, CEO & Secretary 1992 77,605 10,632 0 0 5,000 2,850
C.R. da Director of Finance
(S.A.) 1994 96,095 26,907 0 0 0 0
Fonseca Director of Finance
(S.A.) 1993 74,298 10,030 0 0 1,500 0
Director of Finance
(S.A.) 1992 65,803 5,067 0 0 1,500 0
L. Zyngier Director of Sales & Mkt.
(S.A.) 1994 96,095 26,907 0 0 0 0
Director of Sales & Mkt.
(S.A.) 1993 74,298 10,030 0 0 1,500 0
Director of Sales & Mkt.
(S.A.) 1992 65,803 5,067 0 0 1,500 0
<FN>
- ------------------------------
(1) Includes amounts earned in the fiscal year, whether or not deferred.
(2) Amounts in this column consist entirely of Schwitzer U.S.-matching
contributions to the TRIP (defined below) and the Supplemental TRIP
(defined below) and group term life insurance premiums paid by Schwitzer.
See "Savings and Pension Plans" below. The amount of the employer
contributions to the TRIP and the Supplemental TRIP for 1994 was $13,595
for Mr. Dillon, $8,157 for Mr. Adams and $3,744 for Mr. Prange. The amounts
or group term life insurance premiums paid by Schwitzer for 1994 was $6,446
for Mr. Dillon, $2,979 for Mr. Adams and $437 for Mr. Prange.
(3) Consists of 75,000 units of restricted phantom stock, valued based on the
market value of Schwitzer Common Stock on the date of grant (October 18,
1994), all of which will vest on October 18, 1997, except that if Mr.
Dillon's employment by Schwitzer U.S. terminates for any reason prior to
such date, all of such units will terminate and be forfeited. As of
December 31, 1994, Mr. Dillon held no other shares of restricted stock
other than such phantom units. Based on the $7.875 closing price for
Schwitzer Common Stock on the NYSE on the last trading day of 1994, the
value of 75,000 unrestricted shares of Schwitzer Common Stock at the end of
1994 was $590,625. No dividends are payable on Mr. Dillon's phantom stock
units.
</TABLE>
81
<PAGE>
OPTION GRANTS. The following table contains information concerning grants
of stock options made during fiscal year 1994 to each of the named executive
officers who was granted a stock option during such year.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS/SARS PRICE APPRECIATION FOR 10-YEAR
UNDERLYING GRANTED TO EXERCISE INDIVIDUAL GRANTS OPTION TERM(4)
OPTIONS/SARS EMPLOYEES IN PRICE (3) EXPIRATION --------------------------------
NAME GRANTED (1) FISCAL YEAR (2) ($/SH) DATE 5% 10%
- ------------------------- ------------- --------------- ----------- ---------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
G.G. Dillon 10,000 24.39% $ 9.375 02/15/04 $ 58,959 $ 149,413
R.G. Adams 5,000 12.20% 9.375 11/16/94 N/A N/A
J. Do Carmo 3,000 7.32% 9.375 02/15/04 17,688 44,824
R.H. Prange 5,000 12.20% 9.375 02/15/04 29,479 74,707
<FN>
- ------------------------
(1) Consists solely of options which become exercisable with respect to 25% of
the shares subject thereto beginning on each of the first, second, third
and fourth anniversaries of the date of grant.
(2) Based on options for a total of 41,000 shares granted to all employees.
(3) Based on the market value on February 15, 1994.
(4) Potential realizable values are calculated using an exercise price of
$9.375, the market value (the average of the high and low prices) of
Schwitzer Common Stock on February 15, 1994, the date of the grant.
</TABLE>
OPTION EXERCISES AND YEAR-END VALUES. The following table contains
information concerning the exercise of stock options during fiscal year 1994 and
the value of unexercised stock options at the end of fiscal year 1994 with
respect to the named executive officers.
AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS HELD AT THE-MONEY OPTIONS AT
SHARES VALUE FISCAL YEAR-END FISCAL YEAR-END (1)(2)
ACQUIRED ON REALIZED -------------------------- --------------------------
NAME EXERCISE ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
G.G. Dillon 0 $ 0 162,092 17,250 $ 301,281 $ 7,219
R.G. Adams 25,000 88,578 0 0 0 0
J. Do Carmo 0 0 21,800 4,500 43,719 1,781
R.H. Prange 2,125 10,492 33,325 8,500 58,375 4,094
C.R. da Fonseca 0 0 12,675 1,125 24,234 891
L. Zyngier 0 0 12,675 1,125 24,234 891
<FN>
- ------------------------
(1) Based on the market value of Schwitzer Common Stock on December 31, 1994 of
$7.88 (the average of the high and low prices for Schwitzer Common Stock).
(2) As of December 31, 1994, the exercise price of some options was higher than
the market value of the underlying stock. Accordingly, option holders will
not be able to receive any value from those options until the price of
Schwitzer Common Stock rises above the exercise price of the options.
</TABLE>
82
<PAGE>
LONG TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
AWARDS
----------------------------------------- ESTIMATED FUTURE PAYOUTS (1)
NUMBER OF SHARES/ PERFORMANCE OR OTHER ---------------------------------------
UNITS PERIOD UNTIL THRESHOLD MAXIMUM
NAME OR OTHER RIGHTS(#) MATURATION OR PAYOUT ($) TARGET(2) ($)
- ---------------------------------- ------------------- -------------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Gary G. Dillon 1,500 3 years $ 150,000 N/A $ 300,000
Richard H. Prange 250 3 years 25,000 N/A 50,000
Peter G. Sanderson 250 3 years 25,000 N/A 50,000
Januario Do Carmo 200 3 years 20,000 N/A 40,000
Martin G. Spencer 150 3 years 15,000 N/A 30,000
<FN>
- ------------------------
(1) The awards shown in the table are made under Schwitzer's Performance Unit
Plan and consist of phantom units payable in cash. The amounts of future
payouts under the awards are based on Schwitzer's average return on
investment ("ROI") for the three-year period commencing January 1, 1995 and
ending on December 31, 1997. No payouts will be made under the awards
unless and until the specified level of ROI is achieved.
(2) No target payout or level of performance is specified in the awards.
</TABLE>
SAVINGS AND PENSION PLANS. Schwitzer U.S. has a Tax Reduction Investment
Plan ("TRIP") which is a deferred savings plan for its eligible U.S. employees.
With certain exceptions, an employee of at least 21 years of age with three
months of service (three years of service if under age 21) may contribute into
the TRIP, on a pre-tax and after-tax basis, up to 15% of the participant's cash
compensation (subject to a maximum annual pre-tax contribution by a participant
of $9,240 for 1994 as adjusted for cost of living increases) and invest such
contributions in Schwitzer Common Stock or separate equity or income funds. Each
participant's own pre-tax contributions (which are fully vested) are matched by
employer contributions at a rate determined by the employer at its discretion,
but employer contributions may not exceed 6% of a participant's compensation.
Employer matching contributions are invested in Schwitzer Common Stock. A
graduated vesting schedule provides for partial vesting in matching
contributions on the basis of years of service, with a participant becoming
fully vested in such employer matching contributions after five years of
employment. With certain exceptions, a participant's after-tax contributions may
be withdrawn, and employer matching contributions may be withdrawn after five
years of plan participation. A participant's pre-tax contributions may not be
withdrawn except for an immediate financial hardship, upon termination of
employment, or after attaining age 59. In addition, participants may obtain
loans from their TRIP accounts under certain circumstances.
Schwitzer U.S. has also established a Supplemental Tax Reduction Investment
Plan ("Supplemental TRIP") for those participants in the TRIP who, as the result
of restrictions imposed on the TRIP under the Code, are precluded from receiving
from Schwitzer U.S. the full amount of the employer matching contributions to
which such participants would otherwise be entitled. Schwitzer U.S. credits to
an account established for each participant under the Supplemental TRIP an
amount equal to the difference between 3% of the participant's annual
compensation and the amount of the matching contribution that Schwitzer U.S. was
permitted to make to the account of such participant under the TRIP. A
participant in the Supplemental TRIP becomes vested in the amounts credited to
his or her account in accordance with the vesting schedule applicable to the
TRIP. Vested amounts held in a participant's account under the Supplemental TRIP
will be paid to the participant or his or her spouse or designated beneficiary
upon termination of employment or at such time or in such other form or manner
as the Compensation Committee of the Board of Directors in its sole discretion
may determine.
The Schwitzer U.S. Inc. Pension Plan for Certain Salaried and Exempt
Employees ("Salaried Pension Plan") is a non-contributory, defined benefit plan
for certain salaried employees. The amount of a participant's pension benefits
depends primarily on years of employment, age at retirement, and
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<PAGE>
average annual compensation (salary plus bonus, whether paid in cash or stock,
and excluding Schwitzer U.S. matching contributions to the TRIP and automobile
allowance) for the five successive highest-paid years of the employee's last ten
years of employment. The plan is integrated with Social Security to the extent
allowed by law. Participants become fully vested in their accrued pension
benefits after five years of service. Payment of vested pension benefits
normally begins at age 65, but an early retirement benefit at reduced levels may
be paid if a participant is at least 55 years of age with 10 years of service.
The following table illustrates the amount of the plan's annual pension benefits
on a straight-life annuity basis (including amounts payable under Schwitzer's
non-qualified supplemental pension plan, where applicable) for eligible
employees retiring at age 65. Offsets for Social Security payments and other
offsets provided for in the plan are not reflected in this table.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
------------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$100,000 $ 18,298 $ 24,398 $ 30,498 $ 36,598 $ 42,698
$200,000 $ 38,756 $ 51,674 $ 64,592 $ 77,511 $ 90,430
$300,000 $ 59,212 $ 78,950 $ 98,688 $118,425 $138,163
$400,000 $ 79,669 $106,226 $132,782 $159,339 $185,895
$500,000 $100,126 $133,501 $166,876 $200,252 $233,627
$600,000 $120,583 $160,777 $200,971 $241,166 $281,360
</TABLE>
Compensation covered by the Salaried Pension Plan includes salary plus
bonuses paid in cash or stock. For purposes of determining the benefit under the
Salaried Pension Plan, the amount of covered compensation for 1994 for each
executive officer named in the Summary Compensation Table is equal to the salary
reported for 1994 plus the bonus reported for 1993 in the Summary Compensation
Table, since bonuses earned in a given fiscal year are paid in the following
year. The years of service for purposes of the Salaried Pension Plan are as
follows: Mr. Dillon, 16 years and Mr. Prange, 22 years. In calculating credited
years of service under the Salaried Pension Plan, years of service with
Household prior to the spin off of Schwitzer by Household International, Inc. in
1989 have been taken into account. A non-qualified supplemental pension plan
will be provided to those employees exceeding regulatory restrictions.
Pension benefits for Messrs. Do Carmo, da Fonseca and Zyngier are derived
from a Brazilian government pension program since Lacom Schwitzer Equipamentos,
Ltda., Schwitzer's subsidiary in Brazil, does not have a pension plan.
EXECUTIVE COMPENSATION AND SEVERANCE AGREEMENTS. The Dillon Agreement sets
forth Mr. Dillon's entitlement to an established annual salary as may be
increased from time to time by the Board of Directors of Schwitzer U.S., and to
benefits under the Schwitzer U.S. benefit plans and establishes an annual bonus
awarded under Schwitzer's Executive Incentive Compensation Program ranging from
0% to 80% of his annual salary, with a par rate equal to 50% of his annual
salary. Under the Dillon Agreement, Mr. Dillon is also entitled to 1,500
performance units under Schwitzer's Performance Unit Plan for the period from
January 1, 1995 through December 31, 1997. Under the Performance Unit Plan
(adopted on October 18, 1994, performance will be measured in terms of a net
income return on equity plus debt investment ("ROI") averaged over such three
year period, with awards ranging from $0 per unit for ROI of 10% to $200 per
unit for ROI of 20% or greater.
The Dillon Agreement provides that in the event he is terminated or resigns
from Schwitzer U.S. for any reason prior to his 65th birthday, Schwitzer U.S.
shall continue to pay his then annual salary, to pay his then annual bonus at
par levels and to provide all pension, profit sharing, deferred compensation,
medical and life insurance benefits under Schwitzer U.S.'s benefit plans for a
period ending on the earlier of (a) 18 months from the date of such termination
or resignation or (b) his 65th birthday. Such agreement further provides that
upon the date of such termination or resignation, all options with respect to
Schwitzer held by Mr. Dillon will immediately become exercisable, and any
84
<PAGE>
restrictions on the stock of Schwitzer held by Mr. Dillon on the date of such
termination or resignation, other than on the 75,000 phantom stock units granted
to Mr. Dillon on October 18, 1994 (described below), will lapse on such date.
The Dillon Agreement also provides that if Mr. Dillon is terminated or
resigns following a Change of Control (as defined in the Schwitzer Incentive
Plan), Schwitzer U.S. shall, in addition to the payments described above, be
obligated to make a lump sum cash payment to Mr. Dillon equal to 1 1/2 times his
then annual salary and 1 1/2 times his then annual bonus at par level. Such
agreement further provides that Schwitzer U.S. will reimburse Mr. Dillon for any
excise tax due with respect to any excess parachute payment within the meaning
of Sections 280G and 4999 of the Internal Revenue Code (or successor provisions)
and for any additional federal income and excise taxes due on such excise tax.
Notwithstanding the foregoing, the Dillon Agreement provides that if he
should elect to resign at a time when the Board of Directors of Schwitzer U.S.
has not employed a successor Chief Executive Officer, Schwitzer U.S. will not be
obligated to make the payments otherwise required by such agreement.
Pursuant to a Phantom Stock Agreement between Mr. Dillon and Schwitzer U.S.
dated October 18, 1994, Mr. Dillon has been awarded 75,000 phantom stock units
which entitle him to receive an amount of cash equal to the value of 75,000
shares of Schwitzer Common Stock on his termination of employment with Schwitzer
U.S., except that if Mr. Dillon's employment by Schwitzer U.S. is terminated
prior to October 18, 1997, his rights with respect to all of such phantom stock
units will terminate and be forfeited.
In connection with the Merger, and in order to provide Mr. Dillon with an
incentive to remain in the employ of Schwitzer U.S. after the closing of the
Merger and to eliminate any incentive for Mr. Dillon to leave Schwitzer U.S.
after such closing, the Dillon Agreement was amended by the Dillon Amendment to
provide that, at the Effective Time, (i) the obligation of Schwitzer U.S. to pay
Mr. Dillon's salary and bonuses at par levels for up to 18 months upon his
termination or resignation as provided for above, (ii) its obligation to make a
lump sum payment upon his termination or resignation following a Change of
Control as provided for above, and (iii) any other severance obligation of
Schwitzer U.S. to Mr. Dillon will be terminated as of the Effective Time, and in
lieu of the obligation in (i) above, Schwitzer U.S. will, at the Effective Time,
pay Mr. Dillon a lump sum cash payment in the amount of 1 1/2 times his then
annual salary and 1 1/2 times his then annual bonus at par level, and in lieu of
the obligation in (ii) above, Schwitzer U.S. will, at the Effective Time, pay
Mr. Dillon a lump sum cash payment of 1 1/2 times his then annual salary and
1 1/2 times his then annual bonus at par level.
The Dillon Amendment further provides that, at the Effective Time, (i) each
option to purchase Shares of Common Stock of Schwitzer held by Mr. Dillon
pursuant to a grant under the Schwitzer Incentive Plan will be converted into an
option to purchase shares of Common Stock of Kuhlman in accordance with the
Exchange Ratio and each such option shall become exercisable in accordance with
such option's terms and (ii) the 75,000 phantom stock units awarded to Mr.
Dillon on October 18, 1994 will entitle him to receive an amount of cash equal
to the value of 75,000 shares of Kuhlman Common Stock upon his termination of
employment, subject to forfeiture if Mr. Dillon's employment by Schwitzer U.S.
is terminated prior to October 18, 1997. The Dillon Amendment also increased Mr.
Dillon's annual salary from $297,000 to $325,000.
The Dillon Amendment further provides that (i) as of the Effective Time, the
Board of Directors of Schwitzer U.S. shall be deemed to have employed a
successor Chief Executive Officer, (ii) Schwitzer U.S. may terminate Mr.
Dillon's employment at any time and Mr. Dillon may resign such employment at any
time, and (iii) after the Effective Time, Schwitzer U.S.'s obligation to
continue to provide all pension, profit sharing, deferred compensation, medical
and life insurance benefits under its benefit plans for a period ending on the
earlier of (a) 18 months after Mr. Dillon's termination or resignation or (b)
his 65th birthday, shall continue. The Dillon Amendment shall be void and of no
effect if Mr. Dillon should resign from Schwitzer U.S. prior to the Effective
Time.
85
<PAGE>
In addition to Mr. Dillon, Mr. Prange, Mr. Do Carmo, Mr. da Fonseca, Mr.
Zyngier, Mr. Spencer, Mr. Spratt and Mr. Sanderson have employment agreements
with Schwitzer or one of its subsidiaries which generally provide for continued
compensation for between six and twelve months if such employees are terminated
(other than for willful and deliberate misconduct or inability, for reasons of
disability, to perform their duties for six consecutive calendar months) or such
employees resign prior to reaching age 65 because of (i) assignment to position
of lesser rank or status, (ii) reduction in annual salary, annual par bonus or
benefits, or (iii) reassignment to a geographical area more than 50 miles from
their present residence.
86
<PAGE>
FIVE YEAR CUMULATIVE TOTAL STOCKHOLDER RETURN
The graph below compares the cumulative total stockholder return on the
Common Stock of Schwitzer for the last five fiscal years (see note below) with
the cumulative total return on the Russell 2000 Index and the S&P 500 Index over
the same period. Most of Schwitzer's direct competitors are private companies or
small segments of larger companies, which does not permit construction of a
realistic peer group. Therefore, the S&P 500 Index is used in lieu of a peer
group for this comparison.
Comparison of Five-Year Cumulative Total Return*
Schwitzer, Inc., Russell 2000,
and S&P 500 Index
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DEC-89 DEC-90 DEC-91 DEC-92 DEC-93 DEC-94
<S> <C> <C> <C> <C> <C> <C>
Kuhlman 100.00 61.82 94.55 89.09 87.27 116.36
Russell 2000 100.00 80.49 117.56 139.21 165.53 162.51
S&P 500 100.00 96.90 126.43 136.06 149.66 151.65
</TABLE>
Assumes $100 invested on December 31, 1989, in Schwitzer, Inc.'s Common
Stock, Russell 2000, and S&P 500.
* Cumulative total return assumes reinvestment of dividends.
87
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the beneficial ownership of Schwitzer Common Stock
for each director, including each nominee for director of Schwitzer, each
executive officer of Schwitzer named under "Executive Compensation -- Summary
Compensation Table" elsewhere in this Proxy Statement/ Prospectus and all
directors and executive officers of Schwitzer as a group as of April 18, 1995.
<TABLE>
<CAPTION>
NO. OF SHARES
BENEFICIALLY OWNED(1)
---------------------
<S> <C>
DIRECTORS AND DIRECTOR NOMINEES
Donald C. Clark.................................................. 46,917
Joseph D. Corso.................................................. 11,851
Gary G. Dillon................................................... 239,193(2)
Willard R. Hildebrand............................................ 6,324
J. Richard Hull.................................................. 3,324
Robert S. Jepson, Jr............................................. 2,181
CERTAIN EXECUTIVE OFFICERS
Januario Do Carmo................................................ 21,800
Richard H. Prange................................................ 36,128
Claudio da Fonseca............................................... 12,675
Leonildo Zyngier................................................. 12,675
Directors and Officers as a group (13 individuals, including all
those listed above)............................................. 447,268(3)
<FN>
- ------------------------
(1) Information relating to beneficial ownership of Schwitzer Common Stock by
nominees and directors is based upon information furnished by each person
to Schwitzer or reflected in the records of the Schwitzer Incentive Plan or
the TRIP. Information relating to shares held in the TRIP has been
furnished as of December 31, 1994, the latest date for which such
information is available. Except as indicated otherwise in the notes to
this table, each person named in the table has sole voting and investment
power over the number of shares of Schwitzer Common Stock listed opposite
his name.
(2) Includes 336 shares held for the account of Mr. Dillon under the TRIP with
respect to which Mr. Dillon has voting and shared investment power, 162,092
shares issuable pursuant to stock options exercisable within 60 days and
17,100 shares held jointly by Mr. Dillon and his wife with respect to which
Mr. Dillon and his wife share both voting and investment power. Mr. Dillon
beneficially owns 3.1% of the outstanding shares of Schwitzer Common Stock.
(3) Includes 3,135 shares held for the accounts of officers under the TRIP with
respect to which such officers have voting and shared investment power, and
295,467 shares issuable pursuant to stock options exercisable within 60
days.
</TABLE>
No nominee or director of Schwitzer other than Mr. Dillon beneficially owns
more than one percent of the outstanding shares of Schwitzer Common Stock. All
directors and officers of Schwitzer as a group beneficially own 5.9% of the
outstanding shares of Schwitzer Common Stock.
88
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following are the only persons known to Schwitzer to be the beneficial
owners of more than 5% of the outstanding Schwitzer Common Stock ("Schwitzer 5%
Holder") as of the most recent date prior to the preparation of this Proxy
Statement/Prospectus for which information is available to Schwitzer.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT OF CLASS
- ------------------------------------------------------------------------------------------ ------------------ ----------------
<S> <C> <C>
David L. Babson & Co., Inc. 805,600(1) 11.13%
One Memorial Drive
Cambridge, MA 02142
Ingalls & Snyder 755,050(2) 10.43%
61 Broadway
New York, NY 10006
Pioneering Management Corporation 571,300(3) 7.89%
60 State Street
Boston, MA 02114
SoGen International Fund, Inc. 498,300(4) 6.88%
Societe Generale Asset Management Corp.
1221 Avenue of the Americas
New York, NY 10020
Manley Fuller Asset Management, Inc. 420,100(5) 5.80%
1185 Avenue of the Americas, 30th Floor
New York, NY 10036
Massachusetts Mutual Life Insurance Company 500,000(6) 6.46%(7)
MassMutual Corporate Investors
MassMutual Participation Investors
1295 State Street
Springfield, MA 01111
<FN>
- ------------------------
(1) Based on a Schedule 13G dated February 10, 1995, filed with the Commission
by David L. Babson & Co., Inc., reflecting its beneficial ownership of
shares of Schwitzer Common Stock as of December 31, 1994. As of that date,
Babson reported that it may be deemed to have sole voting power over
538,400 shares, shared voting power over 222,200 shares and sole
dispositive power over 805,600 shares of Schwitzer Common Stock.
(2) Based on a Schedule 13G dated January 13, 1995 filed with the Commission by
Ingalls & Snyder, reflecting its beneficial ownership of shares of
Schwitzer Common Stock as of December 31, 1994. As of that date, Ingalls &
Snyder reported that it may be deemed to have sole voting power over 26,000
shares and sole dispositive power over 755,050 shares of Schwitzer Common
Stock.
(3) Based on a Schedule 13G dated January 17, 1995, filed with the Commission
by Pioneering Management Corporation, reflecting its beneficial ownership
of shares of Schwitzer Common Stock as of December 31, 1994. As of that
date, Pioneering reported that it may be deemed to have sole voting power
and shared dispositive power over 571,300 shares of Schwitzer Common Stock.
(4) Based on a Schedule 13G dated February 15, 1995, filed with the Commission
by SoGen International Fund, Inc., and its investment advisor, Societe
Generale Asset Management Corp., reflecting their beneficial ownership of
shares of Schwitzer Common Stock as of December 31, 1994. As of that date,
SoGen International Fund, Inc. and Societe Generale Asset Management Corp.
reported that they may be deemed to have sole voting power and sole
dispositive power over 498,300 shares of Schwitzer Common Stock.
(5) Based on a Schedule 13G dated February 13, 1995 filed with the Commission
by Manley Fuller Asset Management, Inc., reflecting its beneficial
ownership of shares of Schwitzer Common Stock
</TABLE>
89
<PAGE>
<TABLE>
<S> <C>
as of December 31, 1994. As of that date, Manley Fuller Asset Management,
Inc. reported that it may be deemed to have sole voting power over 410,700
shares and sole dispositive power over 420,100 shares of Schwitzer Common
Stock.
(6) Based on a Schedule 13G dated May 6, 1992, filed with the Commission by
Massachusetts Mutual Life Insurance Company, MassMutual Corporate
Investors, and MassMutual Participation Investors, as a group, reflecting
its beneficial ownership of warrants for 350,000, 100,000 and 50,000
shares, respectively, of Schwitzer Common Stock, as of December 31, 1992.
MassMutual reported that it had sole voting power and sole dispositive
power over all of such warrants. The exercise price of such warrants is $8
per share.
(7) Assumes issuance of the shares of Schwitzer Common Stock subject to the
warrants described in note (6).
</TABLE>
EFFECT OF MERGER
At the Effective Time, each outstanding share of Schwitzer Common Stock,
including each share held by any of the directors and officers of Schwitzer or
any of the Schwitzer 5% Holders, will be converted into 0.9615 share of Kuhlman
Common Stock. To the knowledge of Schwitzer, the percentage of outstanding
shares of Kuhlman Common Stock owned by Mr. Dillon, all directors and officers
of Schwitzer as a group and each Schwitzer 5% Holder after giving effect to the
Merger will be approximately 53% of the percentage of the outstanding Schwitzer
Common Stock listed above as being held by each such person or group, except
that the percentage of Kuhlman Common Stock held by David L. Babson & Co., Inc.
will be 8.9% and such percentage deemed to be held by Massachusetts Mutual Life
Insurance Company assuming exercise of its warrants would be 3.5%. Except for
stock options described herein, Schwitzer has no current commitments to any of
its directors or officers or any of the Schwitzer 5% Holders with respect to the
issuance of Schwitzer Common Stock.
RATIFICATION OF THE APPOINTMENT OF
ARTHUR ANDERSEN LLP BY SCHWITZER
Schwitzer's Board of Directors has voted to reappoint, subject to
ratification by Schwitzer's stockholders, Arthur Andersen LLP as the firm of
independent certified public accountants to audit the financial statements of
Schwitzer and its subsidiaries for the current year. Arthur Andersen LLP has
served as Schwitzer's independent auditors since April, 1989. Although it is not
required to do so, the Schwitzer Board of Directors is submitting the selection
of auditors for ratification in order to obtain stockholders' approval of this
appointment. If the selection of Arthur Andersen LLP is not ratified, the
Schwitzer Board of Directors will reconsider the appointment. A representative
from Arthur Andersen LLP is expected to be present at the Schwitzer Annual
Meeting and will have the opportunity to make a statement and to respond to
appropriate questions.
THE BOARD OF DIRECTORS OF SCHWITZER UNANIMOUSLY RECOMMENDS THAT SCHWITZER
STOCKHOLDERS VOTE "FOR" RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP
AS SCHWITZER'S INDEPENDENT AUDITORS FOR 1995.
BUSINESS OF KUHLMAN
GENERAL
Kuhlman, a Delaware corporation whose predecessor was founded in 1894, owns
and manages a group of operating companies. These companies are Kuhlman
Electric, Coleman Holding (whose principal direct subsidiary is Coleman Cable),
and Emtec Products Corporation, and each is a wholly-owned subsidiary of
Kuhlman. Kuhlman's businesses operate in two principal segments, electrical
transformers and wire and cable, with the remaining operations combined into a
single segment referred to as other. In the electrical transformer segment,
Kuhlman designs, manufactures and markets electrical utility and industrial type
transformers for various markets and industries involved in electrical
distribution systems. In the wire and cable segment, Kuhlman manufactures and
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distributes a wide variety of electrical and electronic wire and cable products
to a number of markets for commercial, industrial and consumer uses. Kuhlman
also manufactures and distributes a variety of springs and metal parts used by
other manufacturers in their products or production process. The executive
office of Kuhlman is located at 1 Skidaway Village Walk, Suite 201, Savannah,
Georgia 31411. Its telephone number is (912) 598-7809.
BUSINESS SEGMENTS
Kuhlman is organized into three business segments: electrical transformers,
wire and cable, and other. The following discussion addresses the organization,
products and markets of Kuhlman's three business segments. For financial
information relating to the business segments, see Note 13 of Notes to
Consolidated Financial Statements on page 26 of the Registrant's Annual Report
to Shareholders for the year ended December 31, 1994, which is incorporated
herein by reference.
ELECTRICAL TRANSFORMERS
Kuhlman Electric and its wholly-owned subsidiary, Associated Engineering
Company, manufacture and market electrical utility and industrial-type
transformers used in electrical distribution systems serving residences and
commercial and industrial buildings. These transformers range from small
instrument transformers used in the metering and switching of electricity and
pole-mounted, surface-mounted, or underground transformers serving from one to
eight residences, up to medium-size power transformers which are used in utility
substations or commercial-type electrical power centers serving shopping
centers, apartment complexes, factories and other users of electric power.
The principal market for Kuhlman Electric's transformer products is electric
utility companies throughout the United States.
The large majority of all distribution and power transformers manufactured
by Kuhlman Electric in 1994 were marketed directly, mostly through ten employee
sales engineers. The balance of such distribution and power transformers were
sold through sixteen independent commissioned sales organizations, which employ
approximately 50 salesmen and sales engineers. In addition, instrument
transformers are sold through nine of the above employee sales engineers as well
as through eleven additional independent commissioned sales organizations which
employ approximately 46 salesmen and sales engineers.
Kuhlman Electric, located in Versailles, Kentucky, is the headquarters for
the Electrical Transformer Segment. Kuhlman Electric is managed by a president
who is responsible for its operating activities including all purchasing,
manufacturing, marketing, accounting, personnel and administrative functions.
WIRE AND CABLE
Coleman Holding was acquired by Kuhlman on December 15, 1993. Coleman
Holding, through its wholly owned subsidiaries, including its principal direct
subsidiary, Coleman Cable, manufactures and distributes a wide range of
products, including bare copper and aluminum wire for utilities; portable wiring
systems for the construction industry and original equipment manufacturer
("OEM") applications; wire for security, heating, ventilating and air
conditioning ("HVAC"), irrigation and sound systems; and extension cords,
trouble lights, booster cables and other products for consumer, commercial and
industrial markets. Coleman's products are sold directly through twelve employee
salespersons and a number of manufacturers' representatives employing over 700
salespersons to electrical and security distributors, utilities, mass
merchandisers, and various industrial and OEM users on a nationwide basis.
Coleman is organized into five business units which have been set up primarily
along basic product or distribution lines. Each business unit is managed by a
president who is responsible for its sales and marketing functions. Executive
and administrative functions, including general accounting and personnel for
Coleman are conducted at Coleman's principal office located in North Chicago,
Illinois. Each business unit president reports to Coleman's president who is
responsible for all operating activities including purchasing, manufacturing,
general accounting and management information systems.
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The following is a summary of the five business units that constitute
Coleman:
CABLE AND WIRE DIVISION. Coleman's Cable and Wire Division provides a line
of flexible cords, power cables, control cables, robotics cables, diesel
locomotive cables and specialty cables used in the distribution of portable
power for construction, industrial and OEM applications. Coleman markets its
products under various trade names, including SEOPRENE-Registered Trademark-,
POLAR SOLAR (stylized)-Registered Trademark-, COLFLEX-Registered Trademark-, and
POLAR-RIG 125-Registered Trademark-. Coleman differentiates its product offering
by employing advanced compounding technologies which give its cables flexibility
and integrity at temperatures ranging generally from approximately minus 50 DEG.
C to approximately plus 105 DEG. C while weighing approximately 1/3 less than
ordinary portable cable, on the average. Coleman is a leader in the use of
thermoplastic elastomer ("TPE") compounds in the wire and cable industry and has
developed a proprietary insulation and jacketing material called
T*PRENE-Registered Trademark-. T*PRENE-Registered Trademark- is a
water-resistant insulation and jacketing material that repels oil, grease, acids
and solvents, and offers resistance to abrasion, ozone and other environmental
hazards. Coleman's cable and wire products are sold to electrical distributors,
wire and cable distributors, OEM's and government agencies through its employee
sales force and independent representatives.
CORD PRODUCTS DIVISION. Coleman's Cord Products Division manufactures and
distributes a line of cord sets, trouble lights, cube taps, battery booster
cables, power supply cords, temporary outdoor lighting and ground fault
interrupters for consumer, contractor and OEM applications. Its products are
used for both home and industrial electrical needs and are sold through mass
merchandisers, hardware wholesalers, automotive retailers, warehouse clubs, home
centers, hardware chains, contractor/industrial supply houses and electrical
distributors. Coleman's brand names include COILEX-Registered Trademark- and
COILITE-Registered Trademark- coiled cord products,
QUADNECTOR-Registered Trademark- extension cords, BOOSTER IN A
BAG-Registered Trademark- booster cables, READY/CLAD-Registered Trademark-
conduit-on-a-reel, and TROUBLE FREE-TM- trouble lights. Also, Coleman's Cord
Products Division is one of the leading providers of extension cords to the
contractor supply market.
SIGNAL DIVISION. Coleman's Signal Division is a leading manufacturer and
supplier of electronic wire and cable, shielded and unshielded low voltage
control cables, fire alarm cables, plenum cables, closed circuit television wire
and cables, and speaker cable for a multitude of applications used by burglar
alarm, fire alarm and sound system installers, electrical contractors, energy
management specialists and OEM's. Signal's primary market is the security
industry where management believes that it is one of the largest manufacturers
of security cables in the U.S. Signal Cable is a preferred brand by many end
user installers and is a market leader in providing wire and cable to security
distributors which supply over 60% of the total security wire used in the U.S.
Signal's products are sold to security and equipment distributors, sound
contractors, wire and cable distributors, electronic parts distributors,
electrical distributors and OEM's through its employee sales force and to a
lesser extent independent sales representatives.
BARON WIRE & CABLE CORP. Baron Wire & Cable Corp., founded in 1967, is a
leading producer of cables for energy management, irrigation and sprinkler
systems. Baron's products include thermostat cables, irrigation control cables,
underground feeder cables, submersible pump cables, instrumentation cables and
machine tool wire. These products are used in a variety of applications by HVAC
installers, energy management installers, golf course sprinkler installers,
irrigation system installers, OEM's, machine tool manufacturers and electrical
contractors. In addition, management believes that Baron is one of the largest
producers of thermostat cable in the U.S. Some of Baron's cables are sold under
BAROSTAT-TM- and BAROPLEN-TM- brand names. Also, Baron's products are sold to
the irrigation control business with products such as BAROGATION-TM- control
cables which are used in commercial, residential, and golf course projects
throughout the U.S. and Canada. Baron has recently developed thermocouple
extension cables for thermocouples capable of monitoring temperatures from
approximately minus 300 DEG. F to approximately plus 2300 DEG. F in a variety of
industrial applications. Baron's products are sold by its employee sales force
and independent sales representatives to HVAC distributors, water equipment
wholesalers, electrical distributors, wire and cable distributors and OEM's.
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NEHRING ELECTRICAL WORKS COMPANY. Nehring Electrical Works Company, founded
in 1912, manufactures copper and aluminum wire for grounding, transmission, and
distribution of power. Nehring, which was acquired in 1980, is a leading
supplier of bare copper to the electrical utility industry and an approved
supplier to almost every utility, municipality and REA in the United States.
Nehring also manufactures and distributes aluminum building wire ground rods,
accessories, and 600 volt underground cable for various end users. Nehring sells
its products through key channels of distribution which consist primarily of
utility, electrical distribution, telecommunication, and welding distribution,
using an employee sales organization and separate representative agencies
specializing in each such market channel.
OTHER
Kuhlman also manufactures and markets a variety of coiled and flat springs,
spring assemblies and stampings through its wholly owned subsidiary, Emtec
Products Corporation. During 1993, Kuhlman reorganized its spring products
businesses, TRANS-PAK Spring Assembly Division and Empire Spring Division, as
well as its marine hardware business, Nautalloy Products Division, to all be
divisions of Emtec Products Corporation, formerly known as Emtec Inc. The
businesses of Emtec Products Corporation report to a president who has
responsibility for all operating activities, including sales and marketing,
manufacturing and all administrative functions. The products include various
types of coiled springs, formed flat springs and stampings used in automobiles,
business machines and appliances, spring sub-assemblies used in automobile
transmissions and brake systems and a spring sub-assembly used in cellular
phones. Most of these products are custom-designed to customer's requirements.
The principal market for Kuhlman's springs, spring assembly products and
stampings is the automotive industry. These products are sold through three
employee salesmen and ten independent commissioned sales organizations. The
market area is predominately the midwest United States, although many of these
products are utilized nationally and in Canada.
BUSINESS OF SCHWITZER
GENERAL
Schwitzer is a holding company which, through its subsidiaries, is engaged
in the design, manufacture and marketing of industrial products, including
turbochargers, fan drives, cooling fans and crankshaft vibration dampers, for
enhancing the efficiency of diesel and gasoline engines (the "Schwitzer
Business").
Schwitzer was organized as a Delaware corporation in January 1989 at the
direction of Household, which had acquired the Schwitzer Business in 1981. On
April 14, 1989, Schwitzer became a publicly held company through the pro-rata
distribution (the "Distribution") by Household of the outstanding shares of
Common Stock of Schwitzer to the holders of Household's common stock.
Schwitzer subsidiaries conduct manufacturing operations in the United
States, the United Kingdom and Brazil. Schwitzer believes that its export sales
have not been material. Data on Schwitzer's geographic segments, based on the
locations of Schwitzer's operations, are incorporated herein by reference to
Note 13, entitled "Geographic Segments," of the Notes to Consolidated Financial
Statements of Schwitzer and Subsidiaries as of January 1, 1995 and for the
fiscal year then ended, which is incorporated herein by reference.
PRODUCTS AND MARKETS
Schwitzer designs, manufactures and markets technically advanced engine
components primarily for non-passenger car diesel and gasoline engines. These
components improve engine performance in terms of horsepower, fuel and
environmental efficiency and durability. Schwitzer's highest volume product is
the turbocharger, which accounted for 65 percent, 66 percent and 67 percent of
consolidated net sales during 1994, 1993 and 1992, respectively. Schwitzer
believes that it is one of the leading
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independent suppliers of turbochargers to the non-passenger car market. In
addition to turbochargers, Schwitzer also designs, manufactures and markets
other related products such as fan drives, cooling fans and crankshaft vibration
dampers. Fan drives and cooling fans accounted for 27 percent, 26 percent and 25
percent of consolidated net sales during 1994, 1993 and 1992, respectively.
TURBOCHARGERS. A turbocharger enhances the performance of an engine by
increasing its power and fuel efficiency while allowing reductions in air
pollution. These results are achieved by using the engine's hot exhaust gases to
increase compression and combustion. Schwitzer turbochargers are fitted to
engines in both on-road vehicles (such as delivery and semi-trailer trucks) and
off-road vehicles (such as farm and construction equipment).
Schwitzer sells turbocharger assemblies to original equipment manufacturers
("OEMs") and also sells replacement turbochargers for the aftermarket.
Turbochargers sold to OEMs must be custom designed to specific engine
applications of each OEM. Accordingly, research and development personnel of
Schwitzer must work closely with the research and development personnel of OEMs
during the design and development of an engine, which typically takes one to
four years. Major OEM customers of Schwitzer include Caterpillar, John Deere,
MAN, Mack Truck, Mercedes Benz, Perkins, RVI (Renault) and Saab-Scania.
Schwitzer sells replacement turbochargers and parts for the aftermarket
directly to OEM customers and also to independent distributors, primarily for
the replacement and servicing of equipment manufactured by Schwitzer. Schwitzer
does, however, manufacture and sell replacement turbochargers and parts which
are interchangeable with those of its competitors.
Schwitzer sells turbochargers and parts in more than 60 countries throughout
the world. Most engine builders are located in North America, Western Europe,
South America and Japan. These primary markets for turbochargers are relatively
mature in terms of medium and heavy duty diesel and light and medium truck
gasoline applications in these markets. In addition, more stringent
environmental controls, the need for many industrialized nations to rebuild
their infrastructures, and the expected emergence of the economies of less
developed countries all point toward future market growth.
FAN DRIVES AND COOLING FANS. Fan drives and cooling fans are used on diesel
and gasoline engines to enhance the cooling efficiency of the engine, thereby
allowing the engine to operate efficiently regardless of engine speed or load.
They also reduce noise and increase the fuel efficiency and durability of the
engine. Schwitzer fan drives and cooling fans are sold for use in agricultural
and construction equipment, light, medium and heavy duty trucks and industrial
equipment. Schwitzer manufactures and markets lightweight metal, molded polymer
and composite fans. Schwitzer believes it is a leading supplier of cooling fans
to the light truck market and cooling fans and fan drives to the heavy duty
equipment market.
Fan drives and cooling fans are manufactured to meet specific engine
requirements. Accordingly, Schwitzer must work with engine manufacturers to
design drives and fans and to test and verify performance.
Schwitzer sells fan drives and cooling fans to engine, vehicle and equipment
manufacturers in North America and Europe. Major customers include Caterpillar,
Chrysler, Ford, General Motors, J.I. Case, Navistar, RVI, Saab-Scania and Volvo.
VIBRATION DAMPERS. Crankshaft vibration dampers reduce the vibration and
stress which are inherent in engines. These dampers extend engine life and
reduce noise. Schwitzer designs, manufacturers and markets dampers for all types
of medium and heavy duty diesel and gasoline engines for trucks, buses,
construction equipment, agricultural machinery and boats, as well as for
stationary equipment.
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Schwitzer markets vibration dampers in North America, where it believes it
is a leading supplier to the truck and agricultural machinery markets, and in
Europe. Major customers include John Deere, Navistar and Saab-Scania.
CUSTOMERS
The major customers of Schwitzer are engine, vehicle and equipment
manufacturers which are concentrated primarily in North America, Europe and
South America. The Middle East and Asia are markets pursued as opportunities
arise. The primary end users of Schwitzer products are industries which employ
trucks, agricultural machinery and construction equipment. During the years
1994, 1993 and 1992, various purchasing units of Caterpillar accounted in the
aggregate for 27, 30 and 28 percent, respectively, of the total sales of
Schwitzer. During the years 1994, 1993 and 1992, various purchasing units of RVI
(Renault), including Mack Truck, accounted for 12, 12 and 12 percent,
respectively, of Schwitzer's total sales. No other customer accounted for as
much as 10 percent of such sales during 1994, 1993 or 1992.
Although Schwitzer believes that the loss of all of the purchasing units of
a major customer could have an adverse effect on Schwitzer's business, such
purchasing units typically make their purchasing decisions independently for
each of their numerous engine and vehicle applications. Additionally, because
development programs for engine components typically take one to four years,
relationships with OEM customers are usually of long duration. Schwitzer
believes that its dependency on significant customers may increase in the future
due to increased consolidation in the truck industry.
FOREIGN OPERATIONS
Business risks associated with Schwitzer's subsidiary in the United Kingdom
are similar to those facing the United States operations, except for the added
risks related to foreign currency fluctuations. During 1992, the value of U.K.
sterling in relation to the U.S. dollar decreased. Such exchange rate during
1993 and 1994 remained relatively constant. The 1992 decrease in the value of
U.K. sterling had the effect in 1993 and 1994 of lowering the amounts of sales
and earnings reported in U.S. dollars from the amounts that would otherwise have
been reported for the volume of products sold during such years by Schwitzer's
U.K. subsidiary.
Schwitzer's subsidiary in Brazil is subject to the additional business risks
associated with the economy of that country. Brazil's high inflation rate
resulted in the recognition of foreign currency transaction losses of $0.3
million in 1994, $1.8 million in 1993 and $4.2 million in 1992 before an
additional loss in 1994 of $0.6 million and favorable reductions of $0.8 million
in 1993 and $4.3 million in 1992 for interest recoveries primarily on accounts
receivable and/or invested cash balances. The adequacy of the interest
recoveries is dependent on a number of economic and business factors and sudden
unfavorable changes in exchange rates are possible. Significant positive and
negative fluctuations in Schwitzer's Brazilian sales volumes occurred at various
times during the past three years as a result of volatility in economic
activity. Such volatility has been exacerbated by political uncertainties and
government imposed economic reforms. Additional volatility in sales and earnings
could occur in 1995 if the government continues its pattern of frequent change
in economic and tax policy.
DESCRIPTION OF KUHLMAN CAPITAL STOCK
KUHLMAN COMMON STOCK
Kuhlman is authorized to issue 10,000,000 shares (20,000,000 if the Kuhlman
Amendment is duly approved at the Kuhlman Annual Meeting) of Kuhlman Common
Stock. The outstanding Kuhlman Common Stock is fully paid and non-assessable. As
of April 18, 1995, there were 6,210,798 shares of Kuhlman Common Stock issued
and outstanding. Each holder of Kuhlman Common Stock is entitled to one vote per
share on all matters presented to the stockholders for action. There are no
cumulative voting rights. Holders of Kuhlman Common Stock are entitled to such
dividends as the Board of Directors of Kuhlman may declare out of funds legally
available therefor and, upon dissolution or liquidation, to share ratably in the
assets available for distribution after all prior claims and the
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liquidation rights of the holders of any shares of preferred stock of Kuhlman
that may be outstanding. Holders of Kuhlman Common Stock do not have preemptive
rights to subscribe for any securities of Kuhlman.
In 1987, the Board of Directors of Kuhlman issued, as a dividend, one
preferred stock purchase right (a "Kuhlman Right") for each outstanding share of
Kuhlman Common Stock. Each share of Kuhlman Common Stock issued since the date
of that dividend also includes one Kuhlman Right (including shares to be issued
in connection with the Merger Agreement except in the unlikely event the Kuhlman
Rights are redeemed or separately certificated prior to the Effective Time).
The Kuhlman Rights may impede or prevent takeovers that in some
circumstances might be beneficial to Kuhlman stockholders. Such Kuhlman Rights
would not impede or prohibit most takeovers approved by existing directors and
are designed to enhance or have the effect of enhancing the ability of the Board
of Directors, and ultimately the stockholders, of Kuhlman to negotiate with
potential acquirers from the strongest position and to protect stockholders
against unfair or unequal treatment in the event of an unsolicited attempt to
acquire Kuhlman. They do, however, have the overall effect of making it more
difficult without the approval of the Kuhlman Board of Directors to acquire and
exercise control over Kuhlman and to remove incumbent officers and directors,
thus providing such officers and directors with enhanced ability to retain their
positions. Such provisions might also limit opportunities for stockholder
participation in certain types of transactions even through such transactions
might be favored by holders of a majority of the outstanding Kuhlman Common
Stock.
Each Kuhlman Right entitles the holder to buy one-hundredth of a share of
Junior Participating Preferred Stock, Series A, of Kuhlman at a price of $55 per
share. The Kuhlman Rights will be exercisable only if a person or group acquires
20% or more of the outstanding Kuhlman Common Stock without the prior consent of
its Board of Directors or announces a tender offer following which it would hold
30% or more of the outstanding Kuhlman Common Stock. If, after the Kuhlman
Rights become exercisable, Kuhlman were acquired in a merger or other business
combination, each Kuhlman Right would be exercisable for that number of the
acquiring company's shares of common stock having a market value of two times
the exercise price of the Kuhlman Right. Kuhlman may redeem the Kuhlman Rights
at one cent per Kuhlman Right prior to the occurrence of an event that causes
the Kuhlman Rights to become exercisable. The Board of Directors of Kuhlman may
terminate Kuhlman's right to redeem the Kuhlman Rights under certain
circumstances at any time prior to 10 days after a group or person acquires 20%
or more of the outstanding shares of Kuhlman Common Stock. The Kuhlman Rights,
which do not have voting rights, will expire in 1997.
Kuhlman's borrowing agreements allow the payment of dividends on Kuhlman
Common Stock under certain terms and conditions contained in said agreements.
Such agreements include various restrictive covenants, as to, among other
things, maintenance of minimum net worth and indebtedness to total capital.
Under the most restrictive of these covenants, approximately $1.76 million was
available for the payment of dividends on Kuhlman Common Stock at December 31,
1994.
Kuhlman Common Stock is traded on the New York Stock Exchange. On April 18,
1995, the closing sale price of Kuhlman Common Stock as reported in THE WALL
STREET JOURNAL was $12.00 per share.
Harris Trust and Savings Bank, located in Chicago, Illinois, is the Transfer
Agent and Registrar for the Kuhlman Common Stock.
KUHLMAN PREFERRED STOCK
Kuhlman is authorized to issue 2,000,000 shares of preferred stock, par
value $1.00 per share, in one or more series, with such designations, and such
voting, dividend, and conversion rights, and such other relative, participating,
optional or other special rights, qualifications, limitations or restrictions as
the Board of Directors of Kuhlman may determine by resolutions providing for the
issue of such preferred stock ("Kuhlman Preferred Stock"). No shares of Kuhlman
Preferred Stock have currently been issued. The authority of the Board of
Directors of Kuhlman includes, but is not limited to, the
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determination or fixing of the following with respect to shares of such class or
any series thereof: (i) the number of shares and designation; (ii) the dividend
rate and whether dividends are to be cumulative; (iii) whether shares are to be
redeemable and, if so, the terms and amount of any sinking fund providing for
the purchase or redemption of such shares; (iv) whether shares shall be
convertible and, if so, the applicable terms and provisions; (v) what voting
rights are to apply; and (vi) what restrictions are to apply, if any, on the
issue or reissue of any additional Kuhlman Preferred Stock. There are 200,000
shares of Kuhlman Preferred Stock designated as Junior Participating Preferred
Stock, Series A ("Series A Preferred Stock"), and reserved for issuance pursuant
to the Kuhlman Rights.
SERIES A PREFERRED STOCK
The Series A Preferred Stock has a liquidation value of $100 per share and,
when issued pursuant to the Kuhlman Rights, will be fully paid and
non-assessable with no preemptive rights. Holders of Series A Preferred Stock
are entitled to receive, prior to the payment of dividends on shares of Kuhlman
Common Stock, cumulative cash dividends at a quarterly rate equivalent to the
greater of (i) $10.00 per share, or, (ii) subject to adjustment, 100 times the
aggregate per share amount of all cash and non-cash dividends (other than
dividends payable in shares of Kuhlman Common Stock) declared on the Kuhlman
Common Stock since the immediately preceding quarterly dividend payment date for
the Series A Preferred Stock, when and as declared by the Board of Directors of
Kuhlman, payable quarterly. If dividends on the Series A Preferred Stock are in
arrears, then before Kuhlman may pay any cash dividend or make any distribution
of assets (other than dividends payable in shares of Kuhlman Common Stock) on
shares of Kuhlman Common Stock, full cumulative dividends on the Series A
Preferred Stock for all prior dividend periods must have been paid.
The holders of the Series A Preferred Stock will be entitled to vote on all
matters submitted to a vote of stockholders of Kuhlman, voting with the holders
of Kuhlman Common Stock as a single class. In exercising any such vote, each
one-hundredth of a share of Series A Preferred Stock will be entitled to one
vote. The approval of the holders of two-thirds of the outstanding shares of
Series A Preferred Stock, voting as a single class, will be required to amend
any of the provisions of the Kuhlman Certificate in any manner that would
materially adversely alter or change the powers, preferences or special rights
of the Series A Preferred Stock.
The shares of Series A Preferred Stock may not be redeemed. Holders of the
Series A Preferred Stock will be entitled to receive $100 per share (plus
accrued and unpaid dividends) before any distribution or payment is made to
holders of the Kuhlman Common Stock or any other stock of Kuhlman junior to the
Series A Preferred Stock upon the liquidation, dissolution or winding up of
Kuhlman. If Kuhlman enters into any consolidation, merger, combination or other
transaction in which Kuhlman Common Stock is exchanged for or changed into other
shares, securities, cash or other property, then the shares of Series A
Preferred Stock shall be exchanged for or changed into an amount per share,
subject to certain adjustments, equal to 100 times the aggregate consideration
into which or for which the Kuhlman Common Stock is changed or exchanged.
In addition, in order to clarify the power of the Kuhlman Board of Directors
to change the number of shares of Series A Preferred Stock from time to time,
the Kuhlman Board of Directors believes it is advisable to delete the
designation, in the Kuhlman Certificate, of certain shares of Kuhlman Preferred
Stock as Series A Preferred Stock. Kuhlman intends that the number of shares of
Kuhlman Preferred Stock designated as Series A Preferred Stock and reserved for
issuance pursuant to the Kuhlman Rights be adjusted from time to time to be
equal to 1% or more of the number of outstanding shares of Kuhlman Common Stock.
After the Effective Time, Kuhlman will have 200,000 shares of Kuhlman Preferred
Stock designated as Series A Preferred Stock. See "Approval of Amendment to
Kuhlman Certificate of Incorporation."
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COMPARISON OF RIGHTS OF STOCKHOLDERS
The following is a brief summary of the material differences between the
rights of holders of Kuhlman Common Stock and the rights of holders of Schwitzer
Common Stock. As each of Kuhlman and Schwitzer is organized under the Delaware
General Corporation Law ("DGCL"), these differences arise principally from
provisions of the charter and bylaws of each of Kuhlman and Schwitzer.
While Kuhlman and Schwitzer believe that the following summaries are
accurate and complete in all material respects, such summaries do not purport to
be complete statements of the rights of Kuhlman stockholders under the Kuhlman
Certificate and Kuhlman's Bylaws as compared with the rights of Schwitzer
stockholders under Schwitzer's Restated Certificate of Incorporation ("Schwitzer
Certificate") and Schwitzer's Bylaws or a complete description of the specific
provisions referred to herein. These summaries are qualified in their entirety
by reference to the DGCL and governing corporate instruments of Kuhlman and
Schwitzer to which stockholders are referred. The terms of Kuhlman's capital
stock are described in greater detail under "Description of Kuhlman Capital
Stock."
AUTHORIZED AND ISSUED STOCK
Kuhlman has authorized 10,000,000 shares of Kuhlman Common Stock, par value
$1.00 per share (20,000,000 if the Kuhlman Amendment is approved), of which
6,210,798 shares were issued and outstanding as of April 18, 1995 and 1,225,501
shares were reserved for issuance upon exercise of options granted under
Kuhlman's stock option plans, and 2,000,000 shares of Kuhlman Preferred Stock,
par value $1.00 per share, none of which have been issued. Of the Kuhlman
Preferred Stock, 200,000 shares have been designated Series A Preferred Stock
and are reserved for issuance pursuant to the Kuhlman Rights. (See "Description
of Kuhlman Capital Stock.")
Schwitzer has authorized 50,000,000 shares of Schwitzer Common Stock, par
value $0.10 per share, of which 7,239,741 shares were issued and outstanding as
of April 18, 1995, 541,617 shares are reserved for issuance upon exercise of
options granted under the Schwitzer Incentive Plan and 500,000 shares are
reserved for issuance upon the exercise of the Schwitzer Warrants. In addition,
Schwitzer has authorized 10,000,000 of preferred stock, par value $1.00 per
share, none of which have been issued.
VOTING RIGHTS
The Bylaws of Kuhlman and the Bylaws of Schwitzer both generally provide
that a majority of the votes cast at a stockholders' meeting at which a quorum
is present (either in person or by proxy) is required for routine stockholder
action other than the election of directors, which requires only a plurality
vote. For extraordinary transactions, such as a merger, consolidation, sale of
substantially all of a corporation's assets, voluntary dissolution or amendment
of its certificate of incorporation, the DGCL requires the affirmative vote of a
majority of the outstanding shares. The DGCL permits a corporation to require a
greater vote in its certificate of incorporation or its bylaws. Under the
provisions of the Kuhlman Certificate and Bylaws, the power to amend, alter or
repeal the Bylaws is conferred on Kuhlman's Board of Directors or on the Kuhlman
stockholders by the affirmative vote of the holders of at least 70% of the
voting power of the then outstanding voting stock. Under the Schwitzer
Certificate, the power to amend, alter and repeal the bylaws of Schwitzer is
conferred on the Schwitzer Board of Directors or on the Schwitzer stockholders
by the affirmative vote of at least 80% of the voting power of all of the then
outstanding shares of the capital stock of Schwitzer entitled to vote generally
in the election of directors ("Schwitzer Voting Stock"), voting together as a
single class. Currently, the only class of Schwitzer Voting Stock outstanding is
the Schwitzer Common Stock.
The Kuhlman Certificate and Kuhlman Bylaws do not contain supermajority
voting provisions or any other provisions relating to the approval of business
combinations and other transactions by holders of Kuhlman Common Stock.
In addition to any affirmative vote required by law, Article Eighth of the
Schwitzer Certificate requires the approval of the holders of 80% of the voting
power of all of the then outstanding shares of
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the Schwitzer Voting Stock, voting together as a single class, as a condition to
certain business combinations with an "Interested Stockholder" or an affiliate
thereof. The Schwitzer Certificate defines an "Interested Stockholder" generally
to be any person who is the beneficial owner, directly or indirectly, of 10% or
more of the Schwitzer Common Stock.
Such 80% stockholder approval requirement does not apply to any particular
Business Combination, and such Business Combination would require only such
affirmative stockholder approval as is required by the DGCL, if the Business
Combination is approved by a majority (and at least three) of the Continuing
Directors of Schwitzer or, in the case of a Business Combination involving cash
or other consideration being received by the stockholders of Schwitzer, solely
in their capacities as such stockholders, if certain requirements specified in
Article Eighth of the Schwitzer Certificate are met, including without
limitation the minimum price paid to Schwitzer stockholders. A "Continuing
Director" is any member of the Board of Directors of Schwitzer who is not
affiliated with the Interested Stockholder in question and was a director of
Schwitzer prior to the time such Interested Stockholder became such and any
director who is thereafter chosen to fill any vacancy on the Schwitzer Board or
who is elected and who, in either event, is not affiliated with an Interested
Stockholder and in connection with his or her initial assumption of office is
recommended by a majority of the Continuing Directors then on the Schwitzer
Board.
The Schwitzer Board of Directors has, by resolution, determined that neither
Kuhlman nor Spinner will be deemed an "Interested Stockholder" within the
meaning of Article Eighth of the Schwitzer Certificate and approved the Merger
Agreement by a majority (and at least three) of the Continuing Directors.
Accordingly, the supermajority vote requirements described above will not apply
to the Merger Agreement.
BOARD OF DIRECTORS
Kuhlman's Bylaws provide that Kuhlman's Board of Directors shall be not less
than six nor more than eleven, as determined by that Board from time to time.
Kuhlman's Board of Directors currently consists of ten members. The Kuhlman
Certificate does not include specific provisions with respect to stockholder
nominations of candidates for director, nor does Kuhlman's Board of Directors
have a nominating committee; however, the functions of a nominating committee
are currently being performed by one of Kuhlman's directors. Stockholders of
Kuhlman may nominate persons for election as directors and propose business for
consideration by stockholders at an annual meeting by complying with the
provisions of Kuhlman's Bylaws, including the giving of a written notice
containing specific information to Kuhlman generally not less than 60 days nor
more than 90 days prior to the first anniversary of the preceding year's annual
meeting of stockholders. Kuhlman's Bylaws provide that the members of Kuhlman's
Board of Directors be divided into three classes, each to be as nearly equal in
number as possible. At each annual meeting of Kuhlman stockholders, one such
class of directors must be elected to serve for a term of three years. Kuhlman's
Bylaws further provide that directors will not be eligible for reelection after
they attain age 70, except that such provision may be waived by the Board of
Directors in individual cases and such provision will not apply to certain
directors who were directors of Kuhlman's corporate predecessor as of July 28,
1989.
Schwitzer's Bylaws provide that the number of directors shall be fixed by
resolutions of the Board of Directors. Schwitzer's Board of Directors currently
consists of six members. The Schwitzer Board of Directors has a nominating
committee which recommends to the Board the slate of directors to be nominated
for election to the Schwitzer Board of Directors at each annual meeting of
Schwitzer stockholders. Stockholders of Schwitzer may nominate persons for
election as directors and propose business for consideration by stockholders at
an annual meeting by complying with the provisions of Schwitzer's Bylaws,
including the giving of a written notice containing specific information to
Schwitzer generally not less than 30 days prior to the meeting. Schwitzer's
Bylaws provide that the members of Schwitzer's Board of Directors shall be
divided into three classes, and at each annual meeting of Schwitzer
stockholders, one such class of directors must be elected to serve for a term of
three years.
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SPECIAL MEETINGS OF STOCKHOLDERS
Special meetings of Stockholders of Kuhlman may be called by the Chief
Executive Officer, or by the Kuhlman Board of Directors. Special meetings of
Stockholders of Schwitzer may only be called by a majority of the total number
of the directors that Schwitzer would have if there were no vacancies.
STOCKHOLDER ACTION BY WRITTEN CONSENT
The Kuhlman Certificate provides that any action required or permitted to be
taken by the stockholders of Kuhlman must be effected at a duly called annual or
special meeting of Kuhlman stockholders and may not be effected by any consent
in writing by such stockholders. Similarly, the Schwitzer Bylaws provide that
any action required or permitted to be taken by the stockholders of Schwitzer
must be effected at an annual or special meeting of Schwitzer stockholders and
may not be effected by any consent in writing by such stockholders.
LEGAL MATTERS
The validity of the shares of Kuhlman Common Stock offered hereby will be
passed upon for Kuhlman by Rudnick & Wolfe, Chicago, Illinois. It is a condition
to the respective obligations of Kuhlman and Schwitzer to close the Merger that
an opinion as to certain federal income tax consequences of the Merger be
delivered to Schwitzer and Kuhlman by Sidley & Austin, Chicago, Illinois. See
"The Merger -- Certain Federal Income Tax Consequences."
EXPERTS
The consolidated financial statements of Kuhlman and its subsidiaries
incorporated herein by reference have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are incorporated in this Proxy Statement/Prospectus in reliance
upon the authority of said firm as experts in accounting and auditing in giving
said reports.
The consolidated financial statements of Schwitzer and its subsidiaries
incorporated herein by reference have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto and are incorporated in this Proxy Statement/Prospectus in reliance upon
the authority of said firm as experts in accounting and auditing in giving said
reports.
The consolidated financial statements of Coleman Holding and subsidiaries as
of June 30, 1993 and 1992 and for each of the three years in the period ended
June 30, 1993 incorporated herein by reference have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report which is
incorporated herein by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
STOCKHOLDER PROPOSALS
Any proposal which a stockholder of Kuhlman intends to present at the 1996
Annual Meeting of Stockholders of Kuhlman must be received by Kuhlman at its
principal executive offices on or before , 1995 to be eligible for
inclusion in Kuhlman's proxy statement and proxy form relating to such meeting.
Any proposal which a stockholder of Schwitzer intends to present at the 1996
Annual Meeting of Stockholders of Schwitzer, if the Merger has not been
consumated prior to the date such meeting is to be held, must be received by
Schwitzer at its principal executive offices on or before , 1995 to
be eligible for inclusion in Schwitzer's proxy statement and proxy form relating
to such meeting.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
AMONG
KUHLMAN CORPORATION
SPINNER ACQUISITION CORP.
AND
SCHWITZER, INC.
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TABLE OF CONTENTS
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ARTICLE I
THE MERGER............................................................................................... A-5
Section 1.1 The Merger............................................................................ A-5
Section 1.2 Effective Time........................................................................ A-5
Section 1.3 Effects of the Merger................................................................. A-5
Section 1.4 Certificate of Incorporation, By-laws, Directors and Officers......................... A-5
Section 1.5 Conversion of Securities.............................................................. A-6
Section 1.6 Parent to Make Certificates Available................................................. A-7
(a) Exchange of Certificates.......................................................... A-7
(b) Exchange Procedures............................................................... A-7
Section 1.7 Dividends; Transfer Taxes............................................................. A-7
Section 1.8 No Fractional Securities.............................................................. A-8
Section 1.9 Return of Exchange Fund............................................................... A-8
Section 1.10 Adjustment of Exchange Ratio.......................................................... A-8
Section 1.11 No Further Ownership Rights in Company Common Stock................................... A-9
Section 1.12 Closing of Company Transfer Books..................................................... A-9
Section 1.13 Further Assurances.................................................................... A-9
Section 1.14 Closing............................................................................... A-9
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT................................................................. A-9
Section 2.1 Organization, Standing and Power...................................................... A-10
Section 2.2 Capital Structure..................................................................... A-10
Section 2.3 Authority; Non-Contravention.......................................................... A-10
Section 2.4 Parent SEC Documents.................................................................. A-12
Section 2.5 Registration Statement and Proxy Statement/Prospectus................................. A-12
Section 2.6 Absence of Material Adverse Change.................................................... A-12
Section 2.7 Pooling of Interests; Reorganization.................................................. A-12
Section 2.8 Dividends............................................................................. A-12
Section 2.9 No Violation or Infringement.......................................................... A-13
Section 2.10 Litigation............................................................................ A-13
Section 2.11 Taxes................................................................................. A-13
Section 2.12 Parent Benefit Plans.................................................................. A-13
Section 2.13 Environmental Matters................................................................. A-14
Section 2.14 Title to Property..................................................................... A-14
Section 2.15 Brokers............................................................................... A-14
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................ A-14
Section 3.1 Organization, Standing and Power...................................................... A-14
Section 3.2 Capital Structure..................................................................... A-15
Section 3.3 Authority; Non-Contravention.......................................................... A-15
Section 3.4 Company SEC Documents................................................................. A-16
Section 3.5 Registration Statement and Proxy Statement/Prospectus................................. A-16
Section 3.6 Absence of Material Adverse Change.................................................... A-17
Section 3.7 Pooling of Interests; Reorganization.................................................. A-17
Section 3.8 Dividends............................................................................. A-17
Section 3.9 No Violation or Infringement.......................................................... A-17
Section 3.10 Litigation............................................................................ A-17
Section 3.11 Taxes................................................................................. A-17
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Section 3.12 Company Benefit Plans................................................................. A-17
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Section 3.13 Environmental Matters................................................................. A-18
Section 3.14 Title to Property..................................................................... A-18
Section 3.15 Brokers............................................................................... A-18
ARTICLE IV
REPRESENTATIONS AND WARRANTIES REGARDING SUB............................................................. A-18
Section 4.1 Organization and Standing............................................................. A-18
Section 4.2 Capital Structure..................................................................... A-19
Section 4.3 Authority; Non-Contravention.......................................................... A-19
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS................................................................ A-19
Section 5.1 Conduct of Business Pending the Merger................................................ A-19
(a) Actions........................................................................... A-19
(b) Advice of Changes................................................................. A-21
Section 5.2 No Solicitation....................................................................... A-21
Section 5.3 Pooling of Interests; Reorganization.................................................. A-21
Section 5.4 Conduct of Business of Sub Pending the Merger......................................... A-21
ARTICLE VI
ADDITIONAL AGREEMENTS.................................................................................... A-21
Section 6.1 Stockholder Approval.................................................................. A-21
Section 6.2 Registration Statement and Proxy Statement............................................ A-22
Section 6.3 Access to Information................................................................. A-22
(a) By Parent......................................................................... A-23
(b) By the Company.................................................................... A-23
Section 6.4 Compliance with the Securities Act and Pooling Requirements........................... A-23
Section 6.5 Stock Exchange Listing................................................................ A-24
Section 6.6 Fees and Expenses..................................................................... A-24
Section 6.7 Reasonable Efforts.................................................................... A-24
Section 6.8 Public Announcements.................................................................. A-24
Section 6.9 Real Estate Transfer and Gains Tax.................................................... A-25
Section 6.10 State Takeover Laws; Company Rights Agreement......................................... A-25
Section 6.11 Indemnification; Directors and Officers Insurance..................................... A-25
Section 6.12 Employee Benefits..................................................................... A-25
Section 6.13 Job Vacancies......................................................................... A-26
Section 6.14 Parent's Board of Directors........................................................... A-26
ARTICLE VII
CONDITIONS PRECEDENT TO THE MERGER....................................................................... A-26
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger............................ A-26
(a) Stockholder Approvals............................................................. A-26
(b) NYSE Listing...................................................................... A-26
(c) Improvements Act Waiting Period................................................... A-26
(d) Registration Statement............................................................ A-26
(e) Tax Opinion....................................................................... A-26
(f) No Order.......................................................................... A-27
(g) Resignations of Company Directors................................................. A-27
(h) Other Approvals................................................................... A-27
Section 7.2 Conditions to Obligation of the Company to Effect the Merger.......................... A-27
(a) Performance of Obligations; Representations and Warranties........................ A-27
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(b) Fairness Opinion.................................................................. A-28
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(c) Opinion of Counsel................................................................ A-28
(d) Other Documents................................................................... A-30
Section 7.3 Conditions to Obligations of Parent and Sub to Effect the Merger...................... A-30
(a) Performance of Obligations; Representations and Warranties........................ A-30
(b) Third Party Consents.............................................................. A-30
(c) Redemption of Rights.............................................................. A-30
(d) Accounting........................................................................ A-30
(e) Fairness Opinion.................................................................. A-30
(f) Opinion of Counsel................................................................ A-30
(g) Opinion of Other Counsel.......................................................... A-32
(h) Other Documents................................................................... A-33
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER........................................................................ A-33
Section 8.1 Termination........................................................................... A-33
Section 8.2 Effect of Termination................................................................. A-34
Section 8.3 Amendment............................................................................. A-35
Section 8.4 Waiver................................................................................ A-35
ARTICLE IX
GENERAL PROVISIONS....................................................................................... A-36
Section 9.1 Non-Survival of Representations and WARRANTIES........................................ A-36
Section 9.2 Notices............................................................................... A-36
Section 9.3 Interpretation........................................................................ A-37
Section 9.4 Counterparts.......................................................................... A-37
Section 9.5 Entire Agreement; No Third-Party Beneficiaries........................................ A-37
Section 9.6 Governing Law......................................................................... A-37
Section 9.7 Assignment............................................................................ A-37
Section 9.8 Severability.......................................................................... A-37
Section 9.9 Enforcement of this Agreement......................................................... A-37
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 25, 1995 (this
"Agreement"), among Kuhlman Corporation, a Delaware corporation ("Parent"),
Spinner Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of Parent ("Sub"), and Schwitzer, Inc., a Delaware corporation (the "Company")
(Sub and the Company being hereinafter collectively referred to as the
"Constituent Corporations").
WITNESSETH:
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved and declared advisable the merger of Sub and the Company (the
"Merger"), upon the terms and subject to the conditions set forth herein,
whereby each issued and outstanding share of Common Stock, par value $.10 per
share, of the Company ("Company Common Stock") not owned directly or indirectly
by Parent or the Company will be converted into shares of Common Stock, par
value $1.00 per share, of Parent ("Parent Common Stock");
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, it is intended that the Merger shall be recorded for accounting
purposes as a pooling of interests; and
WHEREAS, Parent, Sub and the Company desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the conditions
hereof, and in accordance with the General Corporation Law of the State of
Delaware (the "DGCL"), Sub shall be merged with and into the Company at the
Effective Time (as hereinafter defined). Following the consummation of the
Merger, the separate corporate existence of Sub shall cease and the Company
shall continue as 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 1.2 EFFECTIVE TIME. The Merger shall become effective when a
Certificate of Merger (the "Certificate of Merger"), executed in accordance with
the relevant provisions of the DGCL, is filed with the Secretary of State of the
State of Delaware; PROVIDED, HOWEVER, that, upon mutual consent of the
Constituent Corporations the Certificate of Merger may provide for a later date
of effectiveness of the Merger not more than 30 days after the date the
Certificate of Merger is filed. When used in this Agreement, the term "Effective
Time" shall mean the later of the date and time at which the Certificate of
Merger is accepted for filing or such later time established by the Certificate
of Merger. The filing of the Certificate of Merger shall be made as soon as
practicable after the satisfaction or waiver of the conditions to the Merger set
forth herein.
Section 1.3 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Section 259 of the DGCL.
Section 1.4 CERTIFICATE OF INCORPORATION, BY-LAWS, DIRECTORS AND
OFFICERS. The Restated Certificate of Incorporation and the By-laws of the
Company, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation and the By-laws of the Surviving Corporation, in
each case until thereafter changed or amended as provided therein or by
applicable law. The directors of the
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Surviving Corporation shall be Gary G. Dillon, whose term of office shall expire
at the 1996 annual meeting of stockholders of the Surviving Corporation, Curtis
G. Anderson, whose term of office shall expire at its 1997 annual meeting of
stockholders, and Robert S. Jepson, Jr., whose term of office shall expire at
its 1998 annual meeting of stockholders, in each case to hold office until the
expiration of his term of office and his successor shall have been duly elected
and qualified or until his earlier death, resignation or removal. The officers
of the Company at the Effective Time shall be the officers of the Surviving
Corporation, except that Vernon J. Nagel shall be a Vice President and an
Assistant Treasurer, Ward D. Richards shall be an Assistant Secretary, Jeffrey
B. Samuels shall be an Assistant Treasurer and Richard A. Walker shall be an
Assistant Secretary, in each case to hold office until the next annual election
of officers and his successor shall have been duly chosen or until his earlier
death, resignation or removal.
Section 1.5 CONVERSION OF SECURITIES. As of the Effective Time, by virtue
of the Merger and without any action on the part of any stockholder of the
Company:
(a) All shares of Company Common Stock that are held in the treasury of
the Company or by any wholly-owned Subsidiary (as hereinafter defined) of
the Company immediately prior to the Effective Time and any shares of
Company Common Stock owned by Parent, Sub or any other wholly-owned
Subsidiary of Parent immediately prior to the Effective Time shall be
cancelled and no capital stock of Parent or other consideration shall be
delivered in exchange therefor.
(b) Each share of capital stock of Sub outstanding immediately prior to
the Effective Time shall be converted into and become one fully paid and
nonassessable share of Common Stock, par value $.10 per share, of the
Surviving Corporation.
(c) Subject to the provisions of Sections 1.8 and 1.10 hereof, each
share of Company Common Stock outstanding immediately prior to the Effective
Time (other than shares to be cancelled in accordance with Section 1.5(a))
shall be converted into 0.9615 validly issued, fully paid and nonassessable
share (the "Exchange Ratio") of Parent Common Stock. All such shares of
Company Common Stock, when so converted, shall no longer be outstanding and
shall automatically be cancelled and retired and each holder of a
Certificate (as defined in Section 1.6(a)) representing any such shares
shall cease to have any rights with respect thereto, except the right to
receive certain dividends and other distributions as contemplated by Section
1.7 and shares of Parent Common Stock and any cash, without interest, in
lieu of fractional shares to be issued or paid in consideration therefor
pursuant to Section 1.8 upon the surrender of such Certificate in accordance
with Section 1.6.
(d) Each option to purchase shares of Company Common Stock (a "Company
Stock Option") outstanding immediately prior to the Effective Time pursuant
to the Company's Long-term Executive Incentive Compensation Plan (the
"Company Stock Plan") shall be converted into an option (a "New Parent Stock
Option") to purchase, in lieu of the shares of Company Common Stock
purchasable thereunder immediately prior to the Effective Time, the number
of whole shares of Parent Common Stock into which the shares of Company
Common Stock subject to such Company Stock Option would have been converted
pursuant to Section 1.5(c) had such Company Stock Option been exercised in
full immediately prior to the Effective Time, without any change in the
aggregate option exercise price. Fractional shares shall not be issued upon
the exercise of any New Parent Stock Option, but upon the exercise of any
New Parent Stock Option for the largest number of whole shares of parent
Common Stock then subject thereto, the Company shall pay to the holder of
such New Parent Stock Option a sum in cash equal to the proportional part of
the per share exercise price of such New Parent Stock Option represented by
such fractional share. Each New Parent Stock Option shall otherwise be upon
the same terms and conditions as set forth in the Company Stock Plan and the
related option agreement.
(e) Each warrant to purchase shares of Company Common Stock (a "Company
Warrant") outstanding immediately prior to the Effective Time pursuant to
the Note Agreement dated as of April 15, 1992 among the Company, Schwitzer
U.S. Inc. and Massachusetts Mutual Life Insurance
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Company (the "Company Warrant Agreement") shall be converted into a warrant
(a "New Parent Warrant") to purchase, in lieu of the shares of Company
Common Stock purchasable thereunder immediately prior to the Effective Time,
the number of whole shares of Parent Common Stock into which the shares of
Company Common Stock subject to such Company Warrant would have been
converted pursuant to Section 1.5(c) had such Company Warrant been exercised
in full immediately prior to the Effective Time, without any change in the
aggregate option exercise price. Fractional shares shall not be issued upon
the exercise of any New Parent Warrant, but upon the exercise of any New
Parent Warrant for the largest number of whole shares of parent Common Stock
then subject thereto, the Company shall pay to the holder of such New Parent
Warrant a sum in cash equal to the proportional part of the per share
exercise price of such New Parent Warrant represented by such fractional
share. Each New Parent Warrant shall otherwise be upon the same terms and
conditions as set forth in the Company Warrant Agreement.
Section 1.6 PARENT TO MAKE CERTIFICATES AVAILABLE.
(a) EXCHANGE OF CERTIFICATES. Parent shall authorize a commercial bank (or
such other person or persons as shall be acceptable to Parent and the Company)
to act as Exchange Agent hereunder (the "Exchange Agent"). As soon as
practicable after the Effective Time, Parent shall deposit with the Exchange
Agent, in trust for the holders of certificates which immediately prior to the
Effective Time represented shares of Company Common Stock (the "Certificates"),
(i) certificates representing the aggregate number of shares of Parent Common
Stock issuable to such holders pursuant to Section 1.5(c) in exchange for
outstanding shares of Company Common Stock and (ii) the aggregate amount of cash
payable to such holders in lieu of fractional shares pursuant to Section 1.8.
Such shares of Parent Common Stock and cash in lieu of fractional shares,
together with any dividends or distributions with respect to such shares, is
hereinafter referred to as the "Exchange Fund". Parent may instruct the Exchange
Agent to invest any cash held in the Exchange Fund in obligations of the United
States government or certificates of deposit insured by an agency of the United
States government and any interest or other earnings resulting from such
investments shall be the exclusive property of Parent.
(b) EXCHANGE PROCEDURES. As soon as practicable after the Effective Time,
Parent shall cause the Exchange Agent to mail to each holder of record of a
Certificate whose shares were converted pursuant to Section 1.5(c) into shares
of Parent Common Stock 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 actual delivery of the Certificates to the Exchange Agent and
shall contain instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of Parent Common
Stock). Upon surrender of a Certificate for cancellation to the Exchange Agent,
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Parent Common Stock which such
holder has the right to receive pursuant to this Article I, and the Certificate
so surrendered shall forthwith be cancelled. Until surrendered as contemplated
by this Section 1.6, each Certificate shall, at and after the Effective Time, be
deemed to represent only the right to receive, upon surrender of such
Certificate, the certificate representing the appropriate number of shares of
Parent Common Stock in accordance with Section 1.5(c), cash in lieu of
fractional shares as provided for in Section 1.8 and certain dividends and other
distributions as contemplated by Section 1.7.
Section 1.7 DIVIDENDS; TRANSFER TAXES. No dividends or other distributions
that are declared on or after the Effective Time on Parent Common Stock or are
payable to the holders of record thereof on or after the Effective Time will be
paid to persons entitled by reason of the Merger to receive certificates
representing Parent Common Stock until such persons surrender their
Certificates, as provided in Section 1.6, and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 1.8 until
such holder of such Certificate shall so surrender such Certificate. Subject to
the effect of applicable law, there shall be paid to the record holder of the
certificates representing such Parent Common Stock (a) at the time of such
surrender or as promptly as practicable thereafter, the amount of any dividends
or other distributions theretofore paid with respect to
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whole shares of such Parent Common Stock and having a record date on or after
the Effective Time and a payment date prior to such surrender and (b) at the
appropriate payment date or as promptly as practicable thereafter, the amount of
dividends or other distributions payable with respect to whole shares of Parent
Common Stock and having a record date on or after the Effective Time but prior
to surrender and a payment date subsequent to surrender. In no event shall the
person entitled to receive such dividends or other distributions be entitled to
receive interest on such dividends or other distributions. If any cash or
certificate representing shares of Parent Common Stock is to be paid to or
issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of such exchange that
the Certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer and that the person requesting such exchange shall pay
to the Exchange Agent any transfer or other taxes required by reason of the
issuance of certificates for such shares of Parent Common Stock in a name other
than that of the registered holder of the Certificate surrendered, or shall
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not applicable.
Section 1.8 NO FRACTIONAL SECURITIES. No certificates or scrip
representing fractional shares of Parent Common Stock shall be issued upon the
surrender for exchange of Certificates pursuant to this Article I, no Parent
dividend or other distribution or stock split shall relate to any fractional
share and such fractional share shall not entitle the owner thereof to vote or
to any rights of a stockholder of Parent. In lieu of any such fractional shares,
each holder of shares of Company Common Stock who would otherwise have been
entitled to a fraction of a share of Parent Common Stock upon surrender of
Certificates for exchange pursuant to this Article I shall, in lieu thereof, be
paid an amount in cash (without interest) equal to the value of such fractional
share based on the Closing Price of Parent Common Stock on the business day
immediately preceding the Effective Time. The "Closing Price" of Parent Common
Stock on any business day shall for purposes of this Section 1.8 be: (a) the
last sale price, or the closing bid price if no sale occurred, of Parent Common
Stock on the principal securities exchange on which Parent Common Stock is
listed, if so listed, or (b) if not listed, the mean between the closing high
bid and low asked quotations of Parent Common Stock on the National Association
of Securities Dealers, Inc. Automated Quotation System, or any similar system of
automated dissemination of quotations of securities prices then in common use,
if so quoted. If the closing price of Parent Common Stock on any business day
cannot be determined under the provisions of the immediately preceding sentence,
the Closing Price of Parent Common Stock on such business day shall be the fair
market value of Parent Common Stock as determined by a member firm of the New
York Stock Exchange, Inc. selected by Parent and reasonably acceptable to the
Company.
Section 1.9 RETURN OF EXCHANGE FUND. Any portion of the Exchange Fund
which remains undistributed to the former stockholders of the Company for one
year after the Effective Time (and any interest or other earnings thereon) shall
be delivered to Parent, upon demand of Parent, and any former stockholders of
the Company who have not theretofore complied with this Article I shall
thereafter look only to Parent for payment of their claim for Parent Common
Stock, any cash in lieu of fractional shares of Parent Common Stock and any
dividends or distributions with respect to Parent Common Stock.
Section 1.10 ADJUSTMENT OF EXCHANGE RATIO. In the event of any
reclassification, recapitalization, stock split or stock dividend with respect
to Parent Common Stock (or if a record date with respect to any of the foregoing
should occur) prior to the Effective Time, appropriate and proportionate
adjustments, if any, shall be made to the Exchange Ratio, and all references to
the Exchange Ratio in this Agreement shall be deemed to be to the Exchange Ratio
as so adjusted.
Section 1.11 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All
shares of Parent Common Stock issued upon the surrender for exchange of
Certificates in accordance with the terms hereof (including any cash paid
pursuant to Section 1.8) shall be deemed to have been issued in full
satisfaction of all rights pertaining to the shares of Company Common Stock.
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Section 1.12 CLOSING OF COMPANY TRANSFER BOOKS. At the Effective Time, the
stock transfer books of the Company shall be closed and no transfer of shares of
Company Common Stock shall thereafter be made. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be cancelled
and exchanged as provided in this Article I.
Section 1.13 FURTHER ASSURANCES. If at any time after the Effective Time
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or assurances or any other acts or things are necessary,
desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation, its right, title or interest in, to or under any of
the rights, privileges, powers, franchises, properties or assets of either of
the Constituent Corporations, or (b) otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors or
their designees shall be authorized to execute and deliver, in the name and on
behalf of either of the Constituent Corporations in the Merger, all such deeds,
bills of sale, assignments and assurances and do, in the name and on behalf of
such Constituent Corporations, all such other acts and things necessary,
desirable or proper to vest, perfect or confirm its right, title or interest in,
to or under any of the rights, privileges, powers, franchises, properties or
assets of such Constituent Corporation and otherwise to carry out the purposes
of this Agreement.
Section 1.14 CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Rudnick & Wolfe,
Chicago, Illinois at 9:00 am, local time, on the first business day after the
day on which the last of the conditions set forth in Article VII hereof shall
have been fulfilled or waived or at such other time and place as Parent and the
Company shall agree.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
Section 2.1 ORGANIZATION, STANDING AND POWER. Parent is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has the requisite corporate power and authority to carry on its
business as now being conducted. The schedule delivered to the Company and
identified by Parent as its final disclosure schedule under this Agreement (the
"Parent Disclosure Schedule") contains a list of each Subsidiary of Parent,
indicating its jurisdiction of incorporation or other organization, its
authorized share or other equity capital, the number and percentage of its
issued and outstanding shares or other equity interests owned of record or
beneficially by Parent or any of its Subsidiaries (naming each such owner), and
whether it is a Significant Subsidiary (as hereinafter defined). Parent and each
of its Significant Subsidiaries is duly qualified to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified would not, individually
or in the aggregate, have a Material Adverse Effect on Parent. For purposes of
this Agreement (a) "Material Adverse Change" or "Material Adverse Effect" means,
when used with respect to Parent or the Company, as the case may be, any change
or effect since September 30, 1994 that is or, so far as can reasonably be
determined, may be materially adverse to the assets, condition (financial or
otherwise) or results of operations of Parent and its Significant Subsidiaries
taken as a whole or the Company and its Significant Subsidiaries taken as a
whole, as the case may be, (b) "Subsidiary" means any corporation, partnership,
joint venture or other legal entity of which Parent or the Company, as the case
may be (either alone or through or together with any other Subsidiary), owns,
directly or indirectly, 50% or more of the stock or other equity interests the
holders of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity and
(c) "Significant Subsidiary" means any Significant Subsidiary within the meaning
of Rule 1-02 of Regulation S-X of the United States Securities and Exchange
Commission (the "SEC").
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Section 2.2 CAPITAL STRUCTURE. Subject to the approval of the Amendment
(as hereinafter defined), the authorized capital stock of Parent consists of
10,000,000 shares of Parent Common Stock and 2,000,000 shares of preferred
stock, par value $1.00 per share ("Parent Preferred Stock"), of which 200,000
shares have been designated Junior Participating Preferred Stock, Series A. At
the close of business on February 22, 1995, (a) 6,173,798 shares of Parent
Common Stock were validly issued and outstanding, fully paid, nonassessable and
listed on the New York Stock Exchange ("NYSE") and none of such securities had
been issued in violation of any preemptive right of any stockholder of Parent,
(b) 1,033,556 shares of Parent Common Stock were reserved for issuance upon the
exercise of outstanding options for Parent Common Stock (the "Parent Stock
Options") granted under its 1983 Stock Option Plan, its 1986 Stock Option Plan,
as amended, its 1988 Stock Option Plan for Non-Employee Directors, and its 1994
Stock Option Plan (collectively, the "Parent Stock Plans"), (c) no shares of
Parent Common Stock were held by Parent or its wholly-owned Subsidiaries in
treasury and (d) no shares of Parent Preferred Stock were issued and
outstanding. There are no outstanding stock appreciation rights ("SARs") issued
by Parent or any of its Subsidiaries with respect to Parent Common Stock, other
than 151,000 SARs issued pursuant to Parent's 1994 Stock Appreciation Rights
Plan (the "Parent 1994 SAR Plan"). All of the shares of Parent Common Stock
issuable in exchange for Company Common Stock at the Effective Time or upon
exercise of New Parent Stock Options or New Parent Warrants in accordance with
this Agreement will be, when so issued, duly authorized, validly issued, fully
paid, nonassessable and listed on the NYSE, subject to official notice of
issuance, and none of such securities will have been issued in violation of any
preemptive right of any stockholder of Parent. All outstanding shares of capital
stock of Parent's Subsidiaries are validly authorized and issued, fully paid and
nonassessable and have not been issued in violation of any preemptive right of
any stockholder of any of such Subsidiaries and, except as disclosed in the
Parent Disclosure Schedule, all of such shares are owned of record and
beneficially by Parent or a wholly-owned Subsidiary of Parent, free and clear of
all liens, charges or encumbrances. Except for (i) the outstanding Parent Stock
Options, (ii) the outstanding preferred stock purchase rights (the "Parent
Rights") issued pursuant to the Rights Agreement dated as of April 28, 1987
between Parent and Harris Trust and Savings Bank, as successor Rights Agent,
(iii) Parent's Employees' Stock Purchase Plan, (iv) Kuhlman Electric
Corporation's Savings Maximizer Plan and (v) Parent's 1993 Non-Employee
Directors Stock Plan, there are no options, warrants, rights, commitments,
agreements, arrangements or undertakings of any kind to which Parent or any of
its Subsidiaries is a party or by which any of them is bound obligating Parent
or any of its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other voting securities
of Parent or of any of its Subsidiaries. True and correct copies of all plans,
agreements, instruments and other governing documents relating to the Parent
Stock Options, the Parent Stock Plans, the Parent 1994 SAR Plan, the Parent
Rights, Parent's Employees' Stock Purchase Plan, Kuhlman Electric Corporation's
Savings Maximizer Plan and Parent's 1993 Non-Employee Directors Stock Plan have
been furnished to the Company.
Section 2.3 AUTHORITY; NON-CONTRAVENTION. Parent has all corporate power
and authority to enter into this Agreement and, subject to obtaining the
approval of the Amendment and the issuance of Parent Common Stock pursuant to
this Agreement by the stockholders of Parent, to consummate the transactions
contemplated hereby. Subject to obtaining such approval by the stockholders of
Parent, the execution and delivery of this Agreement by Parent and the
consummation by Parent of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent. This
Agreement has been duly executed and delivered by Parent and (assuming the valid
authorization, execution and delivery of this Agreement by the Company and the
enforceability of this Agreement against the Company) constitutes the legal,
valid and binding agreement of Parent enforceable against Parent in accordance
with its terms, except to the extent enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other
similar laws of general applicability relating to or affecting the enforcement
of creditors' rights and by the effect of general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity or
at law). The issuance of shares of Parent Common Stock pursuant to this
Agreement and
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the filing of a registration statement with the SEC by Parent on Form S-4 under
the Securities Act of 1933, as amended (together with the rules and regulations
promulgated thereunder, the "Securities Act"), for the purpose of registering
the shares of Parent Common Stock to be issued pursuant to this Agreement has
been duly authorized by Parent's Board of Directors. (Such registration
statement, including any information incorporated by reference therein, as it is
declared effective under the Securities Act, together with any post-effective
amendments or supplements thereto prepared and filed in accordance with this
Agreement, is referred to herein as the "Registration Statement"). Except as set
forth in the Parent Disclosure Schedule, the execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
and compliance with the provisions hereof 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 material obligation or to the loss of a material benefit under, or result in
the creation of any lien, security interest, charge or encumbrance upon any of
the properties or assets of Parent or any of its Significant Subsidiaries under,
any provision of (a) the Certificate of Incorporation or By-laws of Parent (true
and complete copies of which as of the date hereof have been delivered to the
Company) or any provision of the comparable charter or organization documents of
any of its Significant Subsidiaries, (b) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to Parent or any of its Significant
Subsidiaries or (c) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to Parent or any of its Significant Subsidiaries or any
of their respective properties or assets, other than, in the case of clauses (b)
or (c), any such conflicts, violations, defaults, rights, liens, security
interests, charges or encumbrances that, individually or in the aggregate, would
not have a Material Adverse Effect on Parent, materially impair the ability of
Parent to perform its obligations hereunder or prevent the consummation of any
of the transactions contemplated hereby. No filing or registration with, or
authorization, consent or approval of, any domestic (federal, state or local),
foreign or supranational court, commission, governmental body, regulatory
agency, authority or tribunal (a "Governmental Entity") is required by or with
respect to Parent, Sub or any of Parent's Significant Subsidiaries in connection
with the execution and delivery of this Agreement by Parent and Sub or is
necessary for the consummation of the Merger and the other transactions
contemplated by this Agreement, except for (i) filings in connection, or in
compliance, with the applicable requirements of the Securities Act and the
Securities Exchange Act of 1934, as amended (together with the rules and
regulations promulgated thereunder, the "Exchange Act"), (ii) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware and
appropriate documents with the relevant authorities of other states in which
Parent, Sub or any of Parent's Significant Subsidiaries is qualified to do
business, (iii) such filings and consents as may be required under any
environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Merger or the
transactions contemplated by this Agreement, (iv) such filings as may be
required in connection with the taxes described in Section 6.9, (v) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under the corporation, takeover or "Blue Sky" laws of
various states, (vi) such filings and approvals as may be required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"Improvements Act"), and (vii) such other consents, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made would not, individually or in the aggregate, have a Material Adverse Effect
on Parent, materially impair the ability of Parent to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby.
Section 2.4 PARENT SEC DOCUMENTS. Parent has filed all documents which the
Securities Act or the Exchange Act requires Parent to file with the SEC since
January 1, 1993 (the "Parent SEC Documents"). A list of all of the Parent SEC
Documents is included in the Parent Disclosure Schedule. As of their respective
dates, the Parent SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
none of the Parent SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact
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required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of Parent included in the Parent SEC Documents comply as to
form 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 generally accepted accounting principles (except, in
the case of the 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 therein or in the notes thereto) and fairly present the consolidated
financial position of Parent and its consolidated Subsidiaries as at the dates
thereof and the consolidated results of their operations and consolidated cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments and to any other adjustments described
therein).
Section 2.5 REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS. The
Registration Statement and the joint proxy statement/prospectus contained
therein, including any information incorporated by reference therein, to be used
by Parent and the Company to solicit proxies from their respective stockholders
at the Stockholder Meetings (as hereinafter defined) (together with any
amendments or supplements thereto prepared and filed in accordance with this
Agreement, the "Proxy Statement/Prospectus") will not (a) in the case of the
Registration Statement, at the time it becomes effective under the Securities
Act, at the time of the Stockholder Meetings and at the Effective Time, 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 not misleading or (b) in the case of the Proxy Statement/Prospectus, at
the time of the mailing of the Proxy Statement/ Prospectus to the respective
stockholders of Parent and the Company and at the time of the Stockholder
Meetings, 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; PROVIDED; HOWEVER, that the foregoing shall not apply to the extent
that any such untrue statement of a material fact or omission to state a
material fact was made by Parent in reliance upon and in conformity with written
information supplied or to be supplied to Parent by the Company expressly for
inclusion or incorporation by reference in the Registration Statement or the
Proxy Statement/Prospectus. The Registration Statement will comply as to form in
all material respects with all applicable requirements of the Securities Act,
and the Proxy Statement/Prospectus will comply as to form with all applicable
requirements of the Exchange Act; PROVIDED, HOWEVER, that the foregoing shall
not apply to any written information supplied or to be supplied to Parent by the
Company expressly for inclusion or incorporation by reference in the
Registration Statement or the Proxy Statement/Prospectus.
Section 2.6 ABSENCE OF MATERIAL ADVERSE CHANGE. Except as disclosed in the
Parent SEC Documents filed with the SEC prior to the date hereof or in the
Parent Disclosure Schedule, there has not been any Material Adverse Change with
respect to Parent.
Section 2.7 POOLING OF INTERESTS; REORGANIZATION. To the knowledge of
Parent, neither it nor any of its Subsidiaries has (i) taken any action or
failed to take any action which would jeopardize the treatment of Sub's
combination with the Company in the Merger as a pooling of interests for
accounting purposes or (ii) taken any action or failed to take any action which
would jeopardize the qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code.
Section 2.8 DIVIDENDS. Since September 30, 1994, Parent has not declared,
set aside or paid any dividends on, or made any other actual, constructive or
deemed distributions in respect of, any of its capital stock, or otherwise made
any payments to its stockholders in their capacity as such, other than ordinary
quarterly dividends consistent with past practice, each in an amount not in
excess of $.15 per share, with respect to Parent Common Stock.
Section 2.9 NO VIOLATION OR INFRINGEMENT. Except as disclosed in the
Parent Disclosure Schedule and for matters which, individually or in the
aggregate, would not have a Material Adverse Effect on Parent: (a) Parent and
its Subsidiaries have complied in all material respects with all requirements
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of law applicable to their respective assets and businesses and (b) neither
Parent nor any Subsidiary has infringed upon or misappropriated any patent,
trademark, service mark, trade name, copyright or other proprietary right of any
other person or entity.
Section 2.10 LITIGATION. Except as set forth in the Parent Disclosure
Schedule, there are no actions, suits or proceedings pending or threatened
against Parent or any of its Subsidiaries before any Governmental Entity or
arbitrator which, individually or in the aggregate, should reasonably be
expected to have a Material Adverse Effect on Parent.
Section 2.11 TAXES. Except as otherwise set forth in the Parent Disclosure
Schedule, (a) Parent and each of its Significant Subsidiaries has filed all Tax
Returns required to have been filed on or before the date hereof; (b) all Taxes
shown to be due on the Tax Returns referred in clause (a) have been timely paid;
(c) neither Parent nor any of its Significant Subsidiaries has waived any
statute of limitations in respect of Taxes of Parent or such Subsidiary; (d) the
Tax Returns referred to in clause (a) relating to federal and state income Taxes
have been examined by the Internal Revenue Service or the appropriate state
taxing authority or the period for assessment of the Taxes in respect of which
such Tax Returns were required to be filed has expired; (e) no issues that have
been raised in writing by the relevant taxing authority in connection with the
examination of the Tax Returns referred to in clause (a) are currently pending;
and (f) all deficiencies asserted or assessments made as a result of any
examination of the Tax Returns referred to in clause (a) by a taxing authority
have been paid in full. For purposes of this Agreement (i) "Tax" (and, with
correlative meaning, "Taxes") means, any federal, state, local or foreign
income, gross receipts, property, sales, use, license, excise, franchise,
employment, payroll, withholding, alternative or added minimum, ad valorem,
transfer or excise tax, or any other tax, custom, duty, governmental fee or
other like assessment or charge of any kind whatsoever, together with any
interest or penalty, imposed by any Governmental Entity, and (ii) "Tax Return"
means any return, report or similar statement required to be filed with respect
to any Tax (including any attached schedules), including, without limitation,
any information return, claim for refund, amended return or declaration of
estimated Tax.
Section 2.12 PARENT BENEFIT PLANS. The Parent Disclosure Schedule contains
a list of all significant "employee welfare benefit plans" and all significant
"employee pension benefit plans" (as such terms are defined in Sections 3(1) and
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) maintained or contributed to on behalf of employees of the Parent or
any of its Subsidiaries as of the date of this Agreement (the "Parent Benefit
Plans"). Except as set forth in the Parent Disclosure Schedule, each Parent
Benefit Plan which is intended to be qualified under Section 401(a) of the Code
has been determined by the Internal Revenue Service to be so qualified except
for changes for which the remedial amendment period under Section 401(b) of the
Code has not expired. Neither the Parent nor any of its Subsidiaries has any
liability to the Pension Benefit Guaranty Corporation with respect to any Parent
Benefit Plan except for applicable insurance premiums. Each Parent Benefit Plan
has been maintained and administered in compliance in all material respects with
ERISA and the Code. Except as set forth in the Parent Disclosure Schedule, (a)
neither the Parent nor any of its Subsidiaries has any obligation to contribute
to any "multiemployer plan", as such term is defined in Section 3(37) of ERISA
or Section 4001(a)(3) of ERISA, and (b) assuming the Parent and each of its
Subsidiaries incurred a complete withdrawal under Section 4203 of ERISA from all
such plans, the withdrawal liability arising under Section 4201 of ERISA with
respect to such plans would not exceed the amount set forth in the Parent
Disclosure Schedule. Except for agreements identified in the Parent Disclosure
Schedule or as expressly provided for in this Agreement, neither Parent nor any
of its Subsidiaries is a party to any agreement which (a) requires it to make
any bonus or severance payment to any of its officers or employees solely by
reason of the closing of the transactions contemplated by this Agreement or (b)
requires it to make a payment to any of its officers or employees that, to the
knowledge of Parent, may be an "excess parachute payment" to a "disqualified
individual", as such terms are defined in Section 280G of the Code.
Section 2.13 ENVIRONMENTAL MATTERS. Except as disclosed in the Parent
Disclosure Schedule and for matters which, individually or in the aggregate,
would not have a Material Adverse Effect on
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Parent: (a) the use and operation of the assets and properties owned or leased
by Parent and its Subsidiaries comply in all material respects with all
applicable federal, state and local environmental, safety and health laws,
ordinances, rules or regulations and (b) nothing has come to the attention of
any of the directors or officers of Parent or any of its Subsidiaries that leads
any of such persons to believe that Parent or any of its Subsidiaries is or may
be liable to any person or Governmental Entity as a result of a release or
threatened release of any hazardous or toxic substance or waste into the
environment.
Section 2.14 TITLE TO PROPERTY. Parent or its Subsidiaries has good and,
with respect to real property, marketable title to all of the material assets
reflected on the consolidated financial statements of Parent included in the
Parent SEC Documents as being owned by it or its Subsidiaries and all of the
material assets thereafter acquired by it or its Subsidiaries (except to the
extent that such assets have thereafter been disposed of in the ordinary course
of business consistent with past practice), subject to no liens, mortgages,
pledges, security interests, encumbrances, claims or charges of any kind
(collectively, "Liens") except for (a) Liens described in the Parent SEC
Documents or the Parent Disclosure Schedule, (b) Liens for taxes not yet
delinquent or the validity of which is being contested in good faith for which
sufficient accruals have been established, (c) any Liens arising by operation of
law securing obligations not yet overdue and (d) other Liens which, individually
or in the aggregate, are not material in amount and do not materially detract
from the value or materially impair the existing use of any material asset of
Parent or any of its Subsidiaries.
Section 2.15 BROKERS. No broker, investment banker or other person is
entitled to any broker's, finder's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Sub. Parent shall be responsible
for and pay all financial advisory fees and expenses of The Chase Manhattan
Bank, N.A., to the extent payable.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
Section 3.1 ORGANIZATION, STANDING AND POWER. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power and authority to carry
on its business as now being conducted. The schedule delivered to Parent and
identified by the Company as its final disclosure schedule under this Agreement
(the "Company Disclosure Schedule") contains a list of each Subsidiary of the
Company, indicating its jurisdiction of incorporation or other organization, its
authorized share or other equity capital, the number and percentage of its
issued and outstanding shares or other equity interests owned of record or
beneficially by the Company or any of its Subsidiaries (naming each such owner),
and whether it is a Significant Subsidiary. The Company and each of its
Significant Subsidiaries is duly qualified to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified would not, individually
or in the aggregate, have a Material Adverse Effect on the Company.
Section 3.2 CAPITAL STRUCTURE. The authorized capital stock of the Company
consists of 50,000,000 shares of Company Common Stock and 10,000,000 shares of
preferred stock, par value $1.00 per share (the "Company Preferred Stock"). At
the close of business on February 22, 1995, (a) 7,231,866 shares of Company
Common Stock were validly issued and outstanding, fully paid, nonassessable and
listed on the NYSE and none of such securities had been issued in violation of
any preemptive right of any stockholder of the Company, (b) 487,992 shares of
Company Common Stock were reserved for issuance upon the exercise of outstanding
Company Stock Options, (c) 500,000 shares of Company Common Stock were reserved
for issuance upon the exercise of outstanding Company Warrants, (d) 23,509
shares of Company Common Stock were held by the Company or its
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wholly-owned Subsidiaries in treasury, and (e) no shares of Company Preferred
Stock were issued or outstanding. There are no outstanding SARs issued by the
Company with respect to Company Common Stock, other than 75,000 phantom stock
rights issued pursuant to an Agreement dated as of October 18, 1994 between Gary
G. Dillon and a Subsidiary of the Company. All outstanding shares of capital
stock of the Company's Subsidiaries are validly authorized and issued, fully
paid and nonassessable and have not been issued in violation of any preemptive
right of any stockholder of any of such Subsidiaries and, except as disclosed in
the Company Disclosure Schedule, all of such shares are owned of record and
beneficially by the Company or a wholly-owned Subsidiary of the Company, free
and clear of all liens, charges or encumbrances. Except for (i) the outstanding
Company Stock Options, (ii) the outstanding Company Warrants, (iii) the
obligations of the Company under its three tax reduction investment plans (the
"Company 401(k) Plans") and (iv) the outstanding common stock purchase rights
(the "Company Rights") issued pursuant to the Rights Agreement dated as of April
14, 1989 between the Company and Harris Trust and Savings Bank, as Rights Agent
(the "Company Rights Agreement"), there are no options, warrants, rights,
commitments, agreements, arrangements or undertakings of any kind to which the
Company or any of its Subsidiaries is a party or by which any of them is bound
obligating the Company or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
other voting securities of the Company or of any of its Subsidiaries. True and
correct copies of all plans, agreements, instruments and other governing
documents relating to, the Company Stock Options, the Company Warrants, the
Company Rights and the Company 401(k) Plans have been furnished to Parent.
Section 3.3 AUTHORITY; NON-CONTRAVENTION. The Company has all corporate
power and authority to enter into this Agreement and, subject to obtaining the
approval of this Agreement by the stockholders of the Company, to consummate the
transactions contemplated hereby. Subject to obtaining such approval by the
stockholders of the Company, the execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of the Company. This Agreement has been duly executed and delivered by the
Company and (assuming the valid authorization, execution and delivery of this
Agreement by Parent and Sub and the enforceability of this Agreement against
each of them) constitutes the legal, valid and binding agreement of the Company
enforceable against the Company in accordance with its terms, except to the
extent enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws of general applicability
relating to or affecting the enforcement of creditors' rights and by the effect
of general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law). Except as set forth in the
Company Disclosure Schedule, the execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated hereby and compliance
with the provisions hereof 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 material
obligation or to the loss of a material benefit under, or result in the creation
of any lien, security interest, charge or encumbrance upon any of the properties
or assets of the Company or any of its Significant Subsidiaries under, any
provision of (a) the Certificate of Incorporation or By-laws of the Company
(true and complete copies of which as of the date hereof have been delivered to
Parent) or any provision of the comparable charter or organization documents of
any of its Significant Subsidiaries, (b) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to the Company or any of its
Significant Subsidiaries or (c) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or any of its
Significant Subsidiaries or any of their respective properties or assets, other
than, in the case of clauses (b) or (c), any such conflicts, violations,
defaults, rights, liens, security interests, charges or encumbrances that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company, materially impair the ability of the Company to perform its
obligations hereunder or prevent the consummation of any of the transactions
contemplated hereby. No filing or registration with, or authorization, consent
or approval of, any Governmental Entity is required by or with respect to the
Company or any of its
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Significant Subsidiaries in connection with the execution and delivery of this
Agreement by the Company or the consummation by the Company of the transactions
contemplated hereby, except for (i) filings in connection, or in compliance,
with the applicable requirements of the Securities Act and the Exchange Act (ii)
the filing of the Certificate of Merger with the Secretary of State of the State
of Delaware and appropriate documents with the relevant authorities of other
states in which the Company or any of its Significant Subsidiaries is qualified
to do business, (iii) such filings and consents as may be required under any
environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Merger or the
transactions contemplated by this Agreement, (iv) such filings as may be
required in connection with the taxes described in Section 6.9, (v) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under the corporation, takeover or "Blue Sky" laws of
various states, (vi) such filings and approvals as may be required under the
Improvements Act, and (vii) such other consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of which to
be obtained or made would not, individually or in the aggregate, have a Material
Adverse Effect on the Company, materially impair the ability of the Company to
perform its obligations hereunder or prevent the consummation of any of the
transactions contemplated hereby.
Section 3.4 COMPANY SEC DOCUMENTS. The Company has filed all documents
which the Securities Act or the Exchange Act require the Company to file with
the SEC since January 1, 1993 (the "Company SEC Documents"). A list of all of
the Company SEC Documents is included in the Company Disclosure Schedule. As of
their respective dates, the Company SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and none of the Company SEC Documents 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. The financial
statements of the Company included in the Company SEC Documents comply as to
form 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 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
therein or in the notes thereto) and fairly present the consolidated financial
position of the Company and its consolidated Subsidiaries as at the dates
thereof and the consolidated results of their operations and consolidated cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments and to any other adjustments described
therein).
Section 3.5 REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS. The
Proxy Statement/ Prospectus will not, at the time of the mailing of the Proxy
Statement/Prospectus to the respective stockholders of Parent and the Company
and at the time of the Stockholder Meetings, 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; PROVIDED, HOWEVER, that
the foregoing shall not apply to the extent that any such untrue statement of a
material fact or omission to state a material fact was made by the Company in
reliance upon and in conformity with written information supplied or to be
supplied to the Company by Parent expressly for inclusion or incorporation by
reference in the Proxy Statement/ Prospectus. The Proxy Statement/Prospectus
will comply as to form with all applicable requirements of the Exchange Act;
PROVIDED, HOWEVER, that the foregoing shall not apply to any written information
supplied or to be supplied to the Company by Parent expressly for inclusion or
incorporation by reference in the Proxy Statement/Prospectus.
Section 3.6 ABSENCE OF MATERIAL ADVERSE CHANGE. Except as disclosed in the
Company SEC Documents filed with the SEC prior to the date hereof or in the
Company Disclosure Schedule, there has not been any Material Adverse Change with
respect to the Company.
Section 3.7 POOLING OF INTERESTS; REORGANIZATION. To the knowledge of the
Company, neither it nor any of its Subsidiaries has (i) taken any action or
failed to take any action which would jeopardize
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the treatment of Sub's combination with the Company in the Merger as a pooling
of interests for accounting purposes or (ii) taken any action or failed to take
any action which would jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code.
Section 3.8 DIVIDENDS. Since September 30, 1994, the Company has not
declared, set aside or paid any dividends on, or made any other actual,
constructive or deemed distributions in respect of, any of its capital stock, or
otherwise made any payments to its stockholders in their capacity as such.
Section 3.9 NO VIOLATION OR INFRINGEMENT. Except as disclosed in the
Company Disclosure Schedule and for matters which, individually or in the
aggregate, would not have a Material Adverse Effect on the Company: (a) the
Company and its Subsidiaries have complied in all material respects with all
requirements of law applicable to their respective assets and businesses and (b)
neither the Company nor any Subsidiary has infringed upon or misappropriated any
patent, trademark, service mark, trade name, copyright or other proprietary
right of any other person or entity.
Section 3.10 LITIGATION. Except as set forth in the Company Disclosure
Schedule, there are no actions, suits or proceedings pending or threatened
against the Company or any of its Subsidiaries before any Governmental Entity or
arbitrator which, individually or in the aggregate, should reasonably be
expected to have a Material Adverse Effect on the Company.
Section 3.11 TAXES. Except as otherwise set forth in the Company
Disclosure Schedule, (a) the Company and each of its Significant Subsidiaries
has filed all Tax Returns required to have been filed on or before the date
hereof; (b) all Taxes shown to be due on the Tax Returns referred in clause (a)
have been timely paid; (c) neither the Company nor any of its Significant
Subsidiaries has waived any statute of limitations in respect of Taxes of the
Company or such Subsidiary; (d) the Tax Returns referred to in clause (a)
relating to federal and state income Taxes have been examined by the Internal
Revenue Service or the appropriate state taxing authority or the period for
assessment of the Taxes in respect of which such Tax Returns were required to be
filed has expired; (e) no issues that have been raised in writing by the
relevant taxing authority in connection with the examination of the Tax Returns
referred to in clause (a) are currently pending; and (f) all deficiencies
asserted or assessments made as a result of any examination of the Tax Returns
referred to in clause (a) by a taxing authority have been paid in full.
Section 3.12 COMPANY BENEFIT PLANS. The Company Disclosure Schedule
contains a list of all significant "employee welfare benefit plans" and all
significant "employee pension benefit plans" (as such terms are defined in
Sections 3(1) and 3(2) of ERISA) maintained or contributed to on behalf of
employees of the Company or any of its Subsidiaries as of the date of this
Agreement (the "Company Benefit Plans"). Except as set forth in the Company
Disclosure Schedule, each Company Benefit Plan which is intended to be qualified
under Section 401(a) of the Code has been determined by the Internal Revenue
Service to be so qualified except for changes for which the remedial amendment
period under Section 401(b) of the Code has not expired. Neither the Company nor
any of its Subsidiaries has any liability to the Pension Benefit Guaranty
Corporation with respect to any Company Benefit Plan except for applicable
insurance premiums. Each Company Benefit Plan has been maintained and
administered in compliance in all material respects with ERISA and the Code.
Except as set forth in the Company Disclosure Schedule, (a) neither the Company
nor any of its Subsidiaries has any obligation to contribute to any
"multiemployer plan', as such term is defined in Section 3(37) of ERISA or
Section 4001(a)(3) of ERISA, and (b) assuming the Company and each of its
Subsidiaries incurred a complete withdrawal under Section 4203 of ERISA from all
such plans, the withdrawal liability arising under Section 4201 of ERISA with
respect to such plans would not exceed the amount set forth in the Company
Disclosure Schedule. Except for agreements identified in the Company Disclosure
Schedule or as expressly provided for in this Agreement, neither the Company nor
any of its Subsidiaries is a party to any agreement which (a) requires it to
make any bonus or severance payment to any of its officers or employees solely
by reason of the change of control of the Company
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effected by the consummation of the Merger or (b) requires it to make a payment
to any of its officers or employees that, to the knowledge of the Company, may
be an "excess parachute payment" to a "disqualified individual", as such terms
are defined in Section 280G of the Code.
Section 3.13 ENVIRONMENTAL MATTERS. Except as disclosed in the Company
Disclosure Schedule and for matters which, individually or in the aggregate,
would not have a Material Adverse Effect on the Company: (a) the use and
operation of the assets and properties owned or leased by the Company and its
Subsidiaries comply in all material respects with all applicable federal, state
and local environmental, safety and health laws, ordinances, rules or
regulations and (b) nothing has come to the attention of any of the directors or
officers of the Company or any of its Subsidiaries that leads any of such
persons to believe that the Company or any of its Subsidiaries is or may be
liable to any person or Governmental Entity as a result of a release or
threatened release of any hazardous or toxic substance or waste into the
environment.
Section 3.14 TITLE TO PROPERTY. The Company or its Subsidiaries has good
and, with respect to real property, marketable title to all of the material
assets reflected on the consolidated financial statements of the Company
included in the Company SEC Documents as being owned by it or its Subsidiaries,
including, without limitations, its facility located at Asheville, North
Carolina, and all of the material assets thereafter acquired by it or its
Subsidiaries (except to the extent that such assets have thereafter been
disposed of in the ordinary course of business consistent with past practice),
subject to no Liens, except for (a) Liens described in the Company SEC
Documents, (b) Liens for taxes not yet delinquent or the validity of which is
being contested in good faith for which sufficient accruals have been
established, (c) any Liens arising by operation of law securing obligations not
yet overdue and (d) other Liens which, individually or in the aggregate, are not
material in amount and do not materially detract from the value or materially
impair the existing use of any material asset of the Company or any of its
Subsidiaries.
Section 3.15 BROKERS. No broker, investment banker or other person (other
than J. P. Morgan Securities Inc., the fees and expenses of which, to the extent
payable, will be paid by the Surviving Corporation) is entitled to any broker's,
finder's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES REGARDING SUB
Parent and Sub jointly and severally represent and warrant to the Company as
follows:
Section 4.1 ORGANIZATION AND STANDING. Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware. Sub was organized solely for the purpose of acquiring the Company
and engaging in the transactions contemplated by this Agreement and has not
engaged in any business since it was incorporated which is not in connection
with the acquisition of the Company and this Agreement.
Section 4.2 CAPITAL STRUCTURE. The authorized capital stock of Sub
consists of 1,000 shares of common stock, par value $.01 per share, all of which
are validly issued and outstanding, fully paid and nonassessable and are owned
by Parent free and clear of all liens, charges and encumbrances.
Section 4.3 AUTHORITY; NON-CONTRAVENTION. Sub has all corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement, the
performance by Sub of its obligations hereunder and the consummation of the
transactions contemplated hereby have been duly authorized by its Board of
Directors and Parent as its sole stockholder, and, no other corporate
proceedings on the part of Sub are necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Sub and (assuming the due authorization, execution and
delivery hereof by the Company and the enforceability of this Agreement against
the Company)
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constitutes the legal, valid and binding agreement of Sub enforceable against
Sub in accordance with its terms, except to the extent enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or other similar laws of general applicability relating to or affecting
the enforcement of creditors' rights and by the effect of general principles of
equity (regardless of whether enforceability is considered in a proceeding in
equity or at law). The execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof 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 to
the loss of a material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
Sub under, any provision of (i) the Certificate of Incorporation or By-laws of
Sub (true and complete copies of which as of the date hereof have been delivered
to the Company) (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to Sub or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Sub or any of its properties or
assets, other than, in the case of clauses (ii) or (iii), any such conflicts,
violations, defaults, rights, liens, security interests, charges or encumbrances
that, individually or in the aggregate, would not have a Material Adverse Effect
on Parent, materially impair the ability of Sub to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 5.1 CONDUCT OF BUSINESS PENDING THE MERGER.
(a) ACTIONS. During the period from the date of this Agreement through the
Effective Time, each of the Company and Parent shall, and each shall cause its
respective Subsidiaries to, in all material respects carry on its respective
businesses in, and not enter into any material transaction other than in
accordance with, the ordinary course and, to the extent consistent therewith,
use all reasonable efforts to preserve intact its current business
organizations, keep available the services of its current officers and employees
and preserve its relationships with customers, suppliers and others having
business dealings with it to the end that its goodwill and ongoing businesses
shall be unimpaired at the Effective Time. Without limiting the generality of
the foregoing, and, except as disclosed in the Company Disclosure Schedule or
the Parent Disclosure Schedule or as otherwise expressly contemplated by this
Agreement, each of the Company and Parent shall not, and each shall not permit
any of its respective Subsidiaries to, without the prior written consent of the
other parties to this Agreement:
(i) (A) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
respective capital stock, or otherwise make any payments to its respective
stockholders in their capacity as such, other than (1) ordinary quarterly
dividends by Parent consistent with past practice, each in an amount not in
excess of $.15 per share with respect to Parent Common Stock, (2) dividends
declared by Parent prior to the date of this Agreement and (3) dividends
payable to the Company declared by any of the Company's Subsidiaries or to
Parent declared by any of Parent's Subsidiaries, (B) 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, and (c) purchase, redeem or otherwise acquire
any shares of capital stock of each of the Company or Parent, or any of its
respective Subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities, other
than the Company's redemption of the Company Rights prior to the Effective
Time in accordance with Section 7.3(c);
(ii) issue, deliver, sell, pledge, dispose of or otherwise encumber any
shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities, equity equivalent or
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convertible securities (other than, in the case of the Company, the issuance
of Company Common Stock (and associated Company Rights) during the period
from the date of this Agreement through the Effective Time (A) upon the
exercise of Company Stock Options outstanding on the date of this Agreement
in accordance with their current terms, (B) upon the exercise of Company
Warrants outstanding on the date of this Agreement in accordance with their
current terms, (C) in accordance with the terms, existing at the date of
this Agreement, of the Company 401(k) Plans and, in the case of Parent, the
issuance of Parent Common Stock (and associated Parent Rights) during such
period (A) upon the exercise of Parent Stock Options outstanding on the date
of this Agreement in accordance with their current terms and (B) in
accordance with the terms, existing at the date of this Agreement, of the
Parent 1994 SAR Plan, Parent's Employees' Stock Purchase Plan, Kuhlman
Electric Corporation's Savings Maximizer Plan, the Parent Rights and
Parent's 1993 Non-Employee Directors Stock Plan);
(iii) amend its Certificate of Incorporation (other than, in the case of
Parent, to approve and adopt the Amendment) or amend in any material
respects its By-laws;
(iv) acquire or agree to acquire by merging or consolidating with, or by
purchasing a portion of the assets of or equity in, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to acquire
any assets, in each case that are material or substantial, individually or
in the aggregate, to the Company and its Subsidiaries taken as a whole, and
to Parent and its Subsidiaries taken as a whole, respectively;
(v) sell, lease or otherwise dispose of or agree to sell, lease or
otherwise dispose of, any of its assets (other than sales or other
dispositions of inventory in the ordinary course of business) that are
material, individually or in the aggregate, to the Company and its
Subsidiaries taken as a whole, or to Parent and its Subsidiaries taken as a
whole, respectively;
(vi) except in the ordinary course of business consistent with past
practice, (A) incur or assume any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others or (B) make any loans, advances or
capital contributions to, or investments in, any other person, other than to
the Company or any wholly-owned Subsidiary of the Company or to Parent or
any wholly-owned Subsidiary of Parent, respectively;
(vii) alter through merger, liquidation, reorganization, restructuring or
in any other fashion the corporate structure or ownership of any Subsidiary
of the Company or any Subsidiary of Parent, respectively; or
(viii) enter into or adopt, or amend any existing, severance plan,
agreement or arrangement or, other than in the ordinary course of business,
enter into or amend any employee benefit plan (including, without
limitation, the Company Stock Plan, its Performance Unit Plan and the
Company 401(k) Plans with respect to the Company and the Parent Stock Plans,
the Parent 1994 SAR Plan, its Employees' Stock Purchase Plan, Kuhlman
Electric Corporation's Savings Maximizer Plan and Parent's 1993 Non-Employee
Directors Stock Plan with respect to Parent), or any employment or
consulting agreement, except compensation increases associated with
promotions and annual reviews in the ordinary course of business consistent
with past practice.
(b) ADVICE OF CHANGES. Each of the Company and Parent shall promptly advise
the other such party orally and in writing of any change or event having, or
which, insofar as can reasonably be foreseen, would have, a Material Adverse
Effect on the Company or Parent, respectively.
Section 5.2 NO SOLICITATION. From and after the date hereof, neither the
Company nor Parent will solicit or initiate, nor will either such party permit
any of its officers, directors, employees, agents and other representatives or
those of any of its Subsidiaries to, directly or indirectly, solicit or
initiate, any takeover proposal or offer from any person, or engage in
discussions or negotiations relating thereto; PROVIDED, HOWEVER, that (a) either
such party may engage in discussions or negotiations with a
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third party who seeks to initiate such discussions or negotiations or may
furnish to such third party information concerning such party and its business,
properties or assets and (b) following receipt of a takeover proposal the Board
of Directors of either such party may withdraw or modify its recommendation
referred to in Section 6.1, but in each case referred to in the foregoing
clauses (a) and (b) only to the extent that the Board of Directors of such party
shall conclude in good faith after consultation with its outside counsel that
such action is necessary in order for the Board of Directors of such party to
act in a manner which is consistent with its fiduciary obligations under
applicable law. Each of the Company and Parent will promptly notify the other
party of any takeover proposal or offer, including the material terms and
conditions thereof, but shall not be required to indicate the identity of the
person or group making such takeover proposal or offer. As used in this
Agreement, "takeover proposal" or "offer" shall mean any proposal or offer,
other than a proposal or offer by Parent, the Company or any of their respective
affiliates, for a tender or exchange offer, a merger, consolidation or other
business combination involving the Company, Parent or any of their respective
Subsidiaries or any proposal to acquire in any manner a substantial equity
interest in, or a substantial portion of the assets of, the Company, Parent or
any of their respective Subsidiaries.
Section 5.3 POOLING OF INTERESTS; REORGANIZATION. During the period from
the date of this Agreement through the Effective Time, unless the other parties
shall otherwise agree in writing, none of Parent, Sub, any other Subsidiary of
Parent, the Company nor any Subsidiary of the Company shall (a) knowingly take
or fail to take any action which would jeopardize the treatment of Sub's
combination with the Company as a pooling of interests for accounting purposes
or (b) knowingly take or fail to take any action which would jeopardize
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code.
Section 5.4 CONDUCT OF BUSINESS OF SUB PENDING THE MERGER. During the
period from the date of this Agreement through the Effective Time, Sub shall not
engage in any activities of any nature except as provided in or contemplated by
this Agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 STOCKHOLDER APPROVAL. Each of Parent and the Company shall
take all action necessary in accordance with all applicable federal and state
laws and their respective Certificates of Incorporation and By-laws to call
separate annual meetings of their respective stockholders to be held on the same
date (such meetings, including any adjournment of either or both of such
meetings, being referred to herein collectively as the "Stockholder Meetings"),
(a) in the case of the Company, to consider and vote on (i) the approval of this
Agreement, (ii) the election of one class of directors and (iii) the
ratification of the appointment of auditors and (b) in the case of Parent, to
consider and vote on (i) the approval of an amendment to the Certificate of
Incorporation of Parent to increase the number of authorized shares of Parent
Common Stock from 10,000,000 to 20,000,000 shares and to eliminate the
designation therein of shares of Parent Preferred Stock as Junior Participating
Preferred Stock, Series A (the "Amendment"), (ii) the approval of the issuance
of Parent Common Stock pursuant to this Agreement, (iii) the approval of
Parent's 1994 Stock Option Plan, (iv) the election of one class of directors and
(v) the ratification of the selection of auditors, and (c) in both cases, to
consider and vote upon such other matters as may be necessary to effect or
related to the transactions contemplated hereunder. The Stockholder Meetings
shall be held as soon as practicable following the date upon which the
Registration Statement becomes effective. The Company shall, through its Board
of Directors but subject to the fiduciary duties of its Board of Directors under
applicable law as determined by such Board of Directors in good faith after
consultation with the Company's outside counsel, recommend to its stockholders
the approval of this Agreement and otherwise use all reasonable efforts to
obtain such stockholder approval, and Parent shall, through its Board of
Directors but subject to the fiduciary duties of its Board of Directors under
applicable law as determined by such Board of Directors in good faith after
consultation with Parent's outside counsel, recommend to its
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stockholders the approval of the Amendment and the approval of the issuance of
Parent Common Stock pursuant to this Agreement and otherwise use all reasonable
efforts to obtain such stockholder approvals.
Section 6.2 REGISTRATION STATEMENT AND PROXY STATEMENT. Parent shall
prepare and file with the SEC as soon as practicable the Registration Statement
containing the Proxy Statement/Prospectus to be used at the Stockholder Meetings
and shall use all reasonable efforts to have the Registration Statement declared
effective by the SEC as soon as practicable. Parent shall also take any action
required to be taken under state securities or "Blue Sky" laws in connection
with the issuance of the Parent Common Stock pursuant to this Agreement. The
Company shall furnish in writing to Parent all information concerning the
Company, its officers, directors and principal stockholders and any of its
Subsidiaries required for use in the Registration Statement, and the Company
shall take such other actions as Parent may reasonably request in connection
with the preparation of such Registration Statement and the actions to be taken
by Parent pursuant to this Section 6.2. Parent will advise the Company, promptly
after it receives notice thereof, of the time when the Registration Statement
has become effective or any supplement or amendment thereto has been filed, of
the issuance of any stop order, of the suspension of the qualification for
offering or sale in any jurisdiction of the shares of Parent Common Stock
issuable pursuant to this Agreement or any request by the SEC for an amendment
or supplement of the Registration Statement or for additional information. If at
any time after the mailing of the Proxy Statement/Prospectus and prior to the
Effective Time, any event with respect to any party, its officers, directors or
principal stockholders or any of its Subsidiaries or any event with respect to
the Merger shall occur which is required to be described in the Proxy Statement/
Prospectus or the Registration Statement, such party shall immediately inform
the other parties of such event and all parties hereto shall cooperate in the
preparation of a mutually satisfactory amendment or supplement describing such
event and such amendment or supplement shall be promptly filed with the SEC and,
as required by law, disseminated to the respective stockholders of Parent and
the Company. It shall be conditions (in each case unless waived by both Parent
and the Company) to the mailing of the Proxy Statement/Prospectus to the
stockholders of Parent and the stockholders of the Company that (a) Parent and
the Company shall have received the opinions of The Chase Manhattan Bank, N.A.
and J.P. Morgan Securities, Inc., respectively, dated as of the date of the
Proxy Statement/ Prospectus to the effect described in Sections 7.2(b) and
7.3(e), respectively, (b) such opinions shall be included in the Proxy
Statement/Prospectus and (c) each of the Company and Parent shall have executed
a letter agreement identifying the information provided by each of the Company
and Parent for use in the Proxy Statement/Prospectus.
Section 6.3 ACCESS TO INFORMATION.
(a) BY PARENT. The Company shall, and shall cause each of its Subsidiaries
to, afford to Parent, and to Parent's accountants, counsel, financial advisers
and other representatives, reasonable access and permit them to make such
inspections as they may reasonably request during normal business hours during
the period from the date of this Agreement through the Effective Time to all
their respective properties, books, contracts, commitments and records and,
during such period, the Company shall, and shall cause each of its Subsidiaries
to, furnish promptly to Parent (i) access to each report, schedule, registration
statement and other document filed by it during such period pursuant to the
requirements of federal or state laws and (ii) all other information concerning
its business, properties and personnel as Parent may reasonably request. In no
event shall the Company be required to supply to Parent, or to Parent's
accountants, counsel, financial advisors or other representatives, any
information relating to indications of interest from, or discussions with, any
other potential acquirors of the Company which were received or conducted prior
to the date hereof except to the extent necessary for use in the Registration
Statement. Except as required by law, Parent will hold, and will cause its
affiliates, associates and representatives to hold, any nonpublic information in
confidence until such time as such information otherwise becomes publicly
available and shall use its best efforts to ensure that such affiliates,
associates and representatives do not disclose such information to others
without the prior written consent of the Company. In the event of termination of
this
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Agreement for any reason, Parent shall promptly return or destroy all nonpublic
documents so obtained from the Company or any of its Subsidiaries and any copies
made of such documents for Parent.
(b) BY THE COMPANY. Parent shall, and shall cause each of its Subsidiaries
to, afford to the Company, and to Company's accountants, counsel, financial
advisers and other representatives, reasonable access and permit them to make
such inspections as they may reasonably request during normal business hours
during the period from the date of this Agreement through the Effective Time to
all their respective properties, books, contracts, commitments and records and,
during such period, Parent shall, and shall cause each of its Subsidiaries to,
furnish promptly to the Company (i) access to each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of federal or state laws and (ii) all other
information concerning its business, properties and personnel as the Company may
reasonably request. Except as required by law, the Company will hold, and will
cause its affiliates, associates and representatives to hold, any nonpublic
information in confidence until such time as such information otherwise becomes
publicly available and shall use its best efforts to ensure that such
affiliates, associates and representatives do not disclose such information to
others without the prior written consent of Parent. In the event of termination
of this Agreement for any reason, the Company shall promptly return or destroy
all nonpublic documents so obtained from Parent or any of its Subsidiaries and
any copies made of such documents for the Company.
Section 6.4 COMPLIANCE WITH THE SECURITIES ACT AND POOLING
REQUIREMENTS. Prior to the Effective Time, the Company shall cause to be
prepared and delivered to Parent a list (reasonably satisfactory to counsel for
Parent) identifying all persons who, at the time of the Stockholder Meetings,
may be deemed to be "affiliates" of the Company as that term is used in
paragraphs (c) and (d) of Rule 145 under the Securities Act (the "Affiliates").
The Company shall use its best efforts to cause each person who is identified as
an Affiliate in such list to deliver to Parent on or prior to the Effective Time
a written agreement, in the form previously approved by the parties hereto, that
such Affiliate will not sell, pledge, transfer or otherwise dispose of any
shares of Parent Common Stock issued to such Affiliate pursuant to the Merger,
except pursuant to an effective registration statement under the Securities Act
or in compliance with paragraph (d) of Rule 145 or another exemption from the
registration requirements of the Securities Act and that such Affiliate will not
sell or in any other way reduce such Affiliate's risk relative to any shares of
Parent Common Stock received in the Merger (within the meaning of Section 201.01
of the SEC's Financial Reporting Release No. 1), until such time as financial
results (including combined sales and net income) covering at least 30 days of
post-merger operations have been published, except as permitted by Staff
Accounting Bulletin No. 76 issued by the SEC.
Section 6.5 STOCK EXCHANGE LISTING. Parent shall use its best efforts to
list on the NYSE, upon official notice of issuance, the shares of Parent Common
Stock to be issued pursuant to this Agreement.
Section 6.6 FEES AND EXPENSES. Whether or not the Merger is consummated,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
and expenses, except as Parent and the Company shall otherwise agree in writing.
Notwithstanding the foregoing, if (a) the Board of Directors of the Company
shall withdraw or materially modify its recommendation to the stockholders of
the Company to approve this Agreement in accordance with Section 5.2 or (b) the
Company shall terminate this Agreement in accordance with Section 8.1(g), the
Company shall reimburse Parent for up to $500,000 of such expenses actually
incurred by Parent, including without limitation legal, accounting, and
investment banking fees and expenses, promptly after receipt of one or more
statements therefor in reasonable detail; PROVIDED, HOWEVER, that if prior to
the expiration of one year after any such withdrawal, modification or
termination, a merger, consolidation or other business combination, or a tender
or exchange offer, shall occur which effects a change of control of the Company
(an "Alternative Transaction"), on the third business day after the closing of
the Alternative Transaction, the
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Company shall pay to Parent, in lieu of its obligation to make any further
expense reimbursements, an amount equal to the excess of $2,000,000 over the
total expense reimbursements previously made by the Company pursuant to this
sentence.
Section 6.7 REASONABLE EFFORTS. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use all
reasonable 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, including (a) the obtaining of all necessary
actions or non-actions, waivers, consents and approvals from Governmental
Entities and the making of all necessary registrations and filings and the
taking of all reasonable steps as may be necessary to obtain an approval or
waiver from, or to avoid an action or proceeding by any Governmental Entity,
including but not limited to any filing under the Improvements Act, (b) the
obtaining of all necessary consents, approvals or waivers from third parties,
(c) the defending of any lawsuits or other legal proceedings, whether judicial
or administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (d) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by this
Agreement; PROVIDED, HOWEVER, that no party shall be under any obligation to
take any action pursuant to this Section 6.7 to the extent that its Board of
Directors shall conclude in good faith after consultation with the its outside
counsel that such action is inconsistent with such Board of Directors' fiduciary
obligations under applicable law. Notwithstanding anything to the contrary in
this Section 6.7, no party shall commit to any divestiture transaction, or any
other material modification of its existing business or the existing business of
its Significant Subsidiaries, without the prior written consent of all other
parties.
Section 6.8 PUBLIC ANNOUNCEMENTS. Parent and Sub, on the one hand, and the
Company, on the other hand, will consult with each other before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required in the opinion of the issuing party's outside counsel by
applicable law or by obligations pursuant to any listing agreement with the
NYSE, in which case the issuing party shall give the other parties notice
thereof as promptly as practicable.
Section 6.9 REAL ESTATE TRANSFER AND GAINS TAX. Subject to the last
sentence of Section 1.7, Parent and the Company agree that the Surviving
Corporation will pay any real property transfer or gains tax, or similar
transfer tax, if any, attributable to the transfer of the beneficial ownership
of the Company's or its Subsidiaries' real property (collectively, the "Gains
Taxes"), and any penalties or interest with respect to the Gains Taxes, payable
in connection with the consummation of the Merger. The Company agrees to
cooperate with Sub in the filing of any returns with respect to the Gains Taxes,
including supplying in a timely manner a complete list of all real property
interests held by the Company or its Subsidiaries and any information with
respect to such property that is reasonably necessary to complete such returns.
The portion of the Merger consideration allocable to the real property of the
Company and its Subsidiaries shall be determined by Sub or Parent in its
reasonable discretion. The stockholders of the Company shall be deemed to have
agreed to be bound by the allocation established pursuant to this Section 6.9 in
the preparation of any return with respect to the Gains Taxes.
Section 6.10 STATE TAKEOVER LAWS; COMPANY RIGHTS AGREEMENT. If Section 203
of the DGCL shall become applicable to the transactions contemplated hereby, the
Company and the members of the Board of Directors of the Company shall use all
reasonable efforts to grant such approvals and take such actions as are
necessary so that the transactions contemplated hereby may be consummated as
promptly as practicable on the terms contemplated hereby and otherwise act to
minimize the effects of such Section 203 of the DGCL on the transactions
contemplated hereby. The Board of Directors of the Company has amended the
Company Rights Agreement such that neither Parent nor Sub shall
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become an Acquiring Person (as defined in the Company Rights Agreement) as a
result of entering into this Agreement. Immediately prior to the Effective Time,
the Company shall redeem all outstanding Company Rights at a redemption price of
$.01 per Company Right. No other action is required to prevent the holders of
Company Rights from having any right under the Company Rights Agreement as a
result of the execution, delivery and performance of this Agreement and the
consummation of the Merger (other than the right to receive such redemption
price for their respective Company Rights).
Section 6.11 INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE. From and
after the Effective Time, Parent agrees to indemnify and hold harmless all past
and present officers and directors of the Company and of its Subsidiaries to the
full extent such persons may be indemnified by the Company pursuant to the
Company's Certificate of Incorporation and By-Laws for acts or omissions
occurring at or prior to the Effective Time and shall advance reasonable
litigation expenses incurred by such officers and directors in connection with
defending any action arising out of such acts or omissions. In addition, for a
period of not less than six years from the Effective Time, Parent will provide,
or cause the Surviving Corporation to provide, to the Company's current
directors and officers an insurance and indemnification policy that provides
coverage for events occurring through the Effective Time (the "D&O Insurance")
that is no less favorable than the existing policy or, if substantially
equivalent insurance coverage is unavailable, the best available coverage;
PROVIDED, HOWEVER, that Parent and the Surviving Corporation shall not be
required to pay an annual premium for the D&O Insurance in excess of three times
the last annual premium paid prior to the date hereof, but in such case shall
purchase as much coverage as possible for such amount.
Section 6.12 EMPLOYEE BENEFITS. Parent shall cause the Company and its
Subsidiaries (a) to honor all severance and employment agreements with the
officers and employees of the Company or any of its Subsidiaries and (b) to
maintain until at least two (2) years after the Effective Time, employee
benefits, plans, programs and policies for retirees, officers and employees
(including terminated officers and employees) of the Company and any of its
Subsidiaries (including the Company's policies with respect to severance pay and
outplacement services) that are no less favorable than those being provided to
such retirees, officers and employees on the date hereof; PROVIDED, HOWEVER,
that nothing in this sentence shall be construed to be a financial guarantee of
any obligation of the Company or any of its Subsidiaries. For purposes of
eligibility to participate in and vesting in all benefits provided to retirees,
officers and employees, the retirees, officers and employees of the Company and
its Subsidiaries will be credited with their hours and years of service with the
Company and its Subsidiaries and hours and years of service with prior employers
to the extent service with prior employers is taken into account under plans of
the Company and its Subsidiaries.
Section 6.13 JOB VACANCIES. Parent shall maintain at its corporate offices
a listing of job vacancies and newly created positions at Parent and its
Subsidiaries (including the Surviving Corporation and its Subsidiaries), and
upon the request of any officer or employee of the Company or its Subsidiaries
who is terminated as a result of the Merger or within eighteen months following
the Effective Time, shall provide such terminated officer or employee with a
copy of such list of vacancies or positions; PROVIDED, HOWEVER, that Parent and
its Subsidiaries shall have no obligation under this Section 6.13 to hire any
such terminated officer or employee to fill any of such vacancies or positions
or to delay filling any of them until such terminated officer or employee has
received a copy of such list. The service time of any such terminated officer or
employee who accepts employment with Parent or its Subsidiaries will include all
service time with the Company or its Subsidiaries and, in the case of employment
opportunities requiring a relocation of the officer's or employee's place of
residence, such officer or employee will be provided relocation expenses and
reimbursement consistent with Parent's existing reimbursement policy for
transferred or newly hired officers or employees.
Section 6.14 PARENT'S BOARD OF DIRECTORS. Parent's Board of Directors will
take all necessary action to cause Gary G. Dillon to be elected to the Board of
Directors of Parent as soon as practicable after the Effective Time.
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ARTICLE VII
CONDITIONS PRECEDENT TO THE MERGER
Section 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) STOCKHOLDER APPROVALS. This Agreement shall have been approved by
the requisite vote of the holders of Company Common Stock and the Amendment
and the issuance of shares of Parent Common Stock pursuant to this Agreement
shall have been approved by the requisite vote of the holders of Parent
Common Stock.
(b) NYSE LISTING. The Parent Common Stock issuable pursuant to this
Agreement shall have been authorized for listing on the NYSE, upon official
notice of issuance.
(c) IMPROVEMENTS ACT WAITING PERIOD. All applicable waiting periods
under the Improvements Act shall have expired or been terminated.
(d) REGISTRATION STATEMENT. The Registration Statement shall have become
effective in accordance with the provisions of the Securities Act. No stop
order suspending the effectiveness of the Registration Statement shall have
been issued by the SEC and remain in effect. All necessary state securities
or "Blue Sky" authorizations shall have been received.
(e) TAX OPINION. The Company and Parent shall have received a legal
opinion of Sidley & Austin, special counsel to the Company, in form and
substance satisfactory to the Company, dated the Effective Time,
substantially to the effect that, on the basis of facts, representations and
assumptions set forth in such opinion which are consistent with the state of
facts existing as of the Effective Time, for federal income tax purposes:
(i) The Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code and the Company, Parent and Sub will each
be a party to such reorganization within the meaning of Section 368(b) of
the Code;
(ii) No gain or loss will be recognized by the Company as a result of
the Merger;
(iii) No gain or loss will be recognized by the stockholders of the
Company upon the conversion of their Company Common Stock into shares of
Parent Common Stock pursuant to the Merger (except for cash paid in lieu
of a fractional share of Parent Common Stock);
(iv) The aggregate tax basis of the shares of Parent Common Stock
received in exchange for shares of Company Common Stock pursuant to the
Merger (including a fractional share of Parent Common Stock for which
cash is paid) will be the same as the aggregate tax basis of such shares
of Company Common Stock;
(v) The holding period for shares of Parent Common Stock received in
exchange for shares of Company Common Stock pursuant to the Merger will
include the period that such shares of Company Common Stock were held by
the holder, provided such shares of Company Common Stock were held as
capital assets by the holder at the Effective Time; and
(vi) A stockholder of the Company who receives cash in lieu of a
fractional share of Parent Common Stock will recognize gain or loss equal
to the difference, if any, between such stockholder's basis in the
fractional share and the amount of cash received. In rendering such
opinion, Sidley & Austin may receive and rely as to matters of fact upon
representations contained in certificates of the Company, Parent, Sub and
others, and may condition such opinion on the receipt from certain
stockholders of the Company of certificates verifying that such
stockholders have no present plan or intention to sell or dispose of, or
otherwise diminish their equity risk with respect to, the shares of
Parent Common Stock to be distributed to them in the Merger.
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(f) NO ORDER. No Governmental Entity or court of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is then in effect and has the
effect of making this Agreement or the transactions contemplated hereby
illegal.
(g) RESIGNATIONS OF COMPANY DIRECTORS. Each of the directors of the
Company, other than Gary G. Dillon and Robert S. Jepson, Jr., shall have
delivered to the Company his written resignation as a director of the
Company, effective as of the Effective Time.
(h) OTHER APPROVALS. All authorizations, consents, orders, declarations
or approvals of, or filings with, or terminations or expirations of waiting
periods imposed by, any Governmental Entity, the failure to obtain which
would have a Material Adverse Effect on Parent (on a consolidated basis,
assuming the Merger had taken place), shall have been obtained, shall have
occurred or shall have been filed.
Section 7.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) PERFORMANCE OF OBLIGATIONS; REPRESENTATIONS AND WARRANTIES. Parent
and Sub shall have performed in all material respects each of their
agreements contained in this Agreement required to be performed on or prior
to the Effective Time, each of the representations and warranties of Parent
and Sub contained in this Agreement that is qualified by materiality shall
be true and correct on and as of the Effective Time as if made on and as of
such date, each of the representations and warranties that is not so
qualified shall be true and correct in all material respects on and as of
the Effective Time as if made on and as of such date, in each case except as
contemplated or permitted by this Agreement, and Parent shall have furnished
to the Company a certificate, dated the Effective Time, signed by the
Chairman of the Board, the President or an Executive Vice President of
Parent, certifying to the effect that to the best of the signing officer's
knowledge and belief, the conditions set forth in this Section 7.2(a) have
been satisfied in full.
(b) FAIRNESS OPINION. The Company shall have received in form
satisfactory to the Company, an opinion of J. P. Morgan Securities Inc.,
dated as of the date of the Proxy Statement/ Prospectus, substantially to
the effect that the consideration to be received by the stockholders of the
Company in the Merger is fair to such stockholders from a financial point of
view, and as of the Effective Time and based upon circumstances then in
effect such opinion shall not have been withdrawn or modified in any
material respect.
(c) OPINION OF COUNSEL. The Company shall have received a legal opinion
from Rudnick & Wolfe, special counsel to Parent, dated the Effective Time,
substantially to the effect that:
(i) The incorporation, existence and good standing of Parent, Sub
and each of Parent's Significant Subsidiaries are as stated in this
Agreement; the authorized shares of capital stock of Parent, Sub and each
of Parent's Significant Subsidiaries are as stated in this Agreement; all
outstanding shares of Parent Common Stock and all outstanding shares of
capital stock of Parent's Significant Subsidiaries are duly and validly
authorized and issued, fully paid and nonassessable and have not been
issued in violation of any preemptive right of any stockholder of Parent
or any of such Subsidiaries; all of the issued and outstanding shares of
capital stock of Parent's Significant Subsidiaries are owned of record
and, to the knowledge of such counsel, beneficially by Parent or a
wholly-owned Subsidiary of Parent, and such counsel is not aware of any
liens, charges or encumbrances on any of such shares; and to the
knowledge of such counsel, there is no existing option, warrant, right,
call, subscription or other agreement or commitment obligating Parent,
Sub or any of Parent's Significant Subsidiaries to issue or sell, or to
purchase or redeem, any shares of the capital stock of Parent or any of
its Significant Subsidiaries, other than as stated in this Agreement.
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(ii) Each of Parent and Sub has full corporate power and authority to
execute, deliver and perform this Agreement; this Agreement has been duly
authorized, executed and delivered by Parent and Sub; this Agreement
(assuming valid authorization, execution and delivery of this Agreement
by the Company and the enforceability of this Agreement against the
Company) constitutes the legal, valid and binding agreement of Parent and
Sub enforceable against Parent and Sub in accordance with its terms,
except to the extent enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other
similar laws of general applicability relating to or affecting the
enforcement of creditors' rights and by the effect of general principles
of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law) and except that such counsel need express
no opinion with respect to the enforcement of rights to indemnification
against liabilities under the federal securities laws; and the Amendment
and the issuance of shares of Parent Common Stock pursuant to this
Agreement have been duly authorized by all necessary corporate action.
(iii) The execution, delivery and performance by Parent and Sub of
this Agreement will not violate the Certificate of Incorporation or
By-Laws of Parent or of Sub and, to the knowledge of such counsel, will
not violate, result in a breach of or constitute a default under any
material lease, mortgage, contract, agreement, instrument, law, rule,
regulation, judgment, order or decree to which Parent, Sub or any of
Parent's Significant Subsidiaries is a party or by which any of them or
any of their respective properties or assets may be bound, which
violation, breach or default should reasonably be expected to have a
Material Adverse Effect on Parent.
(iv) To the knowledge of such counsel, no consent, approval,
authorization or order of any Governmental Entity which has not been
obtained is required on behalf of Parent, Sub or any of Parent's other
Subsidiaries for the consummation of the transactions contemplated by
this Agreement.
(v) To the knowledge of such counsel, neither Parent nor Sub is
subject to any injunction (whether temporary, preliminary or permanent)
by any court of competent jurisdiction against consummation of the
transactions contemplated by this Agreement.
(vi) Except as set forth in the Parent Disclosure Schedule or the
Parent SEC Documents, to the knowledge of such counsel, there are no
actions, suits or proceedings pending or threatened against Parent or any
of its Subsidiaries before any Governmental Entity or arbitrator which,
individually or in the aggregate, should reasonably be expected to have a
Material Adverse Effect on Parent.
(vii) The shares of Parent Common Stock to be issued pursuant to this
Agreement will be, when so issued, shares of Parent Common Stock that
have been duly authorized and validly issued, are fully paid and
nonassessable and have not been issued in violation of any preemptive
right of any stockholder of Parent.
(viii) The shares of Parent Common Stock issuable pursuant to this
Agreement have been duly listed on the NYSE, subject to official notice
of issuance.
(ix) The Registration Statement has become effective under the
Securities Act and, to the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceeding for such purpose has been instituted or
threatened by the SEC.
(x) (A) At the time the Registration Statement became effective, the
Registration Statement (other than the financial statements, financial
data, statistical data and supporting schedules included therein and
information relating to and supplied by the Company, as to which such
counsel need express no opinion) complied as to form in all material
respects with the requirements of the Securities Act and the Exchange
Act.
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(B) In the course of the preparation of the Registration Statement and
the Proxy Statement/Prospectus, such counsel has considered the
information set forth therein in light of the matters required to be set
forth therein, and has participated in conferences with officers and
representatives of Parent and the Company, including their respective
counsel and independent public accountants, during the course of which
the contents of the Registration Statement and the Proxy
Statement/Prospectus and related matters were discussed. Such counsel has
not independently checked the accuracy or completeness of, or otherwise
verified, and accordingly is not passing upon, and does not assume
responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Proxy
Statement/Prospectus; and such counsel has relied as to materiality, to a
large extent, upon the judgment of officers and representatives of
Parent. However, as a result of such consideration and participation,
nothing has come to such counsel's attention which causes such counsel to
believe that the Registration Statement (other than the financial
statements, financial data, statistical data and supporting schedules
included therein, the section cap-
tioned "Management's Discussion and Analysis of Results of Operations and
Financial Condition" relating to Parent and the information relating to
and supplied by the Company, as to which such counsel need express no
belief), at the time it became effective, contained any untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading
or that the Proxy Statement/ Prospectus (other than the financial
statements, financial data, statistical data and supporting schedules
included therein, the section captioned "Management's Discussion and
Analysis of Results of Operations and Financial Condition" relating to
Parent and information relating to and supplied by the Company, as to
which such counsel need express no belief), at the time the Registration
Statement became effective, at the time of mailing the Proxy
Statement/Prospectus to the respective stockholders of Parent and the
Company or at the time of the Stockholder Meetings, included any untrue
statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(xi) The Amendment and the Certificate of Merger have been duly filed
with the Secretary of State of the State of Delaware and the Amendment
and the Merger have become effective under the DGCL.
In rendering such opinion, Rudnick & Wolfe may rely as to matters of fact
upon the representations of officers of Parent, Sub or any of Parent's
other Subsidiaries contained in any certificate delivered to such counsel
and certificates of public officials. Such opinion shall be limited to
the General Corporation Law of the State of Delaware and the laws of the
United States of America.
(d) OTHER DOCUMENTS. Parent and Sub shall have furnished to the Company
at the Closing such other customary documents, certificates or instruments
as the Company may reasonably request evidencing compliance by Parent and
Sub with the terms of this Agreement.
Section 7.3 CONDITIONS TO OBLIGATIONS OF PARENT AND SUB TO EFFECT THE
MERGER. The obligations of Parent and Sub to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) PERFORMANCE OF OBLIGATIONS; REPRESENTATIONS AND WARRANTIES. The
Company shall have performed in all material respects each of its agreements
contained in this Agreement required to be performed on or prior to the
Effective Time, each of the representations and warranties of the Company
contained in this Agreement that is qualified by materiality shall be true
and correct on and as of the Effective Time as if made on and as of such
date, each of the representations and warranties that is not so qualified
shall be true and correct in all material respects on and as of the
Effective Time as if made on and as of such date, in each case except as
contemplated or permitted by this Agreement, and the Company shall have
furnished to Parent a certificate, dated the
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Effective Time, signed by the Chairman of the Board, the President or a Vice
President of the Company, certifying to the effect that to the best of the
signing officer's knowledge and belief, the conditions set forth in this
Section 7.3(a) have been satisfied.
(b) THIRD PARTY CONSENTS. All required authorizations, consents or
approvals of any third party (other than a Governmental Entity), the failure
to obtain which would have a Material Adverse Effect on Parent (on a
consolidated basis, assuming the Merger had taken place), shall have been
obtained.
(c) REDEMPTION OF RIGHTS. The Company shall have redeemed all
outstanding Company Rights at a redemption price of $.01 per Company Right
immediately prior to the Effective Time.
(d) ACCOUNTING. Based on the advice of Arthur Andersen LLP and such
other advice as Parent may reasonably deem relevant, Parent shall have no
reasonable basis for believing that following the Merger, the combination of
the Company and Sub may not be accounted for as a "pooling of interests" in
accordance with generally accepted accounting principles.
(e) FAIRNESS OPINION. Parent shall have received in form satisfactory to
Parent, an opinion of The Chase Manhattan Bank, N.A., dated as of the date
of the Proxy Statement/Prospectus, substantially to the effect that, as of
such date, the Exchange Ratio was fair to Parent from a financial point of
view, and as of the Effective Time and based upon circumstances then in
effect such opinion shall not have been withdrawn or modified in any
material respect.
(f) OPINION OF COUNSEL. Parent shall have received a legal opinion from
Sidley & Austin, special counsel to the Company, dated the Effective Time,
substantially to the effect that:
(i) The incorporation, existence and good standing of the Company
are as stated in this Agreement and the authorized shares of capital
stock of the Company are as stated in this Agreement.
(ii) The Company has full corporate power and authority to execute,
deliver and perform this Agreement; this Agreement has been duly
authorized, executed and delivered by the Company; and this Agreement
(assuming the valid authorization, execution and delivery of this
Agreement by Parent and Sub and the enforceability of this Agreement
against each of them) constitutes the legal, valid and binding agreement
of the Company enforceable against the Company in accordance with its
terms, except to the extent enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other
similar laws of general applicability relating to or affecting the
enforcement of creditors' rights and by the effect of general principles
of equity (regardless of whether enforceability is considered in a
proceeding in equity or at law).
(iii) The execution, delivery and performance by the Company of this
Agreement will not violate the Certificate of Incorporation or By-laws of
the Company.
(iv) To the knowledge of such counsel, no consent, approval,
authorization or order of any Governmental Entity which has not been
obtained is required on behalf of the Company or any of its Subsidiaries
for the consummation of the transactions contemplated by this Agreement.
(v) To the knowledge of such counsel, the Company is not subject to
any injunction (whether temporary, preliminary or permanent) by any court
of competent jurisdiction against consummation of the transactions
contemplated by this Agreement.
(vi) (A) At the time the Registration Statement became effective, the
information relating to and supplied by the Company contained in the
Registration Statement and the information relating to the transactions
provided for in this Agreement (other than the
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financial statements, financial data, statistical data and supporting
schedules included therein, as to which such counsel need express no
opinion) complied as to form in all material respects with the
requirements of the Securities Act and the Exchange Act.
(B) In the course of the preparation of the Registration Statement and
the Proxy Statement/ Prospectus, such counsel has considered the
information set forth therein in light of the matters required to be set
forth therein, and has participated in conferences with officers and
representatives of the Company and Parent, including their respective
counsel and independent public accountants, during the course of which
the contents of the Registration Statement and the Proxy
Statement/Prospectus and related matters were discussed. Such counsel has
not independently checked the accuracy or completeness of, or otherwise
verified, and accordingly is not passing upon, and does not assume
responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Proxy
Statement/Prospectus; and such counsel has relied as to materiality, to a
large extent, upon the judgment of officers and representatives of the
Company. However, as a result of such consideration and participation,
nothing has come to such counsel's attention which causes such counsel to
believe that the Registration Statement (other than the financial
statements, financial data, statistical data and supporting schedules
included therein, the section captioned "Management's Discussion and
Analysis of Results of Operations and Financial Condition" relating to
the Company and the information relating to and supplied by Parent, as to
which such counsel need express no belief), at the time it became
effective, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Proxy
Statement/Prospectus (other than the financial statements, financial
data, statistical data and supporting schedules included therein, the
section captioned "Management's Discussion and Analysis of Results of
Operations and Financial Condition" relating to the Company and the
information relating to and supplied by Parent, as to which such counsel
need express no belief), at the time the Registration Statement became
effective, at the time of mailing the Proxy Statement/ Prospectus to the
respective stockholders of the Company and Parent or at the time of the
Stockholder Meetings, included any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(xi) The Certificate of Merger has been duly filed with the Secretary
of State of the State of Delaware and the Merger has become effective
under the DGCL.
In rendering such opinion, Sidley & Austin may rely as to matters of fact
upon the representations of officers of the Company and its Subsidiaries
contained in any certificate delivered to such counsel and certificates
of public officials. Such opinion shall be limited to the General
Corporation Law of the State of Delaware and the laws of the United
States of America.
(g) Opinion of other counsel. Parent shall have received a legal opinion
from Schiff, Hardin & Waite, regular outside counsel to the Company, dated
the Effective Time, substantially to the effect that:
(i) The incorporation, existence, good standing and the authorized
shares of capital stock of each of the Company's Significant Subsidiaries
are as stated in this Agreement.
(ii) All of the outstanding shares of Company Common Stock and all of
the outstanding shares of capital stock of the Company's Significant
Subsidiaries (A) are duly and validly authorized and issued, fully paid
and nonassessable and have not been issued in violation of any preemptive
right of any stockholder of the Company or any of such Subsidiaries and
(B), in the case of such shares of the Company's Significant
Subsidiaries, are owned of record and, to the knowledge of such counsel,
beneficially by the Company or a wholly-owned Subsidiary of the Company,
and such counsel is not aware of any liens, charges or encumbrances on
any of such shares.
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(iii) To the knowledge of such counsel, there is no existing option,
warrant, right, call, subscription or other agreement or commitment
obligating the Company or any of its Significant Subsidiaries to issue or
sell, or to purchase or redeem, any shares of capital stock of the
Company or any of its Significant Subsidiaries, other than as stated in
this Agreement.
(iv) To the knowledge of such counsel, the execution, delivery and
performance by the Company of this Agreement will not violate, result in
a breach of or constitute a default under any material lease, mortgage,
contract, agreement, instrument, law, rule, regulation, judgment, order
or decree to which the Company or any of its Significant Subsidiaries is
a party or to which any of them or any of their respective properties or
assets may be bound, which violation, breach or default should reasonably
be expected to have a Material Adverse Effect on the Company.
(v) Except as set forth in the Company Disclosure Schedule or the
Company SEC Documents, to the knowledge of such counsel, there are no
actions, suits or proceedings pending or threatened against the Company
or any of its Subsidiaries before any Governmental Entity or arbitrator
which, individually or in the aggregate, should reasonably be expected to
have a Material Adverse Effect on the Company.
(vi) In the course of the preparation of the Registration Statement
and the Proxy Statement/Prospectus, such counsel has considered the
information set forth therein in light of the matters required to be set
forth therein, and has participated in conferences with officers and
representatives of the Company and Parent, including their respective
counsel and independent public accountants, during the course of which
the contents of the Registration Statement and the Proxy
Statement/Prospectus and related matters were discussed. Such counsel has
not independently checked the accuracy or completeness of, or otherwise
verified, and accordingly is not passing upon, and does not assume
responsibility for, the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Proxy
Statement/Prospectus; and such counsel has relied as to materiality, to a
large extent, upon the judgment of officers and representatives of the
Company. However, as a result of such consideration and participation,
nothing has come to such counsel's attention which causes such counsel to
believe that the Registration Statement (other than the financial
statements, financial data, statistical data and supporting schedules
included therein, the section captioned "Management's Discussion and
Analysis of Results of Operations and Financial Condition" relating to
the Company and the information relating to and supplied by Parent, as to
which such counsel need express no belief), at the time it became
effective, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Proxy
Statement/Prospectus (other than the financial statements, financial
data, statistical data and supporting schedules included therein, the
section captioned "Management's Discussion and Analysis of Results of
Operations and Financial Condition" relating to the Company and the
information relating to and supplied by Parent, as to which such counsel
need express no belief), at the time the Registration Statement became
effective, at the time of mailing of the Proxy Statement/Prospectus to
the respective stockholders of the Company and Parent or at the time of
the Stockholder Meetings, included any untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
In rendering such opinion, Schiff Hardin & Waite may rely as to matters
of fact upon the representations of officers of the Company and its
Subsidiaries contained in any certificate delivered to such counsel and
certificates of public officials. Such opinion shall be limited to the
General Corporation Law of the State of Delaware and the laws of the
United States of America. With respect to matters governed by the laws of
Brazil, Canada and the United Kingdom, such counsel may rely upon the
opinions of (i) Eduardo Caio da Silva Prado, (ii) Blake, Cassels &
Greydon and (iii) Lovell, White and Durrant, respectively.
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<PAGE>
(h) OTHER DOCUMENTS. The Company shall have furnished to Parent at the
closing such other customary documents, certificates or instruments as
Parent may reasonably request evidencing compliance by the Company with the
terms of this Agreement.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after any approval of this
Agreement by the stockholders of the Company or any approval of the Amendment
and the issuance of Parent Common Stock pursuant to this Agreement by the
stockholders of Parent:
(a) by mutual written consent of Parent and the Company;
(b) by Parent if (i) the Company shall have failed to comply in any
material respect with any of its covenants or agreements contained in this
Agreement required to be complied with by the Company prior to the date of
such termination and such failure shall not have been cured within five
business days following receipt by the Company from Parent of written notice
of such failure and demand for cure, (ii) the stockholders of the Company
shall have failed to approve this Agreement at the Company's Stockholder
Meeting, or (iii) the stockholders of Parent shall have failed to approve
the Amendment and the issuance of Parent Common Stock pursuant to this
Agreement at Parent's Stockholder Meeting.
(c) by the Company if (i) Parent or Sub shall have failed to comply in
any material respect with any of its covenants or agreements contained in
this Agreement required to be complied with by Parent or Sub prior to the
date of such termination, and such failure to comply shall not have been
cured within five business days following receipt by Parent from the Company
of written notice of such failure and demand for cure, (ii) the stockholders
of the Company shall have failed to approve this Agreement at the Company's
Stockholder Meeting, or (iii) the stockholders of Parent shall have failed
to approve the Amendment and the issuance of Parent Common Stock pursuant to
this Agreement at the Parent's Stockholder Meeting;
(d) by either Parent or the Company if (i) the Merger has not been
effected on or prior to the close of business on September 30, 1995;
PROVIDED, HOWEVER, that the right to terminate this Agreement pursuant to
this clause shall not be available to any party whose failure to fulfill any
obligation of this Agreement has been the cause of, or resulted in, the
failure of the Merger to have been effected on or prior to such date, or
(ii) any court of competent jurisdiction shall have issued an order, decree
or ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the transactions contemplated by this Agreement and
such order, decree, ruling or other action shall have become final and
nonappealable;
(e) by either Parent or the Company if there has been (i) a material
breach by the other of any of its representations or warranties contained in
this Agreement that is not qualified as to materiality or (ii) any breach by
the other of any of its representations or warranties contained in this
Agreement that is qualified as to materiality, and in each case such breach
shall not have been cured within five business days following receipt by the
breaching party from the other party of written notice of such breach and
demand for cure;
(f) by Parent, (i) if the Board of Directors of the Company shall not
have recommended, or shall have resolved not to recommend, or shall have
materially modified or withdrawn its recommendation of the Merger or (ii) if
the Board of Directors of the Company shall have recommended, or shall have
resolved to recommend, to the stockholders of the Company any takeover
proposal or offer of any other person;
(g) by the Company if there is a takeover proposal or offer relating to
(i) a tender or exchange offer for all or substantially all of the
outstanding shares of Company Common Stock,
A-33
<PAGE>
(ii) a merger, consolidation or other business combination involving the
Company, or (iii) an acquisition of all or substantially all of the
outstanding shares of Company Common Stock or all or substantially all of
the assets of the Company, in each case for a consideration that provides to
the stockholders of the Company a value per share of Company Common Stock
which, in the good faith judgment of the Board of Directors of the Company,
provides a higher value per share than the consideration per share pursuant
to this Agreement;
(h) by the Company, if the average of the daily closing prices of a
share of Parent Common Stock reported as "New York Stock Exchange Composite
Transactions" by THE WALL STREET JOURNAL (Midwest Edition) during the 20
consecutive trading day period ending at the end of the third trading day
prior to the Stockholder Meetings (the "Average Parent Common Stock Price'),
is less than $11.00; or
(i) by Parent, if the Average Parent Common Stock Price is more than
$16.00.
Section 8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Parent or the Company, as provided in Section 8.1, this
Agreement shall forthwith become void and there shall be no liability hereunder
on the part of the Company, Parent or Sub or their respective officers or
directors (except as set forth in the last two sentences of Section 6.3(a) the
last two sentences of Section 6.3(b) and Section 6.6, which shall survive such
termination); PROVIDED, HOWEVER, that nothing contained in this Section 8.2
shall relieve any party hereto from any liability for any breach of this
Agreement.
Section 8.3 AMENDMENT. This Agreement may be amended by the parties
hereto, by or pursuant to action taken by their respective Boards of Directors,
at any time before or after approval of this Agreement by the stockholders of
the Company or the approval of the Amendment and the issuance of shares of
Parent Common Stock pursuant to this Agreement by the stockholders of Parent,
but, after any such approval by the stockholders of the Company or the
stockholders of Parent, no amendment shall be made which changes the Exchange
Ratio as provided in Section 1.5(c) or which in any way materially adversely
affects the rights of the stockholders of the Company or the stockholders of
Parent, as the case may be, 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 hereto.
Section 8.4 WAIVER. At any time prior to the Effective Time, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein which may legally be waived. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
A-34
<PAGE>
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 NON-SURVIVAL 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.
Section 9.2 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been given
or delivered when delivered personally, when telecopied (with a confirmatory
copy sent by private overnight courier) or one day after being sent by private
overnight courier 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 Parent or Sub, to
Kuhlman Corporation
1 Skidaway Village Walk
Suite 201
Savannah, GA 31411
Attention: Chairman and Chief
Executive Officer
(Telecopy No. (912) 598-0737)
with copies to:
Stephen A. Landsman
Rudnick & Wolfe
203 North La Salle Street
Chicago, IL 60601
(Telecopy No. (312) 984-2299)
(b) if to the Company, to
Schwitzer, Inc.
Highway 191
Brevard Road
P. O. Box 15075
Asheville, NC 28813
Attention: Chairman, President and
Chief Executive Officer
(Telecopy No. (704) 684-4017)
with copies to:
Thomas A. Cole
Sidley & Austin
One First National Plaza
Chicago, IL 60603
(Telecopy No. (312) 853-7036)
and
Robert J. Minkus
Schiff, Hardin & Waite
7200 Sears Tower
Chicago, IL 60606
(Telecopy No. (312) 258-5600)
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<PAGE>
Section 9.3 INTERPRETATION. When a reference is made in this Agreement to
a Section, such reference shall be to a Section of 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.'
Section 9.4 COUNTERPARTS. This Agreement may be executed in 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 9.5 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement, including the documents and instruments referred to herein, and the
letter agreement dated January 9, 1995 between Parent and the Company (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and (b) except for provisions of Sections 6.9, 6.11, 6.12
and 6.13, is not intended to confer upon any person other than the parties any
rights or remedies hereunder.
Section 9.6 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 conflicts of
laws thereof.
Section 9.7 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
Section 9.8 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced because of 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 are 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 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 in
order that such transactions shall be consummated as originally contemplated to
the fullest extent possible.
Section 9.9 ENFORCEMENT OF THIS AGREEMENT. The parties agree that
irreparable damage would occur 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 each party shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which such party is entitled at law or in equity.
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<PAGE>
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized, all as of
the date first written above.
KUHLMAN CORPORATION
By /S/ ROBERT S. JEPSON, JR.
------------------------------------
Name: Robert S. Jepson, Jr.
Title: Chairman and Chief Executive
Officer
Attest:
/S/ RICHARD A. WALKER
- --------------------------------------
Name: Richard A. Walker
Title: Secretary
SPINNER ACQUISITION CORP.
By /S/ ROBERT S. JEPSON, JR.
------------------------------------
Name: Robert S. Jepson, Jr.
Title: Chairman and Chief Executive
Officer
Attest:
/S/ RICHARD A. WALKER
- --------------------------------------
Name: Richard A. Walker
Title: Secretary
SCHWITZER, INC.
By /S/ GARY G. DILLON
------------------------------------
Name: Gary G. Dillon
Title: Chairman, President
and Chief Executive Officer
Attest:
/S/ RICHARD H. PRANGE
- --------------------------------------
Name: Richard H. Prange
Title: Secretary
A-37
<PAGE>
FORM OF CERTIFICATE OF MERGER
CERTIFICATE OF MERGER
MERGING
SPINNER ACQUISITION CORP.
WITH AND INTO
SCHWITZER, INC.
PURSUANT TO SECTION 251 OF THE
DELAWARE GENERAL CORPORATION LAW
The undersigned corporation, organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY AS
FOLLOWS:
FIRST: That the name of and state of incorporation of each of the
constituent corporations in the merger is as follows:
NAME STATE OF INCORPORATION
Spinner Acquisition Corp. Delaware
Schwitzer, Inc. Delaware
SECOND: That an Agreement and Plan of Merger dated as of February 25,
1995 (the "Merger Agreement") among Kuhlman Corporation, a Delaware
corporation, Spinner Acquisition Corp., a Delaware corporation, and
Schwitzer, Inc. has been approved, adopted, certified, executed and
acknowledged by each of the constituent corporations in accordance with
Section 251 of the General Corporation Law of the State of Delaware.
THIRD: That Schwitzer, Inc. shall be the surviving corporation (the
"Surviving Corporation").
FOURTH: That the certificate of incorporation of Schwitzer, Inc. will
be the certificate of incorporation of the Surviving Corporation.
FIFTH: That an executed copy of the Merger Agreement is on file at the
principal place of business of the Surviving Corporation, Schwitzer, Inc.,
the address of which is:
Schwitzer, Inc.
Highway 191, Brevard Road
P.O. Box 15075
Asheville, NC 28813
SIXTH: That a copy of the Merger Agreement will be furnished by the
Surviving Corporation, on request and without cost, to any stockholder of
any constituent corporation.
IN WITNESS WHEREOF, Schwitzer, Inc. has caused this Certificate of Merger to
be signed by ________ ________, its ________ ________, and attested by ________
________, its ________ Secretary, this __ day of _________ __, 1995.
SCHWITZER, INC., a Delaware
corporation
By: __________________________________
Its: _____________________________
ATTEST:
______________________________________
Name: ________________________________
Its: _______________________ Secretary
A-38
<PAGE>
APPENDIX B
OPINION OF THE CHASE MANHATTAN BANK, N.A.
February 25, 1995
Board of Directors
Kuhlman Corporation
One Skidaway Village Walk
Suite 201
Savannah, Georgia 31411
Members of the Board:
You have asked us to advise you with respect to the fairness, from a
financial point of view, to Kuhlman Corporation ("Kuhlman") of the consideration
proposed to be paid by Kuhlman pursuant to the terms of the Agreement and Plan
of Merger dated as of February 25, 1995 (the "Merger Agreement"), among Kuhlman,
Spinner Acquisition Corp., a wholly owned subsidiary of Kuhlman ("Sub"), and
Schwitzer, Inc. ("Schwitzer"). As more fully described in the Merger Agreement,
Sub will be merged with and into Schwitzer (the "Merger") and each outstanding
share of the common stock, par value $0.10 per share, of Schwitzer (the
"Schwitzer Common Stock") will be converted into 0.9615 (the "Exchanged Ratio")
of a share of the common stock, par value $1.00 per share, of Kuhlman (the
"Kuhlman Common Stock").
In arriving at our opinion, we have reviewed the Merger Agreement and
certain publicly available business and historical financial information
relating to Kuhlman and Schwitzer. We also have reviewed certain other
information provided to us by Kuhlman and Schwitzer, including financial
forecasts prepared by Kuhlman and Schwitzer, and have had discussions with
representatives of Kuhlman and Schwitzer concerning the businesses and prospects
of Kuhlman and Schwitzer, including information relating to certain potential
strategic and financial implications of the Merger. We also have considered
certain financial and stock market data of Kuhlman and Schwitzer and have
compared that data with similar data for other publicly held companies in
businesses which we deemed comparable to those of Kuhlman and Schwitzer and we
have considered, to the extent publicly available, the financial terms of
certain other similar transactions recently effected which we deemed relevant in
evaluating the Merger. We also have considered the pro forma effect of the
Merger on Kuhlman and such other information, financial studies, analyses and
investigations and financial, economic and market criteria as we have deemed
relevant for purposes of our opinion. Our opinion is necessarily based on
information available to us, and economic and market conditions and other
circumstances as they exist and can be evaluated, on the date hereof.
In connection with our review, we have assumed and relied without
independent verification upon the accuracy and completeness of all information
reviewed by us. With respect to the financial forecasts reviewed by us, we have
been advised by the managements of Kuhlman and Schwitzer that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of Kuhlman and Schwitzer as to the future
financial performance of their respective companies and the potential strategic
and financial implications of the Merger. We have assumed, with your consent,
that the Merger will be treated as a pooling of interests in accordance with
generally accepted accounting principles and as a tax-free reorganization for
federal income tax purposes. We were not requested to, and did not, participate
in the negotiation or structuring of the Merger, nor have we made or obtained an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of Kuhlman or Schwitzer. Our opinion relates to the relative values
of Kuhlman and Schwitzer. We are not expressing any opinion as to what the value
of the Kuhlman Common Stock actually will be when issued to Schwitzer
stockholders pursuant to the Merger or the price at which the Kuhlman Common
Stock will trade subsequent to the Merger.
B-1
<PAGE>
We have acted as financial advisor to Kuhlman with respect to this opinion
and will receive a fee for such services, a significant portion of which is
payable upon the delivery of this opinion. We also have in the past provided,
and are currently providing, commercial banking and other services to Kuhlman
and its affiliates unrelated to the Merger, including acting as Managing Agent
for, and participating as a syndicate member in, a $78 million bank credit
facility made available to Kuhlman in connection with its acquisition of Coleman
Holding Company, and have received, and will receive, fees for the rendering of
such services.
In the ordinary course of business, Chase and its affiliates may actively
trade the securities of Kuhlman and Schwitzer for their own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
This letter is for the information of the Board of Directors of Kuhlman only
in connection with its evaluation of the proposed Merger and does not constitute
a recommendation to any stockholder as to how such stockholder should vote on
the proposed Merger. This letter may not be quoted or referenced to, in whole or
in part, in any manner, nor shall this letter be used for any other purposes,
without Chase's prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair to Kuhlman from a financial point of
view.
Very truly yours,
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
B-2
<PAGE>
APPENDIX C
OPINION OF J.P. MORGAN SECURITIES INC.
April __, 1995
The Board of Directors
Schwitzer, Inc.
Attn: Gary G. Dillon
Chairman of the Board
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of Schwitzer, Inc. (the "Company") of the
consideration to be received from Kuhlman Corporation ("Kuhlman") pursuant to
the terms and subject to the conditions of the proposed merger (the "Merger")
contemplated by the Agreement and Plan of Merger dated February 25, 1995 (the
"Agreement") by and among the Company and Kuhlman. The Agreement provides that
at the effective time of the Merger, each share of the Company's Common Stock,
par value $.10 per share, shall be converted into the right to receive, without
interest, 0.9615 (the "Exchange Ratio") of a share of the common stock, par
value $1.00 per share, of Kuhlman.
In arriving at our opinion, we have reviewed (i) the Agreement; (ii) certain
publicly available information concerning the business of the Company, Kuhlman,
and certain other companies engaged in businesses comparable to the Company and
Kuhlman, and the reported market prices for certain other companies' securities
deemed comparable; (iii) publicly available terms of certain transactions
involving companies comparable to the Company and Kuhlman and the consideration
received for such companies; (iv) current and historical market prices of the
common stock of the Company and of Kuhlman; (v) the audited financial statements
of the Company and Kuhlman for the fiscal year ended December 31, 1993 and the
unaudited financial statements of the Company and of Kuhlman for the period
ended December 31, 1994; (vi) certain internal financial analyses and forecasts
prepared by the Company and Kuhlman and their respective managements; and (vii)
the terms of other business combinations that we have deemed relevant; and
(viii) the currently contemplated capital structure and the anticipated credit
standing of the merged companies upon consummation of the merger.
In addition, we have held discussions with certain members of the management
of the Company, and Kuhlman, with respect to certain aspects of the Merger, and
the past and current business operations of the Company and Kuhlman, the
financial condition and future prospects and operations of the Company and
Kuhlman, the effects of the Merger on the financial condition and future
prospects of the merged company, and certain other matters we believed necessary
or appropriate to our inquiry. We have visited certain representative facilities
of the Company, and Kuhlman, and reviewed such other financial studies and
analyses and considered such other information as we deemed appropriate for the
purposes of this opinion. J.P. Morgan was not authorized to and did not solicit
any expressions of interest from any other parties with respect to the sales of
all or any part of the stock, assets or business of the Company.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company and Kuhlman or otherwise
reviewed by us. We have not verified the accuracy or completeness of any such
information and we have not conducted any evaluation or appraisal of any assets
or liabilities, nor have any such evaluations or appraisals been provided to us.
In relying on financial analyses and forecasts provided to us, we have assumed
that they have been reasonably prepared based on assumptions reflecting the best
currently available estimates and judgments by management of the Company and
Kuhlman, respectively as to the expected future results of operations and
financial condition to which such analyses or forecasts relate.
Our opinion is necessarily based on economic, market and other conditions as
in effect on, and the information made available to us as of, the date hereof.
It should be understood that subsequent
C-1
<PAGE>
developments may affect this opinion and that we do not have any obligation to
update, revise or reaffirm this opinion. In particular, we are expressing no
opinion herein as to the price at which the common stock of Kuhlman will trade
at any future time. The actual value of the shares of common stock of Kuhlman to
be issued in exchange for each share of common stock of the Company pursuant to
the Merger may vary significantly. Other factors after the date hereof may
affect the value of the businesses of the Company and Kuhlman after consummation
of the Merger, including but not limited to (i) the total or partial disposition
of the common stock of Kuhlman by shareholders of the Company within a short
period of time after the effective date of the Merger, (ii) changes in
prevailing interest rates and other factors which generally influence the price
of securities, (iii) adverse changes in the current capital markets, (iv) the
occurrence of adverse changes in the financial condition, business, assets,
results of operations or prospects of the Company or Kuhlman, (v) any necessary
actions by or restriction of federal, state or other governmental agencies or
regulatory authorities, and (vi) timely execution of all necessary agreements to
complete the Merger on terms and conditions that are acceptable to all parties
at interest.
Our opinion addresses only the fairness from a financial point of view of
the consideration to be received by the stockholders of the Company pursuant to
the Merger. We do not express any views on any other terms of the Agreement or
any related agreements or arrangements, including any transactions which might
occur among Kuhlman and any stockholders of the Company after the Merger.
We have acted as financial advisor to the Company with respect to the
proposed Merger and will receive a fee from the Company for our services. We
will also receive an additional fee if the proposed Merger is consummated. We
have acted as financial advisor to the Company since 1990. In the ordinary
course of their businesses, affiliates of the undersigned may actively trade the
debt and equity securities of the Company or Kuhlman, for their own accounts, or
for the accounts of customers, and accordingly, may at any time hold a long or
short position in such securities.
On the basis of and subject to the foregoing, it is our opinion as of the
date hereof that the consideration to be received by the stockholders of the
Company pursuant to the Merger is fair, from a financial point of view, to the
stockholders of the Company.
This letter is provided solely for the benefit of the Board of Directors of
the Company in connection with and for the purposes of, their consideration of
the Merger, and is not on behalf of, and shall not confer rights or remedies
upon, any stockholder of the Company or Kuhlman, or any other person other than
the Board of Directors of the Company or be used for any other purpose. This
opinion may not be used or relied upon by, or disclosed, referred to or
communicated by you (in whole or in part) to any third party for any purpose
whatsoever except with our prior written consent in each instance. This opinion
may be reproduced in full in any proxy or information statement mailed to
stockholders of the Company but may not otherwise be disclosed publicly in any
manner without our prior written approval and must be treated as confidential.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By: __/S/ FREDERIC A.
ESCHERICH__
Name: Frederic A.
Escherich
Title: Managing Director
By: ___/S/ FRANCIS P. CARR__
Name: Francis P. Carr
Title: Vice President
C-2
<PAGE>
APPENDIX D
KUHLMAN AMENDMENT
The proposed Kuhlman Amendment would amend Paragraph (B) of Article Fourth
of the Certificate of Incorporation of Kuhlman Corporation to read in its
entirety as follows:
"(B) 20,000,000 shares of Common Stock of the par value of $1.00 per share
(the "Common Stock")."
The proposed Kuhlman Amendment would also delete Part II of Article Fourth
of the Certificate of Incorporation of Kuhlman Corporation in its entirety and
renumber Part III and Part IV of Article Fourth as Part II and Part III,
respectively.
D-1
<PAGE>
APPENDIX E
KUHLMAN CORPORATION
1994 STOCK OPTION PLAN
1. PURPOSE. The Kuhlman Corporation 1994 Stock Option Plan (the "Plan")
is intended as an incentive and to encourage ownership of the Company's Common
Stock (the "Stock") by certain key employees of Kuhlman Corporation (the
"Company") and its Subsidiaries (corporations of which a majority of its stock
is owned directly or indirectly by the Company) in order to increase their
proprietary interest in the Company's success and to assure their continuation
as employees.
2. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee (the "Committee") consisting of not less than three directors of the
Company appointed by its Board of Directors. Members of the Committee shall
serve at the pleasure of, and vacancies occurring in the membership of the
Committee shall be filled through appointment by, the Board of Directors. No
person may be a member of the Committee if he or she has been, within one year
prior to his or her appointment to the Committee, or at any time during his or
her service on the Committee, allocated Stock or granted Stock options pursuant
to the Plan or any other plan of the Company or any of its Subsidiaries to the
extent such allocation or grant would cause such person to fail to be a
"disinterested person" under Rule 16b-3 under the Securities Exchange Act of
1934, as amended, as such Rule may be amended from time to time ("Rule 16b-3");
provided, however, that membership on the Committee shall not affect or impair
any rights of a member with respect to any Stock allocated or Stock options
granted to him or her when he or she was not a member of the Committee.
The Committee shall keep minutes of its meetings. A majority of the
Committee shall constitute a quorum thereof and the acts of a majority of the
members present at any meeting of the Committee at which a quorum is present, or
acts approved in writing by the entire Committee, shall be the acts of the
Committee.
The Committee may make such rules and regulations and establish such
procedures for the administration of the Plan as it deems appropriate. The
interpretation and application of the Plan or of any term or condition of an
option granted under the Plan or of any rule, regulation or procedure, and any
other matter relating to or necessary to the administration of the Plan, shall
be determined by the Committee, and any such determination shall be final and
binding upon all persons. No member of the Committee shall be liable for any
action or determination made in good faith.
3. STOCK. Shares of Stock to be optioned or issued under the Plan may be
either authorized and unissued shares or issued shares which shall have been
reacquired by the Company, provided that the total amount of Stock on which
options may be granted or which may be issued under the Plan shall not exceed
500,000 shares. Such number of shares is subject to adjustment in accordance
with the provisions of Section 6 hereof. In the event that any outstanding
option or portion thereof expires or is cancelled, surrendered or terminated for
any reason, the shares of Stock allocable to the unexercised portion of such
option may again be subjected to an option to be issued under the Plan.
4. AWARD OF OPTIONS. The Committee may grant options to purchase Stock to
officers and other key employees of the Company or its Subsidiaries, including
directors who are full time employees. However, no officer or key employee shall
be granted options in any year to purchase more than 100,000 shares of the
Stock. The Committee shall have the discretion, in accordance with the
provisions of the Plan, to determine to whom an option is granted, the number of
shares of Stock optioned and the terms and conditions of the option. In making
such determinations, the Committee shall consider the position and
responsibilities of the employee, the nature and value to the Company of his or
her services and accomplishments, his or her present and potential contribution
to the success of the Company, and such other factors as the Committee may deem
relevant.
Each option granted under the Plan shall be designated by the Committee at
the time of grant as either an incentive stock option (an "Incentive" option) or
a non-qualified stock option (a "Non-Qualified" option). An Incentive option is
intended to meet the requirements of Section 422 of the
E-1
<PAGE>
Internal Revenue Code of 1986, as amended (the "Code"). The aggregate Fair
Market Value (determined at the time the option is granted) of the Stock as to
which Incentive options are exercisable for the first time by the optionee
during any calendar year shall not exceed $100,000 (as determined in accordance
with the rules set forth in Section 422 of the Code).
Options granted under the Plan shall be subject to and governed by the
provisions of the Plan and by the terms and conditions set forth in Section 5
hereof and by such other terms and conditions, not inconsistent with the Plan,
as shall be determined by the Committee.
The date on which an option shall be granted shall be the date that the
optionee, the number of shares of Stock optioned and the terms and conditions of
the option are determined by the Committee, provided, however, that if an option
or any term or condition of an option is rejected or not accepted by an optionee
or if an option is not granted in accordance with the provisions of the Plan,
such option shall be deemed to have not been granted and shall be of no effect.
Each option shall be evidenced by a Stock Option Agreement in such form as the
Committee may from time to time approve.
5. TERMS AND CONDITIONS OF OPTIONS.
A. OPTION PRICE. In the case of each option granted under the Plan, the
option price shall not be less than the Fair Market Value of the Stock on the
date of grant of such option. Fair Market Value for purposes of the Plan shall
be deemed to be the closing price on the date in question rounded, if necessary,
to the next full one cent, or on the next preceding day on which there were such
sales of Stock if no such sales shall have been made on the date in question, as
reported on the New York Stock Exchange Composite Transactions reporting system.
B. PERIOD OF OPTION AND WHEN EXERCISABLE.
(i) An option granted under the Plan may not be exercised after the earlier
of (a) the date specified by the Committee, which shall be a maximum of 10 years
from date of grant, or (b) the applicable time limit specified in paragraph (ii)
of this Section 5B. Any option not exercised within the aforementioned time
periods shall automatically terminate at the expiration of such period.
(ii) An option may be exercised by an optionee only while such optionee is
in the employ of the Company or a Subsidiary or within three months thereafter;
provided, however, if termination of employment results from death or total and
permanent disability, such three-month period shall be extended to twelve
months.
(iii) In the event of the disability of an optionee, an option which is
otherwise exercisable may be exercised by the optionee's legal representative or
guardian. In the event of the death of the optionee, an option which is
otherwise exercisable may be exercised by the person or persons whom the
optionee shall have designated in writing on forms prescribed by and filed with
the Committee ("Beneficiaries"), or, if no such designation has been made, by
the person or persons to whom the optionee's rights shall have passed by Will or
the laws of descent and distribution ("Successor"). The Committee may require an
indemnity and/or such evidence or other assurances as it may deem necessary in
connection with an exercise by a legal representative, guardian, Beneficiary or
Successor.
(iv) Notwithstanding anything contained herein to the contrary, all rights
with respect to all options of an optionee are subject to the conditions that
the optionee not engage or have engaged (a) in fraud, dishonesty, conduct in
violation of Company policy or similar acts at any time while in the employ of
the Company or a Subsidiary, or (b) in an activity directly or indirectly in
competition with any business of the Company or a Subsidiary, or in other
conduct detrimental to the best interests of the Company or a Subsidiary,
following the optionee's termination of employment. If it is determined by the
Committee in its sole discretion or the Committee's designee (which
determination of such designee shall be subject to ratification by the
Committee), either before or after termination of employment of an optionee,
that there has been a failure of any such condition, all options and all rights
with respect to all options granted to such optionee shall immediately terminate
and be null and void.
E-2
<PAGE>
C. EXERCISE AND PAYMENT.
(i) Subject to the provisions of Section 5B, an option may be exercised by
notice (in the form prescribed by the Committee) to the Company specifying the
number of shares to be purchased. Payment for the number of shares of Stock
purchased upon the exercise of an option shall be made in full at the price
provided for in the applicable Stock Option Agreement. Such purchase price shall
be paid by the delivery to the Company of cash (including check or similar
draft) in United States dollars or whole shares of Stock that have been held by
the optionee for at least six months prior to the date the option is exercised,
or a combination thereof. Shares of Stock used in payment of the purchase price
shall be valued at their Fair Market Value as of the date notice of exercise is
received by the Company. Any shares of Stock delivered to the Company shall be
in such form as is acceptable to the Company.
(ii) The Company may defer making payment or delivery of Stock under the
Plan until satisfactory arrangements have been made for the payment of any tax
attributable to exercise of the option. The Committee may, in its sole
discretion, permit an optionee to elect, in such form and at such time as the
Committee may prescribe, to pay all or a portion of all taxes arising in
connection with the exercise of an option by electing to (a) have the Company
withhold whole shares of Stock, or (b) deliver other whole shares of Stock
previously owned by the optionee having a Fair Market Value not greater than the
amount to be withheld; provided, however, that the amount to be withheld shall
not exceed the optionee's estimated total Federal, State and local tax
obligations associated with the transaction.
D. NONTRANSFERABILITY. No option or any rights with respect thereto shall
be subject to any debts or liabilities of an optionee, nor be assignable or
transferable except by Will or the laws of descent and distribution, nor be
exercisable during the optionee's lifetime other than by him or her, nor shall
Stock be issued in the name of one other than the optionee; provided, however,
that an option may after the death or disability of an optionee be exercised
pursuant to paragraph (iii) of Section 5B; and provided further that any Stock
issued to an optionee hereunder may at the request of the optionee be issued in
the name of the optionee and one other person, as joint tenants with right of
survivorship and not as tenants in common, or in the name of a trust for the
benefit of the optionee or for the benefit of the optionee and others.
Notwithstanding the foregoing provisions as to nontransferability, the
Committee may, in its sole discretion, permit an optionee to transfer a
Non-Qualified option to members of the optionee's immediate family, including
trusts for the benefit of such family members and partnerships in which such
family members are the only partners; provided, however, in no event may the
Committee permit any transfers which would cause the Plan to fail to satisfy the
applicable requirements of Rule 16b-3 under the Securities Exchange Act of 1934
("Act") or would cause any optionee to fail to be entitled to the benefits of
Rule 16b-3 or other exemptive rules under Section 16 of the Act or be subject to
liability thereunder. The transferee of an option shall agree to comply with and
be bound by all the terms and conditions contained in the Plan. For purposes of
Section 5B hereof, a transferred option may be exercised by the transferee only
to the extent that the optionee of such option would have been entitled to
exercise the option had the option not been transferred.
E. EMPLOYMENT. No provision of the Plan, nor any term or condition of any
option, nor any action taken by the Committee, the Company or a Subsidiary
pursuant to the Plan, shall give or be construed as giving an optionee any right
to be retained in the employ of the Company or of any Subsidiary, or affect or
limit in any way the right of the Company or any Subsidiary to terminate the
employment of any optionee.
F. TERMINATION OF OPTION BY OPTIONEE. An optionee may at any time elect,
in a written notice filed with the Committee, to terminate a Non-Qualified
option with respect to any number of shares as to which such option shall not
have been exercised.
6. ADJUSTMENTS. If there is any change in the number of shares of Stock
through the declaration of stock dividends, or recapitalization resulting in
stock splits, or combinations or exchanges of
E-3
<PAGE>
such shares or similar corporate transactions, or if the Committee otherwise
determines that, as a result of a corporate transaction involving a change in
the Company's capitalization, it is appropriate to effect the adjustments
described in this section, the aggregate number of shares of Stock on which
options may be granted or which may be issued under the Plan, the number of
shares covered by each outstanding option, and the price per share in each
option, shall all be proportionately adjusted by the Committee; provided,
however, that any fractional shares resulting from such adjustment shall be
eliminated. Subject to any required action by stockholders, if a new option is
substituted for the option granted hereunder, or an assumption of the option
granted hereunder is made, by reason of a corporate merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation, the
option granted hereunder shall pertain to and apply to the securities to which a
holder of the number of shares of Stock subject to the option would have been
entitled.
7. TERM OF PLAN. No Stock option shall be granted under the Plan after
July 28, 2004. Options granted prior thereto, however, may extend beyond such
date and the provisions of the Plan shall continue to apply thereto.
8. APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Stock pursuant to options granted under the Plan will be used for
general corporate purposes.
9. NO OBLIGATION TO EXERCISE OPTION. The granting or acceptance of an
option shall impose no obligation upon the optionee to exercise such an option.
10. RIGHTS AS A STOCKHOLDER. An optionee shall have no rights as a
stockholder with respect to shares of Stock covered by his or her option until
the date of issuance to him or her of a certificate evidencing such shares of
Stock after the exercise of such option and payment in full of the purchase
price. No adjustment will be made for dividends or other rights for which the
record date is prior to the date such certificate is issued.
11. AMENDMENTS. The Board of Directors of the Company may from time to
time alter, amend, suspend or discontinue the Plan; provided, however, that no
amendment which requires stockholder approval in order for the exemptions
available under Rule 16b-3 to be applicable to the Plan shall be effective
unless the amendment shall be approved by the stockholders of the Company
entitled to vote thereon. Any such amendment may be effective in respect of all
past and future options granted hereunder in the sole discretion of the Board of
Directors of the Company.
The Plan, each option under the Plan and the grant and exercise thereof, and
the obligation of the Company to sell and issue shares under the Plan shall be
subject to all applicable laws, rules, regulations and governmental and
stockholder approvals, and the Committee may make such amendment or modification
thereto as it shall deem necessary to comply with any such laws, rules and
regulations or to obtain any such approvals.
12. EFFECTIVENESS OF PLAN. The Plan, which was adopted by the Board of
Directors on July 29, 1994, is subject to approval by the stockholders of the
Company at the 1995 Annual Meeting of Stockholders or at an earlier Special
Meeting of the Stockholders if the Board of Directors so determines.
13. SEVERABILITY. If any provision of the Plan, or any term or condition
of any option granted or Stock Option Agreement or form executed or to be
executed thereunder, or any application thereof to any person or circumstance is
invalid or would result in an Incentive option failing to meet the requirements
of Section 422 of the Code, such provision, term, condition or application shall
to that extent be void (or, in the sole discretion of the Committee, such
provision, term or condition may be amended so as to avoid such invalidity or
failure), and shall not affect other provisions, terms or conditions or
applications thereof, and to this extent such provision, term or condition is
severable.
E-4
<PAGE>
APPENDIX F
KUHLMAN ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 1994
<PAGE>
Appendix F
KUHLMAN
-------
KUHLMAN CORPORATION
1994 ANNUAL REPORT
<PAGE>
CONTENTS
- --------------------
Financial Highlights 2
Letter to Our Shareholders 3
Kuhlman Electric Corporation 6
Coleman Cable Systems, Inc. 8
Emtec Products Corporation 10
Five-Year Selected Data 12
Management's Discussion and Analysis 13
Financial Review 16
Board of Directors and Officers 28
Shareholder Information 28
CORPORATE PROFILE
-------------------------------
THIS YEAR, KUHLMAN CORPORATION IS OBSERVING ITS 101ST YEAR OF PROVIDING
TOP-QUALITY PRODUCTS TO ITS CUSTOMERS. KUHLMAN IS A HOLDING COMPANY ENGAGED IN
THE MANUFACTURING OF DISTRIBUTION, POWER AND INSTRUMENT TRANSFORMERS; ELECTRICAL
AND ELECTRONIC WIRE AND CABLE PRODUCTS; AND SPRING PRODUCTS.
KUHLMAN CORPORATION CONDUCTS ITS BUSINESS THROUGH THREE PRINCIPAL OPERATING
SUBSIDIARIES - KUHLMAN ELECTRIC CORPORATION, COLEMAN CABLE SYSTEMS, INC. AND
EMTEC PRODUCTS CORPORATION. THE COMPANY'S HEADQUARTERS IS IN SAVANNAH, GEORGIA,
AND ITS MANUFACTURING FACILITIES ARE LOCATED IN SIX STATES.
-------------------------------
1
<PAGE>
FINANCIAL HIGHLIGHTS
- ---------------------------
KUHLMAN CORPORATION
<TABLE>
<CAPTION>
FOR THE YEAR 1994 1993 1992 NET SALES
- ------------------------------------------------------------------------------------------------- ---------------------------
IN THOUSANDS, WHERE APPLICABLE (IN MILLIONS)
<S> <C> <C> <C>
Net Sales $242,846 $118,097 $121,734 $243
Operating Profit Before Restructuring Charge 6,265 1,851 7,460
Income From Operations* 1,617 3,595 6,224
Net Income(Loss) 1,617 (2,998) 6,224
Earnings Per Share:
Income From Operations* 0.27 0.61 1.05 $122
Net Income(Loss) 0.27 (0.51) 1.05 $118
Dividends Paid 3,640 3,530 3,452
Capital Expenditures 7,019 2,794 5,175
Depreciation and Amortization 5,575 2,768 2,756 92 93 94
Return On Average Shareholders' Equity* 3.3% 7.1% 12.1%
- -------------------------------------------------------------------------------------------------
<FN>
*INCOME FROM OPERATIONS IS NET INCOME BEFORE COST OF RESTRUCTURING AND THE
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. THIS WAS USED TO COMPUTE RETURN ON
AVERAGE SHAREHOLDERS' EQUITY IN 1993.
</TABLE>
<TABLE>
<CAPTION>
At Year End 1994 1993 1992 NET INCOME [LOSS]
- ------------------------------------------------------------------------------------------------- ---------------------------
<S> <C> <C> <C> (IN MILLIONS)
Working Capital $ 27,969 $ 41,960 $ 38,502
Current Ratio 1.7 to 1 1.9 to 1 3.3 to 1
Total Debt 62,228 74,569 9,052 $6.2
Total Debt/Total Capitalization 56.1% 60.4% 14.7%
Shareholders' Equity 48,672 48,914 52,690
Net Book Value Per Share 7.92 8.12 9.15
Total Assets 146,563 164,042 78,030
Number of Employees 1,235 1,290 861
- ------------------------------------------------------------------------------------------------- $1.6
92 93 94
</TABLE>
COMMON STOCK PRICE RANGES AND DIVIDENDS
- ---------------------------
<TABLE>
<CAPTION>
[$3.0]
1994 1993
- ------------------------------------------------------------------------------------------------------
Quarters High Low Close Dividend High Low Close Dividend
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1st 19 3/8 15 16 3/4 $0.15 16 1/2 13 1/4 15 5/8 $0.15
2nd 18 3/8 14 3/4 14 3/4 $0.15 16 1/8 13 1/2 13 7/8 $0.15
3rd 15 3/8 14 1/8 14 3/4 $0.15 14 7/8 13 5/8 14 1/2 $0.15
4th 16 11 12 1/8 $0.15 17 1/4 14 3/8 15 7/8 $0.15
- ------------------------------------------------------------------------------------------------------
</TABLE>
THE COMMON STOCK OF KUHLMAN CORPORATION (KUH) IS LISTED ON THE NEW YORK
STOCK EXCHANGE AND IS QUOTED DAILY BY THE EXCHANGE IN MOST MAJOR NEWSPAPERS. THE
TABLE ABOVE SHOWS THE PRICE RANGE PER SHARE AND THE DIVIDENDS DECLARED PER SHARE
FORTHE LAST TWO YEARS. AT DECEMBER 31, 1994, THERE WERE 6,146,162 SHARES OF
COMMON STOCK OUTSTANDING AND 4,281 SHAREHOLDERS OF RECORD. IT IS ESTIMATED THERE
ARE APPROXIMATELY 8,500 SHAREHOLDERS IN TOTAL, INCLUDING THOSE HOLDING STOCK IN
"NOMINEE" OR "STREET" NAME.
THE DECLARATION AND PAYMENT OF DIVIDENDS IS, SUBJECT TO APPLICABLE LAW, IN
THE DISCRETION OF THE KUHLMAN BOARD OF DIRECTORS, WHICH CONSIDERS NUMEROUS
FACTORS IN DETERMINING WHETHER OR NOT TO PAY A DIVIDEND AND THE AMOUNT OF ANY
SUCH DIVIDEND. SEE ALSO MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (LIQUIDITY AND CAPITAL RESOURCES) AND NOTE 3
TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTAINED HEREIN.
A DIVIDEND INVESTMENT PROGRAM IS MAINTAINED FOR KUHLMAN SHAREHOLDERS OF
RECORD. ADDITIONAL SHARES OF STOCK MAY BE PURCHASED WITH DIVIDENDS PAID ON
KUHLMAN STOCK AND/OR WITH CASH PAYMENTS OF $10 TO $3,000 PER CALENDAR QUARTER.
THE COMPANY PAYS ALL BROKERAGE FEES AND ADMINISTRATIVE COSTS ON THESE STOCK
PURCHASES. THE PLAN IS ADMINISTERED FOR THE COMPANY BY ITS TRANSFER AGENT,
HARRIS TRUST AND SAVINGS BANK. INQUIRIES CONCERNING THE PLAN SHOULD BE DIRECTED
TO THE BANK.
- -----------------
2
<PAGE>
LETTER TO OUR SHAREHOLDERS
-------------------------------
OUR CORPORATION'S FUTURE SUCCESS WILL BE DETERMINED BY HOW WELL WE MANAGE THE
CHALLENGES CREATED BY THE DEMANDS OF CHANGE TODAY.
Kuhlman Corporation celebrated 100 years of service to its shareholders, its
employees and its customers in 1994. Only a small percentage of the publicly
traded corporations in America can boast of a century of longevity and
continuous operations during the most rapidly changing times in human history.
While Kuhlman's successes through ten decades are significant, they serve
only as a prologue for its future. Our Corporation's future success will be
determined by how well we manage the challenges created by the demands of change
today. In 1993, as we looked to the future, your management, your Board of
Directors and employees alike, stated that our foremost goal was the creation
and enhancement of shareholder value and the management of our Corporation for
long-term success. In that our goals are long-term, it is important that we
periodically review our ambitions and our progress.
From a financial perspective, our Corporation showed significant progress
in 1994, but nonetheless did not meet our expectations. The Corporation had
record sales of $242,846,000, a gain of more than 100% over the previous year's
sales of $118,097,000. The Corporation reported net earnings for 1994 of
$1,617,000, or 27 CENTS per share. This compared with a net loss in 1993 of
$2,998,000, or 51 CENTS per share. While net earnings for the year were
disappointing, they were largely affected by management's decisions which,
though painful in the short-term, were deemed necessary to position the company
for long-term success.
KUHLMAN ELECTRIC, our transformer manufacturing subsidiary, was
restructured and streamlined in 1993 to improve its competitiveness in a market
laden with excess manufacturing capacity. Kuhlman Electric's problems in 1993
followed us into 1994, and additional steps were taken during the year that we
believe will ensure our viability for years into the future.
Specifically, we closed the Instrument Transformer Division's
110,000-square-foot plant in Indian Trail, North Carolina, and moved the
manufacturing operations to existing plants in Versailles, Kentucky, and Crystal
Springs, Mississippi. This move eliminated the overhead costs attendant with
the North Carolina plant. Further, we streamlined our Distribution Transformer
Division, headquartered at our Versailles plant, in an effort to increase
efficiency and cut costs. Our actions resulted in lower manufacturing costs and
included the elimination of more than one hundred jobs at the Kentucky plant.
The Power Transformer Division, located in Crystal Springs, Mississippi,
benefited from the management decision to improve the quality and design of our
power transformers. We are confident that the Power Transformer Division will
continue to be a source of strength for Kuhlman Electric in the future.
We believe our actions in 1994 positioned Kuhlman Electric as an effective
competitor in all three of its product areas - distribution, instrument and
power transformers. By focusing on the needs of our select
-----------------------
3
<PAGE>
customers, we are able to provide them with better products at more competitive
prices. In 1994 we paid a significant price to further improve Kuhlman
Electric, and in 1995 we believe we will see positive results stemming from our
efforts.
COLEMAN CABLE SYSTEMS became part of the Kuhlman family in December of
1993. It was the first step of an acquisition program designed to diversify the
activities of our Corporation and to provide us with additional investment
opportunity. I am pleased to report that in 1994, its first full year as a
member of the Kuhlman organization, Coleman Cable enjoyed the highest sales and
earnings in its history. In recognition of its long-term potential, we
facilitated its continued expansion by investing in plant and state-of-the-art
manufacturing equipment. We believe that through our initial and continued
investment in Coleman Cable Systems, we are providing our shareholders
opportunities for long-term growth.
EMTEC PRODUCTS CORPORATION, the smallest of our operating subsidiaries,
serving mainly the automotive industry with stamped metal products and
specialized spring assemblies, posted another year of above-average return on
equity. For some time, Emtec has been looking for additional opportunities to
manufacture products outside the automotive industry. In 1994 Emtec signed a
significant, and one of its largest ever, non-automotive contracts for the
manufacture of a spring sub-assembly used in antennas for hand-held cellular
telephones. We are all pleased with this contract and with the progress we have
made in seeking new markets and product adaptations.
We continue to believe that Kuhlman Corporation will best serve its
shareholders with the strategy of constantly improving its existing operating
companies and through the execution of a carefully planned and implemented
acquisition program.
In this regard, we are pleased with the announcement on February 27, 1995
that the Boards of Directors of Kuhlman Corporation and Schwitzer, Inc. had
approved the merger of the two companies. Both organizations have signed a
definitive agreement stipulating the terms of the merger, and the shareholders
of Kuhlman and Schwitzer are being asked to approve the merger at their Annual
Shareholders Meetings this year.
Schwitzer, Inc. is a manufacturer of turbochargers, fans, fan drives and
engine dampers made for engine manufacturers serving the trucking, construction,
boating, heavy equipment and commercial products
[PHOTO]
ROBERT S. JEPSON, JR., (LEFT)
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER,
AND CURTIS G. ANDERSON,
PRESIDENT AND CHIEF
OPERATING OFFICER.
- -------------------------
4
<PAGE>
industries. Schwitzer will be a significant addition to our Corporation and will
afford us the opportunity to materially strengthen the smallest of our
manufacturing bases, industrial products. Schwitzer's global manufacturing and
sales activities in Brazil and the United Kingdom will open for us new and
exciting markets both in Europe and in South America. Further, we believe the
two companies, when combined, will be financially better equipped to meet the
competitive challenges that we are certain to face in the future.
No review of 1994 would be complete without mentioning a significant
addition to our management team. In April of last year, Curtis G. Anderson
joined Kuhlman as President and Chief Operating Officer. Mr. Anderson brings to
the position talent and a diversity of experience which should assist the
Corporation in its quest for long-term success.
In today's world, everyone associated with our organization - shareholders,
directors, employees and customers alike - enjoys choices. Shareholders have a
wide range of investment opportunities from which to choose, and qualified
directors are afforded numerous opportunities to serve fine American
corporations. Capable employees are today a sought-after resource who, now more
than ever, couple their futures only with those companies offering challenge and
opportunity, both short and long-term. Our customers who, with their choices,
determine our success or failure, demand the highest quality of services and
products.
To all of those shareholders, directors, employees and customers who have
chosen Kuhlman in past years, my sincere thanks. You have our pledge that we
will constantly seek self-improvement and thus qualify for your continued
support in the future.
/s/ Robert S. Jepson, Jr.
Robert S. Jepson, Jr.
Chairman and Chief Executive Officer
------------------------
5
<PAGE>
KUHLMAN ELECTRIC CONTINUES TO RESPOND TO INDUSTRY CHALLENGES
- -------------------------------
Kuhlman Electric Corporation manufactures a broad array of transformers that are
used in electrical distribution systems serving residences and commercial and
industrial buildings. These products include small instrument transformers used
in metering and relaying electricity; pole-mounted, surface-mounted, or
underground transformers serving from one to eight residences; and medium-size
power transformers used in utility substations or commercial-type electrical
power centers for shopping centers, apartment complexes, factories and other
users of electrical power.
Electric utility companies are the principal market for Kuhlman Electric's
products. However, industrial and commercial customers are playing an increasing
role as the electrical generation, transmission and distribution industries
continue to change.
DISTRIBUTION TRANSFORMERS Distribution transformers reduce high voltages
transmitted on electrical transmission lines to usable levels (120 and 240
volts) for homes, offices and industrial users. Such transformers may be mounted
on a utility pole, placed at ground level on a pad, or in underground vaults.
Kuhlman Electric is committed to providing energy-efficient transformers
that meet specific needs of customers. Kuhlman Electric's top priority is
optimizing customer satisfaction through high quality, good service and on-time
deliveries. To achieve this, Kuhlman Electric employs some of the latest in
transformer technology and quality control procedures to produce transformers
designed to meet the user's performance evaluation formulas and other
requirements. Kuhlman Electric currently manufactures distribution transformers
in Versailles, Kentucky, and Salinas, California.
POWER TRANSFORMERS Power transformers are designed for utility and
industrial customers for installation in their substation networks. Kuhlman
Electric's power transformer product line includes a variety of transformers in
electrical power ranges from 2.5 MVA to 50 MVA. Units are supplied either with
or without load tap changing (LTC) capability.
Recent investments at its Crystal Springs, Mississippi, facility have
resulted in improved lead times and on-time delivery performance, resulting in
what Kuhlman Electric believes is the shortest design-and-build cycle capability
in the industry. As an addi-
BELOW: ASSEMBLY OF A
CONTROL PANEL ON A POWER TRANSFORMER. RIGHT: ASSEMBLY OF A TRANSFORMER.
[PHOTO]
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6
<PAGE>
KUHLMAN ELECTRIC'S TOP PRIORITY IS OPTIMIZING CUSTOMER SATISFACTION THROUGH HIGH
QUALITY, GOOD SERVICE AND ON-TIME DELIVERIES.
[PHOTO]
tional service to customers, on-site delivery and installation of power
transformers is available. This is an important service offering as customers
downsize their in-house capabilities.
INSTRUMENT TRANSFORMERS Instrument transformers are high-accuracy
transformers used within an electrical distribution network for revenue
metering, relaying and system protection applications.
As electrical power generation, transmission and distribution practices
continue to change, it is expected that Kuhlman Electric products will be
in greater demand as electric power is transferred between sellers and buyers.
Kuhlman Electric manufactures its instrument transformer products at its
facilities in Versailles, Kentucky, and Crystal Springs, Mississippi.
During 1994, Kuhlman Electric continued its strategy of streamlining its
organization and focusing on customer needs. Working in harmony with a
deregulated electrical utility industry, our strategy calls for a
manufacturing-focused organization uniquely capable of meeting these competitive
challenges.
With a central foundation of outstanding people and customer-focused plans,
and supported by specifically-directed capital investments, the company's
operating philosophy is based on a strategy of CONTINUOUS IMPROVEMENT in all
segments of the organization. A strategic target is to eliminate waste from all
areas of its business, thereby delivering a competitive and sustainable
advantage.
The primary goal of Kuhlman Electric's management is to produce the highest
quality transformers at a price that meets the requirements of its customers and
generates an acceptable return for our shareholders. To do this, Kuhlman
Electric works hard to find the most cost-efficient methods to bring its
products to the marketplace. This will involve taking advantage of the best
practices in all phases of its business and effectively utilizing the skills of
its employees.
In addition, Kuhlman Electric continues to be in touch with its customers
and other industry experts to be certain its products exceed expectations. The
challenges are many and, in some cases, daunting, but Kuhlman Electric is
dedicated to turning these challenges into opportunities for the company and its
customers.
Kuhlman Electric believes its response to the drive by its customers to
establish a competitive position within a deregulated industry will lead to
longer-term trading relationships and a diminishing of the current bid process.
Kuhlman Electric's mission is to ensure that its product-delivery system,
founded on its manufacturing philosophy, effectively interfaces with the unique
processes, needs and applications of its key customers. Kuhlman Electric
Corporation believes this will enable it to earn "Supplier of Choice" status
within the most progressive segment of its customer base.
------------------------
7
<PAGE>
COLEMAN CABLE SYSTEMS CONTINUES TO GROW
- ----------------------------
Coleman Cable Systems, Inc., manufactures and distributes a broad variety of
electrical and electronic wire and cable products serving many industries. To
ensure customer needs are being met and to optimize operating performance,
Coleman is organized into five business units, each with resources focused on
specific niche markets and products.
These operating units and their customers are linked by a sophisticated
computer network, giving each unit the flexibility and responsiveness of a small
independent company, while providing access to research and development
capabilities and other resources of a larger corporation. Customers enter orders
directly into Coleman's system, which recognizes the product demand immediately,
and production and/or shipment commences automatically.
Coleman believes that its commitment to quality and service gives it a
competitive edge, and its philosophy of CONTINUOUS IMPROVEMENT drives each
element of
[PHOTO]
[PHOTO]
LEFT: TESTING OF EXTENSION CORDS. ABOVE: CABLING EQUIPMENT USED FOR
MULTI-CONDUCTOR CABLE. RIGHT: BAR-CODE INVENTORY CONTROL OF COPPER WIRE.
the company's business. This focus has reduced cycle times in all areas of the
business from order entry through shipping, which Coleman believes
differentiates it from its competitors by providing a higher level of product
quality and service to customers.
COLEMAN CABLE & WIRE COMPANY Coleman Cable & Wire Company provides a wide range
of flexible power and control cable to industrial and construction markets,
marketing its products under trade names that it feels are widely recognized for
their quality and high-performance standards.
Coleman believes this unit has been successful in locating niche markets
and designing unique products to meet customer needs. For example, Coleman, with
Underwriters Laboratories, led the way in developing and designing
specifications for stage and lighting cable and was the first company to
introduce this product into the market. Coleman's design and engineering
capabilities also played a key role in supplying portable power supply cables
for robotics equipment used in automotive assembly plants.
COLEMAN CORD PRODUCTS Coleman's Cord Products Division produces a wide range of
wire and cable products for both home and industrial electrical needs.
- ---------------------
8
<PAGE>
TO ENSURE CUSTOMER NEEDS ARE BEING MET AND TO OPTIMIZE OPERATING
PERFORMANCE, COLEMAN IS ORGANIZED INTO FIVE BUSINESS UNITS, EACH WITH DEDICATED
RESOURCES FOCUSED ON SPECIFIC NICHE MARKETS AND PRODUCTS.
Its history of responsiveness to market needs includes the development of
products such as COILEX[REGISTERED TRADEMARK] and COILITE[REGISTERED TRADEMARK]
coiled cord products, QUADNECTOR[REGISTERED TRADEMARK] extension cords,
BOOSTER IN A BAG[REGISTERED TRADEMARK] booster cables, READY/CLAD[REGISTERED
TRADEMARK] conduit-on-a-reel and TROUBLE FREE[REGISTERED TRADEMARK] fully molded
trouble lights. Coleman believes that professionals recognize Coleman's product
as a brand-preferred extension cord due to Coleman's ability to supply high
quality and quick service to this area of distribution. In addition, Coleman is
a leading supplier of battery booster cables to several nationally recognized
retailers.
SIGNAL CABLE As a leading manufacturer of security cables in North America,
Coleman's Signal Division provides electronic wire and cable for markets as
diverse as construction and robotics. These cables also are used extensively by
burglar alarm, fire alarm, smoke detector and closed circuit television (CCTV)
companies. With the country becoming more urbanized and insurance companies
offering discounts to businesses and individuals with security/fire/smoke
systems, often mandated by government agencies, Coleman believes that the market
for its cables is growing dramatically. Signal is the specified source for
several leading security system installation firms.
BARON WIRE & CABLE CORP. Baron Wire & Cable Corp. produces cables for energy
management systems and for irrigation and sprinkler systems and is one of the
largest producers of thermostat cable in the U.S. While Baron's products are
recognized for their quality standard throughout the heating, ventilating and
air conditioning industry, management believes that Baron has earned a solid
reputation as a low-cost cable producer because of its patented in-line robotic
equipment. Baron's customers include a number of nationally recognized
companies.
[PHOTO]
NEHRING ELECTRICAL WORKS Nehring Electrical Works manufactures copper and
aluminum wire for grounding, transmission and distribution of power. Nehring,
founded in 1912 and acquired by Coleman Cable Systems in 1980, is a leading
supplier of bare copper to the utility industry and is an approved supplier to
almost every utility, municipality and rural electric cooperative in the United
States. New products, such as ground rods, accessories and 600-volt underground
cable, have been progressively introduced.
Nehring sells its products through key distribution channels, consisting
primarily of utility, electrical distribution, telecommunication and welding.
Nehring's growth has been a result of market penetration and product
development. Also fueling this growth has been a focus on quality products and
customer service. Through continuous improvement efforts in all functional areas
of the business, increases in both sales revenue and earnings are expected.
----------------------
9
<PAGE>
EMTEC PRODUCTS: DIVERSIFICATION OPENS NEW MARKETS
- -----------------------------
RECENT INITIATIVES EXPANDED THE DIVISION'S MARKET TO INCLUDE COMPONENTS FOR
NON-AUTOMOTIVE PRODUCTS SUCH AS OFF-HIGHWAY VEHICLES AND CELLULAR PHONES.
Emtec Products Corporation manufactures a variety of spring and spring assembly
products, as well as a limited offering of marine products. It consists of two
primary business units: Spring Operations and Marine Products. Emtec is
headquartered in Coldwater, Michigan, with operating facilities in Coldwater and
Elyria, Ohio.
SPRING OPERATIONS Kuhlman Corporation, through
its subsidiaries and divisions, has been in the spring business for almost 30
years. The spring industry, which is approaching $2 billion in sales, consists
mainly of small companies with annual sales of $5 million or less. Emtec is one
of the largest companies in the industry. Emtec's spring operations comprise
[PHOTO]
two divisions, the TRANS-PAK Spring Assembly Division and the Empire Spring
Division.
The TRANS-PAK Spring Assembly Division, located in Coldwater, Michigan,
produces springs and spring assemblies for various applications. Its focus on
quality has earned it many awards, including Ford Motor Company's "Q-1" award,
J.I. Case's "Qualified Supplier" award, and Saturn Corporation's 1993 and 1994
"Outstanding Achievement Recognition Award" and "Quality Recognition Award."
Until recently, the division was primarily automotive-oriented with General
Motor's Powertrain Division and Saturn Corporation as its major customers.
Recent initiatives expanded the division's market to include components for
non-automotive products such as off-highway vehicles and cellular phones.
Kuhlman introduced the TRANS-PAK[REGISTERED TRADEMARK] spring assembly in
1971. This assembly eliminated the costly and difficult operation of manually
assembling clutch springs in automotive automatic transmissions. These
assemblies have gained worldwide acceptance and are now used by most automotive
manufacturers.
Emtec believes that the introduction of a new sandwich-type clutch return
spring assembly by Emtec in 1991 was well received by engineers at a major U.S.
automotive company. This spring assembly is expected to gain interest with other
major automotive manufacturers. Production of this new TRANS-PAK[REGISTERED
TRADEMARK] spring assembly began in 1993 and resulted in major savings for the
customer.
In 1994, the TRANS-PAK Spring Assembly Division introduced a simplified
one-piece version of a clutch return spring assembly with a capability not
attainable by existing assemblies. It is expected that many new transmissions
will require this type of capability.
These recent innovations should increase the
- --------------------------------
10
<PAGE>
[PHOTO]
LEFT: INSPECTION OF A SPRING USED IN A CELLULAR PHONE.
RIGHT: TRANS-PAK[REGISTERED TRADEMARK] SPRING ASSEMBLIES FOR OFF-HIGHWAY VEHICLE
BRAKE SYSTEMS.
TRANS-PAK Spring Assembly Division's share of the automotive market and help
penetrate other markets. During 1994, for example, the TRANS-PAK Spring Assembly
Division was awarded a contract for a spring sub-assembly used in cellular
phones. This is indicative of the division's continuing search for innovative
opportunities to diversify into new markets and develop new product lines.
The Empire Spring Division, located in Elyria, Ohio, specializes in
stampings, wire forms and other precision components using a variety of metals.
The appliance industry, with about 40% of this division's sales, is one of the
major markets for Empire's products, with the automotive and electronics
industries representing more than 30% of the division's sales.
MARINE PRODUCTS The Nautalloy Division, founded in 1950 and acquired by
Kuhlman Corporation in 1973, also is located in Elyria, Ohio. Nautalloy is
a supplier of marine hardware and accessories with roughly 75% of its total
sales (primarily manufactured rails) to major recreational boat manufacturers.
The balance of the division's sales is to the consumer-accessory aftermarket
with a wide variety of products under the NAUTALLOY[REGISTERED TRADEMARK] brand
name. Recent initiatives have begun which will take the division into the
medical, large-truck and recreational vehicle markets.
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11
<PAGE>
FIVE-YEAR SELECTED FINANCIAL DATA
- -----------------------------
KUHLMAN CORPORATION
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales $242,846 $118,097 $121,734 $126,181 $142,195
Sales, continuing operations 242,846 118,097 121,734 126,181 117,578
Gross profit (% ofsales, continuing operations) 16.7% 15.2% 19.9% 21.3% 22.0%
Operating expenses (% of sales, continuing operations) 14.1% 13.6% 13.7% 13.4% 12.2%
Restructuring costs - 8,650 - - -
Operating profit (loss) 6,265 (6,799) 7,460 9,967 11,486
Interest income (expense), net (4,051) (312) 266 302 (826)
Other income (expense) 709 2,010 2,597 2,068 (155)
Income (loss) from continuing operations, before taxes and cumulative
effect of change in accounting principle 2,923 (5,101) 10,323 12,337 10,505
Taxes (benefit) on income (loss) 1,306 (3,392) 4,099 5,145 4,698
Income (loss) from continuing operations before cumulative effect of
change in accounting principle 1,617 (1,709) 6,224 7,192 5,807
Discontinued operations, net of tax - - - - 3,625
Cumulative effect of change in accounting principle, net of tax - (1,289) - - -
Net income (loss) 1,617 (2,998) 6,224 7,192 9,432
- -----------------------------------------------------------------------------------------------------------------------------
Earnings per share
Income (loss) before discontinued operations and cumulative
effect of change in accounting principle 0.27 (0.29) 1.05 1.21 1.03
Discontinued operations - - - - 0.64
Cumulative effect of change in accounting principle - (0.22) - - -
Net income (loss) 0.27 (0.51) 1.05 1.21 1.67
- -----------------------------------------------------------------------------------------------------------------------------
As of December 31, 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS
BALANCE SHEET DATA
Cash and cash equivalents $ 622 $ 16,555 $ 21,572 $ 18,568 $ 15,132
Working capital 27,969 41,960 38,502 38,626 37,937
Net plant and equipment 34,449 31,870 21,331 18,987 15,972
Total assets 146,563 164,042 78,030 74,585 75,374
Total debt 62,228 74,569 9,052 9,614 10,008
Shareholders' equity 48,672 48,914 52,690 49,804 46,009
- -----------------------------------------------------------------------------------------------------------------------------
For the years ended December 31, 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------
IN THOUSANDS, WHERE APPLICABLE
OTHER DATA
IBITDA* $ 12,549 $ 6,629 $ 12,813 $ 15,389 $ 15,896
Cash flow from operations 4,258 6,368 11,939 8,711 3,408
Capital expenditures 7,019 2,794 5,175 6,460 5,213
Depreciation and amortization 5,575 2,768 2,756 3,354 4,565
Net book value per share 7.92 8.12 9.15 8.71 8.06
Return on net sales 0.7% (2.5%) 5.1% 5.7% 6.6%
Return on average shareholders' equity 3.3% (5.9%) 12.1% 15.0% 22.2%
Total debt as a percentage of total capitalization 56.1% 60.4% 14.7% 16.2% 17.9%
Inventory turns 7.7 7.2 5.9 5.6 4.9
Days sales outstanding 52.3 47.9 44.4 49.8 52.8
Number of employees 1,235 1,290 861 889 828
Shares outstanding 6,146 6,023 5,757 5,721 5,706
Number of record shareholders 4,281 3,958 3,463 3,288 3,001
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
*INCOME BEFORE INTEREST AND TAXES PLUS DEPRECIATION AND AMORTIZATION, EXCLUDING RESTRUCTURING COSTS.
</TABLE>
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12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The purpose of this discussion and analysis is to aid in the understanding and
evaluation of financial condition and results of operations of the Company for
the years ended December 31, 1994, 1993 and 1992. This discussion and analysis
is intended to complement the audited financial statements and footnotes and
other financial data appearing elsewhere in this report, and should be read in
conjunction therewith.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to maintain a strong financial position. Management
believes that the Company's current liquidity and forecasted cash flows from
operations, together with its available borrowing capacity and the potential for
debt or equity offerings, are more than adequate to support its continued growth
through both internal expansion and potential acquisitions.
A primary financial objective of the Company is to enhance long-term
shareholder value. Toward that goal, the Company invested an aggregate of
approximately $7,019,000 in 1994 in its operating subsidiaries to enhance their
competitive position and to improve their future operating performance. The
capital invested was for both additions to the Company's fixed asset base as
well as funds to complete the Company's restructuring program which began in
1993. At Kuhlman Electric, the Company made investments to streamline its
operations, improve its manufacturing capabilities and lower its cost structure.
At Coleman Holding Company ("Coleman"), the Company made expenditures to expand
its distribution capabilities and increase operating efficiencies to better meet
the customer service demands of its growing business. Similarly, at Emtec, the
Company invested in new machinery and equipment to expand its manufacturing
capabilities to appeal to broader markets.
In addition to the capital investment noted above, the Company continued
with its program, which began in 1993, to streamline and improve the operations
of its Kuhlman Electric subsidiary. This resulted in cash outflows for final
payments made as part of the 1993 restructuring charge as well as lower cash
inflow generated from earnings due to temporary inefficiencies caused by the
consolidation of its instrument transformer operation and the downsizing of its
distribution transformer unit. The total cash outflow in 1994 related to the
1993 restructuring charge was $3,282,000 which was primarily for severance and
expenses associated with the consolidation of Kuhlman Electric's instrument
transformer division. Also, in the fourth quarter of 1994, the Company took
further actions to downsize and refocus Kuhlman Electric's distribution
transformer division. The short-term impact of these actions lowered pretax
earnings in the fourth quarter of 1994 by approximately $2,000,000 due to
temporary excess labor costs and the recognition of postemployment benefits,
substantially all of which were paid in 1994. Though the costs of these actions
were significant in 1994, management believes that its Kuhlman Electric
subsidiary is now much better positioned to respond profitably to the challenges
of its competitive environment.
In order to fund the activities noted above, meet its 1994 operating needs,
reduce its debt levels and pay dividends declared, the Company used cash plus
the cash flow generated from its operations. In 1994, the Company generated
$4,258,000 in cash flow from operations compared to $6,368,000 generated in
1993. The decline in operating cash flow in 1994 was primarily due to the
funding of higher working capital requirements.
Working capital, excluding cash and cash equivalents, increased $3,742,000
(16%) to $27,347,000 at December 31, 1994, compared to $23,605,000 at December
31, 1993. The increase was primarily due to growth in accounts receivable at
the end of 1994 generated by higher sales of wire and cable products, primarily
booster cables and the timing of collections for certain transformer products.
Except for the growth in accounts receivable, the Company made progress on
managing components of working capital in 1994. For example, inventories
declined $4,472,000 (16%) to $24,067,000 at the end of 1994 compared to the end
of 1993. The decline occurred equally at Coleman and at Kuhlman Electric,
where, for the second year in a row, inventory turnover improved. The improved
performance in inventory management was attributable to benefits derived from
the Company's capital investments and other programs implemented by the Company
to improve manufacturing efficiencies, shorten product delivery schedules and
enhance customer service. Prepaid expenses and other current assets and future
income tax benefits increased by $239,000 to $7,996,000 at December 31, 1994
from the end of 1993. Though the total change in these asset categories was
minor, changes between categories have been significant because of the
utilization of future income tax benefits and the recognition of income tax
receivables where appropriate. Accounts payable increased by $2,044,000 (12%)
to $19,331,000 at December 31, 1994 when compared to $17,287,000 at the end of
1993. The increase was due to better payment terms to vendors and the impact of
rising raw material prices, particularly copper, at the end of 1994. Accrued
expenses declined $6,940,000 (33%) to $14,146,000 at the end of 1994 from the
end of 1993. The decline was due primarily to the payment of $3,282,000 for the
remaining 1993 restructuring charge, the payment in 1994 of certain expenses
related to the acquisition of Coleman and the payment of other miscellaneous
accruals.
The Company's consolidated cash position was $622,000 at December 31, 1994
compared to $18,355,000 (including restricted cash of $1,800,000) at December
31, 1993. The Company, which no longer has restricted funds, used cash and cash
flow from operations to reduce total debt by $12,641,000 in 1994 including the
repayment of approximately $4,950,000 of borrowings under its revolving credit
facility. Although no payments are required to be made under the revolving
credit facility until December 31, 1999, and amounts can be reborrowed at any
time subject to certain limitations, the Company decided to reduce its
borrowings at this time to lower its overall interest expense. As part of the
plant consolidation for instrument transformers (described in further detail
below), the Company repaid an industrial revenue bond associated with the Indian
Trail, North Carolina facility for approximately $3,400,000. Funds to repay
this debt were drawn from the Company's revolving credit facility. Total debt
outstanding was $62,228,000 at December 31, 1994 compared to $74,569,000 at
December 31, 1993. At December 31, 1994, the Company had unused availability
under the credit agreement of approximately $13,866,000. In addition, under the
most restrictive warranties and covenants contained in the credit agreement, the
Company had approximately $1,757,000 of consolidated retained earnings at
December 31, 1994 free of any restriction as to the payment of dividends.
SEGMENT INFORMATION
Prior to the acquisition of Coleman on December 15, 1993, the Company
reported its operations as a single line of business, electrical apparatus.
Coleman has its principal operations outside the electrical apparatus industry.
Under the definitions contained in Statement of Financial Accounting Standards
(SFAS) No. 14, "Financial Reporting for Segments of a Business Enterprise,"
Coleman meets the criteria to be considered a reportable segment in 1993 because
of the identifiable assets associated with its primary industry, wire and cable
products. See Note 13 to the Notes To Consolidated Financial Statements for
Business Segment Information. Net sales,
---------------------
13
<PAGE>
gross profits and operating profits since the date of acquisition to December
31,1993, for Coleman were $4,171,000, $864,000 and $140,000, respectively.
RESULTS OF OPERATIONS
1994 COMPARED TO 1993
Consolidated net sales and operating profit were substantially higher in
1994 compared to 1993 primarily due to the addition of Coleman, which recorded
the highest annual net sales and operating profit in its history. In 1994, the
Company reported net income of $1,617,000 ($0.27 per share) compared to a net
loss of $2,998,000 ($0.51 per share) in 1993. The net loss in 1993 was due to
one-time charges for restructuring and the recognition of a change in
accounting method.
Consolidated net sales were $242,846,000 in 1994 compared to $118,097,000
reported in 1993. The increase in net sales was due to the inclusion of
Coleman as noted above, partially offset by declines in the electrical segment
and spring products. Net sales in 1994 were enhanced by strong demand for
products in the wire and cable segment, particularly booster cables. Net sales
in the electrical segment declined in 1994 compared to 1993 due to weak demand
for distribution transformers, particularly in the second half of the year,
lower shipments of instrument transformers and the impact of actions taken by
the Company to further streamline the operations of its Kuhlman Electric
subsidiary. The drop in demand for pole type distribution transformers was due
to the cool summer experienced in many parts of the country, which resulted in a
significant decline in incoming orders late in the third quarter and throughout
the fourth quarter. A large portion of the pole type distribution transformers
manufactured in today's marketplace is used by the electrical utility industry
to replace aged or non-performing units. Factors such as outdoor temperature
and electrical usage can have an impact on the useful life of a distribution
transformer and, therefore, have an influence on the ultimate demand by a
utility customer for such a product. Also, unit sales of distribution
transformers were adversely impacted by production difficulties caused by a
labor strike at a key steel supplier throughout the second quarter of 1994. In
anticipation of a continued softening of demand for replacement distribution
transformers caused by the cool summer, management took several actions in the
fourth quarter of 1994 to further reduce its operating cost and improve future
efficiencies. These actions included reassigning and eliminating personnel,
reducing overhead costs and eliminating certain unprofitable product lines
which resulted in lower shipments of distribution and instrument transformers in
the fourth quarter. Shipments of instrument transformers also declined in 1994
because of manufacturing difficulties caused by a plant consolidation which was
completed at the end of the second quarter of 1994. The consolidation of the
manufacturing operations for instrument transformers into two existing
facilities of Kuhlman Electric resulted in the closure of a plant in Indian
Trail, North Carolina and was done as part of the Company's 1993 restructuring
program to reduce costs and improve efficiencies. Also, sales of automotive
products (included in the other segment) in 1994 were down when compared to
1993 primarily due to the completion of a contract with an automotive customer.
Operating profit for 1994 was $6,265,000 compared to an operating loss of
$6,799,000 reported in 1993. The operating loss for 1993 included a charge for
restructuring of $8,650,000 for actions implemented by the Company to lower its
fixed costs and improve its operating efficiencies primarily
at its Kuhlman Electric subsidiary. Operating profit in 1993 without the
restructuring charge was $1,851,000. The increase in operating profit in 1994
compared to 1993 was due primarily to the addition of Coleman, partially offset
by a decline in operating profit in the electrical segment. Operating profit in
the electrical segment was adversely impacted by the sales declines noted above,
lower margins for medium power transformers and the costs associated with the
consolidation and streamlining activities for the distribution and instrument
transformers divisions. Margins on medium power transformers declined in 1994
when compared to 1993 primarily because of weak demand in the first half of 1994
resulting in significant price competition for available orders. Operating
margins throughout the Company in 1994 were also adversely impacted by rising
raw material costs, particularly copper, which rose approximately 75% in 1994.
In 1993 and 1992, increases in the cost of certain raw materials, labor and
other manufacturing and operating costs due to inflation and normal business
factors were nominal. However, in 1994, the Company began to see a rise in many
of its key raw material costs as the general domestic economy began to
strengthen. Though the Company attempted to pass along the cost increases in
the form of higher prices to its customers, particularly in the wire and cable
segment which uses copper in a significant portion of its products, competitive
pressures made this increasingly difficult resulting in lower operating margins.
Operating expenses for Kuhlman Corporation for 1994 were $34,218,000 or 14.1% of
sales compared to $16,096,000 or 13.6% of sales in 1993. Operating expenses
increased primarily due to the addition of Coleman, partially offset by cost
containment programs throughout the Company. Interest expense, net of interest
income was $4,051,000 and $312,000 in 1994 and 1993, respectively. Interest
expense increased in 1994 due to the additional debt assumed in connection with
the Coleman acquisition.
The Company generated other income of $709,000 and $2,010,000 in 1994 and
1993,respectively. Other, net consists primarily of income generated by
non-operating activities such as a covenant not to compete and royalties offset
by non-operating expenses, if any. The covenant not to compete was part of the
consideration received when the Company sold substantially all of the assets of
its blow molded plastics operations effective June 30, 1990. The original
amount of the covenant was $6,250,000 payable ratably over five years. The
Company also received royalties on certain intellectual property rights related
to spring assemblies. The decline in other, net in 1994 when compared to 1993
was due primarily to the recognition of approximately $530,000 in expenses
associated with an attempted merger, a drop in rental income on a building sold
in late 1993 and an increase in miscellaneous expenses associated with
non-operating activities and asset disposals in 1994.
The effective income tax rate of 44.7% reported by the Company in 1994 was
above the U.S. federal statutory rate primarily due to the non-deductibility of
goodwill amortization associated with the Coleman acquisition and the inclusion
of state income taxes, offset by the utilization of foreign tax credits. In
1993, the Company recorded an income tax benefit of $3,392,000 principally for
the 1993 net loss and approximately $1,400,000 from a favorable settlement of
certain open income tax audits. Excluding the favorable settlements in 1993,
the income tax rate for 1993 approximated the U.S. federal statutory rate in
effect, adjusted for the inclusion of state income taxes.
Net income for 1994 was $1,617,000 ($0.27 per share) compared to a loss of
$2,998,000 ($0.51 per share) in 1993. The net loss in 1993 included an
after-tax charge of $5,304,000 ($0.90 per share) for restructuring and the
adoption of SFAS No. 106, Accounting for Postretirement Benefits Other Than
Pensions, of $1,289,000 ($0.22 per share). Earnings before the
- -------------------------------
14
<PAGE>
restructuring charge and the cumulative effect of change in accounting method
for 1993 were $3,595,000 ($0.61 per share). The decline in operating net
income was due to the shortfall in earnings in the electrical segment and the
decline in other, net, both described above.
1993 COMPARED TO 1992
Consolidated net sales were $118,097,000 in 1993 compared to $121,734,000
in 1992, a decrease of $3,637,000 (3%). Excluding the impact of Coleman, net
sales decreased approximately 6% in 1993 compared to 1992. The decline in net
sales was due primarily to a sluggish economy, which resulted in lower unit
sales volume, changes in product mix and more stringent price competition along
substantially all product lines at Kuhlman Electric. Net sales for spring and
metal products declined $2,437,000 (22%) in 1993 compared to 1992 due to the
expiration of a contract with an automotive customer, partially offset by an
increase in shipments to non-automotive customers.
The Company reported an operating loss of $6,799,000 in 1993 compared to an
operating profit of $7,460,000 for 1992. The operating loss in 1993 included a
charge for restructuring of $8,650,000. The restructuring charge was for
actions implemented by the Company to lower its fixed costs and improve its
operating efficiencies, primarily at its Kuhlman Electric subsidiary. The
charge was primarily for severance related to the reduction of approximately
200 salaried and hourly employees, the elimination of certain unprofitable
product lines and the implementation of programs designed to streamline Kuhlman
Electric's operations. Operating profit for 1993 without the restructuring
charge was $1,851,000. The decline in operating profit when compared to 1992
was due to lower gross profit caused by the drop in net sales, lower absorption
of manufacturing costs due to the significant reduction of inventories and
pricing pressures and product mix changes caused by the economic weakness in
certain electrical utility markets. Generally, increases in the cost of
certain raw materials, labor and other manufacturing and operating costs due to
inflation and normal business factors were nominal in 1993 and 1992. Operating
expenses for 1993 were $16,096,000 compared to $16,728,000 in 1992, a decline
of $632,000 (4%). The decline was due to the lower sales activity noted above,
partially offset by certain costs associated with the Company's acquisition
activities. Operating expenses as a percentage of net sales were essentially
the same at 13.6% and 13.7% for 1993 and 1992, respectively.
Interest income was $700,000 and $795,000 in 1993 and 1992, respectively.
The decline was due to the lower interest rates available for cash investments,
partially offset by the higher cash available throughout most of the year.
Interest expense was $1,012,000 and $529,000 in 1993 and 1992, respectively.
Interest expense increased due to additional debt assumed and subsequently
refinanced as part of the acquisition of Coleman and interest penalties
incurred for the refinancing of Kuhlman Electric's bank debt.
The Company generated other income of $2,010,000 and $2,597,000 in 1993 and
1992, respectively. Other, net was negatively impacted in 1993 by the loss of
$1,400,000 recorded on the sale of plant and equipment, the write-off of a
technology agreement and other related non-operating assets, partially offset
by a $1,000,000 gain principally for the settlement of certain outstanding
tax-related issues.
The Company recorded an income tax benefit in 1993 of $3,392,000
principally for the net loss recorded in the period and approximately $1,400,000
for the favorable settlement of certain open income tax audits. Excluding the
impact of the favorable income tax settlements in 1993, the income tax rates for
1993 and 1992 reflect the U.S. federal statutory rate in effect, adjusted for
the inclusion of state income taxes.
The Company recorded a net loss in 1993 of $2,998,000 ($0.51 per share)
compared to net income of $6,224,000 ($1.05 per share) in 1992. The net loss in
1993 included an after-tax charge of $5,304,000 ($0.90 per share) for
restructuring and the adoption of SFAS No. 106, Accounting For Postretirement
Benefits Other Than Pensions, of $1,289,000 ($0.22 per share). Earnings before
the restructuring charge and the cumulative effect of change in accounting
method for 1993 were $3,595,000 ($0.61 per share), compared to $6,224,000 ($1.05
per share) for 1992.
SUBSEQUENT EVENT
On February 25, 1995, Kuhlman Corporation entered into an agreement to
merge Schwitzer, Inc. ("Schwitzer"), a New York Stock Exchange listed company,
with a wholly-owned subsidiary of Kuhlman. In the transaction, shares of
Schwitzer common stock will be converted into shares of Kuhlman common stock
using an exchange ratio of 0.9615 share of Kuhlman for each share of Schwitzer.
The merger is subject to certain closing conditions, including the approval of
the shareholders of both companies. It is anticipated that this transaction
will be consummated in the second quarter of 1995 following approval by
shareholders of both companies at their respective annual meetings of
shareholders. Management believes that the merger of Kuhlman and Schwitzer will
benefit the shareholders of both companies by making the resulting company
better equipped to meet the competitive challenges that it is certain to face in
the future.
Schwitzer designs, manufactures and markets turbochargers, fan drives,
cooling fans and crankshaft vibration dampers for enhancing the efficiency of
diesel and gasoline engines. Sales and net income for its fiscal year ended
January 1, 1995 were approximately $153,271,000 and $8,930,000, respectively.
Schwitzer had approximately 7.2 million shares outstanding as of February 25,
1995.
OUTLOOK FOR 1995
Over the past two years, Kuhlman Corporation has taken significant actions
to strengthen and diversify the organization in order to provide greater and
more consistent growth in long-term shareholder value. These actions have
included programs designed to streamline its Kuhlman Electric subsidiary,
capital investments to improve operating efficiencies and the acquisition of
Coleman. As Kuhlman enters 1995, management believes that the results of those
actions will have a positive effect on the Company's financial performance in
1995 and beyond.
A key objective in 1995 is to further enhance shareholder value by building
a larger, more focused manufacturing organization. Management believes that the
addition of Schwitzer, which is expected to be completed by the end of the
second quarter of 1995, will serve to strengthen the Company by expanding its
product offering and the number of markets in which it participates and provide
future income and growth opportunities, as well. Further, management remains
optimistic that its acquisition program will continue to provide future growth
opportunities. As a consequence of the above actions, management remains
cautiously optimistic about the Company's near-term prospects and confident
about its long-term future.
---------------------------
15
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
- -------------------------------------------
KUHLMAN CORPORATION
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1994 1993 1992
- --------------------------------------------------------------------------------
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
<S> <C> <C> <C>
NET SALES $242,846 $118,097 $121,734
Cost of goods sold 202,363 100,150 97,546
- --------------------------------------------------------------------------------
GROSS PROFIT 40,483 17,947 24,188
- --------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling, general and administrative 34,218 16,096 16,728
Cost of restructuring -- 8,650 --
- --------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 34,218 24,746 16,728
- --------------------------------------------------------------------------------
OPERATING PROFIT (LOSS) 6,265 (6,799) 7,460
OTHER INCOME (EXPENSE):
Interest expense (4,229) (1,012) (529)
Interest income 178 700 795
Other, net 709 2,010 2,597
- --------------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE), NET (3,342) 1,698 2,863
- --------------------------------------------------------------------------------
Income (loss) before taxes (benefit) 2,923 (5,101) 10,323
Taxes (benefit) on income (loss) 1,306 (3,392) 4,099
- --------------------------------------------------------------------------------
Income (loss) before cumulative effect of
accounting change 1,617 (1,709) 6,224
Cumulative effect of accounting change
related to post-retirement benefits
(net of tax effect of $811) (1,289)
- --------------------------------------------------------------------------------
NET INCOME (LOSS) $ 1,617 $ (2,998) $ 6,224
- --------------------------------------------------------------------------------
PER SHARE AMOUNTS:
Income (loss) before effect of
accounting change $ 0.27 $ (0.29) $ 1.05
Accounting change -- (0.22) --
- --------------------------------------------------------------------------------
NET INCOME (LOSS) $ 0.27 $ (0.51) $ 1.05
- --------------------------------------------------------------------------------
AVERAGE SHARES OUTSTANDING 6,097 5,926 5,940
- --------------------------------------------------------------------------------
</TABLE>
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION
WITH THESE STATEMENTS.
- --------------------------------------
16
<PAGE>
CONSOLIDATED BALANCE SHEETS
------------------------------
KUHLMAN CORPORATION
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994 1993
- -------------------------------------------------------------------------------
IN THOUSANDS
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 622 $ 16,555
Restricted cash -- 1,800
Accounts receivable, less reserves of $363 and $354 36,004 32,893
at December 31, 1994 and 1993, respectively
Inventories 24,067 28,539
Prepaid expenses and other current assets 4,125 1,137
Future income tax benefit 3,871 6,620
- -------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 68,689 87,544
- -------------------------------------------------------------------------------
PLANT AND EQUIPMENT
Land 1,098 648
Buildings and leasehold improvements 19,699 18,179
Machinery and equipment 38,847 36,406
Construction in progress 1,607 837
- -------------------------------------------------------------------------------
61,251 56,070
Less - accumulated depreciation and amortization (26,802) (24,200)
- -------------------------------------------------------------------------------
PLANT AND EQUIPMENT - NET 34,449 31,870
- -------------------------------------------------------------------------------
Intangible assets, net of amortization of $1,382 and $55
at December 31, 1994 and 1993 39,216 40,543
Other assets 4,209 4,085
- -------------------------------------------------------------------------------
$146,563 $164,042
- -------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 2,000 $ 2,700
Current portion of long-term debt 5,243 4,511
Accounts payable 19,331 17,287
Accrued liabilities 14,146 21,086
- -------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 40,720 45,584
- -------------------------------------------------------------------------------
LONG-TERM DEBT
Bank debt 51,750 61,000
Other long-term debt 3,235 6,358
- -------------------------------------------------------------------------------
Total long-term debt 54,985 67,358
- -------------------------------------------------------------------------------
Accrued postretirement benefits 2,186 2,186
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 97,891 115,128
- -------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred stock, par value $1.00, authorized 2,000
shares, none issued; Junior participating preferred
stock, Series A, no par value, authorized 150
shares, none issued -- --
Common stock, par value $1.00, authorized 10,000 shares,
issued and outstanding 6,146 and 6,023 shares at
December 31, 1994 and 1993, respectively 6,146 6,023
Additional paid-in capital 12,506 11,028
Retained earnings 30,063 32,108
Minimum pension liability (43) (245)
- -------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 48,672 48,914
- -------------------------------------------------------------------------------
$146,563 $164,042
- -------------------------------------------------------------------------------
</TABLE>
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION
WITH THESE BALANCE SHEETS.
----------------------------
17
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------
KUHLMAN CORPORATION
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1994 1993 1992
- ------------------------------------------------------------------------------------
IN THOUSANDS
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,617 $ (2,998) $ 6,224
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Depreciation and amortization 5,575 2,768 2,756
Deferred income taxes -- -- (360)
Provision for losses on accounts
receivable 169 32 90
(Gain) loss on sale of plant and
equipment 92 473 (11)
Other, net 78 (391) 218
Cost of restructuring -- 8,650 --
Cumulative effect of change in
accounting principle for
postretirement benefits -- 2,100 --
Changes in operating assets and
liabilities:(1)
Accounts receivable (3,120) (425) 879
Inventories 4,472 6,160 2,006
Prepaid expenses and other
current assets (2,836) 1,281 216
Future tax benefit 2,749 (2,837) (156)
Accounts payable and accrued
liabilities (4,538) (8,445) 77
- ------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 4,258 6,368 11,939
- ------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,019) (2,794) (5,175)
Acquisition of business, net of cash
acquired -- (5,493) --
Proceeds from sales of plant and
equipment 100 2,443 136
- ------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING
ACTIVITIES (6,919) (5,844) (5,039)
- ------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in revolving loan facility (4,950) -- --
Proceeds from issuance of long-term
debt 300 68,700 --
Repayment of long-term debt (7,691) (67,843) (562)
Dividends paid (3,640) (3,530) (3,452)
Stock options exercised 909 1,814 525
Repurchase of common stock -- -- (407)
Restricted cash 1,800 (1,800) --
Payments related to the issuance of debt -- (2,882) --
- ------------------------------------------------------------------------------------
NET CASH USED FOR FINANCING
ACTIVITIES (13,272) (5,541) (3,896)
- ------------------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents (15,933) (5,017) 3,004
Cash and cash equivalents, beginning
of year 16,555 21,572 18,568
- ------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 622 $16,555 $21,572
- ------------------------------------------------------------------------------------
</TABLE>
(1) NET OF THE EFFECTS OF ACQUISITION AND THE CUMULATIVE EFFECT OF CHANGES IN
ACCOUNTING PRINCIPLE.
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION
WITH THESE STATEMENTS.
SEE NOTE 11 FOR INFORMATION ON NON-CASH INVESTING AND FINANCING ACTIVITIES.
- --------------------------------------
18
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
------------------------------------------
KUHLMAN CORPORATION
<TABLE>
<CAPTION>
Common Shares
--------------------- Additional Minimum
For the years ended Paid-in Retained Pension
December 31, 1994, 1993 and 1992 Shares Amount Capital Earnings Liability Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT SHARES
BALANCE - DECEMBER 31,1991 5,721,226 $5,721 $8,180 $35,903 $ -- $49,804
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings -- -- -- 6,224 -- 6,224
Cash dividends declared ($0.60 per share) -- -- -- (3,456) -- (3,456)
Exercise of stock options 67,367 67 458 -- -- 525
Repurchase of common stock (31,500) (31) (376) -- -- (407)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1992 5,757,093 $5,757 $8,262 $38,671 $ -- $52,690
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings -- -- -- (2,998) -- (2,998)
Cash dividends declared ($0.60 per share) -- -- -- (3,565) -- (3,565)
Exercise of stock options 185,037 185 1,629 -- -- 1,814
Issuance of common stock 80,632 81 1,137 -- -- 1,218
Minimum pension liability -- -- -- -- (245) (245)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1993 6,022,762 $6,023 $11,028 $32,108 $(245) $48,914
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings -- -- -- 1,617 -- 1,617
Cash dividends declared ($0.60 per share) -- -- -- (3,662) -- (3,662)
Exercise of stock options 84,415 84 825 -- -- 909
Issuance of common stock 38,985 39 653 -- -- 692
Minimum pension liability -- -- -- -- 202 202
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1994 6,146,162 $6,146 $12,506 $30,063 $ (43) $48,672
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SHOULD BE READ IN CONJUNCTION
WITH THESE STATEMENTS.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
---------------------------------
To the Shareholders of Kuhlman Corporation:
We have audited the accompanying consolidated balance sheets of Kuhlman
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of income (loss),
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kuhlman Corporation and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Notes 7 and 9 to the consolidated financial statements,
effective January 1, 1993, the Company changed its methods of accounting for
income taxes and postretirement benefits other than pensions.
Arthur Andersen LLP
Louisville, Kentucky
February 6, 1995
(Except with respect to the matter discussed in Note 17, as to which the date
is February 25, 1995)
--------------------------------------
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------
KUHLMAN CORPORATION
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Kuhlman
Corporation and all majority-owned subsidiaries (the "Company"). Investments of
50% or less in affiliated companies are accounted for under the equity method.
All significant intercompany transactions have been eliminated. Certain amounts
in the 1993 and 1992 financial statements have been reclassified to conform with
the 1994 presentation.
RESTRICTED CASH
In 1993, the Company placed $1,800,000 in a restricted bank account as
partial collateral for a letter of credit issued by a bank to guarantee the
Company's performance required by an industrial revenue bond indenture. In
1994, the Company replaced the 1993 letter of credit with another letter of
credit issued as part of its credit agreement with a group of banks. At the
time of replacement, the restriction on the account was removed.
INVENTORIES
Inventories are stated at the lower of cost or market using the last-in,
first-out (LIFO) method for certain qualifying inventories and the first-in,
first-out (FIFO) method for others. Approximately 50% and 61% of the
inventories at December 31, 1994 and 1993, respectively, were determined using
the LIFO method. Inventory costs include material, labor and manufacturing
overhead.
PLANT AND EQUIPMENT
Plant and equipment are carried at cost and are depreciated over the
estimated useful lives of the related assets using primarily the straight-line
method for financial reporting purposes. Plant and equipment obtained through
the acquisition of a company are recorded at estimated fair value as of the date
of acquisition. All additions subsequent to the acquisition date are recorded
at cost.
The following estimated useful lives are used:
Building and leasehold improvements 14 to 40 years
Machinery and equipment 3 to 12 years
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill related to the acquisition
of a business. Goodwill is being amortized on a straight-line basis over forty
years. The Company continually evaluates whether events and circumstances have
occurred that indicate the remaining estimated useful life of goodwill may
warrant revision or that the remaining balance of goodwill may not be
recoverable. When factors indicate that goodwill should be evaluated for
possible impairment, the Company uses an estimate of the related business
segment's undiscounted net income over the remaining life of the goodwill in
measuring whether the goodwill is recoverable. Other intangible assets are
amortized to expense using the straight-line method over six years.
INCOME TAXES
In 1994 and 1993, the Company determined income tax expense and other
deferred tax information in compliance with Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Prior years have not
been restated and accordingly reflect the procedures required by Statement of
Financial Accounting Standards (SFAS) No. 96, "Accounting for Income Taxes."
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred and totaled
approximately $249,000, $741,000 and $1,152,000 in 1994, 1993 and 1992,
respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In 1993, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." The new standard requires that the expected cost of retiree health
benefits be charged to expense during the years that the employees render
service. Previously, the Company recognized these costs as incurred.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE
Environmental remediation costs are accrued based on estimates of known
environmental remediation exposures. Liabilities are recognized for remedial
activities when the cleanup is probable and the cost can be reasonably
estimated. Environmental compliance costs include maintenance and operating
costs with respect to pollution control equipment, cost of ongoing monitoring
programs and similar costs. Such costs are expensed as incurred.
PER SHARE INFORMATION
Earnings (loss) per share are based on the weighted average number of
common shares outstanding during each year, as adjusted for any materially
dilutive common stock equivalent shares. Shares used in the per share
calculation in 1994 and 1993 were 6,097,312 and 5,926,366, respectively.
Outstanding common stock options did not have a materially dilutive effect on
earnings per share in 1994 or 1993. Shares used in the per share calculations
in 1992 were 5,939,755 which included 186,775 shares that resulted from the
primary dilutive effects of outstanding common stock options in 1992.
- -------------------------
20
<PAGE>
NOTE 2. ACQUISITION
On December 15, 1993, the Company acquired all of the outstanding stock of
Coleman Holding Company ("Coleman") for $8,993,000. The acquisition was funded
by cash of the Company. Coleman is a fully integrated manufacturer and
distributor of a broad range of electrical and electronic wire and cable
products to diverse markets principally in the United States. Coleman's
manufacturing plants are located in Illinois.
The acquisition has been accounted for by the purchase method of accounting
and accordingly, the net assets and results of operations for Coleman are
included in the Company's Consolidated Financial Statements from the date of
acquisition. The fair value of the assets acquired, including goodwill, was
$97,863,000, with liabilities assumed of $92,370,000. Cash paid for the
acquisition, net of cash acquired, was $5,493,000. The purchase price has been
allocated to the assets and liabilities of Coleman based on estimated fair
values. The purchase price and expenses associated with the acquisition
exceeded the fair value of Coleman's net assets by approximately $38,398,000
which has been assigned to goodwill. Amortization of the excess purchase price
is made over a period not to exceed forty years. Subsequent to the acquisition,
the Company refinanced approximately $63,363,000 of Coleman's outstanding debt
and certain related fees through bank borrowings. See Note 3 of the Notes To
Consolidated Financial Statements.
The following unaudited pro forma information combines the consolidated
results of operations of the Company and Coleman as if the acquisition had
occurred on January 1, 1992:
<TABLE>
<CAPTION>
In thousands 1993 1992
- --------------------------------------------------------------------------
<S> <C> <C>
Net sales $230,119 $232,838
Net income (loss) $ (815) $ 4,444
Net income (loss) per share $ (0.14) $ 0.75
</TABLE>
The pro forma operating results include each company's results of
operations for the indicated years with the adjusted depreciation and
amortization on plant and equipment, amortization of goodwill, along with other
relevant adjustments to reflect fair market value required using the purchase
method of accounting. Interest expense on Coleman's outstanding indebtedness
was adjusted to reflect the improved creditworthiness of the Company.
The pro forma information given above does not purport to be indicative of
the results that actually would have been obtained if the operations were
combined during the periods presented and is not intended to be a projection of
future results or trends.
NOTE 3. SHORT-TERM AND LONG-TERM DEBT
On December 15, 1993, the Company entered into a credit agreement with a
group of banks which replaced substantially all existing bank debt including
approximately $61,260,000 outstanding at Coleman. Pursuant to the credit
agreement, the Company obtained a $38,000,000 term loan and a revolving loan
facility which mature on December 31, 1999. The revolving loan facility allows
the Company to borrow up to $40,000,000 subject to certain availability
requirements. The Company must pay a commitment fee at an annual rate of 3/8 of
1% on the average daily unused portion of the revolving loan facility. Interest
rates on amounts borrowed vary and are based on either a Eurodollar (LIBOR) rate
plus 2.0% or a Prime (base) rate plus .75% option selected by the Company at the
time of borrowing.
The credit agreement contains various warranties and covenants pertaining
to the maintenance of net worth, compliance with certain financial ratios and
limitations on the payment of dividends, capital expenditures and the incurrence
of additional indebtedness by the Company. Under the most restrictive of these
provisions, $1,757,000 of consolidated retained earnings at December 31, 1994,
was free of any restriction as to the payment of dividends. Borrowings under
the credit agreement are generally secured by substantially all of the assets of
the Company, except for specific assets related to certain industrial revenue
bonds and capital lease obligations.
At December 31, 1994, the Company borrowed approximately $24,750,000 under
the revolving loan facility at an average interest rate of 8.2%. The Company is
not required to repay any borrowings under the revolving credit agreement before
December 31, 1999. However, the Company has classified $2,000,000 of debt
outstanding under this agreement which is expected to be repaid within one year
as notes payable. The notes payable balance could fluctuate according to the
working capital requirements of the Company. All other debt under this
agreement is classified as long-term bank debt which at December 31,1994,
carried an average interest rate of 7.7%. Short-term borrowings were $2,700,000
at December 31, 1993. At December 31, 1994, the Company had unused availability
under the credit agreement of approximately $13,866,000.
At December 31, 1994 and 1993, long-term debt consisted of the following:
<TABLE>
<CAPTION>
In thousands 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C>
Long-term debt supported by revolving and
term loan agreement with banks,
due December 31, 1999 $58,750 $ 67,700
Industrial revenue and job development
authority bonds, interest rates ranging
from .85% to 3.55%, payable in various
amounts through 1996 48 3,478
Obligations under capital leases, interest rates
ranging from 8% to 19%
(See Note 4) 2,231 2,339
Miscellaneous other long-term debt, rates ranging
from 10.25% to 12.05%, payable in various
amounts through 2011 1,199 1,052
- -------------------------------------------------------------------------------
62,228 74,569
Less-current portion (7,243) (7,211)
- -------------------------------------------------------------------------------
$54,985 $ 67,358
- -------------------------------------------------------------------------------
</TABLE>
The minimum scheduled principal payments on long-term debt outstanding at
December 31, 1994, are as follows:
<TABLE>
<CAPTION>
In thousands
- -------------------------------------------------------------------------------
<S> <C>
1995 $ 7,243
1996 6,712
1997 7,168
1998 7,672
1999 30,850
Thereafter 2,583
- -------------------------------------------------------------------------------
Total minimum scheduled principal payments $62,228
- -------------------------------------------------------------------------------
</TABLE>
-----------------------
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------
KUHLMAN CORPORATION
NOTE 4. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases various manufacturing, office and warehouse properties,
office equipment and motor vehicles under operating lease agreements which
expire at various dates over the next eight years.
The following is a summary of rent expense under all operating leases:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $2,158 $658 $703
- --------------------------------------------------------------------------
</TABLE>
Minimum future rental payments under noncancelable operating leases for
each of the next five years and in the aggregate are as follows:
<TABLE>
<CAPTION>
In thousands
- --------------------------------------------------------------------------
<S> <C>
1995 $1,854
1996 1,388
1997 1,056
1998 844
1999 796
Subsequent to 1999 1,173
- --------------------------------------------------------------------------
Total minimum rental payments $7,111
- --------------------------------------------------------------------------
</TABLE>
CAPITAL LEASES
The Company leases various manufacturing, office and warehouse properties
and office equipment under capital leases which expire at various dates through
2009. The assets and liabilities under capital leases are recorded at the lower
of the present value of the minimum lease payments or the fair value of the
assets. The assets are depreciated over the shorter of their related lease
terms or their estimated productive lives. Depreciation of assets under capital
leases is included in depreciation expense.
At December 31, 1994 and 1993, property under capital leases included with
plant and equipment in the accompanying consolidated balance sheets is as
follows:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C>
Buildings and improvements $2,360 $2,360
Machinery and equipment 384 384
- --------------------------------------------------------------------------
2,744 2,744
Less-accumulated depreciation (879) (702)
- --------------------------------------------------------------------------
Plant and equipment, net $1,865 $2,042
- --------------------------------------------------------------------------
</TABLE>
Minimum future lease payments under capital leases as of December 31, 1994,
are as follows:
<TABLE>
<CAPTION>
In thousands
- --------------------------------------------------------------------------
<S> <C>
1995 $ 464
1996 410
1997 424
1998 424
1999 414
Subsequent to 1999 3,604
- --------------------------------------------------------------------------
Total minimum lease payments $5,740
Less-amounts representing interest (3,509)
- --------------------------------------------------------------------------
Present value of net minimum lease payments 2,231
Less-current portion (118)
- --------------------------------------------------------------------------
Long-term obligations under capital leases $2,113
- --------------------------------------------------------------------------
</TABLE>
Certain capital leases provide for purchase options. Generally, purchase
options are at prices representing the expected fair value of the property at
the expiration of the lease term.
SEVERANCE AGREEMENTS
The Company instituted a severance policy in 1994 applicable to certain
executive officers designated by its Board of Directors. The severance policy
provides that if an executive officer's employment is terminated, the
executive's base pay, medical and dental coverage, health and accident insurance
and disability and group life insurance will be continued for a period of
twenty-four months, subject to certain conditions. The aggregate commitment
under the executive severance policy should all six covered employees be
terminated is approximately $3,300,000.
LEGAL MATTERS
The Company is involved in several legal matters. In the opinion of
management and outside legal counsel, the outcome of current matters will not
have a materially adverse effect on the financial position or results of
operations of the Company.
NOTE 5. INVENTORIES
Inventories at December 31, 1994 and 1993, consisted of the following:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C>
FIFO cost:
Raw materials $11,006 $10,193
Work-in-progress 2,595 4,090
Finished products 13,532 14,256
- --------------------------------------------------------------------------
27,133 28,539
Excess of FIFO over LIFO cost (3,066) -
- --------------------------------------------------------------------------
$24,067 $28,539
- --------------------------------------------------------------------------
</TABLE>
NOTE 6. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1994 and 1993, consisted of the
following:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C>
Salaries, wages and employee benefits $ 6,426 $ 7,442
Dividends payable 922 900
Warranty related accruals 1,145 1,487
Taxes other than income 417 431
Restructuring - 3,282
Other 5,236 7,544
- --------------------------------------------------------------------------
$14,146 $21,086
- --------------------------------------------------------------------------
</TABLE>
NOTE 7. INCOME TAXES
The Company reported income before taxes of $2,923,000 in 1994, a loss
before taxes and cumulative effect of accounting change of $5,101,000 in 1993
and income before taxes of $10,323,000 in 1992.
- ----------------------
22
<PAGE>
Income taxes are deferred as a result of differences in the timing of the
recognition of income and expenses for income tax and financial reporting
purposes. The provision (benefit) for income taxes and significant components
of the deferred income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable (refundable)
Federal $(1,194) $ (640) $3,372
State & local (29) (306) 747
Deferred-
Excess book over
tax depreciation (184) (32) (193)
Employee benefit plans,
deferred compensation
and pensions (49) (92) (187)
Reserves for interest - 423 14
Inventory reserves 395 - -
Intangible asset amortization 753 - -
Deferred warranty income 121 (127) (79)
Restructuring costs 1,352 (1,285) -
Additional taxes provided - (1,418) 284
Bad debt reserves 191 120 -
Other (50) (35) 141
- --------------------------------------------------------------------------
$1,306 $(3,392) $4,099
- --------------------------------------------------------------------------
</TABLE>
The effective income tax provision (benefit) differs from the amount
calculated using the statutory United States federal income tax rate,
principally due to the following:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- --------------------------------------------------------------------------------------------------
Percentage Percentage Percentage
of income of income of income
Amount before taxes Amount before taxes Amount before taxes
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory United States
federal income tax $ 994 34.0% $(1,734) (34.0%) $3,510 34.0%
State income taxes, net of
federal income tax effect 169 5.8 (202) (3.9) 456 4.4
Additional taxes provided - - (1,418) (27.8) 284 2.8
Amortization of goodwill 326 11.2 - - - -
Effect of stock options (64) (2.2) (248) (4.9) (170) (1.6)
Foreign tax credit (200) (6.8) - - - -
Other 81 2.7 210 4.1 19 .1
- --------------------------------------------------------------------------------------------------
$1,306 44.7% $(3,392) (66.5%) $4,099 39.7%
- --------------------------------------------------------------------------------------------------
</TABLE>
In accordance with Statement of Financial Accounting Standards No. 106,
the cumulative effect of the change in accounting principle to recognize the
cost of postretirement benefits has been presented in the consolidated
statements of income (loss), net of income taxes. Therefore, the income tax
provision (benefit) does not reflect a separate deferred tax benefit for these
expenses.
The net deferred tax asset recognized in the consolidated balance sheets as
of December 31, 1994 and 1993, consists of the following:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C>
Total deferred tax assets $7,451 $10,580
Total deferred tax liabilities (1,580) (1,960)
- --------------------------------------------------------------------------
$5,871 $ 8,620
- --------------------------------------------------------------------------
</TABLE>
The tax effect of each temporary difference and carryforward that gives
rise to significant deferred tax assets and deferred tax liabilities as of
December 31, 1994 and 1993, is as follows:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C>
Accumulated tax depreciation of
property and equipment in excess
of accumulated book depreciation $(1,385) $(1,840)
Net operating loss carryforwards 2,061 2,000
Inventory reserves 638 700
Deferred warranty income 282 465
Accrued restructuring costs 926 3,386
Postretirement benefits 844 874
Bad debt reserves 138 346
Accrued employee benefits 1,565 1,634
Miscellaneous accruals 802 1,055
- --------------------------------------------------------------------------
$ 5,871 $ 8,620
- --------------------------------------------------------------------------
</TABLE>
One of the Company's wholly-owned subsidiaries has available net operating
losses which expire as follows:
<TABLE>
<CAPTION>
In thousands
- --------------------------------------------------------------------------
<S> <C>
2004 $ 1,600
2005 3,400
2006 425
- --------------------------------------------------------------------------
$ 5,425
- --------------------------------------------------------------------------
</TABLE>
Based upon anticipated reversals of temporary differences and other
projected taxable income for future periods, management believes that a
valuation allowance for the net deferred tax asset is not necessary.
NOTE 8. EMPLOYEE RETIREMENT PLANS
The Company has various employee retirement plans which provide pension
benefits to substantially all of its employees. Defined benefit plans covering
the hourly employees provide benefits of stated amounts based on an employee's
years of service. Plans covering salaried employees provide benefits that are
based on an employee's years of service and compensation during that period.
The total expense under these plans amounted to $473,000 in 1994,
$1,263,000 in 1993 and $328,000 in 1992. Pension expense for the defined
benefit plans in 1994, 1993 and 1992 is comprised of the following elements:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Current service cost $ 713 $ 901 $ 1,009
Interest on projected benefit
obligations 1,253 1,444 1,386
Actual return on assets 835 (645) (1,045)
Gain due to curtailment (138) - -
Net amortization and deferral (2,190) (437) (1,022)
- --------------------------------------------------------------------------
$ 473 $ 1,263 $ 328
- --------------------------------------------------------------------------
</TABLE>
------------------------------
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------
KUHLMAN CORPORATION
The Company's funding policy is to make annual contributions required by
applicable regulations, which may, from time to time, exceed the Internal
Revenue Service deductibility limits by immaterial amounts. The Company
annually contributes to the defined benefit plans amounts which are actuarially
determined to provide the plans with sufficient assets to meet future benefit
payment requirements. Plan assets are comprised primarily of stocks, U.S.
Government securities and corporate bonds.
The following table summarizes the funded status of the Company's defined
benefit pension plans and the related amounts recognized in the Company's
consolidated balance sheets as of December 31, 1994 and 1993:
<TABLE>
<CAPTION>
In thousands 1994 1993
- ------------------------------------------------------------------------------------------
Underfunded Overfunded Underfunded Overfunded
Plans Plans Plans Plans
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations-
Vested $11,413 $ 2,851 $12,763 $ 2,952
Nonvested 567 162 834 327
- ------------------------------------------------------------------------------------------
Accumulated benefit obligations 11,980 3,013 13,597 3,279
Effects of salary progression 217 - 269 -
- ------------------------------------------------------------------------------------------
Projected benefit obligations 12,197 3,013 13,866 3,279
Plan assets at fair value 10,972 3,552 12,508 3,586
- ------------------------------------------------------------------------------------------
Plan assets over/(under) projected
benefit obligations $(1,225) $539 $(1,358) $ 307
- ------------------------------------------------------------------------------------------
Pension benefit recognized in the
consolidated balance sheets $ (758) $ 1,085 $ (863) $ 938
Amounts not recognized:
Net asset upon transition to
new accounting standard 477 263 549 292
Net loss (869) (534) (1,359) (514)
Prior service cost (75) (439) 315 (547)
Additional liability - 164 - 138
- ------------------------------------------------------------------------------------------
Total $(1,225) $ 539 $(1,358) $ 307
Additional liability $ 614 - $749 -
Intangible asset $ (543) - $ (340) -
Pre-tax reduction to
shareholders' equity $ 71 - $ 409 -
</TABLE>
The assumptions used as of December 31, 1994 and 1993, in determining
pension expense and funded status information shown above are as follows:
<TABLE>
<CAPTION>
1994 1993
- --------------------------------------------------------------------------
<S> <C> <C>
Discount rate 8.7% 7.2%
Rate of salary progression 4.2% 4.2%
Long-term rate of return on assets 9.7% 9.7%
</TABLE>
The Company eliminated its interest in the Quality Spring/Togo joint
venture in 1993. Prerequisite to this action was the split-out of hourly
employees under a joint plan. The Company transferred $1,584,000 from its
Master Trust Account to the new entity's plan based on actuarial assumptions.
Pursuant to the Company's Plan, salaried personnel's pension benefits for
Quality Spring/Togo were frozen at September 30, 1993, and will remain part of
the Company's Plan.
In 1993, the Company amended certain of its plans to provide improved
benefits to retirees. The effect of the amendment was an increase of
approximately $690,000 in the projected benefit obligation.
For pension plans with accumulated benefits in excess of assets at December
31, 1994, the accompanying balance sheet reflects an additional long-term
pension liability of $614,000, a long-term intangible asset of $543,000 and a
reduction to shareholders' equity of $43,000 net of deferred tax benefits,
representing the excess of additional long-term pension liability over
unrecognized prior service cost. Similar balance sheet recognition is not
required for pension plans with assets in excess of accumulated benefits.
In addition to providing pension benefits, the Company and its operating
subsidiaries provide savings plans for certain employees. The plans provide for
matching contributions based on the terms of such plans to the accounts of plan
participants. The Company and its operating subsidiaries expensed $138,000,
$127,000 and $231,000 for these plans in the years ended December 31, 1994, 1993
and 1992, respectively.
NOTE 9. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective January 1, 1993, the Company adopted SFAS No. 106, "Accounting
for Postretirement Benefits Other Than Pensions." This statement requires the
Company to accrue the cost of providing postretirement benefits during the
active service period of the employee. Employees retiring from the Company on
or after their 55th birthday, who have rendered specific years of service, are
entitled to postretirement health care and medical coverage, subject to
deductibles, co-payments and other limitations. At the time of election, the
Company recognized an accumulated liability, which resulted in an after-tax
charge of $1,289,000 in the first quarter of 1993. Prior to 1993, the Company
recognized these expenses as they were incurred.
Net periodic postretirement benefit cost for 1994 and 1993 included the
following components:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C>
Service cost-benefits attributed to service
during the period $ 43 $ 42
Interest cost on accumulated postretirement
benefit obligation 148 150
- --------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 191 $ 192
- --------------------------------------------------------------------------
</TABLE>
The amounts recognized in the Company's consolidated balance sheets at
December 31, 1994 and 1993, were as follows:
<TABLE>
<CAPTION>
In thousands 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $1,320 $1,268
Fully eligible active plan participants 134 263
- --------------------------------------------------------------------------
Fully eligible 1,454 1,531
Other active plan participants 470 601
- --------------------------------------------------------------------------
Accumulated benefit obligation 1,924 2,132
Unrecognized net gain 325 102
- --------------------------------------------------------------------------
Postretirement liability recognized in
financial statements $2,249 $2,234
- --------------------------------------------------------------------------
</TABLE>
- ------------------------
24
<PAGE>
The accumulated postretirement benefit obligation was determined using an
8.7% discount rate. A 14.5% increase in the per capita claims cost was assumed
for years 1995 and 1996. The assumption provides for this rate to decline by
1.5% every other year through 2008 and then remain constant at 4% thereafter.
A 1% increase in the health care cost trend rate would increase the
estimated accumulated postretirement benefit obligation as of December 31, 1994,
by approximately $38,000. The impact on net periodic cost is minimal. No
funding has been established by the Company for postretirement benefits.
NOTE 10. RESTRUCTURING CHARGE
In the first quarter of 1993, the Company recorded a restructuring charge
of $8,650,000 ($5,304,000 net of tax benefits or $0.90 per share). The
restructuring charge was for actions implemented by the Company to reduce its
cost structure and to improve its operating efficiencies, primarily at its
Kuhlman Electric subsidiary. The charge included $5,281,000 for severance,
pension and other personnel costs primarily related to reductions in the
salaried and hourly workforce, $1,468,000 for the writedown and disposal of
operating assets due to the elimination of unprofitable product lines,
$1,735,000 for the implementation of programs to streamline operations and
$166,000 for other writeoffs. In 1994, the Company made cash outlays of
$3,282,000 related to the restructuring program. In 1993, the Company made cash
outlays of $4,143,000 and recognized asset writedowns of $1,225,000 related to
the restructuring program.
NOTE 11. SUPPLEMENTAL CASH FLOW INFORMATION
For purposes of the consolidated statements of cash flows, the Company
considers all investments with original maturities of three months or less as
cash equivalents.
Cash payments for interest and net cash payments (refunds) for income taxes
are as follows:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Interest $4,300 $ 1,127 $ 707
Income taxes, net of refunds $ (120) $(1,928) $4,633
- --------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL NON-CASH INVESTING AND FINANCIAL ACTIVITIES
During 1994, the Company issued 28,169 shares of its common stock to an
executive in a non-cash transaction. The shares would have to be returned to
the Company in the event the executive left the Company within one year from the
time of this issuance. The fair market value of the stock at the time of
issuance was approximately $500,000 and approximately $375,000 of this amount
was charged to expense during 1994.
During 1994, the Company sold and disposed of certain non-operating assets
generating $100,000 in cash. The Company, which recorded a loss of $92,000 on
these transactions, reduced plant and equipment and accumulated depreciation by
$1,838,000 and $1,646,000, respectively, in 1994.
During 1993, the Company issued 50,000 shares of its common stock to an
executive in a non-cash transaction. The fair market value of the stock at the
time of issuance was $750,000, and this amount was charged to expense during
1993.
During 1993, the Company issued 19,047 shares of its common stock to an
executive in lieu of a cash bonus. The fair market value of the stock at the
time of issuance was approximately $300,000, and this amount was charged to
expense during 1993.
During 1993, the Company sold an idle building and disposed of certain
non-operating assets generating $2,443,000 in cash. The Company, which recorded
a cumulative loss on these transactions of $1,071,000, reduced plant and
equipment, accumulated depreciation and certain other assets by $4,498,000,
$1,609,000 and $604,000, respectively, in 1993.
See Note 2. Acquisition and Note 10. Restructuring Charge to the Notes to
Consolidated Financial Statements for additional supplemental information on
non-cash investing and financing activities.
NOTE 12. STOCK PURCHASE RIGHTS AND OPTION PLANS
PREFERRED STOCK PURCHASE RIGHTS
The Company has distributed one preferred stock purchase right for each
outstanding share of common stock. Each right entitles the holder to purchase
one one-hundredth (1/100) of a share of newly authorized Junior Participating
Preferred Stock at a price of $55 per right. The rights, which do not have
voting rights, will be exercisable only if a person or group acquires 20% or
more of the Company's common stock without the Company's prior consent or
announces a tender offer which would result in such ownership of 30% or more of
the common stock. In the event the rights become exercisable and thereafter the
Company is acquired in a merger or other business combination, each right will
entitle its holder to purchase, at the right's then-current exercise price,
common stock of the acquiring Company having a value of twice the exercise price
of the right.
The rights expire on April 30, 1997, and may be redeemed by the Company at
a price of $0.01 per right at any time prior to 10 days after a 20% position has
been acquired and under certain circumstances thereafter.
COMMON STOCK OPTIONS
The Company maintains two employee stock option plans, a 1983 Plan and a
1986 Plan. The 1983 Plan expired in 1993, except to the extent that options
were outstanding. The 1986 Plan provides for the granting of options to
officers and key employees of the Company. All options under this plan may be
granted at prices equal to the market value at the date of grant and may be
exercised up to ten years from that date. As of December 31, 1994, no options
were available for grants under the 1986 Plan.
In 1993, the Board of Directors adopted, and the shareholders approved, the
1993 Non-Employee Director's Stock Plan ("New Director's Plan"). Pursuant to
the New Director's Plan, each non-employee
-------------------------
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------
KUHLMAN CORPORATION
director receives annually a number of shares equal to an aggregate fair market
value of $24,000 concurrent with the meeting of the Board of Directors held each
year following the Annual Meeting of Shareholders. A total of 52,599 shares
were available for grants as of December 31, 1994. With the adoption of the
1993 New Director's Plan, the 1988 Stock Option Plan for Non-Employee Directors
was terminated, except to the extent that options were outstanding.
The following table summarizes the transactions pursuant to the Company's
stock option plans for the three-year period ended December 31, 1994:
<TABLE>
<CAPTION>
Number of Option
In thousands, except option prices Shares Prices
- -----------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at
January 1, 1992 786 $ 5.44 to $16.90
- -----------------------------------------------------------------------------
Granted 83 $15.63
Exercised (71) $ 5.44 to $12.58
Expired or terminated (17) $ 9.13 to $16.90
- -----------------------------------------------------------------------------
Options outstanding at
December 31, 1992 781 $ 5.44 to $16.90
- -----------------------------------------------------------------------------
Granted 294 $ 14.50 to $16.13
Exercised (201) $ 5.44 to $15.63
Expired or terminated (33) $ 12.32 to $16.90
- -----------------------------------------------------------------------------
Options outstanding at
December 31, 1993 841 $ 7.06 to $16.90
- -----------------------------------------------------------------------------
Granted 344 $ 17.00 to $17.75
Exercised (86) $ 7.06 to $16.90
Expired or terminated (19) $ 7.06 to $16.90
- -----------------------------------------------------------------------------
Options outstanding at
December 31, 1994 1,080 $ 7.38 to $17.75
- -----------------------------------------------------------------------------
Exercisable at December 31, 1994 1,080
- -----------------------------------------------------------------------------
</TABLE>
In 1994, the Company adopted the Kuhlman Corporation 1994 Stock
Appreciation Rights Plan (the "SAR Plan"). The SAR Plan provides for
discretionary grants to key employees of cash-only stock appreciation rights
based on shares of the Company's common stock. Each Stock Appreciation Right
("SAR") measures the change in value of a share of the Company's common stock
from the date of grant to the date of exercise. A total of 1.5 million SAR's
are authorized to be granted under the Plan. As of December 31, 1994, 151,000
SAR's with a basis of $13.875 per SAR had been awarded and were outstanding
under the SAR Plan.
NOTE 13. BUSINESS SEGMENT INFORMATION
The Company's lines of business are described on pages 6 to 11 of this
report. Net sales represent shipments to unaffiliated customers. Operating
profit for each segment includes all costs and expenses directly related to the
segment before financing charges or corporate allocations. Corporate items
principally represent general and administrative costs. The Company's
manufacturing operations are located in the United States. The Company sells
its products primarily throughout the United States. The Company's export sales
were less than 1% of net sales for each of the years ended December 31, 1994,
1993 and 1992.
Identifiable assets are those used in the operations of each business
segment. Corporate assets consist primarily of cash and cash equivalents.
Prior to the acquisition of Coleman on December 15, 1993, the Company
operated principally in a single segment, electrical apparatus. Therefore,
segment information below is not meaningful for years prior to 1993 and,
accordingly, has been omitted.
The Company's segment information for the years ended December 31, 1994 and
1993, is as follows:
<TABLE>
In thousands 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C>
NET SALES
Wire and Cable $138,994 $ 4,171
Electrical 96,280 105,287
Other 7,572 8,639
- --------------------------------------------------------------------------
$242,846 $118,097
- --------------------------------------------------------------------------
INCOME (LOSS) BEFORE TAXES AND ACCOUNTING CHANGE
Wire and Cable $ 9,437 $ 140
Electrical 62 2,154
Other 621 543
Corporate (1) (3,855) (986)
Restructuring Charge (2) - (8,650)
- --------------------------------------------------------------------------
Operating Profit (Loss) 6,265 (6,799)
Interest Income(Expense), Net (4,051) (312)
Unallocated 709 2,010
- --------------------------------------------------------------------------
$ 2,923 $ (5,101)
- --------------------------------------------------------------------------
IDENTIFIABLE ASSETS
Wire and Cable $ 96,831 $ 95,876
Electrical 45,359 52,930
Other 2,825 2,316
Corporate/Unallocated 1,548 12,920
- --------------------------------------------------------------------------
$146,563 $164,042
- --------------------------------------------------------------------------
CAPITAL EXPENDITURES
Wire and Cable $ 3,869 $ 59
Electrical 2,414 2,370
Other 182 224
Corporate/Unallocated 554 141
- --------------------------------------------------------------------------
$ 7,019 $ 2,794
- --------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION
Wire and Cable $ 3,161 $ 126
Electrical 2,245 2,509
Other 139 123
Corporate/Unallocated 30 10
- --------------------------------------------------------------------------
$ 5,575 $ 2,768
- --------------------------------------------------------------------------
<FN>
(1) REPRESENTS EXPENSES ASSOCIATED WITH THE COMPANY'S HEADQUARTERS SINCE ITS
DATE OF REINCORPORATION IN 1993.
(2) RESTRUCTURING CHARGE OF $8,650 RELATES SUBSTANTIALLY TO THE ELECTRICAL
SEGMENT.
</TABLE>
NOTE 14. FINANCIAL INSTRUMENTS
OFF-BALANCE SHEET RISK
The Company enters into contracts and options hedging future commodity
purchases, principally copper, for periods consistent with the terms of the
underlying transactions. The Company does not engage in speculation. While the
commodity hedging contracts and options affect the Company's results of
operations, they do so only in connection with the underlying transactions. As
a result, they do not subject the Company to risk from commodity price
movements, because gains and losses on these contracts offset losses and gains
on the transactions being hedged. At December 31, 1994 and 1993, the Company
had $5,990,000 and
- -----------------------------
26
<PAGE>
$753,000 of commodity hedging contracts and options outstanding, substantially
all of which were for copper. The hedging contracts generally have maturities
that do not exceed twelve months. At December 31, 1994, the unrealized gains on
hedging contracts and options were immaterial.
CONCENTRATIONS OF CREDIT RISK
As of December 31, 1994, the Company had approximately $11,686,000 in
receivables from electrical utility customers involved in the generation,
transmission or distribution of electricity. At December 31, 1994, there were
no other significant group concentrations of credit risk.
FAIR VALUE OF FINANCIAL INVESTMENTS
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, trade payables and debt instruments. The book
values of cash and cash equivalents, trade receivables and trade payables are
considered to be representative of their respective fair values. The Company
had approximately $62,228,000 of debt instruments at December 31, 1994, for
which the fair value approximated the book value.
GUARANTEES
The Company has guaranteed the payment obligations for certain leases of
its subsidiaries. These guarantees amounted to $1,483,000 at December 31, 1994.
As of December 31, 1994, a subsidiary has guaranteed up to $2,000,000 of bank
debt financing of an unconsolidated affiliate under a joint venture agreement.
The Company is of the opinion that its subsidiaries and the unconsolidated
affiliate will be able to perform under their respective obligations and that no
payments will be required and no losses will be incurred under such guarantees.
LETTERS OF CREDIT AND SURETY BONDS
At December 31, 1994, the Company had letters of credit and surety bonds
outstanding totaling $1,946,000 which guarantee various activities, including
performance of the Company's obligations under certain self-insured workers'
compensation insurance programs. The Company is of the opinion that no losses
will be incurred due to non-performance of these obligations.
NOTE 15. OTHER INCOME (EXPENSE)
Other income (expense) for the years ended December 31, 1994, 1993 and
1992, consisted of the following:
<TABLE>
<CAPTION>
In thousands 1994 1993 1992
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Covenant not to compete $1,250 $1,250 $1,250
Royalty income 846 874 868
Gain on tax-related settlement - 800 -
Rental income 30 299 375
Loss on disposal of equipment (92) (1,037) -
Carrying costs of non-operating assets (534) - -
Expenses of terminated merger (530) - -
Other, net (261) (176) 104
- --------------------------------------------------------------------------
$709 $2,010 $2,597
- --------------------------------------------------------------------------
</TABLE>
NOTE 16. QUARTERLY FINANCIAL DATA (UNAUDITED)
The Company's quarterly results are summarized below for the years ended
December 31, 1994 and 1993.
<TABLE>
<CAPTION>
In thousands, except per share data Quarter
- --------------------------------------------------------------------------
1994 First Second Third Fourth Total
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $62,416 $56,990 $64,133 $59,307 $242,846
Gross profit $11,010 $ 9,822 $10,855 $ 8,796 $ 40,483
Operating profit $ 2,306 $ 1,350 $ 2,553 $ 56 $ 6,265
Net income (loss) $ 1,136 $ 296 $ 1,286 $(1,101) $ 1,617
Net income (loss)
per share $ 0.19 $ 0.05 $ 0.21 $ (0.18) $ 0.27
<CAPTION>
In thousands, except per share data Quarter
- --------------------------------------------------------------------------
1993 First Second Third Fourth Total
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $27,243 $28,946 $29,992 $31,916 $118,097
Gross profit $ 4,363 $ 4,330 $ 4,412 $ 4,842 $ 17,947
Operating
profit (loss) $(8,545) $ 739 $ 418 $ 589 $ (6,799)
Net income (loss) $(5,962) $ 781 $ 1,268 $ 915 $ (2,998)
Net income (loss)
per share $ (1.02) $ 0.13 $ 0.21 $ 0.15 $ (0.51)
</TABLE>
NOTE 17. SUBSEQUENT EVENT
On February 25, 1995, Kuhlman Corporation entered into an agreement to
merge Schwitzer, Inc. ("Schwitzer"), a New York Stock Exchange listed company,
with a wholly-owned subsidiary of Kuhlman. In the transaction, shares of
Schwitzer common stock will be converted into shares of Kuhlman common stock
using an exchange ratio of 0.9615 share of Kuhlman for each outstanding share of
Schwitzer. The merger is subject to certain closing conditions, including the
approval of the shareholders of both companies. It is anticipated that this
transaction will be consummated in the second quarter of 1995 following approval
by shareholders of both companies at their respective annual meetings of
shareholders.
Schwitzer designs, manufactures and markets turbochargers, fan drives,
cooling fans and crankshaft vibration dampers for enhancing the efficiency of
diesel and gasoline engines. Sales and net income for its fiscal year ended
January 1, 1995 were approximately $153,271,000 and $8,930,000, respectively.
Schwitzer had approximately 7.2 million shares outstanding as of February 25,
1995.
--------------------------
27
<PAGE>
BOARD OF DIRECTORS
- -----------------------------------
CURTIS G. ANDERSON
President and Chief Operating Officer
WILLIAM E. BURCH
Consultant. Former President and Chief Executive Officer of Fred S. James
& Co.
STEVE CENKO
Consultant. Former President of Lamb Systems Group
ALEXANDER W. DREYFOOS, JR.
Chairman of the Board, Photo Electronics Corporation and
WPEC TV (Palm Beach, Florida)
ROBERT S. JEPSON, JR.
Chairman of the Board and Chief Executive Officer
WILLIAM M. KEARNS, JR.
President, W.M. Kearns & Co., Inc. (Private Investment Company)
ROBERT D. KILPATRICK
Retired. Former Chairman of the Board and Chief Executive Officer of
CIGNA Corporation
JOHN L. MARCELLUS, JR.
Retired. Former Chairman, President and Chief Executive Officer of Oneida
Ltd.
GEORGE J. MICHEL, JR.
Private Investor and Consultant. Chairman of Windstar International, Inc.
(Management Consulting). Former Chairman and Chief Executive Officer of
Stanadyne, Inc.
GENERAL H. NORMAN SCHWARZKOPF
General, U.S. Army, Retired. Author, Lecturer, TV Consultant
AUDIT COMMITTEE
William E. Burch, Chairman
Alexander W. Dreyfoos, Jr.
John L. Marcellus, Jr.
COMPENSATION COMMITTEE
Robert D. Kilpatrick, Chairman
Steve Cenko
Gen. H. Norman Schwarzkopf
FINANCE COMMITTEE
George J. Michel, Jr., Chairman
Curtis G. Anderson
William M. Kearns, Jr.
OFFICERS
- ----------------------------
ROBERT S. JEPSON, JR.
Chairman of the Board and Chief Executive Officer
CURTIS G. ANDERSON
President and Chief Operating Officer
VERNON J. NAGEL
Executive Vice President of Finance, Chief Financial Officer and
Treasurer
RICHARD A. WALKER
Executive Vice President, Chief Administrative Officer, General Counsel
and Secretary
OPERATING COMPANIES AND PRESIDENTS
- ----------------------------
KUHLMAN ELECTRIC CORPORATION
101 Kuhlman Boulevard
Versailles, Kentucky 40383
(Operating facilities in Crystal Springs, Mississippi; Salinas, California;
and Versailles, Kentucky)
GRAHAM J. BEARE, President and Chief Executive Officer
COLEMAN CABLE SYSTEMS, INC.
2500 Commonwealth Avenue
North Chicago, Illinois 60064
(Operating facilities in Dekalb, Illinois; North Chicago, Illinois; and
Waukegan, Illinois)
JAMES H. COLEMAN, President and Chief Executive Officer
EMTEC PRODUCTS CORPORATION
200 Jay Street
Coldwater, Michigan 49036
(Operating facilities in Coldwater, Michigan, and Elyria, Ohio)
HENRY ORLOWSKI, President and Chief Executive Officer
SHAREHOLDER INFORMATION
- -----------------------------
CORPORATE HEADQUARTERS
1 Skidaway Village Walk, Suite 201
Savannah, Georgia 31411
Tel: (912) 598-7809 Fax: (912) 598-0737
STOCK LISTING
The Common Stock of Kuhlman Corporation
is listed on the New York Stock Exchange
(NYSE:KUH).
TRANSFER AGENT AND REGISTRAR
Harris Trust and Savings Bank
311 West Monroe, 14th Floor
P.O. Box 755
Chicago, Illinois 60690
Tel: (312) 461-3597 Fax: (312) 765-8052
- -C- 1995 Kuhlman Corporation
<PAGE>
KUHLMAN CORPORATION
1 SKIDAWAY VILLAGE WALK, SUITE 201
SAVANNAH, GA 31411
(912) 598-7809
<PAGE>
APPENDIX G
SCHWITZER ANNUAL REPORT TO STOCKHOLDERS
FOR THE FISCAL YEAR ENDED JANUARY 1, 1995
<PAGE>
SCHWITZER, INC.
ANNUAL REPORT
[GRAPHIC OF MAP]
<PAGE>
SCHWITZER, INC.
[PHOTO OF AUTOMOTIVE COMPONENTS]
Turbochargers, the company's largest volume product, are sold in over 60
countries. Turbos are applied to engines to increase horsepower and reduce fuel
consumption and emissions, by recycling energy that would otherwise be lost
through the exhaust pipe. Hot exhaust is full of energy. When this exhaust is
recycled to power the turbine wheel, air is packed into cylinders for better
combustion efficiency, more power, and cleaner exhaust.
Fan drives save fuel, allow more useable engine power and reduce environmental
noise by disengaging the engine fan when additional air flow is not required.
Fan drives automatically engage when engine temperatures get too hot; when the
engine cools down, fan drives automatically disengage.
Schwitzer is a worldwide leader in fan design and manufacturing technology,
offering fans made of light-weight metal, molded polymer and hybrid fans. Fans
cool engines and protect them from overheating. As the number one manufacturer
of heavy-duty fans in North American, Schwitzer offers a full line of fans which
are designed for specific customers.
Vibration dampers reduce engine vibration and stress, increasing performance and
engine life while reducing noise. The vibration is created by the consistent
stress of internal combustion. Schwitzer crankcase dampers absorb engine
vibrations to prolong engine life.
Key industry customers that utilize Schwitzer products globally in producing
their engine and vehicle products include: Caterpillar, Chrysler,
Detroit Diesel, Ford, General Motors, Hercules, Iveco, J.I. Case, John Deere,
Komatsu Dresser, Leyland DAF, MWM, Mack Trucks, MAN, KHD, Mercedes-Benz,
Navistar, Perkins, RVI, Saab-Scania, Steyr, Teledyne, VM, Valmet, Volvo and
Volvo GM.
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1994 1993 1992(1) 1991 1990
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $153.3 $124.1 $109.7 $111.0 $114.4
Income from operations 17.0 9.6 4.9 9.7 11.3
Income (loss) before
income taxes 12.7 3.5 (.5) 3.2 6.0
Income (loss) before
cumulative effect
of accounting changes 8.9 2.5 (1.4) 1.7 3.7
Per common share 1.21 .35 (.19) .23 .52
Net income (loss) 8.9 2.5 (11.3) 1.7 3.7
Per common share 1.21 .35 (1.58) .23 .52
Total assets 82.6 78.3 77.0 87.0 89.4
Long-term debt 21.9 30.5 30.0 32.9 38.8
- -----------------------------------------------------------------------------------------------------
<FN>
(1) Reflects adoption of SFAS Nos. 106 and 109, as disclosed in Notes 10 and 11
to the Consolidated Financial Statements appearing elsewhere in this Annual
Report, and includes restructuring charge of $1.65 million ($1.0 million
after tax).
</TABLE>
[GRAPH]
NET SALES
[GRAPH
INCOME FROM OPERATIONS
[GRAPH]
TOTAL DEBT
[GRAPH]
RETURN ON INVESTMENTS
1
<PAGE>
TO OUR SHAREHOLDERS
During 1994, Schwitzer, Inc. achieved record results and made substantial
accomplishments. We commercialized new and improved products, achieved new
customer applications, implemented new processes and increased capacity to meet
world class manufacturer standards. We also focused on ways of benefiting from
opportunities in existing market segments in which we have not previously
participated, as well as developing geographical markets, to enhance our global
exposure.
FINANCIAL RESULTS
Net earnings for 1994 improved to $8.9 million, or $1.21 per share, making it
our most profitable year since the company became public in 1989. Net earnings
for 1993 were $2.5 million, or $.35 per share. This year's earnings were
reduced by approximately $550,000 due to abnormal items.
Net sales for 1994 were $153.3 million, up 24% from sales of $124.1 million in
1993. In North America, sales volume increased 16% due to strong industry
markets and new product applications. European sales were up 42% as a result of
both improving market strength and market share increases. This is particularly
encouraging since previous licensing agreements have allowed Schwitzer to
compete in European original equipment manufacturers (OEM) markets only since
the mid- to late 1980's. South American customer sales increased 48% as a
result of increased industry volume and market share gains. In addition, the
Campinas, Brazil plant supplied a significant volume of processed parts for the
North American and European sister divisions in support of their customers'
requirements.
For the year, Schwitzer reduced total debt by $9.1 million to $22.5 million.
The debt-to-total-capitalization improved to 48% from 68%. Our previous process
and facility improvement programs permitted us to realize an attractive return
on investment exceeding 19% and a return on year-end shareholders' equity of
36%.
HIGHLIGHTS
During 1994, we sold the idle facility in Stratford, Canada. We also negotiated
the prospective sale of the idle Rolla, Missouri facility. The sale is
contingent upon the completion of certain environmental clean up requirements.
Environmental cleanup at the site is expected to conclude during 1995 within the
reserve provided. We expect the sale of the Rolla facility to be completed
during the second quarter of 1995 and the proceeds of $2.3 million to be
received. Our interest rate swap agreement expired during April, resulting in
an after tax savings of $600,000 for the year.
Our new Gainsville, Georgia metal fan operation continued its progress during
the year and reduced the start up costs significantly from the prior year.
These costs were still higher than expected, but will be further reduced during
1995. The volume produced at this plan was at record levels, with customer
service and product quality also improving.
Schwitzer's strong worldwide markets required significant production overtime
and expedient methods for transportation and handling to support customers'
demands. In spite of these higher cost factors, our gross margins improved
strongly from the prior year.
During the year, we increased our capital spending programs to improve our
production processes in order to achieve higher quality and productivity
standards. In addition, we selectively expanded capacity for bottle-neck
operations in all three countries. In order to preserve and effectively use
capital expenditures, we have further developed the use of "cell partnerships."
These entrepreneurial partnerships utilize the know-how and physical assets of
our partners to increase capacity, improve customer service flexibility and
reduce operating costs. These cell partnerships continue to be developed
globally to take advantage of opportunities that exist.
Over the years, Schwitzer has implemented programs to build flexibility into its
operations. We have organized our employee groups around product lines. This
permits us to produce products to fit exact customer specifications. This
product team approach encompasses all aspects of design, production, purchasing,
quality control and inventory scheduling. Our leadership in technology and
responsiveness is an important resource in our efforts to attract new customers
and retain existing ones.
We have positioned our plant operations to support demand flow production
systems. This allows Schwitzer to produce components based on actual customer
orders rather than estimates, so that we stock fewer parts and reduce the cost
of carrying extensive inventories. We have redefined our organizational
structure to focus on products, as opposed to functions. All of these programs
have enhanced our commitment in customer satisfaction and have helped us to
reduce costs. They have also helped to free up working capital, provided
significant improvements in cash flow, and ultimately improved return on equity.
Our selling, administrative and R&D expenses increased by $2.6 million in 1994.
This increase supported the successful commercialization of new turbocharger and
fan drive programs that will be completed during the first half of 1995, as well
as one time administrative costs.
We are pleased with the market's response to our new "Hundred" Series
turbochargers.
U.S. Heavy Truck Backlog Units (000's)
[BAR GRAPH]
U.S. Truck Tonnage Hauled (000's)
[BAR GRAPH]
2
<PAGE>
These new turbos provide improved durability and engine application features.
Beyond making refinements of the standard fixed geometry turbocharger through
component upgrades, we are developing various concepts for improving the match
between turbocharger air delivery and engine air demand. Variable turbine and
compressor geometry, reduced inertia rotors, and low-speed boost assist devices
are among the next generation technology in development. The turbocharger may
also be integrated into other engine control circuits, such as exhaust gas re-
circulation systems. Our research and development programs are fully supportive
of innovative new technologies for the future.
Our introduction of new cooling system products for light duty trucks was
successfully commercialized and will continue to provide new opportunities. New
products and product improvements will continue to receive a high priority as we
pursue identified new areas of business opportunities. Tightly focused
acquisitions will be considered to achieve product expansions.
Schwitzer is pleased to continue the racing and engineering tradition of Louis
Schwitzer by co-sponsoring the 28th annual Louis Schwitzer Award. Named after
the dynamic automotive pioneer, the 1994 Louis Schwitzer Award was presented to
Mario Illien of Ilmor Engineering Ltd. for his design of the Mercedes-Benz 500 I
engine. The award, which recognizes excellence and innovation in race car
design and development, applauds Illien and Ilmor's initiative in taking
advantage of USAC rule 1107 and going against the grain by producing a pushrod
engine for the 1994 Indianapolis 500. The award committee also applauds Ilmore
Engineering for taking this Mercedes pushrod engine project from an idea to a
running engine in 26 weeks.
NEW MARKET DEMANDS
We are accelerating our efforts to enter new vehicle segments in existing
markets, as well as making entries into new markets. The total light truck
market is the fastest growing vehicle market in the U.S. and offers significant
future opportunities for our products. These new areas should serve to soften
the impact of future industry cycles.
We are pleased that the continuing improvements in our operations and cash flow
have permitted us the financial strength to simultaneously reduce our debt while
investing in new manufacturing processes and marketing opportunities. These
investments support our commitment to maintain world class manufacturer
standards.
Improving economies in our primary markets will benefit Schwitzer. Economic
trends in emerging markets also represent significant opportunity for future
growth. As less developed nations begin to enter the global market, they will
require our customers' equipment to support their programs. The rebuilding of
the world's infrastructure will require all types of vehicles and construction
equipment that utilize our components.
Increasing environmental standards for emissions and noise throughout the
world's markets demand improved engine performance and more complex components
to serve engine manufacturers' requirements. In addition, the vehicle
requirements for improved fuel economy and life of product further elevate the
importance of product technology for both engines and their components. All of
Schwitzer's products support these goals.
On February 25, 1995, Schwitzer, Inc. entered into a definitive agreement to
merge with a wholly-owned subsidiary of Kuhlman Corporation as approved by the
Board of Directors of both companies. The shareholders of Kuhlman and Schwitzer
are being asked to approve the merger at their annual shareholders' meetings
this year. Kuhlman is a 100 year old NYSE manufacturing company for
distribution, power and instrument transformers; electrical and electronic wire
and cable products; and spring products with 1994 sales volume of $243 million.
The agreement calls for Schwitzer shareholders to receive 0.9615 share of
Kuhlman stock for each share of Schwitzer. The day prior to the announcement
Kuhlman shares closed at $13.125 and Schwitzer shares closed at $9.75. We are
pleased that this merger will increase our business strengths while retaining
the autonomy for the continuous improvement programs that have been our
hallmark.
We are pleased with the progress that we have made in the past year and are
optimistic about further prospects. Our efforts to meet world class
manufacturer status have strengthened our ability to compete and gain market
share, while providing the flexibility to respond to the changing global
marketplace. We remain excited about Schwitzer's future and its potential to
increase value for our shareholders, customers, and our dedicated employees
worldwide. Our near term orders remain strong and we expect to continue our
progress in 1995. Thank you for your support.
/s/ Gary G. Dillon
Gary G. Dillon
Chairman, President and
Chief Executive Officer
Non-Passenger Diesel Production 1994E (000's)
[BAR GRAPH]
Non Passenger Diesel Engine Production Primary Markets (000's)
[BAR GRAPH]
3
<PAGE>
WORLD CLASS CHARACTERISTICS
At Schwitzer we understand high standards. We recognize our customers'
requirements and we continually strive to meet their expectations as a world
class manufacturer. We believe that the success of our global marketing efforts
will be based on how well we compete against this level of excellence.
Our focus on continuous improvement programs ensures that we are constantly
reassessing our needs, resources and systems to find ways to better serve our
customers. With these programs in place, we expect to maintain competitive
products, improve productivity, reduce the time to service an order and design
production systems that will accommodate greater production flexibility. These
programs are designed to compete against the standards that are necessary to be
a world class manufacturer.
Our customers face strong market pressure to maintain leadership through the
release of technologically-advanced products. This has created the need for a
closer working relationship between customer and supplier. In order to rapidly
bring new products to the market, Schwitzer works closely with our customers to
identify future product needs at an early stage. This concurrent engineering
partnership approach between customer and supplier brings these new product
concepts into the development phase in a shorter time and more effective manner.
Schwitzer has introduced a number of new quality improvement programs to satisfy
the strict quality demands that we have placed upon ourselves as a world class
manufacturer. Our commitment to the progressive reduction of waste in all
operational areas is being executed through the development of multi-functional
teams working toward specific targets to continually improve the quality of our
products received by our customers.
High accuracy delivery programs have become a feature of the industry we serve.
Reducing inventories, while meeting the challenge of greater product range
complexity in an environment of increasing demand fluctuations, has necessitated
the use of electronic data transfer techniques. By utilizing these techniques,
combined with a flexible manufacturing system, Schwitzer is making significant
progress toward its goal of total on-time delivery.
Value is the key ingredient expected by all of our customers and is the leverage
for achieving our market goals. We feel that value is the result of timely
product development, defect-free products, on-time delivery, and a track record
of improving costs to maintain competitive pricing. By utilizing effective and
innovative designs that are functional, with sound manufacturability features,
we can achieve the highest level of value. With the use of global purchasing
practices, capable production processes, and a passion for eliminating waste at
all levels, we can achieve the benchmark costs that represent real value to our
customers.
The pivotal resource for attaining world class status is the dedicated people
who determine the level and duration of a company's performance. Employee
competence is dependent upon the appropriate work environment, solid preparation
by each individual and team, positive attitudes, effective communications and a
culture which emphasizes that a team win is a win for all. Schwitzer is very
fortunate to have a global team of employees that is in tune with world class
requirements.
Sustaining progress in a manufacturing environment requires both a real and
perceived high level of disciplined operations. A disciplined environment is
necessary for employees and customers to develop the confidence for world class
achievements. Characteristics of a disciplined environment include orderly work
areas with impeccable housekeeping traits, safe working conditions and habits,
clearly identified materials and equipment, continuous flow production cells,
low inventories and simplified visual control techniques.
WHAT CUSTOMERS EXPECT FROM A WORLD CLASS MANUFACTURER
<TABLE>
<CAPTION>
TIMELY PRODUCT DEVELOPMENT DEFECT-FREE PRODUCT ON-TIME DELIVERY
<S> <C> <C>
- - Clarity of Customer Needs - 100% Conformance Specifications - Product Mix Availability
- - Multiple Solution Concepts - SPEC Compliance - Received on Time
- - Fast Prototypes and Samples - Capable Processes - Planned Quantities
- - Concurrent Development Teams - Complete Functionality - Planned Logistics
- - Mutual Open Partnership Development - No Packing or Cosmetic Flaws
</TABLE>
4
<PAGE>
A CRITICAL SEVENTH WORLD CLASS CHARACTERISTIC is to maintain the financial
strength to support these business goals. Financial strength is required for
timely product development programs, competitive employee systems and working
capital requirements. Management must ensure that the appropriate scrutiny of
investments and returns, coupled with zealous cost control, will provide the
cash flow necessary to sustain stakeholder success.
GLOBAL OPPORTUNITIES
With our commitment to world class manufacturer standards, Schwitzer is well-
positioned to serve the global marketplace in the future. Our aggressive pursuit
of continuous improvements should support our ability to maintain attractive
margins in this competitive industry.
Schwitzer is well-established in the developed markets of the world. Due to
prior technical licensing agreements, Schwitzer was prevented from marketing its
products to OE manufacturers outside the United States until the late 1980's.
During this short period, Schwitzer's market share growth in these new markets
has been impressive. This fact provides confidence that further new application
areas and markets can be served successfully.
We have manufacturing facilities located in key locations in North America,
Europe and South America that are supported by cooperative employee groups.
There is, however, evidence of economic trends in emerging markets that point
toward significant long-term growth opportunities for schwitzer and we stand
ready to invest in those areas as required.
As in the U.S., the world's infrastructure is in a state of disrepair. The
rebuilding of roads and bridges will require earth movers, bulldozers, heavy-
duty trucks, dredging and other construction equipment. Most of this equipment
contains industrial engines that utilize Schwitzer components.
Additionally, as less developed nations expand their presence in the global
marketplace, they will require tractors, trucks and stationary industrial
equipment to support their entry into the world's commodity and capital goods'
markets. Over the next twenty years, Eastern Europe, Russia, Latin and Central
America, India, and China are expected to dramatically increase their presence
in the world's marketplace, contributing greatly to the supply of agricultural
goods, raw materials and manufactured products. As these less developed nations
enhance their commercial and social standing, they will need our customers'
equipment for transportation, construction, agriculture and electrical power
generation.
Our products are already flowing into these markets through our customers'
engines or through after-market sales for our customers' engines produced
locally. Our major customers are now established with manufacturing ventures in
these markets to support this growing demand for technologically-advanced
engines and vehicles. We fully recognize that local support in these areas is
necessary to appropriately serve the needs of our customers. We are currently
implementing strategic plans to provide that support and continue to grow our
business.
Because Schwitzer is a small, focused organization, we are able to respond
quickly, and in the most cost-effective manner possible, as these economic
challenges unfold. This unique flexibility positions us well to prosper in this
economic climate in the coming decades.
PRODUCT LINE
In each of our product areas, customer requirements and environmental factors
have prompted development and manufacturing changes. Our customers are
redesigning engines to achieve higher performance, lower costs and to meet
stricter environmental requirements. Today's engines are running at
progressively higher power densities. Engine manufacturers are using system
enhance-
WHAT CUSTOMERS EXPECT FROM A WORLD CLASS MANUFACTURER
<TABLE>
<CAPTION>
DECLINING COST PRIORITY EMPLOYEE COMPETENCE DISCIPLINED OPERATION
<S> <C> <C>
- Well-Trained/Mentally Ready
- Positive Self-Starting Attitude
- Effective Communications
- Actively Involved and Responsible
- Team Player
</TABLE>
5
<PAGE>
GLOBAL MARKETS
[GLOBAL MAP]
KEY:
- --- Primary OE Markets
- --- Existing Aftermarkets
- --- Developing Markets
ment, vibration dampening, carburetion, electronics and other means to meet
emissions standards, improve fuel economy and reduce noise. All of Schwitzer's
products contribute to the environmental advantage of fuel efficiency.
TURBOCHARGERS use the energy present in engine exhaust to provide pressurized
air to the engine, which increases power and reduces exhaust emissions. Our
newest turbos, the "Hundred" Series, provide complete coverage for all the
engines in our markets. These turbochargers, which incorporate improved
mechanical and aerodynamic features, are designed to meet the stringent demands
of the engine market. They are expected to play a significant role in helping to
meet the increasingly stringent exhaust emissions legislation, and are designed
to be a fundamental part of the air management system in our customers' engines.
FANS cool engines and protect them from overheating, while reducing noise and
wear on other cooling system components. Schwitzer is a worldwide leader in fan
design and manufacturing technology. We have developed lightweight fans made
from nylon and plastic to accommodate today's smaller engines, which require
increased air flow from engine fans.
6
<PAGE>
[GLOBAL MAP]
FAN DRIVES, which are designed to sense engine temperature, automatically engage
and disengage engine cooling fans. This increases power while reducing fuel
consumption and engine noise.
VIBRATION DAMPERS reduce engine vibrations, enhancing engine performance and
durability while reducing noise. Schwitzer is recognized as a leader in the
development and commercialization of vibration reduction products. Customers are
looking for increased horsepower, which generates higher combustion pressures
and produces more crankshaft vibrations. As engines become more powerful and are
worked harder, Schwitzer utilizes its expertise to maintain expected engine
life.
Schwitzer's expanded product lines and commitment to world class standards have
positioned us well to benefit as economic conditions improve worldwide. Our
focused organization and talented work force are essential in helping to expand
our presence in existing markets and exploit opportunities in developing
markets. We believe that these key factors will enable us to expand our market
share in 1995 and the coming years.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SCHWITZER, INC. AND SUBSIDIARIES
THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES.
RESULTS OF OPERATIONS
FISCAL 1994 COMPARED TO FISCAL 1993 Schwitzer, Inc. (the Company) reported net
income of $8.9 million ($1.21 per share) for 1994, compared to $2.5 million
($.35 per share) in the prior year. Earnings improvement was largely the result
of sales volume gains at all operating locations. Included in 1994 earnings are
abnormal charges for environmental and idle facility costs at the Company's
Rolla, Missouri plant and a reduction in a tax valuation allowance. These items
are described in more detail in the analysis below.
Worldwide sales in 1994 were up 24 percent to $153.2 million from $124.1 million
in 1993. Schwitzer's primary markets-trucks, construction equipment and
agricultural machinery--gained strength as the Company's sales volume growth
generally paralleled market improvements. Price increases were only a minor
factor in the improvement in worldwide sales. Schwitzer's geographic
segments--North America, Europe and Brazil--all experienced improved sales
volumes in 1994. See Note 13 to the consolidated financial statements for a
comparative table of sales and other financial data related to the Company's
geographic segments.
Sales in North America increased 16 percent in 1994 primarily on the same
customer base and applications as existed in 1993. Market conditions in North
America continued their rebound from a low in 1992 as growth in U.S. truck,
construction and agricultural markets expanded. Heavy duty truck production
ended the year at an all time high. During June 1994, Caterpillar, the Company's
largest customer, incurred a union strike at eight U.S. facilities. The strike
continues with Caterpillar's management reporting no adverse impacts to meeting
their production requirements. Shipments and orders in North America continue at
a strong level in early 1995.
Sales volumes in Europe were up 42 percent in 1994. This increase is due to the
continuing economic recovery in the United Kingdom and the emergence of economic
recoveries in most other European countries. Further benefiting the European
operation were new original equipment manufacturers (OEM) customer applications.
Continued growth in the European truck market and OEM application gains are
expected during 1995.
The Company's operation in Brazil reported a 48 percent increase in sales in
1994 as OEM and aftermarket truck production continued to expand from
historically depressed levels. Although the Company continues to see strength in
the Brazilian markets, it is uncertain whether volumes beyond the first quarter
of 1995 will continue to increase over 1994 levels. During 1994, Brazil launched
its seventh economic plan in seven years, the Plano Real. This plan has resulted
in a more stable economic environment. However, the Brazilian economy continues
to be affected by economic and political uncertainty.
Schwitzer's consolidated gross profit margin increased to 23.1 percent of sales
in 1994 from 20.4 percent in 1993. Higher sales volumes led to better
utilization of production capacity and improved gross margin percentages at all
company facilities except Europe. In Europe, the gross margin percentage was
slightly lower in 1994, primarily because of an increase in lower margin OEM
sales, rather than aftermarket shipments, in the sales mix. The Company's gross
profit margin percent would have been higher except for a $1.4 million
environmental charge, additional reserves on idle facility valuations of $.7
million, and higher operating costs experienced to meet rapidly increasing
customer demands. Further, the Company's Gainesville, Georgia metal fan
operation experienced unfavorable operating variances to plant goals of $1.4
million. The Gainesville plant began operations in the third quarter of 1992
following a relocation of domestic metal fan production from Rolla, Missouri.
The new plant experienced start-up problems that led to $5.0 million in
variances during 1993. Management expects such variances to be minimal in 1995
as operations continue to improve.
The $1.4 million environmental charge was recorded against the Company's closed
Rolla, Missouri facility in connection with the Company's voluntary remediation
of certain environmental conditions at the site. The Company is discussing with
the Missouri Department of Natural Resources a proposed work plan for the
remediation of soils contaminated by chlorinated solvents at the facility.
Management expects that the contract for sale of the Rolla facility will be
completed during the second quarter of 1995.
The Company also recorded a charge on idle facilities of $.7 million during
1994. This charge was taken primarily against the closed plant in Rolla,
Missouri. This asset held for sale, along with certain deferred relocation and
restructuring costs, has a net carrying value of $2.2 million. The Company has a
contract to sell this property and to recover the $2.2 million of net value. The
Company completed the sale of its idle Canadian facility during the fourth
quarter of 1994 .
Selling, administrative and research and development ("SAR") expenses increased
by $2.6 million, or 17% in 1994. Higher research and development costs of $1.4
million were primarily due to greater research and development expenses for
commercialization programs for new product introductions. It is expected that
these expenses will continue during 1995, but at a reduced level. Further
impacting SAR expenses were costs for severance pay of current and former
company employees of $.6 million and inflationary cost increases on a worldwide
level.
Net interest expense was reduced by $1.3 million in 1994 compared to 1993.
Interest expense was primarily impacted by the conclusion of an interest rate
swap agreement established in 1989, which fixed $22.0 million of principal at
10.3 percent. The expiration of this agreement in April 1994 favorably impacted
interest expense by $1.0 million. Interest expense was further reduced by a
reduction in borrowings from $31.6 million to $22.5 million by year end. These
favorable borrowing reductions were partially offset by higher borrowing rates
on the variable rate based loans. Management expects interest expense to decline
during 1995 as anticipated cash flows are used to further reduce debt.
8
<PAGE>
Net other expense decreased by $.4 million in 1994 mainly because of improved
conditions in the hyperinflationary economic environment of Brazil. During the
year, new government programs led to lower inflation which resulted in lower
currency-related losses. The sensitivity of these net charges or credits to
significantly fluctuating variables, such as local inflation and currency
exchange rates, and the composition of the Brazilian subsidiary's balance sheet,
cause frequent large variances in net other expense. Such currency-related
adjustments primarily impact the reported results of operations of the Brazilian
subsidiary, rather than the subsidiary's cash flows, which occur in Brazilian
currencies.
On a consolidated basis, the provision for income taxes amounted to $3.8 million
resulting in an effective income tax rate of 30 percent of pretax income. The
effective rate was below the statutory rates of the tax jurisdictions in which
Schwitzer operates. This was mainly because the Company recorded a credit of $.6
million against its U.S. income tax provision to reduce the valuation allowance
against deferred tax assets. The Company's expected continued favorable
operating performance reinforces management's judgment that, more likely than
not, the Company's U.S. operations will be able to generate sufficient future
taxable income to realize the net deferred tax assets.
FISCAL 1993 COMPARED TO FISCAL 1992 Consolidated net income was $2.5 million
($.35 per share) in 1993 compared to a loss of $1.4 million ($.19 per share) in
1992 before a charge of $9.9 million ($1.39 per share) for the cumulative effect
of accounting changes described below. Included in the 1992 recorded loss were
additional charges of $1.0 million ($.14 per share) after tax for a
restructuring program and $.9 million ($.13 per share) for federal and foreign
taxes on subsidiary dividends. Earnings were $.6 million ($.08 per share) in
1992 before these three charges.
The Company adopted two new accounting standards in 1992. These were Statement
of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", and SFAS No. 109, "Accounting for
Income Taxes." The key provisions of these standards are described in Notes 10
and 11 to the consolidated financial statements. The adoption of these standards
resulted in an after-tax charge of $9.9 million to recognize the standards'
cumulative effect on prior years' earnings.
Consolidated net sales of $124.1 million in 1993 were up 13 percent from $109.7
million reported for 1992. The company could have reported an 18 percent
increase in sales to approximately $129.0 million were it not for a reduction in
sales reported by Schwitzer's European subsidiary in the United Kingdom, caused
solely by exchange rate fluctuations. Sales in North America, up 21 percent,
were much improved over 1992 due to growth in U.S. truck production. The
European operation posted a 5 percent increase in sales in 1993. Although
recessionary conditions prevailed throughout the year in most of the economies
served by the European operation, the Company realized volume gains from new OEM
customer applications. Sales reported by Schwitzer's operation in Brazil were up
33 percent in 1993 as OEM truck production rebounded from historically depressed
levels.
Schwitzer's consolidated gross profit margin decreased slightly to 20.4 percent
of net sales in 1993 from 20.6 percent in 1992. Higher sales volumes led to
better utilization of production capacity and improved gross margin percentages
at the Company's facilities in Asheville, North Carolina and Brazil. In Europe,
however, gross margin percentage was reduced in 1993 primarily by an increase in
OEM shipments, rather than higher-margin aftermarket shipments, in the sales
mix. Further, the overall favorable impact of higher sales on gross margin
percentage was largely offset by $5.0 million in higher operating and shipping
cost variances at the Company's new Gainesville, Georgia facility. Gross margin
percentage was also reduced in 1993 by a charge of $1.0 million taken against
nonproductive assets of former manufacturing operations. Unfavorably impacting
1992 gross margin was a $1.65 million restructuring program to reduce operating
costs and invested capital in the Company's worldwide facilities.
SAR expenses were essentially flat compared to 1992, after taking into account
the weaker British pound in 1993.
Net interest expense was also flat compared to 1992. The favorable effects of
slightly lower borrowings in 1993 were offset by lower interest rates on
temporary cash investments.
Net other expense increased by $.7 million in 1993 mainly because the
hyperinflationary conditions that prevailed in Brazil during 1993 produced
greater currency-related losses than the Company was able to recover in the
marketplace.
The Company's consolidated provision for income taxes was an effective rate of
28 percent of pretax income in 1993. The 1993 rate was favorably impacted by the
Company recording a credit of $.5 million against its U.S. income tax provision
to reduce the valuation allowance against deferred tax assets. In 1992, the
Company recorded a consolidated tax provision of $.9 million even though a
pretax loss was incurred. This unusual relationship was caused by a provision of
$.9 million for federal and foreign taxes associated with subsidiary dividends
and non-tax deductibility of certain hyperinflationary impacts in Brazil.
LIQUIDITY AND CAPITAL RESOURCES
At the end of both 1994 and 1993, Schwitzer had a consolidated cash
balance of $2.4 million. Additional borrowing capacity of $12.1 million was
available at year end 1994 while $7.6 million of additional borrowing capacity
was available at year end 1993. Working capital amounted to $21.5 million and
the current ratio was 1.8 at year end 1994, which was similar to the $20.9
million and 1.9 ratio at the beginning of the year. During the second quarter of
1994, the Company's domestic revolving credit agreement was amended from $20
million to a commitment level of $17 million. The agreement was further amended
to extend the termination date until March 1998.
9
<PAGE>
Cash balances remained relatively constant during the year as net cash provided
by operating activities was used principally to reduce debt and invest in
equipment. Net income plus depreciation, amortization and deferred income taxes
of $13.7 million in 1994 increased $5.1 million from the prior year's $8.6
million. Including the impact of changes in foreign exchange rates, trade
accounts receivable increased $1.7 million while accounts payable increased $2.7
million, which netted a positive $1.0 million in cash flows. Both of these items
increased primarily due to the greater volume of business generated during 1994.
Increases in inventories of $.7 million (4%) were not as significant as the
increases experienced in sales volume due to improved inventory management.
Other current assets (exclusive of deferred income taxes) increased by $1.2
million due largely to an increase in value added tax receivable in the United
Kingdom and a note receivable due on the facility sold in Canada. Accrued
expenses and postretirement benefits increased primarily due to an environmental
reserve of $1.2 million and an increase in accrued income taxes of $1.1 million.
Net capital expenditures amounted to $5.8 million in 1994 and primarily
represented purchases of machinery and equipment necessary to support new
applications, facilitate improvements in product quality, and increase capacity.
Production capacity was further increased as the Company outsourced certain
manufacturing processes to third parties. Capital expenditures of $6.0-$7.0
million are planned for 1995. The Company entered into operating leases for an
additional $.8 million of equipment in 1994 and a similar level is expected in
1995.
The Company's U.S. operation reduced its revolving credit loan amount
outstanding by $7.5 million during 1994. It also paid off an Industrial Revenue
Bond in the amount of $1.0 million. Schwitzer's United Kingdom operation made a
required $.6 million loan repayment. Primarily as a result of improved
profitability, the Company's ratio of debt to total capitalization (debt plus
equity) improved to 48 percent at the end of 1994 from 68 percent at the end of
1993.
Schwitzer's cash management and capital decision priorities are primarily
applied on a worldwide basis so as to make the most effective use of
consolidated resources. Cash flows generated by each operating unit generally
fund local working capital, capital expenditures and debt service requirements,
but intercompany transfers have been made when deemed appropriate by management.
Legal and contractual factors do not materially affect the Company's ability to
deploy its worldwide resources effectively.
Management anticipates that operating cash flows will remain strong in 1995
while additional investment in working capital should be minimal. These factors
should also allow the Company to repay additional debt and further strengthen
its balance sheet.
SUBSEQUENT EVENT:
On February 25, 1995, the Company and Kuhlman Corporation (Kuhlman), a
publicly-held company traded on The New York Stock Exchange, jointly announced
that they have signed a definitive agreement to merge the Company with a
wholly-owned subsidiary of Kuhlman. Kuhlman is a holding company involved in the
manufacturing of electrical and electronic wire and cable products;
distribution, power and instrument transformers; and spring products. In the
transaction, shares of the Company's common stock will be converted into shares
of Kuhlman common stock using an exchange ratio of 0.9615 share of Kuhlman for
each share of the Company. The merger is subject to certain closing conditions,
including the approval of the shareholders of both companies. It is anticipated
that the transaction will be consummated in the second quarter of 1995,
following approval by shareholders of both companies at the companies'
respective annual meetings of shareholders. Both meetings are currently
scheduled to be held on May 31, 1995.
10
<PAGE>
CONSOLIDATED BALANCE SHEETS
JANUARY 1, 1995 AND JANUARY 2, 1994
SCHWITZER, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(in thousands of dollars, except per share amount) 1994 1993
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments $ 2,414 $ 2,439
Trade accounts receivable, net of reserves of $627 and $546 23,888 21,904
Inventories 19,646 18,715
Other current assets 3,962 1,970
- -----------------------------------------------------------------------------------------------
Total current assets 49,910 45,028
Properties and equipment, net 30,301 29,291
Other assets 2,411 3,983
- -----------------------------------------------------------------------------------------------
Total assets $82,622 $78,302
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt $ 635 $ 1,095
Accounts payable 11,293 8,492
Accrued income taxes 1,676 571
Accrued expenses 14,774 14,010
- -----------------------------------------------------------------------------------------------
Total current liabilities 28,378 24,168
Long-term debt 21,910 30,466
Accrued postretirement benefits other than pensions 6,757 7,583
Deferred income taxes 1,033 1,389
- -----------------------------------------------------------------------------------------------
Total liabilities 58,078 63,606
- -----------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.10 par value, 50,000,000 shares
authorized; 7,231,866 and 7,167,192 shares outstanding 723 717
Paid-in capital 19,062 18,695
Deferred compensation (37) (36)
Retained earnings (accumulated deficit) 6,609 (2,321)
Foreign currency translation adjustments (1,813) (2,359)
- -----------------------------------------------------------------------------------------------
Total shareholders' equity 24,544 14,696
- -----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $82,622 $78,302
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE BALANCE SHEETS.
11
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED
JANUARY 1, 1995, JANUARY 2, 1994 AND JANUARY 3, 1993
SCHWITZER, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS) 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $153,271 $124,124 $109,692
Cost of sales 117,869 98,773 87,078
- -----------------------------------------------------------------------------------------------
Gross profit 35,402 25,351 22,614
Selling, administrative and research and development
expenses 18,383 15,773 16,073
Restructuring charge -- -- 1,650
- -----------------------------------------------------------------------------------------------
Income from operations 17,019 9,578 4,891
Interest expense, net 2,918 4,211 4,251
Other expense, net 1,421 1,832 1,127
- -----------------------------------------------------------------------------------------------
Income (loss) before income taxes 12,680 3,535 (487)
Income taxes 3,750 1,005 873
- -----------------------------------------------------------------------------------------------
Income (loss) before cumulative effect of
accounting changes 8,930 2,530 (1,360)
Cumulative effect of changes in accounting for
postretirement benefits other than pensions
and income taxes -- -- (9,910)
- -----------------------------------------------------------------------------------------------
Net income (loss) $ 8,930 $ 2,530 $(11,270)
- -----------------------------------------------------------------------------------------------
Net income (loss) per share:
Income (loss) before cumulative effect of
accounting changes $ 1.21 $ .35 $ (0.19)
Cumulative effect of accounting changes -- -- (1.39)
- -----------------------------------------------------------------------------------------------
Net income (loss) $ 1.21 $ .35 $ (1.58)
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE STATEMENTS.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED
JANUARY 1, 1995, JANUARY 2, 1994 AND JANUARY 3, 1993
SCHWITZER, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Retained Foreign
Common Stock Earnings Currency Total
(IN THOUSANDS OF DOLLARS, ------------------- Paid-in Deferred (Accumulated Translation Shareholders'
EXCEPT SHARE AMOUNTS) Shares Amount Capital Compensation Deficit) Adjustments Equity
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 29, 1991 7,126,775 $713 $17,621 $ (91) $ 6,419 $ 459 $ 25,121
Net loss -- -- -- -- (11,270) -- (11,270)
Foreign currency translation adjustments -- -- -- -- -- (2,528) (2,528)
Common stock award 11,661 1 101 (102) -- -- --
Exercise of stock options 13,475 1 68 -- -- -- 69
Issuance of warrants -- -- 810 -- -- -- 810
Amortization of deferred compensation -- -- -- 151 -- -- 151
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 3, 1993 7,151,911 715 18,600 (42) (4,851) (2,069) 12,353
Net income -- -- -- -- 2,530 -- 2,530
Foreign currency translation adjustments -- -- -- -- -- (290) (290)
Common stock award 12,981 2 84 (86) -- -- --
Exercise of stock options 2,300 -- 11 -- -- -- 11
Amortization of deferred compensation -- -- -- 92 -- -- 92
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 2, 1994 7,167,192 717 18,695 (36) (2,321) (2,359) 14,696
Net income -- -- -- -- 8,930 -- 8,930
Foreign currency translation adjustments -- -- -- -- -- 546 546
Common stock award 12,949 1 105 (106) -- -- --
Exercise of stock options 51,725 5 262 -- -- -- 267
Amortization of deferred compensation -- -- -- 105 -- -- 105
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1995 7,231,866 $723 $19,062 $ (37) $ 6,609 $(1,813) $ 24,544
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE STATEMENTS.
12
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED
JANUARY 1, 1995, JANUARY 2, 1994 AND JANUARY 3, 1993
SCHWITZER, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 8,930 $ 2,530 $(11,270)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities--
Cumulative effect of accounting changes -- -- 9,910
Depreciation and amortization 5,632 5,834 6,222
Provision (benefit) for deferred income taxes (891) 240 (119)
Restructuring charge -- -- 1,650
Changes in assets and liabilities:
Trade accounts receivable (1,684) (5,383) (1,482)
Inventories (753) (958) 1,791
Other current assets (1,193) 485 (10)
Accounts payable 2,664 929 844
Accrued expenses and postretirement benefits 1,705 (296) (1,407)
Net assets held for sale and deferred and
accrued relocation and restructuring costs 467 706 (5,055)
Other, net (254) 63 (919)
- -----------------------------------------------------------------------------------------------
Net cash provided by operating activities 14,623 4,150 155
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in properties and equipment (6,029) (3,297) (3,712)
Proceeds from dispositions of properties and equipment 246 17 342
- -----------------------------------------------------------------------------------------------
Net cash used in investing activities (5,783) (3,280) (3,370)
- -----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (11,047) (2,567) (34,086)
Proceeds from issuance of long-term debt, net 2,367 1,000 28,690
Proceeds from issuance of common stock warrants -- - 810
Proceeds from exercise of stock options 267 11 69
Increase (decrease) in short-term debt, net (494) 342 22
- -----------------------------------------------------------------------------------------------
Net cash used in financing activities (8,907) (1,214) (4,495)
- -----------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and
temporary cash investments 42 4 (53)
- -----------------------------------------------------------------------------------------------
Net decrease in cash and temporary cash investments (25) (340) (7,763)
Cash and temporary cash investments, beginning of year 2,439 2,779 10,542
- -----------------------------------------------------------------------------------------------
Cash and temporary cash investments, end of year $ 2,414 $2,439 $ 2,779
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information--
Cash paid during the year for:
Interest $ 3,342 $4,215 $ 4,265
Income taxes 3,725 612 1,185
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE STATEMENTS.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 1, 1995, JANUARY 2, 1994 AND JANUARY 3, 1993
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
Schwitzer, Inc. and Subsidiaries
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION Schwitzer, Inc. (the Company) is a Delaware corporation
organized in 1989 in connection with the distribution of the Company's common
stock (the Distribution) by Household International, Inc. (Household). The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries: Schwitzer U.S. Inc.; Schwitzer Manufacturing Canada
Inc.; Schwitzer (Europe) Holdings Limited; and Lacom Schwitzer Equipamentos,
Ltda. All significant intercompany accounts and transactions have been
eliminated.
FISCAL YEAR The Company's fiscal year ends on the Sunday closest to December
31. Fiscal years 1994 and 1993 included 52 weeks, and fiscal year 1992 included
53 weeks.
TEMPORARY CASH INVESTMENTS For purposes of the consolidated statements of cash
flows, the Company considers all highly liquid investments purchased with a
maturity of three months or less to be temporary cash investments.
INVENTORIES Inventories are stated at the lower of cost or market and include
the appropriate elements of material, labor and manufacturing overhead expenses.
Cost is determined using the last-in, first-out (LIFO) method for substantially
all domestic inventories and the first-in, first-out (FIFO) method for foreign
inventories.
PROPERTIES AND EQUIPMENT Properties and equipment are recorded at cost and
depreciated over their estimated useful lives, ranging from 3 to 40 years, using
principally the straight-line method for financial reporting purposes and
accelerated methods for tax reporting purposes.
REVENUE RECOGNITION Sales are generally recorded by the Company when products
are shipped to customers. The Company provides for anticipated costs of product
warranty and returns at the time of the sale of the products.
RESEARCH AND DEVELOPMENT COSTS Research and development costs related to both
present and future products are expensed as incurred. Total research and
development expenditures for fiscal years 1994, 1993 and 1992 were $7,325,
$5,891 and $6,982, respectively.
FOREIGN CURRENCY TRANSLATION The Company has foreign subsidiaries located in
the United Kingdom (U.K.), Canada and Brazil. Financial data of the U.K. and
Canadian subsidiaries are translated into U.S. dollars at current exchange rates
and translation adjustments are accumulated as a separate component of
shareholders' equity. Foreign currency transaction gains and losses of the U.K.
and Canadian subsidiaries are credited or charged to income as they occur.
The Brazilian subsidiary operates in a hyperinflationary economy. Accordingly,
financial data stated in Brazilian currencies are remeasured into U.S. dollars
at both current (monetary items) and approximate historical (nonmonetary items)
exchange rates and the resulting adjustments are charged or credited to income.
Transaction adjustments included in other expense, net, on the consolidated
statements of operations were $847 loss in fiscal 1994, $1,040 loss in fiscal
1993 and $88 income in fiscal 1992. The transaction adjustments for 1994, 1993
and 1992 are stated net of imputed interest income (expense) of $(589), $749 and
$4,271, respectively, realized on net monetary assets and liabilities.
INCOME TAXES In 1992, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109 "Accounting for Income Taxes." Under SFAS No. 109,
deferred income taxes are recognized for the estimated future tax effects of
differences between the tax bases of assets and liabilities and their financial
reporting amounts based on enacted tax laws. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Federal and state income taxes are not provided on undistributed
earnings of foreign subsidiaries that have been or are intended to be reinvested
indefinitely. Based upon current tax rates and the level of undistributed
earnings of the foreign subsidiaries, it is anticipated that no significant net
additional taxes would be incurred if the accumulated earnings at January 1,
1995 were distributed.
NET INCOME (LOSS) PER SHARE Net income (loss) per share amounts were determined
based on the weighted average number of common and common equivalent shares
outstanding. Common equivalent shares were determined under the treasury stock
method and had no material effect on the per share amounts in 1994, 1993 or
1992. The weighted average numbers of common and common equivalent shares
outstanding were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Primary 7,354,247 7,243,543 7,140,081
Fully diluted 7,403,708 7,250,195 7,140,081
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
NOTE 2. INVENTORIES:
Inventories at January 1, 1995 and January 2, 1994 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 6,323 $ 4,965
Work in process 5,390 5,974
Raw materials 7,933 7,776
- ---------------------------------------------------------------------------
Total inventories $19,646 $18,715
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
The LIFO inventory values approximate the respective FIFO values.
14
<PAGE>
NOTE 3. PROPERTIES AND EQUIPMENT:
Properties and equipment, net, at January 1, 1995 and January 2, 1994 consisted
of the following:
<TABLE>
<CAPTION>
1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,315 $ 1,307
Buildings and leasehold improvements 13,865 13,577
Machinery, fixtures and equipment 68,845 64,016
Construction in progress 1,061 909
Accumulated depreciation and amortization (54,785) (50,518)
- ---------------------------------------------------------------------------
Properties and equipment, net $ 30,301 $ 29,291
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
NOTE 4. OTHER ASSETS:
Other assets at January 1, 1995 and January 2, 1994 consisted of the following:
<TABLE>
<CAPTION>
1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Net assets held for sale and deferred relocation and
restructuring costs $2,126 $3,336
Deferred income taxes -- 307
Other 285 340
- ---------------------------------------------------------------------------
Total other assets $2,411 $3,983
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
The net assets held for sale and deferred relocation and restructuring costs are
expected to be recovered upon the sale of a former manufacturing facility.
During 1994, the Company sold a former manufacturing facility. Proceeds from the
sale of this facility included a note receivable for $448, which is included in
other current assets on the January 1, 1995 consolidated balance sheet.
NOTE 5. ACCRUED EXPENSES:
Accrued expenses at January 1, 1995 and January 2, 1994 consisted of the
following:
<TABLE>
<CAPTION>
1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Payroll and benefits accruals $ 7,970 $ 6,573
Warranty and other sales accruals 2,428 3,289
Environmental reserve (see Note 14) 1,229 --
Relocation and restructuring accruals 178 921
Other 2,969 3,227
- ---------------------------------------------------------------------------
Total accrued expenses $14,774 $14,010
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
NOTE 6. DEBT:
Debt outstanding at January 1, 1995 and January 2, 1994 was as follows:
<TABLE>
<CAPTION>
1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Fixed rate notes payable to an institutional
lender, maturing 1998 to 2002 $14,407 $14,326
Variable rate revolving credit notes payable
to banks, maturing in 1998 6,000 13,500
Variable rate loan facility payable to bank,
denominated in Sterling, maturing 1995 to 1997 1,718 2,188
Other 420 1,547
- ---------------------------------------------------------------------------
22,545 31,561
Less-Short-term debt and current maturities
of long-term debt (635) (1,095)
- ---------------------------------------------------------------------------
Total long-term debt $21,910 $30,466
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
Long-term debt maturities in each of the next five fiscal years are as follows:
1995-$635; 1996-$686; 1997-$663; 1998-$9,092 and 1999-$3,061.
The fixed rate notes are due in equal annual installments of $3,000 in 1998
through 2002 and bear interest at an annual rate of 10.21% payable semiannually
on $15,000 of principal at par. These notes are accompanied by detachable
warrants that give the holders the right to purchase with cash, or through
surrender of the notes at par, 500,000 shares, in the aggregate, of the
Company's common stock at an exercise price of $8 per share. The total
consideration of $15,000 received on the notes and warrants was allocated
$14,190 to the notes, recorded as long-term debt, and $810 to the warrants,
recorded as paid-in capital. The exercise price and number of common shares are
subject to adjustment should the Company (1) issue additional shares of common
stock at a share price below the then current warrant exercise price or common
stock market price, (2) issue warrants, options or other rights for such a
common stock issuance, or (3) otherwise change the equity interest of the
warrants. The Company has the right, under certain circumstances, to repurchase
the warrants, which expire on April 15, 2002.
Interest on the revolving credit notes is payable quarterly at the Company's
option of either the prime lending rate of one of the bank lenders (8.25% at
January 1, 1995) or the London Interbank Offered Rate (LIBOR) (6.0% at January
1, 1995) less a margin of 0% to 0.25% on prime loans or plus a margin of 1.25%
to 1.50% on LIBOR loans. The Company can increase or decrease its revolving
credit borrowings at any time, but such borrowings are limited to the lesser of
a borrowing base or the revolving credit commitment. The borrowing base is
calculated monthly based on specified percentages of the Company's domestic
accounts receivable and inventories and the amount exceeded $17,000 at January
1, 1995. The revolving credit commitment amount is $17,000 until March 1998,
when the revolving credit commitment expires. The Company was a party to an
interest rate swap agreement with a bank that expired in April 1994 pursuant to
which the Company paid interest or received interest payments for the difference
between a fixed rate of 10.29% and LIBOR on $22,000 of principal.
15
<PAGE>
The note and bank credit agreements include cross-default provisions and various
financial covenants, including certain restrictions on the payment of cash
dividends and certain other items. The Company must maintain certain levels of
consolidated adjusted tangible net worth and cannot declare dividends that
exceed, on a cumulative basis, proceeds from any sales of common stock plus 40%
of cumulative consolidated net income, as defined, earned after December 29,
1991. As of January 1, 1995, the amount of shareholders' equity available for
payment of dividends is limited to approximately $4,300.
Interest on the loan facility is payable quarterly at variable rates (8.0% at
January 1, 1995). This variable rate facility also contains certain financial
covenants, including minimum tangible net worth requirements of the U.K.
subsidiary.
The Company also has a $1,100 bank line of credit available through May 1995.
The terms of the line of credit are essentially the same as those of the
variable rate loan facility. During 1994 and 1993, borrowings under the line of
credit were insignificant.
The Company has a standby letter of credit to an insurance company in the amount
of $500 issued July 18, 1994 and expiring June 30, 1995. No amounts are
outstanding on the letter of credit at January 1, 1995.
Total interest expense was $3,040 in 1994, $4,305 in 1993 and $4,405 in 1992.
NOTE 7. OPERATING LEASES:
The Company leases certain of its buildings, machinery and equipment for periods
of up to 8 years with various renewal options. Rental expense under operating
leases was $1,071 in 1994, $963 in 1993 and $901 in 1992. Future minimum lease
commitments under operating leases are as follows: $955 in 1995; $866 in 1996;
$834 in 1997; $801 in 1998 ; $725 in 1999 and $735 thereafter.
NOTE 8. CAPITAL STOCK:
The Company's Long-term Executive Incentive Compensation Plan (the Plan)
empowers the Company's Compensation Committee of the Board of Directors (the
Committee) to grant stock options at the discretion of the Committee. A maximum
of 650,000 shares of common stock may be issued under the Plan. Such shares may
consist of previously unissued shares or shares held in treasury. The Plan
provides that options may be granted at 100% of the fair market value of the
shares on the date of grant. A summary of the option transactions for the years
ended January 1, 1995, January 2, 1994 and January 3, 1993 follows:
<TABLE>
<CAPTION>
Shares Price Ranges
- ---------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at December 29, 1991
(88,347 shares exercisable) 433,092 4.63 to 15.13
Granted 61,500 7.75
Exercised (13,475) 4.63 to 5.50
Canceled (12,900) 4.63 to 15.13
- ---------------------------------------------------------------------------
Options outstanding at January 3, 1993
(179,404 shares exercisable) 468,217 4.63 to 15.13
Granted 73,000 6.75
Exercised (2,300) 4.63
Canceled (18,200) 4.63 to 7.75
- ---------------------------------------------------------------------------
Options outstanding at January 2, 1994
(261,306 shares exercisable) 520,717 4.63 to 15.13
Granted 41,000 9.38
Exercised (51,725) 4.63 to 7.75
Canceled (22,000) 4.63 to 9.38
- ---------------------------------------------------------------------------
Options outstanding at January 1, 1995
(344,617 shares exercisable) 487,992 4.63 to 15.13
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
During 1994, 1993 and 1992, 12,949, 12,981 and 11,661 shares, respectively, were
issued to the nonemployee members of the Board of Directors for services to be
performed. These shares were recorded as deferred compensation at their fair
market values on the date of grant of $106 in 1994, $86 in 1993 and $102 in
1992. These amounts were recorded as compensation expense over the respective
12-month periods on a straight-line basis. The Company also previously granted
restricted shares of common stock to a key officer, which vested ratably over
certain periods through 1992. Compensation expense in connection with the shares
issued to the nonemployee Board members and the key officer was $105, $92 and
$151 during 1994, 1993 and 1992, respectively.
The Company has 10,000,000 shares of $1 par value preferred stock authorized, of
which none are issued or outstanding.
The Company has issued one common stock purchase right for each share of common
stock. Each right entitles the holder to purchase one share of the Company's
common stock at $56, subject to adjustment (the Purchase Price). In the event of
an acquisition by a party of a beneficial interest of at least 20% of the
Company's common stock, each right would entitle the rightholder to receive,
upon exercise, common stock of the Company having a value of two times the
Purchase Price. In addition, upon merger or other business combination, each
right would entitle the rightholder to exercise the right and receive shares of
an acquiring company having a market value of twice the Purchase Price of the
right. The rights will not become exercisable, however, if the party crossing
the 20% threshold does so through an all-cash tender offer in which the party
becomes beneficial owner of at least 80% of the Company's outstanding common
stock. The rights, which cannot vote, expire on May 1, 1999 and may be redeemed
by the Company at a price of $.01 per right any time prior to the acquisition by
a party of beneficial ownership of 20% of the outstanding shares.
16
<PAGE>
NOTE 9. EMPLOYEE RETIREMENT PLANS:
Substantially all employees of the Company participate in noncontributory
defined benefit pension plans. Employee retirement benefits are a function of
the years of service and compensation for a specified period of time before
retirement. The Company's current funding policy is to contribute annually
amounts sufficient to comply with regulatory requirements. Plan assets consist
substantially of investments in pooled funds, comprised primarily of equity
securities, and investments in collective short-term investment funds.
The following table sets forth the funded status of the defined benefit plans,
including the unfunded supplemental plan, and amounts recognized in the
Company's consolidated balance sheets at January 1, 1995 and January 2, 1994.
<TABLE>
<CAPTION>
1994 1993
----------------------- -----------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations-
Vested benefits $(1,652) $(2,150) $(1,267) $(1,799)
Nonvested benefits (185) (909) (142) (648)
- ---------------------------------------------------------------------------
Accumulated benefit
obligations (1,837) (3,059) (1,409) (2,447)
Effect of projected future
compensation levels (2,692) (1,844) (2,066) (2,032)
- ---------------------------------------------------------------------------
Projected benefit
obligations (4,529) (4,903) (3,475) (4,479)
Plans' assets at fair
market value 4,169 2,439 3,648 2,015
- ---------------------------------------------------------------------------
Plans' assets in excess of
(less than) projected
benefit obligations $ (360) $(2,464) $ 173 $(2,464)
- ---------------------------------------------------------------------------
Prior service cost not yet
recognized in net
periodic pension cost $ -- $ (710) $ -- $ (751)
Unrecognized transition
obligation (395) -- (411) --
Unrecognized net gain (loss) (364) (865) 309 (1,162)
Unfunded prepaid
(accrued) pension cost 399 (889) 275 (551)
- ---------------------------------------------------------------------------
Total $ (360) $(2,464) $ 173 $(2,464)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
The components of net periodic pension cost and the significant assumptions of
defined benefit plans consisted of the following:
<TABLE>
<CAPTION>
1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Service costs (benefits earned during the year) $ 956 $ 761
Interest cost on projected benefit obligations 625 513
Actual return on assets 98 (619)
Net amortization and deferral (443) 321
- ---------------------------------------------------------------------------
Net periodic pension cost $1,236 $ 976
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Discount rate 7.5%-8.0% 7.5%-8.5%
Expected long-term rate of return on assets 8%-9% 9%
Salary increase assumption 5% 5%-6%
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
In addition, certain of the Company's employees participate in defined
contribution plans in which each participant's contribution is matched in whole
or part by the Company up to a maximum of 6% of the participant's compensation.
To date, the Company has matched 25% or 50% of participant contributions,
depending on the plan, up to a maximum of 3% of a participant's compensation.
Costs incurred under the Company's defined contribution plans, including the
supplemental plan, were $239 in 1994, $270 in 1993 and $236 in 1992.
NOTE 10. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company provides certain health care and life insurance benefits to
qualifying domestic retirees. These benefits are available to qualifying
retirees if they reach normal retirement age while working for the Company.
Employees hired on or after January 1, 1992 are not eligible to receive
postretirement health care or life insurance benefits.
In 1992, the Company adopted SFAS No. 106, which requires that the expected cost
of these benefits be charged to expense during the years that the employees
render service. The Company recorded the transition obligation at the beginning
of fiscal year 1992 of $7,643 ($1.07 per share), net of taxes of $2,812, as the
cumulative effect of an accounting change. Application of SFAS No. 106 during
1992 increased earnings before cumulative effect of accounting changes by $400
($.06 per share). The expense recorded for these postretirement benefits of $825
in 1994, $896 in 1993 and $937 in 1992 is included in other expense, net, on the
consolidated statements of operations.
The following table sets forth the amounts recognized in the Company's
consolidated balance sheets at January 1, 1995 and January 2, 1994:
<TABLE>
<CAPTION>
1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation--
Retirees $10,102 $10,291
Active employees-fully eligible 229 167
Active employees-not fully eligible 476 420
- ---------------------------------------------------------------------------
Total accumulated postretirement
benefit obligation 10,807 10,878
Unrecognized net loss (2,180) (1,425)
- ---------------------------------------------------------------------------
Accrued postretirement benefits (includes
current portion of $1,870 at January 1,
1995 and January 2, 1994) $ 8,627 $ 9,453
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
17
<PAGE>
The net periodic postretirement benefit cost for 1994 and 1993, determined on
the accrual basis, included the following components:
<TABLE>
<CAPTION>
1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Service cost $ 51 $ 75
Interest cost 746 821
Net deferral and amortization 28 --
- ---------------------------------------------------------------------------
Net periodic postretirement benefit cost $825 $896
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
The Company's postretirement benefit plans are unfunded. In determining the
actuarial present value of the accumulated postretirement benefit obligation at
January 1, 1995, a weighted average discount rate of 8.0% was used (7.5% at
January 2, 1994).
An 11% annual rate of increase in the per capita cost of covered health care
benefits was assumed for 1994; the rate was assumed to decrease 1% per year to
5.5% for 2000 and remain at that level thereafter. A 1% increase in the assumed
annual health care trend rate would increase the accumulated postretirement
benefit obligation as of January 1, 1995 by $822 and the aggregate of the
service and interest cost components of net periodic postretirement benefit cost
for the year then ended by $80.
NOTE 11. INCOME TAXES:
The Company adopted the provisions of SFAS No. 109 effective as of the beginning
of 1992. A charge of $2,267 ($.32 per share) was recorded in the 1992
consolidated statement of operations for the cumulative effect of this change in
accounting principle. Financial statements for years prior to 1992 were not
restated. There was no significant net effect on 1992 pretax income resulting
from the adoption of SFAS No. 109.
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
United States:
Federal--
Current $2,582 $ 199 $ 25
Deferred (389) 248 72
- ---------------------------------------------------------------------------
Total 2,193 447 97
- ---------------------------------------------------------------------------
State--
Current 309 -- (16)
Deferred (19) 33 (61)
- ---------------------------------------------------------------------------
Total 290 33 (77)
- ---------------------------------------------------------------------------
Foreign:
Current 1,750 566 983
Deferred (483) (41) (130)
- ---------------------------------------------------------------------------
Total 1,267 525 853
- ---------------------------------------------------------------------------
Provision for income taxes $3,750 $1,005 $ 873
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
The provision (benefit) for deferred income taxes included the following:
<TABLE>
<CAPTION>
1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Net operating loss carryforwards $ 67 $1,119 $(1,327)
Postretirement benefits other than pensions 309 323 238
Adjustment to valuation allowance (577) (511) --
Relocation and restructuring costs (10) (275) 1,273
Depreciation (356) (259) (172)
Alternative minimum taxes 490 (68) --
Purchase price premium in inventory (83) 6 (447)
Environmental reserve (524) -- --
Payroll related accruals (358) (175) 76
Warranty and other sales accruals 322 (115) (22)
Other, net (171) 195 262
- ---------------------------------------------------------------------------
Provision (benefit) for
deferred income taxes $(891) $ 240 $ (119)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
In accordance with SFAS No. 109, net deferred tax assets and liabilities related
to different tax jurisdictions are not offset in the Company's consolidated
balance sheets as of January 1, 1995 and January 2, 1994. The components of the
net deferred tax assets and liabilities as of January 1, 1995 and January 2,
1994 were as follows:
<TABLE>
<CAPTION>
1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Net deferred tax assets--
Gross deferred tax assets:
Postretirement benefits other than pensions $3,203 $ 3,512
Regular federal and state net operating
loss carryforwards 141 170
Warranty and other sales accruals 873 1,195
Payroll-related accruals 1,206 848
Environmental reserve 524 --
Relocation and restructuring accruals 76 345
Alternative minimum tax credit carryforwards -- 490
Other 706 548
- ---------------------------------------------------------------------------
Total gross deferred tax assets 6,729 7,108
- ---------------------------------------------------------------------------
Gross deferred tax liabilities:
Property, plant and equipment (2,166) (2,283)
Purchase price premium in inventory (1,752) (1,835)
Relocation and restructuring deferrals (470) (536)
Other (223) (169)
- ---------------------------------------------------------------------------
Total gross deferred tax liabilities (4,611) (4,823)
Valuation allowance -- (577)
- ---------------------------------------------------------------------------
Net deferred tax assets (including $2,200 and $1,401
current and $(82) and $307 noncurrent, respectively,
as of January 1, 1995 and January 2, 1994) $2,118 $ 1,708
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Net deferred tax liabilities:
Gross deferred tax assets--
Net operating loss carryforwards $ -- $ 38
- ---------------------------------------------------------------------------
Gross deferred tax liabilities:
Property, plant and equipment (951) (1,144)
Relocation and restructuring deferrals -- (213)
Other -- (70)
- ---------------------------------------------------------------------------
Total gross deferred tax liabilities (951) (1,427)
- ---------------------------------------------------------------------------
Net deferred tax liabilities $ (951) $(1,389)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
18
<PAGE>
A valuation allowance of $1,088 was established in connection with the adoption
of SFAS No. 106 as of the beginning of 1992. There were no changes in the
valuation allowance during 1992. The valuation allowance was reduced by $577 in
1994 and $511 during 1993.
Income from foreign operations before income taxes was $4,333 in 1994, $1,353 in
1993 and $1,142 in 1992.
The differences between the provision for income taxes and income taxes computed
using the statutory federal income tax rate were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
Increase (decrease) in rate resulting from--
State income taxes, net of federal
tax benefit 1.5 3.0 10.5
Foreign tax effects (1.6) 1.8 (41.6)
Adjustment to valuation allowance (4.6) (14.5) --
Federal and foreign taxes of $926 related
to dividends from foreign subsidiaries
of $2,214 -- -- (190.4)
Deduction for pre-Distribution
tax adjustments -- -- 10.0
Other 0.3 4.1 (1.8)
- ---------------------------------------------------------------------------
Effective rate 29.6% 28.4% (179.3)%
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
A tax sharing agreement between Household and the Company provides, among other
things, that, in general, post-Distribution adjustments to pre-Distribution tax
liabilities of Household Manufacturing, Inc., Household Manufacturing Limited
and their subsidiaries, will be borne by the Company or by Household in
proportions or by other formulas which are deemed by Household to appropriately
allocate these liabilities to the Company. The Distribution qualified as a
tax-free spinoff under Section 355 of the Internal Revenue Code of 1986, as
amended. However, if the Distribution were to be reclassified as a taxable
event, Household and the Company would share the tax costs in a no-fault
situation and would indemnify each other for any liabilities incurred arising
from any act or omission by either party that would cause the Distribution to be
reclassified as a taxable event.
NOTE 12. MARKET AND CUSTOMER DATA:
The Company manufactures components that are used on medium and heavy duty
diesel engines; light, medium and heavy trucks; and agricultural and
construction equipment. These components consist of turbochargers, engine
cooling fans, fan drives and crankshaft vibration dampers.
A substantial portion of the Company's sales is to a limited number of
customers. In 1994, 1993 and 1992, sales to Caterpillar Inc. represented 27%,
30% and 28%, respectively, of total net sales. In each of the fiscal years 1994,
1993 and 1992, sales to Renault Vehicules Industriels (RVI) represented 12% of
total net sales.
NOTE 13. GEOGRAPHIC SEGMENTS:
Data on the Company's geographic segments, based on the locations of the
Company's operations, for fiscal 1994, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Sales to unaffiliated customers--
United States $104,327 $ 89,848 $ 74,049
Europe 38,630 27,294 30,401
Brazil 10,314 6,982 5,242
- ---------------------------------------------------------------------------
Total $153,271 $124,124 $109,692
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Operating profit (loss)--
United States $ 11,509 $ 7,003 $ 3,143
Europe 3,404 1,826 2,320
Brazil 2,106 749 (572)
- ---------------------------------------------------------------------------
Total $ 17,019 $ 9,578 $ 4,891(1)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Identifiable assets--
United States $ 49,918 $ 52,314 $ 50,730
Europe 23,925 18,385 18,981
Canada 628 849 884
Brazil 8,151 6,754 6,406
- ---------------------------------------------------------------------------
Total $ 82,622 $ 78,302 $ 77,001
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Accounts receivable--
United States $ 13,623 $ 15,499 $ 10,258
Europe 8,693 5,655 5,537
Brazil 1,572 750 844
- ---------------------------------------------------------------------------
Total $ 23,888 $ 21,904 $ 16,639
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
<FN>
(1) Operating profit for 1992 was reduced by $1,650 as the Company approved a
plan for restructuring manufacturing processes and streamlining the organization
for improved focus. Restructuring costs consisted primarily of equipment
write-offs, plant rearrangements and severance pay.
</TABLE>
NOTE 14. CONTINGENCIES:
The Company is involved in various lawsuits and environmental matters arising in
the normal course of business. Management believes that the resolution of such
matters will not have a material effect on the financial condition or the
results of operations of the Company.
The Company has an employment and compensation agreement with an executive which
provides for cash compensation and the continuation of certain benefits under
certain circumstances, including a change in control of the Company (as
defined).
19
<PAGE>
NOTE 15. QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized quarterly financial data for the years ended January 1, 1995 and
January 2, 1994 are as follows:
<TABLE>
<CAPTION>
1994 First Second Third Fourth
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $36,746 $38,689 $38,059 $39,777
Gross profit 8,645 9,303 9,151 8,303
Net income 1,724 2,291 2,233 2,682
Per share .24 .31 .30 .36
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
<CAPTION>
1993 First Second Third Fourth
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $29,923 $31,803 $29,356 $33,042
Gross profit 5,737 6,704 6,111 6,799
Net income 120 637 354 1,419
Per share .02 .09 .05 .20
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
During the fourth quarter of 1994, the Company recorded a charge of $800 ($.11
per share), after tax, for the anticipated costs associated with environmental
cleanup of the Rolla, Missouri facility. Also, during the fourth quarter of
1994, the Company recorded an adjustment to reduce the valuation allowance on
deferred tax assets which had the effect of increasing net income by $577 ($.08
per share).
During the fourth quarter of 1993, the Company recorded a charge of $640 ($.09
per share), after tax, against assets held for sale and deferred relocation and
restructuring costs. Also, during the fourth quarter of 1993, the Company
recorded an adjustment to reduce the valuation allowance on deferred tax assets
which had the effect of increasing net income by $511 ($.07 per share).
NOTE 16. SUBSEQUENT EVENT:
On February 25, 1995, the Company and Kuhlman Corporation (Kuhlman), a publicly
held company traded on The New York Stock Exchange, jointly announced that they
have signed a definitive agreement to merge the Company with a wholly-owned
subsidiary of Kuhlman. Kuhlman is a holding company involved in the
manufacturing of electrical and electronic wire and cable products;
distribution, power and instrument transformers; and spring products. In the
transaction, shares of the Company's common stock will be converted into shares
of Kuhlman common stock using an exchange ratio of 0.9615 share of Kuhlman for
each share of the Company. The merger is subject to certain closing conditions,
including the approval of the shareholders of both companies. It is anticipated
that the transaction will be consummated in the second quarter of 1995,
following approval by shareholders of both companies at the companies'
respective annual meetings of shareholders. Both meetings are currently
scheduled to be held on May 31, 1995.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF SCHWITZER, INC.:
We have audited the accompanying consolidated balance sheets of Schwitzer, Inc.
(a Delaware corporation) and subsidiaries as of January 1, 1995 and January 2,
1994 and the related consolidated statements of operations, shareholders' equity
and cash flows for each of the three years in the period ended January 1, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 16 to the consolidated financial statements, the Company
has signed, on February 25, 1995, a definitive agreement to merge with a
wholly-owned subsidiary of Kuhlman Corporation.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Schwitzer, Inc. and
subsidiaries as of January 1, 1995 and January 2, 1994 and the results of their
operations and their cash flows for each of the three years in the period ended
January 1, 1995 in conformity with generally accepted accounting principles.
As discussed in Notes 10 and 11 to the consolidated financial statements,
effective as of the beginning of 1992, the Company changed its methods of
accounting for postretirement benefits other than pensions and income taxes.
/s/ Arthur Andersen LLP
Charlotte, North Carolina,
February 9, 1995 (except with respect
to the matter discussed in Note 16, as
to which the date is February 25, 1995).
20
<PAGE>
DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
Donald C. Clark
CHAIRMAN OF THE BOARD
HOUSEHOLD INTERNATIONAL, INC.
Joseph D. Corso
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
MCLOUTH STEEL COMPANY
Gary G. Dillon
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER,
SCHWITZER, INC.
Willard R. Hildebrand
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
GREAT DANE TRAILERS, INC.
J. Richard Hull
RETIRED, SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND CORPORATE SECRETARY,
HOUSEHOLD INTERNATIONAL, INC.
Robert S. Jepson, Jr.
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER, KUHLMAN CORPORATION
OFFICERS
Gary G. Dillon
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
Richard H. Prange
VICE PRESIDENT -- CHIEF FINANCIAL OFFICER AND SECRETARY
Martin G. Spencer
VICE PRESIDENT -- SALES AND MARKETING
Peter G. Sanderson
VICE PRESIDENT -- GENERAL MANAGER (EUROPE)
Peter F. Spratt
DIRECTOR OF FINANCE (EUROPE)
Januario Do Carmo
VICE PRESIDENT -- GENERAL MANAGER (SOUTH AMERICA)
Claudio R. Da Fonseca
DIRECTOR OF FINANCE (SOUTH AMERICA)
Leonildo Zyngier
DIRECTOR OF SALES AND MARKETING (SOUTH AMERICA)
CORPORATE INFORMATION
ANNUAL MEETING
The annual shareholders' meeting will be held on Wednesday, May 31, 1995 at 9:30
a.m. CDT at the Northbrook Hilton in Northbrook, Illinois.
COMMON STOCK INFORMATION
As of March 16, 1995 there were 8,858 shareholders of record. There were no
dividends declared during 1994 or 1993. Quarterly stock price ranges were as
follows:
<TABLE>
<CAPTION>
1994 1993
----------------------------------------------------
High Low High Low
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1st Quarter 10-3/4 6-1/8 7-3/4 5-5/8
2nd Quarter 10-5/8 6-3/4 7-1/8 5-3/4
3rd Quarter 9-5/8 6-7/8 7-3/4 7
4th Quarter 10-1/8 7-1/2 7-1/2 5-3/4
- -----------------------------------------------------------------------------
</TABLE>
LISTED
New York Stock Exchange
Ticker Symbol: SCZ
AUDITORS
Arthur Andersen LLP
Charlotte, North Carolina
SHAREHOLDER SERVICES
Shareholder address changes and inquiries regarding shareholder
accounts and stock transfers should be directed to the Stock
Transfer Agent:
Harris Trust and Savings Bank
Stock Transfer Division
P.O. Box 755
Chicago, IL 60690
312-461-6833
Investor inquiries and Form 10-K inquiries from security analysts and investment
professionals and requests for copies of the Form 10-K Annual Report to the
Securities and Exchange Commission should be directed to the Company's investor
relations representative at 704-684-4014.
<PAGE>
Schwitzer Locations
Schwitzer, Inc.
Highway 191, Brevard Road
Asheville, North Carolina 28813
Schwitzer U.S.
Highway 191, Brevard Road
Asheville, North Carolina 28813
Schwitzer U.S.
6040 West 62nd Street
Indianapolis, IN 46278
Schwitzer U.S.
1233 Palmour Drive
Gainesville, Georgia 30501
Schwitzer South America
Laco Schwitzer Equipamentos, Ltda.
Estrada da Rhodia, km 15
CEP 13082-Campinas
Sao Paulo-Brazil
Schwitzer Europe
Euroway Industrial Estate
Bradford, West Yorkshire
England BD46SE
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes
indemnification of directors, officers, employees and agents of Kuhlman; allows
the advancement of costs of defending against litigation; and permits companies
incorporated in Delaware to purchase insurance on behalf of directors, officers,
employees and agents against liabilities whether or not in the circumstances
such companies would have the power to indemnify against such liabilities under
the provisions of the statute. Kuhlman's Certificate of Incorporation and Bylaws
provide for indemnification of its officers and directors to the extent
permitted by Section 145 of the Delaware General Corporation Law. Pursuant to
such provisions, Kuhlman has purchased such insurance on behalf of its directors
and officers.
Kuhlman's Certificate of Incorporation eliminates, to the fullest extent
permitted by Delaware law, liability of a director to Kuhlman or its
stockholders for monetary damages for a breach of such director's fiduciary duty
of care except for liability where a director (a) breaches his or her duty of
loyalty to Kuhlman or its stockholders, (b) fails to act in good faith or
engages in intentional misconduct or knowing violation of law, (c) authorizes
payment of an illegal dividend or stock repurchase or (d) obtains an improper
personal benefit. This provision only pertains to breaches of duty by directors
as directors and not breaches of duty by directors in any other corporate
capacity, such as any capacity as an officer. While liability for monetary
damages has been eliminated, equitable remedies such as injunctive relief or
rescission remain available. In addition, a director is not relieved of his
responsibilities under any other law, including the federal securities laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<C> <S>
2.1 Agreement and Plan of Merger by and between Kuhlman Corporation, Spinner
Acquisition Corp. and Schwitzer, Inc. (Included in Appendix A to the
Proxy Statement/ Prospectus contained in this Registration Statement.)
2.2 Form of Certificate of Merger by and between Kuhlman Corporation, Spinner
Acquisition Corp. and Schwitzer, Inc. (Included in Appendix A to the
Proxy Statement/ Prospectus contained in this Registration Statement.)
3.1 Text of Amendment to Certificate of Incorporation of Kuhlman Corporation
(Included as Appendix D to the Proxy Statement/Prospectus contained in
this Registration Statement.)
3.2 Certificate of Increase of Kuhlman Corporation dated October 28, 1994
3.3 Certificate of Increase of Kuhlman Corporation dated February 22, 1995
3.4 Rights Agreement dated as of April 28, 1987 between Kuhlman Corporation
and Manufacturers National Bank of Detroit, as rights agent
(incorporated by reference to Exhibit 1 to the Current Report on Form
8-K dated May 5, 1987)
3.5 Amendment to Rights Agreement dated as of February 24, 1995 between
Kuhlman Corporation and Harris Trust and Savings Bank, as successor
rights agent.
4.1 Specimen Common Stock Certificate of Kuhlman Corporation*
5.1 Opinion of Rudnick & Wolfe
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
8.1 Opinion of Sidley & Austin with respect to certain tax matters.*
10.1 Credit Agreement dated December 15, 1993 by and among the Registrant,
NationsBank of Georgia, N.A. and The Chase Manhattan Bank, N.A.
(incorporated by reference to Exhibit 10b to the Current Report on Form
8-K filed December 15, 1993).
10.2 First Amendment to Credit Agreement dated as of March 29, 1994 among
Kuhlman Corporation, NationsBank of Georgia, N.A. and The Chase
Manhattan Bank, N.A.
10.3 Second Amendment to Credit Agreement dated as of March 30, 1994 among
Kuhlman Corporation, NationsBank of Georgia, N.A. and The Chase
Manhattan Bank, N.A.
10.4 Third Amendment to Credit Agreement dated December 31, 1994 by and among
Kuhlman Corporation, NationsBank of Georgia, N.A. and The Chase
Manhattan Bank, N.A.
10.5 1983 Incentive Stock Option Plan of the Registrant (incorporated by
reference to Exhibit 10b to the Annual Report on Form 10-K for the year
ended December 31, 1983).
10.6 Form of Officer Agreements (incorporated by reference to Exhibit 10c to
the Annual Report on Form 10-K for the year ended December 31, 1991).
10.7 Amended 1986 Stock Option Plan of the Registrant (incorporated by
reference to Exhibit 10.4 to the Annual Report on Form 10-K for the year
ended December 31, 1994).
10.8 Non-Employee Directors Stock Plan (incorporated by reference to Exhibit 4
to the Quarterly Report Form 10-Q for the quarter ended June 30, 1993).
10.9 1994 Stock Appreciation Rights Plan (incorporated by reference to Exhibit
10.6 to the Annual Report on Form 10-K for the year ended December 31,
1994).
10.10 Kuhlman Corporation Non-Employee Directors Stock Plan (incorporated by
reference to Exhibit 28(b) to Registration Statement No. 33-59476)
10.11 Kuhlman Corporation 1994 Stock Option Plan (Included as Appendix E to the
Proxy Statement/Prospectus contained in this Registration Statement)
10.12 Schwitzer, Inc. Performance Unit Plan (incorporated by reference to
Exhibit 10.9 to Schwitzer, Inc.'s Annual Report on Form 10-K for the
fiscal year ended January 1, 1995, Commission File No. 1-10183)
10.13 Executive Employment and Compensation Agreement dated January 18, 1995
between Schwitzer U.S. Inc. and Gary G. Dillon, amending and restating
an agreement entered into effective as of April 1, 1989 (incorporated by
reference to Exhibit 10.10 to Schwitzer, Inc.'s Annual Report on Form
10-K for the fiscal year ended January 1, 1995, Commission File No.
1-10183)
10.14 Amendment to Executive Employment and Compensation Agreement dated
February 25, 1995, amending the Agreement listed as Exhibit 10.13 hereto
(incorporated by reference to Exhibit 10.11 to Schwitzer, Inc.'s Annual
Report on Form 10-K for the fiscal year ended January 1, 1995,
Commission File No. 1-10183)
10.15 Phantom Stock Agreement dated as of October 18, 1994 between Schwitzer
U.S. Inc. and Gary G. Dillon (incorporated by reference to Exhibit 10.12
to Schwitzer, Inc.'s Annual Report on Form 10-K for the fiscal year
ended January 1, 1995, Commission File No. 1-10183)
13.1 Annual Report to Shareholders of Kuhlman Corporation for the year ended
December 31, 1994 (included as Appendix F to the Proxy
Statement/Prospectus contained in this Registration Statement)+
13.2 Annual Report to Stockholders of Schwitzer, Inc. for the year ended
January 1, 1995 (included as Appendix G to the Proxy
Statement/Prospectus contained in this Registration Statement)+
23.1 Consent of Arthur Andersen LLP*
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
23.2 Consent of Arthur Andersen LLP*
23.3 Consent of Deloitte & Touche LLP*
23.4 Consent of Rudnick & Wolfe (included in Exhibit 5.1 hereof)
23.5 Consent of Sidley & Austin (included in Exhibit 8.1 hereof)
23.6 Consent of J.P. Morgan Securities Inc.*
23.7 Consent of The Chase Manhattan Bank, N.A.*
24 Power of Attorney
27.1 Financial Data Schedule (incorporated by reference to Exhibit 27.0 to the
Annual Report on Form 10-K for the year ended December 31, 1994).
99.1 Form of Proxy Card for 1995 Annual Meeting of Stockholders of Kuhlman
Corporation
99.2 Form of Proxy Card for 1995 Annual Meeting of Stockholders of Schwitzer,
Inc.
99.3 Opinion of J.P. Morgan Securities Inc. (included in Appendix C to the
Proxy Statement/ Prospectus contained in the Registration Statement.)
99.4 Opinion of The Chase Manhattan Bank, N.A. (included in Appendix B to the
Proxy Statement/Prospectus contained in the Registration Statement)
99.5 Consent of proposed director (Gary G. Dillon)
<FN>
- ------------------------
Unless otherwise indicated, each of the foregoing exhibits was previously
filed.
*Filed with this amendment
+Such report, except for the portions thereof expressly incorporated by
reference in the Proxy Statement/Prospectus, is furnished for the information
of the Commission and is not to be deemed "filed" as part of this
Registration Statement.
</TABLE>
(b) Financial Statement Schedules
Not applicable.
(c) The opinions provided in reference to Item 4(b) are furnished as part of
the Proxy Statement/ Prospectus contained in the Registration Statement.
ITEM 22. UNDERTAKINGS
(a)_The undersigned registrant hereby undertakes:
(1)_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;
(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.
(2)_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.
(3)_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.
II-3
<PAGE>
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through 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.
(c) The registrant undertakes that every prospectus (A) that is filed
pursuant to paragraph (a) immediately preceding, or (B) 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 part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1993, 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.
(d) 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 the 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.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporation 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.
(f) 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.
(g) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to the registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Savannah, State of
Georgia, on April 19, 1995.
KUHLMAN CORPORATION
By: /s/ ROBERT S. JEPSON, JR.
-----------------------------------
Robert S. Jepson, Jr.
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------------ ------------------------------- -----------------------
<C> <S> <C> <C>
Chairman of the Board and Chief
Executive Officer (Principal
ROBERT S. JEPSON, JR.* Executive Officer) and
Director
Executive Vice President of
Finance and Treasurer
VERNON J. NAGEL* (Principal Financial and
Accounting Officer)
President, Chief Operating
CURTIS G. ANDERSON* Officer and Director
WILLIAM E. BURCH* Director April 19, 1995
STEVE CENKO* Director
ALEXANDER W. DREYFOOS, JR.* Director
WILLIAM M. KEARNS, JR.* Director
ROBERT D. KILPATRICK* Director
JOHN L. MARCELLUS, JR.* Director
GEORGE J. MICHEL, JR.* Director
GENERAL H. NORMAN SCHWARZKOPF* Director
*By /s/ ROBERT S. JEPSON, JR. Individually and as
---------------------------------- Attorney-in-Fact
Robert S. Jepson, Jr.
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NO.
--
<C> <S> <C>
2.1 Agreement and Plan of Merger by and between Kuhlman Corporation, Spinner Acquisition Corp.
and Schwitzer, Inc. (Included in Appendix A to the Proxy Statement/Prospectus contained in
this Registration Statement.)
2.2 Form of Certificate of Merger by and between Kuhlman Corporation, Spinner Acquisition Corp.
and Schwitzer, Inc. (Included in Appendix A to the Proxy Statement/Prospectus contained in
this Registration Statement.)
3.1 Text of Amendment to Certificate of Incorporation of Kuhlman Corporation (Included as
Appendix D to the Proxy Statement/Prospectus contained in this Registration Statement.)
3.2 Certificate of Increase of Kuhlman Corporation dated October 28, 1994.......................
3.3 Certificate of Increase of Kuhlman Corporation dated February 22, 1995......................
3.4 Rights Agreement dated as of April 28, 1987 between Kuhlman Corporation and Manufacturers
National Bank of Detroit, as rights agent (incorporated by reference to Exhibit 1 to the
Current Report on Form 8-K dated May 5, 1987)..............................................
3.5 Amendment to Rights Agreement dated as of February 24, 1995 between Kuhlman Corporation and
Harris Trust and Savings Bank, as successor rights agent.
4.1 Specimen Common Stock Certificate of Kuhlman Corporation*
5.1 Opinion of Rudnick & Wolfe
8.1 Opinion of Sidley & Austin with respect to certain tax matters.*
10.1 Credit Agreement dated December 15, 1993 by and among the Registrant, NationsBank of
Georgia, N.A. and The Chase Manhattan Bank, N.A. (incorporated by reference to Exhibit 10b
to the Current Report on Form 8-K filed December 15, 1993).
10.2 First Amendment to Credit Agreement dated as of March 29, 1994 among Kuhlman Corporation,
NationsBank of Georgia, N.A. and The Chase Manhattan Bank, N.A.
10.3 Second Amendment to Credit Agreement dated as of March 30, 1994 among Kuhlman Corporation,
NationsBank of Georgia, N.A. and The Chase Manhattan Bank, N.A.
10.4 Third Amendment to Credit Agreement dated December 31, 1994 by and among Kuhlman
Corporation, NationsBank of Georgia, N.A. and The Chase Manhattan Bank, N.A.
10.5 1983 Incentive Stock Option Plan of the Registrant (incorporated by reference to Exhibit 10b
to the Annual Report on Form 10-K for the year ended December 31, 1983).
10.6 Form of Officer Agreements (incorporated by reference to Exhibit 10c to the Annual Report on
Form 10-K for the year ended December 31, 1991).
10.7 Amended 1986 Stock Option Plan of the Registrant (incorporated by reference to Exhibit 10.4
to the Annual Report on Form 10-K for the year ended December 31, 1994).
10.8 Non-Employee Directors Stock Plan (incorporated by reference to Exhibit 4 to the Quarterly
Report Form 10-Q for the quarter ended June 30, 1993).
10.9 1994 Stock Appreciation Rights Plan (incorporated by reference to Exhibit 10.6 to the Annual
Report on Form 10-K for the year ended December 31, 1994).
10.10 Kuhlman Corporation Non-Employee Directors Stock Plan (Incorporated by reference to Exhibit
28(b) to Registration Statement No. 33-59476)
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10.11 Kuhlman Corporation 1994 Stock Option Plan (Included as Appendix E to the Proxy
Statement/Prospectus contained in this Registration Statement)
10.12 Schwitzer, Inc. Performance Unit Plan (incorporated by reference to Exhibit 10.9 to
Schwitzer, Inc.'s Annual Report on Form 10-K for the fiscal year ended January 1, 1995,
Commission File No. 1-10183)
10.13 Executive Employment and Compensation Agreement dated January 18, 1995 between Schwitzer
U.S. Inc. and Gary G. Dillon, amending and restating an agreement entered into effective as
of April 1, 1989 (incorporated by reference to Exhibit 10.10 to Schwitzer, Inc.'s Annual
Report on Form 10-K for the fiscal year ended January 1, 1995, Commission File No. 1-10183)
10.14 Amendment to Executive Employment and Compensation Agreement dated February 25, 1995,
amending the Agreement listed as Exhibit 10.13 hereto (incorporated by reference to Exhibit
10.11 to Schwitzer, Inc.'s Annual Report on Form 10-K for the fiscal year ended January 1,
1995, Commission File No. 1-10183)
10.15 Phantom Stock Agreement dated as of October 18, 1994 between Schwitzer U.S. Inc. and Gary G.
Dillon (incorporated by reference to Exhibit 10.12 to Schwitzer, Inc.'s Annual Report on
Form 10-K for the fiscal year ended January 1, 1995, Commission File No. 1-10183)
13.1 Annual Report to Shareholders of Kuhlman Corporation for the year ended December 31, 1994
(included as Appendix F to the Proxy Statement/ Prospectus contained in this Registration
Statement)+
13.2 Annual Report to Stockholders of Schwitzer, Inc. for the year ended January 1, 1995
(included as Appendix G to the Proxy Statement/Prospectus contained in this Registration
Statement)+
23.1 Consent of Arthur Andersen LLP*.............................................................
23.2 Consent of Arthur Andersen LLP*.............................................................
23.3 Consent of Deloitte & Touche LLP*...........................................................
23.4 Consent of Rudnick & Wolfe (included in Exhibit 5.1 hereof)
23.5 Consent of Sidley & Austin (included in Exhibit 8.1 hereof)
23.6 Consent of J.P. Morgan Securities Inc.*.....................................................
23.7 Consent of The Chase Manhattan Bank, N.A.*..................................................
24 Power of Attorney...........................................................................
27.1 Financial Data Schedule (incorporated by reference to Exhibit 27.0 to the Annual Report on
Form 10-K for the year ended December 31, 1994).
99.1 Form of Proxy Card for 1995 Annual Meeting of Stockholders of Kuhlman Corporation...........
99.2 Form of Proxy Card for 1995 Annual Meeting of Stockholders of Schwitzer, Inc................
99.3 Opinion of J.P. Morgan Securities Inc. (included in Appendix C to the Proxy
Statement/Prospectus contained in the Registration Statement.)
99.4 Opinion of The Chase Manhattan Bank, N.A. (included in Appendix B to the Proxy
Statement/Prospectus contained in the Registration Statement)
99.5 Consent of proposed director (Gary G. Dillon)...............................................
<FN>
- ------------------------
Unless otherwise indicated, each of the foregoing exhibits was previously
filed.
*Filed with this amendment
+Such report, except for the portions thereof expressly incorporated by
reference in the Proxy Statement/Prospectus, is furnished for the information
of the Commission and is not to be deemed "filed" as part of this
Registration Statement.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
KC [LOGO] SPECIMAN
COMMON STOCK SEE REVERSE SIDE FOR CERTAIN DEFINITIONS
----------------------------------------
INCORPORATED UNDER THE LAWS KUHLMAN CORPORATION CUSIP 501206 10 6
OF THE STATE OF DELAWARE THIS CERTIFICATE IS TRANSFERABLE IN THE ----------------------------------------
CHICAGO, ILLINOIS OR NEW YORK, NEW YORK
THIS CERTIFIES THAT
SPECIMAN
IS THE OWNER OF
FULL PAID AND NONASSESSABLE SHARES OF THE PAR VALUE OF $1.00 EACH OF THE COMMON STOCK OF
KUHLMAN CORPORATION TRANSFERABLE ON THE BOOKS OF THE CORPORATION IN PERSON OR BY DULY AUTHORIZED
ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE AND THE SHARES
REPRESENTED HEREBY ARE ISSUED AND SHALL BE HELD SUBJECT TO ALL OF THE PROVISIONS OF THE ARTICLES
OF INCORPORATION OF THE CORPORATION (COPIES OF WHICH ARE ON FILE WITH THE TRANSFER AGENT), TO ALL
OF WHICH THE HOLDER BY ACCEPTANCE HEREOF ASSENTS. THIS CERTIFICATE IS NOT VALID UNLESS COUNTERSIGNED
BY THE TRANSFER AGENT AND REGISTERED BY THE REGISTRAR.
WITNESS THE SEAL OF THE CORPORATION AND THE SIGNATURES OF ITS DULY AUTHORIZED OFFICERS.
DATED:
/s/ Richard A. Walker /s/ Robert S. Jepson, Jr.
[SEAL]
SECRETARY CHAIRMAN OF THE BOARD
</TABLE>
COUNTERSIGNED AND REGISTERED:
HARRIS TRUST AND SAVINGS BANK
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN
RIGHTS AS SET FORTH IN A RIGHTS AGREEMENT DATED AS OF APRIL 28, 1987 (THE
"RIGHTS AGREEMENT") BETWEEN KUHLMAN CORPORATION AND HARRIS TRUST AND SAVINGS
BANK AS SUCCESSOR RIGHTS AGENT (THE "RIGHTS AGENT"), THE TERMS OF WHICH ARE
HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICES OF KUHLMAN CORPORATION. UNDER CERTAIN CIRCUMSTANCES, AS SET
FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS MAY BE REDEEMED, MAY EXPIRE OR MAY
BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY THIS
CERTIFICATE. THE COMPANY WILL, AFTER RECEIPT OF A WRITTEN REQUEST, MAIL TO
THE HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE.
UNDER CERTAIN CIRCUMSTANCES, RIGHTS ISSUED TO OR HELD BY ANY PERSON WHO IS,
WAS OR BECOMES AN ACQUIRING PERSON OR ITS AFFILIATE OR ASSOCIATE (AS DEFINED
IN THE RIGHTS AGREEMENT), WHETHER CURRENTLY HELD BY OR ON BEHALF OF SUCH
PERSONS OR BY ANY SUBSEQUENT HOLDER OF SUCH RIGHTS, MAY BECOME NULL AND VOID.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM --as tenants in common UNIF GIFT MIN ACT--_____Custodian_____
TEN ENT --as tenants by the entireties (Cust) (Minor)
JT TEN --as joint tenants with rights under Uniform Gifts to
of survivorship and not as Minors Act__________
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,_______ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
__________________________________________________________________________SHARES
OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT
_______________________________________________________________________ATTORNEY
TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED____________________________
________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED: ____________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
[SIDLEY & AUSTIN LETTERHEAD]
April 19, 1995
Schwitzer, Inc.
Brevard Road
P.O. Box 15075
Asheville, North Carolina 28813
Kuhlman Corporation
1 Skidaway Village Walk
Suite 201
Savannah, Georgia 31411
Ladies and Gentlemen:
We have acted as special counsel to Schwitzer, Inc., a Delaware
corporation (the "Company"), in connection with the Agreement and Plan of
Merger, dated as of February 25, 1995 (the "Merger Agreement"), among Kuhlman
Corporation, a Delaware corporation ("Parent"), Spinner Acquisition Corp., a
Delaware corporation ("Sub"), which is a wholly-owned subsidiary of Parent, and
the Company, providing among other things, for the proposed merger (the
"Merger") of Sub with and into the Company. Capitalized terms not otherwise
defined herein have the meanings ascribed to them in the Merger Agreement.
As of the Effective Time and by virtue of the Merger: (i) all shares
of Company Common Stock that are held in the treasury of the Company or by any
wholly-owned subsidiary of the Company immediately prior to the Effective Time
and any shares of Company Common Stock owned by Parent, Sub or any other wholly
- -owned subsidiary of Parent immediately prior to the Effective Time will be
cancelled and no capital stock of the Parent or other consideration will be
delivered in exchange therefor; (ii) each share of capital stock of Sub
outstanding immediately prior to the Effective Time will be converted into and
become one fully paid and nonassessable share of Common Stock, par value $.10
per share, of the Surviving Corporation; (iii) each share of Company Common
Stock outstanding immediately prior to the Effective Time (other than shares
described in clause (i) above) will be converted into 0.9615 shares of Parent
Common Stock (subject to adjustment in certain circumstances), with cash being
paid in lieu of fractional shares of Parent Common Stock. Therefore,
immediately following the Merger, former holders of Company
<PAGE>
Schwitzer, Inc.
Kuhlman Corporation
April 19, 1995
Page 2
Common Stock will hold Parent Common Stock issued in the Merger and the Company,
as the surviving corporation, will be a wholly-owned subsidiary of Parent. The
Merger and the Merger Agreement are more fully described in the Registration
Statement on Form S-4 (File No. 33-58133), filed by Parent with the Securities
and Exchange Commission pursuant to the Securities Act of 1933, as amended, and
the proxy statement/prospectus included in the Registration Statement
(collectively, the "Registration Statement").
In rendering this opinion, we have assumed, with your consent, that as
of the Effective Time of the Merger there will be no plan or intention on the
part of holders of Company Common Stock to sell, exchange, or otherwise dispose
of a number of shares of Parent Common Stock received in the Merger that would
reduce the Company stockholders' ownership of Parent Common Stock to a number of
shares having a value, as of the Effective Time of the Merger, of less than 50
percent of the value of all of the formerly outstanding shares of Company Common
Stock as of the Effective Time of the Merger. For purposes of this assumption,
shares of Company Common Stock exchanged for cash or other property or exchanged
for cash in lieu of fractional shares of Parent Common Stock will be treated as
outstanding Company Common Stock as of the Effective Time of the Merger.
Moreover, shares of Company Common Stock held by holders of Company Common Stock
and sold, redeemed or disposed of prior to the Merger in anticipation of the
Merger will be considered for purposes of making this assumption.
Based upon our review of the Merger Agreement, the Registration
Statement and such other documents as we have deemed necessary and upon
representations made to us by the Company, Parent and certain beneficial owners
of shares of Company Common Stock, we are of the opinion that, assuming the
Merger and all other events occur as contemplated in the Merger Agreement and
the Registration Statement, under the United States federal income tax laws in
effect on the date hereof:
(i) the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the Company, Parent and Sub will each be a party to such
reorganization within the meaning of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by the Company as a result of
the Merger;
(iii) no gain or loss will be recognized by the stockholders of the
Company upon the conversion of their
-2-
<PAGE>
Schwitzer, Inc.
Kuhlman Corporation
April 19, 1995
Page 3
Company Common Stock into shares of Parent Common Stock pursuant to the
Merger (except for cash paid in lieu of a fractional share of Parent Common
Stock);
(iv) the aggregate tax basis of the shares of Parent Common Stock
received in exchange for shares of Company Common Stock pursuant to the
Merger (including a fractional share of Parent Common Stock for which cash
is paid) will be the same as the aggregate tax basis of such shares of
Company Common Stock;
(v) the holding period for shares of Parent Common Stock received
in exchange for shares of Company Common Stock pursuant to the Merger will
include the period that such shares of Company Common Stock were held by
the holder, provided such shares of Company Common Stock were held as
capital assets by the holder at the Effective Time; and
(vi) a stockholder of the Company who receives cash in lieu of a
fractional share of Parent Common Stock will recognize gain or loss equal
to the difference, if any, between such stockholder's basis in the
fractional share and the amount of cash received.
You have not asked for, and we do not express, any opinion concerning
the tax consequences of the Merger other than those expressly set forth above.
This opinion is provided to you only and, without our prior written
consent, may not be relied upon, used, circulated, quoted or otherwise referred
to in any manner by any person, firm, governmental authority or entity
whatsoever other than reliance thereon by you. This opinion letter is limited
to the matters stated herein and no opinion is implied or may be inferred beyond
the matters expressly stated herein. This opinion letter shall not be construed
as or deemed to be a guaranty or insuring agreement.
Notwithstanding the immediately preceding paragraph, we hereby consent
to the references to our firm appearing in the Registration Statement under the
captions "Summary - The Merger - Certain Federal Income Tax Consequences," "The
Merger - Certain Federal Income Tax Consequences" and "Legal Matters" and to the
filing of this opinion as an exhibit to the Registration Statement.
-3-
<PAGE>
Schwitzer, Inc.
Kuhlman Corporation
April 19, 1995
Page 4
This opinion is rendered as of the date hereof based on the law and
facts in existence on the date hereof, and we do not undertake, and hereby
disclaim, any obligation to advise you of any changes in law or fact, whether or
not material, which may be brought to our attention at a later date.
We express no opinion with respect to the effect of any laws other
than federal income tax laws of the United States of America.
Very truly yours,
/s/ Sidley & Austin
-4-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated February 6, 1995,
except with respect to the planned Merger between the Company and Schwitzer,
Inc. as discussed in Note 17 to the consolidated financial statements, as to
which the date is February 25, 1995, incorporated by reference and included in
Kuhlman Corporation's Form 10-K for the year ended December 31, 1994 and to all
references to our Firm included in this registration statement.
________/S/ ARTHUR ANDERSEN LLP_______
ARTHUR ANDERSEN LLP
Louisville, Kentucky
April 19, 1995
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated February 9, 1995,
except with respect to the planned merger between Schwitzer, Inc. and a
wholly-owned subsidiary of Kuhlman Corporation, as discussed in Note 16 to the
consolidated financial statements, as to which the date is February 25, 1995,
included and incorporated by reference in Schwitzer, Inc.'s Form 10-K for the
year ended January 1, 1995 and to all references to our firm included in this
registration statement.
________/S/ ARTHUR ANDERSEN LLP_______
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
April 19, 1995.
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement No. 33-58133 of Kuhlman Corporation on Form S-4 of the
report of Deloitte & Touche dated October 1, 1993 (relating to the consolidated
financial statements of Coleman Holding Company and subsidiaries, incorporated
herein by reference), and to the reference to us under the heading "Experts" in
the Prospectus, which is part of such Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Chicago, Illinois
April 19, 1995
<PAGE>
EXHIBIT 23.6
CONSENT OF J.P. MORGAN SECURITIES INC.
We hereby consent to the use of our opinion letter dated April __, 1995
to the Board of Directors of Schwitzer, Inc. included in Appendix C to the
Proxy Statement/Prospectus which forms a part of the Registration Statement on
Form S-4 relating to the proposed merger of a wholly-owned subsidiary of
Kuhlman Corporation with and into Schwitzer, Inc. and to the references to such
opinion in such Proxy Statement/Prospectus. In giving such consent, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder, nor do we
hereby admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder.
J.P. MORGAN SECURITIES INC.
By: /s/ Francis P. Carr
-------------------------
Name: Francis P. Carr
Title: Vice President
April 19, 1995
<PAGE>
EXHIBIT 23.7
CONSENT
OF
THE CHASE MANHATTAN BANK, N.A.
We hereby consent to (i) the inclusion of our opinion letter to the
Board of Directors of Kuhlman Corporation ("Kuhlman") as Appendix B to the
Proxy Statement/Prospectus of Kuhlman and Schwitzer, Inc. ("Schwitzer")
relating to the proposed merger of a wholly owned subsidiary of Kuhlman with
and into Schwitzer and (ii) references made to our firm and such opinion (A)
in such Proxy Statement/Prospectus under the captions "SUMMARY" -- Merger --
Recommendations of the Boards of Directors" and "-- Opinions of Financial
Advisers -- Kuhlman," and "THE MERGER -- Background of the Merger," "--
Kuhlman's Reasons for the Merger; Recommendation of the Kuhlman Board of
Directors," "--Opinions of Financial Advisors -- Kuhlman" and "-- Conditions to
the Merger" and (B) in the Letter to Stockholders of Kuhlman accompanying such
Proxy Statement/Prospectus. In giving such consent, we do not admit that we
come within the category of persons whose consent is required under, and we do
not admit that we are "experts" for purposes of, the Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder.
By: /s/ The Chase Manhattan Bank, N.A.
-----------------------------------
THE CHASE MANHATTAN BANK, N.A.
New York, New York
April 20, 1995
