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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as Permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
- --------------------------------------------------------------------------------
SPX Corporation
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
- --------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) and 0-11:
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying transaction computed pursuant to
Exchange Act Rule 0-11:
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting was paid
previously. Identify the previous filing by registration statement number, or
the Form of Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
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[SPX CORPORATION LOGO] 700 Terrace Point Drive Phone 616-724-5000
P.O. Box 330 Fax 616-724-5720
Muskegon, MI 49443-3301
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April 24, 1998
Fellow Shareholders:
You are cordially invited to attend the 1998 Annual
Meeting of Shareholders on May 20, 1998, at 9:00 a.m. (Eastern
Time), at the Company's headquarters, 700 Terrace Point Drive,
Muskegon, Michigan. The items to be acted upon at the Annual
Meeting are listed in the Notice of Annual Meeting and are
described in the Proxy Statement.
You may already be aware that the Company has offered
to acquire all of the outstanding shares of Common Stock of
Echlin Inc. in exchange for $12 in cash and 0.4796 share of
Common Stock of the Company for each outstanding Echlin share.
One of the proposals to be acted upon at the Annual Meeting is
the approval of the issuance of shares of Common Stock of the
Company in this acquisition. To fully understand this proposal
and the acquisition of Echlin, I encourage you to read the Proxy
Statement carefully. Shareholders of record at the close of
business on April 10, 1998, are entitled to vote at the Annual
Meeting.
I am pleased you have chosen to invest in SPX
Corporation, and I look forward to the opportunity of personally
greeting those shareholders who attend this year's Annual
Meeting. I urge you to sign, date and return the proxy card in
the enclosed postage-paid envelope, even if you plan to attend
the Annual Meeting. Your vote is important and voting by proxy
will ensure your representation at the Annual Meeting even if
you cannot attend in person.
This year we will require admission tickets for
shareholders who want to attend the Annual Meeting in person.
Two cutout admission tickets are included on the outside back
cover of this Proxy Statement.
Sincerely,
/s/ JOHN B. BLYSTONE
JOHN B. BLYSTONE
Chairman, President and
Chief Executive Officer
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[SPX CORPORATION LOGO]
700 Terrace Point Drive Muskegon, Michigan 49443-3301
Telephone (616) 724-5000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 20, 1998
To the Shareholders:
The Annual Meeting of Shareholders of SPX Corporation (the "Company") will
be held at the offices of the Company at 700 Terrace Point Drive in Muskegon,
Michigan, on May 20, 1998, at 9:00 a.m. (Eastern Time), for the purpose of
considering and taking action with respect to the following matters:
1. The election of three directors of the Company;
2. Approval of the issuance of shares of the Company's Common Stock, par
value $10.00 per share (the "SPX Common Stock"), in connection with
the proposed acquisition (the "Proposed Business Combination") of all
of the outstanding shares of Common Stock, par value $1.00 per share
(each an "Echlin Share" and collectively the "Echlin Shares"), of
Echlin Inc., a Connecticut corporation ("Echlin"); and
3. Approval of an amendment to the Company's Certificate of
Incorporation to increase the amount of authorized shares of SPX
Common Stock from 50,000,000 to 100,000,000 shares.
4. Approval of any adjournment of the Annual Meeting proposed by the
Board of Directors.
5. Such other business as may properly come before the meeting.
According to Echlin's public filings, as of March 31, 1998 there were
63,594,700 Echlin Shares outstanding and as of December 31, 1997 options to
purchase 2,044,284 Echlin Shares had been granted and were outstanding. Based on
such numbers, if the Proposed Business Combination is consummated in accordance
with the terms described herein, the Company will issue to Echlin shareholders
(other than the Company, which owns 1,150,150 Echlin Shares) up to 30,928,845
shares of SPX Common Stock. IF ECHLIN COMMENCES MERGER NEGOTIATIONS WITH THE
COMPANY, OR THE COMPANY OTHERWISE MODIFIES THE TERMS OF THE PROPOSED BUSINESS
COMBINATION, CONSUMMATION OF THE PROPOSED BUSINESS COMBINATION COULD REQUIRE THE
ISSUANCE OF MORE OR LESS THAN 30,928,845 SHARES OF SPX COMMON STOCK.
The Board of Directors has fixed the close of business on April 10, 1998 as
the record date for the determination of shareholders entitled to notice of and
to vote at the Annual Meeting of Shareholders. The transfer books of the Company
will not be closed.
Each shareholder, including any shareholder who expects to attend the
Annual Meeting in person, is requested to execute the enclosed proxy and return
it as promptly as possible in the accompanying stamped envelope. The proxy may
be revoked by the shareholder at any time before it is exercised, and
shareholders who are present at the Annual Meeting may withdraw their proxies
and vote in person.
This year, shareholders who plan to attend the Annual Meeting will be
required to present an admission ticket. Two cutout admission tickets are
included on the back cover of the enclosed Proxy Statement. To request
additional tickets shareholders should contact the Corporate Secretary.
Shareholders who do not present an admission ticket will be admitted only upon
providing proof of ownership showing they were a Company shareholder as of April
10, 1998. If a shareholder holds shares through a broker or other nominee and
fails to present an admission ticket, proof of ownership will be accepted by the
Company only if the shareholder brings either a copy of the voting instruction
card provided by the broker or nominee or a copy of a brokerage statement
showing share ownership in the Company as of April 10, 1998.
A copy of the Company's 1997 Annual Report to Shareholders has been mailed
to each shareholder.
By Order of the Board of Directors,
CHRISTOPHER J. KEARNEY
Vice President, Secretary
and General Counsel
Muskegon, Michigan
April 24, 1998
IMPORTANT: PLEASE MAIL YOUR SIGNED PROXY PROMPTLY IN THE ENCLOSED ENVELOPE
PROVIDED FOR THIS PURPOSE WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING
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[SPX CORPORATION LOGO]
700 Terrace Point Drive Muskegon, Michigan 49443-3301
Telephone (616) 724-5000
------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 20, 1998
This Proxy Statement is furnished in connection with the solicitation of
proxies to be voted at the 1998 Annual Meeting of Shareholders (the "Annual
Meeting") of SPX Corporation (the "Company") to be held on May 20, 1998.
The enclosed proxy is solicited by the Board of Directors of the Company
and will be voted at the Annual Meeting and any adjournments thereof. The
enclosed proxy may be revoked at any time before it is exercised. The only
business which the Board of Directors intends to present or knows will be
presented is (i) the election of three directors, (ii) approval of the issuance
(the "Stock Issuance") of shares of the Company's Common Stock, par value $10.00
per share (the "SPX Common Stock"), in connection with the proposed acquisition
by the Company of all of the outstanding shares of common stock, par value $1.00
per share (each an "Echlin Share" and collectively the "Echlin Shares"), of
Echlin Inc., a Connecticut corporation ("Echlin"), and (iii) approval of an
amendment to the Company's Certificate of Incorporation to increase the amount
of authorized shares of SPX Common Stock from 50,000,000 to 100,000,000 shares
(the "Charter Amendment").
According to Echlin's public filings, as of March 31, 1998, there were
63,594,700 Echlin Shares outstanding and as of December 31, 1997, options to
purchase 2,044,284 Echlin Shares had been granted and were outstanding. Based on
such numbers, if the proposed acquisition is consummated in accordance with the
terms described herein, the Company will issue to Echlin shareholders (other
than the Company, which owns 1,150,150 Echlin Shares) up to 30,928,845 shares of
SPX Common Stock. IF ECHLIN COMMENCES MERGER NEGOTIATIONS WITH THE COMPANY, OR
THE COMPANY OTHERWISE MODIFIES THE TERMS OF THE PROPOSED ACQUISITION,
CONSUMMATION OF THE PROPOSED ACQUISITION COULD REQUIRE THE ISSUANCE OF MORE OR
LESS THAN 30,928,845 SHARES OF SPX COMMON STOCK.
The enclosed proxy also confers (i) authority upon the persons named
therein, or their substitutes, to vote in favor of any adjournment of the Annual
Meeting proposed by the Board of Directors and (ii) discretionary authority upon
the persons named therein, or their substitutes, with respect to (x) any
adjournment of the Annual Meeting proposed by any other person and (y) any other
business which may properly come before the Annual Meeting. Shares represented
by a properly executed proxy in the accompanying form will be voted at the
Annual Meeting and, when instructions have been given by the shareholder, will
be voted in accordance with those instructions. If no instructions are given,
such shareholder's shares will be voted according to the recommendations of the
Board of Directors of the Company.
This Proxy Statement and the proxy are intended to be first mailed to
shareholders on or about April 27, 1998.
RECORD DATE AND VOTING AT THE ANNUAL MEETING
The holders of record on April 10, 1998 (the "Record Date") of shares of
SPX Common Stock will be entitled to one vote per share on each matter submitted
to the Annual Meeting. At the close of business on the Record Date, there were
outstanding 12,647,727 shares of SPX Common Stock. No other voting securities of
the Company were outstanding at the close of business on the Record Date. The
holders of one-third of the total shares issued and outstanding, whether present
in person or represented by proxy, will constitute a quorum for the transaction
of business at the Annual Meeting, other than for purposes of approving the
Stock Issuance. Pursuant to the rules of the New York Stock Exchange, Inc. (the
"New York Stock Exchange") on which the SPX Common Stock is listed, the presence
in person or by proxy of a majority of the shares of SPX
<PAGE> 5
Common Stock entitled to vote on the Stock Issuance is necessary to constitute a
quorum for purposes of approving the Stock Issuance.
The affirmative vote of a majority of the total shares represented in
person or by proxy and entitled to vote at the Annual Meeting is required for
the election of directors, the approval of the Stock Issuance, and (subject to a
greater vote being required by law or the Company's Certificate of Incorporation
or By-Laws) the approval of such other business as may properly come before the
Annual Meeting or any adjournment thereof, other than the approval of the
Charter Amendment. The affirmative vote of a majority of the shares of SPX
Common Stock outstanding is required to approve the Charter Amendment.
In accordance with Delaware law, a shareholder entitled to vote on the
election of directors can withhold authority to vote for all nominees for
director or can withhold authority to vote for certain nominees for director.
Likewise, a shareholder entitled to vote on the proposal to approve the Stock
Issuance or the proposal to approve the Charter Amendment may withhold authority
to vote on the proposal. Abstentions from the proposal to elect directors,
abstentions from the proposal to approve the Stock Issuance and abstentions from
the proposal to approve the Charter Amendment will have the same effect as votes
against the election of the directors, against the proposal to approve the Stock
Issuance, and against the proposal to approve the Charter Amendment,
respectively. Broker non-votes are treated as shares as to which voting power
has been withheld by the beneficial holders of those shares and, therefore, as
shares not entitled to vote, which will have no effect on the outcome of the
vote on the election of directors and the proposal to approve the Stock
Issuance. Because approval of the Charter Amendment requires a majority of
outstanding SPX Common Stock, broker non-votes will have the same effect as
votes against the Charter Amendment.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (NOT INCLUDING EXHIBITS
TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE TO SUCH
DOCUMENTS) ARE AVAILABLE WITHOUT CHARGE UPON REQUEST TO: CORPORATE SECRETARY,
SPX CORPORATION, 700 TERRACE POINT DRIVE, MUSKEGON, MI 49443. REQUESTS MAY BE
DIRECTED TO THE COMPANY'S SECRETARY AT (616) 724-5000. IN ORDER TO ENSURE TIMELY
DELIVERY OF SUCH DOCUMENTS, ANY REQUEST FOR DOCUMENTS SHOULD BE SUBMITTED NO
LATER THAN FIVE BUSINESS DAYS PRIOR TO THE ANNUAL MEETING.
The following documents filed with the Securities and Exchange Commission
(the "Commission") by the Company (File No. 1-6948) are incorporated herein by
reference:
(i) the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 (the "Company's 1997 Form 10-K");
(ii) the Company's Definitive Solicitation Statement on Schedule 14A,
dated March 6, 1998, to the shareholders of Echlin and all subsequent
filings of solicitation materials in connection with the solicitation of
written demands to call a special meeting of the shareholders of Echlin;
(iii) the Company's Quarterly Report on Form 10-Q for the six months
ended June 30, 1997 (the "Company's 1997 Second Quarter Form 10-Q"); and
(iv) the Company's Current Report on Form 8-K filed February 21, 1997.
The following documents filed with the Commission by Echlin (File No.
1-4651) are incorporated herein by reference:
(i) Echlin's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997 ("Echlin's 1997 Form 10-K") (except for the report of
Echlin's independent accountants contained therein which is not
incorporated herein by reference because the consent of Echlin's
independent accountants has not yet been obtained);
(ii) Echlin's Proxy Statement for the Annual Meeting of Shareholders
held on December 17, 1997;
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(iii) Echlin's Quarterly Reports on Form 10-Q for the periods ended
November 30, 1997 and February 28, 1998 ("Echlin's 1998 First Quarter Form
10-Q" and "Echlin's 1998 Second Quarter Form 10-Q," respectively); and
(iv) Echlin's Definitive Revocation Solicitation Statement on Schedule
14A, dated March 13, 1998 and all subsequent filings of solicitation
materials in connection with the solicitation of revocations of written
demands to call a special meeting of the shareholders of Echlin.
All documents filed by either the Company or Echlin pursuant to Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), subsequent to or contemporaneous with the date hereof and
prior to the date of the Annual Meeting shall be deemed to be incorporated
herein by reference and to be a part hereof from the date of such filing. Any
statement contained herein or in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein or in any
other subsequently filed document which also is, or is deemed to be,
incorporated herein by reference modifies or supersedes such statement. Any such
statement so modified shall not be deemed to constitute a part hereof, except as
so modified, and any statement so superseded shall not be deemed to constitute a
part hereof.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Proxy Statement or incorporated herein
by reference that are not statements of historical facts are "forward-looking"
statements and are thus prospective. Such forward-looking statements include,
without limitation, statements regarding the Company's or Echlin's future
financial position, results of operations, business strategy (including future
dispositions of assets and restructuring of operations), budgets, expected cost
savings, plans as to dividends, and plans and objectives of management for
future operations. Such forward-looking statements are subject to risks,
uncertainties and other factors which could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. Important factors that could cause actual results to differ
materially from the information set forth in any forward-looking statements are
disclosed under "Risk Factors" ("Cautionary Statements"). All subsequent written
and oral forward-looking statements attributable to the Company or to persons
acting on its behalf are expressly qualified in their entirety by the Cautionary
Statements. The Company was not involved in the preparation of any
forward-looking statements relating to Echlin incorporated by reference in this
Proxy Statement and is not in a position to verify such statements and takes no
responsibility therefor.
ELECTION OF DIRECTORS
As of the Annual Meeting, the Board of Directors will consist of eight
members, divided into three classes. At the Annual Meeting, three nominees are
to be elected to serve for a term of three years and until their respective
successors are elected and qualified. The remaining five directors will continue
to serve as set forth below, with three directors having terms expiring at the
Annual Meeting in 1999 and two directors having terms expiring at the Annual
Meeting in 2000. Each of the nominees is now a director of the Company and has
agreed to serve if elected. The proxy holders will vote the proxies received by
them for the three nominees, or in the event of a contingency not presently
foreseen, for different persons as substitutes therefor.
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The following sets forth with respect to each nominee and each director
continuing to serve, his or her name, age, principal occupation, the year in
which he or she first became a director of the Company, committee assignments
and directorships in other business corporations.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
FOR A THREE-YEAR TERM EXPIRING AT THE ANNUAL MEETING IN 2001
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[Coffin Photo] SARAH R. COFFIN
Ms. Coffin, 45, is the Vice President, Specialty Group of
H.B. Fuller Company, a manufacturer of adhesives, sealants,
coatings, paints and other specialty chemicals. She joined
the Company Board in 1995 and is a member of the
Compensation Committee and the Retirement Funds Committee.
[JOHNSON PHOTO] CHARLES E. JOHNSON, II
Mr. Johnson, 62, is a private investor and former President
and Chief Operating Officer of the Company. From July
through December 1995 he served as Chairman and Chief
Executive Officer of the Company. He joined the Company
Board in 1976 and is Chairman of the Audit Committee and a
member of the Executive Committee and the Governance
Committee. He is a director of Hackley Hospital and Muskegon
Commerce Bank.
[WILLIAMS PHOTO] DAVID P. WILLIAMS
Mr. Williams, 63, is President and Chief Operating Officer
of The Budd Company, a manufacturer of automobile and truck
body components, castings, stampings, chassis frame
components, air bag components, automotive heating
accessories and cold weather starting aids. He joined the
Company Board in 1992, is Chairman of the Governance
Committee and is a member of the Compensation Committee and
the Executive Committee. He is a director of The Budd
Company, Budd Canada Inc., Standard Federal Bank, Thyssen
Production Systems, Inc. and Thyssen Budd Automotive.
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MEMBERS OF THE BOARD OF DIRECTORS CONTINUING
IN OFFICE WHOSE TERMS EXPIRE AT THE ANNUAL MEETING IN 1999
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[CAMPBELL PHOTO] J. KERMIT CAMPBELL
Mr. Campbell, 59, is the Chief Executive Officer of The
Prince Group, a supplier of products and services to
manufacturing firms, including die cast machines. He was
formerly President and Chief Executive Officer of Herman
Miller, Inc., a manufacturer of furniture and other products
for offices and other work environments. He joined the
Company Board in 1993 and is a member of the Audit Committee
and the Compensation Committee. He is Chairman and a
principal of Cellar Masters of America and a director of The
Prince Group and Bering Truck Corporation.
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[KERBER PHOTO] RONALD L. KERBER
Mr. Kerber, 54, is the Executive Vice President and Chief
Technology Officer of Whirlpool Corporation, a manufacturer
of major home appliances. He joined the Company Board in
1992 and is a member of the Audit Committee and the
Retirement Funds Committee.
[MERLIN PHOTO] PETER H. MERLIN
Mr. Merlin, 69, is a Partner of Gardner, Carton & Douglas,
Corporate Counsel for the Company. He joined the Company
Board in 1975 and is Chairman of the Retirement Funds
Committee and a member of the Executive Committee. He is a
director of Aldi, Inc. and Lechler, Inc. and a Life Trustee
of Northwestern Memorial Hospital.
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MEMBERS OF THE BOARD OF DIRECTORS CONTINUING
IN OFFICE WHOSE TERMS EXPIRE AT THE ANNUAL MEETING IN 2000
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[BLYSTONE PHOTO] JOHN B. BLYSTONE
Mr. Blystone, 44, is the Chairman, President and Chief
Executive Officer of the Company. He joined the Company
Board in December 1995, and is Chairman of the Executive
Committee and a member of the Governance Committee. He is a
director of Worthington Industries, Inc., the Stern Stewart
Advisory Board and the community foundation for Muskegon
County.
[EHMANN PHOTO] FRANK A. EHMANN
Mr. Ehmann, 64, is the former President and Chief Operating
Officer of American Hospital Supply Corporation. He joined
the Company Board in 1988 and is Chairman of the
Compensation Committee and a member of the Governance
Committee and Executive Committee. He is a director of
American Health Corp., Inc. and AHA Investment Funds, Inc.
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Each of the nominees and directors of the Company has had the principal
occupation set forth above or has been an executive officer or partner with the
respective organization for the past five years, except for Mr. Blystone, who,
prior to joining the Company in December 1995, was, from 1991 to 1994, with
General Electric Company as Vice President and General Manager of GE
Superabrasives and from 1994 to 1995 as President and Chief Executive Officer of
Nuovo Pignone and GE Power Systems Europe; Mr. Campbell, who was with Herman
Miller, Inc. from 1992 to 1995; and Ms. Coffin, who prior to joining H.B. Fuller
Company in 1994, held executive positions with G.E. Plastics, a business unit of
General Electric Company, for more than five years.
The law firm of Gardner, Carton & Douglas, where Mr. Merlin is a partner,
has been retained by the Company to represent it on various legal matters.
5
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BOARD OF DIRECTORS AND ITS COMMITTEES
There were six meetings of the Board of Directors of the Company in 1997
and each director attended at least 75% of the aggregate of the total number of
Board meetings and meetings of Committees of which he or she was a member.
The Board of Directors has established committees that deal with certain
areas of the Board's responsibility. These committees are the Audit Committee,
Compensation Committee, Governance Committee, Executive Committee and Retirement
Funds Committee.
The Audit Committee, which held three meetings in 1997, has the primary
responsibility of ensuring the integrity of the financial information reported
by the Company. Its functions are: (i) to make recommendations on the selection
of independent auditors; (ii) to review the scope of the annual audit to be
performed by the independent auditors and the audits conducted by the internal
audit staff; (iii) to review the results of those audits; (iv) to meet
periodically with management, the independent public accountants and the
internal audit staff to review financial, accounting and internal control
matters; and (v) to meet periodically with both the independent public
accountants and the internal audit staff, and without management being present,
to discuss the results of their audit work and their opinions as to the adequacy
of internal accounting controls and the quality of financial reporting.
The Compensation Committee, which held two meetings in 1997, is responsible
for considering and approving the Company's compensation program for senior
management, including executive employment agreements, the grant of stock
options and other awards under the Company's Stock Compensation Plan and awards
under the EVA Incentive Compensation Plan.
The Governance Committee, which held one meeting during 1997, (i) conducts
a continuing study of the size, structure and composition of the Board; (ii)
makes recommendations to the Board on changes in compensation of directors;
(iii) seeks out and interviews possible candidates for Board membership and
reports its recommendations to the Board; and (iv) determines the criteria for
selection and retention of Board members. Although the Committee has its own
procedures for selecting nominees for Board membership, it will give due
consideration to nominees recommended by shareholders. A shareholder desiring to
recommend a person for nomination to the Board must provide written notice to
the Secretary of the Company no later than 120 days prior to the first
anniversary of the Annual Meeting and in compliance with the requirements set
forth in the Company's By-Laws. In addition, the nominating shareholder should
submit a complete resume of the proposed nominee's qualifications and background
together with a statement setting forth the reasons why such person should be
considered for directorship.
The Executive Committee, which did not meet in 1997, has authority to act
on most matters during the intervals between Board meetings.
The Retirement Funds Committee, which held three meetings in 1997, reviews
the investment performance, actuarial assumptions and funding practices for the
Company's pension, healthcare and defined contribution plans.
ISSUANCE OF COMMON STOCK IN CONNECTION WITH THE PROPOSED
BUSINESS COMBINATION
GENERAL
On February 17, 1998, the Company delivered a letter to the Board of
Directors of Echlin containing a proposal for a strategic business combination
of Echlin with the Company (the "Proposed Business Combination"), in which
shareholders of Echlin would receive for each of their Echlin Shares (together
with the associated preferred stock purchase rights (the "Rights") issued
pursuant to a Rights Agreement dated as of June 21, 1989, as amended, between
Echlin and The Connecticut Bank and Trust Company, N.A., as rights agent ("The
Rights Agreement")), the amount of $12.00 in cash and 0.4796 share of SPX Common
Stock
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(the "Consideration"). See "Background of the Proposed Business Combination."
Unless the context otherwise requires, all references to Echlin Shares include
the associated Rights. All references to Rights include all benefits that may
inure to holders of the Rights pursuant to the Rights Agreement.
If the Proposed Business Combination is consummated in accordance with the
terms described herein, the Company will issue to Echlin shareholders (other
than the Company, which owns 1,150,150 Echlin Shares) up to 30,928,845 shares of
SPX Common Stock (based on the 63,594,700 Echlin Shares outstanding as of March
31, 1998 and the 2,044,284 options to purchase Echlin Shares outstanding on
December 31, 1997, each as reported in Echlin's public filings). IF ECHLIN
COMMENCES MERGER NEGOTIATIONS WITH THE COMPANY, OR THE COMPANY MODIFIES THE
TERMS OF THE PROPOSED BUSINESS COMBINATION, CONSUMMATION OF THE PROPOSED
BUSINESS COMBINATION COULD REQUIRE THE ISSUANCE OF MORE OR LESS THAN 30,928,845
SHARES OF SPX COMMON STOCK. Because the number of shares of SPX Common Stock to
be issued in the Proposed Business Combination exceeds 20% of the outstanding
shares of SPX Common Stock, under the rules of the New York Stock Exchange, the
issuance of the shares must be approved by the shareholders of the Company.
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE PROPOSED BUSINESS COMBINATION IS
FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS, HAS
UNANIMOUSLY APPROVED THE STOCK ISSUANCE AND UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE STOCK ISSUANCE
BACKGROUND OF THE PROPOSED BUSINESS COMBINATION
In February 1997, John B. Blystone, Chairman and Chief Executive Officer of
the Company, met with Trevor O. Jones, then Chairman and interim President and
Chief Executive Officer of Echlin, to propose that the two companies explore a
business combination. Mr. Jones did not follow up on this meeting. In November
1997, Mr. Blystone met for several hours with Larry W. McCurdy, who had
succeeded Mr. Jones as President and Chief Executive Officer of Echlin, to
discuss a strategic merger between the two companies, and on November 24, 1997,
Patrick J. O'Leary, the Company's Chief Financial Officer, met with Robert F.
Tobey, Echlin's Senior Vice President - Corporate Development. These discussions
were not fruitful, and the Company was informed that Echlin had no interest in a
business combination with the Company.
On December 12, 1997, Mr. Blystone wrote a letter to Mr. McCurdy setting
out the strategic rationale of a business combination of the two companies and
the benefits to Echlin's shareholders of the transaction. Although the letter
stated that the Company anticipated a price in the $40's range, Mr. Blystone
advised Mr. McCurdy that the Company would be willing to revise its thinking if
Echlin could identify greater value in the transaction. Mr. Blystone, in his
letter, further suggested that the letter be shared with Echlin's Board of
Directors and offered to meet with and make a presentation to the Board about
any and all aspects of the proposed transaction.
On December 17, 1997, Mr. Blystone received a letter from Mr. McCurdy
stating that Mr. McCurdy had shared Mr. Blystone's views with Echlin's Board of
Directors, and that Echlin's and the Board's position remained that Echlin had
no interest in further discussions with the Company.
On December 18, 1997, Mr. Blystone sent a letter to each member of Echlin's
Board enclosing a copy of his December 12 letter and reiterating the merits of a
strategic combination. Mr. Blystone once again offered to meet personally with
and make a presentation to Echlin's Board of Directors.
On December 23, 1997, Mr. Blystone received a letter from Mr. McCurdy
advising that Echlin's Board of Directors was of the unanimous view that Echlin
did not have an interest in pursuing discussions with the Company.
On January 6, 1998, the Company notified Echlin that it was that day filing
a Pre-Merger Notification and Report Form under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Filing"), seeking to acquire up
to 100% of the voting securities of Echlin.
7
<PAGE> 11
On January 8, 1998, Mr. McCurdy wrote to Mr. Blystone acknowledging receipt
of notice of the HSR Filing and advising the Company that Echlin and its
advisors stood ready to aggressively defend its shareholders' interests.
On February 17, 1998, the Company sent the Board of Directors of Echlin a
letter setting forth the proposal for the Proposed Business Combination and its
merits and reaffirming its desire to enter into a negotiated transaction. With
its letter to the Board, the Company delivered a proposed merger agreement to
Echlin (the "Proposed Merger Agreement") in contemplation of arriving at a
negotiated transaction. That agreement provides for a single-step "cash
election" merger of Echlin into a subsidiary of the Company in which each
outstanding Echlin Share would be converted into the right to receive the
Consideration of $12.00 in cash and 0.4796 share of SPX Common Stock (with
shareholders of Echlin able, instead, to elect to receive all cash, in the
amount of $48.00 per Echlin Share, or all stock, in the amount of 0.6395 share
of SPX Common Stock per Echlin Share, subject to proration) in a partially
tax-free reorganization. The Company on that date also filed a registration
statement with the Commission so that, if Echlin declined to negotiate and enter
into the Proposed Merger Agreement, the Company could effect the Proposed
Business Combination by means of (i) an exchange offer in which the Company
would pay the Consideration of $12.00 in cash and 0.4796 share of SPX Common
Stock in exchange for each Echlin Share validly tendered and not properly
withdrawn (the "Exchange Offer"), and (ii) a subsequent merger of a subsidiary
of the Company into Echlin (the "Merger") in which each Echlin Share not
purchased in the Exchange Offer would be converted into the right to receive the
Consideration.
On March 6, 1998, the Company also commenced its solicitation of written
demands to call a special meeting of the shareholders of Echlin (the "Special
Meeting") for the purpose of, among other things, voting to remove the current
members of the Board of Directors of Echlin and replacing them with five
nominees of the Company (the "SPX Nominees"). On March 25, 1998, the Company
delivered to Echlin written demands by holders of an aggregate of 28,253,762
Echlin Shares, representing (together with the Echlin Shares owned by the
Company with respect to which a written demand had previously been delivered)
approximately 45.8% of the outstanding Echlin Shares, which action the Company
believes satisfies those provisions of the Connecticut Business Corporation Act
(the "Connecticut Business Act") and Echlin's By-Laws setting forth the
requirements for shareholders to call the Special Meeting. At various times
through April 13, 1998, the Company delivered to Echlin written demands by
holders of an aggregate of 3,001,542 additional Echlin Shares totaling (together
with the Echlin Shares with respect to which written demands had previously been
delivered) approximately 50.5% of the outstanding Echlin Shares. Echlin disputes
the validity of most of the demands delivered by the Company and has filed suit
in connection therewith. The Company believes the demands delivered were valid
and has brought various counterclaims against Echlin. See "Litigation." Assuming
the Company prevails in this dispute, under the Connecticut Business Act and
Echlin's By-Laws, the Special Meeting must be called by April 24, 1998 and must
be held by June 23, 1998.
On March 27, 1998, the Company announced that its Annual Meeting of
Shareholders would be held on May 20, 1998, and that, at that meeting, the
Company's shareholders would vote on approving the Stock Issuance in connection
with the Proposed Business Combination.
On April 6, 1998, Echlin brought an action in Federal District Court in
Connecticut alleging that most of the demands which the Company had delivered on
March 25, 1998 were invalid and stating that Echlin did not intend to call the
Special Meeting. The Company believes that the demands are valid and that the
lawsuit is without merit and has filed counterclaims against Echlin in the
lawsuit. See "Litigation."
8
<PAGE> 12
REASONS FOR THE PROPOSED BUSINESS COMBINATION
The Board of Directors of the Company believes that both the shareholders
of the Company and the shareholders of Echlin would benefit from the combination
of the Company and Echlin for the following reasons:
COMBINING THE COMPANY AND ECHLIN WOULD CREATE A COMPANY WITH THE SCALE AND
CAPABILITIES TO EXCEL IN THE RAPIDLY CONSOLIDATING $350 BILLION VEHICLE SERVICE
INDUSTRY.
- The Proposed Business Combination would allow the combined company to
provide products and services that would integrate the entire vehicle
life cycle: from original equipment vehicle components to specialty
repair tools and services to replacement parts.
- Integration of the vehicle service life cycle would provide the combined
company with information in one product or service area that would help
improve products or services in another area. This process, called the
data feedback loop, would give the combined company a competitive
advantage in providing vehicle service solutions.
- The portfolio of products and services at the two companies are
complementary, and would bring together Echlin's market-leading position
in brake and engine systems with the Company's strength in transmission
and steering components.
- All of the foregoing would enable the combined company to better serve
customers and to compete more effectively, given the blurring lines
between original equipment and aftermarket, the expansion of
mega-dealerships and national parts retailers, the growing importance of
repair shop chains and the increasing technological complexity of
vehicles.
THE PROPOSED BUSINESS COMBINATION WOULD PROVIDE THE COMPANY'S MANAGEMENT TEAM A
LARGER PLATFORM UPON WHICH TO EMPLOY ITS MANAGEMENT TECHNIQUES AND EXPERIENCE.
- Since John Blystone joined the Company in late December 1995, the Company
has experienced improved performance based upon several key performance
measures. As a result, the Company's shareholders have experienced more
than a quadrupling of the price of their shares. The Proposed Business
Combination would result in the Company's shareholders owning shares in a
much larger company with increased value-creation opportunities.
- The Company believes that Echlin is a valuable business that is
underperforming. The Company intends to employ an aggressive
shareholder-focused EVA(R) ("EVA") agenda to Echlin similar to that
utilized at the Company, focusing on cost structure, use of capital,
productivity enhancements, selective divestitures and compensation based
on EVA. EVA, or Economic Value Added, is a performance measure calculated
as net operating profit after tax minus a charge for the cost of capital.
- The Company believes that it could achieve annual cost savings of $125
million following the first full year after the acquisition and $175
million by the second full year after the acquisition, by eliminating
duplicative corporate costs, realizing manufacturing and distribution
efficiencies, streamlining Echlin's organizational structure and saving
on material costs through improved sourcing. This would entail a
headcount reduction of approximately 3,000 positions throughout Echlin's
operations.
In reaching its conclusion that the Proposed Business Combination is fair
to and in the best interests of the Company and its shareholders, the Company's
Board of Directors, in consultation with the Company's management, financial
advisors and legal advisors, considered the advantages of the Proposed Business
Consideration to the Company set forth above, as well as the risks of the
Proposed Business Combination discussed below under "Risk Factors." The Board
also reviewed the results of operations and financial condition of the Company
and of Echlin, both historical and projected (which projections, in the case of
the Company, were substantially in line with street estimates), and considered
management's belief that the transaction would be accretive to the Company's
earnings per share in the first full year following the acquisition. The Board
considered the relative trading prices of the SPX Common Stock and the Echlin
Shares, the 23% premium which the Consideration represented on February 17, 1998
over the closing price of an Echlin Share on February 13, 1998, and the 32%
premium which the Consideration represented on February 17, 1998 over the
average trading price of an Echlin Share for the 30 trading days preceding
February 17, 1998. The Board further considered the 25% cash/75% stock structure
of the Proposed Business Combination, the fact that, immediately following the
acquisition, shareholders of Echlin would own approximately 70% of the SPX
Common Stock then outstanding, and the fact that the Proposed Business
9
<PAGE> 13
Combination would result in shareholders of the Company owning shares in a much
larger company with increased value-creation opportunities.
The foregoing discussion of the information and factors considered by the
Board of Directors in determining that the Proposed Business Combination is fair
to and in the best interests of the shareholders of the Company is not intended
to be exhaustive, but is believed to include the material factors considered by
the Board of Directors in connection with its evaluation of the Proposed
Business Combination. In view of the wide variety of factors considered and the
complexity of such matters, the Board of Directors did not attempt to quantify,
rank or otherwise assign relative weights to the specific factors it considered
in making its determination.
RISK FACTORS
In addition to the other information in this Proxy Statement, the following
are certain factors that should be considered by holders of SPX Common Stock in
evaluating the proposed Stock Issuance.
Dilution of Existing Shareholders. The exchange of Echlin Shares for
shares of SPX Common Stock will result in substantial dilution to the voting
power and interests of current Company shareholders. Based upon the 12,647,727
shares of SPX Common Stock outstanding as of the Record Date, under the current
terms of the Proposed Business Combination, immediately following consummation
of the Exchange Offer and the Merger or a merger pursuant to the Proposed Merger
Agreement, and after giving effect to the Stock Issuance, the Echlin
shareholders (other than the Company) would own approximately 70% of the then
outstanding shares of SPX Common Stock.
Leverage. After consummation of the Proposed Business Combination, the
Company will be more highly leveraged than is either the Company or Echlin, or
both of the companies combined, at present, with substantial debt service
obligations, including principal and interest obligations, with respect to
indebtedness of as much as $2.4 billion. As such, the Company may be
particularly susceptible to adverse changes in its industry, the economy and the
financial markets generally. Moreover, the Company's conduct of its business may
be more circumscribed, and its ability to incur additional debt may be more
limited, than at present by any restrictive covenants which may be contained in
the agreements evidencing the financing. In particular, any debt incurrence
restrictions may limit the Company's ability to service its existing debt
obligations through additional debt financing if cash flow from operations is
insufficient to service such obligations. The financing will bear interest at
floating rates, and an increase in interest rates could adversely affect the
Company's ability to service its debt obligations.
Uncertainties in Integrating Business Operations and Achieving Cost
Savings. The success of the Proposed Business Combination will in large part be
dependent on the ability of the Company, following the consummation of the
Proposed Business Combination, to realize cost savings and, to a lesser extent,
to consolidate operations and integrate processes. The businesses are
strategically complementary (in that the combined company would be able to
provide products and services that would integrate the entire vehicle life
cycle, from original equipment vehicle components, to specialty repair tools and
services, to replacement parts), but largely operate in diverse markets with
different distribution systems. While the Company believes that it can obtain
cost savings of at least $125.0 million in the first full year following the
acquisition, the realization of savings is dependent to a large extent on the
planned reduction of headcount at Echlin. There can be no assurance that the
timing and magnitude of headcount reductions will occur as planned. The
integration of businesses, moreover, involves a number of risks, including the
diversion of management's attention to the assimilation of the operations from
other business concerns, delays or difficulties in the actual integration of
operations or systems, and challenges in retaining customers and key personnel
of the acquired company. There can be no assurance that future consolidated
results will improve as a result of the Proposed Business Combination, or of the
extent to which cost savings and efficiencies anticipated by the Company will be
achieved. The pro forma financial statements contained in this Proxy Statement
do not include the impact, positive or negative, of any cost savings or
efficiencies related to anticipated future actions. The anticipated cost savings
have been developed solely by the management of the Company and are based on the
Company's best judgments and knowledge of Echlin's operations derived from
publicly available information, and in reliance on that information being
accurate and complete, together with the Company's knowledge and experience in
the vehicle components industry.
10
<PAGE> 14
If the Proposed Business Combination is consummated, there exists a
likelihood that one or more significant changes to operations will be required
as a result of rationalizing and integrating operations. These costs may include
severance and related employee benefit costs, costs to consolidate manufacturing
and distribution facilities, facility rearrangement costs, relocation and moving
costs, training costs, debt extinguishment costs, and costs associated with
change of control agreements, among others. To date, management's access to
information related to Echlin has been limited to only publicly available
information. In addition, publicly available information does not contain
sufficient details related to existing severance plans, employee benefit
agreements, change of control costs or debt extinguishment provisions to enable
management to quantify the costs associated with business integration and
rationalization actions that may be considered by the Company. Nonetheless,
based on assumptions related to headcount reductions and average annual salaries
used to compute the annualized expense savings and assuming a severance policy
that would result in an average severance term of six months, the estimated
costs of the severance (excluding any change of control costs) would be
approximately $60.0 million. Over the past five years, the Company has recorded
several special charges to its results of operations associated with cost
reductions and to achieve operating efficiencies. Management believes its
actions have been required to improve its operations and will, if necessary,
record future charges as appropriate to address cost and operational
efficiencies at the combined company.
Modifications to the Proposed Business Combination. Although the Company
presently intends to consummate the Proposed Business Combination in accordance
with the terms described below, the Board of Directors of the Company may, prior
to the Stock Issuance, modify the terms of the Exchange Offer or enter into
merger negotiations with Echlin. Among other things, the Company may modify the
terms of the Exchange Offer to cause the Stock Issuance to be more or less than
30,928,845 shares of SPX Common Stock, or enter into a merger agreement
requiring the issuance of more or less than 30,928,845 shares of SPX Common
Stock, without obtaining further authorization from the Company shareholders.
Year 2000 Issue. The Company utilizes software and related computer
technologies essential to its operations and to certain products that use two
digits rather than four to specify the year, which could result in a date
recognition problem with the transition to the year 2000. The Company has
established a plan, utilizing both internal and external resources, to assess
the potential impact of the year 2000 problem on the Company's systems and
operations and to implement solutions to address this issue. The Company is
presently in the assessment phase of its year 2000 plan which includes
conducting an inventory of potentially date-sensitive systems and is also
surveying its suppliers and service providers for year 2000 compliance. The
Company's goal for correction of critical systems is December 31, 1998 and its
plan is to conduct testing of corrected systems in 1999. Third party compliance
and other factors could adversely affect these goals. The Company does not
believe that the costs to remediate software and computer technologies for the
year 2000 problem will exceed $5 million over the next two years, which does not
include the costs to replace certain existing systems. The Company is in the
process of implementing a new enterprise resource planning system across its
Service Solutions business. Management estimates that it will spend
approximately $10 million to acquire and install this new system over the next
two years. As the Company is presently in the assessment phase of its year 2000
plan, there can be no assurances that the costs of remediation will not be
material. Moreover, there can be no assurances that the Company will not
experience material unanticipated costs and/or business interruption due to year
2000 problems in its internal systems, its supply chain or from customer product
migration issues.
In Echlin's 1998 Second Quarter Form 10-Q, Echlin reported that it is
currently engaged in an assessment of its technology systems to determine the
impact of the year 2000, and that based upon work completed through February 28,
1998, Echlin expects that costs incurred to remediate year 2000 problems will
not have a material impact on its future financial results.
THE EXCHANGE OFFER
General. On February 17, 1998, the Company filed Exchange Offer materials
with the Commission, and intends to commence its Exchange Offer as soon as its
registration statement has been declared effective. Pursuant to the Exchange
Offer, the Company would offer to exchange the Consideration, in the amount of
11
<PAGE> 15
$12.00 net in cash and 0.4796 share of SPX Common Stock, for each Echlin Share
validly tendered and not properly withdrawn.
On February 13, 1998, the last trading date preceding the date of the
public announcement of the Proposed Business Combination, the closing price of
an Echlin Share on the New York Stock Exchange Composite Tape (the "NYSE
Composite Tape") was $38 7/8. Based on the closing price of a share of SPX
Common Stock on the NYSE Composite Tape on the same date ($75 1/16), the value
of the SPX Common Stock being offered pursuant to the Exchange Offer was $36.00
per Echlin Share and the total Consideration had a value of $48.00 per Echlin
Share. Based upon the closing price of a share of SPX Common Stock on the NYSE
Composite Tape on April 23, 1998, the last trading date preceding the date of
this Proxy Statement ($74 7/16), the value of the SPX Common Stock being offered
pursuant to the Exchange Offer was $35.70 per Echlin Share and the total
Consideration had a value of $47.70 per Echlin Share. At the time the Exchange
Offer is consummated, the Consideration may have a market value that is greater
or lesser than either of those two amounts depending upon the market price of a
share of SPX Common Stock at such time. Cash will be paid in lieu of fractional
shares of SPX Common Stock.
Conditions To Exchange Offer. The Company's obligation to exchange shares
of SPX Common Stock for Echlin Shares is conditioned upon, among other things,
(a) there being validly tendered prior to the expiration of the Exchange Offer
and not withdrawn a number of Echlin Shares which will constitute at least
66 2/3% of the total outstanding Echlin Shares on a fully diluted basis as of
the date the Echlin Shares are accepted for exchange by the Company (the
"Minimum Tender Condition"); (b) approval by the shareholders of the Company of
the Stock Issuance (the "Company Shareholder Approval Condition"); (c) the
redemption of the Rights by the Board of Directors of Echlin or the Company
being otherwise satisfied that the Rights will not be applicable to the
acquisition of the Echlin Shares pursuant to the Exchange Offer or the Merger
(the "Rights Plan Condition"); (d) the Company being satisfied that Sections 841
and 844 of the Connecticut Business Act will not be applicable to the Exchange
Offer and the Merger (the "Business Combination Statutes Condition"); and (e)
the Company having obtained sufficient financing for the consummation of the
Exchange Offer and the Merger (the "Financing Condition"). The Minimum Tender
Condition, the Company Shareholder Approval Condition, the Rights Plan
Condition, the Business Combination Statutes Condition, the Financing Condition
and the other Exchange Offer conditions are referred to herein collectively as
the "Exchange Offer Conditions."
Description Of The Merger. If the Exchange Offer is successful and the
Exchange Offer Conditions are satisfied, the Company and its affiliates will own
at least two-thirds of the outstanding Echlin Shares, and will have sufficient
voting power to approve the Merger independently of the votes of any other
Echlin shareholders. If the Exchange Offer is successful, the Company presently
intends to propose and seek to have Echlin effect the Merger in which a wholly
owned subsidiary of the Company is to be merged into Echlin (the "Merger")
pursuant to the provisions of the Connecticut Business Act and the General
Corporation Law of the State of Delaware (the "DGCL") and each Echlin Share then
outstanding (other than the Echlin Shares owned by the Company) would be
converted into the right to receive the Consideration.
Consummation of the Merger or the merger pursuant to the Proposed Merger
Agreement described below does not require approval by the shareholders of the
Company, and other than approval of the Stock Issuance as requested in this
Proxy Statement, the Company does not intend to seek shareholder approval of the
Merger or the merger pursuant to the Proposed Merger Agreement. Shareholders of
the Company would not be entitled to any appraisal rights as a result of the
Stock Issuance or the Proposed Business Combination.
The Proposed Merger Agreement. In contrast to the Exchange Offer, the
Proposed Merger Agreement provides for a single-step "cash election" merger of
Echlin into a subsidiary of the Company in which each outstanding Echlin Share
would be converted into the right to receive the Consideration (with
shareholders able to elect to receive instead all cash, in the amount of $48.00
per Share, or all stock, in the amount of 0.6395 share of SPX Common Stock per
Echlin Share, subject to proration) in a partially tax-free reorganization.
12
<PAGE> 16
SOURCE AND AMOUNT OF FUNDS
The Company estimates that the total amount of funds that will be required
to pay the cash component of the Consideration in the Proposed Business
Combination, to refinance outstanding debt of the Company and of Echlin, to pay
fees and expenses related to the Proposed Business Combination and to provide
working capital will be approximately $2.4 billion. The Company plans to obtain
the necessary financing pursuant to credit facilities to be arranged by Canadian
Imperial Bank of Commerce ("CIBC") and CIBC Oppenheimer Corp. ("CIBC
Oppenheimer"). The Company has received a letter from those two entities, dated
February 13, 1998, in which CIBC and CIBC Oppenheimer have stated that they are
highly confident of their ability to raise the financing, subject to certain
conditions set forth therein.
RELATIONSHIPS WITH ECHLIN
Neither the Company nor, to the best of its knowledge, any of the persons
or entities referred to above, nor any director, executive officer or subsidiary
of any of the foregoing, has effected any transaction in equity securities of
Echlin during the last 60 days.
Except as described in this Proxy Statement, neither the Company nor, to
the best of its knowledge, any of its directors or executive officers has (i)
any contract, arrangement, understanding or relationship with any other person
with respect to any securities of Echlin, including, but not limited to, any
contract, arrangement, understanding or relationship concerning the transfer or
the voting of any such securities, joint ventures, loan or option arrangements,
puts or calls, guaranties of loans, guaranties against loss or the giving or
withholding of proxies; (ii) had any contacts or negotiations with Echlin or its
affiliates concerning a merger, consolidation or acquisition, a tender offer or
other acquisition of securities, an election of directors, or a sale or other
transfer of a material amount of assets; or (iii) has had any transaction with
Echlin or any of its executive officers, directors or affiliates that would
require disclosure under the rules and regulations of the Commission applicable
to this Proxy Statement.
ACCOUNTING TREATMENT
The Proposed Business Combination will be accounted for as a reverse
acquisition as the shareholders of Echlin will own a majority of the shares of
the Company upon completion of the Merger. Accordingly, for accounting purposes,
the Company is treated as the acquired company and Echlin is considered to be
the acquiring company. The purchase price will be allocated to the assets and
liabilities assumed of the Company based on their estimated fair market values
at the acquisition date. Under reverse acquisition accounting, the purchase
price is based on the market value of the SPX Common Stock at the date of
acquisition. The cash portion of the Consideration will be accounted for as a
dividend by the combined company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Stock Issuance will have no federal income tax consequences to either
the Company or the shareholders of the Company.
LITIGATION
On April 6, 1998, Echlin commenced an action entitled Echlin Inc. v. SPX
Corporation against the Company in the United States District Court for the
District of Connecticut. The complaint alleges that the Company has made
misleading statements in public announcements and filings regarding its
solicitation and delivery of demands for the Special Meeting. In particular, the
Company announced on March 24, 1998, that it had received and was delivering to
Echlin demands sufficient to require Echlin to call the Special Meeting. Echlin
disputes the validity of most of the demands delivered by the Company to Echlin
on the grounds that (1) the demands were submitted on behalf of purported
beneficial holders of the Echlin Shares without a supporting omnibus proxy from
the record holder of such Echlin Shares, Cede & Co., and (2) the demands
delivered by the Company were solicited as of February 18, 1998, despite the
fact that the Company repeatedly affirmed the record date to be February 17,
1998. Echlin further contends that the Company's announcements, beginning on
March 24, 1998, that the Company has received demands sufficient to require
13
<PAGE> 17
that Echlin call the Special Meeting has tainted the integrity of the
solicitation process because it effectively discourages holders of the Echlin
Shares who have already issued demands from submitting revocations in response
to Echlin's solicitation materials. In addition, Echlin also alleges that the
Company's announcements, beginning on March 24, 1998, have furthered the
Company's scheme of causing the transfer of Echlin Shares from long-term holders
of the Echlin Shares to arbitrageurs who may be more receptive to a Company
offer. Based on these contentions, Echlin seeks (i) a declaratory judgment that
certain of the Company's public statements regarding the validity of the demands
are false and misleading; (ii) a declaratory judgment that the Company's
statements regarding the validity of the demands were in violation of the
Exchange Act and preliminary and permanent injunctive relief to enjoin the
Company from continuing its proxy solicitation for demands; and (iii) to recover
certain costs.
On April 13, 1998, the Company filed its answer, affirmative defenses,
counterclaims and a motion for preliminary injunctive relief seeking (i) an
order directing Echlin to call the Special Meeting by April 24, 1998, to be held
within 60 days of April 24, 1998, or, alternatively, an order by the Court
scheduling the Special Meeting on June 1, 1998; and (ii) to enjoin Echlin from
making any further false or misleading statements concerning the Company's
solicitation of demands or the validity of the demands.
Based on Echlin's contention that the Company's announcement that it
delivered the required number of demands is false and misleading for the reasons
stated in its complaint, as set forth above, on April 14, 1998, Echlin filed a
motion for a preliminary injunction seeking to preliminarily enjoin the Company
from continuing its solicitation of demands and from taking any further action
based on such solicitation. The Company believes that Echlin's motion is without
merit and that the demands the Company delivered on March 25, 1998, from holders
of over 35% of the Echlin Shares were valid and that the Special Meeting must be
called and held as required by the Connecticut Business Act and Echlin's by-laws
on or before June 23, 1998. A hearing on the parties' respective motions is
scheduled for May 7, 1998. The Court's Scheduling Order provides: "In order that
SPX not be prejudiced by the establishment of this schedule, should SPX prevail
on its preliminary injunction application and the Court order Echlin to call and
hold a special meeting, the special meeting shall be held no later than June 23,
1998 (90 days from March 25, 1998)."
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<PAGE> 18
MARKET PRICES AND DIVIDENDS
SPX Common Stock is listed and principally traded on the New York Stock
Exchange (under the symbol "SPW") and is also listed on the Pacific Exchange
(the "PE"). The Echlin Shares are listed and principally traded on the New York
Stock Exchange (under the symbol "ECH"), the PE and the International Stock
Exchange in London. The following table sets forth, for the periods indicated,
the high and low sale prices per share of SPX Common Stock and per Echlin Share
as reported on the NYSE Composite Tape.
<TABLE>
<CAPTION>
SPX COMMON STOCK ECHLIN SHARES
---------------------------- -----------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
1995
First Quarter.................... $17 3/8 $14 1/4 $.10 $38 1/2 $29 7/8 $0.190
Second Quarter................... 15 1/8 10 3/4 .10 38 3/4 34 0.205
Third Quarter.................... 16 11 1/8 .10 39 5/8 33 7/8 0.205
Fourth Quarter................... 17 14 1/8 .10 39 1/2 33 7/8 0.205
1996
First Quarter.................... 18 1/8 13 5/8 .10 38 3/4 32 5/8 0.205
Second Quarter................... 27 1/8 18 .10 37 7/8 33 3/8 0.220
Third Quarter.................... 31 5/8 21 5/8 .10 37 5/8 29 3/4 0.220
Fourth Quarter................... 40 1/2 26 7/8 .10 34 1/4 30 1/4 0.220
1997
First Quarter.................... 49 3/4 37 3/8 .10 35 1/4 29 1/2 0.220
Second Quarter................... 70 5/8 41 7/8 -- 36 1/2 31 1/8 0.225
Third Quarter.................... 65 3/4 49 -- 38 9/16 33 5/8 0.225
Fourth Quarter................... 70 3/8 58 7/16 -- 36 5/8 29 13/16 0.225
1998
First Quarter.................... 79 1/4 65 3/16 -- 52 3/4 34 1/2 0.225
Second Quarter (through April 23,
1998).......................... 77 15/16 74 3/8 -- 52 5/8 49 15/16 0.225
</TABLE>
On February 13, 1998, the last full trading day prior to the first public
announcement by the Company of the Proposed Business Combination, the reported
high and low sale prices and closing price per share of SPX Common Stock and per
Echlin Share on the NYSE Composite Tape and per Echlin Share on an equivalent
share basis based on the Consideration of $12.00 in cash and 0.4796 share of SPX
Common Stock were as follows:
<TABLE>
<CAPTION>
PER SHARE PER EQUIVALENT SHARE
------------------------ ----------------------------
HIGH LOW CLOSE HIGH LOW CLOSE
---- --- ----- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
The Company................. 75 5/8 74 3/4 75 1/16 -- -- --
Echlin...................... 39 1/4 38 1/2 38 7/8 48 1/4 47 13/16 48
</TABLE>
On April 23, 1998, the last full trading day prior to the date of this
Proxy Statement, the reported high and low sale prices per Echlin Share and
closing price per share of SPX Common Stock on the NYSE Composite Tape and per
Echlin Share on an equivalent share basis based on the Consideration of $12.00
in cash and 0.4796 share of SPX Common Stock were as follows:
<TABLE>
<CAPTION>
PER SHARE PER EQUIVALENT SHARE
------------------------ ----------------------------
HIGH LOW CLOSE HIGH LOW CLOSE
---- --- ----- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
The Company................. 75 5/8 74 3/8 74 7/16 -- -- --
Echlin...................... 50 15/16 50 50 1/8 48 1/4 47 11/16 47 11/16
</TABLE>
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES OF SPX
COMMON STOCK AND FOR THE ECHLIN SHARES.
15
<PAGE> 19
DESCRIPTION OF COMPANY CAPITAL STOCK
The authorized capital of the Company consists of 3,000,000 shares of
Preferred Stock, without par value ("SPX Preferred Stock"), issuable in series,
of which, as of the Record Date, 500,000 shares have been designated as Series A
Preferred Stock and none is issued or outstanding, and 50,000,000 shares of SPX
Common Stock of which, as of the Record Date, 12,647,727 shares were issued and
outstanding. All of the outstanding shares of capital stock of the Company are
fully paid and nonassessable. Holders of the Company's capital stock have no
preemptive rights.
The holders of SPX Common Stock are entitled to have dividends declared in
cash, property, or other securities of the Company out of any net profits or net
assets of the Company legally available therefor as and when declared by the
Company's Board of Directors. In the event of the liquidation or dissolution of
the Company's business, the holders of SPX Common Stock will be entitled to
receive ratably the balance of the Company's net assets available for
distribution after payment of any liquidation or distribution preference payable
with respect to any then outstanding shares of SPX Preferred Stock. Each share
of SPX Common Stock is entitled to one vote with respect to matters brought
before the shareholders, except for the election of any Directors who may be
elected by vote of any outstanding shares of SPX Preferred Stock voting as a
class.
The rights and privileges of SPX Common Stock are subordinate to the rights
and preferences of any SPX Preferred Stock. The Board of Directors is authorized
to fix by resolution the designation of each series of SPX Preferred Stock, and,
with respect to each series, the stated value of the shares, the dividend rate
and the dates and other provisions respecting the payment of dividends, the
provisions, if any, for a sinking fund, the preferences of the shares in the
event of the liquidation or dissolution of the Company, the provisions, if any,
respecting the redemption of the shares, subject to applicable law, the voting
rights (except that such shares shall not have more than one vote per share),
the terms, if any, upon which the shares would be convertible into or
exchangeable for any other shares of the Company, and any other relative,
participating, optional or other special rights, qualifications, limitations or
restrictions. All shares of any series of SPX Preferred Stock, as between
themselves, rank equally and are identical; and all series of SPX Preferred
Stock, as between themselves, rank equally and are identical except as set forth
in resolutions of the Board of Directors authorizing a particular series.
The Company has designated a series of SPX Preferred Stock, SPX Series A
Preferred Stock, which is issuable in certain circumstances, and issued rights
("Company Rights") to purchase the Company's Series A Preferred Stock to holders
of shares of SPX Common Stock. The Company Rights are exercisable only in the
event of certain events, such as the acquisition by any person (other than the
Company or any of its subsidiaries) of the beneficial ownership of securities
representing 20% or more of the outstanding SPX Common Stock without the prior
approval of the Company's Board. The shares of SPX Common Stock to be issued in
the Stock Issuance will be issued together with the associated Company Rights.
COMPARATIVE PER SHARE DATA (UNAUDITED)
The following table presents historical and pro forma per share data of the
Company, historical per share data of Echlin and pro forma combined per share
data as if the Proposed Business Combination had occurred as of September 1,
1996 assuming that the stock component of the Consideration is 0.4796 share of
SPX Common Stock. The table also presents Echlin's pro forma equivalent per
share data. See "Selected Historical Financial Data of the Company," "Selected
Historical Financial Data of Echlin," and "Pro Forma Condensed Combined
Financial Data of the Company and Echlin" included elsewhere herein for
additional information regarding this pro forma information. The pro forma
combined per share data are intended for information purposes, and do not
purport to represent what the combined entity's results of continuing operations
would actually have been had the transaction in fact occurred at an earlier
date, or project the results for any future date or period. Upon consummation of
the Proposed Business Combination, the actual financial position and results of
operations of the combined company will differ, perhaps significantly, from the
pro forma amounts reflected herein due to a variety of factors, including
changes in operating results between the date of the pro forma financial
information and the date on which the Proposed Business Combination is
consummated and thereafter, as well as the factors discussed under "Risk
Factors."
16
<PAGE> 20
The pro forma condensed combined financial data do not give effect to any
integration or restructuring costs that could result from the combination of the
companies. Any integration and rationalization of the operations of Echlin may
include certain costs that in turn would result in a charge to earnings of the
combined company. Such a charge, which cannot now be quantified fully, may be
material and would be recognized in the period in which such a restructuring
occurs. These costs may include severance and related employee benefit costs,
costs to consolidate manufacturing and distribution facilities, facility
rearrangement costs, relocation and moving costs, training costs, debt
extinguishment costs, and costs associated with change of control agreements,
among others. To date, the Company's access to information related to Echlin has
been limited to publicly available information. In addition, publicly available
information does not contain sufficient details related to Echlin's severance
plans, employee benefit agreements, change of control costs or debt
extinguishment provisions to enable the Company to quantify the costs associated
with business integration and rationalization actions that may be considered by
the Company. Nonetheless, based on assumptions related to headcount reductions
and average annual salaries used to compute the annualized expense savings and
assuming a severance policy that would result in an average severance term of
six months, the estimated pre-tax costs of the severance (excluding any change
in control costs) would be approximately $60.0 million.
The pro forma condensed combined financial data also does not give effect
to any costs savings that could result from the combination of the companies.
The Company's management estimates that the combined company can achieve
approximately $125.0 million of annualized cost savings in the first full year
following the acquisition, and $175.0 million of annualized cost savings in the
second full year following the acquisition. These costs savings include three
categories of estimated annual savings in the second full year: savings
associated with headcount reductions of $120.0 million, reduction in duplicative
corporate costs of $20.0 million, and manufacturing, distribution and sourcing
rationalization of $35.0 million. These savings estimates are based upon
assumptions made by the Company's management using available public information
of Echlin, certain comparative peer group information of Echlin, and the
Company's own internal information. The savings associated with head count
reductions were estimated by multiplying a 10% reduction in Echlin's employees,
or approximately 3,000 employees, by $40 thousand per employee. The savings per
employee were based on the Company's salary data and assumptions related to
Echlin's salary structure. The Company believes that the head count reductions
are possible given its own experience over the past two years and Echlin's head
count levels compared to various peer companies. The savings to reduce duplicate
corporate costs approximate the Company's own corporate office expenses.
Duplicative corporate costs would include duplicative executive positions,
facilities, overlap of other corporate functions, and various external fees and
costs. Savings from manufacturing, distribution and sourcing were based upon
material cost reductions of 2.5% on an estimated $1.4 billion of material
purchases by Echlin. The Company estimated Echlin's material purchases at 50% of
Echlin's cost of goods sold in the fiscal year ended August 31, 1997. The 2.5%
material cost reduction was based upon the savings realized by the Company in
its own sourcing program over the past two years.
17
<PAGE> 21
<TABLE>
<CAPTION>
ECHLIN
ECHLIN PRO FORMA PRO FORMA
THE COMPANY(A) HISTORICAL COMBINED(B) EQUIVALENT(C)
-------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Income (loss) per common share from
continuing operations(d)(e):
Basic
Six months ended February 28,
1998............................ $(4.20) $ 0.94 $(0.72) $(0.35)
Year ended August 31, 1997......... (3.65) (0.75) (3.99) (1.91)
Diluted
Six months ended February 28,
1998............................ (4.20) 0.93 (0.72) (0.35)
Year ended August 31, 1997......... (3.65) (0.75) (3.99) (1.91)
Dividends per common share (f):
Six months ended February 28, 1998... -- 0.45 -- --
Year ended August 31, 1997........... 0.30 0.89 0.30 0.14
Book value per common share:
February 28, 1998.................... (3.46) 14.90 26.41 12.67
August 31, 1997...................... 1.89 14.48 25.56 12.26
</TABLE>
- ---------------
(a) The six-month and twelve-month information for the Company represents the
Company's historical information as of and for the six months ended
December 31, 1997 and the Company's pro forma adjusted historical
information as of and for the twelve months ended June 30, 1997,
respectively, but is presented as of February 28, 1998 and August 31, 1997,
respectively, to conform to Echlin's reporting. See "Pro Forma Adjusted
Historical Financial Data of the Company."
(b) See "Pro Forma Condensed Combined Financial Data of the Company and
Echlin."
(c) Echlin's pro forma equivalent per share information represents the pro
forma combined per share information multiplied by 0.4796.
(d) The pro forma condensed combined financial data do not give effect to any
integration or restructuring costs, nor to any cost savings, that could
result from the combination of the companies.
The comparative per share data have been affected by various special
charges and gains recorded by the Company and Echlin during the periods
presented.
The pro forma condensed combined financial data of the Company and Echlin
for the six months ended February 28, 1998 include special charges of
$110.0 million recorded by the Company primarily to combine two divisions
and to recognize the reduced carrying value of certain assets resulting
from the decision to combine the divisions and exit certain product lines.
See "Selected Historical Financial Data of the Company."
The pro forma condensed combined financial data of the Company and Echlin
for the year ended August 31, 1997 include special charges and gains of
$307.2 million. The special charges and gains included a $7.4 million
special charge recorded by the Company related to the combination of five
divisions into two divisions, a $6.5 million special charge recorded by the
Company of anticipated future legal costs associated with the ongoing
litigation with Snap-on Incorporated, a $67.8 million write-off of goodwill
recorded by the Company related to acquisitions of Bear Automotive and
Allen Testproducts, $254.1 million of repositioning and other special
charges recorded by Echlin related to facility realignments and
rationalizations and other actions, and $28.6 million of gains from the
sale of two divisions by Echlin. See "Selected Historical Financial Data of
the Company" and "Selected Historical Financial Data of Echlin."
(e) For purposes of this presentation, Echlin's reported primary loss per share
has been assumed to be equivalent to basic and diluted loss per share for
the year ended August 31, 1997.
(f) In April 1997, the Company eliminated its quarterly cash dividend and
stated that future distributions to shareholders would be in the form of
open market purchases of SPX Common Stock when deemed appropriate by
management.
18
<PAGE> 22
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY
(IN MILLIONS, EXCEPT PER SHARE DATA)
The following table presents the selected historical statement of income
and other financial data of the Company. The financial data as of and for the
fiscal years ended December 31 have been derived from the audited financial
statements of the Company. The Company's selected historical financial data
should be read in conjunction with, and are qualified in their entirety by
reference to, the historical financial statements (and related notes) of the
Company which are incorporated by reference herein. See "Incorporation of
Documents by Reference."
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1997(A) 1996(B) 1995 1994(C) 1993(D,E)
------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues........................... $ 922.3 $1,109.4 $1,098.1 $1,079.9 $ 747.2
Cost of products sold.............. 669.0 850.1 853.5 821.5 508.0
Selling, general and
administrative................... 175.3 186.5 194.5 198.0 204.1
Other operating expenses, net(f)... 3.9 1.9 8.3 2.9 53.4(c)
Special charges(g)................. 116.5(h) 87.9(i) 10.7(i) -- 27.5(j)
------- -------- -------- -------- --------
Operating income (loss)............ (42.4) (17.0) 31.1 57.5 (45.8)
Other expense (income), net........ (74.2)(a) (0.7) (3.0) 0.1 (102.9)(e)
Interest expense, net.............. 13.9 31.8 35.7 35.2 15.9
------- -------- -------- -------- --------
Income (loss) before income
taxes............................ 17.9 (48.1) (1.6) 22.2 41.2
Income taxes....................... (21.3) 7.6 (0.2) 9.1 28.1
------- -------- -------- -------- --------
Income (loss) from continuing
operations....................... (3.4) (55.7) (1.4) 13.1 13.1
Discontinued operation(k).......... -- (2.8) 1.0 2.1
Cumulative effect of accounting
changes(l)....................... -- -- -- (31.8)
Extraordinary items(m)............. (10.3) (6.6) (1.1) -- (24.0)
------- -------- -------- -------- --------
Net income (loss).................. $ (13.7) $ (62.3) $ (5.3) $ 14.1 $ (40.6)
======= ======== ======== ======== ========
Income (loss) per share from
continuing operations:
Basic............................ $ (0.27) $ (4.04) $ (0.10) $ 1.02 $ 1.04
Diluted.......................... (0.27) (4.04) (0.10) 1.02 1.04
Weighted average number of common
shares outstanding:
Basic............................ 12.754(n) 13.785 13.173 12.805 12.604
Diluted.......................... 12.754(n) 13.785 13.173 12.805 12.604
Dividends per share................ $ 0.10(n) $ 0.40 $ 0.40 $ 0.40 $ 0.40
OTHER FINANCIAL DATA:
Total assets....................... $ 583.8 $ 616.0 $ 831.4 $ 929.0 $1,024.4
Total debt......................... 205.3 229.3 319.8 415.2 430.2
Shareholders' equity (deficit)..... (43.4) 105.9 162.2 158.7 145.4
Capital expenditures............... 22.6 20.2 31.0 48.5 15.1
Depreciation and amortization...... 25.0 40.8 43.5 38.5 24.4
</TABLE>
Note: The accompanying notes are an integral part of the selected historical
financial data.
19
<PAGE> 23
NOTES TO SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY
(IN MILLIONS, EXCEPT PER SHARE DATA)
(a) During 1997, the Company sold its Sealed Power division for $223.0 in gross
cash proceeds. The Company recorded a pretax gain of $71.9, or $31.2
after-tax. Annual 1996 revenues of this division were approximately $230.0.
See "Pro Forma Adjusted Historical Financial Data of the Company."
(b) During 1996, the Company sold its Hy-Lift division for approximately $15.0.
Annual 1995 revenues of this division were approximately $45.0. See "Pro
Forma Adjusted Historical Financial Data of the Company."
(c) Effective December 31, 1993, the Company acquired the balance of Sealed
Power Technologies ("SPT") for $39.0. The Company previously owned 49% of
SPT and accounted for its investment using the equity method. SPT's 1993
revenues were $392.0. As a result of this acquisition, the Company was
required to recognize its share of SPT's losses, $26.9, in 1993. Also in
1993, the Company initiated consolidation of Sealed Power Europe Limited
Partnership which required recognition of cumulative losses of the
partnership since its inception, resulting in a charge of $21.5. These
charges have been included in other operating expenses, net.
(d) During 1993, the Company acquired Allen Testproducts and its related leasing
company for $102.0. Annual 1992 revenues of this acquisition were
approximately $83.0.
(e) During 1993, the Company divested its Sealed Power Replacement and Truth
divisions for a gain of $105.4 ($64.2 after-tax). Annual 1992 revenues of
these divisions were approximately $247.0.
(f) Other operating expenses, net, include goodwill/intangible amortization,
minority interest, and earnings from equity interests.
(g) Special charges include certain legal costs, restructuring charges, and
write-off of goodwill.
(h) These charges included a $99.0 restructuring charge, a $4.1 charge for five
corporate executive staff reductions, and $13.4 of costs associated with
various legal matters, including $6.5 of anticipated future legal costs
associated with the ongoing litigation with Snap-on Incorporated, legal
costs associated with a settled case in California, and certain other
matters.
The Company recorded the $99.0 restructuring charge to combine two divisions
within the Service Solutions segment and to recognize reduced carrying value
of certain assets resulting from the decision to combine the divisions and
exit certain manufactured diagnostic equipment product lines. The
restructuring of the two Service Solutions businesses was in response to
changing market dynamics and changing needs of customers. The Company
decided to combine its OE Tool and Equipment business with its Aftermarket
Tool and Equipment business to provide a single business focused on the
combined market and customer needs. Additionally, the Company decided to
exit certain products to focus upon new generation products that will better
meet customer needs. The decision results in a reduction of workforce and
closing of certain facilities. The components of the charge have been
computed based on management's estimate of the realizable value of the
affected tangible and intangible assets and estimated exit costs including
severance and other employee benefits based on existing severance policies
and local laws.
The $99.0 charge included $63.7 of restructuring costs, $25.8 of reduced
inventory value and $9.5 of reduced value of other tangible and intangible
assets related to exiting certain product lines. These restructuring costs
included $13.7 of severance related costs for approximately 800 people,
$20.3 for incremental repossession and distribution exit costs (including
the termination of lease financing and distributor agreements), $21.2 for
incremental service and software update obligations resulting from the
Company's decision to maintain adequate service capabilities and appropriate
software updates of the exited products for customers who have previously
purchased the exited products, and $8.5 of costs associated with idled
facilities. The implementation of this restructuring is expected to be
substantially complete by the end of 1998.
Of the total special charges of $116.5, the components of the charge that
will require the future payment of cash are $80.9. Cash payments in 1997
related to the special charges were $1.5. The expected future cash payments
include an estimated $49.0 in 1998 with the remainder, principally
repossession costs and
20
<PAGE> 24
service and software update obligations, over the following two years. As
there is some uncertainty associated with the timing of the cash payments,
the remaining accrual at December 31, 1997 of $79.4 has been classified in
other current accrued liabilities. Management estimates that savings from
the restructuring will increase operating income by $3.0 in 1998 and $10.0
in 1999. The savings result primarily from the reduction in headcount and
facilities.
(i) During the fourth quarter of 1995, management authorized and committed the
Company to undertake two significant restructuring plans. The first plan
consolidated five Service Solutions divisions into two divisions. The second
plan closed Sealed Power division's German foundry operation and transferred
certain piston ring operations to other facilities. In 1996, three
additional restructuring actions were initiated including an early
retirement program at the Service Solutions divisions, a cost reduction
initiative at several Service Solutions international locations, and an
early retirement program at the Sealed Power division. A summary of these
restructurings follows:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Service Solutions -- Five divisions consolidated into two
divisions................................................. $11.2 $ 7.0
Service Solutions -- Early retirement....................... 1.1 --
Service Solutions -- International.......................... 3.5 --
SPD -- Closing foundry at SP Europe......................... -- 3.7
SPD early retirement........................................ 4.2 --
----- -----
Total............................................. $20.0 $10.7
</TABLE>
Service Solutions Restructuring -- In order to improve customer service,
reduce costs and improve productivity and asset utilization, the Company
decided to consolidate five existing Service Solutions divisions into two.
This restructuring plan involved closing two Company owned manufacturing
facilities, a Company owned distribution facility, several leased service
centers and a leased sales facility in France. The plan also included
combining sales, engineering and administrative functions, and was
completed at the end of 1996. The plan included the termination of
approximately 570 employees resulting in a net reduction of approximately
310 employee positions after considering staffing requirements at remaining
facilities.
The Company recorded a $7.0 charge in 1995 and an $11.2 charge in 1996 to
complete this restructuring. These charges recognized severance and
benefits for employees to be terminated, holding costs of vacated
facilities, the adjustment to fair market value of one manufacturing
facility to be closed, and other costs to complete the consolidation of the
divisions. The distribution facility was sold during the fourth quarter of
1996 and the manufacturing facilities were sold during 1997.
Service Solutions -- Early Retirement -- Closely associated with the
consolidation of five divisions into two, an early retirement program was
accepted by approximately 60 people and the Company recorded a $1.1 charge
in the first quarter of 1996.
Service Solutions -- International -- During the second quarter of 1996,
the Company recorded a $3.5 restructuring charge principally to recognize
severance associated with the termination of 113 international employees
and related operating downsizing costs.
SPD -- Closing Foundry at SP Europe -- The Company closed its unprofitable
foundry operations at SP Europe and transferred certain piston ring
operations to other facilities. This closing resulted in the elimination of
approximately 200 positions and was completed at the end of the third
quarter of 1996. In 1995, the Company recorded a $3.7 restructuring charge
to accrue severance that was paid to these employees.
Sealed Power Division Early Retirement -- During the second quarter of
1996, the Company recorded a $4.2 restructuring charge for the early
retirement of 94 employees at the Sealed Power division.
The actual savings associated with the 1995 and 1996 restructuring actions
relate primarily to the Service Solutions restructuring actions. The actual
savings achieved in 1996 and 1997 have been consistent with the estimated
full year savings of $23.0 by the year 1998. The actions increased
operating income by an estimated $7.0 in 1996 and an estimated $12.0 in
1997.
21
<PAGE> 25
These charges were recorded in the appropriate periods in accordance with
the requirements of Emerging Issues Task Force Pronouncement 94-3. Certain
costs incurred in connection with management's planned actions not
qualifying for accrual in 1995 were recorded in 1996, based on employee
acceptance of voluntary termination benefits and the satisfaction of other
requirements to recognize these costs. At December 31, 1997, the
restructuring actions initiated in 1995 and 1996 were complete and the
actual costs to implement the actions did not differ materially from the
estimates used to record these accruals.
At December 31, 1996, the Company recognized a $67.8 goodwill write-off
($83.0 gross and $15.2 of accumulated amortization), with no associated tax
benefit. The goodwill was related to the 1988 acquisition of Bear
Automotive Company and the 1993 acquisition of Allen Testproducts,
collectively referred to as Automotive Diagnostics. This goodwill
represented the Company's intangible business investment in PC based engine
diagnostic equipment, wheel service equipment and gas emissions testing
equipment. At December 31, 1995, management's analysis of this business
projected that the cost savings, market synergies and other factors which,
in part, would be realized from the Bear Automotive and Allen Testproducts
combination in 1995 and various subsequent restructuring actions would
result in non-discounted operating income sufficient to exceed goodwill
amortization. The decision to write off the goodwill resulted from
conclusions drawn from the Company's strategic review process that was
completed in December of 1996. The strategic review found accelerating
technological changes had significantly reduced the remaining life of PC
based diagnostic equipment. The process also found significant
uncertainties about the future opportunities related to gas emissions
testing equipment, and a decline in the Company's wheel service equipment
market share. Management's analysis of this business at December 31, 1996
projected significant differences in business conditions from its December
31, 1995 analysis including declining revenues and margins of diagnostic
and wheel service equipment and reduced revenues related to the emissions
testing equipment due to the uncertainties about the future status of the
state emissions programs. This analysis indicated that the businesses, as
originally acquired, would not be able to generate operating income
sufficient to offset the annual goodwill amortization. Assessing the impact
of these factors on the businesses, as originally acquired, management
concluded that Automotive Diagnostics' goodwill was impaired.
(j) During 1993, the Company recognized a $27.5 ($18.5 after tax) special charge
to combine its Bear Automotive operation with Allen Testproducts.
(k) During 1995, the Company sold SPX Credit Corporation and recorded a pretax
loss of $4.8 ($3.0 after-tax). The financial results of this operation are
included as a discontinued operation through the date of divestiture.
(l) During 1993, the Company adopted a new accounting methodology for its ESOP
and reflected its 49% share of SPT's adoption of SFAS No. 106 regarding
accounting for postretirement benefits other than pensions.
(m) During 1997, the Company tendered for substantially all ($126.7) of its
outstanding 11 3/4% senior subordinated notes. The Company recorded an
extraordinary item, net of taxes, of $10.3 for the costs to purchase the
notes. During 1996, the Company purchased $99.9 of these notes and recorded
an extraordinary item, net of taxes, of $6.6 for the costs to purchase the
notes. During 1995, the Company purchased $31.7 of these notes and recorded
an extraordinary item, net of taxes, of $1.1 for the costs to purchase the
notes. During 1993, the Company recorded the costs associated with
prepayment of certain Company and SPT indebtedness totaling $24.0, net of
taxes, as an extraordinary item.
(n) During 1997, the Company purchased 2.147 shares of SPX Common Stock through
a Dutch Auction self-tender offer for $56.00 per share. As of December 31,
1997, the Company had purchased an additional 0.390 shares through open
market purchases. Also, concurrent with the Dutch Auction, the Company
announced the elimination of quarterly cash dividends and stated that future
distributions to shareholders would be in the form of open market purchases
of SPX Common Stock, when deemed appropriate by management.
22
<PAGE> 26
SELECTED HISTORICAL FINANCIAL DATA OF ECHLIN
(IN MILLIONS, EXCEPT PER SHARE DATA)
The following table presents selected historical statement of income and
other financial data of Echlin. The financial data as of and for the six months
ended February 28, 1998 and February 28, 1997 have been derived from the
unaudited financial statements of Echlin contained in Echlin's 1998 Second
Quarter Form 10-Q. The financial data as of and for the fiscal years ended
August 31 have been derived from the audited financial statements of Echlin and
selected financial data contained in Echlin's 1997 Form 10-K. The operating
results for the six months ended February 28, 1998 are not necessarily
indicative of the results that may be expected for the fiscal year ending August
31, 1998. Echlin's selected historical financial data should be read in
conjunction with, and are qualified in their entirety by reference to, the
historical financial statements (and related notes) of Echlin which are
incorporated by reference herein (except for the report of Echlin's independent
accountants contained in Echlin's 1997 Form 10-K which is not incorporated
herein by reference because the consent of Echlin's independent accountants has
not yet been obtained). See "Incorporation of Documents by Reference."
<TABLE>
<CAPTION>
AS OF AND FOR
SIX MONTHS ENDED
FEBRUARY 28, AS OF AND FOR THE FISCAL YEAR ENDED AUGUST 31,
------------------- ----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of income data:
Net sales.................... $1,725.2 $1,693.1 $3,568.6 $3,128.7 $2,717.9 $2,229.5 $1,944.5
Cost of goods sold........... 1,303.3 1,280.4 2,707.1 2,309.0 1,932.5 1,571.3 1,378.0
Selling and administrative
expenses................... 312.5 301.1 640.1 574.6 531.3 468.5 420.4
Repositioning and other
special charges(a)......... -- -- 254.1 -- -- -- --
Gain on sales of
businesses(b).............. -- -- (28.6) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations................. 109.4 111.6 (4.1) 245.1 254.1 189.7 146.1
Interest expense, net........ 19.2 16.7 40.6 32.9 23.6 11.7 8.5
-------- -------- -------- -------- -------- -------- --------
Income (loss) before taxes... 90.2 94.9 (44.7) 212.2 230.5 178.0 137.6
Provision for taxes.......... 30.7 33.2 2.2 70.0 76.1 56.9 44.0
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
cumulative effect of
accounting change.......... 59.5 61.7 (46.9) 142.2 154.4 121.1 93.6
Cumulative effect of
accounting change(c)....... -- -- -- -- -- 2.6 --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)............ $ 59.5 $ 61.7 $ (46.9) $ 142.2 $ 154.4 $ 123.7 $ 93.6
======== ======== ======== ======== ======== ======== ========
Earnings per share:
Primary(d)................. $ -- $ -- $ (0.75) $ 2.30 $ 2.60 $ 2.10 $ 1.60
Basic...................... 0.94 0.99 -- -- -- -- --
Diluted.................... 0.93 0.98 -- -- -- -- --
Average shares outstanding:
Primary.................... -- -- 62.601 61.919 59.476 58.996 58.560
Basic...................... 63.194 62.377 -- -- -- -- --
Diluted.................... 63.670 63.225 -- -- -- -- --
Dividends per share.......... $ 0.45 $ 0.44 $ 0.89 $ 0.85 $ 0.79 $ 0.73 $ 0.70
Other financial data:
Total assets................. $2,381.9 $2,466.8 $2,374.2 $2,130.8 $1,961.0 $1,577.4 $1,263.3
Total debt................... 801.8 847.2 757.9 495.9 507.1 308.3 164.2
Shareholders' equity......... 945.5 1,046.7 913.7 1,008.9 909.3 799.0 713.8
Capital expenditures......... 66.4 68.9 149.2 104.4 103.9 73.8 41.5
Depreciation and
amortization............... 58.2 56.4 113.9 90.9 76.6 64.2 59.7
</TABLE>
Note: The accompanying notes are an integral part of the selected historical
financial data.
23
<PAGE> 27
NOTES TO SELECTED HISTORICAL FINANCIAL DATA OF ECHLIN
(IN MILLIONS, EXCEPT PER SHARE DATA)
(a) During fiscal 1997, Echlin recorded repositioning and other special charges
of $254.1, pretax. The repositioning charge included expenses related to
facility realignments and rationalizations, and the write-down to net
realizable value of businesses to be disposed. In addition, goodwill
associated with brand names no longer in use was written off, inventory
related to discontinued and rationalized product lines was written down,
property, plant and equipment idled by facility closures and product line
rationalizations were reduced, and other investments and deferred customer
acquisition costs were written off.
(b) During fiscal 1997, Echlin sold two divisions for gross proceeds of $75.9.
Echlin reported a pretax gain of $28.6.
(c) During fiscal 1994, Echlin adopted a new accounting methodology for income
taxes.
(d) Echlin indicates that pro forma diluted loss per share under FAS 128 would
have been less than the reported loss per share for the year ended August
31, 1997.
(e) During February 1998, Echlin signed a definitive agreement to sell its
Midland-Grau heavy duty brake operations to the Haldex Group of Sweden. The
transaction was completed on April 3, 1998. The sales price, which is
subject to completion of the closing date balance sheet, was approximately
$150.0. Any gain from this transaction will be included in the results of
operations for the third quarter. Echlin will use the proceeds from the sale
to pay down existing bank debt.
24
<PAGE> 28
PRO FORMA CONDENSED COMBINED FINANCIAL DATA
OF THE COMPANY AND ECHLIN
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
The following information is presented as if the Proposed Business
Combination of the Company and Echlin occurred on September 1, 1996 for
statement of income and related data and on February 28, 1998 for balance sheet
data. The pro forma data assume that the Proposed Business Combination is
effected by the exchange of shares of SPX Common Stock and cash for Echlin
Shares. The pro forma data assume the Company will exchange 0.4796 shares of SPX
Common Stock and $12.00 cash for each Echlin Share, whereby 30.268 shares of SPX
Common Stock and $757.3 of cash are issued in exchange for all outstanding
Echlin Shares and equivalent Echlin Shares, other than those owned by the
Company. The Proposed Business Combination will be accounted for as a reverse
acquisition, as the shareholders of Echlin will own a majority of the
outstanding shares of SPX Common Stock upon completion of the transaction.
Accordingly, for accounting purposes, the Company is treated as the acquired
company and Echlin is considered to be the acquiring company. The purchase price
will be allocated to the assets and liabilities assumed of the Company based on
their estimated fair market values at the acquisition date. Under reverse
acquisition accounting, the purchase price of the Company is based on the fair
market value of the SPX Common Stock at the date of acquisition. The cash
portion of the Consideration will be accounted for as a dividend by the combined
company. The Company's financial position and results of operations will not be
included in Echlin's consolidated financial statements prior to the date the
Merger is consummated.
Under reverse acquisition accounting, the purchase price of the Company is
based on the fair market value of SPX Common Stock. For purposes of this pro
forma information, the fair market value of SPX Common Stock is assumed to be
$76 1/16 per share, which reflects the closing price of SPX Common Stock as of
April 16, 1998. The Consideration includes 0.4796 share of SPX Common Stock.
This is a fixed exchange ratio and will not be adjusted in the event of any
increase or decrease in the market price of SPX Common Stock. Consequently,
changes in the market price of SPX Common Stock will not impact these pro forma
financial statements other than to increase or decrease the purchase price of
SPX and the related amount of goodwill and amortization thereof. The measurement
date for determining the fair market value of SPX Common Stock will be the date
that the Minimum Tender Condition is satisfied or waived or the date that the
Company has entered into a definitive agreement or announced an agreement in
principle with Echlin providing for a merger or business combination with
Echlin. If the market value of SPX Common Stock used in these pro forma
financial statements were assumed to change by $1.00 per share, the impact would
be to increase or decrease annual goodwill amortization and net income by $0.3
($0.01 per share).
The pro forma condensed combined financial data are intended for
information purposes, and do not purport to represent what the combined entity's
results of continuing operations or financial position would actually have been
had the transaction in fact occurred at an earlier date, or project the results
for any future date or period. Upon consummation of the Proposed Business
Combination, the actual financial position and results of operations of the
combined company will differ, perhaps significantly, from the pro forma amounts
reflected herein due to a variety of factors, including changes in operating
results between the date of the pro forma condensed combined financial data and
the date on which the Proposed Business Combination is consummated and
thereafter, as well as the factors discussed under "Risk Factors."
The pro forma condensed combined financial data do not give effect to any
integration or restructuring costs that could result from the combination of the
companies. Any integration and rationalization of the operations of Echlin may
include certain costs that in turn would result in a charge to earnings of the
combined company. Such a charge, which cannot now be quantified fully, may be
material and would be recognized in the period in which such a restructuring
occurs. These costs may include severance and related employee benefit costs,
costs to consolidate manufacturing and distribution facilities, facility
rearrangement costs, relocation and moving costs, training costs, debt
extinguishment costs, and costs associated with change of control agreements,
among others. To date, the Company's access to information related to Echlin has
been limited to publicly available information. In addition, publicly available
information does not contain sufficient details related to Echlin's severance
plans, employee benefit agreements, change of control costs or debt
25
<PAGE> 29
extinguishment provisions to enable the Company to quantify the costs associated
with business integration and rationalization actions that may be considered by
the Company. Nonetheless, based on assumptions related to headcount reductions
and average annual salaries used to compute the annualized expense savings and
assuming a severance policy that would result in an average severance term of
six months, the estimated pre-tax costs of the severance (excluding any change
in control costs) would be approximately $60.0.
The pro forma condensed combined financial data also do not give effect to
any cost savings that could result from the combination of the companies. The
Company's management estimates that the combined company can achieve
approximately $125.0 of annualized cost savings in the first full year following
the acquisition, and $175.0 of annualized cost savings in the second full year
following the acquisition. These cost savings include three categories of
estimated annual savings in the second full year: savings associated with
headcount reductions of $120.0; reduction in duplicative corporate costs of
$20.0; and manufacturing, distribution and sourcing rationalization of $35.0.
These savings estimates are based upon assumptions made by the Company's
management using available public information of Echlin, certain comparative
peer group information of Echlin, and the Company's own internal information.
The savings associated with head count reductions were estimated by multiplying
a 10% reduction in Echlin's employees, or approximately 3,000 employees, by $40
thousand per employee. The savings per employee were based on the Company's
salary data and assumptions related to Echlin's salary structure. The Company
believes that the head count reductions are possible given its own experience
over the past two years and Echlin's head count levels compared to various peer
companies. The savings to reduce duplicative corporate costs approximate the
Company's own corporate office expenses. Duplicative corporate costs would
include duplicative executive positions, facilities, overlap of other corporate
functions, and various external fees and costs. Savings from manufacturing,
distribution and sourcing were based upon material cost reductions of 2.5% on an
estimated $1.4 billion of material purchases by Echlin. The Company estimated
Echlin's material purchases at 50% of Echlin's cost of goods sold in the fiscal
year ended August 31, 1997. The 2.5% material cost reduction was based upon the
savings realized by the Company in its own sourcing program over the past two
years.
In the pro forma condensed combined financial data, Echlin's information
was derived from Echlin's 1997 Form 10-K and Echlin's 1998 Second Quarter Form
10-Q. For the Company's pro forma adjusted historical financial data, see "Pro
Forma Adjusted Historical Financial Data of the Company," presented elsewhere
herein.
The pro forma condensed combined financial data should be read in
conjunction with the financial statements and notes thereto included in the
Company's 1997 Form 10-K, the Company's 1997 Third Quarter Form 10-Q, Echlin's
1997 Form 10-K and Echlin's 1998 Second Quarter Form 10-Q.
26
<PAGE> 30
PRO FORMA CONDENSED COMBINED
FINANCIAL DATA OF THE COMPANY AND ECHLIN
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THE
COMPANY ECHLIN PRO FORMA
HISTORICAL(A) HISTORICAL(A) ADJUSTMENTS PRO FORMA
------------- ------------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Statement of income data:
- ----------------------------
Revenues................................... $ 455.4 $1,725.2 $ -- $2,180.6
Cost of products sold...................... 328.8 1,303.3 1.7(d) 1,633.8
Selling, general and administrative
expenses................................. 88.2 312.5 1.7(d) 402.4
Other operating expenses, net.............. 1.9 -- 11.1(d) 13.0
Special charges (l)........................ 110.0 -- -- 110.0
------- -------- ------- --------
Operating income (loss).................... (73.5) 109.4 (14.5)(d) 21.4
Other expense (income), net................ (1.5) -- -- (1.5)
Interest expense, net...................... 6.6 19.2 42.5(f) 68.3
------- -------- ------- --------
Income (loss) before income taxes.......... (78.6) 90.2 (57.0) (45.4)
Provision (benefit) for income taxes....... (28.5) 30.7 (17.4)(g) (15.2)
Income (loss).............................. $ (50.1) $ 59.5 $ (39.6) $ (30.2)
======= ======== ======= ========
Income (loss) per share:
Basic.................................... $ (4.20) $ (0.72)
Diluted.................................. (4.20) (0.72)
Weighted average number of common shares
outstanding.............................. 11.937 29.781(h) 41.718
Dividends per share (m).................... $ -- $ --
Other financial data:
- ---------------------
Capital expenditures....................... $ 12.0 $ 66.4 $ -- $ 78.4
Depreciation and amortization.............. 11.7 58.2 13.6 83.5
</TABLE>
Note: The accompanying notes are an integral part of the pro forma
condensed combined financial data.
27
<PAGE> 31
PRO FORMA CONDENSED COMBINED
FINANCIAL DATA OF THE COMPANY AND ECHLIN
FOR THE YEAR ENDED AUGUST 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THE
COMPANY
PRO FORMA
ADJUSTED ECHLIN PRO FORMA
HISTORICAL(B) HISTORICAL(B) ADJUSTMENTS PRO FORMA
------------- ------------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Statement of income data:
- ----------------------------
Revenues.................................... $ 825.4 $3,568.6 $ -- $4,394.0
Cost of products sold....................... 595.7 2,707.1 3.3(d) 3,306.1
Selling, general and administrative
expense................................... 168.7 640.1 3.3(d) 812.1
Other operating expenses, net............... 3.9 -- 22.2(d) 26.1
Special charges and gains (k,1)............. 81.7 225.5 -- 307.2
------- -------- -------- --------
Operating income (loss)..................... (24.6) (4.1)(d) (28.8) (57.5)
Other expense (income), net................. (2.3) -- -- (2.3)
Interest expense, net....................... 17.8 40.6 79.6(f) 138.0
------- -------- -------- --------
Income (loss) before income taxes........... (40.1) (44.7) (108.4) (193.2)
Provision (benefit) for income taxes........ 10.4 2.2(g) 32.8 (20.2)
------- -------- -------- --------
Income (loss) (c)........................... $ (50.5) $ (46.9) $ (75.6) $ (173.0)
======= ======== ======== ========
Income (loss) per share:
Basic..................................... $ (3.65) $ (3.99)
Diluted................................... (3.65) (3.99)
Weighted average number of common shares
outstanding............................... 13.845 29.472(h) 43.317
Dividends per share (m)..................... $ 0.30 $ 0.30
Other financial data:
- ---------------------
Capital expenditures........................ $ 17.5 $ 149.2 $ -- $ 166.7
Depreciation and amortization............... 25.0 113.9 27.2 166.1
</TABLE>
Note: The accompanying notes are an integral part of the pro forma
condensed combined financial data.
28
<PAGE> 32
PRO FORMA CONDENSED COMBINED
BALANCE SHEET OF THE COMPANY AND ECHLIN
AS OF FEBRUARY 28, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THE COMPANY ECHLIN PRO FORMA
HISTORICAL(A) HISTORICAL(A) ADJUSTMENTS PRO FORMA
----------------- ----------------- ----------- -----------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS:
Current assets........................ $383.5 $1,207.0 $ 10.3(i) $1,585.9
(14.9)(i)
Property, plant and equipment, net.... 122.1 730.2 40.0(i) 892.3
Marketable securities................. -- 80.4 -- 80.4
Intangible assets..................... -- 318.6 -- 318.6
Goodwill.............................. 60.2 -- (60.2)(i) 1,006.7
Other assets.......................... 18.0 45.7 1,006.7(i) 187.7
37.5(e)
87.3(i)
(0.8)(i)
------ -------- -------- --------
Total assets..................... $583.8 $2,381.9 $1,105.9 $4,071.6
====== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Notes payable and current maturities
of long-term debt................... $ 2.8 $ 59.6 $ -- $ 62.4
Other current liabilities............. 283.8 557.7 -- 841.5
Total long-term liabilities........... 138.1 76.9 (19.4)(i) 250.3
Long-term debt........................ 202.5 742.2 54.7(i) 1,782.6
809.8(e)
28.1(n)
Total shareholders' equity
(deficit)........................... (43.4) 945.5 999.6(j) 1,134.8
(757.3)(j)
(14.9)(i)
(28.1)(n)
43.4(j)
(10.0)(i)
------ -------- -------- --------
Total liabilities and
shareholders' equity........... $583.8 $2,381.9 $1,105.9 $4,071.6
====== ======== ======== ========
</TABLE>
Note: The accompanying notes are an integral part of the pro forma condensed
combined balance sheet.
29
<PAGE> 33
NOTES TO PRO FORMA CONDENSED COMBINED
FINANCIAL DATA OF THE COMPANY AND ECHLIN
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
(a) Pro forma information as of and for the six months ended February 28, 1998
includes the actual historical results of the Company as of and for the six
months ended December 31, 1997 (the most current fiscal quarter end of the
Company within 93 days of February 28, 1998) and the actual historical
results of Echlin as of and for the six months ended February 28, 1998.
(b) Pro forma information for the year ended August 31, 1997 includes the pro
forma adjusted historical results of the Company for the twelve months ended
June 30, 1997 (the most current fiscal twelve month period of the Company
within 93 days of August 31, 1997) and the actual historical results of
Echlin for the year ended August 31, 1997. The pro forma adjusted historical
results of the Company for the twelve months ended June 30, 1997 reflect the
Company's February 1997 disposition of the Sealed Power division and its
November 1996 disposition of the Hy-Lift division, as if such dispositions
occurred on July 1, 1996. See "Pro Forma Adjusted Historical Financial Data
of the Company," presented elsewhere herein.
(c) The pro forma condensed combined financial data reflect only results from
continuing operations. The Company recorded a $16.4 extraordinary item, net
of taxes, in the twelve months ended June 30, 1997. The extraordinary item
related to the Company's purchase of its 11 3/4% senior subordinated notes.
(d) These pro forma adjustments reflect the impact of the allocation of the
purchase price to the assets and liabilities of the Company on the pro forma
condensed combined statement of income and other financial data. The
ultimate allocation of the purchase price to the net assets acquired,
goodwill and other intangible assets, liabilities assumed and incomplete
technology of the Company is subject to final determination of their
respective fair values, and as a result, these adjustments could change. The
following table reflects the pro forma condensed combined statement of
income impact of the purchase accounting adjustments:
<TABLE>
<CAPTION>
COST OF SELLING, OTHER
PRODUCTS GENERAL OPERATING
SOLD & ADMIN. EXPENSES TOTAL
-------- -------- --------- -----
<S> <C> <C> <C> <C>
Additional depreciation........................ $2.5 $2.5 $ -- $ 5.0
Pension expense adjustment..................... 0.3 0.3 -- 0.6
Amortization of previously recorded goodwill... -- -- (3.0) (3.0)
Goodwill and intangible amortization on
transaction.................................. -- -- 25.2 25.2
Postretirement expense adjustment.............. 0.5 0.5 -- 1.0
---- ---- ----- -----
Year ended August 31, 1997..................... $3.3 $3.3 $22.2 $28.8
==== ==== ===== =====
Six months ended February 28, 1998............. $1.7 $1.7 $11.1 $14.5
==== ==== ===== =====
</TABLE>
Upon consummation of the transaction, an estimated $10.0 charge for
incomplete technology will occur; however, this charge is not reflected in
the pro forma data as the charge is non-recurring and has no continuing
impact.
(e) This pro forma adjustment reflects the borrowings for the cash portion of
the Consideration, debt issuance costs for new financing, and other
estimated transaction fees of $15.0. The cash portion of the Consideration
is $757.3, which represents $12.00 per Echlin Share multiplied by 63.111
Echlin Shares and Echlin Share equivalents outstanding.
The outstanding and equivalent Echlin Shares include Echlin Shares
outstanding at February 28, 1998 and Echlin Shares issuable (treasury stock
method) upon exercise of Echlin's options, less 1.150 Echlin Shares held by
the Company as of February 28, 1998. The debt issuance costs are estimated
at $37.5 to obtain a new seven year $2,400 financing to effect the Proposed
Business Combination, to refinance existing debt of both the Company and
Echlin and to provide working capital.
30
<PAGE> 34
(f) These pro forma adjustments reflect the interest expense associated with the
incremental borrowings ($837.9) to effect the Proposed Business Combination
including the debt incurred to purchase Shares described in note (n), as if
the incremental borrowings had occurred at September 1, 1996. The pro forma
interest expense adjustment also reflects the refinancing of existing debt
under a new seven year $2,400 financing as of September 1, 1996. The
interest expense has been computed on an assumption that borrowings under
the new credit facility will bear interest at a rate of LIBOR plus 2 1/4%
(8% was used in these pro forma financial statements) and that debt issuance
costs are amortized over seven years. If the interest rate used in the pro
forma financial data were assumed to increase by 1/8%, the impact would be
to increase net loss by $0.7 ($0.02 per share) and by $1.4 ($0.03 per share)
for the six months ended February 28, 1998 and for the year ended August 31,
1997, respectively. Average historical outstanding debt of the Company and
Echlin, as used in this pro forma presentation, was $973.3 and $973.5 for
the six months ended February 28, 1998 and for the year ended August 31,
1997, respectively.
(g) These adjustments represent the estimated income tax effect of the pro forma
adjustments, excluding goodwill expense which will not be deductible for tax
purposes, using an effective income tax rate of 38%.
(h) These pro forma adjustments reflect the additional shares of SPX Common
Stock to be issued in the transaction. The additional shares to be issued
are calculated assuming that the stock component of the Consideration is
0.4796 share of SPX Common Stock, which converts weighted average
outstanding Echlin Shares to weighted average outstanding shares of SPX
Common Stock. The Echlin Shares used in these calculations include reported
weighted average outstanding Echlin Shares, less 1.150 Echlin Shares held by
the Company as of February 28, 1998.
(i) These pro forma adjustments reflect the allocation to the assets and
liabilities of the Company of the difference between the market value of the
Company and the Company's book value (the "excess purchase price"). The
market value of the Company is assumed to be the sum of the fair market
value of the outstanding SPX Common Stock (less unallocated SPX Common Stock
held by the Company's KSOP and restricted SPX Common Stock) and the fair
value of the Company's outstanding options. The Company's book value is
assumed to be its shareholders' deficit adjusted by estimated transaction
fees of $15.0 which are assumed to have been incurred by the Company prior
to the combination.
<TABLE>
<S> <C> <C>
Market Value of the Company:
Shares of SPX Common Stock outstanding.................... 12.531
Unallocated SPX Common Stock held in KSOP and Restricted
SPX Common Stock....................................... $ (0.658)
---------
Adjusted SPX Common Stock outstanding..................... 11.873
Market price per share of SPX Common Stock................ 76.0625
---------
Market value of SPX Common Stock outstanding.............. $903.1
Market value of outstanding options....................... 96.5
---------
Market value of the Company............................... $ 999.6
Company's Book Value:
December 31, 1997 shareholders' deficit................... $(43.4)
Assumed transaction fees.................................. (15.0)
---------
Company's Book Value...................................... $ (58.4)
--------
Excess Purchase Price..................................... $1,058.0
========
</TABLE>
31
<PAGE> 35
This excess purchase price has been allocated to the assets and liabilities
of the Company as follows:
<TABLE>
<S> <C>
Inventory................................................... $ 10.3
Property, plant & equipment................................. 40.0
Prepaid pension (other assets).............................. 87.3
Deferred financing fees (other assets)...................... (0.8)
Goodwill -- previously recorded............................. (60.2)
Goodwill and intangible assets.............................. 1,006.7
Incomplete technology....................................... 10.0
Postretirement health and life insurance liability.......... 19.4
Deferred tax liability...................................... (54.7)
--------
$1,058.0
========
</TABLE>
The preliminary allocations of the excess purchase price are based upon
current estimates and information available to the Company. Property, plant
and equipment reflect the adjustment to estimated fair market values of
these assets. Prepaid pension reflects the adjustment to the fair market
value of the plan assets less the projected benefit obligation. Goodwill,
previously recorded, reflects the elimination of goodwill that is included
in the Company's historical balance sheet. Goodwill and intangible assets
reflects the amount of excess purchase price remaining after allocations to
all other assets and liabilities. Incomplete technology represents the
estimated fair market value of in process product development costs.
Postretirement health and life insurance liability reflects the adjustment
of the liability to the accumulated benefit obligation. The deferred tax
liability reflects the deferred tax liabilities related to these
allocations.
The goodwill recorded as a result of these allocations will be amortized
over a 40 year life. In determining the estimated useful life, management
considered the nature, competitive position, life cycle position, and
historical and expected future operating income of the Company, as well as
management's commitment to support the Company through continued investment
in capital expenditures, operational improvements, and research and
development. After the transaction, the combined company will continually
review whether subsequent 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.
If events and circumstances indicate that goodwill related to a particular
business should be reviewed for possible impairment, the combined company
will use projections to assess whether future operating income on a
non-discounted basis (before goodwill amortization) of the unit is likely to
exceed the goodwill amortization over the remaining life of the goodwill, to
determine whether a write-down of goodwill to recoverable value is
appropriate.
The ultimate allocation of the purchase price to the net assets acquired,
goodwill, other intangible assets, liabilities assumed and incomplete
technology is subject to final determination of their respective fair
values. This final allocation will be based upon the results of a
professional appraisal that will be performed upon the consummation of the
transaction. The Company's management believes the above preliminary
allocations of the purchase price are reasonable and will not materially
change upon completion of the appraisal.
The pro forma adjustments include the elimination of the Company's $14.9
investment in 0.416 Echlin Shares (included in current assets). As of
December 31, 1997, the Company had recorded an investment of $14.9 in the
common stock of Echlin. This investment represents 0.416 Echlin Shares, or
approximately 0.7% ownership of Echlin. As discussed, for accounting
purposes, the Company will not be considered the acquiring company. An
objective of acquiring the common stock of Echlin is to minimize the costs
associated with pursuing the offer to purchase Echlin by the expected
short-term appreciation in Echlin's stock price. Consequently, the Echlin
Shares are considered to be trading securities and are carried on the
consolidated balance sheet in Prepaid and other current assets at market
value. The unrealized gain related to this investment in the six months
ended December 31, 1997 was immaterial. As of February 28, 1998, there were
no other intercorporate transactions that required elimination.
32
<PAGE> 36
(j) These pro forma adjustments reflect the effect of reverse acquisition
accounting by adding the market value of the Company ($999.6), subtracting
the Company's December 31, 1997 shareholder deficit ($43.4), and subtracting
the cash payout ($757.3) which is treated as a dividend by the combined
company.
(k) Reflects a reclassification to special charges of $6.5 of legal costs that
were previously classified as other expense (income), net in the Company's
1997 Second Quarter Form 10-Q.
(l) The pro forma condensed combined financial data do not give effect to any
integration or restructuring costs, nor to any cost savings, that could
result from the combination of the companies.
The pro forma condensed combined financial data of the Company and Echlin
for the six months ended February 28, 1998 include special charges of $110.0
recorded by the Company primarily to combine two divisions and to recognize
reduced carrying value of certain assets resulting from the decision to
combine the divisions and exit certain product lines. See "Selected
Historical Financial Data of the Company."
The pro forma condensed combined financial data of the Company and Echlin
for the year ended August 31, 1997 include special charges and gains of
$307.2. The special charges and gains included a $7.4 special charge
recorded by the Company related to the combination of five divisions into
two divisions, a $6.5 special charge recorded by the Company of anticipated
future legal costs associated with the ongoing litigation with Snap-on
Incorporated, a $67.8 write-off of goodwill recorded by the Company related
to the acquisitions of Bear Automotive and Allen Testproducts, $254.1 of
repositioning and other special charges recorded by Echlin related to
facility realignments and rationalizations and other actions, and $28.6 of
gains from the sale of two divisions by Echlin. See "Selected Historical
Financial Data of the Company" and "Selected Historical Financial Data of
Echlin."
(m) Represents the historical quarterly cash dividend per share of the Company
for the periods presented. In April 1997, the Company eliminated its
quarterly cash dividend and stated that future share repurchases would be
used, when appropriate, for distributions to shareholders.
(n) Represents the debt incurred by the Company to purchase an additional 0.734
Shares in February 1998.
33
<PAGE> 37
PRO FORMA ADJUSTED HISTORICAL FINANCIAL DATA OF THE COMPANY
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
On February 7, 1997, the Company completed the sale of substantially all of
the assets and rights used in the manufacture and distribution of piston rings
and cylinder liners, known as the Sealed Power division ("SPD"). The gross cash
sales proceeds were $223.0. Additionally, effective November 1, 1996, the
Company sold its Hy-Lift division to W.A. Thomas Company. Hy-Lift manufactures
and distributes engine valve train components to both the original equipment
market and the aftermarket. The gross cash sales proceeds were $15.0.
The following historical financial data include the results of SPD through
February 7, 1997, and the results of Hy-Lift through November 1, 1996, their
dates of disposition. The following unaudited pro forma adjusted historical
financial data for the twelve months ended June 30, 1997 reflect the disposition
of these divisions as if they had occurred as of July 1, 1996. The pro forma
adjusted historical financial data do not purport to represent what the
Company's results of continuing operations would actually have been had the
transactions in fact occurred as of July 1, 1996, or project the results for any
future period.
The pro forma adjusted historical financial data should be read in
conjunction with the financial statements and notes thereto included in the
Company's 1997 Form 10-K, the Company's Current Report on Form 8-K dated
February 21, 1997, and the Company's 1997 Second Quarter Form 10-Q.
34
<PAGE> 38
PRO FORMA ADJUSTED HISTORICAL
FINANCIAL DATA OF THE COMPANY
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------
HISTORICAL DIVEST(A) OTHER PRO FORMA
---------- ---------- ------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Statement of income data:
Revenues........................................... $ 973.4 $(148.0) -- $ 825.4
Cost of products sold.............................. 726.2 (130.5) -- 595.7
Selling, general & administrative.................. 176.8 (8.1) -- 168.7
Other operating expenses, net...................... 2.7 1.2 -- 3.9
Special charges(e)................................. 81.7 -- -- 81.7
------- ------- ------ -------
Operating income (loss)............................ (14.0) (10.6) (24.6)
Other (income) expense............................. (74.2) -- 71.9(b) (2.3)
Interest expense, net.............................. (22.1) -- (4.3)(c) 17.8
------- ------- ------ -------
Income (loss) before income taxes.................. 38.1 (10.6) (67.6) (40.1)
Provision for income taxes......................... 53.4 (3.8) (39.2)(d) 10.4
------- ------- ------ -------
Income (loss)(f)................................... $ (15.3) (6.8) (28.4) $ (50.5)
------- ------- ------ -------
Income (loss) per share:
Basic............................................ $ (1.11) $ (3.65)
Diluted.......................................... (1.11) (3.65)
Weighted average number of shares.................. 13.845 13.845
Other financial data:
Capital expenditures............................... 23.0 (5.5) 17.5
Depreciation and amortization...................... 32.6 (7.6) 25.0
</TABLE>
- ---------------
(a) This column reflects the operating results of SPD and Hy-Lift through their
dates of disposition, February 7, 1997 and November 1, 1996, respectively.
(b) Adjustment to exclude the gain on the sale of SPD. The Company's gain from
the sale of Hy-Lift was immaterial.
(c) Adjustment to interest expense, net, assuming the use of net proceeds to
reduce revolving credit and other debt.
(d) Adjustment to income tax expense to reflect the tax effect of the
adjustments.
(e) Reflects a reclassification to special charges of $6.5 of legal costs that
were previously classified as other expense (income), net in the Company's
1997 Second Quarter Form 10-Q.
(f) Income excludes extraordinary item of $16.4, net of taxes.
35
<PAGE> 39
PROPOSAL III
AMENDMENT OF THE COMPANY'S CERTIFICATE OF INCORPORATION TO
INCREASE THE AMOUNT OF AUTHORIZED SPX COMMON STOCK
The Company's Board of Directors has proposed that the Company's Restated
Certificate of Incorporation be amended to increase the number of shares of
authorized SPX Common Stock from 50,000,000 to 100,000,000. Specifically, the
Board of Directors has proposed that the first paragraph of Article Fourth of
the Restated Certificate of Incorporation be amended to read as follows:
1. Authorized Shares. The total number of authorized shares of the
stock of all classes which the Corporation shall have authority to issue is
one hundred three million (103,000,000), of which three million (3,000,000)
shall be shares of Preferred Stock without par value and one hundred
million (100,000,000) shall be shares of Common Stock of the par value of
$10 per share.
As of the Record Date, there were 12,647,727 shares of SPX Common Stock
outstanding. If the Proposed Business Combination is consummated pursuant to its
current terms, the Company would have approximately 43,000,000 shares of SPX
Common Stock outstanding. When added together with the approximately 3,500,000
shares of SPX Common Stock that would be reserved for issuance upon exercise of
outstanding options (including both options granted by the Company and options
that had been granted by Echlin and which would become exercisable for SPX
Common Stock), the Company would have only approximately 53,500,000 shares of
SPX Common Stock authorized and available for future issuance.
Although the Company has no present plans to issue shares of SPX Common
Stock (or other securities or rights) other than in connection with the Proposed
Business Combination and upon exercise of outstanding options, the Board of
Directors believes that it is advisable to have additional shares of SPX Common
Stock available for issuance for a number of purposes, including raising capital
through the sale of SPX Common Stock, future acquisitions, and other corporate
purposes such as stock splits and stock-based compensation. The authorization of
such shares at this time would allow the Company to act expeditiously if
additional needs or opportunities arose requiring the issuance of such shares.
If the Company's shareholders approve the Charter Amendment, it will be
adopted regardless of whether the Proposed Business Combination is consummated.
The Board of Directors will authorize the issuance of additional shares of
SPX Common Stock only when it believes that such issuance will be in the best
interests of the Company and its shareholders. However, the issuance of
additional shares of SPX Common Stock may, among other things, have a dilutive
effect on the earnings per share of SPX Common Stock and on the equity and
voting rights of holders of shares of SPX Common Stock, and consequently may
also adversely affect the market price of SPX Common Stock. The increase in the
availability for issuance of additional shares of SPX Common Stock pursuant to
the Charter Amendment also may be perceived as having anti-takeover effects by
enabling the Board of Directors to issue shares in transactions that would make
a change in the control of the Company more difficult or costly and therefore
less likely. The Board of Directors is not presenting the proposal to approve
the Charter Amendment for anti-takeover purposes, has no present intention to
use the increased shares for anti-takeover purposes and is not aware of any
efforts to obtain control of the Company. Notwithstanding shareholder approval
of the Charter Amendment, under the rules of the New York Stock Exchange, any
proposed issuances of shares of SPX Common Stock in excess of 20% of the then
outstanding shares of SPX Common Stock will require further approval from the
present shareholders of the Company.
The newly authorized shares of SPX Common Stock would have the same rights
and privileges as the shares of SPX Common Stock presently outstanding. See
"Description of Company Capital Stock." The Company's shareholders do not have
preemptive rights to subscribe for, purchase or receive shares of the authorized
capital stock of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
CHARTER AMENDMENT TO INCREASE THE NUMBER OF SHARES OF AUTHORIZED SPX COMMON
STOCK.
36
<PAGE> 40
APPROVAL OF ADJOURNMENTS OF THE ANNUAL MEETING
PROPOSED BY THE BOARD OF DIRECTORS
It is the Company's present expectation that, at the Annual Meeting, votes
will be taken and the polls closed on all proposals submitted to the Company
shareholders. It is likely that the Annual Meeting will then be adjourned to
allow the inspectors of election to count and report on the votes cast. It is
possible, however, that the Board of Directors may propose one or more
adjournments of the Annual Meeting, without closing the polls on the Stock
Issuance proposal and/or the Charter Amendment proposal, in order to permit
further solicitation of proxies with respect to either or both of such
proposals.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" SUCH ADJOURNMENTS.
If proxies are returned properly signed but otherwise unmarked, the shares
represented by such proxies will be voted at the Annual Meeting for any such
adjournment that the Board of Directors might propose but will not be considered
a direction to vote for any adjournment proposed by others. If any adjournment
is properly presented at the Annual Meeting for action by any person or persons
other than the Board of Directors, the persons named as proxies, acting in such
capacity, will have discretion to vote on such matters in accordance with their
best judgment.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of SPX Common Stock
beneficially owned as of March 16, 1998, or as to which there was a right to
acquire beneficial ownership within 60 days of such date, by each director, each
executive officer named in the Summary Compensation Table and all directors and
executive officers as a group.
<TABLE>
<CAPTION>
VESTED
NUMBER OF OPTIONS
SHARES EXERCISABLE
BENEFICIALLY WITHIN 60 PERCENT OF
OWNED(1)(2) DAYS TOTAL CLASS
------------ ----------- ------- ----------
<S> <C> <C> <C> <C>
John B. Blystone................................... 201,611(3) 0 201,611 1.6%
J. Kermit Campbell................................. 1,617 6,400 8,017 *
Sarah R. Coffin.................................... 1,196 5,100 6,296 *
Frank A. Ehmann.................................... 2,658 10,700 13,358 *
Edward D. Hopkins.................................. 2,817 10,700 13,517 *
Charles E. Johnson II.............................. 62,659(4) 8,900 71,559 *
Christopher J. Kearney............................. 2,292 0 2,292 *
Ronald L. Kerber................................... 1,813 4,900 6,713 *
Stephen A. Lison................................... 16,941 41,050 57,991 *
Peter H. Merlin.................................... 4,236 9,100 13,336 *
Patrick J. O'Leary................................. 17,167 5,000 22,167 *
Thomas J. Riordan.................................. 8,278 5,000 13,278 *
James M. Sheridan.................................. 31,341(5) 80,000 111,341 *
David P. Williams.................................. 1,500 7,800 9,300 *
All directors and executive officers as a group (19
persons) including the above named............... 366,854 217,100 583,954 4.6%
</TABLE>
- ---------------
* Less than 1%.
37
<PAGE> 41
(1) Included for Messrs. Blystone, Kearney, O'Leary, Riordan and Sheridan and
all executive officers as a group are their respective allocated shares held
in the SPX Corporation Retirement Savings and Stock Ownership Plan.
(2) Except as otherwise indicated, each director and executive officer has sole
voting and investment power over the shares he or she beneficially owns.
(3) Includes 75,000 shares of restricted stock granted to Mr. Blystone as part
of his initial employment contract with the Company that have not yet
vested. These shares vest ratably based on continued employment to the
vesting date at the rate of 25,000 shares per year beginning December 1,
1998. Mr. Blystone will receive all dividends on, and has the right to vote,
these shares. Does not include 250 shares held by The Blystone Foundation of
which Mr. Blystone and his wife along with Messrs. Kearney and Sheridan are
directors and as to which Mr. Blystone disclaims any beneficial interest.
(4) Includes 20,548 shares owned by Mr. Johnson's wife.
(5) Includes 200 shares held by Mr. Sheridan as custodian for his children.
OTHER PRINCIPAL SHAREHOLDERS
The Company is not aware of any person or group who beneficially owns more
than 5% of SPX Common Stock except the following, based on information filed on
Schedule 13D or Schedule 13G:
<TABLE>
<CAPTION>
AMOUNT OF PERCENT
BENEFICIAL OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS
------------------------------------ ---------- -------
<S> <C> <C>
Harris Associates L.P. 1,590,200(1) 12.57%
Two North LaSalle Street, Suite 500
Chicago, IL 60602
FMR Corp. (Fidelity Investments) 1,304,200(2) 10.31%
82 Devonshire Street
Boston, MA 02109
Merrill Lynch Asset Management 1,249,004(3) 9.88%
800 Sudders Mill Road
Plainsboro, NJ 08536
Fidelity Management Trust Company 1,140,270(4) 9.02%
82 Devonshire Street
Boston, MA 02109
</TABLE>
- ---------------
(1) Harris Associates L.P. serves as investment advisor to Harris Associates
Investment Trust (the "Trust"). The Trust reported that The Oakmark Fund,
The Oakmark Small Cap Fund and The Oakmark Select Fund beneficially own
967,900, 500,000 and 40,000 shares of SPX Common Stock, respectively.
(2) Fidelity Management & Research Company, a wholly-owned subsidiary of FMR
Corp. and an investment advisor registered under Section 203 of the
Investment Advisors Act of 1940, is the beneficial owner of 1,304,200 shares
of SPX Common Stock.
(3) Merrill Lynch & Company, Inc. and its subsidiaries, Princeton Services,
Inc., Merrill Lynch Asset Management LP and Merrill Lynch Capital Fund, Inc.
pursuant to a filing on Schedule 13G dated January 28, 1998, reported that
Princeton Services, Inc. and Merrill Lynch Asset Management L.P. share
voting and dispositive powers with respect to 1,249,004 shares and this
includes 750,000 shares beneficially owned by Merrill Lynch Capital Fund
which also shares voting and dispositive powers with respect to such shares.
(4) Fidelity Management Trust Company is the Trustee of the Company's Retirement
Savings and Stock Ownership Plan and as of March 31, 1998, owned such number
of shares pursuant to the Plan.
38
<PAGE> 42
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and holders of more than 10% of SPX Common Stock to file with
the Commission initial reports of ownership and reports of changes in ownership
of SPX Common Stock and other equity securities of the Company. The Company
believes that during the fiscal year ended December 31, 1997, its officers,
directors and holders of more than 10% of SPX Common Stock complied with all
Section 16(a) filing requirements. In making this statement, the Company has
relied solely upon the written representations of its directors and officers.
COMPENSATION OF EXECUTIVE OFFICERS
The following table summarizes compensation received by the Company's Chief
Executive Officer and the four other most highly paid executive officers for the
three fiscal years ended December 31, 1997. None of the five named officers is
employed under contract or employment agreement except for Mr. Blystone.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG-TERM COMPENSATION
---------------------------------------------------------------------------
AWARDS PAYOUTS
- --------------------------------------------------------------------------------------------------------------------------
OTHER NUMBER OF
ANNUAL RESTRICTED SECURITIES ALL OTHER
COMPENSA- STOCK UNDERLYING LTIP COMPENSA-
SALARY BONUS TION(1) AWARD(S) OPTIONS PAYOUTS TION($)
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)(2) (3)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John B. Blystone
- --------------
Chairman, President and 1997 650,000 1,356,237 1,065,000 0 72,614
Chief Executive Officer 1996 450,000 947,396 0(4) 0 20,250
(12/18/95 to present) 1995 17,308 0 1,968,750(5) 125,000 420,779(6)
Patrick J. O'Leary
- ---------------
Vice President, Finance, 1997 275,000 352,445 235,000 0 17,979
Treasurer and Chief
Financial 1996 68,751 147,705(7) 50,000 0 1,428
Officer (10/14/96 to
present) 1995 -- -- -- -- --
James M. Sheridan
- ----------------
Vice President, Secretary
and 1997 228,500 407,921 25,000 160,200 547,392(8)
General Counsel to 2/26/97, 1996 228,500 325,049 21,000 154,104 11,519
Counsel to CEO to
retirement 1995 213,500 27,468 0 0 15,377
(retired 1/31/98)
Christopher J. Kearney
- -------------------
Vice President, General
Counsel 1997 212,314 325,437(9) 25,000 0 5,267
and Corporate Secretary 1996 -- -- -- -- --
(2/26/97 to present) 1995 -- -- -- -- --
Thomas J. Riordan
- ----------------
Vice President and
President 1997 225,000 239,487 115,000 0 21,468
Service Solutions 1996 205,000 236,328 10,000 0 6,209
(2/26/96 to present) 1995 -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) No other Annual Compensation is reported since perquisites and other
personal benefits are below threshold reporting requirements.
(2) Amounts in this column represent payments made pursuant to the Company's
Performance Unit Plan, which is described on page 42 of this Proxy
Statement.
(3) Except as otherwise noted in the footnotes to this table, the amounts
reported in this column include only the Company's contribution to the
executive officer's accounts in its qualified and non-qualified defined
contribution plans.
(4) In lieu of a stock option award for 1996, the Company granted Mr. Blystone a
five-year non-interest bearing loan of $368,000 to fund the purchase by Mr.
Blystone of shares of SPX Common Stock on the open market. It is the
intention of the Company to forgive this loan if Mr. Blystone remains with
the Company for the five-year term of the loan or if certain other
conditions are met.
39
<PAGE> 43
(5) An award of 125,000 shares of Restricted Stock was made to Mr. Blystone on
November 24, 1995, as part of his initial employment contract. The value of
the award was $1,984,375 based on the December 29, 1995 closing price of the
shares of $15.875. These shares vest ratably over 5 years at 25,000 shares
per year beginning December 1, 1996. Mr. Blystone receives dividends on and
has the right to vote all the shares, vested and nonvested. On December 31,
1997, Mr. Blystone owned 75,000 shares of Restricted Stock, which had not
yet vested and which had a value of $5,175,000 based on the closing price of
the SPX Common Stock on that date.
(6) Includes a $420,000 cash payment made to Mr. Blystone upon joining the
Company as part of his initial employment contract. The balance of the
amount reported is the Company contributions to Mr. Blystone's accounts in
the Company's qualified and non-qualified defined contribution plans.
(7) This amount includes a bonus under the Company's EVA Incentive Compensation
Plan for the part of the year 1996 during which Mr. O'Leary was a
participant plus a $50,000 bonus payable upon his acceptance of employment
with the Company.
(8) Includes $521,751 payable to Mr. Sheridan upon his retirement which is the
balance in his bonus bank under the EVA Incentive Compensation Plan after
payment of the amount shown in the bonus column and $25,641 being Company
contributions to his defined contribution plan accounts.
(9) This amount includes a bonus under the Company's EVA Incentive Compensation
Plan for the year 1997 plus a $50,000 bonus payable to Mr. Kearney paid upon
his acceptance of employment with the Company.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS VESTING GRANT DATE
OPTIONS GRANTED TO EXERCISE DATE WHEN PRESENT
GRANTED EMPLOYEES DATE OF PRICE OPTION FIRST EXPIRATION VALUE(3)
NAME (#) IN 1997 GRANT(1)(2) ($/SHARE) EXERCISABLE DATE $
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
John B. Blystone........... 32,500 2.0% 1/14/97 $41.875 1/14/99 1/13/07 $ 582,725
32,500 2.0% 1/14/97 $41.875 1/14/00 1/13/07 $ 582,725
250,000 15.5% 2/26/97 $45.750 1/1/02 2/25/07 $4,895,000
250,000 15.5% 2/26/97 $60.000 1/1/02 2/25/07 $3,735,000
250,000 15.5% 2/26/97 $75.000 1/1/02 2/25/07 $2,840,000
250,000 15.5% 2/26/97 $90.000 1/1/02 2/25/07 $2,185,000
- ------------------------------------------------------------------------------------------------------------------------
Patrick J. O'Leary......... 70,000 4.3% 4/22/97 $60.000 4/22/02 4/21/07 $1,394,400
65,000 4.0% 4/22/97 $75.000 4/22/02 4/21/07 $1,014,000
65,000 4.0% 4/22/97 $90.000 4/22/02 4/21/07 $ 801,450
- ------------------------------------------------------------------------------------------------------------------------
James M. Sheridan.......... 25,000 1.5% 1/14/97 $41.875 1/31/98 1/31/00 $ 448,250
- ------------------------------------------------------------------------------------------------------------------------
Christopher J. Kearney..... 12,500 0.8% 2/10/97 $43.375 2/10/99 2/9/07 $ 232,125
12,500 0.8% 2/10/97 $43.375 2/10/00 2/9/07 $ 232,125
- ------------------------------------------------------------------------------------------------------------------------
Thomas J. Riordan.......... 7,500 0.5% 1/14/97 $41.875 1/14/99 1/13/07 $ 134,475
7,500 0.5% 1/14/97 $41.875 1/14/00 1/13/07 $ 134,475
50,000 3.1% 12/10/97 $75.000 12/10/02 12/9/07 $1,397,000
50,000 3.1% 12/10/97 $90.000 12/10/02 12/9/07 $1,159,500
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The options granted on January 14, 1997, and February 10, 1997, were granted
pursuant to the SPX Corporation 1992 Stock Compensation Plan and in
accordance with the fixed shares grant concept underlying the Company's EVA
incentive compensation program. These are ten-year non-qualified options
having an exercise price equal to the fair market value on the date of
grant. Upon exercise the executive has the option to surrender shares at
current value in payment of the exercise price and his or her withholding
tax obligations or to surrender by attestation already owned mature shares
in payment of the exercise price and/or withholding tax obligations and to
receive a reload option having an exercise price equal to the current market
value for the number of shares so surrendered. The reload option expires at
the same time that the exercised option would have expired. These options
vest 50% two years after the date of grant with the remaining 50% vesting
three years after the date of grant.
(2) The options granted to Mr. Blystone on February 26, 1997, in conjunction
with his new employment contract and the options granted to Mr. O'Leary on
April 22, 1997, and to Mr. Riordan on December 10, 1997, are referenced in
the Report of the Compensation Committee and are ten-year non-qualified
options issued outside of the 1992 Stock Compensation Plan. These options do
not vest or otherwise become exercisable until five years after the date of
grant except in the event of a change in control or the
40
<PAGE> 44
death or disability of the executive and the exercise price is equal to or
greater than the market value of the shares at the date of grant.
(3) The estimated grant date present value reflected in the above table is
determined using the Black-Scholes model. The material assumptions and
adjustments incorporated in the Black-Scholes model in estimating the value
of the options reflected in the above table include the following:
- An option exercise price in the amount set forth in the table which is
equal to or greater than the fair market value of the underlying stock on
the date of grant.
- An option term of ten years and an expected life of six years.
- An interest rate of 6.3%, which represents the interest rate on a U.S.
Treasury security with a maturity date corresponding to that of the
expected option term.
- Volatility of 0.306 calculated using monthly price and dividend data for
the five-year period ending in the grant month.
- Dividend yield of zero.
The above valuation model makes no adjustments for vesting requirements,
non-transferability, or risk of forfeiture.
The ultimate value of the option will depend on the future market price of
the SPX Common Stock, which cannot be forecasted with reasonable accuracy.
The actual value, if any, an optionee will realize upon exercise of an
option will depend on the excess of the market value of the SPX Common
Stock over the exercise price on the date the option is exercised.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information on option exercises in fiscal 1997
by the named executive officers and the value of such officers' unexercised
options at December 31, 1997.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES STOCK OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE YEAR END (1) FISCAL YEAR END (1)
ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
NAME (#) ($) (#) ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John B. Blystone................ 0 0 125,000/1,065,000 $6,656,250/$9,825,625
Patrick J. O'Leary.............. 0 0 25,000/225,000 $971,875/$1,601,875
James M. Sheridan............... 4,000 $208,000 62,500/46,000 $3,383,900/$1,817,375
Christopher J. Kearney.......... 0 0 0/25,000 0/$631,250
Thomas J. Riordan............... 0 0 5,000/120,000 $271,875/$678,750
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All exercisable options were exercisable immediately on December 31, 1997,
and were in-the-money. Some of the unexercisable options were not
in-the-money at the end of 1997 since their exercise price exceeds the
year-end closing price and these options are identified in the table of
Option Grants in the Last Fiscal Year. The value of the in-the-money
unexercised options is based upon the difference between the exercise price
and the closing price of SPX Common Stock on December 31, 1997 of $69.00.
No SARs are held by the above named executive officers.
41
<PAGE> 45
SPX CORPORATION PERFORMANCE UNIT PLAN
The Company has previously sponsored a long-term incentive plan called the
SPX Corporation Performance Unit Plan, which operates on three-year performance
periods. The Plan was phased out with the adoption of the EVA Incentive
Compensation Plan in 1996. At the beginning of each performance period, a
participant was granted a target award based on a percentage of his or her
current salary. The target award is then divided equally between cash units of
$500 each and shares of SPX Common Stock. At the end of the performance period,
depending upon the level of the performance achieved, the cash units earned will
be valued from zero to a maximum of $750 and the number of shares earned will
range from zero to 150% of the target amount.
For the 1995 performance period (January 1, 1995 to December 31, 1997), the
corporate goal was expressed in terms of growth in the Company's share price
plus dividends relative to the growth in the S&P 500 Index as follows:
<TABLE>
<CAPTION>
COMPANY PERFORMANCE LEVEL OF ACHIEVEMENT
------------------- --------------------
<S> <C> <C>
Less than 80% of S&P 500 growth No awards earned
80% of S&P 500 growth 50% of target award earned (threshold)
100% of S&P 500 growth 100% of target award earned (target)
150% of S&P 500 growth 150% of target award earned (maximum)
</TABLE>
For the 1995 performance period, which ended December 31, 1997, the
Company's share price plus dividends grew at a rate significantly in excess of
150% of the growth of the S&P 500 Index and the maximum awards were earned. The
Compensation Committee elected to pay the entire earned awards in cash and the
amount paid to Mr. Sheridan is shown in the LTIP column of the Cash Compensation
Table. Messrs. Blystone, O'Leary, Kearney and Riordan did not participate in
this plan.
42
<PAGE> 46
PENSION PLANS
The annual pension benefits payable to the executives named in the Summary
Compensation Table can be determined from the following table.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
YEARS OF CREDITED SERVICE
FINAL THREE-YEAR
AVERAGE
COMPENSATION 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 200,000 $ 77,333 $ 116,000 $ 116,000 $ 116,000 $ 116,000 $ 123,500
300,000 116,000 174,000 174,000 174,000 174,000 185,250
400,000 154,667 232,000 232,000 232,000 232,000 247,000
500,000 193,334 290,000 290,000 290,000 290,000 308,750
600,000 232,000 348,000 348,000 348,000 348,000 370,500
700,000 270,667 406,000 406,000 406,000 406,000 432,250
800,000 309,333 464,000 464,000 464,000 464,000 494,000
900,000 348,000 522,000 522,000 522,000 522,000 555,750
1,000,000 386,667 580,000 580,000 580,000 580,000 617,500
1,100,000 425,333 638,000 638,000 638,000 638,000 679,250
1,200,000 464,000 696,000 696,000 696,000 696,000 741,000
1,300,000 502,667 754,000 754,000 754,000 754,000 802,750
1,400,000 541,333 812,000 812,000 812,000 812,000 864,500
1,500,000 580,000 870,000 870,000 870,000 870,000 926,250
1,600,000 618,666 928,000 928,000 928,000 928,000 988,000
1,700,000 657,333 986,000 986,000 986,000 986,000 1,049,750
1,800,000 696,000 1,044,000 1,044,000 1,044,000 1,044,000 1,111,500
1,900,000 734,667 1,102,000 1,102,000 1,102,000 1,102,000 1,173,250
2,000,000 773,333 1,160,000 1,160,000 1,160,000 1,160,000 1,235,000
2,100,000 812,000 1,218,000 1,218,000 1,218,000 1,218,000 1,296,750
-------------------------------------------------------------------------------------------
</TABLE>
Covered compensation is based on salary and bonus as shown in the Summary
Compensation Table.
The estimated years of credited service at normal retirement age for the
persons named in the Summary Compensation Table are: Mr. Blystone -- 23 years;
Mr. O'Leary -- 26 years; Mr. Kearney -- 23 years; Mr. Riordan -- 25 years.
The annual retirement benefits shown in the above table are computed on the
basis of a straight life annuity.
The amounts reported in this Pension Plan Table are payable at the normal
retirement age of 65 and are payable from the Company's qualified pension plan
and Supplemental Retirement Plan for officers and other key executives. The
amounts shown are subject to reduction by the sum of the executive's primary
Social Security benefit and any pension benefits payable from prior employer
plans. A participant may retire as early as age 55, but benefits payable at
early retirement are subject to reductions from age 62 that approximate
actuarial values.
DIRECTORS' COMPENSATION
For the first two months of 1997, the non-employee directors of the Company
were compensated on the basis of one-sixth of an annual retainer of $22,000 plus
$1,000 for each meeting of the Board of Directors and each Committee meeting
they attended during those months. Effective February 26, 1997, the Company
43
<PAGE> 47
stopped paying a retainer and meeting attendance fees and eliminated the
Directors' Defined Benefit Retirement Plan. Beginning with the month of March
and continuing thereafter, the non-employee directors were compensated pursuant
to the SPX Corporation 1997 Non-Employee Directors' Compensation Plan, which was
submitted to and approved by the shareholders of the Company at the Annual
Meeting in April 1997.
Under this Plan each non-employee director was granted an option to
purchase 1,500 shares of SPX Common Stock on February 26, 1997 at a price per
share of $45.75, the closing price of a share of SPX Common Stock on that date.
Further, options to purchase 1,500 shares of SPX Common Stock were granted to
each non-employee director in January 1998 and will be granted to each
non-employee director in January 1999 at a purchase price equal to the closing
price per share on the date of grant. Thereafter, the Board of Directors may
establish subsequent grant dates for options to the extent there are shares
available for issuance under the Plan. An option to purchase 1,500 shares of SPX
Common Stock will also be granted to each new non-employee director upon his or
her election to the Board of Directors. Director options are fully exercisable
six months from the date of grant, or earlier, upon a change in control, as
defined in the Plan. If a non-employee director ceases to be a director for any
reason, his or her options will remain exercisable for three years thereafter
(one year in the event of death), provided that no director option may be
exercised after ten years from the date of grant. The maximum number of shares
of SPX Common Stock available for grants of options under the Plan is 75,000.
Each non-employee director also receives under the Plan an annual cash
payment of $25,500 ($21,250 for the 10 months of 1997 that the Plan was in
effect) plus an additional cash payment determined by reference to the Company's
performance under the SPX Corporation EVA Incentive Compensation Plan (the "EVA
Plan"). The amount of the additional cash payment, if any, is equal to $5,000
multiplied by the multiple of target award earned by the Company's Chief
Executive Officer for that year under the EVA Plan. The additional cash payment
will be payable to the non-employee director at the same time and in the same
manner as bonuses are paid under the EVA Plan, including application of the
bonus reserve provisions. A non-employee director's bonus reserve balance will,
however, be payable if he or she ceases to be a director for any reason. Receipt
of the annual cash payment and the additional cash payment may be deferred at
the option of the individual non-employee director.
For 1997 the bonus multiple was 3.6195 and the amount of the additional
cash payment earned under the Plan was $18,097.50. The amount payable currently
to each non-employee director was $9,366.00 and the balance of $8,731.50 was
credited to his or her bonus reserve account established under the Plan.
The Company reimburses all non-employee directors for expenses incurred in
carrying out their duties. Directors who are employees of the Company or a
subsidiary do not receive directors' compensation as described herein.
Under the former Directors' Retirement Plan, which was terminated for
active directors at the end of 1996, any director who retired after ten or more
years of service as a director is entitled to an annual pension, payable for
life, equal to the annual retainer in effect on the retirement date. Directors
who retire with more than five years but less than ten years of service receive
a proration of the ten-year amount. Benefits under the Plan commence on the
later of the retired director's sixty-fifth birthday or retirement from the
Board of Directors. The Directors' Retirement Plan provides that upon a
change-of-control, as defined under "Change of Control Severance Agreements"
below, a director who has less than five years of service as a director will be
deemed to have completed five years of service, each former director will
receive an immediate lump-sum payment of the actuarial present value of the
director's benefit under the Plan, and each director who does not receive an
immediate lump-sum payment will receive a lump-sum payment which is the
actuarial present value of the director's Plan benefit upon termination of the
directorship or termination of the Plan. The Company also has established a
trust to ensure payment to all directors of these benefits. Current directors
who were covered by the now terminated plan are eligible to receive benefits
upon their retirement based on the actuarial present value of their vested
director's benefits existing at the date the plan was terminated.
44
<PAGE> 48
CHANGE OF CONTROL SEVERANCE AGREEMENTS
The Company has entered into change of control severance agreements with
its executive officers. These agreements are with Messrs. Blystone, O'Leary,
Kearney, and Riordan, as well as two additional executives. The agreements
provide for the payment of compensation and benefits in the event of termination
of employment following a change-of-control. A change-of-control is generally
defined as (i) the acquisition by a person, other than the Company, of 20% or
more in voting power of the Company's securities; (ii) a change in the majority
of the Board of Directors over a two-year period; (iii) the sales of all or
substantially all the Company's assets or the merger or consolidation of the
Company with any other corporation, except where the Company's owners continue
to hold at least 80% of the voting power in the new or surviving entity's
securities; or (iv) the acquisition by a person, other than the Company,
pursuant to an exchange or tender offer for securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities.
Each severance agreement will remain in effect for at least three years
following the date of its execution. Thereafter, each agreement will be extended
annually unless the Company gives proper notice of its election not to extend.
If a change-of-control occurs during the term of an agreement, it will remain in
effect for three years following the change-of-control.
An executive whose employment is terminated after a change-of-control will
generally receive additional compensation only if the termination was by the
Company without cause or by the executive because of his election to terminate
after 30 days following a change-of-control or because of a diminution in
salary, benefits or responsibilities or related reasons. An executive whose
termination follows a change-of-control, but not because of one of the above
reasons, will generally receive normal severance pay, payment of certain accrued
vested benefits, a prorated bonus, vacation pay, deferred compensation and
amounts payable under the terms of the EVA Plan. The severance agreements
provide the following additional benefits payable after a change-of-control to
executives who are terminated without cause or who resign for the reasons
described above: (i) three times the sum of the executive's base salary and
annual target bonus; (ii) continued health care coverage for three years; (iii)
continued life insurance coverage for a period of three years in the amount of
twice the executive's base salary and thereafter at one times base salary for
the remainder of his or her life; (iv) full vesting and three additional years
of credit under the Company's qualified pension plan, excess pension plan and
supplemental retirement plan; (v) a lump-sum payment under the Company's
supplemental retirement savings plan; (vi) a prorated award under the
Performance Unit Plan or the EVA Plan; (vii) the removal of any restrictions
placed on shares of restricted stock; (viii) the payment of any federal excise
taxes; and (ix) the reimbursement of legal and tax audit fees, if any, incurred
as a result of the termination. The Company has established a trust to ensure
payment to all executives whose employment is terminated after a
change-of-control of the compensation and benefits described herein. The trust
is not currently funded.
EMPLOYMENT AGREEMENTS
1995 EMPLOYMENT AGREEMENT WITH JOHN B. BLYSTONE
Until January 1, 1997, Mr. Blystone served the Company pursuant to an
employment agreement dated as of December 18, 1995 (the "1995 Agreement"). The
1995 Agreement provided for an employment term through January 31, 1998, at a
base salary of $450,000. The 1995 Agreement also provided for participation in
the Company's annual EVA Plan, a stock option grant with respect to 125,000
shares of SPX Common Stock and a restricted stock award of 125,000 shares. In
the event of early termination of Mr. Blystone's employment by the Company
without cause or by him for good reason, the 1995 Agreement provided for lump
sum salary and bonus payments, vesting of options, restricted stock and equity
and incentive plan awards and certain benefit plan continuation substantially
similar to the new employment agreement described below.
NEW EMPLOYMENT AGREEMENT WITH JOHN B. BLYSTONE
The Company and Mr. Blystone executed a new employment agreement on
February 27, 1997, effective as of January 1, 1997, which provides for Mr.
Blystone's employment through December 31, 2001, with
45
<PAGE> 49
automatic extensions commencing January 1, 1999, to provide for a continuous
three-year term after that date (subject to earlier termination in certain
circumstances as described below).
The new employment agreement provides for an annual base salary of at least
$650,000. Through 1999, Mr. Blystone is eligible to receive an annual bonus
under the Company's EVA Plan (the terms of which cannot be changed as to Mr.
Blystone without his consent) and thereafter under the Company's annual bonus
plan as then in effect for senior executives, provided that in all years the
annual bonus is to be based on a target award equal to 80% of his annual base
salary midpoint.
In connection with the new employment agreement, the Committee also granted
to Mr. Blystone, on February 26, 1997, a stock option award with respect to a
total of 1,000,000 shares of SPX Common Stock. Of this total, 250,000 shares
covered by the award have an exercise price of $45.75, the fair market value of
the SPX Common Stock on February 26, 1997. The exercise prices for the remainder
of the award are in excess of the fair market value on that date: 250,000 shares
have an exercise price of $60.00 (approximately 133% of fair market value);
250,000 shares have an exercise price of $75.00 (approximately 167% of fair
market value); and 250,000 shares have an exercise price of $90.00
(approximately 200% of fair market value). Other than the occurrence of certain
events described below, no portion of the option award shall vest prior to
January 1, 2002. The option has a ten-year term and was granted in addition to
and outside of the 1992 Stock Compensation Plan. Mr. Blystone will continue to
receive annual option awards under the 1992 Stock Compensation Plan in
accordance with the fixed share grant guidelines under the EVA Plan, which is
described in the Compensation Committee Report.
Under the new employment agreement, in the event of Mr. Blystone's
voluntary resignation or the termination of his employment for cause, he will be
entitled to receive the compensation and benefits earned to date, but shall
forfeit any options, restricted stock or other benefits not then vested. In the
event of Mr. Blystone's death or disability, he shall be entitled to receive
compensation and benefits earned, full payment of his individual bonus reserve
balance under the Company's EVA Plan and shall be fully vested in all options,
restricted stock and other equity or incentive compensation awards. If Mr.
Blystone's employment is terminated by the Company without cause, or if he
resigns for good reason, in addition to payout of his individual bonus reserve
and vesting of options, restricted stock and other equity and incentive
compensation, he will be entitled to receive a pro rata bonus payment for the
year of termination, a lump sum payment equal to three times his then annual
salary and target bonus, continuation of employee benefits and perquisites for
the lesser of three years or until such benefits or perquisites are obtained
from a subsequent employer, vesting of benefits under the Company's supplemental
pension plan with credit for three additional years of service and the salary
and bonus continuation reflected by the lump sum salary and bonus payments,
outplacement services, and a stock depreciation right obligating the Company to
pay to Mr. Blystone the excess, if any, of the average closing price of the SPX
Common Stock during the five trading days prior to his termination of employment
over his actual gross selling price for shares of SPX Common Stock (including
any shares which may be acquired upon exercise of an option) as to which Mr.
Blystone, within 20 days after the termination of his employment, gives the
Company written notice of his intention to sell. In the event that any amounts
or benefits received by Mr. Blystone are subject to the excise tax imposed under
Section 4999 of the Internal Revenue Code, he would also be entitled to receive
an additional amount (a "gross-up" payment) equal to such excise tax and the
excise, income and other taxes imposed on the gross-up payment.
DEATH BENEFIT PLAN FOR KEY MANAGERS
As part of the total compensation package developed to assist the Company
in attracting and retaining top quality managers, the Company in 1985 adopted a
death benefit plan for certain key managers designated as eligible by the
Company's Board of Directors. As of February 1998, 21 active key managers,
including the officers named in the Summary Compensation Table, together with 27
retired managers were participating. Under this plan, if death occurs before
retirement, the participant's beneficiary will receive a payment that, when
adjusted for income taxes, will equal two times the amount of the individual's
base salary as of the date of death. If death occurs after retirement, the
amount paid to the beneficiary after adjustment for income taxes
46
<PAGE> 50
will equal one times final base salary. The cost incurred by the Company for
this Plan during 1997 was not significant.
Irrespective of any statement to the contrary included in any Company
filing under the Securities Exchange Act of 1934, as amended, that
might incorporate by reference future filings, including this Proxy
Statement, in whole or in part, the following report of the
Compensation Committee and the Performance Graph on page 50 shall not
be incorporated by reference into any such filings.
COMPENSATION COMMITTEE REPORT ON
EXECUTIVE OFFICERS' COMPENSATION
The Company's Compensation Committee (the "Committee"), which is comprised
of four outside directors of the Company, is responsible for considering and
approving the Company's compensation program for senior management, including
the Company's executive officers. The key objectives of the Committee in
establishing compensation programs for senior management are: (i) to attract and
retain highly qualified executives to manage the Company and its operating
divisions, and (ii) to provide strong financial incentives, at reasonable cost
to the Company's shareholders, for senior management to maximize the Company's
shareholder value.
The Company's executive compensation program consists of three basic
elements -- base salary, an annual bonus opportunity under the EVA Incentive
Compensation Plan and stock options.
BASE SALARIES
Each executive officer has a base salary range and midpoint. Midpoints are
determined on the basis of competitive compensation data. Position in range is
determined on the basis of experience and performance.
ANNUAL BONUSES
In 1996, the shareholders approved the SPX Corporation EVA Incentive
Compensation Plan. The new plan provides for awards based on improvements in
Economic Value Added ("EVA"). EVA is a measure of operating profit after
deduction of all costs, including the cost of the Company's capital. The EVA
bonus plan is based on three key concepts: 1) a target bonus, 2) a fixed share
of EVA improvement in excess of expected EVA improvement ("excess EVA
improvement") and 3) a bonus bank. The EVA bonus earned is equal to the sum of
the target bonus plus the fixed share of excess EVA improvement (which may be
negative). The bonus eligible to be earned is credited to the bonus bank, and
the bonus available to be paid to the participant is equal to the amount of the
bonus bank balance, up to the amount of the target bonus, plus 1/3 of the bonus
bank balance in excess of the target bonus. Of the total bonus available to be
paid, 80% is paid automatically and the remaining 20% is contingent upon the
achievement of individual performance goals. No bonus is paid when the bonus
bank balance is negative and negative bonus bank balances are carried forward to
offset future bonuses earned. There is no cap on the bonus awards that can be
achieved for superior levels of excess EVA improvement.
The Committee believes that excess EVA improvement provides the best
operating performance measure of shareholder returns in excess of the cost of
capital. To ensure that the plan provides strong incentives for management to
increase shareholder value and does not reward poor performance by reducing
performance standards or penalize superior performance by raising performance
standards, it is the Committee's intention that there will be no recalibration
of expected EVA improvement or management's share of excess EVA improvement for
a period of at least four years beginning with 1996.
The Company achieved outstanding performance in 1997. The Company's EVA
improvement was $18.8 million versus an expected EVA improvement of $4.6 million
resulting in a bonus multiple of 3.6195. This performance was reflected in a
gain in the market value of the Company's shares of over $375 million. The
Company's share price performance significantly outperformed the S&P 500 and the
peer groups shown on the Performance Graph on page 50.
47
<PAGE> 51
The 1997 target bonuses for the chief executive officer and the four other
executive officers named in the Compensation Table were $1,150,520 and their
share of EVA improvement in excess of expected EVA improvement was $2,673,664
resulting in a declared bonus for them as a group of $3,824,184. The declared
bonus is credited to the individual bonus bank under the Plan and then an amount
equal to the individual target bonus plus one-third of the balance remaining
after deducting the target amount is available to be paid out, 80% of the
available amount is automatically paid and the remaining 20% is contingent upon
achievement of individual performance goals. The bonus amounts earned and paid
to the chief executive officer and the other named executives are shown in the
Summary Compensation Table. The amount of the declared bonus that is not yet
earned and available to be paid is carried forward in the individual's bonus
bank and payment is contingent on future EVA performance.
STOCK OPTIONS
Consistent with the fixed share concept underlying the EVA incentive
compensation program, the Company, in 1997 and subsequent years, will make
annual stock option grants to executive officers on a "fixed share" basis. Under
the program, executive officers will receive each year an option on a fixed
number of shares of stock without regard to the current price of the stock.
Under the fixed share program, the number of option shares granted will not be
increased to offset a decline in the stock price and will not decrease to offset
an increase in the stock price. In February, the Committee granted stock options
to the executive officers as set forth in the Summary Compensation Table.
The Company granted extraordinary out-of-the-money options to two key
executives during 1997, in addition to the 1,000,000 share option granted to Mr.
Blystone as described above. Mr. O'Leary was granted a 200,000 share option in
April 1997 and Mr. Riordan was granted a 100,000 share option in December 1997.
These options, which have exercise prices in excess of the current market value
on the grant date and which vest five years after the grant date, were made to
assure the continued retention of these key executives and to provide them with
a strong incentive to promote significant growth in the Company's share value.
In early 1996 the value of total compensation opportunities for senior
management was slightly below a median competitive level based on the data from
the Hewitt Associates Total Compensation Data Base (Core Group III, a group of
middle market industrial companies). In the future, the Company's competitive
position will depend on Company performance. If the Company does well, the fixed
share concepts underlying the total compensation program will raise the
Company's competitive position above median levels. If the Company does poorly,
the fixed share concepts will cause the Company's competitive position to fall
below median levels. The Committee believes that the total compensation program
provides very strong incentives to maximize shareholder value with reasonable
balance between the Company's need to retain strong senior management and
shareholder cost objectives.
Internal Revenue Code Section 162(m) limits the deduction a publicly-held
company is allowed for compensation paid to executive officers, including those
named in the table on page 39. Generally, amounts paid in excess of $1 million
to a covered executive, other than performance-based compensation, cannot be
deducted. In order to be performance-based compensation for purposes of the new
tax law, the performance measures must be approved by the shareholders. The
Company's EVA Plan was approved by its shareholders in 1997. The Committee will
continue to consider ways to maximize the deductibility of executive
compensation, while retaining the discretion the Committee deems necessary to
compensate executive officers in a manner commensurate with performance and the
competitive environment for executive talent.
COMPENSATION OF CHAIRMAN AND CHIEF EXECUTIVE OFFICER
As Chairman and Chief Executive Officer, Mr. Blystone was compensated
during 1997 in accordance with his New Employment Agreement, described on pages
46-47. Pursuant to the Agreement, he was paid an annual base salary of $650,000
and earned a declared bonus of $1,911,820 under the EVA Plan, or 3.6195 times
his Target Award of $528,200. This amount reflects the 7% fixed share of Excess
EVA Improvement allocated to the CEO and the determination by the Compensation
Committee that
48
<PAGE> 52
Mr. Blystone attained all of his personal performance goals for the year, which
resulted in a paid bonus of $1,356,237 with the balance carried forward in his
bonus bank.
Mr. Blystone's 1995 Agreement provided for a term ending on January 31,
1999. Under the 1995 Agreement, if by October 31, 1998, the Company and Mr.
Blystone failed to reach a mutually satisfactory employment agreement to
commence on February 1, 1999, then Mr. Blystone would have been entitled to
resign and receive the severance and other benefits provided under the 1995
Agreement as if his employment was involuntarily terminated by the Company.
Taking into account Mr. Blystone's performance since joining the Company, the
other opportunities that are likely to be available to Mr. Blystone in the
interim period and the potential economic incentive that the 1995 Agreement
might have created for Mr. Blystone to not reach a mutually satisfactory
replacement agreement, the Committee determined in early 1997 to develop and
offer to Mr. Blystone a new employment agreement to assure that he would remain
with the Company on a long-term basis. The Committee obtained the
recommendations of nationally-known consultants on executive compensation and
designed an aggressive, retention-oriented compensation package to provide Mr.
Blystone with a strong economic incentive to remain with the Company and to
continue to drive significant growth in the Company's performance and
shareholder value. On February 26, 1997, the Compensation Committee and the
Board of Directors approved a new employment agreement for Mr. Blystone,
effective as of January 1, 1997.
The Committee believes that the retention-oriented combination of the size
of the option award under the new agreement, its delayed vesting and premium
exercise pricing, provides Mr. Blystone with an appropriately strong economic
incentive to remain with the Company and to drive significant growth in
shareholder value. While the Committee realizes that if Mr. Blystone is
successful in doing so he will earn substantial compensation, such compensation
will necessarily be accompanied by substantial long-term benefits for the
Company's shareholders as well.
The foregoing report has been approved by all members of the Committee.
The Compensation Committee
Frank A. Ehmann, Chairman
J. Kermit Campbell
Sarah R. Coffin
David P. Williams
49
<PAGE> 53
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on the
SPX Common Stock for the last five fiscal years with the cumulative total return
on the S&P 500 Composite Index, the S&P Auto Parts & Equipment Index, and the
S&P Hardware & Tools Index over the same period (assuming the investment of $100
in each of the SPX Common Stock, the S&P 500 Index, the S&P Auto Parts &
Equipment Index, and the S&P Hardware & Tools Index on December 31, 1992, and
reinvestment of all dividends). The companies included in the S&P Auto Parts &
Equipment Index are Cooper Tire & Rubber; Dana Corporation; Echlin Inc.;
Goodyear Tire & Rubber; ITT Industries, Inc.; Snap-on Inc.; and TRW Inc. The
companies included in the S&P Hardware & Tools Index are Black & Decker Corp.
and Stanley Works.
<TABLE>
<CAPTION>
Measurement Period SPX Auto Parts & Hardware &
(Fiscal Year Covered) Corporation Equipment S&P 500 Tools
<S> <C> <C> <C> <C>
1992 100.00 100.00 100.00 100.00
1993 101.04 116.23 110.08 113.56
1994 96.99 101.36 111.53 111.11
1995 95.14 125.32 153.45 162.83
1996 236.20 140.61 188.68 152.91
1997 421.50 175.86 251.63 234.52
</TABLE>
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during 1997 were Frank A. Ehmann
(Chairman), J. Kermit Campbell, Sarah R. Coffin and David P. Williams. All
Compensation Committee members are outside directors and no committee member is
or has ever been an officer or employee of the Company.
50
<PAGE> 54
1999 SHAREHOLDER PROPOSALS AND NOMINATING PROCEDURES
Proposals of shareholders intended for inclusion in the Company's proxy
statement relating to the 1999 Annual Meeting must be received at the Company's
Principal Executive Offices (please address to the attention of the Corporate
Secretary) not later than November 25, 1998. Any such proposal must comply with
Rule 14a-8 of Regulation 14A of the proxy rules of the Commission.
The By-Laws of the Company require that nominations for a director to be
elected at the 1999 Annual Meeting, other than those made by the Board, be
submitted to the Secretary of the Company not later than December 23, 1998. The
By-Laws also require that notice of such nominations contain certain information
regarding the nominee and certain information regarding the nominating
shareholder. Any shareholder may obtain a copy of the applicable By-Law from the
Secretary of the Company upon written request.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, the Company's independent auditors since 1952, has
been appointed by the Board of Directors as the Company's independent auditors
for the current year. Representatives of Arthur Andersen LLP are expected to be
present at the Annual Meeting to be available to answer appropriate questions
and to make a statement if they so desire.
GENERAL
The cost of preparing, assembling and mailing this Proxy Statement and
accompanying papers will be borne by the Company. Solicitations will be made by
mail but in some cases may also be made by telephone or personal call by
officers, directors or regular employees of the Company, who will not be
specially compensated for such solicitation. The Company has retained the
Kissel-Blake Organization, Inc. to assist in the solicitation of proxies for a
fee of $7,500 plus expenses. The entire cost of such solicitation will be borne
by the Company, which will include the cost of supplying necessary additional
copies of the solicitation materials for beneficial owners of shares held of
record by brokers, dealers, banks and voting trustees, and their nominees and,
upon request, the reasonable expenses of such record holders for completing the
mailing of the solicitation materials to those beneficial owners.
By Order of the Board of Directors,
CHRISTOPHER J. KEARNEY
Vice President, Secretary
and General Counsel
Muskegon, Michigan
April 24, 1998
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<PAGE> 55
BACK PAGE OF PROXY STATEMENT
<TABLE>
<S> <C>
SPX CORPORATION SPX CORPORATION
ANNUAL MEETING OF SHAREHOLDERS ANNUAL MEETING OF SHAREHOLDERS
COMPANY HEADQUARTERS COMPANY HEADQUARTERS
700 TERRACE POINT DRIVE 700 TERRACE POINT DRIVE
MUSKEGON, MICHIGAN 49440 MUSKEGON, MICHIGAN 49440
MAY 20, 1998 MAY 20, 1998
9:00 A.M. 9:00 A.M.
ADMIT ONE ADMIT ONE
</TABLE>
<PAGE> 56
[SPX Corporation Logo]
For shareholders with common shares held in the Company's KSOP Trust:
1. Please notice the number of shares held in the KSOP Trust is indicated
separately on the proxy card.
2. It is important to remember that your specific voting directions to the
Trustee are strictly confidential and may not be divulged by the Trustee
to anyone, including the Company or any director, officer, employee or
agent of the Company. The Trustee will vote the shares being held by the
Trust and not yet allocated to participants' accounts in the same manner
and proportion as the shares for which the Trustee has received timely
voting instructions. Shares in participant accounts for which no timely
voting instructions are received by the Trustee will be voted in the
same manner.
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PROXY/VOTING INSTRUCTION CARD
SPX CORPORATION
Muskegon, Michigan
ANNUAL MEETING MAY 20, 1998
This Proxy is solicited on behalf of the Board of Directors
The undersigned shareholder of SPX Corporation, a Delaware corporation,
hereby appoints John B. Blystone, Patrick J. O'Leary, and Christopher J.
Kearney, or any one of them, with full power of substitution, to act as his or
her agents and proxies at the Annual Meeting of Shareholders of the Company to
be held in Muskegon, Michigan, on May 20, 1998 at 9:00 a.m. (Eastern Time) with
authority to vote at said meeting, and any adjournments thereof, as indicated
below, all shares of stock of the Company standing in the name of the
undersigned on the books of the Company.
This proxy when properly executed will be voted in the manner directed by
the undersigned shareholder. If no direction is made, this proxy will be voted
for Items 1, 2, 3 and 4.
(Continued and to be signed and dated on the other side)
SPX CORPORATION
P.O. Box 11208
New York, NY 10203-0208
<PAGE> 57
[SPX CORPORATION LOGO]
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 20, 1998
Dear Shareholder:
The Annual Meeting of Shareholders of SPX Corporation will be held at 9:00
a.m. Eastern Time on Wednesday, May 20, 1998 at the Company's headquarters in
Muskegon, Michigan, for the following purposes:
1. To elect three directors to the Board of Directors.
2. To approve the issuance of shares of the Company's Common Stock in
connection with the proposed acquisition of Echlin Inc.
3. To approve an amendment to the Company's Certificate of Incorporation
to increase the amount of authorized shares of SPX Common Stock.
4. To approve adjournments of the Annual Meeting proposed by the Board of
Directors of SPX.
5. To address such other business as may properly come before the meeting.
Only holders of Common Stock of SPX Corporation of record at the close of
business on April 10, 1998 will be entitled to vote at the meeting or any
adjournment thereof.
To be sure that your vote is counted, we urge you to complete and sign the
proxy/voting instruction card below, detach it from this letter and return it
in the postage paid envelope enclosed in this package. The giving of such proxy
does not affect your right to vote in person if you attend the meeting. The
prompt return of your signed proxy will aid the Company in reducing the expense
of additional proxy solicitation.
For shareholders with common shares held in the Company's KSOP Trust, please
read the reverse side of this letter.
BY ORDER OF THE BOARD OF DIRECTORS
April 24, 1998 CHRISTOPHER J. KEARNEY
Vice President,
Secretary and General Counsel
Detach Proxy Card Here
[Downward Arrow] [Downward Arrow]
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[ ]
1. Election of three Directors
FOR [ ] WITHHELD [ ] EXCEPTIONS* [ ]
Nominee: Sarah R. Coffin, Charles E. Johnson II and David P. Williams
*Exceptions
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To vote your shares for the Director nominees, mark the "For" box on Item 1. To
withhold voting for all nominees mark the "Withheld" box. If you do not wish
your shares voted "for" a particular nominee, mark the "Exceptions" box and
enter the name(s) of the exceptions in the space provided.
2. Approval of the issuance of shares of the Company's Common Stock in
connection with the proposed acquisition of Echlin Inc.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Approval of an amendment to the Company's Certificate of Incorporation to
increase the amount of authorized shares of SPX Common Stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. Approval of any adjournments of the Annual Meeting proposed by the Board of
Directors of SPX.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
Change of Address and [ ]
or Comments Mark Here
If you sign as agent or in any other
representative capacity, please state
the capacity in which you sign. If
shares are registered in the names of
two or more persons, each such person
should sign this proxy.
DATE 1998
---------------------------
SIGNATURE
--------------------------
Votes MUST be indicated [X]
in Black or Blue ink
