<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CULLIGAN WATER TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2873 51-0350629
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
EDWARD A. CHRISTENSEN, ESQ.
CULLIGAN WATER TECHNOLOGIES, INC.
ONE CULLIGAN PARKWAY
NORTHBROOK, ILLINOIS 60062
(847) 205-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
COPIES TO:
GREGORY A. FERNICOLA, ESQ. DAVID H. KAUFMAN, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP STROOCK & STROOCK & LAVAN LLP
919 THIRD AVENUE 180 MAIDEN LANE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10038
(212) 735-3000 (212) 806-5400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the Registration Statement becomes effective and all other
conditions to the merger (the "Merger") of Culligan Water Company, Inc. (a
wholly owned subsidiary of Culligan Water Technologies, Inc.) with and into
AMETEK, Inc., as set forth in the Amended and Restated Agreement and Plan of
Merger and Reorganization (the "Merger Agreement") described in the enclosed
Joint Proxy Statement/Prospectus, are satisfied or waived.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share
(including the associated Rights to
purchase Series A Junior Participating
Preferred Stock)(3).................... 3,466,667 $41.38 $143,450,680 $43,470
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the maximum number of shares of Common Stock, par value $.01
per share ("Culligan Common Stock"), of Culligan Water Technologies, Inc.
("Culligan") issuable pursuant to the Merger Agreement.
(2) Estimated solely for purposes of calculating the registration fee required
under Section 6(b) of the Securities Act of 1933, as amended (the
"Securities Act"), and calculated pursuant to Rule 457 under the
Securities Act, based on the average of the high and low prices reported
for a share of Culligan Common Stock on May 9, 1997, as reported on the
New York Stock Exchange Composite Tape.
(3) Rights to purchase Series A Junior Participating Preferred Stock of
Culligan are attached to and trade with the shares of Culligan Common
Stock being registered hereby. Value attributed to such rights, if any, is
reflected in the market price of Culligan Common Stock.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[AMETEK, INC. LETTERHEAD]
, 1997
Dear AMETEK, Inc. Stockholder:
You are cordially invited to attend a Special Meeting in lieu of the Annual
Meeting of Stockholders of AMETEK, Inc. ("AMETEK") to be held on ,
1997 at the Desmond Great Valley Hotel and Conference Center, One Liberty
Boulevard, Malvern, Pennsylvania 19355 at 10:00 a.m. local time.
On February 4, 1997, the Board of Directors of AMETEK approved the merger of
the water filtration business of AMETEK, which consists of the Plymouth
Products Division, and the following three foreign subsidiaries of AMETEK:
Ametek Filters, Limited, APIC International S.A. and AFIMO S.A.M.
(collectively, the "Water Filtration Business"), with Culligan Water
Technologies, Inc. ("Culligan") in a transaction representing a combined value
in debt and equity of approximately $155,000,000.
The transaction will occur in two steps. First, AMETEK will distribute to
its stockholders on a share for share basis (the "Spin-Off") all of the shares
of a subsidiary, Ametek Aerospace Products, Inc. ("New Ametek"), which, at the
time of the Spin-Off, will own all of AMETEK's businesses other than the Water
Filtration Business. Second, the Water Filtration Business will be acquired by
Culligan in a stock-for-stock merger (the "Merger") making AMETEK (which then
will be comprised solely of the Water Filtration Business) a subsidiary of
Culligan. Following the Merger, New Ametek will be renamed "AMETEK, Inc." The
Spin-Off and the Merger are intended to be tax-free.
In the Spin-Off, you will receive one share of New Ametek common stock for
each share of AMETEK common stock that you own. In the Merger, you will
receive, subject to adjustment, approximately .11 of a share of Culligan
common stock for each share of AMETEK common stock that you own. This is
equivalent to $ per share of AMETEK common stock based on the market price
of $ for Culligan on , 1997.
The Spin-Off and the Merger must be approved by the stockholders of AMETEK.
The Spin-Off and the Merger are described in detail in the attached Joint
Proxy Statement/Prospectus, the forepart of which includes a summary of the
terms of the Spin-Off and the Merger and certain other information relating to
the proposed transaction. Also, Appendix E to the attached Joint Proxy
Statement/Prospectus is an information statement for New Ametek's common stock
that further describes the business and management of New Ametek. We hope to
complete the transaction in July 1997.
After careful consideration, your Board of Directors has unanimously
determined that the Spin-Off and the Merger are in the best interests of
AMETEK and its stockholders, and unanimously recommends that you vote FOR the
approval of the Spin-Off and the Merger and the transactions contemplated in
connection therewith.
At the Special Meeting you will also be asked to elect eight directors to
the AMETEK Board of Directors, to appoint independent auditors and to transact
such other business as may properly come before the Special Meeting.
Stockholders are entitled to vote all shares of AMETEK common stock owned by
them on , 1997, the record date.
We urge you to consider carefully these important matters which are
described in the attached Joint Proxy Statement/Prospectus. In order to ensure
that your vote is represented at the meeting, please indicate your choice on
the proxy form, date and sign it, and return it in the enclosed envelope.
Please mark and return the proxy even if you plan to attend the meeting in
person. If you have questions, please contact our Investor Relations
Department at (610) 647-2121.
Yours truly,
AMETEK, INC.
Walter E. Blankley
Chairman and Chief Executive Officer
<PAGE>
AMETEK, INC.
STATION SQUARE
PAOLI, PENNSYLVANIA 19301
NOTICE OF SPECIAL MEETING IN LIEU OF THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1997
To the Stockholders of AMETEK, Inc.:
Notice is hereby given that a Special Meeting in lieu of the Annual Meeting
of Stockholders (the "Special Meeting") of AMETEK, Inc., a Delaware
corporation ("AMETEK"), has been called by the Board of Directors of AMETEK
and will be held on , 1997 at the Desmond Great Valley Hotel and
Conference Center, One Liberty Boulevard, Malvern, Pennsylvania 19355 at 10:00
a.m. local time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Amended
and Restated Agreement and Plan of Merger and Reorganization, dated as of
February 5, 1997 (the "Merger Agreement"), by and among Culligan Water
Technologies, Inc., a Delaware corporation ("Culligan"), Culligan Water
Company, Inc., a Delaware corporation and a wholly owned subsidiary of
Culligan ("Culligan Merger Sub"), AMETEK and Ametek Aerospace Products,
Inc., a Delaware corporation and wholly owned subsidiary of AMETEK ("New
Ametek"), the Amended and Restated Contribution and Distribution Agreement,
dated as of February 5, 1997 (the "Distribution Agreement"), between AMETEK
and New Ametek and the transactions contemplated by the Merger Agreement
and the Distribution Agreement, pursuant to which, among other things:
(a) AMETEK will transfer or cause to be transferred to New Ametek all
of its assets other than those comprising AMETEK's water filtration
business, which consists of the Plymouth Products Division, and the
following three foreign subsidiaries: Ametek Filters, Limited, APIC
International S.A. and AFIMO S.A.M. (collectively, the "Water
Filtration Business"), and New Ametek will assume all of AMETEK's
liabilities, except for certain liabilities relating to the Water
Filtration Business and certain indebtedness of AMETEK (collectively,
the "Contributions") and, following the Contributions, AMETEK will
distribute to its stockholders on a share for share basis (the "Spin-
Off") all of the outstanding shares of New Ametek ("New Ametek Common
Stock");
(b) at the effective time of the Merger (the "Effective Time") on the
day following the Spin-Off, Culligan Merger Sub will be merged with and
into AMETEK (which then will be comprised solely of the Water
Filtration Business) (the "Merger"), with AMETEK surviving the Merger
as a wholly owned subsidiary of Culligan and, immediately after the
Merger, the name of AMETEK will be changed to "Culligan Water Company,
Inc." and the name of New Ametek will be changed to "AMETEK, Inc.;" and
(c) at the Effective Time, each share of AMETEK common stock, par
value $.01 per share ("AMETEK Common Stock"), issued and outstanding
immediately prior to the Effective Time will be converted into the
right to receive common stock, par value $.01 per share, of Culligan
("Culligan Common Stock"), determined as provided in Section 2.1 of the
Merger Agreement.
2. To elect eight directors to hold office for the terms specified in the
Joint Proxy Statement/Prospectus and until their successors are elected and
qualified.
3. To approve the appointment of Ernst & Young LLP as independent
auditors for the year 1997.
4. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
The Joint Proxy Statement/Prospectus and the appendices thereto (including
the Merger Agreement included as Appendix A and the Distribution Agreement
included as Appendix B thereto) form a part of this Notice.
<PAGE>
Only holders of record of AMETEK Common Stock at the close of business on
, 1997 are entitled to notice of, and to vote at, the Special
Meeting or any adjournments or postponements thereof. The proposal to approve
and adopt the Merger Agreement, the Distribution Agreement, the Merger and the
Spin-Off, requires the affirmative vote of the holders of a majority of the
outstanding shares of AMETEK Common Stock entitled to vote thereon in person
or by proxy. The affirmative vote of a plurality of the shares of AMETEK
Common Stock voted in person or by proxy at the Special Meeting is required
for the election of directors. For all other matters, a favorable vote of a
majority of the shares of AMETEK Common Stock voted in person or by proxy at
the Special Meeting is required for approval. Holders of record may be asked
to vote to adjourn the Special Meeting for up to 60 days to solicit additional
votes if necessary to approve and adopt the Merger Agreement, the Distribution
Agreement, the Merger and the Spin-Off.
By Order of the Board of Directors,
Donna F. Winquist
Corporate Secretary
Station Square
Paoli, Pennsylvania 19301
, 1997
----------------
STOCKHOLDERS RECEIVING MORE THAN ONE PROXY BECAUSE OF SHARES REGISTERED IN
DIFFERENT NAMES OR ADDRESSES MUST COMPLETE AND RETURN EACH PROXY IN ORDER TO
VOTE ALL SHARES THEY ARE ENTITLED TO VOTE.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY CARD PROMPTLY, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING. YOUR PROXY WILL BE REVOCABLE, EITHER
IN WRITING OR BY VOTING IN PERSON AT THE SPECIAL MEETING AT ANY TIME PRIOR TO
ITS EXERCISE. PLEASE DATE AND SIGN YOUR NAME EXACTLY AS IT APPEARS ON THE
PROXY. PLEASE DO NOT SEND IN STOCK CERTIFICATES AT THIS TIME.
THE BOARD OF DIRECTORS OF AMETEK UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT, THE DISTRIBUTION AGREEMENT,
THE MERGER AND THE SPIN-OFF.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY , 1997
AMETEK, INC.
PROXY STATEMENT FOR SPECIAL MEETING IN LIEU OF
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
ON , 1997
----------
CULLIGAN WATER TECHNOLOGIES, INC.
PROSPECTUS
COMMON STOCK, PAR VALUE $.01 PER SHARE
----------
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors (the "AMETEK Board") of
AMETEK, Inc., a Delaware corporation ("AMETEK"), for use at the Special Meeting
in lieu of the Annual Meeting of Stockholders of AMETEK (including any
adjournments or postponements thereof, the "AMETEK Special Meeting"), to be
held on , 1997 at the Desmond Great Valley Hotel and Conference
Center, One Liberty Boulevard, Malvern, Pennsylvania 19355 at 10:00 a.m. local
time. At the AMETEK Special Meeting, the holders of AMETEK Common Stock will,
among other things, consider and vote upon a proposal to approve and adopt the
Amended and Restated Agreement and Plan of Merger and Reorganization, dated as
of February 5, 1997 (the "Merger Agreement"), by and among Culligan Water
Technologies, Inc., a Delaware corporation ("Culligan"), Culligan Water
Company, Inc., a Delaware corporation and a wholly owned subsidiary of Culligan
("Culligan Merger Sub"), AMETEK and Ametek Aerospace Products, Inc., a Delaware
corporation and wholly owned subsidiary of AMETEK ("New Ametek"), the Amended
and Restated Contribution and Distribution Agreement, dated as of February 5,
1997 (the "Distribution Agreement"), between AMETEK and New Ametek and the
transactions contemplated by the Merger Agreement and the Distribution
Agreement, pursuant to which (a) AMETEK will transfer or cause to be
transferred to New Ametek all of its assets other than those which are part of
the Water Filtration Business (as defined below), and New Ametek will assume
all of AMETEK's liabilities, except for certain liabilities relating to the
Water Filtration Business and certain indebtedness of AMETEK (collectively, the
"Contributions") and, following the Contributions, AMETEK will distribute to
its stockholders on a share for share basis (the "Spin-Off") all of the
outstanding shares of New Ametek ("New Ametek Common Stock"), and (b) at the
effective time of the Merger (the "Effective Time") on the day following the
Spin-Off, Culligan Merger Sub will be merged with and into AMETEK (which then
will be comprised solely of the Water Filtration Business) (the "Merger"). The
Water Filtration Business of AMETEK consists of the Plymouth Products Division,
and the following three foreign subsidiaries: Ametek Filters, Limited, APIC
International S.A. and AFIMO S.A.M. (collectively, the "Water Filtration
Business"). The Spin-Off and the Merger are intended to be tax-free.
In the Merger, each share of AMETEK common stock, par value $.01 per share
("AMETEK Common Stock"), will be converted into the right to receive common
stock, par value $.01 per share, of Culligan ("Culligan Common Stock").
Assuming that 32,763,450 shares of AMETEK Common Stock are outstanding at the
time of the Merger (the number of shares of AMETEK Common Stock outstanding on
April 30, 1997), each share of AMETEK Common Stock will be converted into
approximately .11 of a share of Culligan Common Stock, except that each holder
of AMETEK Common Stock will receive, without interest, cash in lieu of any
fractional share of Culligan Common Stock that such stockholder would be
entitled to receive after aggregating all shares such stockholder is entitled
to receive in the Merger.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of
Culligan that is part of a Registration Statement on Form S-4 (the "Culligan
Registration Statement") filed with the Securities and Exchange Commission (the
"Commission") with respect to the issuance of 3,466,667 shares of Culligan
Common Stock pursuant to the Merger Agreement.
(Continued on page two)
SEE "RISK FACTORS" ON PAGE 26 OF THIS JOINT PROXY STATEMENT/PROSPECTUS FOR A
DISCUSSION OF CERTAIN MATTERS WITH RESPECT TO THE SPIN-OFF, THE MERGER AND AN
INVESTMENT IN CULLIGAN COMMON STOCK UPON CONSUMMATION OF THE MERGER. SEE "RISK
FACTORS" ON PAGE 8 OF THE NEW AMETEK INFORMATION STATEMENT WHICH IS INCLUDED AS
APPENDIX E FOR CERTAIN MATTERS RELEVANT TO THE OWNERSHIP OF NEW AMETEK COMMON
STOCK.
This Joint Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to stockholders of AMETEK on or about , 1997.
NEITHER THIS TRANSACTION NOR THE SECURITIES TO BE ISSUED IN CONNECTION WITH
THE MERGER HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
The date of this Joint Proxy Statement/Prospectus is , 1997.
<PAGE>
(Continued from page one)
Based on the number of shares of Culligan Common Stock and AMETEK Common
Stock outstanding on the date hereof, upon consummation of the Merger,
Culligan stockholders at the time of the Merger will continue to hold
approximately 86% of the outstanding Culligan Common Stock and AMETEK
stockholders will hold approximately 14% of the outstanding Culligan Common
Stock.
As a result of the Spin-Off and the Merger, AMETEK will become a wholly
owned subsidiary of Culligan and will be renamed "Culligan Water Company,
Inc." ("Culligan Water Company"), and New Ametek will be renamed "AMETEK,
Inc.," subject to and as more fully described in the Merger Agreement and the
Distribution Agreement, which are attached, respectively, as Appendices A and
B to this Joint Proxy Statement/Prospectus.
Because the Exchange Ratio (as defined herein) is based on a fixed price of
$37.50 for Culligan Common Stock and the market price for Culligan Common
Stock fluctuates, the value of the Culligan Common Stock that holders of
AMETEK Common Stock will receive in the Merger increases as the market price
of Culligan Common Stock increases and decreases as the market price of
Culligan Common Stock decreases. In addition, because additional shares of
AMETEK Common Stock may be issued prior to the Effective Time, the value of
the consideration per share received by holders of AMETEK Common Stock in the
Merger may decrease. See "THE MERGER AGREEMENT--Conversion of AMETEK Common
Stock."
Culligan Common Stock is listed for trading on the New York Stock Exchange
("NYSE"). On February 4, 1997, the last trading day prior to the execution of
the Merger Agreement, the closing sale price per share of Culligan Common
Stock, as reported on the NYSE Composite Tape, was $36.375. On ,
1997, the last trading day prior to the first mailing of this Joint Proxy
Statement/Prospectus, the closing sale price per share of Culligan Common
Stock, as reported on the NYSE Composite Tape, was $ .
There is currently no trading market for New Ametek Common Stock; however,
it is expected that a "when-issued" trading market will develop for the New
Ametek Common Stock prior to the Merger. New Ametek has applied to list the
New Ametek Common Stock on the NYSE and on the Pacific Stock Exchange (the
"PSE"). As a result of the transaction, holders of AMETEK Common Stock
immediately prior to the Spin-Off will receive shares of New Ametek Common
Stock in the Spin-Off and, upon surrendering their AMETEK Common Stock
certificates in accordance with the Merger Agreement, will receive shares of
Culligan Common Stock in the Merger.
APPENDIX E TO THIS JOINT PROXY STATEMENT/PROSPECTUS IS FURNISHED TO HOLDERS
OF AMETEK COMMON STOCK AS AN INFORMATION STATEMENT (THE "NEW AMETEK
INFORMATION STATEMENT") IN CONNECTION WITH THE DISTRIBUTION OF NEW AMETEK
COMMON STOCK PURSUANT TO THE DISTRIBUTION AGREEMENT. The New Ametek
Information Statement is part of New Ametek's Registration Statement on Form
10 filed with the Commission. Culligan has furnished all information in this
Joint Proxy Statement/Prospectus with respect to Culligan and Culligan Merger
Sub, and AMETEK has furnished all information in this Joint Proxy
Statement/Prospectus with respect to AMETEK and New Ametek.
2
<PAGE>
AVAILABLE INFORMATION
Culligan and AMETEK are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information
filed by Culligan and AMETEK with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission located at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Such material should
also be available on line at the Commission Web site (http://www.sec.gov)
through the Commission's EDGAR retrieval system. Culligan Common Stock and
AMETEK Common Stock are listed on the NYSE. Reports and other information
concerning Culligan and AMETEK can also be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005. AMETEK Common
Stock is also listed on the PSE. Reports and other information concerning
AMETEK Common Stock are available at The Pacific Stock Exchange, 301 Pine
Street, San Francisco, California 94104-7065.
This Joint Proxy Statement/Prospectus, which constitutes a part of the
Culligan Registration Statement, does not contain all of the information set
forth in the Culligan Registration Statement, certain items of which are
contained in schedules and exhibits to the Culligan Registration Statement as
permitted by the rules and regulations of the Commission. For further
information, reference is made to the Culligan Registration Statement,
including the schedules and exhibits filed as a part thereof or incorporated
by reference therein. Statements contained herein concerning the provisions of
documents are necessarily summaries of such documents, and each such statement
is qualified in its entirety by reference to the copy of the applicable
document filed as an appendix hereto or as otherwise filed with the
Commission. The Culligan Registration Statement and the exhibits and schedules
thereto may be inspected, without charge, and copies thereof may be obtained
at prescribed rates, at the offices of the Commission at 450 Fifth Street,
N.W., Washington D.C. 20549. Such material should also be available on line at
the Commission Web site (http://www.sec.gov).
This Joint Proxy Statement/Prospectus does not contain all of the
information to be set forth in the New Ametek Information Statement. The New
Ametek Information Statement and the exhibits and schedules thereto may be
inspected, without charge, and copies thereof may be obtained at prescribed
rates, at the offices of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. Such material should also be available on line at the Commission
Web site (http://www.sec.gov). Certain important information relating to the
Spin-Off is set forth in the New Ametek Information Statement which is a part
of this Joint Proxy Statement/Prospectus and is included as Appendix E. See
"ADDITIONAL INFORMATION" in the New Ametek Information Statement.
----------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND, IF
SO GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS, OR A SOLICITATION
OF A PROXY FROM ANY PERSON, IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH AN OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION. NEITHER
THE DELIVERY OF THIS JOINT PROXY STATEMENT/ PROSPECTUS NOR ANY DISTRIBUTION OF
THE SECURITIES MADE UNDER THIS JOINT PROXY STATEMENT/PROSPECTUS SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF ANY OF CULLIGAN, AMETEK, NEW AMETEK OR CULLIGAN MERGER SUB AT ANY
TIME SUBSEQUENT TO THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
3
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Culligan incorporates herein by reference the following documents filed by
it with the Commission pursuant to the Exchange Act (i) its Annual Report on
Form 10-K for the year ended January 31, 1997 (the "Culligan 10-K"); (ii) its
Current Report on Form 8-K dated February 14, 1997; (iii) the description of
Culligan Common Stock incorporated by reference in its registration statement
on Form 8-A dated November 22, 1995 and (iv) the description of Culligan's
Stock Purchase Rights contained in its Registration Statement on Form 8-A
dated September 16, 1996.
AMETEK incorporates herein by reference (i) its Annual Report on Form 10-K
for the year ended December 31, 1996 (the "AMETEK 10-K") and (ii) its Current
Report on Form 8-K dated February 6, 1997.
All documents filed by Culligan and AMETEK pursuant to Section 13(a), 13(c),
14, or 15(d) of the Exchange Act subsequent to the date of this Joint Proxy
Statement/Prospectus and prior to the date of the AMETEK Special Meeting shall
be deemed to be incorporated by reference in this Joint Proxy
Statement/Prospectus and to be a part hereof from the date of filing of such
documents. All information appearing in this Joint Proxy Statement/Prospectus
is qualified in its entirety by the information and financial statements
(including notes thereto) appearing in the documents incorporated by reference
herein.
Any statement contained in a document incorporated or deemed incorporated by
reference herein shall be modified or superseded, for purposes of this Joint
Proxy Statement/Prospectus, to the extent that a statement contained herein or
in any subsequently filed document that is deemed to be incorporated herein
modifies or supersedes any such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. CULLIGAN AND AMETEK
HEREBY UNDERTAKE TO PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM A COPY OF THIS JOINT PROXY STATEMENT/PROSPECTUS HAS
BEEN DELIVERED, ON WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY
AND ALL OF THE DOCUMENTS REFERRED TO ABOVE THAT HAVE BEEN OR MAY BE
INCORPORATED BY REFERENCE, OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS).
DOCUMENTS RELATING TO CULLIGAN ARE AVAILABLE UPON REQUEST FROM CULLIGAN WATER
TECHNOLOGIES, INC., ONE CULLIGAN PARKWAY, NORTHBROOK, ILLINOIS 60062,
ATTENTION: CORPORATE SECRETARY, (847) 205-6000. DOCUMENTS RELATING TO AMETEK
ARE AVAILABLE UPON REQUEST FROM AMETEK, INC., STATION SQUARE, PAOLI,
PENNSYLVANIA 19301, ATTENTION: DONNA F. WINQUIST, CORPORATE SECRETARY, (610)
647-2121. IN ORDER TO ASSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST
SHOULD BE MADE BY , 1997.
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TABLE OF CONTENTS
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AVAILABLE INFORMATION...................................................... 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................... 4
SUMMARY.................................................................... 8
The Companies............................................................ 8
The AMETEK Special Meeting............................................... 9
The Spin-Off and the Merger.............................................. 10
Opinion of the Financial Advisor......................................... 14
Recent Developments...................................................... 14
Stockholders' Comparative Rights......................................... 14
Comparative Per Share Market Information................................. 15
Summary Condensed Historical and Pro Forma Financial Information......... 17
Comparative Per Share Data of Culligan and Ametek........................ 25
RISK FACTORS............................................................... 26
Risks Associated with the Merger......................................... 26
Risk which Currently Apply to Culligan................................... 26
Risk Relating to New Ametek.............................................. 28
THE AMETEK SPECIAL MEETING................................................. 29
Date, Time and Place; Purpose of Meeting................................. 29
Record Date.............................................................. 29
Proxies; Voting and Revocation........................................... 29
Votes Required to Approve the Merger; Principal Stockholders............. 30
Solicitation of Proxies.................................................. 30
BACKGROUND OF THE SPIN-OFF AND THE MERGER.................................. 31
REASONS FOR THE TRANSACTION; RECOMMENDATION OF THE AMETEK BOARD............ 33
OPINION OF THE FINANCIAL ADVISOR........................................... 34
THE MERGER AGREEMENT....................................................... 37
The Merger............................................................... 37
Effective Time; Closing................................................ 37
Certificate of Incorporation and By-Laws............................... 37
Directors and Officers................................................. 37
Conversion of AMETEK Common Stock........................................ 37
Exchange of Certificates............................................... 38
Cash in Lieu of Fractional Shares...................................... 38
Certain Pre- and Post-Merger Transactions................................ 39
Distribution Documents................................................. 39
The Contributions...................................................... 39
The Spin-Off........................................................... 39
Audited Closing Balance Sheet.......................................... 39
Representations and Warranties........................................... 40
Covenants................................................................ 41
Cooperation.............................................................. 43
Stock Exchange Listing................................................... 43
Employee Matters; Employee Benefit Plans................................. 44
Stock Options............................................................ 44
No Solicitation.......................................................... 44
Indebtedness............................................................. 44
Government and Regulatory Approvals...................................... 45
Internal Revenue Service Ruling.......................................... 45
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Conditions.............................................................. 45
Termination............................................................. 46
Fees and Expenses....................................................... 47
Amendment............................................................... 47
Interest of Certain Persons in the Transaction.......................... 47
Accounting Treatment.................................................... 47
Resales of Culligan Common Stock Issued in the Merger; Affiliates....... 48
No Appraisal Rights..................................................... 48
Delivery of Shares to Stockholders...................................... 48
THE SPIN-OFF.............................................................. 49
Background of and Reasons for the Spin-Off.............................. 49
Terms of the Distribution Agreement..................................... 49
Terms of the Tax Allocation Agreement................................... 52
Terms of the Transition Services Agreement.............................. 53
Terms of the Indemnification Agreement.................................. 53
Terms of the Trademark Agreement........................................ 55
CERTAIN INFORMATION REGARDING NEW AMETEK AFTER THE SPIN-OFF............... 56
General................................................................. 56
Description of New Ametek Common Stock.................................. 56
Risk Factors Relating to New Ametek..................................... 57
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................... 58
Consequences of the Contributions and the Spin-Off...................... 59
Consequences of the Merger.............................................. 59
CAPITALIZATION............................................................ 60
CULLIGAN UNAUDITED PRO FORMA FINANCIAL INFORMATION........................ 61
Culligan Unaudited Condensed Pro Forma Combined
Statement of Operations For the Year Ended January 31, 1997............ 62
Culligan Unaudited Condensed Pro Forma Combined Balance Sheet as of Jan-
uary 31, 1997.......................................................... 64
THE COMPANIES............................................................. 66
Culligan................................................................ 66
Culligan Merger Sub..................................................... 70
AMETEK.................................................................. 71
New Ametek.............................................................. 71
The Water Filtration Business........................................... 71
DESCRIPTION OF CULLIGAN CAPITAL STOCK..................................... 73
Authorized Capital Stock................................................ 73
Common Stock............................................................ 73
Preferred Stock......................................................... 73
Transfer Agent and Registrar............................................ 73
Culligan Stockholder Rights Plan........................................ 73
COMPARISON OF RIGHTS OF STOCKHOLDERS...................................... 76
Common Stock Classification............................................. 76
Directors............................................................... 76
Advance Notice of Nominations for the Election of Directors and Stock-
holders Proposals...................................................... 77
Action by Written Consent............................................... 77
Meetings of Stockholders................................................ 78
Amendment of Certificate of Incorporation............................... 78
Amendment of By-Laws.................................................... 78
Approvals of Mergers and Asset Sales.................................... 78
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State Anti-takeover Statutes........................................... 79
Limitation of Liability................................................ 79
Indemnification of Officers and Directors.............................. 79
Stockholder Rights Plan................................................ 80
LEGAL MATTERS............................................................ 80
EXPERTS.................................................................. 80
ELECTION OF DIRECTORS OF AMETEK.......................................... 81
INFORMATION AS TO NOMINEES FOR ELECTION OF DIRECTORS..................... 82
Stock Ownership........................................................ 84
COMPENSATION OF DIRECTORS................................................ 86
EXECUTIVE OFFICERS OF AMETEK............................................. 86
EXECUTIVE COMPENSATION................................................... 88
DEFINED BENEFIT AND ACTUARIAL PLANS...................................... 89
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION.................. 91
STOCK OPTIONS, SARS AND RESTRICTED STOCK AWARDS.......................... 92
MR. BLANKLEY'S 1996 COMPENSATION......................................... 93
SECTION 162(m)........................................................... 93
STOCK PERFORMANCE GRAPHS................................................. 94
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.............. 95
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934..... 95
APPOINTMENT OF INDEPENDENT AUDITORS...................................... 96
OTHER MATTERS............................................................ 96
INDEX TO COMBINED FINANCIAL STATEMENTS................................... F-1
APPENDICES...............................................................
A.The Merger Agreement................................................... A-1
B.Transaction Documents (the Contribution and Distribution Agreement, the
Indemnification
Agreement, the Transition Services Agreement and the Trademark Agree-
ment)................................................................... B-1
C.Opinion of Goldman, Sachs & Co......................................... C-1
D.The Tax Allocation Agreement........................................... D-1
E.New Ametek Information Statement....................................... E-1
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SUMMARY
The following summary does not purport to be complete and is qualified in its
entirety by the more detailed information appearing elsewhere in this Joint
Proxy Statement/Prospectus, the documents incorporated herein by reference and
the Appendices attached hereto.
The information contained in this Joint Proxy Statement/Prospectus with
respect to Culligan, Culligan Merger Sub and their affiliates has been supplied
by Culligan, which is solely responsible for such information, and the
information with respect to AMETEK, New Ametek and their affiliates has been
supplied by AMETEK, which is solely responsible for such information. Certain
capitalized terms which are used but not defined in this summary are defined
elsewhere in this Joint Proxy Statement/Prospectus. HOLDERS OF AMETEK COMMON
STOCK ARE URGED TO REVIEW CAREFULLY ALL OF THE INFORMATION IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND THE APPENDICES ATTACHED HERETO.
THE COMPANIES
CULLIGAN
Culligan is one of the world's leading manufacturers and distributors of
water purification and treatment products and services for household and
consumer, and commercial and industrial applications. Products and services
offered by Culligan range from those designed to solve residential water
problems, such as filters for tap water and household water softeners, to
highly sophisticated equipment and services, such as ultrafiltration and
microfiltration products, desalination systems and portable deionization
services ("PDS"), designed for complex commercial and industrial applications.
In addition, Culligan's licensed bottled water sales now rank fourth in the
five-gallon bottled water market in the United States. In fiscal 1997, Culligan
entered the consumer market selling filtration products directly to retailers.
Culligan has been an active participant in the water purification and
treatment industry since 1936, and its Culligan (R), Everpure (R) and
Bruner (R) brands are among the most recognized in the industry. Culligan's
products are sold and serviced in over 90 countries through a worldwide network
of over 1,400 sales and service centers. Supporting this distribution network,
Culligan maintains manufacturing facilities in the United States, Italy, Spain
and Canada. During the last 15 years, Culligan's residential water treatment
systems have been installed in over 3 million households in the United States,
representing the largest installed base in the country. In addition, over 1.5
million of Culligan's commercial, industrial, municipal and desalination
systems have been installed worldwide. Culligan's customer base includes such
well known names as McDonald's (R), Coca-Cola (R), Pepsi-Cola (R),
Starbucks (R), 7-Eleven (R), Navistar, Owens-Corning, Eli Lilly, Carnival
Cruise Lines, Ingersoll-Rand and Union Carbide.
With net sales of $371 million for the fiscal year ended January 31, 1997,
Culligan is one of the leaders in the highly fragmented water purification and
treatment industry. Culligan and its dealers provide a wide range of services
to support its products and offer a full line of accessories and replacement
parts. Approximately 46% of Culligan's revenues in fiscal 1997 were derived
from sources believed to be recurring in nature, such as servicing installed
equipment, sales of replacement parts, filters and other consumables, equipment
rental and royalties. In fiscal 1997, approximately 36% of Culligan's revenues
were from export and international sales. Culligan conducts its activities in
two principal areas: household and consumer and commercial and industrial.
Culligan is a holding company and conducts all of its operations through its
subsidiaries. Culligan Common Stock is listed on the NYSE. Culligan's executive
offices are located at One Culligan Parkway, Northbrook, Illinois 60062-6209
and its telephone number is (847) 205-6000.
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CULLIGAN MERGER SUB
Culligan Merger Sub is a newly formed Delaware corporation and a wholly owned
subsidiary of Culligan. Culligan Merger Sub was organized for the purpose of
effecting the Merger pursuant to the Merger Agreement. Culligan Merger Sub has
no material assets and has not engaged in any activities, except in connection
with the Merger. The principal executive offices of Culligan Merger Sub are
located at One Culligan Parkway, Northbrook, Illinois 60062-6209 its telephone
number is (847) 205-6000.
AMETEK
AMETEK is a leading global manufacturer of electrical and electromechanical
products and materials, engineered for niche markets. Operations are in the
United States, Europe, Asia, and Mexico, with one-third of its sales to
international markets. AMETEK has a significant market share for many of its
products: the Electromechanical Group is the world's largest producer of
electric motors and blowers for vacuum cleaners and floor care products; the
Precision Instruments Group builds technologically advanced monitoring,
sensing, calibration, and display devices for the aerospace, process, and heavy
vehicle industries; and, the Industrial Materials Group, which includes the
Water Filtration Business, uses plastics, metals and fibers to produce
specialty materials for a variety of consumer and industrial markets. AMETEK
has grown through a primary focus on the manufacturing of electronic,
electromechanical and electrical products in which its technology or cost
advantage leads to a significant share of one or more niche markets.
The principal executive offices of AMETEK are located at Station Square,
Paoli, Pennsylvania 19301, and its telephone number is (610) 647-2121.
NEW AMETEK
New Ametek currently is a wholly owned subsidiary of AMETEK. New Ametek was
incorporated in Delaware on May 8, 1986 and has been a wholly owned subsidiary
of AMETEK since August 1989. To date, New Ametek's business has consisted
entirely of manufacturing aerospace instrumentation. Prior to the Spin-Off,
AMETEK will transfer or cause to be transferred to New Ametek all of its assets
other than those which are part of the Water Filtration Business, and New
Ametek will assume all of AMETEK's liabilities, except for certain liabilities
relating to the Water Filtration Business and certain indebtedness of AMETEK.
Immediately following the Spin-Off and the Merger, New Ametek will change its
name to "AMETEK, Inc." The principal executive offices of New Ametek are
located at Station Square, Paoli, Pennsylvania 19301 and its telephone number
is (610) 647-2121.
THE WATER FILTRATION BUSINESS
The Water Filtration Business is currently comprised of an operating division
of AMETEK, the Plymouth Products Division, and three foreign subsidiaries of
AMETEK: Ametek Filters, Limited; APIC International S.A.; and AFIMO S.A.M.
Through the Water Filtration Business, AMETEK has been engaged in the design,
manufacture and marketing of point-of-use filtration products for the
separation, clarification and purification of liquids, primarily water.
THE AMETEK SPECIAL MEETING
The AMETEK Special Meeting will be held on , 1997 at the Desmond
Great Valley Hotel and Conference Center, One Liberty Boulevard, Malvern,
Pennsylvania 19355 at 10:00 a.m. local time, for the purpose of considering and
voting upon proposals to (i) approve and adopt the Merger Agreement, the
Distribution Agreement, the Merger and the Spin-Off, (ii) elect eight directors
to hold office for the terms specified in this Joint Proxy Statement/Prospectus
and until their successors are elected and qualified, (iii) approve the
appointment of Ernst & Young LLP as independent auditors for the year 1997, and
(iv) transact
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such other business as may properly come before the AMETEK Special Meeting or
any adjournments or postponements thereof. Only holders of record of AMETEK
Common Stock at the close of business on , 1997 (the "AMETEK
Record Date") will be entitled to vote at the AMETEK Special Meeting. At the
AMETEK Record Date, there were shares of AMETEK Common Stock
outstanding and entitled to vote.
The proposal to approve and adopt the Merger Agreement, the Distribution
Agreement, the Merger and the Spin-Off requires the affirmative vote of the
holders of a majority of the outstanding shares of AMETEK Common Stock entitled
to vote thereon in person or by proxy, the election of each nominee for
director requires the affirmative vote of a plurality of the votes cast
(assuming a quorum is present), and the approval of all other matters to be
voted upon at the AMETEK Special Meeting requires the favorable vote of a
majority of the shares of AMETEK Common Stock voted in person or by proxy at
the AMETEK Special Meeting. See "THE AMETEK SPECIAL MEETING."
THE SPIN-OFF AND THE MERGER
BACKGROUND OF THE SPIN-OFF AND THE MERGER
Culligan contacted AMETEK in April and August 1996 regarding a possible
acquisition of its Water Filtration Business. The parties entered into a
confidentiality agreement in October 1996 with respect to the Water Filtration
Business. Culligan then proceeded to evaluate certain financial information it
received from AMETEK and to refine its valuation of the Water Filtration
Business. The parties also discussed potential structures for the proposed
transaction. By early December 1996, the parties had agreed to a structure
intended to be tax-free to AMETEK and its stockholders, which would involve a
spin-off by AMETEK of all of its businesses other than the Water Filtration
Business, and Culligan thereafter merging a subsidiary into AMETEK which then
would hold only the Water Filtration Business. This structure was determined to
be the only viable means of effecting the proposed transaction within the
proposed range of values. Culligan and AMETEK had also narrowed the gap between
their respective valuations of the Water Filtration Business, although a
definitive agreement on valuation and price had not been reached. From late
December 1996 through January 1997, representatives of Culligan and AMETEK
endeavored to negotiate definitive transaction documentation and resolve other
issues relating to the proposed transaction. On February 4, 1997, Culligan and
AMETEK concluded their negotiations regarding valuation and price and the
Boards of Culligan and AMETEK approved the proposed transaction. On February 5,
1997, Culligan and AMETEK executed the Merger Agreement, and AMETEK and New
Ametek executed the Distribution Agreement. On May 9, 1997, the Merger
Agreement and the Distribution Agreement were amended and restated. See
"BACKGROUND OF THE SPIN-OFF AND THE MERGER."
RECOMMENDATION OF THE AMETEK BOARD
The AMETEK Board has unanimously approved the Merger Agreement and the
Distribution Agreement and determined that the Merger and the Spin-Off, taken
as a whole, are fair to and in the best interests of AMETEK and its
stockholders. THE AMETEK BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF AMETEK
COMMON STOCK VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, THE
DISTRIBUTION AGREEMENT, THE MERGER AND THE SPIN-OFF. For a discussion of
factors considered by the AMETEK Board in reaching its decision, see "REASONS
FOR THE TRANSACTION; RECOMMENDATION OF THE AMETEK BOARD." In considering the
recommendation of the AMETEK Board with respect to the Merger, holders of
AMETEK Common Stock should be aware that certain officers and directors may
have direct or indirect interests in recommending the Merger, apart from their
interests as holders of AMETEK Common Stock, which are not identical to those
of unaffiliated stockholders of AMETEK. See "THE MERGER AGREEMENT--Interest of
Certain Persons in the Transaction."
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The Board of Directors of Culligan (the "Culligan Board") has also
unanimously approved the Merger Agreement.
OVERVIEW OF THE SPIN-OFF AND THE MERGER
As a result of the Spin-Off, AMETEK will separate all of its other businesses
from the Water Filtration Business and consist solely of the Water Filtration
Business at the time of the Merger. The Merger Agreement provides that,
following the Spin-Off, Culligan Merger Sub will be merged with and into
AMETEK, with AMETEK (then renamed "Culligan Water Company, Inc.") surviving the
Merger as a wholly owned subsidiary of Culligan. As a result of the Spin-Off
and the Merger, holders of AMETEK Common Stock will no longer own shares of
AMETEK Common Stock but will receive shares of New Ametek Common Stock and
Culligan Common Stock. Culligan will issue 3,466,667 shares in the Merger.
Based on the number of shares of Culligan Common Stock and AMETEK Common Stock
outstanding on the date hereof, upon consummation of the Merger, Culligan
stockholders at the time of the Merger will continue to hold approximately 86%
of the outstanding Culligan Common Stock and AMETEK stockholders will hold
approximately 14% of the outstanding Culligan Common Stock.
TERMS OF THE MERGER
Conversion of AMETEK Common Stock in the Merger. The Merger Agreement
provides that each share of AMETEK Common Stock will be converted into the
right to receive a fraction of a share of Culligan Common Stock based on a
formula that specifies that each share of AMETEK Common Stock outstanding on
the Spin-Off Record Date will be converted into a number of shares of Culligan
Common Stock equal to (i) the Net Equity Value (as defined below), divided by
(ii) $37.50, divided by (iii) the number of shares of AMETEK Common Stock
outstanding at the Effective Time (the "Exchange Ratio"). The Net Equity Value
is an amount equal to (A) $155,000,000 minus (B) $25,000,000, the amount of the
bank debt to be retained by AMETEK (the "Retained Debt"). Based on the
foregoing calculation, the Net Equity Value will be $130,000,000. Under this
formula, the Exchange Ratio varies with the number of shares of AMETEK Common
Stock outstanding at the time of the Merger.
All shares of AMETEK Common Stock when converted pursuant to the Merger
Agreement will no longer remain outstanding and will automatically be canceled
and retired, and each holder of a certificate representing any such shares will
cease to have any rights with respect thereto, except the right to receive the
shares of Culligan Common Stock and cash in lieu of any fractional share of
Culligan Common Stock to be issued or paid upon the surrender of such
certificate in accordance with the Merger Agreement.
Fractional Shares. The Merger Agreement provides that each holder of AMETEK
Common Stock will receive, without interest, cash in lieu of any fractional
share of Culligan Common Stock that such stockholder would be entitled to
receive after aggregating all shares such stockholder is entitled to receive in
the Merger.
Effective Time of the Merger. The Merger will become effective upon the
filing of a Certificate of Merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware or as otherwise provided in the
Certificate of Merger (the "Effective Time"). Assuming that the requisite
stockholder approval of the Merger is obtained, it is anticipated that the
Effective Time of the Merger will occur on the business day following the day
on which the Spin-Off is effected. However, if all other conditions to the
Merger have not been satisfied prior to the AMETEK Special Meeting, it is
expected that the Merger will occur within two business days after such
conditions have been satisfied or waived.
Audited Closing Balance Sheet. The Merger Agreement provides that no later
than 45 days after the Closing Date, New Ametek will deliver to Culligan an
audited consolidated balance sheet for the Water Filtration Business as of the
Closing Date after giving effect to the Spin-Off, but not the Merger (the
"Audited Closing
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Balance Sheet"). Together with the delivery of the Audited Closing Balance
Sheet, New Ametek will deliver an adjusted balance sheet of the Water
Filtration Business as of the Closing Date (the "Adjusted Closing Balance
Sheet") which will be the Audited Closing Balance Sheet adjusted as described
in "THE MERGER AGREEMENT--Certain Pre- and Post-Merger Transactions--Audited
Closing Balance Sheet." To the extent the Adjusted Net Worth of the Water
Filtration Business as calculated from the Adjusted Closing Balance Sheet is
less than $31,745,000, then New Ametek will pay to the Surviving Corporation
the amount of such shortfall. To the extent that the Adjusted Net Worth of the
Water Filtration Business as calculated from the Adjusted Audited Closing
Balance Sheet is more than $31,745,000, then the Surviving Corporation will pay
New Ametek in cash the amount of such excess up to a maximum amount of
$2,000,000.
Government and Regulatory Approvals. Consummation of the Merger was
conditioned upon the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). On March 14, 1997, Culligan and AMETEK each filed notification reports
under the HSR Act with the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "DOJ"). Early termination
of the waiting period was granted on March 24, 1997.
Receipt of Private Letter Ruling. The Contributions, the Spin-Off and the
Merger will not be consummated unless the Internal Revenue Service (the "IRS")
shall have issued and not revoked a private letter ruling (the "Private Letter
Ruling") reasonably satisfactory in form and substance to AMETEK and Culligan
substantially to the effect that, on the basis of the facts, representations
and assumptions existing at the Effective Time: (i) the Contributions followed
by the Spin-Off qualify as a tax-free reorganization pursuant to Section
368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the "Code");
(ii) the Spin-Off qualifies as a tax-free distribution pursuant to Section
355(a) of the Code; and (iii) the Merger qualifies as a tax-free reorganization
pursuant to Section 368 (a)(1)(B) of the Code. The Private Letter Ruling
request has been submitted to the IRS. In the event that the IRS shall not have
issued the Private Letter Ruling to include any one or more of these three
requested rulings, this requirement will nevertheless be satisfied if, on or
prior to the Closing Date, AMETEK and Culligan shall receive the Tax Opinions
to the same effect as each such Omitted Ruling. See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES."
Other Conditions to Merger. The obligations of Culligan and AMETEK to
consummate the Merger are also subject to approval of the Merger Agreement by
holders of AMETEK Common Stock, the Average Culligan Share Price being greater
than $31.00 on the Closing Date, receipt of the Private Letter Ruling and/or
the Tax Opinions and the satisfaction of certain customary and other
conditions, including, without limitation, that the Spin-Off has become
effective and that shares of Culligan Common Stock to be issued in the Merger
have been authorized for listing on the NYSE subject to notice of issuance. See
"THE MERGER AGREEMENT--Conditions."
CONSENT SOLICITATION
AMETEK will solicit the consent of the holders of AMETEK's outstanding 9 3/4%
Senior Notes Due 2004 (the "Notes") in order to clarify that the Spin-Off and
the Merger do not conflict with any covenant contained in the Indenture, dated
as of March 15, 1994, between AMETEK and CoreStates Bank, N.A., as Trustee, as
amended and supplemented (the "Indenture"), pursuant to which the Notes were
issued. In order for New Ametek to assume the Notes in connection with the
Contributions and the Spin-Off, no breach of a covenant under such Indenture
may exist immediately before or after such assumption. AMETEK intends to pay a
consent fee, the amount of which has not yet been determined, to those
Noteholders who provide (and do not revoke) a valid consent within the
specified solicitation period.
TERMINATION OR AMENDMENT OF THE MERGER AGREEMENT
Termination. The Merger Agreement may be terminated under certain
circumstances, including (a) by the mutual consent of Culligan and AMETEK, (b)
by either Culligan or AMETEK at any time prior to the
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consummation of the Merger (i) upon a material breach of a representation,
warranty or covenant on the part of the other party, or if there is a material
failure by the other party to comply with its obligations under the Merger
Agreement or the Distribution Agreement, as the case may be, (ii) if the Merger
has not been consummated before October 31, 1997, or (iii) if the Merger
Agreement, the Distribution Agreement, the Merger and the Spin-Off fail to
receive the requisite vote for approval and adoption by the holders of AMETEK
Common Stock at the AMETEK Special Meeting; (c) by Culligan, if the AMETEK
Board withdraws, modifies or changes its recommendation of the Merger Agreement
or the Merger in a manner adverse to Culligan; and (d) by either Culligan or
AMETEK if any change in Federal income tax law or regulation applicable to the
Contributions, the Spin-Off or the Merger disqualifies any one of such
transactions or combination thereof from tax-free treatment.
Termination Fee. Under certain circumstances, AMETEK is required to pay
Culligan upon termination of the Merger Agreement a fee of $5,000,000, in
addition to all of Culligan's expenses in connection with the Merger. See "THE
MERGER AGREEMENT--Fees and Expenses."
Amendment. The Merger Agreement may be amended or modified and any condition
specified therein may be waived by the mutual consent of Culligan and AMETEK;
provided that, after any stockholder approval, no amendment will be made if
applicable law requires further approval by the stockholders.
No Solicitation. The Merger Agreement also contains certain non-solicitation
provisions relating to AMETEK. See "THE MERGER AGREEMENT--No Solicitation."
INTEREST OF CERTAIN PERSONS IN THE TRANSACTION
In considering the recommendation of the AMETEK Board, holders of AMETEK
Common Stock should be aware that certain members of management of AMETEK and
the AMETEK Board may have certain interests in the Spin-Off and the Merger that
are in addition to the interests of stockholders generally. See "THE MERGER
AGREEMENT--Interest of Certain Persons in the Transaction."
ACCOUNTING TREATMENT
The Merger will be accounted for by Culligan using the purchase method of
accounting under generally accepted accounting principles. See "THE MERGER
AGREEMENT--Accounting Treatment." New Ametek will account for the Merger as a
spin-off of the Water Filtration Business, which will be reflected as a
discontinued operation in New Ametek's consolidated financial statements.
THE SPIN-OFF
Subject to stockholder approval of the Spin-Off and the Merger, the Spin-Off
will be effected on the business day prior to the Merger (the "Spin-Off Date").
The Contributions followed by the Spin-Off will separate all of AMETEK's other
businesses from its Water Filtration Business, and enable Culligan to acquire
only the Water Filtration Business in the Merger; the Spin-Off will leave
AMETEK's remaining businesses as a separate publicly held company (New Ametek),
owned by the existing holders of AMETEK Common Stock. Prior to the Spin-Off,
AMETEK will transfer all of its assets and liabilities (other than those
comprising the Water Filtration Business and the Retained Debt) to New Ametek.
The directors and officers of AMETEK will be the directors and officers of New
Ametek at the time of the Spin-Off. See "THE SPIN-OFF--Terms of the
Distribution Agreement--The Contributions" and the Distribution Agreement
included as Appendix B to this Joint Proxy Statement/Prospectus for additional
information regarding the transfer of assets to, and assumption of liabilities
by, New Ametek.
13
<PAGE>
Pursuant to the Spin-Off, each holder of AMETEK Common Stock will receive one
share of New Ametek Common Stock for each share of AMETEK Common Stock held by
such stockholder. The Spin-Off will be effected by the distribution to each
holder of record of AMETEK Common Stock, of certificates representing New
Ametek Common Stock. See "THE SPIN-OFF--Terms of the Distribution Agreement--
The Spin-Off." The record date shall be set by the AMETEK Board, currently
anticipated to follow promptly the satisfaction or waiver of the conditions to
the Merger (the "Spin-Off Record Date"). As a result of the Spin-Off, the
holders of AMETEK Common Stock will become the stockholders of New Ametek.
NO APPRAISAL RIGHTS
Holders of AMETEK Common Stock will not have the right to elect to have the
fair value of their shares of AMETEK Common Stock judicially appraised and paid
to them in cash in connection with the Spin-Off or the Merger.
OPINION OF FINANCIAL ADVISOR
Goldman, Sachs & Co. ("Goldman Sachs") has delivered its written opinion to
the AMETEK Board that, as of February 5, 1997, the Exchange Ratio pursuant to
the Merger Agreement was fair to the holders of AMETEK Common Stock.
The full text of the written opinion of Goldman Sachs, which sets forth
assumptions made, matters considered and limitations on the review undertaken
in connection with the opinion, is attached hereto as Appendix C and is
incorporated herein by reference. Holders of AMETEK Common Stock are urged to,
and should, read such opinion in its entirety. See "OPINION OF THE FINANCIAL
ADVISOR."
RECENT DEVELOPMENTS
On April 17, 1997, AMETEK announced it had signed a definitive agreement to
acquire the Test & Measurement Products business of Technitrol, Inc., for $34
million in cash. Closing of the acquisition, which is expected to occur by the
end of June 1997, is subject to regulatory approval and certain other
requirements. The business to be acquired had annual sales of approximately $30
million and manufactures a comprehensive line of measurement and testing
devices, including gauges, electronic instruments and test stands, and
analytical software and support services.
STOCKHOLDERS' COMPARATIVE RIGHTS
The rights of AMETEK's stockholders are currently governed by AMETEK's
Certificate of Incorporation, as amended (the "AMETEK Certificate") and By-Laws
(the "AMETEK By-Laws") and Delaware corporate law. At the Effective Time,
AMETEK's stockholders will become stockholders of Culligan and their rights as
stockholders will be governed by Culligan's Amended and Restated Certificate of
Incorporation (the "Culligan Certificate") and Amended and Restated By-Laws
(the "Culligan By-Laws") and Delaware corporate law. See "COMPARISON OF RIGHTS
OF STOCKHOLDERS." As a result of the Spin-Off, holders of AMETEK Common Stock
will also become stockholders of New Ametek. See "DESCRIPTION OF NEW AMETEK
CAPITAL STOCK" in the New Ametek Information Statement which is included as
Appendix E to this Joint Proxy Statement/Prospectus for a description of the
rights of holders of New Ametek Common Stock.
14
<PAGE>
COMPARATIVE PER SHARE MARKET INFORMATION
Culligan Common Stock is listed under the trading symbol "CUL" on the NYSE.
AMETEK Common Stock is listed under the trading symbol "AME" on the NYSE and
the PSE. The following table sets forth for the periods indicated the high and
low sales prices per share of Culligan Common Stock and AMETEK Common Stock, as
reported by the NYSE, as applicable. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT
MARKET QUOTATIONS. Culligan has never paid a cash dividend on Culligan Common
Stock and does not intend to declare a cash dividend in the foreseeable future.
AMETEK has been paying a regular quarterly dividend of $.06 per share and New
Ametek's Board of Directors has indicated its present intention to continue
paying a similar dividend.
<TABLE>
<CAPTION>
AMETEK
-----------------------------
DIVIDEND PAID
HIGH LOW PER SHARE
------- ------- -------------
<S> <C> <C> <C>
FISCAL YEAR ENDED
DECEMBER 31,
1995
First Quarter... $18 5/8 $15 3/4 $.06
Second Quarter.. 18 1/8 16 1/4 .06
Third Quarter... 19 1/2 16 1/8 .06
Fourth Quarter.. 19 1/4 16 5/8 .06
FISCAL YEAR ENDED
DECEMBER 31,
1996
First Quarter... 18 7/8 16 .06
Second Quarter.. 22 1/4 17 3/8 .06
Third Quarter... 21 5/8 18 1/4 .06
Fourth Quarter.. 22 1/4 17 3/4 .06
FISCAL YEAR ENDED
DECEMBER 31,
1997
First Quarter... 22 1/2 19 7/8 .06
Second Quarter
(through May 9,
1997).......... 24 1/4 21 1/8 .06
</TABLE>
<TABLE>
<CAPTION>
CULLIGAN(A)
--------------
HIGH LOW
------ -----
<S> <C> <C>
FISCAL YEAR ENDED JANU-
ARY 31, 1996
December 15, 1995--Jan-
uary 31, 1996......... $28 1/4 $22 1/2
FISCAL YEAR ENDED JANU-
ARY 31, 1997
First Quarter.......... 33 3/4 27 5/8
Second Quarter......... 40 3/4 32 3/4
Third Quarter.......... 40 1/4 32 7/8
Fourth Quarter......... 42 33
FISCAL YEAR ENDING JANU-
ARY 31, 1998
First Quarter ......... 46 33 5/8
Second Quarter (through
May 9, 1997).......... 43 1/2 40
</TABLE>
- --------
(a) In September 1995, Culligan's former parent distributed to its stockholders
all of the then outstanding Culligan Common Stock (the "Culligan Spin-
Off"). From the Culligan Spin-Off in September 1995 until December 15, 1995
(the date on which trading in Culligan Common Stock commenced on the NYSE),
there was no established public trading market for Culligan Common Stock.
During such period, approximately 84% of Culligan Common Stock was held by
four beneficial owners and Culligan Common Stock was not listed on any
securities exchange. During that period, Culligan Common Stock was traded
in interdealer and over-the-counter bulletin board transactions. The bid
quotations for Culligan Common Stock from the Culligan Spin-Off through
December 14, 1995 ranged from a high of $25 1/2 per share on December 12,
1995 to a low of $14 per share on September 28, 1995. Although the
quotations for the period prior to December 15, 1995 have been obtained
from sources believed to be reliable, no assurances can be given with
respect to the accuracy of such quotations or as to whether other bid
prices higher or lower than those set forth above may have been quoted. In
addition, such quotations reflect interdealer prices, which may not include
retail mark-up, mark-down or commission and may not necessarily represent
actual transactions.
There is currently no public trading market for the New Ametek Common Stock.
Application has been made to list the New Ametek Common Stock on the NYSE and
PSE. It is expected that a "when-issued" trading market will develop for the
New Ametek Common Stock; however, there can be no assurance that an active
trading market will develop or, if a trading market develops, that such a
market will be maintained. There can be no assurance as to the prices at which
New Ametek Common Stock will trade after the Spin-Off.
On February 4, 1997, the last trading day prior to the public announcement of
the Merger and on , 1997, the last trading day prior to the first
mailing of this Joint Proxy Statement/Prospectus, the closing sales price per
share of Culligan Common Stock as reported on the NYSE was $36.375 and $ ,
respectively. On April 30, 1997, there were 95 holders of record of Culligan
Common Stock and there were 21,384,130 shares of Culligan Common Stock
outstanding.
15
<PAGE>
On February 4, 1997, the last trading day prior to the public announcement of
the Merger and on , 1997, the last trading day prior to the first
mailing of this Joint Proxy Statement/Prospectus, the closing sales price per
share of AMETEK Common Stock as reported on the NYSE was $21.125 and $ ,
respectively. On April 30, 1997, there were 4,520 holders of record of AMETEK
Common Stock and there were 32,763,450 shares of AMETEK Common Stock
outstanding.
16
<PAGE>
SUMMARY CONDENSED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
CULLIGAN SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information for Culligan presented below is
derived from Culligan's audited consolidated financial statements. Culligan's
consolidated financial statements as of and for the fiscal years ended January
31, 1995, January 31, 1996 and January 31, 1997 have been audited by KPMG Peat
Marwick LLP, independent accountants.
The selected financial information presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Culligan's Consolidated Financial Statements and
notes thereto in the Culligan 10-K which is incorporated herein by reference.
See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE." This information should also be read in conjunction with the
unaudited pro forma financial information and accompanying notes thereto
included elsewhere herein. See "CULLIGAN UNAUDITED PRO FORMA FINANCIAL
INFORMATION."
17
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR (A)
-----------------------
FIVE MONTHS SEVEN MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JUNE 30, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
1993 1993 1994 1995 1996 1997
----------- ----------- ------------ ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales......................................... $261,924 $109,748 $154,325 $280,051 $304,502 $371,018
Cost of goods sold (e)............................ 144,343 60,894 87,112 155,829 168,363 205,581
-------- -------- -------- -------- -------- --------
Gross profit...................................... 117,581 48,854 67,213 124,222 136,139 165,437
Selling, general and administrative (e)........... 87,817 36,339 50,341 91,989 95,723 113,932
Administrative expenses allocated from Samsonite
(b).............................................. -- -- -- 1,095 -- --
Restructuring expenses (c)........................ -- -- 2,103 5,917 -- --
Amortization of intangible assets (d)............. 1,745 731 22,554 38,691 38,802 17,522
-------- -------- -------- -------- -------- --------
Operating income (loss)........................... 28,019 11,784 (7,785) (13,470) 1,614 33,983
Other income (expense), net (f)................... 151 (324) 1,919 398 2,867 5,023
-------- -------- -------- -------- -------- --------
Income (loss) before interest and income taxes.... 28,170 11,460 (5,866) (13,072) 4,481 39,006
Interest income................................... 4,253 1,436 886 1,439 1,576 2,633
Interest expense (g).............................. (2,229) (1,039) (11,576) (19,085) (12,426) (5,490)
Income taxes...................................... (15,678) (4,387) (3,434) (5,678) (14,910) (20,264)
Cumulative effect of change in accounting
principle for
income taxes..................................... 4,602 -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss)................................. $ 19,118 $ 7,470 $(19,990) $(36,396) $(21,279) $ 15,885
======== ======== ======== ======== ======== ========
Outstanding shares (000's)........................ 15,889 15,889 16,311 21,375
Net income (loss) per share....................... $ (1.26) $ (2.29) $ (1.30) $ 0.74
======== ======== ======== ========
OTHER DATA:
Income (loss) before interest and taxes........... $ 28,170 $ 11,460 $ (5,866) $(13,072) $ 4,481 $ 39,006
Amortization of reorganization value in excess of
identifiable assets.............................. -- -- 21,771 37,322 37,322 15,551
Administrative expenses allocated from Samsonite.. -- -- -- 1,095 -- --
Restructuring expenses............................ -- -- 2,103 5,917 -- --
Gain on insurance settlement...................... -- -- -- -- -- (1,980)
-------- -------- -------- -------- -------- --------
Adjusted income before interest and taxes......... 28,170 11,460 18,008 31,262 41,803 52,577
All other amortization............................ 1,745 731 783 1,369 1,480 1,971
Depreciation...................................... 7,322 3,175 5,696 9,279 9,409 10,091
-------- -------- -------- -------- -------- --------
EBITDA (h)........................................ $ 37,237 $ 15,366 $ 24,487 $ 41,910 $ 52,692 $ 64,639
- --------------------------------------------------
======== ======== ======== ======== ======== ========
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
1993 1994(I) 1995(I) 1996(I) 1997(I)
----------- ----------- ----------- ----------- -----------
PREDECESSOR
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Property, plant and
equipment, net.......... $45,326 $68,043 $68,974 $70,749 $78,740
Total assets............ 305,183(j) 331,035 303,431 292,570 337,362
Long-term debt and
capital lease
obligations (including
current debt).......... 11,959 159,404(l) 114,635(k) 48,324(m) 48,645
Total liabilities....... 113,101 278,734(l) 255,187(k) 173,481(m) 163,722
Stockholders' equity.... 192,082 52,301(l) 48,244(k) 119,089(m) 173,640(n)
</TABLE>
- --------
IMPACT OF NONRECURRING ITEMS
Included in Culligan's statements of operations subsequent to June 30,1993,
are amortization and depreciation related to adjustments of assets and
liabilities to fair value in connection with the adoption of the American
Institute of Certified Public Accountants Statement of Position 90-7 entitled
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7"). The most significant adjustment relates to reorganization value
in excess of identifiable assets which was amortized over a three-year period
which ended in June 1996. In addition, the statement of operations for the year
ended January 31, 1997, includes a gain on an insurance settlement associated
with a fire at Culligan's Belgian facility in July 1993. Due to the
significance of these items, and considering that they are either of a short
duration or nonrecurring, management believes that it is useful to isolate
their impact on the statement of operations. The after tax impact on net income
and the impact on net income per share are shown below. This information does
not represent and should not be considered an alternative to net income, any
other measure of performance as determined by generally accepted accounting
principles or as an indicator of operating performance.
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ----------------
<S> <C>
Amortization of reorganization value in excess of identifiable
assets(d).................................................... $(15,551)
Gain on insurance settlement, net of tax...................... $ 1,204
--------
$(14,347)
========
Impact on net income per share................................ $ (0.67)
========
</TABLE>
- --------
(a) In June 1993, Astrum International Corp. ("Astrum"), the predecessor of the
Company's former parent Samsonite Corporation ("Samsonite"), completed a
financial restructuring pursuant to a plan of reorganization under Chapter
11 of the United States Bankruptcy Code (the "Plan"). Effective June 30,
1993 and pursuant to SOP 90-7, Astrum and all its subsidiaries, including
Culligan, were required to adjust their assets and liabilities to their
fair ("Fresh Start") values. Due to the effect of SOP 90-7, amortization of
intangible assets and interest expense (see notes (d) and (g) below) for
the periods before and after June 30, 1993 are not comparable. The
information for the predecessor company reflects activity occurring through
June 30, 1993, prior to the effective date of the Plan.
(b) Administrative expenses allocated from Samsonite represent certain
accounting and management services performed for the benefit of Culligan
primarily related to Astrum's reorganization and the distribution of
Culligan Common Stock to stockholders of Samsonite (the "Culligan Spin-
Off"). In prior years, these services were not provided, and are not
anticipated to recur on an on-going basis.
(c) Culligan implemented a plan to consolidate the production facilities and
administrative functions of certain operations in Europe. The severance,
other personnel related costs and facility shut-down expenses related to
the restructuring resulted in charges in fiscal 1994 and fiscal 1995 of
$2.1 million and $5.9 million, respectively.
(d) Amortization of intangible assets consists of the following:
<TABLE>
<CAPTION>
SEVEN
EXPECTED FIVE MONTHS MONTHS
USEFUL YEAR ENDED ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED
LIFE JANUARY 31, JUNE 30, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
(YEARS) 1993 1993 1994 1995 1996 1997
-------- ----------- ----------- ----------- ----------- ----------- -----------
PREDECESSOR PREDECESSOR
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Amortization of reorga-
nization value in ex-
cess of identifiable
assets................. 3 -- -- $21,771 $37,322 $37,322 $15,551
Amortization of trade-
marks and other "Fresh -- -- 758 1,300 1,300 1,300
Start" intangibles..... 40 ------ ---- ------- ------- ------- -------
Total "Fresh Start" am-
ortization............. -- -- 22,529 38,622 38,622 16,851
Amortization of good-
will................... 10 to 40 1,677 699 -- 18 158 504
Amortization of other 68 32 25 51 22 167
intangibles............ 3 to 9 ------ ---- ------- ------- ------- -------
Total amortization of $1,745 $731 $22,554 $38,691 $38,802 $17,522
intangible assets..... ====== ==== ======= ======= ======= =======
</TABLE>
19
<PAGE>
"Fresh Start" amortization represents the expense arising solely as a result
of "Fresh Start" accounting in accordance with SOP 90-7.
(e) Depreciation included in cost of goods sold and selling, general and
administrative related to adjustments of assets and liabilities to fair
value in connection with the adoption of SOP 90-7 consists of the
following.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
SEVEN
MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
1994 1995 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
"Fresh Start" depreciation
in cost of goods sold...... $1,040 $1,414 $1,077 $603
"Fresh Start" depreciation
in selling, general and ad- 520 707 539 301
ministrative............... ------ ------ ------ ----
Total "Fresh Start" depreci- $1,560 $2,121 $1,616 $904
ation...................... ====== ====== ====== ====
</TABLE>
Property and equipment revalued in connection with the adoption of SOP 90-7
are being depreciated over their respective estimated useful lives,
primarily ranging from two to six years.
(f) Other income, net for fiscal 1997 includes a gain of approximately $2
million on an insurance settlement associated with a fire at Culligan's
Belgian facility in July 1993.
(g) Interest expense for periods subsequent to June 30, 1993 includes interest
on the $150 million note payable to Samsonite issued in connection with
Astrum's reorganization. A principal payment of $20 million to Samsonite
and a $30 million contribution by Samsonite to equity capital of Culligan
on December 1, 1994 and January 31, 1995, respectively, reduced the
outstanding principal during fiscal 1995. During July 1995, borrowings
under a $150 million credit facility entered into by Culligan in July 1995
(the "Culligan Credit Facility") were used to repay in full the outstanding
balance of the note payable to Samsonite (the "Refinancing").
(h) EBITDA is defined as income before interest and taxes, restructuring
expense and administrative expenses allocated from Samsonite plus
depreciation and amortization. Culligan believes that EBITDA provides
useful information regarding a company's financial performance. EBITDA
should not be considered in isolation or as an alternative to net income,
an indicator of Culligan's operating performance, or an alternative to
Culligan's cash flow from operating activities as a measure of liquidity.
(i) Includes the effects of SOP 90-7 "Fresh Start" reporting recorded at June
30, 1993, net of depreciation and amortization. Pursuant to SOP 90-7, the
net book value of property and equipment was increased by $28 million,
intangible and other assets were increased by $110 million, and a deferred
tax liability of $35 million was recorded. In addition, in June 1993,
Culligan issued a subordinated note payable to Samsonite in the amount of
$150 million.
(j) At January 31, 1994, cash decreased $91 million primarily as a result of
payments of dividends and intercompany payables in connection with Astrum's
reorganization.
(k) During fiscal 1995, a principal payment of $20 million to Samsonite and a
$30 million contribution by Samsonite to equity capital of Culligan were
made on December 1, 1994 and January 31, 1995, respectively, related to the
note payable to Samsonite.
(l) During fiscal 1994, Culligan paid dividends to Samsonite of $76 million. In
addition, the effects of "Fresh Start" reporting recorded at June 30, 1993,
net of the impact of issuing the $150 million note payable to Samsonite,
reduced equity capital by approximately $47 million.
(m) During fiscal 1996, Culligan completed the sale of 4,025,000 shares of
common stock. Net proceeds included in equity capital at January 31, 1996
are approximately $85 million. Culligan used such proceeds to repay
borrowings under the Culligan Credit Facility. Also during fiscal 1996,
prior to the Culligan Spin-Off, Samsonite contributed approximately $5
million to equity capital of Culligan.
(n) During fiscal 1997, Culligan issued additional shares of common stock upon
the exercise of overallotment options granted to underwriters in connection
with a secondary public offering of shares of Culligan's common stock. The
net proceeds included in equity capital at January 31, 1997 are
approximately $32 million which includes proceeds from the exercise of
stock options by one of the selling stockholders in the offering. In
addition, as a result of the exercise of stock options, Culligan recognized
an income tax benefit of approximately $7.5 million which it recorded as
additional paid-in-capital during fiscal 1997.
20
<PAGE>
AMETEK SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth selected historical consolidated financial
data for AMETEK, Inc. for each of the years in the five-year period ended
December 31, 1996. Such data has been derived from, and should be read in
conjunction with, the audited consolidated financial statements (including the
related notes thereto) and financial information contained in the AMETEK 10-K.
See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE."
AMETEK, INC.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $ 868.7 $ 837.5 $ 774.7 $ 701.8 $ 738.7
Costs and expenses(a)... 773.6 748.2 699.4 703.1 662.1
--------- --------- --------- --------- ---------
Operating income (loss). 95.1 89.3 75.3 (1.3) 76.6
Other expenses, net(a).. (16.4) (20.0) (17.5) (11.3) (12.5)
--------- --------- --------- --------- ---------
Income (loss) from
continuing operations
before taxes............ 78.7 69.3 57.8 (12.6) 64.1
Provision for (benefit
from) income taxes...... 27.5 25.5 21.2 (4.5) 21.3
--------- --------- --------- --------- ---------
Income (loss) from
continuing operations... 51.2 43.8 36.6 (8.1) 42.8
Special items(b)........ -- 8.5 (5.6) .8 1.6
--------- --------- --------- --------- ---------
Net income (loss)(a).... $ 51.2 $ 52.3 $ 31.0 $ (7.3) $ 44.4
========= ========= ========= ========= =========
Earnings per share:
Income (loss) from
continuing
operations(a)......... $ 1.57 $ 1.31 $ .99 $ (.18) $ .97
Special items(b)...... -- .25 (.15) .01 .04
--------- --------- --------- --------- ---------
Net income (loss)..... $ 1.57 $ 1.56 $ .84 $ (.17) $ 1.01
========= ========= ========= ========= =========
Dividends declared and
paid per share.......... $ .24 $ .24 $ .24 $ .57 $ .68
========= ========= ========= ========= =========
BALANCE SHEET DATA (AT
DECEMBER 31):
Working capital of
continuing operations... $ 61.0 $ 38.7 $ 80.5 $ 143.1 $ 194.0
Total assets............ $ 537.9 $ 526.7 $ 494.2 $ 556.1 $ 596.6
Short-term debt......... $ 31.8 $ 56.4 $ 11.8 $ 14.5 $ 19.7
Long-term debt.......... $ 150.3 $ 150.4 $ 190.3 $ 172.4 $ 187.2
Stockholders' equity.... $ 129.5 $ 87.1 $ 73.2 $ 165.3 $ 210.3
ADDITIONAL FINANCIAL DA-
TA:
Depreciation and
amortization............ $ 34.9 $ 34.5 $ 35.5 $ 33.7 $ 34.6
Capital expenditures.... $ 41.2 $ 31.7 $ 22.8 $ 35.8 $ 23.8
EBITDA(c)............... $ 131.4 $ 123.7 $ 113.1 $ 88.8 $ 112.4
Ratio of EBITDA to
interest expense(c)..... 6.8x 5.8x 4.9x 5.0x 5.6x
Ratio of debt to
EBITDA(c)............... 1.4x 1.7x 1.8x 2.1x 1.8x
Ratio of earnings to
fixed charges(d)........ 4.6x 4.0x 3.3x --(d) 3.9x
</TABLE>
- --------
(a) Amounts in 1993 include pre-tax charges totaling $54.9 million ($33.5
million after tax, or $.77 per share) for restructuring and other unusual
items.
(b) Special items in 1995 include a $10.4 million ($.31 per share) gain from
the sale of a discontinued operation and a $2.7 million ($.08 per share)
after-tax loss related to debt agreements. Amounts in 1994 include an $11.8
million ($.32 per share) after-tax loss on the early extinguishments of
debt and an after-tax gain of $3.8 million ($.11 per share) from the effect
of a change in accounting for certain marketable securities.
21
<PAGE>
(c) EBITDA represents income from continuing operations before interest, taxes,
depreciation and amortization, amortization of deferred financing costs,
and nonrecurring items. It should not be considered, however, an
alternative to operating income as an indicator of AMETEK's operating
performance, or as an alternative to cash flow as a measure of AMETEK's
overall liquidity as presented in AMETEK's financial statements.
(d) For purposes of calculating the ratio of earnings to fixed charges,
earnings represents income from continuing operations before income taxes
and fixed charges. Fixed charges consist of interest expense, amortization
of deferred financing costs and the estimated component of operating lease
expenses representing interest (assumed to be one-third). Earnings from
continuing operations in 1993 were insufficient to cover fixed charges by
approximately $13.5 million.
22
<PAGE>
THE WATER FILTRATION BUSINESS SELECTED
COMBINED HISTORICAL FINANCIAL DATA
The following selected combined historical financial data of the business of
AMETEK after the Spin-Off (the Water Filtration Business) as of December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996, are derived from the audited Combined Financial Statements of the Water
Filtration Business. The selected combined financial data as of December 31,
1994 and for the years ended December 31, 1993 and 1992, are derived from
unaudited financial statements, which include all adjustments which are of a
normal recurring nature and which, in the opinion of management, are necessary
for a fair presentation of the results of the periods presented. The selected
combined financial data set forth below should be read in conjunction with the
Combined Financial Statements of the Water Filtration Business and the
accompanying notes included elsewhere herein, "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE WATER
FILTRATION BUSINESS" contained elsewhere herein and the AMETEK historical
consolidated financial statements and the accompanying notes contained in the
AMETEK 10-K, which are incorporated by reference herein. See "AVAILABLE
INFORMATION," "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE" and "INDEX TO
COMBINED FINANCIAL STATEMENTS OF THE WATER FILTRATION BUSINESS." This
information should also be read in conjunction with the Culligan unaudited pro
forma financial information and accompanying notes thereto included elsewhere
herein. See "CULLIGAN UNAUDITED PRO FORMA FINANCIAL INFORMATION."
THE WATER FILTRATION BUSINESS
(a wholly owned business of AMETEK)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................. $68,650 $55,643 $54,086 $50,419 $39,648
Costs and expenses.................... 56,290 44,820 42,162 42,083 30,878
------- ------- ------- ------- -------
Operating income...................... 12,360 10,823 11,924 8,336 8,770
Other income (expense), net........... (9) 32 17 8 20
------- ------- ------- ------- -------
Income before income taxes............ 12,351 10,855 11,941 8,344 8,790
Provision for income taxes............ 4,188 3,857 4,210 3,057 3,139
------- ------- ------- ------- -------
Net income............................ $ 8,163 $ 6,998 $ 7,731 $ 5,287 $ 5,651
======= ======= ======= ======= =======
BALANCE SHEET DATA (AT DECEMBER 31):
Working capital....................... $10,626 $ 9,503 $ 7,856 $ 6,694 $ 7,072
Total assets.......................... $39,257 $37,522 $29,162 $28,093 $25,042
Long-term notes payable (including
current portion)...................... $ 343 $ 311 $ 313 $ -- $ --
Net worth............................. $29,707 $29,868 $21,868 $20,159 $19,165
ADDITIONAL FINANCIAL DATA:
Depreciation and amortization......... $ 2,247 $ 1,657 $ 1,625 $ 1,783 $ 1,427
Capital expenditures.................. $ 2,169 $ 2,404 $ 2,434 $ 3,279 $ 814
</TABLE>
23
<PAGE>
CULLIGAN UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Condensed Pro Forma Combined Financial Information illustrates
the pro forma effect of the Merger and has been derived from, or prepared on a
basis consistent with, the unaudited pro forma financial information included
elsewhere in this Joint Proxy Statement/Prospectus. See "CULLIGAN UNAUDITED PRO
FORMA FINANCIAL INFORMATION." This information is presented for illustrative
purposes only and is not necessarily indicative of the combined results of
operations or financial position that would have occurred if the Merger had
occurred at the assumed dates indicated, nor is it necessarily indicative of
the future operating results or financial position of Culligan. See "CULLIGAN
UNAUDITED PRO FORMA FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
PRO FORMA
WATER YEAR ENDED
FILTRATION MERGER JANUARY 31,
CULLIGAN BUSINESS ADJUSTMENTS 1997
-------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $371,018 $68,650 $ (827) $438,841
Operating income (loss)............ $ 33,983 $12,360 $ (3,141) $ 43,202
Net income (loss).................. $ 15,885 $ 8,163 $ (4,084) $ 19,964
Net income (loss) per share........ $ 0.74 n/a n/a $ 0.80
BALANCE SHEET DATA:
Total current assets............... $152,654 $18,170 -- $170,824
Total assets....................... $337,362 $39,257 $123,930 $500,549
Total current liabilities.......... $ 73,231 $ 7,544 $ 1,163 $ 81,938
Total long-term liabilities........ $ 90,491 $ 2,006 $ 25,000 $117,497
Total stockholders' equity......... $173,640 $29,707 $ 97,767 $301,114
Total liabilities and stockholders'
equity............................. $337,362 $39,257 $123,930 $500,549
</TABLE>
24
<PAGE>
COMPARATIVE PER SHARE DATA OF CULLIGAN AND AMETEK
CULLIGAN PRO FORMA PER COMMON SHARE DATA
The following table sets forth for Culligan Common Stock certain historical
and pro forma combined and pro forma equivalent per share financial information
for the year ended January 31, 1997. The pro forma combined amounts included in
the table below are based on the purchase method of accounting and a
preliminary allocation of the purchase price. The following information should
be read in conjunction with, and is qualified in its entirety by, the
historical financial statements of Culligan and AMETEK, which have been
incorporated herein by reference. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE." This information should
also be read in conjunction with the Combined Financial Statements and
accompanying notes of the Water Filtration Business included elsewhere herein,
and the pro forma financial information and accompanying notes set forth under
"CULLIGAN UNAUDITED PRO FORMA FINANCIAL INFORMATION."
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31, 1997
-------------------
CULLIGAN
CULLIGAN PRO
HISTORICAL FORMA
---------- --------
<S> <C> <C>
Earnings per common share............................. $0.74 $ 0.80
Dividends per common share............................ N/A N/A
<CAPTION>
AT JANUARY 31, 1997
-------------------
<S> <C> <C>
Book value per common share........................... $8.14 $12.14
</TABLE>
EQUIVALENT AMETEK AND CULLIGAN PRO FORMA PER COMMON SHARE DATA
The following table sets forth for AMETEK Common Stock certain per share
historical financial information, and for Culligan and New Ametek, certain per
share pro forma financial information for the year ended December 31, 1996. The
pro forma Culligan information is derived by multiplying the Culligan pro forma
earnings, dividends, and book value per share by an assumed Merger
consideration per share ratio of .11 shares of Culligan Common Stock for each
share of AMETEK Common Stock. The pro forma New Ametek information is derived
by multiplying the New Ametek pro forma earnings and book value per share by
the distribution ratio of one share of New Ametek Common Stock for each share
of AMETEK Common Stock.
The following information should be read in conjunction with, and is
qualified in its entirety by, the historical consolidated financial statements
and the accompanying notes contained in the AMETEK 10-K, which are incorporated
herein by reference, and Culligan's Unaudited Pro Forma Financial Information
and the accompanying notes included elsewhere herein and the New Ametek
financial information contained under the heading "PRO FORMA FINANCIAL
INFORMATION" included in the New Ametek Information Statement which is included
as Appendix E hereto. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE."
<TABLE>
<CAPTION>
EQUIVALENT PER SHARE DATA
-----------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 JANUARY 31, 1997
--------------------- -------------------
AMETEK NEW AMETEK CULLIGAN
HISTORICAL PRO FORMA PRO FORMA
---------- ---------- -------------------
<S> <C> <C> <C>
Earnings per common share from
continuing operations........ $1.32 $1.35 $0.09
Dividends per common share.... $ .24 $ .24 N/A
<CAPTION>
AT DECEMBER 31, 1996
---------------------
AMETEK NEW AMETEK
HISTORICAL PRO FORMA AT JANUARY 31, 1997
---------- ---------- -------------------
<S> <C> <C> <C>
Book value per common share... $3.96 $3.68 $1.34
</TABLE>
25
<PAGE>
RISK FACTORS
In addition to the other information set forth in this Joint Proxy
Statement/Prospectus, the following factors should be considered by the holders
of AMETEK Common Stock before voting on the proposals herein. This Joint Proxy
Statement/Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act, and Section 21E of the Exchange
Act. Such statements are subject to inherent risks and uncertainties, some of
which cannot be predicted or quantified. Actual results could differ materially
from those projected in the forward-looking statements as a result of certain
of the risk factors set forth under "RISK FACTORS" and elsewhere in this Joint
Proxy Statement/Prospectus.
RISKS ASSOCIATED WITH THE MERGER
Expected Benefits of Combined Business May Not Be Achieved. There can be no
assurance that the expected benefits of the Merger related to the combined
businesses as described under "REASONS FOR THE TRANSACTION; RECOMMENDATION OF
THE AMETEK BOARD" will be achieved. The integration of the two water filtration
businesses may present management challenges and there can be no assurance that
such actions needed to meet these challenges will be successfully accomplished
within a specified period of time.
Changes in Value of Merger Consideration Per Share. The stock price of
Culligan Common Stock at the Effective Time may vary from the prices as of the
date of execution of the Merger Agreement, the date hereof, or the date on
which stockholders vote on the Merger due to, among other factors, changes in
the business, operations and prospects of Culligan or AMETEK, market
assessments of the likelihood that the Merger will be consummated and the
timing thereof, and general market and economic conditions. Because the
Exchange Ratio is based on a fixed-price of $37.50 for Culligan Common Stock
and the market price for Culligan Common Stock fluctuates, the value of the
Culligan Common Stock that holders of AMETEK Common Stock will receive in the
Merger increases as the market price of Culligan Common Stock increases and
decreases as the market price of Culligan Common Stock decreases. In addition,
because additional shares of AMETEK Common Stock may be issued prior to the
Effective Time, the value of the consideration per share received by holders of
AMETEK Common Stock in the Merger may decrease. See "THE MERGER AGREEMENT--
Conversion of AMETEK Common Stock."
RISKS WHICH CURRENTLY APPLY TO CULLIGAN
Significant Non-Cash Charges of Culligan; Reported Losses. As a result of the
emergence from bankruptcy of Culligan's former parent (the "Former Parent") in
June 1993, the Former Parent and all its subsidiaries, including Culligan, were
required to adjust their assets and liabilities to reflect their fair values.
The reorganization value in excess of identifiable assets of Culligan, which
was $112 million at the time of the Former Parent's emergence from bankruptcy,
was amortized through charges to the consolidated statement of operations over
a three year period that ended in June 1996. While these amounts represent non-
cash charges, they have had an adverse effect on reported results of operations
in fiscal years 1995, 1996 and 1997. The losses so reported as a result of the
amortization of these charges have had a similar effect on reported
stockholders' equity. See "SUMMARY CONDENSED HISTORICAL AND PRO FORMA FINANCIAL
INFORMATION." The Merger will result in substantial goodwill (estimated to be
approximately $123,000,000) which is expected to be amortized on a straight
line basis over a 40 year period.
General Business Strategy. Culligan's business strategy includes initiatives
to increase advertising expenditures, expand its distribution network in both
new and existing markets, expand its direct sales force, develop new products,
make strategic acquisitions of businesses, products and technology, introduce
existing products and technologies into its new markets and distribution
channels and introduce new products and services internationally. Culligan's
strategic plan should be considered in light of the risks, expenses and
difficulties frequently encountered in growing a business enterprise. Culligan
expects to incur significant costs in attempting to implement the initiatives
described above. The success in implementing those initiatives will depend on
numerous factors, many of which are beyond Culligan's control, including
economic, competitive and other conditions and uncertainties and no assurance
can be given that Culligan will be successful in implementing its business
strategy. Culligan's growth strategy is expected to require greater capital for
its successful execution than Culligan has previously required. There can be no
assurance that Culligan will grow as desired.
26
<PAGE>
Acquisition Strategy. Culligan's business strategy depends in part on its
ability to effect acquisitions in the fragmented water purification and
treatment industry. Culligan continually explores acquisition opportunities.
The purchase price for potential acquisitions, which could involve
consideration substantially in excess of amounts previously paid by Culligan
for acquisitions, may be paid in cash, through the issuance of Culligan Common
Stock (which would increase the number of shares of Culligan Common Stock
outstanding) or other securities of Culligan, borrowings, or a combination
thereof. There can be no assurance that Culligan will be able to make
acquisitions on terms favorable to Culligan. With respect to recently
completed and potential future acquisitions, Culligan may encounter various
associated risks, including the possible inability to integrate an acquired
business into Culligan's manufacturing systems, increased goodwill
amortization, increased leverage, diversion of management's attention and
unanticipated problems or liabilities, some or all of which could have a
material adverse effect on Culligan's operations and financial performance.
Competition. The markets in which Culligan competes are highly competitive.
Culligan competes with many domestic and international companies in its global
markets. The principal methods of competition in the markets in which Culligan
competes are distribution capabilities, product specifications, product
knowledge and reputation, technology, service and price. Culligan has a
significant number of competitors, some of which have greater resources than
Culligan.
Technological and Regulatory Change. The water purification and treatment
business is characterized by changing technology, competitively imposed
process standards and regulatory requirements, each of which influences the
demand for Culligan's products and services. Changes in regulatory or
industrial requirements may render certain of Culligan's purification and
treatment products and processes obsolete. Acceptance of new products may also
be affected by the adoption of new government regulations requiring stricter
standards. Culligan's ability to anticipate changes in technology and
regulatory standards and to successfully develop and introduce new and
enhanced products on a timely basis will be a significant factor in Culligan's
ability to grow and to remain competitive. There can be no assurance that
Culligan will be able to achieve the technological advances that may be
necessary for it to remain competitive or that certain of its products will
not become obsolete. In addition, Culligan is subject to the risks generally
associated with new product introductions and applications, including lack of
market acceptance, delays in development or failure of products to operate
properly.
Risks Associated with International Operations. Approximately 36% of
Culligan's net sales for fiscal 1997 were derived from operations conducted
outside of the United States. Culligan's operations may be affected by
economic, political and governmental conditions in some of the countries where
Culligan has manufacturing facilities and where its products are marketed. In
addition, changes in economic or political conditions in any of the countries
in which Culligan operates could result in unfavorable exchange rates, new or
additional currency or exchange controls or other restrictions being imposed
on the operations of Culligan. Similarly, Culligan's operations may be
adversely affected by significant fluctuations in the value of the United
States dollar against certain foreign currencies, and the enactment of
exchange controls or foreign governmental or regulatory restrictions on the
transfer of funds.
Restrictive Covenants. Culligan's credit facility requires it to achieve and
maintain certain financial ratios. In addition, the credit facility contains
numerous financial and operating covenants, including restrictions on the
ability of Culligan to incur indebtedness, to merge, consolidate or transfer
all or substantially all of its assets, to make certain sales of assets and to
create, incur or permit the existence of certain liens. Such financial ratios,
restrictions and covenants may affect the operating flexibility of Culligan.
Further, the failure to maintain the ratios or to comply with the covenants
would result in a default and permit the lenders under the credit facility to
accelerate the maturity of the indebtedness governed by the credit facility
and related instruments.
Controlling Stockholders. Prior to giving effect to the Merger, affiliates
of Apollo Advisors, L.P. (collectively "Apollo") beneficially own
approximately 34% of the outstanding Culligan Common Stock (approximately 29%
after giving effect to the Merger). By reason of such percentage ownership,
Apollo may
27
<PAGE>
have significant control over the management and policies of Culligan. The
level of ownership of the outstanding Culligan Common Stock by Culligan's
principal stockholders may have the effect of making more difficult or of
discouraging, absent the support of such stockholders, a proxy contest, a
merger involving Culligan, a tender offer, an open market purchase program or
other purchases of the Culligan Common Stock that could give holders of such
stock the opportunity to realize a premium over the then-prevailing market
price for their shares of the Culligan Common Stock.
Certain Anti-Takeover Provisions. Certain provisions of the Culligan
Certificate and By-Laws, together or separately, may discourage potential
acquisition proposals, delay or prevent a change in control of Culligan and
limit the price that certain investors might be willing to pay in the future
for shares of the Culligan Common Stock. These provisions include a classified
board of directors, a stockholder rights plan, the ability to issue, without
further stockholder approval, preferred stock with rights and privileges which
would be senior to the Culligan Common Stock and advance notice procedures for
stockholders to nominate candidates for election as directors of Culligan and
submit proposals for consideration at stockholders' meetings. See "DESCRIPTION
OF CULLIGAN CAPITAL STOCK" and "COMPARISON OF RIGHTS OF STOCKHOLDERS."
Shares Eligible for Future Sale. No prediction can be made as to the effect,
if any, that future sales of Culligan Common Stock, or the availability of
Culligan Common Stock for future sales, will have on the market price of the
Culligan Common Stock prevailing from time to time. Sales in the public market
of substantial amounts of Culligan Common Stock (including shares of Culligan
Common Stock acquired upon the exercise of options), or the perception that
such sales could occur, could adversely affect prevailing market prices for
the Culligan Common Stock.
Dividend Policy. Culligan currently anticipates that it will not pay cash
dividends on shares of Culligan Common Stock in the foreseeable future. The
payment of dividends will be a business decision to be made by the Culligan
Board from time to time based on such considerations as the Culligan Board
deems relevant, will be payable only out of funds legally available under the
Delaware General Corporation Law (the "DGCL") and will be subject to any
restrictions which may be contained in Culligan's debt instruments. The
payment of dividends on Culligan Common Stock is currently limited by the
Culligan Credit Facility.
RISKS RELATING TO NEW AMETEK
For a discussion of certain risks relating to the business and operations of
New Ametek, see "RISK FACTORS" in the New Ametek Information Statement
included as Appendix E hereto.
28
<PAGE>
THE AMETEK SPECIAL MEETING
DATE, TIME AND PLACE; PURPOSE OF MEETING
This Joint Proxy Statement/Prospectus is being furnished in connection with
the solicitation of proxies by the AMETEK Board for use at the AMETEK Special
Meeting. The AMETEK Special Meeting will be held on , 1997 at the
Desmond Great Valley Hotel and Conference Center, One Liberty Boulevard,
Malvern, Pennsylvania 19355, at 10:00 a.m., local time. The AMETEK Special
Meeting will be held for the purpose of considering and voting upon proposals
to (i) approve and adopt the Merger Agreement, the Distribution Agreement, the
Merger and the Spin-Off, (ii) elect eight directors to hold office for the
terms specified in this Joint Proxy Statement/Prospectus and until their
successors are elected and qualified, (iii) approve the appointment of Ernst &
Young LLP as independent auditors for the year 1997 and (iv) transact such
other business as may properly come before the AMETEK Special Meeting or any
adjournments or postponements thereof.
Management of AMETEK knows of no matters to be brought before the AMETEK
Special Meeting other than those referred to herein. If any other business
should properly come before the AMETEK Special Meeting other than those
referred to herein, the persons named in the proxy will vote in accordance
with their best judgment.
THE AMETEK BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, THE DISTRIBUTION AGREEMENT, THE
MERGER AND THE SPIN-OFF, AS WELL AS EACH OF THE FOREGOING ADDITIONAL ACTIONS.
RECORD DATE
The AMETEK Board has fixed the close of business on , 1997 as the
AMETEK Record Date. Only the holders of record of the outstanding shares of
AMETEK Common Stock on the AMETEK Record Date will be entitled to notice of,
and to vote at, the AMETEK Special Meeting and any adjournments or
postponements thereof. At the AMETEK Record Date, shares of AMETEK
Common Stock were outstanding and entitled to vote. There were, in addition,
issued shares held by AMETEK in its treasury which, while so held,
cannot be voted. The presence, in person or by proxy, of a majority of the
aggregate number of shares of AMETEK Common Stock outstanding and entitled to
vote on the AMETEK Record Date is necessary to constitute a quorum at the
AMETEK Special Meeting.
PROXIES; VOTING AND REVOCATION
Shares of AMETEK Common Stock, represented by a properly executed proxy
received prior to the vote at the AMETEK Special Meeting and not revoked, will
be voted at the AMETEK Special Meeting as directed in the proxy. If a proxy is
submitted and no directions are given, the proxy will be voted for the
approval and adoption of the Merger Agreement, the Distribution Agreement, the
Merger and the Spin-Off, and for the additional proposals referred to herein.
AMETEK intends to count shares of AMETEK Common Stock present in person at the
AMETEK Special Meeting but not voting, and shares of AMETEK Common Stock for
which it has received proxies but with respect to which holders of shares have
abstained on any matter, as present at the AMETEK Special Meeting for purposes
of determining the presence or absence of a quorum for the transaction of
business. Since the affirmative vote of the holders of a majority of the
outstanding shares of AMETEK Common Stock entitled to vote on the Merger is
required to approve and adopt the Merger Agreement, the Distribution
Agreement, the Merger and the Spin-Off, such nonvoting shares and abstentions
will have the effect of a vote against the approval of the Merger Agreement,
the Distribution Agreement, the Merger and the Spin-Off. In addition, under
the rules of the NYSE, brokers who hold shares in street name for customers
who are the beneficial owners of such shares are prohibited from giving a
proxy to vote shares held for such customers with respect to the approval and
adoption of the Merger Agreement, the Distribution Agreement, the Merger and
the Spin-Off without specific instructions from such customers. The enclosed
proxy also serves as the voting
29
<PAGE>
instruction card for the trustees who hold shares of record for participants
in the AMETEK Savings and Investment Plan. Shares for which no instructions
are received by the trustee will be voted in the same proportion as the shares
for which the trustee receives instructions. Therefore, it is imperative to
the consummation of the Merger that you return your proxy card. The AMETEK
Board and management recommend you vote FOR on all items on the proxy.
Each share of AMETEK Common Stock is entitled to one vote with respect to
the proposal to approve and adopt the Merger Agreement, the Distribution
Agreement, the Merger and the Spin-Off. The persons named as proxies by a
stockholder may propose and vote for one or more adjournments or postponements
of the AMETEK Special Meeting to permit further solicitation of proxies in
favor of such proposal; provided, however, that no proxy that is voted against
the proposal to approve and adopt the Merger Agreement, the Distribution
Agreement, the Merger and the Spin-Off will be voted in favor of any such
adjournment or postponement. Votes are tabulated at the AMETEK Special Meeting
by inspectors of election.
A stockholder of record may revoke a proxy at any time prior to its being
voted by filing an instrument of revocation with Donna F. Winquist, Corporate
Secretary of AMETEK (AMETEK, Inc., Station Square, Paoli, Pennsylvania 19301),
by filing a duly executed proxy bearing a later date, or by appearing at the
AMETEK Special Meeting in person, notifying the Secretary, and voting by
ballot at the AMETEK Special Meeting. Any stockholder of record attending the
AMETEK Special Meeting may vote in person whether or not a proxy has been
previously given, but the mere presence (without notifying the Secretary of
AMETEK) of a stockholder at the AMETEK Special Meeting will not constitute
revocation of a previously given proxy. In addition, stockholders who hold
shares of AMETEK Common Stock that are not registered in their own name will
need additional documentation from the record holder of such shares to vote
personally at the AMETEK Special Meeting.
REQUIRED VOTES; PRINCIPAL STOCKHOLDERS
The affirmative vote of the holders of a majority of shares of AMETEK Common
Stock issued, outstanding and entitled to vote at the AMETEK Special Meeting
is necessary to approve and adopt the Merger Agreement, the Distribution
Agreement, the Merger and the Spin-Off. Such approval by holders of AMETEK
Common Stock is a condition to the consummation of the Spin-Off and the
Merger.
As of the AMETEK Record Date, shares of AMETEK Common Stock were
outstanding and entitled to vote. Of such shares, , or approximately %,
were held by directors and executive officers of AMETEK, its subsidiaries and
their respective affiliates, all of which they intend to vote for approval of
the Merger Agreement, the Distribution Agreement, the Merger and the Spin-Off.
Information with respect to beneficial ownership of AMETEK Common Stock by
entities owning more than 5.0% of such stock and more detailed information
with respect to beneficial ownership of AMETEK Common Stock by AMETEK
directors and executive officers are incorporated by reference to the AMETEK
10-K. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE." Such information is also set forth in the section entitled
"INFORMATION AS TO NOMINEES FOR ELECTION OF DIRECTORS--Stock Ownership," which
is included in this Joint Proxy Statement/Prospectus.
SOLICITATION OF PROXIES
The expense of printing and mailing this Joint Proxy Statement/Prospectus
and the material used in this solicitation of proxies will be borne equally by
Culligan and AMETEK. These expenses and certain other transaction expenses are
subject to a cap of $1,500,000 in the case of Culligan. It is contemplated
that AMETEK proxies will be solicited through the mail and directly by
officers, directors, and regular employees of Culligan and AMETEK. AMETEK will
reimburse banks, brokerage houses and other custodians, nominees and
fiduciaries for their reasonable expenses in forwarding these proxy materials
to the principals. AMETEK has engaged Georgeson & Company, Inc. to represent
it in connection with the solicitation of proxies at a cost of approximately
$10,000 plus expenses.
30
<PAGE>
PROPOSAL (1)
APPROVAL OF THE MERGER AND THE SPIN-OFF
THE AMETEK BOARD RECOMMENDS A VOTE FOR APPROVAL OF THIS PROPOSAL
BACKGROUND OF THE SPIN-OFF AND THE MERGER
AMETEK regularly evaluates strategic alternatives with respect to its
distinct lines of business with a view toward enhancing stockholder value. In
April 1996, representatives of Culligan first approached AMETEK's Chief
Financial Officer, John J. Molinelli, with an unsolicited expression of
interest in purchasing the Water Filtration Business. AMETEK's management
believed that the valuations then being proposed by Culligan for the Water
Filtration Business were too low. However, informal discussions among Culligan
and AMETEK representatives continued into July 1996. During this period,
Culligan solicited from its investment bankers an estimated range of values
for the Water Filtration Business based on the limited public information then
available to it. At its July 1996 meeting, the AMETEK Board reviewed with
management the initial valuations proposed by Culligan and concurred with
management's view that those valuations were insufficient to warrant further
discussions.
In August 1996, Culligan, through certain investment banking contacts,
reinitiated discussions with AMETEK regarding a possible acquisition of the
Water Filtration Business at a higher valuation then previously discussed.
Regular discussions continued over the next month during which time
alternative structures were suggested for the Culligan acquisition of the
Water Filtration Business. In early October 1996, Culligan and AMETEK executed
a confidentiality agreement at which point AMETEK provided Culligan with an
initial package of financial information regarding the Water Filtration
Business. In late October 1996, Culligan advised AMETEK that, based on the
information so far provided, it had increased its valuation of the Water
Filtration Business, and that a further increase in this valuation might be
possible based on additional information it was requesting.
In early November 1996, Walter Blankley, the Chief Executive Officer of
AMETEK, and Douglas Pertz, the Chief Executive Officer of Culligan, met to
discuss various issues relating to the proposed transaction, including
valuation of the Water Filtration Business. Following this meeting, Culligan
provided AMETEK with a list of issues it wished to address relating to the
Water Filtration Business and the financial information it had received so
far. In mid-November 1996, Mr. Blankley and other members of AMETEK's
management met with Culligan's management to review these issues. Mr. Blankley
reviewed the status of the Culligan negotiations with the AMETEK Board during
its meeting on November 20, 1996. The AMETEK Board evaluated the potential
transaction with Culligan, as well as other strategic alternatives for the
Water Filtration Business. In considering the possibility of a transaction
with Culligan, the AMETEK Board evaluated the feasibility of using a structure
under which all of AMETEK's assets and operations, other than the Water
Filtration Business's assets and operations, would be spun-off to stockholders
in a tax-free distribution followed by the acquisition of the Water Filtration
Business by Culligan in a tax-free stock-for-stock merger. The AMETEK Board
authorized Mr. Blankley to explore this structure with Culligan.
In early December 1996, Messrs. Blankley and Pertz met to discuss the
valuation of a transaction based on the proposed structure. Although this
meeting did not produce an agreement on value, it did result in a narrowing of
the gap between the valuations proposed by Culligan and AMETEK as well as an
understanding that such structure would be the only viable approach for the
parties to pursue. Following the meeting, Culligan summarized the valuation
range and the other principal terms of the transaction in a draft term sheet
which it distributed in mid-December 1996. Culligan and AMETEK decided that,
although no agreement had been reached on valuation or price, work should
proceed on other aspects of the proposed transaction. Culligan then began its
due diligence review of the Water Filtration Business and discussions ensued
between Culligan's representatives and advisors and AMETEK's representatives
and advisors on structuring and documentation issues.
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Pursuant to a letter agreement dated January 27, 1997, AMETEK engaged
Goldman Sachs to review the proposed transaction with Culligan and provide the
AMETEK Board with its analysis of whether the consideration to be received in
the Merger was fair to the AMETEK stockholders.
In January 1997, the AMETEK Board invited several AMETEK advisors, including
members of Stroock & Stroock & Lavan LLP and Goldman Sachs, to attend its
regularly scheduled board meeting in order to discuss timing, structuring and
valuation issues relating to the proposed acquisition of the Water Filtration
Business by Culligan. In mid-January, Culligan provided AMETEK and its
advisors with a draft of the Merger Agreement and the parties commenced
negotiating the terms of the Merger Agreement and the related transaction
documents. The AMETEK Board held two telephonic meetings, on January 29 and
February 1, 1997, to review the status of the negotiations, including the
continuing negotiations with respect to valuation of the Water Filtration
Business. On February 4, 1997, the AMETEK Board held another meeting by
telephone during which the proposed terms of the Merger and the related
transactions were reviewed, including the proposed agreement reached by
Messrs. Blankley and Pertz regarding valuation and price. Goldman Sachs
provided the AMETEK Board with its preliminary view that, based on the terms
of the transaction as they were understood by Goldman Sachs, and subject to
finalization of the transaction terms and review of the final documentation,
the Merger consideration would be fair to the AMETEK stockholders. AMETEK's
counsel, Stroock & Stroock & Lavan LLP, provided a review of the documentation
as well as various tax, regulatory and other legal matters. Following these
presentations and a general discussion, the AMETEK Board unanimously approved
the terms of the transaction with Culligan and authorized the execution of the
Merger Agreement and related documentation. On February 5, 1997, Culligan and
AMETEK executed the Merger Agreement, and AMETEK and New Ametek executed the
Distribution Agreement. Following review of the final transaction terms and
final definitive documents, Goldman Sachs delivered its written opinion, dated
February 5, 1997, to the effect that the Exchange Ratio pursuant to the Merger
Agreement was fair to the holders of AMETEK Common Stock. On May 9, 1997 the
Merger Agreement and Distribution Agreement were amended and restated.
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REASONS FOR THE TRANSACTION; RECOMMENDATION OF THE AMETEK BOARD
The AMETEK Board has determined that the Spin-Off and the Merger create
stockholder value and are fair and in the best interests of the AMETEK
stockholders. The AMETEK Board has therefore approved the Merger Agreement and
the Distribution Documents, and unanimously recommends the approval and
adoption of the Merger Agreement, the Distribution Agreement, the Merger and
the Spin-Off by the AMETEK stockholders. In reaching this determination and
recommendation, the AMETEK Board consulted with AMETEK's management, as well
as its legal counsel and financial advisors, and considered the following
factors:
(a) the terms and conditions of the Merger Agreement and the Distribution
Agreement, including the amount and form of consideration, which includes
approximately .11 shares of Culligan Common Stock and one share of New
Ametek Common Stock for each share of AMETEK Common Stock;
(b) the fact that the Spin-Off and the Merger allow AMETEK stockholders
on a tax-free basis to retain a continuing interest in two successful and
growing businesses by retaining (i) an interest in the Water Filtration
Business through their ownership of Culligan Common Stock after the Merger
and (ii) an interest in AMETEK's electromechanical, precision instruments
and other businesses through their ownership of New Ametek Common Stock
following the Spin-Off;
(c) the ability of the parties to structure a transaction which would be
tax-free to AMETEK and its stockholders;
(d) the belief that the Water Filtration Business when combined with
Culligan, a leading water filtration company, would be able to compete more
effectively in the water filtration market than it would as a division of
AMETEK, especially taking into account the increased economies of scale of
the combined operation and Culligan's extensive distribution channels and
experience in the retail market;
(e) the belief that AMETEK, because of its relative lack of experience in
the retail markets, would not be able to fully exploit the Water Filtration
Business's potential for growth in the retail market without a substantial
investment in advertising and a significant expansion of its distribution
capabilities;
(f) the desire to refocus and simplify AMETEK's business based on the
belief that the public markets have found it difficult to value AMETEK
because of the number and diversity of its various business segments; and
(g) financial presentations of Goldman Sachs made to the AMETEK Board and
the preliminary view of Goldman Sachs to the effect that the Exchange Ratio
pursuant to the Merger Agreement was fair to the AMETEK stockholders.
The foregoing discussion of the reasons and factors considered and given
weight by the AMETEK Board is not intended to be exhaustive, but is believed
to include all of the material factors considered by the AMETEK Board. In view
of the variety of factors considered in connection with its consideration of
the Merger, the AMETEK Board did not find it practicable to and did not
quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of
the AMETEK Board may have given different weight to different factors.
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OPINION OF THE FINANCIAL ADVISOR
Goldman Sachs delivered its written opinion dated February 5, 1997 to the
AMETEK Board that as of the date of such opinion, the Exchange Ratio pursuant
to the Merger Agreement was fair to the holders of AMETEK Common Stock.
The full text of the written opinion of Goldman Sachs dated February 5, 1997,
which sets forth assumptions made, matters considered and limitations on the
review undertaken in connection with the opinion, is attached hereto as
Appendix C to this Joint Proxy Statement/Prospectus; and is incorporated herein
by reference. Stockholders of AMETEK are urged to, and should, read such
opinion in its entirety. Goldman Sachs' written opinion is addressed to the
AMETEK Board and does not constitute a recommendation to an AMETEK stockholder
as to how such stockholder should vote at the AMETEK Special Meeting and should
not be relied upon by any stockholder as such.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement; (ii) the Annual Reports to Stockholders and Annual
Reports on Form 10-K of AMETEK for the five years ended December 31, 1995 and
of Culligan for the fiscal year ended January 31, 1996; (iii) certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of AMETEK and
Culligan; (iv) certain other communications from AMETEK and Culligan to their
respective stockholders; and (v) certain internal financial analyses and
forecasts for the Water Filtration Business prepared by AMETEK's management.
Goldman Sachs also held discussions with members of the senior management of
AMETEK, the Water Filtration Business and Culligan regarding the past and
current business operations, financial condition, and future prospects, of
AMETEK and Culligan. In addition, Goldman Sachs reviewed the reported price and
trading activity for Culligan Common Stock, compared certain financial and
stock market information for AMETEK with similar information for certain other
companies the securities of which are publicly traded, reviewed the financial
terms of certain recent business combinations in the water filtration industry
specifically and in other industries generally and performed such other studies
and analyses as it considered appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of its opinion. In addition, Goldman Sachs did not make an independent
evaluation or appraisal of the assets and liabilities of the Water Filtration
Business or Culligan or any of its subsidiaries and Goldman Sachs was not
furnished with any such evaluation or appraisal. Goldman Sachs was not asked to
solicit, and accordingly did not solicit, third parties with respect to
potential alternative transactions. Goldman Sachs assumed, with AMETEK's
consent, that the Merger would be tax-free to AMETEK and its stockholders.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its written opinion to the AMETEK
Board on February 5, 1997.
(i) Historical Stock Trading Analysis. Goldman Sachs reviewed the historical
trading prices and volumes for the Culligan Common Stock.
(ii) Selected Companies Analysis. Goldman Sachs reviewed and compared certain
financial information relating to Culligan to corresponding financial
information, ratios and public market multiples for four large capitalization
publicly traded corporations: Ionics Inc., Millipore Corporation, Pall
Corporation, United States Filter Corporation (the "Large Cap Selected
Companies"); and three small capitalization publicly traded companies: Cuno
Inc., Memtec Limited and Osmonics Inc. (the "Small Cap Selected Companies" and
together with the Large Cap Selected Companies, the "Selected Companies"). The
Selected Companies were chosen because they are publicly traded companies with
operations that for purposes of analysis may be considered similar to Culligan.
Goldman Sachs calculated and compared various financial multiples and ratios.
The multiples of Culligan were calculated using a price of $36.38 per share,
the closing price of Culligan Common Stock on the NYSE on February 4, 1997. The
multiples and ratios for Culligan were based on information provided by
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Culligan's management and the multiples for each of the Selected Companies
were based on the most recent publicly available information. With respect to
the Selected Companies, Goldman Sachs considered levered market capitalization
(i.e., market value of common equity plus estimated market value of debt less
cash) as a multiple of LTM sales, as a multiple of LTM earnings before
interest, taxes, depreciation and amortization ("EBITDA") and as a multiple of
LTM earnings before interest and taxes ("EBIT"). Goldman Sachs' analyses of
the Selected Companies indicated levered multiples of LTM sales, which ranged
from 1.49x to 3.25x for the Large Cap Selected Companies and from 1.37x to
2.28x for the Small Cap Selected Companies, LTM EBITDA, which ranged from
10.8x to 21.1x for the Large Cap Selected Companies and from 14.0x to 25.2x
for the Small Cap Selected Companies, and LTM EBIT, which ranged from 13.2x to
29.6x for the Large Cap Selected Companies and from 14.0x to 25.2x for the
Small Cap Selected Companies, compared to levered multiples of 2.27x, 14.5x
and 17.6x, respectively, for Culligan. Goldman Sachs also considered for the
Selected Companies LTM price/earnings ratios, which ranged from 18.5x to 53.5x
for the Large Cap Selected Companies and from 19.0x to 29.9x for the Small Cap
Selected Companies compared to 28.6x for Culligan; estimated calendar year
1996 and 1997 price/earnings ratios, which ranged from 17.7x to 49.7x for the
Large Cap Selected Companies and from 22.1x to 23.8x for the Small Cap
Selected Companies for estimated calendar year 1996 and 15.3x to 32.1x for the
Large Cap Selected Companies and from 18.5x to 20.5x for the Small Cap
Selected Companies for estimated calendar year 1997 compared to 26.5x and
22.1x, respectively, for Culligan; LTM EBIT margins and LTM EBITDA margins,
which ranged from 5.0% to 20.9% for the Large Cap Selected Companies and from
6.3% to 12.9% for the Small Cap Selected Companies and 7.1% to 25.7% for the
Large Cap Selected Companies and from 11.8% to 14.2% for the Small Cap
Selected Companies, respectively, compared to 12.9% and 15.7%, respectively,
for Culligan.
(iii) Discounted Cash Flow Analysis. Goldman Sachs performed a discounted
cash flow analysis using AMETEK'S management projections. Goldman Sachs
calculated a net present value of future cash flows for the years 1997 through
2001 using a half-year convention and discount rates ranging from 10% to 14%.
Goldman Sachs calculated net present values of AMETEK'S terminal values in the
year 2001 using perpetuity growth rates of 3% to 7% and discount rates ranging
from 10% to 14%. The various ranges for discount rates and perpetuity growth
rates were chosen to reflect theoretical analyses of cost of capital and long-
term prospects for AMETEK, respectively.
Based on the analysis above, the implied values for AMETEK ranged from
$144.8 million to $167.7 million with a mid-range of $155.8 million.
(iv) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to selected transactions in the water
purification/filtration industry since 1992 (the "Selected Transactions").
Such analysis indicated that for the Selected Transactions (i) levered
aggregate consideration as a multiple of LTM revenues ranged from 0.45x to
2.48x, as compared to 2.26x for the levered aggregate consideration to be
received in the Merger, (ii) the multiple of LTM EBITDA ranged from 7.0x to
22.0x, as compared to 10.5x for the levered aggregate consideration to be paid
in the Merger, and (iii) levered aggregate consideration as a multiple of LTM
EBIT ranged from 7.7x to 41.0x, as compared to 12.3x for the aggregate
consideration to be paid in the Merger.
(v) Contribution Analysis. Goldman Sachs reviewed certain historical and
estimated future operating and financial information (including, among other
things, revenues, EBITDA, EBIT, net income and tangible assets) for AMETEK,
Culligan and the pro forma combined entity resulting from the Merger based on
AMETEK's historical 1996 results, and Culligan managements' consensus
financial forecasts for 1997. The analysis indicated that the AMETEK
stockholders would receive 14.0% of the outstanding common equity of the
combined companies after the Merger. Goldman Sachs also analyzed the relative
income statement contribution of AMETEK and Culligan to the combined companies
on a pro forma basis and before taking into account any of the possible
benefits that may be realized following the Merger based on actual 1996
results for AMETEK and estimated 1997 results for Culligan, based on financial
data provided to Goldman Sachs by the management of AMETEK and Culligan. This
analysis indicated that using such 1996/1997 numbers AMETEK would have
contributed 15.7% to combined revenues, 19.9% to combined EBITDA, 20.1% to
combined EBIT, and 17.1% to combined net income.
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The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the
processes underlying Goldman Sachs' opinion. In arriving at its fairness
determination, Goldman Sachs considered the results of all such analyses. No
company or transaction used in the above analyses as a comparison is identical
to AMETEK, the Water Filtration Business or Culligan or the contemplated
transaction. The analyses were prepared solely for purposes of Goldman Sachs'
providing its opinion to the AMETEK Board as to the fairness of the Exchange
Ratio to the AMETEK Board and do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities actually may be sold.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable
than suggested by such analyses. Because such analyses are inherently subject
to uncertainty, being based upon numerous factors or events beyond the control
of the parties or their respective advisors, none of AMETEK, Culligan, Goldman
Sachs or any other person assumes responsibility if future results are
materially different from those forecast.
As described above, Goldman Sachs' opinion to the AMETEK Board was one of
many factors taken into consideration by the AMETEK Board in making its
determination to approve the Merger Agreement. The foregoing summary does not
purport to be a complete description of the analysis performed by Goldman
Sachs and is qualified by reference to the written opinion of Goldman Sachs
set forth in Appendix C hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. AMETEK selected
Goldman Sachs as its financial advisor because it is a nationally recognized
investment banking firm that has substantial experience in transactions
similar to the Merger.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of AMETEK and/or Culligan for its own account and for the account
of customers. In addition, Goldman Sachs has provided certain investment
banking services to Culligan from time to time, including having acted as
managing underwriter of Culligan's initial public offering in December 1995
and of a secondary sale of Culligan Common Stock in October 1996.
Pursuant to a letter agreement dated January 27, 1997 (the "Engagement
Letter"), AMETEK engaged Goldman Sachs to act as its financial advisor in
connection with the contemplated transaction. Pursuant to the terms of the
Engagement Letter, AMETEK has agreed to pay Goldman Sachs upon delivery of its
fairness opinion a fee of $350,000. AMETEK has agreed to reimburse Goldman
Sachs for its reasonable out-of-pocket expenses, including attorney's fees,
and to indemnify Goldman Sachs against certain liabilities, including certain
liabilities under the federal securities laws.
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THE MERGER AGREEMENT
The following is a summary description of certain aspects of the Merger and
certain terms of the Merger Agreement, which is included as Appendix A to this
Joint Proxy Statement/Prospectus and is incorporated herein by reference.
Certain capitalized terms used herein and not defined have the meanings
ascribed to them in the Merger Agreement. This summary does not purport to be
complete and is qualified in its entirety by reference to the Merger
Agreement.
THE MERGER
At the Effective Time, Culligan, AMETEK and Culligan Merger Sub will
consummate the Merger whereby Culligan Merger Sub will be merged with and into
AMETEK and the separate corporate existence of Culligan Merger Sub will cease.
AMETEK will be the surviving corporation in the Merger and will be a wholly
owned subsidiary of Culligan.
Effective Time; Closing
The Merger will become effective upon the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware or at such other
time as is provided in the Certificate of Merger. The closing of the Merger
will take place as promptly as practicable (and in any event within two
business days) after satisfaction or waiver of certain conditions contained in
the Merger Agreement and at least one day after the Spin-Off (the "Closing
Date"). See "--Conditions."
Certificate of Incorporation and By-Laws
The AMETEK Certificate in effect immediately prior to the Effective Time
will be amended and restated in its entirety to read as set forth in Exhibit A
of the Merger Agreement and, as amended, will be the Certificate of
Incorporation of the Surviving Corporation until amended in accordance with
its terms and applicable law. The By-Laws of Culligan Merger Sub in effect at
the Effective Time will be the By-Laws of the Surviving Corporation until
amended in accordance with their terms and applicable law.
Directors and Officers
The directors of Culligan Merger Sub at the Effective Time will be the
directors of the Surviving Corporation, each to hold office from the Effective
Time in accordance with the Certificate of Incorporation and By-Laws of the
Surviving Corporation and until his successor is duly elected and qualified.
The officers of Culligan Merger Sub at the Effective Time will be the officers
of the Surviving Corporation, each to hold office from the Effective Time in
accordance with the Certificate of Incorporation and By-Laws of the Surviving
Corporation and until his successor is duly appointed and qualified.
CONVERSION OF AMETEK COMMON STOCK
At the Effective Time, each issued and outstanding share of AMETEK Common
Stock will be converted into the right to receive the number (rounded to the
nearest one-thousandth of a share) of fully paid and nonassessable shares of
Culligan Common Stock determined by dividing (i) the Net Equity Value divided
by (ii) $37.50, divided by (iii) the number of shares of AMETEK Common Stock
outstanding at the Effective Time. "Net Equity Value" means an amount equal to
(A) $155,000,000 minus (B) the amount of the Retained Debt. Based on the
foregoing calculation, the Net Equity Value will be $130,000,000.
If the number of shares of AMETEK Common Stock outstanding on the Spin-Off
Record Date were to equal 32,763,450 (the number of such shares outstanding on
April 30, 1997), then each share of AMETEK Common Stock would be converted
into approximately .11 shares of Culligan Common Stock. However, because
additional shares of AMETEK Common Stock may be issued prior to the Effective
Time, including pursuant to the exercise of AMETEK stock options, the amount
of Culligan Common Stock received per share of AMETEK Common Stock in the
Merger may vary.
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Because the Exchange Ratio is based on a fixed-price of $37.50 for Culligan
Common Stock and the market price for Culligan Common Stock fluctuates, the
value of the Culligan Common Stock that holders of AMETEK Common Stock will
receive in the Merger increases as the market price of Culligan Common Stock
increases and decreases as the market price of Culligan Common Stock
decreases. In addition, because additional shares of AMETEK Common Stock may
be issued prior to the Effective Time, the value of the consideration per
share received by holders of AMETEK Common Stock in the Merger may decrease.
The AMETEK Board and the Culligan Board determined the Merger consideration
through arm's length negotiations.
All shares of AMETEK Common Stock, when so converted, will no longer be
outstanding and will automatically be canceled and retired and will cease to
exist, and each holder of a certificate representing any such shares will
cease to have any rights with respect thereto, except the right to receive the
shares of Culligan Common Stock and any cash in lieu of fractional shares of
Culligan Common Stock to be issued or paid in consideration therefor upon the
surrender of such certificate in accordance with the terms of the Merger
Agreement, without interest.
If after the date of the Merger Agreement and prior to the Effective Time,
the outstanding shares of Culligan Common Stock have been changed into a
different number of shares or a different class, by reason of any stock
dividend, split, or any other distribution of shares, the Exchange Ratio will
be correspondingly adjusted.
Exchange of Certificates
As soon as practicable after the Effective Time, the Surviving Corporation
will cause the Exchange Agent to mail to each holder of record of
certificates, which immediately prior to the Effective Time represented
outstanding shares of AMETEK (the "Certificates"), whose shares were converted
into the right to receive shares of Culligan Common Stock (i) a letter of
transmittal and (ii) instructions for effecting the surrender of the
Certificates in exchange for certificates representing shares of Culligan
Common Stock. HOLDERS OF AMETEK COMMON STOCK ARE REQUESTED NOT TO SURRENDER
THEIR CERTIFICATES FOR EXCHANGE UNTIL SUCH LETTER OF TRANSMITTAL AND
INSTRUCTIONS ARE RECEIVED. Upon surrender of a Certificate for cancellation to
the Exchange Agent, together with such letter of transmittal, duly executed,
the holder of such Certificate will be entitled to receive in exchange
therefor (A) a certificate representing that number of whole shares of
Culligan Common Stock which such holder has the right to receive pursuant to
the terms of Merger Agreement and (B) cash in lieu of any fractional shares of
Culligan Common Stock to which such holder is entitled, after giving effect to
any required tax withholdings. Until surrendered, each Certificate will be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender a certificate representing shares of Culligan
Common Stock and cash in lieu of any fractional shares of Culligan Common
Stock.
No dividends or other distributions declared or made after the Effective
Time with respect to Culligan Common Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered Certificate,
and no cash payment in lieu of fractional shares will be paid to any such
holder until the holder of record of such Certificate surrenders such
Certificate. Subject to the effect of applicable laws, following surrender of
any such Certificate, there will be paid to the record holder of the
Certificates representing whole shares of Culligan Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of any cash payable in lieu of any fractional share of Culligan Common
Stock to which such holder is entitled and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Culligan Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with
a record date after the Effective Time but prior to such surrender and a
payment date subsequent to surrender payable with respect to such whole shares
of Culligan Common Stock.
Cash in Lieu of Fractional Shares
No certificate or scrip representing fractional shares of Culligan Common
Stock will be issued upon the surrender for exchange of Certificates, and such
fractional share interests will not entitle the owner thereof to
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vote or to any rights of a stockholder of Culligan. In lieu of any such
fractional shares, each holder of AMETEK Common Stock who would otherwise have
been entitled to a fraction of a share of Culligan Common Stock upon surrender
of Certificates for exchange will be entitled to receive a cash payment in an
amount equal to such fractional interest multiplied by the Average Culligan
Share Price. "Average Culligan Share Price" is an amount equal to the average
of the closing prices of the Culligan Common Stock on the NYSE Composite
Transactions Reporting System, as reported in The Wall Street Journal, for the
ten (10) trading days ending on the second trading day immediately before the
Effective Time.
CERTAIN PRE- AND POST-MERGER TRANSACTIONS
Distribution Documents
Prior to the Spin-Off, AMETEK will, and will cause New Ametek to, execute
and deliver the Trademark Agreement (the "Trademark Agreement"), the Tax
Allocation Agreement (the "Tax Allocation Agreement"), the Transition Services
Agreement (the "Transition Services Agreement") and the Indemnification
Agreement (the "Indemnification Agreement" and together with the Distribution
Agreement, the Trademark Agreement, the Tax Allocation Agreement and the
Transition Services Agreement, the "Distribution Documents"). Prior to the
Spin-Off, Culligan will execute and deliver the Indemnification Agreement. In
connection with the execution of the Merger Agreement, AMETEK and New Ametek
executed the Distribution Agreement. See "THE SPIN-OFF."
The Contributions
Immediately prior to the Spin-Off and pursuant to the terms of the
Distribution Agreement, AMETEK will effect the Contributions. See "THE SPIN-
OFF"
The Spin-Off
At least one day prior to the Effective Time, and pursuant to the terms of
the Distribution Agreement, AMETEK will effect the Spin-Off. See "THE SPIN-
OFF."
Audited Closing Balance Sheet
Within forty-five (45) days after the Closing Date, New Ametek will deliver
to Culligan the Audited Closing Balance Sheet after giving effect to the Spin-
Off (but not the Merger), which will be audited by New Ametek's independent
public accountants in accordance with United States generally accepted
auditing standards. The Audited Closing Balance Sheet will be prepared in
accordance with generally accepted accounting principles ("GAAP") and, to the
extent consistent with GAAP, on a basis consistent with the Water Filtration
Business Financial Statements. Together with the Audited Closing Balance
Sheet, New Ametek will deliver the Adjusted Closing Balance Sheet which will
be the Audited Closing Balance Sheet adjusted (x) to reflect the financial
position that would have been reported in the Audited Closing Balance Sheet if
it had been prepared in accordance with the items (and accounting principles)
set forth on Schedule 3.4 to the Merger Agreement (which items generally
represent certain differences between GAAP and the basis of presentation of
the Water Filtration Business Financial Statements as specified in the Merger
Agreement) and (y) to exclude any cash paid to AMETEK by New Ametek (or
retained by AMETEK) pursuant to the Distribution Agreement to compensate
Culligan for the Special Offer Amount (as defined in the Distribution
Agreement) and for any unexercised options held by any Water Filtration
Business Employees following the Effective Time (clauses (x) and (y) being
referred to as the "Reference Items"). If, however, a liability or accrual
appears in the Adjusted Closing Balance Sheet which was not identified as a
Reference Item and which was not reflected on the balance sheet included in
the Water Filtration Business Financial Statements, no adjustment will be made
to the extent such liability or accrual is an Assumed Liability (as such term
is defined in the Distribution Agreement). If the Adjusted Net Worth of the
Water Filtration Business as calculated from the Adjusted Closing Balance
Sheet is less than $31,745,000, then New Ametek will pay to the Surviving
Corporation in cash the amount of such shortfall in Adjusted Net Worth within
thirty days of the delivery of the Adjusted Closing Balance Sheet (or, if
later, upon resolution of the matters set forth in the Notice (as defined in
the Merger Agreement)). If the Adjusted
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Net Worth of the Water Filtration Business as calculated from the Adjusted
Closing Balance Sheet is more than $31,745,000, then the Surviving Corporation
will pay New Ametek in cash the amount of such excess up to a maximum amount
of $2,000,000 within thirty days of the delivery of the Adjusted Closing
Balance Sheet (or, if later, upon resolution of the matters set forth in the
Notice). The term "Adjusted Net Worth" means the amount by which consolidated
assets exceed consolidated liabilities, in each instance as set forth on the
Adjusted Closing Balance Sheet.
If Culligan determines that the Audited Closing Balance Sheet is not in
accordance with the Merger Agreement, the parties will endeavor to resolve
their differences within thirty (30) days, failing which Culligan and New
Ametek will select and retain an independent public accounting firm mutually
acceptable to them (or, if they cannot agree on a mutually acceptable firm,
they will cause their respective accounting firms to select such firm) (the
"Third Party Firm") to resolve such differences. The Third Party Firm will be
requested to render a decision within thirty (30) days of its selection and
such decision will be final and binding. The fees and expenses of the Third
Party Firm will be (i) paid by Culligan if less than 25% of the dollar amount
of the Culligan Adjustment (as defined in the Merger Agreement) is required to
be made or (ii) paid by New Ametek if more than 75% of the dollar amount of
the Culligan Adjustment is required to be made or (iii) shared equally by
Culligan and New Ametek if 25% or more but less than 75% of the dollar amount
of the Culligan Adjustment is required to be made.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties thereto. The Merger Agreement includes representations and warranties
by AMETEK and New Ametek as to: (a) the corporate organization of AMETEK and
its subsidiaries; (b) the capitalization of AMETEK and its subsidiaries; (c)
the authorization of AMETEK and its subsidiaries' execution and performance of
the Merger Agreement and the Distribution Documents; (d) required consents and
approvals; (e) the noncontravention of any agreement, law, or charter or by-
law provision by the Merger Agreement, the Distribution Documents and the
consummation by AMETEK of the transactions contemplated thereby; (f) the
absence of the need, except as specified, for governmental consents to the
Merger to be obtained by AMETEK and New Ametek; (g) the accuracy of certain of
AMETEK's reports and financial statements filed under the Securities Act and
the Exchange Act; (h) the accuracy of information supplied by AMETEK for use
in this Joint Proxy Statement/Prospectus and the Culligan Registration
Statement and the New Ametek Information Statement (collectively, the
"Registration Statements"); (i) the accuracy of the pro forma consolidated
balance sheet relating to the Water Filtration Business delivered to Culligan;
(j) use by New Ametek or any of its subsidiaries of the assets used in the
conduct of the Water Filtration Business; (k) ownership of the assets
reflected on the pro forma consolidated balance sheet of the Water Filtration
Business; (l) the receipt of an opinion of AMETEK's financial advisor in
connection with the Merger; (m) pending or threatened litigation against or
related to the Water Filtration Business, AMETEK or any of its subsidiaries;
(n) the terms, existence, operations, liabilities and compliance with
applicable laws of AMETEK and New Ametek's employee benefit plans; (o) the
absence of undisclosed liabilities of, and of material adverse changes or
events relating to, the Water Filtration Business; (p) no violation of law by
AMETEK or any of its subsidiaries; (q) the licenses used in connection with
the Water Filtration Business; (r) certain tax matters; (s) certain matters
relating to the employees of the Water Filtration Business; (t) certain
environmental matters; (u) the ownership, maintenance, enforceability, and use
of the intellectual property used in connection with the Water Filtration
Business; (v) transactions with affiliates of the Water Filtration Business;
(w) agreements and bank accounts of the Water Filtration Business; (x)
AMETEK's Rights Plan; (y) the insurance of the Water Filtration Business; (z)
the non-applicability of Section 203 of the DGCL ("Section 203"); and (aa)
liability of AMETEK or any of the its subsidiaries for any broker's or
finder's fees in connection with the Merger Agreement or the Distribution
Documents.
The Merger Agreement also includes representations and warranties by
Culligan and Culligan Merger Sub as to: (a) the corporate organization of
Culligan and Culligan Merger Sub; (b) the capitalization of Culligan; (c) the
authorization of Culligan's and Culligan Merger Sub's execution and
performance of the Merger Agreement and the Distribution Documents; (d)
required consents and approvals; (e) the noncontravention of any agreement,
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law, or charter or bylaw provision by the Merger Agreement and the
Distribution Documents and the consummation by Culligan and Culligan Merger
Sub of the transactions contemplated thereby; (f) the absence of the need,
except as specified, for governmental consents to the Merger; (g) the accuracy
of certain of Culligan's reports and financial statements filed under the
Exchange Act and the Securities Act; (h) the accuracy of information supplied
by Culligan for use in this Joint Proxy Statement/Prospectus and the
Registration Statements; (i) pending or threatened litigation against Culligan
or any of its subsidiaries; (j) the absence of material adverse changes
relating to Culligan; (k) certain tax matters; (l) the lack of prior
operations of Culligan Merger Sub; and (m) liability of Culligan or any of its
subsidiaries for any broker's or finder's fees in connection with the Merger
or the Distribution Documents.
The representations, warranties and agreements in the Merger Agreement or in
any instrument delivered pursuant to the Merger Agreement will survive the
Effective Time, subject to the terms of the Indemnification Agreement.
COVENANTS
During the period from the date of the Merger Agreement and continuing until
the Effective Time, AMETEK agrees as to itself and its subsidiaries that,
except for the Spin-Off and the other transactions expressly provided for in
the Distribution Agreement or as contemplated or permitted by the Merger
Agreement, or to the extent that Culligan will otherwise consent in writing:
(a) AMETEK and its subsidiaries will (i) carry on the Water Filtration
Business in the usual, regular and ordinary course consistent with past
practice and (ii) use all reasonable efforts to preserve intact the
present business organization of the Water Filtration Business, keep
available the services of the present officers and employees of the
Water Filtration Business and preserve the relationships with
customers, suppliers and others having business dealings with the Water
Filtration Business. AMETEK will consult with Culligan concerning the
conduct of the Water Filtration Business and will not initiate any new
marketing plans or make any strategic changes in the conduct of the
Water Filtration Business without the prior consent of Culligan (which
consent will not be unreasonably withheld), and Culligan will have the
right to have representatives present at the facilities of the Water
Filtration Business during normal business hours and upon reasonable
prior notice to observe its operations in order to facilitate a
transition. Notwithstanding the generality of the foregoing, AMETEK
will, and will cause the Water Filtration Business to, consult with
Culligan with respect to any decisions, actions or inactions that are
reasonably expected to result in either (x) a significant deviation in
capital expenditures of the Water Filtration Business from that set
forth in the Capital Expenditure Budget or (y) a significant change in
working capital as of the Closing Date from the amount of working
capital set forth in the Water Filtration Business Balance Sheet;
(b) Except as expressly contemplated by the Merger Agreement or any of the
Distribution Documents, AMETEK will not permit the Water Filtration
Business to issue, transfer, pledge or sell, or authorize or propose or
agree to the issuance, transfer, pledge or sale of, any shares of its
capital stock of any class, any Voting Debt or other equity interests
or any securities convertible into, or any rights, warrants, calls,
subscriptions, options or other rights or agreements, commitments or
understandings to acquire, any such shares, Voting Debt, equity
interests or convertible securities;
(c) AMETEK will not, nor will it permit the Water Filtration Business to,
amend or propose to amend its certificate of incorporation or by-laws
or comparable organizational documents;
(d) AMETEK will not, nor will it permit any of its subsidiaries included in
the Water Filtration Business to, acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity
interest in or substantial portion of the assets of, or by any other
manner, any other business organization or division thereof or
otherwise acquire or agree to acquire any assets outside the ordinary
and usual course of business consistent with past practice or otherwise
enter into any material commitment or transaction outside the ordinary
and usual course of business consistent with past practice, other than
transactions which are unrelated to the Water Filtration Business and
which will
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not adversely affect AMETEK's ability to consummate the transactions
contemplated by the Merger Agreement and the Distribution Documents;
(e) AMETEK will not, nor will it permit any of its subsidiaries included in
the Water Filtration Business to, sell, lease, license, encumber or
otherwise dispose of any of its assets outside the ordinary and usual
course of business consistent with past practice, other than
transactions which are unrelated to the Water Filtration Business and
which will not materially adversely affect AMETEK's ability to
consummate the transactions contemplated by the Merger Agreement and
the Distribution Documents;
(f) AMETEK will not permit the Water Filtration Business, to (i) incur,
assume, pre-pay, guarantee, endorse or otherwise become liable or
responsible for any indebtedness for borrowed money except in the
ordinary and usual course of business consistent with past practice,
(ii) issue or sell any debt securities or warrants or rights to acquire
any debt securities of the Water Filtration Business or guarantee any
obligations of others, or (iii) make any loans, advances or capital
contributions to, or investments in, any other person except in the
ordinary and usual course of business consistent with past practice;
(g) Except as expressly provided in the Distribution Agreement, AMETEK will
not, nor will it permit any of its subsidiaries to (i) enter into,
adopt, amend (except as may be required by law and except for
immaterial amendments) or terminate any Compensation and Benefit Plan
or other employee benefit plan or any agreement, arrangement, plan or
policy between AMETEK or any of its subsidiaries and one or more of its
directors, officers or employees and (ii) except for normal increases
in the ordinary course of business consistent with past practice and
the payment of bonuses to employees consistent with past practice,
increase in any manner, compensation or fringe benefits of any
director, officer or employee or pay any benefit to any director,
officer or employee not required by any plan or arrangement as in
effect as of the date of the Merger Agreement, in each case only to the
extent that the foregoing relate to the Water Filtration Business or
its Employees (the "Water Filtration Business Employees");
(h) AMETEK will promptly advise Culligan of any change or development that
would cause the representation in the Merger Agreement relating to
undisclosed liabilities to be untrue. AMETEK will promptly provide
Culligan (or its counsel) copies of all filings made by AMETEK with any
federal, state or foreign Governmental Entity in connection with the
Merger Agreement, the Distribution Agreement and the transactions
contemplated thereby;
(i) AMETEK will not and will not permit the Water Filtration Business to
change any of its accounting principles, policies or procedures, except
as may be required by GAAP;
(j) AMETEK will not take or cause or permit to be taken, and will not
permit any of its subsidiaries to take or cause or permit to be taken,
any action, or allow to exist any condition, that could (i) disqualify
the Contributions followed by the Spin-Off as a tax-free reorganization
pursuant to Section 368(a)(1)(D) of the Code, (ii) disqualify the Spin-
Off as a tax-free distribution pursuant to Section 355 of the Code, or
(iii) disqualify the Merger as a tax-free reorganization pursuant to
Section 368(a) of the Code; and
(k) AMETEK will (i) not engage in or allow transfers of assets or
liabilities or engage in or enter into other transactions between the
Water Filtration Business, on the one hand, and New Ametek or any of
its subsidiaries, on the other hand, except as contemplated by the
Distribution Agreement or the Tax Allocation Agreement or as to which
the Water Filtration Business is indemnified pursuant to the
Indemnification Agreement, (ii) abide and cause New Ametek to abide by
its respective obligations under the Distribution Agreement, and (iii)
not terminate or amend, or waive compliance with any obligations under,
the Distribution Agreement.
During the period from the date of the Merger Agreement and continuing until
the Effective Time, Culligan agrees as to itself and its subsidiaries that:
(a) Culligan will not take any action that would result in any of the
conditions to the Merger set forth in the Merger Agreement not being
satisfied or that would materially impair the ability of Culligan to
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consummate the Merger in accordance with the terms of the Merger
Agreement or materially delay such consummation;
(b) Culligan will not take or cause or permit to be taken, and will not
permit any of its subsidiaries to take or cause or permit to be taken,
any action, or allow to exist any condition, that could (i) disqualify
the Contributions followed by the Spin-Off as a tax-free reorganization
pursuant to Section 368(a)(1)(D) of the Code, (ii) disqualify the Spin-
Off as a tax-free distribution pursuant to Section 355 of the Code, or
(iii) disqualify the Merger as a tax-free reorganization pursuant to
Section 368(a) of the Code; and
(c) Culligan will promptly advise AMETEK orally and in writing of any
change or development that would cause the representation regarding
certain tax matters contained in the Merger Agreement to be untrue.
Culligan will promptly provide AMETEK (or its counsel) copies of all
filings made by Culligan with any federal, state or foreign
Governmental Entity in connection with the Merger Agreement, the
Distribution Agreement and the transactions contemplated thereby.
COOPERATION
Following the expiration or early termination of the applicable waiting
period under the HSR Act, the parties agree that the business of the Water
Filtration Business will be operated in cooperation between Culligan and
AMETEK and will continue to be managed and administered by AMETEK under the
procedures set forth below:
(a) The appointment, including compensation and contractual agreements, of
all senior executives of the Water Filtration Business will be made by
AMETEK following consultation with Culligan. AMETEK will cooperate with
Culligan on personnel policies and procedures for the Water Filtration
Business, including, without limitation, setting salary and bonus
standards, termination and severance policies, and employee benefit
policies;
(b) AMETEK will cooperate and consult with the financial officers of
Culligan with respect to policies and procedures relating to financial
and accounting matters of the Water Filtration Business, including
without limitation, (i) the preparation of the accounts, books and
records, (ii) the preparation of financial statements, (iii) the
monitoring of operating performance under a budget previously prepared,
and (iv) the preparation and review of monthly management reports;
provided, however, that AMETEK will not be required to change any such
policies or procedures;
(c) Culligan and AMETEK will consult with each other in determining the
best interests of the Water Filtration Business with respect to capital
expenditures or investments, issuances of guarantees, creation of
mortgages or liens, establishment of credit lines, or other material
transactions affecting the Water Filtration Business;
(d) AMETEK will cooperate with the personnel of Culligan in developing
ongoing sales and marketing strategies and financial and other
standards for the Water Filtration Business and AMETEK will not
initiate any new marketing plans or make any strategic changes in the
operations of the Water Filtration Business without the prior consent
of Culligan (which consent will not be unreasonably withheld); and
(e) Culligan will have the right to have one or more representatives
present at the facilities of the Water Filtration Business during
normal business hours.
STOCK EXCHANGE LISTING
Culligan will use its reasonable efforts to cause the shares of Culligan
Common Stock to be issued in the Merger to be approved for listing on the NYSE
and any other national securities exchange on which shares of Culligan Common
Stock may at such time be listed, subject to official notice of issuance,
prior to the Closing Date.
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EMPLOYEE MATTERS; EMPLOYEE BENEFIT PLANS
Prior to the Spin-Off, AMETEK will, and will cause its subsidiaries to,
assign to New Ametek or its subsidiaries (or terminate) all employment and
severance agreements with employees of AMETEK who are not Water Filtration
Business Employees. Culligan will, and will cause the Surviving Corporation
to, honor all employee severance plans (or policies) and employment and
severance agreements of AMETEK or any of its subsidiaries as specified in
AMETEK's Disclosure Schedule to the Merger Agreement with respect to the Water
Filtration Business Employees as such agreements (or policies) are in effect
on the date of the Merger Agreement.
Culligan will not have any liability or obligation to or for, except to the
extent described under "THE SPIN-OFF--Terms of the Distribution Agreement--
Employees and Employee Benefit Plans," any employee or former employee of
AMETEK or any of its subsidiaries based upon events, occurrences or services
performed by such employees or former employees on or prior to the Closing
Date and, in the case of employees of AMETEK or any of its subsidiaries other
than Water Filtration Business Employees, following the Closing Date.
As soon as practicable following the Effective Time, Culligan will cause the
Culligan 401(k) Plan to accept a plan-to-plan transfer from AMETEK's 401(k)
Plan (as assumed by New Ametek) of the account balances of the Water
Filtration Business Employees.
STOCK OPTIONS
All options to acquire shares of AMETEK Common Stock pursuant to any of the
AMETEK Stock Option or Incentive Plans (other than options held by Water
Filtration Business Employees) which are outstanding immediately prior to the
Effective Time, whether or not then exercisable, will be assumed by New Ametek
as provided in the Distribution Agreement and, except as specifically provided
in the Distribution Agreement, following the Effective Time, will not
represent a right to acquire shares of either Culligan or the Surviving
Corporation. See "THE SPIN-OFF--Terms of the Distribution Agreement--Stock
Option and Stock Incentive Plans."
NO SOLICITATION
Until the earlier of the Effective Time or the termination of the Merger
Agreement, AMETEK and its subsidiaries will not, directly or indirectly,
solicit or discuss with any third party (including by way of furnishing non-
public information concerning the Water Filtration Business), or facilitate
any inquiries with respect to an Acquisition Transaction (as defined below);
provided AMETEK may (i) furnish information to, or enter into discussions or
negotiations with, any person or entity that makes an unsolicited proposal
with respect to an AMETEK Acquisition Transaction (as defined below), if, (A)
the AMETEK Board based upon the advice of independent legal counsel,
determines in good faith that such action is necessary for the AMETEK Board to
comply with its fiduciary duties to stockholders under applicable law, and (B)
prior to furnishing such information to, or entering into discussions or
negotiations with, such person or entity, AMETEK provides written notice
thereof to Culligan; or (ii) comply with Rule 14e-2 promulgated under the
Exchange Act with regard to any tender or exchange offer involving AMETEK.
AMETEK will keep Culligan informed on a reasonable basis of the status and
general nature of any discussions or negotiations with respect to an AMETEK
Acquisition Transaction, including any changes to any material terms and
conditions thereof. An Acquisition Transaction means a merger, consolidation,
business combination, sale of a significant amount of assets outside of the
ordinary course of business, sale of shares of capital stock outside of the
ordinary course of business, tender or exchange offer or similar transaction
involving either (i) AMETEK and its subsidiaries, substantially as an entirety
(an "AMETEK Acquisition Transaction") or (ii) the Water Filtration Business.
INDEBTEDNESS
Except as reflected on the Retained Business Balance Sheet, AMETEK agrees
that immediately prior to the Effective Time, after giving effect to the
Contributions and the other transactions contemplated by the Distribution
Documents, there will not be outstanding any indebtedness for borrowed money,
or any guarantees in respect of any indebtedness for borrowed money of any
third party, in respect of which the Water Filtration Business is obligated,
other than the Retained Debt.
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GOVERNMENT AND REGULATORY APPROVALS
Consummation of the Merger was conditioned upon the expiration or
termination of the waiting period under the HSR Act. On March 14, 1997,
Culligan and AMETEK each filed notification reports under the HSR Act with the
FTC and the Antitrust Division of the DOJ. Early termination of the waiting
period was granted on March 24, 1997.
INTERNAL REVENUE SERVICE RULING
The Contributions, the Spin-Off and the Merger will not be consummated
unless the IRS shall have issued and not revoked the Private Letter Ruling
reasonably satisfactory in form and substance to AMETEK and Culligan
substantially to the effect that, on the basis of the facts, representations
and assumptions existing at the Effective Time: (i) the Contributions followed
by the Spin-Off qualify as a tax-free reorganization pursuant to Section
368(a)(1)(D) of the Code; (ii) the Spin-Off qualifies as a tax-free
distribution pursuant to Section 355(a) of the Code; and (iii) the Merger
qualifies as a tax-free reorganization pursuant to Section 368 (a)(1)(B) of
the Code. The Private Letter Ruling request has been submitted to the IRS. In
the event that the IRS shall not have issued the Private Letter Ruling to
include any one or more of these three requested rulings, this requirement
will nevertheless be satisfied if, on or prior to the Closing Date, AMETEK and
Culligan shall receive the Tax Opinions to the same effect as each such
Omitted Ruling. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES."
CONDITIONS
Conditions to Each Party's Obligation to Effect the Merger. The Merger
Agreement provides that the respective obligations of the parties to the
Merger Agreement to effect the Merger are subject to the satisfaction, on or
prior to the Closing Date, of the following conditions: (a) due approval of
the Merger Agreement by the holders of AMETEK Common Stock; (b) the shares of
Culligan Common Stock issuable to AMETEK's stockholders pursuant to the Merger
Agreement will have been authorized for listing on the NYSE and the shares of
New Ametek Common Stock to be distributed to AMETEK's stockholders pursuant to
the Spin-Off will have been authorized for listing on the NYSE and the PSE;
(c) any applicable waiting period under the HSR Act will have expired or been
terminated (which has been satisfied); (d) other than the filing of the
Certificate of Merger, all authorizations, or filings with, any Governmental
Entity, the failure of which to obtain would have a material adverse effect on
New Ametek or the Water Filtration Business and their respective subsidiaries,
will have been obtained or filed; (e) the Registration Statements will have
become effective under the Securities Act or the Exchange Act, as the case may
be, and will not be the subject of any stop order or proceeding by the
Commission seeking a stop order; (f) no temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger will be in effect; (g) the Spin-Off will have
become effective in accordance with the Distribution Agreement; (h) the IRS
shall have issued and not revoked the Private Letter Ruling, and/or AMETEK and
Culligan shall have received the Tax Opinions; (i) there will be no proposed
legislation introduced in bill form and pending action in the United States
Congress which, if enacted into law, would have the effect of amending the
Code so as to alter in any materially adverse respect any of the United States
Federal income tax consequences described in the Private Letter Ruling and/or
the Tax Opinions.
Conditions of Obligation of Culligan. The obligation of Culligan to effect
the Merger is subject to the satisfaction, on or prior to the Closing Date, of
the following conditions unless waived by Culligan: (a) the representations
and warranties of AMETEK and New Ametek will be true and correct in all
material respects as of the date of the Merger Agreement, and, except to the
extent such representations and warranties speak as of an earlier date, as of
the Closing Date as though made on and as of the Closing Date, and Culligan
will have received a certificate signed on behalf of AMETEK by the chief
executive officer or the chief financial officer of AMETEK to such effect; (b)
AMETEK and its subsidiaries (including New Ametek) have performed in all
material respects all obligations required to be performed by it under the
Merger Agreement and the Distribution Agreement at or prior to the Closing
Date, and Culligan will have received a certificate signed on behalf of
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AMETEK by the chief executive officer or the chief financial officer of AMETEK
to such effect; (c) the amount of Adjusted EBIT will not be less than
$11,850,000 (which condition has been satisfied); (d) Culligan will have
received the opinion of Stroock & Stroock & Lavan LLP concerning such legal
matters relating to the Merger as are customarily obtained in transactions of
a type similar to the Merger; (e) New Ametek will have assumed all obligations
of AMETEK under the Indenture, pursuant to which the Notes were issued; and
(f) no action, suit or proceeding by any Governmental Entity before any court
or governmental or regulatory authority will be pending or threatened against
AMETEK or Culligan or any of their subsidiaries challenging the validity or
legality of the transactions contemplated by the Merger Agreement.
Conditions of Obligation of AMETEK. The obligation of AMETEK to effect the
Merger is subject to the satisfaction, on or prior to the Closing Date, of the
following conditions, unless waived by AMETEK: (a) the representations and
warranties of Culligan and Culligan Merger Sub contained in the Merger
Agreement will be true and correct in all material respects as of the date of
the Merger Agreement, and, except to the extent such representations and
warranties speak as of an earlier date, as of the Closing Date as though made
on and as of the Closing Date, and AMETEK will have received a certificate
signed on behalf of Culligan by the chief executive officer or the chief
financial officer of Culligan to such effect; (b) Culligan and Culligan Merger
Sub will have performed in all material respects all obligations required to
be performed by them under the Merger Agreement at or prior to the Closing
Date, and AMETEK will have received a certificate signed on behalf of Culligan
by the chief executive officer or the chief financial officer of Culligan to
such effect; (c) AMETEK will have received the opinion of Skadden, Arps,
Slate, Meagher & Flom LLP concerning such legal matters relating to the Merger
as are customarily obtained in transactions of a type similar to the Merger;
(d) holders of a majority of the Notes have consented to an amendment of, or
supplemental indenture under, the Indenture so as to permit the Spin-Off; (e)
no action, suit or proceeding by any Governmental Entity before any court or
governmental or regulatory authority will be pending or threatened against
AMETEK or Culligan or any of their subsidiaries challenging the validity or
legality of the transactions contemplated by the Merger Agreement; (f) the
Average Culligan Share Price on the proposed Closing Date (assuming
satisfaction or waiver of all other conditions) will be greater than $31.00
per share.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger and the Merger Agreement
by the stockholders of AMETEK:
(a) by mutual consent of Culligan and AMETEK;
(b) by either Culligan or AMETEK if the Merger is not consummated before
October 31, 1997 (unless due to the action or failure to act of the party
seeking to terminate the Merger Agreement, which action or failure to act
constitutes a breach of the Merger Agreement);
(c) by Culligan if (i) there has been a material breach on the part of
AMETEK in its representations, warranties or covenants set forth in the
Merger Agreement or the Distribution Agreement, or any material failure by
AMETEK to comply with its obligations in the Merger Agreement or the
Distribution Agreement, and, in the case of a material breach of covenant
or failure to comply which is capable of being cured, is not cured within
thirty days, (ii) AMETEK's stockholders do not approve of the Merger
Agreement, the Distribution Agreement, the Merger and the Spin-Off, or
(iii) the AMETEK Board withdraws, amends or modifies in a manner adverse to
Culligan its favorable recommendation of the Merger;
(d) by AMETEK if (i) there has been a material breach on the part of
Culligan in its representations, warranties or covenants set forth in the
Merger Agreement, or any material failure on the part of Culligan to comply
with its obligations in the Merger Agreement, and, in the case of a
material breach of covenant or failure to comply, which is capable of being
cured, is not cured within thirty days, or (ii) AMETEK's stockholders do
not approve of the Merger and the Merger Agreement; or
(e) by either Culligan or AMETEK if any change in Federal income tax law
or regulation applicable to the Contributions, the Spin-Off or the Merger
disqualifies any one of such transactions or combination thereof from tax-
free treatment.
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So long as Culligan will not have materially breached its obligations under
the Merger Agreement, AMETEK will pay Culligan $5,000,000, if within twelve
months following the termination of the Merger Agreement pursuant to clause
(c)(ii) or (iii) above or clause (d)(ii) above, AMETEK enters into an
agreement, arrangement or understanding providing for an Acquisition
Transaction. AMETEK will pay the reasonable out-of-pocket expenses incurred by
Culligan in connection with the Merger and the Spin-Off if the Merger
Agreement terminates pursuant to clause (c) above (other than by reason of a
breach of the representations and warranties relating to certain tax matters)
or clause (d)(ii) above. Culligan will pay the out-of-pocket expenses incurred
by AMETEK in connection with the Merger and the Spin-Off if the Merger
Agreement terminates pursuant to clause (d)(i) above.
FEES AND EXPENSES
Except as set forth above and subject to the Distribution Agreement, whether
or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
will be paid by the party incurring such expenses; provided, however, that
AMETEK and Culligan will each pay one-half of the printing, mailing and filing
costs incurred in connection with the Culligan Registration Statement, the New
Ametek Information Statement and this Joint Proxy Statement/Prospectus. The
Distribution Agreement provides that the maximum amount of costs and expenses
for which Culligan shall be liable shall not exceed $1,500,000 in the
aggregate.
AMENDMENT
The Merger Agreement may be amended by the parties thereto, by action taken
or authorized by their respective Boards of Directors, at any time before or
after approval of the matters presented in connection with the Merger by the
stockholders of AMETEK but, after any such approval, no amendment will be made
which by law requires further approval by such stockholders unless such
further approval has been obtained. The Merger Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
thereto.
INTEREST OF CERTAIN PERSONS IN THE TRANSACTION
In considering the recommendation of the AMETEK Board, stockholders of
AMETEK should be aware that certain members of management of AMETEK and the
AMETEK Board may have certain interests in the Spin-Off and the Merger that
are in addition to the interests of stockholders generally.
Ownership of AMETEK Common Stock. Certain directors and executive officers
of AMETEK beneficially own AMETEK Common Stock as described in "INFORMATION AS
TO NOMINEES FOR ELECTION OF DIRECTORS--Stock Ownership" and "EXECUTIVE
COMPENSATION--Stock Options and Stock Appreciation Rights." Following the
Merger, it is contemplated that a designee of American Securities, L.P., an
affiliate of AMETEK, will be nominated to the Culligan Board.
Exchange of AMETEK Options. Each AMETEK Option held by a director or an
executive officer of AMETEK and employees of AMETEK, other than Water
Filtration Business Employees, will be exchanged for an option to purchase New
Ametek Common Stock. See "THE SPIN-OFF--Terms of the Distribution Agreement--
Employees and Employee Benefit Plans."
ACCOUNTING TREATMENT
The Merger will be accounted for by Culligan under the purchase method of
accounting in accordance with GAAP, whereby the purchase price will be
allocated based on the fair value of the assets acquired and the liabilities
assumed. Such allocations will be based upon valuations that have not been
finalized. The excess of such purchase price over the amounts so allocated
will be recorded as goodwill. New Ametek will account for the transaction as a
spin-off of the Water Filtration Business, which will be reflected as a
discontinued operation in New Ametek's consolidated financial statements.
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RESALES OF CULLIGAN COMMON STOCK ISSUED IN THE MERGER; AFFILIATES
The Culligan Common Stock to be issued to AMETEK stockholders in connection
with the Merger will be freely transferable under the Securities Act, except
for shares issued to any person who may be deemed an "affiliate" of AMETEK
within the meaning of Rule 145 under the Securities Act. Persons who may be
deemed to be affiliates of AMETEK generally include individuals or entities
that control, are controlled by, or are under common control with, AMETEK, and
may include the directors and principal executive officers of AMETEK as well
as any principal stockholder of AMETEK.
NO APPRAISAL RIGHTS
Holders of AMETEK Common Stock will not have the right to elect to have the
fair value of their shares of AMETEK Common Stock judicially appraised and
paid to them in cash in connection with the Spin-Off or the Merger. Under
Section 262 of the DGCL, appraisal rights are not available to the
stockholders of a corporation that is a party to a merger if the corporation's
stock is listed on a national securities exchange, as are the shares of AMETEK
Common Stock, if the consideration to be received by such stockholders in the
merger consists of shares of the capital stock of a corporation that is listed
on a national securities exchange, as are the shares of Culligan Common Stock.
DELIVERY OF SHARES TO STOCKHOLDERS
AMETEK will effect the Spin-Off by delivery of certificates for shares of
New Ametek Common Stock to the Distribution Agent for delivery to the holders
of record of AMETEK Common Stock on the Spin-Off Record Date without any
further action by such holders.
In order to receive the consideration to which the AMETEK stockholders will
be entitled to as a result of the Merger, each holder of AMETEK Common Stock
as of the Effective Time will be required to surrender their Certificates to
the Exchange Agent. See "--Conversion of AMETEK Common Stock--Exchange of
Certificates."
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THE SPIN-OFF
This section of the Joint Proxy Statement/Prospectus describes certain
aspects of the proposed Contributions and the Spin-Off. To the extent that
they relate to the Distribution Documents, the following descriptions do not
purport to be complete and are qualified in their entirety by reference to the
Distribution Documents, which are included in Appendices B and D to this Joint
Proxy Statement/Prospectus and incorporated herein by reference. Certain
capitalized terms used herein and not defined have the meaning ascribed to
them in the Distribution Documents. ALL STOCKHOLDERS ARE URGED TO READ THE
DISTRIBUTION AGREEMENT, THE TAX ALLOCATION AGREEMENT, THE TRANSITION SERVICES
AGREEMENT, THE INDEMNIFICATION AGREEMENT AND THE TRADEMARK AGREEMENT IN THEIR
ENTIRETY. In addition, the holders of AMETEK Common Stock are urged to read in
its entirety the New Ametek Information Statement which is included as
Appendix E hereto.
BACKGROUND OF THE SPIN-OFF
Because the Water Filtration Business is the only business of AMETEK that
Culligan wishes to acquire, AMETEK and Culligan determined to effect the Spin-
Off, which is intended to be tax-free to AMETEK and the holders of AMETEK
Common Stock for Federal income tax purposes (except to the extent of cash
received for fractional shares). See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES." It is a condition to consummating the Contributions, the Spin-
Off and the Merger that AMETEK and Culligan receive the Private Letter Ruling
and/or the Tax Opinions. The Contributions followed by the Spin-Off will
separate all of AMETEK's other businesses from the Water Filtration Business
and enable Culligan to acquire only the Water Filtration Business in the
Merger; the Spin-Off will leave all of AMETEK's other businesses as a separate
publicly held company (New Ametek), owned by the existing holders of AMETEK
Common Stock.
Although the Spin-Off will not be effected unless the Merger and the Spin-
Off are approved by AMETEK Stockholders and all other conditions precedent
have been satisfied or waived, the Spin-Off is separate from the Merger, and
the shares of New Ametek Common Stock to be received by holders of AMETEK
Common Stock in the Spin-Off do not constitute a part of the Merger
consideration.
TERMS OF THE DISTRIBUTION AGREEMENT
The Contributions
Contributions of Assets
Prior to the Spin-Off, AMETEK will effect the Contributions, with the result
that New Ametek will own, directly or through subsidiaries, all of the assets
formerly owned by AMETEK or its subsidiaries, other than the Water Filtration
Business.
Transfer of Liabilities
At or prior to the time of the Spin-Off, New Ametek will assume all of the
liabilities of AMETEK, other than certain liabilities relating to the Water
Filtration Business and the Retained Debt (collectively, the "Assumed
Liabilities"). The Assumed Liabilities shall include the Notes issued pursuant
to the Indenture and all obligations arising under the Credit Agreement (as
defined below), subject to the retention by AMETEK of the Retained Debt. New
Ametek shall also assume liability for (i) uninsured health, dental and vision
benefits incurred by Water Filtration Business Employees prior to the time of
the Spin-Off but only if claims therefor have been submitted prior to the
Spin-Off, (ii) those benefits incurred by Water Filtration Business Employees
prior to the Spin-Off which are covered by insurance policies assigned to and
assumed by New Ametek, (iii) all liability relating to or arising out of the
defined benefit pension plans maintained by AMETEK, other than the Water
Filtration Business Hourly Pension Plan, and (iv) all liability relating to or
arising out of the New Ametek Employees 401(k) Plan maintained by AMETEK.
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In August 1995, AMETEK entered into a $195,000,000 revolving credit
agreement (the "Credit Agreement") with a group of banks (the "Bank Group"),
led by The Chase Manhattan Bank, N.A., as administrative agent ("Chase"). In
connection with the Spin-Off, the Bank Group has entered into an amendment to
the Credit Agreement (the "Amendment") which, among other things, permits the
Credit Agreement to be assigned to and assumed by New Ametek. This assignment
and assumption shall occur immediately prior to completion of the Spin-Off.
The Amendment also contemplates that, prior to the Spin-Off, $25 million of
the outstanding principal amount under the Credit Agreement will be replaced
by separate loans from one or more members of the Bank Group and that such
separate loans will, after the Spin-Off, be retained by AMETEK as the Retained
Debt. The Amendment also provides some additional relief under certain of the
covenants contained in the Credit Agreement.
AMETEK will retain certain liabilities relating to the Water Filtration
Business and the Retained Debt (the "Retained Liabilities").
Certain Further Contributions
If, after the time of the Spin-Off, either New Ametek or AMETEK holds assets
which by the terms of the Distribution Agreement or the Merger Agreement were
intended to be assigned and transferred to, or retained by, the other party,
such party will promptly assign and transfer or cause to be assigned and
transferred such assets to the other party.
The Spin-Off
Upon completion of the Contributions, the Spin-Off will be effected by the
distribution to each holder of record of AMETEK Common Stock as of the close
of business on the Spin-Off Record Date of certificates representing one share
of New Ametek Common Stock for every share of AMETEK Common Stock held by such
holder. As a result of the Spin-Off, the stockholders of record of AMETEK at
the close of business on the Spin-Off Record Date will own all of the
outstanding New Ametek Common Stock.
Certain Covenants
For five years after the Spin-Off, New Ametek will not, directly or
indirectly, (i) sell any products or render any services which are currently
being manufactured, sold or rendered by the Water Filtration Business, or (ii)
solicit any customer or supplier of the Water Filtration Business for any
purpose competitive with the Water Filtration Business; and for two years
after the Spin-Off, neither AMETEK nor New Ametek will, directly or
indirectly, solicit the employment of any employee of the other party and its
subsidiaries.
Prior to the Spin-Off, AMETEK will transfer and assign to New Ametek all of
AMETEK's insurance policies other than (i) any policy which relates solely to
the Water Filtration Business and (ii) any policy that is not assignable
pursuant to its terms (a "Non-Assignable Policy"). If any policy is a Non-
Assignable Policy, it is the intent of AMETEK and New Ametek that New Ametek
receive the benefit of any coverage under any such policy, and that AMETEK
will keep such policy in effect during its remaining term and will refrain
from taking any actions (other than making a claim) which may affect New
Ametek's entitlement to the benefits of, or coverage under, such policy.
AMETEK and New Ametek also agree to cooperate with each other with respect to
the processing of any claims which are covered by any insurance policy in
existence prior to the time of the Spin-Off.
Settlement of Intercompany Balances
All amounts owing between the New Ametek entities and the Water Filtration
Business entities, other than amounts arising in the ordinary course of
business, will be deemed paid in full at or prior to the Spin-Off.
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Employees and Employee Benefit Plans
Effective as of the Spin-Off Date, New Ametek will offer employment to all
employees of AMETEK, other than employees of the Water Filtration Business, on
the same terms and conditions as were in effect immediately prior to the Spin-
Off. Any such transfer of employment from AMETEK to New Ametek will not
constitute a termination or qualifying event under any severance policy.
Also effective as of the Spin-Off Date, New Ametek will adopt (i) the AMETEK
company-wide 401(k) Plan, (ii) the AMETEK company-wide Employees' Retirement
Plan, a defined benefit pension plan covering all salaried employees hired
before January 1, 1997; (iii) all hourly defined benefit pension plans
sponsored by AMETEK, other than the separate pension plan covering only hourly
employees of the Water Filtration Business; and (iv) all severance, vacation,
medical, disability, life insurance, split-dollar and other welfare benefit
plans covering employees (and their spouses and dependents) of AMETEK, other
than any such plans or arrangements covering only employees of the Water
Filtration Business or the separable portion of such plans or arrangements
attributable to employees of the Water Filtration Business. As soon as
practicable on or after the Merger, New Ametek shall cause the AMETEK 401(k)
Plan to make a direct plan-to-plan transfer to Culligan's 401(k) Plan
consisting of the account balances of those participants who are employed in
the Water Filtration Business. The Employee's Retirement Plan, as adopted by
New Ametek, will retain the liability for all accrued pension benefits,
including the accrued benefits of participants employed in the Water
Filtration Business, as determined at the time of the Spin-Off, which benefits
will be payable upon the participants' subsequent retirement or termination of
employment from Culligan, or death or disability, as the case may be, as and
to the extent provided for by the Employees' Retirement Plan; provided, that
any such participant employed in the Water Filtration Business will continue
to be credited under the Employees' Retirement Plan for employment with AMETEK
and Culligan after the Spin-Off for purposes of vesting and eligibility for
early retirement, disability or pre-retirement death benefits (but not for the
purpose of determining the amount of the accrued benefit), and, further
provided, that any such participant's compensation shall continue to be
recomputed by taking into account compensation earned with AMETEK and Culligan
after the Spin-Off (but limited for Employees' Retirement Plan purposes to an
increase of 5%, per annum, of the 1996 compensation).
Effective as of the Spin-Off Date, AMETEK shall continue to offer employment
to employees of the Water Filtration Business on the same terms and conditions
as in effect immediately prior thereto, and shall retain sponsorship of the
separate pension plan which covers only hourly employees of the Water
Filtration Business, and of all severance, vacation, medical, disability, life
insurance, split-dollar and other welfare benefit plans covering only
employees (and their spouses and dependents) of employees of the Water
Filtration Business or the separable portion of such plans or arrangements
attributable to employees of the Water Filtration Business.
Stock Option and Stock Incentive Plans
Prior to the Spin-Off, New Ametek will adopt one or more stock option, stock
incentive or similar plans for its employees and directors. Effective as of
the Spin-Off Date, all outstanding options to purchase the AMETEK Common Stock
which are held by employees, other than the employees of the Water Filtration
Business, whether or not such options are currently exercisable, will be
assumed by New Ametek and shall be exercisable upon the same terms and
conditions as in effect immediately prior thereto; provided, however, that
each such option shall cease to be exercisable with respect to the AMETEK
Common Stock and shall become exercisable for a whole number of shares of New
Ametek Common Stock and with an adjusted per share exercise price, determined
in accordance with Treasury Regulation (S)1.425-1 (whether the option is an
incentive stock option on a nonqualified stock option) so as to preserve both
the aggregate market spread between the value of the shares of common stock
subject to the option and the exercise price of the option immediately before
the Spin-Off, and the per share ratio between the value of the common stock
and the exercise price immediately before the Spin-Off. All stock appreciation
rights granted with respect to AMETEK Common Stock held by employees, other
than employees of the Water Filtration Business, whether then exercisable,
shall similarly be assumed by New Ametek and shall be exercisable upon the
same terms and conditions as in effect immediately prior thereto, provided
that the stock appreciation rights shall be subject to adjustment in a manner
similar to the adjustments to the assumed stock options, as described in the
preceding sentence.
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AMETEK has amended those outstanding stock options which are held by
employees of the Water Filtration Business to provide that, for a period
beginning March 20, 1997 and ending three business days prior to the date of
the Spin-Off (the "Special Offer Period"), (i) such options are fully
exercisable (i.e., vested), (ii) each such option holder may, as an
alternative to exercise, surrender his or her options, in whole or in part,
and receive from AMETEK a cash amount equal to the market spread between the
aggregate average company share price (determined as the average closing
prices of AMETEK Common Stock for the ten trading days ending on the second
trading day immediately prior to the Effective Time) over the aggregate
exercise price, in lieu of exercising the underlying options and (iii) AMETEK
will pay any holder of an option which was granted as an incentive stock
option (within the meaning of Section 422 of the Code) who exercises or
surrenders his options for the cash spread during the Special Offer Period an
amount, in cash, equal to 20% of the taxable gain recognized from the exercise
or surrender. For any option holder who is employed by the Water Filtration
Business and does not exercise or surrender his options for cash during the
Special Offer Period, any such unexercised options shall, at the end of the
Special Offer Period, revert to the level of exercisability (i.e., vesting) as
is determined solely by the terms of the option and the length of the option
holder's service since the date of grant, and the right to surrender the
options for cash and the right of holders of options which were granted as
incentive stock options to receive the special 20% cash payment, as described
above, shall lapse, and, as of the Effective Time, such unexercised options
will be exchanged for Culligan Options to purchase, pursuant to the Culligan
Option Conversion Ratio, a number of shares of Culligan Common Stock.
Effective as of the Spin-Off Date, AMETEK shall retain (and shall not
contribute to New Ametek) cash in an amount equal to 60% of the market spread
of the unexercised options held by Water Filtration Business Employees.
Conditions to the Spin-Off
The obligations of AMETEK and New Ametek to consummate the Spin-Off and to
perform all other obligations set forth in the Distribution Agreement are
subject to the satisfaction or waiver of (i) all the conditions contained in
the Merger Agreement which relate to AMETEK or New Ametek, and (ii) the
condition that all authorizations, orders or approvals, or declarations or
filings with, or the expiration of waiting periods imposed by, any
governmental entity or other public or private entity the failure of which to
obtain would have a material adverse effect on AMETEK or New Ametek, will have
been filed, occurred, or been obtained.
The obligations of AMETEK to consummate the Spin-Off and perform all other
obligations set forth in the Distribution Agreement are subject to the
satisfaction or waiver of the condition that New Ametek will have effected its
assumption of the Assumed Liabilities as contemplated by the Distribution
Agreement.
The obligations of New Ametek to consummate the transactions contemplated by
the Distribution Agreement and to perform all other obligations set forth in
the Distribution Agreement are subject to the satisfaction or waiver of the
condition that AMETEK will have contributed to New Ametek the Contributed
Assets, as contemplated by the Distribution Agreement.
Amendment
The Distribution Agreement (including the Annexes, Schedules and exhibits
thereto) may be amended in writing by AMETEK or New Ametek at any time prior
to the time of the Spin-Off with the prior written consent of Culligan. At any
time prior to the Spin-Off, either AMETEK or New Ametek may waive in writing
compliance by the other with any of the agreements or conditions contained in
the Distribution Agreement with the prior consent of Culligan. The failure of
any party to the Distribution Agreement to assert any of its rights under or
to enforce any provision of the Distribution Agreement or otherwise will not
constitute a waiver of its rights under such provision or any other provision.
TERMS OF THE TAX ALLOCATION AGREEMENT
In connection with the Spin-Off and the Merger, AMETEK, New Ametek and
Culligan will enter into the Tax Allocation Agreement, which provides for the
allocation of all tax liabilities of AMETEK and its subsidiaries for taxable
periods before and after the Spin-Off. In general, under the Tax Allocation
Agreement, (i) New
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Ametek will be liable for any tax liability attributable to the Water
Filtration Business for taxable periods (or portions thereof) ending on or
before the Spin-Off Date and any tax liability attributable to the assets and
businesses to be transferred to or held by New Ametek (i.e., all of the assets
and businesses other than the Water Filtration Business) for all taxable
periods and (ii) AMETEK will be liable for any tax liability attributable to
the Water Filtration Business for taxable periods (or portions thereof)
beginning after the Spin-Off Date.
In addition, except as provided below, New Ametek will be liable for any tax
liability resulting from transfers of stock and/or assets undertaken in
connection with or to effect the Contributions, the Spin-Off or the Merger
("Restructuring Taxes") including, without limitation, any tax liability
imposed on AMETEK as a result of the Contributions failing to qualify as a
reorganization under Section 368 (a) (1) (D) of the Code or the Spin-Off
failing to qualify as a distribution under Section 355 of the Code. AMETEK and
Culligan will be liable for any Restructuring Taxes caused by an action
inconsistent with Culligan's representations made in connection with obtaining
the Private Letter Ruling or the Tax Opinions and which is taken by Culligan
prior to the Spin-Off or by Culligan or AMETEK during the two-year period
after the Spin-Off. Furthermore, in the event that AMETEK and New Ametek would
each be liable for taxes resulting from the Spin-Off and/or the Merger
(without regard for any action taken by the other party), AMETEK and New
Ametek shall each be liable for one-half of such taxes and shall indemnify
each other for any excess of such amount paid. Pursuant to the Distribution
Agreement, AMETEK and New Ametek shall share equally all taxes (and certain
other transaction costs) incurred in connection with the Contributions and all
transfer taxes imposed in connection with or as a result of the Merger
subject, in the case of AMETEK, to a limit of $1,500,000.
TERMS OF THE TRANSITION SERVICES AGREEMENT
In connection with the Spin-Off and the Merger, New Ametek and the Surviving
Corporation will enter into the Transition Services Agreement, which sets
forth the obligations of New Ametek to provide the Surviving Corporation with
certain transition services and support, including but not limited to, payroll
and benefits administration; administrative services related to employee
benefit plans; advertising and marketing services; fixed asset accounting;
vehicle fleet management; management information systems; treasury services;
risk management services; tax compliance information; access to a web site;
access to financial information for audited financial statements; access to
shared facilities; and such other services as may be requested from time to
time to assist in the transition, for a period of up to nine (9) months after
the date of the Transition Services Agreement. In consideration for such
transition services, the Surviving Corporation will pay to New Ametek a fee
based on New Ametek's fully burdened costs of providing such services, which
will be mutually agreed upon by New Ametek and the Surviving Corporation prior
to the time such transition services are provided.
TERMS OF THE INDEMNIFICATION AGREEMENT
In connection with the Spin-Off and the Merger, AMETEK, New Ametek and
Culligan will enter into an Indemnification Agreement which sets forth each
party's rights and obligations with respect to indemnification for matters
relating to the Contributions, the Spin-Off and the Merger.
The Indemnification Agreement will provide that except as otherwise
specifically provided in the Merger Agreement or any of the Distribution
Documents, New Ametek will indemnify, defend and hold harmless Culligan from
and against, and pay or reimburse Culligan for, all Indemnifiable Losses, as
incurred: (a) arising out of or resulting from (x) the Contributed Assets or
the Assumed Liabilities (including the failure by New Ametek or any subsidiary
or Affiliate of New Ametek to pay, perform or otherwise discharge such Assumed
Liabilities in accordance with their terms) whether such Indemnifiable Losses
arise out of or result from events, occurrences, actions, omissions, facts or
circumstances occurring, existing or asserted before, at or after the
Effective Time or (y) the conduct or operation of AMETEK's business (other
than the conduct and operation of the Water Filtration Business) prior to the
Effective Time; (b) arising out of or resulting from any untrue statement or
alleged untrue statement of a material fact contained in any of the
Registration Statements or in this Joint Proxy Statement/Prospectus, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they
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were made, not misleading; but only in each case with respect to information
provided by AMETEK relating to New Ametek or AMETEK contained in or omitted
from the Registration Statements or this Joint Proxy Statement/Prospectus; (c)
arising out of or resulting from the breach by New Ametek or any of its
subsidiaries of any agreement or covenant contained in the Merger Agreement or
any of the Distribution Documents which does not by its express terms expire
at the Effective Time or which is not by its express terms required to be
performed prior to the Effective Time; (d) arising out of or resulting from
any breach of or inaccuracy in any representation or warranty of AMETEK or New
Ametek contained in the Merger Agreement; (e) arising out of or resulting from
any actual or alleged violation of any law, rule or regulation of any
Governmental Entity by AMETEK or New Ametek or any of their subsidiaries or
any director, officer, employee or agent of AMETEK or New Ametek or any of
their subsidiaries (collectively, "Legal Matters") occurring or alleged to
have occurred at or prior to the Effective Time with respect to the New Ametek
Businesses; (f) relating to or arising from any claim that the execution,
delivery or performance by AMETEK or New Ametek of the Merger Agreement and
each Ancillary Agreement to which it is or will be a party or the consummation
of the transactions contemplated thereby results in a violation or breach of,
or constitutes a default or impermissible transfer under, or gives rise to any
right of termination, first refusal or consent under or gives rise to any
right of amendment, cancellation or acceleration of any material benefit
under, any Contract to which AMETEK or any of its subsidiaries is a party
prior to the Spin-Off; and (g) arising out of or relating to the handling,
use, storage, recycling, treatment, transport, Release or disposal of
Hazardous Substances by AMETEK, any of its subsidiaries, affiliates or
predecessors (including any prior owner of the Retained Realty (as defined
below)) or any third party engaged by any of them, prior to the Effective
Time: (x) at any former properties or facilities of AMETEK or any of its
subsidiaries, affiliates, or predecessors (including any prior owner of the
Retained Realty, including former properties or facilities relating to the
Retained Assets or the Water Filtration Business (but not including any real
property owned or leased by the Water Filtration Business, as of the Spin-Off
Date (the "Retained Realty")); (y) at the Retained Realty, but only to the
extent that the Indemnifiable Losses arise from activities or business
operations that preceded the activities or business operations of the Water
Filtration Business at the Retained Realty; and (z) at any site or location
other than the Retained Realty where such handling, use, storage, recycling,
treatment, transport, Release or disposal (or arranging for such activities by
third parties) was related to the activities or business operations of the
Retained Assets or the Water Filtration Business (provided that this clause
(z) shall not cover any migration of a Release from the Retained Realty).
The Indemnification Agreement will further provide that except as otherwise
specifically provided in the Merger Agreement or any of the Distribution
Documents, Culligan will indemnify, defend and hold harmless, or cause AMETEK
to indemnify, defend and hold harmless New Ametek from and against, and pay or
reimburse New Ametek for, all Indemnifiable Losses, as incurred: (a) arising
out of or resulting from (x) the Water Filtration Business or the Retained
Liabilities (including the failure by Culligan or any of its subsidiaries to
pay, perform or otherwise discharge such Retained Liabilities in accordance
with their terms) whether such Indemnifiable Losses arise out of or result
from events, occurrences, actions, omissions, facts or circumstances
occurring, existing or asserted before, at or after the Effective Time or (y)
the conduct or operation of the Water Filtration Business following the
Effective Time (other than any such conduct or operation which would give rise
to a right to indemnification by the Parent Indemnitees under the
Indemnification Agreement); (b) arising out of or resulting from any untrue
statement or alleged untrue statement of a material fact contained in any of
the Registration Statements or in this Joint Proxy Statement/Prospectus, or
any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; but only in each
case with respect to information provided by Culligan relating to Culligan or
any of its subsidiaries (other than AMETEK and its subsidiaries) contained in
or omitted from any of the Registration Statements or this Joint Proxy
Statement/Prospectus; (c) arising out of or resulting from the breach by
Culligan or any of its subsidiaries of any agreement or covenant contained in
the Merger Agreement or any of the Distribution Documents which does not by
its express terms expire at the Effective Time or which is not by its express
terms required to be performed prior to the Effective Time; and (d) relating
to or arising from any claim that the execution, delivery or performance by
Culligan or Culligan Merger Sub of the Merger Agreement and each Ancillary
Agreement to which it is or will be a party or the consummation of the
transactions contemplated thereby results in a violation or breach of, or
constitutes a
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default or impermissible transfer under, or gives rise to any right of
termination, first refusal or consent under or gives rise to any right of
amendment, cancellation or acceleration of any material benefit under, any
Contract to which Culligan or Culligan Merger Sub is a party prior to the
Spin-Off.
The Indemnification Agreement will provide that with respect to
Indemnifiable Losses arising out of or resulting from any breach or inaccuracy
in any representation or warranty of AMETEK or New Ametek contained in the
Merger Agreement, New Ametek will not have any liability under the
Indemnification Agreement unless the aggregate of all Indemnifiable Losses for
which New Ametek would be liable under the Indemnification Agreement exceeds
on a cumulative pre-tax basis an amount equal to $800,000 (the "Basket
Amount"); provided, that, once the Basket Amount is exceeded, New Ametek will
only pay Indemnifiable Losses in excess of such Basket Amount. Notwithstanding
the foregoing, New Ametek's liability for Indemnifiable Losses arising out of
or resulting from any breach or inaccuracy in any representation or warranty
of AMETEK or New Ametek contained in the Merger Agreement is limited (i) in
the aggregate to $25,000,000 and (ii) to only those Indemnifiable Losses for
which New Ametek has received written notice of on or prior to eighteen months
from the Closing Date.
TERMS OF THE TRADEMARK AGREEMENT
Following the time of the Spin-Off, New Ametek will have the sole and
exclusive ownership of and right to use all of the names, trademarks, trade
names and other proprietary rights of AMETEK (collectively, the "Intellectual
Property"), including all rights to the "Ametek" name other than the
intellectual property relating primarily to the Water Filtration Business.
Pursuant to the Trademark Agreement between AMETEK and New AMETEK, AMETEK will
retain the right to use, for a period of five years, the "Ametek" trade name
and any AMETEK trademarks, service marks or logos which use the word "Ametek"
and are currently in use by the Water Filtration Business (collectively, the
"Marks"). In addition, for the three successive one-year terms following such
five year period, New Ametek will grant to AMETEK, pursuant to the Trademark
Agreement, an exclusive worldwide license to the Marks at a royalty rate of
$1,000,000 per year. AMETEK (which following the Merger will have changed its
name to Culligan Water Company, Inc.) is prohibited, however, from using the
"Ametek" mark alone or in connection with other terms as part of a corporate
name. The Trademark Agreement also provides for usual and customary
provisions, including quality control, audit and marking provisions.
55
<PAGE>
CERTAIN INFORMATION ABOUT
NEW AMETEK AFTER THE SPIN-OFF
The following is a summary of the description of the business of New Ametek
after the Spin-Off. See the New Ametek Information Statement included as
Appendix E hereto for a more complete description.
GENERAL
New Ametek will be the successor to all of AMETEK's current businesses
except the Water Filtration Business. As a result, New Ametek will be a global
manufacturer of electrical and electronic products, and materials engineered
for niche markets with operations in North America, Europe, and Asia.
Approximately, one-third of New Ametek's sales will be to international
markets. New Ametek will have a significant market share for many of its
products. The Electromechanical Group is the world's largest independent
producer of electric motors and blowers for vacuum cleaners and floor-care
products; the Precision Instruments Group builds technologically advanced
monitoring, sensing, calibration, and display devices for the aerospace,
process, and heavy-vehicle industries; and the Industrial Materials Group uses
plastics, metals and fibers to produce specialty materials for consumer and
industrial markets. New Ametek will continue to grow through a focus on the
manufacturing of electronic, electromechanical and electrical products for
niche markets where, based on technological or cost advantages, it has or it
seeks to build a significant market share.
New Ametek's growth strategies will be focused on its principal businesses:
Electromechanical, Precision Instruments, and Industrial Materials. The
following table sets forth summary sales and income information for New
Ametek's business segments for the periods indicated giving effect to the
Water Filtration Business as a discontinued operation:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
NET SALES(a):
Electromechanical.............................. $375,633 $372,038 $340,358
Precision Instruments.......................... 308,737 301,440 280,638
Industrial Materials........................... 115,641 108,369 99,656
-------- -------- --------
Total net sales.............................. $800,011 $781,847 $720,652
======== ======== ========
INCOME:
Segment operating profit(b):
Electromechanical.............................. $ 44,238 $ 48,858 $ 46,203
Precision Instruments.......................... 37,253 34,803 29,189
Industrial Materials........................... 22,339 16,854 11,313
-------- -------- --------
Total segment operating profit............... 103,830 100,515 86,705
Corporate administrative and other expenses...... (20,987) (21,836) (23,146)
-------- -------- --------
Consolidated operating income.................... 82,843 78,679 63,559
Interest and other expenses, net................. (16,461) (20,074) (17,546)
-------- -------- --------
Consolidated income from continuing operations
before income taxes............................. $ 66,382 $ 58,605 $ 46,013
======== ======== ========
</TABLE>
- --------
(a) After elimination of intra and inter-segment sales, which are not
significant in amount.
(b) Segment operating profit represents sales less all direct costs and
expenses (including certain administrative and other expenses) applicable
to each segment, but does not include interest expense.
DESCRIPTION OF NEW AMETEK COMMON STOCK
Holders of New Ametek Common Stock will be entitled to one vote per share on
all matters voted on generally by the stockholders, including the election of
directors, and, except as otherwise required by law or
56
<PAGE>
except as provided with respect to any series of New Ametek Preferred Stock,
the holders of such shares will possess all voting power. The New Ametek
Certificate of Incorporation (the "New Ametek Certificate") does not provide
for cumulative voting for the election of directors. Thus, under the DGCL, the
holders of more than one-half of the outstanding shares of New Ametek Common
Stock generally will be able to elect all the directors of New Ametek then
standing for election and holders of the remaining shares will not be able to
elect any director.
Subject to any preferential rights of any series of New Ametek Preferred
Stock, holders of shares of New Ametek Common Stock will be entitled to
receive dividends on such stock out of assets legally available for
distribution when, as and if authorized and declared by the New Ametek Board
and to share ratably in the assets of New Ametek legally available for
distribution to its stockholders in the event of its liquidation, dissolution
or winding up.
Holders of New Ametek Common Stock will have no preferences, preemptive,
conversion or exchange rights.
Certain of the foregoing provisions of the New Ametek Certificate may make
more difficult, and therefore discourage, attempts to acquire control of New
Ametek through acquisitions of shares of New Ametek Common Stock or otherwise,
in transactions not approved by the New Ametek Board. As a result of these
provisions, transactions or proposed transactions which might have the short-
term effect of increasing the market price of New Ametek Common Stock may be
discouraged, and management of New Ametek may be able to resist changes which
the stockholders might otherwise have the power to impose. The division of the
New Ametek Board into three classes could discourage third parties from
seeking to acquire control of such Board and could impede proxy contests or
other attempts to change New Ametek's management.
New Ametek has adopted a stockholder rights plan. Each share of New Ametek
Common Stock distributed pursuant to the Spin-Off will be distributed to
holders of AMETEK Common Stock with an associated right under the New Ametek
rights plan.
For a further description of the rights and privileges of holders of New
Ametek Common Stock, see "DESCRIPTION OF NEW AMETEK CAPITAL STOCK" in the New
Ametek Information Statement which is included as Appendix E hereto.
RISK FACTORS RELATING TO NEW AMETEK
For a discussion of certain risks associated with an investment in New
Ametek Common Stock, see "RISK FACTORS" in the New Ametek Information
Statement which is included as Appendix E hereto.
57
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain Federal income tax consequences of the
Contributions, the Spin-Off and the Merger. This summary is based upon the
Code, Treasury regulations promulgated thereunder, and judicial and
administrative interpretations thereof, all as in effect on the date hereof,
and which are subject to changes occurring after such date, possibly with
retroactive effect. This summary is for general information only and does not
address the effects of any state, local or foreign tax laws. In addition, it
does not purport to address all of the tax consequences applicable to any
particular taxpayer or to taxpayers subject to special treatment under the
Code, including, without limitation, foreign holders, holders of AMETEK Common
Stock acquired pursuant to the exercise of employee stock options or otherwise
as compensation, insurance companies, tax-exempt organizations, financial
institutions, broker dealers or persons who do not hold the AMETEK Common
Stock as a capital asset. EACH HOLDER OF AMETEK COMMON STOCK IS URGED TO
CONSULT HIS OR HER TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO HIM OR
HER OF THE SPIN-OFF AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS AND OF CHANGES IN
APPLICABLE TAX LAWS.
The Contributions, the Spin-Off and the Merger will not be consummated
unless the IRS shall have issued and not revoked the Private Letter Ruling
reasonably satisfactory in form and substance to AMETEK and Culligan
substantially to the effect that, on the basis of the facts, representations
and assumptions existing at the Effective Time: (i) the Contributions followed
by the Spin-Off qualify as a tax-free reorganization pursuant to Section
368(a)(1)(D) of the Code; (ii) the Spin-Off qualifies as a tax-free
distribution pursuant to Section 355(a) of the Code; and (iii) the Merger
qualifies as a tax-free reorganization pursuant to Section 368 (a)(1)(B) of
the Code.
In the event that the IRS shall not have issued the Private Letter Ruling to
include any one or more of the three requested rulings described in the
preceding paragraph (each, an "Omitted Ruling"), this requirement will
nevertheless be satisfied if, on or prior to the Closing Date, AMETEK receives
an opinion of Stroock & Stroock & Lavan LLP and Culligan receives an opinion
of Skadden, Arps, Slate, Meagher & Flom LLP (together, the "Tax Opinions") to
the same effect as each such Omitted Ruling. Each such Tax Opinion, if any,
would be based upon certain qualifications and assumptions as noted therein
and upon certain representations of AMETEK, New Ametek and Culligan. It would
represent such counsel's best legal judgment and would not be binding on the
IRS or the courts. There can be no assurance that the IRS or the courts would
not take one or more contrary positions to those expressed in the Tax
Opinions.
The Contributions, the Spin-Off and the Merger will also not be consummated
unless there shall be no proposed legislation introduced in bill form and
pending action in Congress which, if enacted into law, would have the effect
of amending the Code so as to alter in any materially adverse respect any of
the Federal income tax consequences described in the Private Letter Ruling
(and/or the Tax Opinions) in respect of the Contributions, Spin-Off or Merger.
On April 17, 1997, Senate Finance Committee Chairman William V. Roth Jr.,
Senate Finance Committee ranking Democrat Daniel Patrick Moynihan and House
Ways and Means Committee Chairman Bill Archer introduced legislation (the
"Proposed Legislation") that if applicable to the Spin-Off and Merger would
cause the Spin-Off to be taxable to New Ametek. The Proposed Legislation would
not apply to any distribution after April 16, 1997 if the distribution is (i)
made pursuant to a written agreement which was (subject to customary
conditions) binding on April 16, 1997 and at all times thereafter, (ii)
described in a ruling request submitted to the IRS on or before April 16,
1997, or (iii) described on or before such date in a public announcement or in
a filing with the Commission required solely by reason of the distribution
(the "Transitional Relief"). Since the Spin-Off and Merger would satisfy one
or more of the requirements for Transitional Relief, the Proposed Legislation,
if enacted in its present form, would not be applicable to the transactions.
However, there can be no assurance that the Proposed Legislation would be
enacted in its present form or that other legislation, materially adverse to
the Contributions, the Spin-Off or the Merger and with different effective
dates and/or transitional relief, would not be introduced or enacted after the
date hereof. The introduction or enactment of legislation differing from the
Proposed Legislation could delay or prevent consummation of the Contributions,
the Spin-Off and the Merger.
58
<PAGE>
CONSEQUENCES OF THE CONTRIBUTIONS AND THE SPIN-OFF
Based upon the Private Letter Ruling (and/or the Tax Opinions), the
following is a summary of the anticipated Federal income tax consequences of
the Contributions and the Spin-Off:
1. No gain or loss will be recognized by (and no amount will be included
in the income of) holders of AMETEK Common Stock on their receipt of New
Ametek Common Stock in the Spin-Off.
2. Following the Spin-Off, the aggregate tax basis of the AMETEK Common
Stock and the New Ametek Common Stock in the hands of the holders of AMETEK
Common Stock will equal the tax basis of the AMETEK Common Stock held
immediately before the Spin-Off, allocated in proportion to the fair market
value of each on the Spin-Off Date.
3. The holding period of the New Ametek Common Stock received by the
holders of AMETEK Common Stock will include the holding period of the
AMETEK Common Stock on which the Spin-Off was made, provided such AMETEK
Common Stock is held as a capital asset on the Spin-Off Date.
4. No gain or loss will be recognized by AMETEK or New Ametek as a result
of the Contributions or the Spin-Off.
If the Contributions and the Spin-Off did not qualify for tax-free treatment
under Code Sections 368(a)(1)(D) and 355, then for Federal income tax purposes
(i) AMETEK would be required to recognize gain on the Spin-Off to the extent
that the fair market value of the shares of New Ametek Common Stock
distributed in the Spin-Off exceeded AMETEK's tax basis of such shares and
(ii) each holder of AMETEK Common Stock would be required to recognize
dividend income in an amount equal to the fair market value of the shares of
New Ametek Common Stock received in the Spin-Off, up to such stockholder's
allocable share of AMETEK's current and accumulated earnings and profits
(which would include the amount of gain referred to in clause (i) above).
CONSEQUENCES OF THE MERGER
Based upon the Private Letter Ruling (and/or the Tax Opinions), the
following is a summary of the anticipated Federal income tax consequences of
the Merger:
1. No gain or loss will be recognized by holders of AMETEK Common Stock
whose shares of AMETEK Common Stock are exchanged solely for Culligan
Common Stock pursuant to the Merger Agreement (except with respect to cash
received by such holders of AMETEK Common Stock in lieu of fractional
shares of Culligan Stock). An AMETEK stockholder who receives cash in lieu
of fractional shares of Culligan Common Stock will recognize capital gain
or loss in an amount equal to the difference between the cash so received
and the portion of the tax basis in AMETEK Common Stock (as determined
immediately following the Spin-Off) that is allocable to such fractional
share. Such capital gain or loss will be long-term capital gain or loss,
provided such fractional shares would have been held by such stockholder as
a capital asset immediately prior to the Merger.
2. The tax basis of the Culligan Common Stock received (or, in the case
of fractional shares, deemed received) by holders of AMETEK Common Stock
who exchange their AMETEK Common Stock solely for Culligan Common Stock in
the Merger will be the same as the aggregate tax basis of the AMETEK Common
Stock (as determined immediately following the Spin-Off) surrendered in
exchange therefor.
3. The holding period for the shares of Culligan Common Stock received in
the Merger will include the period during which the shares of the AMETEK
Common Stock surrendered in exchange therefor were held, provided that such
shares of AMETEK Common Stock were held as a capital asset immediately
prior to the Merger.
4. No gain or loss will be recognized by AMETEK, Culligan Merger Sub or
Culligan as a result of the Merger.
If the Merger did not qualify for tax-free treatment as a reorganization
under Code Section 368(a)(1)(B), each holder of AMETEK Common Stock would
recognize gain or loss equal to the difference between the fair market value
of the Culligan Common Stock received and such holder's tax basis of the
shares of AMETEK Common Stock surrendered. Failure of the Merger to qualify as
a tax-free reorganization could jeopardize the tax-free treatment of the
Contributions and the Spin-Off under Code Sections 355 and 368(a)(1)(D).
59
<PAGE>
CAPITALIZATION
The following table sets forth as of January 31, 1997, the capitalization of
Culligan as of such date and as adjusted to reflect the Merger as if it had
occurred on January 31, 1997. See the "CULLIGAN UNAUDITED PRO FORMA FINANCIAL
INFORMATION--Culligan Unaudited Condensed Pro Forma Combined Balance Sheet" and
the accompanying notes thereto. This table should be read in conjunction with
the Consolidated Financial Statements of Culligan and the accompanying notes,
appearing in the Culligan 10-K incorporated herein by reference. See "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
<TABLE>
<CAPTION>
JANUARY 31, 1997
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................ $ 8,984 $ 9,681
======== ========
Short term debt:
Notes payable and current maturities of long term debt. $ 12,414 $ 12,757
-------- --------
Long term debt:
Notes payable to banks................................. 29,294 54,294
Other.................................................. 6,937 6,937
-------- --------
Total long term debt................................. $ 36,231 $ 61,231
-------- --------
Stockholders' equity:
Common stock, $0.01 par value per share;
60,000,000 shares authorized; 21,342,957 actual shares
issued and outstanding (24,809,624 shares as adjust-
ed)................................................... 213 248
Additional paid-in capital............................. 235,894 363,333
Retained (deficit)..................................... (61,780) (61,780)
Foreign currency translation adjustment................ (687) (687)
-------- --------
Total stockholders' equity........................... $173,640 $301,114
-------- --------
Total capitalization................................. $222,285 $375,102
======== ========
</TABLE>
60
<PAGE>
CULLIGAN UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited condensed pro forma combined statement of operations
for the fiscal year ended January 31, 1997 gives effect to the Merger as if it
occurred on February 1, 1996. The accompanying unaudited condensed pro forma
combined balance sheet as of January 31, 1997 gives effect to the Merger as if
it occurred on January 31, 1997.
The unaudited pro forma financial information of Culligan is presented for
illustrative purposes only and is not necessarily indicative of the combined
results of operation or financial position of Culligan if the Merger had
occurred on the assumed dates, nor is it necessarily indicative of the future
results of operations or financial position of Culligan. The unaudited
financial information is based on the historical consolidated financial
statements of Culligan as of and for the year ended January 31, 1997 and the
Water Filtration Business as of and for the year ended December 31, 1996 and
should be read in conjunction with such historical financial information and
the notes thereto, which appear elsewhere herein and in the Culligan 10-K
which is incorporated herein by reference. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
The pro forma adjustments applied in the unaudited pro forma financial
information reflect the Merger as a purchase. Under the purchase method of
accounting, the purchase cost will be allocated to acquired assets and
liabilities based on their fair relative values as of the Closing Date with
the excess of the purchase cost over fair value allocated to goodwill. Such
allocations are based on valuations and other studies that are not yet
complete. Accordingly, the final allocations will be different from those
reflected. However, based on current information, Culligan does not presently
expect the final allocations to differ materially from the amounts presented.
61
<PAGE>
CULLIGAN UNAUDITED CONDENSED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
JANUARY 31, 1997
<TABLE>
<CAPTION>
WATER
FILTRATION
CULLIGAN BUSINESS
YEAR ENDED YEAR ENDED MERGER
JANUARY 31, DECEMBER 31, ADJUSTMENTS PRO
1997 1996 (A)(B) FORMA
----------- ------------ ----------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales............... $371,018 $68,650 $ (827)(c) $438,841
Cost of goods sold...... 205,581 44,039 834 (c),(d),(e),(f) 250,454
-------- ------- ------- --------
Gross profit............ 165,437 24,611 (1,661) 188,387
Selling, general and ad-
ministrative........... 113,932 10,004 314 (c),(d),(e) 124,250
Depreciation expense.... -- 1,919 (1,919)(e) --
Amortization of intangi- 17,522 328 3,085 (g) 20,935
ble assets............. -------- ------- ------- --------
Operating income (loss). 33,983 12,360 (3,141) 43,202
Other income (expense), 5,023 (9) 5,014
net.................... -------- ------- ------- --------
Income (loss) before in-
terest and income tax-
es..................... 39,006 12,351 (3,141) 48,216
Interest income......... 2,633 -- 2,633
Interest expense........ (5,490) -- (1,609)(h) (7,099)
Income taxes............ (20,264) (4,188) 666 (i) (23,786)
-------- ------- ------- --------
Net income (loss)....... $ 15,885 $ 8,163 $(4,084) $ 19,964
======== ======= ======= ========
Weighted average shares
outstanding (000's).... 21,375 n/a 3,467(j) 24,842
Net income per share.... $ 0.74 n/a n/a $ 0.80
======== ======= ======= ========
</TABLE>
62
<PAGE>
NOTES TO CULLIGAN UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF
OPERATIONS
(DOLLARS IN THOUSANDS)
(a) The Water Filtration Business statement of operations includes revenues and
expenses derived from AMETEK's historical cost financial accounts. The
associated revenues and expenses are either directly attributable to the
Water Filtration Business or have been allocated to the Water Filtration
Business based upon methods considered reasonable by AMETEK's management.
The statement of operations of the Water Filtration Business were prepared
in contemplation of the Merger.
(b) The pro forma adjustments do not reflect any operating efficiencies or cost
savings that may result from the merged business. Also, a final
determination of the required purchase accounting adjustments has not been
made, and the earnings results will vary from those pro forma earnings
shown based on the final adjustments.
(c) To eliminate November and December 1995 sales of $827 and cost of goods
sold of $359 and selling, general and administrative expenses of $367
related to APIC International S.A., a wholly owned subsidiary of the Water
Filtration Business, that were included in the Water Filtration Business
results for the year ended December 31, 1996.
(d) To reclassify research and development expenses of $618 included in the
costs of goods sold of the Water Filtration Business to selling, general
and administrative expenses. These expenses are reclassed to selling,
general and administrative expenses in order to present the statement of
operations of the Water Filtration Business on a basis consistent with
Culligan.
(e) To reclassify depreciation expense of the Water Filtration Business to cost
of goods sold ($1,856) and selling, general and administrative expenses
($63) in order to present the statement of operations of the Water
Filtration Business on a basis consistent with Culligan.
(f) To capitalize tooling costs expensed by the Water Filtration Business, net
of additional depreciation expense related to such capitalized amounts. The
adjustment results in a net $45 decrease to cost of goods sold of the Water
Filtration Business. The adjustment is necessary to present the statement
of operations of the Water Filtration Business in accordance with the
accounting policies that will be used after the Merger.
(g) To record amortization expense of $3,085 representing one year's
amortization of goodwill resulting from the excess of the purchase price
paid by Culligan over the sum of identifiable assets acquired and
liabilities assumed. The entire amount has been allocated to goodwill since
final determination of the fair values of assets and liabilities has not
been determined. Also see Note (c) to the Pro Forma Condensed Balance
Sheet. The amortization period for goodwill is 40 years.
(h) To record interest expense of $1,609, reflecting one year's estimated
interest expense for the debt of $25,000 assumed in the Merger. Also see
Note (e) to the Culligan Unaudited Condensed Pro Forma Combined Balance
Sheet.
The effect of a 1/8 percent change in the interest rate on the $25,000 debt
assumed in the Merger would be approximately $31 for the year ended January
31, 1997.
(i) To record the tax effect (at 40%) of all pro forma adjustments except
goodwill, which is not tax deductible.
(j) To adjust the shares of common stock outstanding to reflect the issuance of
3,466,667 shares of Culligan common stock as if the shares were issued on
February 1, 1996. Also see Note (f) to the Culligan Unaudited Condensed Pro
Forma Combined Balance Sheet.
63
<PAGE>
CULLIGAN UNAUDITED CONDENSED PRO FORMA
COMBINED BALANCE SHEET
JANUARY 31, 1997
<TABLE>
<CAPTION>
WATER
FILTRATION
CULLIGAN BUSINESS
JANUARY 31, DECEMBER 31, MERGER PRO
1997 1996 ADJUSTMENTS FORMA
----------- ------------ ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. $ 8,984 $ 697 $ -- (a) $ 9,681
Accounts and notes
receivable, net allowance
for doubtful accounts.... 80,843 9,030 -- (a) 89,873
Inventories............... 47,213 7,882 -- (a) 55,095
Prepaid and other current
assets................... 15,614 561 -- (a) 16,175
-------- ------- -------- --------
Total current assets.... 152,654 18,170 -- (a) 170,824
-------- ------- -------- --------
Property, plant and
equipment, net of
accumulated depreciation. 78,740 17,548 513 (b) 96,801
Intangible assets, net of
accumulated amortization. 76,883 3,539 123,417 (c) 203,839
Other noncurrent assets... 29,085 -- -- (a) 29,085
-------- ------- -------- --------
Total assets............ $337,362 $39,257 $123,930 $500,549
======== ======= ======== ========
CURRENT LIABILITIES:
Accounts payable and
accrued expenses.......... 60,817 7,201 1,163 (d) 69,181
Notes payable and current
maturities of long-term
debt..................... 12,414 343 -- (a) 12,757
-------- ------- -------- --------
Total current liabili-
ties................... 73,231 7,544 1,163 81,938
-------- ------- -------- --------
LONG-TERM LIABILITIES:
Long-term debt............ 36,231 -- 25,000 (e) 61,231
Deferred income taxes and
other noncurrent liabili-
ties..................... 54,260 2,006 -- (a) 56,266
-------- ------- -------- --------
Total long-term liabili-
ties................... 90,491 2,006 25,000 117,497
-------- ------- -------- --------
STOCKHOLDERS' EQUITY:
Common stock.............. 213 35 (f) 248
Additional paid-in capi-
tal...................... 235,894 127,439 (f) 363,333
Retained earnings (defi-
cit)..................... (61,780) 30,354 (30,354)(g) (61,780)
Foreign currency transla-
tion adjustment.......... (687) (647) 647 (g) (687)
-------- ------- -------- --------
Total stockholders' eq-
uity................... 173,640 29,707 97,767 301,114
-------- ------- -------- --------
Total liabilities and
stockholders' equity... $337,362 $39,257 $123,930 $500,549
======== ======= ======== ========
</TABLE>
64
<PAGE>
NOTES TO CULLIGAN UNAUDITED CONDENSED PRO FORMA COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) It is assumed that the historical valuation of these assets and
liabilities of the Water Filtration Business approximates the new book
basis for the merged business, based on the preliminary allocation of the
purchase price using the purchase method of accounting. Also see Note (c)
regarding the preliminary allocation of the purchase price.
(b) The $513 adjustment to property, plant and equipment results from the
capitalization of the Water Filtration Business's tooling costs to be
consistent with the accounting policies of Culligan. These costs were
previously expensed by the Water Filtration Business. Also see Note (c)
regarding the preliminary allocation of the purchase price.
(c) The goodwill amount of $123,417 represents the excess of the purchase
price (see Note (f)) paid by Culligan over the sum of identifiable assets
acquired less liabilities assumed. Under purchase accounting, the purchase
cost will be allocated to acquired assets and liabilities based on their
relative fair values at the acquisition date based on valuations and other
studies which are not yet complete. The purchase price is expected to
exceed the fair value of the net assets acquired. This difference has been
allocated to goodwill which will be amortized over forty years. Such
allocations are subject to final determination based on real estate,
leasehold and equipment valuation studies and a review of the books,
records and accounting policies of the Water Filtration Business. These
studies are expected to be completed after the acquisition date but before
the end of fiscal 1998. Accordingly, the final allocations will be
different from the amount reflected herein. However, based on current
information, management does not presently expect the final allocations to
differ materially from the amounts presented.
(d) To record a financial advisory fee of $1,163 to be paid in connection with
the purchase.
(e) To record issuance of $25,000 of long-term debt in connection with the
purchase (also see Note (f) below). It is assumed the $25,000 will be
obtained through additional borrowings on the Culligan Credit Facility.
(f) To record the issuance of 3,466,667 shares of Culligan's common stock at
$36.85 a share for the purchase of the Water Filtration Business. The
number of shares is based on a purchase price of $155,000, less assumed
debt of $25,000, divided by $37.50 (as provided in the Merger Agreement).
The market price of the Culligan Common Stock used to prepare this pro
forma adjustment is based on the average of the closing price of Culligan
Common Stock for a period of five days, beginning two days before the
Merger announcement and ending two days following the Merger announcement.
The estimated total market value of the common stock of $127,747 has been
reduced by $273 which is the estimated direct costs of registration. The
net market value of the common stock of $127,474 plus the face value of the
long-term debt described in Note (e) and the financial advisory fee of
$1,163 described in Note (d) equals the aggregate Merger consideration of
$153,637.
The aggregate Merger consideration may increase for Culligan stock options
issued in substitution for stock options to purchase AMETEK Common Stock
held by Water Filtration Business Employees. Culligan does not expect,
however, the number of potential options issued, if any, to be material.
(g) To eliminate the equity of the Water Filtration Business.
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THE COMPANIES
A more detailed description of the business of Culligan is contained in the
Culligan 10-K incorporated herein by reference. See " AVAILABLE INFORMATION"
and "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
CULLIGAN
Culligan serves the household and consumer market, including the bottled
water market, and the commercial and industrial markets, including PDS,
operate and maintain ("O&M"), build, own and operate and other markets,
offering a broad range of products and services. Culligan's product lines
include filtration devices, reverse osmosis systems, desalination facilities,
bottled water, water softeners, deionizers and ultrafiltration products.
Product sizes range from small devices for residential customers to large
multi-process systems that are custom engineered and manufactured for
industrial customers. Through its independent dealers, company-owned dealers
and international distributors, Culligan also offers a full line of
accessories, replacement parts and services. In addition, Culligan is a major
provider of PDS both domestically and internationally.
Culligan conducts its activities in two principal areas: household and
consumer and commercial and industrial.
Household and Consumer
Culligan is the leading manufacturer and distributor of water purification
and treatment products to residential customers in the United States.
Culligan's domestic and international household and consumer products and
services address residential water problems, including the removal of lead,
cysts and other health-related contaminants, the elimination of chlorine and
unpleasant odors and tastes from water, and the softening of water by removing
minerals.
Culligan, through its independent and Culligan-owned dealers, sells,
installs and services a broad range of filters, reverse osmosis units and
water softeners that address household water problems. Culligan's strong brand
recognition, popularized by its famous "Hey Culligan Man!"(R) commercials, as
well as its extensive dealer network, have combined to give Culligan a leading
position in the residential water treatment market.
Culligan produces and sells mechanical filtration systems and point-of-use
filters in the household and consumer market designed to improve the quality
of drinking water. In 1988, Culligan became the first to receive certification
from the independent National Sanitation Foundation ("NSF") under NSF's
standard for residential reverse osmosis drinking water systems. Since that
time, Culligan has developed many proprietary reverse osmosis systems to
improve the quality of drinking water, including Culligan's latest model of
its Aqua-Cleer(R) Drinking Water System that utilizes the reverse osmosis
process to filter tap water three times before it comes out of the faucet.
Culligan also offers a wide array of water softening and conditioning
equipment and products for household use. Household automatic softeners and
portable exchange conditioners have constituted a large portion of Culligan's
household business since its inception.
In fiscal 1997, Culligan, through its newly-formed Consumer Markets
Division, launched a line of water filtration products for sale through
department stores and do-it-yourself outlets and entered into several
marketing partnerships for the co-branding of products with partners that are
expected to provide rapid channel access and recurring revenue from
replacement filter sales. The first products introduced by the division,
faucet mount filters, were shipped to department stores in the second quarter
of fiscal 1997. By the end of the year, the division had expanded its product
offerings with the introduction of three new Culligan(R) home water filtration
product lines designed for the "do-it-yourself" market, consisting of under-
counter systems, refrigerator water/ice maker filter systems and a sediment
and rust reduction whole house filtration system and had announced the
introduction of
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a designer glass pitcher filtration system and two new monitored faucet mount
systems that are being rolled out to the high-end department store channels in
fiscal 1998. In fiscal 1997, Culligan also entered into a marketing
partnership with Health o meter, the parent of Mr. Coffee, for plastic pour
through pitchers and with a major appliance manufacturer to provide a
refrigerator water/ice maker filtration system as well as a long-term
corporate partnering agreement with Moen Incorporated to develop Moen(R)
products incorporating Culligan water filtration assemblies.
Through its Everpure subsidiary, Culligan also serves the residential market
by providing point-of-use filtration systems for homes and apartments as well
as recreational vehicles such as Winnebago, Fleetwood and Airstream products.
Everpure's filtration systems reduce or remove off-tastes, odors, chlorine,
dirt, rust, asbestos fibers and parasitic protozoan cysts from the water
supply.
Utilizing its distribution network and product technology, Culligan entered
the bottled water market in 1987 by licensing the sale of five-gallon
containers of bottled water under the Culligan name. Because of growing
consumer concern over the quality of water and its health effects, the bottled
water market has grown substantially in recent years and is expected to
continue to expand. Culligan's licensed bottled water sales now rank fourth in
the five-gallon bottled water market in the United States with an annual
growth rate of approximately 21% in fiscal 1997 and is the only brand in the
five-gallon bottled water business with a nationwide distribution network.
Bottled water under the Culligan name is produced at over 100 company-owned,
franchised or licensed bottling locations and sold through over 500 company-
owned and franchised dealers in the United States. Culligan receives royalty
payments from its licensed producers and dealers based on the volume of sales.
Culligan's dealers typically deliver the five-gallon bottles to a customer's
home of office on a route basis, and the customer rents the dispenser console.
The dealers also pick up the empty bottles which are then cleaned and refilled
at the bottling location. Culligan generally does not participate in any other
segment of the bottled water market.
Commercial and Industrial
Culligan designs, manufactures and, primarily through its distribution
network, sells, installs and services a wide range of products to solve the
complex water problems of its commercial and industrial customers. These
products include filtration systems, reverse osmosis units, water softeners,
desalination systems, deionizers and high quality ultrafiltration and
microfiltration products capable of producing ultrapure water. Culligan
believes that its dealer network provides it with a competitive advantage in
the commercial and industrial markets because the dealers are able to service
systems on a national and international basis.
Commercial
Commercial users require water treatment systems that remove dissolved
minerals, such as calcium, magnesium, iron or manganese, and health-related
contaminants from the available water supply and are capable of treating large
quantities of water on a cost effective basis. Culligan's commercial products
use technologies similar to its residential products, but afford greater
capacity, durability and effectiveness and allow customers increased
flexibility for customization. For example, Culligan's filters, deionizers and
softeners provide food and beverage manufacturers with consistently high
quality water enabling them to preserve uniformity of taste and appearance in
their products, reduce health-related contaminants and minimize equipment
maintenance costs.
Other commercial enterprises such as airlines, hotels, restaurants, car
washes, laundromats, office buildings and apartment complexes use Culligan
products to condition, filter, deionize and otherwise treat large quantities
of water. Unique features of Culligan's commercial water softeners include
high quality Cullex(R) resins, the Dubl-Safe(TM) brine system and a full range
of system controls that minimize salt usage, such as Culligan's solid state
Aqua-Sensor(R) regeneration control.
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Through Everpure, Culligan supplies water filtration products to commercial
businesses which require consistently high quality water. Everpure is the
leading supplier of water filtration products to the food service industry.
Sales to the food service industry constituted approximately 75% of Everpure's
revenues in its last fiscal year. Everpure's line of food service water
filtration products includes systems for post-mix beverage dispensers, ice
machines, coffee makers, steamers and vending machines that are designed to
treat all levels of water contamination and to ensure that consumer products
such as coffee, soups or ice are of the highest quality. Everpure systems also
decrease maintenance costs and extend the life of water-using equipment by
removing dirt and other abrasive particles that can damage the internal
workings of such equipment.
Everpure complements Culligan's other operations by providing a presence in
selected markets where the Culligan's dealer network does not generally
participate. Everpure products are used extensively in many major fast-food
restaurants, including McDonald's(R) Burger King(R) and Starbucks(R) as well
as convenience store chains around the world, including 7-Eleven(R) and
Circle-K(R). In 1979, Everpure received NSF certification for its filtration
cartridges, and today substantially all of the Everpure systems carry the
highest NSF rating for both aesthetic and health effects. Everpure's principal
family of filter cartridges uses its proprietary precoat filtration process
using unique MicroPure(R) filtering media. Everpure's filtration and
disinfection products are also used in the airline, marine, offshore oil and
military markets.
Everpure operates in most western European countries and Japan. In recent
years, Everpure has expanded internationally by following its customers into
developing countries where the water supply is of questionable quality. Its
market outside the United States is primarily the food service industry,
including fast-food chains, restaurants and offices. Everpure's products are
sold directly to equipment manufacturers, fast-food chains and convenience
store chains as well as to individual locations by Everpure's licensed
distributors.
Culligan's newly acquired Bruner operation designs and manufactures water
softeners, filters, deionizers, dealkalizers, demineralizers, degasifiers and
reverse osmosis systems in standard and custom design configurations for
commercial and industrial applications worldwide. Bruner products are sold
through an extensive network of sales representatives supported by sales and
service locations in the United States and internationally.
Industrial
Industrial companies also require the removal of dissolved minerals and
contaminants from water before the water can be used in manufacturing
processes. A typical treatment system for these applications will combine
multiple processes, including clarification, depth filtration, carbon
filtration, softening, reverse osmosis, deionization, submicron cartridge
filtration and ultraviolet light disinfection. Through Bruner, Culligan also
designs and manufactures systems for industrial large volume process water
users including packaged systems utilizing multi-cell filters to reduce or
remove turbidity, iron, hydrogen sulfide, color and other particulates from
the water supply. Its industrial operations are also supported internationally
by its recent acquisition of Dewplan Limited, one of the UK's leading
specialist design contractors for high-purity and ultra-high purity industrial
water treatment systems.
Culligan's and Bruner's products and technologies are used to remove
dissolved minerals and contaminants from water in numerous industrial
applications, including manufacturing operations, laboratories, research, food
processing, chemical processing, pharmaceutical facilities and printing
plants. In addition, Culligan and its dealers have substantial experience in
configuring systems used by manufacturers of prescription and non-prescription
drugs. Culligan and Bruner ultrapure water systems are also used by
manufacturers of products such as integrated circuits and compact discs.
PDS
Culligan and its dealer network also provide PDS to commercial and
industrial customers in the United States and Europe. Culligan's network
includes over 380 outlets and approximately 250 regeneration facilities. In
this growing business, Culligan provides portable water deionization treatment
equipment that uses resins as the filtration medium to produce ultrapure
water. Resin is retrieved and transported by a dealer service
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representative to a dealer's regeneration plant for chemical recharging when
it is exhausted. Unlike many permanent systems, PDS requires no chemical
handling or maintenance by the customer. PDS is a widely used technology among
industrial and commercial companies and provides Culligan and its dealer
network with a recurring source of revenues and the opportunity to market its
systems and other services to its existing PDS customers.
Medical
Medical-related products often require ultrapure water free from certain
minerals and contaminants to operate effectively. Culligan is a leading
manufacturer of reverse osmosis units and comprise an integral part of the
kidney dialysis equipment used by hospitals, hemodialysis centers and other
health service providers. Culligan's reverse osmosis unit is one of a limited
number of such units registered by the United States Food and Drug
Administration as a medical device approved for this purpose.
Desalination
Culligan has produced major desalination systems throughout the world.
Culligan has supplied Egypt with fourteen desalination plants along the Red
Sea and in the southern Sinai region and, in the Arab Emirate of Umm-Al
Quwayn, Culligan supplied a 9,000 cubic meter per day desalination plant to
serve the potable water needs of the 15,000 inhabitants. In addition, its
recently acquired Culligan-Enerserve operation builds, owns and operates
desalination and other water and wastewater treatment systems in the
Caribbean. Since its acquisition in July 1996, that operation has expanded
significantly, obtaining an additional contract with the government of the
island of St. Maarten that is expected to generate revenues of approximately
$25,000,000 over the five-year term to own and operate a recently completed
2.6 million gallon per day desalination facility to produce water for the
island's residents.
Municipal
Although historically the municipal market has not represented a large
portion of the Culligan industrial business, Culligan believes that with the
re-enactment of the Safe Drinking Water Act there is significant growth
potential in this market. Culligan, through the efforts of its technical and
sales personnel, designs and manufactures and, through its dealer network,
sells, installs and services equipment and plants to chlorinate and remove
contaminants from water supplies. In the United States, Culligan typically
provides surface water treatment systems for of small municipalities, mobile
home parks and other residential groups with populations under 3,300 people.
Culligan's Multi-Tech(R) filtration system is a low-cost, pre-engineered,
packaged plant that contains all the steps used in a conventional water
treatment plant, such as coagulation, flocculation, clarification, filtration
and disinfection. Culligan currently has in place in North America, Europe and
Middle East over 700 pre-engineered, packaged Multi-Tech(R) and similar non-
U.S. OFSY Omnifiltration(R) systems to help communities meet their needs for
clean water. In addition, Culligan's Bruner operation offers self-contained
Bruner packaged water treatment plants in the municipal market. The Bruner
plants are custom engineered to produce potable water from almost any surface
water source and typically provide automated controls programmed to regulate
rapid or "flash" mixing, flocculation, settling and gravity filtration.
Through Culligan Operating Services, Culligan also provides O&M services for
water and wastewater treatment facilities for municipalities and other large
users primarily in Florida and elsewhere in the Southeastern United States.
Dealer and Distribution Network
Culligan believes that the size and scope of its dealer and distributor
network make it uniquely positioned in the water purification and treatment
industry. Today there are over 1,100 independent Culligan dealers and
distributors and 45 company-owned dealers who distribute and service Culligan
products throughout the United States, Canada and Western Europe as well as
other foreign markets. In addition, there are over 350 distributors and
authorized agents in the United States and Western Europe as well as in other
foreign markets that distribute water filtration products of Culligan's
Everpure subsidiary for the food service industry and other commercial
businesses. Culligan's newly-acquired Bruner operation has approximately 93
sales representatives that distribute its products in the United States and
internationally. Culligan believes that this diverse geographical distribution
network allows it to react rapidly to changing customer needs as well as to
market conditions.
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As part of its distribution system, Culligan currently owns 26 Culligan
dealers in North America which had total revenues of approximately $70.5
million in the last fiscal year. The company-owned dealers are primarily
located in major metropolitan markets. Such markets include the New York
City/New Jersey, Los Angeles, Chicago, Houston, San Diego and San Francisco
metropolitan areas. Since the beginning of 1997, the company-owned Dealer
division has made eleven acquisitions with aggregate revenues of over
$19,000,000. Such acquisitions include dealerships in Elkhart, Indiana,
Glendale, Riverside, Santa Ana and San Diego, California, and Waukegan,
Illinois; bottled water operations in Houston, Texas, Omaha, Nebraska, and San
Diego, California; and a portable deionization service business in Santa
Clara, California. In addition, since the beginning of fiscal 1997, Culligan's
international division has acquired seven dealerships having aggregate
annualized revenues of approximately $7,000,000. Such dealerships are located
in Bordeaux, Lorraine, Somme-Oise and Cote-Opale, France; Lausanne,
Switzerland; and Florence, Italy, and Eau Water Treatment Company, an
independent French company specializing in commercial applications and
technical service support. In addition, Culligan Operating Services has made
eight acquisitions of complementary operations since being acquired by
Culligan in January 1996.
Culligan-owned dealer operations generally have a high percentage of
revenues which are derived from sources believed to be recurring in nature
(estimated to be approximately 70% of total company-owned dealer revenues),
such as servicing equipment, sales of replacement parts, filters and other
consumables, equipment rental and royalties. Culligan's dealer and
distribution network enables it to offer complete solutions to pre-use water
problems for residential, commercial and industrial customers through a
combination of testing, product selection, installation, monitoring and
service. Culligan is continuously upgrading and expanding its dealer network
coverage. Culligan also has utilized its dealer network and distributors to
introduce new product lines and enter new markets.
Typically, a dealer's territory covers a local community or metropolitan
area and the dealer sells or rents a significant portion of its products to
residential users.
The size of dealerships range from small local operations involving only a
few employees to large multiple site dealerships. Generally, approximately
one-half of a dealer's revenues are derived from rental and service income
from existing customers. Certain dealers, including many large dealers, are
capable of providing standard and special-order commercial and industrial
products and services. Culligan's laboratories in Northbrook, Illinois;
Barcelona, Spain; and Bologna, Italy test water samples for dealers to help
them to identify a customer's water treatment needs.
Dealers generally purchase all their requirements for water treatment
products from Culligan. Culligan assigns each dealer a primary area of
geographic responsibility and generally expects the dealer to cover the needs
of customers in this area, although the dealer has no exclusive right to this
territory. Virtually all of the Culligan sales of household products in North
America have been made through the dealer network. Dealers purchase equipment
from Culligan for sale, rental or use in their portable exchange service
programs. In addition, Culligan receives royalties from the sale of bottled
water and certain supplies that bear the Culligan name.
Culligan provides dealers with a variety of services, including training,
education and technical assistance. It offers the dealers management, sales
and service seminars at the time of start-up and throughout their careers.
Culligan also employs technical service engineers who travel throughout the
United States aiding dealers with water quality needs. One of the unique
advantages Culligan supplies to its dealers, as an aid in commercial and
industrial sales, is Culligan's proprietary CAAP(R) pc software.
Commercial and industrial job specifications and proposals are supported by
application and technical engineers located in Northbrook, Illinois. In
addition, Culligan provides the dealers with significant marketing services
and support, including an extensive co-operative advertising program. A
finance subsidiary of Culligan provides intermediate-term loans to franchised
dealers for equipment placed on rental or lease.
CULLIGAN MERGER SUB
Culligan Merger Sub is a newly formed Delaware corporation and a wholly
owned subsidiary of Culligan. Culligan Merger Sub was organized for the
purpose of effecting the Merger pursuant to the Merger Agreement.
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Culligan Merger Sub has no material assets and has not engaged in any
activities except in connection with the Merger. The principal executive
offices of Culligan Merger Sub are located at One Culligan Parkway,
Northbrook, Illinois 60062 and its telephone number is (847) 205-6000.
AMETEK
A more detailed description of the business of AMETEK is contained in
AMETEK's Annual Report on Form 10-K incorporated herein by reference. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE."
The present businesses of AMETEK are comprised of the activities New Ametek
will undertake after the Spin-Off (see "CERTAIN INFORMATION ABOUT NEW AMETEK
AFTER THE SPIN-OFF") and the Water Filtration Business.
NEW AMETEK
New Ametek was incorporated on May 8, 1986 and has been a wholly owned
subsidiary of AMETEK since August 1989. To date, New Ametek's business has
consisted entirely of manufacturing aerospace instrumentation. Prior to the
Spin-Off, AMETEK will transfer or cause to be transferred to New Ametek all of
its assets other than those which are part of the Water Filtration Business,
and New Ametek will assume all of AMETEK's liabilities, except for certain
liabilities relating to the Water Filtration Business and certain indebtedness
of AMETEK. The principal executive offices of New Ametek are located at
Station Square, Paoli, Pennsylvania 19301 and its telephone number is (610)
647-2121.
THE WATER FILTRATION BUSINESS
The Water Filtration Business is currently comprised of an operating
division of AMETEK, the Plymouth Products Division, and three foreign
subsidiaries of AMETEK: Ametek Filters, Limited; APIC International S.A., and
AFIMO S.A.M. The Water Filtration Business is a leader engaged in the design,
manufacture and marketing of point-of-use filtration products for the
separation, clarification and purification of liquids, primarily water. The
Water Filtration Business's strategy is to be a leader in the global
residential water filtration market and has opportunistically pursued selected
specialty filtration markets.
In May 1967, AMETEK acquired Plymouth Industrial Products, a plastic
injection molding company, and named it Plymouth Plastics Division. In 1972,
AMETEK purchased the present Sheboygan, Wisconsin plant site. As the
division's focus on water and fluid filtration products increased, the
division name was changed in May 1974 to Plymouth Products.
In 1991, AMETEK acquired Ametek Filters, Limited, a manufacturer of
industrial filtration products, located in Billingham, U.K., providing a base
for expansion into European markets. The acquisition of APIC and AFIMO, a
French producer of filtration devices, in November 1995 added new markets,
products, technology, and complementary customers.
The Water Filtration Business's manufacturing is vertically integrated at
two of its three manufacturing sites, where it employs proprietary and
patented processes to manufacture and assemble the major components of its
filtration units. The primary raw materials are carbon, various resins,
plastics, and metals. The Water Filtration Business has not experienced a
shortage of raw materials in the past three years and expects an adequate
supply of raw materials at competitive prices to be available from multiple
suppliers.
The Water Filtration Business's products include fluid filtration cartridges
for consumer, commercial, and industrial customers in the United States and
over 100 other countries. It offers a broad line of point-of-use cartridge
filters, ranging from whole-house to countertop water filtration systems, as
well as special-purpose filter housings and replacement cartridges that
significantly improve the quality and taste of water. The Water Filtration
Business has been a leader in water filtration products and technology for
over 25 years. It is known worldwide for quality products sold with the
following recognized brand names: AMETEK, Kleen-Plus(R), American Plumber,
APIC and Fluid-O.
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Point-of-use drinking water filters are designed to enhance taste and remove
specific items, including hazardous chemicals, bacteria, particles and heavy
metals. For example, the Water Filtration Business's countertop filter with a
chemical metal removal cartridge is designed to remove unpleasant taste and
odor, including chlorine, dissolved lead and mercury, 99.95% of disease-
causing Giardia and Cryptosporidium cysts; certain pesticides and chemicals;
sediment and sand particles as small as 0.5 microns (nominal). After
processing 400 gallons of water, this cartridge filter is removed from the
filter housing and replaced. Sales of replacement products are an important
source of recurring revenues. The residential point-of-use countertop water
filters are completely portable and fit most standard faucets with an aerator;
installation requires no tools other than pliers.
Filter cartridges and housings also are used in such applications as
commercial food and beverage dispensing, and cosmetic, chemical production,
the electronics industry and medical applications. Other products include
under-sink, icemaker, pitcher, recreational vehicle, reverse osmosis and
whole-house water filters, each offering a range of features for specialized
and general applications.
The Water Filtration Business's sales and marketing strategy focuses on
comprehensive programs to address a broad range of customer needs. These
include sales, marketing and promotional programs, product packaging and
display, and pricing programs.
The Water Filtration Business's markets include residential, commercial, and
industrial segments. Distribution channels include major hardware chains,
national home centers, water treatment distributors and private label products
for original equipment manufacturers and mass merchandisers. The Water
Filtration Business also has a branded line of filters, housings, and
cartridges designed for residential and commercial installation by plumbing
professionals. The five largest customers accounted for 19% of the Water
Filtration Business's sales in 1996, with the three largest customers, Home
Depot, Ace Hardware and Cotter & Co., accounting for 6.7%, 3.9% and 3.3%,
respectively, of 1996 sales.
Driving the commercial market segment is an increasing global need for
consistent water product quality for such uses as food service, fountain
beverages, steam ovens, coffee and tea. Industrial markets cover a wide range
of applications where component products and systems are used.
The Water Filtration Business continues to grow at a faster rate than the
general filtration market. The Water Filtration Business's global markets are
highly competitive, including many domestic and international companies. No
one company has a significant presence in all markets. The principal methods
of competition are new product development, product performance and quality,
innovation, and distribution. Technical, and after market service and products
are also important competitive advantages.
At December 31, 1996, the Water Filtration Business employed 411 people, of
which 249 were covered by a union. The Water Filtration Business has four
operating plants in one state and three foreign countries. Of these
facilities, two are owned and two are leased. The owned properties consist of
12 acres in Sheboygan, Wisconsin, of which 259,000 square feet are under roof,
and four acres in Teeside, England, of which 29,000 square feet are under
roof. The leases on the leased properties expire over a range of years from
1997 to 2003, with renewal options for varying terms contained in the leases.
The Water Filtration Business's machinery, plants and offices are in
satisfactory operating condition and are adequate for their respective uses.
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DESCRIPTION OF CULLIGAN CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The authorized capital stock of Culligan consists of 60,000,000 shares of
Culligan Common Stock, and 2,000,000 shares of preferred stock, par value $.01
per share ("Culligan Preferred Stock"). As of April 30, 1997, there were
21,384,130 shares of Culligan Common Stock issued and outstanding. Although no
shares of Culligan Preferred Stock have been issued as the date hereof, an
aggregate of 300,000 shares have been reserved for issuance in connection with
Culligan's stockholder rights plan described below under "Culligan Stockholder
Rights Plan."
COMMON STOCK
The holders of Culligan Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of Culligan stockholders.
Subject to preferences that may be applicable to any outstanding Culligan
Preferred Stock, holders of Culligan Common Stock are entitled to receive
ratably such dividends as may from time to time be declared by the Culligan
Board out of funds legally available therefor. In the event of a liquidation,
dissolution or winding up of Culligan, holders of Culligan Common Stock would
be entitled to share ratably in all assets of Culligan available for
distribution to holders of Culligan Common Stock remaining after payment of
liabilities and liquidation preference of any outstanding Culligan Preferred
Stock. Holders of Culligan Common Stock have no preemptive rights and have no
rights to convert their Culligan Common Stock into any other securities and
there are no redemption provisions with respect to such shares. All of the
outstanding shares of Culligan Common Stock are fully paid and nonassessable.
PREFERRED STOCK
The Culligan Board has the authority to issue Culligan Preferred Stock in
one or more classes or series and to fix the designations, powers, preferences
and rights of the shares of each such class or series, including dividend
rates, conversion rights, voting rights, terms of redemption and liquidation
preferences and the number of shares constituting each such class or series,
without any further vote or action by Culligan stockholders. Although no
shares of Culligan Preferred Stock have been issued as of the date hereof, an
aggregate of 300,000 shares of junior participating preferred stock have been
reserved for issuance in connection with Culligan's stockholder rights plan
described below under "Culligan Stockholder Rights Plan." Culligan has no
other present plans to issue any shares of Culligan Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for Culligan Common Stock is The First
National Bank of Boston.
CULLIGAN STOCKHOLDER RIGHTS PLAN
On September 13, 1996, Culligan declared a dividend distribution of one
right (a "Culligan Right") for each outstanding share of Culligan Common Stock
to stockholders of record at the close of business on September 26, 1996 (the
"Rights Record Date"). Each Culligan Right entitles the registered holder to
purchase from Culligan one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $0.01 per share (the "Series A
Preferred Stock"), at a purchase price of $78, subject to adjustment. The
description and terms of the Culligan Rights are set forth in a Rights
Agreement (the "Culligan Rights Agreement") between Culligan and The First
National Bank of Boston, as Culligan Rights Agent. Culligan Rights also attach
to all other shares of Culligan Common Stock, including the shares issuable in
the Merger, issued prior to the Distribution Date (as defined below) or the
earlier expiration of the Culligan Rights Agreement.
Initially, the Culligan Rights will be attached to all Culligan Common Stock
certificates representing shares then outstanding, and no separate Culligan
Rights Certificates will be distributed. The Culligan Rights will separate
from Culligan Common Stock and a Distribution Date will occur upon the earlier
of (i) ten (10) business days following public announcement that a person or
group of affiliated or associated persons (an "Acquiring
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Person") has acquired beneficial ownership of 15% or more of the outstanding
shares of Culligan Common Stock, other than an Exempted Person (the "Stock
Acquisition Date"), or (ii) ten (10) business days (or such later date as the
Culligan Board shall determine) following commencement of a tender offer or
exchange offer that would result in a person or group becoming an Acquiring
Person. "Exempted Person" indicates any person who was the beneficial owner,
on September 3, 1996, of 15% or more of the outstanding shares of Culligan
Common Stock and such person's affiliates and associates, provided that such
person, and such person's affiliates and associates, do not increase their
percentage ownership of Culligan Common Stock by more than five percentage
points over their percentage ownership on such date.
Until the Distribution Date, (i) Culligan Rights will be evidenced by
Culligan Common Stock certificates and will be transferred with and only with
such Culligan Common Stock certificates, (ii) new Culligan Common Stock
certificates issued after the Record Date will contain a notation
incorporating the Culligan Rights Agreement by reference and (iii) the
surrender for transfer of any certificates for Culligan Common Stock
outstanding will also constitute the transfer of the Culligan Rights
associated with the Culligan Common Stock represented by such certificate.
Pursuant to the Culligan Rights Agreement, Culligan reserves the right to
require prior to the occurrence of a Triggering Event (as defined below) that,
upon any exercise of rights, a certain number of Culligan Rights be exercised
so that only whole shares of Series A Preferred Stock will be issued.
Culligan Rights are not exercisable until the Distribution Date and will
expire at the close of business on September 13, 1997, unless earlier redeemed
or extended by Culligan as described below.
As soon as practicable after the Distribution Date, Culligan Rights
Certificates will be mailed to holders of record of Culligan Common Stock as
of the close of business on the Distribution Date and, thereafter, the
separate Culligan Rights Certificates alone will represent the Culligan
Rights.
In the event that a person becomes an Acquiring Person (except pursuant to
an offer for all outstanding shares of Culligan Common Stock that the
disinterested directors of Culligan determine not to be inadequate and to
otherwise be in the best interest of Culligan and its stockholders), each
holder of a Culligan Right will thereafter have the right to receive, upon
exercise, Culligan Common Stock (or, in certain circumstances, cash, property
or other securities of Culligan) having a value equal to two times the
exercise price of the Right. Notwithstanding any of the foregoing, following
the occurrence of the event set forth in this paragraph, all Culligan Rights
that are, or (under certain circumstances specified in the Culligan Rights
Agreement) were, beneficially owned by any Acquiring Person will be null and
void. However, Culligan Rights are not exercisable following the occurrence of
the event set forth above until such time as Culligan Rights are no longer
redeemable by Culligan as set forth below.
For example, at an exercise price of $78 per Culligan Right, each Culligan
Right not owned by an Acquiring Person (or by certain related parties)
following an event set forth in the preceding paragraph would entitle its
holder to purchase $156 worth of Culligan Common Stock (or other
consideration, as noted above) for $78. Assuming that Culligan Common Stock
had a per share value of $39 at such time, the holder of each valid Culligan
Right would be entitled to purchase four shares of Culligan Common Stock for
$78.
In the event that, at any time following the Stock Acquisition Date, (i)
Culligan is acquired in a merger or other business combination transaction
(other than a merger which follows an offer described in the second preceding
paragraph), or (ii) fifty percent (50%) or more of Culligan's assets, cash
flow or earning power is sold or transferred, each holder of a Culligan Right
(except Culligan Rights which previously have been voided as set forth above)
will thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the exercise price of the
Culligan Right. The events set forth in this paragraph and in the second
preceding paragraph are referred to as the "Triggering Events."
At any time until ten (10) business days following the Stock Acquisition
Date, Culligan may redeem the Culligan Rights in whole, but not in part, at a
price of $.005 per Culligan Right (payable in cash, Culligan Common Stock or
other consideration deemed appropriate by the Culligan Board). Immediately
upon the action
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of the Culligan Board ordering redemption of the Culligan Rights, the Culligan
Rights will terminate and the only right of the holders of Culligan Rights
will be to receive the $.005 redemption price.
Until a Culligan Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of Culligan, including, without limitation, the
right to vote or to receive dividends. While the distribution of Culligan
Rights will not be taxable to stockholders or to Culligan, stockholders may,
depending upon the circumstances, recognize taxable income in the event that
Culligan Rights become exercisable for Culligan Common Stock (or other
consideration) or for common stock of the acquiring company as set forth
above.
Any of the provisions of the Culligan Rights Agreement may be amended by the
Culligan Board prior to the Distribution Date. After the Distribution Date,
the provisions of the Culligan Rights Agreement may be amended by the Culligan
Board in order to cure any ambiguity, to make changes which do not adversely
affect the interests of holders of Culligan Rights, or to shorten or lengthen
any time period under the Culligan Rights Agreement; provided, however, that
no amendment to lengthen a time period relating to when the Culligan Rights
may be redeemed may be made at such time as the Culligan Rights are not
redeemable.
Culligan Rights have certain anti-takeover effects. Culligan Rights will
cause substantial dilution to a person or group that attempts to acquire
Culligan on terms not approved by the Culligan Board. The Culligan Rights
should not interfere with any merger or other business combination approved by
the Culligan Board since Culligan Rights may be redeemed by Culligan at any
time until ten (10) business days following the Stock Acquisition Date.
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COMPARISON OF RIGHTS OF STOCKHOLDERS
The rights of holders of AMETEK Common Stock are presently governed by
Delaware corporate law, the AMETEK Certificate and the AMETEK By-Laws. As a
result of the Merger, holders of AMETEK Common Stock will become stockholders
of Culligan, also a Delaware corporation. Accordingly, such holders' rights
will be governed by Delaware corporate law, the Culligan Certificate and the
Culligan By-Laws. Certain differences in the rights of stockholders arise from
distinctions between the AMETEK Certificate and the Culligan Certificate and
between the AMETEK By-Laws and the Culligan By-Laws. The following is a brief
description of the material differences. This description does not purport to
be a complete statement of all differences between the rights of the
stockholders of AMETEK and the stockholders of Culligan, and the
identification of specific differences is not meant to indicate that other
differences do not exist. The following description is qualified in its
entirety by reference to the AMETEK Certificate, the AMETEK By-Laws, the
Culligan Certificate and the Culligan By-Laws. For information on how to
obtain copies of any of these documents, see "AVAILABLE INFORMATION."
COMMON STOCK CLASSIFICATION
AMETEK and Culligan have issued and outstanding just one class of shares of
common stock. Each holder of Culligan Common Stock and each holder of AMETEK
Common Stock has one vote for each share registered in such stockholder's
name. See "DESCRIPTION OF CULLIGAN CAPITAL STOCK."
DIRECTORS
The AMETEK Certificate and AMETEK By-Laws provide that the AMETEK Board
shall consist of no fewer than 6 nor more than 12 directors, as determined by
the AMETEK Board or AMETEK's stockholders, and be elected for a one-year term
at the annual meeting of holders of AMETEK Common Stock. The AMETEK By-Laws
provide that the number of directors of AMETEK may be increased or decreased
by holders of AMETEK Common Stock at any annual or special meeting and may be
increased or decreased by the affirmative vote of not less than 75% of
directors then in office. The Culligan Certificate and Culligan By-Laws
provide that the Culligan Board shall consist of no fewer than 3 nor more than
15 members as determined by the Culligan Board, such number of directors to be
divided into three classes (Class I, Class II and Class III), each class
having a three-year term and consisting, as nearly as possible, of one-third
of the total number of directors. At each annual meeting of stockholders of
Culligan, successors to the class of directors whose terms expire will be
elected for a three-year term of office, with the three-year term of each
class of the directors expiring at successive annual meetings of the
stockholders, so that one class will be elected each year.
The purpose of a classified board is to promote conditions of continuity and
stability in the composition of a board of directors and in the policies
formulated by a board of directors, by guaranteeing that in the ordinary
course at least two-thirds of the directors will at all times have had at
least one year's experience as directors of a corporation. However, for
similar reasons, a classified board may deter certain mergers, tender offers
or other takeover attempts which some or a majority of the holders of a
corporation's stock may deem to be in their best interest, since it would take
two annual meetings of stockholders to elect a majority of the board of
directors of such corporation. Similarly, a classified board structure would
delay stockholders who do not like the policies of a board of directors from
removing a majority of a board of directors at a single annual meeting.
None of the AMETEK Certificate, the AMETEK By-Laws, the Culligan Certificate
or Culligan By-Laws provides for the removal of directors. Accordingly, the
removal of directors of both AMETEK and Culligan is governed by the DGCL,
which provides that any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of shares
entitled to vote for the election of directors, except (i) unless the
certificate of incorporation otherwise provides, in the case of a corporation
having a classified board, stockholders may effect such removal only for cause
and (ii) in the case of a corporation having cumulative
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voting, if less than the entire board is to be removed, no director may be
removed without cause if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the
entire board of directors, or, if there are classes of directors, at an
election of the class of directors of which he is a part.
The term "cause" is not defined in the DGCL. Consequently, any question
concerning the legal standard for "cause" would have to be judicially
determined.
ADVANCE NOTICE OF NOMINATIONS FOR THE ELECTION OF DIRECTORS AND STOCKHOLDERS
PROPOSALS
The Culligan By-Laws establish an advance notice procedure for stockholders
to make nominations of candidates for election as directors, or bring other
business before an annual meeting of stockholders of Culligan (the
"Stockholder Notice Procedure"). The Stockholder Notice Procedure provides
that only persons who are nominated by, or at the direction of, the Culligan
Board, or by a stockholder who has given timely written notice to the
Secretary of Culligan prior to the meeting at which directors are to be
elected, will be eligible for election as directors of Culligan. The
Stockholder Notice Procedure provides that at an Annual Meeting only such
business may be conducted as has been specified in the notice of the meeting
given by or at the direction of the Culligan Board (or any duly authorized
committee thereof) or brought before the meeting by, or at the direction of,
the Culligan Board (or any duly authorized committee thereof) or by a
stockholder who has given timely written notice to the Secretary of Culligan
of such stockholder's intention to bring such business before such meeting.
Under the Stockholder Notice Procedure, for notice of stockholder
nominations to be made or business to be conducted at an annual meeting to be
timely, such notice must be received by Culligan not less than sixty (60) days
nor more than ninety (90) days prior to the date of the annual meeting or, in
the event that less than seventy (70) days' notice or prior public disclosure
of the date of the Annual Meeting is given or made to stockholders, not later
than the close of business on the 10th day following the day on which such
notice was mailed or such public disclosure was made, whichever first occurs.
Under the Stockholder Notice Procedure, for notice of a stockholder nomination
to be made at a special meeting at which directors are to be elected to be
timely, such notice must be received by Culligan not later than the close of
business on the 10th day following the day on which such notice of the date of
the special meeting was mailed or public disclosure of the date of the special
meeting was made, whichever first occurs.
In addition, under the Stockholder Notice Procedure, a stockholder's notice
to Culligan proposing to nominate a person for election as a director or
conduct certain business at an annual meeting must contain certain specified
information. If the Chairman of the Board of Directors of Culligan presiding
at a meeting determines that a person was not nominated, or other business was
not brought before the meeting, in accordance with the Stockholder Notice
Procedure, such person will not be eligible for election as a director, or
such business will not be conducted at such meeting, as the case may be.
The AMETEK By-Laws do not contain a similar advance notice provision.
Accordingly, except as provided in Regulation 14A under the Exchange Act,
holders of AMETEK Common Stock are able to nominate candidates for election as
directors at stockholders' meetings or to submit proposals without advance
notice to AMETEK. Consequently, holders of AMETEK Common Stock can more easily
submit director nominees and other matters for stockholder consideration as
compared to Culligan stockholders.
ACTION BY WRITTEN CONSENT
The Culligan By-Laws allow stockholders to take action without a meeting,
without prior notice and without a vote, upon the written consent of
stockholders having not less than the minimum number of votes that would be
necessary to authorize a proposed action at a meeting at which all shares
entitled to vote were present and voted. The AMETEK By-Laws permit holders of
AMETEK Common Stock to act by written consent without a meeting, provided that
such action must be authorized by unanimous written consent signed by all of
the holders of outstanding voting stock. However, under the DGCL, unless a
corporation's certificate of incorporation provides otherwise, stockholders
may take action without a meeting, without prior notice and without a vote,
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upon the written consent of stockholders having not less than the minimum
number of votes that would be necessary to authorize the proposed action at a
meeting of which all shares entitled to vote were present and voted.
Accordingly, since the AMETEK Certificate does not provide for requirements
for action by written consent that are different than the DGCL, the DGCL
requirements outlined in the previous sentence would most likely control any
action by written consent taken by holders of AMETEK Common Stock.
MEETINGS OF STOCKHOLDERS
The AMETEK By-Laws provide that a special meeting of the stockholders of
AMETEK may be called by the President of AMETEK. The President or Secretary of
AMETEK is required to call a special meeting whenever requested in writing to
do so by a majority of the AMETEK Board or by stockholders owning not less
than twenty percent of the shares of AMETEK then issued and outstanding and
entitled to vote at such meeting.
The Culligan By-laws provide that a special meeting of the stockholders of
Culligan may be called by the Chairman, the President, any Vice President, the
Secretary or any Assistant Secretary of Culligan, and any such officer is
required to call a special meeting at the request in writing of a majority of
the Culligan Board.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Under the DGCL, a certificate of incorporation of a Delaware corporation may
be amended by approval of the amendment by the board of directors of such
corporation and the affirmative vote of the holders of a majority of the
outstanding shares of stock entitled to vote thereon unless the certificate of
incorporation prescribes a higher requirement. Neither the AMETEK Certificate
nor the Culligan Certificate prescribes a higher requirement.
AMENDMENT OF BY-LAWS
The AMETEK By-Laws may be altered, amended or repealed or new by-laws may be
adopted by the stockholders of AMETEK or by the AMETEK Board at any regular
meeting of the stockholders or of the AMETEK Board or at any special meeting
of the stockholders of AMETEK or of the AMETEK Board if notice of such
alteration, amendment, repeal or adoption or new By-Laws be contained on the
notice of such special meeting and such amendment is approved by a majority of
the Directors of AMETEK or the affirmative vote of the holders of a majority
of outstanding shares of AMETEK Common Stock. The Culligan By-Laws may be
altered, amended or repealed, in whole or in part, or new by-laws may be
adopted by Culligan stockholders or by the Culligan Board, provided that
notice of such alteration, amendment, repeal or adoption of new By-Laws is
contained in the notice of such meeting of stockholders or the Culligan Board
and such amendments are approved by either a majority of the Directors of
Culligan or the affirmative vote of the holders of a majority of the
outstanding shares of Culligan Common Stock.
APPROVALS OF MERGERS AND ASSETS SALES
Under the DGCL, unless required by its certificate of incorporation, no vote
of the stockholders of a constituent corporation surviving a merger is
necessary to authorize such merger if: (i) the agreement of merger does not
amend the certificate of incorporation of such constituent corporation; (ii)
each share of stock of such constituent corporation outstanding prior to such
merger is to be an identical outstanding or treasury share of the surviving
corporation after such merger; (iii) either no shares of common stock of the
surviving corporation and no shares, securities or obligations convertible
into such common stock are to be issued under such agreement of merger, or the
number of shares of common stock issued or so issuable does not exceed 20% of
the number thereof outstanding immediately prior to such merger; and (iv)
certain other conditions are satisfied. In addition, the DGCL provides that a
parent corporation that is the record holder of at least 90% of the
outstanding shares of each class of stock of a subsidiary may merge such
subsidiary into such parent corporation or other subsidiary owned by it
without the approval of such subsidiary's stockholders or board of directors.
Whenever the approval of the stockholders of a corporation is required for an
agreement of merger or consolidation or for a sale, lease
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or exchange of all or substantially all of its assets, such agreement, sale,
lease or exchange must be approved by the affirmative vote of the holders of a
majority of outstanding shares of such corporation entitled to vote thereon.
None of the AMETEK Certificate, the AMETEK By-Laws, the Culligan Certificate
or the Culligan By-Laws contains supermajority voting provisions relating to
the approval of business combinations by stockholders.
STATE ANTI-TAKEOVER STATUTES
Section 203, a statutory provision restricting business combinations with
certain stockholders who acquire 15% or more of a Delaware corporation's
voting stock, is applicable to AMETEK but not to Culligan because the Culligan
Certificate provides that Section 203 shall not apply to Culligan. Section 203
prohibits certain "business combinations" transactions (defined broadly to
include mergers, consolidations, sales or other deposition of assets having an
aggregate value in excess of 10% of the consolidated assets of the
corporation, and certain transactions that would increase the interested
stockholder's proportionate share ownership in the corporation) between a
publicly held Delaware corporation and any "interested stockholder" for a
period of three years after the date on which the interested stockholder
became an interested stockholder unless (a) prior to that date the
corporation's board of directors approved either the proposed business
combination or the transaction which resulted in the interested stockholder
becoming an interested stockholder, (b) upon consummation of the transaction
which resulted in the interested stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned (i) by persons who are directors and also officers and (ii) by
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (c) on or subsequent to such date
the business combination is approved by the corporation's board of directors
and authorized at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least two-thirds of the
outstanding voting stock which is not owned by the interested stockholders.
Section 203 would not prevent the holders of a controlling interest from
exercising control over AMETEK or Culligan and would not prevent a hostile
takeover or hostile acquisition of control of AMETEK or Culligan. Section 203
may, however, discourage or make more difficult a hostile takeover or
acquisition of control.
LIMITATION OF LIABILITY
Section 102(b)(7) of the DGCL allows a Delaware corporation to limit or
eliminate the personal liability of directors to a corporation and its
stockholders for monetary damages for breach of fiduciary duty as a director
subject to certain limitations. The Culligan Certificate and the AMETEK
Certificate provide for the limitation of liability as permitted by Section
102(b)(7).
While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate
such duty. Accordingly, these provisions will have no effect on the
availability of equitable remedies such as an injunction or rescission based
on a director's breach of his or her duty of care. Also, these provisions do
not eliminate or limit the liability of a director for breach of the duty of
loyalty, acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law, unlawful dividends or stock
repurchases, or any transaction from which the director derived an improper
personal benefit. The provisions described above apply to an officer of a
corporation only if he or she is a director of such corporation and is acting
in his or her capacity as director, and do not apply to officers of the
corporation who are not directors.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the DGCL provides that a Delaware corporation may indemnify
its officers and directors who are a party, or threatened to be made a party,
to any threatened, pending or completed action, suit or
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proceeding by reason of the fact that he or she is or was a director, officer
or employee of the corporation by, among other things, a majority vote of
directors who were not parties to such action, suit or proceeding (whether or
not a quorum), provided that such officers and directors acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation. The Culligan Certificate and Culligan By-laws
and AMETEK Certificate and AMETEK By-laws each provides for indemnification of
officers and directors as permitted by Section 145.
Culligan has entered into indemnification agreements with each of Culligan's
directors and officers. The indemnification agreements require, among other
things, Culligan to indemnify the officers and directors to the fullest extent
permitted by law, and to advance such directors and officers all related
expenses, subject to reimbursement, if it is subsequently determined that
indemnification is not permitted. Culligan will also indemnify and advance all
expenses incurred by such directors and officers seeking to enforce their
rights under the indemnification agreements, and cover directors and officers
under Culligan directors' and officers' liability insurance. Although such
indemnification agreements offer substantially the same scope of coverage
afforded by the Culligan Certificate and Culligan By-Laws, they provide
greater assurance to directors and officers that indemnification will be
available because, as a contract, it cannot be modified unilaterally in the
future by the Culligan Board or by Culligan stockholders to eliminate the
rights provided therein.
STOCKHOLDER RIGHTS PLANS
The terms and provisions of the Culligan Rights Plan, the AMETEK Rights Plan
and the New Ametek Rights Plan are substantially similar, except for
differences relating to (i) the definition of an "Acquiring Person", (ii) the
"Purchase Price" of the rights, (iii) the "Redemption Price" of the rights,
(iv) the expiration date of the rights, and (v) the exception of certain
stockholders from certain provisions of the rights plans. For information on
the Culligan Rights Plan and the New Ametek Rights Plan, see "DESCRIPTION OF
CULLIGAN COMMON STOCK--Stockholder Rights Plan" (included herein) and
"DESCRIPTION OF NEW AMETEK CAPITAL STOCK--Description of Stockholders' Rights
Plan" in the New Ametek Information Statement attached as Appendix E hereto.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Culligan Common
Stock to be issued in connection with the Merger are being passed upon for
Culligan by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
The consolidated financial statements and schedule of Culligan as of January
31, 1997 and 1996 and for each of the years in the three-year period ended
January 31, 1997, have been incorporated by reference in this Joint Proxy
Statement/Prospectus and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
The combined financial statements of the Water Filtration Business and the
consolidated financial statements of AMETEK appearing or incorporated by
reference in this Joint Proxy Statement/Prospectus and registration statement
have been audited by Ernst & Young LLP, independent auditors, to the extent
indicated in their reports thereon also appearing elsewhere herein and in the
registration statement or incorporated by reference herein. Such combined
financial statements and consolidated financial statements have been included
herein or incorporated herein by reference in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
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ELECTION OF DIRECTORS OF AMETEK
PROPOSAL (2)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES
The entire AMETEK Board of eight directors is proposed to be elected at the
Special Meeting to hold office until the next annual meeting of stockholders
and until their respective successors have been duly elected and qualified.
These directors will resign as directors of AMETEK at the Effective Time but
will continue as the directors of New Ametek. See "MANAGEMENT" in the New
Ametek Information Statement attached hereto as Appendix E for additional
information concerning the New Ametek Board. All proxies received by the
AMETEK Board will be voted for the election, as directors, of the nominees
listed below if no direction to the contrary is given. Each nominee who
receives a plurality vote by ballot of the shares present in person or
represented by proxy and entitled to vote at the Special Meeting will be
elected as a director. In the event that any nominee is unable or declines to
serve, the proxy solicited herewith may be voted for the election of another
person in his or her stead. The AMETEK Board knows of no reason to anticipate
that this will occur.
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INFORMATION AS TO NOMINEES FOR ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR
OR POSITION, CONTINUOUSLY
NAME OF NOMINEE AGE OTHER DIRECTORSHIPS(1) SINCE
--------------- --- ---------------------- ------------
<C> <C> <S> <C>
WALTER E. BLANKLEY++.......... 61 Chairman of the Board and 1990
Chief Executive Officer of
AMETEK since April 1993.(2)
LEWIS G. COLE*,**............. 66 Senior Partner, Stroock & 1987
Stroock & Lavan LLP,
Attorneys.
HELMUT N. FRIEDLAENDER.,*..... 83 Private Investor. 1955
SHELDON S. GORDON*,+,++,**.... 61 Chairman of Union Bancaire 1989
Privee International, Inc.
since May 1996.(3)
CHARLES D. KLEIN+,.,++........ 58 A Managing Director of 1980
American Securities, L.P.
and an executive officer of
the corporate general
partner of several
affiliated entities.
JAMES R. MALONE+,.,**......... 54 Chairman of the Board of HMI 1994
Industries, Inc. since
December 1996, Chairman of
the Board of Anchor
Resolution Corp. (formerly
Anchor Glass Container
Corp.) from January 1996 to
February 1997 and Chairman
of the Board of Intek
Capital Corporation since
September 1990.(4)
DAVID P. STEINMANN*........... 55 A Managing Director of 1993
American Securities, L.P.
and an executive officer of
the corporate general
partner of several
affiliated entities.
ELIZABETH R. VARET+,++........ 53 A Managing Director of 1987
American Securities, L.P.
and chairman of the
corporate general partner
of several affiliated
entities.
</TABLE>
- --------
* Member of the Audit Committee.
+ Member of the Compensation Committee.
. Member of the Nominating Committee.
++ Member of the Executive Committee.
** Member of the Pension Investment Committee.
(1) Except as noted, each nominee has held his or her present occupation for a
period in excess of five years.
(2) Mr. Blankley has been Chief Executive Officer since April 1990. From April
1990 to April 1993, He also served as President of AMETEK. Mr. Blankley is
also a Director of AMCAST Industrial Corporation and CDI Corporation.
(3) Mr. Gordon was a General Partner of The Blackstone Group, L.P. from April
1991 to May 1995 and was a Limited Partner until May 1996. He is also a
director of Anangel-American Shipholdings Limited, and Energy Ventures,
Inc.
(4) Mr. Malone was President and Chief Executive Officer of Anchor Glass
Container Corp. from May 1993 to January 1996 and was Chairman, President
and Chief Executive Officer of Grimes Aerospace Co. from September 1990 to
May 1993. He is also a director of AmSouth Bank N.A.
AMETEK has an Audit Committee, a Compensation Committee, a Nominating
Committee and a Pension Investment Committee, all of which are comprised of
non-employee directors.
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In addition, AMETEK has an Executive Committee comprised of two or more
Directors which meets on an as needed basis when the Board is not in session.
This Committee may exercise all the power of the AMETEK Board in the
management of the business and affairs of AMETEK except the power to fill
vacancies of the AMETEK Board or to change members of or fill vacancies in the
committee or to make or amend the By-Laws of AMETEK. The functions of the
Audit Committee include: reviewing with independent auditors the plan and
results of the audit engagement; reviewing the scope and results of AMETEK's
procedures for internal auditing; and reviewing the adequacy of AMETEK's
system of internal accounting controls.
The functions of the Compensation Committee's non-employee directors
include: study and analysis of and recommendations to the AMETEK Board
concerning specific and general matters of management compensation; periodic
review of management compensation policies and practices; recommendations to
the AMETEK Board regarding incentive compensation awards and officers' salary
adjustments; and administrative oversight of stock option plans and other
incentive and compensation plans.
The functions of the Nominating Committee include: determining an
appropriate size and composition of the AMETEK Board; considering
qualifications of prospective AMETEK Board member candidates; conducting
research to identify and recommend nomination of suitable candidates; and
reviewing the experience, background, interests, ability and availability of
prospective nominees to meet time commitments of the AMETEK Board and
committee responsibilities.
The Pension Investment Committee reviews the administration of AMETEK's
retirement plans, including compliance, investment manager and trustee
performance and results of independent audits of the plans.
During 1996, there were 6 meetings of the AMETEK Board, 2 meetings of the
Audit Committee, 8 meetings of the Compensation Committee, 1 meeting of the
Nominating Committee, 3 meetings of the Pension Investment Committee and 7
meetings of the Executive Committee.
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<PAGE>
STOCK OWNERSHIP
The following table sets forth the number of shares of Common Stock of
AMETEK beneficially owned as of January 31, 1997 by each director, by each of
the executive officers included in the Summary Compensation Table, and by all
directors and executive officers of AMETEK as a group, and the percentage of
the outstanding shares of Common Stock so owned by each such person and such
group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(1)
--------------------------------------------------
(NUMBER OF SHARES)
SOLE SHARED
VOTING AND VOTING OR PERCENT
INVESTMENT INVESTMENT RIGHT TO OF
NAME POWER(2) POWER(3) ACQUIRE(4) TOTAL CLASS
---- ---------- ---------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
WALTER E. BLANKLEY.......... 84,952 48,567 178,750 312,269 *
LEWIS G. COLE........(5)(11) 10,000 514,588 -- 524,588 1.6%
HELMUT N. FRIEDLAENDER...(6) 48,500 30,400 -- 78,900 *
SHELDON S. GORDON........... 30,000 -- -- 30,000 *
FRANK S. HERMANCE........... 20,000 -- 77,500 97,500 *
CHARLES D. KLEIN.....(7)(11) 50,000 6,600 -- 56,600 *
JAMES R. MALONE..........(8) 20,000 -- -- 20,000 *
GEORGE E. MARSINEK.......... 5,218 -- 57,500 62,718 *
JOHN J. MOLINELLI........... 22,892 -- 63,750 86,642 *
ALBERT J. NEUPAVER.......... 9,840 -- 53,250 63,090 *
DAVID P. STEINMANN...(9)(11) 34,700 94,264 -- 128,964 *
ELIZABETH R. VARET..(10)(11) 65,800 1,071,808 -- 1,137,608 3.5%
All directors and executive
officers as a group,
consisting of 16 persons,
including individuals named
above..................(11) 425,314 1,162,319 463,575 2,051,208 6.3%
</TABLE>
- --------
*Represents less than 1% of the outstanding shares of AMETEK Common Stock.
(1) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared
voting power (including the power to vote or direct the vote) and/or sole
or shared investment power (including the power to dispose or direct the
disposition) with respect to the security through any contract,
arrangement, understanding, relationship or otherwise. Unless otherwise
indicated, beneficial ownership disclosed consists of sole voting and
investment power.
(2) Reported in this column are shares (including certain restricted shares)
with respect to which directors and officers have sole voting and
investment power.
(3) Reported in this column are other shares with respect to which directors
and officers have or share voting and/or investment power, including
shares directly owned by certain relatives with whom they are presumed to
share voting and/or investment power; however, beneficial ownership may
be disclaimed. Although shared beneficial ownership is included in each
of the individual totals, these shares are only reported once in the
total for all directors and executive officers as a group.
(4) Reported in this column are shares which executive officers have a
present right to acquire or are acquirable within 60 days of January 31,
1997 through the exercise of stock options awarded under AMETEK, Inc.
Stock Option Plans.
(5) Mr. Cole has shared voting and investment power with respect to 514,588
shares, as to 4,000 shares of which such power is shared with Messrs.
Klein and Steinmann and others, and as to 510,588 shares of which such
power is shared with Ms. Varet and others.
(6) Mr. Friedlaender has shared voting and investment power with respect to
30,400 shares. Of these, 15,200 shares are owned by a trust of which Mr.
Friedlaender is a trustee; Mr. Friedlaender disclaims beneficial
ownership of such shares.
(7) Mr. Klein has shared voting and investment power with respect to 6,600
shares, as to 4,000 shares of which such power is shared with Messrs.
Cole and Steinmann and others and as to 2,600 shares of which such power
is shared with Mr. Steinmann and others.
84
<PAGE>
(8) Includes 6,667 shares held pursuant to a restricted stock award under the
1991 Stock Incentive Plan.
(9) Mr. Steinmann has shared voting and investment power with respect to
94,264 shares, as to 82,720 shares of which such power is shared with Ms.
Varet and others, as to 2,600 shares of which such power is shared with
Mr. Klein and others, as to 4,944 shares of which such power is shared
with others and as to 4,000 shares of which such power is shared with
Messrs. Cole, Klein and others.
(10) Includes 10,000 shares owned by a trust of which Ms. Varet's husband is a
beneficiary and as to which Ms. Varet disclaims any beneficial ownership.
Ms. Varet has shared voting and investment power with respect to
1,061,808 shares, as to 510,588 shares of which such power is shared with
Mr. Cole and others, as to 468,500 shares of which such power is shared
with others and as to 82,720 shares of which such power is shared with
Mr. Steinmann and others.
(11) Mr. Steinmann is an executive officer and a director, and Mr. Klein is a
portfolio manager of Oak Hall Capital Advisors, L.P., an investment
manager of (i) the AMETEK, Inc. Employees' Master Retirement Trust, which
holds among its assets 571,400 shares, and (ii) AMETEK Foundation, Inc.,
which holds among its assets 55,800 shares; none of these shares has been
included in the above table. Oak Hall Capital Advisors, L.P. is an
affiliate of American Securities, L.P.
The following table sets forth the only entities known to AMETEK to be
beneficial owners of more than five percent of the outstanding AMETEK Common
Stock as of January 31, 1997:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF PERCENT
BENEFICIAL OWNER AMOUNT OF NATURE OF BENEFICIAL OWNERSHIP OF CLASS
------------------- ------------------------------------------- --------
<C> <S> <C> <C>
FMR Corp......................... Sole dispositive, but no
82 Devonshire Street voting power for(1).... 3,982,100 shares 12.4%
Boston, MA 02109-3614 Sole voting and
dispositive power for.. 76,200 shares
----------------
TOTAL(1)................ 4,058,300 shares
================
Gabelli Asset Management Company
International Advisory Services Sole voting and
Ltd. ............................ dispositive power for.. 3,500 shares
c/o Appleby, Spurling & Kempe
Cedar House, 41 Cedar Avenue
Hamilton, HM12, Bermuda
Gabelli Funds, Inc. ............. Sole voting and
One Corporate Center dispositive power for.. 810,000 shares
Rye, NY 10580-1434
GAMCO Investors, Inc. ........... Sole voting power for
One Corporate Center 3,495,900 shares but
Rye, NY 10580-1434 sole dispositive power
for.................... 3,384,000 shares
----------------
TOTAL(2)................ 4,197,500 shares 12.8%
================
</TABLE>
- --------
(1) Based on Schedule 13(G) filed on February 14, 1997.
(2) Based on Schedule 13(D) filed on March 27, 1997. Mr. Mario J. Gabelli is
deemed to have beneficial ownership of these shares.
85
<PAGE>
COMPENSATION OF DIRECTORS
The annual rate of compensation for services as a non-employee director of
AMETEK was revised effective January 1, 1996, to $35,000 per year plus $2,500
for each meeting attended. Mr. Blankley, the only employee director of AMETEK
in 1996, did not receive any compensation for his services as a director.
Pursuant to a Retirement Plan for Directors (the "Directors Plan"), AMETEK
has agreed to provide retirement benefits and death benefits to those
directors who have not accrued benefits under the Employees' Retirement Plan
of AMETEK, Inc. and who have completed at least three years of service as a
director or officer of AMETEK. Effective January 1, 1997, the Directors Plan
was amended to limit participation to those Directors who became members of
the AMETEK Board prior to January 1, 1997. The retirement benefit payable
under the Directors Plan is an annual amount equal to 100% of the highest
annual rate of compensation for directors during the director's period of
service on the AMETEK Board; however, the benefit is reduced proportionately
if the participant has less than five years of service. AMETEK shall satisfy
its obligations arising under the Directors Plan exclusively from its general
assets. All of the current directors other than Mr. Blankley are participants
in the Directors Plan and each of these participants, other than Messrs.
Malone and Steinmann, has accrued an annual retirement benefit of $50,000. Mr.
Steinmann has accrued an annual retirement benefit of $30,000, and Mr. Malone
has not yet accrued any benefit under the Directors Plan.
Pursuant to a Death Benefit Program for Directors (the "Directors Program"),
AMETEK has entered into individual agreements with certain directors. The
agreements require AMETEK to pay death benefits to directors' designated
beneficiaries and to pay benefits to the directors under certain
circumstances. The Directors Program currently provides for a benefit, payable
for ten years, in an annual amount equal to 100% of the highest annual rate of
compensation during the director's period of service on the AMETEK Board,
commencing at death or the later of age 70 or retirement; however, with
respect to directors who became participants after January 1, 1989, the
directors must complete at least five years of service as a director before
they become eligible to receive a benefit upon the later of age 70 or
retirement. Active directors also have a group term life insurance benefit of
$50,000. To fund benefits under the Directors Program, AMETEK has purchased
individual life insurance policies on the lives of certain of the covered
directors. AMETEK retains the right to terminate any or all of the Directors
Program agreements under certain circumstances. All of the current directors
other than Mr. Blankley are participants in the Directors Program.
EXECUTIVE OFFICERS OF AMETEK
Officers are appointed by the AMETEK Board to serve for the ensuing year and
until their successors have been elected and qualified. Information on
executive officers of AMETEK is shown below:
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION WITH AMETEK
---- --- ----------------------------
<S> <C> <C>
Walter E. Blankley...... 61 Chairman of the Board and Chief Executive Officer
Frank S. Hermance....... 48 President and Chief Operating Officer
John. J. Molinelli...... 50 Senior Vice President--Chief Financial Officer
Albert J. Neupaver...... 46 President--Electromechanical and Industrial Materials Groups
Robert W. Chlebek....... 53 President--Precision Instruments Group
George E. Marsinek...... 59 Senior Vice President--Electromechanical Group
Philip A. Goodrich...... 39 Senior Vice President--Corporate Development
Robert R. Mandos, Jr.... 38 Comptroller
Deirdre D. Saunders..... 49 Treasurer and Assistant Secretary
Donna F. Winquist....... 47 Corporate Counsel and Corporate Secretary
</TABLE>
WALTER E. BLANKLEY'S employment history with AMETEK and other directorships
currently held are included under the section "INFORMATION AS TO NOMINEES FOR
ELECTION OF DIRECTORS."
86
<PAGE>
FRANK S. HERMANCE was elected President and Chief Operating Officer on
November 21, 1996. He previously had been Executive Vice President and Chief
Operating Officer since January 1, 1996 and most recently he served as
President of the Precision Instruments Group, a position he was elected to on
September 23, 1994. He joined AMETEK as a Group Vice President in November
1990.
JOHN J. MOLINELLI was named Senior Vice President--Chief Financial Officer
on April 29, 1994. Previously he had served as Vice President and Comptroller
of AMETEK since April 1993. He was elected Comptroller in 1991.
ALBERT J. NEUPAVER was elected President of the Electromechanical Group on
January 10, 1997, and was elected President of the Industrial Materials Group
on September 23, 1994. Previously he served as a Group Vice President since
May 1994. He was elected Vice President of AMETEK in 1991.
ROBERT W. CHLEBEK joined AMETEK as President of the Precision Instruments
Group on March 1, 1997. Prior to joining AMETEK, Mr. Chlebek had been
President of Philips Components North America, a subsidiary of Philips
Electronics, N.V. ("Philips") since 1993. Previously, he held general
management positions with Philips.
GEORGE E. MARSINEK became Senior Vice President--Electromechanical Group
effective January 10, 1997. For health reasons, he stepped aside from his
previous position as President of the Electromechanical Group which he had
held since September 23, 1994, before which he had been a Group Vice President
since April 1990.
PHILIP A. GOODRICH joined AMETEK as Senior Vice President--Corporate
Development on August 28, 1996. Prior to joining AMETEK, Mr. Goodrich had been
Vice President of Corporate Development at General Signal Corporation for
seven years.
ROBERT R. MANDOS, JR. was elected Comptroller of AMETEK effective April 1,
1996. Mr. Mandos's more than 15 years of experience with AMETEK includes
various financial positions; most recently he had served as Director of
Financial Information at corporate headquarters and Division Vice President--
Finance for the multiplant operations of the U.S. Gauge Division.
DEIRDRE D. SAUNDERS has served as Treasurer and Assistant Secretary since
April 1993. Ms. Saunders joined AMETEK in 1987 as Assistant Treasurer.
Previously, she served in financial and treasury positions with Exide
Corporation and Buckeye Pipe Line Company.
DONNA F. WINQUIST became Corporate Secretary effective May 1, 1997. She
retained her responsibilities as Corporate Counsel to which position she was
appointed in December 1994. She joined AMETEK as Manager of Legal Services in
1991 and became Director of Legal Services in 1992.
87
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information for the fiscal years
ended December 31 in each of 1996, 1995 and 1994 concerning compensation paid
or accrued for the Chairman of the Board and Chief Executive Officer and the
four other most highly compensated executive officers of AMETEK.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------- -----------------------
OTHER RESTRICTED SECURITIES ALL OTHER
NAME AND SALARY BONUS ANNUAL STOCK UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) COMPENSATION AWARDS OPTIONS/SARS ($)(1)
------------------ ---- ------- ------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Walter E. Blankley...... 1996 487,000 440,000 -- -- 80,000 2,736
Chairman of the Board
and Chief 1995 472,000 400,000 -- -- 75,000 1,752
Executive Officer 1994 457,500 335,000 -- -- 125,000 1,656
Frank S. Hermance....... 1996 300,000 225,000 -- -- 100,000 1,776
President and Chief Op-
erating 1995 228,000 152,000 -- -- 30,000 1,332
Officer 1994 220,000 125,000 -- -- 50,000 1,326
George E. Marsinek...... 1996 225,000 150,000 -- -- 30,000 3,096
Senior Vice President-- 1995 215,000 165,000 -- -- 30,000 1,620
Electromechanical Group 1994 205,500 150,000 -- -- 50,000 1,554
John J. Molinelli....... 1996 200,000 140,000 -- -- 30,000 1,872
Senior Vice President-- 1995 182,500 125,000 -- -- 25,000 1,356
Chief Financial Officer 1994 157,933 100,000 -- -- 40,000 1,350
Albert J. Neupaver ..... 1996 197,500 140,000 -- -- 25,000 1,680
President of the
Electromechanical 1995 180,000 110,000 -- -- 25,000 1,302
and Industrial Materi-
als Groups 1994 170,000 75,000 -- -- 40,000 1,284
</TABLE>
- --------
(1) The amounts reported represent AMETEK's contributions ($1,200 each) to The
AMETEK Savings and Investment Plan for each of the individuals listed
above and the dollar value of premiums paid by AMETEK with respect to term
life insurance for the benefit of each of the named executive officers.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table provides details regarding stock options granted to the
named executive officers in 1996. In addition, the table provides the
hypothetical gains and "option spreads" that would result for the respective
options based on assumed rates of annual compounded stock price appreciation
of 5% and 10% from the date the options were granted through their expiration
dates. No stock appreciation rights ("SARs") were granted to the named
executive officers in 1996.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (2)
----------------------------- -------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED (1) FISCAL YEAR PRICE ($/SH) DATE 5%($) 10%($)
---- ------------ ---------------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Walter E. Blankley...... 80,000 11.35 17.375 04/08/2006 874,164 2,215,302
Frank S. Hermance....... 100,000 14.18 17.375 04/08/2006 1,092,704 2,769,128
George E. Marsinek...... 30,000 4.25 17.375 04/08/2006 327,811 830,738
John J. Molinelli....... 30,000 4.25 17.375 04/08/2006 327,811 830,738
Albert J. Neupaver...... 25,000 3.55 17.375 04/08/2006 273,176 692,282
</TABLE>
STOCK OPTION/SAR GRANTS IN 1996
- --------
(1) The options granted in 1996 to Messrs. Blankley, Hermance, Marsinek,
Molinelli, and Neupaver are exercisable after the first anniversary of the
date of the grant (April 8, 1996) during each of the four succeeding
twelve-month periods only to the extent of twenty-five percent of the
total number of shares optioned. In all cases, optioned shares that may
have been but were not purchased during any one twelve-month period may be
purchased during any one or more succeeding twelve-month periods up to the
expiration date of the option. Options generally become fully exercisable
in the event of the holder's death, retirement or termination of
employment in connection with a change in control.
(2) The amounts represent certain assumed rates of appreciation. Actual gains,
if any, on stock option exercises are dependent on future performance of
AMETEK's Common Stock. There can be no assurance that the rates of
appreciation reflected in this table will be achieved.
88
<PAGE>
The following table illustrates stock option and SARs exercised by the named
executive officers during 1996 and the aggregate amounts realized by each such
officer. In addition, the table shows the aggregate number of unexercised
options and SARs that were exercisable and unexercisable as of December 31,
1996, and the values of "in-the-money" stock options and SARs on December 31,
1996, which represent the positive difference between the market price of
AMETEK's Common Stock and the exercise price of such options/SARs.
AGGREGATED OPTIONS/SARS EXERCISED IN 1996 AND OPTION/SAR VALUES AT DECEMBER
31, 1996
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES OPTIONS/SARS THE-MONEY OPTIONS/SARS
ACQUIRED ON AT DECEMBER 31, 1996 (#) AT DECEMBER 31, 1996 ($)
EXERCISE VALUE ------------------------- -------------------------
NAME (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Walter E. Blankley...... 93,750 761,719 201,250 211,250 1,463,281 1,203,750
Frank S. Hermance....... 20,000 151,719 77,500 147,500 611,562 743,750
George E. Marsinek...... 0 0 57,500 77,500 417,187 428,750
John J. Molinelli....... 6,000 44,000 63,750 68,750 515,468 373,281
Albert J. Neupaver...... 12,000 102,000 53,250 63,750 413,656 350,781
</TABLE>
DEFINED BENEFIT AND ACTUARIAL PLANS
The Employees' Retirement Plan of AMETEK (the "Retirement Plan") is a
noncontributory defined benefit pension plan under which contributions are
actuarially determined. The following table sets forth the estimated annual
benefits, expressed as a single life annuity, payable upon retirement
(assuming normal retirement at age 65) under the Retirement Plan for
individuals with the indicated years of service and at the indicated
compensation levels (without taking into account statutory restrictions
incorporated in the Retirement Plan and described below):
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ANNUAL BENEFITS BASED ON
YEARS OF SERVICE AT NORMAL RETIREMENT
AGE (1)
AVERAGE ---------------------------------------
COMPENSATION 15 20 25 30 35
------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$150,000............................ 58,800 62,600 66,500 66,500 66,500
200,000............................. 79,200 84,300 89,400 89,400 89,400
250,000............................. 99,600 106,000 112,400 112,400 112,400
300,000............................. 120,000 127,700 135,300 135,300 135,300
350,000............................. 140,400 149,300 158,300 158,300 158,300
400,000............................. 160,800 171,000 181,200 181,200 181,200
450,000............................. 181,200 192,700 204,200 204,200 204,200
500,000............................. 201,600 214,400 227,100 227,100 227,100
550,000............................. 222,000 236,000 250,100 250,100 250,100
600,000............................. 242,400 257,700 273,000 273,000 273,000
650,000............................. 262,800 279,400 296,000 296,000 296,000
700,000............................. 283,200 301,100 318,900 318,900 318,900
</TABLE>
- --------
(1) Benefit amounts assume a participant reaches age 65 in 1997; for younger
participants, the benefit amounts are less than the amounts indicated
above.
The annual compensation taken into account for any plan year is generally
equal to the participant's salary and any bonus accrued during the plan year
as reported in the Summary Compensation Table. Compensation in excess of
certain amounts prescribed by the Secretary of the Treasury ($160,000 for
1997) cannot be taken into account under the Retirement Plan. The individuals
named in the Summary Compensation Table are subject to
89
<PAGE>
this limitation. However, in accordance with a nonqualified supplemental
pension arrangement, AMETEK has agreed to provide to Mr. Blankley a benefit in
an amount equal to the excess of the annual pension benefit that would be
payable to him under the terms of the Retirement Plan in the absence of
statutory restrictions over the amount actually payable under the Retirement
Plan. The benefit is limited to the projected excess payable at age 65
determined as of May 21, 1991. Pursuant to an agreement entered into with Mr.
Blankley, a restricted stock award has been granted under the 1991 Stock
Incentive Plan of AMETEK, Inc. for a number of shares of AMETEK's Common Stock
having a fair market value on the date of grant equal to 50% of the present
value of the projected benefit under the supplemental pension arrangement; the
remaining portion of the benefit will be payable in cash, directly out of
AMETEK's general assets. At December 31, 1996, the executives named in the
Summary Compensation Table had the following years of credited service under
the Retirement Plan: Mr. Blankley-37; Mr. Hermance-6; Mr. Marsinek-32; Mr.
Molinelli-28, and Mr. Neupaver-20.
For retirements occurring in 1997, the maximum annual pension benefit
payable at normal retirement age is restricted, by law, to the greater of
$125,000 or the amount of such benefit determined under the Retirement Plan
and prior existing law as of December 31, 1982. The $125,000 limit is adjusted
annually by the Secretary of the Treasury to reflect increases in the cost of
living.
Persons joining AMETEK after January 1, 1997 are not eligible to participate
in the Retirement Plan, but instead are eligible to participate in a new
defined contribution feature of AMETEK's 401(k) Plan.
90
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following report, submitted by the Compensation Committee of the AMETEK
Board of Directors (the "Compensation Committee"), provides information
regarding policies and practices concerning compensation of the Chairman of
the board and Chief Executive Officer and the other executive officers of
AMETEK.
COMPENSATION OVERVIEW
The functions performed by the Compensation Committee include recommending
to the Board of Directors (a) remuneration arrangements for senior management
and directors and (b) compensation plans in which officers and employees are
eligible to participate. Members of the Compensation Committee are directors
who are not employees of AMETEK. The current members of the Compensation
Committee are Messrs. Gordon, Klein and Malone and Ms. Varet.
Executive compensation consists of three principal elements: (a) salary; (b)
annual bonus and (c) grants of stock options and stock appreciation rights and
restricted stock awards under AMETEK plans. Additional retirement and other
benefits are provided for AMETEK's executives similar to those typically
provided by other major corporations.
Decisions about executive officers' salary and bonus are made under the
supervision of the Compensation Committee, while decisions concerning
compensation in the form of stock options, SARs and restricted stock awards
are made under the supervision of the committee of the Board of Directors
designated for the appropriate plan. The members of each of these plan
committees currently are the same as the members of the Compensation
Committee; thus, references in this report to the "Compensation Committee"
should be read where appropriate, as references to the various plan
committees.
Underlying the Compensation Committee's decisions with respect to executive
officers' compensation is the belief that it is fundamentally important that
AMETEK attract, retain, motivate and benefit from the guidance and experience
of talented and qualified individuals so that AMETEK's short-term and long-
term success will continue and its profitability and worldwide reputation for
quality, and thus stockholder value, will grow. AMETEK also believes that its
officers and executives have been encouraged to acquire a larger equity
interest in AMETEK, thereby having additional incentives, corresponding to the
interests of stockholders, to put forth their maximum efforts for the success
and profitability of AMETEK's businesses and the achievement of increased
stockholder value. Information regarding similarly situated executive officers
at comparable companies was drawn from publicly available information for
certain of the companies included in the index of companies used in the
Performance Graphs set forth on page 94 and for certain other companies
identified by an independent employee benefits consulting firm retained by
AMETEK. It is the current intention of the AMETEK Board and the Compensation
Committee to continue the above practices.
SALARY
Salary levels for AMETEK's executive officers are established principally on
the basis of the executive's responsibilities. In each case, consideration is
given both to personal factors such as the individual's experience and record
and the responsibility associated with his or her position and to external
factors such as salaries paid to similarly situated executive officers by
comparable companies and prevailing conditions in the geographic area where
the executives' principal services will be performed. Comparable companies
were identified as described above. Annual adjustments to each executive
officer's salary are determined based on the foregoing factors but with due
consideration also being given to prevailing economic conditions, to the
relationship of such adjustments to those being given to other employees
within AMETEK, to the performance of the executive's duties and
responsibilities and to other individual performance-related criteria that may
be relevant with respect to such executive officer at the time. In evaluating
the salaries paid to similarly situated executive officers, consideration is
given to the full range of such salaries and to the experience and records of
those executives who received salaries at the high, medium and low points of
such range. In determining executive salaries, the Compensation Committee has
generally targeted the median level of the compensation range for comparable
companies. In addition, in establishing salary levels, consideration is given
to the competitiveness of the total annual compensation received by AMETEK's
executive officers as compared to the total compensation received by other
similarly situated executive officers.
91
<PAGE>
ANNUAL BONUS
Bonuses are viewed as a reward for individual contributions to AMETEK's
performance, based not only on AMETEK's short-term results but also on the
investments made by AMETEK for the future growth of AMETEK's profits. In
addition, consideration is given to the achievement of selected financial
goals (i.e., operating performance, asset management and business growth
development) and progress in meeting other long-term objectives, as well as
the executive officers' leadership role in these activities. Bonus decisions
generally are made toward the end of each year. Pursuant to AMETEK's
Additional Compensation Plan, each year an aggregate amount, generally equal
to five percent of income before federal income taxes exclusive of capital
gains and certain non-recurring charges, is accrued for the purposes of paying
bonuses to executive officers and certain other employees. As a result of
overall performance in 1996, which met or exceeded the targeted financial
goals referred to above, the bonus pool for 1996 increased compared to 1995.
The Chairman of the Board and Chief Executive Officer reviews performance by
AMETEK and the individual contributions of each executive officer to AMETEK's
performance and makes recommendations to the Compensation Committee with
respect to the suitable bonus amount to be awarded to such individual for that
year based on such review. The Compensation Committee then meets with the
Chairman of the Board and Chief Executive Officer to consider such
recommendations, makes any changes that may be deemed appropriate, and
presents its recommendations to the Board of Directors which then discusses
and votes upon the bonuses. The principal financial performance measures
considered by the Compensation Committee are earnings, return on assets and
cash flow, with the relative weight of each of these factors being roughly
equal. However, the significance of any one of these factors may vary from one
executive officer to another depending upon whether that officer has been
assigned other long-term goals, such as reorganizing a business line,
developing new products or increasing market penetration for current products.
STOCK OPTIONS, SARS AND RESTRICTED STOCK AWARDS
Awards of stock options, SARs and shares of restricted stock are considered
an important complement to the cash elements of AMETEK's executive officers'
compensation described above and have the purpose of aligning the executives'
interests with the stockholders' interests. The plans under which such awards
are made have been approved by AMETEK's stockholders. AMETEK stock options and
SARs generally require the executive to be employed by AMETEK on the exercise
date and become exercisable in stages over a period of years following the
date of grant. The exercise price of options generally equals the mean market
price of AMETEK's stock on the grant date; accordingly, such options will only
yield income to the executive if the market price of AMETEK's stock is
greater, at the time of exercise, than it was when the option was granted.
Although AMETEK has not yet done so, it could grant options with average
prices greater than the market price of AMETEK's stock on the grant date in
order to vary the long-term incentive being created for the option recipient.
It is believed that a principal factor influencing the market price of
AMETEK's stock is AMETEK's performance as reflected in its sales, earnings,
cash flow and other results; thus, by granting stock options and SARs to
AMETEK's executive officers, such individuals are encouraged to achieve
consistent improvements in AMETEK's performance. Awards of shares of
restricted stock are subject to forfeiture restrictions which prohibit the
recipient from selling such shares until the specified period of restriction
following the date the award lapses. Such awards provide inducements to the
executive officers to remain with AMETEK over the long term and to work to
enhance corporate performance and, correspondingly, stockholder value. When
considering whether to make grants of stock options and SARs or awards of
restricted stock, the Compensation Committee reviews practices of other
comparable companies (which are identified as described above) as well as
individual performance-related criteria such as those already described, and
takes into consideration the effect such awards might have on AMETEK's
performance and stockholder value. The measures of AMETEK's performance that
are considered in making such awards, and the relative weight of each of these
factors, are the same as those used in determining bonus levels, which are
described above. The long-term objectives that an officer has been assigned
are also considered. However, in determining to grant options or SARs or award
restricted stock, the Compensation Committee has generally placed greater
emphasis on long-term objectives than it has in its determination of bonus
awards.
92
<PAGE>
MR. BLANKLEY'S 1996 COMPENSATION
In determining the appropriate levels for Mr. Blankley's 1996 base salary,
bonus and stock option grant, the Compensation Committee considered the same
factors that it considered when fixing compensation levels for AMETEK's other
executive officers and sought to achieve the same corporate goals. The
Compensation Committee also considered the major initiatives and programs
which, in 1996, were commenced or furthered under Mr. Blankley's leadership,
such as: (a) recognition of additional cost benefits resulting from AMETEK's
plan to enhance stockholder value adopted in November 1993, together with
substantial progress in implementing the operating strategies called for by
such plan; (b) continued development of a deeper and more experienced senior
management team; (c) continued improvements in asset management throughout
AMETEK, including the reduction of inventory levels and cycle time resulting
from the introduction of flow management as part of AMETEK's TQM effort; (d)
establishment of a majority owned joint venture operation in Shanghai, PRC for
the production of electric motors; (e) substantial progress in establishing
operations and pursuing other opportunities in various Eastern European and
other emerging market locations, including the opening of production
facilities for electric motors in the Czech Republic and Mexico and (f)
continued progress in expanding its international sales activities. Certain
personal criteria also were reviewed, such as the fact that 1996 was the
fourth year of Mr. Blankley's service as Chairman of the Board and Chief
Executive Officer after more than 35 years of service with AMETEK in many
positions including the position of President. The Compensation Committee also
evaluated data regarding CEO compensation practices of other comparable
companies (which were identified previously) so that Mr. Blankley's total
compensation package would be in line with that of CEOs in such other
companies. A major factor in fixing Mr. Blankley's bonus was the fact that
AMETEK achieved essentially all of its financial goals established for 1996,
including earnings per share, return on assets and cash flow.
SECTION 162(M)
Section 162(m) of the Code generally limits the deductibility by a publicly-
held corporation of compensation paid in a taxable year to the Chief Executive
Officer and any other executive officer whose compensation is required to be
reported in the Summary Compensation Table to $1,000,000. For the 1996 taxable
year, AMETEK did not exceed, and therefore was not affected by, this
limitation.
Mr. Sheldon S. Gordon
Mr. Charles D. Klein
Mr. James R. Malone
Ms. Elizabeth R. Varet
93
<PAGE>
STOCK PERFORMANCE GRAPHS
AMETEK re-evaluated the composition of its Industry Performance Peer Group
as of December 31, 1996, and determined that a change was appropriate. The new
Industry Performance Peer Group is the Dow Jones Electrical Components and
Equipment Industry Group ("DJEE"). The former Industry Performance Peer Group
consisted of two separate industry groups published by Business Week as the
"Electrical Products" and "Instrument" groups. Through investor
communications, AMETEK has learned that the investing public cannot easily
access the cumulative total return performance of AMETEK's former Performance
Peer Group. For these reasons, AMETEK believes the change is appropriate.
AMETEK believes its new Industry Performance Peer Group will provide current
and potential investors with information that is more readily available and
with an industry group that is a more relevant comparison for purposes of
evaluating stock performance and AMETEK's executive compensation.
Assuming an initial investment of $100 invested on December 31, 1991, and
the reinvestment of all dividends, the following graphs compare AMETEK's
cumulative total return plotted on an annual basis, with the S&P 500 Index and
the new and former Performance Peer Groups. The first graph compares AMETEK's
cumulative total return for the previous five years to the new Performance
Peer Group (DJEE). As required by the Securities and Exchange Commission, a
second graph has also been provided which compares AMETEK's cumulative total
return for the same five-year period to the former Performance Peer Group.
NEW PERFORMANCE PER GROUP
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
AMETEK.......................... $100.00 $124.46 $101.56 $136.56 $153.77 $184.69
S&P 500......................... 100.00 107.62 118.46 120.03 165.13 203.05
DJEE............................ 100.00 101.41 111.33 115.71 150.26 181.84
</TABLE>
94
<PAGE>
FORMER PERFORMANCE PEER GROUP
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
AMETEK.......................... $100.00 $124.46 $101.56 $136.56 $153.77 $184.69
S&P 500......................... 100.00 107.62 118.46 120.03 165.13 203.05
Published Industry.............. 100.00 101.44 112.79 109.92 148.15 185.08
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Sheldon S. Gordon, Charles D. Klein, James R. Malone and Elizabeth R. Varet
have comprised the Compensation Committee. Mr. Klein and Ms. Varet are managing
directors of American Securities, L.P., an investment banking firm.
The law firm of Stroock & Stroock & Lavan LLP, of which Mr. Cole is a member,
rendered during 1996 and continues to render services as General Counsel for
AMETEK and its subsidiaries. The investment banking firm of American
Securities, L.P., and affiliates of American Securities, L.P., including Oak
Hall Capital Advisors, L.P., rendered during 1996 and continues to render
financial advisory, investment management and other services to AMETEK.
American Securities, L.P. is owned, indirectly, through family trusts of which
Ms. Varet and Mr. Cole are co-trustees, by Ms. Varet and members of her family.
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires AMETEK's directors and officers to
file with the Commission and the New York Stock Exchange initial reports of
ownership and reports of changes in ownership of AMETEK's Common Stock. Copies
of all such Section 16(a) reports are required to be furnished to AMETEK.
95
<PAGE>
These filing requirements also apply to holders of more than ten percent of
AMETEK's Common Stock; to AMETEK's knowledge, such holders are those listed in
the table in "--Stock Ownership." To AMETEK's knowledge, based solely on a
review of the copies of Section 16(a) reports furnished to AMETEK and written
representations that no other reports were required, during the fiscal year
ended December 31, 1996, AMETEK's officers and directors were in compliance
with all Section 16(a) filing requirements.
EMPLOYMENT CONTRACTS AND TERMINATION, SEVERANCE AND
CHANGE-IN-CONTROL ARRANGEMENTS
Pursuant to an agreement with AMETEK, Mr. Blankley will be entitled to a
severance benefit if his employment is terminated either by AMETEK without
cause or by Mr. Blankley for good reason within 18 months after a Change-in-
Control (as defined below), in an amount equal to 2.99 times his average
taxable compensation (as defined under Section 280G of the Code) from AMETEK
during the five preceding taxable years. The benefit is subject to reduction,
if necessary, to prevent any "excess parachute payment" within the meaning of
Section 280G of the Code. For purposes of the agreement, a "Change-in-Control"
means the acquisition of 30% or more of the voting stock of AMETEK by any
party other than AMETEK (or its affiliates), or a change in the members of the
Board of Directors, within any two-year period, such that the members at the
beginning of the period cease to constitute a majority (unless the change is
approved by two-thirds of those who are members at the beginning of the
period). Assuming that a Change-in-Control, followed by a termination of
employment, occurred on January 31, 1997, $2,167,949 would be payable pursuant
to the agreement to Mr. Blankley. None of the events related to the Spin-Off
or the Merger will be deemed to constitute a Change-in-Control.
Pursuant to a Supplemental Senior Executive Death Benefit Program (the
"Program"), AMETEK has entered into individual agreements with certain
executives. The agreements require AMETEK to pay death benefits to their
designated beneficiaries and to pay benefits to the executives under certain
circumstances. If a covered executive dies before retirement or before age 65
while on disability retirement, the executive's beneficiary will receive
monthly payments from the date of the executive's death until the date he or
she would have attained age 80, but not less than for 15 years (the 15-year
minimum guarantee does not apply to executives whose inclusion in the Program
is approved after December 31, 1986). The specified dollar amount of the
payments is determined on the basis of the executive's salary and age. In
addition, the standard death benefit payable for participants in the Program
from AMETEK's group term life insurance policy was revised effective January
1, 1996, to two times the executive's annual salary, limited to $200,000. If a
covered executive retires, or reaches age 65 while on disability retirement,
the Program provides for an annual benefit of one-tenth of an amount equal to
the lesser of (a) twice the executive's average annual base salary for the
last five full years of service, rounded off to the next highest multiple of
$50,000 or (b) a maximum amount specified in the agreement. The highest
maximum amount specified in the existing agreements is $1,000,000. The benefit
is payable monthly over a period of 10 years to the executive or the
executive's beneficiary. The payments will commence for retirees at age 70 or
death, whichever is earlier. However, if the executive retires after age 70,
the payments commence on retirement.
To fund benefits under the Program, AMETEK has purchased individual life
insurance policies on the lives of certain of the covered executives. AMETEK
retains the right to terminate all of the Program agreements under certain
circumstances. Messrs. Blankley, Hermance, Marsinek, Molinelli and Neupaver
are participants in the Program.
PROPOSAL (3)
APPOINTMENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THIS PROPOSAL
The Board of Directors has appointed the firm of Ernst & Young LLP, which
has audited the accounts of AMETEK since 1930, as independent auditors for the
year 1997. The stockholders are requested to signify their approval of the
appointment.
96
<PAGE>
Ernst & Young LLP will continue as the independent auditors for New Ametek.
It is expected that a representative of Ernst & Young LLP will be present at
the Special Meeting. The representative will have an opportunity to make a
statement and is expected to be available to respond to appropriate questions.
OTHER MATTERS
As of this date the AMETEK Board is not aware of any matters which may come
before the meeting other than those hereinabove set forth, but the proxy
solicited herewith confers discretionary authority to vote with respect to any
other business that may properly come before the meeting.
Proposals of stockholders intended to be presented at AMETEK's 1998 Annual
Meeting must be received by AMETEK at its executive offices shown on page 9 of
this Joint Proxy Statement/Prospectus on or prior to , 1997
(which is 120 days prior to the anticipated mailing date of proxy materials for
the 1998 Annual Meeting) to be eligible for inclusion in the proxy material to
be used in connection with the 1998 Annual Meeting.
By order of the Board of Directors
Donna F. Winquist
Corporate Secretary
Dated: Paoli, Pennsylvania, , 1997
97
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
Report of Independent Auditors............................................ F-2
<S> <C>
Combined Statement of Income for the years ended December 31, 1996, 1995
and 1994.................................................................. F-3
Combined Balance Sheet at December 31, 1996 and 1995...................... F-4
Combined Statement of Cash Flows for the years ended December 31, 1996,
1995 and 1994............................................................. F-5
Notes to Combined Financial Statements.................................... F-6
Management's Discussion and Analysis of Financial Condition and Results of
Operations
of the Water Filtration Business (not covered by the Report of
Independent Auditors).................................................... F-15
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of AMETEK, Inc.
We have audited the accompanying combined balance sheets of The Water
Filtration Business (a wholly owned business of AMETEK, Inc.) as of December
31, 1996 and 1995, and the related combined statements of income and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of AMETEK's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of The Water
Filtration Business (a wholly owned business of AMETEK, Inc.) at December 31,
1996 and 1995, and the combined results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 14, 1997
F-2
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net sales............................................. $68,650 $55,643 $54,086
------- ------- -------
Expenses:
Cost of sales, excluding depreciation............... 44,039 35,768 33,563
Selling, general and administrative................. 10,332 7,477 7,071
Depreciation........................................ 1,919 1,575 1,528
------- ------- -------
Total expenses.................................... 56,290 44,820 42,162
------- ------- -------
Operating income...................................... 12,360 10,823 11,924
Other income (expense), net........................... (9) 32 17
------- ------- -------
Income before income taxes............................ 12,351 10,855 11,941
Provision for income taxes............................ 4,188 3,857 4,210
------- ------- -------
Net income............................................ $ 8,163 $ 6,998 $ 7,731
======= ======= =======
</TABLE>
See accompanying notes.
F-3
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
------- -------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents.................................... $ 697 $ 367
Receivables, net............................................. 9,030 6,800
Inventories.................................................. 7,882 7,256
Deferred income taxes........................................ 79 86
Other current assets......................................... 482 219
------- -------
Total current assets....................................... 18,170 14,728
Property, plant and equipment, net............................. 17,548 16,650
Intangibles and other assets................................... 3,539 6,144
------- -------
$39,257 $37,522
======= =======
LIABILITIES AND NET WORTH
-------------------------
Current liabilities:
Notes payable................................................ $ 343 $ --
Accounts payable............................................. 3,827 3,047
Income taxes payable......................................... 79 2
Accrued liabilities.......................................... 3,295 2,176
------- -------
Total current liabilities.................................. 7,544 5,225
Long-term notes payable........................................ -- 311
Deferred income taxes.......................................... 1,606 1,656
Other long-term liabilities.................................... 400 462
Net worth...................................................... 29,707 29,868
------- -------
$39,257 $37,522
======= =======
</TABLE>
See accompanying notes.
F-4
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
Net income........................................... $8,163 $6,998 $7,731
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization...................... 2,247 1,657 1,625
Deferred income taxes.............................. (43) 32 80
Changes in working capital:
(Increase) decrease in receivables............... (440) (1,230) 57
(Increase) decrease in inventories and other
current assets................................... 341 (635) (96)
Increase (decrease) in payables, accruals and
income taxes..................................... 296 150 (981)
Other.............................................. (16) 40 (28)
------ ------ ------
Total operating activities..................... 10,548 7,012 8,388
------ ------ ------
INVESTING ACTIVITIES:
Additions to property, plant and equipment........... (2,169) (2,404) (2,434)
Purchase of business................................. -- (5,699) --
Other................................................ (142) -- --
------ ------ ------
Total investing activities..................... (2,311) (8,103) (2,434)
------ ------ ------
FINANCING ACTIVITIES:
Change in Notes Payable.............................. -- -- 313
Cash transfer (to) from AMETEK, Inc.................. (7,907) 1,020 (6,086)
------ ------ ------
Total financing activities..................... (7,907) 1,020 (5,773)
------ ------ ------
Increase (decrease) in cash and cash equivalents....... 330 (71) 181
CASH AND CASH EQUIVALENTS:
Beginning of year.................................... 367 438 257
------ ------ ------
End of year.......................................... $ 697 $ 367 $ 438
====== ====== ======
</TABLE>
See accompanying notes.
F-5
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Basis of Presentation
The accompanying combined financial statements present the financial
position, results of operations and cash flows of the Water Filtration
Business (the "Water Filtration Business") owned directly or indirectly by
AMETEK, Inc. ("AMETEK") and its subsidiaries. The accompanying combined
financial statements have been prepared on a historical cost basis and present
financial information for the Water Filtration Business as derived from
AMETEK's historical cost financial accounts. All significant intercompany
accounts and transactions of the Water Filtration Business have been
eliminated.
Description of Business
The Water Filtration Business is primarily in the business of manufacturing
water filtration products for retail, residential, commercial and industrial
customers in the United States and many foreign countries worldwide. The Water
Filtration Business sells its products through both retail and wholesale
distribution channels. It has a broad line of cartridge filtration products,
offering whole-house, countertop and other complete water filtration systems.
The Water Filtration Business's point-of-use drinking water filters and
cartridges are designed for the removal of objectionable taste, odor,
hazardous chemicals and bacteria. In addition, the Water Filtration Business
produces filters, housings and cartridges for use in food and beverage
dispensing, cosmetics and chemical production applications; as well as for use
by plumbing professionals to serve their residential and commercial customers.
The Water Filtration Business's operations consist of Plymouth Products, a
United States division of AMETEK, and three wholly owned foreign subsidiaries:
AMETEK Filters, Limited; APIC International S.A.("APIC"); and AFIMO S.A.M.
("AFIMO").
2. THE WATER FILTRATION BUSINESS MERGER
On February 5, 1997, AMETEK announced that it will separate all of its other
businesses from the Water Filtration Business and a wholly owned subsidiary of
Culligan Water Technologies, Inc. ("Culligan") will be merged with and into
the Water Filtration Business for a total purchase price to Culligan of
approximately $155 million. The purchase price, less assumed debt, is payable
to AMETEK's stockholders in Culligan common stock valued at $37.50 per share.
Following the merger, Culligan will assume $25 million of AMETEK's debt. Based
on the assumption of $25 million of AMETEK's debt, Culligan will distribute
3,466,667 shares of its common stock to AMETEK's stockholders, or 0.11 shares
of Culligan common stock for each outstanding share of AMETEK common stock
(based on shares outstanding at December 31, 1996).
The transaction is subject to certain conditions, including receipt of a
favorable ruling from the Internal Revenue Service to the effect that the
merger and distribution will be tax-free for federal income tax purposes, and
approval by AMETEK's stockholders.
In connection with the merger of the Water Filtration Business into
Culligan, AMETEK will enter into certain contractual agreements with Culligan.
Such agreements include an Indemnification Agreement, a Tax Allocation
Agreement, a Trademark Agreement and a Transition Services Agreement. The
agreements will provide, among other things, each party's rights and
obligations with respect to tax matters, use of trade names, certain
indemnification matters, and support services to facilitate an orderly
transition as they relate to the Water Filtration Business.
F-6
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
The Water Filtration Business's revenues are recorded when products are
shipped and services are rendered. The policy with respect to sales returns
and allowances generally provides that the customer may not return the
products, or be given allowances, except at the Water Filtration Business's
option. The provision for estimated warranty costs (not material in amount) is
recorded at the time of sale and periodically adjusted to reflect actual
experience.
Cash Management
AMETEK uses a centralized cash management system for all of its domestic
operations, including that of the Water Filtration Business. Cash and cash
equivalents, consisting of highly liquid investments with maturities of three
months or less when purchased, reflected in the combined balance sheet,
represents balances maintained by the Water Filtration Business's foreign
operations.
Inventories
Inventories are stated at lower of cost or market, cost being determined on
a first-in, first-out (FIFO) basis. Reserves are provided for obsolete
inventory and for slow moving inventory based on historical and projected
usage.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of property,
plant and equipment is calculated principally on the straight-line method
(accelerated methods for tax purposes) over the useful lives of the assets.
Expenditures for maintenance and repairs, which do not materially extend the
lives of the assets, as well as expenditures for tools and dies, are included
in operations as incurred.
Financial Accounting Standards Board Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
which established new accounting standards for measuring the impairment of
long-lived assets, was adopted by the Water Filtration Business in the first
quarter of 1996. The adoption of this new Statement did not have any impact on
the Water Filtration Business's combined financial position or results of
operations.
Advertising Costs
Costs incurred for producing and communicating advertising are expensed when
incurred, including costs incurred under the Water Filtration Business's
cooperative advertising programs with its dealers and mass merchandisers.
F-7
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Intangible Assets
Intangible assets consists of goodwill, and other acquired intangibles. For
financial reporting purposes, goodwill is being amortized on a straight-line
basis over 20 to 30 years. The other acquired intangibles are being amortized
over their estimated useful lives of five to seven years. The Water Filtration
Business reviews the carrying value of intangibles for impairment whenever
events or changes in circumstances indicate that the carrying amount may not
be recoverable.
Foreign Currency Translation
Results of operations of foreign subsidiaries are translated to U.S. dollars
by using the average exchange rates during the year. The assets and
liabilities of those subsidiaries are translated into U.S. dollars using the
exchange rates in effect at the balance sheet date. The related foreign
currency translation adjustments are recorded in a separate component of net
worth.
Income Taxes
The results of the Water Filtration Business's U.S. operations are included
in AMETEK's consolidated United States federal and state income tax returns.
The provision for income taxes included in these combined financial statements
represents the Water Filtration Business's allocated share of AMETEK's
domestic income tax expense (including a credit attributable to U.S. export
sales), which approximates the net expense that the Water Filtration Business
would have incurred on a separate tax return basis, along with the actual
income tax provisions of its foreign subsidiaries.
As part of the plan of the merger, AMETEK and Culligan have entered into a
Tax Matters Agreement. This agreement generally provides that for periods
prior to the merger the two companies will retain the liability for any unpaid
taxes attributable to their respective operations.
Research and Development
Water Filtration Business-funded research and development costs are charged
to operations as incurred. The amounts charged to operations during the years
ended December 31, 1996, 1995 and 1994 were $600,000, $500,000 and $300,000,
respectively.
4. ACQUISITION
On November 1, 1995, the Water Filtration Business purchased APIC and AFIMO,
a French- and Monaco-based manufacturer of water filtration products, for $5.7
million cash. Accounting for this acquisition was completed in early 1996 upon
the determination of fair values of the assets acquired and the liabilities
assumed. The acquisition was accounted for by the purchase method and the
results of APIC's and AFIMO's operations are included in the Water Filtration
Business's combined results from the date of acquisition.
Assuming that the acquisition was made as of January 1, 1994, pro forma
unaudited net sales would have been $63.0 million for 1995 and $60.6 million
for 1994. Pro forma operating income and net income for 1995 and 1994 would
not have been materially different from the amounts reported.
5. TRANSACTIONS WITH AMETEK
Net worth as shown in the combined balance sheet primarily represents
AMETEK's cumulative net investment in the combined business of the Water
Filtration Business. AMETEK's practice is to incur indebtedness for its
domestic operations at the parent company level, or at a limited number of
foreign
F-8
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
subsidiaries, and to centrally manage various cash functions for its domestic
operations. The Water Filtration Business's financing requirements have,
therefore, been substantially satisfied by transactions with AMETEK. There are
no material intercompany purchase or sale transactions between AMETEK and the
Water Filtration Business. Advances from AMETEK and excess cash sent to AMETEK
are reflected as net transactions with AMETEK and are included in net worth.
No interest is charged, or has been otherwise allocated to the Water
Filtration Business on outstanding balances due AMETEK.
The following table sets forth the changes in net worth.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Beginning balance.............................. $29,868 $21,868 $20,159
Cash from operations........................... (10,367) (8,687) (9,436)
Working capital transfers, net................. (527) 1,784 839
Additions to property, plant and equipment..... 2,169 2,402 2,434
Purchase of business........................... -- 5,699 --
Net income..................................... 8,163 6,998 7,731
Other.......................................... 401 (196) 141
------- ------- -------
Ending balance................................. $29,707 $29,868 $21,868
======= ======= =======
Average balance................................ $29,788 $25,868 $21,014
======= ======= =======
</TABLE>
Cumulative losses from foreign currency translation adjustment included in
the net worth shown above at December 31 are as follows: 1996--$647,000;
1995--$533,000; 1994--$519,000.
At December 31, 1996, the Water Filtration Business's U.K. subsidiary,
Ametek Filters, Limited, had non-interest bearing notes payable to a
subsidiary of AMETEK totaling $343,000. The notes are payable in 2002, but are
being accelerated for payment in 1997, prior to the merger. The amount due is
shown as notes payable in the accompanying combined balance sheet.
The Plymouth Products Division participates with other AMETEK Divisions in a
number of risk management, insurance and employee benefit programs, some of
which are self insured directly by AMETEK, or insured through its captive
insurance subsidiary. An estimate of the expense attributable to the Plymouth
Products Division for such programs is reflected in the combined statement of
income. The combined balance sheet includes accruals for specific workers'
compensation and product liability claims of the Plymouth Products Division
which were transferred through the intercompany account with AMETEK (see note
6).
Certain operating expenses, capital expenditures, general corporate
expenses, and other cash requirements of the Water Filtration Business were
paid or accrued by AMETEK and charged directly or allocated to the Water
Filtration Business. Amounts included in the combined statement of income
related to the services provided to the Water Filtration Business by AMETEK
amounted to approximately $1.7 million in 1996, $1.4 million in 1995, and $1.3
million in 1994.
These charges and allocations include amounts for consulting, legal and
other support services and were based on direct charges and an estimate of the
proportion of such corporate expenses related to the Water Filtration Business
for the periods presented and, in the opinion of management, have been made on
a reasonable basis.
F-9
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. OTHER BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
(IN THOUSANDS)
----------------
1996 1995
------- -------
<S> <C> <C>
INVENTORIES
Finished goods......................................... $ 5,155 $ 5,644
Work in process........................................ 198 202
Raw materials.......................................... 2,529 1,410
------- -------
$ 7,882 $ 7,256
======= =======
PROPERTY, PLANT AND EQUIPMENT, at cost
Land................................................... $ 195 $ 188
Buildings.............................................. 12,909 12,612
Machinery and equipment................................ 19,426 16,836
------- -------
32,530 29,636
Less accumulated depreciation.......................... (14,982) (12,986)
------- -------
$17,548 $16,650
======= =======
INTANGIBLES AND OTHER ASSETS
Acquired intangibles, at cost:
Goodwill............................................. $ 3,210 $ 27
Non-compete agreements............................... 623 372
Other acquired intangibles........................... 129 129
------- -------
3,962 528
Less accumulated amortization........................ (644) (318)
------- -------
3,318 210
Intangible pension asset............................... 221 235
Investment in acquired business........................ -- 5,699
------- -------
$ 3,539 $ 6,144
======= =======
ACCRUED LIABILITIES
Accrued employee compensation and benefits............. $ 1,254 $ 1,068
Real estate, personal property, social and other non
income taxes.......................................... 307 337
Accrued workers compensation and product liability
insurance.............................................. 640 161
Other.................................................. 1,094 610
------- -------
$ 3,295 $ 2,176
======= =======
</TABLE>
F-10
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES
The details of the provision for (benefit from) income taxes are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
---------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Provision for income taxes:
Current:
Federal........................................... $3,836 $3,571 $3,907
Foreign........................................... 76 4 --
State............................................. 302 262 221
------ ------ ------
Total current................................... 4,214 3,837 4,128
------ ------ ------
Deferred:
Federal........................................... (24) 4 45
State............................................. (2) 16 37
------ ------ ------
Total deferred.................................. (26) 20 82
------ ------ ------
Total provision............................... $4,188 $3,857 $4,210
====== ====== ======
</TABLE>
Significant components of the Water Filtration Business's deferred tax
(asset) liability as of December 31 are as follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
--------------
1996 1995
------ ------
<S> <C> <C>
Current deferred tax (asset) liability:
Reserves not currently deductible...................... $ (76) $ (82)
Other.................................................. (3) (4)
------ ------
Net current deferred tax asset......................... (79) (86)
====== ======
Long-term deferred tax (asset) liability:
Differences in basis of property and accelerated
depreciation........................................... 1,729 1,592
Reserves not currently deductible...................... (224) (57)
Other.................................................. 101 121
------ ------
Net long-term deferred tax liability................... 1,606 1,656
------ ------
Net deferred tax liability........................... $1,527 $1,570
====== ======
</TABLE>
The effective rate of the provision for income taxes reconciles to the
statutory rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory rate.......................................... 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit... 1.6 1.7 1.4
Foreign Sales Corporation credits....................... (1.0) (1.0) (0.8)
Effect of foreign operations and other.................. (1.7) (0.2) (0.3)
---- ---- ----
33.9% 35.5% 35.3%
==== ==== ====
</TABLE>
Undistributed earnings of the Water Filtration Business's foreign
subsidiaries at December 31, 1996, are considered to be indefinitely
reinvested and are not significant. Accordingly, no provision has been
recorded for U.S. deferred income taxes.
F-11
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. PENSION PLANS
The Water Filtration Business maintains a noncontributory defined benefit
pension plan for eligible U.S. hourly employees. Additionally, eligible U.S.
salaried employees participate in AMETEK's salaried pension plan. Benefits are
generally based on years of service and average compensation. Pension costs
under these plans are funded through a trust established in connection with
the plans, which is maintained by AMETEK. Assets of the trust are principally
invested in a variety of equity and debt instruments. Pension expenses
(excluding administrative expenses) associated with these plans are charged
directly to the Water Filtration Business and are shown in the table below.
AMETEK's funding policy with respect to these plans is to contribute amounts
determined annually on an actuarial basis that provide for current and future
benefits in accordance with funding requirements of federal law and
regulation. In connection with the merger, AMETEK will transfer to New Ametek
all liabilities with respect to pension benefits of the Water Filtration
Business's U.S. salaried employees. Accordingly, no pension-related assets or
liabilities associated with the salaried U.S. employees are included in the
accompanying combined balance sheet. Employees of the foreign operations are
covered by pension arrangements in their individual country of operation and
no liabilities associated with these arrangements are included in the balance
sheets.
Net pension expense consists of the following components:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Service cost for benefits
earned during the period. $ 227 $ 192 $ 193
Interest cost on projected
benefit obligation....... 314 287 240
Actual return on plans
assets.................... (361) (326) (294)
Net amortization and
deferrals................. 10 6 (33)
----- ----- -----
Net pension expense..... $ 190 $ 159 $ 106
===== ===== =====
</TABLE>
Net pension expense reflects an expected long-term rate of return on plan
assets of 9 1/4% for 1996, 1995 and 1994. The actual return has been adjusted
to defer gains and losses that differ from the expected return. The present
value of the projected benefit obligation was determined by using an assumed
discount rate of 7 3/4% in 1996, 7 1/2% in 1995 and 7 3/4% in 1994. The
balance sheet reflects an additional long-term pension liability of $400,000
($462,000 in 1995), a long-term intangible asset of $221,000 ($235,000 in
1995), and a change in net worth (net of deferred taxes) of $116,000 in 1996
($148,000 in 1995).
The following table sets forth the funded status of the hourly plan:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
--------------
1996 1995
------ ------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................... $ 922 $ 784
====== ======
Accumulated benefit obligation.......................... $1,128 $1,053
====== ======
Projected benefit obligation............................ $1,128 $1,053
Plan assets at fair value............................... 954 689
------ ------
Plan assets less than projected benefit obligation...... (174) (364)
Unrecognized prior service cost......................... 193 205
Unrecognized net loss................................... 179 228
Unrecognized net transition obligation, net of amortiza-
tion................................................... 28 30
------ ------
Prepaid pension expense................................. $ 226 $ 99
====== ======
</TABLE>
F-12
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Water Filtration Business provides benefits to eligible U.S. employees
through participation in the AMETEK Saving and Investment plan, a defined
contribution plan. Expenses relating to this plan in 1996, 1995, and 1994 were
not material.
The Water Filtration Business does not provide significant postretirement or
postemployment benefits other than pensions.
9. LEASES
Future minimum lease payments under non-cancelable leases with remaining
terms of more than one year amounted to $1,637,000, consisting of annual
payments of $442,000 in 1997, and decreasing amounts thereafter.
Rent expense under operating leases of $761,000 was charged to income in
1996, $244,000 in 1995, and $202,000 in 1994.
10. STOCK OPTIONS
AMETEK has certain Stock Option Plans under which incentive stock options,
stock appreciation rights, restricted stock awards and phantom stock awards
may be granted to officers and key employees. In connection with the
separation of the water filtration business, employees of the Water Filtration
Business with options in the Plans that are not exercised prior to the
effective date, will either be converted into their cash value or Culligan
options, at the election of the employee, based on a formula that preserves
the inherent economic value and vesting terms and provisions of such AMETEK
options. Stock options for 113,140 shares of AMETEK common stock at prices
ranging from $11.69 to $19.19 were outstanding at December 31, 1996. Stock
options for 50,590 shares were exercisable at December 31, 1996.
F-13
<PAGE>
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
11. GEOGRAPHIC INFORMATION
Net sales, income before income taxes and identifiable assets by geographic
area for the year ended December 31 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net sales (based on destination):
United States................................. $49,341 $44,410 $44,573
International (including United States exports
shown below):
Europe...................................... 12,214 4,810 3,171
Other....................................... 7,095 6,423 6,342
------- ------- -------
Total combined............................ $68,650 $55,643 $54,086
======= ======= =======
Income before income taxes
United States................................. $11,544 $10,800 $11,817
Europe........................................ 807 55 124
------- ------- -------
Total combined............................ $12,351 $10,855 $11,941
======= ======= =======
Identifiable assets
United States................................. $29,685 $29,204 $26,625
Europe........................................ 9,572 8,318 2,537
------- ------- -------
Total combined............................ $39,257 $37,522 $29,162
======= ======= =======
United States export sales (reported in
international sales above)
Europe........................................ $ 3,229 $ 2,082 $ 1,923
Asia.......................................... 3,014 2,765 2,167
Canada........................................ 1,017 1,009 1,013
Other......................................... 2,388 2,138 1,759
------- ------- -------
Total combined............................ $ 9,648 $ 7,994 $ 6,862
======= ======= =======
</TABLE>
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER(A) YEAR
------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
1996
- ----
Net sales.......................... $18,499 $18,036 $17,877 $14,238 $68,650
Operating income................... $ 3,644 $ 3,728 $ 3,139 $ 1,849 $12,360
Net income......................... $ 2,344 $ 2,410 $ 2,135 $ 1,274 $ 8,163
1995
- ----
Net sales.......................... $14,553 $13,913 $14,344 $12,833 $55,643
Operating income................... $ 3,066 $ 2,431 $ 2,675 $ 2,651 $10,823
Net income......................... $ 2,027 $ 1,537 $ 1,733 $ 1,701 $ 6,998
</TABLE>
- --------
(a) Fourth quarter 1996 reflects the short-term impacts of a soft economy in
Europe, the impact of changes in foreign currency exchange rates, and the
residual effects of a two week truckers' strike in France. The fourth
quarter of 1996 also reflects the recognition of higher than normal
charges related to advertising and sales promotion programs in the Water
Filtration Business's retail water filtration market.
F-14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE WATER FILTRATION BUSINESS
Management's discussion and analysis of the Water Filtration Business's
financial condition and results of operations set forth below should be read
in conjunction with the Selected Combined Historical Financial Data of the
Water Filtration Business and the Combined Financial Statements of the Water
Filtration Business and the notes thereto.
BUSINESS OVERVIEW
The Water Filtration Business of AMETEK consists of a United States
division, the Plymouth Products Division, and three foreign subsidiaries,
Ametek Filters, Limited, APIC International S.A. ("APIC") and AFIMO S.A.M.
("AFIMO"). All of AMETEK's businesses other than the Water Filtration Business
are to be separated from AMETEK, and Culligan Merger Sub is to be merged with
and into AMETEK. See "The Water Filtration Business Merger" in Note 2 to the
Combined Water Filtration Business Financial Statements.
The Water Filtration Business's primary business is the manufacturing of
water filtration cartridge products for retail, residential, commercial, and
industrial markets in the United States and many countries worldwide. The
Water Filtration Business sells its products to both the retail and wholesale
distribution channels, including direct sales to the plumbing industry to
serve their residential and commercial customers. It is a leader in point-of-
use drinking water filters and cartridges designed for the removal of
objectionable taste, odor, hazardous chemicals and bacteria from water. Its
products also include filter cartridges and housings which are used in diverse
applications such as food and beverage dispensing, cosmetics, and chemical
production applications. For 1996 and 1995, sales to commercial and industrial
markets accounted for approximately 50% of the Water Filtration Business's net
sales. In both years, sales to retail and residential markets were about 40%
of the Water Filtration Business's net sales and utility and turf irrigation
products accounted for the remainder of the sales.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Results of Operations
For 1996, sales were $68.6 million, compared to $55.6 million in 1995, an
increase of $13.0 million or 23.4%. Increased market penetration into the
worldwide water treatment and retail markets, and the introduction of new
products into the industrial filtration markets by the Water Filtration
Business's United States operations, plus the full year's sales contribution
from the November 1995 acquisition of APIC and AFIMO, contributed almost
equally to the sales increase. Export shipments from the U.S. continued an
increasing trend, growing $1.6 million or 20.7% to $9.6 million in 1996.
Selling, general and administrative expenses were $10.3 million in 1996,
compared to $7.5 million in 1995, an increase of $2.9 million or 38.2%.
Selling expenses as a percentage of sales increased to 14.7% of sales in 1996
compared to 13.0% of sales in 1995. The increased proportion of selling
expenses was due partially to higher advertising and sales commission expenses
related to penetration of highly competitive U.S. channels, including mass
merchandisers and national home center chains, and from a relatively higher
proportion of selling expenses from the APIC and AFIMO acquisition.
Operating income for 1996 was $12.4 million, compared to $10.8 million in
1995, an increase of $1.5 million or 14.2%. The profit increase reflected the
higher sales volume, including the full year profit contribution of the APIC
and AFIMO acquisition. Operating income as a percentage of sales was 18.0% in
1996, compared with 19.5% in 1995. The lower operating margin was due to the
higher proportion of selling expenses in 1996, and a lower proportion of
earnings from the APIC and AFIMO acquisition.
The effective tax rate for 1996 was 33.9%, compared to 35.5% for 1995. The
lower 1996 rate was due primarily to lower foreign taxes, mostly from the
Water Filtration Business's United Kingdom ("U.K.") operation, which benefited
from net operating loss carryforwards.
F-15
<PAGE>
The effects of the above items resulted in net income for 1996 of $8.2
million, compared to $7.0 million in 1995, an increase of $1.2 million or
16.6%.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Results of Operations
For 1995, sales were $55.6 million, an increase of $1.6 million or 2.9%
compared to 1994 totals. The sales increase came primarily from the Water
Filtration Business's United States operation, resulting from expansion into
worldwide industrial and water treatment filtration markets, and to higher
sales of new industrial filtration products by the Water Filtration Business's
U.K. operation. Export sales from the Water Filtration Business's United
States operation increased $1.1 million to $8.0 million in 1995, an increase
of 16.5%. The overall sales increase however, was largely offset by lower
domestic sales in the retail and commercial markets. Sales to the Walter
Filtration Business's retail markets declined in 1995 from 1994 levels,
primarily due to adverse winter weather conditions, which had a diminishing
effect on consumer buying in early 1995.
Operating profit margins decreased to 19.5% in 1995 from 22.0% in 1994, due
to reduced operating efficiencies, primarily from the United States operation.
Higher engineering, product development and new product introduction costs
were absorbed in 1995 in preparation for sales growth in 1996. The effects of
the above items more than offset the profit contribution from the sales
increase, resulting in operating income for 1995 of $10.8 million, a decrease
of $1.1 million or 9.2% from 1994.
Net income for 1995 was $7.0 million, compared to $7.7 million in 1994, a
decrease of $.7 million or 9.5%, reflecting the lower operating margins
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1996 amounted to $10.6 million, an increase
of $1.1 million from year-end 1995, largely due to the international water
filter business acquired in November 1995. Accounting for this acquisition was
completed in early 1996. The ratio of current assets to current liabilities at
December 31, 1996 was 2.41:1, compared to 2.82:1 at December 31, 1995.
Cash provided by operating activities totaled $10.5 million in 1996,
compared to $7.0 million in 1995, an increase of $3.5 million. The increase
was due to higher earnings and lower overall working capital requirements.
Cash used for investing activities totaled $2.3 million in 1996, compared to
$8.1 million in 1995. The primary use of cash in 1996 was for additions to
property, plant, and equipment, which totaled $2.2 million, compared to $2.4
million in 1995. Investing activities in 1995 also included a $5.7 million
cash outlay for the business acquisition mentioned above.
Financing activities used cash totaling $7.9 million in 1996, representing
the remittance of operating cash to AMETEK. Net cash transfers from AMETEK
were $1.0 million in 1995.
NEW ACCOUNTING STANDARDS
In the first quarter of 1996, the Water Filtration Business adopted
Financial Accounting Standards Board ("FASB") Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of. Statement No. 121 establishes new accounting standards for
measuring the impairment of long-lived assets The adoption of this new
statement did not have any impact on the Water Filtration Business's combined
financial position or results of operations.
INTERNAL REINVESTMENT
Capital Expenditures
Capital expenditures were $2.2 million in 1996, essentially unchanged from
$2.4 million in 1995. Approximately 89% of the 1996 expenditures were for
additional manufacturing equipment to increase
F-16
<PAGE>
production efficiencies, and to expand production capacity. The Water
Filtration Business expects 1997 capital spending to exceed the 1996 level,
with continued emphasis on increasing production efficiencies and expansion,
primarily in the United States operation.
Product Development and Engineering
Product development and engineering expenses totaled $1.5 million in 1996,
$1.2 million in 1995, and $1.0 million in 1994. Such expenditures were
directed toward the development of new products and processes, and improvement
of existing products and processes, primarily related to the Water Filtration
Business's U.S. operations.
ENVIRONMENTAL MATTERS
The Water Filtration Business is subject to environmental laws and
regulations regarding its operating locations and the environmental effects of
doing business at these sites. Currently, the Water Filtration Business is not
the subject of any government-mandated cleanups at any of its operating sites.
Provisions for environmental cleanup and maintenance for the Water Filtration
Business were not material for 1996, 1995, and 1994. The Water Filtration
Business believes that, based on past experience and current evaluations, any
future environmental actions are not likely to have a materially adverse
effect on future combined results of operations, financial position, or cash
flows of the Water Filtration Business.
IMPACT OF INFLATION AND FOREIGN OPERATIONS
The Water Filtration Business attempts to minimize the impact of inflation
through cost reduction programs and by improving productivity. In general, the
Water Filtration Business believes programs are in place that are designed to
monitor the impact of inflation and to take necessary steps to minimize
inflation's effect on domestic and foreign operations.
A portion of the Water Filtration Business's sales come from its foreign
operations. Although these operations are geographically dispersed, which
partially mitigates the risks associated with operating in particular
countries, the Water Filtration Business is subject to the usual risks
associated with international operations, including the exposure to
fluctuation in foreign currency exchange rates. The Water Filtration Business
believes that the economic risk associated with its foreign operations is
minimized because most of the products sold within the foreign markets are
sourced and distributed locally. In addition, except for a limited amount of
dividends and other payments to AMETEK, the Water Filtration Business
reinvests profits in the country where the profits are derived.
F-17
<PAGE>
APPENDIX A
AMENDED AND RESTATED AGREEMENT
AND PLAN OF MERGER AND REORGANIZATION
Dated as of February 5, 1997
By and Among
CULLIGAN WATER TECHNOLOGIES, INC.
CULLIGAN WATER COMPANY, INC.,
AMETEK, INC.
and
AMETEK AEROSPACE PRODUCTS, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
THE MERGER
Section 1.1 The Merger......................................... 3
Section 1.2 Effective Time..................................... 3
Section 1.3 Closing............................................ 3
Section 1.4 Effects of the Merger.............................. 3
Section 1.5 Certificate of Incorporation and
By-Laws........................................... 4
Section 1.6 Directors.......................................... 4
Section 1.7 Officers........................................... 4
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock........................ 4
Section 2.2 Exchange of Certificates........................... 6
ARTICLE III
CERTAIN PRE- AND POST-MERGER TRANSACTIONS
Section 3.1 Ancillary Agreements............................... 9
Section 3.2 Contribution of Assets and
Assumption of Liabilities......................... 9
Section 3.3 Distribution....................................... 10
Section 3.4 Audited Closing Balance Sheet...................... 10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND SPINCO
Section 4.1 Organization....................................... 12
Section 4.2 Capitalization..................................... 12
Section 4.3 Authority.......................................... 14
Section 4.4 Consents and Approvals; No
Violations........................................ 15
Section 4.5 SEC Reports and Financial
Statements........................................ 17
Section 4.6 Information in Disclosure Documents
and Registration Statements....................... 17
Section 4.7 Retained Business.................................. 18
i
<PAGE>
Page
----
Section 4.8 Litigation......................................... 20
Section 4.9 Opinion of Financial Advisor....................... 20
Section 4.10 Employee Benefits.................................. 20
Section 4.11 Absence of Undisclosed Liabilities................. 23
Section 4.12 Absence of Certain Changes or
Events............................................ 24
Section 4.13 No Violation of Law................................ 24
Section 4.14 Licenses........................................... 25
Section 4.15 Taxes.............................................. 25
Section 4.16 Employees.......................................... 28
Section 4.17 Environmental Matters.............................. 29
Section 4.18 Intellectual Property.............................. 32
Section 4.19 Transactions with Affiliates....................... 33
Section 4.20 Material Agreements; Bank Accounts................. 33
Section 4.21 Rights Agreement................................... 35
Section 4.22 Insurance.......................................... 35
Section 4.23 DGCL Section 203................................... 35
Section 4.24 Brokers or Finders................................. 35
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Section 5.1 Organization....................................... 35
Section 5.2 Capitalization..................................... 36
Section 5.3 Authority.......................................... 37
Section 5.4 Consents and Approvals; No
Violations........................................ 37
Section 5.5 SEC Reports and Financial
Statements........................................ 39
Section 5.6 Information in Disclosure Documents
and Registration Statements....................... 39
Section 5.7 Absence of Certain Changes or
Events............................................ 40
Section 5.8 Taxes.............................................. 40
Section 5.9 Interim Operations of Merger Sub................... 40
Section 5.10 Brokers or Finders................................. 40
ARTICLE VI
COVENANTS
Section 6.1 Conduct of Business of the Company................. 41
Section 6.2 Covenants of Parent................................ 44
ii
<PAGE>
Page
----
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Reasonable Efforts................................. 45
Section 7.2 Cooperation........................................ 46
Section 7.3 Letters of the Company's
Accountants....................................... 47
Section 7.4 Letters of Parent's Accountants.................... 47
Section 7.5 Access to Information.............................. 48
Section 7.6 Stockholders Meeting............................... 48
Section 7.7 Legal Conditions to Distribution
and Merger; Legal Compliance...................... 49
Section 7.8 Stock Exchange Listing............................. 49
Section 7.9 Employee Matters; Employee Benefit
Plans............................................. 50
Section 7.10 Stock Options...................................... 51
Section 7.11 No Solicitation.................................... 51
Section 7.12 Fees and Expenses.................................. 52
Section 7.13 Affiliate Agreements............................... 53
Section 7.14 Notification of Certain Matters.................... 54
Section 7.15 Tax-Free Nature of Transactions.................... 54
Section 7.16 Indebtedness....................................... 54
Section 7.17 Internal Revenue Service Ruling.................... 55
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's
Obligation To Effect the Merger................... 55
Section 8.2 Conditions of Obligations of
Parent............................................ 58
Section 8.3 Conditions of Obligations of the
Company........................................... 59
ARTICLE IX
TERMINATION AND AMENDMENT
Section 9.1 Termination........................................ 60
Section 9.2 Effect of Termination.............................. 61
Section 9.3 Amendment.......................................... 61
Section 9.4 Extension; Waiver.................................. 61
iii
<PAGE>
Page
----
ARTICLE X
MISCELLANEOUS
Section 10.1 Survival of Representations,
Warranties and Agreements......................... 62
Section 10.2 Notices............................................ 62
Section 10.3 Interpretation..................................... 63
Section 10.4 Counterparts....................................... 64
Section 10.5 Entire Agreement; No Third Party
Beneficiaries..................................... 64
Section 10.6 Governing Law...................................... 65
Section 10.7 Specific Performance............................... 65
Section 10.8 Publicity.......................................... 65
Section 10.9 Assignment......................................... 65
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AMENDED AND RESTATED AGREEMENT
AND PLAN OF MERGER AND REORGANIZATION
-------------------------------------
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AND REORGANIZATION,
dated as of February 5, 1997, by and among Culligan Water Technologies, Inc., a
Delaware corporation ("Parent"), Culligan Water Company, Inc., a Delaware
corporation and a wholly owned subsidiary of Parent ("Merger Sub"), Ametek,
Inc., a Delaware corporation (the "Company"), and Ametek Aerospace Products,
Inc., a Delaware corporation and indirect wholly owned subsidiary of the Company
("Spinco").
WHEREAS, the respective Boards of Directors of the Company, Parent and
Merger Sub deem it advisable and in the best interests of their respective
stockholders that Parent indirectly acquire the business of the Company's
Plymouth Products Division and the Retained Subsidiaries (as defined in the
Distribution Agreement(as defined below)) pursuant to the terms and conditions
set forth in this Agreement;
WHEREAS, the Board of Directors of the Company has approved a
contribution and distribution agreement substantially in the form of Annex I
hereto (the "Distribution Agreement"), which will be entered into prior to the
Effective Time (as defined in Section 1.2), pursuant to which (a) all of the
Company's assets and liabilities, other than those used primarily in or
associated primarily with the Retained Business (as defined in the Distribution
Agreement), will be contributed to or assumed by Spinco (such contribution of
assets and assumption of liabilities, together with all other intercompany
transfers of assets and other actions described in Article 1 of the Distribution
Agreement, the "Contribution") and (b) shares of capital stock of Spinco will be
distributed (the "Distribution") on a pro rata basis to the stockholders of the
Company as provided in the Distribution Agreement in order to divest the Company
of the businesses and operations that Parent is unwilling to acquire;
WHEREAS, as set forth in Section 3.1 hereof, Parent, the Company and
Spinco are entering or will enter into (a) a trademark agreement substantially
in the form attached hereto as Annex II (the "Trademark Agreement"), (b) a tax
allocation agreement substantially in the form attached hereto as Annex III (the
"Tax Allocation Agreement"), (c) a
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transition services agreement substantially in the form attached hereto as Annex
IV (the "Transition Services Agreement"), and (d) an indemnification agreement
substantially in the form attached hereto as Annex V (the "Indemnification
Agreement", collectively, together with the Distribution Agreement, the
Trademark Agreement, the Tax Allocation Agreement, and the Transition Services
Agreement, the "Ancillary Agreements");
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and
the Company have determined that, following the Distribution, the merger of
Merger Sub with and into the Company (the "Merger"), with the Company surviving
as a wholly owned subsidiary of Parent, would be in the best interest of their
respective stockholders; and
WHEREAS, for federal income tax purposes, it is intended that (a) the
Contribution followed by the Distribution will qualify as a tax-free
reorganization pursuant to Section 368(a)(1)(D) of the Internal Revenue Code of
1986, as amended (the "Code"), (b) the Distribution will qualify as a tax-free
distribution pursuant to Section 355 of the Code, and (c) the Merger will
qualify as a tax-free reorganization pursuant to Section 368(a)(1)(B) of the
Code, and this Agreement is intended to be and is hereby adopted as a plan of
reorganization;
WHEREAS, on February 5, 1997, Parent, Merger Sub, the Company and Spinco
entered into the original Agreement and Plan of Merger and Reorganization and
desire to amend and restate such original agreement in its entirety as of the
date of such original agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto, intending to be legally bound hereby, agree as follows:
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ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
hereof and the Delaware General Corporation Law (the "DGCL"), at the Effective
Time, the Company and Merger Sub shall consummate the Merger pursuant to which
(i) Merger Sub shall be merged with and into the Company, (ii) the separate
corporate existence of Merger Sub shall thereupon cease, (iii) the Company shall
be the surviving corporation in the Merger (the "Surviving Corporation") and
shall continue to be governed by the laws of the State of Delaware, and (iv) the
corporate existence of the Company with its properties, rights, privileges,
powers and franchises shall continue unaffected by the Merger.
Section 1.2 Effective Time. Upon the terms and subject to the conditions
hereof, a certificate of merger (the "Certificate of Merger") shall be duly
prepared, executed and acknowledged by the Surviving Corporation and thereafter
delivered to the Secretary of State of the State of Delaware, for filing, as
provided in the DGCL, as soon as practicable on or after the Closing Date (as
defined in Section 1.3). The Merger shall become effective upon the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
or at such other time as is provided in the Certificate of Merger. The date and
time when the Merger becomes effective is herein referred to as the "Effective
Time".
Section 1.3 Closing. Subject to the satisfaction or waiver of all of the
conditions to closing contained in Article VIII hereof, the closing of the
Merger (the "Closing") will take place as promptly as practicable (and in any
event within two business days) after satisfaction or waiver of the conditions
to Closing contained in Article VIII and at least one day after the
Distribution, at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 919
Third Avenue, New York, New York 10022, unless another date or place is agreed
to in writing by the parties hereto. The date on which the Closing occurs is
referred to herein as the "Closing Date".
Section 1.4 Effects of the Merger. The Merger shall have the effects set
forth in the DGCL.
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Section 1.5 Certificate of Incorporation and By-Laws.
(a) The Certificate of Incorporation of the Company in effect
immediately prior to the Effective Time shall be amended and restated in
its entirety to read as set forth in Exhibit A and, as amended, shall be
the Certificate of Incorporation of the Surviving Corporation until
amended in accordance with the terms thereof and applicable law.
(b) The By-Laws of Merger Sub in effect at the Effective Time
shall be the By-Laws of the Surviving Corporation until amended in
accordance with the terms thereof and applicable law.
Section 1.6 Directors. The directors of Merger Sub at the Effective Time
shall be the directors of the Surviving Corporation, each to hold office from
the Effective Time in accordance with the Certificate of Incorporation and
By-Laws of the Surviving Corporation and until his or her successor is duly
elected and qualified.
Section 1.7 Officers. The officers of Merger Sub at the Effective Time
shall be the officers of the Surviving Corporation, each to hold office from the
Effective Time in accordance with the Certificate of Incorporation and By-Laws
of the Surviving Corporation and until his or her successor is duly appointed
and qualified.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holder of any
shares of common stock, par value $.01 per share, of the Company, including any
Company Rights (as such term is defined in Section 4.2 hereof) incident thereto
(collectively, the "Company Common Stock") or the holder of any capital stock of
Merger Sub:
(a) Capital Stock of Merger Sub. Each issued and outstanding
share of common stock, par value $1.00 per share, of Merger Sub (the
"Merger Sub Common Stock") shall continue to be one issued and
outstanding, fully
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paid and nonassessable share of Common Stock, par value $1.00 per share,
of the Surviving Corporation.
(b) Cancellation of Treasury Stock. All shares of Company Common
Stock that are owned by the Company as treasury stock shall be cancelled
and retired and shall cease to exist and no stock of Parent or other
consideration shall be delivered in exchange therefor.
(c) Exchange Ratio for Company Common Stock. Subject to Section
2.2(e), each issued and outstanding share of Company Common Stock (other
than shares to be cancelled in accordance with Section 2.1(b)) shall be
converted into the right to receive the number (rounded to the nearest
one-thousandth of a share) (the "Exchange Ratio") of fully paid and
nonassessable shares of Common Stock, par value $.01 per share, of
Parent ("Parent Common Stock") determined by dividing (x) (A) the Net
Equity Value (as defined below), by (B) $37.50, by (y) the number of
shares of Company Common Stock outstanding at the Effective Time as
certified to Parent by the Company's registrar and transfer agent. For
purposes hereof, the "Net Equity Value" shall be an amount equal to (A)
$155,000,000, minus (B) the amount of the Retained Debt (as defined in
Section 4.11), minus (C) the product of 12.3 multiplied by the amount by
which Adjusted EBIT (as defined below) for the Retained Business for the
year ended December 31, 1996 as derived from the Interim Audited
Financial Statements is less than $12,300,000. For purposes hereof,
"Adjusted EBIT" shall mean earnings before interest and taxes as set
forth in the income statement included in the Interim Audited Financial
Statements, adjusted by Ernst & Young LLP (or another "big six"
accounting firm selected by the Company) to reflect the financial
results that would have been reported if prepared in accordance with the
Reference Items (as defined in Section 3.4), together with a special
report confirming that the preparation of the calculation of Adjusted
EBIT is in accordance with this Agreement. All such shares of Company
Common Stock, when so converted, shall no longer be outstanding and
shall automatically be cancelled and retired and shall cease to exist,
and each holder of a certificate representing any such shares shall
cease to have any rights with respect thereto, except the right to
receive the shares of Parent Common Stock and any cash in lieu of
fractional
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shares of Parent Common Stock to be issued or paid in consideration
therefor upon the surrender of such certificate in accordance with
Section 2.2, without interest.
(d) Adjustment of Exchange Ratio. If after the date hereof and
prior to the Effective Time the outstanding shares of Parent Common
Stock shall have been changed into a different number of shares or a
different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of
shares, the Exchange Ratio shall be correspondingly adjusted to reflect
such stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares.
Section 2.2 Exchange of Certificates.
(a) Exchange Agent. Following the Closing Date, Parent shall make
available to a bank or trust company designated by Parent and reasonably
acceptable to the Company (the "Exchange Agent"), for the benefit of the
holders of shares of Company Common Stock, for exchange in accordance
with this Article II, through the Exchange Agent, certificates
representing the shares of Parent Common Stock issuable pursuant to
Section 2.1 in exchange for outstanding shares of Company Common Stock,
which shares shall be deemed to be issued at the Effective Time,
together with cash to be paid in lieu of fractional shares (such shares
of Parent Common Stock, together with any dividends or distributions
with respect thereto contemplated by Section 2.2(c) and cash in lieu of
fractional shares, being hereinafter referred to as the "Exchange
Fund").
(b) Exchange Procedures. As soon as practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent
to mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares
of Company Common Stock (the "Certificates") whose shares were converted
pursuant to Section 2.1 into the right to receive shares of Parent
Common Stock (i) a letter of transmittal (which shall be in such form
and have such provisions as Parent and the Company may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates
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in exchange for certificates representing shares of Parent Common Stock.
Upon surrender of a Certificate for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by Parent, together
with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor (A) a
certificate representing that number of whole shares of Parent Common
Stock which such holder has the right to receive pursuant to the
provisions of this Article II, and (B) cash in lieu of any fractional
shares of Parent Common Stock to which such holder is entitled pursuant
to Section 2.2(e) hereof, after giving effect to any required tax
withholdings, and the Certificate so surrendered shall forthwith be
cancelled. In the event of a transfer of ownership of Company Common
Stock which is not registered in the transfer records of the Company, a
certificate representing the proper number of shares of Parent Common
Stock and cash in lieu of fractional shares of Parent Common Stock may
be issued to a transferee if the Certificate representing such Company
Common Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence
that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 2.2, each Certificate shall
be deemed at any time after the Effective Time to represent only the
right to receive upon such surrender a certificate representing shares
of Parent Common Stock and cash in lieu of any fractional shares of
Parent Common Stock as contemplated by this Section 2.2.
(c) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the Effective
Time with respect to Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock which such
holder is entitled to receive upon the surrender thereof in accordance
with this Section 2.2 and no cash payment in lieu of fractional shares
shall be paid to any such holder pursuant to Section 2.2(e) until the
holder of record of such Certificate shall so surrender such
Certificate. Subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be paid to the record
holder of
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the certificates representing whole shares of Parent Common Stock issued
in exchange therefor, without interest, (i) at the time of such
surrender, the amount of any cash payable in lieu of any fractional
share of Parent Common Stock to which such holder is entitled pursuant
to Section 2.2(e) and the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with
respect to such whole shares of Parent Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to such surrender
and a payment date subsequent to surrender payable with respect to such
whole shares of Parent Common Stock.
(d) No Further Ownership Rights in Company Common Stock. All
shares of Parent Common Stock issued upon the surrender for exchange of
shares of Company Common Stock in accordance with the terms hereof
(including any cash paid pursuant to Section 2.2(c) or 2.2(e)) shall be
deemed to have been issued in full satisfaction of all rights pertaining
to such shares of Company Common Stock, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason,
they shall be cancelled and exchanged as provided in this Article II.
(e) No Fractional Shares. No certificate or scrip representing
fractional shares of Parent Common Stock shall be issued upon the
surrender for exchange of Certificates, and such fractional share
interests will not entitle the owner thereof to vote or to any rights of
a stockholder of Parent. In lieu of any such fractional shares, each
holder of Company Common Stock who would otherwise have been entitled to
a fraction of a share of Parent Common Stock upon surrender of
certificates for exchange will be entitled to receive a cash payment in
lieu of such fractional share in an amount equal to such fractional
interest multiplied by the Average Parent Share Price (as defined). The
"Average Parent Share Price" shall be equal to the average of the
closing prices of the Parent Common Stock on the New York Stock Exchange
(the "NYSE")
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Composite Transactions Reporting System, as reported in The Wall Street
Journal, for the ten (10) trading days ending on the second trading day
immediately prior to the Effective Time.
(f) Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the stockholders of the Company for
six months after the Effective Time shall be delivered to Parent, upon
demand, and any stockholders of the Company who have not theretofore
complied with this Article II shall, subject to any applicable abandoned
property, escheat or similar law, thereafter look only to Parent for the
shares of Parent Common Stock, any cash in lieu of fractional shares of
Parent Common Stock and any dividends or distributions with respect to
Parent Common Stock to which they are entitled pursuant to this Article
II.
(g) No Liability. None of Parent, Merger Sub, the Company or
Spinco shall be liable to any holder of shares of Company Common Stock
or Parent Common Stock, as the case may be, for such shares (or
dividends or distributions with respect thereto) or cash for payment in
lieu of fractional shares delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
ARTICLE III
CERTAIN PRE- AND POST-MERGER TRANSACTIONS
Section 3.1 Ancillary Agreements. Prior to the Distribution, the Company
will (a) execute and deliver the Distribution Agreement, the Trademark
Agreement, the Tax Allocation Agreement, the Transition Services Agreement, and
the Indemnification Agreement and (b) cause Spinco to execute and deliver the
Distribution Agreement, the Trademark Agreement, the Transition Services
Agreement, the Tax Allocation Agreement, and the Indemnification Agreement.
Prior to the Distribution, Parent will execute and deliver the Indemnification
Agreement.
Section 3.2 Contribution of Assets and Assumption of Liabilities.
Immediately prior to the Distribution and
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pursuant to the terms of the Distribution Agreement, the Company and Spinco will
consummate the Contribution.
Section 3.3 Distribution. At least one day prior to the Effective Time,
and pursuant to the terms of Article 3 of the Distribution Agreement, the
Company will cause the Contribution to be consummated and effect the
Distribution.
Section 3.4 Audited Closing Balance Sheet. No later than 45 days after
the Closing Date, Spinco shall deliver to Parent an audited consolidated balance
sheet for the Retained Business as of the Closing Date after giving effect to
the Distribution (but not the Merger), which shall be audited by Spinco's
independent public accountants in accordance with United States generally
accepted accounting principles (the "Audited Closing Balance Sheet"). The
Audited Closing Balance Sheet shall be prepared in accordance with United States
generally accepted accounting principles ("GAAP") and, to the extent consistent
with GAAP, on a basis consistent with the Retained Business Financial Statements
(as defined in Section 4.7(a)). Together with the delivery of the Audited
Closing Balance Sheet, Spinco shall deliver an adjusted balance sheet of the
Retained Business as of the Closing Date (the "Adjusted Closing Balance Sheet")
which shall adjust the Audited Closing Balance Sheet (x) to reflect the
financial position that would have been reported if prepared in accordance with
the items (and accounting principles) set forth on Schedule 3.4 and (y) to
exclude any cash paid to the Company by Spinco (or retained by the Company)
pursuant to Section 1.5(e) of the Distribution Agreement to compensate Parent
for the Special Offer Amount (as defined in the Distribution Agreement) and for
any unexercised options held by any Retained Employees (as defined in Section
7.8(a)) following the Effective Time (clauses (x) and (y) being referred to as
the "Reference Items"). Notwithstanding the foregoing, in the event that a
liability or accrual appears in the Adjusted Closing Balance Sheet which was not
identified as a Reference Item and which was not reflected on the balance sheet
included in the Retained Business Financial Statements, no adjustment shall be
made pursuant to this Section 3.4 to the extent such liability or accrual is an
Assumed Liability (as defined in the Distribution Agreement). To the extent that
the Adjusted Net Worth (as defined below) of the Retained Business as calculated
from the Adjusted Closing Balance Sheet is less than $31,745,000, then Spinco
shall pay to the Company in cash the amount of such shortfall in Adjusted Net
Worth
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within thirty days of the delivery of the Adjusted Closing Balance Sheet (or, if
later, upon resolution of the matters set forth in the Notice (as defined
below)). To the extent that the Adjusted Net Worth of the Retained Business as
calculated from the Adjusted Closing Balance Sheet is more than $31,745,000,
then the Company shall pay Spinco in cash the amount of such excess up to a
maximum amount of $2,000,000 within thirty days of the delivery of the Adjusted
Closing Balance Sheet (or, if later, upon resolution of the matters set forth in
the Notice). For purposes hereof, the term "Adjusted Net Worth" shall mean the
amount by which consolidated assets exceed consolidated liabilities, in each
instance as set forth on the Adjusted Closing Balance Sheet. Any payment
required to be made pursuant to this Section 3.4 shall not be affected by or
offset against any adjustment to or reduction of Net Equity Value pursuant to
Section 2.1(c) hereof. Spinco agrees that representatives of Parent shall be
given access to all work papers, books, records and other information related to
the preparation of the Adjusted Closing Balance Sheet. Should Parent determine
that the Audited Closing Balance Sheet is not in accordance with this Agreement,
Parent shall so notify Spinco within 30 days of receipt of the Adjusted Closing
Balance Sheet of those items on which Parent is not in agreement (the "Notice"),
including the amount by which Parent believes the Adjusted Net Worth as
calculated from the Adjusted Closing Balance Sheet is overstated (collectively,
the "Parent Adjustment"). The parties shall then promptly designate
representatives who shall meet for the purpose of resolving the differences
between the parties. If such differences have not been resolved within 30 days
after receipt by Spinco of the Notice, then Parent and Spinco shall select and
retain an independent public accounting firm mutually agreeable to the parties
(or, if they cannot agree on a mutually acceptable firm, they shall cause their
respective accounting firms to select such firm) (the "Third Party Firm") to
resolve such differences. The Third Party Firm shall be requested to render a
decision within thirty days of its selection. The decision of the Third Party
Firm shall be final and binding on both parties. The fees and expenses of the
Third Party Firm shall be (i) paid by Parent if less than 25% of the dollar
amount of the Parent Adjustment is required to be made or (ii) paid by Spinco if
more than 75% of the dollar amount of the Parent Adjustment is required to be
made or (iii) shared equally by Parent and Spinco if 25% or more but less than
75% of the dollar amount of the Parent Adjustment is required to be made.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND SPINCO
The Company and Spinco represent and warrant to Parent and Merger Sub as
follows:
Section 4.1 Organization. Each of the Company and its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted, except where the failure to be so organized,
existing and in good standing or to have such power and authority would not have
a material adverse effect on the Retained Business. The Company and each of its
Subsidiaries is duly qualified or licensed to do business and in good standing
in each jurisdiction in which the property owned, leased or operated by it or
the nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and in
good standing would not in the aggregate have a material adverse effect on the
Retained Business or on the ability of the Company to consummate the
transactions contemplated hereby. True, accurate and complete copies of the
Company's and each of its Subsidiaries' Certificate of Incorporation and Bylaws
(or similar organizational documents), including all amendments thereto, have
heretofore been delivered to Parent. Such Certificate of Incorporation and
By-laws (or similar organizational document) are in full force and effect and
neither the Company nor any of the Retained Subsidiaries is in violation of any
provision of its charter, by-laws or comparable organizational documents.
Section 4.2 Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of: (i) 100,000,000 shares of Company
Common Stock of which, as of January 31, 1997, 32,726,763 shares were issued and
outstanding and 1,481,332 shares were held in treasury and (ii) 5,000,000 shares
of Preferred Stock, par value $1.00 per share ("Company Preferred Stock"), of
which no shares are issued and outstanding and 1,000,000 shares are designated
Series A Junior Participating Preferred Stock, par value $1.00 per share
("Company Series A Preferred Stock"), and
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are reserved for issuance in accordance with the Rights Agreement, dated as of
July 26, 1989, between the Company and Chase Manhattan Bank, N.A. ("Company
Rights Plan"), pursuant to which the Company has issued rights ("Company
Rights") to purchase shares of Company Series A Preferred Stock. As of January
31, 1997, 3,763,203 shares of Company Common Stock were reserved for issuance
upon exercise of outstanding options (the "Company Stock Options") pursuant to
the Company's 1995 Stock Incentive Plan, 1991 Stock Incentive Plan, 1987
Employees' Non-Qualified Stock Option and Stock Appreciation Rights Plan, 1983
Employees' Incentive Stock Option Plan, and 1981 Employees' Non-Qualified Stock
Option and Stock Appreciation Rights Plan (collectively, the "Company Stock
Plans"). All the outstanding shares of the Company's capital stock are, and all
shares which may be issued pursuant to Company Stock Plans will be, when issued
in accordance with the terms thereof, duly authorized, validly issued, fully
paid and non-assessable and free of any preemptive rights in respect thereto. As
of the date hereof, no bonds, debentures, notes or other indebtedness of the
Company having the right to vote at meetings of stockholders of the Company (or
convertible into securities having the right to vote at such meetings) ("Voting
Debt") of the Company are issued or outstanding. Except as set forth above or in
the Company Disclosure Schedule (as defined below), as of the date hereof, there
are no existing options, warrants, calls, subscriptions or other rights or other
agreements, commitments, understandings or restrictions of any character binding
on the Company or any of its Subsidiaries with respect to the issued or unissued
capital stock or Voting Debt of the Company or any of its Subsidiaries. Except
as set forth above or in the Company Disclosure Schedule, there are no existing,
and as of the Effective Time there will not be outstanding, options, warrants,
calls, subscriptions or other rights or other agreements, commitments,
understandings or restrictions of any character obligating the Retained Company
or any of the Retained Subsidiaries to issue, transfer or sell or cause to be
issued, transferred or sold any shares of capital stock or Voting Debt of, or
other equity interests in, the Retained Company or any of the Retained
Subsidiaries or securities convertible into or exchangeable for such shares,
Voting Debt or equity interests or obligating the Retained Company or any of the
Retained Subsidiaries to grant, extend or enter into any such option, warrant,
call, subscription or other right, agreement, commitment, understanding or
restriction. Except as set forth in the Company Disclosure Schedule, as of the
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Effective Time, the only capital stock of the Company outstanding shall be the
Company Common Stock and there will not be any contractual obligations of the
Retained Company or any of the Retained Subsidiaries to repurchase, redeem or
otherwise acquire, or to issue, whether upon exercise of options, warrants or
otherwise, any shares of capital stock of the Retained Company or any of the
Retained Subsidiaries. Since January 31, 1997, no shares of Company Common Stock
have been issued except issuance of shares reserved for issuance and issued
pursuant to the Company Stock Plans in the ordinary course of business. Except
as set forth in the Company Disclosure Schedule, there are no voting trusts,
proxies or other agreements or understandings to which the Company or any of its
Subsidiaries is a party or is bound with respect to voting any shares of capital
stock of the Company or any of its Subsidiaries. Each of the outstanding shares
of capital stock of each of the Retained Subsidiaries is duly authorized,
validly issued, fully paid, nonassessable and free of any preemptive rights in
respect thereto and such shares are owned by the Company or by a Subsidiary (as
defined below) of the Company free and clear of any lien, claim, option, charge,
security interest, limitation on voting rights and encumbrance of any kind.
Section 4.3 Authority. The Company and Spinco have the requisite
corporate power and authority to execute and deliver this Agreement and the
Ancillary Agreements (to the extent a party thereto) and to consummate the
transactions contemplated hereby and thereby (other than the approval and
adoption of this Agreement and the Ancillary Agreements by the affirmative vote
of the holders of Company Common Stock entitled to cast at least a majority of
the total number of votes entitled to be cast and the formal declaration of the
Distribution by the Company's Board of Directors). The execution, delivery and
performance of this Agreement and the Ancillary Agreements by the Company and
Spinco and the consummation by the Company and Spinco of the Distribution and
the Merger and of the other transactions contemplated hereby and thereby have
been duly authorized by the Board of Directors of the Company and Spinco, and no
other corporate proceedings on the part of the Company and Spinco are necessary
to authorize this Agreement and the Ancillary Agreements, the Merger or the
Distribution or to consummate the transactions so contemplated (other than the
approval and adoption of this Agreement and the Ancillary Agreements by the
affirmative vote of the holders of Company Common Stock entitled to cast at
least a majority of the total number of
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votes entitled to be cast and the formal declaration of the Distribution by the
Company's Board of Directors). This Agreement and each of the Ancillary
Agreements has been or (to the extent such Ancillary Agreement is not being
entered into as of the date hereof) will be duly executed and delivered by the
Company and Spinco (to the extent a party thereto) and constitutes or (to the
extent such agreement is not being entered into as of the date hereof) will
constitute a valid and binding obligation of each of the Company and Spinco, as
the case may be, enforceable against each of them in accordance with its terms
except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization and other laws of general applicability
relating to or affecting creditors rights.
Section 4.4 Consents and Approvals; No Violations.
(a) Except as set forth in the Company Disclosure Schedule, and
except (a) for such filings, permits, authorizations, consents and
approvals as may be required under, and other applicable requirements
of, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Securities Act of 1933, as amended (the "Securities Act"),
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), the rules of the New York Stock Exchange ("NYSE") and
the Pacific Stock Exchange ("PSE"), and filings under state securities
or "blue sky" laws, (b) the filing of the Certificate of Merger as
required by the DGCL, (c) the noteholders' consent referred to in
Section 8.3(d) and (d) the consent of the Required Banks under the
Credit Agreement dated as of August 2, 1996, as amended and restated as
of September 12, 1996, among the Company, Various Lending Institutions,
Bank of Montreal, Corestates Bank, N.A. and PNC Bank, National
Association, as Co-Agents, and The Chase Manhattan Bank, as
Administrative Agent (the "Company Credit Agreement"), none of the
execution, delivery or performance of this Agreement or the Ancillary
Agreements by the Company or Spinco, or the consummation by the Company
or Spinco of the transactions contemplated hereby or thereby and
compliance by the Company and Spinco with any of the provisions hereof
or thereof will (i) conflict with or result in any breach of any
provisions of the charter or by-laws or comparable organizational
documents of the Company or of any of its Subsidiaries, (ii) require any
filing by the Company or any of its Subsidiaries
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with, or require any permit, authorization, consent or approval to be
obtained by the Company or any of its Subsidiaries from, any court,
arbitral tribunal, administrative agency or commission or other
governmental or other regulatory authority or administrative agency or
commission (a "Governmental Entity"), (iii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, or result in the creation of any
lien or other encumbrance on any property or asset of the Company or any
of its Subsidiaries pursuant to, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement, franchise, permit, concession or other instrument,
obligation, understanding, commitment or other arrangement (each, a
"Contract") to which the Company or any of its Subsidiaries is a party
or by which any of them or any of their properties or assets may be
bound or affected, (iv) result in the triggering of any right of first
refusal or other right under any stockholder, partnership or joint
venture agreement to which the Company or any of its Subsidiaries is a
party or (v) violate any order, writ, injunction, decree, statute,
ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries, except, in the case of clauses (ii), (iii), (iv) and (v),
for failures, violations, breaches or defaults which would not,
individually or in the aggregate, have a material adverse effect on the
Retained Company and the Retained Subsidiaries or on the ability of the
Company to consummate the transactions contemplated hereby.
(b) Except as set forth in the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries is in conflict with, or
in default or violation of, (i) any order, writ, injunction, decree,
statute, rule or regulation of any Governmental Entity applicable to the
Company or any of its Subsidiaries or by which any of them or any of
their properties or assets may be bound or (ii) any Contract, except for
any such conflicts, defaults or violations which have not had in each
case and are not likely to have a material adverse effect on the
Retained Company and the Retained Subsidiaries.
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Section 4.5 SEC Reports and Financial Statements. The Company has timely
filed with the Securities and Exchange Commission (the "SEC"), and has
heretofore made available to Parent true and complete copies of, all forms,
reports and documents required to be filed since January 1, 1994 by it under the
Securities Act or the Exchange Act (as such documents have been amended since
the time of their filing, collectively, the "Company SEC Documents"). The
Company SEC Documents, including, without limitation, any financial statements
or schedules included therein, at the time filed, (a) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading and (b) complied in
all material respects with the applicable requirements of the Securities Act or
the Exchange Act, as the case may be. The consolidated financial statements of
the Company included in the Company SEC Documents (including the notes and
schedules thereto, the "Company Financial Statements") comply as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present
(subject, in the case of the unaudited statements, to normal, recurring audit
adjustments which are not material in amount) the consolidated financial
position of the Company and its consolidated Subsidiaries as at the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended.
Section 4.6 Information in Disclosure Documents and Registration
Statements. None of the information supplied or to be supplied by the Company or
its representatives, including, without limitation, the audited pro forma
consolidated balance sheet and pro forma consolidated statements of income of
the Retained Company and the Retained Subsidiaries as of December 31, 1996 and
for the year then ended (the "Interim Audited Financial Statements") for
inclusion or incorporation by reference in (i) the registration statement on
Form S-4 to be filed with the SEC by Parent in connection with the issuance of
shares of Parent Common Stock in the Merger (the "S-4") or in any registration
statement on Form S-1, Form 10 or other applicable form to
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be filed with the SEC by Spinco in connection with the distribution of shares of
Spinco Common Stock in the Distribution (the "Distribution Registration
Statement" and, together with the S-4, the "Registration Statements") will, at
the time the Registration Statements become effective under the Securities Act
or Exchange Act, as applicable, and at the Effective Time and at the time of the
meeting of stockholders of the Company to be held in connection with the Merger,
in the case of the S-4, and at the time of the Distribution, in the case of the
Distribution Registration Statement, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading and (ii) the proxy statement relating to
the meeting of the Company's stockholders to be held in connection with the
Merger (the "Proxy Statement") will, at the date mailed to the Company's
stockholders and at the time of the meeting of stockholders to be held in
connection with the Merger, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Proxy Statement will comply as to form in
all material respects with the provisions of the Exchange Act and the rules and
regulations thereunder, and the Distribution Registration Statement will comply
as to form in all material respects with the provisions of the Securities Act or
the Exchange Act, as applicable, and the rules and regulations thereunder,
except that no representation is made by the Company or Spinco with respect to
statements made therein based on information supplied by Parent for inclusion in
the Proxy Statement or the Distribution Registration Statement, respectively, or
with respect to information concerning Parent or any of its Subsidiaries
included in the Proxy Statement or the Distribution Registration Statement.
Section 4.7 Retained Business.
(a) Attached hereto as Exhibit 4.7 is an unaudited pro forma
consolidated balance sheet of the Retained Company and the Retained
Subsidiaries at December 31, 1996 (including the notes thereto, the
"Retained Business Balance Sheet") and unaudited pro forma consolidated
statement of income for the Retained Company and the Retained
Subsidiaries for the year then ended (col-
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lectively with the Retained Business Balance Sheet, the "Retained
Business Financial Statements"). The Retained Business Financial
Statements have been prepared on a pro forma basis giving effect to the
Distribution in accordance with GAAP (except as expressly stated
therein) on a basis consistent with the Company Financial Statements
referred to in Section 4.5, and fairly present in all material respects
(subject, in the case of such unaudited statements, to normal, recurring
audit adjustments which will not be material in amount) the assets and
liabilities of the Retained Company and the Retained Subsidiaries as at
the date thereof after giving effect to the Distribution (assuming the
Distribution occurred on December 31, 1996), and the results of its
operations for the period then ended, after giving effect to the
Distribution (assuming the Distribution occurred on January 1, 1996).
(b) As of December 31, 1996, the Company or the Retained
Subsidiaries directly or indirectly owned or had a valid leasehold
interest in the assets reflected on the Retained Business Balance Sheet,
free and clear of any liens, claims, encumbrances or other rights of
third parties, except as may be reflected in the Retained Business
Balance Sheet or as may be set forth therein or in the Company
Disclosure Schedule or for any non-consensual liens or defects in title
which do not, individually or in the aggregate, interfere with the
conduct of the Retained Business as currently conducted or the
utilization of the Retained Assets. The Retained Business includes all
of the assets or rights that are material to the Retained Company and
the Retained Subsidiaries. All of the buildings and other material
tangible personal property owned or leased by the Company and its
Subsidiaries that are included in the Retained Business are in good
working condition (normal wear and tear excepted) and are suitable in
all material respects for the purposes for which they are being used.
The Company has reasonable relationships will all customers, employees
and others having business dealings with the Retained Business.
(c) At the Effective Time, except as contemplated by the
Distribution Agreement, neither Spinco nor any of its Subsidiaries will
use in the conduct of its business or own or have rights to use any
assets or property, whether tangible, intangible or mixed, which
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are also primarily used in the conduct of the Retained Business. Except
as set forth in the Company Disclosure Schedule, at the Effective Time
neither Spinco nor any of its Subsidiaries will be a party to any
material agreement, arrangement or understanding with the Retained
Company or any of the Retained Subsidiaries (other than the Ancillary
Agreements and any agreements contemplated by the Distribution
Agreement).
Section 4.8 Litigation. Except as set forth in the Company Disclosure
Schedule, there is no suit, claim, action, proceeding or investigation pending
or, to the best knowledge of the Company, threatened, against the Company or any
of its Subsidiaries before any Governmental Entity which, (i) individually or in
the aggregate, is reasonably likely to have a material adverse effect on the
Retained Company and the Retained Subsidiaries taken as a whole or (ii) exists
on the date hereof and in which the amount claimed or cost of compliance with
the action sought is in excess of $100,000 for the Retained Company and the
Retained Subsidiaries or $1,000,000 in any other case. Except as disclosed in
Section 4.8 of the Company Disclosure Schedule, neither the Company nor any of
its Subsidiaries is subject to any outstanding order, writ, injunction or decree
which, insofar as can be reasonably foreseen, individually or in the aggregate,
would have or be reasonably expected to have a material adverse effect on the
Retained Company or a material adverse effect on the ability of the Company or
Spinco to consummate the transactions contemplated hereby or by the Ancillary
Agreements.
Section 4.9 Opinion of Financial Advisor. The Company has received the
oral opinion of Goldman, Sachs & Co., to be confirmed in writing, to the effect
that, as of such date, the consideration to be received in the Merger by the
Company's stockholders is fair to the Company's stockholders, a copy of which
opinion will be delivered to Parent.
Section 4.10 Employee Benefits.
(a) The Company Disclosure Schedule contains a list of all bonus,
deferred compensation, pension, retirement, profit-sharing, thrift,
savings, employee stock ownership, stock bonus, stock purchase,
restricted stock and stock option plans, all employment or severance
contracts, other material employee benefit plans and any applicable
"change of control" or similar
20
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provisions in any plan, contract or arrangement which cover the Retained
Employees or former employees of the Retained Business and which are
maintained or contributed to by the Company, Spinco or any entity which
may be deemed a single employer with the Company under Section 4001 of
Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
or Section 414 of the Code (an "ERISA Affiliate") (regardless of whether
they are funded or unfunded or foreign or domestic), including, but not
limited to, "employee benefit plans" within the meaning of Section 3(3)
of the ERISA (collectively, the "Retained Employee Compensation and
Benefit Plans"). True and complete copies of all the Retained Employee
Compensation and Benefit Plans, including any trust instruments and/or
insurance contracts, if any, forming a part of any such plans, and all
amendments thereto; current summary plan descriptions; where applicable,
the most current determination letter received from the Internal Revenue
Service (the "Service") and most recent determination letter
application, and where applicable, annual reports, financial statements
and actuarial reports for the last three plan years, which fairly and
accurately reflect the financial condition of the plans have been made
available to Parent.
(b) All of the Retained Employee Compensation and Benefit Plans
are in material compliance with all applicable laws, including without
limitation, ERISA and the Code. Each Retained Employee Compensation and
Benefit Plan which is an "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA ("Retained Employee Pension Plan") and
which is intended to be qualified under Section 401(a) of the Code, has
received a favorable determination letter from the Service, and the
Company is not aware of any circumstances likely to result in revocation
of any such favorable determination letter. Neither the Company nor any
ERISA Affiliate has engaged in a transaction with respect to any
Compensation and Benefit Plan that, assuming the taxable period of such
transaction expired as of the date hereof, could subject the Company or
any ERISA Affiliate to a tax or penalty imposed by either Sections 4975
or 4976 of the Code or Section 502(i) of ERISA in an amount which would
have a material adverse effect on the Retained Business. Neither the
Company nor any ERISA Affiliate has contrib-
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uted or been required to contribute to any Multiemployer Plan (as
defined in ERISA).
(c) No liability under Title IV of ERISA has been or is expected
to be incurred by the Company or any ERISA Affiliate with respect to any
ongoing, frozen or terminated Retained Employee Compensation and Benefit
Plan, currently or formerly maintained by any of them.
(d) All contributions required to be made or accrued as of
December 31, 1996 under the terms of any Retained Business Compensation
and Benefit Plan have been timely made or have been reflected on the
Audited Closing Balance Sheet. No Retained Employee Pension Plan has
incurred an "accumulated funding deficiency" (whether or not waived)
within the meaning of Section 412 of the Code or Section 302 of ERISA.
Neither the Company nor any ERISA Affiliate has provided, or is required
to provide, security to any Retained Employee Pension Plan pursuant to
Section 401(a)(29) of the Code.
(e) No Retained Employee Compensation and Benefit Plan provides
benefits, including without limitation death or medical benefits
(whether or not insured), with respect to current or former employees of
the Retained Business beyond their retirement or other termination of
service (other than (i) coverage mandated by applicable law or (ii)
death benefits or retirement benefits under any "employee pension plan,"
as that term is defined in section 3(2) of ERISA).
(f) All Retained Employee Compensation and Benefit Plans covering
Company Employees located outside of the United States comply in all
material respects with applicable local law. Except as set forth in the
Company Disclosure Schedule, the Retained Company and the Retained
Subsidiaries will have at the Effective Time no unfunded liabilities
with respect to any Retained Employee Pension Plan which covers foreign
Retained Employees.
(g) The consummation of the transactions contemplated by this
Agreement or in the Ancillary Agreements will not (i) entitle any of the
Retained Employees to severance pay, unemployment compensation or any
other payment, except as expressly provided in this Agreement
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<PAGE>
or the Ancillary Agreements or (ii) except as expressly provided in the
Distribution Agreement, accelerate the time of payment or vesting, or
increase the amount of compensation due any such employee or officer.
(h) Except as set forth in the Company Disclosure Schedule, the
Retained Company and the Retained Subsidiaries will not have at the
Effective Time unfunded liabilities with respect to any Retained
Employee Pension Plan which covers former Employees.
(i) Except as provided in Section 7.8 hereof, immediately after
the Effective Time, the Retained Company or the Retained Subsidiaries
could terminate each Compensation and Benefit Plan in accordance with
its terms without incurring any material liability.
(j) With respect to the Company and the Retained Business, the
transactions contemplated by this Agreement and the Distribution
Agreement will not cause any additional payments to be due under any
Retained Employee Compensation and Benefit Plan, nor accelerate the
payment or vesting of any amounts due under any Retained Employee
Compensation and Benefit Plan, nor result in any excess parachute
payment within the meaning of Code Section 280G.
(k) There are no pending or to the knowledge of the Company,
threatened or anticipated, claims by or on behalf of any Retained
Employee Compensation and Benefit Plan, by any employee or beneficiary
covered under any such Retained Employee Compensation and Benefit Plan,
or otherwise involving any such Retained Employee Compensation and
Benefit Plan (other than routine claims for benefits).
(l) The Pension Benefit Guaranty Corporation has not instituted
proceedings to terminate any Retained Employee Compensation and Benefit
Plan and no condition exists that presents a material risk that such
proceedings will be instituted.
Section 4.11 Absence of Undisclosed Liabilities. Except as set forth in
the Company Disclosure Schedule or as contemplated by this Agreement, the
Retained Business did not have at December 31, 1996, and has not incurred since
that date, any liabilities or obligations (whether absolute,
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accrued, contingent or otherwise) of any nature, except liabilities, obligations
or contingencies (i) which were incurred after December 31, 1996 in the ordinary
course of business consistent with past practice, (ii) not incurred in the
ordinary course of business which in the aggregate would not have a material
adverse effect on the business, results of operations or financial condition of
the Retained Business, (iii) which are accrued or reserved against in the
Retained Business Financial Statements, or (iv) which have been discharged or
paid in full prior to the date hereof, and except for liabilities for
indebtedness allocated to the Retained Company in an amount not less than
$25,000,000 nor more than $75,000,000, the exact amount of which shall be
determined by the Company in its discretion, after consultation with Parent,
prior to the filing of the preliminary proxy statement to be included in the
Registration Statement (such allocated indebtedness being referred to as the
"Retained Debt").
Section 4.12 Absence of Certain Changes or Events. Except as set forth
on the Company Disclosure Schedule, since December 31, 1996, the Retained
Business has conducted its business only in the ordinary and usual course
consistent with past practice, and there has not been any change, circumstance
or development, or combination of changes, circumstances or developments, which
individually or in the aggregate have or are reasonably expected to have a
material adverse effect on the Retained Business; provided that the foregoing
--------
shall not include any such effect (i) which is attributable to or results from
general or regional economic conditions, conditions generally affecting the
water treatment and filtration industry, rather than the Retained Business
alone, or circumstances affecting such industry of a cyclical nature, (ii) for
which there is adequate insurance coverage, (iii) which is attributable,
directly or indirectly, to any action or inaction of Parent or Merger Sub or
their representatives, or (iv) for which (x) Parent would be fully compensated
and made whole as a result of the adjustments made by Section 3.4 and (y) there
would be no ongoing or prospective effect on the results of operations, cash
flow or business of the Retained Business.
Section 4.13 No Violation of Law. Except as set forth in Section 4.13 of
the Company Disclosure Schedule, neither the Company nor any of its Subsidiaries
is in violation of, or, to the knowledge of the Company, is under investigation
with respect to or has been given notice or been charged by
24
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any Governmental Entity with any violation of, any law, statute, order, rule,
regulation, ordinance or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) of any Governmental Entity, except
for violations which, individually or in the aggregate, do not have a material
adverse effect on the Retained Business.
Section 4.14 Licenses. The Company has, and as of the Closing Date the
Retained Company will have, all permits, licenses, waivers and authorizations,
which are necessary for it to conduct the Retained Business in the manner in
which it is presently being conducted (collectively, "Licenses"), other than any
Licenses the failure of which to have would not, individually or in the
aggregate, have a material adverse effect on the Retained Company and the
Retained Subsidiaries. No event has occurred or other fact exists with respect
to such Licenses which permits, or after notice or lapse of time or both would
permit, revocation or termination of any of such Licenses or would result in any
other impairment of the rights of the holder of any of such Licenses other than
revocations, terminations or other impairments which would not, individually or
in the aggregate, have a material adverse effect on the Retained Company and the
Retained Subsidiaries. The Company and its Subsidiaries have duly performed
their respective obligations under such Licenses in all material respects. There
is not pending or, to the knowledge of the Company, threatened, any application,
petition, objection or other pleading with any Governmental Entity which
challenges or questions the validity of or any rights of the holder under any
such License other than any Licenses the failure of which to have would not,
individually or in the aggregate, have a material adverse effect on the Retained
Business.
Section 4.15 Taxes.
(a) Except as set forth in Section 4.15 of the Company
Disclosure Schedule:
(i) the Company and its Subsidiaries have (A)
duly filed (or there has been filed on their behalf) with the appropriate taxing
authority all Tax Returns (as hereinafter defined) required to be filed by them
on or prior to the date hereof, and such Tax Returns are true, correct and
complete in all material respects, and (B) duly paid in full or made adequate
provision on their financial statements (or
25
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there has been paid or adequate provision has been made on their behalf) for the
payment of all Taxes (as hereinafter defined) for all periods ending through the
date hereof;
(ii) there are no liens for Taxes upon any property or
assets of the Company or any Subsidiary thereof, except for liens for Taxes not
yet due;
(iii) neither the Company nor any of its Subsidiaries has
made any change in accounting methods, received a ruling from any taxing
authority or signed an agreement with any taxing authority which is reasonably
likely to have a material adverse effect on the Company or any of its
Subsidiaries;
(iv) the Company and its Subsidiaries have complied in all
respects with all applicable laws, rules and regulations relating to the payment
and withholding of Taxes (including, without limitation, withholding of Taxes
pursuant to Sections 1441 and 1442 of the Code or similar provisions under any
foreign laws) and have, within the time and the manner prescribed by law,
withheld from employee wages and paid over to the appropriate taxing authority
all amounts required to be so withheld and paid over under all applicable laws;
(v) no federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of the Company or its Subsidiaries, and
neither the Company nor its Subsidiaries has received a written notice of any
pending audits or proceedings;
(vi) the federal income Tax Returns of the Company and its
Subsidiaries have been examined by the Service (which examination has been
completed) or the statute of limitations for the assessment of federal income
Taxes of the Company and its Subsidiaries has expired, for all periods through
and including December 31, 1987, and no deficiencies were asserted as a result
of such examinations which have not been resolved and fully paid;
(vii) there are no outstanding requests, agreements,
consents or waivers to extend the statute of limitations applicable to the
assessment of any Taxes or deficiencies against the Company or any of its
Subsidiaries, and no power of attorney granted by either the Company or
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any of its Subsidiaries with respect to any Taxes is currently in force;
(viii) neither the Company nor any of its Subsidiaries is a
party to any agreement providing for the allocation or sharing of Taxes that
will not be terminated pursuant to the Tax Allocation Agreement;
(ix) neither the Company nor any of its Sub-sidiaries has,
with regard to any assets or property held, acquired or to be acquired by any of
them, filed a consent to the application of Section 341(f) of the Code, or
agreed to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code)
owned by the Company or any of its Subsidiaries;
(x) except for any payments made in connec-tion with the
transactions contemplated by this Agreement, the deductibility of compensation
paid by the Company and/or its Subsidiaries will not be limited by Section
162(m) of the Code;
(xi) no adjustments or deficiencies relating to Tax
Returns of the Company and its Subsidiaries have been proposed, asserted or
assessed by any taxing authority, except for such adjustments or deficiencies
which have been fully paid or finally settled;
(xii) no payment to be made in connection with the
transactions contemplated by this Agreement will fail to be deductible under
Section 280G of the Code; and
(xiii) the Company is not aware of any facts relating to the
Company or any of its Subsidiaries that would cause (i) the Contribution to fail
to qualify as a tax-free reorganization pursuant to Section 368(a)(1)(D) of the
Code, (ii) the Distribution to fail to qualify as a tax-free distribution
pursuant to Section 355 of the Code or (iii) the Merger to fail to qualify as a
tax-free reorganization pursuant to Section 368(a)(1)(B) of the Code.
(b) "Taxes" shall mean any and all taxes, charges, fees, levies
or other assessments, including, without limitation, income, gross
receipts, excise, real or personal property, sales, withholding, social
security, occupation, use, service, service use, li-
27
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cense, net worth, payroll, franchise, transfer and recording taxes, fees
and charges, imposed by the Service or any taxing authority (whether
domestic or foreign including, without limitation, any state, county,
local or foreign government or any subdivision or taxing agency thereof
(including a United States possession)), whether computed on a separate,
consolidated, unitary, combined or any other basis; and such term shall
include any interest whether paid or received, fines, penalties or
additional amounts attributable to, or imposed upon, or with respect to,
any such taxes, charges, fees, levies or other assessments. "Tax Return"
shall mean any report, return, document, declaration or other
information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes, including,
without limitation, information returns, any documents with respect to
or accompanying payments of estimated Taxes, or with respect to or
accompanying requests for the extension of time in which to file any
such report, return, document, declaration or other information.
Section 4.16 Employees. The Company has made available to Parent a list
of the employees currently employed in the Retained Business indicating the
positions which they now hold, their current rates of compensation and which
employees, if any, are on short or long term disability, family and medical,
military, workers' compensation, or any other type of leave of absence; and
copies of all employee handbooks, and policy and procedure manuals. As of the
date hereof, except as set forth in the Company Disclosure Schedule, neither the
Company nor any of its Subsidiaries is a party to, or bound by, any collective
bargaining agreements or contract with a labor union or labor organization with
respect to the Retained Business. Except as set forth in the Company Disclosure
Schedule, as of the date hereof, there are no actions relating to the Retained
Business pending or, to the knowledge of the Company, threatened between the
Company or any of its Subsidiaries and any of their respective employees which,
individually or in the aggregate would have a material adverse effect on the
Retained Business, and, to the knowledge of the Company, as of the date hereof,
there are no organizational efforts presently being made involving any of the
employees of the Retained Company or the Retained Subsidiaries. The Company and
its Subsidiaries have complied in all material respects with all laws relating
to wages, hours, collective bargain-
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ing, and the payment of social security and similar taxes to the extent
applicable to the Retained Business, and, as of the date hereof, no person has,
to the knowledge of the Company, asserted that the Company or any of its
Subsidiaries is liable in any material amount for any arrears of wages or any
taxes or penalties for failure to comply with any of the foregoing to the extent
applicable to the Retained Business.
Section 4.17 Environmental Matters.
(a) Except as disclosed in the Company SEC Documents as filed
prior to the date hereof or as set forth in the Company Disclosure
Schedule:
(i) the Company and its Subsidiaries are in compliance
in all material respects with all applicable Environmental Laws (as defined
below) (which compliance includes, but is not limited to, the possession by the
Company and its Subsidiaries of all permits and other governmental
authorizations required under applicable Environmental Laws, and the Company and
its Subsidiaries are in compliance in all material respects with the terms and
conditions thereof) applicable to the Retained Assets or Retained Business, and
to the best knowledge of the Company or its Subsidiaries, there are no actions,
activities, circumstances, conditions, events or incidents that may prevent or
interfere with such compliance in the future. All permits and other governmental
authorizations applicable to the Retained Assets or Retained Business currently
held by the Company pursuant to such applicable Environmental Laws are
identified in the Company Disclosure Schedule;
(ii) the properties presently or to the best knowledge of
the Company, formerly owned or operated by the Retained Business (including,
without limitation, soil, groundwater or surface water on or under the
properties, and buildings thereon) (the "Properties") do not contain any
Hazardous Substance (as defined below), except for inventories of such Hazardous
Substances to be used, and wastes generated therefrom, in the ordinary course of
business (which inventories and wastes, if any, were and are stored or disposed
of in material compliance with applicable laws and regulations and in a manner
such that there has been no Release (as defined below) of any such substances
into the environment), do not contain, and have not contained, any underground
storage tanks, do not have any asbestos or PCBs
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present (and, to the best knowledge of the Company, have not had any asbestos or
PCBs removed therefrom) and have not been used as a sanitary landfill or
hazardous waste disposal site (provided, however, that with respect to
-------- -------
Properties formerly owned or operated by the Company, such representation is
limited to the period prior to the disposition of such Properties by the Company
or one of its Subsidiaries);
(iii) neither the Company nor any of its Subsidiaries has
received or is aware of any actual claims, notices, demand letters, lawsuits or
requests for information from any Governmental Entity, any private third party,
or any employee of the Company or its Subsidiaries alleging that the Company or
any of its Subsidiaries is or ever was in violation of, or liable under, any
Environmental Laws with respect to the Retained Business or the Retained Assets,
which allegation or matter is unresolved;
(iv) the Company and its Subsidiaries are not subject to
any court order, administrative order or decree affecting the Properties, or
lien on the Properties, arising under any Environmental Law;
(v) neither the Company nor its Subsidiaries has received
any written notice, order or request for information from any governmental
agency or private or public entity advising it that it is responsible for or
potentially responsible for Cleanup (as defined below) or paying for the cost of
Cleanup of any Hazardous Substances or any other waste or substance in relation
to the Retained Assets or Retained Business and neither the Company nor its
Subsidiaries has entered into any agreements concerning such Cleanup, nor are
the Company or its Subsidiaries aware of any facts which might reasonably give
rise to such notice, order or agreement; and
(vi) the Company and its Subsidiaries have delivered or
otherwise made available for inspection to Parent true, complete and correct
copies and results of any reports, studies, analyses, tests or monitoring
possessed or initiated by the Company or its Subsidiaries pertaining to
Hazardous Substances in, on, beneath or adjacent to any Property currently or
formerly owned, operated or leased by the Company or its Subsidiaries, or
regarding the Company or its Subsidiaries compliance with applicable
Environmental Laws.
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(b) The Schedules provided pursuant to this Section 4.17 will
indicate whether the matter or item disclosed relates to Properties owned or
used in the Retained Business.
(c) Definitions.
(i) "Cleanup" means all actions required to: (1) cleanup,
-------
remove, treat or remediate Hazardous Substances in the indoor or outdoor
environment; (2) prevent the Release of Hazardous Substances so that they do not
migrate, endanger or threaten to endanger public health or welfare or the indoor
or outdoor environment; (3) perform pre-remedial studies and investigations and
post-remedial monitoring and care; or (4) respond to any government requests for
information or documents in any way relating to cleanup, removal, treatment or
remediation or potential cleanup, removal, treatment or remediation of Hazardous
Substances in the indoor or outdoor environment.
(ii) "Environmental Laws" means all applicable federal,
------------------
state and local laws and regulations relating to pollution or protection of
human health or the environment, including without limitation, laws relating to
Releases or threatened Releases of Hazardous Substances or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, Release,
disposal, transport or handling of Hazardous Substances and all laws and
regulations with regard to recordkeeping, notification, disclosure and reporting
requirements respecting Hazardous Substances
(iii) "Hazardous Substances" means all substances
--------------------
defined as Hazardous Substances, Oils, Pollutants or Contaminants in the
National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R. ss.
300.5, or defined as such by, or regulated as such under, any Environmental Law.
(iv) "Release" means any release, spill, emission,
-------
discharge, leaking, pumping, injection, deposit, disposal, dispersal, leaching
or migration into the indoor or outdoor environment (including, without
limitation, ambient air, surface water, groundwater and surface or subsurface
strata) or into or out of any Property, including the movement of Hazardous
Substances through or in the air, soil, surface water, groundwater or property.
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Section 4.18 Intellectual Property.
(a) Except as set forth in the Company Disclosure Schedule, the
Company and its Subsidiaries are the sole and exclusive owners of all
patents, patent rights, trademarks, trademark rights, trade names, trade
name rights, copyrights, service marks, trade secrets, applications for
trademarks and for service marks, technology and know-how (including all
trade secrets, data bases, customer lists, confidential information,
discoveries, inventions and improvements), rights in computer software
and other proprietary rights and information used or held for use in
connection with the Retained Business as currently conducted
(collectively, "Proprietary Rights"), free and clear of all liens,
claims, charges, security interests and encumbrances.
(b) Except as set forth in the Company Disclosure Schedule, the
Company and its Subsidiaries have not, as of and since the date upon
which they acquired any of the Proprietary Rights, (i) transferred,
conveyed, sold, assigned, pledged, mortgaged or granted a security
interest in any of the Proprietary Rights to any third party, (ii)
entered into any license, franchise or other agreement with respect to
any of the Proprietary Rights with any third person, or (iii) otherwise
encumbered any of the Proprietary Rights. The Company and its
Subsidiaries have taken all commercially reasonable measures to maintain
and enforce the Proprietary Rights and to safeguard the secrecy of all
Proprietary Rights that are considered to be trade secrets.
(c) To the best knowledge of the Company, neither the conduct of
the business of the Company and its Subsidiaries as currently conducted
nor the conduct of the Retained Company and the Retained Subsidiaries as
currently conducted conflicts or infringes in any way with any
proprietary right of any third party that, individually or in the
aggregate, is reasonably likely to have a material adverse effect on the
Retained Company and the Retained Subsidiaries. There is no claim, suit,
action or proceeding pending or to the knowledge of the Company
threatened against the Company or any of its Subsidiaries (i) alleging
that use of the Proprietary Rights by the Company or any of its
Subsidiaries conflicts or infringes in any way with any third
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party's proprietary rights, or (ii) challenging the Company's or its
Subsidiaries' ownership of or right to use or the validity of any
Proprietary Right. To the best knowledge of the Company, there are no
conflicts or infringements by any third party of any Proprietary Rights.
(d) The ownership or possession of Proprietary Rights and the
right to secure such rights currently enjoyed by the Retained Company
and the Retained Subsidiaries will not be affected in any material way
by the transactions contemplated by this Agreement and the Ancillary
Agreements, except as expressly provided in the Trademark Agreement.
Section 4.19 Transactions with Affiliates. As of the date hereof, except
(i) as was disclosed in the Company's proxy statement for its 1996 annual
meeting of stockholders (the "1996 Proxy Statement"), or (ii) as disclosed in
Section 4.19 of the Company Disclosure Schedule, (A) there are no outstanding
notes payable to or accounts receivable from, or advances by the Retained
Company or any of the Retained Subsidiaries to, and neither the Retained Company
nor any of the Retained Subsidiaries is otherwise a creditor of, any
stockholder, officer, director, employee, Subsidiary or affiliate of the
Company, other than any such transactions which do not exceed $5,000
individually or $50,000 in the aggregate, and (B) neither the Retained Company
nor any of the Retained Subsidiaries is a party to any Contract with any
stockholder, officer, director, or employee of the Retained Company or any of
the Retained Subsidiaries. Following the Effective Time, the Retained Company
shall not retain responsibility for any loans other than those extended to
employees of the Retained Company and the Retained Debt.
Section 4.20 Material Agreements; Bank Accounts.
(a) Except as disclosed in the Company Disclosure Schedule or as
contemplated by the 1997 budget for capital expenditures relating to the
Retained Business provided to Parent by the Company (the "Capital
Expenditure Budget"), neither the Retained Company nor any of the
Retained Subsidiaries is a party to any Contract: (i) to undertake
capital expenditures or to acquire any property in an aggregate amount
exceeding $100,000; (ii) to loan money or to extend credit in an
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amount greater than $25,000 (except for moving expenses paid to
employees of the Retained Business in accordance with the Company's
historical policies) to any person or group of related persons; (iii)
involving rebates, sales, advertising or other allowances with customers
in an amount of more than $100,000 per annum; (iv) which would restrict
the Retained Company or any of the Retained Subsidiaries or any
affiliate of the Retained Company or any of the Retained Subsidiaries
from carrying on any business anywhere in the world or which would
restrict the products or services which the Retained Company or its
affiliates may sell or the customers to whom the Retained Company or its
affiliates may sell; (v) involving any indebtedness, obligation or
liability for borrowed money or the guaranty of any such indebtedness,
obligation or liability; (vi) involving the provision of services to
customers of the Retained Company and the Retained Subsidiaries in an
aggregate amount greater than $100,000 per annum; (vii) involving any
lease of personal or real property having annual payments in excess of
$25,000 per annum; or (viii) which is material to the Retained Company
and the Retained Subsidiaries. The consummation of the Distribution, the
Merger or the other transactions contemplated hereby or in the Ancillary
Agreements will not impair any of the Retained Company's or any of its
Subsidiaries' rights under any such Contract whether oral or written. To
the best knowledge of the Company, except as set forth in Section 4.20
of the Company Disclosure Schedule, there is no breach or violation of,
or default under any such Contract, and no event has occurred which,
with notice or lapse of time or both, would constitute a breach,
violation or default, or give rise to a right of termination,
modification, cancellation, prepayment or acceleration under any such
Contract.
(b) Set forth in the Company Disclosure Schedule is: (i) the name
of each bank in which the Company has an account or safe deposit box
used by the Retained Business, the identifying numbers or symbols
therefor and the name of each person authorized to draw thereon or to
have access thereto; and (ii) the name of each person, if any, holding
powers of attorney from the Company, true copies of which have
previously been delivered to Parent.
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Section 4.21 Rights Agreement. The Company has taken all necessary
actions to render the Company Rights Plan inapplicable to the Merger, the
Distribution and the other transactions contemplated hereby and by the Ancillary
Agreements.
Section 4.22 Insurance. Set forth in the Company Disclosure Schedule is
a schedule of the insurance coverage (including policy limits, coverage layers,
and named insureds) maintained by or on behalf of the Retained Company and the
Retained Subsidiaries on the assets, properties, premises, operations and
personnel of the Retained Company and the Retained Subsidiaries.
Section 4.23 DGCL Section 203. Prior to the date hereof, the Board of
Directors of the Company has approved the Merger and the other transactions
contemplated by this Agreement and such approval is sufficient to render the
provisions of Section 203 of the DGCL inapplicable to the Merger and related
transactions contemplated hereby.
Section 4.24 Brokers or Finders. Neither the Company nor any of its
Subsidiaries has any liability to any agent, broker, investment banker,
financial advisor or other firm or person for any brokers' or finder's fee or
any other commission or similar fee in connection with this Agreement or the
Ancillary Agreements or any of the transactions contemplated hereby or thereby
except for Goldman Sachs & Co., whose fees and expenses, as previously disclosed
to Parent, will be paid by the Company prior to the Effective Time (or by Spinco
following the Effective Time) in accordance with the Company's agreement with
such firm.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company and Spinco as
follows:
Section 5.1 Organization. Each of Parent and Merger Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its busi-
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ness as now being conducted except where the failure to be so organized,
existing and in good standing or to have such power and authority would not have
a material adverse effect on Parent. Parent and each of its Subsidiaries is duly
qualified or licensed to do business and in good standing in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good standing would
not in the aggregate have a material adverse effect on Parent or the ability of
Parent and Merger Sub to consummate the transactions contemplated hereby. Parent
and Merger Sub have heretofore made available to the Company a complete and
correct copy of the charter and by-laws or comparable organizational documents,
each as amended to date, of Parent and Merger Sub. Such charters, by-laws and
comparable organizational documents are in full force and effect. Neither Parent
nor Merger Sub is in violation of any provision of its charter, by-laws or
comparable organizational documents.
Section 5.2 Capitalization. As of the date hereof, the authorized
capital stock of Parent consists of: (i) 60,000,000 shares of Parent Common
Stock, of which, as of January 31, 1997, 21,344,961 shares were issued and
outstanding and no shares were held in treasury and (ii) 2,000,000 shares of
preferred stock, par value $.01 per share, of which no shares were issued and
outstanding and 300,000 shares are designated Series A Junior Participating
Preferred Stock, and are reserved for issuance in connection with the Rights
Agreement, dated as of September 13, 1996, between Parent and the First National
Bank of Boston ("Parent's Stockholders Rights Plan"). All the outstanding shares
of Parent capital stock are, and all shares of Parent Common Stock which are to
be issued pursuant to the Merger will be, when issued in accordance with the
terms hereof, duly authorized, validly issued, fully paid and non-assessable and
free of any preemptive rights in respect thereto. As of the date hereof, no
Voting Debt of Parent is issued or outstanding. Except for up to 2,250,000
shares of Parent Common Stock reserved for issuance upon exercise of outstanding
stock options and stock incentive rights pursuant to Parent stock option,
director stock option and other benefit plans (collectively, the "Parent Stock
Plans"), as of the date hereof, there are no existing options, warrants, calls,
subscriptions or other rights or other agreements, commitments, understandings
or restrictions of any character
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(i) relating to the issued or unissued capital stock or Voting Debt of Parent or
any of its Subsidiaries, (ii) obligating Parent or any of its Subsidiaries to
issue, transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or Voting Debt of, or other material equity interests in, Parent
or of any of its Subsidiaries or securities convertible into or exchangeable for
such shares, Voting Debt or equity interests or (iii) obligating Parent or any
of its Subsidiaries to grant, extend or enter into any such option, warrant,
call, subscription or other right, agreement, commitment, understanding or
restriction. As of the date of this Agreement, there are no contractual
obligations of Parent or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of Parent or any of its
Subsidiaries.
Section 5.3 Authority. Parent and Merger Sub have the requisite
corporate power and authority to execute and deliver this Agreement and the
Ancillary Agreements (to the extent a party thereto) and to consummate the
transactions contemplated hereby and thereby. The execution, delivery and
performance of this Agreement and the Ancillary Agreements (to the extent a
party thereto) by Parent and Merger Sub and the consummation by Parent and
Merger Sub of the Merger and the other transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of Parent and Merger
Sub and no other corporate proceedings on the part of Parent and Merger Sub are
necessary to authorize this Agreement, or the Merger or for Parent and Merger
Sub to consummate the transactions so contemplated. This Agreement and the
Ancillary Agreements (to the extent Parent or Merger Sub is a party thereto)
have been executed and delivered by Parent and Merger Sub and each constitutes a
valid and binding obligation of Parent and Merger Sub, enforceable against
Parent and Merger Sub in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, moratorium,
reorganization and other laws of general applicability relating to or affecting
creditors rights.
Section 5.4 Consents and Approvals; No Violations.
(a) Except (i) for such filings, permits, authorizations,
consents and approvals as may be required under, and other applicable
requirements of, the Securities Act, the Exchange Act, the HSR Act, the
rules of the NYSE, and filings under state securities or "blue
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sky" laws, (ii) the filing of the Certificate of Merger as required by
the DGCL and (iii) the consent of the required lenders under the
Revolving Credit Agreement dated as of July 14, 1995 by and among
Culligan Water Technologies, Inc., Culligan International Company and
the other Borrowers as defined therein and The First National Bank of
Boston, Credit Lyonnais New York Branch, Wells Fargo Bank, National
Association and the other financial institutions which become party
thereto, or any successor or replacement agreement thereto, neither the
execution, delivery or performance of this Agreement or the Ancillary
Agreements (to the extent a party thereto) by Parent and Merger Sub nor
the consummation by either of them of the transactions contemplated
hereby or thereby nor compliance by Parent and Merger Sub with any of
the provisions hereof or thereof will (i) conflict with or result in any
breach of any provision of the charter or by-laws of Parent and Merger
Sub, (ii) require any filing by Parent or its Subsidiaries with, or
permit, authorization, consent or approval of, any Governmental Entity
to be obtained by Parent or its Subsidiaries, (iii) result in a
violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any Contract to which Parent or any of its
Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound or affected or (iv) violate any order,
writ, injunction, decree, statute, ordinance, rule or regulation
applicable to Parent or any of its Subsidiaries, except, in the case of
clauses (ii), (iii) or (iv), for failures, violations, breaches or
defaults which would not, individually or in the aggregate, have a
material adverse effect on Parent or on the ability of Parent to
consummate the transactions contemplated hereby.
(b) Except as set forth in Section 5.4 of the Parent Disclosure
Schedule, neither Parent nor any of its Subsidiaries is in conflict
with, or in default or violation of, (i) any order, writ, injunction,
decree, statute, rule or regulation of any Governmental Entity
applicable to Parent or any of its Subsidiaries or by which any of them
or any of their properties or assets may be bound or (ii) any Contract,
except for any such conflicts, defaults or violations which have not had
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and are not likely to have a material adverse effect on Parent.
Section 5.5 SEC Reports and Financial Statements. Parent has timely
filed with the SEC, and has heretofore made available to the Company true and
complete copies of, all forms, reports and other documents required to be filed
by it since September 12, 1995 under the Exchange Act or the Securities Act (as
such documents have been amended since the time of their filing, collectively,
the "Parent SEC Documents"). The Parent SEC Documents, including, without
limitation, any financial statements or schedules included therein, at the time
filed, (a) did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading and (b) complied in all material respects with the
applicable requirements of the Exchange Act or the Securities Act, as the case
may be. The consolidated financial statements of Parent included in the Parent
SEC Documents comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of the unaudited statements, as permitted by Form
10-Q of the SEC) and fairly present (subject, in the case of the unaudited
statements, to normal, recurring audit adjustments which will not, in the
aggregate, be material in amount) the consolidated financial position of Parent
and its consolidated Subsidiaries as at the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended.
Section 5.6 Information in Disclosure Documents and Registration
Statements. None of the information supplied or to be supplied by Parent or its
representatives for inclusion or incorporation by reference in (i) the
Registration Statements will, at the time the Registration Statements become
effective under the Securities Act or Exchange Act, as applicable, and at the
Effective Time, in the case of the S-4, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading and (ii) the Proxy Statement will, at the
date
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mailed to the Company's stockholders and at the time of the meeting of the
Company's stockholders to be held in connection with the Merger, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The S-4
will comply as to form in all material respects with the provisions of the
Securities Act and the rules and regulations thereunder, except that no
representation is made by Parent with respect to statements made therein based
on information supplied by the Company for inclusion in the S-4 or with respect
to information concerning the Company or any of its Subsidiaries incorporated by
reference in the S-4.
Section 5.7 Absence of Certain Changes or Events. Since September 30,
1996, there has not been any change, circumstance or development, or combination
of changes, circumstances or developments, which individually or in the
aggregate have or are reasonably expected to have a material adverse effect on
Parent.
Section 5.8 Taxes. Parent is not aware of any facts relating to Parent
or any of its Subsidiaries that would cause (i) the Contribution to fail to
qualify as a tax-free reorganization pursuant to Section 368(a)(1)(D) of the
Code, (ii) the Distribution to fail to qualify as a tax-free distribution
pursuant to Section 355 of the Code or (iii) the Merger to fail to qualify as a
tax-free reorganization pursuant to Section 368(a)(1)(B) of the Code.
Section 5.9 Interim Operations of Merger Sub. Merger Sub was formed
solely for the purpose of engaging in the transactions contemplated hereby, has
engaged in no other business activities and has conducted its operations only as
contemplated hereby.
Section 5.10 Brokers or Finders. Neither Parent nor any of its
Subsidiaries has any liability to any agent, broker, investment banker,
financial advisor or other firm or person for any broker's or finder's fee or
any other commission or similar fee in connection with this Agreement or the
Ancillary Agreements or any of the transactions contemplated hereby or thereby
except Bear, Stearns & Co. Inc., whose fees and expenses will be paid by Parent
in accordance with Parent's agreement with such firm.
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ARTICLE VI
COVENANTS
Section 6.1 Conduct of Business of the Company. During the period from
the date of this Agreement and continuing until the Effective Time, the Company
agrees as to itself and its Subsidiaries that, except for the Distribution and
the other transactions expressly provided for in the Distribution Agreement or
as contemplated or permitted by this Agreement, or to the extent that Parent
shall otherwise consent in writing:
(a) Ordinary Course. The Company and its Subsidiaries shall (i)
carry on the Retained Business in the usual, regular and ordinary course
consistent with past practice and (ii) use all reasonable efforts to
preserve intact the present business organization of the Retained
Company and the Retained Subsidiaries, keep available the services of
the present officers and employees of the Retained Company and the
Retained Subsidiaries and preserve the relationships with customers,
suppliers and others having business dealings with the Retained Company
and the Retained Subsidiaries. The Company will consult with Parent
concerning the conduct of the Retained Business and will not initiate
any new marketing plans or make any strategic changes in the conduct of
the Retained Business without the prior consent of Parent (which consent
shall not be unreasonably withheld), and Parent will have the right to
have representatives present at the facilities of the Retained Business
during normal business hours and upon reasonable prior notice to observe
its operations in order to facilitate a transition. Notwithstanding the
generality of the foregoing, the Company shall, and shall cause the
Retained Subsidiaries to, consult with Parent with respect to any
decisions, actions or inactions that are reasonably expected to result
in either (x) a significant deviation in capital expenditures of the
Retained Business from that set forth in the Capital Expenditure Budget
or (y) a significant change in working capital as of the Closing Date
from the amount of working capital set forth in the Retained Business
Balance Sheet.
(b) Issuance of Securities. Except as expressly contemplated by
this Agreement or any of the Ancillary
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Agreements, the Company shall not permit the Retained Subsidiaries to,
issue, transfer, pledge or sell, or authorize or propose or agree to the
issuance, transfer, pledge or sale of, any shares of its capital stock
of any class, any Voting Debt or other equity interests or any
securities convertible into, or any rights, warrants, calls,
subscriptions, options or other rights or agreements, commitments or
understandings to acquire, any such shares, Voting Debt, equity
interests or convertible securities.
(c) Governing Documents. The Company shall not, nor shall it
permit the Retained Company or any of the Retained Subsidiaries to,
amend or propose to amend its certificate of incorporation or by-laws or
comparable organizational documents.
(d) No Acquisitions; Material Commitments. The Company shall not,
nor shall it permit any of its Subsidiaries included in the Retained
Business to, acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any assets
outside the ordinary and usual course of business consistent with past
practice or otherwise enter into any material commitment or transaction
outside the ordinary and usual course of business consistent with past
practice, other than transactions which are unrelated to the Retained
Business and which will not adversely affect the Company's ability to
consummate the transactions contemplated by this Agreement and the
Ancillary Agreements.
(e) No Dispositions. The Company shall not, nor shall it permit
any of its Subsidiaries included in the Retained Business to, sell,
lease, license, encumber or otherwise dispose of, or agree to sell,
lease, license, encumber or otherwise dispose of, any of its assets
outside the ordinary and usual course of business consistent with past
practice, other than transactions which are unrelated to the Retained
Business and which will not materially adversely affect the Company's
ability to consummate the transactions contemplated by this Agreement
and the Ancillary Agreements.
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(f) Indebtedness. The Company shall not permit the Retained
Company or any of the Retained Subsidiaries, to (i) incur, assume,
pre-pay, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for any indebtedness for
borrowed money except in the ordinary and usual course of business
consistent with past practice, (ii) issue or sell any debt securities or
warrants or rights to acquire any debt securities of the Retained
Company or any of the Retained Subsidiaries or guarantee any obligations
of others, or (iii) make any loans, advances or capital contributions
to, or investments in, any other person except in the ordinary and usual
course of business consistent with past practice.
(g) Changes to Benefit Plans. Except as set forth in the Company
Disclosure Schedule and except as expressly provided in the Distribution
Agreement, the Company shall not, nor shall it permit any of its
Subsidiaries to, (i) enter into, adopt, amend (except as may be required
by law and except for immaterial amendments) or terminate any
Compensation and Benefit Plan or other employee benefit plan or any
agreement, arrangement, plan or policy between the Company or any of its
Subsidiaries and one or more of its directors, officers or employees,
(ii) except for normal increases in the ordinary course of business
consistent with past practice and the payment of bonuses to employees
consistent with past practice, increase in any manner, the compensation
or fringe benefits of any director, officer or employee or pay any
benefit to any director, officer or employee not required by any plan or
arrangement as in effect as of the date hereof or enter into any
contract, agreement, commitment or arrangement to do any of the
foregoing, in each case only to the extent that the foregoing relate to
the Retained Business or the Retained Employees.
(h) Advice of Changes; Filings. The Company shall promptly advise
Parent orally and in writing of any change or development or combination
of changes or developments that would cause the representation in
Section 4.12 to be untrue. The Company shall promptly provide Parent (or
its counsel) copies of all filings made by the Company with any federal,
state or foreign Governmental Entity in connection with this Agreement,
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the Distribution Agreement and the transactions contem plated hereby and
thereby.
(i) Accounting Policies and Procedures. The Company will not and
will not permit any of the Retained Subsidiaries to change any of its
accounting principles, policies or procedures, except as may be required
by GAAP.
(j) Tax Matters. The Company shall not take or cause or permit to
be taken, and shall not permit any of its Subsidiaries to take or cause
or permit to be taken, any action, or allow to exist any condition, that
could (i) disqualify the Contribution followed by the Distribution as a
tax-free reorganization pursuant to Section 368(a)(1)(D) of the Code,
(ii) disqualify the Distribution as a tax free distribution pursuant to
Section 355 of the Code, or (iii) disqualify the Merger as a tax-free
reorganization pursuant to Section 368(a) of the Code.
(k) Spinco. The Company shall (i) not engage in or allow
transfers of assets or liabilities or engage or enter into other
transactions between the Retained Company and the Retained Subsidiaries,
on the one hand, and Spinco or any of its Subsidiaries, on the other
hand, except as contemplated by the Distribution Agreement or the Tax
Allocation Agreement or as to which the Retained Company and the
Retained Subsidiaries are indemnified pursuant to the Indemnification
Agreement, (ii) abide and cause Spinco to abide by its respective
obligations under the Distribution Agreement, and (iii) not terminate or
amend, or waive compliance with any obligations under, the Distribution
Agreement.
Section 6.2 Covenants of Parent.
(a) During the period from the date of this Agreement and
continuing until the Effective Time, Parent agrees as to itself and its
Subsidiaries that Parent shall not take any action that would result in
any of the conditions to the Merger set forth in Article VIII not being
satisfied or that would materially impair the ability of Parent to
consummate the Merger in accordance with the terms hereof or materially
delay such consummation.
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(b) Parent shall not take or cause or permit to be taken, and
shall not permit any of its Subsidiaries to take or cause or permit to
be taken, any action, or allow to exist any condition, that could (i)
disqualify the Contribution followed by the Distribution as a tax-free
reorganization pursuant to Section 368(a)(1)(D) of the Code, (ii)
disqualify the Distribution as a tax-free distribution pursuant to
Section 355 of the Code, or (iii) disqualify the Merger as a tax-free
reorganization pursuant to Section 368(a) of the Code.
(c) Parent shall promptly advise the Company orally and in
writing of any change or development or combination of changes or
developments that would cause the representation in Section 5.8 to be
untrue. Parent shall promptly provide the Company (or its counsel)
copies of all filings made by Parent with any federal, state or foreign
Governmental Entity in connection with this Agreement, the Distribution
Agreement and the transactions contemplated hereby and thereby.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Reasonable Efforts. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees to use its reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement
and the Ancillary Agreements including, without limitation, (i) the prompt
preparation and filing with the SEC of the S-4, the Distribution Registration
Statement and the Proxy Statement, including the preparation of any financial
information to be included therein and the obtaining of any required audit, (ii)
such actions as may be required to have the S-4 and the Distribution
Registration Statement declared effective under the Securities Act or Exchange
Act, as applicable, and to have the Proxy Statement cleared by the SEC, in each
case as promptly as practicable, including by consulting with each other as to,
and responding promptly to, any SEC comments with respect thereto, (iii) such
actions as may be required to be taken under applicable state securities or
"blue sky" laws in connection with the issuance of shares of Parent
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Common Stock and Spinco Common Stock contemplated hereby and in the Distribution
Agreement, and (iv) the distribution of the prospectus constituting a part of
the S-4, the prospectus or information statement constituting a part of the
Distribution Registration Statement and the Proxy Statement to stockholders of
the Company. Each party shall promptly consult with the other and provide any
necessary information and material with respect to all filings made by such
party with any Governmental Entity in connection with this Agreement and the
Ancillary Agreements and the transactions contemplated hereby and thereby.
Section 7.2 Cooperation. Following the expiration or early termination
of the applicable waiting period under the HSR Act, each of the parties hereto
agrees that the business of the Retained Business will be operated in
cooperation between Parent and the Company and shall continue to be managed and
administered by the Company under the procedures set forth in this Section 7.2.
In order to facilitate the close cooperation of the Company with Parent in the
operation of the Retained Business, the parties hereto agree as follows:
(a) The appointment, including compensation and contractual
agreements, of all senior executives of the Retained Business shall be
made by the Company following consultation with Parent. The Company
shall cooperate with Parent on personnel policies and procedures for the
Retained Business, including, without limitation, setting salary and
bonus standards, termination and severance policies, and employee
benefit policies.
(b) The Company shall cooperate and consult with the financial
officers of Parent with respect to policies and procedures relating to
financial and accounting matters of the Retained Business, including
without limitation, (i) the preparation of the accounts, books and
records, (ii) the preparation of financial statements, (iii) the
monitoring of operating performance under a budget previously prepared,
and (iv) the preparation and review of monthly management reports;
provided, however, that the Company shall not be required to change any
-------- -------
such policies or procedures.
(c) Parent and the Company shall consult with each other in
determining the best interests of the Retained Business with respect to
capital expenditures
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or investments, issuances of guarantees, creation of mortgages or liens,
establishment of credit lines, or other material transactions affecting
the Retained Business.
(d) The Company shall cooperate with the personnel of Parent in
developing ongoing sales and marketing strategies and financial and
other standards for the Retained Business and the Company will not
initiate any new marketing plans or make any strategic changes in the
operations of the Retained Business without the prior consent of Parent
(which consent shall not be unreasonably withheld).
(e) Parent will have the right to have one or more
representatives present at the facilities of the Retained Business
during normal business hours in order to facilitate the cooperation
contemplated by this Section 7.2.
Nothing contained in this Section 7.2 shall be construed to limit the
Company's obligations under Section 6.1
Section 7.3 Letters of the Company's Accountants. The Company shall
cause to be delivered to Parent letters of Ernst & Young LLP, the Company's
independent auditors, each dated a date within two business days before the date
on which the S-4 and the Distribution Registration Statement shall become
effective and addressed to Parent, in form and substance reasonably satisfactory
to Parent and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the S-4 and the Distribution Registration Statement, respectively,
which letters shall be brought down to the Effective Time.
Section 7.4 Letters of Parent's Accountants. Parent shall cause to be
delivered to the Company and Spinco letters of KPMG Peat Marwick LLP, Parent's
independent auditors, dated a date within two business days before the date on
which the S-4 and the Distribution Registration Statement, respectively, shall
become effective and addressed to the Company and Spinco, in form and substance
reasonably satisfactory to the Company and customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the S-4 and the Distribution Registration
Statement,
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respectively, which letter shall be brought down to the Effective Time.
Section 7.5 Access to Information. Upon reasonable notice, the Company
and Parent shall (and shall cause their respective Subsidiaries to) afford to
the officers, employees, accountants, environmental consultants, counsel and
other representatives of the other party, access, during normal business hours
during the period prior to the Effective Time, to all its properties, books,
contracts, commitments and records and all other information (including, without
limitation, information relating to Taxes of the Company and its Subsidiaries or
Parent and its Subsidiaries) concerning the business, properties and personnel
of the Retained Company and Parent (and their respective Subsidiaries) as either
party reasonably requests, including with respect to Parent to conduct an
environmental audit of the properties of the Retained Business, and, during such
period, each of the Company and Parent shall (and shall cause each of their
respective Subsidiaries to) furnish promptly to the other a copy of each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of federal securities laws. The
environmental assessment(s) noted herein may include, at Parent's discretion,
the performance of environmental testing (including, but not limited to, the
collection and analysis of soil samples, surface water samples, groundwater
samples, sediment, air emissions, and building materials) at the properties of
the Retained Business. Unless otherwise required by law, the parties will hold
any such information which is non-public in confidence in accordance with the
confidentiality agreement previously entered into by Parent and the Company (the
"Confidentiality Agreement").
Section 7.6 Stockholders Meeting. The Company shall call a meeting of
its stockholders to be held as promptly as practicable after the S-4 and the
Distribution Registration Statement are declared effective by the SEC for the
purpose of voting upon the approval and adoption of this Agreement and, if the
Company determines such approval to be necessary or appropriate, upon the
Distribution. The Company will, through its Board of Directors, recommend to its
stockholders approval and adoption of this Agreement and, if the Company
determines such approval to be necessary or appropriate, the Distribution
Agreement and shall use its best efforts to hold such meeting as soon as
practicable after the S-4 and the Distribution Registration Statement are
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declared effective by the SEC; provided that the Company may withdraw or modify
--------
its recommendation if the Board of Directors of the Company, after consultation
with and based upon the advice of independent legal counsel, determines in good
faith that such withdrawal or modification is necessary for the Board of
Directors to comply with its fiduciary duties to stockholders under applicable
law in connection with a Company Acquisition Transaction (as defined in Section
7.11 hereof).
Section 7.7 Legal Conditions to Distribution and Merger; Legal
Compliance. Each of the Company, Parent and Merger Sub will use its reasonable
efforts to comply promptly with all legal requirements which may be imposed on
itself or its respective Subsidiaries with respect to the Distribution and the
Merger (which actions shall include, without limitation, furnishing all
information required in connection with approvals of filings with any
Governmental Entity required to be made by Parent or the Company and their
respective Subsidiaries with any other Governmental Entity) and will promptly
cooperate with and furnish information to each other in connection with any such
requirements imposed upon any of them or any of their respective Subsidiaries in
connection with the Distribution or the Merger. Subject to the terms and
conditions hereof, each of the Company and Parent will, and will cause its
respective Subsidiaries to, promptly use its reasonable efforts to obtain (and
will cooperate with each other in obtaining) any consent, authorization, order
or approval of, or any exemption by, any Governmental Entity or other public or
private third party, required to be obtained or made by such party in connection
with the Distribution or the Merger or the taking of any action contemplated
thereby or by this Agreement or the Distribution Agreement. The Company agrees
that it shall use its reasonable efforts to take, and to cause its Subsidiaries
to take, such actions as are necessary to assure compliance by the Retained
Company and the Retained Subsidiaries with all applicable legal requirements
relating to Licenses, employment and benefits matters and other governmental
regulations.
Section 7.8 Stock Exchange Listing. Parent shall use its reasonable
efforts to cause the shares of Parent Common Stock to be issued in the Merger to
be approved for listing on the NYSE and any other national securities exchange
on which shares of Parent Common Stock may at such time be
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listed, subject to official notice of issuance, prior to the Closing Date.
Section 7.9 Employee Matters; Employee Benefit Plans.
(a) Set forth in the Company Disclosure Schedule is a list of all
employees of the Company and its Subsidiaries who, if the Effective Time
occurred as of the date of this Agreement, would remain with the
Retained Company and the Retained Subsidiaries following the
Distribution and the Merger (the "Current Employees"). The Current
Employees together with any other employees hereafter hired by the
Company in the ordinary course of business as, or assigned by the
Company in the ordinary course of business to be, employees of the
Retained Business, but excluding any of such Current Employees or
subsequently hired or assigned employees who on the Distribution Date
are (i) not employees of the Company or (ii) have with the consent of
Parent been assigned by the Company to a business other than the
Retained Business, are collectively called the "Retained Employees".
(b) Prior to the Distribution, the Company shall, and shall cause
its Subsidiaries to, assign to Spinco or its Subsidiaries or terminate
all employment and severance agreements with employees of the Company
who are not Retained Employees. Except as provided in the following
sentence, the parties hereto acknowledge and agree that, whether or not
such employment and severance agreements are so assigned or terminated,
all liabilities and obligations under or arising from such agreements
shall be deemed to be "Assumed Liabilities," as such term is defined in
the Distribution Agreement. Parent shall, and shall cause the Surviving
Corporation to, honor all employee severance plans (or policies) and
employment and severance agreements of the Company or any of its
Subsidiaries set forth in Section 7.9 of the Company Disclosure Schedule
with respect to the Retained Employees as such agreements (or policies)
are in effect on the date of this Agreement.
(c) Parent shall not have any liability or obligation, including,
without limitation, in respect of severance, to or for any employee or
former employee of the Company or any of its Subsidiaries based upon
events, occurrences or services performed by such
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employees or former employees on or prior to the Closing Date and, in
the case of employees of the Company or any of its Subsidiaries other
than Retained Employees, following the Closing Date.
(d) As soon as practicable following the Effective Time, Parent
shall cause the Parent 401(k) Plan to accept a plan-to-plan transfer
from the Company's 401(k) Plan (as adopted and assumed by Spinco) of the
account balances of the Retained Employees (including, if applicable,
the outstanding balances of any participant loans to the extent that the
transfer of such loans will not cause a taxable distribution to the
participant subject to each such Retained Employee executing a loan
agreement with Parent's 401(k)).
(e) Parent shall provide Spinco with an annual statement of the
compensation earned by each Retained Employee from Parent or its
Subsidiaries (or any successor thereto or affiliate thereof) after the
Effective Time. Parent shall also notify Spinco, within thirty days of
the retirement, death, disability or other termination of employment of
any Retained Employee from Parent or its Subsidiaries (or any successor
thereto or affiliated thereof). Upon request, Spinco shall provide
Parent with an annual statement of the Retained Employee's accrued
benefits under the Company's Salaried Pension Plan (as assumed by
Spinco).
Section 7.10 Stock Options. All options to acquire shares of Company
Common Stock pursuant to any of the Company Stock Plans (other than options held
by the Retained Employees) which are outstanding immediately prior to the
Effective Time, whether or not then exercisable, shall be assumed by Spinco as
provided in Section 1.5 of the Distribution Agreement and, except as
specifically provided in the Distribution Agreement, following the Effective
Time shall not represent a right to acquire shares of either Parent or the
Surviving Corporation.
Section 7.11 No Solicitation. Until the earlier of the Effective Time or
the termination of this Agreement pursuant to Section 9.1, the Company and its
Subsidiaries will not, directly or indirectly, through any officer, director,
agent or otherwise, initiate, solicit, encourage, negotiate or discuss with any
third party (including by way of furnishing non-public information concerning
the Retained
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Business), or take any other action to facilitate any inquiries with respect to
or the making of, any proposal that constitutes an Acquisition Transaction (as
defined below); provided that nothing shall prohibit the Company from (i)
--------
furnishing information to, or entering into discussions or negotiations with,
any person or entity that makes an unsolicited proposal with respect to a
Company Acquisition Transaction (as defined below), if, and only to the extent
that, (A) the Board of Directors of the Company, after consultation with and
based upon the advice of independent legal counsel, determines in good faith
that such action is necessary for the Board of Directors of the Company to
comply with its fiduciary duties to stockholders under applicable law, and (B)
prior to furnishing such information to, or entering into discussions or
negotiations with, such person or entity, the Company provides written notice to
Parent stating that it is furnishing information to, or entering into
discussions or negotiations with, such person or entity; or (ii) complying with
Rule 14e-2 promulgated under the Exchange Act with regard to any tender or
exchange offer involving the Company. The Company will keep Parent informed on a
reasonable basis of the status and general nature of any discussions or
negotiations with respect to a Company Acquisition Transaction, including any
changes to any material terms and conditions thereof. As used herein, an
Acquisition Transaction shall mean a merger, consolidation, business
combination, sale of a significant amount of assets outside of the ordinary
course of business, sale of shares of capital stock outside of the ordinary
course of business, tender or exchange offer or similar transaction involving
either (i) the Company and its Subsidiaries, substantially as an entirety (a
"Company Acquisition Transaction") or (ii) the Retained Business or the Retained
Subsidiaries. As used herein, a Retained Business Acquisition Transaction shall
mean an Acquisition Transaction which relates to the Retained Business (a
"Retained Business Acquisition Transaction").
Section 7.12 Fees and Expenses.
(a) Except as set forth in Section 7.12(b) and subject to the
Distribution Agreement, whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses;
provided, however, that the Company and Parent shall each pay one-half of the
- -------- -------
printing, mailing and filing
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costs incurred in connection with the S-4, the Distribution Registration
Statement and the Proxy Statement.
(b) So long as Parent shall not have materially breached its
obligations under this Agreement, the Company will pay Parent, in immediately
available funds, $5,000,000 (promptly, but in no event later than thirty days
after such amount becomes due), if within twelve months following the
termination of this Agreement pursuant to Section 9.1(c)(ii) or (iii) or Section
9.1(d)(ii) the Company shall enter into an agreement, arrangement or
understanding providing for an Acquisition Transaction. Notwithstanding the
foregoing, the Company will pay, in immediately available funds, the reasonable
out-of-pocket expenses incurred by Parent in connection with the Merger and the
Distribution, promptly but in no event later than 30 business days after being
provided with a statement of such expenses together with documentation
satisfactory to the Company substantiating the incurrence of such expenses,
after the termination of this Agreement pursuant to Section 9.1(c) (other than
by reason of a breach of the representations and warranties contained in Section
4.15(xiii)) or Section 9.1(d)(ii). Parent will pay in immediately available
funds, the out-of-pocket expenses incurred by the Company in connection with the
Merger and the Distribution promptly but in no event later than 30 days after
being provided with a statement of such expenses together with documentation
satisfactory to Parent substantiating the incurrence of such expenses, after the
termination of this Agreement pursuant to Section 9.1(d)(i).
Section 7.13 Affiliate Agreements. The Company shall use its best
efforts to cause each of those persons who may be deemed to be "affiliates" of
the Company as that term is used in paragraphs (c) and (d) of Rule 145 under the
Securities Act (the "Affiliates") and who will become the beneficial owners of
Parent Common Stock pursuant to the Merger to deliver to Parent on or prior to
the Closing Date a written "affiliates' agreement" in customary form. If any
Affiliate refuses to provide such agreement, Parent may place appropriate
legends on the certificates evidencing the shares of Parent Common Stock to be
received by such Affiliate pursuant to the terms of this Agreement and to issue
appropriate stop transfer instructions to the transfer agent for shares of
Parent Common Stock to the effect that the shares of Parent Common Stock
received by such Affiliate pursuant to this Agreement only may be sold,
transferred or otherwise conveyed, (x) pursuant to an effective registration
state-
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ment under the Securities Act, (y) in compliance with Rule 145 promulgated under
the Securities Act, or (z) pursuant to another exemption under the Securities
Act.
Section 7.14 Notification of Certain Matters. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(a) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be likely to cause (i) any representation or
warranty contained in this Agreement to be untrue or inaccurate or (ii) any
covenant, condition or agreement contained in this Agreement not to be complied
with or satisfied and (b) any failure of the Company or Parent, as the case may
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
-------- -------
of any notice pursuant to this Section 7.14 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
Section 7.15 Tax-Free Nature of Transactions. Each party agrees to
report the Contribution as a tax-free reorganization pursuant to Section
368(a)(1)(D) of the Code, the Distribution as a tax-free distribution pursuant
to Section 355 of the Code and the Merger as a tax-free reorganization pursuant
to Section 368(a)(1)(B) of the Code on all Tax Returns and other filings, and
take no position inconsistent therewith in any audit or administrative or
judicial proceeding or otherwise. The parties shall not, and shall not permit
any of their respective Subsidiaries to, take or cause or permit to be taken,
any action, or allow to exist any condition, that would, disqualify the
Contribution as a tax-free reorganization pursuant to Section 368(a)(1)(D),
disqualify the Distribution as a tax-free distribution pursuant to Section 355
of the Code or disqualify the Merger as a reorganization pursuant to Section
368(a)(1)(B) of the Code.
Section 7.16 Indebtedness. Except as reflected on the Retained Business
Balance Sheet, the Company agrees that immediately prior to the Effective Time,
after giving effect to the Contribution and the other transactions contemplated
by the Ancillary Agreements, there will not be outstanding any indebtedness for
borrowed money, or any guarantees in respect of any indebtedness for borrowed
money of any third party, in respect of which the Retained Company or the
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Retained Subsidiaries is obligated, other than the Retained Debt.
Section 7.17 Internal Revenue Service Ruling. As promptly as practicable
following the date hereof, the Company and Parent shall prepare and submit to
the IRS a request for a private letter ruling to the effect that (i) the
Contribution followed by the Distribution will qualify as a tax-free
reorganization pursuant to Section 368(a)(1)(D) of the Code, (ii) the
Distribution will qualify as a tax-free distribution pursuant to 355 of the Code
and (iii) the Merger will qualify as a tax-free reorganization pursuant to
Section 368(a)(1)(B) of the Code. The initial ruling request and any supplements
or materials submitted to the Service relating thereto (each, an "IRS
Submission") shall be true and correct in all material respects and all relevant
and material facts relating to the requested rulings shall be disclosed to the
Service. The Company shall provide Parent with a reasonable opportunity to
review and comment on each IRS Submission prior to the filing of such IRS
Submission with the IRS and no IRS Submission shall be filed with the IRS unless
the Company and Parent shall have agreed as to the contents of such IRS
Submission prior to such filing. The Company shall promptly provide Parent with
copies of each IRS Submission as filed with the Service. Neither the Company nor
the Company's representatives shall conduct any communications ,other than
non-substantive administrative communications, with the Service concerning such
private letter ruling, including meetings or conferences with Service personnel,
whether telephonically or in person or otherwise, without the participation of
(or express waiver of such participation by) Parent or Parent's representatives.
Parent shall reasonably cooperate in good faith with the Company in seeking to
obtain such private letter ruling.
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation To Effect the Merger.
The respective obligations of the parties to effect the Merger are subject to
the satisfaction, on or prior to the Closing Date, of the following conditions:
(a) Stockholder Approval. This Agreement shall have been
approved and adopted by the affirmative vote
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of the holders of Company Common Stock entitled to cast at least a
majority of the total number of votes entitled to be cast.
(b) Stock Exchange Listing. The shares of Parent Common Stock
issuable to the Company's stockholders pursuant to this Agreement shall
have been authorized for listing on the NYSE, upon official notice of
issuance. The shares of Spinco Common Stock to be distributed to the
Company's stockholders pursuant to the Distribution shall have been
authorized for listing on the NYSE and the PSE, upon official notice of
issuance.
(c) HSR Approval. Any applicable waiting period under the HSR Act
shall have expired or been terminated.
(d) Other Approvals. Other than the filing of the Certificate of
Merger, all authorizations, consents, orders or approvals of, or
declarations or filings with, or expirations of waiting periods imposed
by, any Governmental Entity, the failure of which to obtain would have a
material adverse effect on Spinco or the Retained Company and their
respective Subsidiaries, in each case taken as a whole, shall have been
filed, occurred or been obtained.
(e) Registration Statement. The Registration Statements shall
have become effective under the Securities Act or the Exchange Act, as
the case may be, and shall not be the subject of any stop order or
proceeding by the SEC seeking a stop order.
(f) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court
of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect (each party
agreeing to use all reasonable efforts to have any such order reversed
or injunction lifted).
(g) Consummation of the Distribution. The Dis-tribution shall
have become effective in accordance
with the Distribution Agreement.
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(h) Private Letter Ruling. The IRS shall have issued and not
revoked a private letter ruling (the "Private Letter Ruling"),
reasonably satisfactory in form and substance to Parent and the Company
substantially to the effect that, on the basis of the facts,
representations and assumptions existing at the Effective Time:
(i) the Contribution followed by the Dis-
tribution qualifies as a tax-free re-
organization pursuant to Section
368(a)(1)(D) of the Code;
(ii) the Distribution qualifies as a tax-free
distribution pursuant to Section 355(a) of the
Code; and
(iii) the Merger qualifies as a tax-free
reorganization pursuant to Section 368(a)(1)(B)
of the Code, and that Parent, Merger Sub and the
Company will each be a party to that
reorganization within the meaning of Section
368(b) of the Code.
In the event that the IRS shall not have issued the Private Letter
Ruling to include any one or more of the three requested rulings
described in the preceding sentence (each, an "Omitted Ruling"), this
condition shall nevertheless be satisfied if, on or prior to the Closing
Date, the Company shall have received an opinion of Stroock & Stroock &
Lavan LLP and Parent shall have received an opinion of Skadden, Arps,
Slate, Meagher & Flom LLP (together, the "Tax Opinions") to the same
effect as each such Omitted Ruling.
(i) Legislation. There shall be no proposed legislation
introduced and pending in bill form and pending action in the United
States Congress which, if enacted into law, would have the effect of
amending the Code so as to alter in any materially adverse respect any
of the United States federal income tax consequences described in the
Private Letter Ruling or the Tax Opinions in respect of the
Contribution, the Distribution or the Merger.
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Section 8.2 Conditions of Obligations of Parent. The obligations of
Parent to effect the Merger are subject to the satisfaction, on or prior to the
Closing Date, of the following conditions unless waived by Parent:
(a) Representations and Warranties. The representations and
warranties of the Company and Spinco shall be true and correct in all
material respects as of the date hereof, and, except to the extent such
representations and warranties speak as of an earlier date, as of the
Closing Date as though made on and as of the Closing Date, and Parent
shall have received a certificate signed on behalf of the Company by the
chief executive officer or the chief financial officer of the Company to
such effect.
(b) Performance of Obligations of the Company. The Company and
its Subsidiaries (including Spinco) shall have performed in all material
respects all obligations required to be performed by it under this
Agreement and the Distribution Agreement at or prior to the Closing
Date, and Parent shall have received a certificate signed on behalf of
the Company by the chief executive officer or the chief financial
officer of the Company to such effect.
(c) Adjusted EBIT. The amount of Adjusted EBIT shall not be less
than $11,850,000.
(d) Opinion of Counsel. Parent shall have received the opinion of
Stroock & Stroock & Lavan LLP concerning such legal matters relating to
the Merger as are customarily obtained in transactions of a type similar
to the Merger.
(e) Assumption of Notes. Spinco shall have assumed all
obligations of the Company under the Indenture dated as of March 15,
1994 between the Company and Corestates Bank, N.A., as amended or
supplemented (the "Indenture") pursuant to which the Company's 9 3/4%
Senior Notes Due 2004 (the "Notes") were issued.
(f) No Action. No action, suit or proceeding by any Governmental
Entity before any court or governmen-tal or regulatory authority shall
be pending or threat-ened against the Company or Parent or any of their
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Subsidiaries challenging the validity or legality of the transactions
contemplated by this Agreement.
Section 8.3 Conditions of Obligations of the Company. The obligation of
the Company to effect the Merger is subject to the satisfaction of the following
conditions, on or prior to the Closing Date, unless waived by the Company:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall be
true and correct in all material respects as of the date hereof, and,
except to the extent such representations and warranties speak as of an
earlier date, as of the Closing Date as though made on and as of the
Closing Date, and the Company shall have received a certificate signed
on behalf of Parent by the chief executive officer or the chief
financial officer of Parent to such effect.
(b) Performance of Obligations of Parent and Merger Sub. Parent
and Merger Sub shall have performed in all material respects all
obligations required to be performed by them under this Agreement at or
prior to the Closing Date, and the Company shall have received a
certificate signed on behalf of Parent by the chief executive officer or
the chief financial officer of Parent to such effect.
(c) Opinion of Counsel. The Company shall have received the
opinion of Skadden, Arps, Slate, Meagher & Flom LLP concerning such
legal matters relating to the Merger as are customarily obtained in
transactions of a type similar to the Merger.
(d) Noteholders' Consent. Holders of a majority of the Notes have
consented to an amendment of, or sup-plemental indenture under, the
Indenture so as to permit the Distribution.
(e) No Action. No action, suit or proceeding by any Governmental
Entity before any court or governmental or regulatory authority shall be
pending or threatened against the Company or Parent or any of their
Subsidiaries challenging the validity or legality of the transactions
contemplated by this Agreement.
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(f) Average Parent Share Price. The Average Parent Share Price on
the proposed Closing Date (assuming satisfaction or waiver of all other
conditions) shall be greater than $31.00 per share.
ARTICLE IX
TERMINATION AND AMENDMENT
Section 9.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the Merger and
this Agreement by the stockholders of the Company:
(a) by mutual consent of Parent and the Company;
(b) by either Parent or the Company if the Merger shall not have
been consummated before October 31, 1997 (unless the failure to so
consummate the Merger by such date shall be due to the action or failure
to act of the party seeking to terminate this Agreement, which action or
failure to act constitutes a breach of this Agreement);
(c) by Parent if (i) there has been a material breach on the part
of the Company in the representations, warranties or covenants of the
Company set forth herein or in the Distribution Agreement, or any
material failure on the part of the Company to comply with its
obligations hereunder or thereunder, and, in the case of a material
breach of covenant or failure to comply, such material breach of
covenant or failure to comply, if capable of being cured, is not cured
within thirty days, (ii) the Company's stockholders do not approve of
the Merger and this Agreement and, if applicable, the Distribution at
the meeting required under Section 7.6 hereof, or (iii) the Board of
Directors of the Company withdraws, amends, or modifies in a manner
adverse to Parent its favorable recommendation of the Merger;
(d) by the Company if (i) there has been a material breach on the
part of Parent in the representations, warranties or covenants of Parent
set forth herein, or any material failure on the part of Parent to
comply with its obligations hereunder, and, in the
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case of a material breach of covenant or failure to comply, such
material breach of covenant or failure to comply, if capable of being
cured, is not cured within thirty days, or (ii) the Company's
stockholders do not approve of the Merger and this Agreement and, if
applicable, the Distribution at the meeting required under Section 7.6
hereof; or
(e) by either Parent or the Company if any change in federal
income Tax law or regulation applicable to the Contribution, the
Distribution or the Merger disqualifies any one of such transactions or
combination thereof from tax-free treatment (determined without regard
to any IRS private letter ruling applicable thereto).
Section 9.2 Effect of Termination. In the event of a termination of this
Agreement by either the Company or Parent as provided in Section 9.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Merger Sub, the Company, Spinco or their
affiliates or respective officers or directors, other than the provisions of
Section 7.12; provided, however, that any such termination shall not relieve any
-------- -------
party from liability for any breach of this Agreement.
Section 9.3 Amendment. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of the Company but, after any such approval, no
amendment shall be made which by law requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
Section 9.4 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by the respective Boards of
Directors, may to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such exten-
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sion or waiver shall be valid only if set forth in a written instrument signed
on behalf of such party.
ARTICLE X
MISCELLANEOUS
Section 10.1 Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time, subject to the terms of the Indemnification Agreement.
Section 10.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given on the date delivered if delivered
personally (including by reputable overnight courier), on the date transmitted
if sent by telecopy (which is confirmed) or five days after being mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Parent or Merger Sub, to
Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, Illinois 60062
Attn: General Counsel
with a copy to
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attn: Gregory A. Fernicola
Telecopy: (212) 735-2000
and
(b) if to the Company or Spinco, to
Ametek, Inc.
Station Square
Paoli, Pennsylvania 19301
Attn: Chairman of the Board
with a copy to
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Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attn: David H. Kaufman
Telecopy: (212) 806-6006
Section 10.3 Interpretation.
(a) When a reference is made in this Agreement to Sections, such
reference shall be to a Section of this Agreement unless otherwise indicated.
The table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include," "includes" or "including" are used
in this Agreement they shall be deemed to be followed by the words "without
limitation." The phrases "the date of this Agreement," "the date hereof" and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to February 5, 1997.
(b) As used in this Agreement, any reference to the Company and
its Subsidiaries (as defined) means the Company and each of its Subsidiaries;
any reference to the "Retained Company" and its Subsidiaries or the Surviving
Corporation and its Subsidiaries means the Company and those of its direct and
indirect Subsidiaries comprising the Retained Business after giving effect to
the Distribution; any reference to Spinco and its Subsidiaries means Spinco at
the time of the Distribution and those entities that at or immediately prior to
the Distribution will be direct or indirect Subsidiaries of or merged with or
liquidated into Spinco; and reference to Subsidiaries of Spinco mean those
entities that at or immediately prior to the Distribution will be direct or
indirect Subsidiaries of or merged with or liquidated into Spinco. As used in
this Agreement, any reference to any event, change or effect having a material
adverse effect on or with respect to an entity means that such event, change or
effect is materially adverse to the business, properties, assets, liabilities,
results of operations or financial condition of such entity and its Subsidiaries
taken as a whole.
(c) As used in this Agreement, the word "Subsidiary" means, with
respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which (i) such party or any other Subsidiary
of such
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party is a general partner (excluding partnerships, the general partnership
interests of which held by such party or any Subsidiary of such party do not
have a majority of the voting interest in such partnership) or (ii) at least a
majority of the securities or other interests having by their terms ordinary
voting power to elect a majority of the Board of Directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party and/or by any one or
more of its Subsidiaries.
(d) As used in this Agreement, the term "Company Disclosure
Schedule" means the disclosure schedule delivered by the Company to Parent on
the date hereof which discloses various items or matters with respect to the
representations, warranties and covenants of the Company in this Agreement. Any
item or matter disclosed or referred to in the Company Disclosure Schedule with
respect to any Section or provision of this Agreement shall be deemed disclosed
for purposes of any other Section or provision of this Agreement to which it may
be applicable whether or not any cross reference appears in the Company
Disclosure Schedule. Disclosure of any item that may or may not be strictly
required to be disclosed by this Agreement shall not be deemed to imply that
such item is material, nor shall the inclusion of such an item create any
standard of materiality.
Section 10.4 Counterparts. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement and
shall become effective when a counterpart has been signed by each of the parties
and delivered to each of the other parties, it being understood that all parties
need not sign the same counterpart.
Section 10.5 Entire Agreement; No Third Party Beneficiaries. This
Agreement, the Ancillary Agreements (including the documents and the instruments
referred to herein and therein) and the Confidentiality Agreement (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and thereof, and (b) are not intended to confer upon any
person other than the parties hereto and thereto any rights or remedies
hereunder or thereunder.
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Section 10.6 Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware without regard to
any applicable conflicts of law principles.
Section 10.7 Specific Performance. The parties hereto agree that if any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to determine,
and that the parties shall be entitled to specific performance of the terms
hereof, in addition to any other remedy at law or equity.
Section 10.8 Publicity. Except as otherwise required by law, the rules
of National Association of Securities Dealers, Inc. or the rules of NYSE and
PSE, for so long as this Agreement is in effect, neither the Company nor Parent
shall, nor shall they permit any of their Subsidiaries to, issue or cause the
publication of any press release or other public announcement with respect to
the transactions contemplated by this Agreement or the Ancillary Agreements
without the consent of the other party, which consent shall not be unreasonably
withheld or delayed.
Section 10.9 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
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IN WITNESS WHEREOF, Parent, Merger Sub, the Company and Spinco have
caused this Agreement and Plan of Merger and Reorganization to be signed by
their respective officers thereunto duly authorized as of the date first written
above.
CULLIGAN WATER TECHNOLOGIES, INC.
By: /s/ Edward A. Christensen
------------------------------
Name: Edward A. Christensen
Title: Vice President, General
Counsel and Secretary
CULLIGAN WATER COMPANY, INC.
By: /s/ Edward A. Christensen
------------------------------
Name: Edward A. Christensen
Title: Vice President, General
Counsel and Secretary
AMETEK, INC.
By: /s/ John J. Molinelli
------------------------------
Name: John J. Molinelli
Title: Senior Vice President -
Chief Financial Officer
AMETEK AEROSPACE PRODUCTS, INC.
By: /s/ John J. Molinelli
------------------------------
Name: John J. Molinelli
Title: Senior Vice President -
Chief Financial Officer
<PAGE>
APPENDIX B
AMENDED AND RESTATED CONTRIBUTION AND DISTRIBUTION AGREEMENT
AMENDED AND RESTATED CONTRIBUTION AND DISTRIBUTION AGREEMENT,
dated as of February 5, 1997 (this "Agreement") between AMETEK, INC., a Delaware
corporation (the "Company"), and AMETEK AEROSPACE PRODUCTS, INC., a Delaware
corporation and a wholly owned subsidiary of the Company ("Spinco").
WITNESSETH
WHEREAS, the Company operates various lines of business through
divisions and/or subsidiaries (the "Businesses");
WHEREAS, one such line of business consists of the Company's
Plymouth Products Division and the Company's Ametek Filters Limited, APIC
International S.A., and AFIMO SAM subsidiaries (collectively, the "Retained
Business");
WHEREAS, the Company, Spinco, Culligan Water Technologies Inc., a
Delaware corporation ("Culligan"), and Culligan Water Company, Inc., a Delaware
corporation and a wholly owned subsidiary of Culligan ("Merger Sub"), are
parties to an Amended and Restated Agreement and Plan of Merger and
Reorganization dated the date hereof (the "Merger Agreement"), providing for the
merger of Merger Sub and the Company (the "Merger");
WHEREAS, it is a condition precedent to the Merger that the
Company spin-off Spinco to the Company's stockholders (the "Spin-off") and the
Board of Directors of the Company has determined that it is appropriate and
desirable that the Company contribute (as defined below) to Spinco all of its
assets and businesses other than the Retained Assets (as defined below) and that
Spinco assume the liabilities of the Company other than the Retained Liabilities
(as defined below), all as more particularly set forth below;
WHEREAS, it is further contemplated in the Merger Agreement that
following such contribution of assets and prior to the Effective Time (as
defined in the Merger Agreement), the Company effectuate the Spin-off by
distributing as a dividend to the holders of shares of common stock, par value
$.01 per share, of the Company (the "Company Common Stock") all of the
outstanding shares of common stock, par value $.01 per share, of Spinco (the
"Spinco Common Stock"), so that following the Spin-off, the Company will own no
shares of capital stock of Spinco (such distribution prior to the Effective Time
is hereinafter referred to as the "Distribution");
WHEREAS, it is the intention of the parties that following the
Distribution, Spinco will continue all of the Company's Businesses other than
the Retained Business
<PAGE>
(collectively, the "Spinco Businesses") and the Company will retain the Retained
Assets, the Retained Employees (as defined in the Merger Agreement) and the
Retained Liabilities;
WHEREAS, the purpose of the Distribution is to make possible the
Merger by divesting the Company of the businesses and operations to be conducted
by Spinco, which Culligan is unwilling to acquire; and
WHEREAS, the parties intend that the transactions contemplated
hereby and under the Merger Agreement qualify as a tax-free spin-off and
reorganization under Sections 368(a)(1)(D), 355 and 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended (the "Code");
WHEREAS, on February 5, 1997, the Company and Spinco entered into
the original Agreement and desire to amend and restate such Agreement in its
entirety as of the date of such original Agreement;
NOW, THEREFORE, in consideration of the mutual agreements
contained herein and in the other agreements and instruments executed in
connection with this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. CONTRIBUTION OF ASSETS.
1.1. Contribution of Assets. On the Distribution Date (as defined
below), subject to the conditions of this Agreement, the Company shall
contribute, convey, assign, transfer and deliver (collectively, "contribute") to
Spinco all of the right, title and interest of the Company in and to all of the
assets, properties, rights and business of the Company of every kind and
description, wherever located, other than the Retained Assets (collectively, the
"Contributed Assets"). Failure to identify specifically on applicable Schedules
hereto any assets, property or rights of the Company relating to the Spinco
Businesses that are intended to be contributed to Spinco pursuant to this
Agreement shall not exclude such assets, property or rights from the Contributed
Assets. Without limiting the generality of the definition of the Contributed
Assets, the Contributed Assets shall include the following:
(a) all real property owned in fee, and all leases, easements and
other rights and interests in real property owned by others, other than the
Retained Facility (as defined below), including, without limitation, the
properties listed on Schedule 1.1(a) hereto (collectively, the "Contributed
Realty");
(b) the shares of all of the capital stock of the subsidiaries listed
on Schedule 1.1(b) hereto (the "Spinco Subsidiaries") and all interests in any
joint ventures;
(c) all machinery, equipment, plant, vehicles, office furniture and
equipment, computer hardware, tools, spare parts, other chattels, fixtures,
leasehold improvements and fixed assets not included in the Retained Assets;
(d) all inventories of raw materials, supplies, work-in-process and
finished goods not included in the Retained Assets;
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(e) all accounts receivable not included in the Retained Assets;
(f) all purchase, sale and other orders from, and agreements with,
customers and vendors not included in the Retained Assets (the "Assigned
Orders");
(g) all other contracts, agreements, equipment leases, licenses and
other instruments not included in the Retained Assets (the "Assigned
Instruments");
(h) (i) all United States and foreign patents, patent applications,
patent disclosures, industrial designs, and inventions (whether or not
patentable and whether or not reduced to practice), (ii) all United States and
foreign registered and unregistered trademarks, service marks, domain names,
licenses, logos, sales materials and trade names, including, without limitation,
rights to the "Ametek" trademark, (iii) all registrations, applications and
renewals of any of the foregoing, (iv) all trade secrets, confidential
information, know-how, customer lists, software, formulae, manufacturing and
production processes and techniques, mask works, research and development
information, product designations, quality standards, investigations, drawings,
specifications, designs, plans, improvements, proposals, technical and computer
data, (v) all license agreements and sub-license agreements to and from third
parties relating to any of the foregoing, and (vi) all other proprietary rights
of the Company (collectively, the "Intellectual Property"), in each case to the
extent not included in the Retained Assets (collectively, the "Contributed
Intellectual Property"); provided that the Contributed Intellectual Property
shall include, without limitation, (A) the items listed or described in Schedule
1.1(h) hereto, (B) the right to file patents and patent applications
corresponding to any of the foregoing patents and patent applications, (C) all
of the Company's right to the "Ametek" name and to the use thereof, subject to
certain rights relating to the "Ametek" name as set forth in the Trademark
Agreement referred to in Section 2.2(h), and (D) any rights or licenses held by
the Company with respect to the use of any Intellectual Property owned by
others, except to the extent included in the Retained Assets;
(i) originals or true and complete copies of all books and records,
including customer and supplier lists, employee records, tax records, credit
files, quotations and bids, and all sales literature and specifications, in each
case not included in the Retained Assets;
(j) to the extent transferable, all governmental licenses, permits,
authorizations, consents and approvals required to carry on the Spinco
Businesses as now conducted;
(k) all cash and cash equivalents (including marketable securities),
except for cash being held in the accounts of the Retained Business as of the
Distribution Date (which shall not include any lockbox arrangements) and for an
amount (if any) equal to the sum of (i) 60% of the Special Offer Amount (as
defined below) and (ii) the Retained Option Amount (as defined below);
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(l) all prepaid expenses and deferred charges, prepaid insurance
deposits and insurance premiums and pension assets relating to the Spinco
Businesses;
(m) all insurance policies of the Company, including insurance
policies on executives of the Company (but excluding certain insurance policies
covering Retained Employees); provided that existing claims or claims arising
prior to the Distribution Date relating to the Retained Business and which
remain outstanding on the Distribution Date shall not be included in the
Contributed Assets and provided further that if Spinco holds any insurance
(excluding self-insurance) covering any such existing claim, the Company shall
be entitled to the benefits thereof to the extent that such coverage can be
enforced for the Company's benefit but subject to the conditions that Spinco's
experience ratings or premium costs not be adversely affected by enforcement,
that Spinco shall not be required to make any expenditure in connection with
such enforcement and that all cost of such enforcement shall be for the
Company's account.
(n) to the extent transferable, all rights to contribution protection
and covenants not to sue granted to the Company by third parties in connection
with environmental matters being assumed by Spinco;
(o) all proprietary or confidential business or technical
information, records and policy statements of the Company, which relate
generally to the Company or the Spinco Businesses rather than primarily to the
Retained Business, such as accounting procedures, instructions, organizational
manuals, strategic plans and other documents or materials of a general nature,
except that the Company shall retain non-exclusive rights to use such materials
which are presently used in the Retained Business;
(p) all proprietary or confidential business or technical information,
records and policy statements which primarily relate to any Spinco Business;
(q) the goodwill associated with the Spinco Businesses; and
(r) any other tangible or intangible personal property that is not
included in the Retained Assets;
all as the same shall exist on the Distribution Date, subject only to the
disposition of any assets by the Company prior to the Distribution Date,
provided that if any Contributed Asset is also material to the Retained
Business, the parties shall, on the Distribution Date, enter into such
reasonable arrangements, including licensing, sublicensing, leasing or
subleasing, as shall enable the Company to continue to use such asset in the
Retained Business perpetually and at no cost. No contract or agreement which is
by law not assignable without the consent of any party thereto shall be deemed
assigned pursuant to this Agreement unless and until such consent or a waiver
therefrom is given. The Company agrees to use commercially reasonable efforts to
obtain prior to the Distribution Date all such consents and waivers. If any such
consent or waiver is not obtained before the Distribution Date and the
Distribution is nevertheless consummated, the Company agrees to continue to use
its commercially reasonable efforts to obtain all such consents or waivers as
have not been obtained
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prior to such date and further agrees to cooperate with Spinco after such date
in any reasonable arrangement (such as subcontracting, sublicensing or
subleasing) designed to provide for Spinco, on terms at least as favorable as
those to which the Company is entitled, the benefits under the applicable
contract or agreement, including, without limitation, enforcement, at the cost
and for the benefit of Spinco, of any and all rights of the Company against any
other party thereto arising out of the breach or cancellation thereof by such
party; provided that Spinco will hold the Company harmless with respect to such
contracts or arrangements relating thereto.
1.2. The Retained Assets. The "Retained Assets" shall consist of the
-------------------
following:
(a) the parcel of real property described on Schedule 1.2(a) hereto,
together with all improvements thereon and all easements and appurtenances
inuring thereto (the "Retained Facility");
(b) the machinery, equipment, plant, vehicles, office furniture and
equipment, computer hardware, tools, spare parts, other chattels, fixtures,
improvements and fixed assets Related to the Retained Business (as defined
below), including the items listed on Schedule 1.2(b) hereto;
(c) the inventories of raw materials, supplies, work-in-process and
finished goods, whether on or off site or in transit, Related to the Retained
Business:
(d) the accounts receivable Related to the Retained Business;
(e) all purchase, sale and other orders from, and agreements with,
customers and vendors Related to the Retained Business (collectively, the
"Retained Orders"), including the orders listed on Schedule 1.2(e) hereto;
(f) all other contracts, agreements, equipment leases, licenses and
other instruments Related to the Retained Business (the "Retained Instruments"),
including the contracts listed on Schedule 1.2(f) hereto;
(g) the Intellectual Property Related to the Retained Business,
including the items listed on Schedule 1.2(g) hereto and the rights provided in
and subject to the Trademark Agreement;
(h) the outstanding capital stock of Ametek Filters Limited, APIC
International SA and AFIMO SAM (the "Retained Subsidiaries"); provided that any
director's qualifying shares of such subsidiaries will be transferred (with, to
the extent necessary, the assistance of Spinco) to any director appointed to the
board of directors of any Retained Subsidiary on or after the Closing (as
defined below);
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(i) all cash and cash equivalents being held in the accounts of the
Retained Business as of the Distribution Date (which shall not include any
lockbox arrangements) and an amount (if any) equal to the sum of (i) 60% of the
Special Offer Amount and (ii) the Retained Option Amount;
(j) the goodwill Related to the Retained Business;
(k) the books, records and data Related to the Retained Business;
(l) all insurance policies of the Company which cover only Retained
Employees, and an amount of cash equal to the account balances of Retained
Employees under the Company's Dependent and Health Care Reimbursement Plan as of
the Distribution Date (reduced by the amount of claims filed but not yet
processed as of that date, which claims will be processed and settled by
Spinco); and
(m) any other tangible or intangible personal property that is
Related to the Retained Business.
The items listed on any schedules referred to above are subject to change,
provided such change occurs in compliance with Section 6.1 of the Merger
Agreement. For purposes hereof, "Related to the Retained Business" shall mean
(x) with respect to tangible personal property, any such property that is
located on the premises of the Retained Facility, any such property located on
the premises of vendors, customers or distributors if it is primarily related to
the Retained Business and any other such property if it is used primarily in the
Retained Business; and (y) with respect to property that is neither real
property nor tangible personal property, any such property, wherever located, if
it is used primarily by, arises primarily from, or relates primarily to, the
Retained Business; provided, further, that if any asset included under clause
(x) or (y) above is also material to any of the Spinco Businesses, the parties
shall, on the Distribution Date, enter into such reasonable arrangements,
including licensing, sublicensing, leasing or subleasing, as shall enable Spinco
to continue to use such asset in the relevant Spinco Business perpetually and at
no cost.
1.3. Retained Liabilities. For purposes hereof, "Liabilities" shall
--------------------
mean all debts, obligations, liabilities and commitments of the Company of any
nature, whether absolute or contingent, monetary or non-monetary, direct or
indirect, known or unknown, matured or unmatured. For purposes hereof, the
"Retained Liabilities" shall mean all of the following:
(a) all Liabilities under the Retained Orders and the Retained
Instruments, including, without limitation, all Liabilities with respect to
sales orders placed for products of the Retained Business to the extent such
orders have not been filled as of the Distribution Date;
(b) all Liabilities (including contingent liabilities) with respect
to tort liability, general liability or other claims to the extent resulting
from or arising out of the Retained Business or the Retained Assets, including,
without limitation, any claim for personal injury,
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property damage or economic loss, resulting from or relating to any product
manufactured or sold, or service provided by, the Retained Business, whether
before, on or after the Distribution Date;
(c) all Liabilities under any laws concerning the disposal or release
of hazardous or toxic substances, public health and safety, or pollution or
protection of the environment relating to or arising out of the Retained
Facility or the Retained Business;
(d) all Liabilities relating to or arising out of the ownership or
use of the Retained Facility;
(e) all Liabilities for express or implied warranties given by the
Company to its customers with respect to products manufactured and sold, or
services rendered, by the Company relating to the Retained Business;
(f) the Retained Debt (as defined in the Merger Agreement);
(g) all accounts payable and accrued liabilities relating to the
Retained Business;
(h) all Liabilities reflected or reserved against on the Distribution
Date or reflected on the Audited Closing Balance Sheet (as defined in the Merger
Agreement) relating to the Retained Business;
(i) all employee-related Liabilities incurred prior to the
Distribution Date with respect to the Retained Employees for services rendered
prior to the Distribution Date, including, without limitation, salaries, wages,
incentive pay, severance benefits, vacation benefits, medical benefits,
disability benefits, life insurance benefits, and any other benefits incurred by
Retained Employees prior to the Distribution Date (except that Spinco shall
assume liability for (A) uninsured health, dental and vision benefits but only
with respect to claims incurred prior to the Distribution Date, and (B) those
benefits incurred by Retained Employees prior to the Distribution Date which are
covered by insurance policies assigned to and assumed by Spinco), and all
liability relating to or arising out of the Retained Division Hourly Employees'
Pension Plan (the "Retained Hourly Pension Plan");
(j) all obligations of the Company under this Agreement and the other
Ancillary Agreements (as defined in the Merger Agreement) to be performed after
the Distribution;
(k) all other Liabilities, whenever arising, to the extent that such
Liabilities arise out of or in connection with or are otherwise related to the
management or conduct of the Retained Business, including without limitation,
the products made, sold or distributed in connection with the Retained Business,
prior to, on or following the Distribution Date or the former, present or future
Retained Employees (but only with respect to the time any such individual was a
Retained Employee); provided that the Liabilities referred to in this clause (k)
shall not include any Liability expressly included in the Assumed Liabilities;
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(l) all Liabilities arising out of the operation of the Retained
Business following the Distribution Date.
1.4. Liabilities to be Assumed by Spinco. In connection with the
-----------------------------------
contribution of the Contributed Assets, Spinco shall assume, on the Distribution
Date, all of the Liabilities other than the Retained Liabilities (collectively,
the "Assumed Liabilities"), including:
(a) all Liabilities under the Assigned Orders and the Assigned
Instruments, including, without limitation, all Liabilities with respect to
sales orders placed for products of the Spinco Businesses to the extent such
orders have not been filled as of the Distribution Date;
(b) all Liabilities (including contingent liabilities) with respect
to tort liability, general liability or other claims to the extent resulting
from or arising out of the Spinco Businesses or the Contributed Assets,
including, without limitation, any claim for personal injury, property damage or
economic loss, resulting from or relating to any product manufactured or sold,
or service provided by, the Spinco Businesses, whether before, on or after the
Distribution Date;
(c) all Liabilities under any laws concerning the disposal or release
of hazardous or toxic substances, public health and safety, or pollution or
protection of the environment relating to or arising out of the Contributed
Realty or the Spinco Businesses;
(d) all Liabilities relating to or arising out of the ownership or
use of the Contributed Realty;
(e) all Liabilities for express or implied warranties given by the
Company to its customers with respect to products manufactured and sold, or
services rendered, by the Company relating to the Spinco Businesses;
(f) the principal amount of any bank debt of the Company as of the
Distribution Date, plus all interest, fee and other obligations with respect
thereto, other than the Retained Debt;
(g) ll accounts payable and accrued liabilities relating to the
Spinco Businesses;
(h) all Liabilities reflected or reserved against on the Distribution
Date relating to the Spinco Businesses;
(i) all employee-related Liabilities incurred prior to the
Distribution Date with respect to employees of the Company (other than the
Retained Employees), including, without
8
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limitation, salaries, wages, incentive pay, severance benefits, vacation
benefits, medical benefits, disability benefits, life insurance benefits, and
any other benefits incurred by such employees prior to the Distribution Date
(provided that Spinco shall also assume liability for (A) uninsured health,
dental and vision benefits incurred by Retained Employees prior to the
Distribution Date but only if claims therefor have been submitted prior to the
Distribution Date, and (B) those benefits incurred by Retained Employees prior
to the Distribution Date which are covered by insurance policies assigned to and
assumed by Spinco) and all liability relating to or arising out of the defined
benefit pension plans maintained by the Company other than the Plymouth Products
Hourly Pension Plan, and all liability relating to or arising out of the Spinco
Employees 401(k) Plan (as defined in Section 1.5(b) below);
(j) all Liabilities in respect of the Company's 9 3/4% Senior Notes
due 2004 and the Indenture, dated as of March 15, 1994, between the Company and
Corestates Bank, N.A. relating thereto;
(k) all other Liabilities, whenever arising, that arise out of or in
connection with or are otherwise related to the management or conduct of the
Spinco Businesses, including without limitation, the products made, sold or
distributed in connection with the Spinco Businesses, prior to, on or following
the Distribution Date or the former, present or future Spinco Employees (but
only with respect to the time any such individual was a Spinco Employee);
(l) all Liabilities arising out of the operation of the Spinco
Businesses following the Distribution Date; and
(m) all Liabilities relating to the Ketema Inc. spin-off and pursuant
to any agreements related thereto (including any amendments thereof).
1.5. Employees and Employee Benefit Plans.
------------------------------------
(a) Employment. The Company will terminate the employment of all
----------
employees of the Company, except the Retained Employees, as of the Distribution
Date. Spinco will, as of the Distribution Date, offer employment to all
employees of the Company who are employed on that date, except the Retained
Employees, on the same terms and conditions as such employees are employed by
the Company immediately prior to the Distribution Date; provided, however, that
an employee's ceasing to be an employee of the Company and being offered
employment by Spinco shall not constitute a termination or qualifying event
under any severance policy of the Company or otherwise (and, if applicable, the
Company will amend any such severance policy to so provide).
(b) 401(k) Plans. Effective as of the Distribution Date, Spinco shall
------------
adopt the Company's 401(k) Plan, and shall assume all liabilities for benefits
thereunder, regardless of whether such benefits accrued before or after the
Distribution Date, and shall be responsible for all contributions to be made to
the Company's 401(k) Plan, regardless of whether such obligation to contribute
relates to services performed before or after the Distribution Date. Effective
as of
9
<PAGE>
the Distribution Date, the Retained Employees shall not be eligible to make any
contributions, or have the Company make any contributions on their behalf, to
the Company's 401(k) Plan. As soon as practicable on or after the Effective Time
(as defined in the Merger Agreement) of the Merger, Spinco shall cause the
Company's 401(k) Plan to initiate a direct plan-to-plan transfer to Culligan's
401(k) Plan of the account balances of the Retained Employees (including, if
applicable, any outstanding participant loans to the extent that the transfer of
such loans will not cause a taxable distribution to the participant, subject to
each such Retained Employee's executing a loan agreement for the balance of such
loans with Culligan's 401(k) Plan) under the Company's 401(k) Plan; provided
that Culligan's 401(k) Plan, shall have agreed to accept such transfer.
(c) Welfare Plans. Effective as of the Distribution Date, Spinco
-------------
shall assume all severance, vacation, medical, disability, life insurance,
split-dollar and any other welfare benefit plans covering employees (and their
spouses and dependents), other than the Retained Employees, and their spouses or
dependents, (including any insurance policies maintained under or in connection
with welfare benefit plans or split-dollar arrangements being assumed by Spinco)
or, in the event any such arrangement or plan covers both Retained Employees and
Spinco Employees, Spinco shall only assume the portion of such arrangement or
plan relating to the Spinco Employees and, in either case, Spinco shall be
liable for all benefits thereunder with respect to the Spinco Employees (and
their spouses and dependents), including benefits for covered expenses incurred,
and benefits accrued, prior to the Distribution Date; provided that Spinco shall
not apply any pre-existing condition exclusion or limitation to a Spinco
Employee unless it applied immediately prior to the Distribution Date. Prior to
the Distribution Date, the Company shall use its best efforts to obtain the
consent of any life insurance or disability insurance carrier of any policy
covering both Retained Employees and Spinco Employees to split the policy into
two separate policies, one covering only Retained Employees ("Retained Employees
Welfare Benefit Insurance Policies") and the other covering only Spinco
Employees ("Spinco Employees Welfare Benefit Insurance Policies"); in the event
that an insurance carrier agrees to the splitting of existing insurance policies
as aforesaid, then, effective as of the Distribution Date, Spinco shall only
assume the Spinco Employee Welfare Benefit Insurance Policies (and not the
Retained Employees Welfare Benefit Insurance Policies). Effective as of the
Distribution Date, Spinco will also assume liability (i) for those uninsured
health, dental and vision benefits incurred by Retained Employees prior to the
Distribution Date but only if claims therefor have been incurred prior to such
Distribution Date and (ii) for those benefits incurred by Retained Employees
prior to the Distribution Date which are covered by insurance policies assigned
to and assumed by Spinco. Effective as of the Distribution Date, Spinco shall
also be liable for any retiree medical benefits to retired Company employees and
their dependents, pursuant to the retiree medical plans or policies of the
Company.
(d) Defined Benefit Plans. Effective as of the Distribution Date,
---------------------
Spinco shall adopt the Company's defined benefit pension plans other than the
Retained Hourly Pension Plan (the "Spinco Pension Plans"), subject to the
provision that each employee of the Company shall be given credit, for all
purposes under said Plans, for service before the Distribution Date recognized
by said Plans before the Distribution Date. Spinco shall, as of the date of its
adoption
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<PAGE>
of the Spinco Pension Plans, assume all liabilities for benefits thereunder,
regardless of whether such benefits accrued before or after the Distribution
Date, and shall be responsible for all funding obligations thereunder,
regardless of whether such funding obligations relate to services performed
before or after the Distribution Date. Effective as of the Distribution Date,
Spinco shall assume the Company's Group Pension Trust, and any individual or
sub-trust thereunder, except for any trust maintained solely in connection with
the Retained Hourly Pension Plan. As soon as practicable on or after the
Distribution Date, Spinco shall cause the assets of the Retained Hourly Pension
Plan which are held in the Group Pension Trust to be transferred to such trustee
or trustees or other funding agencies as shall be designated by the Company
under the Retained Hourly Pension Plan; pending said transfer of assets, Spinco
shall cause all payments to retirees and beneficiaries under the Retained Hourly
Pension Plan to continue to be made from the Group Pension Trust and shall
charge any and all such payments, and the related expenses, if any, to the
interest of the Retained Hourly Pension Plan thereunder. Spinco shall cause the
Company's Salaried Pension Plan to be amended to provide that Retained Employees
shall not be considered terminated until they terminate employment with the
Company, at which time they shall be entitled to benefits in accordance with the
terms of the Company's Salaried Pension Plan (which shall have been adopted by
Spinco) based upon their benefits accrued as of the Distribution Date; provided,
however, that each Retained Employee's final average annual compensation shall
be determined by treating compensation earned with the Company after the
Distribution Date as if it were compensation earned with Spinco, but the
Retained Employee's annual compensation for each year after 1996 which shall be
recognized for purposes of the Company's Salaried Pension Plan will be limited
to an amount equal to such Retained Employee's 1996 plan compensation, increased
by 5% per annum, compounded annually; and, provided further, that periods of
service with the Company after the Distribution Date shall be treated as service
with Spinco for purposes of determining a Retained Employee's vesting and
eligibility for early retirement, disability and pre-retirement death benefits
under the Salaried Pension Plan (but not for the purpose of determining the
benefit amount thereof).
(e) Stock Option and Stock Incentive Plans. Prior to the Distribution
--------------------------------------
Date, Spinco shall adopt one or more stock option, stock incentive or similar
plans or arrangements for Spinco's eligible employees and directors, which plans
or arrangements shall be subject to approval by the Company, as the sole
stockholder of Spinco, prior to the Distribution Date. Effective as of the
Distribution Date, all outstanding options to purchase Company Common Stock held
by employees other than the Retained Employees, whether or not such options are
then exercisable, shall be assumed by Spinco and shall be exercisable upon the
same terms and conditions as under the applicable option and the Company stock
option or stock incentive plan, except that each such option shall be
exercisable for a whole number of shares of Spinco Common Stock and for a per
share exercise price such that the aggregate spread between the value of the
Company Common Stock and the exercise price immediately before the Distribution
Date, and the per share ratio between the value of the Company Common Stock and
the exercise price immediately before the Distribution Date, shall be preserved,
in accordance with Treasury Regulations (S)1.425-1 and in such a manner as
will not cause such assumption to be considered a "modification" of the option
under said section (or would not cause such assumption to be a modification of
the option if such option were an incentive stock option under Section 422 of
the
11
<PAGE>
Code). All stock appreciation rights granted with respect to Company Common
Stock held by employees other than the Retained Employees, whether or not then
exercisable, shall be assumed by Spinco and shall be exercisable upon the same
terms and conditions as under the applicable stock appreciation rights and the
Company stock option or stock incentive plan, except that each such stock
appreciation right shall be exercisable with respect to a whole number of shares
of Spinco Common Stock and with respect to an adjusted base value such that the
aggregate spread between the value of the Company Common Stock and the base
value of the stock appreciation right immediately before the Distribution Date,
and the per share ratio between the value of the Company Common Stock and the
base value of the stock appreciation right immediately before the Distribution
Date, shall be preserved.
As soon as practicable after the signing of this Agreement, the
Company shall amend each stock option previously granted to a Retained Employee
to provide that for a period beginning not later than March 20, 1997 and ending
3 business days prior to the Distribution Date (the "Special Offer Period"),
each Retained Employee (i) shall be entitled to exercise his stock option or
options in full, without regard to the limitations on exercise to which the
option is otherwise subject, and (ii) that the Retained Employee shall have the
right, in the alternative, during the Special Offer Period, to surrender such
option or options, in whole or in part, and to receive from the Company an
amount equal to the excess of the aggregate Average Company Share Price (as
defined below) of the shares of stock subject to the surrendered options over
the aggregate exercise price thereof (such aggregate amount being referred to as
the "Special Offer Amount") (60% of such amount shall be retained by the
Company), payable in cash within ten days after the Effective Time (as defined
in the Merger Agreement) of the Merger (the "Special Offer"), provided that the
exercise or the surrender of options pursuant to the Special Offer shall be
contingent upon the consummation of the Merger pursuant to the Merger Agreement,
and provided further that the Special Offer shall expire at the end of the
Special Offer Period and any options held by Retained Employees and not
exercised or surrendered pursuant to the terms of the Special Offer (the
"Retained Options") shall thereafter continue in accordance with their terms as
in effect prior to the Special Offer, adjusted as described in the following
paragraph. In addition to, but not in diminution, of, the Company's obligation
to provide the Special Offer, the Company may take such further reasonable steps
as are appropriate to encourage Retained Employees to exercise their stock
options prior to the Distribution Date. If there are any Retained Options on the
Distribution Date, whether or not then exercisable, Spinco shall cause to be
retained by the Company at the Distribution Date an amount of cash equal to the
spread between the aggregate Average Company Share Price and the aggregate
exercise price for such Retained Options (the "Retained Option Amount"). For
purposes of this Subsection (e), the "Average Company Share Price" shall be
equal to the average of the closing prices of the Company Common Stock on the
New York Stock Exchange Composite Transactions Reporting System, as reported in
the Wall Street Journal, for the ten (10) trading days ending on the second
trading day immediately prior to the Effective Time (as defined in the Merger
Agreement) of the Merger.
Effective as of the Distribution Date, the Company shall continue
to maintain its stock option and stock incentive plans and shall cause each
Retained Option, whether or not then
12
<PAGE>
exercisable, granted to a Retained Employee thereunder to be adjusted so that
each such option shall be exercisable for a whole number of shares of Company
Common Stock and for a per share exercise price such that the aggregate spread
between the value of the Company Common Stock and the exercise price immediately
before the Distribution Date, and the per share ratio between the value of the
Company Common Stock and the exercise price immediately before the Distribution
Date, shall be preserved, in accordance with Treasury Regulations (S)1.425-1
and in such a manner as will not cause such assumption to be considered a
"modification" of the option under said section (or would not cause such
assumption to be a modification of the option if such option were an incentive
stock option under Section 422 of the Code). All stock appreciation rights held
by Retained Employees granted with respect to Company Common Stock shall
continue to be exercisable upon the same terms and conditions as prior to the
Distribution Date under the applicable stock option or stock incentive plan,
except that the Company shall cause each such stock appreciation right to be
adjusted so that it shall be exercisable with respect to a whole number of
shares of Company Common Stock and with respect to an adjusted base value such
that the aggregate spread between the value of the Company Common Stock and the
base value of the stock appreciation right immediately before the Distribution
Date, and the per share ratio between the value of the Company Common Stock and
the base value of the stock appreciation right immediately before the
Distribution Date, shall be preserved. In addition, the Retained Options as
adjusted pursuant to the terms of this paragraph, shall upon the consummation of
the Merger be further adjusted (by the compensation committee of the Company
following the Merger) in accordance with the terms of the Company's stock option
and stock incentive plans which provide for adjustments in the event of a merger
involving the Company.
(f) Bonuses. Effective as of the Distribution Date, Spinco shall
-------
assume all liability for bonuses payable to employees other than the Retained
Employees for 1997 pursuant to the Company's bonus plan, and the amount of such
bonuses shall be calculated without regard to the occurrence of the
Distribution.
(g) Workers' Compensation. Effective as of the Distribution Date,
---------------------
Spinco shall assume all liability, including liability that arose prior to the
Distribution Date, for workers' compensation claims by employees other than the
Retained Employees, without regard to the date on which such claims become
payable. The Company shall continue to be responsible for all liability,
including liability that arose prior to the Distribution Date, for workers'
compensation claims by Retained Employees (or former employees of the Retained
Business), without regard to the date on which such claims become payable.
(h) Preservation of Employee Plans. Except as provided in Section
------------------------------
4.1, no provision of this Agreement shall be construed as a limitation on the
right of the Company or Spinco to amend or terminate any employee plan which the
Company or Spinco would otherwise have under the terms of such employee plan or
otherwise.
1.6. Tax Liabilities; Indemnification. Notwithstanding any provision
--------------------------------
herein to the contrary, any and all liabilities relating to taxes shall be
allocated solely in accordance with
13
<PAGE>
the provisions of the Tax Allocation Agreement (as defined in the Merger
Agreement). Nothing contained in this Section 1 or elsewhere in this Agreement
shall prejudice the rights of any party under the Indemnification Agreement (as
defined in the Merger Agreement) or the Tax Allocation Agreement.
1.7. Distribution of Subsidiary Stock; Merger of Subsidiaries; Spinco
----------------------------------------------------------------
Charter and Related Matters.
- ---------------------------
(a) Immediately prior to the Distribution Date, the Company shall
cause its wholly-owned subsidiary, API (UK), to effect a dividend of the shares
of Ametek Filters Limited then held by API (UK) to the Company.
(b) Immediately prior to the Distribution Date, the Company shall
cause its direct, wholly owned subsidiary, Amespace Inc., which owns 100% of the
outstanding capital stock of Spinco, to merge with and into Spinco, with Spinco
being the surviving corporation.
(c) Prior to the Distribution Date, the Company and Spinco shall
cause (i) the certificate of incorporation and by-laws of Spinco to be amended
and restated, in such form and with such provisions as the board of directors of
Spinco shall specify and (ii) Spinco to adopt and enter into a shareholders
rights agreement in the form and with the provisions specified by the board of
directors of Spinco.
1.8. Issuance of Spinco Common Stock to the Company. Spinco shall
----------------------------------------------
issue to the Company, contemporaneously with the contribution by the Company to
Spinco of the Contributed Assets and the assumption by Spinco of the Assumed
Liabilities, as contemplated in Sections 1.1 and 1.3, respectively, such
additional number of shares of Spinco Common Stock as may be required in order
for the Company to fulfill its obligations pursuant to Section 3.2.
1.9. Certain Transaction Costs.
-------------------------
(a) The parties shall share equally all of the following costs: (i)
printing and mailing costs with respect to the Registration Statements (as
defined in the Merger Agreement), (ii) costs of obtaining the auditied financial
statements required for the Registrations Statements, (iii) filing fees with
respect to the Registration Statements and (iv) the filing fee required under
the HSR Act (as defined in the Merger Agreement) in connection with the Merger.
(b) The parties shall share equally all taxes and other governmental
assessments, charges or levies, costs of title insurance and other conveyance
costs which arise or are incurred (i) in connection with the transfer of the
Contributed Assets to Spinco pursuant to the Distribution and (ii) in connection
with or as a result of the Merger, in each case including but not limited to all
sales, value-added, registration, transfer (including documentary and stamp) or
similar taxes, whether domestic or foreign, but excluding any taxes based upon
the Company's net income.
14
<PAGE>
(c) Nothwithstanding anything herein to the contrary, the maximum
amount for which the Company shall be liable under Sections 1.9(a) and 1.9(b)
shall not exceed $1,500,000 in the aggregate.
2. CLOSING.
2.1. Closing and Distribution Date. Subject to Section 5, the closing
-----------------------------
of the transactions contemplated in this Agreement (the "Closing") shall take
place at such place and on such date (within three business days after all of
the conditions precedent set forth in Section 5 to be satisfied prior to the
Closing have been satisfied or waived) as shall be agreed upon by the parties
(the "Distribution Date").
2.2. Company Deliveries. At the Closing, the Company shall execute and
------------------
deliver to Spinco:
(a) one or more bills of sale and instruments of assignment
substantially in the form of Exhibit A hereto, duly executed by the Company;
(b) full warranty deeds, with recourse limited to title insurance,
duly executed by the Company, with respect to such of the Contributed Realty as
is owned in fee by the Company;
(c) assignments of the leases included in the Contributed Realty,
duly executed by the Company;
(d) assignments of the Contributed Intellectual Property, duly
executed by the Company;
(e) assignments of the Assigned Orders and the Assigned Instruments,
duly executed by the Company;
(f) a distribution agency agreement (the "Distribution Agency
Agreement") between the Company and the Company's transfer agent (the
"Distribution Agent") relating to the Distribution in form and substance
satisfactory to the parties thereto and duly executed by the Company and such
transfer agent;
(g) all cash, cash equivalents and marketable securities then held by
the Company constituting Contributed Assets;
(h) the Trademark Agreement (as defined in the Merger Agreement),
duly executed by the Company;
(i) the Tax Allocation Agreement, duly executed by the Company;
15
<PAGE>
(j) the Transition Services Agreement (as defined in the Merger
Agreement), duly executed by the Company;
(k) the Indemnification Agreement, duly executed by the Company;
(l) an assignment, duly executed by the Company, of the following
rights of the Company under the Confidentiality Agreement, dated September 27,
1996, between the Company and Culligan: (i) the confidentiality obligations of
Culligan thereunder insofar as they relate to any Evaluation Material (as
therein defined) that does not pertain primarily to the Retained Business, (ii)
the agreement by Culligan that no representation has been made regarding the
Evaluation Material and that no liability shall be asserted based on the use
thereof, (iii) the standstill provisions contained therein and (iv) any
provisions of general applicability (such as governing law and choice of
jurisdiction) to the extent relevant to the foregoing; and
(m) all such other conveyances, deeds, assignments, confirmations,
powers of attorney, and other instruments, duly executed by the Company, as
Spinco shall determine are necessary, expedient or proper in order to effectuate
the contribution of the Contributed Assets as contemplated hereby.
2.3. Spinco Deliveries. At the Closing, Spinco shall execute and
-----------------
deliver to the Company:
(a) an Instrument of Assumption substantially in the form and
substance reasonably satisfactory to the parties hereto (the "Instrument of
Assumption"), duly executed by Spinco;
(b) a certificate or certificates representing all of the outstanding
shares of common stock of Spinco, in the number determined in accordance with
Section 3.2(f), for delivery to the Distribution Agent for distribution pursuant
to the Distribution Agency Agreement.
(c) the Trademark Agreement, duly executed by Spinco;
(d) the Tax Allocation Agreement, duly executed by Spinco;
(e) the Transition Services Agreement, duly executed by Spinco; and
(f) the Indemnification Agreement, duly executed by Spinco.
3. THE DISTRIBUTION.
3.1. Cooperation Prior to the Distribution. As promptly as practicable
-------------------------------------
after the date hereof and prior to the commencement of business on the
Distribution Date, the Company
16
<PAGE>
and Spinco shall take all such action as may be necessary or appropriate to
effect the Distribution, including without limitation the specific actions set
forth in Section 3.2 or Section 3.3 as applicable.
3.2. The Distribution.
----------------
(a) The Company and Spinco shall prepare and Spinco shall file with
the Securities and Exchange Commission (the "SEC"), a registration statement on
Form 10 (the "Form 10") to effect the registration of the Spinco Common Stock
pursuant to the Securities Exchange Act of 1934, as amended and the rules and
regulations promulgated thereunder (the "Exchange Act"). The Company and Spinco
shall use reasonable efforts to cause the Form 10 to be declared effective under
the Exchange Act or, if the Company reasonably determines that the Distribution
may not be effected without registering the Spinco Common Stock pursuant to the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder (the "Securities Act"), the Company shall use its best efforts to
cause the Spinco Common Stock to be registered pursuant to the Securities Act,
and thereafter effect the Distribution in accordance with the terms of this
Agreement, including without limitation, using its best efforts to cause such
registration statement to be declared effective.
(b) The Company and Spinco shall cooperate in preparing, filing with
the SEC and causing to become effective any registration statements or
amendments thereto which are appropriate to reflect the establishment of, or
amendments to, any employee benefit and other plans contemplated in this
Agreement to be in effect for Spinco.
(c) The Company and Spinco shall take all such action as may be
necessary or appropriate under any applicable state securities or blue sky laws
or other applicable laws in connection with the transactions contemplated in
this Section 3.2.
(d) The Company and Spinco shall prepare, and Spinco shall file and
seek to make effective, an application to permit listing or quotation of the
Spinco Common Stock on New York Stock Exchange and the Pacific Stock Exchange.
(e) The Company's Board of Directors (or any duly appointed committee
thereof) shall in its sole discretion establish the record date for the
Distribution (the "Distribution Record Date") and the Distribution Date and any
appropriate procedures in connection with the Distribution (subject in each case
to the provisions of applicable law); such action shall not create any
obligation on the part of the Company to effect the Distribution. In no event,
however, shall the Distribution occur prior to such time as (i) the Form 10 or
other registration statement referred to in Section 3.2(a) shall have been
declared effective by the SEC, (ii) the Spinco Common Stock shall have been
approved for listing or quotation in accordance with Section 3.2(d) and (iii)
the conditions set forth in Section 5 have been satisfied or waived.
(f) Subject to Section 5, following the Distribution Record Date, but
prior to the Distribution Date, the Company shall deliver to the Distribution
Agent one or more share
17
<PAGE>
certificates representing all of the outstanding shares of Spinco Common Stock
to be distributed in the Distribution and shall instruct the Distribution Agent
to distribute on the Distribution Date one share of Spinco Common Stock for each
share of Company Common Stock held by holders of record of such stock on the
Distribution Record Date. Spinco agrees to provide all share certificates that
the Distribution Agent shall require in order to effect the Distribution. All
shares of Spinco Common Stock issued in the Distribution shall be duly
authorized, validly issued, fully paid, non-assessable and free of preemptive
rights.
(g) Immediately upon consummation of the Distribution the Company
shall not hold or beneficially own directly or indirectly any shares of Spinco
Common Stock.
3.3. Company Approval of Certain Spinco Actions. Unless otherwise
------------------------------------------
provided in this Agreement, the Company shall cooperate with Spinco in
effecting, and if so requested by Spinco, the Company shall, as the sole
stockholder of Spinco ratify any actions that are reasonably necessary or
desirable to be taken by Spinco to effectuate, prior to the Distribution Date,
the transactions contemplated in this Agreement in a manner consistent with the
terms of this Agreement, including, without limitation, the following : (a) the
preparation and approval of the Certificate of Incorporation and By-laws of
Spinco to be in effect at the Distribution Date; (b) the election or appointment
of directors and officers of Spinco to serve in such capacities commencing on
the Distribution Date; (c) the adoption, preparation and implementation of
appropriate employee benefit plans on the Distribution Date; (d) the adoption,
preparation and implementation of appropriate plans, agreements and arrangements
for Spinco employees and Spinco non-employee directors (including, without
limitation, plans, agreements or arrangements pursuant to which securities of
Spinco would be acquired by employees); and (e) the registration under
applicable securities laws of any securities of Spinco issued or distributed
pursuant to Section 3.2 and any securities issuable pursuant to employee benefit
plans as contemplated in clause (c) above.
3.4. Elimination of Intercompany Accounts. The net amounts of all
------------------------------------
intercompany receivables, payables and indebtedness between the Company and
Retained Subsidiaries, on the one hand, and Spinco and the Spinco Subsidiaries,
on the other hand, as of the Distribution Date, will be satisfied in full by
capital contribution without any further documentation, as of the Distribution
Date.
3.5. Resignations. The Company shall cause all employees, other than
------------
the Retained Employees, to resign, effective as of the Distribution Date, from
all positions as officers or directors of the Company or as officers or
directors of any Company subsidiary in which they serve; provided, however, that
such employees shall be offered the same position as officer or director of
Spinco as of the Distribution Date.
3.6. Guarantees. The Company and Spinco shall each use its best
----------
efforts to have, on or prior to the Distribution Date, or as soon as practicable
thereafter, the Company or any Company subsidiary removed as guarantor of or
obligor for any indebtedness or obligations for which Spinco or any Spinco
Subsidiary is primarily liable. Spinco shall indemnify, defend
18
<PAGE>
and hold harmless the Company from and against any and all liabilities of the
Company arising from a guarantee or other obligation of the Company for which
Spinco is primarily liable.
3.7. Litigation.
----------
(a) With respect to any action, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other
regulatory or administrative agency or commission or any arbitration tribunal
(collectively, any "Action") now pending or which may hereafter be commenced or
threatened relating to or arising from the Spinco Businesses which may result in
liability for the Company, the Company and Spinco shall each use its best
efforts to have Spinco or a Spinco subsidiary substituted as parties to such
Action in the place of and for the Company, any Retained Subsidiary or any
Retained Employee and to have the Company, any Retained Subsidiary or any
Retained Employee removed as parties to such Action following the Distribution
Date.
(b) With respect to all Actions now pending or which may hereafter be
commenced or threatened relating to or arising from the Retained Business which
may result in liability for Spinco, the Company and Spinco shall each use its
best efforts to have the Company substituted as a party to such Action in the
place of and for Spinco, any Spinco subsidiary or any employee of Spinco and to
have Spinco, any Spinco subsidiary or any employee of Spinco removed as parties
to such Action following the Distribution Date.
(c) At all times from and after the Distribution Date, each of the
Company and Spinco shall use reasonable efforts to make available to the other
upon written request its and its subsidiaries' officers, directors, employees
and agents as witnesses to the extent that such persons may reasonably be
required in connection with any Actions in which the requesting party may from
time to time be involved (without reimbursement for such persons' salaries).
(d) At all times from and after the Distribution Date, each of the
Company and Spinco shall use reasonable efforts to make available to the other
upon written request its and its subsidiaries records, books, contracts,
instruments, computer data and other data which may reasonably be required in
connection with any Actions in which the requesting party may from time to time
be involved.
4. COVENANTS.
4.1. Employee Plans
--------------
(a) The Company shall continue to employ the Retained Union Employees
immediately after the Distribution Date under the terms and conditions of the
Collective Bargaining Agreements.
(b) The Company shall continue to employ the Retained Employees other
than the Retained Union Employees immediately after the Distribution Date on the
same terms
19
<PAGE>
and conditions as they are employed immediately prior to the Distribution Date.
For the two year period following the Distribution Date, the Company agrees that
the compensation and benefit levels for any such Retained Employees who continue
to be employed by the Company will be generally comparable in the aggregate as
those in effect for such Retained Employees immediately prior to the
Distribution Date.
(c) The Company shall give the Retained Employees (including Retained
Union Employees) credit for their service with the Company prior to the
Distribution Date for all purposes, including eligibility, vesting and benefit
accrual under any vacation policy or any employee benefit plan covering the
Retained Employee (whether in existence as of the Distribution Date or adopted
thereafter); provided, however, that the Company shall not be required to
provide such past service credit for purposes of benefit accrual under any
pension or retirement plan other than with respect to Retained Union Employees.
Except as otherwise provided in this Section 4.1, the Company or any successor
shall have the right to amend and terminate any of its employee benefit plans,
programs or arrangements at any time in accordance with applicable law. In the
event the Company or any successor thereto shall terminate the services of any
Retained Employee within a two year period following the Distribution Date, the
Company or any successor thereto shall pay severance pay to such Retained
Employee in an amount no less than the amount that such employee would have
received if the severance policy of the Company in effect immediately prior to
the Distribution Date had been in effect on the date of such Employee's
termination. In addition, following the consummation of the Merger, medical,
disability and life insurance benefits for the Retained Employees (including the
Retained Union Employees) shall be available without any exclusions or
limitations for pre-existing conditions or treatments or waiting periods for
eligibility (other than any pre-existing condition that was not waived by the
Company's corresponding plan prior to the consummation of the Merger.
4.2. Licenses and Permits. Each party hereto shall prepare and file
--------------------
with the appropriate licensing and permitting authorities for the transfer or
issuance, as may be necessary or advisable in connection with the Distribution,
of all governmental licenses and permits required in order for each of the
Company and Spinco to operate the Retained Business and the Spinco Businesses,
respectively, following the Distribution.
5. CONDITIONS.
5.1. General Condition. The respective obligations of each party
-----------------
hereto to consummate the Distribution and to perform all other obligations set
forth herein are subject to the satisfaction or waiver (as provided for therein)
of all of the conditions set forth in Section 8.1 and Section 8.3 of the Merger
Agreement.
5.2. Conditions to the Obligations of the Company. The obligations of
--------------------------------------------
the Company to consummate the Distribution and to perform all other obligations
set forth herein are subject to the satisfaction or waiver of the condition that
Spinco shall have effected its assumption of the Assumed Liabilities, as
contemplated in Section 1.4.
20
<PAGE>
5.3. Conditions to the Obligations of Spinco. The obligations of
---------------------------------------
Spinco to consummate the transactions contemplated herein and to perform all
other obligations set forth herein are subject to the satisfaction or waiver of
the condition that the Company shall have contributed to Spinco the Contributed
Assets, as contemplated in Section 1.1.
5.4. Other Approvals. All authorizations, consents, orders or
---------------
approvals of, or declarations or filings with, or expirations of waiting periods
imposed by, any governmental entity or other public or private entity the
failure of which to obtain would have a material adverse effect on either Spinco
or the Company, shall have been filed, occurred, or been obtained.
6. ACTS AND INSTRUMENTS OF TRANSFER.
6.1. Acts and Instruments. Whenever reasonably requested to do so by
--------------------
Spinco, on or after the Distribution Date, the Company shall do, execute,
acknowledge and deliver all such acts, bills of sale, assignments,
confirmations, consents, other instruments and documents, in form reasonably
satisfactory to Spinco and its counsel, as shall be reasonably necessary or
advisable to carry out the intent of this Agreement and to vest in Spinco all
the right, title and interest of the Company in and to the Contributed Assets.
The Company shall take such steps as may be required to put Spinco in actual
possession and control of the Contributed Assets as of the time of Closing.
6.2. Authorization to Spinco. Without limiting in any respect the
-----------------------
right, title and interest in and to the Contributed Assets to be acquired by
Spinco hereunder, effective upon the Closing, the Company hereby irrevocably
authorizes Spinco, and its successors and assigns: to demand and receive, from
time to time, any and all of the Contributed Assets, to give receipts and
releases for or in respect of the same, to collect, assert or enforce any claim,
right or title of any kind therein or thereto and, for such purpose, from time
to time, to institute and prosecute in the name of the Company, or otherwise,
any and all proceedings at law, in equity or otherwise, which Spinco shall deem
expedient or desirable. The Company further agrees that Spinco shall retain for
its own account any amounts collected pursuant to the foregoing authorization,
and the Company agrees to pay to Spinco, if and when received (but subject to
Section 8.3), any amounts which shall be received by the Company after the
Distribution Date in respect of any of the Contributed Assets. Without limiting
in any respect the Company's right, title and interest in and to the Retained
Assets, effective upon the Closing, Spinco hereby irrevocably authorizes the
Company and its successors and assigns: to demand and receive, from time to
time, any and all of the Retained Assets, to give receipts and releases for or
in respect of the same, to collect, assert or enforce any claim, right or title
of any kind therein or thereto and, for such purpose, from time to time, to
institute and prosecute in the name of Spinco, or otherwise, any and all
proceedings at law, in equity or otherwise, which the Company shall deem
expedient or desirable. Spinco further agrees that the Company shall retain for
its own account any amounts collected pursuant to the foregoing authorization,
and Spinco agrees to pay to the Company, if
21
<PAGE>
and when received (but subject to Section 8.3), any amounts which shall be
received by Spinco after the Distribution Date in respect of the Retained
Assets.
7. CORRESPONDENCE AND RECORDS.
7.1. Correspondence. The Company hereby authorizes Spinco, on and
--------------
after the Distribution Date, to receive and open mail addressed to the Company
and to deal with the contents thereof in a responsible manner, provided that
such mail relates (or reasonably appears to relate) to the Spinco Businesses,
the Contributed Assets or the Assumed Liabilities. Spinco shall deliver to the
Company any mail which relates to the Retained Business, the Retained Assets or
the Retained Liabilities addressed to the Company which is delivered to and
received by it. Spinco hereby authorizes the Company, on and after the
Distribution Date, to receive and open mail addressed to Spinco and to deal with
the contents thereof in a responsible manner, provided that such mail relates
(or reasonably appears to relate) to the Retained Business, the Retained Assets
or the Retained Liabilities. The Company shall deliver to Spinco any mail which
relates to the Spinco Businesses, the Contributed Assets or the Assumed
Liabilities addressed to Spinco which is delivered to and received by it.
7.2. Change of Name. Upon consummation of the Merger, the Company will
--------------
change its name to a name that does not use the word "Ametek" or any variation
thereof and shall itself cease all use of the "Ametek" name. Effective at the
Distribution Date, Spinco will change its name to "Ametek" and shall own all
rights to the "Ametek" name and logo. The Company shall not have any right to
use the "Ametek" name except in accordance with the terms and conditions of the
Trademark Agreement.
8. OTHER AGREEMENTS.
8.1. Further Assurances. In addition to the actions specifically
------------------
provided for elsewhere in this Agreement, each of the parties hereto shall use
its best efforts to take, or cause to be taken, all actions, and to do, or cause
to be done, all things, reasonably necessary, proper or advisable under
applicable laws, regulations and agreements to consummate and make effective the
transactions contemplated in this Agreement, including, without limitation,
using its best efforts to obtain the consents and approvals to enter into any
amendatory agreements and to make the filings and applications necessary or
desirable to have been obtained, entered into or made in order to consummate the
transactions contemplated by this Agreement.
8.2. Insurance. On or before the Distribution Date, the Company shall
---------
transfer and assign to Spinco all of the Company's insurance policies other than
any policy which relates solely to the Retained Business. If any policy by its
terms may not be assigned, it is the intent of the parties that Spinco receive
the benefit of any coverage under any insurance policy. The Company agrees to
keep such policy in effect during the remaining term of the policy and to
refrain from taking any actions (other than making a claim) which may affect
Spinco's entitlement to the benefits of, or coverage under, such policy.
22
<PAGE>
8.3. Settlement for Cash Collections and Disbursements. For each
-------------------------------------------------
calendar month, commencing with the month in which the Closing occurs and
continuing until determined by the parties no longer to be necessary, Spinco and
the Company shall cause all cash collections and cash disbursements received by
Spinco and its subsidiaries for the benefit of the Company and its subsidiaries,
or by the Company and its subsidiaries for the benefit of Spinco and its
subsidiaries, during the relevant month to be remitted to the party entitled to
the benefit thereof as promptly as reasonably possible after the receipt
thereof.
9. NON-COMPETITION AND ACCESS TO INFORMATION.
9.1. Covenant Not to Compete.
-----------------------
(a) Spinco agrees for a period of five (5) years after the
Distribution Date, directly or indirectly, in the Territory (as defined below)
(i) not to sell any products or render services or to have any interest as a
shareholder, owner, agent, consultant, or otherwise in any other person, firm or
corporation engaged in the manufacture or sale of the kind of products, or the
rendering of the kind of services, which are currently being manufactured, sold
or provided by the Retained Business or (ii) solicit any customer or supplier of
the Retained Business as of the date hereof for any purpose competitive with the
business of the Retained Business.
(b) Spinco agrees that, for a period of two years after the
Distribution Date, neither it nor any corporation or other entity directly or
indirectly controlled by, or successor to it, shall, without the Company's prior
approval, hire, retain, employ or engage in any business with any Retained
Employee, nor will it, directly or indirectly offer to transfer or retain any of
the Retained Employees. The Company agrees that, for a period of two years after
the Distribution Date, neither it nor any corporation or other entity directly
or indirectly controlled by, or successor to it, shall, without Spinco's prior
approval, hire, retain, employ or engage in any business with any Spinco
Employee, nor will it, directly or indirectly offer to transfer or retain any of
the Spinco Employees. The parties' obligations under this Section 9.1(b) shall
not apply to any Retained Employee or Spinco Employee after such individual's
employment with the Company or Spinco, respectively, has terminated; provided
that such termination is not attributable to conduct by the other party which
constitutes a breach of this Section 9.1(b).
(c) Nothing contained in this Section 9 shall prohibit Spinco from
acquiring any business a minority component (as defined below) of which is
engaged in a business in competition with the Retained Business. Nothing in this
Section 9 shall prohibit Spinco from continuing the filtration applications for
products from the Company's high temperature textile business and specialty
metals business, including any developments and extensions thereof. For purposes
hereof, "minority component" shall mean a business in competition with the
Retained Business which either (i) represents less than 25 percent of the
consolidated assets and consolidated revenues of the parent entity being
acquired by Spinco that owns or controls such minority component or (ii) had
total revenues during for its most recently completed fiscal year of $10,000,000
or less. If any such minority component represents more than 10 percent of
either the consolidated assets or consolidated revenues of the parent entity
owning or controlling
23
<PAGE>
such minority component, then no later than 30 days following Spinco's
acquisition of such parent entity, Spinco shall offer to sell to the Company
such minority component at a purchase price (which shall be exclusively in cash
unless Spinco otherwise agrees) equal to its Fair Market Value (as defined
below). Following such an offer, the parties shall endeavor to agree on the fair
market value of such component ("Fair Market Value"). If the parties are unable
to agree on a Fair Market Value within 15 days after such offer is made, then
each of Spinco and the Company shall retain an independent investment bank or
accounting firm who shall be instructed to appraise such minority component and,
based on such appraisal, to determine the Fair Market Value thereof. In such
case, the Fair Market Value shall equal the average of the Fair Market Values
determined by such appraisers, provided that if an appraiser reports a range of
values, the midpoint of such range shall be deemed the Fair Market Value
determined by such appraiser for purposes of this provision. The Company shall
have the option of acquiring such minority component at such Fair Market Value
during the 30 day period (as extended to comply with waiting periods under
applicable law) following the determination thereof. In any documentation
relating to such acquisition, Spinco's representations and warranties with
respect to such minority component shall be limited only to the period of time
during which such minority component was owned by Spinco (subject, however, to
the following sentence). To the extent assignable, Spinco will assign to the
Company Spinco's rights with respect to such minority component under the
documentation pursuant to which Spinco acquired the same. If the Company does
not acquire such minority component within such 30 day period (as so extended),
Spinco may thereafter retain such minority component free from any restrictions
under this Section 9.1
(d) For purposes of this Section 9.1, ownership of five (5) percent
or less of any class of outstanding securities of a company whose securities are
listed on a national securities exchange or quoted or traded on the National
Association of Securities Dealers Automated Quotation System shall not be deemed
to constitute ownership or participation in the ownership of the business of
such company and shall not constitute a violation of Section 9.1(a) above.
(e) If any portion of this Section 9.1 shall be determined to be
invalid and unenforceable, such determination shall not affect the validity or
enforceability of the balance hereof, and such balance shall remain in full
force and effect.
(f) The parties agree that the "Territory" shall be worldwide.
9.2. Access to Information.
---------------------
(a) Provision of Corporate Records. Each of the Company and Spinco
------------------------------
shall use its best efforts to arrange, as soon as practicable following the
Distribution Date, for the delivery to the other party of the relevant portions
of all corporate books and records. The Company shall maintain in its possession
all relevant portions of the corporate books and records relating directly and
primarily to the Retained Business, Retained Employees, Retained Assets or
Retained Liabilities, including all active agreements, files and government
filings and licenses.
24
<PAGE>
From and after the Distribution Date, all such books, records and copies shall
be the property of the Company. Spinco shall retain in its possession all
relevant portions of all corporate books and records relating to the Spinco
Businesses, Spinco Employees, Contributed Assets and Assumed Liabilities and all
general corporate books and records including all active agreements, files and
government filings and licenses. From and after the Distribution Date, all such
books, records and copies referred to in the preceding sentence shall be the
property of Spinco. Any material containing incidental information relating to
the Retained Business, but relating primarily to the Spinco Businesses, shall be
retained by Spinco and copies of the relevant portions thereof shall be provided
to the Company.
(b) Access to Information. From and after the Distribution Date, each
---------------------
of the Company and Spinco shall afford to the other and its authorized
accountants, counsel and other designated representatives reasonable access
during normal business hours, subject to appropriate restrictions for classified
information, to the personnel, properties, books and records of such party and
its subsidiaries insofar as such access is reasonably required by the other
party.
(c) Confidentiality. The Company shall hold, and shall cause its
---------------
respective employees, agents, consultants and advisors to hold, in strict
confidence, using the same efforts it uses protecting its own confidential and
proprietary information, all confidential or proprietary information concerning
the Spinco Businesses in its possession (except to the extent that such
information has been (i) in the public domain or becomes publicly known through
no wrongful act of any of the Company or its employees, agents, consultants or
advisors, (ii) received from a party who is under no confidentiality or secrecy
obligation with respect thereto, or (iii) disclosed pursuant to governmental or
judicial requirements). Spinco shall hold, and shall cause its respective
employees, agents, consultants and advisors to hold, in strict confidence, using
the same efforts it uses protecting its own confidential and proprietary
information, all information confidential or proprietary information concerning
the Retained Business in its possession (except to the extent that such
information has been (i) in the public domain or becomes publicly known through
no wrongful act of any of Spinco or its employees, agents, consultants or
advisors, (ii) received from a party who is under no confidentiality or secrecy
obligation with respect thereto, or (iii) disclosed pursuant to governmental or
judicial requirements).
(d) Cooperation with Respect to Government Filings and Reports. Each
----------------------------------------------------------
of the Company and Spinco agree to provide the other party with such cooperation
and information, including, but not limited to, all records, books, contracts,
instruments, computer data and other data, as may be reasonably requested by the
other in connection with the preparation or filing of any government report or
other government filing, contemplated by this Agreement or in conducting any
other government proceeding relating to pre-Distribution events. Such
cooperation and information shall include, without limitation, promptly
forwarding copies of appropriate notices and forms or other communications
received from or sent to any government authority to the appropriate party. Each
party shall make its employees and facilities available during normal business
hours and on reasonable prior notice to provide explanation of any documents or
information provided hereunder.
25
<PAGE>
10. MISCELLANEOUS.
10.1. Termination. This Agreement (a) may be terminated at any time
-----------
prior to the Distribution Date by mutual written consent of the Company and
Culligan, or (b) shall terminate upon termination of the Merger Agreement prior
to the Merger.
10.2. Entire Agreement. This Agreement, together with the schedules and
----------------
exhibits hereto, and together with the Merger Agreement and the other Ancillary
Agreements (as defined in the Merger Agreement), to the extent applicable, sets
forth the entire understanding of the parties with respect to its subject
matter, merges and supersedes all prior understandings of the parties hereto
with respect to its subject matter, except any confidentiality agreements
executed by the Company and Culligan.
10.3. No Third Party Rights. No person or entity other than the parties
---------------------
hereto, including, but not limited to, any former or present employee of Spinco
or the Company (including any assignee or beneficiary thereof) shall have any
rights with respect to any obligations of any entity under this Agreement, the
Merger Agreement or the other Ancillary Agreements (including the documents and
instruments referred to herein and therein), and nothing in this Agreement, the
Merger Agreement or such other Ancillary Agreements (including the documents and
instruments referred to herein and therein), expressed or implied, is intended
to confer on any such employee any rights or remedies.
10.4. Amendments; Waivers. This Agreement (including the Annexes,
-------------------
Schedules and exhibits hereto) may be amended by the parties at any time prior
to the Distribution Date with the prior written consent of Culligan. Any such
amendment shall be in writing signed on behalf of the party or parties to be
charged. At any time prior to the Distribution Date, either the Company or
Spinco may waive compliance by the other party with any of the agreements or
conditions contained in this Agreement with the prior consent of Culligan. Any
agreement on the part of a party to any such waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such parties. The failure
of any party to this Agreement to assert any of its rights under or to enforce
any provision of this Agreement or otherwise shall not constitute a waiver of
its rights under such provision or any other provision.
10.5. Communications. All notices, consents and other communications
--------------
given under this Agreement shall be in writing and shall be deemed to have been
duly given (a) when delivered by hand or by Federal Express or a similar
overnight courier to, (b) five days after being deposited in any United States
Post Office enclosed in a postage prepaid registered or certified envelope
addressed to, or (c) when successfully transmitted by telecopier (with a
confirming copy of such communication to be sent as provided in clauses (a) or
(b) above) to, the party for whom intended, at the address or telecopier number
for such party set forth below, or to such other address or telecopier number as
may be furnished by such party by notice in the manner provided herein;
provided, however, that any notice of change of address or telecopier number
shall be effective only upon receipt.
26
<PAGE>
If to the Company prior to the Closing Date:
Ametek, Inc.
Station Square
Paoli, Pennsylvania 19301
Attention: Chairman of the Board
With a copy to:
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attention: David H. Kaufman
Facsimile No. (2l2) 806-6006
If to the Company on or after the Closing Date:
Culligan Water Company, Inc.
c/o Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, Illinois 60062-6209
Attention: President
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10021
Attention: Gregory A. Fernicola
Facsimile No.: (212) 735-2000
If to Culligan:
Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, Illinois 60062-6209
Attention: President
27
<PAGE>
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10021
Attention: Gregory A. Fernicola
Facsimile No.: (212) 735-2000
If to Spinco prior to the Closing Date:
Ametek Aerospace Products, Inc.
c/o Ametek, Inc.
Station Square
Paoli, Pennsylvania 19301
Attention: Chairman of the Board
With a copy to:
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attention: David H. Kaufman
Facsimile No. (2l2) 806-6006
If to Spinco on or after the Closing Date:
Ametek, Inc.
Station Square
Paoli, Pennsylvania 19301
Attention: Chairman of the Board
With a copy to:
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attention: David H. Kaufman
Facsimile No. (2l2) 806-6006
Prior to the Closing Date, Culligan shall receive copies of all
notices given hereunder by any party at the address set forth above.
28
<PAGE>
10.6. Successors and Assigns. This Agreement shall be binding on,
----------------------
enforceable against and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, and nothing herein is intended to
confer any right, remedy or benefit upon any other person. Neither party may
assign its rights or delegate its obligations under this Agreement without the
express written consent of the other party.
10.7. Governing Law; Jurisdiction. This Agreement shall in all respects
---------------------------
be governed by and construed in accordance with the laws of the State of
Delaware without regard to any applicable conflicts of law principles. Each of
the parties hereto expressly and irrevocably submits to the non-exclusive
personal jurisdiction of the United States District Court and to the
jurisdiction of any other competent court of the State of Delaware located in
the County of New Castle, City of Wilmington, Delaware, in connection with all
disputes arising out of or in connection with this Agreement or the transactions
contemplated herein and agrees not to commence any litigation relating thereto
except in such courts. Each party hereby waives the right to any other
jurisdiction or venue for any litigation arising out of or in connection with
this Agreement or the transactions contemplated herein to which any of them may
be entitled by reason of its present or future domicile. The parties agree that
service of process may be made by U.S. registered mail, return receipt
requested, to a party at its address set forth in Section 12.4. However, the
foregoing shall not limit the right of a party to effect service of process on
the other party by any other legally available method.
10.8. Savings Clause. If any provision of this Agreement is held to be
--------------
invalid or unenforceable by any court or tribunal of competent jurisdiction, the
remainder of this Agreement shall not be affected thereby, and such provision
shall be carried out as nearly as possible according to its original terms and
intent to eliminate such invalidity or unenforceability.
10.9. Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.10. Construction. Headings contained in this Agreement are for
------------
convenience only and shall not be used in the interpretation of this Agreement.
References herein to the Agreement shall be deemed to include all Schedules and
Exhibits hereto, and references herein to Annexes, Sections, Schedules and
Exhibits are to the sections, schedules and exhibits of this Agreement. As used
herein, the singular includes the plural, and the masculine, feminine and neuter
gender each includes the others where the context so indicates.
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
AMETEK, INC.
By: /s/ John J. Molinelli
-----------------------------------
Title: Senior Vice President--
Chief Financial Officer
AMETEK AEROSPACE PRODUCTS, INC.
By: /s/ John J. Molinelli
-----------------------------------
Title: Senior Vice President--
Chief Financial Officer
30
<PAGE>
Appendix B
----------
INDEMNIFICATION AGREEMENT, dated as of _______ __, 1997 (this
"Agreement"), among Culligan Water Technologies, Inc., a Delaware corporation
("Parent"), Ametek, Inc. a Delaware corporation (the "Company"), and Ametek
Aerospace Products, Inc., a Delaware corporation and an indirect wholly owned
subsidiary of the Company ("Spinco").
W I T N E S S E T H:
WHEREAS, the Company, Parent, Spinco and Culligan Water Company, Inc.,
a Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"),
have entered into an Agreement and Plan of Merger and Reorganization, dated as
of February 5, 1997 (the "Merger Agreement"), providing for the Merger (as
defined in the Merger Agreement) of Merger Sub with and into the Company;
WHEREAS, the Board of Directors of the Company has approved a
Contribution and Distribution Agreement in the form attached as Annex I to the
Merger Agreement (the "Distribution Agreement") which will be entered into prior
to the Effective Time (as defined in the Merger Agreement), pursuant to which,
among other things, (a) all of the Company's assets and liabilities, other than
those used primarily in or associated primarily with the Retained Business (as
defined in the Merger Agreement) will be contributed to or assumed by Spinco
(such contributions of assets and assumption of liabilities, together with all
other intercompany transfers of assets and other actions described in Article 1
of the Distribution Agreement, the "Contribution") and (b) shares of capital
stock of Spinco will be distributed (the "Distribution") on a pro rata basis to
the stockholders of the Company as provided in the Distribution Agreement in
order to divest the Company of the businesses and operations that Parent is
unwilling to acquire;
WHEREAS, it is a condition to the consummation of such transactions,
that the parties hereto execute and deliver this Agreement;
WHEREAS, the parties to this Agreement have determined that it is
necessary and desirable to set forth certain agreements that will govern certain
indemnification matters that may arise following the Contribution, the
Distribution and the Merger.
<PAGE>
NOW, THEREFORE, in consideration of the premises, and of the
covenants and agreements set forth herein, the parties hereto hereby agree as
follows:
ARTICLE I
1.1. Definitions. Capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings assigned to such terms in the
Merger Agreement or the Distribution Agreement, as the case may be. As used in
this Agreement, the following terms shall have the following respective
meanings:
"Indemnifiable Losses" shall mean, subject to Section 2.4 hereof, all
losses, liabilities, damages, deficiencies, obligations, fines, expenses,
claims, demands, actions, suits, proceedings, judgments or settlements,
whether or not resulting from Third Party Claims (as defined in Section
2.3(a) hereof), including interest and penalties recovered by a third party
with respect thereto and out-of-pocket expenses and reasonable attorneys'
and accountants' fees and expenses incurred in the investigation or defense
of any of the same or in asserting, preserving or enforcing any of the
Indemnitee's rights hereunder, incurred by an Indemnitee.
"Indemnitee" shall mean any of the Parent Indemnitees or the Spinco
Indemnitees who or which may seek indemnification under this Agreement.
"Parent Indemnitees" shall mean Parent, each Affiliate of Parent,
including any of its direct or indirect Subsidiaries (including, after the
Effective Time, the Retained Business), and each of their respective
Representatives and each of the heirs, executors, successors and assigns of
any of the foregoing.
"Spinco Indemnitees" shall mean Spinco, each Affiliate of Spinco,
including any of its direct or indirect Subsidiaries, and each of their
respective Representatives and each of the heirs, executors, successors and
assigns of any of the foregoing.
2
<PAGE>
ARTICLE II
INDEMNIFICATION
2.1. Indemnification by Spinco. Except as otherwise specifically
provided in the Merger Agreement or any of the Ancillary Agreements and subject
to the provisions of this Article II, Spinco shall indemnify, defend and hold
harmless the Parent Indemnitees from and against, and pay or reimburse the
Parent Indemnitees for, all Indemnifiable Losses, as incurred:
(i) arising out of or resulting from (x) the Contributed Assets
or the Assumed Liabilities (including the failure by Spinco or any
Subsidiary or Affiliate of Spinco to pay, perform or otherwise
discharge such Assumed Liabilities in accordance with their terms)
whether such Indemnifiable Losses arise out of or result from events,
occurrences, actions, omissions, facts or circumstances occurring,
existing or asserted before, at or after the Effective Time or (y)
the conduct or operation of the Company's business (other than the
conduct and operation of the Retained Business) prior to the Effective
Time;
(ii) arising out of or resulting from any untrue statement or
alleged untrue statement of a material fact contained in any of the
Registration Statements or in the Proxy Statement, or any omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading; but
only in each case with respect to information provided by the Company
relating to Spinco or the Company contained in or omitted from the
Registration Statements or the Proxy Statement;
(iii) arising out of or resulting from the breach by Spinco or
any of its Subsidiaries of any agreement or covenant contained in the
Merger Agreement or any of the Ancillary Agreements which does not by
its express terms ex-
3
<PAGE>
pire at the Effective Time or which is not by its express terms
required to be performed prior to the Effective Time;
(iv) arising out of or resulting from any breach of or
inaccuracy in any representation or warranty of the Company or Spinco
contained in the Merger Agreement;
(v) arising out of or resulting from any actual or alleged
violation of any law, rule or regulation of any Governmental Entity by
the Company or Spinco or any of their Subsidiaries or any director,
officer, employee or agent of the Company or Spinco or any of their
Subsidiaries (collectively, "Legal Matters") occurring or alleged to
have occurred at or prior to the Effective Time in respect of the
Spinco Businesses;
(vi) relating to or arising from any claim that the execution,
delivery or performance by the Company or Spinco of the Merger
Agreement and each Ancillary Agreement to which it is or will be a
party or the consummation of the transactions contemplated thereby
results in a violation or breach of, or constitutes a default or
impermissible transfer under, or gives rise to any right of
termination, first refusal or consent under or gives rise to any right
of amendment, cancellation or acceleration of any material benefit
under, any Contract to which the Company or any of its Subsidiaries
is a party prior to the Distribution; and
(vii) arising out of or relating to the handling, use, storage,
recycling, treatment, transport, Release or disposal of Hazardous
Substances by the Company, any of its Subsidiaries, affiliates or
predecessors (including any prior owner of the Retained Realty (as
defined below)) or any third party engaged by any of them, prior to
the Effective Time: (A) at any former properties or facilities of the
Company or any of its subsidiaries, affiliates, or predecessors
(including any prior owner of
4
<PAGE>
the Retained Realty (as defined below)), including former properties
or facilities relating to the Retained Assets or the Retained
Business (but not including any real property owned or leased by the
Retained Company and the Retained Subsidiaries, as of the Distribution
Date (the "Retained Realty")); (B) at the Retained Realty, but only
to the extent that the Indemnifiable Losses arise from activities or
business operations that preceded the activities or business
operations of the Retained Business at the Retained Realty; and (C) at
any site or location other than the Retained Realty where such
handling, use, storage, recycling, treatment, transport, Release or
disposal (or arranging for such activities by third parties) was
related to the activities or business operations of the Retained
Assets or the Retained Business (provided that this clause (C) shall
not cover any migration of a Release from the Retained Realty).
2.2. Indemnification by Parent. Except as otherwise specifically
provided in the Merger Agreement or any of the Ancillary Agreements and subject
to the provisions of this Article II, Parent shall indemnify, defend and hold
harmless, or cause the Company to indemnify, defend and hold harmless, the
Spinco Indemnitees from and against, and pay or reimburse the Spinco Indemnitees
for, all Indemnifiable Losses, as incurred:
(i) arising out of or resulting from (x) the Retained Business
or the Retained Liabilities (including the failure by Parent or any
of its Subsidiaries to pay, perform or otherwise discharge such
Retained Liabilities in accordance with their terms) whether such
Indemnifiable Losses arise out of or result from events, occurrences,
actions, omissions, facts or circumstances occurring, existing or
asserted before, at or after the Effective Time or (y) the conduct or
operation of the Retained Business following the Effective Time (other
than any such conduct or operation which would give rise to a right to
indemnification by the Parent Indemnitees under Section 2.1);
5
<PAGE>
(ii) arising out of or resulting from any untrue statement or
alleged untrue statement of a material fact contained in any of the
Registration Statements or in the Proxy Statement, or any omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading; but
only in each case with respect to information provided by Parent
relating to Parent or any of its Subsidiaries (other than the Company
and its Subsidiaries) contained in or omitted from the Registration
Statements or in the Proxy Statement;
(iii) arising out of or resulting from the breach by Parent or
any of its Subsidiaries of any agreement or covenant contained in the
Merger Agreement or any of the Ancillary Agreements which does not by
its express terms expire at the Effective Time or which is not by its
express terms required to be performed prior to the Effective Time;
and
(iv) relating to or arising from any claim that the execution,
delivery or performance by Parent or Merger Sub of the Merger
Agreement and each Ancillary Agreement to which it is or will be a
party or the consummation of the transactions contemplated thereby
results in a violation or breach of, or constitutes a default or
impermissible transfer under, or gives rise to any right of
termination, first refusal or consent under or gives rise to any right
of amendment, cancellation or acceleration of any material benefit
under, any Contract to which Parent or Merger Sub is a party prior to
the Distribution.
2.3. Procedures Relating to Indemnification. (a) In order for an
Indemnitee to be entitled to any indemnification provided for under this
Agreement in respect of, arising out of or involving a claim made by any Person
who is not an Indemnitee against the Indemnitee (a "Third Party Claim"), such
Indemnitee must notify the party who may become obligated to provide Indemnifi-
6
<PAGE>
cation hereunder (the "indemnifying party") in writing, and in reasonable
detail, of the Third Party Claim promptly; provided, however, that failure to
-------- -------
give such notification shall not affect the indemnification provided hereunder
except to the extent the indemnifying party shall have been prejudiced as a
result of such failure. After any required notification (if applicable), the
Indemnitee shall deliver to the indemnifying party, promptly after the
Indemnitee's receipt thereof, copies of all notices and documents (including
court papers) received by the Indemnitee relating to the Third Party Claim.
(b) If a Third Party Claim is made against an Indemnitee, the
indemnifying party will be entitled to participate in the defense thereof and,
if it so chooses, to assume the defense thereof (at the expense of the
indemnifying party) with counsel selected by the indemnifying party and
reasonably satisfactory to the Indemnitee. Should the indemnifying party so
elect to assume the defense of a Third Party Claim, the indemnifying party will
not be liable to the Indemnitee for any legal expenses subsequently incurred by
the Indemnitee in connection with the defense thereof; provided that if, under
--------
applicable standards of professional conduct (as advised by counsel to the
indemnifying party), a conflict on any significant issue between the Indemnitee
and the indemnifying party or between any two or more Indemnitees exists in
respect of such Third Party Claim, the indemnifying party shall pay the
reasonable fees and expenses of one such additional counsel as may be required
to be retained in order to resolve such conflict. If the indemnifying party
assumes such defense, the Indemnitee shall have the right to participate in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the indemnifying party, it being understood that the
indemnifying party shall control such defense. The indemnifying party shall be
liable for the fees and expenses of counsel employed by the Indemnitee for any
period during which the indemnifying party has not assumed the defense thereof
(other than during any period in which the Indemnitee shall have failed to give
notice of the Third Party Claim as provided above). If the indemnifying party
chooses to defend or prosecute a Third Party Claim, all the parties hereto shall
cooperate in the defense or prosecution thereof, which cooperation shall include
the retention and the
7
<PAGE>
provision to the indemnifying party of records and information which are
reasonably relevant to such Third Party Claim, and making employees available on
a mutually convenient basis to provide additional information and explanation of
any material provided hereunder. If the indemnifying party chooses to defend or
prosecute any Third Party Claim, the Indemnitee will agree to any settlement,
compromise or discharge of such Third Party Claim which the indemnifying party
may recommend and which by its terms obligates the indemnifying party to pay the
full amount of liability in connection with such Third Party Claim; provided,
--------
however, that, without the Indemnitee's consent, the indemnifying party shall
- -------
not consent to entry of any judgment or enter into any settlement (x) that
provides for injunctive or other nonmonetary relief affecting the Indemnitee,
(y) that does not include as an unconditional term thereof the giving by each
claimant or plaintiff to such Indemnitee of a release from all liability with
respect to such claim, or (z) in the case of any Legal Matter. Whether or not
the indemnifying party shall have assumed the defense of a Third Party Claim,
the Indemnitee shall not admit any liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the indemnifying
party's prior written consent.
(c) In order for an Indemnitee to be entitled to any indemnification
provided for under this Agreement in respect of a claim that does not involve a
Third Party Claim, the Indemnitee shall deliver notice of such claim with
reasonable promptness to the indemnifying party. The failure by any Indemnitee
to so notify the indemnifying party shall not relieve the indemnifying party
from any liability which it may have to such Indemnitee under this Agreement,
except to the extent that the indemnifying party shall have been actually
prejudiced by such failure. Any notice pursuant to this Section 2.3(c) shall
contain a statement, in prominent and conspicuous type, that if the indemnifying
party does not dispute its liability to the Indemnitee with respect to the claim
made in such notice (the "Claim") by notice to the Indemnitee prior to the
expiration of a 30-calendar-day period following the indemnifying party's
receipt of the second notice of the Claim, the Claim shall be conclusively
deemed a liability of the indemnifying party. If the Indemnitee has provided
the indemnifying party two such notices not less than 30 days apart and the
indemnifying
8
<PAGE>
party does not notify the Indemnitee prior to the expiration of a 30-calendar-
day period following its receipt of the second such notice that the indemnifying
party disputes its liability to the Indemnitee under this Agreement, the Claim
shall be conclusively deemed a liability of the indemnifying party under this
Agreement and the indemnifying party shall pay the amount of such liability to
the Indemnitee on demand or, in the case of any notice in which the amount of
the Claim (or any portion thereof) is estimated, on such later date when the
amount of the Claim (or any portion thereof) becomes finally determined. If
the indemnifying party has timely disputed its liability with respect to the
Claim, as provided above, the indemnifying party and the Indemnitee shall
proceed in good faith to negotiate a resolution of the Claim and, if the Claim
is not resolved through negotiations, such Indemnitee shall be free to pursue
such remedies as may be available to it under applicable law.
2.4. Certain Limitations. The amount of any Indemnifiable Losses or
other liability for which indemnification is provided under this Agreement
shall be net of any amounts actually recovered by the Indemnitee from third
parties (including, without limitation, amounts actually recovered under
insurance policies other than pursuant to retrospective or other self-insurance
type policies) with respect to such Indemnifiable Losses or other liability.
The amount of any Indemnifiable Losses or other liability for which
indemnification is provided under this agreement shall be increased by the
income taxes (if any) payable by an Indemnitee with respect to the inclusion of
such amount in such Indemnitee's taxable income and reduced by any tax benefit
actually realized by such Indemnitee with respect to such Indemnifiable Loss;
provided, however, that in computing the amount of any such tax benefit, the
- -------- -------
Indemnitee shall be deemed to recognize all other items of loss, deduction or
credit before claiming such Indemnifiable Loss on the Indemnitee's relevant tax
returns. To the extent permitted by law, Spinco, Parent, the Company and their
respective Affiliates will use their best efforts to claim such Indemnifiable
Loss on their respective tax returns and utilize such tax benefit in a manner
which is designed to maximize (on a present value basis) the tax benefit
described herein. Any indemnifying party hereunder shall be subrogated to the
rights of the Indemnitee upon payment in full of the amount of the relevant
Indemnifiable
9
<PAGE>
Loss. An insurer who would otherwise be obligated to pay any claim shall not be
relieved of the responsibility with respect thereto or, solely by virtue of the
indemnification provisions hereof, have any subrogation rights with respect
thereto. If any Indemnitee recovers an amount from a third party in respect of
an Indemnifiable Loss for which indemnification is provided in this Agreement
after the full amount of such Indemnifiable Loss has been paid by an
indemnifying party or after an indemnifying party has made a partial payment of
such Indemnifiable Loss and the amount received from the third party exceeds
the remaining unpaid balance of such Indemnifiable Loss, then the Indemnitee
shall promptly remit to the indemnifying party the excess (if any) of (A) the
sum of the amount theretofore paid by the indemnifying party in respect of such
Indemnifiable Loss plus the amount received from the third party in respect
thereof, less (B) the full amount of such Indemnifiable Loss or other liability.
2.5. Limitation on Indemnification. (a) With respect to
Indemnifiable Losses arising under Section 2.1(iv), Spinco shall not have any
liability under Article II of this Agreement unless the aggregate of all
Indemnifiable Losses for which Spinco would, but for this Section 2.5, be liable
under Article II exceeds on a cumulative pre-tax basis an amount equal to
$800,000 (the "Basket Amount"); provided, that, once the Basket Amount is
-------- ----
exceeded, Spinco shall only pay Indemnifiable Losses that are in excess of such
Basket Amount. Notwithstanding the foregoing, Spinco's liability for
Indemnifiable Losses arising under Section 2.1(iv) shall be limited (i) in the
aggregate to $25,000,000 and (ii) to only those Indemnifiable Losses for which
Spinco has received written notice of on or prior to eighteen months from the
Closing Date.
(b) Notwithstanding any other provision hereof, in no event shall any
party be liable for or obligated to indemnify any other party from and against
any punitive damages (other than punitive damages asserted in a Third Party
Claim) or damages which could have been reasonably avoided as a result of
customary and prudent business practices.
2.6. Exclusive Remedy. The parties hereto agree that the
indemnification provided in this Agreement
10
<PAGE>
and in the Tax Allocation Agreement shall be the exclusive remedies of the
parties with respect to the matters covered hereby and thereby. Notwithstanding
anything herein to the contrary, no party shall be entitled to any
indemnification hereunder with respect to the matters covered by the
indemnification provisions of the Tax Allocation Agreement, which shall be the
exclusive provisions with respect to such matters. In no event shall any of
such indemnification provisions herein and/or in the Tax Allocation Agreement
entitle any party to more than one recovery with respect to any Indemnifiable
Loss.
ARTICLE III
MISCELLANEOUS
Section 3.1. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given on the date delivered if delivered
personally (including by reputable overnight courier), on the date transmitted
if sent by telecopy (which is confirmed) or mailed by registered or certified
mail (return receipt requested) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to Parent, to
Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, Illinois 60062
Attn: General Counsel
with a copy to
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attn: Gregory A. Fernicola
Telecopy: (212) 735-2000
and
11
<PAGE>
(b) if to Spinco, to
Ametek, Inc.
Station Square
Paoli, Pennsylvania 19301
Attn: Chairman of the Board
with a copy to
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attn: David H. Kaufman
Telecopy: (212) 806-6006
Section 3.2. Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise indicated. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The phrases "the date of this
Agreement," "the date hereof" and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to _________ __, 1997.
Section 3.3. Counterparts. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement and
shall become effective when a counterpart has been signed by each of the parties
and delivered to each of the other parties, it being understood that all parties
need not sign the same counterpart.
Section 3.4. Entire Agreement; No Third Party Beneficiaries. This
Agreement, the other Ancillary Agreements (including the documents and the
instruments referred to herein and therein) and the Confidentiality Agreement
(a) constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and thereof, and (b) is not intended to confer upon any
person other than the parties hereto and thereto any rights or remedies
hereunder or
12
<PAGE>
thereunder; provided, however, that any Indemnitee that is not a party hereto or
-------- -------
thereto is intended to be a third party beneficiary of this Agreement.
Section 3.5. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of Delaware without regard to
any applicable conflicts of law principles.
Section 3.6. Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
Section 3.7. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other provisions of this Agreement shall nevertheless
remain in full force and effect for so long as the economic or legal substance
of this Agreement is not affected in any manner materially adverse to any party.
Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parities hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the parities as
closely as possible to the fullest extent permitted by applicable law in a
mutually acceptable manner in order that the terms of this Agreement remain as
originally contemplated to the fullest extent possible.
13
<PAGE>
IN WITNESS WHEREOF, Parent, the Company and Spinco have caused this
Indemnification Agreement to be signed by their respective officers thereunto
duly authorized as of the date first written above.
CULLIGAN WATER TECHNOLOGIES, INC.
By:
-----------------------------------
Name:
Title:
AMETEK, INC.
By:
-----------------------------------
Name:
Title:
AMETEK AEROSPACE PRODUCTS, INC.
By:
-----------------------------------
Name:
Title:
14
<PAGE>
Appendix B
TRANSITION SERVICES AGREEMENT
-----------------------------
AGREEMENT dated as of February 5, 1997, by and between Ametek, Inc., a
Delaware corporation ("Spinco"), and Culligan Water Company, Inc., a Delaware
corporation (the "Company").
W I T N E S S E T H :
---------------------
WHEREAS, Spinco and the Company have entered into a Contribution and
Distribution Agreement (the "Distribution Agreement") dated as of February 5,
1997, pursuant to which, among other things, all of the businesses of the
Company other than the Retained Business (as defined therein) shall be
contributed to Spinco (the "Contribution") prior to the distribution to the
stockholders of the Company of all of the capital stock of Spinco (the
"Distribution"), in accordance therewith (terms defined in the Distribution
Agreement shall have the same meaning when used herein);
WHEREAS, following such Contribution and Distribution, Culligan Water
Company, Inc., a Delaware corporation ("Merger Sub") and a wholly owned
subsidiary of Culligan Water Technologies, Inc., a Delaware corporation
("Culligan"), shall be merged with and into the Company (the "Merger"), pursuant
to an Agreement and Plan of Merger and Reorganization dated as of February 5,
1997 (the "Merger Agreement") by and among Culligan, Merger Sub, the Company and
Spinco; and
<PAGE>
WHEREAS, as a condition to the consummation of the Merger, Spinco
shall provide the Company with certain transition services and support for a
limited period of time after the date hereof, subject to terms and conditions
set forth herein;
NOW, THEREFORE, the parties agree as follows:
1. Transition Services. For a period of up to 9 months after the
-------------------
date hereof (subject to extension as provided below), Spinco shall provide the
Company with the services set forth on Schedule A hereto (collectively, the
"Services"). The Company may, from time to time during the term hereof, request
one or more of such Services by written notice and the same shall be provided as
promptly as reasonably practicable following such request. Spinco agrees to
provide such Services in a manner consistent with the manner in which such
services were provided by the Company to the Retained Business prior to the
Distribution. In consideration for such Services, the Company shall pay to
Spinco a fee based on Spinco's fully burdened costs of providing such Services,
which shall be mutually agreed by Spinco and the Company prior to the time such
Services are so provided.
2. Billing. Within five days of the end of each month, Spinco shall
-------
deliver to the Company an invoice setting forth the amounts due, if any, for
each of the Services provided during such month. Terms of payment on any invoice
sent pursuant hereto will be thirty days from the date of such invoice, and all
invoices will be paid without deduction or setoff for any reason whatsoever,
except upon the prior written consent of Spinco.
-2-
<PAGE>
3. Term. The Agreement shall become effective as of the date hereof
----
and terminate on 9 months hereafter, unless extended by the mutual consent of
the parties for an additional 3-month period on the same terms and conditions
provided for herein (which consent shall not be unreasonably withheld).
4. Termination. The Company may, at its option, terminate this
-----------
Agreement at any time on 30 days prior written notice to Spinco.
5. Force Majeure. Neither party shall be responsible for any delay
-------------
in performance, or nonperformance, caused by circumstances beyond the reasonable
control of the party affected, including, but not limited to, acts of God, fire,
flood, war, government action, whether federal, state or local, including any
law, regulation, order or notice of any governmental agency or authority,
accident, labor dispute or shortage, explosion, transportation or utilities or
failure of machinery, piping or equipment.
6. No Warranty. Spinco makes no warranty concerning the adequacy or
-----------
effectiveness of any of the Services and all such Services are provided "AS IS",
without warranty or liability, except for Spinco's bad faith or willful
misconduct. In no event, however, will Spinco be liable for any special,
consequential or punitive damages.
7. Notices. All notices, requests, demands and other communications
-------
provided for by this Agreement shall be in writing and shall be deemed given on
the date delivered if delivered personally (including by courier), on the date
transmitted if sent by telecopy (which is
-3-
<PAGE>
confirmed) or mailed by registered or certified mail (return receipt requested)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
If to Spinco:
Ametek, Inc.
Station Square
Paoli, Pennsylvanni 19301
Attention: Chairman of the Board
If to the Company:
Culligan Water Company, Inc.
One Culligan Parkway
Northbrook, Illinois 60062-6209
Attention: President
8. Assignment. This Agreement may not be assigned by either party
----------
without the prior written consent of the other party, and any attempt to do so
shall be null and void.
9. Governing Law. This Agreement shall be governed by and construed
-------------
in all respects in accordance with the internal laws of the State of New York
without giving effect to principles of conflicts of law.
-4-
<PAGE>
10. No Partnership. Nothing continued in or relating to this
--------------
Agreement shall constitute or be deemed to constitute a partnership or joint
venture between the parties.
11. No Agency. Neither Spinco nor the Company shall have or hold
---------
itself out as having any authority or agency to act on behalf of the other.
12. Entire Agreement. This Agreement, together with the Exhibits,
----------------
constitutes the entire agreement of Spinco and the Company with respect to the
subject matter hereof and supersedes all prior agreements and understandings,
oral and written, between the parties with respect to the subject matter hereof.
13. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same investment.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
AMETEK, Inc.
_________________________
By:
CULLIGAN WATER COMPANY, INC.
_________________________
By:
-5-
<PAGE>
Schedule A
Services
payroll
administrative services related to
employee medical, health and pension benefits
advertising
property and casualty insurance
fixed asset accounting
vehicle fleet management
management information systems
lock box transfers
-6-
<PAGE>
Appendix B
TRADEMARK AGREEMENT
-------------------
This TRADEMARK AGREEMENT dated as of the ___ day of ____________,
1997 between AMETEK, Inc., a Delaware corporation (the "Company") and Ametek
Aerospace Products, Inc., a Delaware corporation ("New Ametek").
WHEREAS, on the date hereof, the Company is distributing to the
Company's stockholders all of the shares of common stock of New Ametek and,
prior to such distribution, is contributing to New Ametek all of its assets and
business other than the Retained Assets as defined in and pursuant to the
Contribution and Distribution Agreement, dated as of February 5, 1997, between
the Company and New Ametek (the "Distribution Agreement"); and
WHEREAS, following the Distribution (as defined in the
Distribution Agreement), Culligan Water Company, Inc. ("Merger Sub"), a wholly
owned subsidiary of Culligan Water Technologies, Inc. ("Culligan"), will merge
into the Company, pursuant to the terms and conditions of an Agreement and Plan
of Merger and Reorganization, dated as of February 5, 1997, as amended and
restated, among Culligan, Merger Sub, the Company and New Ametek (as thereafter
amended, the "Merger Agreement"), with the Company being the surviving
corporation and changing its name to "Culligan Water Company, Inc."; and
WHEREAS, it is a condition to the consummation of the
transactions contemplated by the Merger Agreement that the Company and New
Ametek enter into this Agreement which sets forth the Company's right to use the
"Ametek" trade name and certain related trademarks, service marks and logos (as
more fully described below) in connection with the Retained Business (as defined
in the Distribution Agreement), subject to the terms and
<PAGE>
conditions set forth herein;
NOW, THEREFORE, for good and valuable consideration, the receipt
and sufficiency whereof is hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
-----------
(a) All capitalized terms not specifically defined herein shall
have the same meaning ascribed to them in the Distribution Agreement and Merger
Agreement.
(b) The term "Mark(s)" shall be used herein to mean the "Ametek"
trade name and any of New Ametek's trademarks, service marks or logos which use
the word "Ametek" and are currently in use by the Retained Business, in
substantially the full and complete form identified in Exhibit B hereto.
(c) The term "Products" shall mean the products currently being
manufactured and/or sold by the Retained Business identified in Exhibit C
hereto, as the same may be improved and modified from time to time by the
Company and other products that have substantially the same function and purpose
as those products currently manufactured and/or sold by the Retained Business.
2. RIGHT TO USE. (a) The Company and New Ametek agree that during
------------
the Initial Term (as defined below), and subject to the terms and conditions
hereof, the Company has retained, as part of the Retained Assets, the right to
use the Marks on the Products and in connection with the manufacturing,
advertising, promotion, distribution, sales and servicing thereof, but only in
the product and marketing channels in which such Marks are currently used by the
Retained Business or any expansion thereof, which is in the water filtration
field, and only in the manner permitted hereunder. Such right to use the Marks
shall be equivalent in
2
<PAGE>
scope to a worldwide, exclusive license to use the Marks subject to the
conditions set forth earlier in this paragraph.
(b) With respect to each Renewal Term (as defined below), New
Ametek hereby grants to the Company for such Renewal Term and subject to the
terms and conditions hereof, a worldwide, exclusive license to use the Marks on
the Products and in connection with the manufacturing, advertising, promotion,
distribution, sales and servicing thereof, but only in the product and marketing
channels in which such Marks are currently used by the Retained Business or any
expansion thereof, which is in the water filtration field and only in the manner
permitted hereunder.
(c) The Company warrants, represents and agrees that it shall not
use the Marks, alone or in combination with other terms, as part of a corporate
name.
(d) Concurrently with the execution hereof, Culligan is
delivering to New Ametek, a duly executed guaranty, substantially in the form of
Exhibit A hereto, guaranteeing the Company's obligations hereunder.
3. TERM. This Agreement shall commence on the date hereof and,
----
subject to earlier termination as provided below, shall continue for an initial
term of five (5) years (the "Initial Term"); provided that the Company may
extend the term hereof for up to three (3) successive periods of one (1) year
(each, a "Renewal Term" and collectively the "Renewal Terms") by written notice
given at least 90 days prior to the end of such Initial Term or any Renewal
Term, as the case may be.
4. ROYALTIES.
---------
3
<PAGE>
(a) No royalty shall be applicable with respect to the Initial
Term. The Company agrees to pay to New Ametek, as a royalty, $1,000,000 for each
Renewal Term (the "Annual Royalty").
(b) The Annual Royalty for any Renewal Term shall be paid to New
Ametek in two equal installments, with the first installment to be made no later
than the Semi-Annual Date (as defined below) occurring during such Renewal Term
and the second installment shall be made no later than the last day of such
Renewal Term; provided that, if this Agreement for any reason terminates during
a Renewal Term, the Annual Royalty for the pro-rata portion for such year, to
the extent unpaid, shall become immediately due and payable. A "Semi-Annual
Date" shall be the day occurring six months after the date hereof and each
subsequent anniversary of such day.
5. AUDIT. The Company shall keep true, complete and accurate
-----
records and books of account containing particulars customary to the trade with
respect to all Products bearing any of the Marks which are manufactured or sold
by the Company or its subsidiaries, parents or affiliates. Such records, books
of account and related information shall be kept in the Company's principal
place of business and said records, books and the supporting data shall be
available, upon reasonable advance notice and during normal business hours, at
the request of New Ametek for inspection by an independent certified public
accountant retained by New Ametek at New Ametek's expense for the purpose of
verifying any matter relevant to this Agreement.
6. MARKING. The Company agrees to mark the Products (including
-------
samples thereof distributed to the public) with the appropriate common law or
statutory trademark
4
<PAGE>
notice to maintain the validity and protectibilty of the Marks. (For example,
the trademark notice in the United States would consist of Ametek7.) Such
notices shall be placed on all Products (including samples thereof distributed
to the public) and all hang-tags and packaging for the Products and in all other
ways customary in the trade for articles distributed to the public and in
accordance with the legal requirements of any relevant jurisdiction.
7. QUALITY OF GOODS AND SERVICES. The design, manufacture,
-----------------------------
styling, workmanship of all Products (including all services in connection
therewith), and all advertising, marketing and promotional materials relating to
any of the Products and every use of the Marks shall at all times be in
conformance with industry standards and be of good and marketable quality,
provided that the quality level of such Products shall at no time be at a level
below that maintained by New Ametek as of the date hereof and shall at all times
fully comply with all applicable laws and regulations of any relevant
jurisdiction. Any proposed material change in the use of any of the Marks or any
new item of the Products, which differs from the line of products being offered
by the Retained Business immediately prior to the date hereof and set forth in
Exhibit B, shall require New Ametek=s prior approval, which shall not be
unreasonably withheld or delayed. The Company shall furnish to New Ametek, at
New Ametek's request not more than once every six (6) months, samples of the
Company=s products and other materials using the Marks. In the event New Ametek
provides written notice to the Company stating that one of the Company's
products does not meet the quality standards under this Section 7, then New
Ametek or its authorized agents and representatives shall have the right, at New
Ametek=s expense, to inspect all facilities or premises maintained by or on
behalf of the Company including, without limitation, its showrooms and the
plants, factories or other
5
<PAGE>
manufacturing, production or warehouse facilities of the Company at which the
Products are being or are proposed to be manufactured, produced, displayed or
stored to ascertain whether the quality standards provided for in this Section 7
are being satisfied. Such inspection shall be conducted in a manner that shall
not unreasonably interfere with the business operations of the Company. In the
event the Company receives written notice from New Ametek setting forth a
reasonable basis and with specificity that the Products do not comply with New
Ametek=s quality standards under this Section 7, the Company shall achieve
conformity with such standards within 30 days of receipt of such notice, or, if
conformity with such standards is not reasonably achievable within such 30 day
period, then the Company shall have up to 60 days to achieve such conformity
provided that the Company commences such remedial steps within such 30-day
period and diligently pursues such remedial steps.
8. OWNERSHIP OF MARKS. The Company acknowledges that New Ametek
------------------
is the sole and exclusive owner of the Marks except as contemplated by Section
2, and the Company shall not contest New Ametek's rights in the Marks or the
validity of this Agreement. The Company will cooperate with New Ametek and
execute any and all documents during the term of this Agreement, reasonably
requested by New Ametek and at New Ametek's expense, in order to protect and
maintain New Ametek=s exclusive rights and title to the Marks including, without
limitation, filing any applications, recordings of this Agreement or other
documentation regarding the Marks with governmental authorities having
jurisdiction over the granting and maintaining of trademark registrations. The
Company further agrees to notify New Ametek of any infringing use of the Marks
by others promptly after such infringing use comes to the Company's attention.
New Ametek shall have the sole right to bring infringement or unfair
6
<PAGE>
competition proceedings involving the Marks except as set forth in Paragraph
15(a).
9. MAINTENANCE OF MARKS. New Ametek agrees to take all necessary
--------------------
steps to maintain the Marks in full force and effect during the term of this
Agreement.
10. TERMINATION. New Ametek shall have the right to terminate
-----------
this Agreement upon 30-days' written notice to the Company if (a) any Insolvency
Event (as defined below) occurs with respect to the Company, or (b) the Company
breaches in any material respect any of its duties or obligations under this
Agreement and such breach is not remedied by the Company within 30 days of
receipt of written notice from New Ametek setting forth such breach, or if such
breach is not reasonably remediable within such 30 day period, then the Company
shall have up to 60 days to remedy such breach provided that the Company
commences such remedial steps within such 30-day period and diligently pursues
such remedial steps. An "Insolvency Event" shall have occurred if (A) an
involuntary proceeding shall be commenced or an involuntary petition shall be
filed in a court of competent jurisdiction seeking (i) relief in respect of the
Company, or of a substantial part of the property or assets of the Company,
under Title 11 of the United States Code, as now constituted or hereafter
amended, or any other Federal, state or foreign bankruptcy, insolvency,
receivership or similar law, (ii) the appointment of a receiver, trustee,
custodian, sequestrator, conservator, liquidator, administrator or similar
official for the Company or for a substantial part of the property or assets of
the Company or (iii) the winding-up or liquidation of the Company; and such
proceeding or petition shall continue undismissed for 60 days or an order or
decree approving or ordering any of the foregoing shall be entered; or (B) the
Company shall (i) voluntarily commence any proceeding or file any petition
seeking relief under Title 11 of the United States
7
<PAGE>
Code, as now constituted or hereafter amended, or any other Federal, state or
foreign bankruptcy, insolvency, receivership or similar law, (ii) consent to the
institution of, or fail to contest in a timely and appropriate manner, any
proceedings or the filing of any petition described in (A) above, (iii) apply
for or consent to the appointment of a receiver, trustee, custodian,
sequestrator, conservator, liquidator, administrator or similar official for the
Company or for a substantial part of the property or assets of the Company, (iv)
file an answer admitting the material allegations of a petition filed against it
in any such proceeding, (v) make a general assignment for the benefit of
creditors, (vi) become unable, admit in writing its inability or fail generally
to pay its debts as they become due or (vii) take any action for the purpose of
effecting any of the foregoing. The Company may terminate this Agreement at any
time upon at least 60 days written notice to New Ametek; however, no such
termination by the Company shall limit New Ametek's right to terminate this
Agreement as provided above.
11. POST-TERMINATION OBLIGATIONS. Upon termination of this
----------------------------
Agreement, the Company shall, subject to a 180-day sell-off period, cease all
use of the Marks or any term confusingly similar thereto and shall cease selling
any remaining inventory bearing the Marks and (at New Ametek=s option) destroy,
modify (with New Ametek's consent) or surrender to New Ametek all signs,
letterhead, product name plates and other materials in the Company's possession,
custody or control which use the Marks or any term confusingly similar thereto
so as to cease using the Marks or any term confusingly similar thereto. The
Company acknowledges that all rights in, to and under the Marks and the goodwill
connected therewith shall remain the property of New Ametek. Upon termination
and/or expiration of this Agreement for any reason, the Company will, subject to
a 180-day sell-off period, promptly
8
<PAGE>
discontinue the use of the Marks, whether as a trademark, service mark or trade
name and will not resume the use of the same or adopt any mark confusingly
similar thereto; provided that nothing herein shall prohibit resales by
customers of the Company of Products sold by the Company prior to the end of the
180 day sell-off period.
12. NEW AMETEK'S RIGHTS. All use of the Marks by the Company and
-------------------
in any variation thereof shall inure to the exclusive benefit of New Ametek. All
rights in the Marks other than those specifically retained by or granted to the
Company hereunder are reserved to New Ametek.
13. REPRESENTATION OF NEW AMETEK. New Ametek represents and
----------------------------
warrants that it is the sole and exclusive owner of the Marks.
14. INDEMNIFICATION AND INSURANCE.
-----------------------------
(a) The Company agrees to indemnify and hold harmless New Ametek
and each of its shareholders, officers, directors, employees and agents against
any and all liability, claims, causes of action, suits, damages and expenses for
which they or any of them may become liable or may incur or be compelled to pay
in any action or claim against them or any of them by any party, other than New
Ametek, its officers, directors, employees or agents, for or by reason of (i)
the infringement of patents, trade secret rights or rights to any intellectual
property of a third party, other than the Mark(s), as a result of the
manufacture, warehousing, marketing, promotion, publicity, advertising, sale or
distribution of the Products by the Company or any of its agents,
representatives, contractors, sublicensees or assigns, (ii) any acts, whether of
omission or commission, that may be committed or suffered by the Company or any
of its agents, representatives, contractors, sublicensees or assigns in
connection with this Agreement, (iii) any liability (including, without
limitation, any personal injury or property damage) arising out of the
manufacture, warehousing, marketing, promotion, publicity, sale,
9
<PAGE>
advertising, or distribution of or the use by any consumer of, the Products, or
any violation of any warranty, representation or agreement made by the Company
or any of its agents, representatives, contractors, sublicensees or assigns with
respect to the Products, or (iv) the breach, in any material respect, by the
Company of any of its representations, warranties or covenants in this
Agreement. New Ametek shall give the Company written notice of any such claim
promptly following its receipt thereof. The Company shall have the opportunity
to undertake and to control the defense and settlement thereof through attorneys
selected by the Company after notice to and consultation with New Ametek and
good faith negotiations regarding alternative counsel if New Ametek has
reasonable objections to the Company's choice of counsel. Notwithstanding the
foregoing, the Company shall not, without the consent of New Ametek, which
consent shall not be unreasonably withheld or delayed, settle or compromise any
claim or consent to the entry of any judgment which settlement, compromise or
judgment would materially and adversely affect New Ametek or the value,
reputation or prestige of the Marks. New Ametek will cooperate with the Company
in the investigation, defense and settlement of any such claim and shall have
the right to participate in (but not to control) any such defense through
counsel of its own choice, but at New Ametek's own expense. If the Company
elects not to undertake the defense of any such claim, it will be responsible
for reimbursing New Ametek for any expenses reasonably incurred by New Ametek,
including but not limited to reasonable attorneys', accountants', and other
experts' fees and expenses in the investigation, defense and settlement of such
claim and in enforcing its rights pursuant to this Section 14(a), in addition to
any damages ultimately awarded against New Ametek.
10
<PAGE>
(b) Without limiting the indemnification provided in Section 14(a)
above, the Company agrees to carry and maintain, throughout the term of this
Agreement and for five years thereafter, with an insurance carrier authorized to
do business in the State of New York and having a rating of A VI or better
according to Best's Insurance Reports, a broad form Comprehensive General
Liability Insurance Policy or, if such policy is not reasonably available, such
other policy as would provide substantially the same protection to the Company
and New Ametek written on an occurrence basis covering the Company's activities
with respect to the Products which includes but is not limited to coverage for
contractual liability, premises operations, products liability, personal injury
and advertising injury liability and broad form property damage liability, which
shall provide protection to New Ametek of at least Two Million Dollars
($2,000,000) per occurrence and in the aggregate; provided that the Company may
have a deductible or self-insured retainage in an amount of not in excess of
$500,000. The Company shall have New Ametek named as an additional insured on
such policies. The Company shall, within thirty (30) days after the date
thereof, provide to New Ametek a certificate of such insurance from the
insurance carrier which sets forth the scope of coverage and the limits of
liability stated above and further provides that the policies may not be
materially changed or cancelled without at least thirty (30) days' prior written
notice to New Ametek. Prior to any such cancellation, the Company shall provide
New Ametek with a certificate of insurance evidencing that a new insurance
policy with the same coverage and terms described above will be in place prior
to such termination. Upon reasonable request by New Ametek during the Initial
Term and each Renewal Term, the Company shall deliver to New Ametek evidence in
form and substance reasonably satisfactory to New Ametek, of the
11
<PAGE>
maintenance and renewal of the required insurance, including without limitation,
renewal certificates and copies of those portions of policies, riders and
endorsements pertaining to this Agreement. Any insurance policy purchased by or
carried by New Ametek shall not be required to contribute in case of any loss by
any third party, including New Ametek or the Company, relating to the Products
and either the certificate of insurance to be provided hereunder or an
endorsement to such policy shall so state.
(c) New Ametek agrees to indemnify and hold harmless the Company
and each of its shareholders, officers, directors, employees and agents against
any and all liability, claims, causes of action, suits, damages and expenses for
which they or any of them may become liable or may incur or be compelled to pay
in any action or claim against them or any of them by any party, other than the
Company, its officers, directors, employees or agents, for or by reason of (i)
the infringement of the Mark(s), as a result of the manufacture, warehousing,
marketing, promotion, publicity, advertising, sale or distribution of the
Products by New Ametek or the Company or any of its agents, representatives,
contractors, sublicensees or assigns, (ii) any acts, whether of omission or
commission, that may be committed or suffered by New Ametek or any of their
agents, representatives, contractors, sublicensees or assigns in connection with
this Agreement, or (iii) the breach, in any material respect, by New Ametek of
any of its representations, warranties or covenants in this Agreement. The
Company shall give New Ametek written notice of any such claim promptly
following its receipt thereof. New Ametek shall have the opportunity to
undertake and to control the claim and settlement thereof through attorneys
selected by New Ametek after notice to and consultation with the Company and
good faith negotiations regarding alternative counsel if the Company has
reasonable
12
<PAGE>
objections to New Ametek's choice of counsel. Notwithstanding the foregoing, New
Ametek shall not, without the consent of the Company, which consent shall not be
unreasonably withheld or delayed, settle or compromise any claim or consent to
the entry of any judgment which settlement, compromise or judgment would
materially and adversely affect the Company. The Company will cooperate with New
Ametek in the investigation, defense and settlement of any such claim and shall
have the right to participate in (but not to control) any such defense through
counsel of its own choice, but at the Company's own expense. If New Ametek
elects not to undertake any such claim, it will be responsible for reimbursing
the Company for any expenses reasonably incurred by the Company, including but
not limited to reasonable attorneys', accountants', and other experts' fees and
expenses in the investigation, defense and settlement of such claim and in
enforcing its rights pursuant to this Section 14(a), in addition to any damages
ultimately awarded against the Company.
(d) Nothing contained in this Section 14 shall in any way
diminish the indemnifications provided for in the Indemnification Agreement,
dated as of the date hereof between Culligan, the Company and New Ametek.
15. INFRINGEMENT. (a) The Company agrees that if during the term
------------
of this Agreement, any Mark shall in the opinion of the Company be infringed or
used without authorization by any other person, firm, corporation or other
entity, New Ametek shall have the sole and exclusive right, but not the
obligation, to take any and all steps in its name, or in the name of the Company
or in their joint names, as New Ametek (in its sole discretion) may deem
advisable, including, without limitation, the institution of any action or
proceeding to seek damages for and/or to enjoin such infringement or
unauthorized use, and to prosecute, settle,
13
<PAGE>
compromise or otherwise dispose of the same. Notwithstanding the foregoing, the
Company shall have an opportunity to participate in the decision-making process
related thereto, but the final decision shall be controlled by New Ametek. In
the event of any such action or proceeding, the Company agrees to execute any
and all papers deemed necessary or advisable by counsel for New Ametek and, at
New Ametek's expense (except in the case of an action or proceeding taken or
initiated by the Company), to do whatever else may be deemed necessary or
advisable by such counsel to assist in the prosecution of such action or
proceeding. If New Ametek elects not to undertake any such claim, the Company,
at its sole expense, may institute any action or proceeding to seek damages for
and/or to enjoin such infringement or unauthorized use, and to prosecute,
settle, compromise or otherwise dispose of the same. In the event of any such
action or proceeding, New Ametek agrees to execute any and all papers deemed
necessary or advisable by counsel for the Company and, at the Company's expense
(except in the case of an action or proceeding taken or initiated by New
Ametek), to do whatever else may be deemed necessary or advisable by such
counsel to assist in the prosecution of such action or proceeding.
(b) The party bearing the cost in connection with any such action
shall be entitled to the full recovery of any money or other property collected
by way of judgment, settlement (whether prior to or after institution of any
action or proceeding) or otherwise in connection with any such action except to
the extent of actual damages suffered by the party not bearing the cost.
(c) In the event that the Company is made a party defendant in
any action or proceeding for infringement based on or arising from the use
during the term hereof of any
14
<PAGE>
Mark on or in connection with the Products, then the Company shall promptly give
written notice to New Ametek thereof and New Ametek shall have the right to join
in the defense of such action or proceeding at its own cost and expense and, at
its option, the Company may take over, on behalf and in the name of the Company,
the conduct of the defense of such action or proceeding.
16. NO AGENCY. Nothing in this Agreement shall constitute the
---------
parties hereto as principal and agent, partners or joint venturers for any
purpose and the Company shall have no power or authority to bind New Ametek or
to incur any obligations on New Ametek's behalf.
17. MISCELLANEOUS.
-------------
17.1 ENTIRE AGREEMENT. This Agreement, together with the exhibits
----------------
hereto, and together with the Merger Agreement, and the Distribution Agreement,
to the extent applicable, sets forth the entire understanding of the parties
with respect to its subject matter and merges and supersedes all prior
understandings of the parties hereto with respect to its subject matter.
17.2 AMENDMENTS; WAIVERS. This Agreement (including the exhibits
-------------------
hereto) may be amended by the parties only if set forth in an instrument in
writing signed by the parties. Either the Company or New Ametek may waive
compliance by the other party with any of the agreements or conditions contained
in this Agreement. Any agreement on the part of a party to any such waiver shall
be valid only if set forth in an instrument in writing signed by the parties.
The failure of any party to this Agreement to assert any of its rights under, or
to
15
<PAGE>
enforce any provision of, this Agreement or otherwise shall not constitute a
waiver of its rights under such provision or any other provision.
17.3 COMMUNICATIONS. All notices and other communications given
--------------
under this Agreement shall be in writing and shall be deemed to have been duly
given (a) when delivered by hand or by Federal Express or a similar overnight
courier to, (b) five days after being deposited in any United States Post Office
enclosed in a postage prepaid registered or certified envelope addressed to, or
(c) when successfully transmitted by telecopier (with a confirming copy of such
communication to be sent as provided in clauses (a) or (b) above) to, the party
for whom intended, at the address or telecopier number for such party set forth
below, or to such other address or telecopier number as may be furnished by such
party by notice in the manner provided herein; provided, however, that any
-------- -------
notice of change of address or telecopier number shall be effective only upon
receipt.
If to New Ametek:
AMETEK, Inc.
Station Square
Paoli, Pennsylvania 19301
Attention: Chairman of the Board
With a copy to:
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attention: David H. Kaufman
Facsimile No. (2l2) 806-6006
If to the Company:
Culligan Water Company, Inc.
One Culligan Parkway
Northbrook, Illinois 60062-6209
16
<PAGE>
Attention: General Counsel
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Gregory A. Fernicola
Facsimile No. (212) 735-2000
17.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding on,
----------------------
enforceable against and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, and nothing herein is intended to
confer any right, remedy or benefit upon any other person. Neither party may
assign its rights or delegate its obligations under this Agreement without the
express written consent of the other party.
17.5 GOVERNING LAW; JURISDICTION. This Agreement shall in all
---------------------------
respects be governed by and construed in accordance with the laws of the State
of Delaware without regard to applicable conflicts of law principles. Each of
the parties hereto expressly and irrevocably submits to the non-exclusive
personal jurisdiction of the United States District Court and to the
jurisdiction of any other competent court of the State of Delaware located in
the County of New Castle, City of Wilmington, Delaware, in connection with all
disputes arising out of or in connection with this Agreement or the transactions
contemplated herein and agrees not to commence any litigation relating thereto
except in such courts. Each party hereby waives the right to any other
jurisdiction or venue for any litigation arising out of or in connection with
this Agreement or the transactions contemplated herein to which any of them may
be entitled by reason of its present or future domicile. The parties agree that
service of process may be made by U.S. registered mail, return receipt
requested, to a party at its address set forth in
17
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Section 17.3. However, the foregoing shall not limit the right of a party to
effect service of process on the other party by any other legally available
method.
17.6 SAVINGS CLAUSE. If any provision of this Agreement is held
--------------
to be invalid or unenforceable by any court or tribunal of competent
jurisdiction, the remainder of this Agreement shall not be affected thereby, and
such provision shall be carried out as nearly as possible according to its
original terms and intent to eliminate such invalidity or unenforceability.
17.7 EQUITABLE REMEDIES. The Company acknowledges that its
------------------
failure to comply with the provisions of this Agreement may cause irreparable
harm and damage to New Ametek, including, without limitation to New Ametek's
name, reputation, goodwill and trademarks, for which no adequate remedy at law
would exist and that New Ametek, therefore, would in such event be entitled to
specific performance and other forms of injunctive and equitable relief
hereunder.
17.8 COUNTERPARTS. This Agreement may be executed in multiple
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17.9 CONSTRUCTION. Headings contained in this Agreement are for
------------
convenience only and shall not be used in the interpretation of this Agreement.
References herein to the Agreement shall be deemed to include all Exhibits
hereto. As used herein, the singular includes the plural, and the masculine,
feminine and neuter gender each includes the others where the context so
indicates.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.
Ametek Aerospace Products, Inc.
(to be renamed AMETEK, Inc.)
By:
--------------------------------
Name:
Title:
AMETEK, Inc.
(to be renamed Culligan Water
Company, Inc.)
By:
--------------------------------
Name:
Title:
19
<PAGE>
EXHIBIT A
GUARANTY
--------
This Guaranty is made as of the __ day of ________, 1997, by
Culligan Water Technologies, Inc. ("Guarantor") in favor of Ametek Aerospace
Products, Inc. (the "Beneficiary").
Background
----------
WHEREAS, the Beneficiary and AMETEK, Inc. (the "Company") have
entered into a Trademark Agreement, dated _________, 1997, providing the Company
with the right to use certain trademarks of the Beneficiary (the "Trademark
Agreement");
WHEREAS, pursuant to that certain Agreement and Plan of Merger
and Reorganization, dated as of February 5, 1997, as amended and restated as of
May __, 1997, among Guarantor, Culligan Water Company, Inc. ("Merger Sub"), the
Company and the Beneficiary (as the same may be amended from time to time, the
"Merger Agreement"), Merger Sub is to merge with and into the Company at the
Effective Time (as defined therein), with the Company surviving as a wholly
owned subsidiary of Guarantor and with the Company being renamed "Culligan Water
Company, Inc." and Beneficiary being renamed "AMETEK, Inc."; and
WHEREAS, the execution and delivery of this Guaranty is a
condition to Beneficiary entering into the Trademark Agreement;
NOW, THEREFORE, in consideration of the premises, and for other
good and valuable consideration, Guarantor hereby agrees as follows:
1. Guarantor hereby unconditionally and irrevocably guarantees to
Beneficiary the prompt and complete payment and performance, when due, of all
liabilities and obligations of the Company to Beneficiary arising under,
pursuant to or in connection with the Trademark Agreement (collectively, the
"Guaranteed Liabilities"). This Guaranty constitutes a guaranty of payment and
not of collection.
2. Guarantor hereby waives notice of acceptance of this Guaranty
and notice of any Guaranteed Liability to which it may apply, and waives
presentment, demand for payment, protest, notice of dishonor or non-payment of
any other such Guaranteed Liability, notice of any suit or the taking of other
action by Beneficiary against, and any other notice to, the Company. Guarantor
shall not exercise any right of subrogation arising as a result of any payment
hereunder until all of the Guaranteed Liabilities shall have been irrevocably
paid in full.
3. Beneficiary may at any time and from time to time without
notice to or consent of Guarantor and without impairing or releasing the
absolute and unconditional obligations of Guarantor hereunder: (i) agree to any
change in the terms of any Guaranteed Liability pursuant to the terms of the
Trademark Agreement, (ii) take or fail to take any action of any kind in respect
of any security for any Guaranteed Liability, (iii) exercise or refrain from
exercising any rights against the Company or others, or (iv) compromise or
subordinate any Guaranteed Liability including any security therefor. In
addition, the liability of Guarantor hereunder shall be absolute and
unconditional irrespective of: (A) any lack of validity or enforceability or any
Guaranteed Liability or any agreement or instrument relating to any Guaranteed
Liability, (B) any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of the terms of the Guaranteed Liability or
Beneficiary's rights hereunder or (C) any other circumstances, not referred to
earlier in this Guaranty, which might otherwise constitute a defense available
to, or a discharge of, Guarantor in respect of this Guaranty.
20
<PAGE>
4. This Guaranty shall continue in full force and effect until
all Guaranteed Liabilities have been irrevocably satisfied in full. Guarantor
agrees that this Guaranty shall continue to be effective or be reinstated, as
the case may be, if at any time payment or performance (or any part thereof) of
any Guaranteed Liability, or interest thereon, is rescinded or must otherwise be
restored or returned by Beneficiary due to any bankruptcy, insolvency,
reorganization, liquidation or receivership laws or otherwise.
5. This Guaranty shall be governed by and construed in accordance
with the laws of the State of Delaware (without giving effect to principles of
conflicts of law).
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of
the day and year first above written.
CULLIGAN WATER TECHNOLOGIES, INC.
By:____________________________________
Name:__________________________________
Title:___________________________________
21
<PAGE>
APPENDIX C
PERSONAL AND CONFIDENTIAL
- -------------------------
February 5, 1997
Board of Directors
AMETEK, Inc.
Station Square
Paoli, PA 19301
Ladies and Gentlemen:
You have requested our opinion as to the fairness to the holders of the
outstanding shares of Common Stock, par value $0.01 per share (the "Shares"), of
AMETEK, Inc. (the "Company") of the Exchange Ratio (as defined below) to be
received for each Share pursuant to the Agreement and Plan of Merger and
Reorganization (the "Merger Agreement" and, together with the ancillary
agreements thereto, the "Agreement"), dated as of February 5, 1997 by and among
Culligan Water Technologies, Inc. ("Culligan"), Culligan Water Company, Inc.
("Merger Sub"), Ametek Aerospace Products, Inc. ("Spinco") and the Company.
Pursuant to the Merger Agreement, Merger Sub shall be merged with and into the
Company (the "Merger"). Prior to the effectiveness of the Merger, pursuant to a
Contribution and Distribution Agreement, dated as of February 5, 1997 (the
"Contribution Agreement") among the Company and Spinco, the Company will
contribute (the "Contribution") all of its assets other than the Retained Assets
(as defined in the Contribution Agreement) to Spinco, and Spinco will assume all
of the liabilities of the Company other than the Retained Liabilities (as
defined in the Contribution Agreement); Spinco's Common Stock (the "Spinco
Common Stock") will then be distributed pro rata to holders of Shares (the
"Distribution"). In the Merger, each issued and outstanding Share will be
canceled and converted into the right to receive that number of shares (the
"Exchange Ratio") of Common Stock, par value $0.01 per share (the "Culligan
Common Stock") of Culligan determined by dividing (i) (a) the Net Equity Value
(as defined in the Merger Agreement) divided by (b) $37.50 by (ii) the number of
Shares outstanding at the Effective Time (as defined in the Merger Agreement).
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company having provided certain investment banking services to the Company
from time to time, including having acted as sole underwriter of the Company's
offering, in March 1994, of 9 3/4% Senior Notes 2004. We also have provided
certain investment banking services to Culligan from time to time, including
having acted as managing underwriter of Culligan's initial public offering in
December 1995 and of a secondary sale of Culligan Common Stock in October 1996,
and we may provide investment banking services to each of the Company and
Culligan in the future.
<PAGE>
AMETEK, Inc.
February 5, 1997
Page Two
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of the
Company for the five years ended December 31, 1995 and, in the case of Culligan,
for the fiscal year ended January 31, 1996; Culligan's Prospectuses, dated
December 14, 1995 and October 7, 1996; certain interim reports to stockholders
of the Company and Culligan and certain Quarterly Reports on Form 10-Q of the
Company and Culligan; certain other communications from the Company and Culligan
to their respective stockholders; and certain internal financial analyses and
forecasts for the businesses that will remain with the Company after the
distribution of Spinco (the "Retained Business") prepared by the Company's
management. We also have held discussions with certain members of the management
of the Company, the Retained Business and Culligan regarding the past and
current business operations, financial condition and future prospects of the
Retained Business and Culligan respectively. In addition, we have reviewed the
reported price and trading activity for the Culligan Common Stock, compared
certain financial and stock market information for the Retained Business with
similar information for certain companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the water filtration industry specifically and in other industries generally and
performed such other studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information reviewed by us, and have assumed such accuracy and
completeness for purposes of this opinion. In addition, we have not made an
independent evaluation or appraisal of the assets and liabilities of the
Retained Business or Culligan or any of its subsidiaries and we have not been
furnished with any such evaluation or appraisal. We have not been asked to
solicit, and accordingly, we have not solicited, third parties with respect to a
potential alternative transaction. We have assumed, with your consent, that the
Merger will be tax-free to the Company. Our opinion expressed herein is
provided for the information and assistance of the Board of Directors of the
Company in connection with its consideration of the Exchange Ratio and does not
constitute a recommendation to any holder of Shares as to how such holder of
Shares should vote on the proposed transaction.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Merger Agreement is fair to the holders of the Shares.
Very truly yours,
/s/ Goldman, Sachs & Co.
- -----------------------------------
(GOLDMAN, SACHS & CO.)
<PAGE>
APPENDIX D
AMETEK, INC.
AMETEK AEROSPACE PRODUCTS, INC.
AND
CULLIGAN WATER TECHNOLOGIES INC.
<PAGE>
TAX ALLOCATION AGREEMENT
This TAX ALLOCATION AGREEMENT (this "Agreement"), dated as of
[ ], 1997, among AMETEK, INC., a Delaware corporation (the "Company"), AMETEK
AEROSPACE PRODUCTS, INC., a Delaware corporation and a wholly owned subsidiary
of the Company ("Spinco"), and CULLIGAN WATER TECHNOLOGIES INC., a Delaware
corporation ("Acquiror").
W I T N E S S E T H :
WHEREAS, the Company, Acquiror and Culligan Water Company, Inc., a
wholly owned subsidiary of Acquiror ("Sub"), have entered into an Amended and
Restated Agreement and Plan of Merger and Reorganization dated as of February 5,
1997 (the "Merger Agreement"), providing for the Merger (as defined in the
Merger Agreement) of Sub with and into the Company;
WHEREAS, the Board of Directors of the Company has approved a
Contribution and Distribution Agreement in the form attached to the Merger
Agreement (the "Distribution Agreement");
WHEREAS, the execution and delivery of this Agreement by the parties
hereto is a condition to the obligations of the parties to the Merger Agreement
to consummate the Merger;
WHEREAS, the execution and delivery of this Agreement by the parties
hereto is a condition to the obligations of the parties to the Distribution
Agreement to consummate the Contribution and Distribution (as defined in the
Distribution Agreement); and
WHEREAS, Acquiror and the Company, on behalf of each of them and the
Company Group (as defined herein) and Spinco, on behalf of itself and the Spinco
Group (as defined herein), wish to provide for the allocation between the
Company Group and the Spinco Group of all responsibilities, liabilities and
benefits relating to or affecting Taxes (as defined herein) paid or payable by
either of them for all taxable periods, whether beginning before, on or after
the Distribution Date (as defined herein) and to provide for certain other
matters;
NOW, THEREFORE, in consideration of the premises and of the respective
covenants and agreements set forth herein, the parties hereto hereby agree as
follows:
<PAGE>
ARTICLE I
DEFINITIONS
1.1. Definitions. Capitalized terms used in this Agreement and not
-----------
otherwise defined herein shall have the meanings assigned to such terms in the
Merger Agreement or the Distribution Agreement, as the case may be. As used in
this Agreement, the following terms shall have the following respective
meanings:
"Acquiror Tax Opinions" means the opinions, if any, received by
Acquiror from Skadden, Arps, Slate, Meagher & Flom LLP pursuant to Section
8.1(h) of the Merger Agreement.
"Acquiror's Tax Representation Letter" means the representation
letter, if any, delivered by Acquiror to Skadden, Arps, Slate, Meagher & Flom
LLP and Stroock & Stroock & Lavan LLP in reliance upon which they will render
their respective Tax Opinions.
"Action" has the meaning set forth in Section 5.5(b).
"Actually Realized" or "Actually Realizes" means, for purposes of
determining the timing of any Taxes (or related Tax cost or benefit) relating to
any payment, transaction, occurrence or event (including the receipt of any Tax
Refund), the time at which the amount of Taxes payable by such person is
increased above or reduced below, as the case may be, the amount of Taxes that
such person would be required to pay but for such payment, transaction,
occurrence or event.
"Affiliate" means with respect to each of the parties hereto, (i) a
corporation, partnership, limited liability company, trust, joint venture or
other business entity in which 50% or more of the outstanding equity or voting
power is owned (directly or indirectly) by such party, and (ii) a partnership in
which a general partner interest is owned by such party. For this purpose, in
no event shall the Company or Spinco be treated as Affiliates.
"Affiliated Group" means the affiliated group of corporations within
the meaning of Section 1504 of the Code of which the Company is the common
parent.
"Code" means the Internal Revenue Code of 1986, as amended, and shall
include corresponding provisions of any subsequently enacted Federal Tax laws.
"Company Group" means, solely for purposes of this Agreement, the
Company and its Affiliates, other than Spinco and its Affiliates (determined
after giving effect to the
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Contribution and Distribution) and, for Post-Tax Indemnification Periods, shall
include Acquiror and its Affiliates.
"Company Tax Item" means a Tax Item that is attributable to the
Company Group and is not a Spinco Tax Item.
"Company Tax Opinions" means the opinions, if any, received by the
Company from Stroock & Stroock & Lavan LLP pursuant to Section 8.1(h) of the
Merger Agreement.
"Consolidated Federal Tax Returns" are the Federal Tax Returns for the
Affiliated Group for any Pre-Distribution Taxable Period.
"Distribution Date" means the date on which the Distribution occurs or
is deemed to occur for Federal Income Tax purposes and shall be deemed effective
as of the close of business on such date.
"Group" means either the Company Group or the Spinco Group, as the
context provides.
"Income Tax Benefit" means for any taxable period the excess of (i)
the Income Tax liability of the taxpayer for the taxable period calculated as if
the Timing Difference or Reverse Timing Difference, as the case may be, had not
occurred but with all other facts unchanged, over (ii) the Income Tax liability
of the taxpayer for the taxable period, calculated taking into account the
Timing Difference or Reverse Timing Difference, as the case may be (treating an
Income Tax Refund as a negative Income Tax liability for purposes of such
calculation).
"Income Tax Detriment" means for any taxable period the excess of (i)
the Income Tax liability of the taxpayer for the taxable period, calculated
taking into account the Timing Difference or Reverse Timing Difference, as the
case may be, over (ii) the Income Tax liability of the taxpayer for the taxable
period, calculated as if the Timing Difference or Reverse Timing Difference, as
the case may be, had not occurred but with all other facts unchanged (treating
an Income Tax Refund as a negative Income Tax liability for purposes of such
calculation).
"Income Taxes" means any Tax based upon, measured by, or calculated
with respect to (i) net income or profits (including, but not limited to, any
capital gains, minimum Tax and any Tax on items of Tax preference, but not
including sales, use, real property gains, real or personal property, gross or
net receipts, transfer or similar Taxes) or (ii) multiple bases (including, but
not limited to, corporate franchise, doing business or occupation Taxes) if one
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<PAGE>
or more of the bases upon which such Tax may be based, measured by, or
calculated with respect to, is described in clause (i) above.
"Indemnitee" has the meaning set forth in Section 5.2.
"Indemnitor" has the meaning set forth in Section 5.2.
"Indemnity Issue" has the meaning set forth in Section 5.2.
"IRS" means the Internal Revenue Service.
"Post-Distribution Taxable Period" means a taxable period beginning
after the Distribution Date.
"Post-Tax Indemnification Period" means any Post-Distribution Taxable
Period and that portion of any Straddle Period that begins on the day after the
Distribution Date.
"Pre-Distribution Taxable Period" means a taxable period ending on or
before the Distribution Date.
"Private Letter Ruling Request" means the private letter ruling
request concerning the Contribution, Distribution and Merger submitted to the
IRS and any supplementary submissions thereto.
"Pro Forma Tax Returns" has the meaning set forth in Section 2.1(c).
"Responsible Party" has the meaning set forth in Section 5.3.
"Reverse Timing Difference" means an increase in income, gain or
recapture, or a decrease in deduction, loss or credit, as calculated for Income
Tax purposes, of the taxpayer for any Tax Indemnification Period coupled with an
increase in deduction, loss or credit, or a decrease in income, gain or
recapture, of the taxpayer for any Post-Tax Indemnification Period.
"Straddle Period" means a taxable period that begins before and
includes but does not end on the Distribution Date.
"Spinco Group" means Spinco and its Affiliates, determined immediately
after the Contribution and Distribution.
"Spinco Tax Item" means a Tax Item solely attributable to the Spinco
Group.
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<PAGE>
"Spinco's Tax Representation Letter" means the representation letter,
if any, delivered by Spinco and the Company to Skadden, Arps, Slate, Meagher &
Flom LLP and Stroock & Stroock & Lavan LLP in reliance upon which they will
render their respective Tax Opinions.
"Tax" or "Taxes" means all forms of taxation, whenever created or
imposed, and whether imposed by a local, municipal, governmental, state,
foreign, federal or other body, and without limiting the generality of the
foregoing, shall include income, sales, use, ad valorem, gross receipts,
license, value added, franchise, transfer, recording, withholding, payroll, wage
withholding, employment, excise, occupation, unemployment insurance, social
security, business license, business organization, stamp, environmental, premium
and property taxes, together with any related interest (including the actual
interest that would have accrued if there were no netting of Taxes), penalties
and additions to any such tax, or additional amounts imposed by any Taxing
Authority (domestic or foreign) upon the Company Group, the Spinco Group, the
Acquiror or any of their Affiliates.
"Tax Audit Proceeding" means any audit or other examination, judicial
or administrative proceeding relating to liability for, or refunds or
adjustments with respect to, Taxes.
"Tax Deficiency" means a net increase in Taxes payable as a result of
a Tax Audit Proceeding or an amendment of a Tax Return or an event having a
similar effect.
"Tax Indemnification Period" means any Pre-Distribution Taxable Period
and that portion of any Straddle Period that ends on and includes the
Distribution Date.
"Tax Item" means any item of income, gain, loss, deduction, credit,
provisions for reserves, recapture of credits or any other item which is taken
into account in determining taxable income or is otherwise taken into account in
determining Taxes paid or payable, including an adjustment under Section 481 of
the Code resulting from a change in accounting method.
"Tax Opinions" means the Acquiror Tax Opinions and the Company Tax
Opinions, if any.
"Tax Records" has the meaning set forth in Section 6.2.
"Tax Refund" means a refund of Taxes (including a reduction in Taxes
as a result of the utilization of any credit or any offset against Taxes or Tax
Items) reduced (but not below zero) by any net increase in Taxes Actually
Realized by the recipient (or its Affiliate) thereof as a result of the receipt
thereof.
-5-
<PAGE>
"Tax Return" means any return, filing, questionnaire, information
return or other document required to be filed, including requests for extensions
of time, filings made with respect to estimated tax payments, claims for refund
and amended returns that may be filed, for any period with any Taxing Authority
(whether domestic or foreign) in connection with any Tax or Taxes (whether or
not a payment is required to be made with respect to such filing).
"Taxing Authority" means any governmental or quasi-governmental body
exercising any Taxing authority or Tax regulatory authority.
"Timing Difference" means an increase in income, gain or recapture, or
a decrease in deduction, loss or credit, as calculated for Income Tax purposes,
of the taxpayer for any Post-Tax Indemnification Period coupled with an increase
in deduction, loss or credit, or a decrease in income, gain or recapture, of the
taxpayer for any Tax Indemnification Period.
"Transfer Taxes" means all transfer, documentary, sales, use,
registration, value-added and other similar Taxes (including all applicable real
estate transfer Taxes and real property transfer gains Taxes) and related
amounts (including any penalties, interest and additions to Tax) arising as a
result of or otherwise incurred in connection with any of the transactions
contemplated by the Distribution Agreement, the Merger Agreement and the
agreements ancillary thereto.
ARTICLE II
FILING OF TAX RETURNS
2.1. Preparation of Tax Returns.
--------------------------
(a) Consistent with Agreements. Each of the parties to this Agreement
--------------------------
agrees to, and to cause each of its relevant Affiliates to, report the
Contribution and Distribution as transactions described in Sections 355 and
368(a)(l)(D) of the Code and the Merger as a "reorganization" under Section
368(a)(1)(B) of the Code on all Tax Returns and other filings, and take no
position inconsistent therewith or with the consummation of such transactions as
set forth in the Merger Agreement, the Distribution Agreement, the Acquiror's
Tax Representation Letter, Spinco's Tax Representation Letter or the Private
Letter Ruling Request (in the absence of a controlling change in law or
circumstance). The parties agree that consistent with the principles of Section
381 of the Code and with applicable law, Spinco and only Spinco shall reflect
any Tax Item arising in or attributable to a Tax-Indemnification Period on its
own Tax Returns following the Distribution Date.
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<PAGE>
(b) Consistent with Past Practice. Except for any accounting method
-----------------------------
changes pursuant to applications that are approved by the IRS and reflected in
Schedule 4.15 of the Merger Agreement and any accounting method elections and
changes that may be effective as of the day after the Distribution Date and are
applicable only to the Spinco Group (or otherwise have no adverse affect on the
Company Group, as determined by the Company Group in its reasonable discretion),
all Tax Returns described in Sections 2.2(a), (b), (c) and (d) hereof filed
after the date of this Agreement, in the absence of a controlling change in law
or circumstance, shall be prepared on a basis consistent with the elections,
accounting methods, conventions and principles of taxation used for the most
recent taxable periods for which Tax Returns involving similar Tax Items have
been filed and in a manner that does not unreasonably accelerate deductions or
defer income between Tax Indemnification Periods and Post-Tax Indemnification
Periods. Subject to the provisions of this Agreement, all decisions relating to
the preparation of Tax Returns shall be made in the sole discretion of the party
responsible under this Agreement for such preparation.
(c) Spinco Obligations. Spinco agrees to cooperate in good faith with
------------------
the Company to determine the appropriate amount of Tax Items attributable, if
any, to the Company Group to be reflected on any Tax Returns for Straddle
Periods to be prepared and filed by Spinco in accordance with Section 2.2. With
respect to each of the 1996 taxable year and the taxable year ending on and
including the Distribution Date, (i) Spinco will deliver to the Company at least
60 days prior to the filing of the Tax Returns for such taxable year, a pro
forma Federal and state Income Tax Return (the "Pro Forma Tax Returns") prepared
on the assumption that the Project J Division is a separate taxpayer and
including only those tax items relating to the Project J Division for such
taxable years and (ii) will consult with the Company with respect to the
application of the Tax Items shown on the Pro Forma Tax Returns to the Tax Items
to be shown on the Tax Returns. The computations made with respect to the Pro
Forma Tax Returns shall be made, where applicable, on a basis consistent with
the principles of Treasury Regulation Section 1.1502-76(b)(2). Spinco will
inform and consult with the Company regarding any Tax Audits or any other
adjustments which would materially affect any of the Tax Items shown on the Pro
Forma Tax Returns. Spinco will provide the Company with copies of all Tax
Returns described in Section 2.2(a), (b) and (c) promptly after filing.
(d) Company Obligations. The Company agrees to cooperate in good
-------------------
faith with Spinco to determine the appropriate amount of Tax Items attributable
to the Spinco Group to be reflected on any Tax Returns for Straddle Periods to
be prepared and filed by the Company in accordance with Section 2.2. The
Company further agrees to provide Spinco with a copy of each such Tax Return at
least 30 days before it is filed and to follow the procedures in Section 4.2
relating to the calculation of Taxes and to not file any such Tax Returns
without the prior written consent of Spinco, which consent shall not be
unreasonably withheld. If such consent is withheld, Spinco shall so notify the
Company at least 10 days prior to the due date for filing such Tax Returns
(giving effect to applicable extensions). The Company will promptly provide
Spinco with copies of all such Tax Returns after filing.
-7-
<PAGE>
2.2. Filing of Tax Returns.
---------------------
(a) Consolidated Federal Tax Returns. The Consolidated Federal Tax
--------------------------------
Returns required to be filed after the date hereof shall be prepared and filed
or caused to be prepared and filed by Spinco.
(b) Pre-Distribution Period Tax Returns. All Tax Returns other than
-----------------------------------
those described in Section 2.2(a) which include a member of the Spinco Group or
the Company Group that are required to be filed for any Pre-Distribution Taxable
Period shall be prepared and filed or caused to be prepared and filed by Spinco.
(c) Spinco Straddle Period Tax Returns. All Tax Returns other than
----------------------------------
those described in Section 2.2(a) which are required to be filed by any member
of the Spinco Group for any Straddle Period shall be prepared and filed or
caused to be prepared and filed by Spinco.
(d) Company Straddle Period Tax Returns. All Tax Returns other than
-----------------------------------
those described in Section 2.2(a) which are required to be filed by any member
of the Company Group for any Straddle Period shall be prepared and filed or
caused to be prepared and filed by the Company.
(e) Post-Distribution Period Tax Returns. All Tax Returns for all
------------------------------------
Post-Distribution Taxable Periods shall be the responsibility of the Spinco
Group if such Tax Returns relate to a member or members of the Spinco Group or
their respective assets or businesses, or shall be the responsibility of the
Company Group if such Tax Returns relate to a member or members of the Company
Group or their respective assets or businesses.
2.3. Procedures for Filing Tax Returns.
---------------------------------
(a) Designation. The Company hereby irrevocably designates, and
-----------
agrees to cause each of its Affiliates to so designate, Spinco as its agent to
take any and all actions necessary or incidental to the preparation and filing
of the Tax Returns described in Sections 2.2(a), (b) and (c). Spinco hereby
irrevocably designates, and agrees to cause each of its Affiliates to so
designate, the Company as its agent to take any and all actions necessary or
incidental to the preparation and filing of the Tax Returns described in Section
2.2(d).
(b) Closing of Straddle Period. To the extent permitted by law or
--------------------------
administrative practice, the taxable year of any member of the Company Group
which includes the Distribution Date shall be treated as closing on (and
including) the Distribution Date. The Company, Acquiror, Spinco and their
respective Affiliates agree to treat, on all Tax Returns and
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in all Tax Audit Proceedings, the Affiliated Group as terminating for Federal
income tax purposes as a result of the Merger.
ARTICLE III
PAYMENT OF TAXES
3.1. Payment of Tax Liabilities.
--------------------------
(a) Pre-Distribution and Consolidated Liabilities. Except as
---------------------------------------------
otherwise provided in this Agreement, Spinco or a member of the Spinco Group
shall pay or cause to be paid, on a timely basis, all Taxes due with respect to
the Tax Returns described in Sections 2.2(a) and 2.2(b).
(b) Separate Straddle Period Tax Liabilities. (i) Spinco Liability.
---------------------------------------- ----------------
Except as otherwise provided in this Agreement, Spinco or a member of the Spinco
Group shall pay or cause to be paid, on a timely basis, all Taxes due with
respect to the Tax Returns described in Section 2.2(c).
(ii) Company Liability. Except as otherwise provided in this
-----------------
Agreement, the Company or a member of the Company Group shall pay or cause to be
paid, on a timely basis, all Taxes due with respect to the Tax Returns described
in Section 2.2(d). Spinco shall pay directly to or at the direction of the
Company, at least two days prior to the date payment (including estimated
payment) thereof is due, the Spinco Group's allocable share (as determined under
Section 4.1) of those Taxes due.
(c) Post-Distribution Period Tax Liabilities. Except as otherwise
----------------------------------------
provided in this Agreement, all Taxes for all Post-Distribution Taxable Periods
shall be paid or caused to be paid by the party responsible under this Agreement
for filing the Tax Return pursuant to which such Taxes are due or, if no such
Tax Returns are due, by the party liable for such Taxes.
3.2. Tax Refunds and Carrybacks
--------------------------
(a) Retention and Payment of Tax Refunds. Except as otherwise
------------------------------------
provided in this Agreement, Spinco shall be entitled to retain, and to receive
within ten days after Actually Realized by the Company Group, the portion of all
Tax Refunds of Taxes for which the Spinco Group is liable pursuant to Section
3.1 or Section 5.1(a), and the Company shall be entitled to
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retain, and to receive within ten days after Actually Realized by the Spinco
Group, the portion of all Tax Refunds of Taxes for which the Company Group is
liable pursuant to Section 3.1 or Section 5.1(b). Notwithstanding the foregoing,
(i) all Tax Refunds resulting from the carryback of any Company Tax Item arising
in a Post-Tax Indemnification Period to a Tax Indemnification Period shall be
for the account and benefit of the Company Group and, if and to the extent
Actually Realized by Spinco, Spinco shall pay over to the Company any such Tax
Refund within ten days after it is Actually Realized by Spinco or any member of
the Spinco Group, (ii) all Tax Refunds resulting from (A) the carryback of any
Spinco Tax Item arising in a Post-Tax Indemnification Period to a Tax
Indemnification Period, or (B) with respect to each Retained Option, up to the
Retained Option Amount corresponding to such Retained Option, the Tax Items that
would have been attributable to such Retained Option had the Retained Option
been exercised on the date of the Merger, shall be for the account of Spinco
and, if and to the extent Actually Realized by the Company, the Company shall
pay over to Spinco any such Tax Refund within ten days after it is Actually
Realized by the Company or any member of the Company Group and (iii) all Tax
Refunds resulting from the utilization of any Tax Items (such as the utilization
of a minimum or foreign tax credit or Section 481(a) adjustments which reduces
current year Taxes) of the Company or its Affiliates arising in a Tax
Indemnification Period shall be for the account of Spinco and, if and to the
extent Actually Realized by the Company, the Company shall pay over to Spinco
any such Tax Refund within ten days after it is Actually Realized by the Company
or any member of the Company Group. In computing the amount of any Tax Refunds
described in (i), (ii) or (iii) above, the party paying over such Tax Refunds
shall be deemed to recognize all other items of income, gain, loss, deduction or
credit before the utilization of any Tax Item causing a Tax Refund described in
this Section 3.2(a). Spinco, Acquiror, the Company and their respective
Affiliates will use their best efforts to claim and utilize the Tax Items
referred to in (i), (ii) or (iii) in a manner which is designed to maximize (on
a present value basis) the Tax Refunds described therein.
(b) Refund Claims. Spinco shall be permitted to file at Spinco's sole
-------------
expense, and the Company shall reasonably cooperate with Spinco in connection
with, any claims for Tax Refund to which Spinco is entitled pursuant to this
Section 3.2 or any other provision of this Agreement. Spinco shall reimburse
the Company for any reasonable out-of-pocket costs and expenses incurred by any
member of the Company Group in connection with such cooperation. The Company
shall be permitted to file at the Company's sole expense, and Spinco shall
reasonably cooperate with the Company in connection with, any claims for Tax
Refund to which the Company is entitled pursuant to this Section 3.2 or any
other provision of this Agreement. The Company shall reimburse Spinco for any
reasonable out-of-pocket costs and expenses incurred by any member of the Spinco
Group in connection with such cooperation.
Any claim for a Tax Refund under Section 3.2(b) to which Spinco is
entitled and which relates to a Tax Return for which the Company is required to
file under Section 2.2 shall
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<PAGE>
be subject to the Company Group's consent (such consent not to be unreasonably
withheld). Any claim for a Tax Refund under Section 3.2(b) to which the Company
Group is entitled shall be subject to the Spinco Group's consent (such consent
not to be unreasonably withheld). A copy of a claim for any Tax Refund to which
either party is entitled to file under Section 3.2(b) shall be provided to the
other party no later than 30 days prior to the filing of such Tax Refund claim.
In the event that Spinco and the Company are each entitled to file a
Tax Refund claim pursuant to Section 3.2(b) for the same period, such Tax
Refunds of the Company and Spinco shall be allocated, in a manner analogous to
Treasury Regulation Section 1.1552-1(a)(2), to the Company and Spinco on the
basis of the percentage of the total Tax Refund which the Tax Refund of the
Company or Spinco if computed on a separate return would bear to the total
amount of the Tax Refunds for the Company and Spinco so computed.
ARTICLE IV
ALLOCATION AND CALCULATION OF TAXES
4.1. Allocations In the case of any Tax Return described in Section
-----------
2.2(d), the Spinco Group will be allocated the portion of such Taxes due with
respect to such Tax Return attributable to the period up to and including the
Distribution Date. This amount shall be computed (i) in the case of periodic
Taxes that are not based on income or receipts (e.g., property taxes), by
allocating to the Spinco Group a portion of such Taxes based on the ratio of the
number of days in the Straddle Period prior to and including the Distribution
Date to the total number of days in the Straddle Period and (ii) in the case of
all other Taxes, as if such taxable period ended on and included the
Distribution Date and, in the case of any Taxes attributable to the ownership of
any equity interest in any partnership or other "flow-through" entity, as if a
taxable period of such partnership or other "flow-through" entity ended on and
included the Distribution Date. Spinco will determine the allocations for this
Section in a manner consistent with the principles set forth in Section 4.2.
4.2. Calculations and Determinations. All calculations and
-------------------------------
determinations required to be made pursuant to this Agreement (including the
calculation in Section 4.1) shall be made in good faith by the party making such
calculations or determinations. Except for any accounting method changes
pursuant to applications for accounting method changes filed prior to the date
hereof and any accounting method elections and changes that may be effective as
of the day after the Distribution Date, all calculations and determinations
required to be made pursuant to this Agreement (including the calculation in
Section 4.1), shall be made, in the absence of a controlling change in law or
circumstance, on a basis consistent with the elections, accounting methods,
conventions and principles of taxation used for the most recent taxable
-11-
<PAGE>
periods for which Tax Returns involving similar Tax Items have been filed and in
a manner that does not unreasonably accelerate deductions or defer income
between Tax Indemnification Periods and Post-Tax Indemnification Periods.
4.3. Principles of Determination. In implementing this Agreement,
---------------------------
except as otherwise specifically provided, the parties shall make any
adjustments that are necessary to ensure that, with respect to Taxes for
Straddle Periods or Pre-Distribution Taxable Periods, payments and
reimbursements between the parties reflect the principles that the Company is to
bear responsibility only for Taxes for the Company Group (and any Affiliates)
that are attributable to the portion of any Straddle Period after the
Distribution Date (calculated by treating the day after the Distribution Date as
the first day of a taxable period) and that (i) Spinco is to bear
responsibility for all other Taxes for Straddle Periods and Pre-Distribution
Taxable Periods, (ii) Spinco is to be entitled to any Tax Refunds relating to
Tax Items attributable to Tax Indemnification Periods and (iii) Spinco is to be
entitled to any Tax Refunds (up to the Retained Option Amount) relating to Tax
Items that would have been attributable to the Retained Options had the Retained
Options been exercised on the Merger Date.
ARTICLE V
TAX INDEMNIFICATION; TAX CONTESTS
5.1. Indemnification.
---------------
(a) Spinco Indemnification. Except as otherwise provided in Section
----------------------
5.1(b), Spinco and the Spinco Group shall be liable for and shall indemnify,
defend and hold harmless the members of the Company Group and Acquiror and each
of their respective Affiliates and representatives from and against (A) all
Taxes of the Company Group and the Spinco Group for Pre-Distribution Taxable
Periods (B) all Taxes of the Company Group and the Spinco Group for the portion
of any Straddle Period ending on and including the Distribution Date, (C) all
Taxes of the Spinco Group for the portion of any Straddle Period beginning on
the day after the Distribution Date (calculated by treating the day after the
Distribution Date as the first day of a taxable period), (D) all Taxes of the
Spinco Group for Post-Distribution Taxable Periods, (E) all liability (as a
result of Treasury Regulation Section 1.1502-6(a) or a comparable state, local
or foreign law) for Income Taxes of any person (other than a member of the
Company Group or the Spinco Group) which is or has ever been affiliated with any
member of the Company Group or the Spinco Group or with which any member of the
Company Group or the Spinco Group joins or has ever joined (or is or has ever
been required to join) in filing any consolidated, combined or unitary Tax
Return for any Pre-Distribution Taxable Period or Straddle Period, (F) all Taxes
for which Spinco is liable pursuant Section 5.5, (G) all Taxes for any taxable
period (whether beginning before, on or after the Distribution Date) that would
not have been payable
-12-
<PAGE>
but for the breach by any member of the Spinco Group of any representation,
warranty or obligation under this Agreement or the Merger Agreement, (H) all
liability for Taxes resulting from the Contribution, Distribution and/or Merger
(but not including (i) any periodic Taxes that are not based on income or
receipts attributable to collateral consequences of such transactions, such as a
reassessment of Company Group property for property Tax purposes resulting from
the change in control incident to the Merger and (ii) Taxes, if any,
attributable to payments made to the Company in the form of "true-ups" or other
purchase price adjustments pursuant to the terms of the Merger Agreement) other
than liability arising from an Action, as defined in Section 5.5(b), (I) all
Taxes of the Company Group attributable to the recapture of any inventory
reserves of the Company Group, whether pursuant to a change in accounting method
or otherwise, (J) the Spinco Group's share of any Transfer Taxes, as provided in
Section 1.9(b) of the Distribution Agreement and (K) all liability for any
reasonable legal, accounting, appraisal, consulting or similar fees and expenses
relating to the foregoing.
(b) Company and Acquiror Indemnification. Except as otherwise
------------------------------------
provided in Section 5.1(a), the Company and Acquiror shall be liable for and
shall indemnify, defend and hold harmless the Spinco Group from and against (A)
all Taxes of the Company Group for Post-Distribution Taxable Periods, (B) all
Taxes of the Company Group for the portion of any Straddle Period beginning on
the day after the Distribution Date (calculated by treating the day after the
Distribution Date as the first day of a taxable period), (C) all Taxes for which
the Company is liable pursuant to Section 5.5, (D) all Taxes for any taxable
period (whether beginning before, on or after the Distribution Date) that would
not have been payable but for the breach by any member of the Company Group of
any representation, warranty or obligation under this Agreement or the Merger
Agreement, (E) the Company Group's share of any Transfer Taxes, as provided in
Section 1.9(b) of the Distribution Agreement and (F) all liability for any
reasonable legal, accounting, appraisal, consulting or similar fees and expenses
relating to the foregoing.
(c) Joint Indemnification. Notwithstanding anything to the contrary
---------------------
contained herein, in the event that Spinco and the Company would each be liable
for Taxes resulting from the Contribution, Distribution and/or the Merger
pursuant to Section 5.1(a) and 5.1(b) (without regard to any action taken by the
other party), Spinco and the Company shall each be liable for one half of such
Taxes and shall indemnify each other for any excess of such amount paid, in the
aggregate, to any one or more Taxing Authorities.
(d) Payments. Subject to Section 5.6(b), any indemnity payment
--------
required to be made pursuant to this Section 5.1 shall be paid within thirty
days after the indemnified party
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<PAGE>
makes written demand upon the indemnifying party, but in no case earlier than
five business days prior to the date on which the relevant Taxes are required to
be paid (or would be required to be paid if no such Taxes are due) to the
relevant Taxing Authority.
5.2. Notice of Indemnity. Whenever a party hereto (hereinafter an
-------------------
"Indemnitee") becomes aware of the existence of an issue raised by any Taxing
Authority which could reasonably be expected to result in a determination that
would increase the liability for any Tax of the other party hereto or any member
of its Group for any Post-Tax Indemnification Period (in the case of the Company
Group) or for any Tax Indemnification Period (in the case of the Spinco Group)
or require a payment hereunder to the other party (hereinafter an "Indemnity
Issue"), the Indemnitee shall in good faith promptly give notice to such other
party (hereinafter the "Indemnitor") of such Indemnity Issue. The failure of
any Indemnitee to give such notice shall not relieve any Indemnitor of its
obligations under this Agreement except to the extent such Indemnitor or its
Affiliate is actually materially prejudiced by such failure to give notice.
5.3. Tax Contests. The Indemnitor and its representatives, at the
------------
Indemnitor's expense, shall be (A) entitled to participate in all conferences,
meetings or proceedings with any Taxing Authority, the subject matter of which
is or includes an Indemnity Issue, (B) entitled to participate in all
appearances before any court, the subject matter of which is or includes an
Indemnity Issue, and (C) required to consent (which consent shall not be
unreasonably withheld) to the settlement of all Tax Audits pertaining to or
including an Indemnity Issue. Subject to the Indemnitor's right to consent
(which consent shall not be unreasonably withheld) to the settlement of all Tax
Audits pertaining to or including an Indemnity Issue, the party who has
responsibility for filing the Tax Return under this Agreement (the "Responsible
Party") with respect to which there could be an increase in liability for any
Tax or with respect to which a payment could be required hereunder shall have
the right to decide as between the parties hereto how such matter is to be dealt
with and shall control all audits and similar proceedings. If no Tax Return is
or was required to be filed in respect of an Indemnity Issue, the Indemnitor
shall be treated as the Responsible Party with respect thereto. The Responsible
Party agrees to cooperate in the settlement of any Indemnity Issue with the
other party and to take such other party's interests into account. If the
Indemnitor is not the Responsible Party, such cooperation may include permitting
the Indemnitor, at the Indemnitor's sole expense, to litigate or otherwise
resolve any Indemnity Issue. Notwithstanding any other provision of this
Agreement, if Spinco has materially satisfied its obligations under this
Agreement and if the Company fails to permit Spinco to control any Indemnity
Issue (other than an Indemnity Issue resulting solely from an Action) relating
to the qualification of the Contribution and Distribution as transactions
described in Sections 355 and 368(a)(1)(D) of the Code or the qualification of
the Merger as a "reorganization" within the meaning of Section 368(a)(1)(B) of
the Code, then Spinco shall not be liable for and shall not indemnify the
Company Group for any Tax Deficiency resulting from an adverse determination
-14-
<PAGE>
of such Indemnity Issue. Notwithstanding anything to the contrary contained in
this Section 5.3, any Indemnity Issue involving the qualification of the
Contribution and the Distribution as transactions described in Sections 355 and
368 (a)(1)(D) of the Code or the Merger as a "reorganization" described in
Section 368(a)(1)(B) of the Code, that (i) relates solely to an Action shall be
controlled solely by the Company (and no consent of Spinco shall be required
with respect to any settlement of such Indemnity Issue), (ii) relates solely to
circumstances other than an Action shall be controlled solely by Spinco (and no
consent of the Company shall be required with respect to any settlement of such
Indemnity Issue) and (iii) relates to circumstances described in both (i) and
(ii) above shall be jointly controlled by the Company and Spinco.
5.4. Timing Adjustments.
------------------
(a) Timing Differences. If a Tax Audit Proceeding or an amendment of
------------------
a Tax Return results in a Timing Difference, and such Timing Difference results
in a decrease in an indemnity obligation Spinco has or would otherwise have
under Section 5.1 and/or an increase in the amount of a Tax Refund to which
Spinco is entitled under Section 3.2, then in each Post-Tax Indemnification
Period in which the Company Group Actually Realizes an Income Tax Detriment,
Spinco shall pay to the Company an amount equal to such Income Tax Detriment;
provided, however, that the aggregate payments which Spinco shall be required to
make under this Section 5.4(a) with respect to any Timing Difference shall not
exceed the aggregate amount of the Income Tax Benefits realized by the Spinco
Group for all taxable periods and the Company Group for all Tax Indemnification
Periods as a result of such Timing Difference. Spinco shall make all such
payments within ten days after the Company notifies Spinco that the relevant
Income Tax Detriment has been Actually Realized.
(b) Reverse Timing Differences. If a Tax Audit Proceeding or an
--------------------------
amendment of a Tax Return results in a Reverse Timing Difference, and such
Reverse Timing Difference results in an increase in an indemnity obligation of
Spinco under Section 5.1 and/or a decrease in the amount of a Tax Refund to
which Spinco is or would otherwise be entitled to under Section 3.2, then in
each Post-Tax Indemnification Period in which the Company Group Actually
Realizes an Income Tax Benefit, the Company shall pay to Spinco within ten days
after the Company has Actually Realized such Income Tax Benefit an amount equal
to such Income Tax Benefit; provided, however, that the aggregate payments which
the Company shall be required to make under this Section 5.4(b) with respect to
any Reverse Timing Difference shall not exceed the aggregate amount of the
Income Tax Detriments realized by the Company Group and the Spinco Group for all
Tax Indemnification Periods as a result of such Reverse Timing Difference.
-15-
<PAGE>
5.5. Certain Transactions.
--------------------
(a) Consistent with Representations. Spinco shall, and shall cause
-------------------------------
each Spinco Group member to, comply with and take no action inconsistent with
Spinco's Tax Representation Letter or the Private Letter Ruling Request.
Acquiror shall, and shall cause each member of the Company Group to, comply with
and take no action inconsistent with Acquiror's Tax Representation Letter or the
Private Letter Ruling Request. The Spinco Group, Acquiror and the Company Group
shall use their respective best efforts to have the Contribution and the
Distribution qualify as transactions described in Sections 355 and 368 (a)(l)(D)
of the Code and to have the Merger qualify as a "reorganization" within the
meaning of Section 368(a)(l)(B) of the Code.
(b) Tax-Free Reorganization Treatment. Acquiror and the Company agree
---------------------------------
to indemnify and hold the Spinco Group harmless from and against any Taxes
resulting from any Action (as hereinafter defined) which causes either the
Contribution and the Distribution to fail to qualify as transactions described
in Sections 355 and 368(a)(1)(D) of the Code or the Merger to fail to qualify as
a "reorganization" within the meaning of Section 368(a) (1) (B) of the Code. An
"Action" shall mean any of the actions taken by Acquiror, the Company or any of
their respective Affiliates (other than the members of the Spinco Group) within
the two-year period beginning on and continuing after the Distribution Date
which is inconsistent with Acquiror's Tax Representation Letter or the Private
Letter Ruling Request or any actions taken by Acquiror or any of its Affiliates
prior to and including the date of the Merger. Notwithstanding the foregoing,
an Action shall not include any transaction or action disclosed or described in
the Acquiror's Tax Representation Letter, Private Letter Ruling Request or
required or otherwise contemplated by the Merger Agreement (or any agreement or
document included as an exhibit thereto), or of which the Company or Spinco has
actual knowledge as of the Distribution Date. An Action shall not include any
action on the part of any member of the Spinco Group, or any of their respective
shareholders, officers, directors or agents. For purposes of this Section
5.5(b), the amount of any Taxes resulting from an Action shall equal the
difference between (i) the Taxes actually paid with respect to the Contribution,
Distribution and the Merger and (ii) the amount of Taxes that would have been
payable with respect to the Contribution, Distribution and the Merger in the
absence of such Action.
5.6. Payments Net of Taxes
---------------------
(a) Gross Up and Characterization. The amount of any payment under
-----------------------------
this Agreement shall be (i) increased to take account of any net Tax cost
incurred by the recipient thereof as a result of the receipt or accrual of
payments hereunder (grossed-up for such increase) and (ii) reduced to take
account of any net Tax benefit realized by the recipient arising from the
incurrence or payment of any such payment, other than any such net Tax benefit
that the recipient is specifically entitled to retain pursuant to this
Agreement. In computing the
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<PAGE>
amount of any such Tax cost or Tax benefit, the recipient shall be deemed to
recognize all other items of income, gain, loss, deduction or credit before
recognizing any item arising from the receipt or accrual of any payment
hereunder. Except as provided in Section 5.6(b), or unless the parties otherwise
agree to an alternative method for determining the present value of any such
anticipated Tax benefit or Tax cost, any payment hereunder shall initially be
made without regard to this Section and shall be increased or reduced to reflect
any such net Tax cost (including gross-up) or net Tax benefit only after the
recipient has Actually Realized such cost or benefit. It is the intention of the
parties that payments made pursuant to this Agreement are to be treated as
relating back to the Contribution and Distribution as an adjustment to the
assets and liabilities contributed thereunder, and the parties shall not take
any position inconsistent with such intention before any Taxing Authority,
except to the extent that a final determination (as defined in Section 1313 of
the Code) with respect to the recipient party causes any such payment not to be
so treated.
(b) Time for Payment. Notwithstanding any other provision of this
----------------
Agreement, to simplify the administration of this Agreement, the payment of any
amount less than $25,000 required to be made pursuant to this Agreement by one
party hereto to another party hereto need not be made to such other party prior
to thirty days following the later of (i) the close of the calendar quarter
during which such payment obligation arose and (ii) the day during such calendar
quarter when the aggregate amount of all such less than $25,000 payment
obligations arising during such calendar quarter exceeds $150,000. Unless
otherwise specified by the recipient for items exceeding $100,000, any such
payment may be made on a net Tax basis (i.e., reduced to take account of any net
Tax benefit to be realized by the recipient (computed at an effective Tax rate
to be agreed upon from time-to-time by the parties)) to the extent such
recipient is entitled to a corresponding deduction.
(c) Right to Offset. Any party making a payment under this Agreement
---------------
shall have the right to reduce any such payment by any amounts owed to it by the
other party to this Agreement.
ARTICLE VI
COOPERATION AND EXCHANGE OF INFORMATION
6.1. Cooperation and Exchange of Information. Each party hereto, on
---------------------------------------
behalf of itself and its Affiliates, agrees to provide the other parties hereto
with such cooperation and information as such other parties shall reasonably
request, and as promptly as practicable, in connection with the preparation or
filing of any Tax Return or claim for or allocation of a Tax Refund not
inconsistent with this Agreement or in conducting any Tax Audit Proceedings or
other proceeding in respect to Taxes or to carry out the provisions of this
Agreement. To the
-17-
<PAGE>
extent necessary to carry out the purposes of this Agreement and subject to the
other provisions of this Agreement, such cooperation and information shall
include without limitation the non-exclusive designation of an officer of Spinco
as an officer of the Company and Acquiror and each of their respective
Affiliates solely for the purpose of signing Tax Returns, cashing refund checks,
pursuing refund claims, dealing with Taxing Authorities and defending Tax Audit
Proceedings, in each case if such actions relate to Tax matters pertaining to or
arising in the Tax Indemnification Period, as well as promptly forwarding copies
of appropriate notices and forms or other communications received from or sent
to any Taxing Authority which relate to the Tax Items on the Pro Forma Tax
Returns and providing copies of all relevant Tax Returns for the Tax
Indemnification Period, together with accompanying schedules and related
workpapers, documents relating to rulings or other determinations by Taxing
Authorities, and records concerning the ownership and Tax basis of property,
which either party may possess and which relate to the Tax Items on the Pro
Forma Tax Returns. Subject to the rights of the Company Group under the other
provisions of this Agreement, such officer shall have the authority to execute
powers of attorney (including Form 2848) on behalf of each member of the Company
Group with respect to Tax Returns and Taxes for the Tax Indemnification Period.
Each party to this Agreement shall make, or shall cause its Affiliates to make,
their employees and facilities available on a mutually convenient basis to
provide an explanation of any documents or information provided hereunder. Any
party hereto requesting cooperation or information from the other parties hereto
will reimburse such other parties for all reasonable out of pocket expenses
incurred in providing such cooperation or assistance.
6.2. Record Retention. The Company and Spinco agree to (i) retain all
----------------
Tax Returns, related schedules and workpapers, and all material records and
other documents as required under Section 6001 of the Code and the regulations
promulgated thereunder relating thereto ("Tax Records") existing on the
Distribution Date or created through the Distribution Date, for 10 years from
the Distribution Date and (ii) allow the other parties to this Agreement and
their representatives (and representatives of any of its Affiliates), at times
and dates reasonably acceptable to the retaining party, to inspect, review and
make copies of such records, and have access to such employees, as the Company
and Spinco may reasonably deem necessary or appropriate from time to time, such
activities to be conducted during normal business hours and without disruption
to the respective business of either party. At the end of the 10-year period
described in clause (i), the Company or Spinco, as the case may be, shall
transfer such records (or cause such records to be transferred) to the other
party (at such other party's sole expense), unless such other party notifies the
Company or Spinco, as the case may be, within 90 days prior to the expiration of
the 10-year period, that such other party does not desire to receive such Tax
Records, in which case the Company or Spinco, as the case may be, may destroy or
otherwise dispose of such undesired documents.
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<PAGE>
ARTICLE VII
MISCELLANEOUS
7.1. Entire Agreement. This Tax Allocation Agreement constitutes the
----------------
entire agreement, and supersedes all other prior agreements, understandings,
representations and warranties, both written and oral, among the parties, with
respect to the subject matter hereof and thereof.
7.2. Company Representation. The Company represents that (i) it will
----------------------
become a member of the Acquiror's "consolidated group," as such term is defined
in Treasury Regulation Section 1.1502-1(h), on the date of the Merger, and (ii)
all of its income and other Tax Items will be included in Acquiror's
consolidated Federal Tax Returns from and after the date of the Merger.
7.3. Modification or Amendment. The parties hereto may modify or
-------------------------
amend this Agreement only by written agreement executed and delivered by duly
authorized officers of the respective parties. Anything in this Agreement or
the Merger Agreement to the contrary notwithstanding, in the event and to the
extent that there shall be a conflict between the provisions of this Agreement
and the Merger Agreement, the provisions of this Agreement shall control.
7.4. Resolution of Disputes. Any disputes between the parties with
----------------------
respect to this Agreement that cannot be resolved by good faith effort by the
parties shall be resolved by a "Big Six" public accounting firm or a law firm
satisfactory to Spinco and the Company, whose determination shall be final and
binding on all parties and whose fees and expenses shall be shared by each of
Spinco and the Company in accordance with the final allocation of the Tax
liability in dispute.
7.5. Notices. Any notice, request, instruction or other communication
-------
to be given hereunder by any party to any other party shall be in writing and
shall be deemed to have been duly given (i) on the date of delivery if delivered
personally, or by telecopy or telefacsimile, upon confirmation of receipt, (ii)
on the first business day following the date of dispatch if delivered by Federal
Express or other nationally reputable next-day courier service, or (iii) on the
third business day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid. All notices
hereunder shall be delivered as set forth below, or pursuant to such other
instructions as may be designated in writing by the party to receive such
notice:
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<PAGE>
(a) If to Spinco:
Ametek, Inc.
Station Square
Paoli, Pennsylvania 19301
Attention: Chairman of the Board
with copies to:
Jeffrey D. Uffner
Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
Attention: Jeffrey D. Uffner
(b) if to Acquiror or the Company:
Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, Illinois 60062-6209
Attention: General Counsel
with copies to:
Stuart M. Finkelstein
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022-3817
Attention: Stuart M. Finkelstein
7.6. No Third Party Beneficiaries. Except as otherwise expressly
----------------------------
provided herein, nothing contained in this Agreement is intended to confer upon
any person or entity other than the parties hereto and their respective
successors and permitted assigns, any benefit, right or remedies under or by
reason of this Agreement.
7.7. Assignment. No party to this Agreement shall convey, assign or
----------
otherwise transfer any of its rights or obligations under this Agreement without
the express written consent of the other parties hereto in their sole and
absolute discretion. Any such conveyance, assignment or transfer without the
express written consent of the other parties shall
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<PAGE>
be void ab initio. No assignment of this Agreement shall relieve the assigning
party of its obligations hereunder.
7.8. Term. This Agreement shall commence on the date of execution
----
indicated below and shall continue in effect until otherwise agreed to in
writing by Spinco and the Company, or their successors.
7.9. Captions. The Article, Section and paragraph captions herein are
--------
for convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
7.10. Severability. If any provision of this Agreement or the
------------
application thereof to any person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon any such determination, the parties shall negotiate
in good faith in an effort to agree upon a suitable and equitable substitute
provision to effect the original intent of the parties.
7.11. Specific Performance. In the event of any actual or threatened
--------------------
default in, or breach of, any of the terms, conditions and provisions of this
Agreement, the party or parties who are or are to be thereby aggrieved shall
have the right of specific performance and injunctive relief giving effect to
its or their rights under this Agreement, in addition to any and all other
rights and remedies at law or in equity, and all such rights and remedies shall
be cumulative. The parties agree that the remedies at law for any breach or
threatened breach, including monetary damages, are inadequate compensation for
any loss and that any defense in any action for specific performance that a
remedy at law would be adequate is waived.
7.12. Counterparts. For the convenience of the parties, this
------------
Agreement may be executed in any number of separate counterparts, each such
counterpart being deemed to be an original instrument, and all such counterparts
shall together constitute the same agreement.
7.13. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of New York
applicable to contracts made and to be performed entirely within such State,
without regard to the conflicts of law principles of such State.
7.14. Agent. Any consent rights of members of the Spinco Group under
-----
this Agreement shall be exercised by Spinco on behalf of the Spinco Group, and
any notices given
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<PAGE>
by the Company Group to Spinco shall be deemed to be given to each member of the
Spinco Group. Any consent rights of the Company Group under this Agreement shall
be exercised by Acquiror on behalf of the Company Group, and any notices given
by Spinco to Acquiror shall be deemed to be given to each member of the Company
Group.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto on the date
first hereinabove written.
Ametek, Inc.
By:
Name:
Title:
Ametek Aerospace Products, Inc.
By:
Name:
Title:
Culligan Water Technologies Inc.
By:
Name:
Title:
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<PAGE>
APPENDIX E
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT ON FORM 10 RELATING TO THESE SECURITIES HAS BEEN FILED +
+WITH THE SECURITIES AND EXCHANGE COMMISSION. THIS PRELIMINARY INFORMATION +
+STATEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN +
+OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN +
+WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO +
+REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PRELIMINARY INFORMATION STATEMENT
SUBJECT TO COMPLETION, DATED , 1997
INFORMATION STATEMENT
AMETEK AEROSPACE PRODUCTS, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
This Information Statement is being furnished to stockholders of AMETEK,
Inc., a Delaware corporation ("AMETEK"), in connection with the distribution to
its stockholders on a share for share basis (the "Spin-Off") of common stock,
par value $.01 per share ("New Ametek Common Stock"), of Ametek Aerospace
Products, Inc. ("New Ametek"), a Delaware corporation and wholly owned
subsidiary of AMETEK.
The Spin-Off will result in the distribution of all the outstanding shares of
New Ametek Common Stock to the holders of common stock of AMETEK, par value
$.01 per share ("AMETEK Common Stock"). No consideration will be paid by the
holders of AMETEK Common Stock for the shares of New Ametek Common Stock to be
received by them in the Spin-Off. Promptly after the Spin-Off, the corporate
name of New Ametek will be changed to "AMETEK, Inc."
At the time of the Spin-Off (the "Spin-Off Date"), New Ametek will own all of
AMETEK's assets except those relating to the water filtration business of
AMETEK, which consists of AMETEK's Plymouth Products Division, and the
following three foreign subsidiaries of AMETEK: Ametek Filters, Limited, APIC
International S.A. and AFIMO S.A.M. (collectively, the "Water Filtration
Business"), and will have assumed all of AMETEK's liabilities, except for
certain liabilities relating to the Water Filtration Business and certain
indebtedness of AMETEK.
The completion of the Spin-Off is a condition to the parties' obligations to
consummate the merger (the "Merger") provided for in the Amended and Restated
Agreement and Plan of Merger and Reorganization, dated as of February 5, 1997
(the "Merger Agreement"), by and among Culligan Water Technologies, Inc., a
Delaware corporation ("Culligan"), Culligan Water Company, Inc., a Delaware
corporation and a wholly owned subsidiary of Culligan ("Culligan Merger Sub"),
AMETEK and New Ametek. The Spin-Off will be effected only if all of the other
conditions to the Merger, including approval of the Spin-Off and the Merger by
the stockholders of AMETEK, have been satisfied or waived. See "THE MERGER
AGREEMENT" in the Joint Proxy Statement/Prospectus to which this Information
Statement is Appendix E (the "Joint Proxy Statement/Prospectus"). The Spin-Off
and the Merger are intended to be tax-free.
There is currently no public trading market for the shares of New Ametek
Common Stock; however, it is expected that a "when-issued" trading market will
develop for the New Ametek Common Stock prior to the Merger. New Ametek has
applied to list the New Ametek Common Stock on the New York Stock Exchange (the
"NYSE") and on the Pacific Stock Exchange (the "PSE").
-----------
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE NOT REQUESTED TO SEND US A PROXY.
-----------
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
The date of this Information Statement is , 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ADDITIONAL INFORMATION.................................................... 1
SUMMARY................................................................... 2
New Ametek.............................................................. 2
The Spin-Off and the Merger............................................. 4
Summary Historical Consolidated Financial Information................... 7
RISK FACTORS.............................................................. 8
Relationship with AMETEK................................................ 8
Dependence on Several Customers......................................... 8
Environmental Matters................................................... 8
Risks Associated with International Operations.......................... 8
Collective Bargaining Agreements........................................ 8
Dependence on General Economic Conditions............................... 8
Technological Change and Product Development............................ 9
Proposed Tax Legislation................................................ 9
Absence of Trading Market............................................... 9
Certain Anti-Takeover Provisions........................................ 9
CAPITALIZATION............................................................ 10
DIVIDEND POLICY........................................................... 10
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION.................... 11
PRO FORMA FINANCIAL INFORMATION........................................... 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 16
THE CREDIT AGREEMENT...................................................... 23
THE CONTRIBUTIONS AND THE SPIN-OFF........................................ 24
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................... 31
LISTING AND TRADING OF NEW AMETEK COMMON STOCK............................ 34
BUSINESS.................................................................. 35
MANAGEMENT................................................................ 43
BENEFICIAL OWNERSHIP OF NEW AMETEK COMMON STOCK........................... 50
BACKGROUND OF THE SPIN-OFF AND THE MERGER................................. 51
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................ 51
DESCRIPTION OF NEW AMETEK CAPITAL STOCK................................... 52
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS................... 58
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................ F-1
</TABLE>
<PAGE>
ADDITIONAL INFORMATION
New Ametek has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form 10 (such registration
statement, as it may be amended or supplemented, the "Registration Statement")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
with respect to the shares of New Ametek Common Stock to be received by the
holders of AMETEK Common Stock in the Spin-Off. This Information Statement
does not contain all of the information which is set forth in the Registration
Statement and the exhibits and schedules thereto. Statements in the
Information Statement as to the contents of any contract, agreement or other
document are summaries only and are not necessarily complete. For complete
information as to these matters, refer to the applicable exhibit or schedule
to the Registration Statement. The Registration Statement and the exhibits and
schedules thereto filed by New Ametek with the Commission may be inspected at
the public reference facilities at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the Regional Offices of
the Commission located at Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New
York, New York 10048. Copies of such information may be obtained by mail from
the Public Reference Branch of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such material may also be
obtained on line at the Commission Web site (http://www.sec.gov).
Following effectiveness of the Registration Statement and consummation of
the Spin-Off, New Ametek will be required to comply with the reporting
requirements of the Exchange Act and will file reports, proxy statements and
other information with the Commission. Such documents will be available for
inspection and copying at the public reference facilities of the Commission
listed above. In addition it is expected that reports, proxy statements and
other information concerning New Ametek will be available for inspection at
the offices of the New York Stock Exchange, 20 Broad Street, New York, New
York 10005, and the Pacific Stock Exchange, 301 Pine Street, San Francisco,
California 94104.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT, AND,
IF SO GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED.
1
<PAGE>
SUMMARY
The following is a summary of the information contained elsewhere in this
Information Statement. This summary does not purport to be complete and is
qualified in its entirety by, and is subject to, the more detailed information
and financial statements, including the notes thereto, set forth elsewhere in
this Information Statement. A more complete description of the Merger may be
found in the Joint Proxy Statement/Prospectus, of which this Information
Statement is Appendix E. Unless otherwise defined herein, capitalized terms
used in this summary shall have the respective meanings ascribed to them
elsewhere in this Information Statement. STOCKHOLDERS ARE URGED TO READ
CAREFULLY THIS INFORMATION STATEMENT IN ITS ENTIRETY. Unless the context
indicates otherwise, all references to the "Company" or to the "Company's"
activities, results of operations or financial condition prior to the date of
this Information Statement refer to AMETEK and its subsidiaries and to the
activities, results of operations or financial condition of AMETEK and its
subsidiaries, and all references to the "Company" subsequent to the date of
this Information Statement refer to New Ametek.
NEW AMETEK
New Ametek currently is a wholly owned subsidiary of AMETEK. New Ametek was
incorporated in Delaware on May 8, 1986 and has been a wholly owned subsidiary
of AMETEK since August 1989. To date, New Ametek's business has consisted
entirely of manufacturing aerospace instrumentation. Prior to the Spin-Off,
AMETEK will transfer or cause to be transferred to New Ametek all of AMETEK's
assets other than those which are part of the Water Filtration Business, and
New Ametek will assume all of AMETEK's liabilities, except for certain
liabilities relating to the Water Filtration Business and certain indebtedness
of AMETEK (collectively, the "Contributions"). See "THE CONTRIBUTIONS AND THE
SPIN-OFF--Terms of the Distribution Agreement--The Contributions." Immediately
following the Spin-Off and the Merger, New Ametek will change its name to
"AMETEK, Inc." The information in this Information Statement assumes that the
Contributions will be completed.
AMETEK's products are currently produced and sold world-wide through the
following three groups:
. Electromechanical Group--fractional horsepower electric motors and
blowers for vacuum cleaners and other floor-care products, as well as
for appliances, lawn tools, computer equipment and other business
machines.
. Precision Instruments Group--pressure gauges and other devices for
measuring, monitoring and controlling industrial manufacturing
processes and instruments for heavy vehicles, commercial and military
aircraft and jet engines.
. Industrial Materials Group--specialty metal products for electronics,
general industry and consumer goods, and plastic compounding for the
automotive and housing industries; temperature and corrosion resistant
materials. Currently, this Group also includes the Water Filtration
Business which will not be transferred to New Ametek.
New Ametek will continue operating each of these businesses except for the
Water Filtration Business. As a result, upon completion of the Spin-Off, New
Ametek will be a leading global manufacturer of electrical and
electromechanical products and materials engineered for niche markets with
operations in the United States, Europe, Asia and Mexico. It is expected that
approximately one-third of New Ametek's total sales will be to international
markets. AMETEK's business has grown over the years through a focus on the
manufacturing of electronic, electromechanical and electrical products for
niche markets where, based on technological or cost advantages, AMETEK has or
seeks to build a significant market share. The management of New Ametek intends
to continue this focus.
2
<PAGE>
Upon completion of the Spin-Off, substantially all of the properties and
assets of AMETEK will have been transferred to New Ametek, which will then be
an independent, publicly held company. Although the separation of AMETEK's
other businesses, operations and companies from the Water Filtration Business
has been structured as a "spin-off" of New Ametek for legal, tax and other
reasons, New Ametek will in substance be the successor to AMETEK. As the
successor to AMETEK, New Ametek will succeed to many important aspects of
AMETEK's existing businesses, organization and affairs, namely: (i) New Ametek
will be renamed "AMETEK, Inc." upon consummation of the Spin-Off and the
Merger; (ii) New Ametek will be headquartered at AMETEK's current headquarters
in Paoli, Pennsylvania; (iii) New Ametek's Board of Directors (the "New Ametek
Board") will consist of those persons currently constituting the AMETEK Board
of Directors; (iv) New Ametek's executive management will consist of the
current AMETEK executive management; and (v) the businesses to be conducted by
New Ametek will consist of AMETEK's Electromechanical, Precision Instruments
and Industrial Materials business lines, except for the Water Filtration
Business.
Following completion of the Spin-Off and the Merger, the management of New
Ametek intends to reorganize the businesses of New Ametek into two groups: the
Electromechanical Group and the Electronic Instruments Group. This new
organizational structure will better reflect New Ametek's principal emphasis on
electromechanical and electronics related businesses.
In November 1993, AMETEK adopted, and New Ametek will continue to implement,
a Stockholder Value Enhancement Plan (the "Plan") with the objective of
improving New Ametek's earnings growth through a combination of financial and
operating strategies. The Plan's ongoing operating strategies consist of: (i)
achieving operational excellence through improved asset management, increased
operating synergies and reduced cycle times, (ii) intensifying new product
development efforts, especially in the electric motor-blower, precision
instruments and specialty metals product lines, (iii) completing strategic
acquisitions and alliances which concentrate on enhancing New Ametek's
technological and manufacturing advantages and market position in its core
businesses, and (iv) pursuing global and market expansion, especially in Europe
and Asia.
The mailing address of New Ametek's principal executive offices is Station
Square, Paoli, Pennsylvania 19301, and its telephone number is (610) 647-2121.
3
<PAGE>
THE SPIN-OFF AND THE MERGER
DISTRIBUTING CORPORATION.... AMETEK, Inc. References to AMETEK include its
subsidiaries, except where the context otherwise
requires.
DISTRIBUTED CORPORATION..... New Ametek, which, by the Spin-Off Record Date
(as defined below), will hold the assets and
assume the liabilities of AMETEK, except those
assets and certain liabilities relating to the
Water Filtration Business and certain
indebtedness of AMETEK. See "THE CONTRIBUTIONS
AND THE SPIN-OFF--Terms of the Distribution
Agreement--The Contributions."
SHARES TO BE DISTRIBUTED.... Assumed to be 32,763,450 shares of New Ametek
Common Stock (based on the number of AMETEK
Common Stock shares outstanding on April 30,
1997). However, after giving effect to the
exercise of exercisable options to purchase
AMETEK Common Stock, up to 1,226,556 shares of
New Ametek Common Stock could be issued in the
Spin-Off.
DISTRIBUTION RATIO.......... One share of New Ametek Common Stock for every
share of AMETEK Common Stock owned as of the
close of business on the Spin-Off Record Date.
FEDERAL INCOME TAX The Contributions, the Spin-Off and the Merger
CONSEQUENCES............... will not be consummated unless the Internal
Revenue Service (the "IRS") shall have issued
and not revoked a private letter ruling (the
"Private Letter Ruling") reasonably satisfactory
in form and substance to AMETEK and Culligan
substantially to the effect that, on the basis
of the facts, representations and assumptions
existing at the Effective Time (as defined): (i)
the Contributions followed by the Spin-Off
qualify as a tax-free reorganization pursuant to
Section 368(a)(1)(D) of the Internal Revenue
Code of 1986, as amended (the "Code"); (ii) the
Spin-Off qualifies as a tax-free distribution
pursuant to Section 355(a) of the Code; and
(iii) the Merger qualifies as a tax-free
reorganization pursuant to Section 368(a)(1)(B)
of the Code. The Private Letter Ruling request
has been submitted to the IRS. In the event that
the IRS shall not have issued the Private Letter
Ruling to include any one or more of these three
rulings, this requirement will nevertheless be
satisfied if, on or prior to the closing date of
the Merger, AMETEK receives an opinion of
Stroock & Stroock & Lavan LLP and Culligan
receives an opinion of Skadden, Arps, Slate,
Meagher & Flom LLP (each, a "Tax Opinion," and
together, the "Tax Opinions") to the same effect
as each such Omitted Ruling. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES."
TRADING MARKET.............. Currently, there is no public market for New
Ametek Common Stock. New Ametek has applied for
listing of New Ametek Common Stock on the NYSE
and the PSE. See "LISTING AND TRADING OF NEW
AMETEK COMMON STOCK."
4
<PAGE>
OVERVIEW OF THE SPIN-OFF.... AMETEK has agreed to effect the Spin-Off prior to
consummating the Merger. The Contributions
followed by the Spin-Off will separate all of
AMETEK's other businesses from the Water
Filtration Business and enable Culligan to
acquire only the Water Filtration Business in
the Merger; the Spin-Off will leave AMETEK's
remaining businesses as a separate publicly held
company (New Ametek), owned by the existing
holders of AMETEK Common Stock. The directors
and officers of AMETEK will be the directors and
officers of New Ametek at the time of the Spin-
Off. The completion of the Spin-Off is a
condition to the Merger.
Each holder of AMETEK Common Stock will receive
one share of New Ametek Common Stock for each
share of AMETEK Common Stock held by such
stockholder. AMETEK will deliver to the
Distribution Agent shares of New Ametek Common
Stock representing 100% of the outstanding
shares of New Ametek Common Stock for
distribution to the holders of AMETEK Common
Stock as of the close of business on the Spin-
Off Record Date. Upon consummation of the Spin-
Off, the holders of AMETEK Common Stock on the
Spin-Off Record Date will become the
stockholders of New Ametek.
OVERVIEW OF THE MERGER......
In the Merger, Culligan Merger Sub will be merged
with and into AMETEK (which then will be
comprised solely of the Water Filtration
Business), with AMETEK being the surviving
corporation, becoming a wholly owned subsidiary
of Culligan and being renamed "Culligan Water
Company, Inc." immediately upon consummation of
the Merger. At the effective time of the Merger
(the "Effective Time"), each issued and
outstanding share of AMETEK Common Stock will be
converted into the right to receive the number
of shares of common stock, par value $.01 per
share (the "Culligan Common Stock"), of Culligan
determined by dividing (i) $130,000,000 (the Net
Equity Value as defined in the Joint Proxy
Statement/Prospectus), divided by (ii) $37.50,
divided by (iii) the number of shares of AMETEK
Common Stock outstanding at the Effective Time
as certified to Culligan by the Transfer Agent,
all as described under "THE MERGER AGREEMENT--
Conversion of AMETEK Common Stock" in the Joint
Proxy Statement/Prospectus, of which this
Information Statement is Appendix E.
RELATIONSHIP WITH AMETEK
AFTER THE SPIN-OFF AND THE
MERGER AND CERTAIN
INTERCOMPANY AGREEMENTS....
After the Spin-Off and the Merger, AMETEK and New
Ametek will become separately owned and managed
companies. On the Spin-Off Date, AMETEK, New
Ametek and Culligan will enter into the
following intercompany agreements, governing
various matters and ongoing relationships
between and among the three companies following
the Spin-Off and the Merger: (i) the Tax
5
<PAGE>
Allocation Agreement, attached to the Joint
Proxy Statement/Prospectus as Appendix D thereto
(the "Tax Allocation Agreement"), which sets
forth each party's rights and obligations with
respect to payment of taxes and receipt of
refunds for taxable periods before and after the
Spin-Off and (ii) the Indemnification Agreement,
attached to the Joint Proxy Statement/Prospectus
as Appendix B thereto (the "Indemnification
Agreement"), which will govern each party's
rights and obligations with respect to
indemnification.
AMETEK and New Ametek will enter into the
Trademark Agreement, attached to the Joint Proxy
Statement/Prospectus as Appendix B thereto (the
"Trademark Agreement"), which sets forth the
terms under which AMETEK (thereafter renamed
"Culligan Water Company, Inc.") will retain the
right to use, for a period of five years, the
"Ametek" trade name and related trademarks,
service marks and logos which use the word
"Ametek" and are currently in use by the Water
Filtration Business. In addition, for the three
years following such five-year period, New
Ametek will grant to AMETEK an exclusive license
to the Marks. See "THE CONTRIBUTIONS AND THE
SPIN-OFF--Terms of the Tax Allocation
Agreement," "--Terms of the Indemnification
Agreement" and "--Terms of the Trademark
Agreement."
New Ametek and Culligan Merger Sub will enter
into the Transition Services Agreement, attached
to the Joint Proxy Statement/Prospectus as
Appendix B thereto (the "Transition Services
Agreement"), which relates to the obligation of
New Ametek to provide Culligan with certain
transition related services and support after
the Spin-Off. See "THE CONTRIBUTIONS AND THE
SPIN-OFF--Terms of the Transition Services
Agreement."
SPIN-OFF RECORD DATE........ Expected to be two business days prior to the
Effective Time.
SPIN-OFF DATE............... Expected to be at the effective time of the Spin-
Off, one business day prior to the Effective
Time. The distribution of certificates of shares
of New Ametek Common Stock will occur as
promptly as practicable thereafter.
DISTRIBUTION AGENT,
TRANSFER AGENT AND American Stock Transfer & Trust Company.
REGISTRAR..................
RISK FACTORS................ AMETEK stockholders should carefully consider the
matters discussed under the section titled "Risk
Factors" in this Information Statement.
6
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
As a result of the Spin-Off, the summary historical consolidated financial
information of New Ametek set forth below reflects the historical results of
operations and financial position of AMETEK and its subsidiaries, restated to
classify the Water Filtration Business as a discontinued operation.
The summary historical consolidated financial information set forth below has
been derived from the audited consolidated financial statements of New Ametek
as of December 31, 1996 and 1995 and for each of the three years in the period
ended December 31, 1996. The summary historical consolidated financial
information as of December 31, 1994 and for the years ended December 31, 1993
and 1992 is derived from unaudited consolidated financial statements.
The summary historical consolidated financial information set forth below
should be read in conjunction with, and is qualified in its entirety by
reference to, the historical consolidated financial statements and notes
thereto and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" included elsewhere in this Information Statement.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.................................. $800.0 $781.8 $720.7 $651.4 $699.1
Costs and expenses (1)..................... 717.2 703.1 657.1 661.0 631.2
------ ------ ------ ------ ------
Operating income (loss).................... 82.8 78.7 63.6 (9.6) 67.9
Other expenses, net (1).................... (16.4) (20.1) (17.6) (11.2) (12.4)
------ ------ ------ ------ ------
Income (loss) from continuing operations
before income taxes........................ 66.4 58.6 46.0 (20.8) 55.5
Provision for (benefit from) income taxes.. 23.3 21.7 17.0 (7.5) 18.3
------ ------ ------ ------ ------
Income (loss) from continuing operations... 43.1 36.9 29.0 (13.3) 37.2
Discontinued operations:
Income from discontinued operations, net
of taxes................................. 8.1 7.7 10.0 6.0 7.2
Gain on sale of discontinued operation,
net of taxes............................. -- 10.4 -- -- --
<CAPTION>
Other nonrecurring items (2)............... -- (2.7) (8.0) -- --
<S> <C> <C> <C> <C> <C>
------ ------ ------ ------ ------
Net income (loss).......................... $ 51.2 $ 52.3 $ 31.0 ($ 7.3) $ 44.4
====== ====== ====== ====== ======
Earnings per share:
Income (loss) from continuing operations. $ 1.32 $ 1.10 $ 0.78 ($0.30) $ 0.84
Discontinued operations:
Income from discontinued operations.... 0.25 0.23 0.27 0.13 0.17
Gain on sale of discontinued operation. -- 0.31 -- -- --
Other nonrecurring items (2)............. -- (0.08) (0.21) -- --
------ ------ ------ ------ ------
Net income (loss)........................ $ 1.57 $ 1.56 $ 0.84 ($0.17) $ 1.01
====== ====== ====== ====== ======
Dividends declared and paid per share...... $ .24 $ .24 $ .24 $ .57 $ .68
====== ====== ====== ====== ======
BALANCE SHEET DATA: (AT DECEMBER 31)
Working capital of continuing operations... $ 50.4 $ 29.5 $ 73.0 $136.4 $186.9
Total assets............................... $528.9 $519.6 $487.4 $548.3 $590.8
Short-term debt............................ $ 31.8 $ 56.4 $ 11.8 $ 14.5 $ 19.7
Long-term debt............................. $150.3 $150.4 $190.3 $172.4 $187.2
Stockholders' equity....................... $129.5 $ 87.1 $ 73.2 $165.3 $210.3
ADDITIONAL FINANCIAL DATA:
Depreciation and amortization.............. $ 32.7 $ 32.8 $ 33.8 $ 31.9 $ 33.2
Capital expenditures....................... $ 39.1 $ 29.3 $ 20.4 $ 32.5 $ 23.0
EBITDA (3)................................. $116.9 $111.4 $ 99.7 $ 78.8 $102.3
Ratio of EBITDA to interest expense (3).... 6.1x 5.2x 4.3x 4.4x 5.1x
Ratio of debt to EBITDA (3)................ 1.6x 1.9x 2.0x 2.4x 2.0x
Ratio of earnings to fixed charges (4)..... 4.0x 3.5x 2.8x --(4) 3.5x
</TABLE>
- --------
(1) Amounts in 1993 include pre-tax charges totaling $54.7 million ($33.4
million after tax or $.77 per share) for restructuring and other unusual
items.
(2) Other nonrecurring items in 1995 consist of a $2.7 million ($.08 per share)
after-tax loss related to debt agreements. Amounts in 1994 consist of $11.8
million ($.32 per share) after-tax loss on the early extinguishment of
debt, and an after-tax gain of $3.8 million ($.11 per share) from the
effect of a change in accounting for certain marketable securities.
(3) EBITDA represents income from continuing operations before interest, taxes,
depreciation and amortization, amortization of deferred financing costs,
and nonrecurring items. It should not be considered, however, as an
alternative to operating income as an indicator of New Ametek's operating
performance, or as an alternative to cash flows as a measure of New
Ametek's overall liquidity as presented in New Ametek's consolidated
financial statements.
(4) For purposes of calculating the ratio of earnings to fixed charges,
earnings represent income from continuing operations before income taxes
and fixed charges. Fixed charges consist of interest expense, amortization
of deferred financing costs and the estimated component of operating lease
expenses representing interest (assumed to be one-third). Earnings from
continuing operations in 1993 were insufficient to cover fixed charges by
approximately $21.8 million.
7
<PAGE>
RISK FACTORS
Prospective purchasers of New Ametek Common Stock should carefully consider
the risk factors set forth below, as well as other information contained in
this Information Statement. For purposes of this section, references herein to
"New Ametek" are references to the operations and business of AMETEK and its
subsidiaries, adjusted to reflect treatment of the Water Filtration Business as
a discontinued operation.
Relationship with AMETEK. Pursuant to the Indemnification Agreement, New
Ametek has agreed to indemnify and hold harmless AMETEK and Culligan from and
against certain claims and actions related to the businesses that New Ametek
will acquire in the Spin-Off. Under the Tax Allocation Agreement, subject to
certain exceptions, New Ametek will assume responsibility for any tax
liabilities of AMETEK for the period prior to the Spin-Off, tax liabilities
resulting from the Contributions, the Spin-Off or the Merger and any tax
liabilities of New Ametek.
THE FOLLOWING RISKS WHICH CURRENTLY APPLY TO AMETEK WILL CONTINUE TO APPLY TO
NEW AMETEK:
Dependence on Several Customers. During 1996 and 1995 approximately 19% and
17%, respectively, of New Ametek's total revenues were derived from sales to
New Ametek's five largest customers. New Ametek expects that revenues from
major customers will continue to constitute significant percentages of its
total revenues for the foreseeable future. There can be no assurance, however,
that major customers will continue to purchase New Ametek's products. The loss
of revenues generated from major customers could have a material adverse effect
on the financial condition or results of operations of New Ametek.
Environmental Matters. New Ametek will be subject to environmental and
occupational health and safety laws and regulations concerning, among other
things, air emissions, discharges to waters and the generation, handling,
storage, transportation and disposal of hazardous substances and wastes.
Environmental risks are inherent in many of New Ametek's manufacturing
operations. In addition, the Comprehensive Environmental Response, Compensation
and Liability Act generally imposes joint and several liability for clean-up
costs, without regard to fault or the legality of the original conduct, on
parties contributing hazardous substances to sites designated for clean-up
under the Act. AMETEK has been named a potentially responsible party at several
sites which are the subject of government-mandated clean-ups and, pursuant to
the Distribution Agreement, New Ametek will assume responsibility for these
matters. While it is not possible to quantify the potential financial impact of
pending environmental matters, New Ametek believes that the outcome of these
matters is not likely to have a material effect on the financial position or
future results of operations of New Ametek. However, there can be no assurance
that future environmental liabilities will not occur or that environmental
damages due to prior or present practices will not result in future
liabilities.
Risks Associated with International Operations. During 1996 and 1995
approximately 17% and 18%, respectively, of New Ametek's revenues were derived
from its foreign operations (exclusive of export sales from the United States).
Such operations are subject to the customary risks of operating in an
international environment, including the potential imposition of trade or
foreign exchange restrictions, tariff increases, fluctuations in exchange rates
and unstable political situations.
Collective Bargaining Agreements. Of New Ametek's approximately 6,100
employees, approximately 1,500 are covered by collective bargaining agreements.
New Ametek believes that its relations with its union employees are generally
good, but there is no assurance that New Ametek will not at some point be
subject to work stoppages and possibly a strike by some of its employees and,
if such events were to occur, that there could be a material adverse effect on
New Ametek's financial condition or results of operations.
Dependence on General Economic Conditions. The demand for New Ametek's
products is subject to general economic conditions, such as rates of inflation,
fluctuations in general business conditions, governmental regulation and the
availability of financing at favorable rates, which factors are outside the
control of New Ametek. Currently, the most noticeable price pressure is in the
electronic motor market, where some competitors have reduced prices and new
competitors are seeking to gain market entry; this may have an adverse effect
on
8
<PAGE>
profit margins. In addition, a cyclical downturn in the heavy vehicle industry
adversely affected 1996 sales of the Precision Instruments Group; however,
industry conditions have improved in 1997. There can be no assurance that the
current general economic conditions and strong demand in the aerospace industry
will continue.
Technological Change and Product Development. Many of New Ametek's products
are characterized by rapid technological change, frequent new product
introductions and evolving industry standards. New Ametek believes that its
future success will depend on its ability to develop on a timely basis
technologically advanced products that meet the appropriate industry standards.
Although New Ametek believes it has certain technological and other advantages
over its competitors, maintaining such advantages will require continued
investment by New Ametek in research and development and sales and marketing.
There can be no assurance that New Ametek will have sufficient resources to
make such investments or that New Ametek will be able to make the technological
advances necessary to maintain such competitive advantages. New Ametek is not
currently aware of any emerging standards or new products which could render
its existing products obsolete, although there can be no assurance that this
will not occur or that New Ametek will be able to develop and market
successfully new products.
Proposed Tax Legislation. On April 17, 1997, Senate Finance Committee
Chairman William V. Roth Jr., Senate Finance Committee ranking Democrat Daniel
Patrick Moynihan and House Ways and Means Committee Chairman Bill Archer
introduced legislation (the "Proposed Legislation") that if applicable to the
Spin-Off and the Merger would cause the Spin-Off to be taxable to New Ametek.
The Proposed Legislation would not apply to any distribution after April 16,
1997 if the distribution is (i) made pursuant to a written agreement which was
(subject to customary conditions) binding on April 16, 1997 and at all times
thereafter, (ii) described in a ruling request submitted to the IRS on or
before April 16, 1997, or (iii) described on or before such date in a public
announcement or in a filing with the Commission required solely by reason of
the distribution (the "Transitional Relief"). Since the Spin-Off and the Merger
would satisfy one or more of the requirements for Transitional Relief, the
Proposed Legislation, if enacted in its present form, would not be applicable
to the transactions. However, there can be no assurance that the Proposed
Legislation would be enacted in its present form or that other legislation,
materially adverse to the Contributions, the Spin-Off or the Merger and with
different effective dates and/or transitional relief, would not be introduced
or enacted after the date hereof. The introduction or enactment of legislation
differing from the Proposed Legislation could delay or prevent consummation of
the Contributions, the Spin-Off and the Merger.
THE FOLLOWING RISKS DO NOT CURRENTLY APPLY TO AMETEK BUT WILL APPLY TO NEW
AMETEK:
Absence of Trading Market. There is currently no existing trading market for
New Ametek Common Stock but New Ametek has applied for listing of New Ametek
Common Stock on the NYSE and the PSE. AMETEK Common Stock has actively traded
on the NYSE and the PSE. While it is expected that a similar market will
develop for New Ametek Common Stock, there can be no assurance that trading
will be sustained or that the volume would be sufficient for trading to occur
with any frequency. As a result, it could be difficult to make purchases or
sales of New Ametek Common Stock in the market at any particular time. There
can be no assurance as to the price at which New Ametek Common Stock will
trade.
Certain Anti-Takeover Provisions. Certain provisions of the New Ametek
Certificate of Incorporation (the "New Ametek Certificate") and New Ametek By-
Laws, as well as Section 203 of the Delaware General Corporation Law ("DGCL")
and certain other provisions of Delaware corporate law, may have the effect of
making more difficult an acquisition of control of New Ametek in a transaction
not approved by New Ametek's Board. These provisions will allow New Ametek's
Board to issue, without stockholder approval, preferred stock having rights
senior to those of the New Ametek Common Stock, and impose various procedural
requirements that could make it more difficult for stockholders to effect
certain corporate actions, such as requiring a supermajority stockholder vote
to amend the New Ametek By-Laws and certain provisions of the New Ametek
Certificate, and denying the right of stockholders to take action by written
consent. In addition, the New Ametek Board is divided into three classes, each
of which serves a staggered three-year term. See "DESCRIPTION OF NEW AMETEK
CAPITAL STOCK--Description of Certain Statutory, Charter and By-Law
Provisions."
9
<PAGE>
CAPITALIZATION
(IN THOUSANDS)
The following table sets forth, at December 31, 1996, the historical
capitalization of New Ametek and the pro forma capitalization of New Ametek to
reflect the Contributions and the Spin-Off, including the retention by AMETEK
of the Retained Debt (as defined herein). This information should be read in
conjunction with New Ametek's pro forma financial information and historical
consolidated financial statements and the related notes thereto included
elsewhere in this Information Statement.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------
PRO
ACTUAL FORMA(1)
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Short-term debt:
Revolving credit facility................................ $ 18,000 $ --
Other.................................................... 13,845 13,845
-------- --------
Total.................................................. 31,845 13,845
-------- --------
Long-term debt:
9 3/4% senior notes due 2004............................. 150,000 150,000
Other.................................................... 333 333
-------- --------
Total.................................................. 150,333 150,333
-------- --------
Total debt............................................... 182,178 164,178
-------- --------
Stockholders' equity:
Preferred stock, par value $1.00; authorized: 5,000,000
shares; none
issued.................................................. -- --
Common stock, par value $.01; authorized: 100,000,000
shares; issued: 34,208,095 historical shares and
32,705,478 pro forma shares............................. 342 327
Capital in excess of par value........................... 1,190 --
Retained earnings........................................ 157,843 134,620
Net unrealized losses.................................... (15,375) (14,728)
Less: cost of shares held in treasury: 1,502,617
historical shares and zero pro forma shares............. (14,502) --
-------- --------
Total stockholders' equity............................. 129,498 120,219
-------- --------
Total capitalization................................... $311,676 $284,397
======== ========
</TABLE>
- --------
(1) For an explanation of the adjustments, see the notes to Unaudited Pro
Forma Condensed Consolidated Financial Statements.
DIVIDEND POLICY
AMETEK currently pays a quarterly cash dividend of $.06 per share. New
Ametek presently intends to continue paying a similar dividend. The payment of
dividends by New Ametek is dependent upon future earnings, financial
requirements, contractual provisions of debt agreements and other relevant
factors.
10
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following table presents selected historical consolidated financial
information derived from the audited consolidated financial statements of New
Ametek as of December 31, 1996 and 1995 and for each of the three years in the
period ended December 31, 1996. The selected historical consolidated financial
information as of December 31, 1994 and for the years ended December 31, 1993
and 1992 is derived from unaudited consolidated financial statements. The
selected financial information presented below has been restated to reflect the
Water Filtration Business as a discontinued operation and should be read in
conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS," which follows this section, and the consolidated
financial statements and related notes shown in the index on page F-1.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------- -------
(DOLLARS IN MILLIONS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................ $800.0 $781.8 $720.7 $ 651.4 $ 699.1
Costs and expenses (1)............... 717.2 703.1 657.1 661.0 631.2
------ ------ ------ ------- -------
Operating income (loss).............. 82.8 78.7 63.6 (9.6) 67.9
Other expenses, net (1).............. (16.4) (20.1) (17.6) (11.2) (12.4)
------ ------ ------ ------- -------
Income (loss) from continuing
operations before income taxes...... 66.4 58.6 46.0 (20.8) 55.5
Provision for (benefit from) income
taxes............................... 23.3 21.7 17.0 (7.5) 18.3
------ ------ ------ ------- -------
Income (loss) from continuing
operations.......................... 43.1 36.9 29.0 (13.3) 37.2
Discontinued operations:
Income from discontinued
operations, net of taxes.......... 8.1 7.7 10.0 6.0 7.2
Gain on sale of discontinued
operation, net of taxes........... -- 10.4 -- -- --
Other nonrecurring items (2)......... -- (2.7) (8.0) -- --
------ ------ ------ ------- -------
Net income (loss).................... $ 51.2 $ 52.3 $ 31.0 $ ( 7.3) $ 44.4
====== ====== ====== ======= =======
Earnings per share:
Income (loss) from continuing
operations........................ $ 1.32 $ 1.10 $ 0.78 $(0.30) $ 00.84
Discontinued operations:
Income from discontinued
operations...................... 0.25 0.23 0.27 0.13 0.17
Gain on sale of discontinued
operation....................... -- 0.31 -- -- --
Other nonrecurring items (2)....... -- (0.08) (0.21) -- --
------ ------ ------ ------- -------
Net income (loss).................. $ 1.57 $ 1.56 $ 0.84 $( 0.17) $ 1.01
====== ====== ====== ======= =======
Dividends declared and paid per
share............................... $ .24 $ .24 $ .24 $ .57 $ .68
====== ====== ====== ======= =======
BALANCE SHEET DATA: (AT DECEMBER 31)
Working capital of continuing
operations.......................... $ 50.4 $ 29.5 $ 73.0 $ 136.4 $ 186.9
Total assets......................... $528.9 $519.6 $487.4 $ 548.3 $ 590.8
Short-term debt...................... $ 31.8 $ 56.4 $ 11.8 $ 14.5 $ 19.7
Long-term debt....................... $150.3 $150.4 $190.3 $ 172.4 $ 187.2
Stockholders' equity................. $129.5 $ 87.1 $ 73.2 $ 165.3 $ 210.3
ADDITIONAL FINANCIAL DATA:
Depreciation and amortization........ $ 32.7 $ 32.8 $ 33.8 $ 31.9 $ 33.2
Capital expenditures................. $ 39.1 $ 29.3 $ 20.4 $ 32.5 $ 23.0
EBITDA (3)........................... $116.9 $111.4 $ 99.7 $ 78.8 $ 102.3
Ratio of EBITDA to interest expense
(3)................................. 6.1x 5.2x 4.3x 4.4x 5.1x
Ratio of debt to EBITDA (3).......... 1.6x 1.9x 2.0x 2.4x 2.0x
Ratio of earnings to fixed charges
(4)................................. 4.0x 3.5x 2.8x --(4) 3.5x
</TABLE>
- --------
(1) Amounts in 1993 include pre-tax charges totaling $54.7 million ($33.4
million after tax or $.77 per share) for restructuring and other unusual
items.
(2) Other nonrecurring items in 1995 consist of a $2.7 million ($.08 per share)
after-tax loss related to debt agreements. Amounts in 1994 consist of $11.8
million ($.32 per share) after-tax loss on the early extinguishment of
debt, and an after-tax gain of $3.8 million ($.11 per share) from the
effect of a change in accounting for certain marketable securities.
(3) EBITDA represents income from continuing operations before interest, taxes,
depreciation and amortization, amortization of deferred financing costs,
and nonrecurring items. It should not be considered, however, as an
alternative to operating income as an indicator of New Ametek's operating
performance, or as an alternative to cash flows as a measure of New
Ametek's overall liquidity as presented in New Ametek's financial
statements.
(4) For purposes of calculating the ratio of earnings to fixed charges,
earnings represents income from continuing operations before income taxes
and fixed charges. Fixed charges consist of interest expense, amortization
of deferred financing costs and the estimated component of operating lease
expenses representing interest (assumed to be one-third). Earnings from
continuing operations in 1993 were insufficient to cover fixed charges by
approximately $21.8 million.
11
<PAGE>
PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS)
The pro forma condensed consolidated balance sheet of New Ametek as of
December 31, 1996 and pro forma condensed consolidated statement of income of
New Ametek for the year ended December 31, 1996 have been presented as if the
Spin-Off had occurred on December 31, 1996 for the balance sheet and January
1, 1996 for the statement of income. In connection with the Spin-Off, AMETEK
will transfer to New Ametek all of AMETEK's assets and liabilities, except for
those assets and certain liabilities relating to the Water Filtration Business
and certain indebtedness of AMETEK, and all of the outstanding shares of New
Ametek Common Stock will be distributed on a share for share basis to the
holders of AMETEK Common Stock.
The pro forma condensed consolidated financial information should be read in
conjunction with the other financial information elsewhere in this Information
Statement. The pro forma condensed consolidated financial information is
presented for illustrative purposes only and is not necessarily indicative of
either (i) the financial condition or operating results that would have
occurred for the year ended on December 31, 1996 in the case of the pro forma
condensed consolidated statement of income, or on December 31, 1996, in the
case of the pro forma condensed consolidated balance sheet, or (ii) New
Ametek's future operating results or financial position. The pro forma
adjustments described in the accompanying notes to the unaudited pro forma
condensed consolidated financial statements are based upon estimates and
assumptions that management believes are reasonable.
12
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales................................ $800,011 -- $800,011
Costs and expenses....................... 717,168 -- 717,168
---------- ----------
Operating income......................... 82,843 -- 82,843
Other income (expenses):
Interest expense....................... (19,061) $1,750(a) (17,311)
Other, net............................. 2,600 -- 2,600
---------- --------- ----------
Income from continuing operations before
income taxes............................ 66,382 1,750 68,132
Provision for income taxes............... 23,310 683(b) 23,993
---------- --------- ----------
Income from continuing operations........ $ 43,072 $1,067 $ 44,139
========== ========= ==========
Earnings per share from continuing
operations.............................. $ 1.32 $ 0.03 $ 1.35
========== ========= ==========
Average common shares outstanding........ 32,670,726 32,670,726
========== ==========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
13
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 2,354 $ 7,000 (c) $ 9,354
Marketable securities.................. 6,441 -- 6,441
Receivables, less allowance for possi-
ble losses............................ 117,692 -- 117,692
Inventories............................ 86,531 -- 86,531
Deferred income taxes.................. 11,007 -- 11,007
Other current assets................... 5,287 -- 5,287
-------- -------- --------
Total current assets................. 229,312 7,000 236,312
Property, plant and equipment, net....... 174,808 -- 174,808
Other assets............................. 95,048 -- 95,048
Net assets of discontinued operation..... 29,707 (29,707)(d) --
-------- -------- --------
$528,875 $(22,707) $506,168
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current por-
tion of long-term debt................ $ 31,845 $(25,000)(d) $ 13,845
7,000 (c)
Accounts payable....................... 74,220 -- 74,220
Income taxes........................... 10,148 (1,177)(b)(f) 8,971
Accrued liabilities.................... 62,724 5,749 (f) 68,473
-------- -------- --------
Total current liabilities............ 178,937 (13,428) 165,509
Long-term debt........................... 150,333 -- 150,333
Deferred income taxes and credits........ 33,493 -- 33,493
Other long-term liabilities.............. 36,614 -- 36,614
Stockholders' equity:
Preferred stock, par value $1.00;
authorized: 5,000,000 shares; none
issued................................ -- -- --
Common stock, par value $.01;
authorized: 100,000,000 shares;
issued: 34,208,095 historical shares
and 32,705,478 pro forma shares....... 342 (15)(e) 327
Capital in excess of par value......... 1,190 (1,190)(e) --
Retained earnings...................... 157,843 (5,354)(d) 134,620
-- (17,869)(e)(f) --
-------- -------- --------
159,375 (24,428) 134,947
Net unrealized losses.................. (15,375) 647 (d) (14,728)
Less: Cost of shares held in treasury:
1,502,617 historical shares and zero
pro forma shares...................... (14,502) 14,502 (e) --
-------- -------- --------
129,498 (9,279) 120,219
-------- -------- --------
Total stockholders' equity........... $528,875 $(22,707) $506,168
======== ======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
14
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(a) To reflect the elimination of interest expense on debt of $25 million
transferred to Culligan in connection with the Spin-Off and the Merger.
(b) To record estimated income taxes on the pro forma adjustments at statutory
rates.
(c) To reflect additional bank borrowing of $7 million to effect the transfer
of the debt referred to in Note (a) above.
(d) To eliminate the net assets of the Water Filtration Business totaling
$29.7 million and to reflect the transfer of $25 million of debt to
Culligan.
(e) To retire the issued treasury shares of AMETEK in accordance with the
provisions of the Merger Agreement.
(f) To accrue estimated fees and other expenses New Ametek expects to incur in
1997 in connection with the divestiture of the Water Filtration Business,
and recognize the related income tax benefit on such fees and expenses.
Such fees and expenses have not been reflected in the pro forma condensed
consolidated statement of income because they are non-recurring.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of New Ametek's financial condition and
results of operations set forth below should be read in conjunction with the
selected historical financial information and New Ametek's consolidated
financial statements and the related notes thereto, included elsewhere in this
Information Statement. For purposes of this section, references herein to "New
Ametek" are references to the historical operations and business of AMETEK and
its subsidiaries. The Consolidated Financial Statements have been adjusted to
present the Spin-Off and to reflect the Water Filtration Business as a
discontinued operation.
GENERAL
AMETEK currently classifies its continuing operations into three principal
business segments: Electromechanical, Precision Instruments, and Industrial
Materials. Included in the discussion herein is a table setting forth certain
summary sales and income information on New Ametek's business segments for the
periods indicated. Following consummation of the Spin-Off and the Merger, New
Ametek intends to reorganize its businesses into two groups: the
Electromechanical Group and the Electronic Instruments Group, to better
reflect New Ametek's principal emphasis on electromechanical and electronics
related businesses.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Results of Operations
Sales for 1996 totaled $800.0 million, an increase of $18.2 million or 2.3%
from the 1995 total of $781.8 million. All business segments reported
increased sales, related in a large part to the Industrial Materials Group's
higher domestic and export sales of specialty metal products and the Precision
Instruments Group's higher sales of aerospace instruments. The
Electromechanical Group's sales increase was due to higher domestic sales of
floor-care and non-floor-care products. Sales by all segments to foreign
markets totaled $274.3 million in 1996, an increase of $4.2 million or 1.6%,
and represents approximately one-third of total sales in both years. Export
shipments from the United States in 1996 continued to increase, reaching
$141.3 million compared to $131.1 million in 1995, an increase of 7.8%, due
primarily to higher foreign shipments of aerospace products and specialty
metal products.
New orders during 1996 were $792.9 million, compared to $775.7 million for
1995, an increase of $17.1 million or 2.2%. The backlog of orders was $219.2
million at year-end 1996, a decrease of 3.2% from the end of 1995. Business
segment operating profit for 1996 was $103.8 million, compared to $100.5
million in 1995, an increase of 3.3%. The increase in profit was primarily due
to higher sales volume and continued production efficiency, as the total
segment operating profit margins for 1996 of 13.0% were essentially maintained
at the 1995 level.
Corporate administrative and other expenses continued a decreasing trend in
1996, totaling $21.0 million, compared to $21.8 million in 1995, due to lower
overall administrative expenses. Operating income of $82.8 million was
achieved for 1996, compared to $78.7 million for 1995, an increase of $4.1
million or 5.3%. Interest and other expenses, net, were $16.5 million for
1996, compared to $20.1 million in 1995, a decrease of $3.6 million, due to
increased investment income from New Ametek's captive insurance subsidiary,
and lower interest expense due to lower effective interest rates on lower
outstanding borrowings. Also contributing to the lower net expenses for 1996
was lower amortization due to reduced deferred debt issuance costs, which were
charged off as an extraordinary loss in the third quarter of 1995, in
connection with the replacement of a prior revolving credit agreement.
The effective tax rate was 35.1% for 1996, compared to 37.1% for 1995. The
reduced 1996 tax rate reflects the effect of a lower proportion of the 1996
pretax income from the Italian motor operations, which are taxed at rates
higher than United States pretax income. The 1995 tax rate reflected a higher
proportion of Italian income, and also included the impact on current and
deferred taxes of a one percent increase in the Italian statutory income tax
rate. The 1995 tax rate also reflected a lower state tax provision than in
1996 due to favorable settlements of prior tax years.
16
<PAGE>
Income from continuing operations for 1996 was $43.1 million or $1.32 per
share, compared to $36.9 million or $1.10 per share for 1995, an increase of
$6.2 million or 16.8%. Net income in 1996 was $51.2 million or $1.57 per
share, and included $8.1 million ($.25 per share) of income from the
discontinued Water Filtration Business. Net income for 1995 was $52.3 million,
or $1.56 per share, and reflected income from the discontinued Water
Filtration Business and Microfoam Division operations of $7.7 million or $.23
per share. Also included in net income for 1995 was a gain of $10.4 million or
$.31 per share related to the sale of the Microfoam Division in the second
quarter of 1995, and an extraordinary charge of $2.7 million or $.08 per share
for the early repayment of debt in the third quarter of 1995.
The weighted average shares outstanding during 1996 were 32.7 million
shares, compared to the average of 33.4 million shares for 1995, a reduction
of 2.3%. The reduced number of shares in 1996 resulted from the repurchase and
retirement of shares under an ongoing share repurchase program, which began in
March 1994, net of shares issued in connection with the exercise of employee
stock options. Shares outstanding at December 31, 1996 were 32.7 million
shares, not significantly different from year-end 1995.
Business Segment Results
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
NET SALES: (1)
Electromechanical.............................. $375,633 $372,038 $340,358
Precision Instruments.......................... 308,737 301,440 280,638
Industrial Materials........................... 115,641 108,369 99,656
-------- -------- --------
Total net sales.............................. $800,011 $781,847 $720,652
======== ======== ========
INCOME:
Segment operating profit (2)
Electromechanical.............................. $ 44,238 $ 48,858 $ 46,203
Precision Instruments.......................... 37,253 34,803 29,189
Industrial Materials........................... 22,339 16,854 11,313
-------- -------- --------
Total segment operating profit............... 103,830 100,515 86,705
Corporate administrative and other expenses.... (20,987) (21,836) (23,146)
-------- -------- --------
Consolidated operating income.................... 82,843 78,679 63,559
Interest and other expenses, net................. (16,461) (20,074) (17,546)
-------- -------- --------
Consolidated income from continuing operations
before income taxes............................ $ 66,382 $ 58,605 $ 46,013
======== ======== ========
</TABLE>
- --------
(1) After elimination of intra and inter-segment sales, which are not
significant in amount.
(2) Segment operating profit represents sales less all direct costs and
expenses (including certain administrative and other expenses) applicable
to each segment, but does not include interest expense.
The ELECTROMECHANICAL GROUP ("EMG") sales increased $3.6 million or 1.0% to
$375.6 million for 1996. Higher domestic sales of both floor-care and non-
floor-care products were largely offset by reduced sales by EMG's Italian
motor operations. Continuing recessionary conditions in Europe and highly
competitive pricing adversely affected sales in Europe. Operating profit for
EMG decreased $4.6 million or 9.5% to $44.2 million in 1996. Profit margins
fell to 11.8% in 1996 from 13.1% in the prior year due to the lower European
sales and reduced operating efficiencies in EMG's Italian motor operations
caused by the sales reduction. Also contributing to the profit decline was the
incurrence of start-up costs in 1996 for new motor production operations in
Shanghai, People's Republic of China ("PRC"), Mexico, and the Czech Republic.
These reductions were mitigated somewhat by increased profits from EMG's
domestic motor operations due to higher domestic sales and improved operating
efficiencies.
17
<PAGE>
The competitive situation in Europe caused a delay in implementing EMG's
strategy to increase market penetration by offering its motor products as a
low-cost outsourcing alternative to certain European vertically integrated
floor care manufacturers. EMG expects to continue implementation of this
strategy during 1997. During 1996, EMG continued initiatives to lower
production cost, including both the start-up of the new motor production
operations previously mentioned above and the purchase of a facility in the
Czech Republic for operations to begin later in 1997. These new operations are
expected to lower costs and create additional market share opportunities
worldwide.
PRECISION INSTRUMENTS GROUP ("PI") sales in 1996 were $308.7 million, an
increase of $7.3 million or 2.4% from 1995. Increased sales of aerospace
instruments were partially offset by lower worldwide sales of heavy vehicle
instruments caused by a continuing decline in industry-wide demand and by
lower process instruments sales to European markets. Operating profit margins
improved to 12.1% for 1996 from 11.5% in 1995 due primarily to significant
profit improvements from PI's aerospace operations. Such profit improvement
was the result of a lower cost structure, due to restructuring activities in
prior years; increased sales, and a favorable change in product mix. Also
contributing to the increase was the full year profit contribution from 50%-
owned joint venture in Asia, which was acquired in March 1995 and manufactures
low-cost pressure gauges. The profit improvement was limited to some extent by
the lower sales of heavy truck instruments by the Dixson, Inc. business which
was also acquired in March 1995, and by reduced sales of process instruments
in Europe.
INDUSTRIAL MATERIALS GROUP ("IMG") sales from continuing operations in 1996
were $115.6 million, an increase of $7.3 million or 6.7% from 1995. The sales
increase was due primarily to higher worldwide sales of specialty metal
products, and included increased sales from the introduction of new products.
Higher sales of the plastics compounding business also contributed to the
sales increase. IMG's operating profit increased significantly by $5.5 million
or 32.5% to $22.3 million in 1996; profit margins increased to 19.3% in 1996
from 15.6% in the prior year. The profit improvement was due primarily to
improved operating efficiencies resulting from cost containment initiatives
throughout IMG. Lower material costs in the specialty metal products business
also contributed to the profit improvement. In June 1996, New Ametek announced
it would retain the Westchester Plastics Division, which was previously
considered for sale. The Westchester Plastics Division and the Haveg Division
have been combined to form the new Chemical Products Division within IMG.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Results of Operations
For 1995, sales were $781.8 million, an increase of $61.2 million or 8.5%
from the 1994 total of $720.6 million. All business segments reported
increased sales, led by the Electromechanical Group, whose introduction of new
products and entry into emerging markets benefited 1995. Softness in the
United States floor-care markets experienced in the second half of 1995
reduced domestic sales growth. The Precision Instruments Group's 1995 sales
increased due largely to the acquisition of the heavy vehicle instrumentation
business of privately held Dixson, Inc. in late March 1995. In 1995, the
Industrial Materials Group continued to benefit from improved business
conditions in many of its markets, resulting in increased sales led by the
metal powder business. Sales by all business segments to foreign markets
totaled $270.0 million in 1995 compared to $228.2 million in 1994, an increase
of 18.3%. Export shipments from the United States in 1995 continued to
increase, reaching $131.1 million compared to $109.3 million in 1994, an
increase of 19.9%.
New orders during 1995 were $775.7 million, compared to $743.3 million for
1994, an increase of $32.4 million or 4.4%. The backlog of orders was $226.4
million at year-end 1995, a decrease of 2.6% from the end of 1994. Business
segment operating profit was $100.5 million in 1995 compared to $86.7 million
in 1994, an increase of 15.9%. The increase in profits was due to the higher
sales volume and successful implementation of cost reduction programs in the
Precision Instruments and Industrial Materials Groups. The Precision
Instruments Group also benefited from the restructuring of the aerospace
business, which was initiated in 1993. Lower operating costs in the
temperature and corrosion resistant materials and plastics compounding
businesses enhanced the profitability of the Industrial Materials Group.
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Corporate administrative and other expenses were $21.8 million, slightly
lower than the $23.1 million incurred in 1994. Operating income reached $78.7
million in 1995, an increase of $15.1 million or 23.8% over 1994. Interest and
other expenses, net, were $20.1 million in 1995 compared to $17.6 million in
1994, an increase of $2.5 million. The increase in net expenses reflect lower
interest expenses during 1995 due to lower effective interest rates on debt
outstanding during the year, but it was more than offset by lower interest and
other investment income.
The effective tax rate was approximately 37% for both 1995 and 1994. Both
years reflect a lower net state tax provision, and the 1995 rate included
foreign tax benefits related to certain capital investments.
Income from continuing operations improved 27.2% in 1995 to $36.9 million,
or $1.10 per share, compared to $29.0 million, or $.78 per share in 1994.
Income from discontinued operations was $7.7 million, or $.23 per share in
1995, compared to $10.0 million, or $.27 per share in 1994. Results in 1995
also included an after-tax gain of $10.4 million ($.31 per share), due to the
sale of the Microfoam Division in the second quarter of 1995.
Income before extraordinary items was $55.0 million, or $1.64 per share in
1995, and $39.0 million, or $1.05 per share in 1994, an increase of $16.0
million or 41%. After an extraordinary after-tax charge in the third quarter
of 1995 for the write-off of deferred debt issuance costs of $2.7 million, or
$.08 per share, net income for 1995 was $52.3 million, or $1.56 per share,
compared to 1994 net income of $31.0 million or $.84 per share. Net income for
1994 included a first quarter after-tax charge for an extraordinary loss of
$11.8 million ($.32 per share) due to the early extinguishment of debt, and a
$3.8 million ($.11 per share) after-tax gain due to a change in accounting for
certain marketable securities.
The weighted average shares outstanding during 1995 were 33.4 million
shares, compared to the average of 37.1 million shares for 1994, a reduction
of 3.7 million shares or 10%. The reduced number of shares in 1995 resulted
from the repurchase and retirement of shares under the ongoing share
repurchase program, which began in March 1994. Shares outstanding at December
31, 1995 and 1994 were 32.9 million shares and 34.7 million shares,
respectively.
Business Segment Results
The ELECTROMECHANICAL GROUP's sales increased $31.7 million or 9.3% to
$372.0 million, due primarily to increased market share, introduction of new
products, and the 1994 completion of capacity expansion programs at two plants
in North Carolina. Sales for 1995 from EMG's Italian operations increased
25.6% before currency translation effects, which were minimal. However,
softness in the United States floor-care market experienced in the second half
of 1995 limited domestic sales growth. Operating profit of EMG increased 5.7%
to $48.8 million in 1995 due primarily to the increase in sales volume, while
profit margin in 1995 was 13.1% compared to 13.6% in 1994. Higher material
costs primarily in the Italian operations exceeded modest price increases and
cost reductions, which reduced profitability. This condition was minimized by
additional cost-saving activities.
PRECISION INSTRUMENTS GROUP sales in 1995 were $301.4 million, an increase
of $20.8 million or 7.4% from 1994. The increase was largely due to increased
sales of heavy vehicle instruments, resulting from the acquisition of Dixson,
Inc. at the end of the first quarter of 1995. An expected market downturn
started to affect fourth-quarter 1995 shipments of heavy vehicle instruments,
but was alleviated somewhat by improving sales of commercial aerospace
products. Sales of process instruments also increased in 1995; however, that
increase was mostly offset by lower first-half sales of aerospace instruments.
PI's operating profit in 1995 increased 19.2% to $34.8 million, compared to
$29.2 million in 1994. A profit contribution by Dixson, Inc., a manufacturing
joint venture in Asia, and increased operating efficiencies in the aerospace
business resulting from the restructuring activities, along with benefits from
cost reduction programs initiated in prior years, accounted for the improved
operating results.
INDUSTRIAL MATERIALS GROUP sales from continuing operations were $108.4
million in 1995, an increase of $8.7 million or 8.7% from 1994, due primarily
to higher sales by the metal powder business. IMG's operating profit in 1995
increased significantly by $5.5 million or 49.0% to $16.8 million. The
increase in profitability was
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due in part to the higher sales volume, but mostly to cost reduction programs
and improved operating efficiencies in the temperature and corrosion resistant
materials business. The plastics compounding business benefited primarily from
a third-quarter 1995 cost recovery from an insurance settlement. In May 1995,
the Microfoam Division was sold.
LIQUIDITY AND CAPITAL RESOURCES
Working capital from continuing operations at December 31, 1996 amounted to
$50.4 million, an increase of $20.9 million from December 31, 1995, largely
reflecting the repayment of short-term borrowings. The ratio of current assets
(excluding net assets of discontinued operations) to current liabilities at
December 31, 1996 was 1.28:1, compared to 1.14:1 at December 31, 1995. New
Ametek's earnings before interest, taxes, depreciation and amortization
(EBITDA) from continuing operations was $116.9 million in 1996, compared to
$111.4 million in 1995.
Cash provided by continuing operations totaled $64.7 million in 1996
compared to $61.5 million in 1995, a net increase of $3.2 million. The net
increase reflects higher income from continuing operations, and lower overall
working capital requirements. Total cash provided by operating activities in
1996 was $72.1 million, and included $7.4 million of cash provided by
discontinued operations. Total cash provided by operating activities in 1995
was $57.4 million, and included $4.2 million of cash used for discontinued
operations, of which $5.7 million represents cash paid for a French water
filtration producer acquired in late 1995 and included in the Spin-Off.
Total 1996 charges against reserves for restructuring and other unusual
items amounted to $7.2 million, compared to $13.0 million in 1995. The charges
were primarily for cash, and did not significantly affect liquidity. Charges
in both years were for workforce reductions, relocation of aerospace
operations, and facilities combinations, which required cash outlays, and for
the write-off of certain assets, which did not require the use of cash. In
1997, New Ametek expects to incur additional restructuring-related cash and
noncash charges against its restructuring reserves. New Ametek anticipates
substantial completion of the restructuring program by the end of 1997, except
for certain longer-term pension-related aspects of the program. When the
restructuring program is completed, it is anticipated that the benefits, which
have already been substantial, will continue to more than offset the required
cash expenditures under the plan.
Cash used for investing activities was $39.2 million in 1996, compared to
$20.6 million in 1995, an increase of $18.6 million. The primary reason for
the increase was additions to property, plant, and equipment, which totaled
$39.1 million in 1996 compared to $29.3 million in 1995. Net cash expenditures
for investing activities in 1995 also included the acquisition of a business
and an investment in a joint venture, requiring a total cash outlay of $38.3
million, more than offset by $47.4 million in cash proceeds, received
primarily from the sale of the Microfoam Division and other assets.
Financing activities used cash totaling $37.2 million in 1996, compared to
$36.9 million in 1995. During 1996, net repayments of short-term borrowings
totaled $24.4 million; 698,000 shares of common stock were repurchased at a
total cost of $12.5 million; dividends of $7.9 million were paid; and cash
proceeds of $7.0 million were received from the exercise of employee stock
options. Financing activities for 1995 included net proceeds of $54.5 million
from short-term borrowings; repayment of $50.0 million in term loans, of which
$5.0 million was required; expenditures of $39.6 million for the repurchase of
2.3 million shares of common stock; funding of dividends totaling $8.0
million; and net proceeds of $5.6 million related to the exercise of employee
stock options.
On September 12, 1996, AMETEK's $195 million Credit Agreement (as defined)
was amended. In addition to providing somewhat greater financial flexibility,
the amended agreement also extended the maturity of the credit facility by one
year, to 2001, and provided for slightly lower interest rates and fees on the
total credit facility. In connection with the Spin-Off and the Merger, AMETEK
will enter into an amendment to the Credit Agreement, as described under "THE
CREDIT AGREEMENT." At December 31, 1996, $176.9 million of the
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domestic bank credit facility was unused and available, along with
approximately $8.4 million of unused foreign credit lines with European banks.
The stock repurchases mentioned previously were made under the ongoing share
repurchase programs. Since the stock repurchase programs began in March 1994,
a total of 12.2 million shares have been acquired at a cost of $171.0 million
as of December 31, 1996. Additional stock repurchases, if any, will be made
under a new $50.0 million authorization announced in June 1996, of which $48.2
million was unexpended as of year-end 1996.
As a result of all 1996 cash flow activities, cash and cash equivalents at
December 31, 1996 totaled $2.4 million, compared to $6.6 million at December
31, 1995. New Ametek believes it has sufficient cash-generating capabilities
and available domestic and foreign credit facilities to enable it to meet its
needs in the foreseeable future.
NEW ACCOUNTING STANDARDS
In the first quarter of 1996, AMETEK adopted Financial Accounting Standards
Board (FASB) Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of. Statement No. 121
establishes new accounting standards for measuring the impairment of long-
lived assets. The adoption of the new statements did not have any impact on
AMETEK's, nor will they have any impact on New Ametek's, consolidated
financial position or results of operations.
As of January 1, 1996, AMETEK adopted FASB Statement No. 123, Accounting for
Stock-Based Compensation. Statement No. 123 establishes a fair value method of
accounting for stock-based awards issued to employees and others that includes
expensing related compensation cost in the income statement, but it also
allows companies the choice of continuing to measure compensation expense as
it was previously measured prior to the effective date of adoption of
Statement No. 123. AMETEK elected to continue, and New Ametek will continue,
to use the previous method of accounting for stock-based awards issued to
employees, but will provide the disclosures required by Statement No. 123.
Consequently, adoption of Statement No. 123 did not have any impact on
AMETEK's, nor will have any impact on New Ametek's consolidated financial
position or results of operations (see Note 7 to the Consolidated Financial
Statements).
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share, which is required to be adopted December 31,
1997. At such time, New Ametek will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating basic earnings per share, the dilutive effect
of stock options will be excluded. The impact of this change is not expected
to affect basic earnings per share as the dilutive effect of stock options
will not be significant. The impact of Statement No. 128 on the calculation of
fully diluted earnings per share is not expected to be material to New Ametek.
INTERNAL REINVESTMENT
Capital Expenditures
Capital expenditures were $39.1 million in 1996, compared to $29.3 million
in 1995, an increase of $9.7 million or 33.2%. Approximately 83% of the 1996
expenditures were for additional manufacturing equipment to increase
production efficiencies, and for expanded production capacity, primarily in
the Electromechanical Group. New Ametek expects to increase its capital
spending in 1997 slightly above 1996 levels, with continued emphasis on
investment in production efficiencies and expansion, primarily in the
Electromechanical Group.
Product Development and Engineering
Product development and engineering expenses in 1996 totaled $35.9 million
compared to $32.0 million in 1995, and $31.9 million in 1994. These amounts
include expenses for research and development of $17.1 million in 1996, $15.5
million in 1995, and $17.3 million in 1994, such expenditures were directed
toward the development of new products and processes, and the improvement of
existing products and processes.
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ENVIRONMENTAL MATTERS
AMETEK is subject to environmental laws and regulations as well as stringent
cleanup requirements and also has been named a potentially responsible party
at several sites that are the subject of government-mandated cleanups.
Provisions for environmental cleanup at those sites and other sites were
approximately $1.8 million in 1996, $2.4 million in 1995, and $1.6 million in
1994. New Ametek will assume responsibility for any potential environmental
liability.
It is not possible to accurately quantify the potential financial impact of
actions regarding environmental matters, but New Ametek believes that, based
on past experiences and current evaluations, the outcome of these actions is
not likely to have a material adverse effect on the future result of
operations, financial position or cash flow.
IMPACT OF INFLATION
AMETEK attempts, and New Ametek will continue to attempt, to minimize the
impact of inflation through cost reduction programs and by improving
productivity. In addition, AMETEK used, and New Ametek will continue to use,
the last-in, first-out (LIFO) method of accounting for inventories (whereby
the cost of products sold approximates current costs), and therefore, the
impact of inflation is substantially reflected in operating costs. In general,
New Ametek believes programs are in place that are designed to monitor the
impact of inflation and to take necessary steps to minimize inflation's effect
on its operations.
OTHER MATTERS
In cooperation with the Consumer Products Safety Commission, the Water
Filtration Business, along with its supplier and customer, is participating in
a voluntary recall of a water filter cartridge model involving 14,000 units
which were sold, through a mass merchandiser, beginning in March 1996, when
the filter cartridges were introduced. Although only a limited number of the
filter cartridges may contain an incorrect form of carbon, all units are being
recalled as a precautionary measure. The Water Filtration Business does not
believe it is liable in this matter and based upon the information currently
available, it is not expected that the outcome will have a material adverse
effect on New Ametek's financial position or results of operations.
On April 17, 1997, AMETEK announced it had signed a definitive agreement to
acquire the Test & Measurement Products business of Technitrol, Inc. for $34
million in cash. Closing of the acquisition, which is expected to occur by the
end of June 1997, is subject to regulatory approval and certain other
requirements. The business to be acquired had annual sales of approximately
$30 million, and manufacture a comprehensive line of measurement and testing
devices, including gauges, electronic instruments and test stands and
analytical software and support services.
FORWARD-LOOKING INFORMATION
Except for the historical information contained herein, certain matters
discussed in this Information Statement are "forward-looking statements," as
defined in the Private Securities Litigation Reform Act (PSLRA) of 1995, which
involve risk and uncertainties that exist in New Ametek's operations and
business environment, and are subject to change based on various important
factors. Such factors include, but are not limited to, economic conditions,
market demand and financing considerations, which in the future could cause
New Ametek's actual results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, New Ametek. For
additional discussion, reference is made to "RISK FACTORS" herein.
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THE CREDIT AGREEMENT
In August 1995, AMETEK entered into a $195,000,000 revolving credit
agreement (the "Credit Agreement") with a group of banks (the "Bank Group"),
led by The Chase Manhattan Bank, N.A., as administrative agent ("Chase"). The
Credit Agreement replaced a $250,000,000 secured term and revolving loan
facility which AMETEK had entered into with the Bank Group in March 1994 (the
"Prior Facility"). In comparison to the Prior Facility, the Credit Agreement
is unsecured and has a more favorable interest rate structure and a somewhat
less restrictive set of covenants. In September 1996, AMETEK and the Bank
Group amended the Credit Agreement to (i) extend its maturity date to August
2, 2001, (ii) further improve the interest rate structure and (iii) ease
restrictions imposed by certain of its covenants.
In connection with the Spin-Off, the Bank Group has entered into another
amendment to the Credit Agreement (the "Amendment") which, among other things,
permits the Credit Agreement to be assigned to and assumed by New Ametek. This
assignment and assumption shall occur immediately prior to the completion of
the Spin-Off. The Amendment also contemplates that, prior to the Spin-Off,
$25,000,000 of the outstanding principal under the Credit Agreement will be
replaced by separate loans from one or more members of the Bank Group and that
such separate loans will after the Spin-Off be retained by AMETEK as the
Retained Debt (the "Retained Debt"). The Amendment also provides some
additional relief under certain of the covenants contained in the Credit
Agreement, extends the maturity date to the fifth anniversary of the Spin-Off
Date and eliminates scheduled reductions in commitment levels.
As so amended, the Credit Agreement will continue to place certain
restrictions on cash payments by New Ametek, including the payment of cash
dividends, together with other affirmative and negative covenants, including
restrictions on loans and incurrence of indebtedness and transactions with
affiliates.
Outstanding loans under the Credit Agreement are subject to interest rate
swap and cap agreements based on the combination of a fixed rate and the
London Interbank Offered Rate ("LIBOR"), plus a negotiated spread over LIBOR.
At April 30, 1997, AMETEK had $25,000,000 in revolving credit loans
outstanding under the Credit Agreement at a blended interest rate of 6.55%.
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THE CONTRIBUTIONS AND THE SPIN-OFF
This section of the Information Statement describes certain aspects of the
Contributions and the Spin-Off. To the extent that they relate to the
Distribution Agreement, the Tax Allocation Agreement, the Transition Services
Agreement, the Indemnification Agreement or the Trademark Agreement
(collectively, the "Distribution Documents"), the following descriptions do
not purport to be complete and are qualified in their entirety by reference to
the respective agreements, which are attached as Appendix B and Appendix D to
the Joint Proxy Statement/Prospectus and are incorporated herein by reference.
STOCKHOLDERS SHOULD READ THE DISTRIBUTION AGREEMENT, THE TAX ALLOCATION
AGREEMENT, THE TRANSITION SERVICES AGREEMENT, THE INDEMNIFICATION AGREEMENT
AND THE TRADEMARK AGREEMENT IN THEIR ENTIRETY.
BACKGROUND OF AND REASONS FOR THE SPIN-OFF
Because the Water Filtration Business is the only business of AMETEK that
Culligan wishes to acquire, AMETEK and Culligan determined to effect the Spin-
Off, which is intended to be tax-free to AMETEK and the holders of AMETEK
Common Stock for Federal income tax purposes (except to the extent of cash
received for fractional shares). See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES." It is a condition to consummating the Contributions, the Spin-
Off and the Merger that AMETEK and Culligan receive the Private Letter Ruling
and/or the Tax Opinions. The Contributions followed by the Spin-Off will
separate all of AMETEK's other businesses from the Water Filtration Business
and enable Culligan to acquire only the Water Filtration Business in the
Merger; the Spin-Off will leave AMETEK's remaining businesses as a separate
publicly held company (New Ametek), owned by the existing holders of AMETEK
Common Stock.
Although the Spin-Off will not be effected unless AMETEK's stockholders
approve the Spin-Off and the Merger and all other conditions precedent have
been satisfied or waived, the Spin-Off is separate from the Merger, and the
shares of New Ametek Common Stock to be received by holders of AMETEK Common
Stock in the Spin-Off do not constitute a part of the Merger consideration.
TERMS OF THE DISTRIBUTION AGREEMENT
The Contributions
Contributions of Assets
Prior to the Spin-Off, pursuant to the Amended and Restated Contribution and
Distribution Agreement, dated as of February 5, 1997 (the "Distribution
Agreement"), between AMETEK and New Ametek, AMETEK will effect the
Contributions, with the result that New Ametek will own, directly or through
subsidiaries, all of the assets formerly owned by AMETEK or its subsidiaries,
other than the Water Filtration Business.
Transfer of Liabilities
At or prior to the time of the Spin-Off, New Ametek will assume all of the
liabilities of AMETEK, other than certain liabilities relating to the Water
Filtration Business and the Retained Debt (collectively, the "Assumed
Liabilities"). The Assumed Liabilities shall include AMETEK's outstanding 9
3/4% Senior Notes due 2004 issued pursuant to the Indenture, dated as of March
15, 1994, between AMETEK and CoreStates Bank, N.A., as trustee, and all
obligations arising under the Credit Agreement, subject to the retention by
AMETEK of the Retained Debt. New Ametek shall also assume liability for (i)
uninsured health, dental and vision benefits incurred by Water Filtration
Business Employees prior to the Spin-Off but only if claims therefor have been
submitted prior to the Spin-Off, (ii) those benefits incurred by Water
Filtration Business Employees prior to the Spin-Off which are covered by
insurance policies assigned to and assumed by New Ametek, (iii) all liability
relating to or arising out of the defined benefit pension plans maintained by
AMETEK, other than the Water Filtration Business Hourly Pension Plan, and (iv)
all liability relating to or arising out of the 401(k) Plan maintained by
AMETEK.
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AMETEK will retain certain liabilities relating to the Water Filtration
Business and the Retained Debt (the "Retained Liabilities").
Certain Further Contributions
If, after the time of the Spin-Off, either New Ametek or AMETEK holds assets
which by the terms of the Distribution Agreement or the Merger Agreement were
intended to be assigned and transferred to, or retained by, the other party,
such party will promptly assign and transfer or cause to be assigned and
transferred such assets to the other party.
The Spin-Off
Upon completion of the Contributions, the Spin-Off will be effected by the
distribution to each holder of record of AMETEK Common Stock as of the close
of business on the Spin-Off Record Date of certificates representing one share
of New Ametek Common Stock for every share of AMETEK Common Stock held by such
holder. As a result of the Spin-Off, the stockholders of record of AMETEK at
the close of business on the Spin-Off Record Date will own all of the
outstanding New Ametek Common Stock.
Certain Covenants
For five years after the Spin-Off, New Ametek will not, directly or
indirectly, (i) sell any products or render any services which are currently
being manufactured, sold or rendered by the Water Filtration Business, or (ii)
solicit any customer or supplier of the Water Filtration Business for any
purpose competitive with the Water Filtration Business; and for two years
after the Spin-Off, neither AMETEK nor New Ametek will, directly or
indirectly, solicit the employment of any employee of the other party and its
subsidiaries.
Prior to the Spin-Off, AMETEK will transfer and assign to New Ametek all of
AMETEK's insurance policies other than (i) any policy which relates solely to
the Water Filtration Business and (ii) any policy that is not assignable
pursuant to its terms (a "Non-Assignable Policy"). If any policy is a Non-
Assignable Policy, it is the intent of AMETEK and New Ametek that New Ametek
receive the benefit of any coverage under any such policy, and that AMETEK
will keep such policy in effect during its remaining term and will refrain
from taking any actions (other than making a claim) which may affect New
Ametek's entitlement to the benefits of, or coverage under, such policy.
AMETEK and New Ametek also agree to cooperate with each other with respect to
the processing of any claims which are covered by any insurance policy in
existence prior to the Spin-Off.
Settlement of Intercompany Balances
All amounts owing between the New Ametek entities and the Water Filtration
Business entities, other than amounts arising in the ordinary course of
business, will be deemed paid in full at or prior to the Spin-Off.
Employees and Employee Benefit Plans
Effective as of the Spin-Off Date, New Ametek will offer employment to all
employees of AMETEK, other than employees of the Water Filtration Business, on
the same terms and conditions as were in effect immediately prior to the Spin-
Off. Any such transfer of employment from AMETEK to New Ametek will not
constitute a termination or qualifying event under any severance policy.
Also effective as of the Spin-Off Date, New Ametek will adopt (i) the AMETEK
company-wide 401(k) Plan, (ii) the AMETEK company-wide Employees' Retirement
Plan, a defined benefit pension plan covering all salaried employees hired
before January 1, 1997; (iii) all hourly defined benefit pension plans
sponsored by AMETEK, other than the separate pension plan covering only hourly
employees of the Water Filtration Business; and (iv) all severance, vacation,
medical, disability, life insurance, split-dollar and other welfare benefit
plans
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covering employees (and their spouses and dependents) of AMETEK, other than
any such plans or arrangements covering only employees of the Water Filtration
Business or the separable portion of such plans or arrangements attributable
to employees of the Water Filtration Business. As soon as practicable on or
after the Merger, New Ametek shall cause the AMETEK 401(k) Plan to make a
direct plan-to-plan transfer to Culligan's 401(k) Plan consisting of the
account balances of those participants who are employed in the Water
Filtration Business. The Employee's Retirement Plan, as adopted by New Ametek,
will retain the liability for all accrued pension benefits, including the
accrued benefits of participants employed in the Water Filtration Business, as
determined at the time of the Spin-Off, which benefits will be payable upon
the participants' subsequent retirement or termination of employment from
Culligan, or death or disability, as the case may be, as and to the extent
provided for by the Employees' Retirement Plan; provided, that any such
participant employed in the Water Filtration Business will continue to be
credited under the Employees' Retirement Plan for employment with AMETEK and
Culligan after the Spin-Off for purposes of vesting and eligibility for early
retirement, disability or pre-retirement death benefits (but not for the
purpose of determining the amount of the accrued benefit), and, further
provided, that any such participant's compensation shall continue to be
recomputed by taking into account compensation earned with AMETEK and Culligan
after the Spin-Off (but limited for Employees' Retirement Plan purposes to an
increase of 5%, per annum, of the 1996 compensation).
Effective as of the Spin-Off Date, AMETEK shall continue to offer employment
to employees of the Water Filtration Business on the same terms and conditions
as in effect immediately prior thereto, and shall retain sponsorship of the
separate pension plan which covers only hourly employees of the Water
Filtration Business, and of all severance, vacation, medical, disability, life
insurance, split-dollar and other welfare benefit plans covering only
employees (and their spouses and dependents) of employees of the Water
Filtration Business or the separable portion of such plans or arrangements
attributable to employees of the Water Filtration Business.
Stock Option and Stock Incentive Plans
Prior to the Spin-Off, New Ametek will adopt one or more stock option, stock
incentive or similar plans for its employees and directors. Effective as of
the Spin-Off Date, all outstanding options to purchase AMETEK Common Stock
which are held by employees, other than the employees of the Water Filtration
Business, whether or not such options are currently exercisable, will be
assumed by New Ametek and shall be exercisable upon the same terms and
conditions as in effect immediately prior thereto; provided, however, that
each such option shall cease to be exercisable with respect to the AMETEK
Common Stock and shall become exercisable for a whole number of shares of New
Ametek Common Stock and with an adjusted per share exercise price, determined
in accordance with Treasury Regulation (S)1.425-1 (whether the option is an
incentive stock option on a nonqualified stock option) so as to preserve both
the aggregate market spread between the value of the shares of common stock
subject to the option and the exercise price of the option immediately before
the Spin-Off, and the per share ratio between the value of the common stock
and the exercise price immediately before the Spin-Off. All stock appreciation
rights granted with respect to AMETEK Common Stock held by employees, other
than employees of the Water Filtration Business, whether then exercisable,
shall similarly be assumed by New Ametek and shall be exercisable upon the
same terms and conditions as in effect immediately prior thereto, provided
that the stock appreciation rights shall be subject to adjustment in a manner
similar to the adjustments to the assumed stock options, as described in the
preceding sentence.
AMETEK has amended those outstanding stock options which are held by
employees of the Water Filtration Business to provide that, for a period
beginning March 20, 1997 and ending three business days prior to the Spin-Off
Date (the "Special Offer Period"), (i) such options are fully exercisable
(i.e., vested), (ii) each such option holder may, as an alternative to
exercise, surrender his or her options, in whole or in part, and receive from
AMETEK a cash amount equal to the market spread between the aggregate average
company share price (determined as the average closing prices of AMETEK Common
Stock for the ten trading days ending on the second trading day immediately
prior to the Effective Time) over the aggregate exercise price, in lieu of
exercising the underlying options and (iii) AMETEK will pay any holder of an
option which was granted as an
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incentive stock option (within the meaning of Section 422 of the Code) who
exercises or surrenders his options for the cash spread during the Special
Offer Period an amount, in cash, equal to 20% of the taxable gain recognized
from the exercise or surrender. For any option holder who is employed by the
Water Filtration Business and does not exercise or surrender his options for
cash during the Special Offer Period, any such unexercised options shall, at
the end of the Special Offer Period, revert to the level of exercisability
(i.e., vesting) as is determined solely by the terms of the option and the
length of the option holder's service since the date of grant, and the right
to surrender the options for cash and the right of holders of options which
were granted as incentive stock options to receive the special 20% cash
payment, as described above, shall lapse, and as of the Effective Time, such
unexercised options will be exchanged for options to purchase Culligan Common
Stock, all as described under "THE SPIN-OFF--Terms of the Distribution
Agreement--Stock Option and Stock Incentive Plans" in the Joint Proxy
Statement/Prospectus. Effective as of the Spin-Off Date, AMETEK shall retain
(and shall not contribute to New Ametek) cash in an amount equal to 60% of the
market spread of the unexercised options held by employees of the Water
Filtration Business.
Conditions to the Spin-Off
The obligations of AMETEK and New Ametek to consummate the Spin-Off and to
perform all other obligations set forth in the Distribution Agreement are
subject to the satisfaction or waiver of (i) all the conditions contained in
the Merger Agreement which relate to AMETEK or New Ametek, and (ii) the
condition that all authorizations, orders or approvals, or declarations or
filings with, or the expiration of waiting periods imposed by, any
governmental entity or other public or private entity the failure of which to
obtain would have a material adverse effect on AMETEK or New Ametek, will have
been filed, occurred, or been obtained.
The obligations of AMETEK to consummate the Spin-Off and perform all other
obligations set forth in the Distribution Agreement are subject to the
satisfaction or waiver of the condition that New Ametek will have effected its
assumption of the Assumed Liabilities as contemplated by the Distribution
Agreement.
The obligations of New Ametek to consummate the transactions contemplated by
the Distribution Agreement and to perform all other obligations set forth in
the Distribution Agreement are subject to the satisfaction or waiver of the
condition that AMETEK will have contributed to New Ametek the Contributed
Assets, as contemplated by the Distribution Agreement.
Amendment
The Distribution Agreement (including the Annexes, Schedules and exhibits
thereto) may be amended in writing by AMETEK or New Ametek at any time prior
to the Spin-Off with the prior written consent of Culligan. At any time prior
to the Spin-Off, either AMETEK or New Ametek may waive in writing compliance
by the other with any of the agreements or conditions contained in the
Distribution Agreement with the prior consent of Culligan. The failure of any
party to the Distribution Agreement to assert any of its rights under or to
enforce any provision of the Distribution Agreement or otherwise will not
constitute a waiver of its rights under such provision or any other provision.
TERMS OF THE TAX ALLOCATION AGREEMENT
In connection with the Spin-Off and the Merger, AMETEK, New Ametek and
Culligan will enter into the Tax Allocation Agreement, which provides for the
allocation of all tax liabilities of AMETEK and its subsidiaries for taxable
periods before and after the Spin-Off. In general, under the Tax Allocation
Agreement, (i) New Ametek will be liable for any tax liability attributable to
the Water Filtration Business for taxable periods (or portions thereof) ending
on or before the Spin-Off Date and any tax liability attributable to the
assets and businesses to be transferred to or held by New Ametek (i.e., all of
the assets and businesses other than the Water Filtration Business) for all
taxable periods and (ii) AMETEK will be liable for any tax liability
attributable to the Water Filtration Business for taxable periods (or portions
thereof) beginning after the Spin-Off Date.
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In addition, except as provided below, New Ametek will be liable for any tax
liability resulting from transfers of stock and/or assets undertaken in
connection with or to effect the Contributions, the Spin-Off or the Merger
("Restructuring Taxes") including, without limitation, any tax liability
imposed on AMETEK as a result of the Contributions failing to qualify as a
reorganization under Section 368 (a) (1) (D) of the Code or the Spin-Off
failing to qualify as a distribution under Section 355 of the Code. AMETEK and
Culligan will be liable for any Restructuring Taxes caused by an action which
is inconsistent with Culligan's representations made in connection with
obtaining the Private Letter Ruling and/or the Tax Opinions and which is taken
by Culligan prior to the Spin-Off or by Culligan or AMETEK during the two year
period after the Spin-Off. Furthermore, in the event that AMETEK and New
Ametek would each be liable for taxes resulting from the Spin-Off and/or the
Merger (without regard for any action taken by the other party), AMETEK and
New Ametek shall each be liable for one-half of such taxes and shall indemnify
each other for any excess of such amount paid. Pursuant to the Distribution
Agreement, AMETEK and New Ametek shall share equally all taxes (and certain
other transaction costs) incurred in connection with the Contributions and all
transfer taxes imposed in connection with or as a result of the Merger
subject, in the case of AMETEK, to a limit of $1,500,000.
TERMS OF THE TRANSITION SERVICES AGREEMENT
In connection with the Spin-Off and the Merger, New Ametek and the Surviving
Corporation will enter into the Transition Services Agreement, which sets
forth the obligations of New Ametek to provide the Surviving Corporation with
certain transition services and support, including but not limited to, payroll
and benefits administration; administrative services related to employee
benefit plans; advertising and marketing services; fixed asset accounting;
vehicle fleet management; management information systems; treasury services;
risk management services; tax compliance information; access to a web site;
access to financial information for audited financial statements; access to
shared facilities; and such other services as may be requested from time to
time to assist in the transition, for a period of up to nine (9) months after
the date of the Transition Services Agreement. In consideration for such
transition services, the Surviving Corporation will pay to New Ametek a fee
based on New Ametek's fully burdened costs of providing such services, which
will be mutually agreed upon by New Ametek and the Surviving Corporation prior
to the time such transition services are provided.
TERMS OF THE INDEMNIFICATION AGREEMENT
In connection with the Spin-Off and the Merger, AMETEK, New Ametek and
Culligan will enter into the Indemnification Agreement which sets forth each
party's rights and obligations with respect to indemnification for matters
relating to the Contributions, the Spin-Off and the Merger.
The Indemnification Agreement will provide that except as otherwise
specifically provided in the Merger Agreement or any of the Distribution
Documents, New Ametek will indemnify, defend and hold harmless Culligan from
and against, and pay or reimburse Culligan for, all Indemnifiable Losses, as
incurred: (a) arising out of or resulting from (x) the Contributed Assets or
the Assumed Liabilities (including the failure by New Ametek or any subsidiary
or Affiliate of New Ametek to pay, perform or otherwise discharge such Assumed
Liabilities in accordance with their terms) whether such Indemnifiable Losses
arise out of or result from events, occurrences, actions, omissions, facts or
circumstances occurring, existing or asserted before, at or after the
Effective Time or (y) the conduct or operation of AMETEK's business (other
than the conduct and operation of the Water Filtration Business) prior to the
Effective Time; (b) arising out of or resulting from any untrue statement or
alleged untrue statement of a material fact contained in any of the
Registration Statements or in the Joint Proxy Statement/Prospectus, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; but only in each
case with respect to information provided by AMETEK relating to New Ametek or
AMETEK contained in or omitted from the Registration Statements or the Joint
Proxy Statement/Prospectus; (c) arising out of or resulting from the breach by
New Ametek or any of its subsidiaries of any agreement or covenant contained
in the Merger Agreement or any of the Distribution Documents which does not by
its express terms expire at the Effective Time or which is not by its express
terms required to be performed prior to the Effective Time; (d) arising out of
or resulting from any breach of or inaccuracy in any representation or
warranty of AMETEK or New Ametek contained in the Merger Agreement; (e)
arising out of
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or resulting from any actual or alleged violation of any law, rule or
regulation of any Governmental Entity by AMETEK or New Ametek or any of their
subsidiaries or any director, officer, employee or agent of AMETEK or New
Ametek or any of their subsidiaries (collectively, "Legal Matters") occurring
or alleged to have occurred at or prior to the Effective Time with respect to
the New Ametek Businesses; (f) relating to or arising from any claim that the
execution, delivery or performance by AMETEK or New Ametek of the Merger
Agreement and each Ancillary Agreement to which it is or will be a party or
the consummation of the transactions contemplated thereby results in a
violation or breach of, or constitutes a default or impermissible transfer
under, or gives rise to any right of termination, first refusal or consent
under or gives rise to any right of amendment, cancellation or acceleration of
any material benefit under, any Contract to which AMETEK or any of its
subsidiaries is a party prior to the Spin-Off; and (g) arising out of or
relating to the handling, use, storage, recycling, treatment, transport,
Release or disposal of Hazardous Substances by AMETEK, any of its
subsidiaries, affiliates or predecessors (including any prior owner of the
Retained Realty (as defined below)) or any third party engaged by any of them,
prior to the Effective Time: (x) at any former properties or facilities of
AMETEK or any of its subsidiaries, affiliates, or predecessors (including any
prior owner of the Retained Realty, including former properties or facilities
relating to the Retained Assets or the Water Filtration Business (but not
including any real property owned or leased by the Water Filtration Business,
as of the Spin-Off Date (the "Retained Realty")); (y) at the Retained Realty,
but only to the extent that the Indemnifiable Losses arise from activities or
business operations that preceded the activities or business operations of the
Water Filtration Business at the Retained Realty; and (z) at any site or
location other than the Retained Realty where such handling, use, storage,
recycling, treatment, transport, Release or disposal (or arranging for such
activities by third parties) was related to the activities or business
operations of the Retained Assets or the Water Filtration Business (provided
that this clause (z) shall not cover any migration of a Release from the
Retained Realty).
The Indemnification Agreement will further provide that except as otherwise
specifically provided in the Merger Agreement or any of the Distribution
Documents, Culligan will indemnify, defend and hold harmless, or cause AMETEK
to indemnify, defend and hold harmless New Ametek from and against, and pay or
reimburse New Ametek for, all Indemnifiable Losses, as incurred: (a) arising
out of or resulting from (x) the Water Filtration Business or the Retained
Liabilities (including the failure by Culligan or any of its subsidiaries to
pay, perform or otherwise discharge such Retained Liabilities in accordance
with their terms) whether such Indemnifiable Losses arise out of or result
from events, occurrences, actions, omissions, facts or circumstances
occurring, existing or asserted before, at or after the Effective Time or (y)
the conduct or operation of the Water Filtration Business following the
Effective Time (other than any such conduct or operation which would give rise
to a right to indemnification by the Parent Indemnitees under the
Indemnification Agreement); (b) arising out of or resulting from any untrue
statement or alleged untrue statement of a material fact contained in any of
the Registration Statements or in the Joint Proxy Statement/Prospectus, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; but only in each
case with respect to information provided by Culligan relating to Culligan or
any of its subsidiaries (other than AMETEK and its subsidiaries) contained in
or omitted from any of the Registration Statements or in the Joint Proxy
Statement/Prospectus; (c) arising out of or resulting from the breach by
Culligan or any of its subsidiaries of any agreement or covenant contained in
the Merger Agreement or any of the Distribution Documents which does not by
its express terms expire at the Effective Time or which is not by its express
terms required to be performed prior to the Effective Time; and (d) relating
to or arising from any claim that the execution, delivery or performance by
Culligan or Culligan Merger Sub of the Merger Agreement and each Ancillary
Agreement to which it is or will be a party or the consummation of the
transactions contemplated thereby results in a violation or breach of, or
constitutes a default or impermissible transfer under, or gives rise to any
right of termination, first refusal or consent under or gives rise to any
right of amendment, cancellation or acceleration of any material benefit
under, any Contract to which Culligan or Culligan Merger Sub is a party prior
to the Spin-Off.
The Indemnification Agreement will provide that with respect to
Indemnifiable Losses arising out of or resulting from any breach or inaccuracy
in any representation or warranty of AMETEK or New Ametek
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contained in the Merger Agreement, New Ametek will not have any liability under
the Indemnification Agreement unless the aggregate of all Indemnifiable Losses
for which New Ametek would be liable under the Indemnification Agreement
exceeds on a cumulative pre-tax basis an amount equal to $800,000 (the "Basket
Amount"); provided, that, once the Basket Amount is exceeded, New Ametek will
only pay Indemnifiable Losses in excess of such Basket Amount. Notwithstanding
the foregoing, New Ametek's liability for Indemnifiable Losses arising out of
or resulting from any breach or inaccuracy in any representation or warranty of
AMETEK or New Ametek contained in the Merger Agreement is limited (i) in the
aggregate to $25,000,000 and (ii) to only those Indemnifiable Losses for which
New Ametek has received written notice of on or prior to eighteen months from
the Closing Date.
TERMS OF THE TRADEMARK AGREEMENT
Following the time of the Spin-Off, New Ametek will have the sole and
exclusive ownership of and right to use all of the names, trademarks, trade
names and other proprietary rights of AMETEK (collectively, the "Intellectual
Property"), including all rights to the "Ametek" name other than the
intellectual property relating primarily to the Water Filtration Business.
Pursuant to the Trademark Agreement between AMETEK and New Ametek, AMETEK will
retain the right to use, for a period of five years, the "Ametek" trade name
and any AMETEK trademarks, service marks or logos which use the word "Ametek"
and are currently in use by the Water Filtration Business (collectively, the
"Marks"). In addition, for the three successive one year terms following such
five year period, New Ametek will grant to AMETEK, pursuant to the Trademark
Agreement, an exclusive worldwide license to the Marks at a royalty rate of
$1,000,000 per year. AMETEK (which following the Merger will have changed its
name to "Culligan Water Company, Inc.") is prohibited, however, from using the
"Ametek" mark alone or in combination with other terms, as part of a corporate
name. The Trademark Agreement also provides for usual and customary provisions,
including quality control, audit and marking provisions.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain Federal income tax consequences of the
Contributions, the Spin-Off and the Merger. This summary is based upon the
Code, Treasury regulations promulgated thereunder, and judicial and
administrative interpretations thereof, all as in effect on the date hereof,
and which are subject to changes occurring after such date, possibly with
retroactive effect. This summary is for general information only and does not
address the effects of any state, local or foreign tax laws. In addition, it
does not purport to address all of the tax consequences applicable to any
particular taxpayer or to taxpayers subject to special treatment under the
Code, including, without limitation, foreign holders, holders of AMETEK Common
Stock acquired pursuant to the exercise of employee stock options or otherwise
as compensation, insurance companies, tax-exempt organizations, financial
institutions, broker dealers or persons who do not hold the AMETEK Common
Stock as a capital asset. EACH HOLDER OF AMETEK COMMON STOCK IS URGED TO
CONSULT HIS OR HER TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO HIM OR
HER OF THE SPIN-OFF AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS AND OF CHANGES IN
APPLICABLE TAX LAWS.
The Contributions, the Spin-Off and the Merger will not be consummated
unless the IRS shall have issued and not revoked the Private Letter Ruling
reasonably satisfactory in form and substance to AMETEK and Culligan
substantially to the effect that, on the basis of the facts, representations
and assumptions existing at the Effective Time: (i) the Contributions followed
by the Spin-Off qualify as a tax-free reorganization pursuant to Section
368(a)(1)(D) of the Code; (ii) the Spin-Off qualifies as a tax-free
distribution pursuant to Section 355(a) of the Code; and (iii) the Merger
qualifies as a tax-free reorganization pursuant to Section 368 (a)(1)(B) of
the Code.
In the event that the IRS shall not have issued the Private Letter Ruling to
include any one or more of the three requested rulings described in the
preceding paragraph (each, an "Omitted Ruling"), this requirement will
nevertheless be satisfied if, on or prior to the Closing Date, AMETEK receives
the Tax Opinion of Stroock & Stroock & Lavan LLP and Culligan receives the Tax
Opinion of Skadden, Arps, Slate, Meagher & Flom LLP to the same effect as each
such Omitted Ruling. Each such Tax Opinion, if any, would be based upon
certain qualifications and assumptions as noted therein and upon certain
representations of AMETEK, New Ametek and Culligan. It would represent such
counsel's best legal judgment and would not be binding on the IRS or the
courts. There can be no assurance that the IRS or the courts would not take
one or more contrary positions to those expressed in the Tax Opinions.
The Contributions, the Spin-Off and the Merger will also not be consummated
unless there shall be no proposed legislation introduced in bill form and
pending action in Congress which, if enacted into law, would have the effect
of amending the Code so as to alter in any materially adverse respect any of
the Federal income tax consequences described in the Private Letter Ruling
(and/or the Tax Opinions) in respect of the Contributions, the Spin-Off or the
Merger. On April 17, 1997, Senate Finance Committee Chairman William V. Roth
Jr., Senate Finance Committee ranking Democrat Daniel Patrick Moynihan and
House Ways and Means Committee Chairman Bill Archer introduced the Proposed
Legislation that if applicable to the Spin-Off would cause the Spin-Off to be
taxable to New Ametek. The Proposed Legislation would not apply to any
distribution after April 16, 1997 if the distribution is (i) made pursuant to
a written agreement which was (subject to customary conditions) binding on
April 16, 1997 and at all times thereafter, (ii) described in a ruling request
submitted to the IRS on or before April 16, 1997, or (iii) described on or
before such date in a public announcement or in a filing with the Commission
required solely by reason of the distribution. Since the Spin-Off and the
Merger would satisfy one or more of the requirements for Transitional Relief,
the Proposed Legislation, if enacted in its present form, would not be
applicable to the transactions. However, there can be no assurance that the
Proposed Legislation would be enacted in its present form or that other
legislation, materially adverse to the Contributions, the Spin-Off or the
Merger and with different effective dates and/or transitional relief, would
not be introduced or enacted after the date hereof. The introduction or
enactment of legislation differing from the Proposed Legislation could delay
or prevent consummation of the Contributions, the Spin-Off and the Merger.
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CONSEQUENCES OF THE CONTRIBUTIONS AND THE SPIN-OFF
Based upon the Private Letter Ruling (and/or the Tax Opinions), the
following is a summary of the anticipated Federal income tax consequences of
the Contributions and the Spin-Off:
1. No gain or loss will be recognized by (and no amount will be included
in the income of) holders of AMETEK Common Stock on their receipt of New
Ametek Common Stock in the Spin-Off.
2. Following the Spin-Off, the aggregate tax basis of the AMETEK Common
Stock and the New Ametek Common Stock in the hands of the holders of AMETEK
Common Stock will equal the tax basis of the AMETEK Common Stock held
immediately before the Spin-Off, allocated in proportion to the fair market
value of each on the Spin-Off Date.
3. The holding period of the New Ametek Common Stock received by the
holders of AMETEK Common Stock will include the holding period of the
AMETEK Common Stock on which the Spin-Off was made, provided such AMETEK
Common Stock is held as a capital asset on the Spin-Off Date.
4. No gain or loss will be recognized by AMETEK or New Ametek as a result
of the Contributions or the Spin-Off.
If the Contributions and the Spin-Off did not qualify for tax-free treatment
under Code Sections 368(a)(1)(D) and 355, then for Federal income tax purposes
(i) AMETEK would be required to recognize gain on the Spin-Off to the extent
that the fair market value of the shares of New Ametek Common Stock
distributed in the Spin-Off exceeded AMETEK's tax basis of such shares and
(ii) each holder of AMETEK Common Stock would be required to recognize
dividend income in an amount equal to the fair market value of the shares of
New Ametek Common Stock received in the Spin-Off, up to such stockholder's
allocable share of AMETEK's current and accumulated earnings and profits
(which would include the amount of gain referred to in clause (i) above).
CONSEQUENCES OF THE MERGER
Based upon the Private Letter Ruling (and/or the Tax Opinions), the
following is a summary of the anticipated Federal income tax consequences of
the Merger:
1. No gain or loss will be recognized by holders of AMETEK Common Stock
whose shares of AMETEK Common Stock are exchanged solely for Culligan
Common Stock pursuant to the Merger Agreement (except with respect to cash
received by such holders of AMETEK Common Stock in lieu of fractional
shares of Culligan Stock). An AMETEK stockholder who receives cash in lieu
of fractional shares of Culligan Common Stock will recognize capital gain
or loss in an amount equal to the difference between the cash so received
and the portion of the tax basis in AMETEK Common Stock (as determined
immediately following the Spin-Off) that is allocable to such fractional
share. Such capital gain or loss will be long-term capital gain or loss,
provided such fractional shares would have been held by such stockholder as
a capital asset immediately prior to the Merger.
2. The tax basis of the Culligan Common Stock received (or, in the case
of fractional shares, deemed received) by holders of AMETEK Common Stock
who exchange their AMETEK Common Stock solely for Culligan Common Stock in
the Merger will be the same as the aggregate tax basis of the AMETEK Common
Stock (as determined immediately following the Spin-Off) surrendered in
exchange therefor.
3. The holding period for the shares of Culligan Common Stock received in
the Merger will include the period during which the shares of the AMETEK
Common Stock surrendered in exchange therefor were held, provided that such
shares of AMETEK Common Stock were held as a capital asset immediately
prior to the Merger.
4. No gain or loss will be recognized by AMETEK, Culligan Merger Sub or
Culligan as a result of the Merger.
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If the Merger did not qualify for tax-free treatment as a reorganization
under Code Section 368(a)(1)(B), each holder of AMETEK Common Stock would
recognize gain or loss equal to the difference between the fair market value
of the Culligan Common Stock received and such holder's tax basis of the
shares of AMETEK Common Stock surrendered. Failure of the Merger to qualify as
a tax-free reorganization could jeopardize the tax-free treatment of the
Contributions and the Spin-Off under Code Sections 355 and 368(a)(1)(D).
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LISTING AND TRADING OF NEW AMETEK COMMON STOCK
New Ametek has applied for listing of the New Ametek Common Stock on the
NYSE and the PSE.
New Ametek Common Stock received pursuant to the Spin-Off will be freely
transferable under the Securities Act of 1933, as amended (the "Securities
Act"), except for shares of New Ametek Common Stock received by any person who
may be deemed an "affiliate" of New Ametek within the meaning of Rule 145
under the Securities Act. Persons who may be deemed to be affiliates of New
Ametek after the Spin-Off generally include individuals or entities that
control, are controlled by, or are under common control with New Ametek, and
may include the directors and principal executive officers of New Ametek as
well as any principal stockholder of New Ametek. Persons who are affiliates of
New Ametek may sell their shares of New Ametek Common Stock received pursuant
to the Spin-Off only pursuant to an effective registration statement under the
Securities Act covering such securities, or in compliance with the resale
provisions of Rule 144 or Rule 145 or Regulation S promulgated under the
Securities Act.
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BUSINESS
AMETEK, Inc. was incorporated in Delaware in 1930 under the name of American
Machine and Metals, Inc. and maintains its principal executive offices at
Station Square, Paoli, Pennsylvania 19301.
New Ametek will be the successor to all of AMETEK's current businesses
except for the Water Filtration Business. As a result, New Ametek will be a
global manufacturer of electrical and electronic products and materials
engineered for niche markets with operations in North America, Europe and
Asia. It is expected that approximately one-third of New Ametek's sales will
be to international markets. New Ametek will have a significant market share
for many of its products. The Electromechanical Group is the world's largest
independent producer of electric motors and blowers for vacuum cleaners and
floor-care products; the Precision Instruments Group builds technologically
advanced monitoring, sensing, calibration, and display devices for the
aerospace, process, and heavy-vehicle industries; and the Industrial Materials
Group uses plastics, metals and fibers to produce specialty materials for
consumer and industrial markets. AMETEK has grown through a focus on the
manufacturing of electronic, electromechanical and electrical products for
niche markets where, based on technological or cost advantages, it has or it
seeks to build a significant market share. The management of New Ametek
intends to continue this focus.
CONTINUATION OF STOCKHOLDER VALUE ENHANCEMENT PLAN
In November 1993, AMETEK adopted a Stockholder Value Enhancement Plan (the
"Plan") with the objective of improving AMETEK's earnings growth through a
combination of financial and operating strategies.
The Plan's financial strategies consist of an ongoing share repurchase
program, a debt refinancing (completed in 1994) and a dividend reduction
(adopted at the same time as the Plan). From inception of the Plan through
December 31, 1996, AMETEK has repurchased approximately 30% of its outstanding
shares. This represents approximately 12.2 million shares of common stock at
an aggregate repurchase price of $171 million (or an average cost of $14.01
per share). During 1996, AMETEK repurchased 698,000 shares at an aggregate
repurchase price of $12.5 million (or an average cost of $17.92 per share).
Also, during 1996, AMETEK's Board of Directors authorized the current share
repurchase program of up to $50 million.
Shortly after the Plan was adopted, AMETEK implemented certain of its
operating strategies by restructuring the Precision Instruments Group and, as
a result, incurring after-tax charges of $33.5 million in 1993. The Plan's
other operating strategies, which are ongoing, consist of: (i) achieving
operational excellence through improved asset management, increased operating
synergies and reduced cycle times, (ii) intensifying new product development
efforts, especially in the electric motor-blower, precision instruments and
specialty metal product lines, (iii) completing strategic acquisitions and
alliances which concentrate on improving AMETEK's technological and
manufacturing advantages and market position in its core businesses, and (iv)
pursuing global and market expansion, especially in Europe and Asia.
In continuing to carry out the financial and operating strategies of the
Plan, AMETEK has sought, and New Ametek will continue to seek, to allocate its
historically strong cash flow to those opportunities, including the
furtherance of its operating strategies, additional share repurchases and
further debt reductions, which appear to have the best potential for improving
earnings growth and thereby, in accordance with the Plan, enhancing
stockholder value.
PRODUCTS AND SERVICES
New Ametek's growth strategies will be focused on its principal businesses:
Electromechanical, Precision Instruments, and Industrial Materials. The
following table sets forth summary sales and income information for
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New Ametek's business segments for the periods indicated giving effect to the
Water Filtration Business as a discontinued operation:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net Sales(1)
Electromechanical................................. $375,633 $372,038 $340,358
Precision Instruments............................. 308,737 301,440 280,638
Industrial Materials.............................. 115,641 108,369 99,656
-------- -------- --------
Total Consolidated.............................. $800,011 $781,847 $720,652
======== ======== ========
Segment Operating Income(2)
Electromechanical................................. $ 44,238 $ 48,858 $ 46,203
Precision Instruments............................. 37,253 34,803 29,189
Industrial Materials.............................. 22,339 16,854 11,313
-------- -------- --------
Total Segment Operating Income.................. $103,830 $100,515 $ 86,705
======== ======== ========
</TABLE>
- --------
(1) After elimination of intra and inter-segment sales, which are not
significant in amount. Such sales are generally based on prevailing market
prices.
(2) Segment operating income represents sales less all direct costs and
expenses (including certain administrative and other expenses) applicable
to each segment, but does not include an allocation of interest expense.
Electromechanical Group
The Electromechanical Group is the world's largest independent producer of
high-speed, air-moving electric motors for original equipment manufacturers
("OEM's") of floor-care products. The manufacture of these motors with
contacts rotating at 25,000 to 40,000 RPM requires advanced manufacturing
technology. EMG must address complex motor-blower dynamics including heat,
noise, vibration, and wear, in designing its customized products. EMG's
worldwide franchise is based on competencies developed over 80 years. EMG has
a leading market share in North America and Western Europe and a growing share
in the Pacific Rim. Global sales have more than quadrupled since 1981--
increasing from approximately $80 million to $376 million in 1996.
EMG has grown its business by extending its technological expertise in
manufacturing high-speed, air-moving electric motors for a variety of targeted
markets, with the floor care market being its primary focus. EMG has formed
alliances with OEM customers to design and manufacture cost-effective products
for numerous floor care applications. EMG is also using its technological and
marketing expertise in an effort to penetrate new markets, such as lawn and
garden equipment, where it is seeking to establish alliances with its major
customers.
EMG is seeking to build on it market leadership in the floor-care markets of
North America and Europe, through initiatives in Eastern Europe, Latin America
and the Pacific Rim. In addition to pursuing strategic alliances and joint
ventures, EMG has expanded its presence in the Pacific Rim with a plant in
Shanghai, PRC. Operations in Shanghai, the Czech Republic and Mexico are
expected to contribute to manufacturing output in 1997. About 50% of EMG's
sales are outside of the United States.
Consistent with its strategies for long-term global growth and low-cost
producer status, EMG has increased its production capacity over the past three
years with highly automated production lines at its Graham, North Carolina
facility. The recently initiated operations in Reynosa, Mexico; Shanghai, PRC;
and the Czech Republic are focused on reducing costs, and later on market
expansion.
EMG employs approximately 2,900 people and has thirteen manufacturing
locations: six in the United States, three in Italy, two in Mexico, and one
each in the PRC and the Czech Republic. EMG produced approximately 22 million
motor products in 1996 with flexible, automated production lines designed for
low-cost, high-volume operations. Its technological resources provide EMG
customers with custom-designed products.
36
<PAGE>
Floor-Care Market and Product Line
About two-thirds of EMG's sales are to floor-care markets, where it has a
leading share through sales of air-moving electric motors to most of the
world's major floor-care OEMs, including integrated OEMs that produce some of
their own motors. EMG produces a full range of floor-care products, from hand-
held, canister and upright vacuums to central vacuums for residential use.
High-performance vacuums are marketed for commercial and industrial
applications. Customers include Matsushita, Bissell, Royal, Eureka, and SEB-
Rowenta.
Sales growth in the floor-care industry has been achieved by marketing
products to vertically integrated vacuum cleaner manufacturers which decide to
outsource motor production to realize the economic and operational advantage
of reducing or discontinuing their own motor production. By purchasing EMG's
motors, vacuum cleaner manufacturers can reduce the otherwise substantial
capital expenditures they would incur to manufacture motors for changing
consumer demands. The global consumer trend toward multiple floor-care
products increases the variety and frequency of these investments by OEMs,
which are striving to operate more economically.
EMG's new product development focuses on enhancing motor-blower cost-
performance through advances in power, efficiency, size, weight, and
quietness. EMG's world lamination motor design is gaining market share in the
world lawn and garden market due to the motor's superior performance-to-weight
ratio. A new line of high-efficiency fans complement this motor and are
targeted as one of EMG's major growth initiatives for floor-care applications
in Asia.
EMG has a significant position in the European floor-care market. The
electric motors it produces in Italy are similar to those produced in the
United States. Capacity and productivity in Italy have been increased through
capital investment and such initiatives as manufacturing integration,
automation, inventory management, and increased labor flexibility.
Technical Motor Market and Product Line
EMG formed the Technical Motor Division to capitalize upon its global
presence and technical expertise in floor-care products and to expand
production and marketing of its brushless DC motor-blowers.
EMG's brushless motors are used in computer equipment, business machines and
medical equipment. Brushless motors are free of static charges and have high
reliability. They are increasingly popular in medical and other applications
in which long life and speed control are desired. Continuing product
developments include the use of brushless motors in systems designed to assist
patients with sleep-breathing disorders, in hospital air-mattress systems as
well as systems that recover gasoline fumes at automotive fueling stations.
Customers include Thomas Industries, Gast, Rheem, Kinetic Concepts, and
DevilBiss.
Commercial Motor Market and Product Line
EMG's leadership in air-moving electric motors, and its manufacturing
infrastructure, technical expertise and global marketing strengths serve as
the foundation for its future growth. EMG is capitalizing on its core
competencies in air-moving electric motors to create opportunities in other
consumer products for the outdoor power equipment market, such as lawn and
garden equipment, chainsaws, low-pressure paint sprayers and high-pressure
power washers. For example, EMG has received orders from most of the world's
major producers of lawn and garden products. Customers include Poulan,
American Kleaner, Sunbeam, and Wagner Spray Tech.
Customers
EMG is not dependent on any single customer such that the loss of that
customer would have a material adverse effect on EMG's operations.
Approximately 31% of EMG's sales for 1996 were made to its five largest
customers.
37
<PAGE>
Precision Instruments Group
The Precision Instruments Group applies its niche market focus and
technology to produce monitoring, calibration and display instruments for the
aerospace, process and heavy vehicle industries.
PI's growth has and will be based on competitive advantages, which include
designing products for specific customer applications that are significantly
differentiated from or are lower in cost than competitive products. PI is
number one or two in many of the niche markets it serves, including aerospace
fuel-flow meters, heavy vehicle instrument panels, oxygen analyzers, and
pressure gauges. About 25% of sales are to markets outside the United States.
Process and Analytical Instruments Market and Product Line
Approximately one-half of PI's sales are process and analytical instruments,
and pressure sensors. This includes pressure gauges and products for
industrial measurement and calibration; oxygen, moisture, combustion and
liquid analyzers; and emission monitors. The market focus is on measurement
and analysis for the process industry, which includes refining, and
petrochemical plants, power generation, specialty gas, water and waste
treatment, and natural gas distribution. PI also has products which serve the
semiconductor market. PI is the leader in the North American pressure gauge
market, which has been adversely affected by low-cost offshore products. PI
has reduced costs through restructuring its Sellersville, PA operations and
through its joint venture in Taiwan and the PRC. It is also refocusing its
domestic manufacturing on more advanced pressure measurement products, such as
its new Electronic Pressure Calibrator Model 2000.
In connection with its global expansion, PI has 50% ownership of a joint
venture that manufactures low-cost pressure gauges in Taiwan and the PRC,
where the joint venture also markets these products. For the remainder of the
world, PI is the exclusive marketer of the joint venture's products, expanding
PI's leadership in price-sensitive gauges.
The process industry has experienced lackluster market conditions in the
United States, primarily due to reduced refinery and petrochemical plant
construction and lower industry operating rates, resulting in part from
increased environmental regulations. Worldwide process industry markets are
benefiting from improved economic conditions and new construction in Europe
and Asia, where increased growth and market expansion are expected. PI's
customers include Exxon, DuPont, and Intel.
Aerospace Market and Product Line
Approximately one-third of PI's revenues are from the sale of aerospace
products, including airborne-data and vibration-monitoring systems; turbine
engine temperature measurement; indicators and displays, fuel and fluid
measurements; and sensors, switches and cable harnesses. Its customers are the
leading producers of airframes and jet engines, commercial airlines and
aircraft operators. As a prime innovator, PI serves all segments of commercial
aerospace, including helicopters, business jets, commuter aircraft, and
commercial airliners. Customer support includes parts warehousing and
maintenance programs. Aerospace products are designed to customer
specifications and manufactured to stringent operational and reliability
requirements. Operations are in Binghamton, NY; Sellersville, PA and
Wilmington, MA. A repair and maintenance facility is in Seattle, WA.
The aerospace business operates in niche markets, where its products have a
technological and/or cost advantage. Its 50 years of experience as an
aerospace contractor and its long-standing customer relationships with global
commercial aircraft OEMs are significant competitive advantages. Its new
products are now in service on the Boeing 777 airliner, the Bombardier Global
Express business jet and the Agusta 109 helicopter. Other aircraft with PI
products aboard include: Learjet 60, Boeing 737/747/757/767, Beechjet,
Sikorsky S-64, Cessna Citation, Saab SK-60, Mitsubishi YS-11 and Bell 407. Jet
engines with PI products include GE 90, Pratt & Whitney 4000 series, Rolls
Royce Trent 700/800 and GE CF6-50/80 series. Customers include Boeing, General
Electric, Honeywell and the U.S. Government.
38
<PAGE>
In 1993, PI reduced costs and restructured operations to increase
profitability in a weak aerospace market. Further initiatives are achieving
additional synergies, improving asset management, and optimizing the benefits
of prior actions. Demand in the aerospace market has strengthened
significantly, as airlines replace aging fleets, airline passenger miles
increase, and airline profits improve.
Heavy Vehicle Market and Product Line
Approximately one-fifth of PI's sales are electronic and electromechanical
instruments and panels for heavy vehicles, such as Class 8 heavy trucks. New
products, acquisitions and the addition of construction and agricultural
vehicle markets have increased the markets served. The acquisition of
privately held Dixson, Inc. in 1995 added to PI's number one position in the
United States heavy truck market and increased market share in other heavy
vehicle instrument segments, including agricultural, construction and off-road
vehicles. Dixson, Inc. also has a complementary customer base, a market
position in Europe, and product development capabilities in solid-state
instruments that primarily monitor engine efficiency and emissions. Instrument
demand in 1996 was reduced by a down cycle in the heavy truck industry. Modest
industry improvement is expected in 1997. Customers include Peterbilt and
Kenworth, Mack, Volvo, Freightliner, Ford, Clark and Caterpillar.
Customers
The Precision Instruments Group is not dependent on any single customer such
that the loss of that customer would have a material adverse effect on PI's
operations. Approximately 27% of PI's 1996 sales were made to its five largest
customers.
Industrial Materials Group
The Industrial Materials Group is a leader in the manufacture of technology-
based materials and products. It uses proprietary mechanical, metallurgical
and plastics technology to develop differentiated products, including high-
purity metal powders and products, and materials for industrial and chemical
processing.
Specialty Metals Markets and Product Line
This business manufactures high-purity, engineered metal powders; high-
purity strip and wire from metal powders; and clad products, with specific
metallurgical properties. Its niche market focus is based upon proprietary
manufacturing technology and strong customer relations. IMG serves a diverse
market segment including consumer products, electronics, telecommunications,
automotive, and energy production. New product developments include patented
ultra stainless steel metal powders and copper-based spinodal(R) alloys.
Global and market expansion in Europe and Asia significantly increased sales
in 1996. Customers include DuPont, Regal Ware, Inc., Stoody Co., Smith
International and Pall Corp.
Chemical and Industrial Products
Products include silicas, phenolic resins, and Teflon(R) (a registered
trademark of DuPont) polymer products for high-temperature and highly
corrosive applications. Product applications include the filtering of molten
metal, heat exchangers and protective welding curtains. The Chemical Products
Division also is a custom compounder of specialty resins and thermoplastics
with enhanced properties, such as fire retardance and improved adhesion.
Markets include automotive parts, electronics, appliances, and
telecommunications markets. Customers include Exxon, Mytex, Kanetsu, DuPont,
and Newport News Shipbuilding.
Customers
IMG is not dependent on any single customer such that the loss of that
customer would have a material adverse effect on IMG's operations.
Approximately 23% of IMG's 1996 sales were made to its five largest customers.
39
<PAGE>
MARKETING
In general, AMETEK's marketing efforts are organized and carried out at the
group and divisional levels, and New Ametek expects that this will continue
after the Spin-Off. Given the similarity and technical nature of its many
products as well as its significant worldwide market share, EMG conducts most
of its domestic and international marketing activities through a direct sales
force, and makes only limited use of sales agents in other countries. Because
of their relatively diverse product lines, PI and IMG make significant use of
distributors and sales agents in marketing their products. With its
specialized customer base of aircraft and jet engine manufacturers, and
airlines, PI's aerospace products and services are marketed primarily by its
sales engineers.
COMPETITION
Generally, most markets in which New Ametek will operate are highly
competitive. The principal elements of competition for the products
manufactured in each of New Ametek's business segments are price, product
features, distribution, quality, and service.
EMG's primary competition in the United States floor-care market consists of
a few competitors, each of which has a smaller market share but is part of a
company with larger and greater resources than New Ametek. There is additional
potential competition from vertically integrated manufacturers of floor-care
products that produce their own motor-blowers. Many of these manufacturers are
also potential EMG customers if they outsource their motors. In Europe,
competition comes from a small group of very large competitors and from
numerous small competitors.
In the markets served by PI, New Ametek believes that it will be one of the
world's largest pressure gauge manufacturers and ranks among the top 10 United
States producers of certain measuring and control instruments. It is one of
the leading instrument and sensor suppliers to commercial aviation.
Competition is strong and could intensify for certain aerospace products. In
the pressure gauge and heavy-vehicle markets served by PI, only a limited
number of companies compete on price and technology. In the process and
analytical instrument markets, numerous companies in each market niche compete
on the basis of product quality, performance and innovation.
Many of the products sold by IMG are made by a few competitors, and
competition comes mainly from producers of substitute materials. The primary
competition is from competitive materials and processes.
BACKLOG AND SEASONAL VARIATIONS OF BUSINESS
New Ametek's backlog of unfilled orders at the dates specified by business
segment was as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995 1994
------ ------ ------
(DOLLARS IN
MILLIONS)
<S> <C> <C> <C>
Electromechanical.................................... $ 87.9 $ 96.7 $111.3
Precision Instruments................................ 113.2 108.5 101.7
Industrial Materials................................. 18.1 21.2 19.5
------ ------ ------
Total.............................................. $219.2 $226.4 $232.5
====== ====== ======
</TABLE>
Of the total backlog of unfilled orders at December 31, 1996, approximately
93% of the orders are expected to be shipped by December 31, 1997.
New Ametek believes that neither its business as a whole nor any of its
business segments is subject to significant seasonal variations, although
certain individual operations experience some seasonal variability.
40
<PAGE>
RAW MATERIALS
AMETEK's business segments obtain raw materials and supplies from a variety
of sources and generally from more than one supplier. However, in the
Industrial Materials segment, certain items are available only from a limited
number of suppliers. New Ametek believes these sources and supplies of raw
materials will be adequate for its needs.
RESEARCH AND DEVELOPMENT
AMETEK has been committed, and New Ametek expects to continue this
commitment, to appropriate research and development activities that are
designed to identify and develop potential new and improved products or
enhance existing products. Research, product development and engineering costs
were $35.9 million in 1996. Company-funded research and development costs
included in total product development and engineering costs were $17.1 million
for 1996. Product research and engineering activities are conducted by the
various businesses of New Ametek in their respective technologies and markets.
ENVIRONMENTAL COMPLIANCE
New Ametek is subject to environmental laws and regulations generally
applicable to all United States manufacturing companies. AMETEK has been named
as a potentially responsible party at several sites which are the subject of
government-mandated clean-ups and, pursuant to the Distribution Agreement, New
Ametek will assume responsibility for these matters. Compliance with
environmental laws and regulations cost approximately $1.8 million in 1996,
and in the future may require higher capital expenditures and expenses. While
it is not possible to quantify the potential financial impact of actions
regarding environmental matters, New Ametek believes that the outcome of these
actions is not likely to have a material adverse effect on its future results
of operations, financial position or cash flow.
PATENTS, LICENSES AND TRADEMARKS
AMETEK owns, and New Ametek will own, numerous unexpired United States
patents, United States design patents and foreign patents, including
counterparts of its more important United States patents, in the major
industrial countries of the world. AMETEK is, and New Ametek will be, a
licensor or licensee under patent agreements of various types and its products
are marketed under various registered United States and foreign trademarks and
trade names. However, New Ametek does not consider any single patent or
trademark, or any group of them, essential to its business as a whole, or to
any of its business segments. The annual royalties received or paid under
license agreements are not significant to any single business segment or to
New Ametek's overall operations.
EMPLOYEES
At December 31, 1996, New Ametek employed approximately 6,100 individuals.
PROPERTIES
New Ametek has 32 operating plant facilities in 13 states and seven foreign
countries. Of these facilities, 24 are owned by New Ametek and eight are
leased. The properties owned by New Ametek consist of approximately 404 acres
in total, of which approximately 3,106,000 square feet are under roof, and
include property recently purchased in the Czech Republic for its
Electromechanical Group, where operations will begin during 1997. Under lease
is a total of approximately 550,000 square feet. The leases expire over a
range of years from 1997 to 2009 with renewal options for varying terms
contained in most of the leases. Production facilities in Taiwan and the PRC
provide New Ametek with additional production capacity through New Ametek's
50% ownership in a joint venture. New Ametek also owns certain parcels of land
that are pending sale. New Ametek's executive offices in Paoli, Pennsylvania
occupy approximately 34,000 square feet under a lease that will expire in
2002.
41
<PAGE>
New Ametek's machinery, plants and offices are in satisfactory operating
condition and are adequate for the uses to which they are put. The principal
operating facilities of New Ametek by business segment are summarized in the
following table:
<TABLE>
<CAPTION>
NUMBER OF SQUARE FEET UNDER
FACILITIES ROOF
------------ -----------------
OWNED LEASED OWNED LEASED
----- ------ --------- -------
<S> <C> <C> <C> <C>
Electromechanical.......................... 10 3 1,249,000 163,000
Precision Instruments...................... 9 5 959,000 387,000
Industrial Materials....................... 5 -- 898,000 --
--- --- --------- -------
Total.................................... 24 8 3,106,000 550,000
=== === ========= =======
</TABLE>
42
<PAGE>
MANAGEMENT
The following table sets forth certain information regarding the Directors
and executive officers of AMETEK. All of the executive officers and directors
have been elected to serve with New Ametek in the capacities indicated
following the Spin-Off.
<TABLE>
<CAPTION>
NAME AGE POSITIONS AND OFFICES WITH NEW AMETEK
- ---- --- -------------------------------------
<S> <C> <C>
Walter E. Blankley...... 61 Chairman of the Board and Chief Executive Officer, Director
Frank S. Hermance....... 48 President and Chief Operating Officer
John J. Molinelli....... 50 Senior Vice President--Chief Financial Officer
Albert J. Neupaver...... 46 President of the Electromechanical and Industrial Materials Groups
Robert W. Chlebek....... 53 President of the Precision Instruments Group
George E. Marsinek...... 59 Senior Vice President--Electromechanical Group
Philip A. Goodrich...... 39 Senior Vice President--Corporate Development
Robert R. Mandos, Jr.... 38 Comptroller
Deirdre D. Saunders..... 49 Treasurer and Assistant Secretary
Donna F. Winquist....... 47 Corporate Counsel and Corporate Secretary
Lewis G. Cole........... 66 Director
Helmut N. Friedlaender.. 83 Director
Sheldon S. Gordon....... 61 Director
Charles D. Klein........ 58 Director
James R. Malone......... 54 Director
David P. Steinmann...... 55 Director
Elizabeth R. Varet...... 53 Director
</TABLE>
- --------
The Board of Directors of New Ametek will be divided into three classes,
denominated Class I, Class II and Class III, with the terms of office of each
class expiring at the 1998, 1999 and 2000 annual meeting of stockholders,
respectively. At each annual meeting following such initial classification and
election, directors elected to succeed those directors whose terms expire will
be elected to serve for a term to expire at the third succeeding annual
meeting of stockholders after their election. The directors in each class are
as follows: Class I--Mr. Blankley, Mr. Cole and Mr. Klein; Class II--Mr.
Gordon and Mr. Steinmann; Class III--Mr. Friedlaender, Mr. Malone and Ms.
Varet.
WALTER E. BLANKLEY has been Chairman of the Board of AMETEK since April 27,
1993. He was elected a Director and President and Chief Executive Officer of
AMETEK on April 26, 1990. Mr. Blankley is also a Director of AMCAST Industrial
Corporation and CDI Corporation.
FRANK S. HERMANCE was elected President and Chief Operating Officer on
November 21, 1996. He previously had been Executive Vice President--Chief
Operating Officer since January 1, 1996 and previously he served as President
of the Precision Instruments Group, a position he was elected to on September
23, 1994. He joined AMETEK as a Group Vice President in November 1990.
JOHN J. MOLINELLI has served as Senior Vice President--Chief Financial
Officer of AMETEK since April 29, 1994. Previously he had served as Vice
President and Comptroller of AMETEK since April 1993. He was elected
Comptroller in 1991.
ALBERT J. NEUPAVER was elected President of the Electromechanical Group on
January 10, 1997, and was elected President of the Industrial Materials Group
on September 23, 1994. Previously he served as a Group Vice President since
May 1994. He was elected Vice President of AMETEK in 1991.
ROBERT W. CHLEBEK joined AMETEK as President of the Precision Instruments
Group on March 1, 1997. Prior to joining AMETEK, Mr. Chlebek had been
President of Philips Components North America, a subsidiary
43
<PAGE>
of Philips Electronics, N.V. ("Philips") since 1993. Previously, he held
general management positions with Philips.
GEORGE E. MARSINEK became Senior Vice President--Electromechanical Group
effective January 10, 1997. For health reasons, he stepped aside from his
previous position as President of the Electromechanical Group which he held
since September 23, 1994, before which he had been a Group Vice President
since April 1990.
PHILIP A. GOODRICH joined AMETEK as Senior Vice President--Corporate
Development on August 28, 1996. Prior to joining AMETEK, Mr. Goodrich had been
Vice President of Corporate Development at General Signal Corporation for
seven years.
ROBERT R. MANDOS, JR. was elected Comptroller effective April 1, 1996. Mr.
Mandos's more than 15 years of experience with AMETEK includes various
financial positions; most recently he had served as Director of Financial
Information at corporate headquarters and Division Vice President--Finance for
the multi-plant operations of the U.S. Gauge Division.
DEIRDRE D. SAUNDERS has served as Treasurer and Assistant Secretary since
April 29, 1993. Ms. Saunders joined AMETEK in 1987 as Assistant Treasurer.
Previously she served in financial and treasury positions with Exide
Corporation and Buckeye Pipe Line Company.
DONNA F. WINQUIST became Corporate Secretary on May 1, 1997. She retained
her responsibilities as Corporate Counsel to which position she was appointed
in December 1994. Ms. Winquist joined AMETEK as Manager of Legal Services in
1991 and became Director of Legal Services in 1992.
LEWIS G. COLE was elected a director of AMETEK in 1987. He is a Senior
Partner at Stroock & Stroock & Lavan LLP, which he joined in 1958.
HELMUT N. FRIEDLAENDER was elected a director of AMETEK in 1955. He is a
private investor. Mr. Friedlaender was a financial adviser to the late Mr.
William Rosenwald and his family and a director of American Securities
Corporation.
SHELDON S. GORDON was elected a director of AMETEK in 1989. Mr. Gordon has
been Chairman of Union Bancaire Privee International, Inc. since May 1996. He
was a General Partner of The Blackstone Group, L.P. from April 1991 to May
1995 and a Limited Partner until May 1996. He is a Director of Anangel-
American Shipholdings Limited and Energy Ventures, Inc.
CHARLES D. KLEIN was elected a director of AMETEK in 1980. Mr. Klein is a
financial adviser to the late Mr. William Rosenwald and his family and a
Managing Director of American Securities, L.P.
JAMES R. MALONE was elected a director of AMETEK in 1994. Mr. Malone is
currently Chairman of the Board of HMI Industries, Inc. since December 1996
and Chairman of the Board of Intek Capital Corporation since September 1990.
From January 1996 to February 1997, Mr. Malone was Chairman of the Board of
Anchor Resolution Corp. (formerly Anchor Glass Container Corp.). Mr. Malone
was President and Chief Executive Officer of Anchor Glass Container Corp. from
May 1993 to January 1996 and was Chairman, President and Chief Executive
Officer of Grimes Aerospace Co. from September 1990 to May 1993. Mr. Malone is
also a director of AmSouth Bank N.A.
DAVID P. STEINMANN was elected a director of AMETEK in 1993. He is a
Managing Director of American Securities, L.P.
ELIZABETH R. VARET was elected a director of AMETEK in 1987. Ms. Varet has
been Chief Executive Officer of the organization responsible for management of
the investment and philanthropic activities of the William Rosenwald family
and is a Managing Director of American Securities, L.P.
44
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
New Ametek will establish, effective as of the Spin-Off Date, the following
committees: an Audit Committee, a Compensation Committee, a Nominating
Committee and a Pension Investment Committee, all of which are comprised of
non-employee directors.
In addition, New Ametek will have an Executive Committee comprised of two or
more Directors which will meet on an as needed basis when the New Ametek Board
is not in session. This Committee may exercise all the power of the Board of
Directors in the management of the business and affairs of New Ametek except
the power to fill vacancies of the New Ametek Board or to change members of or
fill vacancies in the committee or to make or amend the New Ametek By-Laws.
The functions of the Audit Committee will include: reviewing with
independent auditors the plan and results of the audit engagement; reviewing
the scope and results of New Ametek's procedures for internal auditing; and
reviewing the adequacy of New Ametek's system of internal accounting controls.
The functions of the Compensation Committee's non-employee directors will
include: study and analysis of and recommendations to the New Ametek Board
concerning specific and general matters of management compensation; periodic
review of management compensation policies and practices; recommendations to
the New Ametek Board regarding incentive compensation awards and officers'
salary adjustments; and administrative oversight of stock option plans and
other incentive and compensation plans.
The functions of the Nominating Committee will include: determining an
appropriate size and composition of the New Ametek Board; considering
qualifications of prospective New Ametek Board candidates; conducting research
to identify and recommend nomination of suitable candidates; and reviewing the
experience, background, interests, ability and availability of prospective
nominees to meet time commitments of the New Ametek Board and committee
responsibilities.
The Pension Investment Committee will review the administration of New
Ametek's retirement plans, including compliance, investment manager and
trustee performance and results of independent audits of the plans.
COMPENSATION OF DIRECTORS
The annual rate of compensation for services as a nonemployee director of
New Ametek will be $35,000 plus $2,500 for each New Ametek Board meeting
attended. Employee directors will not receive compensation for services as a
director. At present, Mr. Blankley is the only employee director of New
Ametek.
Pursuant to a Retirement Plan for Directors (the "Directors Plan"), New
Ametek will provide retirement benefits and death benefits to those directors
who have not accrued benefits under the Employees' Retirement Plan of AMETEK,
Inc. and who have completed at least three years of service as a director or
officer of New Ametek (including service as a director or officer of AMETEK).
Effective as of the Spin-Off Date, New Ametek will assume all obligations
accrued under, and will continue to provide for, the Directors Plan. Effective
January 1, 1997, the Directors Plan was amended to limit participation to
those Directors who became members of the Board of Directors prior to January
1, 1997. The retirement benefit payable under the Directors Plan is an annual
amount equal to 100% of the highest annual rate of compensation for directors
during the director's period of service on the Board of Directors; however,
the benefit is reduced proportionately if the participant has less than five
years of service. New Ametek shall satisfy its obligations arising under the
Directors Plan exclusively from its general assets. All of the current AMETEK
directors other than Mr. Blankley are participants in the Directors Plan and
each of these participants, other than Messrs. Malone and Steinmann, has
accrued an annual retirement benefit of $50,000. Mr. Steinmann has accrued an
annual retirement benefit of $30,000, and Mr. Malone has not yet accrued any
benefit under the Directors Plan.
Pursuant to a Death Benefit Program for Directors (the "Directors Program"),
New Ametek will enter into individual agreements with certain directors. The
agreements will require New Ametek to pay death benefits to directors'
designated beneficiaries and to pay benefits to the directors under certain
circumstances. Effective as of the Spin-Off Date, New Ametek will assume all
AMETEK obligations accrued under, and will continue to
45
<PAGE>
provide for, the Directors Program. The Directors Program currently provides
for a benefit, payable for ten years, in an annual amount equal to 100% of the
highest annual rate of compensation during the director's period of service on
the Board of Directors, commencing at death or the later of age 70 or
retirement; however, with respect to directors who became participants after
January 1, 1989, the directors must complete at least five years of service as
a director before they become eligible to receive a benefit upon the later of
age 70 or retirement. Active directors will also have a group term life
insurance benefit of $50,000. To fund benefits under the Directors Program,
AMETEK has purchased, and New Ametek will continue to purchase, individual
life insurance policies on the lives of certain of the covered directors. New
Ametek will retain the right to terminate any or all of the Directors Program
agreements under certain circumstances. All of the current directors other
than Mr. Blankley currently participate in the Directors Program.
COMPENSATION OF EXECUTIVE OFFICERS
The following sets forth certain information with respect to the executive
officers of AMETEK, who effective as of the Spin-Off Date, will become
executive officers of New Ametek. All executive officers are elected by the
New Ametek Board to hold office until the next annual meeting of stockholders
and thereafter until their successors are elected and qualified. The following
executive officers of New Ametek and its subsidiaries were elected at the May
9, 1997 meeting of the New Ametek Board to take effect on the Spin-Off Date,
and all held the same positions at AMETEK. Effective as of the Spin-Off Date,
New Ametek will assume liability for all compensation owed by AMETEK and will
continue to pay executive compensation at rates comparable to those included
in the following table.
Executive Compensation Prior to the Spin-Off
The following table sets forth certain information for the fiscal year ended
December 31 in each of 1996, 1995 and 1994 concerning compensation paid or
accrued for the Chairman of the Board and Chief Executive Officer and the
other four most highly compensated executive officers of AMETEK, based on the
salary and bonus earned in 1996 and who will be executive officers of New
Ametek at the time of the Spin-Off.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------- -----------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS COMPENSATION
POSITION YEAR ($) ($) ($) ($) (#) ($)(1)
- ------------------------ ---- ------- ------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Walter E. Blankley...... 1996 487,000 440,000 -- -- 80,000 2,736
Chairman of the Board 1995 472,000 400,000 -- -- 75,000 1,752
and
Chief Executive Officer 1994 457,500 335,000 -- -- 125,000 1,656
Frank S. Hermance....... 1996 300,000 225,000 -- -- 100,000 1,776
President and Chief 1995 228,000 152,000 -- -- 30,000 1,332
Operating Officer 1994 220,000 125,000 -- -- 50,000 1,326
George E. Marsinek...... 1996 225,000 150,000 -- -- 30,000 3,096
Senior Vice President-- 1995 215,000 165,000 -- -- 30,000 1,620
Electromechanical Group 1994 205,500 150,000 -- -- 50,000 1,554
John J. Molinelli....... 1996 200,000 140,000 -- -- 30,000 1,872
Senior Vice President-- 1995 182,500 125,000 -- -- 25,000 1,356
Chief Financial Officer 1994 157,993 100,000 -- -- 40,000 1,350
Albert J. Neupaver...... 1996 197,500 140,000 -- -- 25,000 1,680
President of the 1995 180,000 110,000 -- -- 25,000 1,302
Electromechanical
and Industrial 1994 170,000 75,000 -- -- 40,000 1,284
Materials Groups
</TABLE>
- --------
(1) The amounts reported represent AMETEK's contributions ($1,200 each) to The
AMETEK Savings and Investment Plan for each of the individuals listed above
and the dollar value of premiums paid by AMETEK with respect to term life
insurance for the benefit of each of the named executive officers.
46
<PAGE>
Employment Contracts and Termination, Severance and Change-in-Control
Provisions
Pursuant to an agreement with AMETEK, which as of the Spin-Off Date New
Ametek will assume, Mr. Blankley will be entitled to a severance benefit if
his employment is terminated either by New Ametek without cause or by him for
good reason within 18 months after a Change in Control (as defined below), in
an amount equal to 2.99 times his average taxable compensation (as defined
under Section 280G of the Code) from AMETEK or New Ametek during the five
preceding taxable years. The benefit is subject to reduction, if necessary to
prevent any "excess parachute payments" within the meaning of Section 280G of
the Code. For purposes of the agreement, a "Change in Control" means the
acquisition of 30% or more of the voting stock of New Ametek by any party
other than New Ametek (or its affiliates), or a change in the members of the
New Ametek Board, within any two-year period, such that the members at the
beginning of the period cease to constitute a majority (unless the change is
approved by two-thirds of those persons who are members at the beginning of
the period). Assuming that a Change in Control, followed by a termination of
employment, occurred on January 31, 1997, $2,167,949 would be payable to Mr.
Blankley pursuant to the agreement. None of the events related to the Spin-Off
or the Merger will be deemed to constitute a Change in Control.
Pursuant to a Supplemental Senior Executive Death Benefit Program (the
"Program"), AMETEK has entered into individual agreements, which New Ametek
will assume, with certain executives. The agreements require AMETEK, and will
require New Ametek, to pay death benefits to their designated beneficiaries
and to pay benefits to the executives under certain circumstances. Effective
as of the Spin-Off Date, New Ametek will assume all obligations accrued under,
and will continue to provide for, the Program. If a covered executive dies
before retirement or before age 65 while on disability retirement, the
executive's beneficiary will receive monthly payments from the date of the
executive's death until the date he or she would have attained age 80, but not
less than for 15 years (the 15-year minimum guarantee does not apply to
executives whose inclusion in the Program is approved after December 31,
1986). The specified dollar amount of the payments is determined on the basis
of the executive's salary and age. In addition, the standard death benefit
payable to all salaried personnel from AMETEK's group term life insurance
policy is two times the executive's annual salary, limited to $200,000. If a
covered executive retires, or reaches age 65 while on disability retirement,
the Program provides for an annual benefit of one-tenth of an amount equal to
the lesser of (a) twice the executive's average annual base salary for the
last five full years of service, rounded off to the next highest multiple of
$50,000 or (b) a maximum amount specified in the agreement. The highest
maximum amount specified in the existing agreements is $1,000,000. The benefit
is payable monthly over a period of 10 years to the executive or the
executive's beneficiary. The payments will commence for retirees at age 70 or
death, whichever is earlier. However, if the executive retires after age 70,
the payments commence on retirement.
To fund benefits under the Program, AMETEK has purchased, and New Ametek
will continue to maintain, individual life insurance policies on the lives of
certain of the covered executives. New Ametek will retain the right to
terminate all of the Program agreements under certain circumstances. Messrs.
Blankley, Hermance, Marsinek, Molinelli and Neupaver are participants in the
Program.
47
<PAGE>
OPTION GRANTS OF AMETEK COMMON STOCK IN 1996
The following table provides information on stock options to purchase AMETEK
Common Stock granted in 1996 to the Chief Executive Officer and the other
executive officers named in the Summary Compensation Table. In addition, the
table provides the hypothetical gains or "option spreads" that would result
for the respective options based on assumed rates of annual compound stock
price appreciation of 5% and 10% from the date the options were granted
through their expiration dates. No stock appreciation rights ("SARs") were
granted to the named executive officers in 1996. Pursuant to the terms of the
Distribution Agreement, effective as of the Spin-Off Date, these stock options
will be converted to options to purchase New Ametek Common Stock.
STOCK OPTION/SAR GRANTS IN 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------
PERCENTAGE
NUMBER OF OF TOTAL POTENTIAL REALIZABLE
SECURITIES OPTIONS/SARS VALUE AT ASSUMED
UNDERLYING GRANTED TO ANNUAL RATE OF STOCK
OPTIONS/SARS EMPLOYEES IN EXERCISE EXPIRATION PRICE APPRECIATION FOR
NAME GRANTED (1) FISCAL YEAR PRICE ($/SH) DATE OPTION TERM (2)
- ---- ------------ ------------ ------------ ---------- -----------------------
5%($) 10%($)
----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Walter E. Blankley...... 80,000 11.35 17.375 04/08/2006 874,164 2,215,302
Frank S. Hermance....... 100,000 14.18 17.375 04/08/2006 1,092,704 2,769,128
George E. Marsinek...... 30,000 4.25 17.375 04/08/2006 327,811 830,738
John J. Molinelli....... 30,000 4.25 17.375 04/08/2006 327,811 830,738
Albert J. Neupaver...... 25,000 3.55 17.375 04/08/2006 273,176 692,282
</TABLE>
- --------
(1) The options granted in 1996 to Messrs. Blankley, Hermance, Marsinek,
Molinelli and Neupaver are exercisable after the first anniversary of the
date of the grant (April 8, 1996) during each of the four succeeding
twelve-month periods only to the extent of twenty-five percent of the
total number of shares optioned. In all cases, optioned shares that may
have been but were not purchased during any one twelve-month period may be
purchased during any one or more succeeding twelve-month periods up to the
expiration date of the option. Options generally become fully exercisable
in the event of the holder's death, retirement or termination of
employment in connection with a change in control.
(2) The amounts represent certain assumed rates of appreciation. Actual gains,
if any, on stock option exercises are dependent on future performance of
New Ametek's Common Stock. There can be no assurance that the rates of
appreciation reflected in this table will be achieved.
The following table sets forth certain information with regard to the
aggregated options to purchase AMETEK Common stock exercised in the year ended
December 31, 1996 and the option values as of the end of that year for the
Chief Executive Officer and the other executive officers named in the Summary
Compensation Table. In addition, the table shows the aggregate number of
unexercised options and stock appreciation rights that were exercisable and
unexercisable as of December 31, 1996, and the values of "in-the-money" stock
options and SARs on December 31, 1996, which represent the positive difference
between the market price of AMETEK's Common Stock and the exercise price of
such options/SARs.
AGGREGATED OPTIONS/SARS EXERCISED IN 1996 AND OPTIONS/SAR VALUES AT DECEMBER
31, 1996
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES ACQUIRED VALUE OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
NAME ON EXERCISE (#) REALIZED ($) AT DECEMBER 31, 1996 A DECEMBER 31, 1996 ($)
- ---- --------------- ------------ ------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Walter E. Blankley...... 93,750 761,719 201,250 211,250 1,463,281 1,203,750
Frank S. Hermance....... 20,000 151,719 77,500 147,500 611,562 743,750
George E. Marsinek...... 0 0 57,500 77,500 417,187 428,750
John J. Molinelli....... 6,000 44,000 63,750 68,750 515,468 373,281
Albert J. Neupaver...... 12,000 102,000 53,250 63,750 413,656 350,781
</TABLE>
DEFINED BENEFIT AND ACTUARIAL PLANS
The Employees' Retirement Plan of AMETEK, Inc. (the "Retirement Plan") is a
noncontributory defined benefit pension plan under which contributions are
actuarially determined. Effective as of the Spin-Off Date, New
48
<PAGE>
Ametek will assume all obligations accrued under, and continue to provide for,
the Retirement Plan. The following table sets forth the estimated annual
benefits, expressed as a single life annuity, payable upon retirement
(assuming normal retirement at age 65) under the Retirement Plan for
individuals with the indicated years of service and at the indicated
compensation levels (without taking into account statutory restrictions
incorporated in the Retirement Plan and described below):
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ANNUAL BENEFITS BASED ON
YEARS OF SERVICE AT NORMAL RETIREMENT
AGE (1)
AVERAGE ---------------------------------------
OMPENSATIONC 15 20 25 30 35
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$150,000.............................. 58,800 62,600 66,500 66,500 66,500
200,000.............................. 79,200 84,300 89,400 89,400 89,400
250,000.............................. 99,600 106,000 112,400 112,400 112,400
300,000.............................. 120,000 127,700 135,300 135,300 135,300
350,000.............................. 140,400 149,300 158,300 158,300 158,300
400,000.............................. 160,800 171,000 181,200 181,200 181,200
450,000.............................. 181,200 192,700 204,200 204,200 204,200
500,000.............................. 201,600 214,400 227,100 227,100 227,100
550,000.............................. 222,000 236,000 250,100 250,100 250,100
600,000.............................. 242,400 257,700 273,000 273,000 273,000
650,000.............................. 262,800 279,400 296,000 296,000 296,000
700,000.............................. 283,200 301,100 318,900 318,900 318,900
</TABLE>
- --------
(1) Benefit amounts assume a participant reaches age 65 in 1997; for younger
participants, the benefit amounts are less than the amounts indicated above.
The annual compensation taken into account for any plan year is generally
equal to the participant's salary and any bonus accrued during the plan year
as reported in the Summary Compensation Table. Compensation in excess of
certain amounts prescribed by the Secretary of the Treasury ($160,000 for
1997) cannot be taken into account under the Retirement Plan. The individuals
named in the Summary Compensation Table are subject to this limitation.
However, in accordance with a nonqualified supplemental pension arrangement,
New Ametek has agreed to provide to Mr. Blankley a benefit in an amount equal
to the excess of the annual pension benefit that would be payable to him under
the terms of the Retirement Plan in the absence of statutory restrictions over
the amount actually payable under the Retirement Plan. The benefit is limited
to the projected excess payable at age 65 determined as of May 21, 1991.
Pursuant to an agreement entered into with Mr. Blankley, a restricted stock
award was granted under the 1991 Stock Incentive Plan of AMETEK, Inc. for a
number of shares of AMETEK's Common Stock having a fair market value on the
day of grant equal to 50% of the present value of the projected benefit under
the supplemental pension arrangement; the remaining portion of the benefit
will be payable in cash, directly out of New Ametek's general assets. At
December 31, 1996 the executives named in the Summary Compensation Table had
the following years of credited service under the Retirement Plan: Mr.
Blankley-37; Mr. Hermance-6; Mr. Marsinek-32; Mr. Molinelli-28; and Mr.
Neupaver-20.
For retirements occurring in 1997, the maximum annual pension benefit
payable at normal retirement age is restricted, by law, to the greater of
$125,000 or the amount of such benefit determined under the Retirement Plan
and prior existing law as of December 31, 1982. The $125,000 limit is adjusted
annually by the Secretary of the Treasury to reflect increases in the cost of
living.
Persons joining AMETEK or New Ametek after January 1, 1997 are not eligible
to participate in the Retirement Plan, but instead are eligible to participate
in a new defined contribution feature of AMETEK's 401(k) Plan.
49
<PAGE>
BENEFICIAL OWNERSHIP OF NEW AMETEK COMMON STOCK
The following table sets forth certain information as of the Spin-Off Record
Date regarding the beneficial ownership of shares of New Ametek Common Stock
by (i) each person known to be the beneficial owner of more than 5% of AMETEK
Common Stock, (ii) each director of New Ametek, (iii) certain executive
officers of New Ametek and (iv) the directors and executive officers of New
Ametek as a group. The ownership information presented below with respect to
all persons and organizations is based on record ownership of AMETEK Common
Stock as of March 31, 1997 and assumes no change in record ownership of AMETEK
Common Stock or beneficial ownership of stock options between such date and
the Spin-Off Record Date.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF SHARES COMMON
NAME BENEFICIALLY OWNED(1) STOCK OWNED
---- --------------------- -----------
<S> <C> <C>
FMR Corp. (2)............................. 4,058,300 12.4%
Gabelli Asset Management Company (3)...... 3,500 (3)
Gabelli Funds, Inc. (3)................... 810,000 (3)
GAMCO Investors, Inc. (3)................. 3,384,000 (3)
Walter E. Blankley........................ 312,269 *
Lewis G. Cole (4)......................... 524,588 1.6%
Helmut N. Friedlaender (5)................ 78,900 *
Sheldon S. Gordon......................... 30,000 *
Frank S. Hermance......................... 97,500 *
Charles D. Klein (6)...................... 56,600 *
James R. Malone (7)....................... 20,000 *
George E. Marsinek........................ 62,718 *
John J. Molinelli......................... 86,642 *
Albert J. Neupaver........................ 63,090 *
David P. Steinmann (8).................... 128,964 *
Elizabeth Rosenwald Varet (9)(10)......... 1,137,608 3.5%
All directors and executive officers as a
group, consisting of 16 persons, including
individuals above (10).................... 2,051,208 6.3%
</TABLE>
- --------
*Represents less than 1% of the outstanding shares of New Ametek Common
Stock.
(1) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared
voting power (including the power to vote or direct the vote) and/or sole
or shared investment power (including the power to dispose or direct the
disposition) with respect to the security through any contract,
arrangement, understanding, relationship or otherwise. Reported in this
column are also shares which executive officers have a present right to
acquire or are acquirable within 60 days of January 31, 1997 through the
exercise of stock options awarded under AMETEK, Inc. Stock Option Plans.
(2) Based on Schedule 13(G) filed on February 14, 1997.
(3) Based on Schedule 13(D) filed on March 27, 1997. Mr. Mario J. Gabelli is
deemed to have beneficial ownership of these shares. Mr. Gabelli's
beneficial ownership of 4,197,500 shares represents 12.8% of the common
stock outstanding.
(4) Mr. Cole has shared voting and investment power with respect to 514,588
shares, as to 4,000 shares of which such power is shared with Messrs.
Klein and Steinmann and others and as to 510,588 shares of which such
power is shared with Ms. Varet and others.
(5) Mr. Friedlaender has shared voting and investment power with respect to
30,400 shares. Of these, 15,200 shares are owned by a trust of which Mr.
Friedlaender is a trustee; Mr. Friedlaender disclaims beneficial
ownership of such shares.
(6) Mr. Klein has shared voting and investment power with respect to 6,600
shares, as to 4,000 shares of which such power is shared with Messrs.
Cole and Steinmann and others and as to 2,600 shares of which such power
is shared with Mr. Steinmann and others.
(7) Includes 6,667 shares held pursuant to a restricted stock award under the
1991 Stock Incentive Plan.
(8) Mr. Steinmann has shared voting and investment power with respect to
94,264 shares, as to 82,720 shares of which such power is shared with Mr.
Cole and others, as to 2,600 shares of which such power is shared with
Mr. Klein and others, as to 4,944 shares of which such power is shared
with others and as to 4,000 shares of which such power is shared with
Messrs. Cole, Klein and others.
(9) Includes 10,000 shares owned by a trust of which Ms. Varet's husband is a
beneficiary and as to which Ms. Varet disclaims any beneficial ownership.
Ms. Varet has shared voting and investment power with respect to
1,061,808 shares, as to 510,588 shares of which such power is shared with
Mr. Cole and others, as to 468,500 shares of which such power is shared
with others and as to 82,720 shares of which such power is shared with
Mr. Steinmann and others.
(10) Mr. Steinmann is an executive officer and director and Mr. Klein is a
portfolio manager of Oak Hall Capital Advisors, L.P., an investment
manager of (i) the AMETEK, Inc. Employees' Master Retirement Trust, which
holds among its assets 571,400 shares, and (ii) AMETEK Foundation, Inc.,
which holds among its assets 55,800 shares; none of these shares has been
included in the above table. Oak Hall Capital Advisors, L.P. is an
affiliate of American Securities, L.P.
50
<PAGE>
BACKGROUND OF THE SPIN-OFF AND THE MERGER
For a discussion of the background of the Spin-Off and the Merger, see
"BACKGROUND OF THE SPIN-OFF AND THE MERGER" in the Joint Proxy
Statement/Prospectus, of which this Information Statement is Appendix E.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Sheldon S. Gordon, Charles D. Klein, James R. Malone and Elizabeth R. Varet
have comprised the AMETEK Compensation Committee and will comprise the New
Ametek Compensation Committee. Mr. Klein and Ms. Varet are managing directors
of American Securities, L.P., an investment banking firm.
The law firm of Stroock & Stroock & Lavan LLP, of which Mr. Cole is a
member, rendered during 1996 and continues to render services as General
Counsel for AMETEK and its subsidiaries. The investment banking firm of
American Securities, L.P., and affiliates of American Securities, L.P.,
including Oak Hall Capital Advisors, L.P., rendered during 1996 and continues
to render financial advisory, investment management and other services to
AMETEK. American Securities, L.P. is owned, indirectly, through family trusts
of which Ms. Varet and Mr. Cole are co-trustees, by Ms. Varet and members of
her family.
51
<PAGE>
DESCRIPTION OF NEW AMETEK CAPITAL STOCK
The summary of the terms of the stock of New Ametek set forth below does not
purport to be complete and is subject to and qualified in its entirety by
reference to the New Ametek Certificate and the New Ametek By-Laws.
AUTHORIZED CAPITAL STOCK
Under the New Ametek Certificate, the total number of shares of all classes
of stock that New Ametek has authority to issue is 105,000,000 shares, of
which 100,000,000 are shares of New Ametek Common Stock and 5,000,000 are
shares of New Ametek Preferred Stock, par value $1.00 per share (the "New
Ametek Preferred Stock").
COMMON STOCK
Holders of New Ametek Common Stock will be entitled to one vote per share on
all matters voted on generally by the stockholders, including the election of
directors, and, except as otherwise required by law or except as provided with
respect to any series of New Ametek Preferred Stock, the holders of such
shares will possess all voting power. The New Ametek Certificate does not
provide for cumulative voting for the election of directors. Thus, under the
DGCL, the holders of more than one-half of the outstanding shares of New
Ametek Common Stock generally will be able to elect all the directors of New
Ametek then standing for election and holders of the remaining shares will not
be able to elect any director.
Subject to any preferential rights of any series of New Ametek Preferred
Stock, holders of shares of New Ametek Common Stock will be entitled to
receive dividends on such stock out of assets legally available for
distribution when, as and if authorized and declared by the New Ametek Board
and to share ratably in the assets of New Ametek legally available for
distribution to its stockholders in the event of its liquidation, dissolution
or winding up.
Holders of New Ametek Common Stock will have no preferences, preemptive,
conversion or exchange rights.
Certain of the foregoing provisions of the New Ametek Certificate may make
more difficult, and therefore discourage, attempts to acquire control of New
Ametek through acquisitions of shares of New Ametek Common Stock or otherwise,
in transactions not approved by the New Ametek Board. As a result of these
provisions, transactions or proposed transactions which might have the short-
term effect of increasing the market price of New Ametek Common Stock may be
discouraged, and management of New Ametek may be able to resist changes which
the stockholders might otherwise have the power to impose. The division of the
New Ametek Board into three classes could discourage third parties from
seeking to acquire control of such Board and could impede proxy contests or
other attempts to change New Ametek's management.
PREFERRED STOCK
The New Ametek Board is authorized to issue shares of New Ametek Preferred
Stock, in one or more series or classes, and to fix for each such series
voting powers and such preferences and relative, participating, optional or
other special rights and such qualifications, limitations or restrictions as
are permitted by the DGCL. No shares of New Ametek Preferred Stock are
currently outstanding. The New Ametek Board could authorize the issuance of
shares of New Ametek Preferred Stock with terms and conditions which could
discourage a takeover or other transaction that holders of some or a majority
of shares of New Ametek Common Stock might believe to be in their best
interests or in which such holders might receive a premium for their shares of
stock over the then market price of such shares. Although the New Ametek Board
does not currently intend to issue any shares of New Ametek Preferred Stock,
there can be no assurance that it will not do so in the future.
52
<PAGE>
DESCRIPTION OF CERTAIN STATUTORY, CHARTER AND BY-LAW PROVISIONS
Delaware Anti-Takeover Law
New Ametek is subject to the provisions of Section 203 of the DGCL. Section
203 provides, with certain exceptions, that a Delaware corporation may not
engage in certain business combinations with a person or affiliate or
associate of such person who is an "interested stockholder" for a period of
three years from the date such person became an interested stockholder unless:
(i) the transaction resulting in the acquiring person's becoming an interested
stockholder, or the business combination, is approved by the board of
directors of the corporation before the person becomes an interested
stockholder; (ii) the interested stockholder acquires 85% or more of the
outstanding voting stock of the corporation in the same transaction which
makes it an interested stockholder (excluding certain employee stock option
plans); or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board
of directors and by the holders of at least 66 2/3% of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares
owned by the interested stockholder. An "interested stockholder" is defined as
any person that is (x) the owner of 15% or more of the outstanding voting
stock of the corporation or (y) an affiliate or associate of the corporation
and was the owner of 15% or more of the outstanding voting stock of the
corporation at any time within the three year period immediately prior to the
date on which it is sought to be determined whether such person is an
interested stockholder. Under Delaware law, New Ametek could have opted out of
Section 203 but elected to be subject to its provisions.
Classified Board of Directors
The New Ametek Certificate provides for the New Ametek Board to be divided
into three classes of Directors serving staggered three-year terms. As a
result, approximately one-third of the New Ametek Board will be elected each
year.
This provision could prevent a party who acquires control of a majority of
the outstanding voting stock from obtaining control of the New Ametek Board
until the second annual stockholders' meeting following the date the acquiror
obtains the controlling stock interest, and thus could have the effect of
discouraging a potential acquiror from making a tender offer or otherwise
attempting to obtain control of New Ametek. Accordingly, this provision could
increase the likelihood that incumbent New Ametek Directors will retain their
positions.
Number of Directors; Removal; Vacancies
The New Ametek Certificate provides that the number of Directors shall be
determined from time to time by majority of the New Ametek Board, provided
that in no event shall such number be less than three nor more than 12. The
New Ametek By-Laws provide that the New Ametek Board shall have the right to
fill vacancies including vacancies created by expansion of the New Ametek
Board.
The New Ametek Certificate further provides that New Ametek Directors may be
removed only for cause and then only at any annual meeting or special meeting
of the stockholders, the notice of which states that the removal of a Director
or Directors is among the purposes of the meeting, and only by the affirmative
vote of the holders of at least a majority of the voting stock, voting
together as a single class. This provision, in conjunction with the provision
of the New Ametek By-Laws authorizing the New Ametek Board to fill vacant
directorships, would prevent stockholders from removing incumbent New Ametek
Directors without cause and filling the resulting vacancies with their own
nominees.
Stockholder Action by Unanimous Consent; Special Meetings
The New Ametek Certificate provides that any action required or permitted to
be taken by the stockholders of New Ametek must be effected at a duly called
annual or special meeting of stockholders of New Ametek and may not be
effected by any consent in writing of such stockholders. Special meetings of
stockholders of New Ametek may be called only by the Chairman of the Board or
the Corporate Secretary of New Ametek within 10
53
<PAGE>
calendar days after receipt of the written request of a majority of the total
number of Directors which New Ametek would have if there were no vacancies. At
an annual meeting or special meeting of stockholders of New Ametek, only such
business will be conducted or considered as has been brought before such
meeting in the manner provided in the New Ametek By-Laws.
Advance Notice for Raising Business or Making Nominations at Meetings
The New Ametek By-Laws establish an advance notice procedure for business
being brought before an annual meeting of stockholders of New Ametek by the
stockholders and for nominations by the stockholders of candidates for
election as New Ametek Directors at an annual meeting or a special meeting
called for the purpose of electing such Directors. Subject to applicable law,
including, without limitation, Rule 14a-8 under the Exchange Act, only such
business may be conducted at an annual meeting as has been brought before the
meeting by, or at the direction of, the New Ametek Board, or by a stockholder
who has given to the Corporate Secretary of New Ametek timely written notice,
in proper form, of the stockholder's intention to bring that business before
the meeting. In addition, only persons who are nominated by, or at the
direction of the New Ametek Board, or who are nominated by a stockholder who
has given timely written notice, in proper form, to the Corporate Secretary of
New Ametek prior to a meeting at which New Ametek Directors are to be elected
will be eligible for election as Directors of New Ametek.
To be timely, notice of nominations or other business to be brought before
an annual meeting must be received by the Corporate Secretary of New Ametek
not less than 60 nor more than 90 days prior to the meeting; however, if the
date of the meeting is first publicly announced or disclosed less than 75 days
prior to the date of the meeting, notice shall be given not more than 10 days
after such date is first announced or disclosed. Similar advance notice
requirements are applicable to nominations to be brought before a special
meeting called for the purpose of electing Directors.
Amendment of Certain Charter and By-Law Provisions
The New Ametek Certificate provides that the New Ametek Board may adopt,
amend, or repeal any provision of the New Ametek By-Laws. Any By-Law made by
the New Ametek Board may be amended or repealed by the New Ametek Board or by
the stockholders in the manner provided in the New Ametek By-Laws.
Notwithstanding the foregoing, certain New Ametek By-Laws may not be amended
or repealed by the stockholders, and no provision inconsistent therewith may
be adopted by the stockholders, without the affirmative vote of the holders of
at least 80% of the voting stock, voting together as a single class. The New
Ametek By-Laws may be amended or repealed at any time, either at any meeting
of stockholders, provided that any amendment or supplement proposed to be
acted upon at any such meeting has been described or referred to in the notice
of such meeting, or at any meeting of the New Ametek Board, provided that no
amendment adopted by the New Ametek Board may vary or conflict with any
amendment adopted by the stockholders.
Transfer Agent and Registrar
The transfer agent and registrar for New Ametek Common Stock will be
American Stock Transfer Company.
DESCRIPTION OF STOCKHOLDERS' RIGHTS PLAN
The New Ametek Board currently intends to adopt a Stockholders' Rights Plan
(the "Rights Plan") under which one right (a "Right") will be issued with
respect to each share of Common Stock. Each Right will entitle the holder to
purchase from New Ametek a unit consisting of one one-hundredth of a share of
Series A Junior Participating Preferred Stock, par value $.01 per share (the
"Series A Preferred Stock"), at a purchase price to be determined by New
Ametek's Board of Directors, subject to adjustment in certain events (the
"Purchase Price"). The following summary description of the Rights does not
purport to be complete and is qualified in its entirety by reference to the
proposed form of Rights Agreement between New Ametek and a Rights Agent (the
"Rights Agreement"), a copy of which is filed as an exhibit to the
Registration Statement of which this Information Statement is a part and is
incorporated herein by reference.
54
<PAGE>
Initially, the Rights will attach to all certificates representing
outstanding shares of New Ametek Common Stock and no separate certificates for
the Rights ("Rights Certificates") will be distributed. The Rights will
separate from the New Ametek Common Stock upon the "Distribution Date," which
will occur upon the earlier of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 20% or more of the outstanding
shares of New Ametek Common Stock (the date of the announcement being the
"Stock Acquisition Date") or (ii) 10 business days following the commencement
of a tender offer or exchange offer that would result in a person becoming an
Acquiring Person or (iii) 10 business days following a determination by New
Ametek's Board that a person has become the beneficial owner of more than 10%
of the outstanding shares of New Ametek Common Stock and (a) has acquired such
beneficial ownership to cause New Ametek to repurchase the shares owned by
such person or to pressure New Ametek to take some action that would provide
such person with short term financial gain under circumstances where the Board
determines that the best long-term interests of New Ametek would not be served
by taking such action or (b) such beneficial ownership is causing or is
reasonably likely to cause a material adverse impact on the business or
prospects of New Ametek (any such person, an "Adverse Person"). Until the
Distribution Date, (a) the Rights will be evidenced by the New Ametek Common
Stock certificates and will be transferred with and only with such
certificates, (b) New Ametek Common Stock certificates will contain a legend
incorporating the Rights Agreement by reference and (c) the surrender for
transfer of any certificate for New Ametek Common Stock will also constitute
the transfer of the Rights associated with the stock represented by such
certificate.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on , 2007 (the "Final Expiration Date"),
unless earlier redeemed by New Ametek as described below.
As soon as practicable after the Distribution Date, Rights Certificates will
be mailed to holders of record of New Ametek Common Stock as of the close of
business on the Distribution Date, and from the Distribution Date, the
separate Rights Certificates alone will represent the Rights.
In the event (a "Flip-In Event") that (i) a person or group becomes an
Acquiring Person (except pursuant to a tender or exchange offer for all
outstanding shares of New Ametek Common Stock at a price and on terms that a
majority of disinterested Directors, after receiving advice from one or more
investment banking firms, determines to be adequate and otherwise in the best
interests of New Ametek and its stockholders (a "Qualifying Offer")) or (ii)
the Board determines that a person is an Adverse Person, each holder of a
Right will have the right to receive, upon exercise of such Right, a number of
shares of New Ametek Common Stock (or, in certain circumstances, cash,
property or other securities of New Ametek) having a then current market value
of twice the Purchase Price (i.e., at a 50% discount to the then current
market value). Notwithstanding the foregoing, following the occurrence of any
Flip-In Event, all Rights that are, or (under certain circumstances specified
in the Rights Agreement) were, beneficially owned by any Acquiring Person or
an Adverse Person (or by certain related parties) will be null and void in the
circumstances set forth in the Rights Agreement. However, Rights will not be
exercisable following the occurrence of any Flip-In Event until such time as
the Rights are no longer redeemable by New Ametek as set forth below.
In the event (a "Flip-Over Event") that, at any time on or after the Stock
Acquisition Date, (i) New Ametek is acquired in a merger or other business
combination in which New Ametek is not the surviving corporation, (ii) New
Ametek is the continuing or surviving corporation in a merger but all or part
of the outstanding shares of New Ametek Common Stock is changed into or
exchanged for stock or securities of any other person or cash or property, or
(iii) 50% or more of New Ametek's assets or earning power is sold or
transferred (in one transaction or a series of related transactions), then
each holder of a Right (except Rights that have been voided as set forth
above) thereafter shall have the right to receive, upon exercise at the then
current Purchase Price (as set forth in the Rights Agreement), a number of
shares of common stock of the acquiring company having a then current market
value of twice such Purchase Price (i.e., at a 50% discount). New Ametek may
not engage in a transaction with an Acquiring Person constituting a Flip-Over
Event unless the Acquiring Person meets certain conditions. If the Acquiring
Person's (or its affiliated entity's) common stock has not been registered
under the
55
<PAGE>
Exchange Act, for the preceding twelve months, but it is a direct or indirect
subsidiary of another company which has registered common stock, the Rights
shall be exercisable as described above to purchase the common stock of such
parent company. Moreover, New Ametek may not engage in a flip-over transaction
unless the Acquiring Person (or its affiliated entity or parent, as
applicable), (i) has sufficient shares of common stock authorized to permit
the full exercise of the Rights and (ii) enters into an agreement containing
the terms set forth above and providing that, as soon as practicable after the
date of the Flip-Over Event, the Acquiring Person will register the Rights and
the securities issuable upon exercise of the Rights under the Securities Act
and maintain the effectiveness of such registration statement until the
Expiration Date of the Rights Plan. Notwithstanding the foregoing, a merger or
consolidation will not constitute a Flip-Over Event if (i) the transaction is
consummated with a person who acquired New Ametek Common Stock pursuant to a
Qualifying Offer or with a subsidiary of such person; (ii) the price per share
of Common Stock offered in such transaction is not less than the price paid to
holders of New Ametek Common Stock whose shares were purchased in the
Qualifying Offer; and (iii) the form of consideration offered in the
transaction is the same as the form of consideration paid pursuant to the
Qualifying Offer.
The Purchase Price payable, and the number of shares of Series A Preferred
Stock or other securities or property issuable, upon exercise of the Rights
are subject to adjustment from time to time to prevent dilution (i) in the
event of a stock dividend on (payable in shares of the Series A Preferred
Stock), or a subdivision, combination or reclassification of, the Series A
Preferred Stock, (ii) if holders of the Series A Preferred Stock are granted
certain rights or warrants to subscribe for Series A Preferred Stock or
certain convertible securities at less than the current market price of the
Series A Preferred Stock or (iii) upon the distribution to holders of the
Series A Preferred Stock of evidence of indebtedness or cash (other than a
regular quarterly cash dividend out of the earnings or retained earnings of
New Ametek) or assets (excluding regular quarterly cash dividends and
dividends payable in shares of Series A Preferred Stock) or of subscription
rights or warrants (other than those referred to above). With certain
exceptions, no adjustment in the Purchase Price will be required until
cumulative adjustments amount to at least 1% of the Purchase Price. Fractional
shares of Series A Preferred Stock in integral multiples of one one-hundredth
of a share of Series A Preferred Stock will be issuable. In lieu of fractional
shares other than fractions that are multiples of one one-hundredth of a
share, an adjustment in cash will be made based on the market price of the
Series A Preferred Stock on the last trading date prior to the date of
exercise.
At any time until the earlier of (a) 10 days following the Stock Acquisition
Date or (b) the Final Expiration Date, New Ametek may redeem the Rights in
whole, but not in part, at a price of [$.01] (subject to certain adjustments
as set forth in the Rights Agreement) per Right, payable, at the option of New
Ametek, in cash, shares of New Ametek Common Stock or such other consideration
as the Board of Directors of New Ametek may determine. The Board may not,
however, redeem any rights following a determination by the Board that any
person is an Adverse Person. Additionally, the 10 day period following the
Stock Acquisition Date during which the Rights may be redeemed may be extended
by the Directors during such 10 day period. However, if the Rights are not so
redeemed during such 10 day period (or any extension thereof), the Rights
shall become non-redeemable for the duration of the Rights Plan. Immediately
upon the effectiveness of the action of the Board of Directors ordering
redemption of the Rights, the Rights will terminate and the only right of the
holders of Rights will be to receive the [$.01] redemption price.
In the event that a majority of the New Ametek Board serving following a
meeting of stockholders or stockholder action by written consent are not
nominated by the New Ametek Board serving immediately prior to such meeting or
action, then for 180 days following such meeting or action the Rights may not
be redeemed if such redemption is reasonably likely to have the purpose or
effect of allowing any person to become an Acquiring Person, or otherwise
facilitating the occurrence of a Flip-In Event, or a Flip-Over Event or a
transaction with an Acquiring Person.
The Series A Preferred Stock purchasable upon exercise of the Rights will be
junior to any other series of preferred stock New Ametek may issue (unless
otherwise provided in the terms of such series). Each share of Series A
Preferred Stock will entitle the holder thereof to receive a preferential
quarterly dividend in an amount
56
<PAGE>
equal to the greater of $ or 100 times the dividend declared on each share
of New Ametek Common Stock. In the event of liquidation, the holders of Series
A Preferred Stock will receive a preferred liquidation payment equal to $
per share, plus an amount equal to accrued and unpaid dividends thereon to the
date of such payment (the "Series A Liquidation Preference"). Following such
payment, the holders of New Ametek Common Stock will receive an amount per
share equal to the quotient obtained by dividing (i) the Series A Liquidation
Preference by (ii) 100 (the "Adjustment Amount"). Following the full payment
of the Series A Liquidation Preference and the Adjustment Amount, holders of
Series A Preferred Stock and New Ametek Common Stock shall receive their
ratable and proportionate share of the remaining assets to be distributed in
the ratio of 100 to one with respect to such Series A Preferred Stock and New
Ametek Common Stock, on a per share basis, respectively. Each share of Series
A Preferred Stock will have 100 votes, voting together with the shares of New
Ametek Common Stock. In the event six quarterly cumulative dividends, whether
consecutive or not, on the Series A Preferred Stock are in arrears, the
holders of Series A Preferred Stock will have the right, voting as a class, to
elect two members of the New Ametek Board (in addition to their normal voting
rights) until all unpaid dividends on the Series A Preferred Stock have been
paid in full.
In the event of any consolidation, merger or other transaction in which
shares of New Ametek Common Stock are exchanged, each share of Series A
Preferred Stock will be entitled to receive 100 times the amount and type of
consideration received per share of New Ametek Common Stock. The rights of the
Series A Preferred Stock as to dividends, liquidation payments and voting, and
in the event of mergers or consolidations, are protected by customary anti-
dilution provisions.
Except as provided above, any of the provisions of the Rights Agreement may
be amended by the New Ametek Board prior to the Distribution Date. Thereafter,
the provisions of the Rights Agreement may be amended by the New Ametek Board
in order to cure any ambiguity, defect or inconsistency, to make changes that
do not adversely affect the interests of holders of Rights (excluding the
interest of any Acquiring Person or Adverse Person), or to shorten or lengthen
any time period under the Rights Agreement; provided, however, that an
amendment to lengthen the time period governing redemption may be made only if
the Rights are redeemable and an amendment to lengthen any other time period
may be made only for the purpose of protecting, enhancing or clarifying the
rights of, and/or benefits to, the holders of Rights (other than any Acquiring
Person or Adverse Person). Until a Right is exercised, the holder thereof, as
such, will have no rights as a stockholder of New Ametek, including, without
limitation, the right to vote or to receive dividends.
The Rights will have certain anti-takeover effects. The Rights will cause
substantial dilution to any person or group that attempts to acquire New
Ametek without the approval of New Ametek's Board. As a result, the overall
effect of the Rights may be to render more difficult or discourage any attempt
to acquire New Ametek even if such acquisition may be favorable to the
interests of New Ametek's stockholders. Because New Ametek's Board can redeem
the Rights or approve a Qualifying Offer, the Rights should not interfere with
a tender offer, merger or other business combination approved by the New
Ametek Board.
The distribution of the Rights should not be taxable to stockholders of New
Ametek. However, depending upon the circumstances, shareholders may recognize
taxable income if the Rights become exercisable or upon the occurrence of
certain events thereafter.
57
<PAGE>
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL provides, in summary, that directors and officers of
Delaware corporations are entitled, under certain circumstances, to be
indemnified against all expenses and liabilities (including attorneys' fees)
incurred by them as a result of suits brought against them in their capacity
as a director or officer, if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful; provided, that no
indemnification may be made against expenses in respect of any claim, issue or
matter as to which they shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case,
they are fairly and reasonably entitled to indemnity for such expenses which
such court shall deem proper. Any such indemnification may be made by the
corporation only as authorized in each specific case upon a determination by
the stockholders or disinterested directors that indemnification is proper
because the indemnity has met the applicable standard of conduct.
The New Ametek Certificate and By-Laws provide that New Ametek shall
indemnify, to the full extent authorized or permitted by law (as now or
hereafter in effect), any person involved, or threatened to be involved,
including, without limitation as a party or witness, in any action, suit or
proceeding (whether civil or criminal or otherwise) by reason of the fact that
such person (including the heirs, executors, administrators or estate of such
person), is or was a director, officer, employee or agent of New Ametek or by
reason of the fact that such director or officer, at the request of New Ametek
is or was serving at any other corporation, partnership, joint venture, trust
or other entity, in any capacity. The New Ametek Certificate and By-Laws
further provide that New Ametek may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or agent of New
Ametek or is serving at the request of New Ametek as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other entity against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, to the fullest extent
permitted under applicable law as then in effect. In addition, the New Ametek
Certificate and By-Laws provide that New Ametek may create a trust fund, grant
a security interest and/or use other means (including, without limitation,
letters of credit), as well as enter into contracts providing for
indemnification to the full extent authorized or permitted by law to ensure
the payment of such amounts as may become necessary to effect indemnification
as provided therein, or elsewhere.
Moreover, the New Ametek Certificate further provides that no director of
New Ametek shall be personally liable to New Ametek or its stockholders for or
with respect to any acts or omissions in the performance of his or her duties
as a director of New Ametek, except a director shall be liable to the extent
provided by applicable law (i) for any breach of the director's duty of
loyalty to New Ametek or its stockholders; (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) for liability under Section 174 of the DGCL (involving certain
unlawful dividends or stock repurchases); or (iv) any transaction from which
the director derived an improper personal benefit. This provision does not
limit or eliminate the rights of New Ametek or any stockholder to seek non-
monetary relief such as an injunction or rescission in the event of a breach
of a director's duty of care.
New Ametek maintains officer's and director's liability insurance with
policy limits of $50,000,000 insuring its officers and directors against
certain liabilities and expenses incurred by them in their capacities as such,
and insuring New Ametek under certain circumstances, in the event that
indemnification payments are made by New Ametek to such officers and
directors.
Pursuant to Indemnity Agreements between New Ametek and its directors and
officers, New Ametek has agreed to indemnify such directors and officers to
the fullest extent permitted by Delaware law, as the same may be amended from
time to time.
58
<PAGE>
NEW AMETEK (AMETEK AEROSPACE PRODUCTS, INC.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS PAGE
- ----------------------------------------- ----
<S> <C>
Report of Independent Auditors.......................................... F-2
Consolidated Statement of Income for the years ended December 31, 1996,
1995, and 1994......................................................... F-3
Consolidated Balance Sheet at December 31, 1996 and 1995................ F-4
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994........................... F-5
Consolidated Statement of Cash Flows for the years ended
December 31, 1996, 1995, and 1994...................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of New Ametek (Ametek Aerospace
Products, Inc.):
We have audited the accompanying consolidated balance sheets of New Ametek
(Ametek Aerospace Products, Inc.) as of December 31, 1996 and 1995, and the
related consolidated statements of income, cash flows and stockholders' equity
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of New Ametek's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of New Ametek (Ametek Aerospace Products, Inc.) at December 31, 1996 and 1995,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1994,
New Ametek changed its method of accounting for marketable securities.
Ernst & Young LLP
Philadelphia, Pennsylvania
May 9, 1997,
except for Note 4, as to which the date is
, 1997
The foregoing report is in the form that will be signed upon completion of
the Spin-Off and the Merger described in Note 4 to the financial statements.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
May 9, 1997
F-2
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.................................. $800,011 $781,847 $720,652
---------- ---------- ----------
Expenses:
Cost of sales (excluding depreciation)... 627,006 611,036 566,536
Selling, general and administrative...... 64,320 67,313 63,910
Depreciation............................. 25,842 24,819 26,647
---------- ---------- ----------
Total expenses......................... 717,168 703,168 657,093
---------- ---------- ----------
Operating income........................... 82,843 78,679 63,559
Other income (expenses):
Interest expense......................... (19,061) (20,175) (21,618)
Other, net............................... 2,600 101 4,072
---------- ---------- ----------
Income from continuing operations before
income taxes.............................. 66,382 58,605 46,013
Provision for income taxes................. 23,310 21,721 17,009
---------- ---------- ----------
Income from continuing operations.......... 43,072 36,884 29,004
Discontinued operations, net of taxes:
Income from discontinued operations...... 8,118 7,652 9,987
Gain on sale of discontinued operation... -- 10,420 --
---------- ---------- ----------
Income before extraordinary items and
cumulative effect of accounting change.... 51,190 54,956 38,991
Extraordinary loss on early extinguishment
of debt, net of taxes..................... -- (2,676) (11,810)
Cumulative effect of accounting change for
marketable securities, net of taxes....... -- -- 3,819
---------- ---------- ----------
Net income................................. $ 51,190 $ 52,280 $ 31,000
========== ========== ==========
Earnings (loss) per share:
Income from continuing operations........ $ 1.32 $ 1.10 $ .78
Discontinued operations:
Income from discontinued operations...... .25 .23 .27
Gain on sale of discontinued operation... -- .31 --
---------- ---------- ----------
Income before extraordinary items and
cumulative effect of accounting change.. 1.57 1.64 1.05
Extraordinary loss on early
extinguishment of debt.................. -- (.08) (.32)
Cumulative effect of accounting change... -- -- .11
---------- ---------- ----------
Net income............................... $ 1.57 $ 1.56 $ .84
========== ========== ==========
Average common shares outstanding.......... 32,670,726 33,426,436 37,125,569
========== ========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 2,354 $ 6,644
Marketable securities.................................... 6,441 5,694
Receivables, less allowance for possible losses.......... 117,692 112,444
Inventories.............................................. 86,531 94,259
Deferred income taxes.................................... 11,007 11,739
Other current assets..................................... 5,287 4,299
-------- --------
Total current assets................................... 229,312 235,079
Property, plant and equipment, net......................... 174,808 160,188
Intangibles, investments and other assets.................. 95,048 94,418
Net assets of discontinued operations...................... 29,707 29,868
-------- --------
$528,875 $519,553
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current portion of long-term
debt..................................................... $ 31,845 $ 56,374
Accounts payable......................................... 74,220 73,522
Income taxes payable..................................... 10,148 9,174
Accrued liabilities...................................... 62,724 66,533
-------- --------
Total current liabilities.............................. 178,937 205,603
Long-term debt............................................. 150,333 150,430
Deferred income taxes...................................... 33,493 30,271
Other long-term liabilities................................ 36,614 46,190
Stockholders' equity:
Preferred stock, $1.00 par value; authorized: 5,000,000
shares; none issued...................................... -- --
Common stock, $.01 par value; authorized: 100,000,000
shares; issued: 1996--34,208,095 shares; 1995--
34,906,717 shares....................................... 342 349
Capital in excess of par................................. 1,190 783
Retained earnings........................................ 157,843 124,503
-------- --------
159,375 125,635
Net unrealized losses.................................... (15,375) (18,691)
Less: Cost of shares held in treasury: 1996--1,502,617
shares; 1995--2,049,194 shares.......................... (14,502) (19,885)
-------- --------
Total stockholders' equity............................. 129,498 87,059
-------- --------
$528,875 $519,553
======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
CAPITAL STOCK
Preferred stock.................................. $ -- $ -- $ --
Common stock, $.01 par value:
Balance at the beginning of the year........... 349 372 46,414
Common stock retirement........................ (7) (23) (6,988)
Reduction in par value from $1.00 per share to
$.01 per share................................ -- -- (39,054)
-------- ------- -------
Balance at the end of the year............... 342 349 372
-------- ------- -------
CAPITAL IN EXCESS OF PAR VALUE
Balance at the beginning of the year............. 783 7,382 6,389
Employee stock options and savings plan.......... 2,943 2,093 976
Reduction in par value of common stock........... -- -- 39,054
Common stock retirement.......................... (2,536) (8,661) (39,607)
Other............................................ -- (31) 570
-------- ------- -------
Balance at the end of the year............... 1,190 783 7,382
-------- ------- -------
RETAINED EARNINGS
Balance at the beginning of the year............. 124,503 111,150 161,297
Net income....................................... 51,190 52,280 31,000
Cash dividends paid.............................. (7,853) (7,983) (8,910)
Common stock retirement.......................... (9,997) (30,944) (72,237)
-------- ------- -------
Balance at the end of the year............... 157,843 124,503 111,150
-------- ------- -------
NET UNREALIZED LOSSES
Foreign currency translation:
Balance at the beginning of the year........... (15,008) (16,148) (20,163)
Translation adjustments........................ 1,281 1,140 4,015
-------- ------- -------
Balance at the end of the year............... (13,727) (15,008) (16,148)
-------- ------- -------
Pension liability in excess of unrecognized prior
service cost:
Balance at the beginning of the year........... (4,384) (4,391) (4,731)
Adjustments during the year.................... 1,802 7 340
-------- ------- -------
Balance at the end of the year............... (2,582) (4,384) (4,391)
-------- ------- -------
Other (principally valuation allowance for
marketable securities):
Balance at the beginning of the year........... 701 (683) 3,262
Appreciation (depreciation) in marketable
securities.................................... 233 1,384 (2,547)
Other.......................................... -- -- (1,398)
-------- ------- -------
Balance at the end of the year............... 934 701 (683)
-------- ------- -------
Balance at the end of the year............... (15,375) (18,691) (21,222)
-------- ------- -------
TREASURY STOCK
Balance at the beginning of the year............. (19,885) (24,502) (27,142)
Employee stock options and savings plan.......... 5,200 4,237 2,577
Other............................................ 183 380 63
-------- ------- -------
Balance at the end of the year............... (14,502) (19,885) (24,502)
-------- ------- -------
Total stockholders' equity................. $129,498 $87,059 $73,180
======== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Cash provided by (used for):
Operating activities:
Income from continuing operations................ $43,072 $36,884 $ 29,004
Adjustments to reconcile income from continuing
operations
to net cash provided by continuing operations:
Depreciation and amortization.................. 32,659 32,804 33,844
Deferred income taxes.......................... 2,467 3,957 4,505
Proceeds from sale of securities in trading
portfolio...................................... -- -- 31,566
Changes in operating working capital:
Increase in receivables...................... (3,590) (2,298) (7,632)
Decrease (increase) in inventories and other
current assets............................... 7,567 1,877 (9,606)
(Decrease) increase in payables, accruals and
income taxes................................. (6,481) (17,633) 21,470
(Decrease) increase in other long-term
liabilities.................................... (4,315) 6,103 (710)
Other........................................ (6,695) (153) (3,312)
------- ------- --------
Cash provided by continuing operations........... 64,684 61,541 99,129
Cash provided by (used for) discontinued
operations....................................... 7,388 (4,163) 12,854
------- ------- --------
Total operating activities................. 72,072 57,378 111,983
------- ------- --------
Investing activities:
Additions to property, plant and equipment....... (39,076) (29,342) (20,364)
Proceeds from sale of assets and discontinued
operations....................................... 4,009 42,687 8,420
Purchase of businesses and investments........... (5,785) (38,281) (1,144)
Decrease in marketable securities and other...... 1,649 4,293 5,611
------- ------- --------
Total investing activities................. (39,203) (20,643) (7,477)
------- ------- --------
Financing activities:
Net change in short-term borrowings.............. (24,357) 54,544 1,600
Cash dividends paid.............................. (7,853) (7,983) (8,910)
Additional long-term borrowings.................. -- -- 306,004
Repayment of long-term debt...................... -- (50,000) (292,506)
Debt issuance costs and debt prepayment premiums. -- (166) (29,211)
Repurchases of common stock...................... (12,540) (39,628) (118,832)
Proceeds from stock options...................... 6,953 5,629 3,554
Other............................................ 638 706 400
------- ------- --------
Total financing activities................. (37,159) (36,898) (137,901)
------- ------- --------
Decrease in cash and cash equivalents.............. (4,290) (163) (33,395)
Cash and cash equivalents:
Beginning of year................................ 6,644 6,807 40,202
------- ------- --------
End of year...................................... $ 2,354 $ 6,644 $ 6,807
======= ======= ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements reflect the operations of New Ametek
(Ametek Aerospace Products, Inc.), the successor to the businesses of AMETEK,
Inc. ("AMETEK") following distribution of all of the outstanding shares of New
Ametek's common stock, par value $.01 per share, to the holders of AMETEK's
common stock on a share-for-share basis (the "Spin-Off") and the disposition
of AMETEK's water filtration business described in Note 4. The terms "New
Ametek", "AMETEK", and "the Company" are used interchangeably herein as
appropriate within the context.
Basis of Consolidation
The consolidated financial statements include the accounts of New Ametek and
subsidiaries, after elimination of all significant intercompany transactions
in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents, Securities, and Other Investments
All highly liquid investments with maturities of three months or less when
purchased are considered cash equivalents. In January 1994, AMETEK adopted
Statement of Financial Accounting Standard (SFAS) No. 115, Accounting for
Certain Investment in Debt and Equity Securities. SFAS No. 115 requires that
equity securities and fixed income securities be carried at market value, and
that the unrealized gains and losses on securities, less deferred income
taxes, be reflected as a component of stockholders' equity for securities
considered available for sale, and be reflected in income for securities held
for trading purposes. The cumulative effect on net income of adopting that
standard for securities, then classified in a trading portfolio, was to
increase net income for 1994 by $3.8 million (net of taxes), or $.11 per
share. At December 31, 1996 and 1995, all of AMETEK's equity securities and
fixed income securities (primarily those of a captive insurance subsidiary)
are considered available-for-sale. The aggregate market value of such
securities at December 31, 1996 and 1995 was: 1996--$14.9 million ($13.5
million amortized cost), and 1995--$12.2 million ($10.9 million amortized
cost). New Ametek's other investments are accounted for by the equity method.
Inventories
Inventories are stated at the lower of cost or market, cost being determined
principally by the last-in, first-out (LIFO) method of inventory valuation,
and market on the basis of the lower of replacement cost or estimated net
proceeds from sales. The excess of the first-in, first-out (FIFO) method over
the LIFO value was $35.0 million and $36.4 million at December 31, 1996 and
1995.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures for additions
to plant facilities, or that extend their useful lives, are capitalized. The
cost of tools, jigs and dies, and maintenance and repairs is charged to
operations as incurred. Depreciation of plant and equipment is calculated
principally on a straight-line basis over the estimated useful lives of the
related assets.
F-7
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
New Ametek's revenues are recorded as products are shipped and services are
rendered. The policy with respect to sales returns and allowances generally
provides that a customer may not return products, or be given allowances,
except at New Ametek's option. The aggregate provisions for estimated warranty
costs (not significant in amount) are recorded at the time of sale and
periodically adjusted to reflect actual experience.
Research and Development
Research and development costs are charged to operations as incurred and
during the past three years were: 1996--$17.1 million, 1995--$15.5 million and
1994--$17.3 million.
Earnings Per Share
Earnings per share are based on the average number of common shares
outstanding during the period. No material dilution of earnings per share
would result for the periods if it were assumed that all outstanding stock
options were exercised.
Foreign Currency Translation
Assets and liabilities of foreign operations are translated by using
exchange rates in effect at the balance sheet date, and their results of
operations are translated by using average exchange rates for the year.
Certain transactions of New Ametek and its subsidiaries are made in
currencies other than their functional currency. Gains and losses from those
transactions (not significant in amount) are included in operating results for
the year.
In addition, New Ametek utilizes various financial instruments to hedge firm
commitments for certain export sales, thereby minimizing its exposure to
foreign currency fluctuation. Foreign exchange contracts, foreign currency
options, and foreign currency swaps may be entered into for periods consistent
with New Ametek's exposure, generally one year or less. Gains and losses from
those arrangements are deferred and are reflected as adjustments of the
related foreign currency transaction.
Interest Rate Swap and Cap Agreements
New Ametek enters into interest rate swap and cap agreements to modify the
interest characteristics of certain of its revolving credit loans, and to
reduce the impact of increases in interest rates on its floating-rate loans.
Such agreements generally involve the exchange of fixed- and floating-rate
interest payments periodically over the life of the agreement without an
exchange of the underlying principal amount. The differential to be paid or
received is accrued as interest rates change, and it is recognized as an
adjustment to interest expense related to the debt over the life of the
agreements. Under interest rate cap agreements, the interest rate on a
specified percentage of certain revolving credit loans outstanding, which is
subject to the floating interest rate, cannot exceed a fixed percentage. New
Ametek also uses foreign currency and interest rate swaps in its selective
hedging of certain foreign currency and interest rate risk exposure.
Intangible Assets
The excess of cost over net assets acquired (goodwill) is being amortized on
a straight-line basis over periods of 20 to 30 years. New Ametek reviews the
carrying value of goodwill for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
Patents are being
F-8
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
amortized on a straight-line basis over their estimated useful lives of 9 to
10 years. Other acquired intangibles are being amortized on a straight-line
basis over their estimated useful lives of five to 30 years.
Reclassifications
Certain amounts appearing in the prior year's financial statements and
supporting footnote disclosures have been reclassified to conform to the
current year's presentation.
2. RESTRUCTURING
As of December 31, 1996, charges against a restructuring reserve of $45.1
million established in 1993 (primarily for the Precision Instruments Group)
totaled approximately $32.2 million, of which $7.2 million was charged in
1996, $13 million in 1995 and $7.9 million in 1994. The charges were for costs
related to workforce reductions, a facility combination and asset write-downs.
The remaining reserves of $12.9 million at December 31, 1996 related primarily
to certain pension and employee-related obligations, and product line
relocation, are currently anticipated to be fully utilized with no material
change in the estimates. Except for certain long-term pension obligations, the
significant portion of these actions are expected to be completed by the end
of 1997.
3. ACQUISITIONS
On March 31, 1995, AMETEK purchased the heavy-vehicle instrumentation
business of privately held Dixson, Inc. for cash. This acquisition was
accounted for by the purchase method and the results of its operations are
included in New Ametek's consolidated results from its acquisition date. The
acquisition of Dixson, Inc. would not have had a material effect on New
Ametek's sales or earnings for 1995 or 1994 had it been made at the beginning
of the respective periods.
On March 1, 1995, New Ametek acquired a 50% ownership interest in a joint
venture established with a Taiwanese supplier to manufacture low-cost pressure
gauges in the PRC and Taiwan for worldwide markets. The investment is
accounted for by the equity method, and New Ametek's 50% share of the
operating results since March 1, 1995 (not material in amount) is included in
the earnings of its domestic gauge manufacturing division.
The aggregate purchase price of the above mentioned acquisitions and
investment in the joint venture totaled $40.8 million, consisting of cash paid
at closing and minor deferred payment obligations over periods of up to three
years. The investment in the joint venture is reported with Intangibles,
investments and other assets in the accompanying balance sheet.
4. DISCONTINUED OPERATIONS
On February 5, 1997, AMETEK announced that it had entered into an Agreement
and Plan of Merger (the "Merger"), as amended and restated on May 9, 1997,
whereby Culligan Water Company, Inc. ("Culligan Merger Sub"), a wholly owned
subsidiary of Culligan Water Technologies, Inc. ("Culligan") would be merged
with and into its water filtration business for a total purchase price to
Culligan of approximately $155 million. The water filtration business consists
of the Plymouth Products Division, a U.S. operation, and three foreign
subsidiaries: AMETEK Filters, Limited, a U.K. subsidiary; APIC, S.A., a French
subsidiary; and AFIMO S.A.M., a Monaco subsidiary.
The purchase price less assumed debt is payable in Culligan common stock
valued at $37.50 per share. As a result of the Merger, Culligan will assume
$25 million of New Ametek's debt. Based on the assumption of $25 million of
the debt, Culligan will distribute approximately 3,466,667 shares of its
common stock to AMETEK's stockholders, or approximately .11 shares of Culligan
common stock for each outstanding share of AMETEK common stock.
F-9
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Merger is subject to approval by the stockholders and lenders of AMETEK
and to certain other conditions, including the receipt of an Internal Revenue
Service ruling that the Merger and the Spin-Off qualify as a tax-free
reorganization. It is presently expected that it will take from four to six
months from the aforementioned date to complete the transaction.
In connection with the Merger, AMETEK, New Ametek, Culligan and Culligan
Merger Sub will enter into certain contractual agreements. Such agreements
include, a Tax Allocation Agreement, which among other things, will set forth
each party's rights and obligations with respect to the allocation and payment
of certain taxes for periods before and after the Spin-Off, as well as related
matters, such as the allocation of responsibility for the filing of any tax
returns and the conduct of audits by taxing authorities; a Trademark
Agreement, which will govern the use of trademarks and trade names by AMETEK
and New Ametek; an Indemnification Agreement that will govern certain
indemnification matters among the parties; and a Transition Services Agreement
which sets forth the obligation of New Ametek to provide Culligan Merger Sub
with certain transition related services and support.
On May 18, 1995, AMETEK sold its foam packaging business (Microfoam
Division) for approximately $37 million in cash. The sale of the assets of the
Microfoam Division, after providing for certain costs related to the sale,
resulted in a second quarter 1995 gain of $10.4 million, net of taxes of $6.4
million.
New Ametek's financial statements for all periods presented have been
restated to report these businesses as discontinued operations. Summary
operating results of discontinued operations were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS) ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
WATER FILTRATION
BUSINESS:
Net sales.............. $68,650 $55,643 $54,086
======= ======= =======
Income before income
taxes.................. $12,278 $10,652 $11,750
Provisions for income
taxes.................. 4,160 3,779 4,135
------- ------- -------
Net income............. $ 8,118 $ 6,873 $ 7,615
======= ======= =======
FOAM PACKAGING BUSINESS:
Net sales.............. $ -- $12,153 $33,226
======= ======= =======
Income before income
taxes.................. -- $ 1,291 $ 4,044
Provisions for income
taxes.................. -- 512 1,672
------- ------- -------
Net income............. $ -- $ 779 $ 2,372
======= ======= =======
TOTAL DISCONTINUED
OPERATIONS:
Net sales.............. $68,650 $67,796 $87,312
======= ======= =======
Income before income
taxes.................. $12,278 $11,943 $15,794
Provisions for income
taxes.................. 4,160 4,291 5,807
------- ------- -------
Net income............. $ 8,118 $ 7,652 $ 9,987
======= ======= =======
</TABLE>
F-10
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. OTHER BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
INVENTORIES
Finished goods and parts.......................... $ 23,410 $ 25,984
Work in process................................... 18,631 23,289
Raw materials and purchased parts................. 44,490 44,986
--------- ---------
$ 86,531 $ 94,259
========= =========
PROPERTY, PLANT AND EQUIPMENT, at cost
Land.............................................. $ 8,645 $ 7,919
Buildings......................................... 86,607 82,637
Machinery and equipment........................... 320,816 287,858
--------- ---------
416,068 378,414
Less accumulated depreciation..................... (241,260) (218,226)
--------- ---------
$ 174,808 $ 160,188
========= =========
INTANGIBLES, INVESTMENTS AND OTHER ASSETS
Intangibles, at cost:
Patents......................................... $ 20,698 $ 20,993
Goodwill........................................ 30,662 30,598
Other acquired intangibles...................... 47,777 47,955
Less accumulated amortization................... (60,546) (54,499)
--------- ---------
38,591 45,047
Investments....................................... 36,437 30,106
Other............................................. 20,020 19,265
--------- ---------
$ 95,048 $ 94,418
========= =========
ACCRUED LIABILITIES
Accrued employee compensation and benefits........ $ 22,548 $ 21,504
Restructuring..................................... 5,556 11,208
Other............................................. 34,620 33,821
--------- ---------
$ 62,724 $ 66,533
========= =========
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
ALLOWANCES FOR POSSIBLE LOSSES ON
ACCOUNTS AND NOTES RECEIVABLE
Balance at beginning of year................... $ 6,358 $3,906 $2,377
Additions charged to expense................... 150 2,708 1,597
Recoveries credited to allowance............... 38 6 110
Write-offs..................................... (1,212) (417) (213)
Currency translation adjustment and other...... 41 155 35
------- ------ ------
Balance at end of year......................... $ 5,375 $6,358 $3,906
======= ====== ======
</TABLE>
F-11
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT
At December 31, 1996 and 1995, long-term debt consisted primarily of $150
million in 9 3/4% Senior Notes due 2004. The annual future payments required
by the terms of the long-term debt for the years 1997 through 2001 are not
significant.
In March 1994, AMETEK entered into a $250 million senior secured credit
agreement with a group of banks led by The Chase Manhattan Bank, N.A. The net
proceeds from these debt issues, together with available cash were used, among
other things, to finance early retirement of debt in March 1994. In October
1994, AMETEK amended the agreement by reducing the total credit facility from
$250 million to $200 million. In connection with this early retirement of
debt, New Ametek recorded a first quarter 1994 extraordinary charge of $11.8
million (net of tax benefits of $7.6 million), or $.32 per share, for the
prepayment premiums paid and the write-off of related deferred debt issuance
costs.
On August 2, 1995, AMETEK replaced its $200 million secured bank credit
facility with a new Bank Credit Agreement with a group of banks led by The
Chase Manhattan Bank, N.A. The five-year revolving credit facility was
unsecured, and provided up to $195 million in revolving credit loans, with
scheduled reductions in the total credit facility to $150 million by August 1,
2000. In connection with the August 2, 1995 Bank Credit Agreement, New Ametek
recorded a third quarter 1995 noncash extraordinary charge of $2.7 million
(net of tax benefits of $1.7 million), or $.08 per share, for the write-off of
deferred debt issuance costs related to the previous bank credit agreement.
On September 12, 1996, AMETEK amended the $195 million Bank Credit
Agreement, extending the maturity of the facility by one year, to 2001. In
addition, the amended agreement provides somewhat greater financial
flexibility, and slightly lower interest rates and fees on the entire credit
facility.
Among other things, the agreements place certain restrictions on cash
payments, including the payment of cash dividends. At December 31, 1996,
retained earnings of approximately $12 million were not subject to the
dividend limitation.
Outstanding loans under the credit facility are subject to interest rate
swaps and cap agreements based on the combination of a fixed rate and the
London Interbank Offered Rate (LIBOR), plus a negotiated spread over LIBOR.
Under the new Bank Credit Agreement, at December 31, 1996, New Ametek had
$18.1 million in revolving credit loans outstanding at a blended interest rate
of 7.4%.
Foreign subsidiaries had lines of credit with European banks of
approximately $22.1 million, of which $8.4 million was unused at December 31,
1996. The revolving credit loans, along with the foreign bank borrowings
totaling $13.7 million at December 31, 1996, are classified on the
accompanying balance sheet as short-term borrowings. The weighted average
interest rate on all short-term borrowings outstanding at December 31, 1996
was 8.6%. New Ametek also has outstanding letters of credit totaling $13.6
million at December 31, 1996.
7. STOCKHOLDERS' EQUITY
In June 1996, AMETEK announced a new $50 million stock repurchase
authorization, and rescinded the unused portion ($5.8 million) of the previous
authorizations, which had totaled $175 million. During 1996, AMETEK
repurchased 698,000 shares of its common stock at an aggregate cost of $12.5
million. As of December 31, 1996, shares repurchased since the inception of
the stock repurchase programs in March 1994 totaled 12.2 million shares at an
aggregate cost of $171 million. At December 31, 1996, $48.2 million was
unexpended under the outstanding stock repurchase authorization.
F-12
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
All of the repurchased shares have been retired as required by the loan
agreements, and such retired shares are considered authorized but unissued
shares. At December 31, 1996, shares outstanding totaled 32,705,478 shares,
compared to 32,857,523 shares outstanding at December 31, 1995.
In 1995, AMETEK adopted a Stock Incentive Plan, providing for the grant of
up to 2,200,000 shares of common stock to eligible employees and nonemployee
Directors. Under the Stock Incentive Plan, the awards may include the grant of
stock options, stock appreciation rights, restricted stock awards, and phantom
stock awards.
In certain circumstances, AMETEK provides, and New Ametek will continue to
provide, for restricted stock awards of its common stock to eligible employees
and nonemployee Directors at such cost to the recipient as the Stock Incentive
Plan Committee of the Board of Directors may determine. Such shares are issued
subject to certain conditions, with transfer and other restrictions as
prescribed by the Plan. No restricted stock was awarded during 1996 or 1995.
In 1994, AMETEK awarded 20,000 shares of restricted common stock to certain
nonemployee Directors under the Plan. Upon issuance of restricted stock,
unearned compensation, equivalent to the excess of the market value of the
shares awarded over the price paid by the recipient at the date of the grant,
is charged to stockholders' equity and is amortized to expense over the
periods until the restrictions lapse. Amortization expense in 1996, 1995, and
1994 for awards under the Plan was not significant.
As of January 1, 1996, AMETEK adopted the disclosure provisions of Financial
Accounting Standards Board Statement No. 123, Accounting for Stock-Based
Compensation. As permitted by Statement No. 123, AMETEK elected, and New
Ametek will continue to elect, to continue to account for stock options under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, whereby compensation expense is not recognized for fixed-price
stock options when the exercise price of the employee stock option is equal to
the market price of the underlying stock on the date of grant.
Total compensation expense recognized for all stock-based employee
compensation awards for 1996, 1995 and 1994 was not significant. Had
compensation expense for the stock option plans been determined by Statement
No. 123, the pro forma effects on New Ametek's net income and earnings per
share for the years ended December 31, 1996 and 1995 would not have been
materially different from the amounts reported. The effects of applying
Statement No. 123 in 1996 for providing pro forma compensation expense
disclosure may not be representative of the effects on reported net income, or
earnings per share in future years.
Options held by employees of the Water Filtration Business on December 31,
1996 to purchase a total of 113,140 shares of AMETEK common stock at prices
ranging from $11.69 to $19.13 per share will be amended to provide for the
following for a period ending three days prior to the Merger. The options may
be fully exercised, or such employees may elect to receive a cash amount equal
to the spread between the aggregate average market price of AMETEK's common
stock over the aggregate exercise price of the options. In addition, any such
holder of an incentive stock option will be entitled to a cash payment of 20%
of the taxable gain from such exercise or surrender.
As a result of the Merger, all options outstanding (other than those held by
employees of the Water Filtration Business) will be assumed by New Ametek and
will be amended by adjusting the option price and the number of shares to
maintain the inherent economic value and vesting and term provisions of the
options that existed prior to the Merger.
At December 31, 1996, 3,786,623 (4,402,164 in 1995) shares of common stock
were reserved under all of AMETEK's incentive and nonqualified stock plans.
The options are exercisable at prices not less than market
F-13
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
price value on dates of grant, and the options become exercisable over four to
ten-year periods from such dates. New Ametek also has outstanding 32,500
(48,500 in 1995) stock appreciation rights exercisable for cash and/or shares
of common stock when the related option is exercised. Subject to certain
limitations, each right relates to the excess of the market value of the
common stock over the exercise price of the related option. Charges and
credits, immaterial in amount, are made to income for these rights and certain
related options.
A summary of the stock option activity and related information for the years
ended December 31 follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------- ------------------------ -----------------------
PRICE PRICE Price
SHARES RANGE SHARES RANGE SHARES Range
--------- ------------- --------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 2,714,540 $11.69-$17.69 2,689,961 $8.94-$16.50 2,046,225 $8.94-$16.50
Granted................. 705,150 17.38-19.56 610,900 17.00-17.69 1,152,600 12.31-15.19
Exercised............... (603,975) 11.69-17.50 (542,626) 8.94-15.44 (302,146) 8.94-15.44
Canceled................ (48,413) 12.19-19.19 (43,695) 12.19-17.50 (206,718) 12.19-15.44
--------- ------------- --------- ------------- --------- ------------
Outstanding at end of
year ................... 2,767,302 * 11.69-19.56* 2,714,540 11.69-17.69 2,689,961 8.94-16.50
--------- ------------- --------- ------------- --------- ------------
Exercisable at end of
year.................... 1,154,663 $11.69-$17.69 1,203,097 $11.69-$16.31 1,102,064 $8.94-$16.50
========= ============= ========= ============= ========= ============
</TABLE>
- --------
* Expiring from 1997 through 2006.
The weighted average fair value of options granted during 1996 and 1995 was
$4.98 and $5.08, respectively. The fair value for the option grants was
estimated on the date of grant by using the Black-Scholes option pricing model
with the following weighted-average assumptions used for grants in 1996 and
1995, respectively: a risk-free interest rate of 5.94% for each year, dividend
yields of 1.4% for each year, expected volatility of the market price of the
common stock of 22.8% and 25.5%; and a weighted average expected life of
options granted of five years.
8. LEASES
Minimum aggregate rental commitments under noncancelable leases in effect at
December 31, 1996 (principally for production and administrative facilities
and equipment) amounted to $10.1 million consisting of annual payments of $2.9
million in 1997, $2.6 million in 1998, and decreasing amounts thereafter.
Rental expense was $5.5 million in 1996, $4.7 million in 1995 and $4.2 million
in 1994.
F-14
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES
The components of income from continuing operations before income taxes and
the details of the provisions for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income from continuing operations before income taxes:
Domestic............................................. $60,535 $40,874 $31,369
Foreign.............................................. 5,847 17,731 14,644
------- ------- -------
Total............................................ $66,382 $58,605 $46,013
======= ======= =======
Provision for income taxes:
Current:
Federal............................................ $16,028 $ 9,243 $ 7,133
Foreign............................................ 2,564 7,374 5,860
State.............................................. 2,283 1,173 50
------- ------- -------
Total current.................................... 20,875 17,790 13,043
------- ------- -------
Deferred:
Federal............................................ 247 1,862 1,155
Foreign............................................ 1,495 1,410 2,209
State.............................................. 693 659 602
------- ------- -------
Total deferred................................... 2,435 3,931 3,966
------- ------- -------
Total provision.................................. $23,310 $21,721 $17,009
======= ======= =======
</TABLE>
Significant components of New Ametek's deferred tax (asset) liability as of
December 31, are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current deferred tax asset:
Reserves not currently deductible.......................... $(9,095) $(9,743)
Other...................................................... (1,912) (1,996)
------- -------
Net current deferred tax asset........................... (11,007) (11,739)
------- -------
Long-term deferred tax (asset) liability:
Difference in basis of property and accelerated
depreciation.............................................. 21,779 19,955
Purchased tax benefits..................................... 10,110 13,268
Reserves not currently deductible.......................... (11,304) (13,741)
Other...................................................... 12,908 10,789
------- -------
Net long-term deferred tax liability..................... 33,493 30,271
------- -------
Net deferred tax liability............................... $22,486 $18,532
======= =======
</TABLE>
F-15
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The effective rate of the provision for income taxes reconciles to the
statutory rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory rate............................................. 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit...... 2.9 2.0 0.9
Foreign Sales Corporation and other tax credits............ (3.1) (2.9) (3.8)
Effect of foreign operations............................... 1.3 4.7 6.0
Other...................................................... (1.0) (1.7) (1.1)
---- ---- ----
35.1% 37.1% 37.0%
==== ==== ====
</TABLE>
Undistributed earnings of the foreign subsidiaries amounted to approximately
$32.6 million at December 31, 1996. Those earnings are considered to be
indefinitely reinvested and, accordingly, no provision for U.S. deferred taxes
has been made. Upon distribution of those earnings to the U.S., New Ametek
would be subject to U.S. income taxes (subject to a reduction for foreign tax
credits) and withholding taxes payable to the various foreign countries.
Determination of the amount of unrecognized deferred income tax liability is
not practicable.
10. RETIREMENT AND PENSION PLANS
New Ametek maintains noncontributory defined benefit retirement and pension
plans. Benefits for eligible United States salaried and hourly employees are
funded through trusts established in conjunction with the plans. Employees of
certain foreign operations participate in various local plans that in the
aggregate are not significant.
New Ametek also has nonqualified unfunded retirement plans for its Directors
and certain retired employees, as well as contractual arrangements with a
current and certain former executives that provide for supplemental pension
benefits in excess of those provided by the primary pension plan. Fifty
percent of the projected benefit obligation of the supplemental pension
benefit arrangements with the executives has been funded by grants of
restricted shares of the common stock. The remaining 50% is unfunded. New
Ametek is providing for those arrangements by charges to earnings (included in
net pension expense below) over the periods to age 65 of the participants.
New Ametek's funding policy with respect to its qualified plans is to
contribute amounts determined annually on an actuarial basis that provide for
current and future benefits in accordance with the funding requirements of
federal law and regulations. Assets of funded benefit plans are invested in a
variety of equity and debt instruments and in pooled temporary funds, as well
as New Ametek's common stock, not material to total plan assets.
In connection with the Merger of the Water Filtration Business, New Ametek
will transfer the assets and the accumulated benefit obligations of the
defined benefit pension plan for hourly employees of their U.S. water
filtration operation to Culligan, and Culligan will become the sole sponsor of
the pension plan for such hourly employees after the Merger, along with
pension benefits for employees of the Water Filtration Business's foreign
operations. New Ametek will retain liabilities with respect to pension
benefits accrued as of the date of the Merger for U.S. salaried employees of
the Water Filtration Business. Such benefits will be payable when the
employees become entitled to a pension benefit under the Culligan pension
plan. Pension assets sufficient to fund this obligation will remain in New
Ametek's company-wide salaried pension plan.
F-16
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net pension expenses, excluding plan administrative expenses, consists of the
following components:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost for benefits earned during the
period....................................... $ 6,093 $ 5,807 $ 6,483
Interest cost on projected benefit
obligation................................... 15,978 15,159 14,502
Actual return on plan assets................. (21,419) (23,339) (17,628)
Net amortization and deferrals............... 3,450 6,888 248
-------- -------- --------
Net pension expense.......................... $ 4,102 $ 4,515 $ 3,605
======== ======== ========
</TABLE>
In addition to pension expense shown in the table above, New Ametek also
incurs other pension-related expenses, including plan administrative expenses
prior to 1996. Such additional expense for the past three years was not
material in amount.
Net pension expense reflects an expected long-term rate of return on plan
assets of 9 1/4% for 1996, 1995, and 1994. The actual return has been adjusted
to defer gains and losses that differ from the expected returns. The present
value of projected benefit obligations was determined by using an assumed
discount rate of 7 3/4% for 1996, 7 1/2% for 1995, and 7 3/4% for 1994. The
assumed rate of compensation increase used in determining the present value of
projected benefit obligations was 5% for 1996, and 1995, and 5 1/4% for 1994.
For pension plans with accumulated benefits in excess of assets at December
31, 1996, the balance sheet reflects an additional long-term pension liability
of $7.0 million ($11.0 million in 1995), a long-term intangible asset of $3.3
million ($4.6 million in 1995), and a charge to stockholders' equity (net of
deferred taxes) of $2.5 million in 1996, and $4.3 million in 1995 and 1994.
The charge to stockholders' equity represents the excess of the additional
long-term liability over unrecognized prior service cost. No additional
balance sheet recognition is given to pension plans with assets in excess of
accumulated benefits.
The following table sets forth the funded status of the plans:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------- -----------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit obligation.... $138,083 $65,235 $115,129 $83,996
======== ======= ======== =======
Accumulated benefit
obligation................... $143,946 $70,859 $118,348 $90,097
======== ======= ======== =======
Projected benefit obligation. $156,626 $70,940 $130,038 $92,564
Plan assets at fair value...... 164,038 60,916 132,370 74,831
-------- ------- -------- -------
Plan assets in excess (less
than) projected benefit
obligation.................... 7,412 (10,024) 2,332 (17,733)
Unrecognized prior service
cost........................... 1,302 3,770 1,479 3,940
Unrecognized net loss.......... 5,091 2,384 6,016 8,648
Unrecognized net transition
(asset) obligation, net of
amortization.................. (3,641) 546 (4,207) 591
-------- ------- -------- -------
Prepaid (accrued) pension
expense........................ $ 10,164 $(3,324) $ 5,620 $(4,554)
======== ======= ======== =======
</TABLE>
F-17
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
New Ametek provides limited postretirement benefits other than pensions for
certain retirees and a small number of employees. Benefits under these
arrangements are not significant. New Ametek also provides limited
postemployment benefits for former or inactive employees after employment but
before retirement. Those benefits, which are not significant in amount, have
always been accounted for on the accrual basis, thereby meeting the current
accounting requirements for postemployment benefits.
11. FINANCIAL INSTRUMENTS
AMETEK had, and New Ametek will continue to have, only limited involvement
with derivative financial instruments and does not use them for trading
purposes. Such instruments are generally used to manage well-defined interest
rate risks and to hedge firm commitments related to certain export sales
denominated in a foreign currency.
Interest rate swap and cap agreements are used to reduce the potential impact
of increases in interest rates on New Ametek's floating-rate revolving credit
loans. Accordingly, AMETEK has entered, and New Ametek will enter, into those
agreements to effectively convert floating-rate loans to fixed-rate loans and
to cap certain interest rates that are indexed to LIBOR rates to reduce the
risk of incurring higher interest costs due to rising interest rates. At
December 31, 1996, AMETEK was party to one interest rate swap agreement with a
notional amount of $19.4 million, which decreases by $2.2 million semiannually
through the May 1997 termination date. The interest rate cap agreement entitles
New Ametek to receive amounts from counterparties on a quarterly basis if
specified market interest rates rise above fixed cap rates. The fair value of
both agreements at December 31, 1996 and 1995 was not significant.
Cross currency and interest rate agreements are in effect to hedge a portion
of New Ametek's net investment in two of its smaller foreign subsidiaries,
whereby New Ametek agreed to swap certain European currencies for an equivalent
amount of U.S. dollars totaling $7.1 million. The agreements provide for New
Ametek to make floating interest rate payments while receiving interest at
fixed and floating rates. The swap agreements will terminate with settlement of
the contracts in 1997. At December 31, 1996 and 1995, the fair value of the
swaps was not significant.
Forward currency contracts are entered into to hedge certain firm export
sales commitments denominated in deutsche marks, and in 1996, certain firm
purchase commitments denominated in Japanese yen. The purpose of such hedging
activities is to protect New Ametek from the risk that the eventual net cash
dollar inflows and outflows resulting from the sale of products to foreign
customers and from the purchase of parts and materials from foreign suppliers,
respectively, will be adversely affected by changes in exchange rates. At
December 31, 1996 and 1995, the notional values of the contracts were $1.1
million and $6.4 million, respectively. The terms of the currency contracts are
dependent on the firm commitment and generally do not exceed one year. Deferred
gains and losses on the contracts at December 31, 1996 and 1995 were not
significant and are recognized in operations as the related sales and purchases
occur.
The estimated fair values of New Ametek's other financial instruments are
compared below to the recorded amounts at December 31, 1996 and 1995. Cash,
cash equivalents, and marketable securities are recorded at fair value at
December 31, 1996 and 1995 in the accompanying balance sheet.
F-18
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
(IN THOUSANDS)
ASSET (LIABILITY)
DECEMBER 31, 1996 DECEMBER 31, 1995
-------------------- --------------------
RECORDED FAIR RECORDED FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Fixed income and equity invest-
ments............................. $ 33,933 $ 33,933 $ 30,106 $ 30,106
Short-term borrowings.............. $ (31,787) $ (31,787) $ (56,143) $ (56,143)
Long-term debt (including current
portion).......................... $(150,391) $(160,000) $(150,661) $(167,000)
</TABLE>
The fair values of fixed income and equity investments are based on quoted
market prices. The fair value of short-term borrowings is based on the
carrying value at year end. The fair value of New Ametek's long-term debt,
which consists primarily of publicly traded notes, is based on the quoted
market price for such notes and borrowing rates currently available to New
Ametek for loans with similar terms and maturities. The fair value of forward
currency contracts, which are not reflected in the financial statements, is
based on quoted market prices for comparable contracts, and is not material.
12. ADDITIONAL INCOME STATEMENT AND CASH FLOW INFORMATION
Included in other income is interest and other investment income of $4.7
million, $2.4 million, and $5.0 million for 1996, 1995, and 1994,
respectively. Income taxes paid in 1996, 1995, and 1994 were $22.9 million,
$30.3 million, and $13.6 million, respectively. Cash paid for interest for
each of the three years approximated interest expense.
13. SEGMENT AND GEOGRAPHIC INFORMATION
AMETEK currently classifies its operations into three business segments:
Electromechanical, Precision Instruments, and Industrial Materials.
The Electromechanical Group produces motor blower systems for manufacturers
of floor-care appliances and produces fractional horsepower motors and motors
blowers for computer, business machine, medical equipment, and high-efficiency
heating equipment producers. Sales of fractional horsepower electric motors
and blowers represented 47.0% in 1996, 47.6% in 1995, and 47.2% in 1994 of New
Ametek's consolidated net sales.
The Precision Instruments Group produces aircraft cockpit instruments and
displays, in addition to pressure, temperature, flow, and liquid level sensors
for aircraft and jet engine manufacturers and for airlines, as well as
airborne electronics systems that monitor and record flight and engine data.
The Precision Instruments Group also produces instruments and complete
instrument panels for heavy truck manufacturers and heavy construction
vehicles; process monitoring and display systems; combustion gas analysis;
moisture and emissions monitoring systems; force and speed measuring
instruments; air and noise monitors; pressure and temperature calibrators; and
pressure-indicating and digital manometers.
The Industrial Materials Group produces high-temperature-resistant materials
and textiles; corrosion-resistant heat exchangers; tanks and piping for
process systems; high-purity metals and alloys in powder, strip and wire form
for high-performance aircraft, automotive and electronics requirements; and
thermoplastic compounds and concentrates for automotive, appliance, and
telecommunication applications.
F-19
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
BUSINESS SEGMENT FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales(/1/)
Electromechanical.............................. $375,633 $372,038 $340,358
Precision Instruments.......................... 308,737 301,440 280,638
Industrial Materials........................... 115,641 108,369 99,656
-------- -------- --------
Total consolidated......................... $800,011 $781,847 $720,652
======== ======== ========
Operating income and income before income taxes
Operating income:
Electromechanical............................ $ 44,238 $ 48,858 $ 46,203
Precision Instruments........................ 37,253 34,803 29,189
Industrial Materials......................... 22,339 16,854 11,313
-------- -------- --------
Total segments operating income(/2/)....... 103,830 100,515 86,705
Corporate administrative and other expenses.. (20,987) (21,836) (23,146)
-------- -------- --------
Consolidated operating income.................. 82,843 78,679 63,559
Interest and other expenses, net............... (16,461) (20,074) (17,546)
-------- -------- --------
Consolidated income from continuing operations
before income taxes........................... $ 66,382 $ 58,605 $ 46,013
======== ======== ========
Identifiable Assets:
Electromechanical.............................. $217,793 $196,805 $190,339
Precision Instruments.......................... 166,286 180,837 142,403
Industrial Materials........................... 44,070 39,700 46,347
-------- -------- --------
Total segments............................. 428,149 417,342 379,089
Corporate...................................... 71,019 72,343 75,833
-------- -------- --------
Total continuing operations................ 499,168 489,685 454,922
Net assets of discontinued operations.......... 29,707 29,868 32,450
-------- -------- --------
Total consolidated......................... $528,875 $519,553 $487,372
======== ======== ========
Additions to property, plant and equipment(/3/)
Electromechanical.............................. $ 27,881 $ 19,891 $ 11,922
Precision Instruments.......................... 7,293 10,417 6,633
Industrial Materials........................... 3,608 3,163 1,639
-------- -------- --------
Total segments............................. 38,782 33,471 20,194
Corporate...................................... 294 583 170
-------- -------- --------
Total consolidated......................... $ 39,076 $ 34,054 $ 20,364
======== ======== ========
Depreciation and amortization
Electromechanical.............................. $ 14,967 $ 13,454 $ 12,430
Precision Instruments.......................... 14,270 15,915 15,253
Industrial Materials........................... 3,164 3,238 6,011
-------- -------- --------
Total segments............................. 32,401 32,607 33,694
Corporate...................................... 258 197 150
-------- -------- --------
Total consolidated......................... $ 32,659 $ 32,804 $ 33,844
======== ======== ========
</TABLE>
- --------
(1) After elimination of intra and inter-segment sales, which are not
significant in amount. Such sales are generally based on prevailing market
prices.
(2) Segment operating income represents sales less all direct costs and
expenses (including certain administrative and other expenses) applicable
to each segment, but does not include an allocation of interest expense.
(3) Includes $4.7 million in 1995 from an acquired business.
F-20
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
GEOGRAPHIC AREAS
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
-------------
<S> <C> <C> <C>
Net sales (based on destination)
United States.............................. $525,752 $511,831 $492,473
-------- -------- --------
International (including United States
exports shown below):
Europe................................... 176,828 195,853 166,517
Asia..................................... 45,020 32,395 22,976
Canada................................... 32,959 29,265 24,017
Other.................................... 19,452 12,503 14,669
-------- -------- --------
Total international........................ 274,259 270,016 228,179
-------- -------- --------
Total consolidated..................... $800,011 $781,847 $720,652
======== ======== ========
Income (loss) before income taxes
United States.............................. $ 95,726 $ 82,215 $ 70,690
International:
Europe................................... 9,732 18,459 16,166
Asia, Canada, and other.................. (1,628)(a) (159) (151)
Corporate administrative and other
expenses................................... (20,987) (21,836) (23,146)
Interest and other expenses, net........... (16,461) (20,074) (17,546)
-------- -------- --------
Total consolidated..................... $ 66,382 $ 58,605 $ 46,013
======== ======== ========
Identifiable Assets
United States.............................. $303,764 $310,390 $288,617
International:
Europe................................... 111,012 98,996 90,370
Asia, Canada, and other (principally
Asia).................................... 13,373 7,956 102
Corporate.................................. 71,019 72,343 75,833
-------- -------- --------
Total continuing operations............ 499,168 489,685 454,922
-------- -------- --------
Net assets of discontinued operations...... 29,707 29,868 32,450
-------- -------- --------
Total consolidated..................... $528,875 $519,553 $487,372
======== ======== ========
United States export sales (reported in
international sales above)
Europe..................................... $ 54,737 $ 57,846 $ 48,242
Asia....................................... 41,313 32,395 22,973
Canada..................................... 32,957 29,265 24,017
Other...................................... 12,319 11,590 14,110
-------- -------- --------
Total consolidated..................... $141,326 $131,096 $109,342
======== ======== ========
</TABLE>
- --------
(a) Includes start-up costs for operations in Mexico.
F-21
<PAGE>
NEW AMETEK
(AMETEK AEROSPACE PRODUCTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
1996
Net sales................... $209,133 $205,963 $194,886 $190,029 $800,011
Operating income............ $ 19,871 $ 20,454 $ 20,609 $ 21,909 $ 82,843
Income from continuing
operations.................. $ 9,896 $ 10,581 $ 10,855 $ 11,740 $ 43,072
Net income.................. $ 12,216 $ 12,967 $ 12,956 $ 13,051 $ 51,190(c)
Earnings per share: (a)
Income from continuing
operations................ $ .30 $ .32 $ .33 $ .36 $ 1.32
Net income................ $ .37 $ .40 $ .40 $ .40 $ 1.57(c)
Dividends paid per share.. $ .06 $ .06 $ .06 $ .06 $ .24
1995
Net sales................... $196,974 $205,198 $190,578 $189,097 $781,847
Operating income............ $ 18,524 $ 22,111 $ 18,857 $ 19,187 $ 78,679
Income from continuing
operations.................. $ 8,174 $ 10,439 $ 9,126 $ 9,145 $ 36,884
Net income.................. $ 10,662 $ 22,615 $ 8,154(b) $ 10,849 $ 52,280(c)
Earnings per share: (a)
Income from continuing
operations................ $ .24 $ .31 $ .28 $ .28 $ 1.10
Net income................ $ .31 $ .68 $ .25(b) $ .33 $ 1.56(c)
Dividends paid per share.. $ .06 $ .06 $ .06 $ .06 $ .24
</TABLE>
- --------
(a) The sum of quarterly earnings per share will not equal total year earnings
per share due to the effect of New Ametek purchasing shares of its
outstanding common stock.
(b) Includes an extraordinary loss of $2.7 million ($.08 per share) associated
with debt agreements.
(c) Amounts for 1996 and 1995 include income from the Water Filtration
Business pending disposition. Amounts for the first and second quarters of
1995 also include income from the discontinued Microfoam Division and a
second quarter gain on its sale of $10.4 million ($.32 per share) (see Note
4).
F-22
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the DGCL empowers a corporation, subject to certain
limitations, to indemnify its directors and officers against expenses
(including attorneys' fees, judgments, fines and certain settlements) actually
and reasonably incurred by them in connection with any suit or proceeding to
which they are a party so long as they acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, so long
as they had no reasonable cause to believe their conduct was unlawful.
The Culligan Certificate provides that Culligan will indemnify the directors
and officers of Culligan to the fullest extent permitted by Delaware law.
In addition, the Culligan By-Laws provide that Culligan will indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceedings, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of Culligan), by reason of the fact that he is or was a director or
officer of Culligan, or is or was serving at the request of Culligan as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of Culligan
and, with respect to any criminal action or proceeding, had no reasonable
cause to believe his conduct was unlawful. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction or upon plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of Culligan and, with
respect to any criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
The Culligan By-Laws provide that Culligan will indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of Culligan to procure a
judgment in its favor by reason of the fact that he is or was a director or
officer of Culligan or is or was serving at the request of Culligan as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of Culligan; except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to Culligan unless and only to the
extent that the Court of Chancery of the State of Delaware or the court in
which action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery of the State of Delaware or such other
court shall deem proper.
The Culligan By-Laws provide that any indemnification under the above two
paragraphs (unless ordered by a court) will be made by Culligan only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in the above
two paragraphs. Such determination shall be made (1) by the Culligan Board by
a majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, even though less than a quorum, or (2) if
there are such directors or if such directors so direct, by independent legal
counsel in a written opinion, or (3) by the stockholders of Culligan.
II-1
<PAGE>
The Culligan By-Laws provide that to the extent that a director or officer
of Culligan has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to above, or in defense of any claim,
issue or matter therein, Culligan will indemnify him against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
The Culligan By-Laws further provide that expenses incurred by a director or
officer in defending or investigating a threatened or pending action, suit or
proceeding will be paid by Culligan in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of the director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by Culligan as authorized
in the Culligan By-Laws. Such expenses incurred by other employees and agents
may be so paid on such terms and conditions, if any, as Culligan Board deems
appropriate.
The Culligan By-Laws provide that the indemnification and advancement of
expenses provided by, or granted pursuant to, the Culligan By-Laws shall not
be deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office.
As permitted by the DGCL, the Culligan Certificate contains a provision
limiting the liability of directors for breach of fiduciary duty to Culligan
or its stockholders except for liability (i) for breach of the director's duty
of loyalty to Culligan or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or knowing violation of
law, (iii) under Section 174 of the DGCL or (iv) for any transaction from
which the director derived an improper personal benefit.
Culligan carries policies of insurance which cover the individual directors
and officers of Culligan and its subsidiaries for legal liability and which
would pay on behalf of Culligan for expenses of indemnification of directors
and officers in accordance with the Culligan Certificate and Culligan By-Laws.
Culligan has entered into indemnification agreements with each of Culligan's
directors and officers. The indemnification agreements require, among other
things, Culligan to indemnify the officers and directors to the fullest extent
permitted by law, and to advance such directors and officers all related
expenses, subject to reimbursement, if it is subsequently determined that
indemnification is not permitted. Culligan will also indemnify and advance all
expenses incurred by such directors and officers seeking to enforce their
rights under the indemnification agreements, and cover directors and officers
under Culligan directors' and officers' liability insurance. Although such
indemnification agreements offer substantially the same scope of coverage
afforded by the Culligan Certificate and Culligan By-Laws, they provide
greater assurance to directors and officers that indemnification will be
available because, as a contract, it cannot be modified unilaterally in the
future by the Culligan Board or by Culligan stockholders to eliminate the
rights provided therein.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) A list of exhibits included as part of this Registration Statement is
set forth in the Exhibit Index which immediately precedes such exhibits and is
hereby incorporated by reference herein.
ITEM 22. UNDERTAKINGS.
Culligan (hereinafter the "Registrant") hereby undertakes as follows:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in
II-2
<PAGE>
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the Registration
Statement;
(2) that, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering;
(4) that for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof;
(5) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter with
the meaning of Rule 145(c), such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(6) that every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to this Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offering therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof;
(7) insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referred to Item 20
above, or otherwise, the Registrant has been advised that in the opinion of
the Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling persons of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue;
II-3
<PAGE>
(8) to respond to requests for information that is incorporated by
reference in the Registration Statement pursuant to Item 4, 10(b), 11 or 13
of Form S-4, within one business day of receipt of such request and to send
the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to
the effective date of this Registration Statement through the date of
responding to the request; and
(9) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Culligan has duly caused this Registration Statement, or an amendment thereto,
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Northbrook, State of Illinois, on the 12th day of May, 1997.
CULLIGAN WATER TECHNOLOGIES, INC.
/s/ Edward A. Christensen
By _________________________________
Name: Edward A. Christensen
Title: Vice President, General
Counsel and Secretary
We, the undersigned officers and directors of Culligan Water Technologies,
Inc., hereby severally constitute Douglas A. Pertz and Edward A. Christensen
and each of them singly, our true and lawful attorneys with full power to
them, and each of them singly, to sign for us and in our names, in the
capacities indicated below, any and all amendments, including post-effective
amendments, to this Registration Statement, and any additional registration
statements pursuant to Rule 462 under the Securities Act of 1933, as amended,
and generally do all such things in our name and on our behalf in such
capacities to enable Culligan Water Technologies, Inc. to comply with the
applicable provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission, and we hereby ratify
and confirm our signatures as they may be signed by our said attorneys, or
either of them, to any and all such amendments.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement, or an amendment thereto, has been signed below by the
following persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ Douglas A. Pertz President, Chief May 12, 1997
- ------------------------------------- Executive Officer
DOUGLAS A. PERTZ and Director
(Principal
Executive Officer)
/s/ Michael E. Salvati Vice President May 12, 1997
- ------------------------------------- Finance and Chief
MICHAEL E. SALVATI Financial Officer
(Principal
Financial Officer
and Principal
Accounting Officer)
/s/ Andrew Africk Director May 12, 1997
- -------------------------------------
ANDREW AFRICK
/s/ R. Theodore Ammon Director May 12, 1997
- -------------------------------------
R. THEODORE AMMON
II-5
<PAGE>
SIGNATURES TITLE DATE
/s/ Bernard Attal Director May 12, 1997
- -------------------------------------
BERNARD ATTAL
/s/ Leon D. Black Director May 12, 1997
- -------------------------------------
LEON D. BLACK
/s/ Robert H. Falk Director May 12, 1997
- -------------------------------------
ROBERT H. FALK
/s/ Mark H. Rachesky Director May 12, 1997
- -------------------------------------
MARK H. RACHESKY
/s/ Robert L. Rosen Director May 12, 1997
- -------------------------------------
ROBERT L. ROSEN
/s/ Mark J. Rowan Director May 12, 1997
- -------------------------------------
MARK J. ROWAN
/s/ Stephen Solarz Director May 12, 1997
- -------------------------------------
STEPHEN SOLARZ
/s/ Carl Spielvogel Director May 12, 1997
- -------------------------------------
CARL SPIELVOGEL
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
2.1 Agreement and Plan of Merger and Reorganization, dated as of
February 5, 1997, by and among the Registrant, Culligan Water
Company, Inc., Ametek, Inc. and Ametek Aerospace Products, Inc.
(included as Appendix A to Part I of this Registration
Statement).
3.1 Amended and Restated Certificate of Incorporation of the
Registrant, as amended.*
3.2 Amended and Restated By-laws of the Registrant, as amended and
restated.*
4.1 Rights Agreement, dated as of September 13, 1996, between the
Registrant and The First National Bank of Boston, as Rights
Agent.+
**5.1 Opinion and Consent of Skadden, Arps, Slate, Meagher & Flom LLP
with respect to the legality of the securities to be issued in
the Merger.
10.1 Credit Agreement dated as of July 14, 1995 (the "Credit
Agreement") among the Registrant, Culligan International
Culligan ("Culligan International") and the other Borrowers as
defined therein, the financial institutions named therein as
Lenders (the "Lenders"), Credit Lyonnaise, New York Branch and
Wells Fargo Bank, National Association, as Co-Agents for the
Lenders, and The First National Bank of Boston, as Managing
Agent for the Lenders (the "Managing Agent").*
10.2 Stock Pledge Agreement dated as of July 14, 1995 between
Culligan International and the Managing Agent for the benefit
of the Lenders.*
10.3 Stock Pledge Agreement dated as of July 14, 1995 between the
Registrant and the Managing Agent for the benefit of the
Lenders.*
10.4 International Pledge Agreement dated as of July 14, 1995 among
the Pledgors as defined therein and the Managing Agent for the
benefit of the Lenders.*
10.5 Note Pledge Agreement dated as of July 14, 1995 between
Culligan International and the Managing Agent for the benefit
of the Lenders.*
10.6 Form of the Registrant's 1995 Stock Option and Incentive Award
Plan.*
10.7 Employment Agreement, dated as of December 15, 1994, between
Culligan International and Douglas A. Pertz.*
10.8 Tax Sharing Agreement, dated as of July 14, 1995, between
Samsonite and the Registrant.*
10.9 Culligan Supplemental Retirement Plan, dated July 1, 1991.*
10.10 Amended and Restated Registration Rights Agreement, dated
November 21, 1995.+
10.11 Form of Indemnification Agreement entered into by the
Registrant with each of its officers and directors.*
10.12 Amendment No. 1, dated as of January 29, 1996, to the Credit
Agreement.+
10.13 Amendment No. 2, dated as of August 1996, to the Credit
Agreement.+
**21.1 List of Subsidiaries.
23.1 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (contained
in its opinion in Exhibit 5.1 of this Registration Statement).
**23.2 Consent of KPMG Peat Marwick LLP.
**23.3 Consent of Ernst & Young LLP.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
***23.4 Consent of Goldman, Sachs & Co.
**24.1 Powers of Attorney (included on the signature page of this
Registration Statement).
**99.1 Form of Proxy Solicited by the Board of Directors of AMETEK
(relating to the special meeting of stockholders of AMETEK
described in the Joint Proxy Statement/Prospectus included in
Part I of this Registration Statement).
***99.2 Form of Letter of Transmittal (relating to the merger of AMETEK
with and into a wholly owned subsidiary of the Registrant
described in the Joint Proxy Statement/Prospectus included in
Part I of this Registration Statement).
</TABLE>
- --------
+ Incorporated by reference to the Registrant's Annual Report on Form 10-K
for the Fiscal Year Ended January 31, 1996, filed with the Commission on
April 30, 1996.
* Incorporated by reference to Culligan's Registration Statement on Form 10,
filed with the Commission on September 1, 1995.
** Filed herewith.
*** To be filed by amendment.
<PAGE>
EXHIBIT 5.1
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
TELEPHONE (212) 735-3000
FAX (212) 735-2000
May 12, 1997
Culligan Water Technologies, Inc.
One Culligan Parkway
Northbrook, Illinois 60062
Ladies and Gentlemen:
We have acted as special counsel to Culligan Water Technologies, Inc.,
a Delaware corporation ("Culligan"), in connection with the preparation of a
Registration Statement on Form S-4 (the "Registration Statement") to be filed on
the date hereof by Culligan with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"). The Registration Statement relates to the proposed issuance
by Culligan of 3,466,667 shares (the "Shares") of its common stock, par value
$.01 per share (together with the attached Rights to purchase Series A Junior
Participating Preferred Stock, the "Common Stock"), pursuant to the Amended and
Restated Agreement and Plan of Merger and Reorganization, dated as of February
5, 1997 (the "Merger Agreement"), by and among Culligan, Culligan Water Company,
Inc., a Delaware corporation and a wholly owned subsidiary of Culligan
("Culligan Merger Sub"), Ametek, Inc., a Delaware corporation ("Ametek"), and
Ametek Aerospace Products, Inc., a Delaware corporation and a wholly owned
subsidiary of Ametek. The Merger Agreement provides for the acquisition of
Ametek by means of the merger (the "Merger") of Culligan Merger Sub with and
into Ametek, with Ametek being the surviving corporation. The Registration
Statement includes a joint proxy statement/prospectus (the "Joint Proxy
Statement/Prospectus") to be furnished to the securityholders of Ametek in
connection with the approval of, among other things, the Merger Agreement.
<PAGE>
Culligan Water Technologies, Inc.
May 12, 1997
Page 2
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act.
In connection with rendering this opinion, we have examined and are
familiar with originals or copies, certified or otherwise identified to our
satisfaction, of such documents as we have deemed necessary or appropriate as a
basis for the opinion set forth herein, including: (i) the Registration
Statement (including the Joint Proxy Statement/Prospectus); (ii) the Amended and
Restated Certificate of Incorporation of Culligan filed as Exhibit 3.1 to the
Registration Statement; (iii) the Amended and Restated By-laws of Culligan filed
as Exhibit 3.2 to the Registration Statement; (iv) the Rights Agreement, dated
as of September 13, 1996, between Culligan and First National Bank of Boston, as
Rights Agent, filed as Exhibit 4.1 to the Registration Statement; (v) the Merger
Agreement; (vi) resolutions of the Board of Directors of Culligan relating to
the transactions contemplated by the Merger Agreement; (vii) a specimen
certificate evidencing the Common Stock; and (viii) such other certificates,
instruments and documents as we considered necessary or appropriate for the
purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such copies. In making our examination of
documents executed by parties other than Culligan, we have assumed that such
parties had the power, corporate or other, to enter into and perform all
obligations thereunder and also have assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents and the validity and binding effect thereof. As to any facts
material to the opinion expressed herein which we have not independently
established or verified, we have relied upon statements
<PAGE>
Culligan Water Technologies, Inc.
May 12, 1997
Page 3
and representations of officers and other representatives of Culligan and
others.
For purposes of this opinion, we have assumed that prior to the
issuance of the Shares (i) the Registration Statement, as finally amended
(including all necessary post-effective amendments), becomes effective; (ii) the
Merger Agreement will be approved by the affirmative vote of the holders of a
majority of outstanding shares of common stock, par value $.01 per share, of
Ametek entitled to vote thereon; (iii) the Certificate of Merger which will give
effect to the Merger will be duly filed with the Secretary of State of the State
of Delaware; and (iv) the certificates representing the Shares will be manually
signed by an authorized officer of the transfer agent for the Common Stock and
will be registered by the registrar for the Common Stock and will conform to the
specimen thereof examined by us.
Members of our firm are admitted to the Bar of the State of New York
and we express no opinion as to the laws of any other jurisdiction other than
the Delaware General Corporation Law.
Based upon and subject to the foregoing, we are of the opinion that
the Shares have been duly authorized for issuance and, when issued in accordance
with the terms and conditions of the Merger Agreement, will be validly issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the references to us under the caption "Legal
Matters" in the Joint Proxy Statement/Prospectus forming a part of the
Registration Statement. In giving this consent, however, we do not hereby admit
that we are within the category of persons whose consent is required under
Section 7 of the Securities Act and the rules and regulations of the Commission
thereunder.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom LLP
Skadden, Arps, Slate, Meagher & Flom LLP
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
------------------------------
State/Country of
----------------
Incorporation
-------------
CULLIGAN INTERNATIONAL COMPANY Delaware
Bruner Corporation Delaware
Burr Ridge Insurance Company Vermont
Culligan of Canada, Ltd. Canada
Culligan Water Conditioning (Ontario) Ltd. Canada
Water Conditioning Finance Ltd. Canada
Culligan Consumer Direct, Inc. Delaware
Culligan Des Plaines Valley Water Conditioning, Inc. Illinois
Culligan Distribution Services, Inc. Iowa
Culligan Dutchess-Putnam Water Conditioning, Inc. New York
Culligan Espana S.A. Spain
Culligan of Florida, Inc. Florida
Culligan France S.A. France
Aqua France Comte France
Culligan Aquitaine France
Culligan Somme-Oise France
S.A. Pierre Moret France
Societe De Traitement Des Eaux Du Littoral France
Societe E.A.U. France
Sofadim, S.A. France
Technino France
Culligan Hungary Vizkezelesi Rt Hungary
Culligan International (UK) Ltd. England
Dewplan Limited England
Culligan Italiana S.p.A. Italy
Culligan N.V. Belgium
Culligan Operating Services, Inc. Delaware
Culligan Peninsula Industrial Water Conditioning Co. California
Culligan Sales Company, Inc. Delaware
Culligan (Switzerland) S.A. Switzerland
Culligan Water Company, Inc. Delaware
Culligan Water Company of Nebraska, Inc. Delaware
Culligan Water Company of San Diego, Inc. Delaware
Culligan Water Company of Washington, Inc. Delaware
Culligan Water Conditioning, Inc. Wisconsin
Culligan Water Conditioning of Battle Creek, Inc. Michigan
Culligan Water Conditioning of Butler, Inc. Pennsylvania
Culligan Water Conditioning of Greater Detroit Michigan
Culligan Water Conditioning of Houston, Inc. Texas
<PAGE>
Culligan Water Conditioning of Orange County California
Culligan Water Conditioning of South Bend, Inc. Indiana
Culligan Water Conditioning of Tippecanoe County, Inc. Indiana
CWC Finance Corp. Illinois
CWC, Inc. New Jersey
CWC International, Inc. Delaware
CWG, Inc. Delaware
Culligan Wassertechnik GmbH Germany
CWM International, Inc. Delaware
Culligan de Mexico S.A. de C.V. Mexico
Dallas-Ft. Worth Water Quality, Inc. Texas
Enerserve N.V. Netherland
Antilles
Enerserve (Antigua) Limited Antigua and
Barbuda
Enersave Company Limited Anguilla,
West Indies
Everpure, Inc. Nevada
Everpure Japan, Inc. Japan
N.V. Everpure (Europe) S.A. Belgium
Greater Chicago Culligan Water Conditioning, Inc. Illinois
High Quality Water Service, Inc. California
Indiana Soft Water Services, Inc. Indiana
Inland Empire Dealership Property, Inc. California
Layton Soft Water, Inc. California
Layton Manufacturing Corp. California
St. Louis Soft Water Service, Inc. Missouri
Santa Barbara Dealership Property, Inc. California
Sparkling S.A. Argentina
Ultrapure Systems, Inc. Minnesota
<PAGE>
EXHIBIT 23.2
CONSENT OF KPMG PEAT MARWICK LLP
--------------------------------
The Board of Directors
Culligan Water Technologies, Inc.:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Chicago, Illinois
May 9, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) of Culligan Water Technologies, Inc.
("Culligan") and the related Joint Proxy Statement/Prospectus of AMETEK, Inc.
and Culligan for the registration of 3,466,667 shares of Culligan's common
stock and to the incorporation by reference therein of our report dated
January 22, 1997 (except Note 15, as to which the date is February 5, 1997)
with respect to the financial statements of AMETEK, Inc. included in its
Annual Report (Form 10-K) for the year ended December 31, 1996, filed with the
Securities and Exchange Commission. We also consent to the use of our report
dated March 14, 1997, with respect to the combined financial statements of The
Water Filtration Business (a wholly owned business of AMETEK, Inc.) included
in such Joint Proxy Statement/Prospectus that is made a part of such
Registration Statement.
Ernst & Young LLP
Philadelphia, Pennsylvania
May 9, 1997
1
<PAGE>
EXHIBIT 99.1
AMETEK, INC.
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Walter E. Blankley, Lewis G. Cole and
[John J. Molinelli] or a majority of those present and acting, or, if only one
is present, then that one, proxies, with full power of substitution, to vote all
stock of AMETEK, Inc. which the undersigned is entitled to vote at AMETEK's
Special Meeting to be held at the [location], on _________, _______ ___, 1997 at
[ ] o'clock, and at any adjournment or postponements thereof, hereby
ratifying all that said proxies or their substitutes may do by virtue hereof,
and the undersigned authorizes and instructs said proxies to vote as follows:
(TO BE SIGNED ON REVERSE SIDE)
SEE REVERSE SIDE
<PAGE>
[X] PLEASE MARK
YOUR VOTES AS
IN THIS EXAMPLE
- -------------------------------------------------------------------------------
FOR ALL WITHHOLD
NOMINEES AUTHORITY NOMINEES: Walter E. Blankley, Lewis G.
1. ELECTION Cole, Helmut N. Friedlaender,
OF DIRECTORS [ ] [ ] Sheldon S. Gordon, Charles D.
Klein, James R. Malone, David
P. Steinmann, Elizabeth R.
Varet
INSTRUCTION: To withhold authority to vote for any individual nominee, place an
"X" in the box on the left (FOR ALL NOMINEES) and write that nominee's name in
the space provided below.
- ---------------------------------------------
- ---------------------------------------------
FOR AGAINST ABSTAIN
2. Spin-Off of New Ametek, Merger with [ ] [ ] [ ]
Culligan Merger Sub and related
transaction.
3. Proposal to approve the appointment [ ] [ ] [ ]
of Ernst & Young LLP as independent
auditors for the year 1997.
UNLESS OTHERWISE SPECIFIED IN THE SPACES PROVIDED, THE UNDERSIGNED'S VOTE IS TO
BE CAST FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR LISTED IN PROPOSAL (1),
FOR THE MERGER WITH AND INTO CULLIGAN MERGER SUB DESCRIBED AS PROPOSAL (2), AND
FOR APPROVAL OF PROPOSAL (3), AS MORE FULLY DESCRIBED IN THE ENCLOSED JOINT
PROXY STATEMENT/PROSPECTUS.
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting.
Receipt of the notice of said meeting and of the Proxy Statement of AMETEK, Inc.
accompanying the same is hereby acknowledged.
Please date, sign and return this proxy in the enclosed envelope.
_________________ Date:_______, 1997 _____________________ Date: ________, 1997
SIGNATURE SIGNATURE IF HELD
JOINTLY
NOTE: Please sign exactly as your name appears hereon. Executors,
administrators, trusteed, etc. should so indicate when signing, giving
full title as such. If signer is a corporation, execute in full corporate
name by authorized officer. If shares held in the name of two or more
persons, all should sign.
