SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Soliciting Material Under Rule
[_] Confidential, For Use of the 14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
Foster Wheeler Ltd.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
5) Total fee paid:
- --------------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials:
- --------------------------------------------------------------------------------
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
1) Amount previously paid:
- --------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
3) Filing Party:
- --------------------------------------------------------------------------------
4) Date Filed:
- --------------------------------------------------------------------------------
2
FOSTER WHEELER LTD.
PERRYVILLE CORPORATE PARK
CLINTON, NEW JERSEY 08809-4000
To Our Common and Preferred Shareholders:
On November 29, 2004, we will hold two general meetings of our
shareholders at our offices, located at Perryville Corporate Park, Clinton, New
Jersey:
COMMON SHAREHOLDERS: At 3:00 p.m., we will hold a special general
meeting of common shareholders.
COMMON SHAREHOLDERS AND PREFERRED SHAREHOLDERS: At 3:30 p.m., we will
hold a joint annual and special general meeting of all shareholders.
The matters to be voted upon at each meeting are listed in the notices
that follow this letter. These matters are described in more detail in the
accompanying proxy statement. If you are a common shareholder, we urge you read
the entire proxy statement. Part I provides general information about the
meetings. Part II describes the proposal to be voted upon at the special general
meeting of common shareholders. Part III describes the proposals to be voted
upon at the joint annual and special general meeting of all shareholders. Part
IV provides other information about our company. Preferred shareholders should
read Parts I, III and IV of the proxy statement.
If you are a common shareholder, the enclosed proxy card covers both
meetings. If you are a preferred shareholder, the enclosed proxy card covers
only the joint annual and special general meeting. In either case, we ask that
you please be sure to DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD in the
enclosed, postage-paid envelope as promptly as possible, or appoint a proxy to
vote your shares by using the telephone or Internet, as described in the
attached proxy statement, so that your shares may be represented at the relevant
meeting or meetings and voted in accordance with your wishes.
If you have any questions about either meeting, or if you require
assistance, please call Georgeson Shareholder Services at 1-800-891-3214.
IMPORTANT NOTE TO HOLDERS OF BOTH COMMON AND PREFERRED SHARES AND
HOLDERS OF FRACTIONAL SHARES: If you hold both common shares and preferred
shares, or if you hold a fraction of a common share or preferred share, you will
receive at least two packages, each containing a proxy card. It is very
important that you RETURN ALL PROXY CARDS, to ensure that all of your shares are
represented at the relevant meeting or MEETINGS.
If you attend either meeting, you may vote in person, even if you have
previously submitted a proxy card.
Sincerely,
Raymond J. Milchovich
Chairman, President and
Chief Executive Officer
FOSTER WHEELER LTD.
PERRYVILLE CORPORATE PARK
CLINTON, NEW JERSEY 08809-4000
------------------------------
NOTICE OF SPECIAL GENERAL MEETING OF COMMON SHAREHOLDERS
TO BE HELD NOVEMBER 29, 2004
------------------------------
A special general meeting of common shareholders of Foster Wheeler Ltd.
will be held at the offices of Foster Wheeler Ltd., Perryville Corporate Park,
Clinton, New Jersey, on November 29, 2004, at 3:00 p.m. to approve a
consolidation of the Company's authorized common share capital at a ratio of
1-for-20, subject to the approval of (1) the common share consolidation and a
related reduction in the par value of the Company's common shares, which is
proposal 7 to be considered by the Company's shareholders at a joint annual and
special general meeting that will follow the special general meeting of common
shareholders, and (2) proposals 8 and 9 at that joint annual and special general
meeting. The proposed resolution to be adopted by common shareholders to approve
the common share consolidation is set forth in Annex A to the attached proxy
statement.
All registered holders of Foster Wheeler Ltd. common shares at the
close of business on October 25, 2004, are entitled to notice of, and to vote at
the special general meeting and any postponements or adjournments thereof. This
proxy statement and the accompanying proxy card are being sent to common
shareholders on or about October 29, 2004.
ADMISSION TO THE SPECIAL GENERAL MEETING OF COMMON SHAREHOLDERS WILL BE
BY TICKET ONLY. IF YOU ARE A REGISTERED COMMON SHAREHOLDER PLANNING TO ATTEND,
PLEASE CHECK THE APPROPRIATE BOX ON THE PROXY CARD OR, IF YOU APPOINT A PROXY BY
INTERNET OR TELEPHONE, INDICATE YOUR PLANS TO ATTEND WHEN PROMPTED. In all
cases, retain the bottom portion of the proxy card as your admission ticket to
the meeting. If you are a shareholder whose common shares are held through an
intermediary such as a bank or broker, follow the instructions in the proxy
statement to obtain a ticket.
By Order of the Board of Directors
LISA FRIES GARDNER
VICE PRESIDENT & SECRETARY
October 28, 2004
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE
MEETING, PLEASE PROMPTLY RETURN YOUR SIGNED PROXY IN THE ENCLOSED ENVELOPE OR
DIRECT THE VOTING OF YOUR COMMON SHARES BY TELEPHONE OR INTERNET AS DESCRIBED ON
YOUR PROXY CARD. IF YOU OWN BOTH COMMON SHARES AND PREFERRED SHARES, PLEASE SIGN
AND RETURN BOTH OF YOUR SIGNED PROXY CARDS.
2
FOSTER WHEELER LTD.
PERRYVILLE CORPORATE PARK
CLINTON, NEW JERSEY 08809-4000
------------------------------
NOTICE OF JOINT ANNUAL AND SPECIAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 29, 2004
------------------------------
A joint annual and special general meeting of shareholders of Foster
Wheeler Ltd. will be held at the offices of Foster Wheeler Ltd., Perryville
Corporate Park, Clinton, New Jersey, on November 29, 2004, at 3:30 p.m. for the
following purposes:
1. To elect three directors, for terms expiring in 2007.
2. To approve the recommendation of the Audit Committee to appoint
PricewaterhouseCoopers LLP as Foster Wheeler Ltd.'s independent
auditors for 2004, to make such appointment, and to authorize the
board of directors, acting through its Audit Committee, to set the
independent auditors' remuneration.
3. To approve awards of restricted stock units and stock options to
directors.
4. To approve an amendment to the bye-laws, in the form set forth in
Annex A to the attached proxy statement, replacing the director
retirement age of 72 in bye-law 10(4) with a provision requiring the
board of directors to establish a director retirement age.
5. To approve an amendment to the bye-laws, in the form set forth in
Annex A to the attached proxy statement, replacing the requirement
in bye-law 10(5) that each director must own at least 100 common
shares when elected and at least 1000 common shares by the third
anniversary of the election with a provision requiring the board of
directors to establish share ownership policy for non-employee
directors.
6. To approve an amendment to the bye-laws, in the form set forth in
Annex A to the attached proxy statement, replacing the statement in
bye-law 20 that director remuneration shall be determined, as the
board of directors from time to time determines, by the Company in
general meeting with a provision clarifying that director
remuneration will be determined by the directors from time to time.
7. To approve a consolidation of the Company's authorized common share
capital at a ratio of 1-for-20 and a related reduction in the par
value per common share from $.20 to $.01, subject to the approval
of, and immediately following the effectiveness of, the capital
alterations described in proposals 8 and 9. This proposal is also
subject to the approval of the share consolidation at a special
general meeting of the common shareholders to be held prior to the
joint annual and special general meeting of shareholders. The
proposed resolution to be adopted by shareholders for this purpose
is set forth in Annex A to the attached proxy statement.
8. To approve a reduction in the par value of the Company's authorized
common and preferred share capital from US$1.00 to US$.01 per share,
effective upon the approval of proposal 9. The proposed resolution
to be adopted by shareholders for this purpose is set forth in Annex
A to the attached proxy statement.
9. To approve an increase in the authorized capital of the Company from
US$1,615,000 to US$14,774,089.57 by the authorization of an
additional 1,315,908,957 common shares, effective immediately after
the effectiveness of proposal 8. The proposed resolution to be
adopted by shareholders for this purpose is set forth in Annex A to
the attached proxy statement.
10. To address any other matters that properly come before the joint
annual and special general meeting and any adjournments or
postponements thereof.
The Company's audited financial statements for the year ended December
26, 2003 will be presented at the joint annual and special general meeting.
3
All registered holders of Foster Wheeler Ltd.'s common shares and
series B convertible preferred shares at the close of business on October 25,
2004, are entitled to notice of, and to vote at the meeting and any
postponements or adjournments of the meeting. This proxy statement and the
accompanying proxy card are being sent to shareholders on or about October 29,
2004.
ADMISSION TO THE JOINT ANNUAL AND SPECIAL GENERAL MEETING WILL BE BY
TICKET ONLY. IF YOU ARE A REGISTERED SHAREHOLDER PLANNING TO ATTEND, PLEASE
CHECK THE APPROPRIATE BOX ON THE PROXY CARD OR, IF YOU APPOINT A PROXY BY
INTERNET OR TELEPHONE, INDICATE YOUR PLANS TO ATTEND WHEN PROMPTED. In all
cases, retain the bottom portion of the proxy card as your admission ticket to
the meeting. If you are a shareholder whose shares are held through an
intermediary such as a bank or broker, follow the instructions in the proxy
statement to obtain a ticket.
By Order of the Board of Directors
LISA FRIES GARDNER
VICE PRESIDENT & SECRETARY
October 28, 2004
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE
MEETING, PLEASE PROMPTLY RETURN YOUR SIGNED PROXY IN THE ENCLOSED ENVELOPE OR
DIRECT THE VOTING OF YOUR SHARES BY TELEPHONE OR INTERNET AS DESCRIBED ON YOUR
PROXY CARD. IF YOU OWN BOTH COMMON SHARES AND PREFERRED SHARES, PLEASE SIGN AND
RETURN BOTH OF YOUR SIGNED PROXY CARDS.
4
TABLE OF CONTENTS
PAGE
----
Part I - The Meetings............................................................................ 8
Time, Date and Place........................................................................... 8
Record Date.................................................................................... 8
Voting......................................................................................... 8
Quorum......................................................................................... 9
Proxies........................................................................................ 9
How You Can Vote............................................................................... 9
By Telephone................................................................................ 10
By Internet................................................................................. 10
By Mail..................................................................................... 10
Revocation of Proxy............................................................................ 10
Validity....................................................................................... 11
Solicitation of Proxies........................................................................ 11
Requisite Vote for the Proposal to be Considered at the
Special Common Share Meeting................................................................ 11
Requisite Vote for Each Proposal at the Annual Meeting......................................... 11
Background of the Proposal for the Special Common Share Meeting and
Proposals 7, 8 and 9 for the Annual Meeting................................................. 11
Effects of Annual Meeting Proposals 7, 8 and 9 on Common Shares................................ 13
Part II - The Special Common Share Meeting....................................................... 15
Proposal - Common Share Consolidation ......................................................... 15
Principal Effects of the Common Share Consolidation ........................................ 16
Effect on Issued Options, Warrants and Preferred Shares..................................... 16
Procedure for Effecting Common Share Consolidation and
Exchange of Share Certificates .......................................................... 16
Certain Federal Income Tax Considerations................................................... 17
Board Recommendation ...................................................................... 17
Part III - The Annual Meeting.................................................................... 18
Proposal 1 - Election of Directors............................................................. 18
Nominees for Election at this Annual Meeting................................................ 18
Similar Information on Continuing Directors................................................. 19
Proposal 2 - Independent Auditors: Appointment and Authorization of Audit
Committee To Set Remuneration............................................................... 21
Proposal 3 - Awards of Restricted Stock Units And Stock Options For Directors.................. 22
Proposal 4 - Amendment To The Bye-Laws Regarding Director Retirement Age....................... 23
Proposal 5 - Amendment To The Bye-Laws Regarding Director Share Ownership...................... 23
Proposal 6 - Amendment To The Bye-Laws Regarding Director Remuneration......................... 24
Proposal 7 - Common Share Consolidation and Reduction in Par Value............................. 25
Principal Effects of the Reverse Share Split................................................ 25
Effect on Issued Options, Warrants and Preferred Shares..................................... 26
Procedure for Effecting Common Share Consolidation and Exchange of Share Certificates....... 26
Certain Federal Income Tax Considerations................................................... 27
Board Recommendation........................................................................ 27
Proposal 8 - Reduction in Par Value of Common Shares and Preferred Shares...................... 28
Principal Effects of the Par Value Reduction................................................ 28
Procedure for Effecting the Par Value Reduction............................................. 29
Board Recommendation........................................................................ 29
Proposal 9 - Increase in the Number of Authorized Common Shares of the Company................. 30
Principal Effects of the Share Increase Amendment........................................... 31
5
Procedure for Effecting the Share Increase Amendment........................................ 32
Board Recommendation........................................................................ 32
Part IV - Other Matters.......................................................................... 33
Ownership of Common Shares by Directors and Executive Officers.............................. 33
Other Beneficial Owners..................................................................... 34
Executive Officers.......................................................................... 35
Section 16(a) Beneficial Ownership Reporting Compliance..................................... 36
Involvement in Certain Legal Proceedings.................................................... 36
Executive Compensation........................................................................... 37
Report of the Compensation Committee on Executive Compensation.............................. 37
Audit Committee Report...................................................................... 39
Audit Fees.................................................................................. 41
Policy on Audit Committee Pre-Approval of Audit and Permissible
Non-Audit Services Performed by the Independent Accountants.............................. 41
Committees of the Board..................................................................... 41
Director Nominations........................................................................ 43
Executive Sessions of the Non-Management Directors.......................................... 44
Communicating with Directors................................................................ 44
Compensation of Directors................................................................... 44
Summary Compensation Table.................................................................. 46
Options Granted............................................................................. 50
Aggregate Options Exercises................................................................. 50
Long-Term Incentive Plans--Awards in Last Fiscal Year....................................... 51
Defined Benefit Plans....................................................................... 51
Employment Agreements....................................................................... 52
Change-in-Control Arrangements.............................................................. 55
Separation Agreements....................................................................... 56
Compensation Committee Interlocks and Insider Participation................................. 56
Certain Relationships and Related Transactions................................................... 57
Performance Graph................................................................................ 57
Proposals of Shareholders for the 2005 Annual Meeting............................................ 59
Incorporation by Reference....................................................................... 60
Annex A: Text of Amendments to the Bye-Laws and Proposed Shareholder
Resolutions to be Adopted at the Special Common Share Meeting and the
Annual Meeting
Annex B: Summary of Terms of the Securities Issued in the Equity-for-Debt
Exchange Offer and Comparison With Exchanged Securities
Annex C: Foster Wheeler Ltd. Audit Committee Charter
6
FOSTER WHEELER LTD.
PERRYVILLE CORPORATE PARK
CLINTON, NEW JERSEY 08809-4000
-----------------------------------
PROXY STATEMENT
-----------------------------------
For the Special General Meeting of Common Shareholders
and
The Joint Annual and Special General Meeting of Shareholders
to be held November 29, 2004
-----------------------------------
This proxy statement is furnished to shareholders in connection with
the solicitation of proxies on behalf of the board of directors of Foster
Wheeler Ltd. (hereinafter the "Company" or "Foster Wheeler") to be voted at the
Company's Special General Meeting of Common Shareholders (the "special common
share meeting"), and Joint Annual and Special General Meeting of Shareholders
(the "annual meeting," and together with the special common share meeting, the
"meetings"), each to be held on November 29, 2004, and any adjournments or
postponements thereof, at the times and place and for the purposes set forth in
the accompanying Notice of Special General Meeting of Common Shareholders and
Notice of Joint Annual and Special General Meeting of Shareholders. This proxy
statement and the accompanying proxy are being sent to shareholders on or about
October 29, 2004. If you own both Common Shares, US$1.00 par value (the "common
shares") and Series B Convertible Preferred Shares, US$1.00 par value (the
"preferred shares"), you will receive at least two packages, each containing a
proxy statement and an accompanying proxy card -- please be sure to SIGN AND
RETURN ALL PROXY CARDS to ensure that your shares are represented at the
relevant meeting or meetings.
Shares represented by valid proxies will be voted in accordance with
instructions contained therein or, in the absence of such instructions, in
accordance with the recommendations of the board of directors. A proxy may be
revoked by signing another proxy card with a later date and returning it to us
prior to either of the meetings, by telephone or on the Internet prior to either
of the meetings, or attending either of the meetings in person and casting a
ballot.
A copy of the Company's Annual Report on Form 10-K/A, including audited
financial statements for the fiscal year ended December 26, 2003, filed on June
9, 2004, is enclosed with this proxy statement. In addition, the Annual Report
on Form 10-K/A is also available on Foster Wheeler's web site at
http://www.fwc.com.
The board of directors has fixed the close of business on October 25,
2004, as the record date for determination of shareholders entitled to notice of
and to vote at the meetings or adjournments thereof. As of October 25, 2004, the
issued and outstanding voting shares of the Company consisted of
129,059,955.0778 common shares and 599,943.7152 Series B Convertible Preferred
Shares, US$1.00 par value (the "preferred shares").
Admission to the meetings will be by ticket only. For registered
shareholders, the bottom portion of the enclosed proxy card is your meeting
ticket. Beneficial owners with shares held through an intermediary, such as a
bank or broker, should request tickets by writing to the Office of the
Secretary, Foster Wheeler Ltd., Perryville Corporate Park, Clinton, New Jersey,
08809-4000, and include proof of ownership, such as a bank or brokerage firm
account statement or a letter from the broker, trustee, bank or nominee holding
your shares, confirming beneficial ownership.
7
PART I
THE MEETINGS
TIME, DATE AND PLACE
The special common share meeting will be held at 3:00 p.m. on Monday,
November 29, 2004, at the offices of the Company located at Perryville Corporate
Park, Clinton, New Jersey.
The annual meeting will be held at 3:30 p.m. on Monday, November 29,
2004, at the offices of the Company located at Perryville Corporate Park,
Clinton, New Jersey.
RECORD DATE
Only registered shareholders at the close of business on October 25,
2004, as shown in Foster Wheeler's register of members, will be entitled to
vote, or to grant proxies to vote, at the meetings.
VOTING
SPECIAL COMMON SHARE MEETING
Each issued common share is entitled to one vote at the special common
share meeting. The preferred shares will not be entitled to vote at the special
common share meeting.
ANNUAL MEETING
Each issued common share is entitled to one vote at the annual meeting.
Each issued preferred share is entitled to 1300 votes at the annual meeting,
which is the number of common shares that would be issuable upon a conversion of
one preferred share in accordance with the applicable conversion ratio as of the
record date. Fractional shares are entitled to their proportionate vote. In
general, holders of preferred shares vote with the holders of common shares as a
single class on all matters brought before the Company's shareholders. However,
this is not always the case. See "--Requisite Vote for Each Proposal at the
Annual Meeting" on page 11.
As of October 25, 2004, the issued and outstanding voting shares of the
Company consisted of 129,059,955.0778 common shares and 599,943.7152 preferred
shares.
When and if the preferred shares become convertible, they will cease to
vote unless required by Bermuda law, except that the preferred shares will vote,
as a separate class, on:
o any amendment, alteration or repeal of the Company's memorandum of
association
o any amendment, alteration or repeal of the Company's bye-laws,
o any amendment, alteration or repeal of the certificate of
designation relating to the preferred shares (or the board of
directors' resolution adopting the related certificate of
designation), and
o any change in the terms of the preferred shares (whether effected
by merger, amalgamation or otherwise),
in each case that would affect the powers, preferences or rights of the
preferred shares. Votes on these matters will require the approval of holders of
at least three-fourths of the issued preferred shares consenting or voting as a
separate class. The preferred shares become convertible into common shares upon
shareholder approval of proposal 8, the par value reduction, and proposal 9, the
increase in authorized common shares. The preferred shares will vote on all of
proposals 1 through 9 (the "proposals") at the annual meeting.
8
GENERAL
Pursuant to the Securities and Exchange Commission Rules, boxes and a
designated blank space are provided on the proxy card for shareholders to mark
if they wish either to vote "for," "against" or "abstain" on a proposal, or to
withhold authority to vote for one or more of the nominees for director.
QUORUM
SPECIAL COMMON SHARE MEETING
The Company's bye-laws require the presence of a quorum for the special
common share meeting. The presence at the special common share meeting, in
person or by proxy, of persons holding or representing at least one-third of the
issued common shares will constitute a quorum. The approval requirement for the
proposal to be considered at the special common share meeting is, however,
three-fourths of the issued common shares. Abstentions will be counted as
present for purposes of determining the presence or absence of a quorum at the
special common share meeting.
ANNUAL MEETING
The Company's bye-laws require the presence of a quorum for the annual
meeting. The presence at the annual meeting, in person or by proxy, of
shareholders holding in excess of 50% of the total issued voting common shares
and preferred shares will constitute a quorum. Abstentions and broker non-votes
will be counted as present for purposes of determining the presence or absence
of a quorum at the annual meeting.
PROXIES
A proxy card covering both meetings is being sent to each Foster
Wheeler common shareholder who held shares as of the record date. A proxy card
covering the annual meeting is being sent to each preferred shareholder who held
shares as of the record date. If you properly received a proxy card, you may
grant a proxy to vote on the proposals presented in one of three ways which are
explained in the next section entitled "How You Can Vote". If you hold shares
through someone else, such as a stock broker, in the name of a bank, or other
nominee, you will receive voting instructions from that firm. Check the voting
form provided to you by such person to see if they offer Internet or telephone
voting.
If you have timely submitted your properly executed proxy card(s) or
appointed a proxy to vote your shares by telephone or by Internet and clearly
indicated your votes, your shares will be voted as indicated. If you have timely
submitted your properly executed proxy card(s) and have not clearly indicated
your vote on any of the proposals, your shares will be voted "FOR" such
proposals.
If any other matters are properly presented at the annual meeting for
consideration, the persons named in the proxy will have the discretion to vote
on these matters in accordance with their best judgment.
HOW YOU CAN VOTE
You may vote by proxy or in person at the meetings. If your shares are
held in your name, you can vote by proxy in three convenient ways:
9
BY TELEPHONE:
By telephone by CALLING TOLL-FREE 1-800-435-6710. This is
available 24 hours a day, seven days a week. You will need to provide
the 11-digit control number contained on your proxy card.
Easy-to-follow voice prompts allow you to direct the vote of your
shares and confirm that your instructions have been properly recorded.
In order for your shares to be represented at the meetings, your
telephone proxy must be received by 11:59 p.m. Eastern Time the
business day prior to the meetings. You can also consent to view future
proxy statements and annual reports on the Internet instead of
receiving them in the mail. If you use this telephone service, you do
NOT need to return your proxy card. If you plan to attend one or both
of the meetings, please retain the bottom portion of the proxy card as
your admission ticket(s) and please respond to the question asking
whether you plan to attend the meetings.
BY INTERNET:
By Internet at http://WWW.EPROXY.COM/FWC. This is available 24
hours a day, seven days a week. You will need to provide the 11-digit
control number contained on your proxy card. In order for your shares
to be represented at the meetings, your vote must be received by 11:59
p.m. Eastern Time the business day prior to the meetings. You will be
given the opportunity to confirm that your instructions have been
properly recorded, and you can consent to view future proxy statements
and annual reports on the Internet instead of receiving them in the
mail. If you use this Internet service, you do NOT need to return your
proxy card. If you plan to attend the meetings, please retain the
bottom portion of the proxy card as your admission tickets and please
respond to the question asking whether you plan to attend the meetings.
BY MAIL:
If you choose to return your executed proxy by mail, mark your
proxy card, date and sign it, and return it in the enclosed
postage-paid envelope. If you misplaced your business reply envelope,
you should mail your proxy card to Mellon Investor Services LLC, Proxy
Processing, P.O. Box 3510, South Hackensack, New Jersey 07606-9210. If
you plan to attend one or both of the meetings, please retain the
bottom portion of the proxy card(s) as your admission ticket(s). If you
own both common and preferred shares, or if you own fractions of
shares, please be sure to SIGN AND RETURN ALL PROXY CARDS THAT HAVE
BEEN MAILED TO YOU, to ensure that your shares are represented at the
relevant meeting or meetings.
Under applicable Bermuda law, a company's bye-laws may provide
requirements for shareholders to appoint proxies to vote their shares at general
meetings of shareholders. Section 42 of the Company's bye-laws provides
alternative procedures for a shareholder to appoint a proxy, including by
written instrument, by electronic means or as otherwise determined by the board
of directors and further provides that the decision of the chairman of any
general meeting as to the validity of any proxy shall be final.
If you hold your Foster Wheeler shares in the name of a bank, broker or
other nominee, you should follow the instructions provided by your bank, broker
or nominee when directing the voting of your shares.
REVOCATION OF PROXY
With respect to each meeting, if you appoint a proxy, you may revoke
that proxy at any time before it is voted at such meeting. You may do this by
(a) signing another proxy card with a later date and returning it to Mellon
Investor Services LLC prior to such meeting, (b) voting or re-voting by
telephone or on the Internet in the manner and prior to the deadline set forth
above under "How You Can Vote--By Telephone," or "How You Can Vote--By
Internet," as applicable or (c) attending such meeting in person and casting a
ballot. Later appointments of proxies by telephone or Internet will supersede
and cancel earlier appointments of proxies. If you hold your Foster Wheeler
shares in the name of a bank, broker or other nominee, you should follow the
instructions provided by your bank, broker or nominee in revoking any previously
granted proxy.
10
VALIDITY
The inspectors of election will determine all questions as to the
validity, form, eligibility, including time of receipt, and acceptance of
proxies. Their determination will be final and binding. The board of directors
has the right to waive any irregularities or conditions as to the manner of
voting. The Company may accept your proxy by any form of written or electronic
communication so long as it is reasonably assured that the communication is
authorized by you.
SOLICITATION OF PROXIES
The expense of preparing, printing and mailing this proxy statement and
the accompanying material will be borne by the Company. Solicitation of
individual shareholders may be made by mail, personal interviews, telephone,
facsimile, electronic delivery or other telecommunications by officers and
regular employees of the Company who will receive no additional compensation for
such activities. In addition, the Company has retained Georgeson Shareholder
Communications Inc. to solicit proxies from brokers and nominees at a cost of
US$8,500 plus reimbursement for out-of-pocket expenses. The Company will
reimburse brokers and other nominees for their expenses in forwarding
solicitation material to beneficial owners.
REQUISITE VOTE FOR THE PROPOSAL TO BE CONSIDERED AT THE SPECIAL COMMON SHARE
MEETING
Approval of the proposal to be considered at the special common share
meeting requires the affirmative vote of three-fourths of the issued common
shares. Abstentions will have the same effect as a vote against the proposal.
For this proposal to be effected, it must also be approved at the annual
meeting. See "Proposal 7" in the following section.
REQUISITE VOTE FOR EACH PROPOSAL AT THE ANNUAL MEETING
PROPOSALS 1, 2, 3, 4, 5, 6, 8 AND 9. Approval of these proposals
requires the affirmative vote of a majority of the votes cast at the annual
meeting, assuming there is a quorum at the meeting. Abstentions and broker
non-votes will have no effect on the outcome of these matters.
PROPOSAL 7. Approval of annual meeting proposal 7 requires the
affirmative vote of a majority of the votes cast at the annual meeting.
Abstentions will have no effect on the outcome of this vote at the annual
meeting. In addition, for this proposal to be effected, the proposal to be
considered at the special common share meeting must also be approved. See
"--Requisite Vote for the Proposal at the Special Common Share Meeting."
BACKGROUND OF THE PROPOSAL FOR THE SPECIAL COMMON SHARE MEETING AND PROPOSALS 7,
8 AND 9 FOR THE ANNUAL MEETING
THE EQUITY-FOR-DEBT EXCHANGE OFFER COMPLETED ON SEPTEMBER 24, 2004
On September 24, 2004, the Company completed an equity-for-debt
exchange offer in which it issued common shares, preferred shares, warrants to
purchase common shares, or in some cases to purchase preferred shares, and new
notes in exchange for certain of its outstanding debt securities and trust
securities.
THE EQUITY-FOR-DEBT EXCHANGE OFFER HAS BEEN COMPLETED. YOU ARE NOT
BEING ASKED TO CONSIDER OR VOTE UPON ANY ELEMENT OF THE EQUITY-FOR-DEBT EXCHANGE
OFFER.
In March 2002, the Company adopted an improvement plan that focused on
four key areas: ensuring a strong, sound backlog; enhancing its project
management system; improving its cash position and balance sheet; and
scrutinizing discretionary spending. The operating performance portion of the
plan concentrated on the quality and quantity of backlog, the execution of
projects in order to achieve or exceed profit and cash targets and the
optimization of all non-project related cash sources and uses. In connection
with this plan, a group of outside consultants was hired for the purpose of
carrying out a performance improvement intervention. The tactical portion of the
performance improvement intervention concentrates on booking current projects,
executing twenty-two "high leverage projects" and generating incremental cash
from high leverage opportunities such as overhead reductions, procurement and
accounts receivable. The systemic portion of the performance improvement
intervention
11
concentrates on sales effectiveness, estimating, bidding and project execution
procedures. In conjunction with this initiative, and due to the Company's
significant leverage, the Company reviewed various options to restructure its
balance sheet to improve its overall capital structure. The equity-for-debt
exchange offer was an integral part of this restructuring plan.
As a result of the Company's recognition of charges in the second half
of 2002, the Company was required to renegotiate its senior secured credit
agreement. These charges principally related to:
o the impact of changes in accounting principles and the resulting
impairment of goodwill;
o losses recognized in anticipation of the sale of two facilities;
o project/contract-related write-downs, including reduced estimates of
claim recoveries and revisions of project cost estimates and related
receivables reserves;
o provisions for asbestos claims;
o provisions for plant impairment;
o provisions for restructuring and performance intervention activities;
o recognition of pension underfunding;
o severance costs; and
o charges for accrual of legal settlements.
These charges significantly negatively impacted the Company's net
worth. As a result, the Company was unable to satisfy certain covenants under
its senior secured credit agreement.
In response to its significant leverage and liquidity issues, in early
2002, the Company began considering alternatives to addressing these issues. The
board considered two basic options: restructuring the Company's balance sheet
and reorganization. The balance sheet restructuring included the equity-for-debt
exchange offer in conjunction with a private offering of $120 million of senior
secured notes.
The purpose of the equity-for-debt exchange offer was to reduce the
Company's debt, extend the maturity of a portion of the Company's debt and to
improve its overall capital structure.
The Company has no payment obligation with respect to the debt and
trust securities that were tendered in the equity-for-debt exchange offer.
Holders of trust securities who participated in the exchange offer forfeited any
right to receive accumulated but unpaid dividends on the trust securities that
they exchanged. In addition, the new notes that were issued in exchange for the
2005 notes have a maturity date that is approximately six years later than the
maturity date of the 2005 notes. Consequently, Foster Wheeler will have a
significantly longer period in which to repay the new notes. The holders of the
trust securities, convertible notes, Robbins bonds and 2005 notes who received
shares in the exchange offer became equity holders of Foster Wheeler and no
longer have the contractual rights previously accorded to them under the
applicable debt instruments governing their securities. The holders of the 2005
notes who received new notes are not entitled to be repaid the principal amount
of those notes until the new notes' maturity date in 2011.
In the equity-for-debt exchange offer:
o Each holder of 9.00% Preferred Securities, Series I (liquidation amount
$25 per trust security) issued by FW Preferred Capital Trust I, or the
trust securities, received 0.760 common shares, 0.0123 preferred shares
and one warrant to purchase a specified number of common shares for
each trust security tendered (liquidation amount $25).
o Each holder of 6.50% convertible subordinated notes due 2007 issued by
Foster Wheeler Ltd., or the convertible notes, received 160.600 common
shares and 1.517 preferred shares plus accrued and unpaid interest
through the date of the exchange for each $1,000 in principal amount of
convertible notes tendered.
o Each holder of Series 1999 C Bonds maturing in 2009, or the 2009 Series
C Robbins bonds, received 192.900 common shares and 1.817 preferred
shares plus accrued and unpaid interest through the date of the
exchange for each $1,000 in principal amount outstanding as of June 25,
2004, of 2009 Series C Robbins bonds tendered. Each holder of Series
1999 C bonds maturing in 2024, or the 2024 Series C Robbins bonds,
received 160.600 common shares and 1.517 preferred shares plus accrued
and unpaid interest
12
through the date of the exchange for each $1,000 in principal amount
outstanding as of June 25, 2004, of 2024 Series C Robbins bonds
tendered. Each holder of Series 1999 D Bonds, or the Series D Robbins
bonds, received 192.900 common shares and 1.817 preferred shares for
each $1,000 in accreted principal amount outstanding as of June 25,
2004, of Series D Robbins bonds tendered.
o Each holder of 63/4% senior notes due 2005 issued by Foster Wheeler
LLC, or the 2005 notes, received $750 in principal amount of 10.359%
senior secured notes due 2011, Series A, or the new notes, and 46.100
common shares and 0.437 preferred shares, plus accrued and unpaid
interest for each $1,000 in principal amount of 2005 notes tendered.
An aggregate of 61,251,475.0078 common shares, 599,943.7152 preferred
shares, 4,152,914 warrants and an aggregate principal amount of $141,471,000 of
new notes were issued in the equity-for-debt exchange offer. A description of
the terms of the new securities issued in the equity-for-debt exchange offer and
a comparison against the securities exchanged is included as Annex B.
THE LOCK-UP AGREEMENT AND CERTIFICATE OF DESIGNATION
On September 24, 2004, the Company completed an equity-for-debt
exchange offer in which it issued common shares, preferred shares, warrants to
purchase common shares, or in some cases to purchase preferred shares, and new
notes in exchange for certain of its outstanding debt securities and trust
securities.
In connection with this equity-for-debt exchange offer, the Company and
certain holders of the debt securities and trust securities that were exchanged
entered into a lockup agreement dated July 30, 2004 (the "lockup agreement").
Pursuant to the lockup agreement:
o these securityholders agreed, among other things, to tender their
securities in their respective exchange offer, and to consent to
certain amendments to the terms of their securities that were
required in order to complete the exchange offer, and
o the Company agreed, among other things, to either submit the
matters covered by annual meeting proposals 7, 8 and 9 to
shareholders for approval and the matter covered by the special
common share meeting to the common shareholders for approval or to
pay an aggregate of $2,500,000 to the holders of the preferred
shares, with such amount being paid quarterly as long as these
matters are not so submitted.
The certificate of designation that sets forth the terms of the preferred shares
also contains these agreements of the Company.
EFFECTS OF ANNUAL MEETING PROPOSALS 7, 8 AND 9 ON COMMON SHARES
Annual meeting proposal 7 proposes a consolidation of the Company's
authorized common share capital at a ratio of 1-for-20, and a related reduction
in the resulting $.20 par value per common share to $.01. This annual meeting
proposal is referred to in this document as the "reverse share split." The share
consolidation portion of this proposal is also being considered by common
shareholders at the special common share meeting.
Annual meeting proposal 8 proposes a reduction in par value of the
Company's authorized common share and preferred share capital.
Annual meeting proposal 9 proposes an increase in the Company's
authorized capital and number of authorized common shares.
The following table shows the effects of all of these proposals on the
Company's common shares, assuming that the number of common shares issued as of
October 25, 2004 remains issued on the effective date of these alterations to
the Company's share capital.
13
EFFECT OF REVERSE SHARE SPLIT, REDUCTION IN PAR VALUE AND
INCREASE IN NUMBER OF COMMON SHARES AUTHORIZED
----------------------------------------------
BEFORE AFTER
------ -----
Par Value per Common Share............ US$1.00 US$.01
Common Shares Authorized.............. 160,000,000 73,795,447.85
Common Shares Issued.................. 129,059,955.0778 6,452,997.75
Common Shares Available for
Future Issuance* ..................... 30,940,044.9222 67,342,450.10
- ----------
* Common shares in "After" column are or will be reserved for future issuance
upon exercise of options and warrants and conversion of preferred shares
following the shareholder meetings.
Currently, the preferred shares vote on an "as converted" basis. This
means they are entitled to one vote for every common share issuable upon
conversion (regardless of whether they are actually convertible). If proposals 8
and 9 are approved, then the preferred shares will become convertible into
common shares at the holder's option, and they will no longer carry any voting
rights, except for the right to vote as a class on certain limited matters. If
proposals 8 and 9 are not approved, then the preferred shares will not be
convertible and will continue to carry voting rights.
In addition, if proposals 8 and 9 are approved, the Class A warrants
that were issued in the equity-for-debt exchange offer and the Class B warrants
that were distributed to common shareholders in connection with the
equity-for-debt exchange offer, which we call the "warrants," will become
exercisable for common shares. If these proposals are not approved, the warrants
will remain exercisable for preferred shares instead of common shares.
Finally, if proposals 8 and 9 are approved, the employee and director
stock options to acquire preferred shares, the grant of which was effective
October 6, 2004, will become exercisable for common shares. See "Executive
Compensation--Report of the Compensation Committee on Executive Compensation."
Approval of proposals 8 and 9 is necessary for the Company to have
enough authorized share capital to allow the preferred shares, including
preferred shares issuable upon exercise of the warrants and the management stock
options described above, to convert into or become exercisable for, as
applicable, common shares.
In certain circumstances, the approval of proposal 9 could result in
the Company having additional common shares available for issuance without
shareholder approval. You should read proposal 9 for more information.
14
PART II
THE SPECIAL COMMON SHARE MEETING
PROPOSAL
COMMON SHARE CONSOLIDATION
The Company's board of directors (the "board of directors," or the
"board") has approved and recommends that the common shareholders approve a
consolidation of the Company's authorized common share capital at a ratio of
1-for-20. This alteration to capital is referred to as the "common share
consolidation." The day on which the common share consolidation becomes
effective is referred to as the "effective date." Upon completion of the common
share consolidation, each shareholder of common shares will hold one common
share for every 20 common shares held before the effective date. The conversion
ratio for the preferred shares, and the terms of the Company's issued options
and warrants to purchase common shares (some of which are exercisable for
preferred shares prior to approval of proposals 8 and 9 at the annual meeting),
will be adjusted accordingly.
The common share consolidation will be effected only if (1) the common
shareholders approve it at the special common share meeting and (2) shareholders
at the annual meeting, which will follow the special common share meeting,
approve proposals 7, 8 and 9 to be considered at the annual meeting. Proposal 7
proposes the reverse share split, in which the common share consolidation will
be followed by a subsequent reduction in the par value of the authorized common
shares from $.20 to $.01 per share. Proposals 8 and 9 relate to a reduction in
the par value of the common share and preferred share capital from US$1.00 to
US$.01 per share (which causes the authorized capital to be reduced from
$161,500,000 to $1,615,000), and a subsequent increase in the Company's
authorized capital from US$1,615,000 to US$14,774,089.57 by the authorization of
an additional 1,315,908,957 common shares, respectively. Proposals 8 and 9 will
be effected, if approved at the annual meeting, upon approval of proposal 9,
resulting in a par value per common share of $.01. Immediately thereafter, if
the common share consolidation is approved at the special common share meeting
and the reverse share split is approved at the annual meeting, the reverse share
split will be effected.
The common share consolidation will cause each issued common share to
be changed into one-twentieth of a common share, and will as a matter of Bermuda
law cause the par value of each common share to increase from $.01 to $.20.
Immediately thereafter, as part of the reverse share split:
o the par value of the Company's common shares will be reduced from
US$.20 per share to US$.01 per share, and
o the Company's authorized share capital will be reduced from
US$14,774,089.57 to US$752,954.4785.
The purpose of the common share consolidation is to comply with the
Company's obligations under the lockup agreement, which is described under "The
Meetings--Background of the Proposal for the Special Common Share Meeting and
Proposals 7, 8 and 9 for the Annual Meeting." If the common share consolidation
is effected, the expected immediate effect in the market would be an increase in
the trading price per share, although not necessarily on a proportional basis.
There are no assurances, however, that the common share consolidation will have
this effect.
Even though a common share consolidation, by itself, does not affect a
company's assets or prospects, common share consolidations can result in a
decrease in the aggregate market value of a company's equity capital. The
Company, however, believes that this risk is offset by the prospect that the
common share consolidation may, by increasing the per share price, make an
investment in the common shares more attractive for certain investors. A
shareholder may hold less than 100 common shares after the common share
consolidation, and as a consequence may incur greater costs associated with
trading.
The text of the shareholder resolution to effect the common share
consolidation is included in Annex A.
15
PRINCIPAL EFFECTS OF THE COMMON SHARE CONSOLIDATION
If the common share consolidation is effected, the number of common
shares owned by each holder as of the effective date will immediately and
automatically be reduced, so that each holder will own one common share for each
20 common shares held prior to the effective date. For other effects on the
common shares resulting from the common share consolidation, together with the
reductions in par value contemplated by annual meeting proposals 7 and 8 and the
increase in the Company's authorized capital contemplated by annual meeting
proposal 9, please see "The Meetings--Effects of Annual Meeting Proposals 7, 8
and 9 on Common Shares" on page 13.
The proposed common share consolidation will not affect any
shareholder's proportionate equity interest in the Company or the proportionate
rights, preferences, privileges or priorities of any shareholder.
As a result of the common share consolidation and related reduction in
par value of the common shares, the Company's financial statements will be
adjusted to move the paid up amount of US$0.19 in respect of each issued common
share from the Company's share capital to the Company's contributed surplus
account.
If approved, the common share consolidation will reduce (1) the number
of issued and outstanding common shares from 129,059,955.0778 to 6,452,997.75
and (2) the number of authorized common shares from 1,475,908,957 to
73,795,447.85. The outstanding common share numbers are based on the number of
common shares issued as of October 25, 2004. It is possible that additional
common shares will be issued prior to the completion of the common share
consolidation.
EFFECT ON ISSUED OPTIONS, WARRANTS AND PREFERRED SHARES
As of October 7, 2004, the Company had issued and outstanding employee
and director stock options to purchase an aggregate of 8,147,137 common shares,
with exercise prices per share ranging from US$1.17 to US$45.6875 per share, and
employee and director stock options to purchase an aggregate of 43,516.76
preferred shares (equivalent to 56,571,788.482 common shares using the
conversion ratio of 1300 common shares for each preferred share), with exercise
prices per preferred share of US$609.57 (US$0.4689 per common share).
The Company also issued Class A warrants in the exchange offer and
Class B warrants in connection with the exchange offer, to purchase preferred
shares equivalent upon conversion to an aggregate of approximately
198,825,832.3436 common shares at an exercise price of US$0.4689 per common
share. If proposals 8 and 9 at the annual meeting are approved, these warrants
will be exercisable for common shares.
Under the terms of the Company's issued options and warrants, when the
common share consolidation becomes effective, the number of common shares
underlying the options and warrants will be proportionately reduced and the
exercise price per common share will be proportionately increased. Specifically,
the number of common shares underlying the options and warrants will be reduced
to one-twentieth of the number currently underlying them, and the exercise price
per common share will be increased by twenty times. Similarly, under the terms
of the preferred shares, when the common share consolidation becomes effective,
the number of common shares into which each preferred share is convertible will
be proportionately reduced.
PROCEDURE FOR EFFECTING COMMON SHARE CONSOLIDATION AND EXCHANGE OF SHARE
CERTIFICATES
Upon the effectiveness of the common share consolidation, the number of
common shares held by each shareholder will be appropriately adjusted in the
Company's register of members. Shareholders will be notified on or after the
effective date that the common share consolidation has been effected.
As soon as practicable after the effective date, common shareholders
will be provided the opportunity (but will not be obligated) to surrender their
certificates representing pre-consolidation common shares to the exchange agent
in exchange for certificates representing post-consolidation common shares.
Shareholders will not receive certificates representing post-consolidation
common shares unless and until the certificates representing their
pre-consolidation common shares are surrendered and they provide such evidence
of ownership of such shares as the Company or the exchange agent may require.
The Company's transfer agent will act as the Company's exchange agent for
shareholders in implementing the exchange of share certificates.
16
Holders of common shares that hold their shares through a broker or
other nominee do not need to do anything, since their broker or nominee will act
for them in this matter.
IMPORTANT: SHAREHOLDERS SHOULD NOT FORWARD THEIR CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED NOTICE FROM THE COMPANY THAT THE COMMON
SHARE CONSOLIDATION HAS BECOME EFFECTIVE.
Beginning on the effective date, each certificate representing
pre-common share consolidation common shares will be deemed to evidence
ownership of the appropriate number of post-common share consolidation common
shares.
No service charge will be payable by shareholders in connection with
the exchange of common share certificates, all costs of which will be borne and
paid by the Company.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
A summary of certain United States federal income tax considerations
relating to the common share consolidation is set forth below. The discussion is
based on present United States federal income tax law. The discussion is not
intended to be, nor should it be relied on as, a comprehensive analysis of the
tax issues arising from or relating to the common share consolidation. Income
tax consequences to particular shareholders may vary from the United States
federal tax considerations described generally below, based upon their
particular situations or based upon their status as holders that may be subject
to special rules, such as financial institutions, insurance companies, real
estate investment trusts, regulated investment companies, grantor trusts,
tax-exempt organizations, dealers or traders in securities or currencies,
holders that actually or constructively own or will own 10 percent or more of
the Company's voting stock and a non-U.S. holder that is a U.S. expatriate,
"controlled foreign corporation," "passive foreign investment company," or
"foreign personal holding company." SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS AS TO THE EFFECT OF THE CONTEMPLATED COMMON SHARE CONSOLIDATION UNDER
APPLICABLE UNITED STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
The common share consolidation will constitute a "recapitalization" to
the Company and its shareholders to the extent that pre-common share
consolidation common shares are consolidated into a reduced number of common
shares. The Company believes that shareholders will not recognize gain or loss
on such consolidation, that such a shareholder's basis in the reduced number of
common shares will equal the shareholder's basis in its pre-common share
consolidation common shares, and that the holding period of the post-common
share consolidation common shares received will include the holding period of
the pre-common share consolidation common shares.
BOARD RECOMMENDATION
The board of directors believes that the common share consolidation is
in the best interests of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
COMMON SHARE CONSOLIDATION CONTEMPLATED BY THIS PROPOSAL.
17
PART III
THE ANNUAL MEETING
ANNUAL MEETING PROPOSAL 1
ELECTION OF DIRECTORS
In accordance with our bye-laws and pursuant to a resolution adopted by
the board of directors on February 26, 2002, the board of directors was divided
into three classes, with one class of directors to be selected each year for a
three year term.
The term of directors in one class expires in 2004. Pursuant to a
recommendation by the Company's Governance and Nominating Committee, the board
of directors has unanimously nominated Eugene D. Atkinson, Stephanie
Hanbury-Brown and David M. Sloan as nominees for election to the board of
directors for terms expiring in 2007.
The proxy agents of the board of directors intend to vote for the
election of the nominees named below, unless instructed otherwise. If any
eligible nominee becomes unable to accept nomination or election, proxies will
be voted for those remaining, and the board of directors will either reduce the
size of the board, or select substitute nominees after identifying suitable
candidates. The bye-laws provide that the board of directors shall consist of
not less than three and not more than twenty directors as shall be fixed from
time to time by the board. The board of directors has resolved that the board
shall be comprised of EIGHT directors.
Following is the name, principal occupation, age, and certain other
information, as of September 30, 2004, for each director nominee and other
directors serving unexpired terms.
NOMINEES FOR ELECTION AT THIS ANNUAL MEETING
EUGENE D. ATKINSON
Mr. Atkinson is a Managing Partner with RHJ Industrial Partners, a
private equity firm. He was previously a Limited Partner with Goldman, Sachs &
Co., an investment banking provider, and Chairman of Goldman Sachs
(International) from December 1990 to May 1999. Mr. Atkinson, who is 59 years
old, became a director of the Company in 1995.
STEPHANIE HANBURY-BROWN
Ms. Hanbury-Brown is the president of Morganae Foundation, a
not-for-profit organization for J.P. Morgan Alumnae, which she founded in 2001.
From 2001 - 2003 Ms. Hanbury-Brown headed a real estate investment venture named
Alsel LLC where she served as president. Prior to that venture, Ms.
Hanbury-Brown joined J.P. Morgan in 1986 where she worked until the end of 2000.
During the last few years of her tenure at J.P. Morgan she was the Chief
Operating Officer of the Global Equities division and then the head of the
E-Commerce division where she lead the development of a firm-wide e-commerce
strategy. Ms. Hanbury-Brown, who is 47 years old, was elected to the Board of
Directors of the Company on October 15, 2004.
DAVID M. SLOAN
Mr. Sloan is an international business consultant who has been deeply
involved in multinational financial and commercial matters for almost 30 years.
He has been president of Corporate Strategies International, Inc. since 1993 and
is a senior consultant, as a specialist on South Asia, to The Scowcroft Group an
international business advisory firm offering strategic planning, risk
management, market development and ongoing operations management. Mr. Sloan
holds a Master of Arts in Law and Diplomacy from The Fletcher School of Law &
Diplomacy, Tufts University, and he graduated cum laude with a BA in Political
Science from Tufts University. Mr. Sloan, who is 51 years old, became a director
of the Company in October 2004.
18
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
ABOVE-NAMED NOMINEES.
SIMILAR INFORMATION ON CONTINUING DIRECTORS
DIANE C. CREEL
Ms. Creel has been the chairman, chief executive officer and president
of Ecovation, Inc., a waste stream technology company, since 2003. From 1993 to
2003 Ms. Creel served as chief executive officer and president of Earth Tech, a
Tyco International Ltd. company offering international consulting engineering
services. Ms. Creel currently serves on the board of directors of Allegheny
Technologies Inc., a public company that produces specialty materials for a
variety of industries, Teledyne Technologies, Inca public company that designs
and manufactures electronics, instrumentation, communications and propulsion
products and provides engineering services, the American Funds of Capital
Research Management an investment firm and Goodrich Corporation, a public
company which provides systems and services to the aerospace and defense
industry. Ms. Creel holds BA and MA degrees in journalism from the University of
South Carolina, and she has done post-graduate work at the University of
Pennsylvania's Wharton School and at Harvard University. Ms. Creel, who is 55
years old, became a director of the Company in October 2004. Her term will
expire in 2006.
ROGER L. HEFFERNAN
Mr. Heffernan, who is currently retired, has garnered almost 40 years
of operations experience at a number of private equity firms and Fortune 500
companies. Mr. Heffernan served on the board of directors of CDI, a privately
held distributor of electronic components to the satellite and cable television
industries, from 2002 - 2003. He co-founded CRM Partners in 1999, a management
consulting firm servicing the banking and investment industry, and was a partner
until 2002. Prior to this time, Mr. Heffernan spent several years with Stolhberg
Partners, a private equity firm, providing management and corporate
restructuring consulting services. Prior to that, Mr. Heffernan served as vice
president of manufacturing at General Instrument Corporation, and as a
manufacturing executive at IBM Corporation and ITT Corporation. Mr. Heffernan
holds a BBA in Accounting from Manhattan College, an MBA in Management from Pace
University, and he has completed the Executive Manufacturing Program at the
Harvard Graduate School of Business. Mr. Heffernan, who is 64 years old, became
a director of the Company in October 2004. His term will expire in 2006.
JOSEPH J. MELONE
Mr. Melone is the former President and Chief Executive Officer of The
Equitable Companies Inc. and the former Chairman and Chief Executive Officer of
The Equitable Life Assurance Society of the United States, a provider of
insurance and financial services. He is also a director of BISYS Group, Inc., a
public company that provides business process outsourcing solutions to
investment firms, insurance companies and banks and Horace Mann Educators
Corporation, a public company which provides marketing and underwriting of
personal lines of property, casualty and life insurance and retirement
annuities. Mr. Melone, who is 73 years old, became a director of the Company in
September 1988 and became deputy chairman of the board in September 2002. His
term will expire in 2005.
RAYMOND J. MILCHOVICH
Mr. Milchovich has been the Chairman, President and Chief Executive
Officer of the Company since October 2001. Formerly, he was the Chairman,
President and Chief Executive Officer of Kaiser Aluminum Corporation, a leading
producer and marketer of alumina, aluminum and aluminum fabricated products, and
Kaiser Aluminum & Chemical Corporation ("KACC") since January 2000. Mr.
Milchovich was President of Kaiser Aluminum Corporation and KACC since July
1997. He also served as Chief Operating Officer of Kaiser Aluminum Corporation
and KACC from July 1997 through May and June 2000, respectively. Prior to that
time, he held several executive positions with Kaiser Aluminum Corporation and
its subsidiaries. He is a director of Nucor Corporation, a public company
specializing in steel production and recycling. Mr. Milchovich, who is 55 years
old, became a director of the Company in October 2001. His term will expire in
2005.
19
JAMES D. WOODS
Mr. Woods is the Chairman Emeritus and retired Chief Executive Officer
of Baker Hughes Incorporated. Previously, he was Chief Executive Officer of
Baker Hughes from April 1987 and Chairman from January 1989, in each case until
January 1997. He is also a director of United States Energy Co. (USEC), ESCO
Technologies, Integrated Electrical Services, OMI Corporation, and Varco
International. Mr. Woods, who is 72 years old, became a director of the Company
in September 2002. His term will expire in 2006.
20
ANNUAL MEETING PROPOSAL 2
INDEPENDENT AUDITORS: APPOINTMENT AND
AUTHORIZATION OF AUDIT COMMITTEE TO SET REMUNERATION
The Audit Committee of the board of directors (the "Audit Committee")
has selected, subject to shareholder approval, PricewaterhouseCoopers LLP to
audit the consolidated financial statements of the Company for the fiscal year
ending December 31, 2004. A representative of PricewaterhouseCoopers LLP will
attend the annual meeting and will be available to respond to appropriate
questions and to make a statement if he or she so desires. In addition,
shareholders are asked to authorize the board of directors, acting through the
Audit Committee, to set the remuneration of the Company's independent auditors
for 2004.
THE AUDIT COMMITTEE RECOMMENDS A VOTE "FOR" THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT AUDITORS AND THE AUTHORIZATION FOR THE
BOARD OF DIRECTORS, THROUGH THE AUDIT COMMITTEE, TO SET THE REMUNERATION OF THE
INDEPENDENT AUDITORS.
21
ANNUAL MEETING PROPOSAL 3
AWARDS OF RESTRICTED STOCK UNITS AND STOCK OPTIONS FOR DIRECTORS
The Compensation Committee of the board of directors (the "Compensation
Committee") has approved and the board of directors recommends that the
shareholders approve the following grants of equity remuneration to the
non-employee directors listed below. In the following table,
o "Stock Plan" means the Foster Wheeler Ltd. Management Restricted
Stock Plan.
o "Option Plan" means the Foster Wheeler Ltd. 2004 Stock Option
Plan.
o "RSU" means restricted stock units.
o "NSO" means nonstatutory stock options.
DIRECTOR RECIPIENTS AND AWARDS
FORM OF AWARD NO. OF
NAME PLAN (NSO OR RSU) COMMON SHARES
---- ---- ------------ -------------
Eugene Atkinson Stock Plan RSU 51,614
Option Plan NSO 59.05
Diane Creel Stock Plan RSU 51,614
Option Plan NSO 59.05
Stephanie Hanbury-Brown Stock Plan RSU 51,614
Option Plan NSO 59.05
Roger L. Heffernan Stock Plan RSU 51,614
Option Plan NSO 59.05
Joseph J. Melone Stock Plan RSU 51,614
Option Plan NSO 59.05
David M. Sloan Stock Plan RSU 51,614
Option Plan NSO 59.05
James D. Woods Stock Plan RSU 51,614
Option Plan NSO 59.05
Each of the nonstatutory stock options listed above has a term of three
years from the grant date and an exercise price equal to US$0.4689 multiplied by
the product of (1) the number of series B convertible preferred shares subject
to the option times (2) 1300.
Subject to shareholder approval, these grants would become 100% vested
on December 31, 2005 as to each director, subject to the director's remaining in
continuous service on the board throughout such period.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AWARDS OF RESTRICTED
STOCK UNITS AND STOCK OPTIONS TO DIRECTORS CONTEMPLATED BY PROPOSAL 3.
22
ANNUAL MEETING PROPOSAL 4
AMENDMENT TO THE BYE-LAWS REGARDING DIRECTOR RETIREMENT AGE
The board of directors has approved and recommends that the
shareholders approve an amendment to the Company's bye-laws to replace the
current director retirement provision, which permits directors to serve until
the conclusion of the term during which such director reaches his or her
seventy-second birthday, with a provision stating that the board of directors
will establish a director retirement age by board resolution. The text of the
proposed amendment is set forth in Annex A.
The board of directors believes that it is important to maintain limits
on the age of candidates for service as a director. However, the board believes
that it is in the best interests of the Company for the board to be able to
adjust the retirement requirement for directors from time to time without the
need to wait for a meeting of shareholders in order to amend the Company's
bye-laws. For these reasons, the board of directors has determined it is in the
best interests of the Company to amend bye-law 10(4) to provide that the board
will establish director retirement by resolution.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE
BYE-LAWS REGARDING DIRECTOR RETIREMENT AGE CONTEMPLATED BY PROPOSAL 4.
ANNUAL MEETING PROPOSAL 5
AMENDMENT TO THE BYE-LAWS REGARDING DIRECTOR SHARE OWNERSHIP
The board of directors has approved and recommends that the
shareholders approve an amendment to the Company's bye-laws to replace the
requirement that each director must own at least 100 common shares when elected
and at least 1000 common shares by the third anniversary of the election with a
provision stating that the board of directors will establish share ownership
policy for non-employee directors. The text of the proposed amendment is set
forth in Annex A.
The board of directors believes that it is important for its directors
to maintain an appropriate level of equity ownership in the Company. However,
the board believes that it is in the best interests of the Company for the board
to be able to adjust the required level of equity ownership for directors,
depending on various factors such as changes to the market price of our equity
securities, without the need to wait for a meeting of shareholders in order to
amend the Company's bye laws. For these reasons, the board of directors has
determined it is in the best interests of the Company to amend bye-law 10(5) to
provide that the board will establish a non-employee director share ownership
policy by resolution.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE
BYE-LAWS REGARDING DIRECTOR SHARE OWNERSHIP CONTEMPLATED BY PROPOSAL 5.
23
ANNUAL MEETING PROPOSAL 6
AMENDMENT TO THE BYE-LAWS REGARDING DIRECTOR REMUNERATION
The board of directors has approved and recommends that the
shareholders approve an amendment to the Company's bye-laws relating to director
remuneration. The text of the proposed amendment is set forth in Annex A.
Currently, bye-law 20 provides that director remuneration will be "determined,
as the Board of Directors from time to time determine, by the Company in general
meeting." The amendment to bye-law 20 recommended by the board replaces this
language with a statement that director remuneration will be determined by the
board from time to time.
The board of directors believes that it is customary at widely held
public companies for director compensation to be determined by the board of
directors, after considering recommendations from an independent committee such
as the Compensation Committee of the board. The board believes that the current
language of bye-law 20 is potentially ambiguous. For these reasons, the board of
directors has determined it is in the best interests of the Company to amend
bye-law 20 to clarify that the board of directors will determine director
remuneration from time to time.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE
BYE-LAWS REGARDING DIRECTOR REMUNERATION CONTEMPLATED BY PROPOSAL 6.
24
ANNUAL MEETING PROPOSAL 7
COMMON SHARE CONSOLIDATION AND REDUCTION IN PAR VALUE
The board of directors has approved and recommends that the
shareholders approve a consolidation of the Company's authorized common share
capital (the "common share consolidation") at a ratio of 1-for-20 (the "split
ratio"), followed by a reduction in the par value of the Company's common shares
(collectively, the "reverse share split"). The day on which the reverse share
split becomes effective is referred to as the "effective date." Upon completion
of the reverse share split on the effective date, each shareholder of common
shares will hold one common share for every 20 common shares held before the
effective date, and the par value of each common share held will be US$.01. The
conversion ratio for the preferred shares, and the terms of the Company's issued
options and warrants to purchase common shares, will be adjusted accordingly.
The reverse share split will be effected only if (1) the Company's
common shareholders have approved the common share consolidation at the special
common share meeting preceding the annual meeting and (2) shareholders at the
annual meeting approve the reverse share split and also approve proposals 8 and
9 to be considered at the annual meeting. Proposals 8 and 9 will be effected, if
approved, upon approval of proposal 9, resulting in a par value per common share
of $.01. Immediately thereafter, if the common share consolidation is approved
at the special common share meeting and the reverse share split is approved at
the annual meeting, the reverse share split will be effected. The common share
consolidation will cause each issued common share to be reclassified as and
changed into one-twentieth of a common share, and will cause the par value of
each common share to increase from $.01 to $.20. Immediately thereafter, as part
of the reverse share split:
o the par value of the Company's authorized common shares will be
reduced from US$.20 per share to US$.01 per share, and
o the Company's authorized share capital will be reduced from
US$14,774,089.57 to US$752,954.4785.
The purpose of the reverse share split is to comply with the Company's
obligations under the lockup agreement, which is described under "The
Meetings--Background of the Proposal for the Special Common Share Meeting and
Proposals 7, 8 and 9 for the Annual Meeting." If the reverse share split is
effected, the expected immediate effect in the market would be an increase in
the trading price per share, although not necessarily on a proportional basis.
There are no assurances, however, that the reverse share split will have this
effect.
Even though a reverse share split, by itself, does not affect a
company's assets or prospects, reverse share splits can result in a decrease in
the aggregate market value of a company's equity capital. The Company, however,
believes that this risk is offset by the prospect that the reverse share split
may, by increasing the per share price, make an investment in the common shares
more attractive for certain investors. A shareholder may hold less than 100
common shares after the reverse share split, and as a consequence may incur
greater costs associated with trading.
The shareholder resolutions to effect the reverse share split are
included in Annex A.
PRINCIPAL EFFECTS OF THE REVERSE SHARE SPLIT
If the reverse share split is effected, the number of common shares
owned by each holder as of the effective date will immediately and automatically
be reduced, so that each holder will own one common share for each 20 common
shares held prior to the effective date and the par value of each such common
share will be $.01. For other effects on the common shares resulting from the
reverse share split, together with the reduction in par value contemplated by
proposal 8 and the increase in the Company's authorized capital contemplated by
proposal 9, please see "The Meetings--Effects of Annual Meeting Proposals 7, 8
and 9 on Common Shares" on page 13.
The reverse share split will not affect any shareholder's proportionate
equity interest in the Company or the proportional rights, preferences,
privileges or priorities of any shareholder.
25
As a result of the reverse share split, the Company's financial
statements will be adjusted to move the paid up amount of US$0.19 in respect of
each issued common share from the Company's share capital to the Company's
contributed surplus account.
If approved, the reverse share split will reduce (1) the number of
issued and outstanding common shares from 129,059,955.0778 to 6,452,997.75 and
(2) the number of authorized common shares from 1,475,908,957 to 73,795,447.85.
The outstanding common share numbers are based on the number of common shares
issued as of October 25, 2004. It is possible that additional common shares will
be issued prior to the completion of the reverse share split.
EFFECT ON ISSUED OPTIONS, WARRANTS AND PREFERRED SHARES
As of October 7, 2004, the Company had issued and outstanding employee
and director stock options to purchase an aggregate of 8,147,137 common shares,
with exercise prices per share ranging from US$1.17 to US$45.6875 per share, and
employee and director stock options to purchase an aggregate of 43,516.76
preferred shares (equivalent to 56,571,788.482 common shares using the
conversion ratio of 1300 common shares for each preferred share), with an
exercise price per preferred share of US$609.57 (US$0.4689 per common share).
The Company also issued Class A warrants in the exchange offer and
Class B warrants in connection with the exchange offer to purchase preferred
shares equivalent to an aggregate of approximately 198,825,832.3436 common
shares at an exercise price of US$0.4689 per common share. These warrants will
become exercisable for common shares only if proposals 8 and 9 at the annual
meeting are approved.
Under the terms of the Company's issued options and warrants, when the
common share consolidation becomes effective, the number of common shares
underlying the options and warrants will be proportionately reduced and the
exercise price per common share will be proportionately increased. Specifically,
the number of common shares underlying the options and warrants will be reduced
to one-twentieth of the number currently underlying them, and the exercise price
per common share will be increased by twenty times. Similarly, under the terms
of the preferred shares, when the reverse share split becomes effective, the
number of common shares into which each preferred share is convertible will be
proportionately reduced.
PROCEDURE FOR EFFECTING COMMON SHARE CONSOLIDATION AND EXCHANGE OF SHARE
CERTIFICATES
Upon the effectiveness of the reverse share split, the number of common
shares held by each shareholder will be appropriately adjusted in the Company's
register of members. Shareholders will be notified on or after the effective
date that the reverse share split has been effected. Within 30 days after the
effective date, the Company is required to file a memorandum with the Bermuda
Registrar of Companies relating to the reduction in par value that will occur as
part of the reverse share split.
As soon as practicable after the effective date, common shareholders
will be provided the opportunity (but will not be obligated) to surrender their
certificates representing pre-reverse share split common shares to the exchange
agent in exchange for certificates representing post-reverse share split common
shares. Shareholders will not receive certificates representing post-reverse
share split common shares unless and until the certificates representing their
pre-reverse share split common shares are surrendered and they provide such
evidence of ownership of such shares as the Company or the exchange agent may
require. The Company's transfer agent will act as the Company's exchange agent
for shareholders in implementing the exchange of share certificates.
Holders of common shares that hold their shares through a broker or
other nominee do not need to do anything, since their broker or nominee will act
for them in this matter.
IMPORTANT: SHAREHOLDERS SHOULD NOT FORWARD THEIR CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED NOTICE FROM THE COMPANY THAT THE REVERSE
SHARE SPLIT HAS BECOME EFFECTIVE.
26
Beginning on the effective date, each certificate representing
pre-reverse share split common shares will be deemed for all corporate purposes
to evidence ownership of the appropriate number of post-reverse share split
common shares.
No service charge will be payable by shareholders in connection with
the exchange of certificates, all costs of which will be borne and paid by the
Company.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
A summary of certain United States federal income tax considerations
relevant to the reverse share split, an increase in the Company's authorized
capital and the corresponding reduction in the par value of the common and
preferred shares is set forth below. The discussion is based on present United
States federal income tax law. The discussion is not intended to be, nor should
it be relied on as, a comprehensive analysis of the tax issues arising from or
relating to the reverse share split, the increase in the Company's authorized
capital and the corresponding reduction in the par value of the common and
preferred shares. Income tax consequences to particular shareholders may vary
from the United States federal tax considerations described generally below
based upon their particular situations or based upon their status as holders
that may be subject to special rules, such as financial institutions, insurance
companies, real estate investment trusts, regulated investment companies,
grantor trusts, tax-exempt organizations, dealers or traders in securities or
currencies, holders that actually or constructively own or will own 10 percent
or more of our voting stock and a non-U.S. holder that is a U.S. expatriate,
"controlled foreign corporation," "passive foreign investment company," or
"foreign personal holding company." SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS AS TO THE EFFECT OF THE CONTEMPLATED EVENTS UNDER APPLICABLE UNITED
STATES FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
The reverse share split will constitute a "recapitalization" to the
Company and its common shareholders to the extent that pre-reverse share split
common shares are consolidated into a reduced number of common shares. The
Company believes that common shareholders will not recognize gain or loss in
such consolidation, that such a shareholder's basis in the reduced number of
common shares will equal the shareholder's basis in its pre-reverse share split
common shares, and that the holding period of the post-reverse share split
common shares received will include the holding period of the pre-reverse share
split common shares.
The Company believes that a holder of preferred shares generally should
not recognize gain or loss with respect to (1) the preferred shares becoming
convertible upon an increase in the Company's authorized capital, (2) the
corresponding reduction in par value of the preferred and common shares or (3)
its receipt of common shares upon the conversion of its preferred shares.
However, no statutory, judicial or administrative authority directly addresses
the tax consequences associated with stock having terms like the preferred
shares, and it is possible that a holder may recognize income, which may be
ordinary income, on any of the events described above.
BOARD RECOMMENDATION
The board of directors believes that the reverse share split is in the
best interests of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
REVERSE SHARE SPLIT CONTEMPLATED BY PROPOSAL 7.
27
ANNUAL MEETING PROPOSAL 8
REDUCTION IN PAR VALUE OF COMMON SHARES AND PREFERRED SHARES
At the annual meeting, the Company is asking that you approve a
reduction to the par value of the authorized common share and preferred share
capital from US$1.00 to US$.01 per share (the "par value reduction"). If
approved, the par value reduction would take effect immediately prior to the
increase in authorized share capital (proposal 9), after which the reverse share
split (proposal 7), if approved, would take effect.
The par value reduction will be effected only if shareholders also
approve proposal 9, regarding the increase in authorized share capital, and will
be effected regardless of whether shareholders approve proposal 7, regarding the
reverse share split.
"Par value" is a dollar value assigned to the Company's shares and
represents the per-share amount of the Company's aggregate dollar value of
authorized capital. There is no minimum or maximum par value amount under
Bermuda law, although all shares must have a par value. The Company believes the
prevailing current practice of public companies is to have shares with nominal
par value (such as US$.01 per share).
The purpose of the par value reduction is to comply with the terms of
the preferred shares and the Company's obligations under the lockup agreement,
which is described under "The Meetings--Background of the Proposal for the
Special Common Share Meeting and Proposals 7, 8 and 9 for the Annual Meeting."
The preferred shares will become convertible into common shares, and will no
longer be voting securities except in limited circumstances, only if this
proposal 8 and proposal 9 are approved. If both proposals are not approved, the
preferred shares will not become convertible into common shares, although they
will continue to vote and share in dividends and distributions on an "as
converted" basis as though they were convertible into common shares. You should
read "The Meetings--Background of the Proposal for the Special Common Share
Meeting and Proposals 7, 8 and 9 for the Annual Meeting" for more information.
The warrants and the options issued in connection with the exchange offer will
become exercisable for common shares only if proposal 8 and proposal 9 are
approved. The warrants will become exercisable on September 24, 2005. If both
proposals are not approved, they will remain exercisable for preferred shares.
In addition, Bermuda companies may not issue fully paid shares for a
consideration having a value below par. On October 25, 2004, the last sale price
quoted on the OTC for the Company's common shares was US$.45 per share. This is
below the current par value of US$1.00 attributed to these shares. The Company
believes that the current par value of the common shares restricts the Company's
ability to raise equity capital by issuing fully paid common shares. The Company
currently has no plans to raise capital by issuing common shares.
If the preferred shares, warrants and options were convertible or
exercisable, as applicable, for common shares on October 25, 2004, (1) the total
number of common shares issuable upon conversion of the preferred shares would
be 779,926,829.760, (2) the total number of common shares issuable upon exercise
of the warrants would be 198,825,832.3436 and (3) the total number of common
shares issuable upon exercise of the options to acquire preferred shares
recently granted to its directors and certain of its employees would be
56,571,788.482.
The shareholder resolutions to effect the par value reduction are
included in Annex A.
PRINCIPAL EFFECTS OF THE PAR VALUE REDUCTION
Reducing the par value of the common shares to an amount lower than the
current market price of the common shares will enable the Company, should it
determine to do so, to issue additional fully paid common shares at market
prices. The par value reduction will not affect the rights of the Company's
shareholders, and the Company does not anticipate that the par value reduction
by itself will have an effect on the market price or trading of the common
shares. There are no arrears in dividends with respect to the Company's common
shares.
As a result of the par value reduction, the Company's financial
statements will be adjusted to move the paid up amount of US$0.99 in respect of
each issued common share and each issued preferred share from the Company's
share capital to the Company's contributed surplus account.
28
As a result of the par value reduction, viewed as a stand-alone action,
the authorized capital of the Company would be reduced from US$161,500,000 to
US$1,615,000. As a result of the share increase amendment covered by proposal 9,
this amount would be increased to US$14,774,089.57. Upon completion of the
reverse share split (proposal 7), if approved, the Company's authorized share
capital will be US$752,954.4785. The completion of the par value reduction will
not affect the number of authorized common shares or preferred shares.
PROCEDURE FOR EFFECTING THE PAR VALUE REDUCTION
The par value reduction will be effected upon approval of the share
increase amendment (proposal 9) at the annual meeting. Within 30 days
thereafter, the Company is required to file a memorandum regarding the par value
reduction with the Bermuda Registrar of Companies.
BOARD RECOMMENDATION
The board of directors believes that the par value reduction is in the
best interests of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
PAR VALUE REDUCTION CONTEMPLATED BY PROPOSAL 8.
29
ANNUAL MEETING PROPOSAL 9
INCREASE IN THE NUMBER OF AUTHORIZED
COMMON SHARES OF THE COMPANY
At the annual meeting, subject to the approval of proposal 8, the
Company is asking that you approve an increase to the Company's authorized
capital from US$1,615,000, consisting of 160,000,000 common shares and 1,500,000
preferred shares, to US$14,774,089.57, consisting of 1,475,908,957 common shares
and 1,500,000 preferred shares (the "share increase amendment"). If approved,
the share increase amendment would take effect immediately after the par value
reduction (proposal 8), and immediately prior to the reverse share split
(proposal 7).
The share increase amendment will be effected only if shareholders also
approve the par value reduction (proposal 8), and will be effected whether or
not shareholders approve the reverse share split (proposal 7).
The purpose of the share increase amendment is to comply with the terms
of the preferred shares and the Company's obligations under the lockup
agreement, which is described under "The Meetings--Background of the Proposal
for the Special Common Share Meeting and Proposals 7, 8 and 9 for the Annual
Meeting." Increasing the number of authorized common shares will enable the
Company to issue all of the common shares that are issuable upon conversion of
the preferred shares, and will permit the Company to issue common shares rather
than preferred shares upon exercise of (1) the warrants it issued in its
equity-for-debt exchange offer and (2) the options to acquire preferred shares
recently granted to its directors and certain of its officers. The preferred
shares will become convertible into common shares, and will no longer be voting
securities except in limited circumstances, only if proposal 8 and this proposal
9 are approved. If both proposals are not approved, the preferred shares will
not become convertible into common shares, although they will continue to vote
and share in dividends and distributions on an "as converted" basis as though
they were convertible into common shares. You should read "The
Meetings--Background of the Proposal for the Special Common Share Meeting and
Proposals 7, 8 and 9 for the Annual Meeting" for more information. The warrants
and the options issued in connection with the exchange offer will become
exercisable for common shares only if proposal 8 and proposal 9 are approved.
The warrants will become exercisable on September 24, 2005. If both proposals
are not approved, they will remain exercisable for preferred shares.
If the preferred shares, warrants and options were convertible or
exercisable, as applicable, for common shares on October 25, 2004, (1) the total
number of common shares issuable upon conversion of the preferred shares would
be 779,926,829.760, (2) the total number of common shares issuable upon exercise
of the warrants would be 198,825,832.3436 and (3) the total number of common
shares issuable upon exercise of the options to acquire preferred shares
recently granted to its directors and certain of its employees would be
56,571,788.482.
As of October 25, 2004, 1,014,785 of our authorized preferred shares
were designated Series B Convertible Preferred Shares, of which 599,943.7152
were outstanding. The lockup agreement and the certificate of designation
governing the preferred shares obligate us to seek the approval of our
shareholders of an increase in capital as described in this proposal. The amount
of the increase was calculated based on 100% participation in the
equity-for-debt exchange offer. In fact, holders of less than 100% of the
relevant securities participated in the exchange offer. Hence, if this proposal
9 is approved, there will be more common shares authorized than is necessary to
convert the outstanding preferred shares. These common shares will be reserved
for issuance upon conversion of any designated but unissued preferred shares
when and if they are issued. Notwithstanding the existence of unissued
designated preferred shares, it is unlikely that additional preferred shares
will be issued. This is the case because the certificate of designation
governing the preferred shares limits our ability to issue preferred shares,
except with the prior written consent of the holders of three-fourths of the
outstanding preferred shares, to issuances (1) in the equity-for-debt exchange
offer and the related subsequent offering period, both of which have concluded,
and (2) upon exercise of the warrants and management options issued in
connection with the equity-for-debt exchange offer. If proposals 8 and 9 are
approved, the warrants and options will become exercisable for common shares
instead of preferred shares. Thus, unless the terms of the preferred shares are
altered (which would require the approval of three-fourths of the holders of the
preferred shares) we will not be able to issue additional preferred shares.
Although we intend to reserve all of the additional common shares authorized by
proposal 9 following the approval,
30
in the future the Board may release the reservation of some of these unused
common shares for other purposes by board action without further shareholder
approval. This means that up to approximately 309 million common shares, or
approximately 15.5 million common shares post-reverse split, issuable upon
conversion of unissued preferred shares, may be re-designated for other purposes
in the future. The company has no current plans to re-designate these shares. In
the future, if the Company does redesignate these shares, they would be
available for issuance for proper corporate purposes that may be identified in
the future. Possible transactions include raising equity capital, making
acquisitions through the use of common shares, establishing strategic
relationships with other companies, and reserving additional shares for issuance
under director or employee benefit plans. The Company currently has no plans to
engage in these transactions or other transactions that would utilize additional
authorized common shares.
The shareholder resolutions to effect the share increase amendment are
included in Annex A.
PRINCIPAL EFFECTS OF THE SHARE INCREASE AMENDMENT
Increasing the number of authorized common shares will enable the
Company to issue all of the common shares that are issuable upon conversion of
the preferred shares, and will permit the Company to issue common shares rather
than preferred shares upon exercise of the warrants it issued in its
equity-for-debt exchange offer. If approved, the additional common shares
authorized by the share increase amendment will, together with the
30,940,044.9222 common shares currently available for issuance, permit the
Company to issue a maximum of 1,346,849,001.9222 additional common shares (or
67,342,450.10 additional common shares after the reverse share split), based on
the number of common shares issued and outstanding on October 25, 2004.
Following the shareholder meetings, such common shares are or will be reserved
for issuance on conversion of the preferred shares, warrants and director and
employee options. Holders of the common shares and preferred shares do not have
preemptive rights to subscribe for additional securities that may be issued by
the Company. Therefore, current holders of common shares and preferred shares do
not have a right to purchase any new common shares that the Company may issue.
As a result of the par value reduction, viewed as a stand-alone
transaction, the authorized capital of the Company would be reduced from
US$161,500,000 to US$1,615,000. As a result of the share increase amendment
covered by proposal 9, this amount would be increased to US$14,774,089.57. Upon
completion of the reverse share split, if approved, the Company's authorized
share capital will be US$752,954.4785.
If approved, the increase in capital will not affect the rights of the
Company's shareholders. However if the reservation of any common shares is
released at a later time, there may be effects incidental to any subsequent
issuances of common shares and the resulting increase in the number of common
shares issued. If the board of directors elects to issue additional common
shares, the issuance could have a dilutive effect on earnings per share of
common shareholders. Such an issuance would also have a dilutive effect on the
voting power and percentage ownership in the Company represented by the shares
held by holders of common shares and preferred shares immediately prior to such
issuance.
Neither the board of directors nor management of the Company views the
increase of the authorized common shares as an anti-takeover measure. The
proposed increase in the number of authorized common shares is necessary in
order to permit the Company to issue common shares upon exercise or conversion
of the warrants to acquire preferred shares and the recently granted management
options to acquire preferred shares (both of which will become exercisable for
common shares if proposals 8 and 9 are approved at the annual meeting) and upon
conversion of the preferred shares. However, because the board of directors may
in the future release the reservation of common shares that were reserved for
issuance upon conversion of preferred shares that were never issued, and
therefore may issue additional common shares without further shareholder
approval, thereby increasing the number of shares that would have to be acquired
to effect a change of control of the company, the Company could use the
resulting additional common shares available for issuance to frustrate persons
seeking to effect a takeover of, or otherwise gain control of, the Company by
means of a merger, amalgamation, tender offer, proxy contest or other means.
Proposal 9 has not been prompted by any effort by anyone to gain control of the
Company, and the Company is not aware of any such effort. In addition, proposal
9 is not part of any plan by the Company to recommend a series of anti-takeover
measures and the Company does not currently contemplate recommending the
31
adoption of other measures that could be construed to affect the ability of
third parties to take over or change control of the Company.
PROCEDURE FOR EFFECTING THE SHARE INCREASE AMENDMENT
The share increase amendment will be effected immediately after it, and
the par value reduction (proposal 8) are approved at the annual meeting. Within
30 days thereafter, the Company is required to file an amendment to its
memorandum of association with the Bermuda Registrar of Companies.
BOARD RECOMMENDATION
The board of directors believes that the share increase amendment is in
the best interests of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
SHARE INCREASE AMENDMENT CONTEMPLATED BY PROPOSAL 9.
32
PART IV
OTHER MATTERS
OWNERSHIP OF COMMON SHARES BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of October 7, 2004 beneficial
ownership of Foster Wheeler common shares by each director or director nominee,
by each executive officer and former officer named in the Summary Compensation
Table in this proxy statement and by all directors and executive officers as a
group. Stephanie Hanbury-Brown was elected to the board of directors on October
15, 2004. As of that date, she owned 4,500 common shares. On October 25, 2004,
Diane C. Creel purchased 2,500 common shares and Roger L. Heffernan purchased
1,000 common shares. On October 28, 2004, David M. Sloan purchased 100 common
shares.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP OF COMMON SHARES
CURRENT SHARES
BENEFICIAL SUBJECT TO STOCK PERCENTAGE
NAME OF BENEFICIAL OWNER HOLDINGS (1) OPTIONS (2) UNITS (3) TOTAL OF CLASS (10)
- ------------------------ ------------ ----------- --------- ----- ----------------
Eugene D. Atkinson............. 10,000 25,000 2,593 37,593 *
Bernard H. Cherry.............. 4,645,336(4) 102,000 0 4,747,336 3.67%
Diane C. Creel................. 0 0 0 0 *
Joseph T. Doyle(5)............. 0 0 0 0 *
Brian K. Ferraioli............. 636,049(6) 16,228 0 652,277 *
Roger L. Heffernan............. 0 0 0 0 *
Kenneth A. Hiltz(5)............ 0 0 0 0 *
Robert D. Iseman(5)............ 10,347 202,180 0 212,527 *
John T. La Duc (7)............. 2,090,401 0 2,090,401 1.62%
Joseph J. Melone............... 36,152(8) 25,000 180,313 241,465 *
Raymond J. Milchovich.......... 15,485,453(9) 1,363,340 0 16,848,793 12.92%
Thomas R. O'Brien(5) .......... 6,573 212,250 0 218,823 *
David M. Sloan................. 0 0 0 0 *
Steven I. Weinstein(5)......... 200 113,787 0 113,987 *
James D. Woods................. 15,000 3,000 1,600 19,600 *
All directors and
executive officers as
a group (19 persons)........ 23,599,887 2,140,777 184,506 25,925,170
- ------------------
(1) The number of shares shown includes shares that are individually or
jointly owned, as well as shares over which the individual has either
sole or shared investment or voting authority. Also includes restricted
stock awards approved by the board of directors on September 29, 2004
subject to a required approval by the New Jersey Bureau of Securities.
This approval was obtained on October 6, 2004.
(2) Represents shares that may be acquired currently or within 60 days
after October 7, 2004 through the exercise of stock options pursuant to
the 1984 Stock Option Plan of Foster Wheeler Inc., the 1995 Stock
Option Plan of Foster Wheeler Inc., the Foster Wheeler Inc. Directors'
Stock Option Plan, the 2004 Stock Option Plan, or inducement option
grants.
(3) Represents share units held under the Foster Wheeler Inc. Directors
Deferred Compensation and Stock Award Plan for non-employee directors
(referred to below under the caption "Compensation of Directors"). Only
non-employee directors are eligible to participate in this Plan.
(4) Includes 4,645,336 restricted common shares approved by the
Compensation Committee of the board on September 29, 2004 and granted
on October 6, 2004. See note (1).
(5) Represents the number of shares beneficially owned at the time his
employment with the Company terminated.
(6) Includes 635,895 restricted common shares approved by the Compensation
Committee of the board on September 29, 2004 and granted on October 6,
2004. See note (1).
33
(7) These are restricted common shares approved by the Compensation
Committee of the board on September 29, 2004 and granted on October 6,
2004. Mr. La Duc was elected by the board of directors as executive
vice president and chief financial officer on April 14, 2004. Mr. La
Duc is included in this table for disclosure purposes, although he is
not a "named executive officer".
(8) Includes 9,652 common shares related to Mr. Melone's tender of 12,700
shares of 9% Preferred Securities, Series I in the recent exchange
offer. See "The Meetings--Background of the Proposal for the Special
Common Share Meeting and Proposals 7, 8 and 9 for the Annual Meeting."
Does not include 156.21 preferred shares received in the exchange
offer. Each preferred share is convertible into 1,300 common shares,
subject to shareholder approval of proposals 8 and 9 at the annual
meeting.
(9) Includes 15,484,453 restricted common shares approved by the
Compensation Committee of the board on September 29, 2004 and granted
on October 6, 2004. See note (1).
(10) Based upon the number of common shares issued as of October 7, 2004.
* Owns less than 1%.
OTHER BENEFICIAL OWNERS
We have been advised based upon information received from counsel to
certain of our shareholders, filings of Schedule 13G's with the Securities and
Exchange Commission through October 25, 2004 and other publicly available
information that the following are beneficial owners of more than five percent
of the issued common shares or preferred shares, as indicated. Percent of class
owned is calculated by dividing the shares reported by the number of shares of
the class outstanding on October 25, 2004. Additional common shares have been
issued since the dates of the filings relating to common shares.
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- -------------- ------------------- ----------------- --------
Common Merrill Lynch & Co., Inc. 18,314,943 (1) 14.19%
(on behalf of Merrill Lynch
Investment Managers)
World Financial Center, North Tower
250 Vesey Street
New York, NY 10381
Common Lampe, Conway & Co. LLC 6,964,854 (2) 5.40%
680 Fifth Avenue, Suite 1202
New York, NY 10019
Common Citigroup Global Markets Inc. 7,516,616 (3) 5.82%
390 Greenwich St, 2nd Floor
New York, NY 10013
Preferred Lampe, Conway & Co. LLC 68,268 (4) 11.4%
680 Fifth Avenue, Suite 1202
New York, NY 10019
Preferred Aristeia Capital, LLC 33,380 (5) 5.56%
381 Fifth Avenue, 6th Floor
New York, NY 10016
Preferred Merrill Lynch & Co., Inc. 127,318 (6) 21.20%
(on behalf of Merrill Lynch
Investment Managers)
Preferred Citigroup Global Markets Inc. 76,323 (7) 12.72%
390 Greenwich St, 2nd Floor
New York, NY 10013
34
- -------------
(1) Based on information from counsel for this shareholder. A Schedule
13G/A filed with the SEC on February 13, 2004 reported that the
shareholder held 8,513,268 common shares, or 19.16% of the common
shares then outstanding. Merrill Lynch & Co., Inc. (on behalf of
Merrill Lynch Investment Managers) reported that it is a parent holding
company and an investment advisor, and is deemed to be the beneficial
owner with shared voting power and shared dispositive power of the
reported shares as a result of acting as an investment advisor to
various clients including ML Global Allocation Fund, Inc., which has
reported 6,754,239 shares, then representing 5% or more of the class.
Merrill Lynch disclaims beneficial ownership of all of the reported
shares. The shares reported include certain shares which are indirectly
held through a Convertible Bond (CUSIP 35024PAB8).
(2) Based on information from counsel for this shareholder. Includes
6,519,092 shares held by LC Capital Master Fund, Ltd. and 445,762
shares held by Institutional Benchmarks Master Fund, Ltd.
(3) Based on information from counsel for this shareholder.
(4) Based on (1) information from counsel for this shareholder, indicating
that these shares are owned by LC Capital Master Fund, Ltd. (63,862
shares) and Institutional Benchmarks Master Fund, Ltd. (4,398 shares)
and (2) a Schedule 13G filed with the SEC on October 4, 2004. Steven G.
Lampe and Richard F. Conway may be deemed to have a beneficial interest
in these shares. These parties disclaim beneficial ownership of these
shares except to the extent of their respective beneficial interests,
if any, therein. These shares include 63,867 shares reported as
beneficially owned by LC Capital Master Fund, Ltd. LC Capital Partners,
LP, LC Capital Advisors LLC, Lampe, Conway & Co. LLC, LC Capital
International LLC, Steven G. Lampe and Richard F. Conway may be deemed
to have a beneficial interest in these shares. All parties report
shared voting and dispositive power. These parties disclaim beneficial
ownership of these shares except to the extent of their respective
beneficial interests, if any, therein.
(5) As reported on a Schedule 13G filed with the SEC on October 5, 2004.
Aristeia is an investment advisor and is deemed to be the beneficial
owner with sole voting power and sole dispositive power over the
reported shares.
(6) Based on (1) information from counsel for this shareholder, indicating
that these shares are owned by Merrill Lynch Global Allocation Fund,
Inc. (104,914 shares), Merrill Lynch International Investment Fund -
MLIIF Global Allocation Fund (13,105 shares), Merrill Lynch Series
Fund, Inc. - Global Allocation Strategy Portfolio (2,622 shares) and
Merrill Lynch Variable Series Fund, Inc. - Merrill Lynch Global
Allocation V.I. Fund (6,677 shares), and (2) a Schedule 13G filed with
the SEC on October 8, 2004, which reported that Merrill Lynch & Co.,
Inc. (on behalf of Merrill Lynch Investment Managers), is a parent
holding company and an investment advisor, and is deemed to be the
beneficial owner with shared voting power and shared dispositive power
of the reported shares as a result of acting as an investment advisor
to various clients including ML Global Allocation Fund, Inc., which has
reported 104,914 shares, representing 17.49% of the class. Merrill
Lynch disclaims beneficial ownership of all of the reported shares.
(7) Based on information from counsel for this shareholder indicating that
these shares are held by Citigroup Global Markets Inc. (73,136 shares)
and Tribeca Global Convertible Investments Ltd. (3,187 shares).
EXECUTIVE OFFICERS
Information regarding our Chairman, President and Chief Executive
Officer is provided under "Annual Meeting Proposal 1" in Part III of this proxy
statement, under the caption, "Similar Information on Continuing Directors."
35
Mr. Bernard H. Cherry is 63 years old and was appointed President and
Chief Executive Officer of Foster Wheeler North America Corp. (formerly known as
"Foster Wheeler Power Group, Inc.") effective November 4, 2002. Mr. Cherry was
President and Chief Operating Officer of Oxbow Power Group from 1990 to 2002. He
also served as President of Oxbow Power Group from 1987 to 1990.
Mr. Thierry Desmaris is 45 years old and was appointed Vice President
and Treasurer of the Company on January 30, 2004. Mr. Desmaris has been with
Foster Wheeler for 17 years. Prior to his current position, Mr. Desmaris was
Vice President, Finance of Foster Wheeler Ltd., working on the ongoing corporate
restructuring. Mr. Desmaris was also the Chief Financial Officer of Foster
Wheeler Continental Europe S.r.l. Other previous assignments included assistant
controller and director of project finance of the parent company and various
financial roles with the Company's international subsidiaries.
Mr. Brian K. Ferraioli is 48 years old and was appointed Vice President
and Controller of the Company on November 4, 2002. Mr. Ferraioli has been with
Foster Wheeler for 25 years. Prior to his current position, Mr. Ferraioli was
Vice President and Chief Financial Officer of Foster Wheeler USA Corporation and
Foster Wheeler Power Systems, Inc., respectively, and Vice President,
International Project Finance at Foster Wheeler International, Reading, U.K. In
addition to serving in various corporate finance roles, Mr. Ferraioli was also
Chief Financial Officer of Foster Wheeler Iberia, Madrid, as well as Assistant
Controller of Foster Wheeler Italiana, Milan.
Ms. Lisa Fries Gardner is 47 years old and has been Vice President and
Secretary of Foster Wheeler Ltd. and the former public company, Foster Wheeler
Corporation, for over five years, and has held other executive officer positions
with various Foster Wheeler subsidiaries during the same period.
Mr. Victor A. Hebert is 67 years old and is an attorney with the law
firm Heller Ehrman White & McAuliffe LLP, which was appointed General Counsel to
the Company in November 2003. Mr. Hebert was a director of the Company from
February 2002 until November 2003, when he resigned in order to lead Heller
Ehrman's engagement as General Counsel. Mr. Hebert also serves as Assistant
Secretary of the Company. Mr. Hebert is a director and Deputy Chairman of
Berkeley Technology Limited, a financial services company.
Mr. John T. La Duc is 61 years old and was appointed Executive Vice
President and Chief Financial Officer of the Company on April 14, 2004. Mr. La
Duc spent nearly thirty-five years with Kaiser Aluminum, serving as executive
vice president and chief financial officer from 1990 to 2004. In that capacity
he was responsible for all treasury, controller's, tax, credit, insurance and
investor relations functions. Mr. La Duc holds a Bachelor of Science Degree in
Engineering Sciences from Purdue University and an MBA in Finance from Stanford
University.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and any persons who own more than 10%
of the Company's shares, to file reports of holdings and transactions in Foster
Wheeler shares with the Securities and Exchange Commission and the New York
Stock Exchange. Based on our records and other information, we believe that in
2003 our directors and executive officers met all applicable Securities and
Exchange Commission filing requirements.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Mr. Milchovich was the former President and Chief Executive Officer of
Kaiser Aluminum Corporation from December 1999 to October 2001. Kaiser Aluminum
Corporation commenced a voluntary petition under Chapter 11 of the United States
Bankruptcy Code on February 12, 2002.
36
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The following Report of the Compensation Committee does not constitute
soliciting material and should not be deemed filed or incorporated by reference
into any other Company filing under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent the Company specifically incorporates
this Report by reference therein.
The Compensation Committee administers the Company's executive
compensation program and establishes the salaries of the Company's executive
officers. The Compensation Committee consists of only non-employee Directors,
each of whom has no material relationship with the Company and has been
determined to be independent by the board of directors under the New York Stock
Exchange rules.
The Compensation Committee of the board of directors has furnished the
following report on executive compensation for calendar year 2003.
COMPENSATION PHILOSOPHY
The general philosophy of the Compensation Committee is to provide
executive compensation designed to enhance shareholder value, including annual
compensation, consisting of salary and bonus awards, and long-term incentive
compensation, consisting of stock options and other equity based compensation.
The Company's compensation plans and incentives are designed to link the
financial interests of the Company's executive officers to the interests of its
shareholders, to encourage support of the Company's long-term goals, to tie
executive compensation to the Company's performance, to attract and retain
talented leadership and to encourage significant ownership of the Company's
common shares by executive officers.
In making decisions affecting executive compensation, the Compensation
Committee reviews the nature and scope of the executive officer's
responsibilities as well as his or her effectiveness in supporting the Company's
long-term goals. The Compensation Committee also considers the compensation
practices of companies that are of similar size to the Company as well as those
providing similar services and products to similar markets and customers. The
Company does not have a policy to predetermine specific compensation relative to
the compensation paid by other companies. Actual salaries of the Chief Executive
Officer and other officers were neither the highest nor the lowest of salaries
paid to officers of comparable companies.
There are two primary types of compensation provided to the Company's
executive officers:
o Annual compensation, which includes base salary, intended to
provide a stable annual salary at a level consistent with
individual contributions, and annual performance bonuses intended
to link officers' compensation to the Company's performance as
well as the performance of the individual executive officer.
o Long-term compensation, which includes stock options or other
equity based compensation intended to encourage actions to
maximize shareholder value.
BASE SALARY
Consistent with its stated philosophy relative to salary, the
Compensation Committee reviews data for executives in similar positions in
comparable companies as provided by an independent consultant and by the
Company's Human Resources Department and, in consultation with the Chief
Executive Officer, establishes a salary range for each executive officer of the
Company. The Compensation Committee then recommends a specific salary for each
executive officer to the board of directors for its consideration and approval.
In determining such salaries, the performance of each executive officer, his or
her experience and the performance of the business unit for which he or she is
responsible, as well as the performance of the Company as a whole, are all taken
into account.
37
ANNUAL INCENTIVE
In 2002, the Compensation Committee adopted the Foster Wheeler Annual
Incentive Plan for 2002 and Subsequent Years (the "Annual Incentive Plan").
Pursuant to the Annual Incentive Plan, the Chief Executive Officer of the
Company recommends to the Compensation Committee (i) the employees eligible for
awards under the Annual Incentive Plan, (ii) the amount of the recommended award
(by individual or class of individuals and stated as a dollar amount or a
percentage of base salary), and (iii) any factors that should be considered by
the Compensation Committee or the board of directors in connection with their
consideration of the Chief Executive Officer's recommendations (the
"Recommendations") in their determinations. The Compensation Committee considers
the Recommendations and may approve the Recommendation with respect to any or
all recommended employees, approve an award of a different amount for any or all
recommended employees or deny awards to any or all recommended employees.
In January 2004, the Compensation Committee approved a pool of bonus
compensation to a group of approximately forty corporate center employees,
including the Chief Executive Officer (Mr. Milchovich) and three of the most
highly compensated executives named in the Summary Compensation Table. The bonus
compensation was based on the Compensation Committee's consideration of
management's continuing achievement of its short and long-term goals, including:
maintenance of adequate domestic liquidity, restructuring the operating
companies to provide performance that is acceptable and predictable, and the
restructuring of the balance sheet to improve liquidity, reduce leverage and
reduce cash interest expense. The bonus amount for each specific employee,
except Mr. Milchovich, has not yet been established. The award will provide for
one-third of the award amount to be paid upon completion of the exchange offer
and the remaining two-thirds to be paid after the Company attains two
consecutive quarters of positive earnings.
EQUITY BASED COMPENSATION
The Compensation Committee may grant to executive officers options to
purchase common shares under the Company's 1995 Stock Option Plan of Foster
Wheeler, Inc. and pursuant to employment agreements entered into with individual
executive officers. In 2003, the Compensation Committee granted options to Mr.
Cherry to purchase an aggregate of 100,000 common shares pursuant to his
Employment Agreement. These options were granted at an exercise price equal to
the fair market value of the common shares on the date of grant, become
exercisable in four equal cumulative annual installments of 25,000 commencing
one year after the date of grant through the fourth anniversary of the date of
grant and expire ten years from the date of grant.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The components of Mr. Milchovich's compensation in respect of fiscal
2003 were determined pursuant to the terms of his employment agreement. The
terms of Mr. Milchovich's employment agreement and all amendments are described
under "Employment Agreements" on page 52. Mr. Milchovich was retained as the
Chief Executive Officer, President and Chairman of the Board of the Corporation
in 2001 after an extensive search had been conducted by the board of directors
with the assistance of an executive search firm. Mr. Milchovich's compensation
under his Employment Agreement was determined based upon a review of competitive
industry compensation levels, his compensation arrangement with his previous
employer, and the overall compensation package required to attract someone of
Mr. Milchovich's caliber to the Company. The Compensation Committee and the full
board of directors approved Mr. Milchovich's employment agreement in 2001 and
all subsequent amendments.
INTERNAL REVENUE CODE SECTION 162(M)
In determining executive compensation, the Compensation Committee
considers, among other factors, the possible tax consequences to the Company and
to the Company's executive officers, including the potential impact of Section
162(m) of the Internal Revenue Code of 1986, as amended ("Section 162(m)").
Section 162(m) disallows a tax deduction for any publicly held corporation for
individual compensation exceeding $1 million in any taxable year for the Chief
Executive Officer and the other senior executive officers, other than
compensation that is performance-based under a plan that is approved by the
shareholders of the Company and that meets certain other technical requirements.
However, tax consequences, including but not limited to tax deductibility by the
Company, are subject to many factors (such as changes in the tax laws and
regulations or interpretations thereof and the timing and nature of various
decisions by executives regarding options and other rights) that are beyond the
control of
38
either the Compensation Committee or the Company. In addition, the Compensation
Committee believes that it is important for it to retain maximum flexibility in
designing compensation programs that meet its stated objectives. For all of the
foregoing reasons, the Compensation Committee, while considering tax
deductibility as one of its factors in determining compensation, will not limit
compensation to those levels or types of compensation that will be deductible.
The Compensation Committee will, of course, consider alternative forms of
compensation, consistent with its compensation goals, which preserve
deductibility.
During 2003, the Compensation Committee met with the board of directors
in an executive session to review the Company's performance and the performance
of Mr. Milchovich and other members of senior management. The Board concurred
with our decisions.
COMPENSATION COMMITTEE:
Joseph J. Melone, Chairman
Eugene D. Atkinson Martha Clark Goss John E. Stuart
The foregoing report was prepared by the Compensation Committee of the
board of directors for filing with the Company's Annual Report on Form 10-K for
the fiscal year ended December 26, 2003. Since the time of that report, the
members of the Compensation Committee have changed. Martha Clark Goss and John
E. Stuart are no longer members of the board of directors. The current members
of the Compensation Committee are Joseph J. Melone, Diane Creel, Roger L.
Heffernan and James D. Woods.
Since this report was prepared, amounts referred to under the heading
"Annual Incentive" have been determined. Specifically, on September 29, 2004,
the Compensation Committee determined the bonus amounts for the pool of bonus
awards and awarded one-third of such amounts to each affected employee. This
portion of the bonus awards for the named executive officers (as defined under
"--Summary Compensation Table") who were still with the Company as of September
29, 2004 equaled the following amounts: for Mr. Milchovich, $524,160; and for
Mr. Ferraioli, $66,000. See the footnotes under "Summary Compensation Table."
In addition, On September 29, 2004 the Compensation Committee approved,
subject to a required approval by the New Jersey Bureau of Securities, awards to
certain of the Company's officers and employees totaling 37,674,898 restricted
common shares pursuant to the Foster Wheeler Ltd. Management Restricted Stock
Plan, and nonstatutory stock options to acquire a total of 43,103 preferred
shares pursuant to the Foster Wheeler Ltd. 2004 Stock Option Plan. The required
approval was obtained on October 6, 2004. See the notes to the Summary
Compensation Table beginning on page 46.
AUDIT COMMITTEE REPORT
The following Audit Committee Report does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the extent the Company
specifically incorporates this Report by reference therein.
The Audit Committee operates under a written charter adopted and
approved by the board of directors on July 30, 2002, which was amended and
restated on January 28, 2003 and again amended and restated on September 2, 2004
(the "Charter"). The Audit Committee and the board of directors amended the
Charter in light of new requirements imposed by the Sarbanes-Oxley Act of 2002
and regulations adopted by the Securities and Exchange Commission. A copy of the
amended and restated Charter is attached as Annex C to this proxy statement.
The Audit Committee consists of four directors, all of who are
"independent" as defined by the Company's Bye-Laws, the New York Stock Exchange
and any other applicable law or regulatory requirements. The Company's
securities are no longer listed on the New York Stock Exchange.
Each member of the Audit Committee is financially literate, within the
meaning of the applicable rules of the New York Stock Exchange, as interpreted
by the board of directors. In addition, at least one member of the
39
Audit Committee has accounting or related financial management expertise, within
the meaning of the applicable rules of the New York Stock Exchange, as
interpreted by the Company's board of directors.
Pursuant to the Charter, which is reviewed annually, the Audit
Committee provides advice and counsel to management regarding, and assists the
board in the oversight of (1) the integrity of the financial statements of the
Company, (2) the Company's compliance with legal and regulatory requirements,
(3) the independence and qualifications of the Company's independent registered
public accounting firm and (4) the performance of the Company's internal audit
function and the Company's independent registered public accounting firm. The
Audit Committee is directly responsible for the appointment, compensation,
retention and oversight of the work of the Company's independent registered
public accounting firm.
Management is responsible for the financial reporting process, the
preparation of consolidated financial statements in accordance with generally
accepted accounting principles, the system of internal controls and procedures
designed to ensure compliance with accounting standards and applicable laws and
regulations. The Company's independent auditors are responsible for auditing the
financial statements. The Audit Committee's responsibility is to monitor and
review these processes and procedures.
During fiscal 2003, the Audit Committee had ten meetings. Among other
things, the Audit Committee:
(1) reviewed and discussed the consolidated audited financial
statements as of and for the year ended December 26, 2003 with management, the
internal auditors and PricewaterhouseCoopers LLP ("PwC"). The board of
directors, including the Audit Committee, received representations from
management as to conformity of the consolidated audited financial statements
with generally accepted accounting principles and PwC issued its reports dated
March 10, 2004 except for Note 24D, as to which the date was April 9, 2004;
(2) discussed with PwC all matters required by Statement on Auditing
Standards No. 61 (Communication with Audit Committees), as amended;
(3) obtained from PwC a formal written statement describing all
relationships between PwC and the Company that might bear on PwC's independence
consistent with Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), discussed with PwC any relationships that
may have an impact on their objectivity and independence and satisfied itself as
to PwC's independence. The Audit Committee also considered whether the provision
of non-audit services by PwC to the Company is compatible with maintaining PwC's
independence. The Audit Committee also reviewed, among other things, the amount
of fees paid to PwC for audit and non-audit services;
(4) discussed with the Company's internal auditors and PwC the overall
scope and plans of their respective audits. The Audit Committee met with the
internal auditors and PwC with and without management present, to discuss the
results of their examinations, the evaluations of the Company's internal
controls and the overall quality of the Company's financial reporting; and
(5) based on the reviews and discussions referred to above and subject
to the limitations on the Audit Committee's role and responsibility described
above and in the Charter, recommended to the board of directors that the audited
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 26, 2003, for filing with the Securities and
Exchange Commission. The Committee and the board also have recommended, subject
to shareholder approval, the selection of PwC as the Company's independent
auditors.
THE AUDIT COMMITTEE:
John E. Stuart, Chairman
John P. Clancey
Martha Clark Goss
Joseph J. Melone.
40
The foregoing report was prepared by the Audit Committee of the board
of directors for filing with the Company's Annual Report on Form 10-K for the
fiscal year ended December 26, 2003. Since the time of that report, the members
of the Audit Committee have changed. John P. Clancey, Martha Clark Goss and John
E. Stuart are no longer members of the board of directors. The current members
of the Audit Committee are Eugene D. Atkinson, Chairman, Diane C. Creel, Joseph
J. Melone and Stephanie Hanbury-Brown.
AUDIT FEES
The following table presents fees for professional audit services
rendered by PricewaterhouseCoopers LLP for the audit of the Company's annual
financial statements for the years ended December 26, 2003, and December 27,
2002, and fees billed for other services rendered by PricewaterhouseCoopers LLP
during those periods. Certain amounts for 2002 have been reclassified to conform
to the 2003 presentation.
2002 2003
---- ----
Audit fees(1) $3,700,000 $6,100,000
Audit-related fees(2) 175,000 300,000
Tax fees(3) 1,300,000 1,600,000
All other fees -- --
---------- ----------
Total $5,175,000 $8,000,000
- ------------
1. Audit fees consisted of the audit of the Company's consolidated financial
statements, as well as work generally only the independent registered public
accounting firm can reasonably be expected to provide, such as statutory audits
and regulatory filings.
2. Audit related fees consisted principally of audits of employee benefit plans.
3. Tax fees consisted principally of assistance with tax compliance and
reporting.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES PERFORMED BY THE INDEPENDENT ACCOUNTANTS
Consistent with SEC policies regarding auditor independence, the Audit
Committee has responsibility for appointing, setting compensation and overseeing
the work of the independent registered public accounting firm. In recognition of
this responsibility, the Audit Committee has established a policy to pre-approve
all audit and permissible non-audit services provided by the independent
registered public accounting firm. This policy provides for an annual budget for
both audit and non-audit services to be approved by the Audit Committee in
advance, and the Audit Committee is provided with quarterly reporting on actual
spending. This policy also provides that no auditor engagements for non-audit
services may be entered into without the express approval of the Company's Chief
Financial Officer and the Audit Committee (or Committee Chairman),with
subsequent ratification by the Audit Committee at its next scheduled meeting.
COMMITTEES OF THE BOARD
The board of directors has established standing committees to consider
various matters and to make recommendations to the full board as to proposed
courses of action for the board. Among the standing committees that have been
established are the Audit Committee, the Compensation Committee, the Finance
Committee, and the Governance and Nominating Committee. Each member of each of
these committees is independent in connection with independence standards
established by the board of directors and New York Stock Exchange requirements,
although the Company is no longer listed. Committee charters have been
established for each of the standing committees and are available on our website
at WWW.FWC.COM/CORPGOV. The charters may also be obtained upon
41
request by writing to the Office of the Secretary, Foster Wheeler Ltd.,
Perryville Corporate Park, Clinton, New Jersey 08809-4000. The charter for the
Audit Committee is attached hereto as ANNEX C.
During fiscal 2003, the board of directors had a Finance Committee
consisting of Mr. Eugene D. Atkinson, Ms. Martha Clark Goss and Mr. John P.
Clancey. The Finance Committee no longer exists. Two meetings of this Committee
were held during fiscal 2003. This Committee reviewed a range of financial
policies and plans including the consolidated financial results of the Company,
the dividend policy, proposed securities issuances, and financial risk
management policies and practices. The Committee also oversees pension plan
investments and periodically reviews investor relations activities. The duties
of the Finance Committee have been undertaken in part by the Compensation
Committee and the remaining duties will be retained by the board of directors.
AUDIT COMMITTEE
The members of the Audit Committee as of October 28, 2004 are Mr.
Eugene D. Atkinson, Chairman, Ms. Diane C. Creel, Mr. Joseph J. Melone and Ms.
Stephanie Hanbury-Brown. During fiscal 2003, the audit committee consisted of
Mr. John E. Stuart, Chairman; Mr. John P. Clancey, Ms. Martha Clark Goss and Mr.
Joseph J. Melone. During fiscal 2003, this Committee held ten meetings. The
board has determined that Joseph J. Melone qualifies as an "audit committee
financial expert" pursuant to the rules of the Securities and Exchange
Commission.
The Audit Committee provides advice and counsel to management
regarding, and assists the board in the oversight of (1) the integrity of the
financial statements of the Company, (2) the Company's compliance with legal and
regulatory requirements, (3) the independence and qualifications of the
Company's independent registered public accounting firm and (4) the performance
of the Company's internal audit function and the Company's independent
registered public accounting firm.
The Audit Committee is directly responsible for the appointment,
compensation, retention and oversight of the work of the Company's independent
registered public accounting firm. The functions of this Committee are to review
and monitor the progress of the audit plans prepared by the independent
registered public accounting firm and internal auditors; to review compliance
with Company policies; to annually review the status of any significant
litigation; to review with the independent registered public accounting firm and
management the results of the audit, the Company's financial statements and the
Company's system of internal accounting control; to pre-approve fees of the
independent registered public accounting firm; to review with management and the
independent registered public accounting firm the Company's annual and quarterly
financial statements and any material changes in accounting principles or
practices used in preparing the statements prior to the filing of a report on
Forms 10-K or 10-Q with the Securities and Exchange Commission, including a
review of the items required by SAS 61 as in effect at that time in the case of
the quarterly statements; to receive from the independent registered public
accounting firm the report required by Independence Standards Board Standard No.
1 as in effect at that time and discuss it with the independent registered
public accounting firm; and to prepare a report each year concerning compliance
with its charter for inclusion in the Company's proxy statement. The Committee
members meet in private with representatives of PricewaterhouseCoopers LLP, the
Company's independent registered public accounting firm, at each Audit Committee
meeting.
COMPENSATION COMMITTEE
Since October 28, 2004 the Compensation Committee has consisted of Mr.
Joseph J. Melone, Chairman, Ms. Diane Creel, Mr. Roger L. Heffernan and Mr.
James D. Woods. During fiscal 2003, the Compensation Committee consisted of Mr.
Joseph J. Melone, Chairman; Mr. Eugene D. Atkinson, Ms. Martha Clark Goss and
Mr. John E. Stuart. During fiscal 2003, this Committee held five meetings. The
functions of this Committee are to recommend to the board compensation
arrangements for directors and executive officers, including approving specific
benefits under such arrangements, to administer certain benefit plans for
directors and executive officers and to review employee pension and welfare
programs.
42
GOVERNANCE AND NOMINATING COMMITTEE
The members of the Governance and Nominating Committee as of October 1,
2004 are Mr. James D. Woods, Chairman; Mr. Eugene D. Atkinson, Mr. David M.
Sloan and Ms. Stephanie Hanbury-Brown. During fiscal 2003, the members of this
committee were Mr. James D. Woods, Chairman; Mr. Eugene D. Atkinson and Mr.
Joseph J. Melone. During fiscal 2003, this Committee held four meetings. The
functions of this Committee include recommending to the board the appropriate
structure and function of the board and its committees, recommending to the
board the nominees for election as directors and officers, and the consideration
of performance of incumbent directors and officers to determine whether to
nominate them for re-election.
DIRECTOR NOMINATIONS
The Governance and Nominating Committee identifies, screens and
recommends to the board individuals to be nominated for election as directors.
In addition, directors and shareholders may recommend candidates for nomination
and election to the board.
INDEPENDENCE STANDARDS
A majority of the board of directors will consist of independent
directors, meaning directors who (1) are neither officers or employees of the
Company or its subsidiaries, (2) have no relationship which, in the opinion of
the board, would interfere with the exercise of independent judgment in carrying
out the responsibilities of a director, and (3) are otherwise "independent"
under the rules of the New York Stock Exchange ("NYSE").
To assist it in determining director independence, the board has
established the following standards. A director will not be independent if,
within the preceding three years: (1) the director was employed by Foster
Wheeler, or had an immediate family member, who was an executive officer of
Foster Wheeler; (2) the director, or an immediate family member, was employed by
or affiliated with, Foster Wheeler's independent or internal auditor in a
professional capacity; (3) the director, or an immediate family member, was
employed as an executive officer of another company where any of Foster
Wheeler's present executive officers served on that company's compensation
committee; (4) the director is an executive officer or employee, or has an
immediate family member who is an executive officer, of a company that made
payments to, or received payments from, Foster Wheeler in an annual amount
exceeding the greater of $1 million or 2% of such company's consolidated gross
revenues (charitable organizations shall not be considered "companies" for the
purpose of this restriction); or (5) the director, or an immediate family
member, received more than $100,000 per year in direct compensation from Foster
Wheeler, other than director and committee fees, pension or other forms of
deferred compensation or benefits for prior service not contingent in any way on
continued service.
The board annually reviews commercial relationships of directors and
determine whether any such relationships would create a conflict of interest
that would interfere with a director's independence, even though such
relationships are not restricted by the above standards. In making such a
determination, the following relationships will not be considered by the board
as material relationships that would impair a director's independence: (1) the
director is an executive officer or an employee, or whose immediate family
member is an executive officer, of another company: (a) that is indebted to
Foster Wheeler, or to which Foster Wheeler is indebted, and the total amount of
either company's indebtedness to the other is less than 5% of the total
consolidated assets of either company; or (b) in which Foster Wheeler owns a
common stock interest, or the other company owns a common stock interest in
Foster Wheeler, and the amount of the common stock interest is less than 5% of
the total shareholders' equity of the company in which the interest is owned.
The board also annually reviews charitable relationships of directors
and determines whether any such relationships would create a conflict of
interest that would interfere with a director's independence, even though such
relationships are not restricted by the above standards. In making such a
determination, the following relationships will not be considered by the board
as material relationships that would impair a director's independence: (a) the
director, or an immediate family member, serves as an officer, director or
trustee of a charitable organization and Foster Wheeler's or the discretionary
charitable contributions to the organization are less than the greater of $1
million or 2% of the organization's total annual charitable receipts.
43
OTHER CRITERIA; NOMINATION METHOD
In addition, the Company's' Guidelines and Criteria for Independent
Director Selection provide that the board should be comprised of persons with
diverse backgrounds in areas that are important and relevant to the Company's
businesses. Each director should have in depth experience in at least one area
of importance to the Company, such as management, marketing, finance,
international, corporate development or government relations. Evaluation of a
nominee's experience should be in the context of the skills brought to the board
contrasted with the skills of the incumbent board members so as to enhance the
diversity and composite experience of the board collectively.
The board, by resolution adopted at least 20 days before each annual
meeting, selects nominees for election as directors. Shareholders entitled to
vote for the election of directors at an annual meeting may nominate individuals
for election to the board if they comply with the following notice procedures. A
shareholder's notice to nominate an individual for election as a director must
be received by the Secretary of the Company at the Company's principal executive
offices not less than 120 calendar days in advance of the date of the Company's
proxy statement for the previous year's annual meeting. The shareholder's notice
must provide information about the nominee and other information required by the
bye-laws, which are filed as an exhibit to our Annual Report on Form 10-K.
Alternatively, a copy of the bye-laws can be obtained by writing to Foster
Wheeler Ltd., Attn: Corporate Secretary, Perryville Corporate Park, Clinton, New
Jersey 08809-4000. The Governance and Nominating Committee will evaluate any
director candidate nominated by shareholders according to the criteria discussed
above and, based on the results of that evaluation, will determine whether to
include the candidate in its recommended slate of director nominees in the proxy
statement.
EXECUTIVE SESSIONS OF THE NON-MANAGEMENT DIRECTORS
The non-management members of the board of directors meet in Executive
Session after each meeting of the board. The Executive Sessions, which consist
only of all non-management directors, are chaired by the Deputy Chairman of the
Board, who serves as the Executive Session Presiding Director. The Deputy
Chairman of the Board is Mr. Joseph J. Melone.
COMMUNICATING WITH DIRECTORS
Shareholders and interested parties may communicate directly with the
Executive Session Presiding Director or the non-management directors as a group
by mailing such communications to Presiding Director, c/o Foster Wheeler Ltd.,
Perryville Corporate Park, Clinton, New Jersey 08809-4000. Such communications
may be confidential or anonymous.
Shareholders and interested parties may communicate directly with the
board of directors as a group by mailing such communications to board of
directors, c/o Foster Wheeler Ltd., Perryville Corporate Park, Clinton, New
Jersey 08809-4000. Such communications may be confidential or anonymous.
COMPENSATION OF DIRECTORS
Eleven meetings of the board of directors were held during the 2003
fiscal year. Each director attended at least 75% of the total number of meetings
of the board and the board committees on which he or she served.
The Company's methods for compensating directors changed as of October
1, 2004. The following discussion presents the methods utilized through
September 30, 2004, and then summarizes the new arrangements that are effective
as of October 1, 2004.
COMPENSATION OF DIRECTORS THROUGH SEPTEMBER 30, 2004
Non-employee directors receive an annual retainer of $26,000 and an
annual deferred award of 300 share units in accordance with the Foster Wheeler
Inc. Directors Deferred Compensation and Stock Award Plan as set forth below.
Each non-employee director receives $1,200 for each board meeting attended. In
addition, each non-employee director receives $1,200 for each committee meeting
attended; the committee chairman receives $2,000
44
for each such meeting. Only one director is an employee of Foster Wheeler, and
he does not receive any additional compensation for his services as a director.
Under the Foster Wheeler Inc. Directors Deferred Compensation and Stock
Award Plan, each non-employee director receives a one time deferred award of
1,000 share units of the Company's common shares upon commencement of his or her
board term and is credited annually with units representing 300 shares of the
Company's common shares, such credit being made to an account maintained for
each non-employee director. The Foster Wheeler Inc. Directors Deferred
Compensation and Stock Award Plan also permit non-employee directors to defer
all or a portion of the retainer, board and committee meeting fees to which they
are entitled. The Company makes a supplemental contribution equal to 15% of the
retainer and meeting fees which are deferred and all such amounts are credited
to the director's deferred compensation account. Each director is fully vested
in amounts credited to the director's deferred compensation account, except that
the one time deferred award of 1,000 share units does not vest until the
director ceases to serve on the board and the annual award vests upon cessation
from the board or the one-year anniversary of the award. The share units in the
deferred compensation account or the equivalent cash amount, at the director's
option, with prior approval by the board of directors, are delivered to the
director upon retirement or cessation of service on the board for good cause.
In addition, under the Deferred Compensation Plan for Directors,
non-employee directors are permitted to defer all or part of their retainer or
board and committee fees until their retirement or other termination of status
as a director. Deferred amounts accrue interest at an annual rate equal to the
rate charged by Wachovia Bank, N.A. for prime commercial loans of 90-day
maturity. Under the Foster Wheeler Inc. Directors' Stock Option Plan, as
amended, which was previously approved by the shareholders, each director who is
not an employee of the Company or one of its subsidiaries receives, following
the annual meeting each year, a nonqualified option to purchase 3,000 shares of
the Company's common shares. Such options have ten-year terms and become
exercisable beginning one year after the date of grant at an option exercise
price equal to the fair market value of the shares on the date of grant.
COMPENSATION OF DIRECTORS EFFECTIVE OCTOBER 1, 2004
The board establishes director compensation. The Compensation
Committee, with the assistance of the Company's staff and outside consultants,
periodically reviews the amount and composition of director compensation and
makes recommendations to the Board as needed. The Company's executive officers
shall not receive additional compensation for their service as directors.
Director fees are the sole form of direct or indirect compensation that members
of the board of directors may receive from the Company.
Currently, non-employee directors receive an annual cash retainer of
$60,000 and the Chairman of each committee of the board receives an additional
$5,000 per year. In 2004, each non-employee director will receive 51,614
restricted common shares and a non-statutory stock option to purchase 59.05
preferred shares, both subject to shareholder approval at the Annual General
Meeting of Shareholders.
DIRECTOR COMPENSATION ARRANGEMENTS THAT REMAIN EFFECTIVE
Effective October 15, 2004, for a term of one year, the Company has
obtained insurance policies through National Union Fire Insurance Company of
Pittsburgh, Pennsylvania, Continental Casualty Company and Allied World
Assurance Company in respect of indemnification of directors and officers. The
scope of these policies is similar to coverage under prior policies held by the
Company. The annual premium for this coverage is $1,055,750.
45
SUMMARY COMPENSATION TABLE
The following table sets forth information showing compensation paid or
accrued by the Company and its subsidiaries during each of the Company's last
three fiscal years for the Chief Executive Officer ("CEO"), the four other most
highly compensated executive officers of the Company at the end of the last
completed fiscal year, and two individuals for whom disclosure would have been
provided but for the fact that such individuals were not serving as executive
officers at the end of the last completed fiscal year (collectively, the "named
executive officers").
Mr. O'Brien's employment with the Company terminated effective January
1, 2004. Mr. Weinstein's employment with the Company will terminate effective
October 30, 2004. Mr. Doyle's employment with the Company terminated effective
May 4, 2003. Mr. Iseman's employment with the Company terminated effective
December 14, 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
- ------------------------------------------------------------------------------------------------------------------------------------
Annual Compensation Awards Payouts
- ------------------------ --------------------------------------------------- --------------------------- ----------- ---------------
Other Securities Long- All
Annual Restricted Underlying term Other
Name and Principal Compen- Stock Options/ Incentive Compen-
Position Salary Bonus sation Awards SARs Payouts sation
Year ($) ($) ($) ($) (#) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
R. J. Milchovich 2003 $873,600 $1,572,480(1) $ 62,930(2) $ 0(3) 0(3) $ 0 $2,716,000(4)
Chairman, President 2002 $848,400 $ 0 $175,370(5) $ 0 1,000,000 $ 0 $ 912,689(6)
& CEO 2001 $165,846 $ 500,000(7) 2 $ 0 1,300,000 $ 0 $ 0
- ------------------------------------------------------------------------------------------------------------------------------------
B.H. Cherry 2003 $450,000 $ 945,000 $182,685(8) $ 0(9) 100,000(9) $ 0 $ 9,000(8)
President & CEO of 2002 $ 75,000(10) $ 500,000(10) $ 0 $ 0 255,000 $ 0 $ 0
Foster Wheeler North
America Corp.
- ------------------------------------------------------------------------------------------------------------------------------------
T.R. O'Brien 2003 $338,000 $ 0 $ 0 $ 0 0 $ 0 $ 472,415(11)
Former General 2002 $338,000 $ 0 $ 0 $ 0 165,875 $ 0 $ 5,500(12)
Counsel & Senior 2001 $325,000 $ 0 $ 0 $ 0 15,000 $ 0 $ 5,100(12)
Vice President
- ------------------------------------------------------------------------------------------------------------------------------------
S.I. Weinstein 2003 $275,000 $ 0 $ 0 $ 0 0 $ 0 $ 701,315(13)
Former Deputy General 2002 $250,675 $ 0 $ 0 $ 0 142,180 $ 0 $ 5,500(12)
Counsel & Vice 2001 $221,654 $ 40,000 $ 0 $ 0 5,000 $ 0 $ 5,100(12)
President
- ------------------------------------------------------------------------------------------------------------------------------------
B. K. Ferraioli 2003 $220,000 $ 198,000(14) $ 0 $ 0(15) 0(15) $ 0 $ 63,900(16)
Vice President & 2002 $167,557 $ 0 $ 0 $ 0 16,842 $ 0 $ 5,027(12)
Controller; Acting 2001 $152,000 $ 27,000 $ 0 $ 0 3,000 $ 0 $ 4,560(12)
Chief
Financial Officer for
a portion of 2003
- ------------------------------------------------------------------------------------------------------------------------------------
J. T. Doyle(17) 2003 $126,957 $ 0 $ 0 $ 0 0 $ 0 $ 441,588(18)
Former Senior Vice 2002 $199,000 $ 100,000(19) $ 47,764(20) $ 0 300,000 $ 0 $ 4,000(12)
President & Chief
Financial Officer
- ------------------------------------------------------------------------------------------------------------------------------------
R. D. Iseman(21) 2003 $285,000 $ 0 $ 0 $ 0 0 $ 0 $ 586,663(22)
Former Vice President 2002 $264,000 $ 0 $ 0 $ 0 142,180 $ 0 $ 5,500(12)
2001 $242,000 $ 0 $ 0 $ 0 7,500 $ 0 $ 5,100(12)
- ------------------------------------------------------------------------------------------------------------------------------------
46
- -----------------
1 Only $524,160 of this bonus has been paid to date. As discussed under
"Report of the Compensation Committee on Executive Compensation"
beginning on page 37, in January 2004, the Compensation Committee and
the board of directors approved a pool of bonus compensation to a group
of corporate center employees, from which the employees will be paid a
bonus which is contingent upon the occurrence of certain events. These
bonuses relate to performance in 2003. One-third of the bonus was to be
paid upon completion of the exchange offer. Mr. Milchovich received
this one-third portion ($524,160) on September 29, 2004. He will
receive the remaining two-thirds portion only if the Company attains
two consecutive fiscal quarters of positive earnings. Other corporate
officers also received bonus awards.
2 In accordance with Mr. Milchovich's Employment Agreement with the
Company, he received the following grossed-up payments: (i) $37,022 for
country club membership fees and dues, and (ii) $6,390 for
reimbursement of legal fees in connection with his employment contract.
Personal use of a Company vehicle was $15,610. He also received
reimbursement of $2,800 for telecommunications for business use in his
home. The Company pays an annual premium of $1,108 for an $800,000 life
insurance policy for the benefit of Mr. Milchovich's beneficiaries as
long as Mr. Milchovich is an employee of the Company. Mr. Milchovich
will receive any cash surrender value under the policy.
3 On September 29, 2004 the Compensation Committee approved, subject to a
required approval by the New Jersey Bureau of Securities, an award to
Mr. Milchovich of 15,484,453 restricted common shares pursuant to the
Foster Wheeler Ltd. Management Restricted Stock Plan, and nonstatutory
stock options to acquire 17,715.58 preferred shares pursuant to the
Foster Wheeler Ltd. 2004 Stock Option Plan. The required approval was
obtained on October 6, 2004.
4 On March 25, 2003, Mr. Milchovich received $293,600 from the Company as
the first payment pursuant to a retention award granted by the board of
directors on February 28, 2003 to encourage a group of twenty four
highly performing employees to remain with the Company. On January 6,
2004, he received the second part of the award in the amount of
$681,400, which was contingent upon him being an employee of the
Company on December 31, 2003. Also, pursuant to an amendment to Mr.
Milchovich's Employment Agreement dated January 22, 2003, as further
described under "Employment Agreements" on page 52, Mr. Milchovich was
permitted to draw down $1,082,500 ($756,385.89, net of taxes) under a
Letter of Credit which the Company previously provided to him in
connection with his Employment Agreement to secure the retirement
benefit he would have received at the end of the five-year term if he
had remained with his previous employer, and beginning on April 23,
2003 began receiving, on a quarterly basis, lump sum payments in the
amount of $216,500, less applicable withholding taxes, to be paid to
him until the total obligation of the Company ($3,247,500) is paid. He
received a total $649,500 gross quarterly payments in 2003. The Company
made a $9,000 match on Mr. Milchovich's employee 401(k) contribution.
5 In accordance with Mr. Milchovich's Employment Agreement with the
Company, he received the following grossed-up payments: (i) $125,513
for relocation expenses and temporary living expenses, and (ii) $32,323
for country club membership fees and dues, and (iii) $2,800 for
financial planning. Personal use of a Company vehicle was $12,339. He
also received reimbursement of $2,395 for telecommunications for
business use in his home.
6 Mr. Milchovich received reimbursement for the following: (i) $5,271
grossed-up for estate planning services, and (ii) $26,242 grossed-up
for one-time legal fees associated with his commencement of employment
with the Company. The Company paid $72,968 on his behalf for relocation
shipping expenses. The Company pays an annual premium of $1,108 for an
$800,000 life insurance policy for the benefit of Mr. Milchovich's
beneficiaries for as long as Mr. Milchovich is an employee of the
Company. Mr. Milchovich will receive any cash surrender value under the
policy. The Company also made certain payments to Mr. Milchovich
relating to his home in Houston, Texas, including $119,600 for carrying
costs and $682,000 for equity advances. The Company made a $5,500 match
on Mr. Milchovich's employee 401(k) contribution.
47
7 Mr. Milchovich became an executive officer of the Company on October
22, 2001. His bonus was in accordance with his employment agreement as
set forth under "Employment Agreements" on page 52.
8 In accordance with Mr. Cherry's Employment Agreement with the Company,
he received the following grossed up payments in connection with his
relocation to New Jersey: (i) $113,764 for temporary living expenses,
and (ii) $46,102 for travel expenses. The Company incurred the cost of
$6,542 on his behalf for shipment of household goods. He also received
personal use of a Company vehicle in the amount of $16,277.
9 On September 29, 2004 the Compensation Committee approved, subject to a
required approval by the New Jersey Bureau of Securities, an award to
Mr. Cherry of 4,645,336 restricted common shares pursuant to the Foster
Wheeler Ltd. Management Restricted Stock Plan, and nonstatutory stock
options to acquire 5,314.67 preferred shares pursuant to the Foster
Wheeler Ltd. 2004 Stock Option Plan. The required approval was obtained
on October 6, 2004.
10 Mr. Cherry joined Foster Wheeler Power Group, Inc., now known as Foster
Wheeler North America Corp., on November 4, 2002 and received a
$500,000 signing bonus on October 10, 2002.
11 Mr. O'Brien's employment with the Company terminated effective January
1, 2004. On March 25, 2003, Mr. O'Brien received $29,600 from the
Company as the first payment pursuant to a retention award granted by
the board of directors on February 28, 2003 to encourage a group of
twenty four highly performing employees to remain with the Company. On
January 6, 2004, he received the second part of the award in the amount
of $68,700, which was contingent upon him being an employee of the
Company on December 31, 2003. The Company paid taxes in the amount of
$365,115 on Mr. O'Brien's behalf in connection with the establishment
of the Letter of Credit which backs up the Company's obligations to pay
the total value of SERP Benefits as described under "Defined Benefit
Plans." The Company also made a $9,000 match on Mr. O'Brien's employee
40l (k) contribution.
12 Company match on 401(k) contribution.
13 Mr. Weinstein's employment with the Company terminated effective
October 30, 2004. On March 25, 2003, Mr. Weinstein received $50,900
from the Company as the first payment pursuant to a retention award
granted by the board of directors on February 28, 2003 to encourage a
group of twenty four highly performing employees to remain with the
Company. On January 6, 2004, he received the second part of the award
in the amount of $117,900, which was contingent upon him being an
employee of the Company on December 31, 2003. The Company paid taxes in
the amount of $523,515 on Mr. Weinstein's behalf in connection with the
establishment of the Letter of Credit which backs up the Company's
obligations to pay the total value of SERP Benefits as described under
"Defined Benefit Plans." The Company also made a $9,000 match on Mr.
Weinstein's employee 401(k) contribution.
14 Only $66,000 of this bonus has been paid to date. As discussed under
"Report of the Compensation Committee on Executive Compensation"
beginning on page 37, in January 2004, the Compensation Committee and
the board of directors approved a pool of bonus compensation to a group
of corporate center employees, from which the employees will be paid a
bonus which is contingent upon the occurrence of certain events. These
bonuses relate to performance in 2003. One-third of the bonus was to be
paid upon completion of the exchange offer. Mr. Ferraioli received this
one-third portion ($66,000) on September 29, 2004. He will receive the
remaining two-thirds portion only if the Company attains two
consecutive fiscal quarters of positive earnings. Other corporate
officers also received bonus awards.
15 On September 29, 2004 the Compensation Committee approved, subject to a
required approval by the New Jersey Bureau of Securities, an award to
Mr. Ferraioli of 635,895 restricted common shares pursuant to the
Foster Wheeler Ltd. Management Restricted Stock Plan, and nonstatutory
stock options to acquire 727.52 preferred shares pursuant to the Foster
Wheeler Ltd. 2004 Stock Option Plan. The required approval was obtained
on October 6, 2004.
48
16 On March 25, 2003, Mr. Ferraioli received $16,600 from the Company as
the first payment pursuant to a retention award granted by the board of
directors on February 28, 2003 to encourage a group of twenty four
highly performing employees to remain with the Company. On January 6,
2004, he received the second part of the award in the amount of
$38,300, which was contingent upon him being an employee of the Company
on December 31, 2003. The Company also made a $9,000 match on Mr.
Ferraioli's employee 40l (k) contribution. Mr. Ferraioli ceased serving
as Acting Chief Financial Officer on April 14, 2004.
17 During part of fiscal 2003, Mr. Doyle was Senior Vice President and
Chief Financial Officer. He left the Company effective May 4, 2003,
pursuant to the terms of his Separation Agreement, further described
under "Separation Agreements" on page 56. Mr. Doyle has been retained a
consultant by the Company's subsidiary, Foster Wheeler Inc., pursuant
to an agreement dated April 27, 2004.
18 On March 25, 2003, Mr. Doyle received $27,900 from the Company as the
first payment pursuant to a retention award granted by the board of
directors on February 28, 2003 to encourage a group of twenty four
highly performing employees to remain with the Company. Mr. Doyle had
grossed up temporary living expenses of $29,277 included as
compensation to him as part of his employment agreement. The Company
also made a $9,000 match on Mr. Doyle's employee 40l(k) contribution.
Under his Separation Agreement, Mr. Doyle received the following
payments: $298,043 for post termination wages (severance), $64,700 in
accordance with the second payment under the retention award, and
$12,668 for unused and accrued vacation.
19 Mr. Doyle joined the Company on July 15, 2002, and received a $100,000
signing bonus on July 16, 2002.
20 In accordance with his Employment Agreement, Mr. Doyle received the
following grossed-up payments: (i) reimbursement for financial planning
and estate planning services ($8,473) and (ii) temporary living
expenses ($39,291).
21 During part of fiscal 2003, Mr. Iseman was Vice President. He left the
Company effective December 14, 2003, pursuant to the terms of his
Separation Agreement, further described under "Separation Agreements"
on page 56.
22 On March 25, 2003, Mr. Iseman received $29,200 from the Company as the
first payment pursuant to a retention award granted by the board of
directors on February 28, 2003 to encourage a group of twenty four
highly performing employees to remain with the Company. The Company
paid taxes in the amount of $404,582 on Mr. Iseman's behalf in
connection with the establishment of the Letter of Credit which backs
up the Company's obligations to pay the total value of SERP Benefits as
described under the section titled "Defined Benefit Plans." The Company
also made a $9,000 match on Mr. Iseman's 40l(k) contribution. Under his
Separation Agreement, Mr. Iseman received the following payments:
$15,000 for post termination wages (severance), $67,500 for the second
installment of the Retention Award, $20,341 for unused and accrued
vacation, $41,040 for payment under the Survivor Income Plan.
John T. La Duc became Executive Vice President and Chief Financial
Officer of the Company on April 14, 2004. On September 29, 2004 the Compensation
Committee approved, subject to a required approval by the New Jersey Bureau of
Securities, an award to Mr. La Duc of 2,090,401 restricted common shares
pursuant to the Foster Wheeler Ltd. Management Restricted Stock Plan, and
nonstatutory stock options to acquire 2,391.60 preferred shares pursuant to the
Foster Wheeler Ltd. 2004 Stock Option Plan. The required approval was obtained
on October 6, 2004.
49
OPTIONS GRANTED
Following is a table dealing with stock option grants which were made
to employees during the last completed fiscal year. Mr. Cherry's options were
granted on December 23, 2003 and were priced at the fair market value on the
first anniversary of the effective date pursuant to his Employment Agreement and
expire ten years from the date of the grant. Mr. Cherry's options vest in
quarterly increments with one-fourth of the options becoming exercisable after
one year, one-half become exercisable after two years, three-fourths after three
years, and all of the options become exercisable after four years.
- ----------------------- ---------------- ------------------ ------------------ ---------------- --------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise or Grant Date
Options Employees in Base Price Expiration Present Value (1)
Name Granted (#) Fiscal Year ($/Share) Date ($)
- ----------------------- ---------------- ------------------ ------------------ ---------------- --------------------
R.J. Milchovich 0 0% -- -- $ 0
- ----------------------- ---------------- ------------------ ------------------ ---------------- --------------------
B.H. Cherry 100,000 85.4% $1.205 12/23/2013 $85,000
- ----------------------- ---------------- ------------------ ------------------ ---------------- --------------------
T.R. O'Brien* 0 0% -- -- $ 0
- ----------------------- ---------------- ------------------ ------------------ ---------------- --------------------
S.I. Weinstein* 0 0% -- -- $ 0
- ----------------------- ---------------- ------------------ ------------------ ---------------- --------------------
B.K. Ferraioli 0 0% -- -- $ 0
- ----------------------- ---------------- ------------------ ------------------ ---------------- --------------------
J. T. Doyle* 0 0% -- -- $ 0
- ----------------------- ---------------- ------------------ ------------------ ---------------- --------------------
R.D. Iseman* 0 0% -- -- $ 0
- ----------------------- ---------------- ------------------ ------------------ ---------------- --------------------
- -----------
* Is no longer with the Company.
(1) Based on the Black-Scholes options pricing model, using the following
assumptions: (i) the option exercise price as shown in the table is the
average of the high and low price of the shares on the date that the
option was issued, (ii) the dividend yield of the shares was based upon
the payout per share divided by the share price on the date the option was
issued, (iii) the expected term of the options is five years from the date
of issue, (iv) the risk free rate of return for each option was determined
as the interest rate on the date that the option was issued, on Treasury
securities with a maturity equal to the expected term of the option, and
(v) the expected volatility of the shares was calculated empirically for
each option using weekly Foster Wheeler share pricing data for the 5 years
immediately preceding the date that the option was issued. The values
shown are theoretical and do not necessarily reflect the actual values the
recipients may eventually realize. Any actual value to the officer or
other employee will depend on the extent to which market value of the
Company's common shares at a future date exceeds the exercise price.
AGGREGATE OPTION EXERCISES
The following table sets forth, for the named individuals, the number
of shares of Foster Wheeler common shares acquired upon option exercise during
2003, the value realized (spread between the market price on the date of
exercise and the option price) as a result of such option exercises, and the
number and value of unexercised options (both exercisable and unexercisable) as
of December 26, 2003.
50
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT AT DECEMBER 26, 2003
DECEMBER 26, 2003 (#) ($)
SHARES VALUE
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
R. J. Milchovich 0 0 853,344/1,446,656 $0/$0
B. H. Cherry 0 0 51,000/304,000 $0/$0
T. R. O'Brien* 0 0 151,959/130,583 $0/$0
R. D. Iseman* 0 0 207,180/0 $0/$0
B. K. Ferraioli 0 0 10,614/11,228 $0/$0
S. I. Weinstein* 0 0 66,393/94,787 $0/$0
J. T. Doyle* 0 0 0/0 $0/$0
- --------------
* Is no longer with the Company.
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
No long-term incentive cash awards were granted by the Company for the
fiscal year 2003. Payments made under the long-term incentive portion of the
Company's former executive compensation plan for prior years are reported in the
Summary Compensation Table in the year of payout, if any. Presently, there is no
plan which provides for long-term incentive awards.
DEFINED BENEFIT PLANS
The Company maintains a qualified non-contributory final average pay
defined benefit Pension Plan for covered employees of the Company. On May 31,
2003, the Pension Plan was frozen and no further service or benefit accruals
will occur. Annual payments under the Pension Plan will be made based on years
of service as of May 31, 2003. Because annual payouts under the Pension Plan can
be determined at this time with respect to each named executive officer, and
because the Pension Plan payouts for other employees will not depend upon years
of service at retirement, we have provided the information below. The following
chart indicates the frozen service and annual qualified Pension Benefit on a
Life Annuity basis, payable at normal retirement age of 65 for the officers
listed.
YEARS OF SERVICE USED TO CALCULATE
OFFICER PENSION PAYMENTS ANNUAL PENSION PAYMENT
------- ---------------- ----------------------
Raymond J. Milchovich Please see the pension benefit provided to Mr. Milchovich under
"Employment Agreements" on page 52.
Bernard H. Cherry No Pensionable Service or Benefit
Thomas R. O'Brien* 9 1/2 years $22,800
Steven I. Weinstein* 26 years $76,925
Brian K. Ferraioli 24 years $49,606
Joseph T. Doyle* No Pensionable Service or Benefit
Robert D. Iseman* 15 years $36,000
- --------------
* Is no longer with the Company.
51
In addition to the qualified Pension Plan, the Company maintained a
non-qualified Supplemental Employee Retirement Plan ("SERP") for benefit
accruals based upon compensation in excess of IRS limits. Letters of Credit
("LCs") were issued in April 2003 to certain officers of the Corporation,
including T. R. O'Brien, R. D. Iseman, and S. I. Weinstein, for the present
value of this SERP entitlement, net of income tax withholding. The gross SERP
entitlement, income tax withholding and net LC, respectively, for these three
officers were $814,745, $365,115 and $449,630 for Mr. O'Brien; $901,451,
$404,582 and $496,869 for Mr. Iseman and $1,168,911, $523,515, and $645, 396 for
Mr. Weinstein. Mr. O'Brien and Mr. Iseman drew down their LCs in January 2004.
Mr. Weinstein's LC will become available upon termination of employment. SERP
Benefits for all other active employees whose benefits did not exceed $100,000
were settled by payment of an immediate lump sum amount based upon a present
value of the accrued SERP benefit.
EMPLOYMENT AGREEMENTS
RAYMOND J. MILCHOVICH EMPLOYMENT AGREEMENT
Mr. Milchovich entered into an employment agreement with the Company
effective October 22, 2001 which expires on October 21, 2006. Mr. Milchovich
serves as Chairman, President and Chief Executive Officer of the Company. Mr.
Milchovich's current base salary is $873,600. Pursuant to terms of the
agreement, his salary is reviewed on each anniversary date with increases on
such date or other agreed date to be not less than the average increase for the
Company's salaried workforce.
Mr. Milchovich's agreement establishes an annual target bonus equal to
80% of base salary which will be payable should the Company achieve 100% of
target objectives which are approved by the Compensation Committee of the board
of directors. Based on reaching objectives relating to the maintenance of
adequate domestic liquidity, restructuring the operating companies to provide
performance that is acceptable and predictable, and restructuring the balance
sheet to improve liquidity, reduce leverage and reduce cash interest expense, as
agreed to by the Compensation Committee, he may receive an award of up to three
times the aforementioned target.
Under the terms of his employment agreement, Mr. Milchovich received an
option to purchase 1,300,000 common shares of the Company. These were granted at
an exercise price of $4.985 and vest 20% each year over the term of the
agreement. Pursuant to an amendment to the agreement dated September 13, 2002,
additional options that would have been granted to Mr. Milchovich on the first
and second anniversaries of his employment were accelerated and granted
September 24, 2002. The amended grant was for an option to purchase a number of
shares such that the Black Scholes value of the option on the grant date equaled
$5 million; provided that the number of shares was not less than 700,000 or more
than 1,000,000. Based on the calculation, Mr. Milchovich received an option to
purchase 1,000,000 common shares of the Company at an exercise price of $1.64. A
portion of the option representing one-forty-eighth (1/48) of the number of
shares represented by such option vested on the date of grant and on the first
day of each successive month thereafter. The option exercise price is equal to
the median of the high and low price of the Company's common shares on the grant
date.
Mr. Milchovich received a signing bonus in the amount of $500,000 on
October 22, 2001. In the event he voluntarily terminated employment without
"good" reason or was terminated by the Company for "cause" (both as defined in
the agreement) prior to his first anniversary date, he would have been required
to repay to the Company the after-tax amount of this payment.
Mr. Milchovich's agreement provides that the Company will pay to Mr.
Milchovich a retirement benefit equal to the projected retirement benefit he
would have received at the end of the five-year term had he remained with his
previous employer less any benefit he actually receives from his previous
employer at termination therefrom. Under the agreement, the total obligation of
the Company was limited to $4.333 million, which was supported by a Letter of
Credit funded 50% upon the effective date of the agreement and in quarterly
increments thereafter. Pursuant to an amendment to the agreement dated January
23, 2003, the Company terminated the Letter of Credit effective February 6,
2003. Prior to the termination of the Letter of Credit on February 6, 2003, Mr.
Milchovich drew under such Letter of Credit a single lump sum payment of
$756,385.89, which represented the retirement benefit earned to date, less all
applicable withholding taxes by the Company. Beginning on April 21, 2003, and on
the twenty-first day of each calendar quarter, Mr. Milchovich is entitled to
receive a lump sum payment of $216,500 less applicable withholding taxes. Under
the amended agreement, the total obligation of the
52
Company is limited to $3,247,500. The benefit is vested and payable to Mr.
Milchovich upon termination of employment by the Company without cause, or upon
termination of employment by Mr. Milchovich for good reason or because of death
or disability. The Company's obligation will be supported by an irrevocable
direct pay letter of credit made in quarterly increments.
Upon termination of employment by the Company without cause, by Mr.
Milchovich for good reason, or because of death or disability, Mr. Milchovich is
entitled to receive a single lump sum payment of the unpaid balance of the
Company's obligation under the amended agreement and may immediately draw upon
the letter of credit for the quarterly installment payment then due. In the
event Mr. Milchovich separates from employment before the fifth anniversary of
the date of this agreement, Mr. Milchovich's employment is terminated with cause
or Mr. Milchovich terminates his employment without good reason, Mr. Milchovich
would be required to promptly repay the gross amount of the payments made to him
in a single lump sum payment.
The agreement provides that in the event of termination during the term
by the Company without cause or by the executive for good reason or by virtue of
the executive's death or by virtue of continuing disability, the Company will
continue payments on a monthly basis for 24 months in an amount equal to the
base salary plus the target bonus opportunity. In the case of disability such
payments would be offset by any insurance payments that may be due. Further, any
granted but unexercised stock options shall become vested and exercisable for
the period commencing the date of termination through the second anniversary
thereof.
If he is terminated without cause during the 30 days commencing twelve
months after a Change of Control, as defined in the agreement, Mr. Milchovich
shall be entitled to a lump sum payment equal to three years' salary plus target
bonus, continuation of health and welfare benefits plus perquisites for a
three-year period, vesting of any granted but unexercised stock options with
such options remaining exercisable through the second anniversary of
termination, the payment for executive outplacement services, and a "gross up"
payment to reimburse the executive for any excise tax which may be imposed as a
result of such payment.
The Company and Mr. Milchovich executed an amendment to the employment
agreement in July 2004, which provided that the exchange offer would not be
deemed a Change of Control for purposes of provisions relating to a termination
of his employment for any reason during the 30-days following the twelve month
anniversary of a Change of Control. The exchange offer is described under
"Background of the Proposal for the Special Common Share Meeting and Proposals
7, 8 and 9 for the Annual Meeting."
Finally, the agreement provided for Mr. Milchovich to receive
relocation assistance to the New Jersey area including an equity buyout related
to his home so as to expedite the relocation process.
EMPLOYMENT AGREEMENT FOR BERNARD H. CHERRY
Mr. Cherry entered into an employment agreement with the Company
effective September 23, 2002, which expires upon the occurrence of his death,
physical or mental disability or notice of termination for cause. Mr. Cherry
will serve as President and Chief Executive Officer of Foster Wheeler Power
Group, Inc. Pursuant to the terms of the agreement, Mr. Cherry is entitled to a
base salary of $450,000 to be reviewed by the Company on each anniversary date
or other appropriate date when the salaries of executives at the executive's
level are normally reviewed.
Under the terms of the agreement, Mr. Cherry received an option to
purchase 255,000 common shares of the Company on November 4, 2002. One-fifth of
these options become exercisable after one year, two-fifths become exercisable
after two years, three-fifths after three years, four-fifths after four years
and all of the options are exercisable after five years from the date of grant.
The exercise price is equal to the mean of the high and low price of the common
shares on the New York Stock Exchange on the date of grant. In addition, Mr.
Cherry received an option to purchase 100,000 shares on December 23, 2003,
priced at the fair market value on the first anniversary of the effective date
pursuant to his employment agreement. Mr. Cherry's option vests in quarterly
increments with one-fourth of the option exercisable after one year, one-half
exercisable after two years, three-fourths exercisable after three years, and
all of the options exercisable after four years from the date of grant. Both of
the above options expire ten years from the date of the grant.
53
Mr. Cherry received a signing bonus in the amount of $500,000 on
October 10, 2002. In the event he were to voluntarily terminate employment
without "good" reason or be terminated by the Company for "cause" (both as
defined in the agreement) prior to his first anniversary date, he would repay to
the Company the after-tax amount of this payment.
Mr. Cherry is entitled to receive certain perquisites, including a
Company automobile, annual financial planning services, reimbursement on a
one-term basis for legal expenses associated with estate planning, a facsimile
machine at his home and an annual physical examination.
The agreement provides that in the event of any termination of Mr.
Cherry's employment, Mr. Cherry will be entitled to receive the following
amounts: (a) Mr. Cherry's annual base salary through the date of termination,
(b) a balance of any earned but as yet unpaid annual bonus, (c) accrued but
unpaid vacation pay, (d) any vested but not forfeited benefits to the date of
termination under the employee benefit plans, (e) vested stock options, and (f)
continuation of certain employee benefits.
In addition, the agreement provides that in the event of termination of
employment during the term by the Company without cause or by Mr. Cherry for
good reason, the Company will continue payments on a monthly basis for
twenty-four months in an amount equal to the base salary at the rate in effect
on the date of termination plus the target bonus opportunity under the Company's
annual incentive program and payable at the time the Company pays bonuses to
other participants in such program. Further, in the event of termination of
employment by the Company without cause or by Mr. Cherry for good reason within
one year of the termination or retirement of the chairman of the board of
directors who is chairman on the effective date, any granted but unexercised
stock options shall become vested and exercisable for the period of two years
commencing the date of termination.
The agreement provided for Mr. Cherry to receive relocation assistance
to the New Jersey area.
EMPLOYMENT AGREEMENT FOR BRIAN K. FERRAIOLI
Mr. Ferraioli entered into an employment agreement with the Company
effective December 1, 2003, which expires upon the occurrence of his death,
physical or mental disability or notice of termination for cause. The term of
employment under the agreement is from the date of execution until November 30,
2006 unless the agreement is earlier terminated for any of the foregoing
reasons. Mr. Ferraioli serves as Vice President and Corporate Controller of the
Company. Pursuant to the terms of the agreement, Mr. Ferraioli is entitled to a
base salary of $220,000 to be reviewed by the Company on each anniversary date
or other appropriate date when the salaries of executives at the executive's
level are normally reviewed.
The agreement provides that in the event of any termination of Mr.
Ferraioli's employment, he will be entitled to receive the following amounts:
(a) annual base salary through the date of termination, (b) a balance of any
earned but as yet unpaid annual bonus, (c) accrued but unpaid vacation pay, (d)
any vested but not forfeited benefits to the date of termination under the
Company's employee benefit plans and (e) continuation of certain employee
benefits pursuant to the terms of the Company's employee benefit plans.
The agreement provides that in the event of termination of employment
during the term by the Company without cause, or by Mr. Ferraioli for good
reason, the Company will, in addition to paying the above amounts, (a) continue
payments on a monthly basis for twenty-four months in an amount equal to the
base salary at the rate in effect on the date of termination, (b) continue to
provide health and welfare benefit plan coverage for two years, (c) remove any
transfer restrictions from Mr. Ferraioli's shares of the Company's capital
stock, except as prohibited by law, (d) cause all stock options to become fully
vested, (e) continue to provide access to any company vehicle that Mr. Ferraioli
was entitled to during employment for a maximum of 12 weeks, and (f) provide
career transition assistance.
EMPLOYMENT AGREEMENTS FOR STEVEN I. WEINSTEIN AND THOMAS R. O'BRIEN
Mr. Weinstein entered into an employment agreement with the Company
effective September 10, 2002, which expired upon the occurrence of death,
physical or mental disability or notice of termination for cause. Mr.
Weinstein's employment with the Company terminated effective October 30, 2004.
Mr. Weinstein served as Deputy General Counsel and Vice President of the
Company. Pursuant to the terms of the agreement, Mr. Weinstein was entitled to a
base salary of $275,000 to be reviewed on each anniversary date or other
appropriate
54
date when the salaries of executives at the executive's level are normally
reviewed. Mr. Weinstein was eligible to participate in the Company's annual
incentive program and was eligible for annual stock option grants.
Mr. O'Brien entered into an employment agreement with the Company
effective September 10, 2002, which expires upon the occurrence of death,
physical or mental disability or notice of termination for cause. Mr. O'Brien
served as General Counsel and Senior Vice President of the Company until his
retirement, effective January 1, 2004. Pursuant to the terms of the agreement,
Mr. O'Brien was entitled to a base salary of $338,000 to be reviewed on each
anniversary date or other appropriate date when the salaries of executives at
the executive's level are normally reviewed. Mr. O'Brien was eligible to
participate in the Company's annual incentive program and was eligible for
annual stock option grants.
Mr. Weinstein's and Mr. O'Brien's agreements each provided that in the
event of any termination of employment, the executive will be entitled to
receive the following amounts: (a) annual base salary through the date of
termination, (b) a balance of any awarded but as yet unpaid annual bonus, (c)
accrued but unused vacation pay, (d) any vested but not forfeited benefits to
the date of termination under the employee benefit plans, and (e) benefit
continuation provided for in the Company's employee benefit plans.
In addition, each agreement provided that in the event of termination
during the term by the Company without cause or by the executive for good reason
(both as defined in the employment agreement), the Company will also provide to
the executive (a) the base salary at the rate in effect on the date of
termination payable on a monthly basis for twenty-four months, (b) the target
bonus opportunity under the Company's annual incentive program and payable at
the time the Company pays bonuses to other participants in such program, (c) two
additional years of age and service to be credited under the Company's pension
plan and supplemental pension plan, (d) continued employee health and welfare
benefit plan coverage for two years, (e) removal of all restrictions from
restricted stock, (f) vesting of stock options and (g) outplacement services.
These provisions were triggered for Mr. Weinstein, who was terminated without
cause. These provisions were not triggered for Mr. O'Brien, who retired.
CHANGE-IN-CONTROL ARRANGEMENTS
The Company has entered into change of control employment agreements
(the "Agreements") with Messrs. Steven I. Weinstein, Bernard Cherry and Brian K.
Ferraioli. The Agreement with Mr. Weinstein was entered into on September 10,
2002. The Agreement with Mr. Cherry was entered into on November 4, 2002. The
agreement with Mr. Ferraioli was entered into on December 1, 2003. The
Agreements provide that if, within three years of a "change of control", as
defined in the Agreements, Foster Wheeler Inc. terminates an Executive's
employment other than for "cause" (defined as failure to perform the Executive's
duties or engaging in illegal or gross misconduct) or disability or if the
Executive terminates employment for "good reason," (defined as diminution of
duties or responsibilities, Foster Wheeler Inc.'s failure to compensate the
Executive, a change in workplace, Foster Wheeler Inc.'s purported termination of
the Agreements or failure to comply with the Agreements), the Executive will be
entitled to receive a lump sum cash payment of the following amounts: (a) the
Executive's base salary through the date of termination, plus (b) a
proportionate annual bonus, plus (c) unpaid deferred compensation and vacation
pay. Messrs. Weinstein, Cherry and Ferraioli will also be entitled to receive a
lump sum cash payment of three times the sum of the Executive's base salary and
the highest annual bonus. Mr. Weinstein, was terminated without cause.
The Agreements also provide for a five-year continuation of certain
employee welfare benefits and a lump sum payment equal to the actuarial value of
the service credit under Foster Wheeler Inc.'s qualified and (in the case of Mr.
Weinstein) supplemental retirement plans the Executive would have received if
the Executive had remained employed for three years after the date of the
Executive's termination. Foster Wheeler Inc. will also provide the Executive
with outplacement services. Finally, the Executive may tender restricted stock
(whether vested or not) in exchange for cash. However, if any payments to the
Executive, whether under the Agreements or otherwise, would be subject to the
"golden parachute" excise tax under Section 4999 of the Internal Revenue Code of
1986, as amended, Foster Wheeler Inc. will make an additional payment to put the
Executive in the same after-tax position as if no excise tax had been imposed.
Any legal fees and expenses arising in connection with any dispute under the
Agreements will be paid by Foster Wheeler Inc. In addition, these Agreements
also provide that after termination of employment with the Company, the
Executives will not, without the prior written consent of the Company, disclose
any secret or confidential information, knowledge or data relating to the
Company to anyone other than the Company and persons designated by the Company.
55
Under the 1995 Stock Option Plan of Foster Wheeler Inc., the Executive
has the right to surrender his or her option to Foster Wheeler Inc. and receive,
in cash, the difference between the fair market value of the shares covered by
the option and the exercise price of the option.
SEPARATION AGREEMENTS
Mr. Iseman entered into an employment agreement with the Company
effective September 10, 2002, which expires upon the occurrence of death,
physical or mental disability or notice of termination for cause. Mr. Iseman
served as Vice President of the Company until November 14, 2003, at which time
he was terminated without cause under the terms of his employment agreement.
Pursuant to the terms of the agreement, Mr. Iseman was entitled to a base salary
of $300,000, commencing on September 10, 2002, to be reviewed on each
anniversary date or other appropriate date when the salaries of executives at
the executive's level are normally reviewed. Mr. Iseman was eligible to
participate in the Company's annual incentive program and was eligible for
annual stock option grants.
Mr. Iseman's separation agreement dated November 14, 2003, provides
that he is entitled to receive the following amounts: (a) annual base salary
through November 14, 2003, (b) a balance of any awarded but as yet unpaid annual
bonus, (c) accrued but unused vacation pay, (d) any vested but not forfeited
benefits to the date of termination under the employee benefit plans, and (e)
benefit continuation provided for in the Company's employee benefit plans. In
addition, the agreement provides that, the Company will also provide to Mr.
Iseman (a) the base salary at the rate in effect on the date of termination
payable on a monthly basis for twenty-four months, (b) the target bonus
opportunity under the Company's annual incentive program and payable at the time
the Company pays bonuses to other participants in such program, (c) two
additional years of age and service to be credited under the Company's pension
plan and supplemental pension plan, (d) continued employee health and welfare
benefit plan coverage for two years, (e) removal of all restrictions from
restricted stock, (f) vesting of stock options and (g) outplacement services.
Mr. Doyle entered into an employment agreement as the Company's Chief
Financial Officer effective July 15, 2002. Pursuant to the terms of the
agreement, Mr. Doyle was entitled to a base salary of $425,000 to be reviewed by
the CEO on each anniversary date or other appropriate date when the salaries of
executives at the executive's level are normally reviewed.
Mr. Doyle's employment was terminated from the Company on May 4, 2003
without cause. Pursuant to a separation agreement dated April 4, 2003, Mr. Doyle
is entitled to receive the following amounts: (a) annual base salary through May
4, 2003, (b) a balance of any earned but as yet unpaid annual bonus, (c) accrued
but unpaid vacation pay, (d) any vested but not forfeited benefits to the date
of termination under the employee benefit plans, and (e) continuation of certain
employee benefits. In addition, the agreement provides that the Company will
continue payments on a monthly basis for two years in an amount equal to the
base salary, plus the target bonus opportunity under the Company's annual
incentive program, plus continued employee benefits and perquisites.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following directors serve on the Compensation Committee: Joseph J.
Melone, Diane Creel, Roger L. Heffernan and James D. Woods.
The following directors served on the Compensation Committee during the
2003 fiscal year: Messrs. Joseph J. Melone, Chairman, Eugene D. Atkinson, David
J. Farris (until his retirement on April 29, 2003), Ms. Martha Clark Goss and
Mr. John E. Stuart.
None of the members of the Compensation Committee are former or current
officers or employees of Foster Wheeler or any of its subsidiaries.
56
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Kenneth A. Hiltz served as Chief Financial Officer of Foster
Wheeler Ltd. from April 7, 2003 until January 30, 2004 pursuant to an agreement
between Foster Wheeler and AP Services, LLC, a subsidiary of AlixPartners to
provide financial management and consulting services. Mr. Hiltz is also a
principal with AlixPartners, LLC. Mr. Ryan J. Esko, an employee of AlixPartners,
served as Treasurer of the Company from November 26, 2002 to January 30, 2004
pursuant to an agreement between Foster Wheeler and AP Services, LLC, a
subsidiary of AlixPartners to also provide financial management services to the
Company. The Company paid AlixPartners, LLC approximately $743,000 for Mr.
Hiltz's services and $1,017,000 for Mr. Esko's services during 2003, and
approximately $172,360 for Mr. Hiltz's services and $118,336 for Mr. Esko's
services through September 2004 based upon the agreement terms. An additional
$8,613,205 in 2003 and $2,522,340 through September 2004 was paid to
AlixPartners for financial management and consulting services.
Mr. Victor A. Hebert is an attorney with the law firm of Heller Ehrman
White & McAuliffe LLP and served as a director of Foster Wheeler Ltd. during
2003 until his resignation in November 2003. The law firm of Heller Ehrman White
& McAuliffe was appointed to serve as the Company's General Counsel in
connection with the retirement of the Company's general counsel, Thomas R.
O'Brien. Mr. Hebert on behalf of Heller Ehrman was selected to lead the
Company's legal team and became an Assistant Secretary. The Company made
payments to Heller Ehrman in the amount of $54,400 during 2003 and $687,241
through September 2004.
Al-Rushaid Investment Company ("Representative") (owned by a person who
has reported 10% ownership of the Company's common shares) and Foster Wheeler
International Corporation ("Company"), a subsidiary of Foster Wheeler Ltd.,
entered into a Representation Agreement effective March 1, 2004. The Company
appointed the Representative as its exclusive representative within the Kingdom
of Saudi Arabia for work related to the Company's engineering and construction
group. The agreement and the compensation to be paid was based on an arms-length
negotiation. The amount paid to the Representative will be dependent on monies
received for contracts performed in the Kingdom of Saudi Arabia over the term of
the agreement. There were no amounts paid under this agreement through September
2004. Abdullah R. Al-Rushaid filed a Form 13G with the Securities and Exchange
Commission on September 13, 2002 indicating beneficial ownership of 10% of the
common shares of Foster Wheeler Ltd. The number of shares reported represents
3.15% of the number of common shares issued as of October 7, 2004.
In connection with Mr. Milchovich's Employment Agreement, the Company
agreed to reimburse Mr. Milchovich for relocation expenses so as to preclude any
out-of-pocket expenses in connection with his move from Texas to New Jersey.
This included a third-party buyout of his home in Texas, including equity based
on the average of three independent appraisals. In accordance with that
provision, the Company paid Mr. Milchovich $1,650,000 for the home on February
4, 2002 and sold the home to an independent third party on March 20, 2003 for
$1,025,000.
PERFORMANCE GRAPH
The following line graph compares the five-year cumulative total
shareholder return of (i) Foster Wheeler Ltd. common shares, (ii) the S&P Small
Cap 600 Index, and (iii) an industry peer group index that consists of several
companies (the "Peer Group").
In the preparation of the line graph, we used the following
assumptions: (i) $100 was invested on December 24, 1998 in Foster Wheeler common
shares, the S&P Small Cap 600 Index, and the Peer Group, (ii) dividends were
reinvested, and (iii) the investment is weighted on the basis of market
capitalization.
57
[THE DATA BELOW REPRESENTS A GRAPH IN THE PRINTED PIECE]
YEARS ENDING
DEC. 98 DEC. 99 DEC. 00 DEC. 01 DEC. 02 DEC. 03
------- ------- ------- ------- ------- -------
Foster Wheeler ............ 100 70.20 43.26 38.93 10.23 9.32
S&P Small Cap 600(1)....... 100 117.05 130.86 140.58 118.86 164.83
Peer Group (2) ............ 100 84.54 86.47 96.07 87.67 135.64
- --------
(1) On January 16, 2002, the Company was removed from the S&P Small Cap 600
Index.
(2) The following companies comprise the Peer Group: Fluor Corporation,
Foster Wheeler Ltd., Jacobs Engineering Group Inc., Washington Group
International, Inc. (formerly Morrison Knudsen), and McDermott
International, Inc. On January 25, 2003, Washington Group
International, Inc. emerged from Chapter 11 Bankruptcy protection and
under the Plan of Reorganization Washington Group's old common stock
(WNGXQ) was canceled and new common stock was issued and distributed to
lenders and creditors in accordance with the Plan. This group consists
of companies that were compiled by the Company in 1996 and have been
used since that time.
58
PROPOSALS OF SHAREHOLDERS FOR THE 2005 ANNUAL MEETING
Under the bye-laws of Foster Wheeler, shareholders who wish to nominate
persons for election to the board of directors must submit their nominations to
the Company no later than August 3, 2005 to be considered at the 2005 Annual
Meeting of Shareholders. Nominations must include certain information concerning
the nominee and the proponent's ownership of common shares of Foster Wheeler.
SEC rules provide that if the Company changes the date of its 2005 Annual
Meeting more than 30 days from the date of the 2004 Annual Meeting, this
deadline will instead be a reasonable time before the Company begins to print
and mail its proxy materials. Nominations not meeting these requirements will
not be entertained at the annual meeting. The Secretary of Foster Wheeler Ltd.
should be contacted in writing at Perryville Corporate Park, Clinton, New Jersey
08809-4000 to submit a nomination or to obtain additional information as to the
proper form of a nomination.
If timely notice is not given of a shareholder proposal, then the
proxies named on the proxy cards distributed by Foster Wheeler for the annual
meeting may use the discretionary voting authority granted them by the proxy
cards if the proposal is raised at the meeting, whether or not there is any
discussion of the matter in the proxy statement.
The board of directors is not aware of any matters that are expected to
come before the annual meeting other than those referred to in this proxy
statement. If other matters should properly come before the meeting, the persons
named in the proxy intend to vote the proxies in accordance with their best
judgment.
By Order of the Board of Directors
LISA FRIES GARDNER
October 28, 2004 VICE PRESIDENT AND SECRETARY
59
INCORPORATION BY REFERENCE
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, and in accordance therewith, Foster Wheeler
Ltd. files reports, proxy and information statements and other information with
the SEC. The SEC maintains a website that contains reports, proxy and
information statements and other information. The website address is
http://www.sec.gov. Our website address is http://www.fwc.com. The information
disclosed on the website is not incorporated herein and does not form a part of
this proxy statement.
The SEC allows us to "incorporate by reference" into this proxy
statement certain of the information that we file with the SEC, which means that
we can disclose important information to you by referring you to those
documents. The information incorporated by reference is considered to be part of
this proxy statement. The information incorporated by reference is an important
part of this proxy statement and information that we subsequently file with the
SEC will automatically update and supersede information in this proxy statement
and in our other filings with the SEC. We incorporate by reference the documents
listed below, which we have already filed with the SEC:
o The Company's financial statements, Management's Discussion and
Analysis of Financial Condition and Results of Operations, and
Quantitative and Qualitative Disclosures about market Risk contained in
the Company's annual report on Form 10-K for the year ended December
26, 2003 filed on March 12, 2004, as amended by the Form 10-K/A filed
on June 9, 2004.
o The Company's financial statements, Management's Discussion and
Analysis of Financial Condition and Results of Operations, and
Quantitative and Qualitative Disclosures about market Risk contained in
the Company's quarterly report on Form 10-Q for the quarter ended March
26, 2004 filed on May 5, 2004, as amended by the Form 10-Q/A filed on
June 9, 2004 and August 13, 2004.
o The Company's financial statements, Management's Discussion and
Analysis of Financial Condition and Results of Operations, and
Quantitative and Qualitative Disclosures about market Risk contained in
the Company's quarterly report on Form 10-Q for the quarter ended June
25, 2004 filed on August 9, 2004.
o The Company's Unaudited Pro Forma Condensed Consolidated Financial
Statements contained in Foster Wheeler LLC's Registration Statement on
Form S-4 File No. (333-119841) filed on October 20, 2004.
You may request a copy of these filings, other than an exhibit to a
filing unless that exhibit is specifically incorporated by reference into that
filing, at no cost, by writing or calling us at:
Foster Wheeler Ltd.
Perryville Corporate Park
Clinton, New Jersey 08809-4000
Attn: Lisa Fries Gardner
Telephone: (908) 730-4000
Facsimile: (908) 730-5300
You should not assume that the information provided by this proxy
statement or the documents incorporated by reference herein is accurate as of
any date other than the date of such proxy statement or incorporated documents,
regardless of the date you receive them.
60
ANNEX A
TEXT OF AMENDMENTS TO THE BYE-LAWS
AND
PROPOSED SHAREHOLDER RESOLUTIONS TO BE ADOPTED AT THE
SPECIAL COMMON SHARE MEETING AND THE ANNUAL MEETING
--------------
TEXT OF AMENDMENTS TO THE BYE-LAWS
ANNUAL MEETING PROPOSAL 4
Replace bye-law 10(4), which reads as follows:
A Director must retire from the Board at the conclusion of the
Director's term which follows his or her seventy second
birthday.
with the following:
The Board of Directors shall establish a Director retirement
age requirement.
ANNUAL MEETING PROPOSAL 5
Replace bye-law 10(5), which reads as follows:
Each Director shall be the owner of at least 100 Common Shares
at the time of the Director's election to the Board and at
least 1000 Common Shares by the third anniversary of such
election.
with the following:
The Board of Directors shall establish a share ownership
policy for non-employee directors.
ANNUAL MEETING PROPOSAL 6
Replace the first sentence of bye-law 20, which reads as follows:
The remuneration (if any) of the Directors shall be
determined, as the Board of Directors from time to time
determine, by the Company in general meeting and shall be
deemed to accrue from day to day.
with the following:
The remuneration (if any) of the Directors shall be determined
by the Board of Directors from time to time.
A-1
SHAREHOLDER RESOLUTIONS RELATING TO ANNUAL MEETING PROPOSALS 7, 8 AND 9
RESOLVED:
PROPOSAL 7
That subject to approval of resolution A. below by the holders of
three-fourths of the issued common shares of the Company and effective
on the date hereof, but subject to and following effectiveness of the
resolutions set forth below under the headings "Proposal 8" and
"Proposal 9":
A. the 1,475,908,957 common shares of par value US$0.01 each in
the capital of the Company be consolidated, on a 20:1 basis,
into 73,795,447.85 common shares of par value US$0.20 each;
and
B. with effect immediately thereafter, the authorized share
capital of the Company be reduced from US$14,774,089.57
divided into 73,795,447.85 common shares of par value US$0.20
each and 1,500,000 preferred shares of par value US$0.01 each,
including 1,014,785 preferred shares designated as Series B
Convertible Preferred Shares, to US$752,954.4785 divided into
73,795,447.85 common shares of par value US$0.01 each and
1,500,000 preferred shares of par value US$0.01 each, and that
the paid up amount of US$0.19 in respect of each common share
(as consolidated) issued as of the date hereof be added to the
Company's contributed surplus account.
PROPOSAL 8
That effective upon the approval of resolution (1) of Proposal 9,
below, the authorized share capital of the Company be reduced from
US$161,500,000 divided into 160,000,000 common shares of par value
US$1.00 each and 1,500,000 preferred shares of par value US$1.00 each,
including 1,014,785 preferred shares designated as Series B Convertible
Preferred Shares, to US$1,615,000 divided into 160,000,000 common
shares of par value US$0.01 each and 1,500,000 preferred shares of par
value US$0.01 each, and that the paid up amount of US$0.99 in respect
of each common share and each preferred share issued as of such
effective date be added to the Company's contributed surplus account.
PROPOSAL 9
(1) That effective immediately following the effectiveness of the
resolution set forth in Proposal 8 above, the authorized capital of the
Company be increased by US$13,159,089.57, from US$1,615,000 to
US$14,774,089.57, by the creation of an additional 1,315,908,957 common
shares of par value US$0.01 each, ranking pari passu with the existing
common shares of the Company, such that the Company shall have a total
of 1,475,908,957 common shares of par value US$0.01 each.
(2) That following the approval and effectiveness of the resolutions
set forth in Proposals 7-8 and resolution (1) of Proposal 9 above, the
authorized capital of the Company will be US$752,954.4785, consisting
of 73,795,447.85 common shares of par value US$0.01 each and 1,500,000
preferred shares of par value of US$0.01 each, including 1,014,785
preferred shares designated as Series B Convertible Preferred Shares.
A-2
RESOLUTION RELATING TO SPECIAL GENERAL MEETING OF COMMON SHAREHOLDERS
That subject to approval of the shareholders of the Company in general
meeting and effective at the time specified in such approval, the
1,475,908,957 common shares of par value US$0.01 each in the capital of
the Company be consolidated, on a 20:1 basis, into 73,795,447.85 common
shares of par value US$0.20 each.
A-3
ANNEX B
SUMMARY OF TERMS OF THE SECURITIES ISSUED IN THE
EQUITY-FOR-DEBT EXCHANGE OFFER AND
COMPARISON WITH EXCHANGED SECURITIES
The following summarizes the material terms of the securities issued in
the equity-for-debt exchange offer.
THE EQUITY-FOR-DEBT EXCHANGE OFFER HAS BEEN COMPLETED. YOU ARE NOT
BEING ASKED TO CONSIDER OR VOTE UPON ANY ELEMENT OF THE EQUITY-FOR-DEBT EXCHANGE
OFFER.
COMMON SHARES
GENERALLY. Foster Wheeler Ltd.'s common shares, into which the Series B
Convertible Preferred Shares would be convertible if proposals 8 and 9 are
approved, are quoted on the Over-the-Counter Bulletin Board under the symbol
"FWLRF.OB". Holders of common shares have no pre-emptive, redemption, conversion
or sinking fund rights.
LIQUIDATION RIGHTS. In the event of the liquidation, dissolution or winding
up of Foster Wheeler Ltd., the holders of common shares are entitled to share
equally and ratably (with the holders of other shares of Foster Wheeler Ltd.,
entitling the holders to liquidation rights pro rata with the common shares,
including holders of preferred shares) in the assets, if any, remaining after
the payment of all of Foster Wheeler Ltd.'s debts and liabilities, subject to
any liquidation preference on any outstanding preferred shares.
VOTING RIGHTS. Holders of common shares are entitled to one vote per share on
all matters submitted to a vote of holders of common shares. Unless a different
majority is required by law or by Foster Wheeler Ltd.'s bye-laws, resolutions to
be approved by holders of common shares require approval by an affirmative
majority of the votes cast at a meeting at which a quorum is present. The common
shares and, prior to their becoming convertible, the preferred shares will vote
together as a single class except in the case of circumstances which constitute
a variation of the rights of the common shares or the preferred shares, as
described below or as required by applicable law, when holders of common shares
and preferred shares will each vote as a separate class.
The bye-laws of Foster Wheeler Ltd. provide that any variation of the rights
attached to the common shares, whether by the amendment, alteration or repeal of
the terms of the memorandum of association and bye-laws of Foster Wheeler Ltd.
relating to the common shares or resulting from any merger, amalgamation or
similar business combination, or otherwise would require the approval of holders
of at least three fourths of the issued and outstanding common shares, voting as
a separate class. This approval can be evidenced either by a unanimous consent
in writing or by a resolution passed by the requisite majority at a meeting of
the holders of the common shares at which a quorum consisting of at least two
persons holding or representing one-third of the issued and outstanding common
shares is present.
DIVIDEND RIGHTS. Foster Wheeler Ltd.'s board of directors may declare and pay
dividends on the common shares or the preferred shares or make distributions out
of contributed surplus from time to time unless there are reasonable grounds for
believing Foster Wheeler Ltd. is or would, after the payment, be unable to pay
its liabilities as they become due or that the realizable value of its assets
would thereby be less than the aggregate of its liabilities and issued share
capital and share premium accounts. There are no restrictions on Foster Wheeler
Ltd.'s ability to transfer funds, other than funds denominated by Bermuda
dollars, in and out of Bermuda or to pay dividends to U.S. residents who are
holders of our common shares or preferred shares. The board of directors may
declare that any dividend be paid wholly or partly by the distribution of shares
of Foster Wheeler Ltd. and/or specific assets.
PREFERRED SHARES
GENERALLY
Foster Wheeler Ltd.'s board of directors may establish one or more series of
preferred shares without any further shareholder approval. The board may fix the
number, designations, rights, preferences, limitations and voting rights of such
series, provided that such provisions must, at a minimum, (1) entitle the
holders of such shares, voting as a
B-1
class, to elect at least two directors upon certain defaults with respect to the
payment of dividends; and (2) require the affirmative approval of holders of at
least two-thirds of the issued preferred shares for any amendments to the
memorandum of association or bye-laws of Foster Wheeler Ltd. altering materially
any provision of such shares. Such rights, preferences, powers and limitations
as may be established could have the effect of discouraging an attempt to obtain
control of Foster Wheeler Ltd.
TERMS OF THE SERIES B CONVERTIBLE PREFERRED SHARES
1,014,785 preferred shares are designated the "Series B Convertible Preferred
Shares" pursuant to a certificate of designation adopted by authority of the
board of directors of Foster Wheeler Ltd. on September 24, 2004 and as of
October 25, 2004 599,943.7152 such shares are issued and outstanding. In this
section we refer to the Series B Convertible Preferred Shares as the preferred
shares. The material terms of the preferred shares are described below. The
description contained in this section is qualified in its entirety by the
certificate of designation relating to the preferred shares which has been filed
as an exhibit to Foster Wheeler's registration statement on Form S-4 (File No.
333-107054). Holders of preferred shares have no pre-emptive, redemption, or
sinking fund rights.
CONVERSION RIGHTS. The certificate of designation provides that each
preferred share will become convertible at the holder's option into 1,300 common
shares, if, as, and when (i) the reduction of the par value of Foster Wheeler
Ltd.'s shares from $1.00 per share to $0.01 per share is approved by the
shareholders and (ii) the number of authorized common shares of Foster Wheeler
Ltd. is increased from 160 million to at least 1,475.9 million subject in each
case to adjustment for certain dilutive events. Foster Wheeler Ltd. intends to
hold a general meeting of voting shareholders to effect this reduction of par
value and subsequent increase of its authorized capital on November 29, 2004. If
the par value of the shares is so reduced, and the number of authorized common
shares is so increased, the preferred shares will become convertible at the
holder's option on the date of the shareholder meeting described above. If the
par value of the shares is not so reduced, and/or the number of authorized
common shares is not so increased, the preferred shares will not be convertible
into common shares but will remain preferred shares.
In order to effect a conversion of preferred shares, a holder must deliver a
notice of conversion to Foster Wheeler Ltd. Upon receipt by Foster Wheeler Ltd.
of the notice of conversion, the holder's preferred shares will immediately
cease to have the rights and restrictions of a preferred share, and the holder
will simultaneously receive common shares in accordance with the terms outlined
above. We will deliver a copy of the form of notice of conversion to each holder
of preferred shares prior to the shareholders' meeting to referred to above, or
at any time at the request of a holder of preferred shares.
VOTING RIGHTS. Prior to becoming convertible, if ever, each preferred share
will have the number of votes that the common shares issuable upon conversion of
a preferred share would have. We refer to this as voting on an "as converted"
basis. Currently, each preferred share has 1,300 votes. Until the preferred
shares become convertible, the common shares and preferred shares will vote
together as a single class, except in the limited circumstances provided by the
certificate of designation and described in this section or as required under
applicable law. If and when the preferred shares become convertible at each
holders' option, they will cease to vote except in limited circumstances
described below, or as required under Bermuda law and Foster Wheeler Ltd.'s
bye-laws.
The terms of the preferred shares provide that any amendment, alteration or
repeal of the terms of the memorandum of association and bye-laws or the
certificate of designation relating to the preferred shares which would affect
the powers, preferences or rights of the preferred shares, including but not
limited to variations resulting from or in connection with any merger,
amalgamation or asset sale, will require the approval of holders of at least
three fourths of the issued and outstanding preferred shares, voting as a
separate class. This approval can be evidenced either by a unanimous consent in
writing or by a resolution passed by the requisite majority at a meeting of the
holders of the preferred shares at which a quorum consisting of at least two
persons holding or representing one third of the issued and outstanding
preferred shares is present.
Foster Wheeler Ltd. will cause a notice of any meeting at which holders of
the preferred shares are entitled to vote to be given to each registered holder
of preferred shares in accordance with its bye-laws.
DIVIDEND RIGHTS. The preferred shares have the right to receive dividends,
when, as and if declared by the board of directors of Foster Wheeler Ltd., and
paid on the common shares on a pro rata basis, as though the preferred shares
had been converted immediately prior to the declaration of such dividend,
whether or not the share capital has been increased and the shares have in fact
become convertible. Foster Wheeler Ltd.'s board of directors may declare and pay
dividends on the common shares and preferred shares or make distributions to
shareholders out of contributed surplus from time to time unless there are
reasonable grounds for believing that Foster Wheeler Ltd. is
B-2
or would, after the payment, be unable to pay its liabilities as they become due
or that the realizable value of its assets would thereby be less than the
aggregate of its liabilities and issued share capital and share premium
accounts. There are no restrictions on Foster Wheeler Ltd.'s ability to transfer
funds, other than funds denominated by Bermuda dollars, in and out of Bermuda or
to pay dividends to U.S. residents who are holders of our common shares or
preferred shares. The board of directors may declare that any dividend be paid
wholly or partly by the distribution of shares of Foster Wheeler Ltd. and/or
specific assets. In addition, the holders of preferred shares will be entitled
to dividends as set forth below, in each case subject to Bermuda law.
Under a lockup agreement that we entered into in connection with the
equity-for-debt exchange offer, we have agreed, and the certificate of
designation provides:
(1) that, within five business days following the issue date of the
preferred shares (i) we shall have increased the number of directors of Foster
Wheeler Ltd. from seven to eight and, until the actions described in clause
(iii) of this paragraph (1) have been taken, we shall not increase the number of
directors to more than eight; (ii) three of the six incumbent independent
directors of Foster Wheeler Ltd. shall have resigned; and (iii) the continuing
members of the board of directors of Foster Wheeler Ltd. shall have nominated
and appointed four directors proposed by the holders who are party to the lockup
agreement that qualify as independent directors and are reasonably acceptable to
the continuing members of the board of directors. Subject to local law (and
without limiting and in addition to the holders' right to specific performance
under the lockup agreement), if we have failed to take any of the actions
described in, or take any action prohibited under, the first sentence of this
paragraph, then on the sixth business day following the issue date that occurs
before the preferred shares become optionally convertible, we shall declare and
pay a dividend on the issued and outstanding preferred shares in the aggregate
amount of $2,500,000, in preference to and to the exclusion of the holders of
the common shares. Thereafter on each quarterly anniversary of the sixth
business day following the issue date, if we have not taken any of the actions
described in, or takes any action prohibited under, clauses (i), (ii) and (iii)
of the first sentence of this paragraph, then we shall declare and pay a
dividend on the issued and outstanding preferred shares in the aggregate amount
of $2,500,000, in preference to and to the exclusion of the holders of the
common shares. Notwithstanding the foregoing, we shall not be required to
declare or pay any dividend under this paragraph unless the holders who were
party to the lockup agreement have delivered to us the names and resumes of no
less than seven potential nominees that are in each case independent of
management and are reasonably expected to be reasonably acceptable to the
continuing members of the board on or before the date that is two weeks prior to
the date such dividends would have otherwise been required to be declared and
paid. As of October 1, 2004, we had satisfied this provision.
(2) as soon as practicable following the first issue date of the
preferred shares, and in any event no later than thirty calendar days
thereafter, to file a preliminary proxy statement with the Commission regarding
meetings of the shareholders of Foster Wheeler Ltd. in order to recommend
adoption and approval of the following actions: (A) to authorize a reverse split
(i.e., consolidation) of its issued and outstanding common shares on a
one-to-twenty basis; provided that such reverse split shall be effective subject
to and following the shareholder votes on the matters set forth in clauses (B)
and (C) hereof, (B) to approve the Par Value Reduction, (as defined in the
certificate of designation) and (C) to increase its authorized capital
sufficient to allow conversion of the preferred shares (taking into account any
outstanding warrants, options and similar rights for which common shares have
been or may be separately reserved). The reverse stock split must be approved by
a majority of votes cast by the shareholders as a whole and by holders of three
fourths of the issued and outstanding common shares voting as a separate class.
Subject to local law (and without limiting and in addition to the holders' right
to specific performance under the lockup agreement), if we have failed to file
such proxy statement, then on the 31st day following the issue date, we shall
declare and pay a dividend on the issued and outstanding preferred shares in the
aggregate amount of $1,000,000, in preference to and to the exclusion of the
holders of the common shares. Thereafter on each quarterly anniversary of the
31st day following the issue date, if we have not filed such proxy statement,
then we shall declare and pay a dividend on the issued and outstanding preferred
shares in the aggregate amount of $1,000,000, in preference to and to the
exclusion of the holders of the common shares. As of October 15, 2004, we had
satisfied this provision.
(3) that we will mail the proxy statement described above within five
business days following the date that the Commission clears such proxy to be
mailed. Subject to local law (and without limiting and in addition to the
holders' right to specific performance under the lockup agreement), if we have
failed to take the action described in the first sentence of this paragraph,
then on the sixth day following such clearance date, we shall declare and pay a
B-3
dividend on the issued and outstanding preferred shares in the aggregate amount
of $1,000,000, in preference to and to the exclusion of the holders of the
common shares. Thereafter on each quarterly anniversary of the sixth day
following such clearance date, if we have not mailed such proxy, then we shall
declare and pay a dividend on the issued and outstanding preferred shares in the
aggregate amount of $1,000,000, in preference to and to the exclusion of the
holders of the common shares.
(4) that we will convene meetings of the shareholders of Foster Wheeler
Ltd. to approve the actions described in clauses (A), (B) and (C) of paragraph
(2) above on or prior to November 30, 2004. Subject to local law (and without
limiting and in addition to the holders' right to specific performance under the
lockup agreement), if we have failed to take the action described in the first
sentence of this paragraph, then on December 1, 2004, we shall declare and pay a
dividend on the issued and outstanding preferred shares in the aggregate amount
of $2,500,000, in preference to and to the exclusion of the holders of the
common shares. Thereafter on each quarterly anniversary of December 1, if we
have not taken the action described in the first sentence of this paragraph,
then we shall declare and pay a dividend on the issued and outstanding preferred
shares in the amount of $2,500,000, in preference to and to the exclusion of the
holders of the common shares.
(5) that we will use our commercially reasonable best efforts to (i)
list the common shares on the New York Stock Exchange or the NASDAQ Stock Market
as promptly as practicable; provided that we shall not be obliged to apply for
such listing until such time as we reasonably believe we meet the applicable
listing criteria, (ii) to cooperate to the extent allowed by applicable laws or
rules in facilitating the quotation of the preferred shares on the OTC Bulletin
Board or, at such time as we meet the applicable listing criteria, to list the
preferred shares on the New York Stock Exchange or the NASDAQ Stock Market;
provided that we shall not be obligated to apply for such listing until such
time as we reasonably believe we meet the applicable listing criteria and (iii)
to cooperate to the extent allowed by applicable laws or rules in facilitating
the quotation of the warrants on the OTC Bulletin Board or, at such time as we
meet the applicable listing criteria, to list the warrants on the New York Stock
Exchange or the NASDAQ Stock Market; provided that we shall not be obligated to
apply for such listing until such time as we reasonably believe we meet the
applicable listing criteria, in each case as promptly as practicable if the
preferred shares have not become convertible as described above on or prior to
November 30, 2004, provided that, after the preferred shares have become
convertible, we have agreed not to apply to list, and if listed, to use our
reasonable best efforts (which in any event shall include any action within our
control) to promptly delist, the preferred shares. Subject to local law (and
without limiting and in addition to the holders' right to specific performance
under the lockup agreement), if we have failed to use our commercially
reasonable best efforts to take such actions as may be required under clause (i)
of the first sentence of this paragraph, to cooperate under clauses (ii) or
(iii) of the first sentence of this paragraph as it relates to listing but not
delisting of the preferred shares then on the 30th business day following the
receipt of notice of such failure from the holders of 25% of the preferred
shares outstanding, if such failure shall not have been cured prior to such
date, we shall declare and pay a dividend on the issued and outstanding
preferred shares in the aggregate amount of $1,000,000, in preference to and to
the exclusion of the holders of the common shares. Thereafter on each quarterly
anniversary of the first such payment date, if we have not used our commercially
reasonable best efforts to take such actions as may be required under clause (i)
of the first sentence of this paragraph, or to cooperate under clauses (ii) or
(iii) of the first sentence of this paragraph, then we shall declare and pay a
dividend on the issued and outstanding preferred shares in the aggregate amount
of $1,000,000, in preference to and to the exclusion of the holders of the
common shares.
(6) that we will take all steps necessary to adopt the appropriate
amendments to the organizational documents of Foster Wheeler Ltd. to effect the
actions described in the first sentence of paragraph (2) above, including (A)
adopting board resolutions recommending such actions, (B) distributing timely
notice of such meetings to its shareholders, (C) complying with applicable proxy
solicitation requirements as soon as practicable, (D) if a quorum is not present
on a scheduled date of any such meeting, postponing and reconvening such meeting
at least twice and (E) with respect to the action described in clause (B) of
paragraph (2) above, duly conveying and holding a separate general meeting of
the holders of the common shares. Subject to local law (and without limiting and
in addition to the holders' right to specific performance under the lockup
agreement), if we fail to take such actions as may be required under the first
sentence of this paragraph, then on the 30th business day following receipt of
notice of such failure from the holders of 25% of the preferred shares
outstanding, if such failure shall not have been cured prior to such date, we
shall declare and pay a dividend on the issued and outstanding preferred shares
in the aggregate amount of $1,000,000, in preference to and to the exclusion of
the holders of the common shares. Thereafter, on each quarterly anniversary of
the first such payment date, if we have failed to take such action as may
B-4
be required under the first sentence of this paragraph, then we shall declare
and pay a dividend on the issued and outstanding preferred shares in the
aggregate amount of $1,000,000, in preference to and to the exclusion of the
holders of the common shares.
(7) that (i) we will adopt the board resolution necessary to issue the
common shares issuable upon conversion of the preferred shares on the date that
the certificate of designation is approved in final form, with effect on the
date on which the preferred shares are issued and (ii) following its adoption,
we are required (x) to refrain from taking any action to impair, rescind or
alter such resolution following its adoption, to at all times after our
authorized capital has been increased as described in paragraph (2) above,
reserve that number of common shares (taking into account any outstanding
warrants, options and similar rights for which the common shares have been or
may be separately reserved) sufficient to allow, and maintain sufficient share
premium to effect, the conversion of the preferred shares and issuance of
related common shares. Subject to local law (and without limiting and in
addition to the holders' right to specific performance under the lockup
agreement), if we have failed to take the action described in clause (i), or if
we have failed to take or to refrain from taking, as the case may be, the
actions described in clause (ii) of the first sentence of this paragraph, then
on the sixth day following its failure, we shall declare and pay a dividend on
the issued and outstanding preferred shares in the aggregate amount of
$2,500,000, in preference to and to the exclusion of the holders of the common
shares. Thereafter on each quarterly anniversary of the first such payment date,
if we have not taken the action described in clause (i) (or refrain from taking
the action described in clause (ii)) of the first sentence of this paragraph,
then we shall declare and pay a dividend on the issued and outstanding preferred
shares in the aggregated amount of $2,500,000, in preference to and to the
exclusion of the holders of the common shares.
(8) all dividends payable on the preferred shares shall be cumulative.
Without limiting any other rights of the holders under the certificate of
designation (including, without limitation, the rights to receive dividends
payable under the certificate of designation and the right under the lockup
agreement to be paid an amount equal to any dividends not paid as required under
the Certificate of Designation) or under the lockup agreement (including the
holders' right to specific performance thereunder), upon the default of the
equivalent of six quarterly dividends on the preferred shares, the holders may,
voting as a class, elect at least two members of our board of directors at each
annual general meeting of Foster Wheeler Ltd., such right to continue until all
dividends payable hereunder have been paid in full.
CAPITAL DISTRIBUTION. The preferred shares will have the right to receive a
pro rata share of any return or distribution by Foster Wheeler Ltd. of its share
capital to holders of common shares, whether by way of a repurchase of common
shares, a reduction of issued share capital, a bonus issue of shares (except any
bonus issue made in accordance with and to effect the conversion rights
described above) or otherwise as though the preferred shares had been converted
into common shares prior to the return or distribution, whether or not the share
capital has been increased and the shares have in fact become convertible.
LIQUIDATION RIGHTS. The preferred shares have a liquidation preference of
$0.01.
There are currently no issued and outstanding shares of Foster Wheeler Ltd.
that rank senior in right of payment to the preferred shares upon liquidation,
dissolution or winding up. The preferred shares rank equally with the issued and
outstanding common shares of Foster Wheeler Ltd. upon liquidation, dissolution
or winding up as though the preferred shares had been converted immediately
prior to such liquidation, dissolution or winding up, whether or not the share
capital has been increased and the shares have in fact become convertible, and,
as such, will share equally and ratably in the assets, if any, remaining after
the payment of all of Foster Wheeler Ltd.'s debts and liabilities and the
liquidation preference.
LIABILITY FOR FURTHER CALLS OR ASSESSMENTS. The preferred shares are duly and
validly issued and are not subject to further calls or assessments.
LISTING. The preferred shares are not listed on an exchange or quoted on any
national securities association.
FRACTIONAL SHARES. The preferred shares may be issued as fractional shares
and Bermuda law and our bye-laws allow the transfer and sale of fractional
shares.
B-5
VARIATION OF RIGHTS
The rights attaching to any class of shares, unless otherwise provided for by
the terms of issue of the relevant class, may be varied either: (1) with the
consent in writing of the holders of all of the issued shares of that class; or
(2) with the sanction of a resolution passed by a majority in number equal to
three fourths of the issued shares at a general meeting of the relevant class of
shareholders at which a quorum consisting of at least two persons holding or
representing one-third of the issued shares of the relevant class is present.
Any action which may be construed to constitute a variation of the rights of a
class of shares including but not limited to variations resulting from or in
connection with mergers, amalgamations, and asset sales, may give the holders of
the affected class of shares the right to vote in respect of the variation as a
separate class. The creation or issue of shares ranking equally with existing
shares will not, unless expressly provided by the terms of issue of those
shares, vary the rights attached to existing shares. Under Bermuda law, the
holders of a class of shares may also be entitled to vote separately as a class
in certain other circumstances including, but not limited to, a scheme of
arrangement under the Companies Act as described below. See "Compulsory
Acquisition of Shares Held by Minority Holders." The preferred shares will vote
on proposals to reduce the par value of the shares of Foster Wheeler Ltd. and to
increase the authorized share capital of Foster Wheeler Ltd. (as described in
the section entitled "--Terms of the Series B Convertible Preferred Shares") on
an as converted basis together with the common shares as a single class. The
reduction of par value and subsequent increase of authorized share capital shall
be effected upon the affirmative vote of a majority of such votes cast.
REPURCHASE
Under Foster Wheeler Ltd.'s bye-laws and subject to the solvency and minimum
capital requirements of the Companies Act, Foster Wheeler Ltd. may purchase any
issued common shares or preferred shares in the circumstances and on the terms
as are agreed by Foster Wheeler Ltd. and the holders of common shares or
preferred shares, as applicable, from time to time. No repurchase may be
effected if there are reasonable grounds for believing that Foster Wheeler Ltd.
is, or after effecting the repurchase would be, unable to pay its liabilities as
they become due. A repurchase of more than 10% of the shares from a shareholder
for more than market value requires the prior approval of the board of directors
and the holders of a majority of all voting shares.
TRANSFER OF SHARES
Foster Wheeler Ltd.'s fully paid shares are transferable by a transfer form
signed by the transferor and delivered to Foster Wheeler Ltd. or its transfer
agent together with the certificate, if any, for such shares. Foster Wheeler
Ltd.'s board of directors may refuse to register, or otherwise restrict, the
transfer of any share if the board believes that the transfer would cause Foster
Wheeler Ltd. to violate any applicable law or if the transfer is not in
accordance with the bye-laws.
MEETINGS OF SHAREHOLDERS
Foster Wheeler Ltd. must convene at least one general meeting of shareholders
each calendar year. A general meeting of shareholders may be called by Foster
Wheeler Ltd.'s board of directors and a special meeting of shareholders must be
called upon the request of not less than 10% of Foster Wheeler Ltd.'s voting
shares. Foster Wheeler's bye-laws require not more than 60 and at least 10 days'
notice of an annual general meeting must be given to each shareholder entitled
to vote at such meeting, and not less than 30 nor more than 60 days' notice of a
special general meeting must be given. The quorum required for a general meeting
of shareholders is one or more persons present in person and representing in
person or by proxy in excess of 50% of Foster Wheeler Ltd.'s issued voting
shares.
ACCESS TO BOOKS AND RECORDS AND DISSEMINATION OF INFORMATION
Members of the general public have the right to inspect the public documents
of Foster Wheeler Ltd. at the office of the Registrar of Companies in Bermuda.
These documents include the memorandum of association, including its objects and
powers, and certain alterations to its memorandum of association. Shareholders
may inspect Foster Wheeler Ltd.'s bye-laws, minutes of general meetings and the
audited financial statements, which must be presented at the annual general
meeting. The register of members is also open to inspection by shareholders
without charge and by members of the general public on the payment of a fee. The
register of members must be open for inspection for not less than two hours in
any business day (but may be closed for not more than thirty days in a year).
Foster Wheeler Ltd.'s register of directors and officers is maintained at its
registered office in Bermuda and is open for inspection for not less than two
hours in any business day by members of the public without charge.
B-6
ELECTION AND REMOVAL OF DIRECTORS
Foster Wheeler Ltd.'s board of directors may consist of between three and
twenty directors. The number of directors within such range is fixed from time
to time by the board. Foster Wheeler Ltd.'s board of directors resolved that, as
of October 15, 2004, the board of directors would be comprised of eight
directors and as of October 15, 2004, there were eight directors. The board is
divided into three classes that are, as nearly as possible, of equal number.
Each class of directors is elected for a three-year term of office, but the
terms are staggered so that the term of only one class of directors expires at
each annual general meeting.
Any shareholder wishing to nominate for election as a director someone who is
not nominated by Foster Wheeler Ltd.'s board of directors must give notice of
the intention to nominate the person for election. Such notice must be given not
less than one-hundred and twenty days before release of Foster Wheeler Ltd.'s
proxy statement in connection with the previous year's annual general meeting.
A director may be removed, with cause, by the affirmative vote of the holders
of at least 66?% of the shares entitled to vote for the election of directors,
provided notice is given to the director of the shareholders meeting convened to
remove the director. The notice must contain a statement of the intention to
remove the director and must be served on the director not less than fourteen
days before the meeting. The director is entitled to attend the meeting and be
heard on the motion for his removal. Under Foster Wheeler Ltd.'s bye-laws, the
board of directors is responsible to fill vacancies on the board and any newly
created directorships.
AMENDMENT OF MEMORANDUM OF ASSOCIATION AND BYE-LAWS
Foster Wheeler Ltd.'s memorandum of association may be amended by a
resolution passed at a duly called general meeting of shareholders. Upon
compliance with applicable Bermuda law, amendments to the memorandum of
association may be subjected to review by a Bermuda court by dissenting
shareholders holding not less than 20% of the par value of Foster Wheeler Ltd.'s
issued capital or any class thereof.
Foster Wheeler Ltd.'s bye-laws may be amended by resolutions of the board of
directors and shareholders, or by the unanimous vote of the shareholders without
prior approval of the board. Any proposed amendment to the bye-law relating to
removal of directors, however, must be approved by the board and the affirmative
vote of at least 75% of the shareholders. Any amendment to vary the rights
attached to a class of shares must comply with the bye-law relating to a
variation of class rights.
Any amendment, alteration or repeal of the terms of the memorandum of
association and bye-laws which would affect the powers, preferences or special
rights of the preferred shares or vary the rights of the common shares will
require the approval of holders of at least three fourths of the outstanding
affected class of shares, voting as a separate class. This approval can be
evidenced either by a unanimous consent in writing or by a resolution passed at
a meeting of the holders of the affected class of shares at which a quorum
consisting of at least two persons holding or representing one third of the
issued and outstanding affected class of shares is present.
AMALGAMATIONS AND BUSINESS COMBINATIONS
Foster Wheeler Ltd.'s bye-laws provide that a merger or an amalgamation must
be approved by 66?% of the votes cast at a general meeting of the shareholders
at which the quorum shall be one or more persons representing more than 50% of
the issued voting shares.
Certain business combinations (which include an amalgamation) entered into
with a shareholder that beneficially owns, directly or indirectly, 20% or more
of the voting shares of Foster Wheeler Ltd. that have not been approved by the
board of directors prior to the acquisition date of such holding must be
approved by the holders of a majority of the voting shares that are not held by
such shareholder, its affiliates or associates, at a meeting held no earlier
than five years following such acquisition date.
APPRAISAL RIGHTS AND SHAREHOLDER SUITS
A shareholder who is not satisfied that fair value has been offered for such
shareholder's shares on an amalgamation may apply to the Supreme Court of
Bermuda to appraise the fair value of those shares.
Class actions and derivative actions are generally not available to
shareholders under Bermuda law. The Bermuda courts, however, would ordinarily be
expected to permit a shareholder to commence an action in the name of a company
to remedy a wrong to the company if the act complained of is alleged to be
beyond the corporate power of the company or is illegal or would result in the
violation of the company's memorandum of association or bye-laws.
B-7
A Bermuda court would also be expected to review acts that are alleged to
constitute a fraud against the minority shareholders or any act which requires
the approval of a greater percentage of the shareholders than that which
actually approved it.
When the affairs of a company are being conducted in a manner which is
oppressive or prejudicial to the interests of some part of the shareholders, one
or more shareholders may apply to the Supreme Court of Bermuda, which may make
such order as it sees fit, including an order regulating the conduct of the
company's affairs in the future or ordering the purchase of the shares of any
shareholders by other shareholders or by the company.
CAPITALIZATION OF PROFITS AND RESERVES
Pursuant to Foster Wheeler Ltd.'s bye-laws, the board of directors may
capitalize any part of the amount of its share premium or other reserve accounts
or any amount credited to its profit and loss account or otherwise available for
distribution by applying such sum in paying up (1) unissued shares to be
allotted as fully paid bonus shares pro-rata to the shareholders or any class
thereof; or (2) in full or partly paid shares of those shareholders who would
have been entitled to such sums if they were distributed by way of dividend or
distribution.
REGISTRAR AND TRANSFER AGENT
Mellon Investor Services LLC serves as registrar and transfer agent of Foster
Wheeler Ltd. in the United States.
UNTRACED SHAREHOLDERS
Foster Wheeler Ltd.'s bye-laws provide that the board of directors may
forfeit any dividend or bonuses which remain unclaimed for six years from the
date of declaration.
COMPULSORY ACQUISITION OF SHARES HELD BY MINORITY HOLDERS
The shares of minority holders may be acquired by certain statutory
procedures under the Companies Act including upon the approval of an arrangement
with shareholders in a court supervised process and upon the acquisition of 90%
or more of the issued shares or class of shares. Such procedures include:
o A scheme of arrangement under the Companies Act. Such a scheme could be
effected upon the agreement of Foster Wheeler Ltd. and of holders of
common shares or preferred shares, representing in the aggregate a
majority in number and at least 75% in value of the common or preferred
shareholders present and voting at a court ordered meeting held to
consider the scheme. The scheme must then be sanctioned by the Bermuda
Supreme Court. If such a scheme receives all necessary agreements and
sanctions, upon the filing of the court order with the Registrar of
Companies in Bermuda, all holders of common shares or preferred shares
could be compelled to sell their shares under the terms of the scheme.
o If an acquiring party is a company, by acquiring pursuant to a tender
offer 90% of the shares or class of shares not already owned by, or by
a nominee for, the acquiring party (the offeror), or any of its
subsidiaries. If an offeror has, within four months after the making of
an offer for all the shares or class of shares not owned by, or by a
nominee for, the offeror, or any of its subsidiaries, obtained the
approval of the holders of 90% or more of all the shares to which the
offer relates, the offeror may, at any time within two months beginning
with the date on which the approval was obtained, require by notice any
nontendering shareholder to transfer its shares on the same terms as
the original offer. In those circumstances, nontendering shareholders
will be compelled to sell their shares unless the Bermuda Supreme Court
(on application made within a one-month period from the date of the
offeror's notice of its intention to acquire such shares) orders
otherwise.
o Where the acquiring party or parties hold not less than 95% of the
shares or a class of shares of the company, by acquiring, pursuant to a
notice given to the remaining shareholders or class of shareholders,
the shares of such remaining shareholders or class of shareholders.
When this notice is given, the acquiring party is entitled and bound to
acquire the shares of the remaining shareholders on the terms set out
in the notice, unless a remaining shareholder, within one month of
receiving such notice, applies to the Bermuda Supreme Court for an
appraisal of the value of their shares. This provision only applies
where the acquiring party offers the same terms to all holders of
shares whose shares are being acquired.
B-8
ANTI-TAKEOVER PROVISIONS
Foster Wheeler Ltd.'s bye-laws have provisions that could have an
anti-takeover effect. These provisions of the bye-laws are summarized below.
Foster Wheeler Ltd.'s board of directors is divided into three classes
serving staggered three-year terms. Directors can be removed from office only
for cause, by the affirmative vote of the holders of two-thirds of the issued
shares generally entitled to vote. The board of directors does not have the
power to remove directors. Vacancies on the board of directors may only be
filled by the remaining directors and not by the shareholders. Each of these
provisions can delay a shareholder from obtaining majority representation on the
board of directors.
Foster Wheeler Ltd.'s board of directors consists of not less than three nor
more than twenty persons, the exact number to be set from time to time by a
majority of the whole board of directors. Accordingly, the board of directors,
and not the shareholders, has the authority to determine the number of directors
and could delay any shareholder from obtaining majority representation on the
board of directors by enlarging the board of directors and filling the new
vacancies with its own nominees until a general meeting at which directors are
to be elected.
At any annual general meeting of shareholders, the only business that may be
conducted is as shall have been brought before the meeting by or at the
direction of the board or by any shareholder who complies with certain notice
procedures. To be timely for inclusion in Foster Wheeler Ltd.'s proxy statement,
a shareholder's notice of a shareholder proposal must be received not less than
120 days prior to the first anniversary of the date on which Foster Wheeler Ltd.
first mailed its proxy materials for the preceding year's annual general
meeting. To be timely for consideration at the annual meeting of shareholders, a
shareholder's notice must be received no less than 45 days prior to the first
anniversary of the date on which Foster Wheeler Ltd. first mailed its proxy
materials for the preceding year's annual meeting. Under Bermuda law, not less
than one hundred shareholders, or shareholders holding at least 5% of the voting
power of Foster Wheeler Ltd., may require Foster Wheeler Ltd. give notice of a
resolution that may properly be moved at an annual general meeting, or to
circulate to shareholders entitled to notice with respect to any meeting a
statement of any proposed resolution or business to be dealt with at that
meeting.
Subject to the terms of any other class of shares in issue, any action
required or permitted to be taken by the holders of Foster Wheeler Ltd.'s common
shares must be taken at a duly called annual or special general meeting of
shareholders unless taken by written consent of all holders of voting shares.
Under the bye-laws, special general meetings may only be called by a majority of
the entire board of directors. Under Bermuda law, a special general meeting must
also be called upon the request of shareholders holding at least 10% of the paid
up capital of a company carrying the right to vote. The bye-laws of Foster
Wheeler Ltd. provide that any action to be taken at such a shareholder meeting
would require the approval of 100% of the shares eligible to vote at such
meeting.
Foster Wheeler Ltd.'s board of directors is authorized, without obtaining any
vote or consent of the holders of any class or series of shares unless expressly
provided by the terms of issue of a class or series, to from time to time issue
any other classes or series of shares with the designations, rights,
preferences, limitations and voting rights, if any, as they consider fit. The
board of directors could authorize the issuance of preferred shares with terms
and conditions that could discourage a takeover or other transaction that
holders of some or a majority of the voting shares might believe to be in their
best interests or in which holders might receive a premium for their shares over
the then market price of the shares.
Certain business combinations between Foster Wheeler Ltd. and an interested
members are prohibited. Specifically, business combinations between an
interested member and Foster Wheeler Ltd. are prohibited for a period of five
years after the time the interested member acquires 20% or more of the
outstanding voting shares, unless the business combination or the transaction
resulting in the person becoming an interested member is approved by the board
of directors prior to the date the interested member acquires 20% or more of the
outstanding voting shares.
"Business combinations" is defined broadly to include amalgamations or
consolidations with Foster Wheeler Ltd. or its subsidiaries, sales or other
dispositions of assets having an aggregate value of 10% or more of the aggregate
market value of the consolidated assets, aggregate market value of all
outstanding shares, consolidated earning power or consolidated net income of
Foster Wheeler Ltd., adoption of a plan or proposal for liquidation and most
transactions that would increase the interested member's proportionate share
ownership in Foster Wheeler Ltd.
"Interested member" is defined as a person who, together with any affiliates
and/or associates of that person, beneficially owns, directly or indirectly, 20%
or more of the issued voting shares of Foster Wheeler Ltd.
B-9
CERTAIN PROVISIONS OF BERMUDA LAW
Foster Wheeler Ltd. has been designated by the Bermuda Monetary Authority as
a non-resident for Bermuda exchange control purposes. This designation allows
Foster Wheeler Ltd. to engage in transactions in currencies other than the
Bermuda dollar, and there are no restrictions on its ability to transfer funds,
other than funds denominated in Bermuda dollars, in and out of Bermuda or to pay
dividends to United States residents who are holders of Foster Wheeler Ltd.'s
shares.
The Bermuda Monetary Authority has given its consent for the issue and free
transferability of all the shares of Foster Wheeler Ltd. to and between
non-residents of Bermuda for exchange control purposes, provided a class of
shares of Foster Wheeler Ltd. are: (1) listed on an appointed stock exchange,
which includes the New York Stock Exchange; (2) quoted in the "Pink Sheets"; or
(3) quoted on the OTC Bulletin Board. Approvals or permissions given by the
Bermuda Monetary Authority do not constitute a guarantee by the Bermuda Monetary
Authority as to performance or creditworthiness. Accordingly, in giving such
consent or permissions, the Bermuda Monetary Authority shall not be liable for
the financial soundness, performance or default of Foster Wheeler Ltd.'s
business or for the correctness of any opinions or statements expressed herein.
Certain issues and transfers of shares involving persons deemed resident in
Bermuda for exchange control purposes require the specific consent of the
Bermuda Monetary Authority.
In accordance with Bermuda law, share certificates are only issued in the
names of companies, partnerships or individuals. In the case of a shareholder
acting in a special capacity, for example as a trustee, certificates may, at the
request of the shareholder, record the capacity in which the shareholder is
acting. Notwithstanding such recording of any special capacity, Foster Wheeler
Ltd. is not bound to investigate or see to the execution of any such trust.
Foster Wheeler Ltd. will take no notice of any trust applicable to any of its
shares, whether or not it has been notified of such trust.
DESCRIPTION OF THE WARRANTS
Each Class A Warrant, or warrant, upon the circumstances described
below, entitles its owner to purchase a specified number of common shares, as
described in this section, for $0.4689 per common share issuable thereunder, or,
if applicable, for a specified number of preferred shares. Currently, Foster
Wheeler Ltd. does not have a sufficient number of authorized common shares to
cover the exercise of all of the warrants being offered in, and in connection
with, the equity-for-debt exchange offer. The warrants will become exercisable
one year after their issue date, and will be exercisable for preferred shares,
only, unless and until the number of authorized common shares of Foster Wheeler
Ltd. is increased from 160 million to at least 1,475.9 million and the par value
of Foster Wheeler Ltd.'s shares is reduced from $1.00 per share to $0.01 per
share, subject to adjustment for certain dilutive events, in which case they
will be exercisable for common shares as described herein. Foster Wheeler Ltd.
intends to hold a general meeting of its voting shareholders to effect these
alterations to its capital on November 29, 2004. If the number of authorized
shares is not so increased and the par value is not so reduced, the warrants
will not become exercisable for common shares, but will be exercisable for
preferred shares.
EXERCISE OF WARRANTS
A warrant may be exercised by completing and signing the appropriate form on
the warrant and mailing or delivering the warrant to Mellon Investor Services
LLC, the warrant agent, in time to reach the warrant agent by the expiration
date of the warrants, accompanied by payment of the full purchase price. Payment
of the purchase price must be made in United States funds (by check, cash or
bank draft) payable to the order of Foster Wheeler Ltd. Common shares will be
issued as soon as practicable after exercise and payment of the purchase price.
The warrants are exercisable, subject to the satisfaction of the conditions
described above, only after September 24, 2005 and on or before September 24,
2009, subject to extension as described below under "--Shelf Registration."
COMMON SHARES ISSUABLE UNDER THE WARRANTS
We will reserve a sufficient number of common shares for issuance upon
exercise of the warrants if, as and when the number of authorized common shares
is increased and the par value is reduced as described above, and such common
shares, when issued in accordance with the terms of the warrants, will be fully
paid and non assessable.
B-10
Each Class A warrant is exercisable for approximately 33.6827 common shares,
subject to adjustment. See "--Dilution".
PREFERRED SHARES ISSUABLE UNDER THE WARRANTS
If the increase in authorized common shares or the reduction in par value
referred to above are not authorized, the warrants will not become exercisable
for common shares, but will be exercisable for preferred shares. In the event
that the warrants will be exercisable for preferred shares rather than for
common shares, each warrant will be exercisable for that number of preferred
shares that would entitle the holder to convert its preferred shares into the
number of common shares for which the warrants would have been exercisable had
the conditions described above been satisfied. The number of preferred shares
issuable upon the exercise of each Class A warrant is approximately 0.0259
preferred shares. Foster Wheeler Ltd. has a sufficient number of authorized
preferred shares available to satisfy the exercise of the warrants, and will,
for so long as the warrants are or may become exercisable for preferred shares,
reserve a sufficient number of preferred shares to cover the exercise of all
warrants offered in, and in connection with, the equity-for-debt exchange offer.
DILUTION
As long as any warrants remain outstanding, common shares to be issued upon
the exercise of warrants will be adjusted in the event of one or more splits,
consolidations, amalgamation, subdivisions, readjustments or reclassifications.
In the event of any of the foregoing, the remaining number of common shares
still subject to the warrants shall be increased or decreased to reflect
proportionately the increase or decrease in the number of common shares
outstanding and the purchase price per share shall be decreased or increased as
the case may be in the same proportion. The warrants contain provisions
protecting against dilution resulting from the sale of additional common shares
at a price less than the exercise price of the warrants.
VOTING AND DIVIDENDS
The holders of the warrants as such are not entitled to vote, to receive
dividends or to exercise any of the rights of holders of shares of common shares
for any purpose until such warrants shall have been duly exercised and payment
of the purchase price shall have been made. There is no market for the warrants
and there is no assurance that any such market will ever develop.
SHELF REGISTRATION
We have agreed to use our best efforts to file and maintain, at all times
during which the warrants are exercisable, a resale "Shelf" registration
statement relating to the offer and sale of common shares, or, if applicable,
preferred shares, underlying the warrants for the benefit of the warrant
holders. In certain circumstances, the exercisability of the warrants may be
suspended. The expiration date of the warrants will be extended for a period
equal to the aggregate time during which a registration statement is not
available to the holders of the warrants once they become exercisable. In
addition, if the registration statement is unavailable at any time during the 30
business days preceding the expiration date, then the expiration date will be
extended so that the registration statement is available during the 30
consecutive business days preceding the expiration date as so extended. We will
promptly notify the holders of the warrants of any extensions.
GLOBAL FORM
The warrants were issued initially in book entry form under a global
warrant certificate issued to the Depositary Trust Company ("DTC") pursuant to a
warrant agreement between us and Mellon Investor Services LLC, as the warrant
agent. Beneficial interests in the global warrant certificate may be exchanged
for warrant certificates in definitive form by the holder of such interest upon
receipt by the warrant agent of written instructions or other form of
instructions as is customary for the DTC. We initially appointed the principal
office of the warrant agent as the location at which warrants may be surrendered
for exercise, transfer or exchange.
B-11
DESCRIPTION OF THE NEW NOTES
The summary below describes the principal terms of Foster Wheeler LLC's
10.359% Senior Secured Notes due 2011, Series A, or the new notes.
Issuer........................... Foster Wheeler LLC
Securities....................... Up to $141,471,000 aggregate principal amount
of 10.359% Senior Secured Notes due September
15, 2011, Series A.
Maturity......................... September 15, 2011
Interest Rate.................... 10.359% per annum
Interest Payment Dates........... Semi-annually on March 15 and September 15 of
each year, commencing March 15, 2005.
Guarantees....................... The notes are jointly and severally guaranteed
by Foster Wheeler Ltd., Foster Wheeler
Holdings Ltd. and the subsidiary guarantors
listed in the Company's registration statement
on Form S-4 (File No. 333-107054) and such
other subsidiaries which may become additional
guarantors pursuant to the indenture.
Security and Ranking............. The notes are the senior secured obligations
of Foster Wheeler LLC. The notes rank pari
passu with Foster Wheeler's obligations under
the senior secured credit agreement. The notes
are secured by a lien on the following assets
of each of Foster Wheeler LLC and each of the
guarantors;
o substantially all of its tangible and
intangible assets, excluding intercompany
debt and receivables and capital stock held
in subsidiaries, except as described in the
two following bullet points;
o pledges of capital stock held in certain of
Foster Wheeler LLC's and the guarantors'
direct subsidiaries;
o pledges of certain specified existing
intercompany notes, as well as certain
future intercompany notes
Although the notes rank pari passu with Foster
Wheeler's obligations under the senior secured
credit agreement, the proceeds held or
received by the collateral agent in respect of
any sale of collateral securing the notes will
be applied first to all obligations in respect
of any letters of credit under the senior
secured credit agreement, which were
collectively $73.2 million at June 25, 2004,
and all obligations outstanding in respect of
letters of credit or revolving loans under any
other credit facility permitted under the
indenture, and thereafter, on a pro rata
basis, to all obligations in respect of the
notes and term loans under any future credit
facility, permitted under the indenture.
Foster Wheeler applied the net proceeds from
the upsize notes offering first to reduce
amounts outstanding under term and revolving
loans under the senior secured credit
agreement in full.
Under the terms of the notes Foster Wheeler is
permitted to incur up to $250 million, or
subject to meeting certain financial ratios
$325 million, in senior secured bank
obligations, including obligations under the
senior secured credit agreement, which amount
shall increase to $370 million, or subject to
meeting certain financial ratios, $445
million, after September 15, 2008. The
indenture and collateral documents governing
the notes permit Foster Wheeler to grant a
lien on the collateral securing the notes to
the lenders under any new credit facility
permitted by the indenture as well as to the
holders of the rollover notes.
Optional Redemption.............. We may redeem some or all of the notes at any
time at the redemption prices set forth in the
indenture.
Mandatory Offer to Repurchase.... Upon the occurrence of certain change of
control events described in the indenture,
B-12
holders may require Foster Wheeler to
repurchase some or all of their notes at 101%
of their principal amount plus accrued
interest. The occurrence of those events may,
however, be an event of default under our
senior secured credit agreement or other debt
agreements, and those agreements may prohibit
the repurchase. Further, we may not have
sufficient resources to satisfy our repurchase
obligation.
Certain Covenants................ The indenture governing the notes contains
covenants limiting our ability and our
subsidiaries' ability to:
o incur additional debt or issue subsidiary
preferred stock or stock with a mandatory
redemption feature before the maturity of
the notes;
o pay dividends on our capital stock;
o redeem or repurchase capital stock or
prepay or repurchase subordinated debt;
o make some types of investments and sell
assets;
o create liens or engage in sale and
leaseback transactions;
o engage in transactions with affiliates,
except on an arms-length basis; and
o consolidate or merge with, or sell
substantially all our assets to, another
person.
B-13
COMPARISON OF RIGHTS
The following summarizes the material differences between the rights of
holders of (1) the securities exchanged in the equity-for-debt exchange offer
and (2) the securities issued in the equity-for-debt exchange offer.
THE EQUITY-FOR-DEBT EXCHANGE OFFER HAS BEEN COMPLETED. YOU ARE NOT
BEING ASKED TO CONSIDER OR VOTE UPON ANY ELEMENT OF THE EQUITY-FOR-DEBT EXCHANGE
OFFER.
Upon completion of the exchange offer, holders of trust securities,
convertible notes, Robbins bonds and 2005 notes who tendered their securities in
the exchange offer became holders of common shares and preferred shares of the
Company.
o The rights of holders of trust securities are governed by the
declaration of trust, the junior subordinated indenture, the guarantee
agreement and the Statutory Trust Act of the State of Delaware. The
rights of holders of convertible notes are governed by the convertible
notes indenture and the global convertible note. The rights of holders
of Robbins bonds are governed by the Second Amended and Restated
Mortgage, Security Agreement and Indenture of Trust dated as of October
15, 1999 from Village of Robbins, Cook County, Illinois, to SunTrust
Bank, Central Florida, National Association, as trustee, or the Robbins
indenture.
o The rights of holders of common shares are governed by the Companies
Act and Foster Wheeler Ltd.'s memorandum of association and bye-laws
and the rights of holders of preferred shares are governed by the
Companies Act, the certificate of designation for the preferred shares
and Foster Wheeler Ltd's memorandum of association and bye-laws. The
term "member" when used under the Companies Act, the certificate of
designation and the memorandum of association and bye-laws of the
Company is used interchangeably with the term "shareholder" in this
proxy statement.
There are many differences between the rights of holders of trust
securities under Delaware law, holders of convertible notes issued under an
indenture governed by New York law and the rights of holders of Robbins bonds
issued under the Robbins indenture governed by Illinois law, and supported by
the exit funding agreement which is governed by New York law, on the one hand,
and the rights of security holders under Bermuda law, on the other hand, which
is modeled after the corporate laws of England. In addition, there are
differences between the governing documents of FW Preferred Capital Trust I and
Foster Wheeler LLC, on the one hand, and Foster Wheeler Ltd., on the other hand.
This summary is subject to the complete text of the relevant provisions
of the Companies Act, the Statutory Trust Act, the declaration of trust, the
indentures, the global notes, and each of Foster Wheeler Ltd.'s and Foster
Wheeler LLC's governing documents.
TRUST SECURITIES COMPARED TO COMMON SHARES AND PREFERRED SHARES
- ---------------------------------------------------------------
PROVISION APPLICABLE TO HOLDERS OF TRUST SECURITIES PROVISION APPLICABLE TO HOLDERS OF
- --------------------------------------------------- COMMON SHARES AND PREFERRED SHARES
----------------------------------
SHAREHOLDERS' MEETINGS
Meetings of the holders of the trust securities may be called at Under Bermuda law, an annual general meeting must be convened at
any time by the administrative trustees to consider and act on least once in every calendar year. A special meeting of
any matter on which holders of the trust securities are entitled shareholders may be convened by the board of directors at any
to act under the terms of the declaration of trust, the terms of time and must be convened upon the request of shareholders
the trust securities or the rules of any stock exchange on which holding at least 10% of the paid-up capital of a company
the trust securities are then listed or admitted for trading. carrying the right to vote at shareholders' meetings.
B-14
PROVISION APPLICABLE TO HOLDERS OF TRUST SECURITIES PROVISION APPLICABLE TO HOLDERS OF
- --------------------------------------------------- COMMON SHARES AND PREFERRED SHARES
----------------------------------
The administrative trustees shall call a meeting of the holders
of a class of trust securities if directed to do so by the
holders of at least 10% of the aggregate liquidation amount of
such class.
QUORUM
There are no quorum requirements for meetings of holders of trust The bye-laws of Foster Wheeler Ltd. provide that one or more
securities. persons, present in person and representing in person or by
proxy more than 50% of the shares issued and entitled to vote
thereat, shall constitute a quorum at all meetings of the
shareholders for the transaction of business (including the
approval of an amalgamation) except as otherwise provided by the
Companies Act.
NOTICE OF MEETINGS
Notice of meeting of the holders of the trust securities must be Notice of an annual general meeting must be given at least 10
given at least seven days and not more than 60 days before the days and not more than 60 days before the date of such meeting.
date of such meeting. Notice of a special general meeting must be given at least 30
days and not more than 60 days before the date of such meeting.
ELECTION AND REMOVAL OF TRUSTEES/DIRECTORS
If an event of default under the junior subordinated indenture Any shareholder wishing to nominate for election as a director
has occurred and is continuing, the holders of a majority of the someone who is not nominated by the board of Foster Wheeler Ltd.
aggregate liquidation amount of the trust securities will be must give notice of the intention to nominate the person for
entitled to appoint, remove or replace the property trustee election. Foster Wheeler Ltd.'s bye-laws provide that such
and/or the Delaware trustee for the trust. notice must be given not less than one-hundred and twenty days
before release of Foster Wheeler Ltd.'s proxy statement in
In no event do the holders of the trust securities have the right connection with the previous year's annual general meeting.
to vote to remove or replace the administrative trustees; such
voting rights are vested exclusively in the holders of the common
securities of the trust.
A director may be removed, with cause, by the affirmative vote
of the holders of at least 662'3% of the shares entitled to vote
at an election of directors, provided notice is given to the
director of the shareholders meeting convened to remove the
director. The notice must contain a statement of the intention
to remove the director and must be served on the director not
less than fourteen days before the meeting. The director is
entitled to attend the meeting and be heard on the motion for
his removal. The bye-laws of Foster Wheeler Ltd. provide that
vacancies on the board and newly created directorships resulting
from any increase in the authorized
B-15
PROVISION APPLICABLE TO HOLDERS OF TRUST SECURITIES PROVISION APPLICABLE TO HOLDERS OF
- --------------------------------------------------- COMMON SHARES AND PREFERRED SHARES
----------------------------------
number of directors may be filled by a majority vote of
directors then in office. A vote of the board to replace a
director will include an assignment of the replacement director
to the class of which the former director was a member, and the
replacement director holds office until the time at which the
former director's term of office expires. Directors elected to
fill newly created directorships hold office until the third
annual general meeting following the date of their election.
APPROVAL REQUIREMENTS GENERALLY
Holders of the trust securities generally do not have voting Each holder of common shares is entitled to one vote in person,
rights. However, termination of the junior subordinated indenture or by proxy, for each common share, registered in the name of
may not be effective without the prior consent of the holders of such holder. Prior to becoming convertible, each holder of
at least a majority in aggregate liquidation amount of all the preferred shares will have the number of votes the common shares
outstanding trust securities, unless and until the principal of issuable upon conversion of such preferred shares would have. If
(and premium, if any, on) the junior subordinated debentures and and when the preferred shares become convertible at each
all accrued and unpaid interest have been paid in full and holder's option, they will cease to vote except in limited
certain other conditions are satisfied. circumstances as described in the next paragraph or as otherwise
No amendment, modification or termination of the junior required under applicable law.
subordinated indenture or the junior subordinated debentures, may Any amendment, alteration or repeal of the terms of the
be made by the property trustee, as holder of the junior memorandum of association and bye-laws or the certificate of
subordinated debentures without the prior consent of (1) each designation which would affect the powers, preferences, or
holder of the trust securities, in the case of an amendment to special rights of the preferred shares and any variation of the
specified provisions governing payment of principal or interest rights of the common shares or the preferred shares as a class
or amendments to the indenture, or (2) 66 2'3% of the aggregate will require the approval of holders of at least three-fourths
liquidation amount of the trust securities voting together as a of the outstanding affected class of shares. This approval can
single class, in the case of other amendments to the junior be evidenced either by a unanimous consent in writing or by a
subordinated indenture. In addition, any amendment to the resolution passed at a meeting of the holders of the relevant
guarantee agreement that materially adversely affects the rights class of shares at which a quorum consisting of at least two
of the holders of the trust securities requires the approval of persons holding or representing one-third of the issued and
at least 66 2'3% of the aggregate liquidation amount of the trust outstanding shares of the relevant class is present.
securities.
AMENDMENT OF CONSTITUTIONAL DOCUMENTS AND TERMS OF SECURITIES
If any amendment would (1) adversely affect the powers, Under the Companies Act, amendments to the memorandum of
preferences or special rights of the holders of the trust association of a Bermuda company must be approved by a majority
securities and the common securities of the trust whether by of the shareholders voting on the amendments.
amendment to the declaration of trust or otherwise, (2) result Under the Companies Act, the bye-laws may be amended by a
in the dissolution, winding up or termination of the trust other resolution of the board of directors and a resolution of the
than pursuant to the terms of the Declaration of Trust, (3) shareholders approved by a majority of the shareholders voting
change the amount or timing of any distribution of the trust on the amendment, unless a greater shareholder vote is required
securities or common securities of the trust or otherwise under the bye-laws. The Foster Wheeler Ltd. bye-laws require a
adversely affect the amount of any distribution required to be unanimous vote of the shareholders on any resolution to amend
made in respect of the trust securities or common securities of the bye-laws presented without the prior approval of the board
the trust as of a specified date, or (4) restrict the right of a of directors, provided that any proposed amendment to the bye-
holder of trust securities or common securities of the trust to law relating to removal of directors must be approved by the
institute suit for the enforcement of any such payment on or board and by the affirmative vote of the holders of 75% of the
after such date, then the holders of the trust securities and voting shares of Foster Wheeler Ltd. If a proposed rescission,
B-16
PROVISION APPLICABLE TO HOLDERS OF TRUST SECURITIES PROVISION APPLICABLE TO HOLDERS OF
- --------------------------------------------------- COMMON SHARES AND PREFERRED SHARES
----------------------------------
common securities of the trust voting together as a single class alteration or amendment varies the rights attached to a class of
will be entitled to vote on such amendment or proposal and such shares, the bye-law relating to a variation of class rights must
amendment or proposal shall not be effective except with the be complied with. That bye-law provides that if at any time
approval of each of the holders of the trust securities and Foster Wheeler Ltd. has more than one class of shares, the
common securities of the trust affected thereby. rights attaching to any class, unless otherwise provided for by
the terms of issue of the relevant class, may be varied either:
Any amendment that would adversely affect only the trust (i) with the consent in writing of the holders of all of the
securities or the common securities of the trust must be approved issued shares of that class; or (ii) with the sanction of a
by a majority of the aggregate liquidation amount (including the resolution passed by a majority in number equal to three-
stated amount that would be paid on redemption, liquidation or fourths of the issued shares at a general meeting of the
otherwise, plus accumulated and unpaid distributions to the date relevant class of shareholders at which a quorum consisting of
upon which the voting percentages are determined) of such class at least two persons holding or representing one-third of the
affected thereby. issued shares of the relevant class is present. Foster Wheeler
Ltd.'s bye-laws specify that the creation or issue of shares
ranking equally with existing shares will not, unless expressly
provided by the terms of issue of those shares, vary the rights
attached to existing shares.
APPROVAL OF BUSINESS COMBINATIONS
Generally, the trust may not merge with, or undertake any other The amalgamation of a Bermuda company with another company or
business combination as described in the declaration of trust, corporation (other than certain affiliated companies) requires
with any corporation or other body. However, the trust may, at the amalgamation agreement to be approved by the company's board
the request of Foster Wheeler LLC or with the consent of the of directors and by its shareholders. Shareholder class approval
administrative trustees, or if there are more than two, a is also required if the amalgamation agreement constitutes a
majority of the administrative trustees and without the consent variation of the rights attaching to that class of shares.
of the holders of the trust securities or common securities of Unless the company's bye-laws provide otherwise the approval of
the trust, the Delaware trustee or the property trustee, 75% of the shareholders voting at such general and class
consolidate, amalgamate, merge with or into, or be replaced by meetings is required to approve the amalgamation agreement.
or convey, transfer or lease its properties substantially as an Also, the quorum for such meetings must be two persons holding
entirety to a trust organized as such under the laws of any or representing more than one-third of the issued shares of the
state if certain conditions are met (including the assumption of company or the class. Each share carries the right to vote in
all of the obligations of the trust by the successor entity and respect of an amalgamation, whether or not it otherwise carries
the substitution for the trust securities of other securities the right to vote. Foster Wheeler Ltd.'s bye-laws provide that
having the same terms as the trust securities). an amalgamation requires the approval of two-thirds of the votes
cast at a general meeting of the shareholders where one or more
The trust may not, except with the consent of holders of 100% in persons representing in person or by proxy a majority of all
aggregate liquidation amount of the outstanding trust securities issued shares entitled to vote thereat constitutes a quorum.
and common securities of the trust, consolidate, amalgamate, Foster Wheeler Ltd.'s bye-laws further provide that certain
merge with or into, or be replaced by or convey, transfer or business combinations (which include an amalgamation) entered
lease its properties and assets substantially as an entirety to, into with a shareholder that beneficially owns, directly or
any other entity or permit any other entity to consolidate, indirectly, 20% or more of the voting shares of Foster Wheeler
amalgamate, merge with or into, or replace it, if such action Ltd. that have not been approved by the board of directors prior
would cause the trust or successor entity to be classified as to the date such shareholder acquired the 20% (or greater)
other than a grantor trust for U.S. federal income tax purposes holding must be approved by the holders of a majority of the
and each holder of the trust securities or common securities of voting shares that are not held by such shareholder, its
the trust not to be treated as owning an undivided interest in affiliates or associates, at a meeting held no earlier than five
the junior subordinated debentures. years following the date upon which that shareholder first
acquired 20% or more of the voting shares.
B-17
PROVISION APPLICABLE TO HOLDERS OF TRUST SECURITIES PROVISION APPLICABLE TO HOLDERS OF
- --------------------------------------------------- COMMON SHARES AND PREFERRED SHARES
----------------------------------
The Companies Act also provides that where an offer is made for
shares in a company by another company and, within four months
of the offer, the holders of not less than 90% in value of the
shares which are the subject of the offer accept, the offeror
may by notice, given within two months after the expiration of
the said four months, require the dissenting shareholders to
transfer their shares on the terms of the offer. Dissenting
shareholders may apply to a court within one month of such
notice objecting to the transfer and the court may in its
discretion grant such order as it thinks fit.
DISSENTERS' RIGHTS
Holders of trust securities do not have dissenters' rights. Under the Companies Act, a dissenting shareholder of a company
participating in an amalgamation (other than an amalgamation
between a company and certain affiliated companies) may apply to
the court to appraise the fair value of his or her shares.
DISTRIBUTIONS AND DIVIDENDS
Distributions on the trust securities are payable on a quarterly Under the Companies Act, the board of directors of Foster
basis, but only to the extent that payments are made by Foster Wheeler Ltd. may declare and pay dividends out of profits of
Wheeler LLC on the junior subordinated debentures and only to Foster Wheeler Ltd. available for that purpose or make
the extent that the trust has sufficient funds available to make distributions to shareholders out of contributed surplus as long
such payments. as there are no reasonable grounds for believing that Foster
Wheeler Ltd. is, or after the payment of such dividend or
If Foster Wheeler LLC defers interest payments on the junior distribution would be, unable to pay its liabilities as they
subordinated debentures, the trust will also defer quarterly became due or that the realizable value of Foster Wheeler Ltd.'s
distributions on the trust securities. During a deferral period, assets would thereby be less than the aggregate of its
the amount of distributions due to the holder would continue to liabilities and its issued share capital and share premium
accrue and such deferred distributions will themselves accrue accounts.
interest. Deferral periods may not exceed 20 consecutive
quarterly periods.
The holders are entitled to receive cumulative cash distributions
at an annual rate of 9%. Distributions accrue from the date the
trust issues the trust securities and will be paid quarterly in
arrears on January 15, April 15, July 15 and October 15 of each
year, beginning April 15, 1999.
REPURCHASE AND REDEMPTIONS
The trust will redeem all of the trust securities when the junior Under the Companies Act, a company may repurchase its own
subordinated debentures are paid at maturity on January 15, shares. However, the funds for such a repurchase must be either
2029. In addition, if Foster Wheeler LLC redeems any junior (1) capital paid-up on the shares in question; (2) proceeds of a
subordinated debentures before their maturity, the trust must new issue of shares made for the purposes of the repurchase; or
use the cash it receives on the redemption of the junior (3) funds which would otherwise be available for dividend or
subordinated debentures to redeem, on a pro rata basis, trust distribution. Furthermore, any premium which is payable on the
securities and common securities of the trust having a total repurchase must be provided out of funds which would otherwise
liquidation amount equal to the total principal amount of the be available for dividend or distribution or out of the
junior subordinated debentures redeemed. company's share premium account prior to the repurchase. No
B-18
PROVISION APPLICABLE TO HOLDERS OF TRUST SECURITIES PROVISION APPLICABLE TO HOLDERS OF
- --------------------------------------------------- COMMON SHARES AND PREFERRED SHARES
----------------------------------
Foster Wheeler LLC has the right to redeem the junior repurchase may be effected if there are reasonable grounds for
subordinated debentures before their maturity at 100% of their believing that the company is, or after effecting the repurchase
principal amount plus accrued and unpaid interest to the date of would be, unable to pay its liabilities as they become due.
redemption under certain circumstances.
ENFORCEMENT RIGHTS
If an event of default with respect to the junior subordinated The Bermuda courts ordinarily would be expected to follow
debentures has occurred and is continuing and such event is English precedent, which would permit a shareholder to commence
attributable to the failure of Foster Wheeler LLC to pay any an action in the name of the company to remedy a wrong done to
amounts in respect of such junior subordinated debentures on the the company only (1) where the act complained of is alleged to
date such amounts are otherwise payable, a holder of the trust be beyond the corporate power of the company or is illegal; (2)
securities may institute a legal proceeding directly against where the act complained of is alleged to constitute a fraud
Foster Wheeler LLC for enforcement of payment to such holder of against the minority shareholders by those controlling the
an amount equal to the aggregate liquidation amount of the trust company; provided that the majority shareholders have used their
securities held by such holder. Foster Wheeler LLC may not amend controlling position to prevent the company from taking action
the indenture or the junior subordinated debentures to remove against the wrongdoers; (3) where an act requires approval by a
this right to bring an action without the prior written consent greater percentage of the company's shareholders than actually
of the holders of all of the trust securities. approved it; or (4) where such an action is necessary in order
that there not be a violation of the company's memorandum of
association or bye-laws.
When the affairs of a company are being conducted in a manner
which is oppressive or prejudicial to the interests of some part
of the shareholders, one or more shareholders may apply to the
Supreme Court of Bermuda, which may make such order as it sees
fit, including an order regulating the conduct of the company's
affairs in the future or ordering the purchase of the shares of
any shareholders by other shareholders or by the company.
GUARANTEES
The obligations of the trust are guaranteed by Foster Wheeler The common shares and preferred shares are not guaranteed by any
Ltd. and Foster Wheeler LLC. The guarantees rank junior in right entity.
of payment to all liabilities of the guarantors.
DERIVATIVE SUITS
The Statutory Trust Act of the State of Delaware provides that a The Bermuda courts ordinarily would be expected to follow
beneficial owner may bring an action in the Court of Chancery in English precedent, which would permit a shareholder to commence
the right of a statutory trust to recover a judgment in its an action in the name of the company to remedy a wrong done to
favor if the trustees with the authority to do so have refused the company only (1) where the act complained of is alleged to
to bring the action or if an effort to cause those trustees to be beyond the corporate power of the company or illegal;
bring the action is not likely to succeed. If the property (2) where the act complained of is alleged to constitute a fraud
trustee fails to enforce its rights under the junior against the minority shareholders by those controlling the
subordinated debentures after a holder of trust securities has company; provided that the majority shareholders have used their
made a written request, such holder of trust securities may, to controlling position to prevent the company from taking action
the extent permitted by applicable law, institute a legal against the wrongdoers; (3) where an act requires approval by a
proceeding directly against Foster Wheeler LLC to enforce the greater percentage of the company's shareholders than actually
property trustee's rights under the indenture without first approved it; or (4) where such an action is necessary in order
B-19
PROVISION APPLICABLE TO HOLDERS OF TRUST SECURITIES PROVISION APPLICABLE TO HOLDERS OF
- --------------------------------------------------- COMMON SHARES AND PREFERRED SHARES
----------------------------------
instituting any legal proceeding against the property trustee or that there not be a violation of the company's memorandum of
any other person or entity. association or bye-laws.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND TRUSTEES
Foster Wheeler LLC has agreed to indemnify to the fullest extent Under the Companies Act, a company is permitted to indemnify any
permitted by law any administrative trustee, any affiliate of an officer or director against (1) any liability incurred by him or
administrative trustee, any officers, directors, shareholders, her in defending any proceedings, whether civil or criminal, in
members, partners, employees, representatives or agents of any which judgment is given in his or her favor, or in which he or
administrative trustee or any affiliate thereof, or any officer she is acquitted, or in connection with any application under
or agent of FW Preferred Capital Trust I or its affiliates other relevant Bermuda legislation in which relief from liability is
than the property trustee, the Delaware trustee and their granted to him or her by the court and (2) any loss or liability
respective affiliates. resulting from negligence, default, breach of duty or breach of
trust, except for his or her fraud or dishonesty. The bye-laws
of Foster Wheeler Ltd. provide for the indemnity by Foster
Wheeler Ltd. of the officers and directors of Foster Wheeler
Ltd., except with respect to fraud, dishonesty or willful
misconduct.
LIMITED LIABILITY OF DIRECTORS AND OFFICERS
Except as expressly set forth in the declaration of trust, the Under the Companies Act, a director must observe the statutory
guarantee agreement and the terms of the trust securities, the duty of care which requires such director to act honestly and in
officers and directors of Foster Wheeler LLC: (1) shall not be good faith with a view to the best interests of the company and
personally liable for the return of any portion of the capital exercise the care, diligence and skill that a reasonably prudent
contributions (or any return thereon) of the holders of the person would exercise in comparable circumstances. Directors are
trust securities which shall be made solely from assets of the also subject to common law fiduciary duties which require
trust; and (2) shall not be required to pay to the trust or to directors to act in what they reasonably believe to be the best
any holder of trust securities any deficit upon dissolution of interests of the company and for a proper purpose. Bermuda law
the trust or otherwise. renders void any provision in the bye-laws or any contract
between a company and any such director exempting him or her
from or indemnifying him or her against any liability in respect
of any fraud or dishonesty of which he or she may be guilty in
relation to the company. Foster Wheeler Ltd.'s bye- laws contain
a provision by virtue of which its shareholders waive any claim
or right of action that they have, both individually and on
Foster Wheeler Ltd.'s behalf, against any director or officer in
relation to any action or failure to take action by such
director or officer, except in respect of any fraud or
dishonesty of such director or officer.
B-20
PROVISION APPLICABLE TO HOLDERS OF TRUST SECURITIES PROVISION APPLICABLE TO HOLDERS OF
- --------------------------------------------------- COMMON SHARES AND PREFERRED SHARES
----------------------------------
INSPECTION OF BOOKS AND RECORDS
Each holder of trust securities has the right, subject to such Bermuda law provides the general public with a right of
reasonable standards (including standards governing what inspection of a Bermuda company's public documents at the office
information and documents are to be furnished at what time and of the Registrar of Companies in Bermuda, and provides a Bermuda
location and at whose expense) as may be established by the company's shareholders with a right of inspection of such
trustees, to obtain from the trust, from time to time upon company's bye-laws, minutes of general shareholders' meetings
reasonable demand for any purpose reasonably related to the and audited financial statements. The register of shareholders
holder's interest in the trust, business and financial records is also open to inspection by shareholders free of charge and,
of the trust. upon payment of a small fee, by any other person. A Bermuda
company is required to maintain its share register in Bermuda
but may establish a branch register outside of Bermuda. A
Bermuda company is required to keep at its registered office a
register of its directors and officers which is open for
inspection by members of the public without charge.
TRUST SECURITIES COMPARED TO WARRANTS
-------------------------------------
PROVISION APPLICABLE TO HOLDERS OF TRUST SECURITIES PROVISION APPLICABLE TO HOLDERS OF WARRANTS
--------------------------------------------------- -------------------------------------------
SHAREHOLDERS' MEETINGS
Meetings of the holders of the trust securities may be called at Holders of warrants will have no rights to call or cause to be
any time by the administrative trustees to consider and act on called meetings of securityholders.
any matter on which holders of the trust securities are entitled
to act under the terms of the declaration of trust, the terms of
the trust securities or the rules of any stock exchange on which
the trust securities are then listed or admitted for trading.
The administrative trustees shall call a meeting of the holders
of a class of trust securities if directed to do so by the
holders of at least 10% of the aggregate liquidation amount of
such class.
ELECTION AND REMOVAL OF TRUSTEES/DIRECTORS
If an event of default under the junior subordinated indenture Holders of warrants will have no rights to elect or remove
has occurred and is continuing, the holders of a majority of the directors.
aggregate liquidation amount of the trust securities will be
entitled to appoint, remove or replace the property trustee
and/or the Delaware trustee for the trust.
In no event do the holders of the trust securities have the right
to vote to remove or replace the administrative trustees; such
voting rights are vested exclusively in the holders of the common
securities of the trust.
B-21
PROVISION APPLICABLE TO HOLDERS OF TRUST SECURITIES PROVISION APPLICABLE TO HOLDERS OF WARRANTS
--------------------------------------------------- -------------------------------------------
APPROVAL REQUIREMENTS GENERALLY
Holders of the trust securities generally do not have voting Holders of warrants will not generally have any voting rights,
rights. However, termination of the junior subordinated however the terms of the warrants may only be amended, or
indenture may not be effective without the prior consent of the compliance therewith may be waived with the consent of holders
holders of at least a majority in aggregate liquidation amount of a majority of the warrants then outstanding; PROVIDED, that,
of all the outstanding trust securities, unless and until the without the consent of each warrantholder affected, no such
principal of (and premium, if any, on) the junior subordinated amendment or waiver shall (i) reduce the number of common
debentures and all accrued and unpaid interest have been paid in shares, preferred shares or other property or securities that
full and certain other conditions are satisfied. can be issued pursuant to a warrant, (ii) increase the exercise
price in respect of the warrants, (iii) bring forward the
No amendment, modification or termination of the junior expiration date of the warrants, (iv) change any provision
subordinated indenture or the junior subordinated debentures, may governing adjustments to the number or type of securities for
be made by the property trustee, as holder of the junior which warrants are exercisable in a manner adverse to any
subordinated debentures without the prior consent of (1) each warrantholder or (v) modify the provisions governing such
holder of the trust securities, in the case of an amendment to amendment or waiver.
specified provisions governing payment of principal or interest
or amendments to the indenture, or (2) 66 2'3% of the aggregate
liquidation amount of the trust securities voting together as a
single class, in the case of other amendments to the junior
subordinated indenture. In addition, any amendment to the
guarantee agreement that materially adversely affects the rights
of the holders of the trust securities requires the approval of
at least 66 2'3% of the aggregate liquidation amount of the trust
securities.
AMENDMENT OF CONSTITUTIONAL DOCUMENTS AND TERMS OF SECURITIES
If any amendment would (1) adversely affect the powers, The terms of the warrants may only be amended, or compliance
preferences or special rights of the holders of the trust therewith may be waived with the consent of a holders of a
securities and the common securities of the trust whether by majority of the warrants then outstanding (excluding Foster
amendment to the declaration of trust or otherwise, (2) result Wheeler and its affiliates); PROVIDED that, without the consent
in the dissolution, winding up or termination of the trust other of each warrantholder affected, no such amendment or waiver
than pursuant to the terms of the Declaration of Trust, (3) shall (i) reduce the number of common shares, preferred shares
change the amount or timing of any distribution of the trust or other property or securities that can be issued pursuant to a
securities or common securities of the trust or otherwise warrant, (ii) increase the exercise price in respect of the
adversely affect the amount of any distribution required to be warrants, (iii) bring forward the expiration date of the
made in respect of the trust securities or common securities of warrants, (iv) change any provision governing adjustments to the
the trust as of a specified date, or (4) restrict the right of a number or type of securities for which warrants are exercisable
holder of trust securities or common securities of the trust to in a manner adverse to any warrantholder or (v) modify the
institute suit for the enforcement of any such payment on or provisions governing such amendment or waiver.
after such date, then the holders of the trust securities and
common securities of the trust voting together as a single class
will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the
approval of each of the holders of the trust securities and
common securities of the trust affected thereby.
Any amendment that would adversely affect only the trust
securities or the common securities of the trust must be approved
by a majority of the aggregate liquidation amount (including the
stated amount that would be paid on redemption, liquidation or
otherwise, plus accumulated and unpaid distributions to the date
B-22
PROVISION APPLICABLE TO HOLDERS OF TRUST SECURITIES PROVISION APPLICABLE TO HOLDERS OF WARRANTS
--------------------------------------------------- -------------------------------------------
upon which the voting percentages are determined) of such class
affected thereby.
APPROVAL OF BUSINESS COMBINATIONS
Generally, the trust may not merge with, or undertake any other Foster Wheeler Ltd. need not obtain the approval of the holders
business combination as described in the declaration of trust, of the warrants in order to effect any business combination. If
with any corporation or other body. However, the trust may, at Foster Wheeler Ltd. proposes to effect any consolidation or
the request of Foster Wheeler LLC or with the consent of the merger or amalgamation to which Foster Wheeler Ltd. is a party
administrative trustees, or if there are more than two, a and for which approval of any shareholders of Foster Wheeler
majority of the administrative trustees and without the consent Ltd. is required, or any sale, transfer or other disposition of
of the holders of the trust securities or common securities of its property and assets substantially as an entirety, or the
the trust, the Delaware trustee or the property trustee, liquidation, voluntary or involuntary dissolution or winding-up
consolidate, amalgamate, merge with or into, or be replaced by or of Foster Wheeler Ltd., then, Foster Wheeler Ltd. shall mail to
convey, transfer or lease its properties substantially as an all registered holders of warrants notice of such proposed
entirety to a trust organized as such under the laws of any state action, specifying the date on which such event shall take place
if certain conditions are met (including the assumption of all of or commence, and any record date for common shares entitled to
the obligations of the trust by the successor entity and the vote thereon or participate therein and shall set forth such
substitution for the trust securities of other securities having facts with respect thereto as shall be reasonably necessary to
the same terms as the trust securities). indicate any adjustments in the exercise price of the warrants
The trust may not, except with the consent of holders of 100% in and the number or kind of shares or other securities purchasable
aggregate liquidation amount of the outstanding trust securities upon exercise of warrants which will be required as a result of
and common securities of the trust, consolidate, amalgamate, such action. Such notice shall be filed and mailed at least 20
merge with or into, or be replaced by or convey, transfer or days prior to the earlier of the date on which such event is
lease its properties and assets substantially as an entirety to, expected to become effective and the date on which it is
any other entity or permit any other entity to consolidate, expected that holders of common shares of record on such date
amalgamate, merge with or into, or replace it, if such action shall be entitled to exchange their shares for securities or
would cause the trust or successor entity to be classified as other property deliverable upon such event.
other than a grantor trust for U.S. federal income tax purposes
and each holder of the trust securities or common securities of
the trust not to be treated as owning an undivided interest in
the junior subordinated debentures.
DISSENTERS' RIGHTS
Holders of trust securities do not have dissenters' rights. Holders of warrants will not have dissenters' rights.
DISTRIBUTIONS AND DIVIDENDS
Distributions on the trust securities are payable on a quarterly Holders of warrants will not be not entitled to any
basis, but only to the extent that payments are made by Foster distributions or dividends.
Wheeler LLC on the junior subordinated debentures and only to
the extent that the trust has sufficient funds available to make
such payments.
If Foster Wheeler LLC defers interest payments on the junior
subordinated debentures, the trust will also defer quarterly
distributions on the trust securities. During a deferral period,
the amount of distributions due to the holder would continue to
accrue and such deferred distributions will themselves accrue
interest. Deferral periods may not exceed 20 consecutive
quarterly periods.
B-23
PROVISION APPLICABLE TO HOLDERS OF TRUST SECURITIES PROVISION APPLICABLE TO HOLDERS OF WARRANTS
--------------------------------------------------- -------------------------------------------
The holders are entitled to receive cumulative cash distributions
at an annual rate of 9%. Distributions accrue from the date the
trust issues the trust securities and will be paid quarterly in
arrears on January 15, April 15, July 15 and October 15 of each
year, beginning April 15, 1999.
REPURCHASE AND REDEMPTIONS
The trust will redeem all of the trust securities when the junior Neither the holders of the warrants nor Foster Wheeler Ltd. will
subordinated debentures are paid at maturity on January 15, have any right to redeem the warrants.
2029. In addition, if Foster Wheeler LLC redeems any junior
subordinated debentures before their maturity, the trust must
use the cash it receives on the redemption of the junior
subordinated debentures to redeem, on a pro rata basis, trust
securities and common securities of the trust having a total
liquidation amount equal to the total principal amount of the
junior subordinated debentures redeemed.
Foster Wheeler LLC has the right to redeem the junior
subordinated debentures before their maturity at 100% of their
principal amount plus accrued and unpaid interest to the date of
redemption under certain circumstances.
ENFORCEMENT RIGHTS
If an event of default with respect to the junior subordinated Neither the warrant agreement between Foster Wheeler Ltd. and
debentures has occurred and is continuing and such event is the warrant agent nor the warrants will provide any specific
attributable to the failure of Foster Wheeler LLC to pay any enforcement rights to holders of warrants.
amounts in respect of such junior subordinated debentures on the
date such amounts are otherwise payable, a holder of the trust
securities may institute a legal proceeding directly against
Foster Wheeler LLC for enforcement of payment to such holder of
an amount equal to the aggregate liquidation amount of the trust
securities held by such holder. Foster Wheeler LLC may not amend
the indenture or the junior subordinated debentures to remove
this right to bring an action without the prior written consent
of the holders of all of the trust securities.
GUARANTEES
The obligations of the trust are guaranteed by Foster Wheeler The obligations of Foster Wheeler Ltd. under the warrants will
Ltd. and Foster Wheeler LLC. The guarantees rank junior in right not be guaranteed by any party.
of payment to all liabilities of the guarantors.
DERIVATIVE SUITS
The Statutory Trust Act of the State of Delaware provides that a Not applicable.
beneficial owner may bring an action in the Court of Chancery in
the right of a statutory trust to recover a judgment in its
favor if the trustees with the authority to do so have refused
to bring the action
B-24
PROVISION APPLICABLE TO HOLDERS OF TRUST SECURITIES PROVISION APPLICABLE TO HOLDERS OF WARRANTS
--------------------------------------------------- -------------------------------------------
or if an effort to cause those trustees to bring the action is
not likely to succeed. If the property trustee fails to enforce
its rights under the junior subordinated debentures after a
holder of trust securities has made a written request, such
holder of trust securities may, to the extent permitted by
applicable law, institute a legal proceeding directly against
Foster Wheeler LLC to enforce the property trustee's rights
under the indenture without first instituting any legal
proceeding against the property trustee or any other person or
entity.
INDEMNIFICATION OF DIRECTORS, OFFICERS, TRUSTEES AND AGENTS
Foster Wheeler LLC has agreed to indemnify to the fullest extent Foster Wheeler Ltd. will agree to indemnify the warrant agent
permitted by law any administrative trustee, any affiliate of for, and to hold it harmless against, any loss, judgment, fine,
an administrative trustee, any officers, directors, cost, damage, penalty, demand, claim, liability or expense
shareholders, members, partners, employees, representatives or (including the reasonable fees and expenses of a single counsel
agents of any administrative trustee or any affiliate thereof, to the warrant agent), incurred without gross negligence, bad
or any officer or agent of FW Preferred Capital Trust I or its faith or willful misconduct (which gross negligence, bad faith
affiliates other than the property trustee, the Delaware or willful misconduct must be determined by a final,
trustee and their respective affiliates. nonappealable order, judgment, decree or ruling of a court of
competent jurisdiction) on the part of the warrant agent,
arising out of or in connection with the acceptance and
administration of the warrant agreement.
CONVERTIBLE NOTES COMPARED TO COMMON SHARES AND PREFERRED SHARES
----------------------------------------------------------------
PROVISION APPLICABLE TO HOLDERS OF CONVERTIBLE NOTES PROVISION APPLICABLE TO HOLDERS OF
---------------------------------------------------- COMMON SHARES AND PREFERRED SHARES
----------------------------------
SHAREHOLDERS' MEETINGS
A meeting of the holders of convertible notes may be called by Under Bermuda Law, an annual general meeting must be convened at
the Trustee, the Company or holders of at least 10% in aggregate least once in every calendar year. A special meeting of
principal amount of convertible notes to make, give or take any shareholders may be convened by the board of directors at any
request, demand, authorization, direction, notice, consent, time and must be convened upon the request of shareholders
waiver or other action provided by the indenture to be made, holding at least 10% of the paid-up capital of a company
given or taken by holders of the convertible notes. carrying the right to vote at shareholders' meetings.
A special meeting of holders of convertible notes may be called
by the holders of at least 10% in aggregate principal amount of
the convertible notes, upon not less than 21 days or more than
180 days notice.
QUORUM
The quorum at any meeting called to adopt a resolution will be The bye-laws of Foster Wheeler Ltd. provide that one or more
persons holding or representing a majority in aggregate persons, present in person and representing in person or by
principal
B-25
PROVISION APPLICABLE TO HOLDERS OF CONVERTIBLE NOTES PROVISION APPLICABLE TO HOLDERS OF
---------------------------------------------------- COMMON SHARES AND PREFERRED SHARES
----------------------------------
amount of the convertible notes at the time outstanding and, at proxy more than 50% of the shares issued and entitled to vote
any reconvened meeting adjourned for lack of a quorum, 25% of thereat, shall constitute a quorum at all meetings of the
the aggregate principal amount. shareholders for the transaction of business (including the
approval of an amalgamation) except as otherwise provided by the
Companies Act.
NOTICE OF MEETINGS
Notice of every meeting will be given not less than 21 days nor Notice of an annual general meeting must be given at least 10
more than 180 days prior to the meeting date and will set forth days and not more than 60 days before the date of such meeting.
the time and place of such meeting and the action proposed to be Notice of a special general meeting must be given at least 30
taken. days and not more than 60 days before the date of such meeting.
ELECTION AND REMOVAL OF DIRECTORS
Holders of the convertible notes do not have the right to elect Any shareholder wishing to nominate for election as a director
or remove directors. someone who is not nominated by the board of Foster Wheeler Ltd.
must give notice of the intention to nominate the person for
election. Foster Wheeler Ltd.'s bye-laws provide that such
notice must be given not less than one-hundred and twenty days
before release of Foster Wheeler Ltd.'s proxy statement in
connection with the previous year's annual general meeting.
A director may be removed, with cause, by the affirmative vote
of the holders of at least 66 2'3% of the shares entitled to
vote at an election of directors, provided notice is given to
the director of the shareholders meeting convened to remove the
director. The notice must contain a statement of the intention
to remove the director and must be served on the director not
less than fourteen days before the meeting. The director is
entitled to attend the meeting and be heard on the motion for
his removal. The bye-laws of Foster Wheeler Ltd. provide that
vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by
a majority vote of the directors then in office. A vote of the
board to replace a director will include an assignment of the
replacement director to the class of which the former director
was a member, and the replacement director holds office until
the time at which the former director's term of office expires.
Directors elected to fill newly created directorships hold
office until the third annual general meeting following the date
of their election.
APPROVAL REQUIREMENTS GENERALLY
CHANGES REQUIRING MAJORITY APPROVAL Each holder of common shares is entitled to one vote in person,
or by proxy, for each common share registered in the name of
The indenture (including the terms and conditions of the notes such holder. Prior to becoming convertible, each holder of
and the guarantee) may be modified or amended either (1) with the preferred shares will have the number of votes the common shares
B-26
PROVISION APPLICABLE TO HOLDERS OF CONVERTIBLE NOTES PROVISION APPLICABLE TO HOLDERS OF
---------------------------------------------------- COMMON SHARES AND PREFERRED SHARES
----------------------------------
written consent of the holders of at least a majority in issuable upon conversion of such common shares would have. If
aggregate principal amount of the notes at the time outstanding, and when the preferred shares become convertible at each
or (2) by the adoption of a resolution at a meeting of holders by holder's option, they will cease to vote except in limited
at least a majority in aggregate principal amount of the notes circumstances as described in the next paragraph or as otherwise
represented at such meeting. required under applicable law. Any amendment, alteration or
repeal of the terms of the memorandum of association and
bye-laws or the certificate of designation which would affect
the powers, preferences, or special rights of the preferred
shares and any variation of the rights of the common shares or
the preferred shares as a class will require the approval of
holders of at least three-fourths of the outstanding affected
class of shares. This approval can be evidenced either by a
consent in writing or by a resolution passed at a meeting of the
holders of the relevant class of shares at which a quorum
consisting of at least two persons holding or representing
one-third of the issued and outstanding shares of the relevant
class is present.
CHANGES REQUIRING APPROVAL OF EACH AFFECTED HOLDER
The indenture (including the terms and conditions of the
convertible notes and the guarantee) cannot be modified or
amended without the written consent or the affirmative vote of
the holder of each convertible note affected by such change to
change provisions relating to the payment of principal or
interest or impair or change certain other rights of the holders
of the Company's obligations.
AMENDMENT OF CONSTITUTIONAL DOCUMENTS AND TERMS OF SECURITIES
CHANGES REQUIRING MAJORITY APPROVAL Under the Companies Act, amendments to the memorandum of
association of a Bermuda company must be approved by a majority
The indenture (including the terms and conditions of the notes of the shareholders voting on the amendments.
and the guarantee) may be modified or amended either:
Under the Companies Act, the bye-laws may be amended by a
o with the written consent of the holders of at least a resolution of the board of directors and a resolution of the
majority in aggregate principal amount of the notes at shareholders approved by a majority of the shareholders voting
the time outstanding, or on the amendment, unless a greater shareholder vote is
required under the bye-laws. The Foster Wheeler Ltd. bye-laws
o by the adoption of a resolution at a meeting of require a unanimous vote of the shareholders on any resolution
holders by at least a majority in aggregate principal to amend the bye-laws presented without the prior approval of
amount of the notes represented at such meeting. the board provided that any proposed amendment to the bye-law
relating to removal of directors must be approved by the board
and by the affirmative vote of the holders of 75% of the voting
shares of Foster Wheeler Ltd. If a proposed rescission,
alteration or amendment varies the rights attached to a class of
shares, the bye-law relating to a variation of class rights must
be complied with. That bye-law provides that if at any time
Foster Wheeler Ltd.
B-27
PROVISION APPLICABLE TO HOLDERS OF CONVERTIBLE NOTES PROVISION APPLICABLE TO HOLDERS OF
---------------------------------------------------- COMMON SHARES AND PREFERRED SHARES
----------------------------------
has more than one class of shares, the rights attaching to any
class, unless otherwise provided for by the terms of issue of
the relevant class, may be varied either: (1) with the consent
in writing of the holders of all of the issued shares of that
class; or (2) with the sanction of a resolution passed by a
majority in number equal to three-fourths of the issued shares
at a general meeting of the relevant class of shareholders at
which a quorum consisting of at least two persons holding or
representing one-third of the issued shares of the relevant
class is present. Foster Wheeler Ltd.'s bye-laws specify that
the creation or issue of shares ranking equally with existing
shares will not, unless expressly provided by the terms of issue
of those shares, vary the rights attached to existing shares.
CHANGES REQUIRING APPROVAL OF EACH AFFECTED HOLDER
The indenture (including the terms and conditions of the
convertible notes and the guarantee) cannot be modified or
amended without the written consent or the affirmative vote of
the holder of each convertible note affected by such change to
change provisions relating to the payment of principal or
interest or impair or change certain other rights of the holders
of the Company's obligations.
APPROVAL OF BUSINESS COMBINATIONS
The consent of holders of at least a majority in aggregate The amalgamation of a Bermuda company with another company or
principal amount of the convertible notes is needed for Foster corporation (other than certain affiliated companies) requires
Wheeler Ltd. or Foster Wheeler LLC to consolidate, merge or the amalgamation agreement to be approved by the company's board
transfer substantially all of their assets and properties to a of directors and by its shareholders. Shareholder class approval
person that is not a U.S. or Bermuda corporation, partnership or is also required if the amalgamation agreement constitutes a
trust. variation of the rights attaching to that class of shares.
Unless the company's bye-laws provide otherwise the approval of
75% of the shareholders voting at such general and class
meetings is required to approve the amalgamation agreement.
Also, the quorum for such meetings must be two persons holding
or representing more than one-third of the issued shares of the
company or the class. Each share carries the right to vote in
respect of an amalgamation, whether or not it otherwise carries
the right to vote. Foster Wheeler Ltd.'s bye-laws provide that
an amalgamation requires the approval of two-thirds of the votes
cast at a general meeting of the shareholders where one or more
persons representing in person or by proxy a majority of all
issued shares entitled to vote thereat constitutes a quorum.
Foster Wheeler Ltd.'s bye-laws further provide that certain
B-28
PROVISION APPLICABLE TO HOLDERS OF CONVERTIBLE NOTES PROVISION APPLICABLE TO HOLDERS OF
---------------------------------------------------- COMMON SHARES AND PREFERRED SHARES
----------------------------------
business combinations (which include an amalgamation) entered
into with a shareholder that beneficially owns, directly or
indirectly, 20% or more of the voting shares of Foster Wheeler
Ltd. that have not been approved by the board of directors prior
to the date such shareholder acquired the 20% (or greater)
holding must be approved by the holders of a majority of the
voting shares that are not held by such shareholder, its
affiliates or associates, at a meeting held no earlier than five
years following the date upon which that shareholder first
acquired 20% or more of the voting shares.
The Companies Act also provides that where an offer is made for
shares in a company by another company and, within four months
of the offer, the holders of not less than 90% in value of the
shares which are the subject of the offer accept, the offeror
may by notice, given within two months after the expiration of
the said four months, require the dissenting shareholders to
transfer their shares on the terms of the offer. Dissenting
shareholders may apply to a court within one month of such
notice objecting to the transfer and the court, in its
discretion, may grant such order.
DISSENTERS' RIGHTS
Holders of convertible notes may require Foster Wheeler Ltd. to Under the Companies Act, a dissenting shareholder of a company
repurchase their convertible notes only upon a change of control participating in an amalgamation (other than an amalgamation
involving Foster Wheeler Ltd., subject to certain limitations. between a company and certain affiliated companies) may apply to
the court to appraise the fair value of his or her shares.
DISTRIBUTIONS AND DIVIDENDS
The convertible notes bear interest from May 31, 2001 at a rate Under the Companies Act, the board of directors of Foster
of 6.50% per year, payable semi-annually on June 1 and December Wheeler Ltd. may declare and pay dividends out of profits of
1 of each year, subject to adjustment upon the occurrence of a Foster Wheeler Ltd. available for that purpose or make
change of control involving Foster Wheeler Ltd. or an issuance distributions out of contributed surplus as long as there are no
of rights or warrants to purchase common shares of Foster reasonable grounds for believing that Foster Wheeler Ltd. is, or
Wheeler Ltd. below the current market value of the common shares. after the payment of such dividend or distribution would be,
unable to pay its liabilities as they became due or that the
Foster Wheeler Ltd. will not pay interest on any note that is realizable value of Foster Wheeler Ltd.'s assets would thereby
converted into common shares of Foster Wheeler Ltd. be less than the aggregate of its liabilities and its issued
share capital and share premium accounts. In certain
circumstances, the preferred shares may be entitled to
REPURCHASE AND REDEMPTIONS
The convertible notes are redeemable in whole or in part at the Under the Companies Act, a company may repurchase its own
option of Foster Wheeler Ltd. beginning June 1, 2004. The shares. However, the funds for such a repurchase must be either
aggregate amount of unpaid principal and interest outstanding (1) capital paid-up on the shares in question; (2) proceeds of a
on the convertible notes is due in full on June 1, 2007. new issue of shares made for the purposes of the repurchase; or
B-29
PROVISION APPLICABLE TO HOLDERS OF CONVERTIBLE NOTES PROVISION APPLICABLE TO HOLDERS OF
---------------------------------------------------- COMMON SHARES AND PREFERRED SHARES
----------------------------------
(3) funds which would otherwise be available for dividend or
Holders of convertible notes may require Foster Wheeler Ltd. to distribution. Furthermore, any premium which is payable on the
repurchase their convertible notes only upon a change of control repurchase must be provided out of funds which would otherwise
involving Foster Wheeler Ltd, subject to certain limitations. be available for dividend or distribution or out of the
company's share premium account prior to the repurchase. No
repurchase may be effected if there are reasonable grounds for
believing that the company is, or after effecting the repurchase
would be, unable to pay its liabilities as they become due.
ENFORCEMENT RIGHTS
If Foster Wheeler Ltd. (1) fails to pay any amount due on the The Bermuda courts ordinarily would be expected to follow
convertible notes, including principal, premium, if any, or English precedent, which would permit a shareholder to commence
interest, (2) fails to perform any provision contained in the an action in the name of the company to remedy a wrong done to
indenture, (3) upon notice from the trustee or at least 25% in the company only (1) where the act complained of is alleged to
aggregate principal amount of the holders of the convertible be beyond the corporate power of the company or is illegal; (2)
notes, defaults in the payment of principal or interest under any where the act complained of is alleged to constitute a fraud
of its indebtedness or if such default results in the against the minority shareholders by those controlling the
acceleration of such indebtedness, or if Foster Wheeler LLC company; provided that the majority shareholders have used their
defaults in the payment of principal or interest under any of its controlling position to prevent the company from taking action
indebtedness or if such default results in the acceleration of against the wrongdoers; (3) where an act requires approval by a
such indebtedness in an amount in excess of $15 million or (4) greater percentage of the company's shareholders than actually
the guarantee of Foster Wheeler LLC ceases to be in full force or approved it; or (4) where such an action is necessary in order
effect, then the trustee or the holders of at least 25% in that there not be a violation of the company's memorandum of
aggregate principal amount of the convertible notes may declare association or bye-laws.
the convertible notes due and payable at their principal amount
together with accrued interest, and thereupon the trustee may, at When the affairs of a company are being conducted in a manner
its discretion, proceed to protect and enforce the rights of the which is oppressive or prejudicial to the interests of some part
holders of notes by appropriate judicial proceedings. of the shareholders, one or more shareholders may apply to the
Supreme Court of Bermuda, which may make such order as it sees
If Foster Wheeler Ltd. files for bankruptcy or similar fit, including an order regulating the conduct of the company's
proceeding, the aggregate principal amount of all the notes and affairs in the future or ordering the purchase of the shares of
the interest thereon shall become immediately due and payable. any shareholders by other shareholders or by the company.
GUARANTEES
The convertible notes are fully and unconditionally guaranteed as The common shares and preferred shares are not guaranteed by any
to principal, premium, if any, and interest by Foster Wheeler entity.
LLC. If Foster Wheeler Ltd. defaults in the payment of the
principal of, or premium, if any, or interest on the convertible
notes when and as the same becomes due, Foster Wheeler LLC is
required to promptly pay such amount in full. In addition,
Foster Wheeler LLC has guaranteed all other obligations of
Foster Wheeler Ltd. under the convertible notes, including the
obligation to deliver common shares of Foster Wheeler Ltd. upon
conversion by a holder.
The convertible notes are general unsecured obligations of Foster
B-30
PROVISION APPLICABLE TO HOLDERS OF CONVERTIBLE NOTES PROVISION APPLICABLE TO HOLDERS OF
---------------------------------------------------- COMMON SHARES AND PREFERRED SHARES
----------------------------------
Wheeler Ltd., subordinated in right of payment to all of its
existing and future debt and are effectively subordinated to all
indebtedness and liabilities of all subsidiaries of Foster
Wheeler Ltd.
The guarantee is subordinate to the prior payment of all senior
debt of Foster Wheeler LLC.
ROBBINS BONDS COMPARED TO COMMON SHARES AND PREFERRED SHARES
------------------------------------------------------------
PROVISION APPLICABLE TO HOLDERS OF ROBBINS BONDS PROVISION APPLICABLE TO HOLDERS OF
------------------------------------------------ COMMON SHARES AND PREFERRED SHARES
----------------------------------
SHAREHOLDERS' MEETINGS
Holders of Robbins bonds are not entitled to attend meetings of Under Bermuda law, an annual general meeting must be convened at
shareholders or other organizational meetings of Foster Wheeler least once in every calendar year. A special meeting of
LLC, Robbins Resource Recovery Partners, L.P., which we refer shareholders may be convened by the board of directors at any
to as RRRP, the trustee or the Village of Robbins, Cook County, time and must be convened upon the request of shareholders
Illinois, unless they are entitled to attend under other holding at least 10% of the paid-up capital of a company
applicable law. carrying the right to vote at shareholders' meetings.
QUORUM
Neither the Robbins indenture nor the exit funding agreement The bye-laws of Foster Wheeler Ltd. provide that one or more
contains provisions for convening meetings of the holders of persons, present in person and representing in person or by
the Robbins bonds. proxy more than 50% of the shares issued and entitled to vote
thereat, shall constitute a quorum at all meetings of the
shareholders for the transaction of business (including the
approval of an amalgamation) except as otherwise provided by the
Companies Act.
NOTICE OF MEETINGS
Neither the Robbins indenture nor the exit funding agreement Notice of an annual general meeting must be given at least 10
contains provisions for convening meetings of the holders of days and not more than 60 days before the date of such meeting.
the Robbins bonds. Notice of a special general meeting must be given at least 30
days and not more than 60 days before the date of such meeting.
ELECTION AND REMOVAL OF TRUSTEES/DIRECTORS
Holders of a majority in aggregate principal amount of the Any shareholder wishing to nominate for election as a director
Robbins bonds may remove the trustee by notifying the trustee in someone who is not nominated by the board of Foster Wheeler Ltd.
writing and may appoint a successor trustee with the prior must give notice of the intention to nominate the person for
written
B-31
PROVISION APPLICABLE TO HOLDERS OF ROBBINS BONDS PROVISION APPLICABLE TO HOLDERS OF
------------------------------------------------ COMMON SHARES AND PREFERRED SHARES
----------------------------------
consent of the issuer of the Robbins bonds. election. Foster Wheeler Ltd.'s bye-laws provide that such
notice must be given not less than one-hundred and twenty days
In the event of the resignation of the trustee, the issuer of the before release of Foster Wheeler Ltd.'s proxy statement in
Robbins bonds shall appoint a successor trustee and provide connection with the previous year's annual general meeting.
notice to the holders of the Robbins bonds. Holders of a majority
in aggregate principal amount of the Robbins bonds may remove the A director may be removed, with cause, by the affirmative vote
successor trustee and appoint a new, successor trustee within one of the holders of at least 66 2/3% of the shares entitled to
year of its appointment by notifying the issuer of the Robbins vote at an election of directors, provided notice is given to
bonds, the trustee and RRRP. the director of the shareholders meeting convened to remove the
director. The notice must contain a statement of the intention
to remove the director and must be served on the director not
less than fourteen days before the meeting. The director is
entitled to attend the meeting and be heard on the motion for
his removal. The bye-laws of Foster Wheeler Ltd. provide that
vacancies on the board and newly created directorships resulting
from any increase in the authorized number of directors may be
filled by a majority vote of the directors then in office. A
vote of the board to replace a director will include an
assignment of the replacement director to the class of which the
former director was a member, and the replacement director holds
office until the time at which the former director's term of
office expires. Directors elected to fill newly created
directorships hold office until the third annual general meeting
following the date of their election.
APPROVAL REQUIREMENTS GENERALLY
Holders of the Robbins bonds do not have voting rights with Each holder of common shares is entitled to one vote in person,
regard to the organization or management of Foster Wheeler LLC, or by proxy, for each common share registered in the name of
RRRP, or the issuer of the Robbins bonds. such holder. Prior to becoming convertible, each holder of
preferred shares will have the number of votes the common shares
issuable upon conversion of such preferred shares would have. If
and when the preferred shares become convertible at each
holder's option, they will cease to vote except in limited
circumstances as described in the next paragraph or as otherwise
required under applicable law.
Holders of a majority in aggregate principal amount of Robbins Any amendment, alteration or repeal of the terms of the
bonds can generally direct the trustee's actions under the memorandum of association and bye-laws or the certificate of
indenture governing the Robbins bonds. designation which would affect the powers, preferences, or
Amendments and supplements of the rights and obligations of the special rights of the preferred shares, and any variation of the
holders of the Robbins bonds require the written consent of a rights of the common shares or the preferred shares generally as
majority in aggregate principal amount of Robbins bonds. No such a class, will require the approval of holders of at least
amendment or supplement, however, shall, without the consent of three-fourths of the outstanding affected class of shares. This
each holder of Robbins bonds, (1) reduce the rate of interest on approval can be evidenced either by a unanimous consent in
any Robbins bond or extend the time of payment thereof or reduce writing or by a resolution passed at a meeting of the holders of
the amount of principal of any Robbins bond or extend the the relevant class of shares at which a quorum consisting of at
B-32
PROVISION APPLICABLE TO HOLDERS OF ROBBINS BONDS PROVISION APPLICABLE TO HOLDERS OF
------------------------------------------------ COMMON SHARES AND PREFERRED SHARES
----------------------------------
principal payment date, (2) reduce the percentage of holders least two persons holding or representing one-third of the
whose consent is required for the execution of any amendment or issued and outstanding shares of the relevant class is present.
supplement to the Robbins indenture, or (3) effect a privilege or
priority of any bond or bonds over any other bond.
AMENDMENT OF CONSTITUTIONAL DOCUMENTS AND TERMS OF SECURITIES
Amendments and supplements of the rights and obligations of the Under the Companies Act, amendments to the memorandum of
holders of the Robbins bonds require the written consent of a association of a Bermuda company must be approved by a majority
majority in aggregate principal amount of Robbins bonds. of the shareholders voting on the amendments Under the Companies
Act, the bye-laws may be amended by a resolution of the board of
No such amendment or supplement, however, shall, without the directors and a resolution of the shareholders approved by a
consent of each holder of Robbins bonds, (1) reduce the rate of majority of the shareholders voting on the amendment, unless a
interest on any Robbins bond or extend the time of payment greater shareholder vote is required under the bye-laws. The
thereof or reduce the amount of principal of any Robbins bond or Foster Wheeler Ltd. bye-laws require a unanimous vote of the
extend the principal payment date (2) reduce the percentage of shareholders on any resolution to amend the bye-laws presented
holders whose consent is required for the execution of any without the prior approval of the board, provided that any
amendment or supplement to the Robbins indenture, or (3) effect a proposed amendment to the bye-law relating to removal of
privilege or priority of any bond or bonds over any other bond. directors must be approved by the board and by the affirmative
The Robbins indenture and the Robbins bonds may be amended or vote of the holders of 75% of the voting shares of Foster
supplemented without the consent of the holders of the Robbins Wheeler Ltd.
bonds if the purpose of the amendment or supplement is:
If a proposed rescission, alteration or amendment
o the addition or subtraction of conditions and terms to varies the rights attached to a class of shares, the bye-law
be observed or performed by the issuer, so long as relating to a variation of class rights must be complied with.
neither will adversely affect the interests of any That bye-law provides that if at any time Foster Wheeler Ltd.
holders of Robbins bonds; has more than one class of shares, the rights attaching to any
class, unless otherwise provided for by the terms of issue of
o clarification of ambiguity in the documents; the relevant class, may be varied either: (1) with the consent
in writing of the holders of all of the issued shares of that
o any other modification that will not adversely affect class; or (2) with the sanction of a resolution passed by a
the interests of any holders of Robbins bonds; majority in number equal to three-fourths of the issued shares
at a general meeting of the relevant class of shareholders at
o the issuance of additional bonds; which a quorum consisting of at least two persons holding or
representing one-third of the issued shares of the relevant
o the appointment of a successor trustee; class is present. Foster Wheeler Ltd.'s bye-laws specify that
the creation or issue of shares ranking equally with existing
o to make changes required by rating agencies as a shares will not, unless expressly provided by the terms of issue
condition to the issuance or maintenance of a rating of
on the Robbins bonds, provided that such change will
B-33
PROVISION APPLICABLE TO HOLDERS OF ROBBINS BONDS PROVISION APPLICABLE TO HOLDERS OF
------------------------------------------------ COMMON SHARES AND PREFERRED SHARES
----------------------------------
not adversely affect the interests of any holders of those shares, vary the rights attached to existing shares.
Robbins bonds; or
o to maintain the exclusion from gross income under the
provisions of the tax code of the interest on the
Robbins bonds.
APPROVAL OF BUSINESS COMBINATIONS
The exit funding agreement limits the ability of Foster Wheeler The amalgamation of a Bermuda company with another company or
LLC to, among other things, merge or consolidate with any other corporation (other than certain affiliated companies) requires
entity, change its form of organization, liquidate or dissolve the amalgamation agreement to be approved by the company's board
itself, or sell or transfer all, or substantially all, of its of directors and by its shareholders. Shareholder class approval
assets without assumption by the surviving entity of Foster is also required if the amalgamation agreement constitutes a
Wheeler LLC's obligations under the exit funding agreement. variation of the rights attaching to that class of shares.
Unless the company's bye-laws provide otherwise the approval of
Holders of Robbins bonds do not have the right to approve a 75% of the shareholders voting at such general and class
business combination of either the issuer of the Robbins bonds or meetings is required to approve the amalgamation agreement.
RRRP. Also, the quorum for such meetings must be two persons holding
or representing more than one-third of the issued shares of the
company or the class. Each share carries the right to vote in
respect of an amalgamation, whether or not it otherwise carries
the right to vote. Foster Wheeler Ltd.'s bye-laws provide that
an amalgamation requires the approval of two-thirds of the votes
cast at a general meeting of the shareholders where one or more
persons representing in person or by proxy a majority of all
issued shares entitled to vote thereat constitutes a quorum.
Foster Wheeler Ltd.'s bye-laws further provide that certain
business combinations (which include an amalgamation) entered
into with a shareholder that beneficially owns, directly or
indirectly, 20% or more of the voting shares of Foster Wheeler
Ltd. that have not been approved by the board of directors prior
to the date such shareholder acquired the 20% (or greater)
holding must be approved by the holders of a majority of the
voting shares that are not held by such shareholder, its
affiliates or associates, at a meeting held no earlier than five
years following the date upon which that shareholder first
acquired 20% or more of the voting shares.
The Companies Act also provides that where an offer is made for
shares in a company by another company and, within four months
of the offer, the holders of not less than 90% in value of the
shares which are the subject of the offer accept, the offeror
may be notice, given within two months after the expiration of
the said four months, require the dissenting shareholders to
transfer their shares on the terms of the offer. Dissenting
shareholders may apply to a
B-34
PROVISION APPLICABLE TO HOLDERS OF ROBBINS BONDS PROVISION APPLICABLE TO HOLDERS OF
------------------------------------------------ COMMON SHARES AND PREFERRED SHARES
----------------------------------
court within one month of such notice objecting to the transfer
and the court may grant such order as it thinks fit.
DISSENTERS' RIGHTS
Holder of Robbins bonds do not have any dissenters' rights. Under the Companies Act, a dissenting shareholder of a company
participating in an amalgamation (other than an amalgamation
between a company and one or more of its wholly-owned
subsidiaries or between two or more subsidiaries of the same
holding company) may apply to the court to appraise the fair
value of his or her shares.
DISTRIBUTIONS AND DIVIDENDS
Series 1999 C Bonds bear interest at a rate of 7.25% per year, Under the Companies Act, the board of directors of Foster
payable semi-annually on April 15 and October 15 of each year, Wheeler Ltd. may declare and pay dividends out of profits of
subject to prior redemption. Foster Wheeler Ltd. available for that purpose or make
distributions to shareholders out of contributed surplus as long
Series 1999 D Bonds accrete interest on their original principal as there are no reasonable grounds for believing that Foster
amount at a yield to maturity of 7.00% and in accordance with Wheeler Ltd. is, or after the payment of such dividend or
amounts set forth in the Robbins indenture. distribution would be, unable to pay its liabilities as they
became due or that the realizable value of Foster Wheeler Ltd.'s
assets would thereby be less than the aggregate of its
liabilities and its issued share capital and share premium
accounts.
REPURCHASE AND REDEMPTIONS
The aggregate amount of unpaid principal and interest outstanding Under the Companies Act, a company may repurchase its own
on the Series 1999 C Bonds matures, subject to prior shares. However, the funds for such a repurchase must be either
redemption, on the following dates and in the following (1) capital paid-up on the shares in question; (2) proceeds of a
amounts: (1) $12,130,000 on October 15, 2009 and new issue of shares made for the purposes of the repurchase; or
(2) $77,155,000 on October 15, 2024. (3) funds which would otherwise be available for dividend or
The aggregate amount of unpaid principal and interest outstanding distribution. Furthermore, any premium which is payable on the
on the Series 1999 D Bonds matures on October 15, 2009. repurchase must be provided out of funds which would otherwise
RRRP can redeem the Robbins bonds prior to maturity at a be available for dividend or distribution or out of the
redemption price of 100% of the principal amount of the Robbins company's share premium account prior to the repurchase. No
bonds, plus accrued interest, if any, as of the redemption date. repurchase may be effected if there are reasonable grounds for
believing that the company is, or after effecting the repurchase
would be, unable to pay its liabilities as they become due.
NON-RRRP REDEMPTIONS
SINKING FUND INSTALLMENT
The Series 1999 C Bonds are subject to partial redemption on
October 15 of each year, beginning October 15, 2000, by
application of the trustee of funds on deposit in a sinking
fund.
B-35
PROVISION APPLICABLE TO HOLDERS OF ROBBINS BONDS PROVISION APPLICABLE TO HOLDERS OF
------------------------------------------------ COMMON SHARES AND PREFERRED SHARES
----------------------------------
DETERMINATION OF TAXABILITY
The Robbins bonds are subject to special mandatory redemption
within 180 days of the occurrence of (1) a final determination
by the Internal Revenue Service or a court of competent
jurisdiction or (2) a determination by RRRP or Foster Wheeler
LLC, that, as a result of any event, the interest payable on
the Robbins bonds is includable for federal income tax purposes
in the gross income of an owner or former owner of the Robbins
bonds. In the event of a special mandatory redemption, the
Robbins bonds are subject to redemption at a redemption price
of 100% of the principal amount of such bonds.
DAMAGE, CONDEMNATION OR LOSS OF TITLE
The Robbins bonds are subject to partial redemption by
application of moneys transferred from insurance and
condemnation proceeds accounts upon the damage, condemnation,
or loss of title of the recovery facility.
RETAIL RATE LITIGATION PROCEEDS
The Robbins bonds are subject to special mandatory redemption, in
whole or in part, from moneys transferred from the Retail Rate
Litigation Proceeds Fund as defined in the Robbins indenture.
LIQUIDATION OF DBT TRUST AGREEMENT
The Robbins bonds are subject to special mandatory redemption, in
whole or in part, from moneys paid to the Trustee from the DBT
Trust Agreement as defined in the Robbins indenture.
"CHANGE IN USE" REDEMPTION
The Robbins bonds are subject to redemption, in whole or in
part, at the option of the issuer of the Robbins bonds on August
3, 2010, at a redemption price of 100% of the principal amount
of the Robbins bonds being redeemed, plus accrued interest, if
any, if there is to be a "change in use" effected under Treasury
Regulation Section 1.141-12.
ENFORCEMENT RIGHTS
In the event that the issuer of the Robbins bonds defaults in the The Bermuda courts ordinarily would be expected to follow
due and punctual payment of principal or interest on the English precedent, which would permit a shareholder to commence
Robbins bonds, which we refer to as a Robbins default, the an action in the name of the company to remedy a wrong done to
holders of a majority in aggregate principal amount of Robbins the company only (1) where the act complained of is alleged to
B-36
PROVISION APPLICABLE TO HOLDERS OF ROBBINS BONDS PROVISION APPLICABLE TO HOLDERS OF
------------------------------------------------ COMMON SHARES AND PREFERRED SHARES
----------------------------------
bonds may declare the principal of the accrued interest on the be beyond the corporate power of the company or is illegal; (2)
outstanding Robbins bonds to be immediately due and payable. where the act complained of is alleged to constitute a fraud
against the minority shareholders by those controlling the
In the event that Foster Wheeler LLC defaults under the exit company; provided that the majority shareholders have used their
funding agreement, the trustee shall immediately declare an controlling position to prevent the company from taking action
amount equal to all exit payments due under the exit funding against the wrongdoers; (3) where an act
agreement to be immediately due and payable.
The holder of a majority in aggregate principal amount of Robbins requires approval by a greater percentage of the company's
bonds may direct the time, method and place of conducting any shareholders than actually approved it; or (4) where such an
proceeding for any remedy available to the trustee. The action is necessary in order that there not be a violation of
remedies available to the trustee are limited to: (1) the company's memorandum of association or bye-laws.
enforcement of the exit funding agreement against Foster
Wheeler LLC to pay the principal and interest on the Robbins
bonds and (2) application of the funds in the various bond
accounts to pay the principal and interest on the Robbins bonds.
2005 NOTES COMPARED TO NEW NOTES
--------------------------------
PROVISION APPLICABLE TO PROVISION APPLICABLE TO
HOLDERS OF 2005 NOTES HOLDERS OF NEW NOTES
--------------------- --------------------
INTEREST RATE
Interest is payable on the 2005 notes at a rate of 6.75% per The interest rate on the new notes is based on a spread of 6.65%
annum. plus the yield on U.S. Treasury notes having a remaining
maturity, as of the second business day prior to the expiration
date of the exchange offer, equal to the maturity of the new
notes.
COLLATERAL
The 2005 notes are secured by a first priority lien on (1)any The new notes will be the senior secured obligations of Foster
facility the gross book value of which exceeds 1% of the Wheeler LLC. The new notes will rank pari passu with Foster
consolidated net tangible assets of Foster Wheeler LLC and the Wheeler's obligations under the senior secured credit agreement
guarantors of the 2005 notes, (2) intercompany debt and stock of and its obligations under the upsize notes. The new notes will
domestic subsidiaries, (3) 100% of the stock held in domestic be secured by a lien on the following assets of Foster Wheeler
subsidiaries, and (4) 66% of the stock held in certain foreign LLC and each of the guarantors of the new notes:
subsidiaries. (1) substantially all of its tangible and intangible assets,
excluding intercompany debt and receivables and capital stock
held in subsidiaries, except as described in (2) and (3) below,
(2) capital stock held in certain of Foster Wheeler LLC's and
the guarantors' direct subsidiaries, and (3) certain specified
existing intercompany notes, as well as certain future
intercompany notes.
B-37
PROVISION APPLICABLE TO PROVISION APPLICABLE TO
HOLDERS OF 2005 NOTES HOLDERS OF NEW NOTES
--------------------- --------------------
GUARANTEES
The 2005 notes are fully and unconditionally guaranteed by The new notes will be fully and unconditionally guaranteed by
certain subsidiary guarantors as described in footnote 24.A to Foster Wheeler Ltd., Foster Wheeler Holdings Ltd. and certain
the consolidated financial statements of Foster Wheeler Ltd. subsidiary guarantors, which are a different group of
contained in Foster Wheeler's current report on Form 8-K filed on subsidiaries than those that guaranteed the 2005 notes.
April 9, 2004.
LIMITATION ON DEBT
The indenture includes a covenant regarding limitations on debt The indenture will include a covenant restricting Foster Wheeler
incurred by restricted subsidiaries. LLC and certain of its subsidiaries from incurring indebtedness
and preferred stock.
LIMITATION ON RESTRICTED PAYMENTS
The indenture does not include a covenant regarding restricted The indenture will include a covenant restricting Foster
payments. Wheeler Ltd., Foster Wheeler LLC and certain of subsidiaries
from making dividends, loans, investments and other payments or
distributions.
LIMITATION ON ASSET SALES
The indenture does not include a covenant regarding a limitation The indenture will include a covenant limiting Foster
on asset sales. Wheeler Ltd., Foster Wheeler LLC and its subsidiaries from
making certain asset sales.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
The indenture does not include a covenant regarding a limitation The indenture will include a covenant limiting the ability of
on dividends and other payment restrictions affecting the subsidiaries of Foster Wheeler LLC to enter into agreements
restricted subsidiaries. that restrict their ability to make dividends or other payments.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The indenture does not include a covenant regarding transaction The indenture will include a covenant limiting Foster Wheeler
with affiliates. LLC and its subsidiaries from entering into transactions with
its affiliates.
LIMITATION ON SUBSIDIARY GUARANTEES
The indenture does not include a limitation on subsidiary The indenture will include a covenant limiting Foster Wheeler
guarantees. LLC's subsidiaries from guaranteeing debt and other obligations.
B-38
PROVISION APPLICABLE TO PROVISION APPLICABLE TO
HOLDERS OF 2005 NOTES HOLDERS OF NEW NOTES
--------------------- --------------------
MERGERS, CONSOLIDATIONS, SALES OF SUBSTANTIALLY ALL ASSETS
Foster Wheeler LLC is permitted to merge with, consolidate with, Foster Wheeler LLC is permitted to merge with, consolidate with,
or sell substantially all of its assets only to a person who is or sell substantially all of its assets only to a person who is
domiciled in the U.S. and who assumes its obligations on the domiciled in the U.S. or Bermuda and who assumes its obligations
2005 notes. on the new notes. In addition, such transaction will be
permitted only if Foster Wheeler would be able to satisfy the
debt ratio in the limitation of debt covenant.
CHANGE OF CONTROL OFFER
The indenture does not provide for an offer to purchase in the The indenture will require Foster Wheeler LLC to make an offer
event of a change of control. to purchase the new notes for 101% of their aggregate principal
amount in the event of a change of control.
EVENTS OF DEFAULT
The indenture includes the following events of default: The indenture will contain the following events of default:
o default in the payment of any interest installments, o default in payment of principal or premium, if any, either
at stated maturity or upon acceleration or redemption or
otherwise,
o default in the payment of any principal of or premium on o default in the payment of any interest installments, and the
the 2005 notes either at stated maturity, upon redemption, default continues for 30 days,
by declaration or otherwise,
o default in the performance or breach of any covenant of o failure to make an offer to purchase, and thereafter accept
Foster Wheeler LLC in the indenture upon notice by holders and pay for any new notes tendered, upon a change of
of at least 25% in principal amount of the 2005 notes, control, or failure to comply with the covenant described
above under oMergers, Consolidations, Sales of Substantially
all Assets,o
o default resulting in acceleration or failure to pay at o default in performance or breach of any covenant of Foster
maturity (1) other debt of Foster Wheeler LLC or debentures Wheeler or any restricted subsidiary in the indenture or
guaranteed in excess of $15 million, (2) debt of any under the new notes, the collateral documents relating to
subsidiary which Foster Wheeler LLC has assumed or on which the notes, continuing for 60 days after notice from holders
Foster Wheeler LLC has otherwise become directly liable in of 25% in principal amount of the new notes,
a principal amount of $15 million or more, upon notice by
holders of at least 25% in aggregate principal amount of
the 2005 notes, or
o the occurrence of certain bankruptcy events with respect to o in respect of debt of Foster Wheeler or any significant
Foster Wheeler LLC. restricted subsidiary having an aggregate outstanding
principal amount of $15 million or more (i) a default
resulting in the acceleration of that debt or (ii) failure
to make a payment of principal when due, and such failure is
not duly cured,
B-39
PROVISION APPLICABLE TO PROVISION APPLICABLE TO
HOLDERS OF 2005 NOTES HOLDERS OF NEW NOTES
--------------------- --------------------
o one or more final judgments for payment against Foster
Wheeler or any significant restricted subsidiary for money,
and an amount in excess of $15 million in respect of such
judgments remains due and unpaid 60 consecutive days after
it is due,
o the occurrence of certain bankruptcy events with respect to
Foster Wheeler LLC or certain affiliates,
o any note guarantee ceases to be in full force and effect,
other than in accordance with its terms, or a Guarantor
denies or disaffirms its obligations under a note guarantee,
o collateral having an aggregate fair market value of
$15 million or more, (i) ceases to secure the new notes or
becomes unenforceable, other than in accordance with the
terms of the collateral, subject to cure, and (ii) Foster
Wheeler or any restricted subsidiary asserts that such
collateral is invalid.
2005 NOTES COMPARED TO PREFERRED SHARES AND COMMON SHARES
---------------------------------------------------------
PROVISION APPLICABLE TO PROVISION APPLICABLE TO HOLDERS OF
HOLDERS OF 2005 NOTES COMMON SHARES AND PREFERRED SHARES
--------------------- ----------------------------------
SHAREHOLDERS' MEETINGS
There are no provisions in the indenture that provide for Under Bermuda law, an annual general meeting must be convened at
meetings of holders. least once in every calendar year. A special meeting of
shareholders may be convened by the board of directors at any
time and must be convened upon the request of shareholders
holding at least 10% of the paid-up capital of a company
carrying the right to vote at shareholders' meetings.
ELECTION AND REMOVAL OF DIRECTORS/TRUSTEES
The holders of a majority in aggregate principal amount then Any shareholder wishing to nominate for election as a director
outstanding of the 2005 notes may at any time remove the someone who is not nominated by the board of Foster Wheeler Ltd.
Trustee and appoint a successor Trustee. must give notice of the intention to nominate the person for
election. Foster Wheeler Ltd.'s bye-laws provide that such
notice must be given not less than one-hundred and twenty days
before release of Foster Wheeler Ltd.'s proxy statement in
connection with the previous year's annual general meeting.
B-40
PROVISION APPLICABLE TO PROVISION APPLICABLE TO HOLDERS OF
HOLDERS OF 2005 NOTES COMMON SHARES AND PREFERRED SHARES
--------------------- ----------------------------------
A director may be removed, with cause, by the affirmative vote
of the holders of at least 66 2'3% of the shares entitled to
vote at an election of directors, provided notice is given to
the director of the shareholders meeting convened to remove the
director. The notice must contain a statement of the intention
to remove the director and must be served on the director not
less than fourteen days before the meeting. The director is
entitled to attend the meeting and be heard on the motion for
his removal. The bye-laws of Foster Wheeler Ltd. provide that
vacancies on the board and newly created directorships resulting
from any increase in the authorized number of directors may be
filled by a majority vote of directors then in office. A vote of
the board to replace a director will include an assignment of
the replacement director to the class of which the former
director was a member, and the replacement director holds office
until the time at which the former director's term of office
expires. Directors elected to fill newly created directorships
hold office until the third annual general meeting following the
date of their election.
APPROVAL REQUIREMENTS GENERALLY
Holders of 2005 notes do not have voting rights with respect to Each holder of common shares is entitled to one vote in person,
changes in the indenture that do not adversely affect holders or by proxy, for each common share registered in the name of
of 2005 notes which are specifically enumerated in the such holder. Prior to becoming convertible, each holder of
indenture such as the addition of (i) covenants for the benefit preferred shares will have the number of votes the common shares
of holders, (ii) events of default and (iii) security on issuable upon conversion of such preferred shares would have. If
respect of the 2005 notes. Unless specifically enumerated as and when the preferred shares become convertible at each
not requiring consent, holders of a majority in aggregate holder's option, they will cease to vote except in limited
principal amount of 2005 notes then outstanding may amend the circumstances as described in the next paragraph or as otherwise
indenture, except as follows. required under applicable law.
The affirmative vote of each holder of the 2005 notes is required Any amendment, alteration or repeal of the terms of the
to: memorandum of association and bye-laws or the certificate of
o change the maturity, or any installment of principal or designation which would affect the powers, preferences, or
interest; special rights of the preferred shares, or any variation of the
o reduce the principal amount, rights of the common shares or the preferred shares generally as
o reduce the interest rate or change the time of payment a class, will require the approval of holders of at least
of interest, three-fourths of the outstanding affected class of shares. This
o reduce any amount payable on redemption, approval can be evidenced either by a unanimous consent in
o change the place or currency of payment, writing or by a resolution passed at a meeting of the holders of
o impair the right to institute suit for the enforcement the relevant class of shares at which a quorum consisting of at
of any payment, or least two persons holding or representing one-third of the
o reduce the percentage in principal amount of outstanding issued and outstanding shares of the relevant class is present.
2005 notes that is required to modify or amend the
indenture, to waive compliance with certain provisions
of the indenture or to waive certain defaults.
B-41
PROVISION APPLICABLE TO PROVISION APPLICABLE TO HOLDERS OF
HOLDERS OF 2005 NOTES COMMON SHARES AND PREFERRED SHARES
--------------------- ----------------------------------
AMENDMENT OF TERMS OF SECURITIES
Same as discussed under "Approval Requirements Generally." Under the Companies Act, amendments to the memorandum of
association of a Bermuda company must be approved by a majority
of the shareholders voting on the amendments.
Under the Companies Act, the bye-laws may be amended by a
resolution of the board of directors and a resolution of the
shareholders approved by a majority of the shareholders voting
on the amendment, unless a greater shareholder vote is required
under the bye-laws. The Foster Wheeler Ltd. bye-laws require a
unanimous vote of the shareholders on any resolution to amend
the bye-laws presented without the prior approval of the board
of directors, provided that any proposed amendment to the
bye-law relating to removal of directors must be approved by the
board and by the affirmative vote of the holders of 75% of the
voting shares of Foster Wheeler Ltd. If a proposed rescission,
alteration or amendment varies the rights attached to a class of
shares, the bye-law relating to a variation of class rights must
be complied with. That bye-law provides that if at any time
Foster Wheeler Ltd. has more than one class of shares, the
rights attaching to any class, unless otherwise provided for by
the terms of issue of the relevant class, may be varied either:
(1) with the consent in writing of the holders of all of the
issued shares of that class; or (2) with the sanction of a
resolution passed by a majority in number equal to three-fourths
of the issued shares at a general meeting of the relevant class
of shareholders at which a quorum consisting of at least two
persons holding or representing one-third of the issued shares
of the relevant class is present.
APPROVAL OF BUSINESS COMBINATION
The indenture permits Foster Wheeler LLC to consolidate or merge The amalgamation of a Bermuda company with another company or
with or into any other person, and to transfer all or corporation (other than certain affiliated companies) requires
substantially all of its assets to any other person without the the amalgamation agreement to be approved by the company's board
approval of holders of 2005 notes provided that upon such of directors and by its shareholders. Shareholder class approval
consolidation, merger or transfer: is also required if the amalgamation agreement constitutes a
o Foster Wheeler LLC's obligations under the indenture are variation of the rights attaching to that class of shares.
expressly assumed by the person (if other than Foster Unless the company's bye-laws provide otherwise the approval of
Wheeler LLC) formed by the consolidation or into which 75% of the shareholders voting at such general and class
Foster Wheeler LLC merged or the person that acquired meetings is required to approve the amalgamation agreement.
all the assets transferred; Also, the quorum for such meetings must be two persons holding
o the surviving person is organized under the laws of the or representing more than one-third of the issued shares of the
United States; company or the class. Each share carries the right to vote in
o after giving effect to such transaction, no event of respect of an amalgamation, whether or not it otherwise carries
default, and no event which, after notice or lapse of the right to vote. Foster Wheeler Ltd.'s bye-laws provide that
time or both, would become an event of default, shall an amalgamation requires the approval of two-thirds of the votes
have occurred and be continuing; and cast at a general meeting of the shareholders where one or more
B-42
PROVISION APPLICABLE TO PROVISION APPLICABLE TO HOLDERS OF
HOLDERS OF 2005 NOTES COMMON SHARES AND PREFERRED SHARES
--------------------- ----------------------------------
o the trustee receives an opinion of counsel and persons representing in person or by proxy a majority of all
officers' certificate to the effect that such issued shares entitled to vote thereat constitutes a quorum.
consolidation, merger or asset transfer and any such Foster Wheeler Ltd.'s bye-laws further provide that certain
assumption complies with the provisions of the indenture business combinations (which include an amalgamation) entered
and that all conditions precedent relating to such into with a shareholder that beneficially owns, directly or
transactions have been complied with. indirectly, 20% or more of the voting shares of Foster Wheeler
Ltd. that have not been approved by the board of directors prior
to the date such shareholder acquired the 20% (or greater)
holding must be approved by the holders of a majority of the
voting shares that are not held by such shareholder, its
affiliates or associates, at a meeting held no earlier than five
years following the date upon which that shareholder first
acquired 20% or more of the voting shares.
The Companies Act also provides that where an offer is made for
shares in a company by another company and, within four months
of the offer, the holders of not less than 90% in value of the
shares which are the subject of the offer accept, the offeror
may by notice, given within two months after the expiration of
the said four months, require the dissenting shareholders to
transfer their shares on the terms of the offer. Dissenting
shareholders may apply to a court within one month of such
notice objecting to the transfer and the court, in its
discretion, may give such order as it thinks fit.
DISSENTERS' RIGHTS
There are no provisions in the indenture that provide for Under the Companies Act, a dissenting shareholder of a company
dissenters' rights. participating in an amalgamation (other than an amalgamation
between a company and certain affiliated companies) may apply to
the court to appraise the fair value of his or her shares.
DISTRIBUTIONS AND DIVIDENDS
The 2005 notes are not entitled to payment of dividends. Interest Under the Companies Act, the board of directors of Foster
on the 2005 notes is accrued at a rate of 6.75% per annum and is Wheeler Ltd. may declare and pay dividends out of profits of
computed on the basis of a 360-day year of twelve 30-day months. Foster Wheeler Ltd. available for that purpose or make
Interest in respect of the 2005 notes is paid semi-annually on distributions to shareholders out of contributed surplus as long
each May 15 and November 15. as there are no reasonable grounds for believing that Foster
Wheeler Ltd. is, or after the payment of such dividend or
distribution would be, unable to pay its liabilities as they
became due or that the realizable value of Foster Wheeler Ltd.'s
assets would thereby be less than the aggregate of its
liabilities and its issued share capital and share premium
accounts.
REPURCHASE AND REDEMPTIONS
The 2005 notes are not redeemable prior to maturity. Under the Companies Act, a company may repurchase its own
shares. However, the funds for such a repurchase must be either
B-43
PROVISION APPLICABLE TO PROVISION APPLICABLE TO HOLDERS OF
HOLDERS OF 2005 NOTES COMMON SHARES AND PREFERRED SHARES
--------------------- ----------------------------------
(1) capital paid-up on the shares in question; (2) proceeds of a
new issue of shares made for the purposes of the repurchase; or
(3) funds which would otherwise be available for dividend or
distribution. Furthermore, any premium which is payable on the
repurchase must be provided out of funds which would otherwise
be available for dividend or distribution or out of the
company's share premium account prior to the repurchase. No
repurchase may be effected if there are reasonable grounds for
believing that the company is, or after effecting the repurchase
would be, unable to pay its liabilities as they become due.
ENFORCEMENT RIGHTS
Upon the occurrence of an event of default under the indenture, The Bermuda courts ordinarily would be expected to follow
the trustee or the holders of not less than 25% in aggregate English precedent, which would permit a shareholder to commence
principal amount of 2005 notes then outstanding may by written an action in the name of the company to remedy a wrong done to
notice to Foster Wheeler LLC, if given by the trustee, or to the the company only (1) where the act complained of is alleged to
trustee, if given by holders, declare the entire outstanding be beyond the corporate power of the company or is illegal; (2)
principal amount and any accrued interest to be due and payable where the act complained of is alleged to constitute a fraud
immediately. The trustee shall institute any action or against the minority shareholders by those controlling the
proceedings at law or in equity to enforce the provisions of the company; provided that the majority shareholders have used their
indenture against Foster Wheeler LLC. Holders of at least a controlling position to prevent the company from taking action
majority in aggregate principal amount of 2005 notes then against the wrongdoers; (3) where an act requires approval by a
outstanding have the right to direct the time, method and place greater percentage of the company's shareholders than actually
of conducting any proceeding for any remedy available to the approved it; or (4) where such an action is necessary in order
trustee. that there not be a violation of the company's memorandum of
association or bye-laws.
When the affairs of a company are being conducted in a manner
which is oppressive or prejudicial to the interests of some part
of the shareholders, one or more shareholders may apply to the
Supreme Court of Bermuda, which may make such order as it sees
fit, including an order regulating the conduct of the company's
affairs in the future or ordering the purchase of the shares of
any shareholders by other shareholders or by the company.
GUARANTEES
The 2005 notes are fully and unconditionally guaranteed by The common shares and preferred shares are not guaranteed by any
certain subsidiary guarantors as described in footnote 24.A to entity.
the consolidated financial statements of Foster Wheeler Ltd.
contained in Foster Wheeler's annual report on Form 10-K for
the year ended December 26, 2003. The 2005 notes are also
secured by a first priority lien on (1) any facility the gross
book value of which exceeds 1% of the consolidated net tangible
assets of Foster Wheeler LLC and the guarantors of the 2005
notes, (2) intercompany debt and stock of domestic
subsidiaries, (3) 100% of the stock held in domestic
subsidiaries, and (4) 66% of the stock held in certain foreign
subsidiaries.
B-44
PROVISION APPLICABLE TO PROVISION APPLICABLE TO HOLDERS OF
HOLDERS OF 2005 NOTES COMMON SHARES AND PREFERRED SHARES
--------------------- ----------------------------------
DERIVATIVE SUITS
There are no provisions in the indenture that provide for The Bermuda courts ordinary would be expected to follow English
derivative suits. precedent, which would permit a shareholder to commence an
action in the name of the company to remedy a wrong done to the
company only (1) where the act complained of is alleged to be
beyond the corporate power of the company or illegal; (2) where
the act complained of is alleged to constitute a fraud against
the minority shareholders by those controlling the company;
provided that the majority shareholders have used their
controlling position to prevent the company from taking action
against the wrongdoers; (3) where an act requires approval by a
greater percentage of the company's shareholders than actually
approved it; or (4) where such an action is necessary in order
that there not be a violation of the company's memorandum of
association or bye-laws.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND TRUSTEES
Foster Wheeler LLC has indemnified the trustee for any loss, Under the Companies Act, a company is permitted to indemnify any
liability or expense incurred without negligence or willful officer or director against (1) any liability incurred by him or
misconduct of the trustee arising out of or in connection with her in defending any proceedings, whether civil or criminal, in
the administration of the indenture including the cost and which judgment is given in his or her favor, or in which he or
expenses of defending itself against any claim or liability in she is acquitted, or in connection with any application under
connection with the exercise or performance of any of its powers relevant Bermuda legislation in which relief from liability is
or duties under the indenture. granted to him or her by the court and (2) any loss or liability
resulting from negligence, default, breach of duty or breach of
trust, except for his or her fraud or dishonesty. The bye-laws
of Foster Wheeler Ltd. provide for the indemnity by Foster
Wheeler Ltd. of the officers and directors of Foster Wheeler
Ltd., except with respect to fraud, dishonesty or willful
misconduct.
LIMITED LIABILITY OF DIRECTORS AND OFFICERS
The indenture contains provisions limiting the liability of the Under the Companies Act, a director must observe a statutory
trustee as long as the trustee acted in good faith. The duty of care which requires such director to act honestly and in
indenture does not relieve the trustee for liability for its own good faith with a view to the best interests of the company and
negligent action, failure to act or willful misconduct. exercise the care, diligence and skill that a reasonably prudent
person would exercise in comparable circumstances. Directors are
also subject to common law fiduciary duties which require
directors to act in what they reasonably believe to be the best
interests of the company and for a proper purpose. Bermuda law
renders void any provision in the bye-laws or any contract
between a company and any such director exempting him or her
from or indemnifying him or her against any liability in respect
of any fraud or dishonesty of which he or she may be guilty in
relation to the company. Foster Wheeler Ltd.'s bye-laws contain
a provision by virtue of which its shareholders waive any claim
or right of action that they have, both individually and on
Foster Wheeler Ltd.'s behalf, against any
B-45
PROVISION APPLICABLE TO PROVISION APPLICABLE TO HOLDERS OF
HOLDERS OF 2005 NOTES COMMON SHARES AND PREFERRED SHARES
--------------------- ----------------------------------
director or officer in relation to any action or failure to take
action by such director or officer, except in respect of any
fraud or dishonesty of such director or officer.
INSPECTION OF BOOKS AND RECORDS
There are no provisions in the indenture that provide for Bermuda law provides the general public with a right of
inspection of books and records of Foster Wheeler LLC by holders inspection of a Bermuda company's public documents at the office
of 2005 notes. of the Registrar of Companies in Bermuda, and provides a Bermuda
company's shareholders with a right of inspection of such
company's bye-laws, minutes of general shareholders' meetings
and audited financial statements. The register of shareholders
is also open to inspection by shareholders free of charge and,
upon payment of a small fee, by any other person. A Bermuda
company is required to maintain its share register in Bermuda
but may establish a branch register outside of Bermuda. A
Bermuda company is required to keep at its registered office a
register of its directors and officers which is open for
inspection by members of the public without charge.
B-46
ANNEX C
FOSTER WHEELER LTD.
AUDIT COMMITTEE CHARTER
ADOPTED BY THE BOARD OF DIRECTORS OF FOSTER WHEELER LTD. ON SEPTEMBER 2, 2004
PURPOSE
The purpose of the Audit Committee (the "Committee") of the board of
directors (the "Board") of Foster Wheeler Ltd. (the "Company") is (1) to assist
the oversight by the Board of (a) the integrity of the Company's financial
statements, the Company's compliance with legal and regulatory requirements, (b)
the independent auditor's qualifications and independence, (c) the effectiveness
of the Company's internal control over financial reporting and (d) the
performance of the Company's internal audit function and independent auditors;
and (2) to prepare the report of the Committee to be included in the Company's
annual proxy statement. Notwithstanding the foregoing, the Committee's
responsibilities are limited to oversight and the Committee is not responsible
for determining whether the Company's financial statements are complete and
accurate or in accordance with generally accepted accounting principles and
applicable laws, rules and regulations or planning or conducting audits.
Management of the Company is responsible for the preparation, presentation and
integrity of the Company's financial statements as well as the Company's
financial reporting process, accounting policies, internal audit function, and
internal control over financial reporting.
COMPOSITION
The Committee shall be composed of three or more directors, as
determined by the Board on the recommendation of the Governance and Nominating
Committee, each of whom shall be "independent", as that term is defined in
Section 10A(m) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the Rules and Regulations (the "Regulations") of the Securities and
Exchange Commission (the "Commission") under the Exchange Act, and shall meet
the independence and financial literacy requirements of the New York Stock
Exchange. At least one member of the Committee shall be an "audit committee
financial expert", as that term is defined in the Regulations, and shall have
accounting or related financial management expertise, as the Board interprets
such qualification in its business judgment. Committee members shall not
simultaneously serve on the audit committees of more than two other public
companies.
RESPONSIBILITIES
The Committee is charged by the Board with the responsibility to:
1. Appoint and provide for the compensation of a "registered public accounting
firm" (as that term is defined in Section 2(a) of the Sarbanes-Oxley Act of
2002) to serve as the Company's independent auditor, oversee the work of the
independent auditor (including resolution of any disagreements between
management and the independent auditor regarding financial reporting), evaluate
the qualifications and performance of the independent auditor and, if so
determined by the Committee, replace the independent auditor; it being
acknowledged that the independent auditor is ultimately accountable to the Board
and the Committee, as representatives of the shareholders.
2. Obtain and review, at least annually, a report by the independent auditor
describing (a) the independent auditor's internal quality-control procedures,
(b) any material issues raised by the most recent internal quality-control
review, or peer review, of the independent auditor, or by any inquiry or
investigation by governmental or professional authorities within the preceding
five years, respecting one or more independent audits carried out by the
independent auditor, (c) any steps taken to deal with any such issues, and (d)
all relationships between the independent auditor and the Company; ensure the
receipt of, and evaluate the written disclosures and the letter that the
independent auditor submits to the Committee regarding the auditor's
independence in accordance with Independence Standards Board Standard No. 1;
discuss such reports with the independent auditor; satisfy itself as to the
independence of the
C-1
independent auditor and, if so determined by the Committee in response to such
reports, take appropriate action to address issues raised by such evaluation.
3. Discuss with the independent auditor the matters required to be discussed by
SAS 61, as it may be modified or supplemented.
4. Instruct the independent auditor and the internal auditor to advise the
Committee if there are any subjects that require special attention.
5. Instruct the independent auditor to report to the Committee on all critical
accounting policies of the Company, all alternative treatments of financial
information within generally accepted accounting principles that have been
discussed with management, ramifications of the use of such alternative
disclosures and treatments and the treatment preferred by the independent
auditor, and other material written communication between the independent
auditor and management, and discuss these matters with the independent auditor
and management.
6. Meet with management and the independent auditor, together and separately, to
discuss the annual financial statements, including disclosures made in
management's discussion and analysis, and the report of the independent auditor
thereon, and to discuss significant issues encountered in the course of the
audit work, including, but not limited to: any restrictions on the scope of the
independent auditor's activities or on access to requested information and any
significant disagreements with management; the adequacy of internal controls,
including any special steps adopted in light of any significant deficiencies or
material weaknesses in the design or operation of internal control over
financial reporting identified during the course of the annual audit, and the
adequacy of disclosures about changes in internal control over financial
reporting; the adequacy of the disclosure of off-balance sheet transactions,
arrangements, obligations and relationships in reports filed with the
Commission; the types of information to be disclosed and the type of
presentation to be made in earnings releases, as well as financial information
and earnings guidance; and the appropriateness of the presentation of any
non-GAAP financial measures (as defined in the Regulations) included in any
report filed with the Commission or in any public disclosure or release.
7. Review and discuss with management and the independent auditor management's
report on internal control over financial reporting, and the independent
auditor's audit of the effectiveness of the Company's internal control over
financial reporting and its attestation report, prior to the filing of the Form
10-K.
8. Review the management letter delivered by the independent auditor in
connection with the audit.
9. Following such review and discussions, if so determined by the Committee,
recommend to the Board that the annual financial statements be included in the
Company's Annual Report on Form 10-K.
10. Meet at least quarterly with management and the independent auditor to
discuss quarterly financial statements, including disclosures made in
management's discussion and analysis, and approve, prior to the filing of the
Form 10-Q.
11. Meet periodically (and no less frequently than once each year) in separate
executive sessions with management, the internal auditor, and the independent
auditor to discuss matters that any of them or the Committee believes could
significantly affect the financial statements and should be discussed privately.
12. Review the Company's earnings press releases prior to their release to the
public. The chair of the Audit Committee or any "financial expert" on the Audit
Committee may represent the entire Audit Committee for purposes of this
revision.
13. Have such direct and independent interaction with members of management,
including the Company's chief financial officer and chief accounting officer, as
the Committee believes appropriate.
14. Set hiring policies for the hiring of employees or former employees of the
independent auditor.
C-2
15. Discuss guidelines and policies with respect to risk assessment and risk
management; discuss with management the Company's major financial risk exposures
and the steps management has taken to monitor and control such exposures.
16. Review significant changes to the Company's accounting principles and
practices proposed by management, the independent auditor, or the internal
auditor, if any.
17. Discuss with the independent auditor and management, the internal audit
department responsibilities, budget and staffing, and review the scope and
results of internal audits.
18. Evaluate the performance of the internal auditor and, if so determined by
the Committee, recommend to the Board of Directors the replacement of the
internal auditor.
19. Obtain and review periodic reports on the internal auditor's significant
recommendations to management and management's responses.
20. Conduct or authorize such inquiries into matters within the Committee's
scope of responsibility as the Committee deems appropriate.
21. Provide minutes of Committee meetings to the Board, present to the Board the
Committee's conclusions with respect to the qualifications, performance and
independence of the independent auditor and review with the Board any issues
that arise with respect to the quality or integrity of the Company's financial
statements, its compliance with legal or regulatory requirements regarding
financial statements, the performance of the independent auditor or the
performance of the internal audit function.
22. At least annually, evaluate the performance of the Committee and report such
evaluation to the Board and review and reassess this Charter and, if
appropriate, recommend changes to the Board.
23. Prepare the Committee report required by the Regulations to be included in
the Company's annual proxy statement.
24. Monitor the Company's Code of Business Conduct and Ethics and establish a
procedure for receipt, retention and treatment of any complaints received by the
Company about its accounting, internal accounting controls or auditing matters
and for the confidential and anonymous submission by employees of concerns
regarding questionable accounting or auditing matters.
25. Approve, in accordance with Sections 10A(h) and (i) of the Exchange Act, the
Regulations and the Auditing Standards of the Public Company Accounting
Oversight Board, all professional services, to be provided to the Company by its
independent auditor, provided that the Committee shall not approve any non-audit
services proscribed by Section 10A(g) of the Exchange Act in the absence of an
applicable exemption. The Committee may adopt policies and procedures for the
approval of such services which may include delegation of authority to a
designated member or members of the Committee to approve such services so long
as any such approvals are disclosed to the full Committee at its next scheduled
meeting.
AUTHORITY
By adopting this Charter, the Board delegates to the Committee full authority in
its discretion to:
1. Perform each of the responsibilities of the Committee described above.
2. Appoint a chair of the Committee, unless a chair is designated by the Board.
3. Engage and oversee independent counsel and other advisers as the Committee
determines necessary to carry out its responsibilities.
C-3
4. Cause the officers of the Company to provide such funding as the Committee
shall determine to be appropriate for payment of compensation to the Company's
independent auditor and any legal counsel or other advisers engaged by the
Committee, and payment of ordinary administrative expenses of the audit
committee that are necessary or appropriate in carrying out its duties.
C-4
FOSTER WHEELER LTD.
COMMON SHARES PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR
THE SPECIAL GENERAL MEETING OF COMMON SHAREHOLDERS
AND
THE JOINT ANNUAL AND SPECIAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 29, 2004
The undersigned hereby appoints Raymond J. Milchovich and Lisa Fries
Gardner, each with power to act without the other and with full power of
substitution, as proxies to represent and to vote, as indicated on the reverse
side of this card, all common shares of Foster Wheeler Ltd. registered in the
name of the undersigned at (1) the special general meeting of common
shareholders and (2) the joint annual and special general meeting of all
shareholders, each to be held at the offices of Foster Wheeler Ltd., Perryville
Corporate Park, Clinton, New Jersey on November 29, 2004 or any postponements or
adjournments thereof.
The shares represented by this proxy when properly executed will be voted
in the manner directed herein by the undersigned shareholder. If no specific
direction is given, the shares represented by this proxy will be voted to
approve the proposals listed on the reverse side. Discretionary authority is
hereby conferred on the proxyholders as to all other matters that may come
before the meetings or any postponements or adjournments thereof.
(CONTINUED, AND TO BE MARKED, SIGNED AND DATED ON THE REVERSE SIDE)
- --------------------------------------------------------------------------------
ADDRESS CHANGE (MARK THE CORRESPONDING BOX ON THE REVERSE SIDE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
ADMISSION TICKET
DIRECTIONS TO FOSTER WHEELER LTD.
PERRYVILLE CORPORATE PARK
CLINTON, NJ
FROM:
I-78 WEST: Take Route 78 West to Exit 12 (Jutland, Norton). Make a left off the
exit ramp and go to the traffic light. Make a left at the light, over Route 78.
Make a right at the first light (Frontage Road). Perryville Corporate Park is
one half mile on the left. Use the second driveway on the left and follow the
signs for annual meeting parking.
I-287 NORTH TO SOUTH: Follow Route 287 South to Exit 21B (Clinton) which will be
Route 78 West. Follow the directions from I-78 West above.
I-287 SOUTH TO NORTH: Follow Route 287 North and follow the signs for I-78 West,
then follow the directions from I-78 West above.
LIVINGSTON - FLORHAM PARK AREA: Take Route 24 West to the end (staying left) and
follow signs for I-287 South-Somerville, then follow directions from Route I-287
North to South.
GARDEN STATE PARKWAY NORTH OR SOUTH: Take the Garden State Parkway to Exit 142.
Follow the signs for I-78 West, then follow the directions from I-78 West above.
PHILLIPSBURG, ALLENTOWN AND EASTON: Take Route 22 East and go over the
Phillipsburg Bridge, stay on Route 22 through Phillipsburg bearing right on
Route 22 to I-78 East. Stay on I-78 East to Exit 11 (W. Portal, Pattenburg). Go
straight through the traffic light at the end of the exit ramp. Bear left at
fork. Perryville Corporate Park entrance is one half mile on the right. Use the
first driveway on the right and follow the signs for annual meeting parking.
THIS TICKET IS NOT TRANSFERABLE
- --------------------------------------------------------------------------------
SPECIAL GENERAL MEETING OF COMMON SHAREHOLDERS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL
FOR AGAINST ABSTAIN
Proposal A: [_] [_] [_]
Consolidation of the
Company's authorized
common share capital at
a ratio of 1-for-20
SIGNATURE SIGNATURE DATE
------------------------ ------------------- -------------
NOTE: PLEASE SIGN YOUR NAME EXACTLY AS IT APPEARS ABOVE. JOINT OWNERS SHOULD
EACH SIGN. WHEN SIGNING AS AN EXECUTOR, ADMINISTRATOR, PERSONAL REPRESENTATIVE,
TRUSTEE, ETC., PLEASE GIVE FULL TITLE AS SUCH.
JOINT ANNUAL AND SPECIAL GENERAL MEETING OF SHAREHOLDERS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PLEASE
PROPOSALS 1 THROUGH 9. MARK HERE
FOR ADDRESS
CHANGE [_]
SEE REVERSE SIDE
WITHHOLD
Proposal 1. Election of three directors, for terms AUTHORITY
expiring in 2007. FOR for all
Nominees: Eugene D. Atkinson [_] [_]
Stephanie Hanbury-Brown
David M. Sloan
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
MARK A LINE THROUGH THE NOMINEE'S NAME.
By checking the box to the right, I consent to future access of the [_]
annual report, proxy statements, prospectuses and other communications
electronically via the Internet. I understand that the Company may no
longer distribute printed materials to me for any future shareholder
meeting until such consent is revoked. I understand that I may revoke
my consent at any time by contacting the transfer agent, Mellon
Investor Services, South Hackensack, NJ and that costs normally
associated with electronic access, such as usage and telephone charges,
will be my responsibility. Please disregard if you have previously
provided your consent decision.
PLEASE MARK THIS [_]
BOX IF YOU PLAN
TO ATTEND THE
ANNUAL MEETING.
FOR AGAINST ABSTAIN
Proposal 2 Appointment of PricewaterhouseCoopers LLP as [_] [_] [_]
Foster Wheeler Ltd.'s independent auditors
for 2004 and authorization of the board,
through the Audit Committee, to set
remuneration.
Proposal 3. Approval of awards of restricted stock [_] [_]
units and stock options to directors.
Proposal 4. Amendment to the bye-laws replacing the [_] [_]
director retirement age of 72 with a provision
requiring the board to establish a director
retirement age.
Proposal 5. Amendment to the bye-laws replacing [_] [_]
director stock ownership requirements with a
provision requiring the board to establish a
non-employee director share ownership policy.
Proposal 6. Amendment to the bye-laws clarifying that [_] [_]
director remuneration will be determined by the
directors from time to time.
Proposal 7. Consolidation of the Company's authorized [_] [_]
common share capital at a ratio of 1-for-20 and a
related reduction in the par value per common share
from $.20 to $.01.
Proposal 8. Reduction in the par value of the [_] [_]
Company's authorized common and preferred share
capital from US$1.00 to US$.01 per share.
Proposal 9. Increase in the authorized capital of the [_] [_]
Company from US$1,615,000 to US$14,774,089.57 by the
authorization of an additional 1,315,908,957 common
shares.
SIGNATURE SIGNATURE DATE
------------------------ ------------------- -------------
NOTE: PLEASE SIGN YOUR NAME EXACTLY AS IT APPEARS ABOVE. JOINT OWNERS SHOULD
EACH SIGN. WHEN SIGNING AS AN EXECUTOR, ADMINISTRATOR, PERSONAL REPRESENTATIVE,
TRUSTEE, ETC., PLEASE GIVE FULL TITLE AS SUCH.
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
VOTE BY INTERNET OR TELEPHONE
24 HOURS A DAY, 7 DAYS A WEEK
VOTES WILL BE ACCEPTED VIA INTERNET AND TELEPHONE THROUGH 11:59 P.M.
EASTERN TIME ON NOVEMBER 28, 2004.
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES
THE NAMED PROXIES TO VOTE YOUR SHARES IN THE SAME MANNER AS IF YOU
MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
INTERNET TELEPHONE
http://www.eproxy.com/fwc 1-800-435-6710
Use the Internet to appoint your Use any touch-tone telephone to
proxy. Have your proxy card in OR appoint your proxy. Have your
hand when you access the web site. aroxy card in hand when you call.
MAIL
OR Mark, sign and date your
proxy card and return it in
the enclosed postage-paid
envelope.
IF YOU APPOINT YOUR PROXY BY INTERNET OR BY TELEPHONE,
YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.
FOSTER WHEELER LTD.
PREFERRED SHARES PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR
THE JOINT ANNUAL AND SPECIAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 29, 2004
The undersigned hereby appoints Raymond J. Milchovich and Lisa Fries
Gardner, each with power to act without the other and with full power of
substitution, as proxies to represent and to vote, as indicated on the reverse
side of this card, all preferred shares of Foster Wheeler Ltd. registered in the
name of the undersigned at the joint annual and special general meeting of all
shareholders, each to be held at the offices of Foster Wheeler Ltd., Perryville
Corporate Park, Clinton, New Jersey on November 29, 2004 and at any
postponements or adjournments thereof.
The shares represented by this proxy when properly executed will be voted
in the manner directed herein by the undersigned shareholder. If no specific
direction is given, the shares represented by this proxy will be voted to
approve the proposals listed on the reverse side. Discretionary authority is
hereby conferred on the proxyholders as to all other matters that may come
before the meeting or any postponements or adjournments thereof.
(CONTINUED, AND TO BE MARKED, SIGNED AND DATED ON THE REVERSE SIDE)
- --------------------------------------------------------------------------------
ADDRESS CHANGE (MARK THE CORRESPONDING BOX ON THE REVERSE SIDE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
ADMISSION TICKET
DIRECTIONS TO FOSTER WHEELER LTD.
PERRYVILLE CORPORATE PARK
CLINTON, NJ
FROM:
I-78 WEST: Take Route 78 West to Exit 12 (Jutland, Norton). Make a left off the
exit ramp and go to the traffic light. Make a left at the light, over Route 78.
Make a right at the first light (Frontage Road). Perryville Corporate Park is
one half mile on the left. Use the second driveway on the left and follow the
signs for annual meeting parking.
I-287 NORTH TO SOUTH: Follow Route 287 South to Exit 21B (Clinton) which will be
Route 78 West. Follow the directions from I-78 West above.
I-287 SOUTH TO NORTH: Follow Route 287 North and follow the signs for I-78 West,
then follow the directions from I-78 West above.
LIVINGSTON - FLORHAM PARK AREA: Take Route 24 West to the end (staying left) and
follow signs for I-287 South-Somerville, then follow directions from Route I-287
North to South.
GARDEN STATE PARKWAY NORTH OR SOUTH: Take the Garden State Parkway to Exit 142.
Follow the signs for I-78 West, then follow the directions from I-78 West above.
PHILLIPSBURG, ALLENTOWN AND EASTON: Take Route 22 East and go over the
Phillipsburg Bridge, stay on Route 22 through Phillipsburg bearing right on
Route 22 to I-78 East. Stay on I-78 East to Exit 11 (W. Portal, Pattenburg). Go
straight through the traffic light at the end of the exit ramp. Bear left at
fork. Perryville Corporate Park entrance is one half mile on the right. Use the
first driveway on the right and follow the signs for annual meeting parking.
THIS TICKET IS NOT TRANSFERABLE
- --------------------------------------------------------------------------------
JOINT ANNUAL AND SPECIAL GENERAL MEETING OF SHAREHOLDERS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PLEASE
PROPOSALS 1 THROUGH 9. MARK HERE
FOR ADDRESS
CHANGE [_]
SEE REVERSE SIDE
WITHHOLD
Proposal 1. Election of three directors, for terms AUTHORITY
expiring in 2007. FOR for all
Nominees: Eugene D. Atkinson [_] [_]
Stephanie Hanbury-Brown
David M. Sloan
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
MARK A LINE THROUGH THE NOMINEE'S NAME.
By checking the box to the right, I consent to future access of the [_]
annual report, proxy statements, prospectuses and other communications
electronically via the Internet. I understand that the Company may no
longer distribute printed materials to me for any future shareholder
meeting until such consent is revoked. I understand that I may revoke
my consent at any time by contacting the transfer agent, Mellon
Investor Services, South Hackensack, NJ and that costs normally
associated with electronic access, such as usage and telephone charges,
will be my responsibility. Please disregard if you have previously
provided your consent decision.
PLEASE MARK THIS
BOX IF YOU PLAN
TO ATTEND THE
ANNUAL MEETING. [_]
FOR AGAINST ABSTAIN
Proposal 2 Appointment of PricewaterhouseCoopers LLP as [_] [_] [_]
Foster Wheeler Ltd.'s independent auditors
for 2004 and authorization of the board,
through the Audit Committee, to set
remuneration.
Proposal 3. Approval of awards of restricted stock [_] [_] [_]
units and stock options to directors.
Proposal 4. Amendment to the bye-laws replacing the [_] [_] [_]
director retirement age of 72 with a provision
requiring the board to establish a director
retirement age.
Proposal 5. Amendment to the bye-laws replacing [_] [_] [_]
director stock ownership requirements with a
provision requiring the board to establish a
non-employee director share ownership policy.
Proposal 6. Amendment to the bye-laws clarifying that [_] [_] [_]
director remuneration will be determined by the
directors from time to time.
Proposal 7. Consolidation of the Company's authorized [_] [_] [_]
common share capital at a ratio of 1-for-20 and a
related reduction in the par value per common share
from $.20 to $.01.
Proposal 8. Reduction in the par value of the [_] [_] [_]
Company's authorized common and preferred share
capital from US$1.00 to US$.01 per share.
Proposal 9. Increase in the authorized capital of the [_] [_] [_]
Company from US$1,615,000 to US$14,774,089.57 by the
authorization of an additional 1,315,908,957 common
shares.
SIGNATURE SIGNATURE DATE
------------------------ ------------------- -------------
NOTE: PLEASE SIGN YOUR NAME EXACTLY AS IT APPEARS ABOVE. JOINT OWNERS SHOULD
EACH SIGN. WHEN SIGNING AS AN EXECUTOR, ADMINISTRATOR, PERSONAL REPRESENTATIVE,
TRUSTEE, ETC., PLEASE GIVE FULL TITLE AS SUCH.
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^