As filed with the Securities and Exchange Commission on May 12, 1997
Registration No. -
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
AMETEK, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box:
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) or (2)
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 previously paid with preliminary materials.
[X] 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: $43,470
-------------------------
(2) Form, Schedule or Registration Statement No.: Form S-4
--------------------
(3) Filing Party: Culligan Water Technologies, Inc.
----------------------------------------------------
(4) Date Filed: May 12, 1997
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AMETEK, INC.
STATION SQUARE
PAOLI, PENNSYLVANIA 19301
Dear AMETEK, Inc. Stockholder: June 27, 1997
You are cordially invited to attend a Special Meeting in lieu of the Annual
Meeting of Stockholders of AMETEK, Inc. ("AMETEK") to be held on July 30, 1997
at The Ritz-Carlton Hotel, 17th and Chestnut Streets, at Liberty Place,
Philadelphia, Pennsylvania 19103 at 2:00 p.m. local time.
On February 4, 1997, the Board of Directors of AMETEK approved the merger of
the water filtration business of AMETEK, which consists of the Plymouth
Products Division, and the following three foreign subsidiaries of AMETEK:
Ametek Filters, Limited, APIC International S.A. and AFIMO S.A.M.
(collectively, the "Water Filtration Business"), with Culligan Water
Technologies, Inc. ("Culligan") in a transaction representing a combined value
in debt and equity of approximately $ at June 27, 1997.
The transaction will occur in two steps. First, AMETEK will distribute to
its stockholders on a share for share basis (the "Spin-Off") all of the shares
of a subsidiary, Ametek Aerospace Products, Inc. ("New Ametek"), which, at the
time of the Spin-Off, will own all of AMETEK's businesses other than the Water
Filtration Business. Second, the Water Filtration Business will be acquired by
Culligan in a stock-for-stock merger (the "Merger") making AMETEK (which then
will be comprised solely of the Water Filtration Business) a subsidiary of
Culligan. Following the Merger, New Ametek will be renamed "AMETEK, Inc." The
Spin-Off and the Merger are intended to be tax-free.
In the Spin-Off, you will receive one share of New Ametek common stock for
each share of AMETEK common stock that you own. In the Merger, you will
receive, subject to adjustment, approximately .11 of a share of Culligan
common stock for each share of AMETEK common stock that you own. This is
equivalent to $ per share of AMETEK common stock based on the market price
of $ per share of Culligan common stock on June 27, 1997.
The Spin-Off and the Merger must be approved by the stockholders of AMETEK.
The Spin-Off and the Merger are described in detail in the attached Joint
Proxy Statement/Prospectus, the forepart of which includes a summary of the
terms of the Spin-Off and the Merger and certain other information relating to
the proposed transaction. Also, Appendix E to the attached Joint Proxy
Statement/Prospectus is an information statement for New Ametek's common stock
that further describes the business and management of New Ametek. We hope to
complete the transaction by the end of July 1997.
After careful consideration, your Board of Directors has unanimously
determined that the Spin-Off and the Merger are in the best interests of
AMETEK and its stockholders, and unanimously recommends that you vote FOR the
approval of the Spin-Off and the Merger and the transactions contemplated in
connection therewith.
At the Special Meeting you will also be asked to elect eight directors to
the AMETEK Board of Directors, to appoint independent auditors and to transact
such other business as may properly come before the Special Meeting.
Stockholders are entitled to vote all shares of AMETEK common stock owned by
them on June 25, 1997, the record date.
We urge you to consider carefully these important matters which are
described in the attached Joint Proxy Statement/Prospectus. In order to ensure
that your vote is represented at the meeting, please indicate your choice on
the proxy form, date and sign it, and return it in the enclosed envelope.
Please mark and return the proxy even if you plan to attend the meeting in
person. If you have questions, please contact our Investor Relations
Department at (610) 647-2121.
Yours truly,
AMETEK, INC.
Walter E. Blankley
Chairman and Chief Executive Officer
AMETEK, INC.
STATION SQUARE
PAOLI, PENNSYLVANIA 19301
NOTICE OF SPECIAL MEETING IN LIEU OF THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 30, 1997
To the Stockholders of AMETEK, Inc.:
Notice is hereby given that a Special Meeting in lieu of the Annual Meeting
of Stockholders (the "Special Meeting") of AMETEK, Inc., a Delaware
corporation ("AMETEK"), has been called by the Board of Directors of AMETEK
and will be held on July 30, 1997 at The Ritz-Carlton Hotel, 17th and Chestnut
Streets, at Liberty Place, Philadelphia, Pennsylvania 19103 at 2:00 p.m. local
time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Amended
and Restated Agreement and Plan of Merger and Reorganization, dated as of
February 5, 1997 (the "Merger Agreement"), by and among Culligan Water
Technologies, Inc., a Delaware corporation ("Culligan"), Culligan Water
Company, Inc., a Delaware corporation and a wholly owned subsidiary of
Culligan ("Culligan Merger Sub"), AMETEK and Ametek Aerospace Products,
Inc., a Delaware corporation and wholly owned subsidiary of AMETEK ("New
Ametek"), the Amended and Restated Contribution and Distribution Agreement,
dated as of February 5, 1997 (the "Distribution Agreement"), between AMETEK
and New Ametek and the transactions contemplated by the Merger Agreement
and the Distribution Agreement, pursuant to which, among other things:
(a) AMETEK will transfer or cause to be transferred to New Ametek all
of its assets other than those comprising AMETEK's water filtration
business, which consists of the Plymouth Products Division, and the
following three foreign subsidiaries: Ametek Filters, Limited, APIC
International S.A. and AFIMO S.A.M. (collectively, the "Water
Filtration Business"), and New Ametek will assume all of AMETEK's
liabilities, except for certain liabilities relating to the Water
Filtration Business and certain indebtedness of AMETEK (collectively,
the "Contributions") and, following the Contributions, AMETEK will
distribute to its stockholders on a share for share basis (the "Spin-
Off") all of the outstanding shares of New Ametek ("New Ametek Common
Stock");
(b) at the effective time of the Merger (the "Effective Time") on the
day following the Spin-Off, Culligan Merger Sub will be merged with and
into AMETEK (which then will be comprised solely of the Water
Filtration Business) (the "Merger"), with AMETEK surviving the Merger
as a wholly owned subsidiary of Culligan and, immediately after the
Merger, the name of AMETEK will be changed to "Culligan Water Company,
Inc." and the name of New Ametek will be changed to "AMETEK, Inc.;" and
(c) at the Effective Time, each share of AMETEK common stock, par
value $.01 per share ("AMETEK Common Stock"), issued and outstanding
immediately prior to the Effective Time will be converted into the
right to receive common stock, par value $.01 per share, of Culligan
("Culligan Common Stock"), determined as provided in Section 2.1 of the
Merger Agreement.
2. To elect eight directors to hold office for the terms specified in the
Joint Proxy Statement/Prospectus and until their successors are elected and
qualified.
3. To approve the appointment of Ernst & Young LLP as independent
auditors for the year 1997.
4. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
The Joint Proxy Statement/Prospectus and the appendices thereto (including
the Merger Agreement included as Appendix A and the Distribution Agreement
included as Appendix B1 thereto) form a part of this Notice.
Only holders of record of AMETEK Common Stock at the close of business on
June 25, 1997 are entitled to notice of, and to vote at, the Special Meeting
or any adjournments or postponements thereof. The proposal to approve and
adopt the Merger Agreement, the Distribution Agreement, the Merger and the
Spin-Off, requires the affirmative vote of the holders of a majority of the
outstanding shares of AMETEK Common Stock entitled to vote thereon in person
or by proxy. The affirmative vote of a plurality of the shares of AMETEK
Common Stock voted in person or by proxy at the Special Meeting is required
for the election of directors. For all other matters, a favorable vote of a
majority of the shares of AMETEK Common Stock voted in person or by proxy at
the Special Meeting is required for approval. Holders of record may be asked
to vote to adjourn the Special Meeting for up to 60 days to solicit additional
votes if necessary to approve and adopt the Merger Agreement, the Distribution
Agreement, the Merger and the Spin-Off.
If you have any questions regarding the proposed transaction, please call
Georgeson & Company Inc., our proxy soliciting agent, toll-free at (800) 223-
2064 (banks and brokers should call (212) 440-9800).
By Order of the Board of Directors,
Donna F. Winquist
Corporate Secretary
Station Square
Paoli, Pennsylvania 19301
June 27, 1997
----------------
STOCKHOLDERS RECEIVING MORE THAN ONE PROXY BECAUSE OF SHARES REGISTERED IN
DIFFERENT NAMES OR ADDRESSES MUST COMPLETE AND RETURN EACH PROXY IN ORDER TO
VOTE ALL SHARES THEY ARE ENTITLED TO VOTE.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY CARD PROMPTLY, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING. YOUR PROXY WILL BE REVOCABLE, EITHER
IN WRITING OR BY VOTING IN PERSON AT THE SPECIAL MEETING AT ANY TIME PRIOR TO
ITS EXERCISE. PLEASE DATE AND SIGN YOUR NAME EXACTLY AS IT APPEARS ON THE
PROXY. PLEASE DO NOT SEND IN STOCK CERTIFICATES AT THIS TIME.
THE BOARD OF DIRECTORS OF AMETEK UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT, THE DISTRIBUTION AGREEMENT,
THE MERGER AND THE SPIN-OFF.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ +
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 27, 1997
AMETEK, INC.
PROXY STATEMENT FOR SPECIAL MEETING IN LIEU OF
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
ON JULY 30, 1997
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CULLIGAN WATER TECHNOLOGIES, INC.
PROSPECTUS
COMMON STOCK, PAR VALUE $.01 PER SHARE
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This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors (the "AMETEK Board") of
AMETEK, Inc., a Delaware corporation ("AMETEK"), for use at the Special Meeting
in lieu of the Annual Meeting of Stockholders of AMETEK (including any
adjournments or postponements thereof, the "AMETEK Special Meeting"), to be
held on July 30, 1997 at The Ritz-Carlton Hotel, 17th and Chestnut Streets, at
Liberty Place, Philadelphia, Pennsylvania 19103 at 2:00 p.m. local time. At the
AMETEK Special Meeting, the holders of AMETEK common stock, par value $.01 per
share ("AMETEK Common Stock") will, among other things, consider and vote upon
a proposal to approve and adopt the Amended and Restated Agreement and Plan of
Merger and Reorganization, dated as of February 5, 1997 (the "Merger
Agreement"), by and among Culligan Water Technologies, Inc., a Delaware
corporation ("Culligan"), Culligan Water Company, Inc., a Delaware corporation
and a wholly owned subsidiary of Culligan ("Culligan Merger Sub"), AMETEK and
Ametek Aerospace Products, Inc., a Delaware corporation and wholly owned
subsidiary of AMETEK ("New Ametek"), the Amended and Restated Contribution and
Distribution Agreement, dated as of February 5, 1997 (the "Distribution
Agreement"), between AMETEK and New Ametek and the transactions contemplated by
the Merger Agreement and the Distribution Agreement, pursuant to which (a)
AMETEK will transfer or cause to be transferred to New Ametek all of its assets
other than those which are part of the Water Filtration Business (as defined
below), and New Ametek will assume all of AMETEK's liabilities, except for
certain liabilities relating to the Water Filtration Business and certain
indebtedness of AMETEK (collectively, the "Contributions") and, following the
Contributions, AMETEK will distribute to its stockholders on a share for share
basis (the "Spin-Off") all of the outstanding shares of New Ametek ("New Ametek
Common Stock"), and (b) at the effective time of the Merger (the "Effective
Time") on the day following the Spin-Off, Culligan Merger Sub will be merged
with and into AMETEK (which then will be comprised solely of the Water
Filtration Business) (the "Merger"). The Water Filtration Business of AMETEK
consists of the Plymouth Products Division, and the following three foreign
subsidiaries: Ametek Filters, Limited, APIC International S.A. and AFIMO S.A.M.
(collectively, the "Water Filtration Business"). The Spin-Off and the Merger
are intended to be tax-free.
In the Merger, each share of AMETEK Common Stock will be converted into the
right to receive common stock, par value $.01 per share, of Culligan ("Culligan
Common Stock"). Assuming that shares of AMETEK Common Stock are
outstanding at the time of the Merger (the number of shares of AMETEK Common
Stock outstanding on June 27, 1997), each share of AMETEK Common Stock will be
converted into approximately .11 of a share of Culligan Common Stock, except
that each holder of AMETEK Common Stock will receive, without interest, cash in
lieu of any fractional share of Culligan Common Stock that such stockholder
would be entitled to receive after aggregating all shares such stockholder is
entitled to receive in the Merger.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of
Culligan that is part of a Registration Statement on Form S-4 (the "Culligan
Registration Statement") filed with the Securities and Exchange Commission (the
"Commission") with respect to the issuance of 3,466,667 shares of Culligan
Common Stock pursuant to the Merger Agreement.
(Continued on page two)
SEE "RISK FACTORS" ON PAGE 32 OF THIS JOINT PROXY STATEMENT/PROSPECTUS FOR A
DISCUSSION OF CERTAIN MATTERS WITH RESPECT TO THE SPIN-OFF, THE MERGER AND AN
INVESTMENT IN CULLIGAN COMMON STOCK UPON CONSUMMATION OF THE MERGER. SEE "RISK
FACTORS" ON PAGE 9 OF THE NEW AMETEK INFORMATION STATEMENT WHICH IS INCLUDED AS
APPENDIX E FOR CERTAIN MATTERS RELEVANT TO THE OWNERSHIP OF NEW AMETEK COMMON
STOCK.
This Joint Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to stockholders of AMETEK on or about June 30, 1997.
NEITHER THIS TRANSACTION NOR THE SECURITIES TO BE ISSUED IN CONNECTION WITH
THE MERGER HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------
The date of this Joint Proxy Statement/Prospectus is June , 1997.
(Continued from page one)
Based on the number of shares of Culligan Common Stock and AMETEK Common
Stock outstanding on the date hereof, upon consummation of the Merger,
Culligan stockholders at the time of the Merger will continue to hold
approximately 86% of the outstanding Culligan Common Stock and AMETEK
stockholders will hold approximately 14% of the outstanding Culligan Common
Stock.
As a result of the Spin-Off and the Merger, AMETEK will become a wholly
owned subsidiary of Culligan and will be renamed "Culligan Water Company,
Inc." ("Culligan Water Company"), and New Ametek will be renamed "AMETEK,
Inc.," subject to and as more fully described in the Merger Agreement and the
Distribution Agreement, which are attached, respectively, as Appendices A and
B1 to this Joint Proxy Statement/Prospectus.
Because the Exchange Ratio (as defined herein) is based on a fixed price of
$37.50 for Culligan Common Stock and the market price for Culligan Common
Stock fluctuates, the value of the Culligan Common Stock that holders of
AMETEK Common Stock will receive in the Merger increases as the market price
of Culligan Common Stock increases and decreases as the market price of
Culligan Common Stock decreases. In addition, because additional shares of
AMETEK Common Stock may be issued prior to the Effective Time, the value of
the consideration per share received by holders of AMETEK Common Stock in the
Merger may decrease. See "THE MERGER AGREEMENT--Conversion of AMETEK Common
Stock."
Culligan Common Stock is listed for trading on the New York Stock Exchange
("NYSE"). On February 4, 1997, the last trading day prior to the execution of
the Merger Agreement, the closing sale price per share of Culligan Common
Stock, as reported on the NYSE Composite Tape, was $36.375. On June 27, 1997,
the last trading day prior to the first mailing of this Joint Proxy
Statement/Prospectus, the closing sale price per share of Culligan Common
Stock, as reported on the NYSE Composite Tape, was $ .
There is currently no trading market for New Ametek Common Stock; however,
it is expected that a "when-issued" trading market will develop for the New
Ametek Common Stock prior to the Merger. New Ametek has applied to list the
New Ametek Common Stock on the NYSE and on the Pacific Exchange, Inc. (the
"PCX"). As a result of the transaction, holders of AMETEK Common Stock
immediately prior to the Spin-Off will receive shares of New Ametek Common
Stock in the Spin-Off and, upon surrendering their AMETEK Common Stock
certificates in accordance with the Merger Agreement, will receive shares of
Culligan Common Stock in the Merger.
APPENDIX E TO THIS JOINT PROXY STATEMENT/PROSPECTUS IS FURNISHED TO HOLDERS
OF AMETEK COMMON STOCK AS AN INFORMATION STATEMENT (THE "NEW AMETEK
INFORMATION STATEMENT") IN CONNECTION WITH THE DISTRIBUTION OF NEW AMETEK
COMMON STOCK PURSUANT TO THE DISTRIBUTION AGREEMENT. The New Ametek
Information Statement is part of New Ametek's Registration Statement on Form
10 filed with the Commission. Culligan has furnished all information in this
Joint Proxy Statement/Prospectus with respect to Culligan and Culligan Merger
Sub, and AMETEK has furnished all information in this Joint Proxy
Statement/Prospectus with respect to AMETEK and New Ametek.
2
AVAILABLE INFORMATION
Culligan and AMETEK are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information
filed by Culligan and AMETEK with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission located at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Such material should
also be available on line at the Commission Web site (http://www.sec.gov)
through the Commission's EDGAR retrieval system. Culligan Common Stock and
AMETEK Common Stock are listed on the NYSE. Reports and other information
concerning Culligan and AMETEK can also be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005. AMETEK Common
Stock is also listed on the PCX. Reports and other information concerning
AMETEK Common Stock are available at the Pacific Exchange, Inc., 301 Pine
Street, San Francisco, California 94104-7065.
This Joint Proxy Statement/Prospectus, which constitutes a part of the
Culligan Registration Statement, does not contain all of the information set
forth in the Culligan Registration Statement, certain items of which are
contained in schedules and exhibits to the Culligan Registration Statement as
permitted by the rules and regulations of the Commission. For further
information, reference is made to the Culligan Registration Statement,
including the schedules and exhibits filed as a part thereof or incorporated
by reference therein. Statements contained herein concerning the provisions of
documents are necessarily summaries of such documents, and each such statement
is qualified in its entirety by reference to the copy of the applicable
document filed as an appendix hereto or as otherwise filed with the
Commission. The Culligan Registration Statement and the exhibits and schedules
thereto may be inspected, without charge, and copies thereof may be obtained
at prescribed rates, at the offices of the Commission at 450 Fifth Street,
N.W., Washington D.C. 20549. Such material should also be available on line at
the Commission Web site (http://www.sec.gov).
This Joint Proxy Statement/Prospectus does not contain all of the
information to be set forth in the New Ametek Information Statement. The New
Ametek Information Statement and the exhibits and schedules thereto may be
inspected, without charge, and copies thereof may be obtained at prescribed
rates, at the offices of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549. Such material should also be available on line at the Commission
Web site (http://www.sec.gov). Certain important information relating to the
Spin-Off is set forth in the New Ametek Information Statement which is a part
of this Joint Proxy Statement/Prospectus and is included as Appendix E. See
"ADDITIONAL INFORMATION" in the New Ametek Information Statement.
----------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND, IF
SO GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS, OR A SOLICITATION
OF A PROXY FROM ANY PERSON, IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH AN OFFER, SOLICITATION OF AN OFFER OR PROXY SOLICITATION. NEITHER
THE DELIVERY OF THIS JOINT PROXY STATEMENT/ PROSPECTUS NOR ANY DISTRIBUTION OF
THE SECURITIES MADE UNDER THIS JOINT PROXY STATEMENT/PROSPECTUS SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF ANY OF CULLIGAN, AMETEK, NEW AMETEK OR CULLIGAN MERGER SUB AT ANY
TIME SUBSEQUENT TO THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
Culligan incorporates herein by reference the following documents filed by it
with the Commission pursuant to the Exchange Act (i) its Annual Report on Form
10-K for the year ended January 31, 1997 (the "Culligan 10-K"); (ii) its
Current Report on Form 8-K dated February 14, 1997; (iii) its Quarterly Report
on Form 10-Q for the quarter ended April 30, 1997 (the "Culligan Form 10-Q");
(iv) its Proxy Statement dated May 14, 1997; (v) the description of Culligan
Common Stock incorporated by reference in its Registration Statement on Form 8-
A dated November 22, 1995; and (vi) the description of Culligan's Stock
Purchase Rights contained in its Registration Statement on Form 8-A dated
September 16, 1996.
AMETEK incorporates herein by reference (i) its Annual Report on Form 10-K
for the year ended December 31, 1996 (the "AMETEK 10-K"); (ii) its Current
Report on Form 8-K dated February 6, 1997; (iii) its Quarterly Report on Form
10-Q for the three months ended March 31, 1997; and (iv) its Current Reports on
Form 8-K dated May 19, 1997 and June 3, 1997.
All documents filed by Culligan and AMETEK pursuant to Section 13(a), 13(c),
14, or 15(d) of the Exchange Act subsequent to the date of this Joint Proxy
Statement/Prospectus and prior to the date of the AMETEK Special Meeting shall
be deemed to be incorporated by reference in this Joint Proxy
Statement/Prospectus and to be a part hereof from the date of filing of such
documents. All information appearing in this Joint Proxy Statement/Prospectus
is qualified in its entirety by the information and financial statements
(including notes thereto) appearing in the documents incorporated by reference
herein.
Any statement contained in a document incorporated or deemed incorporated by
reference herein shall be modified or superseded, for purposes of this Joint
Proxy Statement/Prospectus, to the extent that a statement contained herein or
in any subsequently filed document that is deemed to be incorporated herein
modifies or supersedes any such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. CULLIGAN AND AMETEK HEREBY
UNDERTAKE TO PROVIDE WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL
OWNER, TO WHOM A COPY OF THIS JOINT PROXY STATEMENT/PROSPECTUS HAS BEEN
DELIVERED, ON WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY AND ALL
OF THE DOCUMENTS REFERRED TO ABOVE THAT HAVE BEEN OR MAY BE INCORPORATED BY
REFERENCE, OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS). DOCUMENTS RELATING
TO CULLIGAN ARE AVAILABLE UPON REQUEST FROM CULLIGAN WATER TECHNOLOGIES, INC.,
ONE CULLIGAN PARKWAY, NORTHBROOK, ILLINOIS 60062, ATTENTION: CORPORATE
SECRETARY, (847) 205-6000. DOCUMENTS RELATING TO AMETEK ARE AVAILABLE UPON
REQUEST FROM AMETEK, INC., STATION SQUARE, PAOLI, PENNSYLVANIA 19301,
ATTENTION: DONNA F. WINQUIST, CORPORATE SECRETARY, (610) 647-2121. IN ORDER TO
ASSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JULY 2,
1997.
4
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION...................................................... 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.......................... 4
SUMMARY.................................................................... 8
The Companies............................................................ 8
The AMETEK Special Meeting............................................... 9
The Spin-Off and the Merger.............................................. 10
Opinion of Financial Advisor............................................. 14
Recent Developments...................................................... 14
Stockholders' Comparative Rights......................................... 14
Comparative Per Share Market Information................................. 15
Summary Condensed Historical and Pro Forma Financial Information......... 17
Comparative Per Share Data of Culligan and Ametek........................ 30
RISK FACTORS............................................................... 32
Risks Associated With the Merger......................................... 32
Risks Which Currently Apply to Culligan.................................. 32
Risks Relating to New Ametek............................................. 34
THE AMETEK SPECIAL MEETING................................................. 35
Date, Time and Place; Purpose of Meeting................................. 35
Record Date.............................................................. 35
Proxies; Voting and Revocation........................................... 35
Required Votes; Principal Stockholders................................... 36
Solicitation of Proxies.................................................. 36
BACKGROUND OF THE SPIN-OFF AND THE MERGER.................................. 37
REASONS FOR THE TRANSACTION; RECOMMENDATION OF THE AMETEK BOARD............ 39
OPINION OF THE FINANCIAL ADVISOR........................................... 40
THE MERGER AGREEMENT....................................................... 43
The Merger............................................................... 43
Effective Time; Closing................................................ 43
Certificate of Incorporation and By-Laws............................... 43
Directors and Officers................................................. 43
Conversion of AMETEK Common Stock........................................ 43
Exchange of Certificates............................................... 44
Cash in Lieu of Fractional Shares...................................... 44
Certain Pre- and Post-Merger Transactions................................ 45
Distribution Documents................................................. 45
The Contributions...................................................... 45
The Spin-Off........................................................... 45
Audited Closing Balance Sheet.......................................... 45
Representations and Warranties........................................... 46
Covenants................................................................ 47
Cooperation.............................................................. 49
Stock Exchange Listing................................................... 49
Employee Matters; Employee Benefit Plans................................. 50
Stock Options............................................................ 50
No Solicitation.......................................................... 50
Indebtedness............................................................. 50
Government and Regulatory Approvals...................................... 51
Internal Revenue Service Ruling.......................................... 51
5
PAGE
----
Conditions.............................................................. 51
Termination............................................................. 52
Fees and Expenses....................................................... 53
Amendment; Waiver....................................................... 53
Interest of Certain Persons in the Transaction.......................... 53
Accounting Treatment.................................................... 53
Resales of Culligan Common Stock Issued in the Merger; Affiliates....... 54
No Appraisal Rights..................................................... 54
Delivery of Shares to Stockholders...................................... 54
THE SPIN-OFF.............................................................. 55
Background of the Spin-Off.............................................. 55
Terms of the Distribution Agreement..................................... 55
Terms of the Tax Allocation Agreement................................... 59
Terms of the Transition Services Agreement.............................. 59
Terms of the Indemnification Agreement.................................. 59
Terms of the Trademark Agreement........................................ 61
CERTAIN FEDERAL INCOME TAX CONSEQUENCES................................... 62
Consequences of the Contributions and the Spin-Off...................... 63
Consequences of the Merger.............................................. 63
CAPITALIZATION............................................................ 64
CULLIGAN UNAUDITED PRO FORMA FINANCIAL INFORMATION........................ 65
Culligan Unaudited Condensed Pro Forma Combined Statement of Operations
for
the Year Ended January 31, 1997........................................ 66
Culligan Unaudited Condensed Pro Forma Combined Statement of Operations
for the Three Months Ended April 30, 1997.............................. 66
Culligan Unaudited Condensed Pro Forma Combined Balance Sheet as of
April 30, 1997......................................................... 68
THE COMPANIES............................................................. 70
Culligan................................................................ 70
Culligan Merger Sub..................................................... 74
AMETEK.................................................................. 75
New Ametek.............................................................. 75
The Water Filtration Business........................................... 75
DESCRIPTION OF CULLIGAN CAPITAL STOCK..................................... 77
Authorized Capital Stock................................................ 77
Common Stock............................................................ 77
Preferred Stock......................................................... 77
Transfer Agent and Registrar............................................ 77
Culligan Stockholder Rights Plan........................................ 77
COMPARISON OF RIGHTS OF STOCKHOLDERS...................................... 80
Common Stock Classification............................................. 80
Directors............................................................... 80
Advance Notice of Nominations for the Election of Directors and Stock-
holders Proposals...................................................... 81
Action by Written Consent............................................... 81
Meetings of Stockholders................................................ 82
Amendment of Certificate of Incorporation............................... 82
Amendment of By-Laws.................................................... 82
Approvals of Mergers and Asset Sales.................................... 82
State Anti-takeover Statutes............................................ 83
Limitation of Liability................................................. 83
Indemnification of Officers and Directors............................... 83
Stockholder Rights Plan................................................. 84
6
PAGE
----
LEGAL MATTERS............................................................. 84
EXPERTS................................................................... 84
ELECTION OF DIRECTORS OF AMETEK........................................... 85
INFORMATION AS TO NOMINEES FOR ELECTION OF DIRECTORS...................... 86
Stock Ownership......................................................... 88
COMPENSATION OF DIRECTORS................................................. 90
EXECUTIVE OFFICERS OF AMETEK.............................................. 90
EXECUTIVE COMPENSATION.................................................... 92
DEFINED BENEFIT AND ACTUARIAL PLANS....................................... 93
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION................... 95
STOCK OPTIONS, SARS AND RESTRICTED STOCK AWARDS........................... 96
MR. BLANKLEY'S 1996 COMPENSATION.......................................... 97
SECTION 162(m)............................................................ 97
STOCK PERFORMANCE GRAPHS.................................................. 98
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION............... 99
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934...... 99
EMPLOYMENT CONTRACTS AND TERMINATION, SEVERANCE AND CHANGE-IN-CONTROL AR-
RANGEMENTS............................................................... 100
APPOINTMENT OF INDEPENDENT AUDITORS....................................... 101
OTHER MATTERS............................................................. 101
INDEX TO COMBINED FINANCIAL STATEMENTS.................................... F-1
Management's Discussion and Analysis of Financial Condition and Results
of Operations of the Water Filtration Business......................... F-19
APPENDICES
A.The Merger Agreement.................................................... A-1
B.Transaction Documents................................................... B-1
Distribution Agreement................................................. B1-1
Indemnification Agreement.............................................. B2-1
Transition Services Agreement.......................................... B3-1
Trademark Agreement.................................................... B4-1
C.Opinion of Goldman, Sachs & Co.......................................... C-1
D.The Tax Allocation Agreement............................................ D-1
E.New Ametek Information Statement........................................ E-1
7
SUMMARY
The following summary does not purport to be complete and is qualified in its
entirety by the more detailed information appearing elsewhere in this Joint
Proxy Statement/Prospectus, the documents incorporated herein by reference and
the Appendices attached hereto.
The information contained in this Joint Proxy Statement/Prospectus with
respect to Culligan, Culligan Merger Sub and their affiliates has been supplied
by Culligan, which is solely responsible for such information, and the
information with respect to AMETEK, New Ametek and their affiliates has been
supplied by AMETEK, which is solely responsible for such information. Certain
capitalized terms which are used but not defined in this summary are defined
elsewhere in this Joint Proxy Statement/Prospectus. HOLDERS OF AMETEK COMMON
STOCK ARE URGED TO REVIEW CAREFULLY ALL OF THE INFORMATION IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND THE APPENDICES ATTACHED HERETO.
THE COMPANIES
CULLIGAN
Culligan is one of the world's leading manufacturers and distributors of
water purification and treatment products and services for household and
consumer, and commercial and industrial applications. Products and services
offered by Culligan range from those designed to solve residential water
problems, such as filters for tap water and household water softeners, to
highly sophisticated equipment and services, such as ultrafiltration and
microfiltration products, desalination systems and portable deionization
services ("PDS"), designed for complex commercial and industrial applications.
In addition, Culligan's licensed bottled water sales now rank fourth in the
five-gallon bottled water market in the United States. In fiscal 1997, Culligan
entered the consumer market selling filtration products directly to retailers.
Culligan has been an active participant in the water purification and
treatment industry since 1936, and its Culligan (R), Everpure (R) and
Bruner (R) brands are among the most recognized in the industry. Culligan's
products are sold and serviced in over 90 countries through a worldwide network
of over 1,400 sales and service centers. Supporting this distribution network,
Culligan maintains manufacturing facilities in the United States, Italy, Spain
and Canada. During the last 15 years, Culligan's residential water treatment
systems have been installed in over 3 million households in the United States,
representing the largest installed base in the country. In addition, over 1.5
million of Culligan's commercial, industrial, municipal and desalination
systems have been installed worldwide. Culligan's customer base includes such
well known names as McDonald's (R), Coca-Cola (R), Pepsi-Cola (R),
Starbucks (R), 7-Eleven (R), Navistar, Owens-Corning, Eli Lilly, Carnival
Cruise Lines, Ingersoll-Rand and Union Carbide.
With net sales of $371 million for the fiscal year ended January 31, 1997,
Culligan is one of the leaders in the highly fragmented water purification and
treatment industry. Culligan and its dealers provide a wide range of services
to support its products and offer a full line of accessories and replacement
parts. Approximately 46% of Culligan's revenues in fiscal 1997 were derived
from sources believed to be recurring in nature, such as servicing installed
equipment, sales of replacement parts, filters and other consumables, equipment
rental and royalties. In fiscal 1997, approximately 36% of Culligan's revenues
were from export and international sales. Culligan conducts its activities in
two principal areas: household and consumer and commercial and industrial.
Culligan is a holding company and conducts all of its operations through its
subsidiaries. Culligan Common Stock is listed on the NYSE. Culligan's executive
offices are located at One Culligan Parkway, Northbrook, Illinois 60062-6209
and its telephone number is (847) 205-6000.
8
CULLIGAN MERGER SUB
Culligan Merger Sub is a newly formed Delaware corporation and a wholly owned
subsidiary of Culligan. Culligan Merger Sub was organized for the purpose of
effecting the Merger pursuant to the Merger Agreement. Culligan Merger Sub has
no material assets and has not engaged in any activities, except in connection
with the Merger. The principal executive offices of Culligan Merger Sub are
located at One Culligan Parkway, Northbrook, Illinois 60062-6209 its telephone
number is (847) 205-6000.
AMETEK
AMETEK is a leading global manufacturer of electrical and electromechanical
products and materials, engineered for niche markets. Operations are in the
United States, Europe, Asia, and Mexico, with one-third of its 1996 sales to
international markets. AMETEK has a significant market share for many of its
products: the Electromechanical Group is the world's largest producer of
electric motors and blowers for vacuum cleaners and floor-care products; the
Precision Instruments Group builds technologically advanced monitoring,
sensing, calibration, and display devices for the aerospace, process, and heavy
vehicle industries; and, the Industrial Materials Group, which includes the
Water Filtration Business, uses plastics, metals and fibers to produce
specialty materials for a variety of consumer and industrial markets. AMETEK
has grown through a primary focus on the manufacturing of electronic,
electromechanical and electrical products in which its technology or cost
advantage leads to a significant share of one or more niche markets.
The principal executive offices of AMETEK are located at Station Square,
Paoli, Pennsylvania 19301, and its telephone number is (610) 647-2121.
NEW AMETEK
New Ametek was incorporated in Delaware on May 8, 1986 and has been a wholly
owned subsidiary of AMETEK since August 1989. To date, New Ametek's business
has consisted entirely of manufacturing aerospace instrumentation. Prior to the
Spin-Off, AMETEK will transfer or cause to be transferred to New Ametek all of
its assets other than those which are part of the Water Filtration Business,
and New Ametek will assume all of AMETEK's liabilities, except for certain
liabilities relating to the Water Filtration Business and certain indebtedness
of AMETEK. Immediately following the Spin-Off and the Merger, New Ametek will
change its name to "AMETEK, Inc." The principal executive offices of New Ametek
are located at Station Square, Paoli, Pennsylvania 19301 and its telephone
number is (610) 647-2121.
THE WATER FILTRATION BUSINESS
The Water Filtration Business is currently comprised of an operating division
of AMETEK, the Plymouth Products Division, and three foreign subsidiaries of
AMETEK: Ametek Filters, Limited; APIC International S.A.; and AFIMO S.A.M.
Through the Water Filtration Business, AMETEK has been engaged in the design,
manufacture and marketing of point-of-use filtration products for the
separation, clarification and purification of liquids, primarily water.
THE AMETEK SPECIAL MEETING
The AMETEK Special Meeting will be held on July 30, 1997 at The Ritz-Carlton
Hotel, 17th and Chestnut Streets, at Liberty Place, Philadelphia, Pennsylvania
19103 at 2:00 p.m. local time, for the purpose of considering and voting upon
proposals to (i) approve and adopt the Merger Agreement, the Distribution
Agreement, the Merger and the Spin-Off, (ii) elect eight directors to hold
office for the terms specified in this Joint Proxy Statement/Prospectus and
until their successors are elected and qualified, (iii) approve the appointment
of Ernst & Young LLP as independent auditors for the year 1997, and (iv)
transact such other business as may properly
9
come before the AMETEK Special Meeting or any adjournments or postponements
thereof. Only holders of record of AMETEK Common Stock at the close of business
on June 25, 1997 (the "AMETEK Record Date") will be entitled to vote at the
AMETEK Special Meeting. At the AMETEK Record Date, there were 32,925,601 shares
of AMETEK Common Stock outstanding and entitled to vote.
The proposal to approve and adopt the Merger Agreement, the Distribution
Agreement, the Merger and the Spin-Off requires the affirmative vote of the
holders of a majority of the outstanding shares of AMETEK Common Stock entitled
to vote thereon in person or by proxy. The election of each nominee for
director requires the affirmative vote of a plurality of the votes cast
(assuming a quorum is present), and the approval of all other matters to be
voted upon at the AMETEK Special Meeting requires the favorable vote of a
majority of the shares of AMETEK Common Stock voted in person or by proxy at
the AMETEK Special Meeting. See "THE AMETEK SPECIAL MEETING."
THE SPIN-OFF AND THE MERGER
BACKGROUND OF THE SPIN-OFF AND THE MERGER
Culligan contacted AMETEK in April and August 1996 regarding a possible
acquisition of its Water Filtration Business. The parties entered into a
confidentiality agreement in October 1996 with respect to the Water Filtration
Business. Culligan then proceeded to evaluate certain financial information it
received from AMETEK and to refine its valuation of the Water Filtration
Business. The parties also discussed potential structures for the proposed
transaction. By early December 1996, the parties had agreed to a structure
intended to be tax-free to AMETEK and its stockholders, which would involve a
spin-off by AMETEK of all of its businesses other than the Water Filtration
Business, and Culligan thereafter merging a subsidiary into AMETEK which then
would hold only the Water Filtration Business. This structure was determined to
be the only viable means of effecting the proposed transaction within the
proposed range of values. Culligan and AMETEK had also narrowed the gap between
their respective valuations of the Water Filtration Business, although a
definitive agreement on valuation and price had not been reached. From late
December 1996 through January 1997, representatives of Culligan and AMETEK
endeavored to negotiate definitive transaction documentation and resolve other
issues relating to the proposed transaction. On February 4, 1997, Culligan and
AMETEK concluded their negotiations regarding valuation and price and the
Boards of Culligan and AMETEK approved the proposed transaction. On February 5,
1997, Culligan and AMETEK executed the Merger Agreement, and AMETEK and New
Ametek executed the Distribution Agreement. On May 9, 1997, the Merger
Agreement and the Distribution Agreement were amended and restated. See
"BACKGROUND OF THE SPIN-OFF AND THE MERGER."
RECOMMENDATION OF THE AMETEK BOARD
The AMETEK Board has unanimously approved the Merger Agreement and the
Distribution Agreement and determined that the Merger and the Spin-Off, taken
as a whole, are fair to and in the best interests of AMETEK and its
stockholders. THE AMETEK BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF AMETEK
COMMON STOCK VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, THE
DISTRIBUTION AGREEMENT, THE MERGER AND THE SPIN-OFF. For a discussion of
factors considered by the AMETEK Board in reaching its decision, see "REASONS
FOR THE TRANSACTION; RECOMMENDATION OF THE AMETEK BOARD." In considering the
recommendation of the AMETEK Board with respect to the Merger, holders of
AMETEK Common Stock should be aware that certain officers and directors may
have direct or indirect interests in recommending the Merger, apart from their
interests as holders of AMETEK Common Stock, which are not identical to those
of unaffiliated stockholders of AMETEK. See "THE MERGER AGREEMENT--Interest of
Certain Persons in the Transaction."
10
The Board of Directors of Culligan (the "Culligan Board") has also
unanimously approved the Merger Agreement.
OVERVIEW OF THE SPIN-OFF AND THE MERGER
As a result of the Spin-Off, AMETEK will separate all of its other businesses
from the Water Filtration Business and consist solely of the Water Filtration
Business at the time of the Merger. The Merger Agreement provides that,
following the Spin-Off, Culligan Merger Sub will be merged with and into
AMETEK, with AMETEK (then renamed "Culligan Water Company, Inc.") surviving the
Merger as a wholly owned subsidiary of Culligan. As a result of the Spin-Off
and the Merger, holders of AMETEK Common Stock will no longer own shares of
AMETEK Common Stock but will receive shares of New Ametek Common Stock and
Culligan Common Stock. Culligan will issue 3,466,667 shares in the Merger.
Based on the number of shares of Culligan Common Stock and AMETEK Common Stock
outstanding on the date hereof, upon consummation of the Merger, Culligan
stockholders at the time of the Merger will continue to hold approximately 86%
of the outstanding Culligan Common Stock and AMETEK stockholders will hold
approximately 14% of the outstanding Culligan Common Stock.
TERMS OF THE MERGER
Conversion of AMETEK Common Stock in the Merger. The Merger Agreement
provides that each share of AMETEK Common Stock will be converted into the
right to receive a fraction of a share of Culligan Common Stock based on a
formula that specifies that each share of AMETEK Common Stock outstanding on
the Spin-Off Record Date will be converted into a number of shares of Culligan
Common Stock equal to (i) the Net Equity Value (as defined below), divided by
(ii) $37.50, divided by (iii) the number of shares of AMETEK Common Stock
outstanding at the Effective Time (the "Exchange Ratio"). The Net Equity Value
is an amount equal to (A) $155,000,000 minus (B) $25,000,000, the amount of the
bank debt to be retained by AMETEK (the "Retained Debt"). Based on the
foregoing calculation, the Net Equity Value will be $130,000,000. Under this
formula, the Exchange Ratio varies with the number of shares of AMETEK Common
Stock outstanding at the time of the Merger.
All shares of AMETEK Common Stock when converted pursuant to the Merger
Agreement will no longer remain outstanding and will automatically be canceled
and retired, and each holder of a certificate representing any such shares will
cease to have any rights with respect thereto, except the right to receive the
shares of Culligan Common Stock and cash in lieu of any fractional share of
Culligan Common Stock to be issued or paid upon the surrender of such
certificate in accordance with the Merger Agreement.
Fractional Shares. The Merger Agreement provides that each holder of AMETEK
Common Stock will receive, without interest, cash in lieu of any fractional
share of Culligan Common Stock that such stockholder would be entitled to
receive after aggregating all shares such stockholder is entitled to receive in
the Merger.
Effective Time of the Merger. The Merger will become effective upon the
filing of a Certificate of Merger (the "Certificate of Merger") with the
Secretary of State of the State of Delaware or as otherwise provided in the
Certificate of Merger. Assuming that the requisite stockholder approval of the
Merger is obtained, it is anticipated that the Effective Time of the Merger
will occur on the business day following the day on which the Spin-Off is
effected. However, if all other conditions to the Merger have not been
satisfied prior to the AMETEK Special Meeting, it is expected that the Merger
will occur within two business days after such conditions have been satisfied
or waived.
Audited Closing Balance Sheet. The Merger Agreement provides that no later
than 45 days after the Closing Date, New Ametek will deliver to Culligan an
audited consolidated balance sheet for the Water Filtration Business as of the
Closing Date after giving effect to the Spin-Off, but not the Merger (the
"Audited Closing
11
Balance Sheet"). Together with the delivery of the Audited Closing Balance
Sheet, New Ametek will deliver an adjusted balance sheet of the Water
Filtration Business as of the Closing Date (the "Adjusted Closing Balance
Sheet") which will be the Audited Closing Balance Sheet adjusted as described
in "THE MERGER AGREEMENT--Certain Pre- and Post-Merger Transactions--Audited
Closing Balance Sheet." To the extent the Adjusted Net Worth of the Water
Filtration Business as calculated from the Adjusted Closing Balance Sheet is
less than $31,745,000, then New Ametek will pay to the Surviving Corporation
the amount of such shortfall. To the extent that the Adjusted Net Worth of the
Water Filtration Business as calculated from the Adjusted Audited Closing
Balance Sheet is more than $31,745,000, then the Surviving Corporation will pay
New Ametek in cash the amount of such excess up to a maximum amount of
$2,000,000.
Government and Regulatory Approvals. Consummation of the Merger was
conditioned upon the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). On March 14, 1997, Culligan and AMETEK each filed notification reports
under the HSR Act with the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "DOJ"). Early termination
of the waiting period was granted on March 24, 1997.
Receipt of Private Letter Ruling. The Contributions, the Spin-Off and the
Merger were conditioned upon the issuance by the Internal Revenue Service (the
"IRS") of a private letter ruling (the "Private Letter Ruling") reasonably
satisfactory in form and substance to AMETEK and Culligan substantially to the
effect that, on the basis of the facts, representations and assumptions
existing at the Effective Time: (i) the Contributions followed by the Spin-Off
qualify as a tax-free reorganization pursuant to Section 368(a)(1)(D) of the
Internal Revenue Code of 1986, as amended (the "Code"); (ii) the Spin-Off
qualifies as a tax-free distribution pursuant to Section 355(a) of the Code;
and (iii) the Merger qualifies as a tax-free reorganization pursuant to Section
368 (a)(1)(B) of the Code. The IRS has issued the Private Letter Ruling. If the
IRS revokes the Private Letter Ruling, this condition will nevertheless be
satisfied if, on or prior to the Closing Date, AMETEK and Culligan receive the
Tax Opinions to the same effect as the Private Letter Ruling. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES."
Other Conditions to Merger. The obligations of Culligan and AMETEK to
consummate the Merger are also subject to approval of the Merger Agreement by
holders of AMETEK Common Stock, the Average Culligan Share Price being greater
than $31.00 on the Closing Date, receipt of the Private Letter Ruling and/or
the Tax Opinions and the satisfaction of certain customary and other
conditions, including, without limitation, that the Spin-Off has become
effective and that shares of Culligan Common Stock to be issued in the Merger
have been authorized for listing on the NYSE subject to notice of issuance. See
"THE MERGER AGREEMENT--Conditions."
CONSENT SOLICITATION
AMETEK announced on June 2, 1997 that it had obtained the consent of a
majority of the holders of AMETEK's outstanding 9 3/4% Senior Notes Due 2004
(the "Notes") to an amendment to the Indenture, dated as of March 15, 1994,
between AMETEK and CoreStates Bank, N.A., as Trustee, as amended and
supplemented (the "Indenture"), pursuant to which the Notes were issued,
intended to clarify that the Spin-Off and the Merger do not conflict with any
covenant contained in the Indenture. New Ametek will assume the Notes and be
substituted as the obligor under the Indenture in connection with the
Contributions and the Spin-Off. AMETEK paid holders who timely consented to the
amendment a consent fee of $3.75 per $1,000 in principal amount of the Notes.
TERMINATION OR AMENDMENT OF THE MERGER AGREEMENT
Termination. The Merger Agreement may be terminated under certain
circumstances, including (a) by the mutual consent of Culligan and AMETEK, (b)
by either Culligan or AMETEK at any time prior to the
12
consummation of the Merger (i) upon a material breach of a representation,
warranty or covenant on the part of the other party, or if there is a material
failure by the other party to comply with its obligations under the Merger
Agreement or the Distribution Agreement, as the case may be, (ii) if the Merger
has not been consummated before October 31, 1997, or (iii) if the Merger
Agreement, the Distribution Agreement, the Merger and the Spin-Off fail to
receive the requisite vote for approval and adoption by the holders of AMETEK
Common Stock at the AMETEK Special Meeting; (c) by Culligan, if the AMETEK
Board withdraws, modifies or changes its recommendation as to the Merger
Agreement or the Merger in a manner adverse to Culligan; and (d) by either
Culligan or AMETEK if any change in Federal income tax law or regulation
applicable to the Contributions, the Spin-Off or the Merger disqualifies any
one of such transactions or combination thereof from tax-free treatment.
Termination Fee. Under certain circumstances, AMETEK is required to pay
Culligan upon termination of the Merger Agreement a fee of $5,000,000, in
addition to all of Culligan's expenses in connection with the Merger. See "THE
MERGER AGREEMENT--Fees and Expenses."
Amendment; Waiver. The Merger Agreement may be amended or modified and any
condition specified therein may be waived by the mutual consent of Culligan and
AMETEK; provided that, after any stockholder approval, no amendment will be
made if applicable law requires further approval by the stockholders.
No Solicitation. The Merger Agreement also contains certain non-solicitation
provisions relating to AMETEK. See "THE MERGER AGREEMENT--No Solicitation."
INTEREST OF CERTAIN PERSONS IN THE TRANSACTION
In considering the recommendation of the AMETEK Board, holders of AMETEK
Common Stock should be aware that certain members of management of AMETEK and
the AMETEK Board may have certain interests in the Spin-Off and the Merger that
are in addition to the interests of stockholders generally. See "THE MERGER
AGREEMENT--Interest of Certain Persons in the Transaction."
ACCOUNTING TREATMENT
The Merger will be accounted for by Culligan using the purchase method of
accounting under generally accepted accounting principles. See "THE MERGER
AGREEMENT--Accounting Treatment." New Ametek will account for the Merger as a
spin-off of the Water Filtration Business, which will be reflected as a
discontinued operation in New Ametek's consolidated financial statements.
THE SPIN-OFF
Subject to stockholder approval of the Spin-Off and the Merger, the Spin-Off
will be effected on the business day prior to the Merger (the "Spin-Off Date").
The Contributions followed by the Spin-Off will separate all of AMETEK's other
businesses from its Water Filtration Business, and enable Culligan to acquire
only the Water Filtration Business in the Merger; the Spin-Off will leave
AMETEK's remaining businesses as a separate publicly held company (New Ametek),
owned by the existing holders of AMETEK Common Stock. Prior to the Spin-Off,
AMETEK will transfer all of its assets and liabilities (other than those
comprising the Water Filtration Business and the Retained Debt) to New Ametek.
The directors and officers of AMETEK will be the directors and officers of New
Ametek at the time of the Spin-Off. See "THE SPIN-OFF--Terms of the
Distribution Agreement--The Contributions" and the Distribution Agreement
included as Appendix B to this Joint Proxy Statement/Prospectus for additional
information regarding the transfer of assets to, and assumption of liabilities
by, New Ametek.
13
Pursuant to the Spin-Off, each holder of AMETEK Common Stock will receive one
share of New Ametek Common Stock for each share of AMETEK Common Stock held by
such stockholder. The Spin-Off will be effected by the distribution to each
holder of record of AMETEK Common Stock, of certificates representing New
Ametek Common Stock. See "THE SPIN-OFF--Terms of the Distribution Agreement--
The Spin-Off." The record date shall be set by the AMETEK Board, currently
anticipated to follow promptly the satisfaction or waiver of the conditions to
the Merger (the "Spin-Off Record Date"). As a result of the Spin-Off, the
holders of AMETEK Common Stock will become the stockholders of New Ametek.
NO APPRAISAL RIGHTS
Holders of AMETEK Common Stock will not have the right to elect to have the
fair value of their shares of AMETEK Common Stock judicially appraised and paid
to them in cash in connection with the Spin-Off or the Merger.
OPINION OF FINANCIAL ADVISOR
Goldman, Sachs & Co. ("Goldman Sachs") has delivered its written opinion to
the AMETEK Board that, as of February 5, 1997, the Exchange Ratio pursuant to
the Merger Agreement was fair to the holders of AMETEK Common Stock.
The full text of the written opinion of Goldman Sachs, which sets forth
assumptions made, matters considered and limitations on the review undertaken
in connection with the opinion, is attached hereto as Appendix C and is
incorporated herein by reference. Holders of AMETEK Common Stock are urged to,
and should, read such opinion in its entirety. See "OPINION OF THE FINANCIAL
ADVISOR."
RECENT DEVELOPMENTS
On April 17, 1997, AMETEK announced it had signed a definitive agreement to
acquire the Test & Measurement Products business of Technitrol, Inc., for $34
million in cash. The acquisition was completed on June 4, 1997. The acquired
business had annual sales of approximately $30 million and manufactures a
comprehensive line of measurement and testing devices, including gauges,
electronic instruments and test stands, and analytical software and support
services.
STOCKHOLDERS' COMPARATIVE RIGHTS
The rights of AMETEK's stockholders are currently governed by AMETEK's
Certificate of Incorporation, as amended (the "AMETEK Certificate") and By-Laws
(the "AMETEK By-Laws") and Delaware corporate law. At the Effective Time,
AMETEK's stockholders will become stockholders of Culligan and their rights as
stockholders will be governed by Culligan's Amended and Restated Certificate of
Incorporation (the "Culligan Certificate") and Amended and Restated By-Laws
(the "Culligan By-Laws") and Delaware corporate law. See "COMPARISON OF RIGHTS
OF STOCKHOLDERS." As a result of the Spin-Off, holders of AMETEK Common Stock
will also become stockholders of New Ametek. See "DESCRIPTION OF NEW AMETEK
CAPITAL STOCK" in the New Ametek Information Statement, which is included as
Appendix E to this Joint Proxy Statement/Prospectus for a description of the
rights of holders of New Ametek Common Stock.
14
COMPARATIVE PER SHARE MARKET INFORMATION
Culligan Common Stock is listed under the trading symbol "CUL" on the NYSE.
AMETEK Common Stock is listed under the trading symbol "AME" on the NYSE and
the PCX. The following table sets forth for the periods indicated the high and
low sales prices per share of Culligan Common Stock and AMETEK Common Stock, as
reported by the NYSE, as applicable. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT
MARKET QUOTATIONS. Culligan has never paid a cash dividend on Culligan Common
Stock and does not intend to declare a cash dividend in the foreseeable future.
AMETEK has been paying a regular quarterly dividend of $.06 per share and New
Ametek's Board of Directors has indicated its present intention to continue
paying a similar dividend.
AMETEK
-----------------------------
DIVIDEND PAID
HIGH LOW PER SHARE
------- ------- -------------
FISCAL YEAR ENDED
DECEMBER 31,
1995
First Quarter... $18 5/8 $15 3/4 $.06
Second Quarter.. 18 1/8 16 1/4 .06
Third Quarter... 19 1/2 16 1/8 .06
Fourth Quarter.. 19 1/4 16 5/8 .06
FISCAL YEAR ENDED
DECEMBER 31,
1996
First Quarter... 18 7/8 16 .06
Second Quarter.. 22 1/4 17 3/8 .06
Third Quarter... 21 5/8 18 1/4 .06
Fourth Quarter.. 22 1/4 17 3/4 .06
FISCAL YEAR ENDED
DECEMBER 31,
1997
First Quarter... 22 1/2 19 7/8 .06
Second Quarter
(through June
27, 1997)...... .06
CULLIGAN(A)
--------------
HIGH LOW
------ -----
FISCAL YEAR ENDED JANU-
ARY 31, 1996
December 15, 1995--Jan-
uary 31, 1996......... $28 1/4 $22 1/2
FISCAL YEAR ENDED JANU-
ARY 31, 1997
First Quarter.......... 33 3/4 27 5/8
Second Quarter......... 40 3/4 32 3/4
Third Quarter.......... 40 1/4 32 7/8
Fourth Quarter......... 42 33
FISCAL YEAR ENDING JANU-
ARY 31, 1998
First Quarter ......... 46 33 5/8
Second Quarter (through
June 27, 1997)........
- --------
(a) In September 1995, Culligan's former parent distributed to its stockholders
all of the then outstanding Culligan Common Stock (the "Culligan Spin-
Off"). From the Culligan Spin-Off in September 1995 until December 15, 1995
(the date on which trading in Culligan Common Stock commenced on the NYSE),
there was no established public trading market for Culligan Common Stock.
During such period, approximately 84% of Culligan Common Stock was held by
four beneficial owners and Culligan Common Stock was not listed on any
securities exchange. During that period, Culligan Common Stock was traded
in interdealer and over-the-counter bulletin board transactions. The bid
quotations for Culligan Common Stock from the Culligan Spin-Off through
December 14, 1995 ranged from a high of $25 1/2 per share on December 12,
1995 to a low of $14 per share on September 28, 1995. Although the
quotations for the period prior to December 15, 1995 have been obtained
from sources believed to be reliable, no assurances can be given with
respect to the accuracy of such quotations or as to whether other bid
prices higher or lower than those set forth above may have been quoted. In
addition, such quotations reflect interdealer prices, which may not include
retail mark-up, mark-down or commission and may not necessarily represent
actual transactions.
There is currently no public trading market for the New Ametek Common Stock.
Application has been made to list the New Ametek Common Stock on the NYSE and
PCX. It is expected that a "when-issued" trading market will develop for the
New Ametek Common Stock; however, there can be no assurance that an active
trading market will develop or, if a trading market develops, that such a
market will be maintained. There can be no assurance as to the prices at which
New Ametek Common Stock will trade after the Spin-Off.
On February 4, 1997, the last trading day prior to the public announcement of
the Merger and on June 27, 1997, the last trading day prior to the first
mailing of this Joint Proxy Statement/Prospectus, the closing sales price per
share of Culligan Common Stock as reported on the NYSE was $36.375 and $ ,
respectively. On June 27, 1997, there were 96 holders of record of Culligan
Common Stock and there were 21,391,201 shares of Culligan Common Stock
outstanding.
15
On February 4, 1997, the last trading day prior to the public announcement of
the Merger and on June 27, 1997, the last trading day prior to the first
mailing of this Joint Proxy Statement/Prospectus, the closing sales price per
share of AMETEK Common Stock as reported on the NYSE was $21.125 and $ ,
respectively. On June 27, 1997, there were holders of record of AMETEK
Common Stock and there were shares of AMETEK Common Stock outstanding.
16
SUMMARY CONDENSED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
CULLIGAN SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information for Culligan presented below is
derived from Culligan's audited consolidated financial statements. Culligan's
consolidated financial statements as of and for the fiscal years ended January
31, 1995, January 31, 1996 and January 31, 1997 have been audited by KPMG Peat
Marwick LLP, independent accountants. The selected historical financial
information for Culligan for the three-month periods ended April 30, 1996 and
April 30, 1997 is derived from the unaudited financial statements of Culligan
and should be read in conjunction with the Culligan Form 10-Q. In the opinion
of Culligan's management, the summary consolidated financial information for
the three-month periods ended April 30, 1996 and 1997 include all adjustments
necessary to present fairly the information set forth therein. Results of
operations for the interim periods may not be indicative of results for the
full year.
The selected financial information presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Culligan's Consolidated Financial Statements and
notes thereto in the Culligan 10-K which is incorporated herein by reference.
See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE." This information should also be read in conjunction with the
unaudited pro forma financial information and accompanying notes thereto
included elsewhere herein. See "CULLIGAN UNAUDITED PRO FORMA FINANCIAL
INFORMATION."
17
THREE MONTHS
ENDED
APRIL 30,
-----------------
PREDECESSOR (A)
-----------------------
FIVE MONTHS SEVEN MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JUNE 30, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
1993 1993 1994 1995 1996 1997 1996 1997
----------- ----------- ------------ ----------- ----------- ----------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Statements of Operations Da-
ta:
Net sales................... $261,924 $ 109,748 $ 154,325 $ 280,051 $ 304,502 $ 371,018 $83,390 $ 99,403
Cost of goods sold (e)...... 144,343 60,894 87,112 155,829 168,363 205,581 46,652 54,354
-------- --------- --------- --------- --------- --------- ------- --------
Gross profit................ 117,581 48,854 67,213 124,222 136,139 165,437 36,738 45,049
Selling, general and administrative (e). 87,817 36,339 50,341 91,989 95,723 113,932 25,814 30,251
Administrative expenses allocated
from Samsonite (b)......... -- -- -- 1,095 -- -- -- --
Restructuring expenses (c).. -- -- 2,103 5,917 -- -- -- --
Amortization of intangible
assets (d)................. 1,745 731 22,554 38,691 38,802 17,522 9,719 714
-------- --------- --------- --------- --------- --------- ------- --------
Operating income (loss)..... 28,019 11,784 (7,785) (13,470) 1,614 33,983 1,205 14,084
Other income (expense), net
(f)......................... 151 (324) 1,919 398 2,867 5,023 236 31,722
-------- --------- --------- --------- --------- --------- ------- --------
Income (loss) before interest and
income taxes............... 28,170 11,460 (5,866) (13,072) 4,481 39,006 1,441 45,806
Interest income............. 4,253 1,436 886 1,439 1,576 2,633 459 412
Interest expense (g)........ (2,229) (1,039) (11,576) (19,085) (12,426) (5,490) (1,382) (1,235)
Income taxes................ (15,678) (4,387) (3,434) (5,678) (14,910) (20,264) (3,866) (17,855)
Minority Interest........... -- -- -- -- -- -- -- (114)
Extraordinary item for
write-off of capitalized
refinancing costs, net of
applicable tax benefit of
$272....................... -- -- -- -- -- -- -- (422)
Cumulative effect of change
in accounting principle for
income taxes............... 4,602 -- -- -- -- -- -- --
-------- --------- --------- --------- --------- --------- ------- --------
Net income (loss)........... $ 19,118 $ 7,470 $ (19,990) $ (36,396) $ (21,279) $ 15,885 $(3,348) $ 26,592
======== ========= ========= ========= ========= ========= ======= ========
Outstanding shares (000's).. n/a n/a 15,889 15,889 16,311 21,375 19,914 22,123
Net income (loss) per share. n/a n/a $ (1.26) $ (2.29) $ (1.30) $ 0.74 $ (0.17) $ 1.20
========= ========= ========= ========= ======= ========
OTHER DATA:
Income (loss) before interest and
taxes...................... $ 28,170 $ 11,460 $ (5,866) $ (13,072) $ 4,481 $ 39,006 $ 1,441 $ 45,806
Amortization of reorganization value
in excess of identifiable
assets..................... -- -- 21,771 37,322 37,322 15,551 9,330 --
Administrative expenses allocated
from Samsonite............. -- -- -- 1,095 -- -- -- --
Restructuring expenses (c).. -- -- 2,103 5,917 -- -- -- --
Gain on insurance settlement
(b)........................ -- -- -- -- -- (1,980) -- --
Gain on disposition of
investment
in affiliate (h)........... -- -- -- -- -- -- -- (31,098)
-------- --------- --------- --------- --------- --------- ------- --------
Adjusted income before
interest and taxes......... 28,170 11,460 18,008 31,262 41,803 52,577 10,771 14,708
All other amortization...... 1,745 731 783 1,369 1,480 1,971 389 714
Depreciation................ 7,322 3,175 5,696 9,279 9,409 10,091 2,385 2,858
-------- --------- --------- --------- --------- --------- ------- --------
EBITDA (i).................. $ 37,237 $ 15,366 $ 24,487 $ 41,910 $ 52,692 $ 64,639 $13,545 $ 18,280
======== ========= ========= ========= ========= ========= ======= ========
Cash flow provided by (used
in)
operating activities....... $ 23,124 $ 4,230 $ 8,773 $ 12,437 $ 13,366 $ 16,533 $ 2,452 $ (4,545)
Cash flow provided by (used
in) investing activities... $ 30,923 $ 8,320 $ 3,246 $(18,412) $(20,620) $(26,965) $ 815 $ 6,866
Cash flow provided by (used
in)
financing activities....... $ 8,851 $(86,070) $(17,523) $ 5,430 $ 4,788 $ 15,825 $(2,523) $ 2,403
18
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, APRIL 30,
1993 1994(J) 1995(J) 1996(J) 1997(J) 1997
----------- ----------- ----------- ----------- ----------- ---------
PREDECESSOR
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Property, plant and
equipment, net.......... $45,326 $68,043 $68,974 $70,749 $78,740 $91,738
Total assets............ 305,183 331,035(k) 303,431 292,570 337,362 389,884
Long-term debt and
capital lease
obligations (including
current debt).......... 11,959 159,404(l) 114,635(m) 48,324(n) 48,645 52,132
Total liabilities....... 113,101 278,734(l) 255,187(m) 173,481(n) 163,722 192,353
Stockholders' equity.... 192,082 52,301(k)(l) 48,244(m) 119,089(n) 173,640(o) 197,531
- --------
IMPACT OF NONRECURRING ITEMS
Included in Culligan's statements of operations subsequent to June 30,1993,
are amortization and depreciation related to adjustments of assets and
liabilities to fair value in connection with the adoption of the American
Institute of Certified Public Accountants Statement of Position 90-7 entitled
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7"). The most significant adjustment relates to reorganization value
in excess of identifiable assets which was amortized over a three-year period
which ended in June 1996. In addition, the statement of operations for the year
ended January 31, 1997 and the three months ended April 30, 1997 include
certain items which are not expected to recur, including a gain on an insurance
settlement associated with a fire at Culligan's Belgian facility in July 1993
and a gain on the disposition on an investment in an affiliate. Due to the
significance of these items, and considering that they are either of a short
duration or nonrecurring, management believes that it is useful to isolate
their impact on the statement of operations. The after tax impact on net income
is shown below. This information does not represent and should not be
considered an alternative to net income, any other measure of performance as
determined by generally accepted accounting principles or as an indicator of
operating performance.
THREE MONTHS
YEAR ENDED ENDED
JANUARY 31, 1997 APRIL 30, 1997
---------------- --------------
(DOLLARS IN THOUSANDS)
Amortization of reorganization value in excess
of identifiable assets(d)..................... $(15,551) $ --
Gain on insurance settlement, net of tax(f).... 1,204 --
Gain on disposition of investment in affiliate, -- 18,895
net of tax(h)................................. -------- -------
$(14,347) $18,895
======== =======
- --------
(a) In June 1993, Astrum International Corp. ("Astrum"), the predecessor of the
Company's former parent Samsonite Corporation ("Samsonite"), completed a
financial restructuring pursuant to a plan of reorganization under Chapter
11 of the United States Bankruptcy Code (the "Plan"). Effective June 30,
1993 and pursuant to SOP 90-7, Astrum and all its subsidiaries, including
Culligan, were required to adjust their assets and liabilities to their
fair ("Fresh Start") values. Due to the effect of SOP 90-7, amortization of
intangible assets and interest expense (see notes (d) and (g) below) for
the periods before and after June 30, 1993 are not comparable. The
information for the predecessor company reflects activity occurring through
June 30, 1993, prior to the effective date of the Plan.
(b) Administrative expenses allocated from Samsonite represent certain
accounting and management services performed for the benefit of Culligan
primarily related to Astrum's reorganization and the distribution of
Culligan Common Stock to stockholders of Samsonite (the "Culligan Spin-
Off"). In prior years, these services were not provided, and are not
anticipated to recur on an on-going basis.
(c) Culligan implemented a plan to consolidate the production facilities and
administrative functions of certain operations in Europe. The severance,
other personnel related costs and facility shut-down expenses related to
the restructuring resulted in charges in fiscal 1994 and fiscal 1995 of
$2.1 million and $5.9 million, respectively.
(d) Amortization of intangible assets consists of the following:
SEVEN THREE MONTHS
EXPECTED FIVE MONTHS MONTHS ENDED
USEFUL YEAR ENDED ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED APRIL 30,
LIFE JANUARY 31, JUNE 30, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, -------------
(YEARS) 1993 1993 1994 1995 1996 1997 1996 1997
-------- ----------- ----------- ----------- ----------- ----------- ----------- -----------------
PREDECESSOR PREDECESSOR
(DOLLARS IN THOUSANDS)
Amortization of re-
organization value
in excess of iden-
tifiable assets... 3 -- -- $21,771 $37,322 $37,322 $15,551 $ 9,930 $ --
Amortization of trademarks
and other "Fresh
Start" intangi- -- -- 758 1,300 1,300 1,300 325 325
bles.............. 40 ------ ---- ------- ------- ------- ------- ------- -----
Total "Fresh Start"
amortization...... -- -- 22,529 38,622 38,622 16,851 9,655 325
Amortization of
goodwill.......... 10 to 40 1,677 699 -- 18 158 504 58 299
Amortization of
other 68 32 25 51 22 167 6 90
intangibles....... 3 to 9 ------ ---- ------- ------- ------- ------- ------- -----
Total amortization
of intangible $1,745 $731 $22,554 $38,691 $38,802 $17,522 $ 9,719 $ 714
assets........... ====== ==== ======= ======= ======= ======= ======= =====
19
"Fresh Start" amortization represents the expense arising solely as a result
of "Fresh Start" accounting in accordance with SOP 90-7.
(e) Depreciation included in cost of goods sold and selling, general and
administrative related to adjustments of assets and liabilities to fair
value in connection with the adoption of SOP 90-7 consists of the
following.
THREE
SEVEN MONTHS
MONTHS ENDED
ENDED YEAR ENDED YEAR ENDED YEAR ENDED APRIL 30,
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, ---------
1994 1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- ---- ----
(DOLLARS IN THOUSANDS)
"Fresh Start" deprecia-
tion in cost of goods
sold................... $1,040 $1,414 $1,077 $603 $256 $ 75
"Fresh Start" deprecia-
tion in selling, gen-
eral and 520 707 539 301 128 38
administrative......... ------ ------ ------ ---- ---- ----
Total "Fresh Start" de- $1,560 $2,121 $1,616 $904 $384 $113
preciation............. ====== ====== ====== ==== ==== ====
Property and equipment revalued in connection with the adoption of SOP 90-7
are being depreciated over their respective estimated useful lives,
primarily ranging from two to six years.
(f) Other income, net for fiscal 1997 includes a gain of approximately $2
million on an insurance settlement associated with a fire at Culligan's
Belgian facility in July 1993.
(g) Interest expense for periods subsequent to June 30, 1993 includes interest
on the $150 million note payable to Samsonite issued in connection with
Astrum's reorganization. A principal payment of $20 million to Samsonite
and a $30 million contribution by Samsonite to equity capital of Culligan
on December 1, 1994 and January 31, 1995, respectively, reduced the
outstanding principal during fiscal 1995. During July 1995, borrowings
under a $150 million credit facility entered into by Culligan in July 1995
(the "Culligan Credit Facility") were used to repay in full the outstanding
balance of the note payable to Samsonite (the "Refinancing").
(h) On March 15, 1997, Culligan disposed of its investment in Anvil Holdings,
Inc. for total cash proceeds of approximately $51 million. The transaction,
which included repayment of outstanding accrued interest receivable and
dividends resulted in a pre-tax gain of approximately $31 million.
(i) EBITDA is defined as income before interest and taxes, restructuring
expense and administrative expenses allocated from Samsonite plus
depreciation and amortization. Culligan believes that EBITDA provides
useful information regarding liquidity. The computation of EBITDA as
presented may not be comparable to computations presented by other
companies. This information does not represent and should not be considered
an alternative to net income, any other measure of performance as
determined by generally accepted accounting principles or as an indicator
of operating performance.
(j) Includes the effects of SOP 90-7 "Fresh Start" reporting recorded at June
30, 1993, net of depreciation and amortization. Pursuant to SOP 90-7, the
net book value of property and equipment was increased by $28 million,
intangible and other assets were increased by $110 million, and a deferred
tax liability of $35 million was recorded. In addition, in June 1993,
Culligan issued a subordinated note payable to Samsonite in the amount of
$150 million.
(k) At January 31, 1994, cash decreased $91 million primarily as a result of
payments of dividends and intercompany payables in connection with Astrum's
reorganization.
(l) During fiscal 1994, Culligan paid dividends to Samsonite of $76 million. In
addition, the effects of "Fresh Start" reporting recorded at June 30, 1993,
net of the impact of issuing the $150 million note payable to Samsonite,
reduced equity capital by approximately $47 million.
(m) During fiscal 1995, a principal payment of $20 million to Samsonite and a
$30 million contribution by Samsonite to equity capital of Culligan were
made on December 1, 1994 and January 31, 1995, respectively, related to the
note payable to Samsonite.
(n) During fiscal 1996, Culligan completed the sale of 4,025,000 shares of
common stock. Net proceeds included in equity capital at January 31, 1996
are approximately $85 million. Culligan used such proceeds to repay
borrowings under the Culligan Credit Facility. Also during fiscal 1996,
prior to the Culligan Spin-Off, Samsonite contributed approximately $5
million to equity capital of Culligan.
(o) During fiscal 1997, Culligan issued additional shares of common stock upon
the exercise of overallotment options granted to underwriters in connection
with a secondary public offering of shares of Culligan's common stock. The
net proceeds included in equity capital at January 31, 1997 are
approximately $32 million which includes proceeds from the exercise of
stock options by one of the selling stockholders in the offering. In
addition, as a result of the exercise of stock options, Culligan recognized
an income tax benefit of approximately $7.5 million which it recorded as
additional paid-in-capital during fiscal 1997.
20
CULLIGAN UNAUDITED CONDENSED PRO FORMA COMBINED FINANCIAL INFORMATION
The following Condensed Pro Forma Combined Financial Information illustrates
the pro forma effect of the Merger and has been derived from, or prepared on a
basis consistent with, the unaudited pro forma financial information included
elsewhere in this Joint Proxy Statement/Prospectus. See "CULLIGAN UNAUDITED PRO
FORMA FINANCIAL INFORMATION." This information is presented for illustrative
purposes only and is not necessarily indicative of the combined results of
operations or financial position that would have occurred if the Merger had
occurred at the assumed dates indicated, nor is it necessarily indicative of
the future operating results or financial position of Culligan. See "CULLIGAN
UNAUDITED PRO FORMA FINANCIAL INFORMATION."
YEAR ENDED JANUARY 31, 1997
------------------------------------------
WATER
FILTRATION MERGER
CULLIGAN BUSINESS ADJUSTMENTS PRO FORMA
-------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
STATEMENT OF OPERATIONS DATA:
Net sales........................... $371,018 $68,650 $ (827) $438,841
Operating income (loss)............. $ 33,983 $12,360 $ (3,182) $ 43,161
Net income (loss)................... $ 15,885 $ 8,163 $ (4,061) $ 19,987
Net income (loss) per share......... $ 0.74 n/a n/a $ 0.80
THREE MONTHS ENDED APRIL 30, 1997
------------------------------------------
WATER
FILTRATION MERGER
CULLIGAN BUSINESS ADJUSTMENTS PRO FORMA
-------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
STATEMENT OF OPERATIONS DATA:
Net sales........................... $ 99,403 $18,721 $ -- $118,124
Operating income (loss)............. $ 14,084 $ 3,267 $ (542) $ 16,809
Net income (loss)................... $ 26,592 $ 2,214 $ (856) $ 27,950
Net income (loss) per share......... $ 1.20 n/a n/a $ 1.09
AT APRIL 30, 1997
------------------------------------------
WATER
FILTRATION MERGER
CULLIGAN BUSINESS ADJUSTMENTS PRO FORMA
-------- ---------- ----------- ----------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Total current assets................ $175,242 $20,844 $ -- $196,086
Total assets........................ $389,884 $41,660 $122,577 $554,121
Total current liabilities........... $ 99,698 $ 8,594 $ 1,163 $109,455
Total long-term liabilities......... $ 92,655 $ 2,006 $ 25,000 $119,661
Total stockholders' equity.......... $197,531 $31,060 $ 96,414 $325,005
Total liabilities and stockholders'
equity.............................. $389,884 $41,660 $122,577 $554,121
21
AMETEK SELECTED HISTORICAL FINANCIAL INFORMATION
The following table sets forth selected historical consolidated financial
information for AMETEK for each of the years in the five-year period ended
December 31, 1996 and for the three-month periods ended March 31, 1997 and
1996. The selected historical financial information for each of the five years
in the period ended December 31, 1996 has been derived from AMETEK's audited
consolidated financial statements. The table should be read in conjunction with
AMETEK's audited consolidated financial statements (including the notes
thereto) and financial information contained in the AMETEK 10-K. The selected
historical consolidated financial information as of and for each of the three-
month periods ended March 31, 1997 and 1996 were derived from unaudited
financial statements of AMETEK, and should be read in conjunction with AMETEK's
quarterly report on Form 10-Q for the three months ended March 31, 1997. In the
opinion of AMETEK's management, the selected consolidated financial information
as of and for the three-month periods ended March 31, 1997 and 1996 include all
adjustments (which consist of normal recurring accruals) necessary to present
fairly the information set forth therein. Results of operations for the interim
periods may not be indicative of results for the full year. See "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
AMETEK
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
---------------- ---------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------ ------ ------- ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA:
Net sales............... $ 221.2 $ 227.6 $868.7 $837.5 $ 774.7 $701.8 $738.7
Costs and expenses(a)... 196.2 204.1 773.6 748.2 699.4 703.1 662.1
------- ------- ------ ------ ------- ------ ------
Operating income (loss). 25.0 23.5 95.1 89.3 75.3 (1.3) 76.6
Other expenses, net(a).. (3.4) (4.3) (16.4) (20.0) (17.5) (11.3) (12.5)
------- ------- ------ ------ ------- ------ ------
Income (loss) from
continuing operations
before taxes............ 21.6 19.2 78.7 69.3 57.8 (12.6) 64.1
Provision for (benefit
from) income taxes...... 7.9 7.0 27.5 25.5 21.2 (4.5) 21.3
------- ------- ------ ------ ------- ------ ------
Income (loss) from
continuing operations... 13.7 12.2 51.2 43.8 36.6 (8.1) 42.8
Special items(b)........ -- -- -- 8.5 (5.6) .8 1.6
------- ------- ------ ------ ------- ------ ------
Net income (loss)(a).... $ 13.7 $ 12.2 $ 51.2 $ 52.3 $ 31.0 $ (7.3) $ 44.4
======= ======= ====== ====== ======= ====== ======
Earnings per share:
Income (loss) from
continuing
operations(a)......... $ .42 $ .37 $ 1.57 $ 1.31 $ .99 $ (.18) $ .97
Special items(b)...... -- -- -- .25 (.15) .01 .04
------- ------- ------ ------ ------- ------ ------
Net income (loss)..... $ .42 $ .37 $ 1.57 $ 1.56 $ .84 $ (.17) $ 1.01
======= ======= ====== ====== ======= ====== ======
Dividends declared and
paid per share.......... $ .06 $ .06 $ .24 $ .24 $ .24 $ .57 $ .68
======= ======= ====== ====== ======= ====== ======
BALANCE SHEET DATA (AT
PERIOD END):
Working capital of
continuing operations... $ 74.7 $ 47.2 $ 61.0 $ 38.7 $ 80.5 $143.1 $194.0
Total assets............ $ 545.2 $ 549.6 $537.9 $526.7 $ 494.2 $556.1 $596.6
Short-term debt......... $ 41.6 $ 68.5 $ 31.8 $ 56.4 $ 11.8 $ 14.5 $ 19.7
Long-term debt.......... $ 150.3 $ 150.4 $150.3 $150.4 $ 190.3 $172.4 $187.2
Stockholders' equity.... $ 136.4 $ 94.1 $129.5 $ 87.1 $ 73.2 $165.3 $210.3
ADDITIONAL FINANCIAL DA-
TA:
Depreciation and
amortization............ $ 8.5 $ 9.1 $ 34.9 $ 34.5 $ 35.5 $ 33.7 $ 34.6
Capital expenditures.... $ 7.3 $ 6.4 $ 41.2 $ 31.7 $ 22.8 $ 35.8 $ 23.8
Cash provided by (used
for) operating
activities.............. $ (1.3) $ (2.0) $ 74.7 $ 65.4 $ 114.6 $ 62.7 $ 73.9
Cash used for investing
activities.............. $ (8.6) $ (7.5) $(41.5) $(28.7) $ (9.9) $(29.4) $(11.3)
Cash provided by (used
for) financing
activities.............. $ 9.7 $ 5.8 $(37.2) $(36.9) $(137.9) $(52.0) $(38.4)
EBITDA(c)............... $ 34.5 $ 33.0 $131.4 $123.7 $ 113.1 $ 88.8 $112.4
Ratio of EBITDA to
interest expense(c)..... 7.6x 6.6x 6.8x 5.8x 4.9x 5.0x 5.6x
Ratio of debt to
EBITDA(c)............... 1.4x 1.7x 1.4x 1.7x 1.8x 2.1x 1.8x
Ratio of earnings to
fixed charges(d)........ 5.2x 4.4x 4.6x 4.0x 3.3x --(d) 3.9x
22
- --------
(a) Amounts in 1993 include pre-tax charges totaling $54.9 million ($33.5
million after tax, or $.77 per share) for restructuring and other unusual
items.
(b) Special items in 1995 include a $10.4 million ($.31 per share) gain from
the sale of a discontinued operation and a $2.7 million ($.08 per share)
after-tax loss related to debt agreements. Amounts in 1994 include an $11.8
million ($.32 per share) after-tax loss on the early extinguishments of
debt and an after-tax gain of $3.8 million ($.11 per share) from the effect
of a change in accounting for certain marketable securities.
(c) EBITDA represents income from continuing operations before interest, taxes,
depreciation and amortization, amortization of deferred financing costs,
and nonrecurring items. It should not be considered, however, an
alternative to operating income as an indicator of AMETEK's operating
performance, or as an alternative to cash flow as a measure of AMETEK's
overall liquidity as presented in AMETEK's financial statements. The EBITDA
measure presented may not be comparable to other similar titled measures
presented by other companies.
(d) For purposes of calculating the ratio of earnings to fixed charges,
earnings represents income from continuing operations before income taxes
and fixed charges. Fixed charges consist of interest expense, amortization
of deferred financing costs and the estimated component of operating lease
expenses representing interest (assumed to be one-third). Earnings from
continuing operations in 1993 were insufficient to cover fixed charges by
approximately $13.5 million.
23
THE WATER FILTRATION BUSINESS SELECTED
COMBINED HISTORICAL FINANCIAL DATA
The following selected combined historical financial data of the Water
Filtration Business of AMETEK after the Spin-Off (the Water Filtration
Business) as of December 31, 1996 and 1995 and for each of the three years in
the period ended December 31, 1996, are derived from the audited Combined
Financial Statements of the Water Filtration Business. The selected historical
combined financial data as of and for the three-month periods ended March 31,
1997 and 1996 and for the years ended December 31, 1994, 1993 and 1992, are
derived from unaudited financial statements, which include all adjustments
which are of a normal recurring nature and which, in the opinion of management,
are necessary for a fair presentation of the results of the periods presented.
Results of operations for the interim periods may not be indicative of results
for the full year. The selected combined financial data set forth below should
be read in conjunction with the Combined Financial Statements of the Water
Filtration Business and the accompanying notes included elsewhere herein,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE WATER FILTRATION BUSINESS" contained elsewhere herein and the
AMETEK historical consolidated financial statements and the accompanying notes
contained in the AMETEK 10-K and AMETEK's quarterly report on Form 10-Q for the
three months ended March 31, 1997, which are incorporated by reference herein.
See "AVAILABLE INFORMATION," "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE" and "INDEX TO COMBINED FINANCIAL STATEMENTS." This information
should also be read in conjunction with the Culligan unaudited pro forma
financial information and accompanying notes thereto included elsewhere herein.
See "CULLIGAN UNAUDITED PRO FORMA FINANCIAL INFORMATION."
THE WATER FILTRATION BUSINESS
(a wholly owned business of AMETEK)
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
---------------- ----------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Net sales............... $18,721 $18,499 $68,650 $55,643 $54,086 $50,419 $39,648
Costs and expenses...... 15,454 14,855 56,290 44,820 42,162 42,083 30,878
------- ------- ------- ------- ------- ------- -------
Operating income........ 3,267 3,644 12,360 10,823 11,924 8,336 8,770
Other income (expense),
net..................... (5) (1) (9) 32 17 8 20
------- ------- ------- ------- ------- ------- -------
Income before income
taxes................... 3,262 3,643 12,351 10,855 11,941 8,344 8,790
Provision for income
taxes................... 1,048 1,299 4,188 3,857 4,210 3,057 3,139
------- ------- ------- ------- ------- ------- -------
Net income.............. $ 2,214 $ 2,344 $ 8,163 $ 6,998 $ 7,731 $ 5,287 $ 5,651
======= ======= ======= ======= ======= ======= =======
BALANCE SHEET DATA (AT
PERIOD END):
Working capital......... $12,251 $12,955 $10,626 $ 9,503 $ 7,856 $ 6,694 $ 7,072
Total assets............ $41,660 $41,266 $39,257 $37,522 $29,162 $28,093 $25,042
Long-term notes payable
(including current
portion)................ $ 363 $ 306 $ 343 $ 311 $ 313 $ -- $ --
Net worth............... $31,060 $31,307 $29,707 $29,868 $21,868 $20,159 $19,165
ADDITIONAL FINANCIAL
DATA:
Depreciation and
amortization............ $ 595 $ 545 $ 2,247 $ 1,657 $ 1,625 $ 1,783 $ 1,427
Capital expenditures.... $ 675 $ 283 $ 2,169 $ 2,404 $ 2,434 $ 3,279 $ 814
24
NEW AMETEK UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated statement of income of New
Ametek for the three month period ended March 31, 1997, and for the year ended
December 31, 1996, and the unaudited pro forma condensed consolidated balance
sheet as of March 31, 1997 are derived by eliminating the Water Filtration
Business from the historical cost financial statements of AMETEK and are
presented as if the Spin-Off and the Merger had occurred on January 1, 1996 for
the pro forma statement of income and on March 31, 1997 for the pro forma
balance sheet. In connection with the Spin-Off and the Merger, AMETEK will
transfer to New Ametek all of AMETEK's assets and liabilities, except for those
assets and certain liabilities relating to the Water Filtration Business and
certain indebtedness of AMETEK, and all of the outstanding shares of New Ametek
Common Stock will be distributed on a share for share basis to the holders of
AMETEK Common Stock.
The unaudited pro forma condensed consolidated financial information is
presented for illustrative purposes only and is not necessarily indicative of
either (i) the financial condition or operating results that would have
occurred for the three-month period ended on March 31, 1997 or for the year
ended December 31, 1996 in the case of the pro forma condensed consolidated
statement of income, or on March 31, 1997, in the case of the pro forma
condensed consolidated balance sheet, or (ii) New Ametek's future operating
results or financial position. The pro forma adjustments described in the
accompanying notes to the Unaudited Pro Forma Condensed Consolidated Financial
Statements are based upon estimates and assumptions that management believes
are reasonable.
25
AMETEK HISTORICAL AND NEW AMETEK
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED MARCH 31, 1997
PRO FORMA ELIMINATION
AMETEK OF WATER FILTRATION PRO FORMA NEW AMETEK
HISTORICAL BUSINESS (A) ADJUSTMENTS PRO FORMA
---------- --------------------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales............... $ 221,176 $(18,721) -- $ 202,455
Costs and expenses...... 196,129 (15,454) $(38)(b) 180,637
---------- -------- ---- ----------
Operating income........ 25,047 (3,267) 38 21,818
Other income (expenses),
net.................... (3,406) 5 439 (b), (c) (2,962)
---------- -------- ---- ----------
Income from continuing
operations before
income taxes........... 21,641 (3,262) 477 18,856
Provision for income
taxes.................. 7,975 (1,048) 172 (d) 7,099
---------- -------- ---- ----------
Income from continuing
operations............. $ 13,666 $ (2,214) $305 $ 11,757
========== ======== ==== ==========
Earnings per share from
continuing operations.. $ 0.42 n/a n/a $ 0.36
========== ======== ==== ==========
Average common shares
outstanding............ 32,739,097 n/a n/a 32,739,097
========== ======== ==== ==========
See notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
26
AMETEK HISTORICAL AND NEW AMETEK
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
PRO FORMA ELIMINATION
AMETEK OF WATER FILTRATION PRO FORMA NEW AMETEK
HISTORICAL BUSINESS (A) ADJUSTMENTS PRO FORMA
---------- --------------------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net sales............... $868,661 $(68,650) -- $800,011
Costs and expenses...... 773,603 (56,290) $ (145)(b) 717,168
---------- -------- ------ ----------
Operating income........ 95,058 (12,360) 145 82,843
Other income (expenses),
net.................... (16,398) 9 1,678 (b),(c) (14,711)
---------- -------- ------ ----------
Income from continuing
operations before
income taxes........... 78,660 (12,351) 1,823 68,132
Provision for income
taxes.................. 27,470 (4,188) 711 (d) 23,993
---------- -------- ------ ----------
Income from continuing
operations............. $ 51,190 $ (8,163) $1,112 $ 44,139
========== ======== ====== ==========
Earnings per share from
continuing operations.. $1.57 n/a n/a $1.35
========== ======== ====== ==========
Average common shares
outstanding............ 32,670,726 n/a n/a 32,670,726
========== ======== ====== ==========
See notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
27
AMETEK HISTORICAL AND NEW AMETEK
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
PRO FORMA ELIMINATION
AMETEK OF WATER FILTRATION PRO FORMA NEW AMETEK
HISTORICAL BUSINESS(A) ADJUSTMENTS PRO FORMA
---------- --------------------- ----------- ----------
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 2,841 $ (938) $ 489 (e) $ 2,392
Marketable securities. 7,702 -- -- 7,702
Receivables, less
allowance for
possible losses...... 140,178 (12,244) -- 127,934
Inventories........... 93,257 (6,848) -- 86,409
Deferred income taxes. 11,023 (94) -- 10,929
Other current assets.. 7,142 (720) (251)(f) 6,171
-------- -------- -------- --------
Total current
assets............. 262,143 (20,844) 238 241,537
Property, plant and
equipment, net......... 188,140 (17,600) -- 170,540
Other assets............ 94,878 (3,216) -- 91,662
-------- -------- -------- --------
$545,161 $(41,660) $ 238 $503,739
======== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings
and current portion
of long-term debt.... $ 41,629 $ (363) $(24,672)(e),(g) $ 16,594
Accounts payable...... 74,761 (4,396) -- 70,365
Income taxes.......... 13,795 (107) (788)(d) 12,900
Accrued liabilities... 57,273 (3,728) 6,177 (e),(f) 59,722
-------- -------- -------- --------
Total current
liabilities........ 187,458 (8,594) (19,283) 159,581
Long-term debt.......... 150,270 -- -- 150,270
Deferred income taxes
and credits............ 34,055 (1,606) -- 32,449
Other long-term
liabilities............ 36,965 (400) -- 36,565
Stockholders' equity:
Preferred stock, $1.00
par value;
authorized: 5,000,000
shares; none issued.. -- -- -- --
Common stock, $0.01
par value,
authorized:
100,000,000 shares;
issued: 34,208,095
historical shares and
32,759,325 pro forma
shares............... 342 -- (14)(h) 328
Capital in excess of
par value............ 1,371 -- (1,371)(h) --
Retained earnings..... 169,543 (32,230) 6,934 (f),(g),(h) 144,247
-------- -------- -------- --------
171,256 (32,230) 5,549 144,575
Net unrealized losses... (20,871) 1,170 -- (19,701)
Less: Cost of 1,448,770
historical shares
and zero pro forma
shares held in the
treasury............ (13,972) -- 13,972 (h) --
-------- -------- -------- --------
Total stockholders'
equity............... 136,413 (31,060) 19,521 124,874
-------- -------- -------- --------
$545,161 $(41,660) $ 238 $503,739
======== ======== ======== ========
See notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
28
NOTES TO AMETEK HISTORICAL AND NEW AMETEK UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(a) The elimination of the Water Filtration Business is based on the assumption
that the Spin-Off and the Merger, which are subject to AMETEK stockholder
approval, took place as of January 1, 1996 for the pro forma income
statement, and as of March 31, 1997 for the pro forma balance sheet. The
statement of income and the balance sheet of the Water Filtration Business
were derived from AMETEK's historical cost financial accounts and include
certain allocations based upon methods considered reasonable by AMETEK's
management. The financial statements of the Water Filtration Business
referred to above were prepared in contemplation of the Merger.
(b) To eliminate certain costs and expenses of AMETEK which were associated
with the removal of the Water Filtration Business, and to reclassify
certain commissions from other income to cost of sales.
(c) To reflect the elimination of interest expense on debt of $25 million
assumed to be retained by AMETEK in connection with the Contributions.
(d) To record estimated income taxes on the pro forma adjustments at statutory
rates.
(e) To record the settlement of intra-company loans and fees due AMETEK by the
Water Filtration Business.
(f) To reflect estimated fees and other expenses New Ametek expects to incur in
1997 in connection with the divestiture of the Water Filtration Business,
and recognize the related income tax benefit on such fees and expenses.
Such fees and expenses have not been reflected in the pro forma condensed
consolidated statement of income because they are non-recurring.
(g) To reflect the assumed retention of $25 million of debt by AMETEK in
connection with the Contributions.
(h) To retire the issued treasury shares of AMETEK in accordance with the
provisions of the Merger Agreement.
29
COMPARATIVE PER SHARE DATA OF CULLIGAN AND AMETEK
CULLIGAN PRO FORMA PER COMMON SHARE DATA
The following table sets forth for Culligan Common Stock certain historical
and pro forma combined and pro forma equivalent per share financial information
for the year ended January 31, 1997 and the three-month period ended April 30,
1997. The pro forma combined amounts included in the table below are based on
the purchase method of accounting and a preliminary allocation of the purchase
price. The following information should be read in conjunction with, and is
qualified in its entirety by, the historical financial statements of Culligan
and AMETEK, which have been incorporated herein by reference. See "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE." This
information should also be read in conjunction with the Combined Financial
Statements and accompanying notes of the Water Filtration Business included
elsewhere herein, and the pro forma financial information and accompanying
notes set forth under "CULLIGAN UNAUDITED PRO FORMA FINANCIAL INFORMATION."
THREE MONTHS ENDED YEAR ENDED
APRIL 30, 1997 JANUARY 31, 1997
------------------- -------------------
CULLIGAN CULLIGAN
CULLIGAN PRO CULLIGAN PRO
HISTORICAL FORMA HISTORICAL FORMA
---------- -------- ---------- --------
Earnings per common share............ $1.20 $ 1.09 $0.74 $ 0.80
Dividends per common share........... n/a n/a n/a n/a
AT APRIL 30, 1997 AT JANUARY 31, 1997
------------------- -------------------
Book value per common share.......... $9.24 $13.08 $8.14 $12.14
EQUIVALENT AMETEK AND CULLIGAN PRO FORMA PER COMMON SHARE DATA
The following table sets forth for AMETEK Common Stock certain per share
historical financial information, and for Culligan and New Ametek, certain per
share pro forma financial information for the three- month period ended March
31, 1997 and for the year ended December 31, 1996 as to AMETEK, and for the
three-month period ended April 30, 1997 and for the year ended January 31, 1997
as to Culligan. The pro forma Culligan information is derived by multiplying
the Culligan pro forma earnings, dividends, and book value per share by an
assumed Merger consideration per share ratio of .11 shares of Culligan Common
Stock for each share of AMETEK Common Stock. The pro forma New Ametek
information is derived by multiplying the New Ametek pro forma earnings and
book value per share by the distribution ratio of one share of New Ametek
Common Stock for each share of AMETEK Common Stock.
30
The following information should be read in conjunction with, and is
qualified in its entirety by, the historical consolidated financial statements
and the accompanying notes contained in the AMETEK 10-K, which are incorporated
herein by reference, and Culligan's Unaudited Pro Forma Financial Information
and the accompanying notes and New Ametek's Unaudited Pro Forma Financial
Information and the accompanying notes included elsewhere herein. See
"AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE."
EQUIVALENT PER SHARE DATA
---------------------------------------------------------------------------------
THREE MONTHS
THREE MONTHS ENDED YEAR ENDED YEAR ENDED
ENDED MARCH 31, 1997 APRIL 30, 1997 DECEMBER 31, 1996 JANUARY 31, 1997
--------------------- ----------------- --------------------- -------------------
AMETEK NEW AMETEK CULLIGAN AMETEK NEW AMETEK CULLIGAN
HISTORICAL PRO FORMA PRO FORMA HISTORICAL PRO FORMA PRO FORMA
---------- ---------- ----------------- ---------- ---------- -------------------
Earnings per common
share from continuing
operations............. $0.42 $0.36 $0.12 $1.57 $1.35 $0.09
Dividends per common
share.................. $0.06 $0.06 n/a $0.24 $0.24 n/a
AT MARCH 31, 1997 AT APRIL 30, 1997 AT DECEMBER 31, 1996 AT JANUARY 31, 1997
--------------------- ----------------- --------------------- -------------------
AMETEK NEW AMETEK CULLIGAN AMETEK NEW AMETEK
HISTORICAL PRO FORMA PRO FORMA HISTORICAL PRO FORMA CULLIGAN PRO FORMA
---------- ---------- ----------------- ---------- ---------- -------------------
Book value per common
share................... $4.16 $3.81 $1.44 $3.96 $3.68 $1.34
31
RISK FACTORS
In addition to the other information set forth in this Joint Proxy
Statement/Prospectus, the following factors should be considered by the
holders of AMETEK Common Stock before voting on the proposals herein. This
Joint Proxy Statement/Prospectus contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act, and Section 21E of
the Exchange Act. Such statements are subject to inherent risks and
uncertainties, some of which cannot be predicted or quantified. Actual results
could differ materially from those projected in the forward-looking statements
as a result of certain of the risk factors set forth under "RISK FACTORS" and
elsewhere in this Joint Proxy Statement/Prospectus.
RISKS ASSOCIATED WITH THE MERGER
Expected Benefits of Combined Business May Not Be Achieved. There can be no
assurance that the expected benefits of the Merger related to the combined
businesses as described under "REASONS FOR THE TRANSACTION; RECOMMENDATION OF
THE AMETEK BOARD" will be achieved. The integration of the two water
filtration businesses may present management challenges and there can be no
assurance that such actions needed to meet these challenges will be
successfully accomplished within a specified period of time.
Changes in Value of Merger Consideration Per Share. The stock price of
Culligan Common Stock at the Effective Time may vary from the prices as of the
date of execution of the Merger Agreement, the date hereof, or the date on
which stockholders vote on the Merger due to, among other factors, changes in
the business, operations and prospects of Culligan or AMETEK, market
assessments of the likelihood that the Merger will be consummated and the
timing thereof, and general market and economic conditions. Because the
Exchange Ratio is based on a fixed-price of $37.50 for Culligan Common Stock
and the market price for Culligan Common Stock fluctuates, the value of the
Culligan Common Stock that holders of AMETEK Common Stock will receive in the
Merger increases as the market price of Culligan Common Stock increases and
decreases as the market price of Culligan Common Stock decreases. In addition,
because additional shares of AMETEK Common Stock may be issued prior to the
Effective Time, the value of the consideration per share received by holders
of AMETEK Common Stock in the Merger may decrease. See "THE MERGER AGREEMENT--
Conversion of AMETEK Common Stock."
RISKS WHICH CURRENTLY APPLY TO CULLIGAN
Significant Non-Cash Charges of Culligan; Reported Losses. As a result of
the emergence from bankruptcy of Culligan's former parent (the "Former
Parent") in June 1993, the Former Parent and all its subsidiaries, including
Culligan, were required to adjust their assets and liabilities to reflect
their fair values. The reorganization value in excess of identifiable assets
of Culligan, which was $112 million at the time of the Former Parent's
emergence from bankruptcy, was amortized through charges to the consolidated
statement of operations over a three year period that ended in June 1996.
While these amounts represent non-cash charges, they have had an adverse
effect on reported results of operations in fiscal years 1995, 1996 and 1997.
The losses so reported as a result of the amortization of these charges have
had a similar effect on reported stockholders' equity. See "SUMMARY CONDENSED
HISTORICAL AND PRO FORMA FINANCIAL INFORMATION." The Merger will result in
substantial goodwill (estimated to be approximately $118.6 million) which is
expected to be amortized on a straight line basis over a 40-year period.
General Business Strategy. Culligan's business strategy includes initiatives
to increase advertising expenditures, expand its distribution network in both
new and existing markets, expand its direct sales force, develop new products,
make strategic acquisitions of businesses, products and technology, introduce
existing products and technologies into its new markets and distribution
channels and introduce new products and services internationally. Culligan's
strategic plan should be considered in light of the risks, expenses and
difficulties frequently encountered in growing a business enterprise. Culligan
expects to incur significant costs in attempting to implement the initiatives
described above. The success in implementing those initiatives will depend on
numerous factors, many of which are beyond Culligan's control, including
economic, competitive and other conditions and uncertainties and no assurance
can be given that Culligan will be successful in implementing its business
strategy. Culligan's growth strategy is expected to require greater capital
for its successful execution than Culligan has previously required. There can
be no assurance that Culligan will grow as desired.
32
Acquisition Strategy. Culligan's business strategy depends in part on its
ability to effect acquisitions in the fragmented water purification and
treatment industry. Culligan continually explores acquisition opportunities.
The purchase price for potential acquisitions, which could involve
consideration substantially in excess of amounts previously paid by Culligan
for acquisitions, may be paid in cash, through the issuance of Culligan Common
Stock (which would increase the number of shares of Culligan Common Stock
outstanding) or other securities of Culligan, borrowings, or a combination
thereof. There can be no assurance that Culligan will be able to make
acquisitions on terms favorable to Culligan. With respect to recently
completed and potential future acquisitions, Culligan may encounter various
associated risks, including the possible inability to integrate an acquired
business into Culligan's manufacturing systems, increased goodwill
amortization, increased leverage, diversion of management's attention and
unanticipated problems or liabilities, some or all of which could have a
material adverse effect on Culligan's operations and financial performance.
Competition. The markets in which Culligan competes are highly competitive.
Culligan competes with many domestic and international companies in its global
markets. The principal methods of competition in the markets in which Culligan
competes are distribution capabilities, product specifications, product
knowledge and reputation, technology, service and price. Culligan has a
significant number of competitors, some of which have greater resources than
Culligan.
Technological and Regulatory Change. The water purification and treatment
business is characterized by changing technology, competitively imposed
process standards and regulatory requirements, each of which influences the
demand for Culligan's products and services. Changes in regulatory or
industrial requirements may render certain of Culligan's purification and
treatment products and processes obsolete. Acceptance of new products may also
be affected by the adoption of new government regulations requiring stricter
standards. Culligan's ability to anticipate changes in technology and
regulatory standards and to successfully develop and introduce new and
enhanced products on a timely basis will be a significant factor in Culligan's
ability to grow and to remain competitive. There can be no assurance that
Culligan will be able to achieve the technological advances that may be
necessary for it to remain competitive or that certain of its products will
not become obsolete. In addition, Culligan is subject to the risks generally
associated with new product introductions and applications, including lack of
market acceptance, delays in development or failure of products to operate
properly.
Risks Associated with International Operations. Approximately 36% of
Culligan's net sales for fiscal 1997 were derived from operations conducted
outside of the United States. Culligan's operations may be affected by
economic, political and governmental conditions in some of the countries where
Culligan has manufacturing facilities and where its products are marketed. In
addition, changes in economic or political conditions in any of the countries
in which Culligan operates could result in unfavorable exchange rates, new or
additional currency or exchange controls or other restrictions being imposed
on the operations of Culligan. Similarly, Culligan's operations may be
adversely affected by significant fluctuations in the value of the United
States dollar against certain foreign currencies, and the enactment of
exchange controls or foreign governmental or regulatory restrictions on the
transfer of funds.
Restrictive Covenants. Culligan's credit facility requires it to achieve and
maintain certain financial ratios. In addition, the credit facility contains
numerous financial and operating covenants, including restrictions on the
ability of Culligan to incur indebtedness, to merge, consolidate or transfer
all or substantially all of its assets, to make certain sales of assets and to
create, incur or permit the existence of certain liens. Such financial ratios,
restrictions and covenants may affect the operating flexibility of Culligan.
Further, the failure to maintain the ratios or to comply with the covenants
would result in a default and permit the lenders under the credit facility to
accelerate the maturity of the indebtedness governed by the credit facility
and related instruments.
Controlling Stockholders. Prior to giving effect to the Merger, affiliates
of Apollo Advisors, L.P. (collectively "Apollo") beneficially own
approximately 34% of the outstanding Culligan Common Stock (approximately 29%
after giving effect to the Merger). By reason of such percentage ownership,
Apollo may
33
have significant control over the management and policies of Culligan. The
level of ownership of the outstanding Culligan Common Stock by Culligan's
principal stockholders may have the effect of making more difficult or of
discouraging, absent the support of such stockholders, a proxy contest, a
merger involving Culligan, a tender offer, an open market purchase program or
other purchases of the Culligan Common Stock that could give holders of such
stock the opportunity to realize a premium over the then-prevailing market
price for their shares of the Culligan Common Stock.
Certain Anti-Takeover Provisions. Certain provisions of the Culligan
Certificate and By-Laws, together or separately, may discourage potential
acquisition proposals, delay or prevent a change in control of Culligan and
limit the price that certain investors might be willing to pay in the future
for shares of the Culligan Common Stock. These provisions include a classified
board of directors, a stockholder rights plan, the ability to issue, without
further stockholder approval, preferred stock with rights and privileges which
would be senior to the Culligan Common Stock and advance notice procedures for
stockholders to nominate candidates for election as directors of Culligan and
submit proposals for consideration at stockholders' meetings. See "DESCRIPTION
OF CULLIGAN CAPITAL STOCK" and "COMPARISON OF RIGHTS OF STOCKHOLDERS."
Shares Eligible for Future Sale. No prediction can be made as to the effect,
if any, that future sales of Culligan Common Stock, or the availability of
Culligan Common Stock for future sales, will have on the market price of the
Culligan Common Stock prevailing from time to time. Sales in the public market
of substantial amounts of Culligan Common Stock (including shares of Culligan
Common Stock acquired upon the exercise of options), or the perception that
such sales could occur, could adversely affect prevailing market prices for
the Culligan Common Stock.
Dividend Policy. Culligan currently anticipates that it will not pay cash
dividends on shares of Culligan Common Stock in the foreseeable future. The
payment of dividends will be a business decision to be made by the Culligan
Board from time to time based on such considerations as the Culligan Board
deems relevant, will be payable only out of funds legally available under the
Delaware General Corporation Law (the "DGCL") and will be subject to any
restrictions which may be contained in Culligan's debt instruments. The
payment of dividends on Culligan Common Stock is currently limited by the
Culligan Credit Facility.
RISKS RELATING TO NEW AMETEK
For a discussion of certain risks relating to the business and operations of
New Ametek, including, among others, dependence on several customers,
potential environmental liability and certain risks associated with
international operations, see "RISK FACTORS" in the New Ametek Information
Statement included as Appendix E hereto.
34
THE AMETEK SPECIAL MEETING
DATE, TIME AND PLACE; PURPOSE OF MEETING
This Joint Proxy Statement/Prospectus is being furnished in connection with
the solicitation of proxies by the AMETEK Board for use at the AMETEK Special
Meeting. The AMETEK Special Meeting will be held on July 30, 1997 at The Ritz-
Carlton Hotel, 17th and Chestnut Streets, at Liberty Place, Philadelphia,
Pennsylvania 19103 at 2:00 p.m., local time. The AMETEK Special Meeting will
be held for the purpose of considering and voting upon proposals to (i)
approve and adopt the Merger Agreement, the Distribution Agreement, the Merger
and the Spin-Off, (ii) elect eight directors to hold office for the terms
specified in this Joint Proxy Statement/Prospectus and until their successors
are elected and qualified, (iii) approve the appointment of Ernst & Young LLP
as independent auditors for the year 1997 and (iv) transact such other
business as may properly come before the AMETEK Special Meeting or any
adjournments or postponements thereof.
Management of AMETEK knows of no matters to be brought before the AMETEK
Special Meeting other than those referred to herein. If any other business
should properly come before the AMETEK Special Meeting other than those
referred to herein, the persons named in the proxy will vote in accordance
with their best judgment.
THE AMETEK BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT, THE DISTRIBUTION AGREEMENT, THE
MERGER AND THE SPIN-OFF, AS WELL AS EACH OF THE FOREGOING ADDITIONAL ACTIONS.
RECORD DATE
The AMETEK Board has fixed the close of business on June 25, 1997 as the
AMETEK Record Date. Only the holders of record of the outstanding shares of
AMETEK Common Stock on the AMETEK Record Date will be entitled to notice of,
and to vote at, the AMETEK Special Meeting and any adjournments or
postponements thereof. At the AMETEK Record Date, 32,925,601 shares of AMETEK
Common Stock were outstanding and entitled to vote. There were, in addition,
1,282,494 issued shares held by AMETEK in its treasury which, while so held,
cannot be voted. The presence, in person or by proxy, of a majority of the
aggregate number of shares of AMETEK Common Stock outstanding and entitled to
vote on the AMETEK Record Date is necessary to constitute a quorum at the
AMETEK Special Meeting.
PROXIES; VOTING AND REVOCATION
Shares of AMETEK Common Stock, represented by a properly executed proxy
received prior to the vote at the AMETEK Special Meeting and not revoked, will
be voted at the AMETEK Special Meeting as directed in the proxy. If a proxy is
submitted and no directions are given, the proxy will be voted for the
approval and adoption of the Merger Agreement, the Distribution Agreement, the
Merger and the Spin-Off, and for the additional proposals referred to herein.
AMETEK intends to count shares of AMETEK Common Stock present in person at the
AMETEK Special Meeting but not voting, and shares of AMETEK Common Stock for
which it has received proxies but with respect to which holders of shares have
abstained on any matter, as present at the AMETEK Special Meeting for purposes
of determining the presence or absence of a quorum for the transaction of
business. Since the affirmative vote of the holders of a majority of the
outstanding shares of AMETEK Common Stock entitled to vote on the Merger is
required to approve and adopt the Merger Agreement, the Distribution
Agreement, the Merger and the Spin-Off, such nonvoting shares and abstentions
will have the effect of a vote against the approval of the Merger Agreement,
the Distribution Agreement, the Merger and the Spin-Off. In addition, under
the rules of the NYSE, brokers who hold shares in street name for customers
who are the beneficial owners of such shares are prohibited from giving a
proxy to vote shares held for such customers with respect to the approval and
adoption of the Merger Agreement, the Distribution Agreement, the Merger and
the Spin-Off without specific instructions from such customers. The enclosed
proxy also serves as the voting
35
instruction card for the trustees who hold shares of record for participants
in the AMETEK Savings and Investment Plan. Shares for which no instructions
are received by the trustee will be voted in the same proportion as the shares
for which the trustee receives instructions. Therefore, it is imperative to
the consummation of the Merger that you return your proxy card. The AMETEK
Board and management recommend you vote FOR on all items on the proxy.
Each share of AMETEK Common Stock is entitled to one vote with respect to
the proposal to approve and adopt the Merger Agreement, the Distribution
Agreement, the Merger and the Spin-Off. The persons named as proxies by a
stockholder may propose and vote for one or more adjournments or postponements
of the AMETEK Special Meeting to permit further solicitation of proxies in
favor of such proposal; provided, however, that no proxy that is voted against
the proposal to approve and adopt the Merger Agreement, the Distribution
Agreement, the Merger and the Spin-Off will be voted in favor of any such
adjournment or postponement. Votes are tabulated at the AMETEK Special Meeting
by inspectors of election.
A stockholder of record may revoke a proxy at any time prior to its being
voted by filing an instrument of revocation with Donna F. Winquist, Corporate
Secretary of AMETEK (AMETEK, Inc., Station Square, Paoli, Pennsylvania 19301),
by filing a duly executed proxy bearing a later date, or by appearing at the
AMETEK Special Meeting in person, notifying the Corporate Secretary, and
voting by ballot at the AMETEK Special Meeting. Any stockholder of record
attending the AMETEK Special Meeting may vote in person whether or not a proxy
has been previously given, but the mere presence (without notifying the
Corporate Secretary of AMETEK) of a stockholder at the AMETEK Special Meeting
will not constitute revocation of a previously given proxy. In addition,
stockholders who hold shares of AMETEK Common Stock that are not registered in
their own name will need additional documentation from the record holder of
such shares to vote personally at the AMETEK Special Meeting.
REQUIRED VOTES; PRINCIPAL STOCKHOLDERS
The affirmative vote of the holders of a majority of shares of AMETEK Common
Stock issued, outstanding and entitled to vote at the AMETEK Special Meeting
is necessary to approve and adopt the Merger Agreement, the Distribution
Agreement, the Merger and the Spin-Off. Such approval by holders of AMETEK
Common Stock is a condition to the consummation of the Spin-Off and the
Merger.
As of the AMETEK Record Date, 32,925,601 shares of AMETEK Common Stock were
outstanding and entitled to vote. Of such shares, 1,656,142 , or approximately
5.0%, were held by directors and executive officers of AMETEK, its
subsidiaries and their respective affiliates, all of which they intend to vote
for approval of the Merger Agreement, the Distribution Agreement, the Merger
and the Spin-Off.
Information with respect to beneficial ownership of AMETEK Common Stock by
entities owning more than 5.0% of such stock and more detailed information
with respect to beneficial ownership of AMETEK Common Stock by AMETEK
directors and executive officers are incorporated by reference to the AMETEK
10-K. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE." Such information is also set forth in the section entitled
"INFORMATION AS TO NOMINEES FOR ELECTION OF DIRECTORS--Stock Ownership," which
is included in this Joint Proxy Statement/Prospectus.
SOLICITATION OF PROXIES
The expense of printing and mailing this Joint Proxy Statement/Prospectus
and the material used in this solicitation of proxies will be borne equally by
Culligan and AMETEK. These expenses and certain other transaction expenses are
subject to a cap of $1,500,000 in the case of Culligan. It is contemplated
that AMETEK proxies will be solicited through the mail and directly by
officers, directors, and regular employees of Culligan and AMETEK. AMETEK will
reimburse banks, brokerage houses and other custodians, nominees and
fiduciaries for their reasonable expenses in forwarding these proxy materials
to the principals. AMETEK has engaged Georgeson & Company, Inc. to represent
it in connection with the solicitation of proxies at a cost of approximately
$10,000 plus expenses.
36
PROPOSAL (1)
APPROVAL OF THE MERGER AND THE SPIN-OFF
THE AMETEK BOARD RECOMMENDS A VOTE FOR APPROVAL OF THIS PROPOSAL
BACKGROUND OF THE SPIN-OFF AND THE MERGER
AMETEK regularly evaluates strategic alternatives with respect to its
distinct lines of business with a view toward enhancing stockholder value. In
April 1996, representatives of Culligan first approached AMETEK's Chief
Financial Officer, John J. Molinelli, with an unsolicited expression of
interest in purchasing the Water Filtration Business. AMETEK's management
believed that the valuations then being proposed by Culligan for the Water
Filtration Business were too low. However, informal discussions among Culligan
and AMETEK representatives continued into July 1996. During this period,
Culligan solicited from its investment bankers an estimated range of values
for the Water Filtration Business based on the limited public information then
available to it. At its July 1996 meeting, the AMETEK Board reviewed with
management the initial valuations proposed by Culligan and concurred with
management's view that those valuations were insufficient to warrant further
discussions.
In August 1996, Culligan, through certain investment banking contacts,
reinitiated discussions with AMETEK regarding a possible acquisition of the
Water Filtration Business at a higher valuation then previously discussed.
Regular discussions continued over the next month during which time
alternative structures were suggested for the Culligan acquisition of the
Water Filtration Business. In early October 1996, Culligan and AMETEK executed
a confidentiality agreement at which point AMETEK provided Culligan with an
initial package of financial information regarding the Water Filtration
Business. In late October 1996, Culligan advised AMETEK that, based on the
information so far provided, it had increased its valuation of the Water
Filtration Business, and that a further increase in this valuation might be
possible based on additional information it was requesting.
In early November 1996, Walter Blankley, the Chief Executive Officer of
AMETEK, and Douglas Pertz, the Chief Executive Officer of Culligan, met to
discuss various issues relating to the proposed transaction, including
valuation of the Water Filtration Business. Following this meeting, Culligan
provided AMETEK with a list of issues it wished to address relating to the
Water Filtration Business and the financial information it had received so
far. In mid-November 1996, Mr. Blankley and other members of AMETEK's
management met with Culligan's management to review these issues. Mr. Blankley
reviewed the status of the Culligan negotiations with the AMETEK Board during
its meeting on November 20, 1996. The AMETEK Board evaluated the potential
transaction with Culligan, as well as other strategic alternatives for the
Water Filtration Business. In considering the possibility of a transaction
with Culligan, the AMETEK Board evaluated the feasibility of using a structure
under which all of AMETEK's assets and operations, other than the Water
Filtration Business's assets and operations, would be spun-off to stockholders
in a tax-free distribution followed by the acquisition of the Water Filtration
Business by Culligan in a tax-free stock-for-stock merger. The AMETEK Board
authorized Mr. Blankley to explore this structure with Culligan.
In early December 1996, Messrs. Blankley and Pertz met to discuss the
valuation of a transaction based on the proposed structure. Although this
meeting did not produce an agreement on value, it did result in a narrowing of
the gap between the valuations proposed by Culligan and AMETEK as well as an
understanding that such structure would be the only viable approach for the
parties to pursue. Following the meeting, Culligan summarized the valuation
range and the other principal terms of the transaction in a draft term sheet
which it distributed in mid-December 1996. Culligan and AMETEK decided that,
although no agreement had been reached on valuation or price, work should
proceed on other aspects of the proposed transaction. Culligan then began its
due diligence review of the Water Filtration Business and discussions ensued
between Culligan's representatives and advisors and AMETEK's representatives
and advisors on structuring and documentation issues.
37
Pursuant to a letter agreement dated January 27, 1997, AMETEK engaged
Goldman Sachs to review the proposed transaction with Culligan and provide the
AMETEK Board with its analysis of whether the consideration to be received in
the Merger was fair to the AMETEK stockholders. In connection with the review
of the proposed transaction by Goldman Sachs, AMETEK's management prepared
certain analyses and forecasts for the Water Filtration Business. These
financial forecasts were utilized by Goldman Sachs in connection with their
financial analyses. See "OPINION OF FINANCIAL ADVISOR."
AMETEK's forecasts, which are summary in nature, were based on various
assumptions, relating to, among other things, market growth, earnings growth,
profit margins and capital expenditures for the Water Filtration Business. The
forecasts resulted in valuations that were consistent with the range of values
being discussed between the representatives of AMETEK and Culligan. For the
years 1997 through 2001, these forecasts show net cash flow of the Water
Filtration Business of $6.7 million, $6.2 million, $10.5 million, $12.1
million and $14 million, respectively. In addition, AMETEK's management also
provided Goldman Sachs with an internally prepared 1997 budget for the Water
Filtration Business, which showed an operating profit of $16.4 million.
In January 1997, the AMETEK Board invited several AMETEK advisors, including
members of Stroock & Stroock & Lavan LLP and Goldman Sachs, to attend its
regularly scheduled board meeting in order to discuss timing, structuring and
valuation issues relating to the proposed acquisition of the Water Filtration
Business by Culligan. In mid-January, Culligan provided AMETEK and its
advisors with a draft of the Merger Agreement and the parties commenced
negotiating the terms of the Merger Agreement and the related transaction
documents. The AMETEK Board held two telephonic meetings, on January 29 and
February 1, 1997, to review the status of the negotiations, including the
continuing negotiations with respect to valuation of the Water Filtration
Business. On February 4, 1997, the AMETEK Board held another meeting by
telephone during which the proposed terms of the Merger and the related
transactions were reviewed, including the proposed agreement reached by
Messrs. Blankley and Pertz regarding valuation and price. Goldman Sachs
provided the AMETEK Board with its preliminary view that, based on the terms
of the transaction as they were understood by Goldman Sachs, and subject to
finalization of the transaction terms and review of the final documentation,
the Merger consideration would be fair to the AMETEK stockholders. AMETEK's
counsel, Stroock & Stroock & Lavan LLP, provided a review of the documentation
as well as various tax, regulatory and other legal matters. Following these
presentations and a general discussion, the AMETEK Board unanimously approved
the terms of the transaction with Culligan and authorized the execution of the
Merger Agreement and related documentation. On February 5, 1997, Culligan and
AMETEK executed the Merger Agreement, and AMETEK and New Ametek executed the
Distribution Agreement. Following review of the final transaction terms and
final definitive documents, Goldman Sachs delivered its written opinion, dated
February 5, 1997, to the effect that the Exchange Ratio pursuant to the Merger
Agreement was fair to the holders of AMETEK Common Stock. On May 9, 1997 the
Merger Agreement and the Distribution Agreement were amended and restated.
38
REASONS FOR THE TRANSACTION; RECOMMENDATION OF THE AMETEK BOARD
The AMETEK Board has determined that the Spin-Off and the Merger create
stockholder value and are fair and in the best interests of the AMETEK
stockholders. The AMETEK Board has therefore approved the Merger Agreement and
the Distribution Documents, and unanimously recommends the approval and
adoption of the Merger Agreement, the Distribution Agreement, the Merger and
the Spin-Off by the AMETEK stockholders. In reaching this determination and
recommendation, the AMETEK Board consulted with AMETEK's management, as well
as its legal counsel and financial advisors, and considered the following
factors:
(a) the terms and conditions of the Merger Agreement and the Distribution
Agreement, including the amount and form of consideration, which includes
approximately .11 shares of Culligan Common Stock and one share of New
Ametek Common Stock for each share of AMETEK Common Stock;
(b) the fact that the Spin-Off and the Merger allow AMETEK stockholders
on a tax-free basis to retain a continuing interest in two successful and
growing businesses by retaining (i) an interest in the Water Filtration
Business through their ownership of Culligan Common Stock after the Merger
and (ii) an interest in AMETEK's electromechanical, precision instruments
and other businesses through their ownership of New Ametek Common Stock
following the Spin-Off;
(c) the ability of the parties to structure a transaction which would be
tax-free to AMETEK and its stockholders;
(d) the belief that the Water Filtration Business when combined with
Culligan, a leading water filtration company, would be able to compete more
effectively in the water filtration market than it would as a division of
AMETEK, especially taking into account the increased economies of scale of
the combined operation and Culligan's extensive distribution channels and
experience in the retail market;
(e) the belief that AMETEK, because of its relative lack of experience in
the retail markets, would not be able to fully exploit the Water Filtration
Business's potential for growth in the retail market without a substantial
investment in advertising and a significant expansion of its distribution
capabilities;
(f) the desire to refocus and simplify AMETEK's business based on the
belief that the public markets have found it difficult to value AMETEK
because of the number and diversity of its various business segments; and
(g) financial presentations of Goldman Sachs made to the AMETEK Board and
the preliminary view of Goldman Sachs to the effect that the Exchange Ratio
pursuant to the Merger Agreement was fair to the AMETEK stockholders.
The foregoing discussion of the reasons and factors considered and given
weight by the AMETEK Board is not intended to be exhaustive, but is believed
to include all of the material factors considered by the AMETEK Board. In view
of the variety of factors considered in connection with its consideration of
the Merger, the AMETEK Board did not find it practicable to and did not
quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of
the AMETEK Board may have given different weight to different factors.
39
OPINION OF THE FINANCIAL ADVISOR
Goldman Sachs delivered its written opinion dated February 5, 1997 to the
AMETEK Board that as of the date of such opinion, the Exchange Ratio pursuant
to the Merger Agreement was fair to the holders of AMETEK Common Stock.
The full text of the written opinion of Goldman Sachs dated February 5,
1997, which sets forth assumptions made, matters considered and limitations on
the review undertaken in connection with the opinion, is attached hereto as
Appendix C to this Joint Proxy Statement/Prospectus; and is incorporated
herein by reference. Stockholders of AMETEK are urged to, and should, read
such opinion in its entirety. Goldman Sachs' written opinion is addressed to
the AMETEK Board and does not constitute a recommendation to an AMETEK
stockholder as to how such stockholder should vote at the AMETEK Special
Meeting and should not be relied upon by any stockholder as such.
In connection with its opinion, Goldman Sachs reviewed, among other things,
(i) the Merger Agreement; (ii) the Annual Reports to Stockholders and Annual
Reports on Form 10-K of AMETEK for the five years ended December 31, 1995 and
of Culligan for the fiscal year ended January 31, 1996; (iii) certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of AMETEK and
Culligan; and (iv) certain internal financial analyses and forecasts for the
Water Filtration Business prepared by AMETEK's management. Goldman Sachs also
held discussions with members of the senior management of AMETEK, the Water
Filtration Business and Culligan regarding the past and current business
operations, financial condition, and future prospects, of AMETEK and Culligan.
In addition, Goldman Sachs reviewed the reported price and trading activity
for Culligan Common Stock, compared certain financial and stock market
information for AMETEK with similar information for certain other companies
the securities of which are publicly traded, reviewed the financial terms of
certain recent business combinations in the water filtration industry
specifically and in other industries generally and performed such other
studies and analyses as it considered appropriate.
Goldman Sachs relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of its opinion. In addition, Goldman Sachs did not make an
independent evaluation or appraisal of the assets and liabilities of the Water
Filtration Business or Culligan or any of its subsidiaries and Goldman Sachs
was not furnished with any such evaluation or appraisal. Goldman Sachs was not
asked to solicit, and accordingly did not solicit, third parties with respect
to potential alternative transactions. Goldman Sachs assumed, with AMETEK's
consent, that the Merger would be tax-free to AMETEK and its stockholders.
The following is a summary of certain of the financial analyses used by
Goldman Sachs in connection with providing its written opinion to the AMETEK
Board on February 5, 1997.
(i) Historical Stock Trading Analysis. Goldman Sachs reviewed the historical
trading prices and volumes for the Culligan Common Stock.
(ii) Selected Companies Analysis. Goldman Sachs reviewed and compared
certain financial information relating to Culligan to corresponding financial
information, ratios and public market multiples for four large capitalization
publicly traded corporations: Ionics Inc., Millipore Corporation, Pall
Corporation, United States Filter Corporation (the "Large Cap Selected
Companies"); and three small capitalization publicly traded companies: Cuno
Inc., Memtec Limited and Osmonics Inc. (the "Small Cap Selected Companies" and
together with the Large Cap Selected Companies, the "Selected Companies"). The
Selected Companies were chosen because they are publicly traded companies with
operations that for purposes of analysis may be considered similar to
Culligan. Goldman Sachs calculated and compared various financial multiples
and ratios. The multiples of Culligan were calculated using a price of $36.38
per share, the closing price of Culligan Common Stock on the NYSE on February
4, 1997. The multiples and ratios for Culligan were based on information
provided by
40
Culligan's management and the multiples for each of the Selected Companies
were based on the most recent publicly available information. With respect to
the Selected Companies, Goldman Sachs considered levered market capitalization
(i.e., market value of common equity plus estimated market value of debt less
cash) as a multiple of LTM sales, as a multiple of LTM earnings before
interest, taxes, depreciation and amortization ("EBITDA") and as a multiple of
LTM earnings before interest and taxes ("EBIT"). Goldman Sachs' analyses of
the Selected Companies indicated levered multiples of LTM sales, which ranged
from 1.49x to 3.25x for the Large Cap Selected Companies and from 1.37x to
2.28x for the Small Cap Selected Companies, LTM EBITDA, which ranged from
10.8x to 21.1x for the Large Cap Selected Companies and from 14.0x to 25.2x
for the Small Cap Selected Companies, and LTM EBIT, which ranged from 13.2x to
29.6x for the Large Cap Selected Companies and from 14.0x to 25.2x for the
Small Cap Selected Companies, compared to levered multiples of 2.27x, 14.5x
and 17.6x, respectively, for Culligan. Goldman Sachs also considered for the
Selected Companies LTM price/earnings ratios, which ranged from 18.5x to 53.5x
for the Large Cap Selected Companies and from 19.0x to 29.9x for the Small Cap
Selected Companies compared to 28.6x for Culligan; estimated calendar year
1996 and 1997 price/earnings ratios, which ranged from 17.7x to 49.7x for the
Large Cap Selected Companies and from 22.1x to 23.8x for the Small Cap
Selected Companies for estimated calendar year 1996 and 15.3x to 32.1x for the
Large Cap Selected Companies and from 18.5x to 20.5x for the Small Cap
Selected Companies for estimated calendar year 1997 compared to 26.5x and
22.1x, respectively, for Culligan; LTM EBIT margins and LTM EBITDA margins,
which ranged from 5.0% to 20.9% for the Large Cap Selected Companies and from
6.3% to 12.9% for the Small Cap Selected Companies and 7.1% to 25.7% for the
Large Cap Selected Companies and from 11.8% to 14.2% for the Small Cap
Selected Companies, respectively, compared to 12.9% and 15.7%, respectively,
for Culligan.
(iii) Discounted Cash Flow Analysis. Goldman Sachs performed a discounted
cash flow analysis using AMETEK'S management projections (as previously
described under "BACKGROUND OF THE SPIN-OFF AND THE MERGER"). Goldman Sachs
calculated a net present value of future cash flows for the years 1997 through
2001 using a half-year convention and discount rates ranging from 10% to 14%.
Goldman Sachs calculated net present values of AMETEK'S terminal values in the
year 2001 using perpetuity growth rates of 3% to 7% and discount rates ranging
from 10% to 14%. The various ranges for discount rates and perpetuity growth
rates were chosen to reflect theoretical analyses of cost of capital and long-
term prospects for AMETEK, respectively.
Based on the analysis above, the implied values for AMETEK ranged from
$144.8 million to $167.7 million with a mid-range of $155.8 million.
(iv) Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to selected transactions in the water
purification/filtration industry since 1992 (the "Selected Transactions").
Such analysis indicated that for the Selected Transactions (i) levered
aggregate consideration as a multiple of LTM revenues ranged from 0.45x to
2.48x, as compared to 2.26x for the levered aggregate consideration to be
received in the Merger, (ii) the multiple of LTM EBITDA ranged from 7.0x to
22.0x, as compared to 10.5x for the levered aggregate consideration to be paid
in the Merger, and (iii) levered aggregate consideration as a multiple of LTM
EBIT ranged from 7.7x to 41.0x, as compared to 12.3x for the aggregate
consideration to be paid in the Merger.
(v) Contribution Analysis. Goldman Sachs reviewed certain historical and
estimated future operating and financial information (including, among other
things, revenues, EBITDA, EBIT, net income and tangible assets) for AMETEK,
Culligan and the pro forma combined entity resulting from the Merger based on
AMETEK's historical 1996 results, and financial forecasts for Culligan for
1997 provided by Culligan's management (which were consistent with securities
analysts' estimates). The analysis indicated that the AMETEK stockholders
would receive 14.0% of the outstanding common equity of the combined companies
after the Merger. Goldman Sachs also analyzed the relative income statement
contribution of AMETEK and Culligan to the combined companies on a pro forma
basis and before taking into account any of the possible benefits that may be
realized following the Merger based on actual 1996 results for AMETEK and
estimated 1997 results for Culligan, based on financial data provided to
Goldman Sachs by the management of AMETEK and Culligan. This analysis
indicated that using such 1996/1997 numbers AMETEK would have contributed
15.7% to combined revenues, 19.9% to combined EBITDA, 20.1% to combined EBIT,
and 17.1% to combined net income.
41
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the
processes underlying Goldman Sachs' opinion. In arriving at its fairness
determination, Goldman Sachs considered the results of all such analyses. No
company or transaction used in the above analyses as a comparison is identical
to AMETEK, the Water Filtration Business or Culligan or the contemplated
transaction. The analyses were prepared solely for purposes of Goldman Sachs'
providing its opinion to the AMETEK Board as to the fairness of the Exchange
Ratio to the AMETEK Board and do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities actually may be sold.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable
than suggested by such analyses. Because such analyses are inherently subject
to uncertainty, being based upon numerous factors or events beyond the control
of the parties or their respective advisors, none of AMETEK, Culligan, Goldman
Sachs or any other person assumes responsibility if future results are
materially different from those forecast.
As described above, Goldman Sachs' presentation of its preliminary view to
the AMETEK Board was one of many factors taken into consideration by the
AMETEK Board in making its determination to approve the Merger Agreement. The
foregoing summary does not purport to be a complete description of the
analysis performed by Goldman Sachs and is qualified by reference to the
written opinion of Goldman Sachs set forth in Appendix C hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. AMETEK selected
Goldman Sachs as its financial advisor because it is a nationally recognized
investment banking firm that has substantial experience in transactions
similar to the Merger.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of AMETEK and/or Culligan for its own account and for the account
of customers. In addition, Goldman Sachs has provided certain investment
banking services to Culligan from time to time, including having acted as
managing underwriter of Culligan's initial public offering in December 1995
and of a secondary sale of Culligan Common Stock in October 1996.
Pursuant to a letter agreement dated January 27, 1997 (the "Engagement
Letter"), AMETEK engaged Goldman Sachs to act as its financial advisor in
connection with the contemplated transaction. Pursuant to the terms of the
Engagement Letter, AMETEK has agreed to pay Goldman Sachs upon delivery of its
fairness opinion a fee of $350,000. AMETEK has agreed to reimburse Goldman
Sachs for its reasonable out-of-pocket expenses, including attorney's fees,
and to indemnify Goldman Sachs against certain liabilities, including certain
liabilities under the federal securities laws.
42
THE MERGER AGREEMENT
The following is a summary description of certain aspects of the Merger and
certain terms of the Merger Agreement, which is included as Appendix A to this
Joint Proxy Statement/Prospectus and is incorporated herein by reference.
Certain capitalized terms used herein and not defined have the meanings
ascribed to them in the Merger Agreement. This summary does not purport to be
complete and is qualified in its entirety by reference to the Merger
Agreement.
THE MERGER
At the Effective Time, Culligan, AMETEK and Culligan Merger Sub will
consummate the Merger whereby Culligan Merger Sub will be merged with and into
AMETEK and the separate corporate existence of Culligan Merger Sub will cease.
AMETEK will be the surviving corporation in the Merger and will be a wholly
owned subsidiary of Culligan.
Effective Time; Closing
The Merger will become effective upon the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware or at such other
time as is provided in the Certificate of Merger. The closing of the Merger
will take place as promptly as practicable (and in any event within two
business days) after satisfaction or waiver of certain conditions contained in
the Merger Agreement and at least one day after the Spin-Off (the "Closing
Date"). See "--Conditions."
Certificate of Incorporation and By-Laws
The AMETEK Certificate in effect immediately prior to the Effective Time
will be amended and restated in its entirety to read as set forth in Exhibit A
of the Merger Agreement and, as amended, will be the Certificate of
Incorporation of the Surviving Corporation until amended in accordance with
its terms and applicable law. The By-Laws of Culligan Merger Sub in effect at
the Effective Time will be the By-Laws of the Surviving Corporation until
amended in accordance with their terms and applicable law.
Directors and Officers
The directors of Culligan Merger Sub at the Effective Time will be the
directors of the Surviving Corporation, each to hold office from the Effective
Time in accordance with the Certificate of Incorporation and By-Laws of the
Surviving Corporation and until his successor is duly elected and qualified.
The officers of Culligan Merger Sub at the Effective Time will be the officers
of the Surviving Corporation, each to hold office from the Effective Time in
accordance with the Certificate of Incorporation and By-Laws of the Surviving
Corporation and until his successor is duly appointed and qualified.
CONVERSION OF AMETEK COMMON STOCK
At the Effective Time, each issued and outstanding share of AMETEK Common
Stock will be converted into the right to receive the number (rounded to the
nearest one-thousandth of a share) of fully paid and nonassessable shares of
Culligan Common Stock determined by dividing (i) the Net Equity Value divided
by (ii) $37.50, divided by (iii) the number of shares of AMETEK Common Stock
outstanding at the Effective Time. "Net Equity Value" means an amount equal to
(A) $155,000,000 minus (B) $25,000,000, the amount of the Retained Debt. Based
on the foregoing calculation, the Net Equity Value will be $130,000,000.
If the number of shares of AMETEK Common Stock outstanding on the Spin-Off
Record Date were to equal (the number of such shares outstanding on
June 27, 1997), then each share of AMETEK Common Stock would be converted into
approximately .11 shares of Culligan Common Stock. Assuming the exercise of
all exercisable AMETEK stock options on June 27, 1997, the total number of
shares of AMETEK Common Stock outstanding would equal , in which
case each share of AMETEK Common Stock would be converted into approximately
.10 shares of Culligan Common Stock. However, additional shares of AMETEK
Common Stock may be issued prior to the Effective Time, including pursuant to
the exercise of AMETEK stock options. Therefore, the amount of Culligan Common
Stock received per share of AMETEK Common Stock in the Merger may vary.
43
Because the Exchange Ratio is based on a fixed-price of $37.50 for Culligan
Common Stock and the market price for Culligan Common Stock fluctuates, the
value of the Culligan Common Stock that holders of AMETEK Common Stock will
receive in the Merger increases as the market price of Culligan Common Stock
increases and decreases as the market price of Culligan Common Stock
decreases. In addition, because additional shares of AMETEK Common Stock may
be issued prior to the Effective Time, the value of the consideration per
share received by holders of AMETEK Common Stock in the Merger may decrease.
The AMETEK Board and the Culligan Board determined the Merger consideration
through arm's length negotiations.
All shares of AMETEK Common Stock, when so converted, will no longer be
outstanding and will automatically be canceled and retired and will cease to
exist, and each holder of a certificate representing any such shares will
cease to have any rights with respect thereto, except the right to receive the
shares of Culligan Common Stock and any cash in lieu of fractional shares of
Culligan Common Stock to be issued or paid in consideration therefor upon the
surrender of such certificate in accordance with the terms of the Merger
Agreement, without interest.
If after the date of the Merger Agreement and prior to the Effective Time,
the outstanding shares of Culligan Common Stock have been changed into a
different number of shares or a different class, by reason of any stock
dividend, split, or any other distribution of shares, the Exchange Ratio will
be correspondingly adjusted.
Exchange of Certificates
As soon as practicable after the Effective Time, the Surviving Corporation
will cause the Exchange Agent to mail to each holder of record of
certificates, which immediately prior to the Effective Time represented
outstanding shares of AMETEK (the "Certificates"), whose shares were converted
into the right to receive shares of Culligan Common Stock (i) a letter of
transmittal and (ii) instructions for effecting the surrender of the
Certificates in exchange for certificates representing shares of Culligan
Common Stock. HOLDERS OF AMETEK COMMON STOCK ARE REQUESTED NOT TO SURRENDER
THEIR CERTIFICATES FOR EXCHANGE UNTIL SUCH LETTER OF TRANSMITTAL AND
INSTRUCTIONS ARE RECEIVED. Upon surrender of a Certificate for cancellation to
the Exchange Agent, together with such letter of transmittal, duly executed,
the holder of such Certificate will be entitled to receive in exchange
therefor (A) a certificate representing that number of whole shares of
Culligan Common Stock which such holder has the right to receive pursuant to
the terms of Merger Agreement and (B) cash in lieu of any fractional shares of
Culligan Common Stock to which such holder is entitled, after giving effect to
any required tax withholdings. Until surrendered, each Certificate will be
deemed at any time after the Effective Time to represent only the right to
receive upon such surrender a certificate representing shares of Culligan
Common Stock and cash in lieu of any fractional shares of Culligan Common
Stock.
No dividends or other distributions declared or made after the Effective
Time with respect to Culligan Common Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered Certificate,
and no cash payment in lieu of fractional shares will be paid to any such
holder until the holder of record of such Certificate surrenders such
Certificate. Subject to the effect of applicable laws, following surrender of
any such Certificate, there will be paid to the record holder of the
Certificates representing whole shares of Culligan Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of any cash payable in lieu of any fractional share of Culligan Common
Stock to which such holder is entitled and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid
with respect to such whole shares of Culligan Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with
a record date after the Effective Time but prior to such surrender and a
payment date subsequent to surrender payable with respect to such whole shares
of Culligan Common Stock.
Cash in Lieu of Fractional Shares
No certificate or scrip representing fractional shares of Culligan Common
Stock will be issued upon the surrender for exchange of Certificates, and such
fractional share interests will not entitle the owner thereof to
44
vote or to any rights of a stockholder of Culligan. In lieu of any such
fractional shares, each holder of AMETEK Common Stock who would otherwise have
been entitled to a fraction of a share of Culligan Common Stock upon surrender
of Certificates for exchange will be entitled to receive a cash payment in an
amount equal to such fractional interest multiplied by the Average Culligan
Share Price. "Average Culligan Share Price" is an amount equal to the average
of the closing prices of the Culligan Common Stock on the NYSE Composite
Transactions Reporting System, as reported in The Wall Street Journal, for the
ten (10) trading days ending on the second trading day immediately before the
Effective Time.
CERTAIN PRE- AND POST-MERGER TRANSACTIONS
Distribution Documents
Prior to the Spin-Off, AMETEK will, and will cause New Ametek to, execute
and deliver the Trademark Agreement (the "Trademark Agreement"), the Tax
Allocation Agreement (the "Tax Allocation Agreement"), the Transition Services
Agreement (the "Transition Services Agreement") and the Indemnification
Agreement (the "Indemnification Agreement" and together with the Distribution
Agreement, the Trademark Agreement, the Tax Allocation Agreement and the
Transition Services Agreement, the "Distribution Documents"). Prior to the
Spin-Off, Culligan will execute and deliver the Indemnification Agreement. In
connection with the execution of the Merger Agreement, AMETEK and New Ametek
executed the Distribution Agreement. See "THE SPIN-OFF."
The Contributions
Immediately prior to the Spin-Off and pursuant to the terms of the
Distribution Agreement, AMETEK will effect the Contributions. See "THE SPIN-
OFF."
The Spin-Off
At least one day prior to the Effective Time, and pursuant to the terms of
the Distribution Agreement, AMETEK will effect the Spin-Off. See "THE SPIN-
OFF."
Audited Closing Balance Sheet
Within forty-five (45) days after the Closing Date, New Ametek will deliver
to Culligan the Audited Closing Balance Sheet after giving effect to the Spin-
Off (but not the Merger), which will be audited by New Ametek's independent
public accountants in accordance with United States generally accepted
auditing standards. The Audited Closing Balance Sheet will be prepared in
accordance with generally accepted accounting principles ("GAAP") and, to the
extent consistent with GAAP, on a basis consistent with the Water Filtration
Business Financial Statements. Together with the Audited Closing Balance
Sheet, New Ametek will deliver the Adjusted Closing Balance Sheet which will
be the Audited Closing Balance Sheet adjusted (x) to reflect the financial
position that would have been reported in the Audited Closing Balance Sheet if
it had been prepared in accordance with the items (and accounting principles)
set forth on Schedule 3.4 to the Merger Agreement (which items generally
represent certain differences between GAAP and the basis of presentation of
the Water Filtration Business Financial Statements as specified in the Merger
Agreement) and (y) to exclude any cash paid to AMETEK by New Ametek (or
retained by AMETEK) pursuant to the Distribution Agreement to compensate
Culligan for the Special Offer Amount (as defined in the Distribution
Agreement) and for any unexercised options held by any Water Filtration
Business Employees following the Effective Time (clauses (x) and (y) being
referred to as the "Reference Items"). If, however, a liability or accrual
appears in the Adjusted Closing Balance Sheet which was not identified as a
Reference Item and which was not reflected on the balance sheet included in
the Water Filtration Business Financial Statements, no adjustment will be made
to the extent such liability or accrual is an Assumed Liability (as such term
is defined in the Distribution Agreement). If the Adjusted Net Worth of the
Water Filtration Business as calculated from the Adjusted Closing Balance
Sheet is less than $31,745,000, then New Ametek will pay to the Surviving
Corporation in cash the amount of such shortfall in Adjusted Net Worth within
thirty days of the delivery of the Adjusted Closing Balance Sheet (or, if
later, upon resolution of the matters set forth in the Notice (as defined in
the Merger Agreement)). If the Adjusted
45
Net Worth of the Water Filtration Business as calculated from the Adjusted
Closing Balance Sheet is more than $31,745,000, then the Surviving Corporation
will pay New Ametek in cash the amount of such excess up to a maximum amount
of $2,000,000 within thirty days of the delivery of the Adjusted Closing
Balance Sheet (or, if later, upon resolution of the matters set forth in the
Notice). The term "Adjusted Net Worth" means the amount by which consolidated
assets exceed consolidated liabilities, in each instance as set forth on the
Adjusted Closing Balance Sheet.
If Culligan determines that the Audited Closing Balance Sheet is not in
accordance with the Merger Agreement, the parties will endeavor to resolve
their differences within thirty (30) days, failing which Culligan and New
Ametek will select and retain an independent public accounting firm mutually
acceptable to them (or, if they cannot agree on a mutually acceptable firm,
they will cause their respective accounting firms to select such firm) (the
"Third Party Firm") to resolve such differences. The Third Party Firm will be
requested to render a decision within thirty (30) days of its selection and
such decision will be final and binding. The fees and expenses of the Third
Party Firm will be (i) paid by Culligan if less than 25% of the dollar amount
of the Culligan Adjustment (as defined in the Merger Agreement) is required to
be made or (ii) paid by New Ametek if more than 75% of the dollar amount of
the Culligan Adjustment is required to be made or (iii) shared equally by
Culligan and New Ametek if 25% or more but less than 75% of the dollar amount
of the Culligan Adjustment is required to be made.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
parties thereto. The Merger Agreement includes representations and warranties
by AMETEK and New Ametek as to: (a) the corporate organization of AMETEK and
its subsidiaries; (b) the capitalization of AMETEK and its subsidiaries; (c)
the authorization of AMETEK and its subsidiaries' execution and performance of
the Merger Agreement and the Distribution Documents; (d) required consents and
approvals; (e) the noncontravention of any agreement, law, or charter or by-
law provision by the Merger Agreement, the Distribution Documents and the
consummation by AMETEK of the transactions contemplated thereby; (f) the
absence of the need, except as specified, for governmental consents to the
Merger to be obtained by AMETEK and New Ametek; (g) the accuracy of certain of
AMETEK's reports and financial statements filed under the Securities Act and
the Exchange Act; (h) the accuracy of information supplied by AMETEK for use
in this Joint Proxy Statement/Prospectus and the Culligan Registration
Statement and the New Ametek Information Statement (collectively, the
"Registration Statements"); (i) the accuracy of the pro forma consolidated
balance sheet relating to the Water Filtration Business delivered to Culligan;
(j) use by New Ametek or any of its subsidiaries of the assets used in the
conduct of the Water Filtration Business; (k) ownership of the assets
reflected on the pro forma consolidated balance sheet of the Water Filtration
Business; (l) the receipt of an opinion of AMETEK's financial advisor in
connection with the Merger; (m) pending or threatened litigation against or
related to the Water Filtration Business, AMETEK or any of its subsidiaries;
(n) the terms, existence, operations, liabilities and compliance with
applicable laws of AMETEK and New Ametek's employee benefit plans; (o) the
absence of undisclosed liabilities of, and of material adverse changes or
events relating to, the Water Filtration Business; (p) no violation of law by
AMETEK or any of its subsidiaries; (q) the licenses used in connection with
the Water Filtration Business; (r) certain tax matters; (s) certain matters
relating to the employees of the Water Filtration Business; (t) certain
environmental matters; (u) the ownership, maintenance, enforceability, and use
of the intellectual property used in connection with the Water Filtration
Business; (v) transactions with affiliates of the Water Filtration Business;
(w) agreements and bank accounts of the Water Filtration Business; (x)
AMETEK's Rights Plan; (y) the insurance of the Water Filtration Business; (z)
the non-applicability of Section 203 of the DGCL ("Section 203"); and (aa)
liability of AMETEK or any of the its subsidiaries for any broker's or
finder's fees in connection with the Merger Agreement or the Distribution
Documents.
The Merger Agreement also includes representations and warranties by
Culligan and Culligan Merger Sub as to: (a) the corporate organization of
Culligan and Culligan Merger Sub; (b) the capitalization of Culligan; (c) the
authorization of Culligan's and Culligan Merger Sub's execution and
performance of the Merger Agreement and the Distribution Documents; (d)
required consents and approvals; (e) the noncontravention of any agreement,
46
law, or charter or bylaw provision by the Merger Agreement and the
Distribution Documents and the consummation by Culligan and Culligan Merger
Sub of the transactions contemplated thereby; (f) the absence of the need,
except as specified, for governmental consents to the Merger; (g) the accuracy
of certain of Culligan's reports and financial statements filed under the
Exchange Act and the Securities Act; (h) the accuracy of information supplied
by Culligan for use in this Joint Proxy Statement/Prospectus and the
Registration Statements; (i) pending or threatened litigation against Culligan
or any of its subsidiaries; (j) the absence of material adverse changes
relating to Culligan; (k) certain tax matters; (l) the lack of prior
operations of Culligan Merger Sub; and (m) liability of Culligan or any of its
subsidiaries for any broker's or finder's fees in connection with the Merger
or the Distribution Documents.
The representations, warranties and agreements in the Merger Agreement or in
any instrument delivered pursuant to the Merger Agreement will survive the
Effective Time, subject to the terms of the Indemnification Agreement.
COVENANTS
During the period from the date of the Merger Agreement and continuing until
the Effective Time, AMETEK agrees as to itself and its subsidiaries that,
except for the Spin-Off and the other transactions expressly provided for in
the Distribution Agreement or as contemplated or permitted by the Merger
Agreement, or to the extent that Culligan will otherwise consent in writing:
(a) AMETEK and its subsidiaries will (i) carry on the Water Filtration
Business in the usual, regular and ordinary course consistent with past
practice and (ii) use all reasonable efforts to preserve intact the
present business organization of the Water Filtration Business, keep
available the services of the present officers and employees of the
Water Filtration Business and preserve the relationships with
customers, suppliers and others having business dealings with the Water
Filtration Business. AMETEK will consult with Culligan concerning the
conduct of the Water Filtration Business and will not initiate any new
marketing plans or make any strategic changes in the conduct of the
Water Filtration Business without the prior consent of Culligan (which
consent will not be unreasonably withheld), and Culligan will have the
right to have representatives present at the facilities of the Water
Filtration Business during normal business hours and upon reasonable
prior notice to observe its operations in order to facilitate a
transition. Notwithstanding the generality of the foregoing, AMETEK
will, and will cause the Water Filtration Business to, consult with
Culligan with respect to any decisions, actions or inactions that are
reasonably expected to result in either (x) a significant deviation in
capital expenditures of the Water Filtration Business from that set
forth in the Capital Expenditure Budget or (y) a significant change in
working capital as of the Closing Date from the amount of working
capital set forth in the Water Filtration Business Balance Sheet;
(b) Except as expressly contemplated by the Merger Agreement or any of the
Distribution Documents, AMETEK will not permit the Water Filtration
Business to issue, transfer, pledge or sell, or authorize or propose or
agree to the issuance, transfer, pledge or sale of, any shares of its
capital stock of any class, any Voting Debt or other equity interests
or any securities convertible into, or any rights, warrants, calls,
subscriptions, options or other rights or agreements, commitments or
understandings to acquire, any such shares, Voting Debt, equity
interests or convertible securities;
(c) AMETEK will not, nor will it permit the Water Filtration Business to,
amend or propose to amend its certificate of incorporation or by-laws
or comparable organizational documents;
(d) AMETEK will not, nor will it permit any of its subsidiaries included in
the Water Filtration Business to, acquire or agree to acquire by
merging or consolidating with, or by purchasing a substantial equity
interest in or substantial portion of the assets of, or by any other
manner, any other business organization or division thereof or
otherwise acquire or agree to acquire any assets outside the ordinary
and usual course of business consistent with past practice or otherwise
enter into any material commitment or transaction outside the ordinary
and usual course of business consistent with past practice, other than
transactions which are unrelated to the Water Filtration Business and
which will
47
not adversely affect AMETEK's ability to consummate the transactions
contemplated by the Merger Agreement and the Distribution Documents;
(e) AMETEK will not, nor will it permit any of its subsidiaries included in
the Water Filtration Business to, sell, lease, license, encumber or
otherwise dispose of any of its assets outside the ordinary and usual
course of business consistent with past practice, other than
transactions which are unrelated to the Water Filtration Business and
which will not materially adversely affect AMETEK's ability to
consummate the transactions contemplated by the Merger Agreement and
the Distribution Documents;
(f) AMETEK will not permit the Water Filtration Business, to (i) incur,
assume, pre-pay, guarantee, endorse or otherwise become liable or
responsible for any indebtedness for borrowed money except in the
ordinary and usual course of business consistent with past practice,
(ii) issue or sell any debt securities or warrants or rights to acquire
any debt securities of the Water Filtration Business or guarantee any
obligations of others, or (iii) make any loans, advances or capital
contributions to, or investments in, any other person except in the
ordinary and usual course of business consistent with past practice;
(g) Except as expressly provided in the Distribution Agreement, AMETEK will
not, nor will it permit any of its subsidiaries to (i) enter into,
adopt, amend (except as may be required by law and except for
immaterial amendments) or terminate any Compensation and Benefit Plan
or other employee benefit plan or any agreement, arrangement, plan or
policy between AMETEK or any of its subsidiaries and one or more of its
directors, officers or employees and (ii) except for normal increases
in the ordinary course of business consistent with past practice and
the payment of bonuses to employees consistent with past practice,
increase in any manner, compensation or fringe benefits of any
director, officer or employee or pay any benefit to any director,
officer or employee not required by any plan or arrangement as in
effect as of the date of the Merger Agreement, in each case only to the
extent that the foregoing relate to the Water Filtration Business or
its Employees (the "Water Filtration Business Employees");
(h) AMETEK will promptly advise Culligan of any change or development that
would cause the representation in the Merger Agreement relating to
undisclosed liabilities to be untrue. AMETEK will promptly provide
Culligan (or its counsel) copies of all filings made by AMETEK with any
federal, state or foreign Governmental Entity in connection with the
Merger Agreement, the Distribution Agreement and the transactions
contemplated thereby;
(i) AMETEK will not and will not permit the Water Filtration Business to
change any of its accounting principles, policies or procedures, except
as may be required by GAAP;
(j) AMETEK will not take or cause or permit to be taken, and will not
permit any of its subsidiaries to take or cause or permit to be taken,
any action, or allow to exist any condition, that could (i) disqualify
the Contributions followed by the Spin-Off as a tax-free reorganization
pursuant to Section 368(a)(1)(D) of the Code, (ii) disqualify the Spin-
Off as a tax-free distribution pursuant to Section 355 of the Code, or
(iii) disqualify the Merger as a tax-free reorganization pursuant to
Section 368(a) of the Code; and
(k) AMETEK will (i) not engage in or allow transfers of assets or
liabilities or engage in or enter into other transactions between the
Water Filtration Business, on the one hand, and New Ametek or any of
its subsidiaries, on the other hand, except as contemplated by the
Distribution Agreement or the Tax Allocation Agreement or as to which
the Water Filtration Business is indemnified pursuant to the
Indemnification Agreement, (ii) abide and cause New Ametek to abide by
its respective obligations under the Distribution Agreement, and (iii)
not terminate or amend, or waive compliance with any obligations under,
the Distribution Agreement.
During the period from the date of the Merger Agreement and continuing until
the Effective Time, Culligan agrees as to itself and its subsidiaries that:
(a) Culligan will not take any action that would result in any of the
conditions to the Merger set forth in the Merger Agreement not being
satisfied or that would materially impair the ability of Culligan to
48
consummate the Merger in accordance with the terms of the Merger
Agreement or materially delay such consummation;
(b) Culligan will not take or cause or permit to be taken, and will not
permit any of its subsidiaries to take or cause or permit to be taken,
any action, or allow to exist any condition, that could (i) disqualify
the Contributions followed by the Spin-Off as a tax-free reorganization
pursuant to Section 368(a)(1)(D) of the Code, (ii) disqualify the Spin-
Off as a tax-free distribution pursuant to Section 355 of the Code, or
(iii) disqualify the Merger as a tax-free reorganization pursuant to
Section 368(a) of the Code; and
(c) Culligan will promptly advise AMETEK orally and in writing of any
change or development that would cause the representation regarding
certain tax matters contained in the Merger Agreement to be untrue.
Culligan will promptly provide AMETEK (or its counsel) copies of all
filings made by Culligan with any federal, state or foreign
Governmental Entity in connection with the Merger Agreement, the
Distribution Agreement and the transactions contemplated thereby.
COOPERATION
Following the expiration or early termination of the applicable waiting
period under the HSR Act, the parties agree that the business of the Water
Filtration Business will be operated in cooperation between Culligan and
AMETEK and will continue to be managed and administered by AMETEK under the
procedures set forth below:
(a) The appointment, including compensation and contractual agreements, of
all senior executives of the Water Filtration Business will be made by
AMETEK following consultation with Culligan. AMETEK will cooperate with
Culligan on personnel policies and procedures for the Water Filtration
Business, including, without limitation, setting salary and bonus
standards, termination and severance policies, and employee benefit
policies;
(b) AMETEK will cooperate and consult with the financial officers of
Culligan with respect to policies and procedures relating to financial
and accounting matters of the Water Filtration Business, including
without limitation, (i) the preparation of the accounts, books and
records, (ii) the preparation of financial statements, (iii) the
monitoring of operating performance under a budget previously prepared,
and (iv) the preparation and review of monthly management reports;
provided, however, that AMETEK will not be required to change any such
policies or procedures;
(c) Culligan and AMETEK will consult with each other in determining the
best interests of the Water Filtration Business with respect to capital
expenditures or investments, issuances of guarantees, creation of
mortgages or liens, establishment of credit lines, or other material
transactions affecting the Water Filtration Business;
(d) AMETEK will cooperate with the personnel of Culligan in developing
ongoing sales and marketing strategies and financial and other
standards for the Water Filtration Business and AMETEK will not
initiate any new marketing plans or make any strategic changes in the
operations of the Water Filtration Business without the prior consent
of Culligan (which consent will not be unreasonably withheld); and
(e) Culligan will have the right to have one or more representatives
present at the facilities of the Water Filtration Business during
normal business hours.
STOCK EXCHANGE LISTING
Culligan will use its reasonable efforts to cause the shares of Culligan
Common Stock to be issued in the Merger to be approved for listing on the NYSE
and any other national securities exchange on which shares of Culligan Common
Stock may at such time be listed, subject to official notice of issuance,
prior to the Closing Date.
49
EMPLOYEE MATTERS; EMPLOYEE BENEFIT PLANS
Prior to the Spin-Off, AMETEK will, and will cause its subsidiaries to,
assign to New Ametek or its subsidiaries (or terminate) all employment and
severance agreements with employees of AMETEK who are not Water Filtration
Business Employees. Culligan will, and will cause the Surviving Corporation
to, honor all employee severance plans (or policies) and employment and
severance agreements of AMETEK or any of its subsidiaries as specified in
AMETEK's Disclosure Schedule to the Merger Agreement with respect to the Water
Filtration Business Employees as such agreements (or policies) are in effect
on the date of the Merger Agreement.
Culligan will not have any liability or obligation to or for, except to the
extent described under "THE SPIN-OFF--Terms of the Distribution Agreement--
Employees and Employee Benefit Plans," any employee or former employee of
AMETEK or any of its subsidiaries based upon events, occurrences or services
performed by such employees or former employees on or prior to the Closing
Date and, in the case of employees of AMETEK or any of its subsidiaries other
than Water Filtration Business Employees, following the Closing Date.
As soon as practicable following the Effective Time, Culligan will cause the
Culligan 401(k) Plan to accept a plan-to-plan transfer from AMETEK's 401(k)
Plan (as assumed by New Ametek) of the account balances of the Water
Filtration Business Employees.
STOCK OPTIONS
All options to acquire shares of AMETEK Common Stock pursuant to any of the
AMETEK Stock Option or Incentive Plans (other than options held by Water
Filtration Business Employees) which are outstanding immediately prior to the
Effective Time, whether or not then exercisable, will be assumed by New Ametek
as provided in the Distribution Agreement and, except as specifically provided
in the Distribution Agreement, following the Effective Time, will not
represent a right to acquire shares of either Culligan or the Surviving
Corporation. See "THE SPIN-OFF--Terms of the Distribution Agreement--Stock
Option and Stock Incentive Plans."
NO SOLICITATION
Until the earlier of the Effective Time or the termination of the Merger
Agreement, AMETEK and its subsidiaries will not, directly or indirectly,
solicit or discuss with any third party (including by way of furnishing non-
public information concerning the Water Filtration Business), or facilitate
any inquiries with respect to an Acquisition Transaction (as defined below);
provided AMETEK may (i) furnish information to, or enter into discussions or
negotiations with, any person or entity that makes an unsolicited proposal
with respect to an AMETEK Acquisition Transaction (as defined below), if, (A)
the AMETEK Board based upon the advice of independent legal counsel,
determines in good faith that such action is necessary for the AMETEK Board to
comply with its fiduciary duties to stockholders under applicable law, and (B)
prior to furnishing such information to, or entering into discussions or
negotiations with, such person or entity, AMETEK provides written notice
thereof to Culligan; or (ii) comply with Rule 14e-2 promulgated under the
Exchange Act with regard to any tender or exchange offer involving AMETEK.
AMETEK will keep Culligan informed on a reasonable basis of the status and
general nature of any discussions or negotiations with respect to an AMETEK
Acquisition Transaction, including any changes to any material terms and
conditions thereof. An Acquisition Transaction means a merger, consolidation,
business combination, sale of a significant amount of assets outside of the
ordinary course of business, sale of shares of capital stock outside of the
ordinary course of business, tender or exchange offer or similar transaction
involving either (i) AMETEK and its subsidiaries, substantially as an entirety
(an "AMETEK Acquisition Transaction") or (ii) the Water Filtration Business.
INDEBTEDNESS
Except as reflected on the Retained Business Balance Sheet, AMETEK agrees
that immediately prior to the Effective Time, after giving effect to the
Contributions and the other transactions contemplated by the Distribution
Documents, there will not be outstanding any indebtedness for borrowed money,
or any guarantees in respect of any indebtedness for borrowed money of any
third party, in respect of which the Water Filtration Business is obligated,
other than the Retained Debt.
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GOVERNMENT AND REGULATORY APPROVALS
Consummation of the Merger was conditioned upon the expiration or
termination of the waiting period under the HSR Act. On March 14, 1997,
Culligan and AMETEK each filed notification reports under the HSR Act with the
FTC and the Antitrust Division of the DOJ. Early termination of the waiting
period was granted on March 24, 1997.
INTERNAL REVENUE SERVICE RULING
The Contributions, the Spin-Off and the Merger are conditioned upon the
issuance by the IRS of the Private Letter Ruling reasonably satisfactory in
form and substance to AMETEK and Culligan substantially to the effect that, on
the basis of the facts, representations and assumptions existing at the
Effective Time: (i) the Contributions followed by the Spin-Off qualify as a
tax-free reorganization pursuant to Section 368(a)(1)(D) of the Code; (ii) the
Spin-Off qualifies as a tax-free distribution pursuant to Section 355(a) of
the Code; and (iii) the Merger qualifies as a tax-free reorganization pursuant
to Section 368 (a)(1)(B) of the Code. The IRS has issued the Private Letter
Ruling. If the IRS revokes the Private Letter Ruling, this condition will
nevertheless be satisfied if, on or prior to the Closing Date, AMETEK and
Culligan receive the Tax Opinions to the same effect as the Private Letter
Ruling. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES."
CONDITIONS
Conditions to Each Party's Obligation to Effect the Merger. The Merger
Agreement provides that the respective obligations of the parties to the
Merger Agreement to effect the Merger are subject to the satisfaction, on or
prior to the Closing Date, of the following conditions: (a) due approval of
the Merger Agreement by the holders of AMETEK Common Stock; (b) the shares of
Culligan Common Stock issuable to AMETEK's stockholders pursuant to the Merger
Agreement will have been authorized for listing on the NYSE and the shares of
New Ametek Common Stock to be distributed to AMETEK's stockholders pursuant to
the Spin-Off will have been authorized for listing on the NYSE and the PCX;
(c) any applicable waiting period under the HSR Act will have expired or been
terminated (which has been satisfied); (d) other than the filing of the
Certificate of Merger, all authorizations, or filings with, any Governmental
Entity, the failure of which to obtain would have a material adverse effect on
New Ametek or the Water Filtration Business and their respective subsidiaries,
will have been obtained or filed; (e) the Registration Statements will have
become effective under the Securities Act or the Exchange Act, as the case may
be, and will not be the subject of any stop order or proceeding by the
Commission seeking a stop order; (f) no temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger will be in effect; (g) the Spin-Off will have
become effective in accordance with the Distribution Agreement; (h) the IRS
shall have issued (which has been satisfied) and not revoked the Private
Letter Ruling, and/or AMETEK and Culligan shall have received the Tax
Opinions; and (i) there will be no proposed legislation introduced in bill
form and pending action in the United States Congress which, if enacted into
law, would have the effect of amending the Code so as to alter in any
materially adverse respect any of the United States Federal income tax
consequences described in the Private Letter Ruling and/or the Tax Opinions.
Conditions of Obligation of Culligan. The obligation of Culligan to effect
the Merger is subject to the satisfaction, on or prior to the Closing Date, of
the following conditions unless waived by Culligan: (a) the representations
and warranties of AMETEK and New Ametek will be true and correct in all
material respects as of the date of the Merger Agreement, and, except to the
extent such representations and warranties speak as of an earlier date, as of
the Closing Date as though made on and as of the Closing Date, and Culligan
will have received a certificate signed on behalf of AMETEK by the chief
executive officer or the chief financial officer of AMETEK to such effect; (b)
AMETEK and its subsidiaries (including New Ametek) have performed in all
material respects all obligations required to be performed by it under the
Merger Agreement and the Distribution Agreement at or prior to the Closing
Date, and Culligan will have received a certificate signed on behalf of
51
AMETEK by the chief executive officer or the chief financial officer of AMETEK
to such effect; (c) the amount of Adjusted EBIT will not be less than
$11,850,000 (which condition has been satisfied); (d) Culligan will have
received the opinion of Stroock & Stroock & Lavan LLP concerning such legal
matters relating to the Merger as are customarily obtained in transactions of
a type similar to the Merger; (e) New Ametek will have assumed all obligations
of AMETEK under the Indenture, pursuant to which the Notes were issued; and
(f) no action, suit or proceeding by any Governmental Entity before any court
or governmental or regulatory authority will be pending or threatened against
AMETEK or Culligan or any of their subsidiaries challenging the validity or
legality of the transactions contemplated by the Merger Agreement.
Conditions of Obligation of AMETEK. The obligation of AMETEK to effect the
Merger is subject to the satisfaction, on or prior to the Closing Date, of the
following conditions, unless waived by AMETEK: (a) the representations and
warranties of Culligan and Culligan Merger Sub contained in the Merger
Agreement will be true and correct in all material respects as of the date of
the Merger Agreement, and, except to the extent such representations and
warranties speak as of an earlier date, as of the Closing Date as though made
on and as of the Closing Date, and AMETEK will have received a certificate
signed on behalf of Culligan by the chief executive officer or the chief
financial officer of Culligan to such effect; (b) Culligan and Culligan Merger
Sub will have performed in all material respects all obligations required to
be performed by them under the Merger Agreement at or prior to the Closing
Date, and AMETEK will have received a certificate signed on behalf of Culligan
by the chief executive officer or the chief financial officer of Culligan to
such effect; (c) AMETEK will have received the opinion of Skadden, Arps,
Slate, Meagher & Flom LLP concerning such legal matters relating to the Merger
as are customarily obtained in transactions of a type similar to the Merger;
(d) holders of a majority of the Notes have consented to an amendment of, or
supplemental indenture under, the Indenture so as to permit the Spin-Off; (e)
no action, suit or proceeding by any Governmental Entity before any court or
governmental or regulatory authority will be pending or threatened against
AMETEK or Culligan or any of their subsidiaries challenging the validity or
legality of the transactions contemplated by the Merger Agreement; and (f) the
Average Culligan Share Price on the proposed Closing Date (assuming
satisfaction or waiver of all other conditions) will be greater than $31.00
per share.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the Merger and the Merger Agreement
by the stockholders of AMETEK:
(a) by mutual consent of Culligan and AMETEK;
(b) by either Culligan or AMETEK if the Merger is not consummated before
October 31, 1997 (unless due to the action or failure to act of the party
seeking to terminate the Merger Agreement, which action or failure to act
constitutes a breach of the Merger Agreement);
(c) by Culligan if (i) there has been a material breach on the part of
AMETEK in its representations, warranties or covenants set forth in the
Merger Agreement or the Distribution Agreement, or any material failure by
AMETEK to comply with its obligations in the Merger Agreement or the
Distribution Agreement, and, in the case of a material breach of covenant
or failure to comply which is capable of being cured, is not cured within
thirty days, (ii) AMETEK's stockholders do not approve of the Merger
Agreement, the Distribution Agreement, the Merger and the Spin-Off, or
(iii) the AMETEK Board withdraws, amends or modifies in a manner adverse to
Culligan its favorable recommendation of the Merger;
(d) by AMETEK if (i) there has been a material breach on the part of
Culligan in its representations, warranties or covenants set forth in the
Merger Agreement, or any material failure on the part of Culligan to comply
with its obligations in the Merger Agreement, and, in the case of a
material breach of covenant or failure to comply, which is capable of being
cured, is not cured within thirty days, or (ii) AMETEK's stockholders do
not approve of the Merger and the Merger Agreement; or
(e) by either Culligan or AMETEK if any change in Federal income tax law
or regulation applicable to the Contributions, the Spin-Off or the Merger
disqualifies any one of such transactions or combination thereof from tax-
free treatment.
52
So long as Culligan will not have materially breached its obligations under
the Merger Agreement, AMETEK will pay Culligan $5,000,000, if within twelve
months following the termination of the Merger Agreement pursuant to clause
(c)(ii) or (iii) above or clause (d)(ii) above, AMETEK enters into an
agreement, arrangement or understanding providing for an Acquisition
Transaction. AMETEK will pay the reasonable out-of-pocket expenses incurred by
Culligan in connection with the Merger and the Spin-Off if the Merger
Agreement terminates pursuant to clause (c) above (other than by reason of a
breach of the representations and warranties relating to certain tax matters)
or clause (d)(ii) above. Culligan will pay the out-of-pocket expenses incurred
by AMETEK in connection with the Merger and the Spin-Off if the Merger
Agreement terminates pursuant to clause (d)(i) above.
FEES AND EXPENSES
Except as set forth above and subject to the Distribution Agreement, whether
or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
will be paid by the party incurring such expenses; provided, however, that
AMETEK and Culligan will each pay one-half of the printing, mailing and filing
costs incurred in connection with the Culligan Registration Statement, the New
Ametek Information Statement and this Joint Proxy Statement/Prospectus. The
Distribution Agreement provides that the maximum amount of costs and expenses
for which Culligan shall be liable shall not exceed $1,500,000 in the
aggregate.
AMENDMENT; WAIVER
The Merger Agreement may be amended by the parties thereto, by action taken
or authorized by their respective Boards of Directors, at any time before
approval by the stockholders of AMETEK of the matters presented in connection
with the Merger. After any such approval, any amendment or waiver determined
by the AMETEK Board to be material will be subject to further approval of the
stockholders. However, stockholder approval of any such amendment is not
required under applicable law except if any such amendment would (i) alter or
change the Exchange Ratio, (ii) alter or change the certificate of
incorporation of the surviving corporation in the Merger or (iii) alter or
change any of the terms of the Merger Agreement if such a change would
adversely affect the holders of any class or series of stock of AMETEK. The
Merger Agreement may only be amended by an instrument in writing signed on
behalf of each of the parties thereto.
At any time prior to the Effective Time, the parties to the Merger
Agreement, by actions taken or authorized by their respective Boards of
Directors, may to the extent legally allowed waive compliance with any of the
agreements or conditions contained in the Merger Agreement. Any such waiver
will only be valid if set forth in a written instrument signed by the party
waiving any such agreement or condition.
INTEREST OF CERTAIN PERSONS IN THE TRANSACTION
In considering the recommendation of the AMETEK Board, stockholders of
AMETEK should be aware that certain members of management of AMETEK and the
AMETEK Board may have certain interests in the Spin-Off and the Merger that
are in addition to the interests of stockholders generally.
Ownership of AMETEK Common Stock. Certain directors and executive officers
of AMETEK beneficially own AMETEK Common Stock as described in "INFORMATION AS
TO NOMINEES FOR ELECTION OF DIRECTORS--Stock Ownership" and "EXECUTIVE
COMPENSATION--Stock Options and Stock Appreciation Rights." Following the
Merger, it is contemplated that a designee of American Securities, L.P., an
affiliate of AMETEK, will be nominated to the Culligan Board.
Exchange of AMETEK Options. Each AMETEK Option held by a director or an
executive officer of AMETEK and employees of AMETEK, other than Water
Filtration Business Employees, will be exchanged for an option to purchase New
Ametek Common Stock. See "THE SPIN-OFF--Terms of the Distribution Agreement--
Employees and Employee Benefit Plans."
53
ACCOUNTING TREATMENT
The Merger will be accounted for by Culligan under the purchase method of
accounting in accordance with GAAP, whereby the purchase price will be
allocated based on the fair value of the assets acquired and the liabilities
assumed. Such allocations will be based upon valuations that have not been
finalized. The excess of such purchase price over the amounts so allocated
will be recorded as goodwill. New Ametek will account for the transaction as a
spin-off of the Water Filtration Business, which will be reflected as a
discontinued operation in New Ametek's consolidated financial statements.
RESALES OF CULLIGAN COMMON STOCK ISSUED IN THE MERGER; AFFILIATES
The Culligan Common Stock to be issued to AMETEK stockholders in connection
with the Merger will be freely transferable under the Securities Act, except
for shares issued to any person who may be deemed an "affiliate" of AMETEK
within the meaning of Rule 145 under the Securities Act. Persons who may be
deemed to be affiliates of AMETEK generally include individuals or entities
that control, are controlled by, or are under common control with, AMETEK, and
may include the directors and principal executive officers of AMETEK as well
as any principal stockholder of AMETEK.
NO APPRAISAL RIGHTS
Holders of AMETEK Common Stock will not have the right to elect to have the
fair value of their shares of AMETEK Common Stock judicially appraised and
paid to them in cash in connection with the Spin-Off or the Merger. Under
Section 262 of the DGCL, appraisal rights are not available to the
stockholders of a corporation that is a party to a merger if the corporation's
stock is listed on a national securities exchange, as are the shares of AMETEK
Common Stock, if the consideration to be received by such stockholders in the
merger consists of shares of the capital stock of a corporation that is listed
on a national securities exchange, as are the shares of Culligan Common Stock.
DELIVERY OF SHARES TO STOCKHOLDERS
AMETEK will effect the Spin-Off by delivery of certificates for shares of
New Ametek Common Stock to the Distribution Agent for delivery to the holders
of record of AMETEK Common Stock on the Spin-Off Record Date without any
further action by such holders.
In order to receive the consideration to which the AMETEK stockholders will
be entitled as a result of the Merger, each holder of AMETEK Common Stock as
of the Effective Time will be required to surrender their Certificates to the
Exchange Agent. See "--Conversion of AMETEK Common Stock--Exchange of
Certificates."
54
THE SPIN-OFF
This section of the Joint Proxy Statement/Prospectus describes certain
aspects of the proposed Contributions and the Spin-Off. To the extent that
they relate to the Distribution Documents, the following descriptions do not
purport to be complete and are qualified in their entirety by reference to the
Distribution Documents, which are included in Appendices B and D to this Joint
Proxy Statement/Prospectus and incorporated herein by reference. Certain
capitalized terms used herein and not defined have the meaning ascribed to
them in the Distribution Documents. ALL STOCKHOLDERS ARE URGED TO READ THE
DISTRIBUTION AGREEMENT, THE TAX ALLOCATION AGREEMENT, THE TRANSITION SERVICES
AGREEMENT, THE INDEMNIFICATION AGREEMENT AND THE TRADEMARK AGREEMENT IN THEIR
ENTIRETY. In addition, the holders of AMETEK Common Stock are urged to read in
its entirety the New Ametek Information Statement which is included as
Appendix E hereto.
BACKGROUND OF THE SPIN-OFF
Because the Water Filtration Business is the only business of AMETEK that
Culligan wishes to acquire, AMETEK and Culligan determined to effect the Spin-
Off, which is intended to be tax-free to AMETEK and the holders of AMETEK
Common Stock for Federal income tax purposes (except to the extent of cash
received for fractional shares). See "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES." It is a condition to consummating the Contributions, the Spin-
Off and the Merger that the Private Letter Ruling (which has been issued) not
be revoked and/or that AMETEK and Culligan receive the Tax Opinions. The
Contributions followed by the Spin-Off will separate all of AMETEK's other
businesses from the Water Filtration Business and enable Culligan to acquire
only the Water Filtration Business in the Merger; the Spin-Off will leave all
of AMETEK's other businesses as a separate publicly held company (New Ametek),
owned by the existing holders of AMETEK Common Stock.
Although the Spin-Off will not be effected unless the Merger and the Spin-
Off are approved by AMETEK Stockholders and all other conditions precedent
have been satisfied or waived, the Spin-Off is separate from the Merger, and
the shares of New Ametek Common Stock to be received by holders of AMETEK
Common Stock in the Spin-Off do not constitute a part of the Merger
consideration.
TERMS OF THE DISTRIBUTION AGREEMENT
The Contributions
Contributions of Assets
Prior to the Spin-Off, AMETEK will effect the Contributions, with the result
that New Ametek will own, directly or through subsidiaries, all of the assets
formerly owned by AMETEK or its subsidiaries, other than the Water Filtration
Business.
Transfer of Liabilities
At or prior to the time of the Spin-Off, New Ametek will assume all of the
liabilities of AMETEK, other than certain liabilities relating to the Water
Filtration Business and the Retained Debt (collectively, the "Assumed
Liabilities"). The Assumed Liabilities shall include the Notes issued pursuant
to the Indenture and all obligations arising under the Credit Agreement (as
defined below), subject to the retention by AMETEK of the Retained Debt. New
Ametek shall also assume liability for (i) uninsured health, dental and vision
benefits incurred by Water Filtration Business Employees prior to the time of
the Spin-Off but only if claims therefor have been submitted prior to the
Spin-Off, (ii) those benefits incurred by Water Filtration Business Employees
prior to the Spin-Off which are covered by insurance policies assigned to and
assumed by New Ametek, (iii) all liability relating to or arising out of the
defined benefit pension plans maintained by AMETEK, other than the Water
Filtration Business Hourly Pension Plan, and (iv) all liability relating to or
arising out of the New Ametek Employees 401(k) Plan maintained by AMETEK.
55
In August 1995, AMETEK entered into a $195,000,000 revolving credit
agreement (the "Credit Agreement") with a group of banks (the "Bank Group"),
led by The Chase Manhattan Bank, N.A., as administrative agent ("Chase"). In
connection with the Spin-Off, the Bank Group has entered into an amendment to
the Credit Agreement (the "Amendment") which, among other things, permits the
Credit Agreement to be assigned to and assumed by New Ametek. This assignment
and assumption shall occur immediately prior to completion of the Spin-Off.
The Amendment also contemplates that, prior to the Spin-Off, $25 million of
the outstanding principal amount under the Credit Agreement will be replaced
by separate loans from one or more members of the Bank Group and that such
separate loans will, after the Spin-Off, be retained by AMETEK as the Retained
Debt. The Amendment also provides some additional relief under certain of the
covenants contained in the Credit Agreement.
AMETEK will retain certain liabilities relating to the Water Filtration
Business and the Retained Debt (the "Retained Liabilities").
Certain Further Contributions
If, after the time of the Spin-Off, either New Ametek or AMETEK holds assets
which by the terms of the Distribution Agreement or the Merger Agreement were
intended to be assigned and transferred to, or retained by, the other party,
such party will promptly assign and transfer or cause to be assigned and
transferred such assets to the other party.
The Spin-Off
Upon completion of the Contributions, the Spin-Off will be effected by the
distribution to each holder of record of AMETEK Common Stock as of the close
of business on the Spin-Off Record Date of certificates representing one share
of New Ametek Common Stock for every share of AMETEK Common Stock held by such
holder. As a result of the Spin-Off, the stockholders of record of AMETEK at
the close of business on the Spin-Off Record Date will own all of the
outstanding New Ametek Common Stock.
Certain Covenants
For five years after the Spin-Off, New Ametek will not, directly or
indirectly, (i) sell any products or render any services which are currently
being manufactured, sold or rendered by the Water Filtration Business, or (ii)
solicit any customer or supplier of the Water Filtration Business for any
purpose competitive with the Water Filtration Business; and for two years
after the Spin-Off, neither AMETEK nor New Ametek will, directly or
indirectly, solicit the employment of any employee of the other party and its
subsidiaries.
Prior to the Spin-Off, AMETEK will transfer and assign to New Ametek all of
AMETEK's insurance policies other than (i) any policy which relates solely to
the Water Filtration Business and (ii) any policy that is not assignable
pursuant to its terms (a "Non-Assignable Policy"). If any policy is a Non-
Assignable Policy, it is the intent of AMETEK and New Ametek that New Ametek
receive the benefit of any coverage under any such policy, and that AMETEK
will keep such policy in effect during its remaining term and will refrain
from taking any actions (other than making a claim) which may affect New
Ametek's entitlement to the benefits of, or coverage under, such policy.
AMETEK and New Ametek also agree to cooperate with each other with respect to
the processing of any claims which are covered by any insurance policy in
existence prior to the time of the Spin-Off.
Settlement of Intercompany Balances
All amounts owing between the New Ametek entities and the Water Filtration
Business entities, other than amounts arising in the ordinary course of
business, will be deemed paid in full at or prior to the Spin-Off.
56
Employees and Employee Benefit Plans
Effective as of the Spin-Off Date, New Ametek will offer employment to all
employees of AMETEK, other than employees of the Water Filtration Business, on
the same terms and conditions as were in effect immediately prior to the Spin-
Off. Any such transfer of employment from AMETEK to New Ametek will not
constitute a termination or qualifying event under any severance policy.
Also effective as of the Spin-Off Date, New Ametek will adopt (i) the AMETEK
company-wide 401(k) Plan, (ii) the AMETEK company-wide Employees' Retirement
Plan, a defined benefit pension plan covering all salaried employees hired
before January 1, 1997; (iii) all hourly defined benefit pension plans
sponsored by AMETEK, other than the separate pension plan covering only hourly
employees of the Water Filtration Business; and (iv) all severance, vacation,
medical, disability, life insurance, split-dollar and other welfare benefit
plans covering employees (and their spouses and dependents) of AMETEK, other
than any such plans or arrangements covering only employees of the Water
Filtration Business or the separable portion of such plans or arrangements
attributable to employees of the Water Filtration Business. As soon as
practicable on or after the Merger, New Ametek shall cause the AMETEK 401(k)
Plan to make a direct plan-to-plan transfer to Culligan's 401(k) Plan
consisting of the account balances of those participants who are employed in
the Water Filtration Business. The Employee's Retirement Plan, as adopted by
New Ametek, will retain the liability for all accrued pension benefits,
including the accrued benefits of participants employed in the Water
Filtration Business, as determined at the time of the Spin-Off, which benefits
will be payable upon the participants' subsequent retirement or termination of
employment from Culligan, or death or disability, as the case may be, as and
to the extent provided for by the Employees' Retirement Plan; provided, that
any such participant employed in the Water Filtration Business will continue
to be credited under the Employees' Retirement Plan for employment with AMETEK
and Culligan after the Spin-Off for purposes of vesting and eligibility for
early retirement, disability or pre-retirement death benefits (but not for the
purpose of determining the amount of the accrued benefit), and, further
provided, that any such participant's compensation shall continue to be
recomputed by taking into account compensation earned with AMETEK and Culligan
after the Spin-Off (but limited for Employees' Retirement Plan purposes to an
increase of 5%, per annum, of the 1996 compensation).
Effective as of the Spin-Off Date, AMETEK shall continue to offer employment
to employees of the Water Filtration Business on the same terms and conditions
as in effect immediately prior thereto, and shall retain sponsorship of the
separate pension plan which covers only hourly employees of the Water
Filtration Business, and of all severance, vacation, medical, disability, life
insurance, split-dollar and other welfare benefit plans covering only
employees (and their spouses and dependents) of employees of the Water
Filtration Business or the separable portion of such plans or arrangements
attributable to employees of the Water Filtration Business.
Stock Option and Stock Incentive Plans
Prior to the Spin-Off, New Ametek will adopt one or more stock option, stock
incentive or similar plans for its employees and directors. Effective as of
the Spin-Off Date, all outstanding options to purchase the AMETEK Common Stock
which are held by employees, other than the employees of the Water Filtration
Business, whether or not such options are currently exercisable, will be
assumed by New Ametek and shall be exercisable upon the same terms and
conditions as in effect immediately prior thereto; provided, however, that
each such option which is an incentive stock option (within the meaning of
Section 422 of the Code) shall cease to be exercisable with respect to the
AMETEK Common Stock and shall become exercisable for a whole number of shares
of New Ametek Common Stock and with an adjusted per share exercise price,
determined in accordance with Treasury Regulation (S)1.425-1, so as to
preserve both the aggregate market spread between the value of the shares of
common stock subject to the option and the exercise price of the option
immediately before the Spin-Off, and the per share ratio between the value of
the common stock and the exercise price immediately before the Spin-Off;
provided further, that each such option which is a nonqualified stock option
(i.e., not an incentive stock option) shall cease to be exercisable with
respect to AMETEK Common Stock and shall become exercisable for the same
number of shares of New Ametek Common Stock, but with an adjusted per share
exercise price which is equal to the per share exercise price of the option
immediately before the Spin-Off, reduced by the amount by
57
which the value of a share of AMETEK Common Stock immediately before the Spin-
Off exceeds the value of a share of New Ametek Common Stock immediately after
the Spin-Off. All stock appreciation rights granted with respect to AMETEK
Common Stock held by employees, other than employees of the Water Filtration
Business, whether or not then exercisable, shall similarly be assumed by New
Ametek and shall be exercisable upon the same terms and conditions as in
effect immediately prior thereto, provided that the stock appreciation rights
shall be subject to adjustment in a manner similar to the adjustments to the
assumed stock options, as described in the preceding sentence.
AMETEK has amended those outstanding stock options which are held by
employees of the Water Filtration Business to provide that, for a period
beginning March 20, 1997 and ending three business days prior to the date of
the Spin-Off (the "Special Offer Period"), (i) such options are fully
exercisable (i.e., vested), (ii) each such option holder may, as an
alternative to exercise, surrender his or her options, in whole or in part,
and receive from AMETEK a cash amount equal to the market spread between the
aggregate average company share price (determined as the average closing
prices of AMETEK Common Stock for the ten trading days ending on the second
trading day immediately prior to the Effective Time) over the aggregate
exercise price, in lieu of exercising the underlying options and (iii) AMETEK
will pay any holder of an option which was granted as an incentive stock
option (within the meaning of Section 422 of the Code) who exercises or
surrenders his options for the cash spread during the Special Offer Period an
amount, in cash, equal to 20% of the taxable gain recognized from the exercise
or surrender. For any option holder who is employed by the Water Filtration
Business and does not exercise or surrender his options for cash during the
Special Offer Period, any such unexercised options shall, at the end of the
Special Offer Period, revert to the level of exercisability (i.e., vesting) as
is determined solely by the terms of the option and the length of the option
holder's service since the date of grant, and the right to surrender the
options for cash and the right of holders of options which were granted as
incentive stock options to receive the special 20% cash payment, as described
above, shall lapse, and, as of the Effective Time, such unexercised options
will be exchanged for Culligan Options to purchase, pursuant to the Culligan
Option Conversion Ratio, a number of shares of Culligan Common Stock.
Effective as of the Spin-Off Date, AMETEK shall retain (and shall not
contribute to New Ametek) cash in an amount equal to 60% of the market spread
of the unexercised options held by Water Filtration Business Employees.
Conditions to the Spin-Off
The obligations of AMETEK and New Ametek to consummate the Spin-Off and to
perform all other obligations set forth in the Distribution Agreement are
subject to the satisfaction or waiver of (i) all the conditions contained in
the Merger Agreement which relate to AMETEK or New Ametek, and (ii) the
condition that all authorizations, orders or approvals, or declarations or
filings with, or the expiration of waiting periods imposed by, any
governmental entity or other public or private entity the failure of which to
obtain would have a material adverse effect on AMETEK or New Ametek, will have
been filed, occurred, or been obtained.
The obligations of AMETEK to consummate the Spin-Off and perform all other
obligations set forth in the Distribution Agreement are subject to the
satisfaction or waiver of the condition that New Ametek will have effected its
assumption of the Assumed Liabilities as contemplated by the Distribution
Agreement.
The obligations of New Ametek to consummate the transactions contemplated by
the Distribution Agreement and to perform all other obligations set forth in
the Distribution Agreement are subject to the satisfaction or waiver of the
condition that AMETEK will have contributed to New Ametek the Contributed
Assets, as contemplated by the Distribution Agreement.
Amendment; Waiver
The Distribution Agreement (including the Annexes, Schedules and exhibits
thereto) may be amended in writing by AMETEK or New Ametek at any time prior
to the time of the Spin-Off with the prior written consent of Culligan. At any
time prior to the Spin-Off, either AMETEK or New Ametek may waive in writing
compliance by the other with any of the agreements or conditions contained in
the Distribution Agreement with
58
the prior consent of Culligan. Any amendment or waiver determined to be
material by the AMETEK Board will be subject to further approval of the
stockholders. The failure of any party to the Distribution Agreement to assert
any of its rights under or to enforce any provision of the Distribution
Agreement or otherwise will not constitute a waiver of its rights under such
provision or any other provision.
TERMS OF THE TAX ALLOCATION AGREEMENT
In connection with the Spin-Off and the Merger, AMETEK, New Ametek and
Culligan will enter into the Tax Allocation Agreement, which provides for the
allocation of all tax liabilities of AMETEK and its subsidiaries for taxable
periods before and after the Spin-Off. In general, under the Tax Allocation
Agreement, (i) New Ametek will be liable for any tax liability attributable to
the Water Filtration Business for taxable periods (or portions thereof) ending
on or before the Spin-Off Date and any tax liability attributable to the
assets and businesses to be transferred to or held by New Ametek (i.e., all of
the assets and businesses other than the Water Filtration Business) for all
taxable periods and (ii) AMETEK will be liable for any tax liability
attributable to the Water Filtration Business for taxable periods (or portions
thereof) beginning after the Spin-Off Date.
In addition, except as provided below, New Ametek will be liable for any tax
liability resulting from transfers of stock and/or assets undertaken in
connection with or to effect the Contributions, the Spin-Off or the Merger
("Restructuring Taxes") including, without limitation, any tax liability
imposed on AMETEK as a result of the Contributions failing to qualify as a
reorganization under Section 368 (a) (1) (D) of the Code or the Spin-Off
failing to qualify as a distribution under Section 355 of the Code. AMETEK and
Culligan will be liable for any Restructuring Taxes caused by an action
inconsistent with Culligan's representations made in connection with obtaining
the Private Letter Ruling and/or the Tax Opinions and which is taken by
Culligan prior to the Spin-Off or by Culligan or AMETEK during the two-year
period after the Spin-Off. Furthermore, in the event that AMETEK and New
Ametek would each be liable for taxes resulting from the Spin-Off and/or the
Merger (without regard for any action taken by the other party), AMETEK and
New Ametek shall each be liable for one-half of such taxes and shall indemnify
each other for any excess of such amount paid. Pursuant to the Distribution
Agreement, AMETEK and New Ametek shall share equally all taxes (and certain
other transaction costs) incurred in connection with the Contributions and all
transfer taxes imposed in connection with or as a result of the Merger
subject, in the case of AMETEK, to a limit of $1,500,000.
TERMS OF THE TRANSITION SERVICES AGREEMENT
In connection with the Spin-Off and the Merger, New Ametek and the Surviving
Corporation will enter into the Transition Services Agreement, which sets
forth the obligations of New Ametek to provide the Surviving Corporation with
certain transition services and support, including but not limited to, payroll
and benefits administration; administrative services related to employee
benefit plans; advertising and marketing services; fixed asset accounting;
vehicle fleet management; management information systems; treasury services;
risk management services; tax compliance information; access to a web site;
access to financial information for audited financial statements; access to
shared facilities; and such other services as may be requested from time to
time to assist in the transition, for a period of up to nine (9) months after
the date of the Transition Services Agreement. In consideration for such
transition services, the Surviving Corporation will pay to New Ametek a fee
based on New Ametek's fully burdened costs of providing such services, which
will be mutually agreed upon by New Ametek and the Surviving Corporation prior
to the time such transition services are provided.
TERMS OF THE INDEMNIFICATION AGREEMENT
In connection with the Spin-Off and the Merger, AMETEK, New Ametek and
Culligan will enter into an Indemnification Agreement which sets forth each
party's rights and obligations with respect to indemnification for matters
relating to the Contributions, the Spin-Off and the Merger.
The Indemnification Agreement will provide that except as otherwise
specifically provided in the Merger Agreement or any of the Distribution
Documents, New Ametek will indemnify, defend and hold harmless
59
Culligan from and against, and pay or reimburse Culligan for, all
Indemnifiable Losses, as incurred: (a) arising out of or resulting from (x)
the Contributed Assets or the Assumed Liabilities (including the failure by
New Ametek or any subsidiary or Affiliate of New Ametek to pay, perform or
otherwise discharge such Assumed Liabilities in accordance with their terms)
whether such Indemnifiable Losses arise out of or result from events,
occurrences, actions, omissions, facts or circumstances occurring, existing or
asserted before, at or after the Effective Time or (y) the conduct or
operation of AMETEK's business (other than the conduct and operation of the
Water Filtration Business) prior to the Effective Time; (b) arising out of or
resulting from any untrue statement or alleged untrue statement of a material
fact contained in any of the Registration Statements or in this Joint Proxy
Statement/Prospectus, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; but only in each case with respect to information provided by
AMETEK relating to New Ametek or AMETEK contained in or omitted from the
Registration Statements or this Joint Proxy Statement/Prospectus; (c) arising
out of or resulting from the breach by New Ametek or any of its subsidiaries
of any agreement or covenant contained in the Merger Agreement or any of the
Distribution Documents which does not by its express terms expire at the
Effective Time or which is not by its express terms required to be performed
prior to the Effective Time; (d) arising out of or resulting from any breach
of or inaccuracy in any representation or warranty of AMETEK or New Ametek
contained in the Merger Agreement; (e) arising out of or resulting from any
actual or alleged violation of any law, rule or regulation of any Governmental
Entity by AMETEK or New Ametek or any of their subsidiaries or any director,
officer, employee or agent of AMETEK or New Ametek or any of their
subsidiaries (collectively, "Legal Matters") occurring or alleged to have
occurred at or prior to the Effective Time with respect to the New Ametek
Businesses; (f) relating to or arising from any claim that the execution,
delivery or performance by AMETEK or New Ametek of the Merger Agreement and
each Ancillary Agreement to which it is or will be a party or the consummation
of the transactions contemplated thereby results in a violation or breach of,
or constitutes a default or impermissible transfer under, or gives rise to any
right of termination, first refusal or consent under or gives rise to any
right of amendment, cancellation or acceleration of any material benefit
under, any Contract to which AMETEK or any of its subsidiaries is a party
prior to the Spin-Off; and (g) arising out of or relating to the handling,
use, storage, recycling, treatment, transport, Release or disposal of
Hazardous Substances by AMETEK, any of its subsidiaries, affiliates or
predecessors (including any prior owner of the Retained Realty (as defined
below)) or any third party engaged by any of them, prior to the Effective
Time: (x) at any former properties or facilities of AMETEK or any of its
subsidiaries, affiliates, or predecessors (including any prior owner of the
Retained Realty, including former properties or facilities relating to the
Retained Assets or the Water Filtration Business (but not including any real
property owned or leased by the Water Filtration Business, as of the Spin-Off
Date (the "Retained Realty")); (y) at the Retained Realty, but only to the
extent that the Indemnifiable Losses arise from activities or business
operations that preceded the activities or business operations of the Water
Filtration Business at the Retained Realty; and (z) at any site or location
other than the Retained Realty where such handling, use, storage, recycling,
treatment, transport, Release or disposal (or arranging for such activities by
third parties) was related to the activities or business operations of the
Retained Assets or the Water Filtration Business (provided that this clause
(z) shall not cover any migration of a Release from the Retained Realty).
The Indemnification Agreement will further provide that except as otherwise
specifically provided in the Merger Agreement or any of the Distribution
Documents, Culligan will indemnify, defend and hold harmless, or cause AMETEK
to indemnify, defend and hold harmless New Ametek from and against, and pay or
reimburse New Ametek for, all Indemnifiable Losses, as incurred: (a) arising
out of or resulting from (x) the Water Filtration Business or the Retained
Liabilities (including the failure by Culligan or any of its subsidiaries to
pay, perform or otherwise discharge such Retained Liabilities in accordance
with their terms) whether such Indemnifiable Losses arise out of or result
from events, occurrences, actions, omissions, facts or circumstances
occurring, existing or asserted before, at or after the Effective Time or (y)
the conduct or operation of the Water Filtration Business following the
Effective Time (other than any such conduct or operation which would give rise
to a right to indemnification by the Parent Indemnitees under the
Indemnification Agreement); (b) arising out of or resulting from any untrue
statement or alleged untrue statement of a material fact contained in any of
the Registration Statements or in this Joint Proxy Statement/Prospectus, or
any omission or alleged omission to
60
state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading; but only in each case with respect to information
provided by Culligan relating to Culligan or any of its subsidiaries (other
than AMETEK and its subsidiaries) contained in or omitted from any of the
Registration Statements or this Joint Proxy Statement/Prospectus; (c) arising
out of or resulting from the breach by Culligan or any of its subsidiaries of
any agreement or covenant contained in the Merger Agreement or any of the
Distribution Documents which does not by its express terms expire at the
Effective Time or which is not by its express terms required to be performed
prior to the Effective Time; and (d) relating to or arising from any claim
that the execution, delivery or performance by Culligan or Culligan Merger Sub
of the Merger Agreement and each Ancillary Agreement to which it is or will be
a party or the consummation of the transactions contemplated thereby results
in a violation or breach of, or constitutes a default or impermissible
transfer under, or gives rise to any right of termination, first refusal or
consent under or gives rise to any right of amendment, cancellation or
acceleration of any material benefit under, any Contract to which Culligan or
Culligan Merger Sub is a party prior to the Spin-Off.
The Indemnification Agreement will provide that with respect to
Indemnifiable Losses arising out of or resulting from any breach or inaccuracy
in any representation or warranty of AMETEK or New Ametek contained in the
Merger Agreement, New Ametek will not have any liability under the
Indemnification Agreement unless the aggregate of all Indemnifiable Losses for
which New Ametek would be liable under the Indemnification Agreement exceeds
on a cumulative pre-tax basis an amount equal to $800,000 (the "Basket
Amount"); provided, that, once the Basket Amount is exceeded, New Ametek will
only pay Indemnifiable Losses in excess of such Basket Amount. Notwithstanding
the foregoing, New Ametek's liability for Indemnifiable Losses arising out of
or resulting from any breach or inaccuracy in any representation or warranty
of AMETEK or New Ametek contained in the Merger Agreement is limited (i) in
the aggregate to $25,000,000 and (ii) to only those Indemnifiable Losses for
which New Ametek has received written notice of on or prior to eighteen months
from the Closing Date.
TERMS OF THE TRADEMARK AGREEMENT
Following the time of the Spin-Off, New Ametek will have the sole and
exclusive ownership of and right to use all of the names, trademarks, trade
names and other proprietary rights of AMETEK (collectively, the "Intellectual
Property"), including all rights to the "Ametek" name other than the
intellectual property relating primarily to the Water Filtration Business.
Pursuant to the Trademark Agreement between AMETEK and New AMETEK, AMETEK will
retain the right to use, for a period of five years, the "Ametek" trade name
and any AMETEK trademarks, service marks or logos which use the word "Ametek"
and are currently in use by the Water Filtration Business (collectively, the
"Marks"). In addition, for the three successive one-year terms following such
five year period, New Ametek will grant to AMETEK, pursuant to the Trademark
Agreement, an exclusive worldwide license to the Marks at a royalty rate of
$1,000,000 per year. AMETEK (which following the Merger will have changed its
name to Culligan Water Company, Inc.) is prohibited, however, from using the
"Ametek" mark alone or in connection with other terms as part of a corporate
name. The Trademark Agreement also provides for usual and customary
provisions, including quality control, audit and marking provisions.
61
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain Federal income tax consequences of the
Contributions, the Spin-Off and the Merger. This summary is based upon the
Code, Treasury regulations promulgated thereunder, and judicial and
administrative interpretations thereof, all as in effect on the date hereof,
and which are subject to changes occurring after such date, possibly with
retroactive effect. This summary is for general information only and does not
address the effects of any state, local or foreign tax laws. In addition, it
does not purport to address all of the tax consequences applicable to any
particular taxpayer or to taxpayers subject to special treatment under the
Code, including, without limitation, foreign holders, holders of AMETEK Common
Stock acquired pursuant to the exercise of employee stock options or otherwise
as compensation, insurance companies, tax-exempt organizations, financial
institutions, broker dealers or persons who do not hold the AMETEK Common
Stock as a capital asset. EACH HOLDER OF AMETEK COMMON STOCK IS URGED TO
CONSULT HIS OR HER TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO HIM OR
HER OF THE SPIN-OFF AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS AND OF CHANGES IN
APPLICABLE TAX LAWS.
The Contributions, the Spin-Off and the Merger are conditioned upon the
issuance by the IRS of the Private Letter Ruling reasonably satisfactory in
form and substance to AMETEK and Culligan substantially to the effect that, on
the basis of the facts, representations and assumptions existing at the
Effective Time: (i) the Contributions followed by the Spin-Off qualify as a
tax-free reorganization pursuant to Section 368(a)(1)(D) of the Code; (ii) the
Spin-Off qualifies as a tax-free distribution pursuant to Section 355(a) of
the Code; and (iii) the Merger qualifies as a tax-free reorganization pursuant
to Section 368 (a)(1)(B) of the Code. The IRS has issued the Private Letter
Ruling.
If the IRS revokes the Private Letter Ruling as to any one or more of the
three rulings described in the preceding paragraph (each, an "Omitted
Ruling"), this requirement will nevertheless be satisfied if, on or prior to
the Closing Date, AMETEK receives an opinion of Stroock & Stroock & Lavan LLP
and Culligan receives an opinion of Skadden, Arps, Slate, Meagher & Flom LLP
(together, the "Tax Opinions") to the same effect as each such Omitted Ruling.
Each such Tax Opinion, if any, would be based upon certain qualifications and
assumptions as noted therein and upon certain representations of AMETEK, New
Ametek and Culligan. It would represent such counsel's best legal judgment and
would not be binding on the IRS or the courts. There can be no assurance that
the IRS or the courts would not take one or more contrary positions to those
expressed in the Tax Opinions.
The Contributions, the Spin-Off and the Merger will also not be consummated
unless there shall be no proposed legislation introduced in bill form and
pending action in Congress which, if enacted into law, would have the effect
of amending the Code so as to alter in any materially adverse respect any of
the Federal income tax consequences described in the Private Letter Ruling
(and/or the Tax Opinions) in respect of the Contributions, Spin-Off or Merger.
On June 13, 1997, the House Ways and Means Committee voted to approve
legislation, and on June 19, 1997, the Senate Finance Committee voted to
approve similar legislation (together, the "Proposed Legislation") that if
applicable to the Spin-Off and Merger would cause the Spin-Off to be taxable
to New Ametek. The Proposed Legislation would not apply to any distribution
after April 16, 1997 if the distribution is (i) made pursuant to a written
agreement which was (subject to customary conditions) binding on April 16,
1997 and at all times thereafter, (ii) described in a ruling request submitted
to the IRS on or before April 16, 1997, or (iii) described on or before such
date in a public announcement or in a filing with the Commission required
solely by reason of the distribution (the "Transitional Relief"). Since the
Spin-Off and Merger would satisfy one or more of the requirements for
Transitional Relief, the Proposed Legislation, if enacted in its present form,
would not be applicable to the transactions. However, there can be no
assurance that the Proposed Legislation would be enacted in its present form
or that other legislation, materially adverse to the Contributions, the Spin-
Off or the Merger and with different effective dates and/or transitional
relief, would not be introduced or enacted after the date hereof. The
introduction or enactment of legislation differing from the Proposed
Legislation could delay or prevent consummation of the Contributions, the
Spin-Off and the Merger.
62
CONSEQUENCES OF THE CONTRIBUTIONS AND THE SPIN-OFF
Based upon the Private Letter Ruling (and/or the Tax Opinions), the
following is a summary of the anticipated Federal income tax consequences of
the Contributions and the Spin-Off:
1. No gain or loss will be recognized by (and no amount will be included
in the income of) holders of AMETEK Common Stock on their receipt of New
Ametek Common Stock in the Spin-Off.
2. Following the Spin-Off, the aggregate tax basis of the AMETEK Common
Stock and the New Ametek Common Stock in the hands of the holders of AMETEK
Common Stock will equal the tax basis of the AMETEK Common Stock held
immediately before the Spin-Off, allocated in proportion to the fair market
value of each on the Spin-Off Date.
3. The holding period of the New Ametek Common Stock received by the
holders of AMETEK Common Stock will include the holding period of the
AMETEK Common Stock on which the Spin-Off was made, provided such AMETEK
Common Stock is held as a capital asset on the Spin-Off Date.
4. No gain or loss will be recognized by AMETEK or New Ametek as a result
of the Contributions or the Spin-Off.
If the Contributions and the Spin-Off did not qualify for tax-free treatment
under Code Sections 368(a)(1)(D) and 355, then for Federal income tax purposes
(i) AMETEK would be required to recognize gain on the Spin-Off to the extent
that the fair market value of the shares of New Ametek Common Stock
distributed in the Spin-Off exceeded AMETEK's tax basis of such shares and
(ii) each holder of AMETEK Common Stock would be required to recognize
dividend income in an amount equal to the fair market value of the shares of
New Ametek Common Stock received in the Spin-Off, up to such stockholder's
allocable share of AMETEK's current and accumulated earnings and profits
(which would include the amount of gain referred to in clause (i) above).
CONSEQUENCES OF THE MERGER
Based upon the Private Letter Ruling (and/or the Tax Opinions), the
following is a summary of the anticipated Federal income tax consequences of
the Merger:
1. No gain or loss will be recognized by holders of AMETEK Common Stock
whose shares of AMETEK Common Stock are exchanged solely for Culligan
Common Stock pursuant to the Merger Agreement (except with respect to cash
received by such holders of AMETEK Common Stock in lieu of fractional
shares of Culligan Stock). An AMETEK stockholder who receives cash in lieu
of fractional shares of Culligan Common Stock will recognize capital gain
or loss in an amount equal to the difference between the cash so received
and the portion of the tax basis in AMETEK Common Stock (as determined
immediately following the Spin-Off) that is allocable to such fractional
share. Such capital gain or loss will be long-term capital gain or loss,
provided such fractional shares would have been held by such stockholder as
a capital asset immediately prior to the Merger.
2. The tax basis of the Culligan Common Stock received (or, in the case
of fractional shares, deemed received) by holders of AMETEK Common Stock
who exchange their AMETEK Common Stock solely for Culligan Common Stock in
the Merger will be the same as the aggregate tax basis of the AMETEK Common
Stock (as determined immediately following the Spin-Off) surrendered in
exchange therefor.
3. The holding period for the shares of Culligan Common Stock received in
the Merger will include the period during which the shares of the AMETEK
Common Stock surrendered in exchange therefor were held, provided that such
shares of AMETEK Common Stock were held as a capital asset immediately
prior to the Merger.
4. No gain or loss will be recognized by AMETEK, Culligan Merger Sub or
Culligan as a result of the Merger.
If the Merger did not qualify for tax-free treatment as a reorganization
under Code Section 368(a)(1)(B), each holder of AMETEK Common Stock would
recognize gain or loss equal to the difference between the fair market value
of the Culligan Common Stock received and such holder's tax basis of the
shares of AMETEK Common Stock surrendered. Failure of the Merger to qualify as
a tax-free reorganization could jeopardize the tax-free treatment of the
Contributions and the Spin-Off under Code Sections 355 and 368(a)(1)(D).
63
CAPITALIZATION
The following table sets forth as of April 30, 1997, the capitalization of
Culligan as of such date and as adjusted to reflect the Merger as if it had
occurred on April 30, 1997. See the "CULLIGAN UNAUDITED PRO FORMA FINANCIAL
INFORMATION--Culligan Unaudited Condensed Pro Forma Combined Balance Sheet"
and the accompanying notes thereto. This table should be read in conjunction
with the Consolidated Financial Statements of Culligan and the accompanying
notes, appearing in the Culligan Form 10-Q incorporated herein by reference.
See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE."
APRIL 30, 1997
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN
THOUSANDS)
Cash and cash equivalents................................ $ 13,244 $ 14,182
======== ========
Short term debt:
Notes payable and current maturities of long term debt. $ 17,905 $ 18,268
-------- --------
Long term debt:
Notes payable to banks................................. 27,556 52,556
Other.................................................. 6,671 6,671
-------- --------
Total long term debt................................. 34,227 59,227
-------- --------
Stockholders' equity:
Common stock, $0.01 par value per share;
60,000,000 shares authorized; 21,384,130 actual shares
issued and outstanding (24,850,797 shares as adjust-
ed)................................................... 214 249
Additional paid-in capital............................. 236,477 363,916
Retained (deficit)..................................... (35,187) (35,187)
Foreign currency translation adjustment................ (3,973) (3,973)
-------- --------
Total stockholders' equity........................... 197,531 325,005
-------- --------
Total capitalization................................. $249,663 $402,500
======== ========
64
CULLIGAN UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited condensed pro forma combined statement of operations
for the fiscal year ended January 31, 1997 and for the three-month period
ended April 30, 1997 give effect to the Merger as if it occurred on February
1, 1996. The accompanying unaudited condensed pro forma combined balance sheet
as of April 30, 1997 gives effect to the Merger as if it occurred on April 30,
1997.
The unaudited pro forma financial information of Culligan is presented for
illustrative purposes only and is not necessarily indicative of the combined
results of operation or financial position of Culligan if the Merger had
occurred on the assumed dates, nor is it necessarily indicative of the future
results of operations or financial position of Culligan. The unaudited pro
forma financial information is based on the historical consolidated financial
statements of Culligan for the year ended January 31, 1997 and for the three-
month period ended April 30, 1997 and the Water Filtration Business for the
year ended December 31, 1996 and the three-month period ended March 31, 1997
and should be read in conjunction with such historical financial information
and the notes thereto, which appear elsewhere herein and in the Culligan 10-K
and the Culligan Form 10-Q which are incorporated herein by reference. The
selected historical financial information for Culligan for the three-month
periods ended April 30, 1996 and April 30, 1997 is derived from the unaudited
financial statements of Culligan and should be read in conjunction with the
Culligan Form 10-Q. In the opinion of Culligan's management, the summary
consolidated financial information for the three months ended April 30, 1996
and 1997 include all adjustments necessary to present fairly the information
set forth therein. Results of operations for the interim periods may not be
indicative of results for the full year. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
The pro forma adjustments applied in the unaudited pro forma financial
information reflect the Merger as a purchase. Under the purchase method of
accounting, the purchase cost will be allocated to acquired assets and
liabilities based on their fair relative values as of the Closing Date with
the excess of the purchase cost over fair value allocated to goodwill. Such
allocations are based on valuations and other studies that are not yet
complete. Accordingly, the final allocations will be different from those
reflected. However, based on current information, Culligan does not presently
expect the final allocations to differ materially from the amounts presented.
65
CULLIGAN UNAUDITED CONDENSED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
JANUARY 31, 1997
CULLIGAN WATER FILTRATION
YEAR ENDED BUSINESS MERGER
JANUARY 31, YEAR ENDED ADJUSTMENTS PRO
1997 DECEMBER 31, 1996 (A)(B) FORMA
----------- -------------------- ----------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales............... $371,018 $68,650 $ (827)(c) $438,841
Cost of goods sold...... 205,581 44,039 834 (c),(d),(e),(f) 250,454
-------- ------- ------- --------
Gross profit............ 165,437 24,611 (1,661) 188,387
Selling, general and ad-
ministrative........... 113,932 10,004 314 (c),(d),(e) 124,250
Depreciation expense.... -- 1,919 (1,919)(e) --
Amortization of intangi- 17,522 328 3,126 (g) 20,976
ble assets............. -------- ------- ------- --------
Operating income (loss). 33,983 12,360 (3,182) 43,161
Other income (expense), 5,023 (9) -- 5,014
net.................... -------- ------- ------- --------
Income (loss) before in-
terest and income tax-
es..................... 39,006 12,351 (3,182) 48,175
Interest income......... 2,633 -- -- 2,633
Interest expense........ (5,490) -- (1,609)(h) (7,099)
Income taxes............ (20,264) (4,188) 730 (i) (23,722)
-------- ------- ------- --------
Net income (loss)....... $ 15,885 $ 8,163 $(4,061) $ 19,987
======== ======= ======= ========
Weighted average shares
outstanding (000's).... 21,375 n/a 3,467 (j) 24,842
Net income per share.... $ 0.74 n/a n/a $ 0.80
======== ======= ======= ========
CULLIGAN UNAUDITED CONDENSED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
APRIL 30, 1997
CULLIGAN WATER FILTRATION
THREE MONTHS BUSINESS MERGER
ENDED APRIL 30, THREE MONTHS ENDED ADJUSTMENTS PRO
1997 MARCH 31, 1997 (A)(B) FORMA
--------------- ------------------ ----------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales............... $ 99,403 $18,721 $ -- $118,124
Cost of goods sold...... 54,354 12,045 106 (d),(e),(f) 66,505
-------- ------- ------ --------
Gross profit............ 45,049 6,676 (106) 51,619
Selling, general and ad-
ministrative........... 30,251 2,814 182 (d),(e) 33,247
Depreciation expense.... -- 527 (527)(e) --
Amortization of intangi- 714 68 781 (g) 1,563
ble assets............. -------- ------- ------ --------
Operating income (loss). 14,084 3,267 (542) 16,809
Other income (expense), 31,722 (5) -- 31,717
net.................... -------- ------- ------ --------
Income (loss) before in-
terest and income tax-
es..................... 45,806 3,262 (542) 48,526
Interest income......... 412 -- -- 412
Interest expense........ (1,235) -- (391)(h) (1,626)
Income taxes............ (17,855) (1,048) 77 (i) (18,826)
Minority interest....... (114) -- -- (114)
-------- ------- ------ --------
Income before extraordi-
nary item.............. 27,014 2,214 (856) 28,372
Extraordinary item for
the write off of
capitalized refinancing
costs (net of
applicable income tax
benefit of $272)....... (422) -- -- (422)
-------- ------- ------ --------
Net income (loss)....... $ 26,592 $ 2,214 $ (856) $ 27,950
======== ======= ====== ========
Weighted average shares
outstanding (000's).... 22,123 n/a 3,467 (j) 25,590
Net income per share.... $ 1.20 n/a n/a $ 1.09
======== ======= ====== ========
66
NOTES TO CULLIGAN UNAUDITED CONDENSED PRO FORMA COMBINED STATEMENT OF
OPERATIONS
(DOLLARS IN THOUSANDS)
(a) The Water Filtration Business statement of operations includes revenues
and expenses derived from AMETEK's historical cost financial accounts. The
associated revenues and expenses are either directly attributable to the
Water Filtration Business or have been allocated to the Water Filtration
Business based upon methods considered reasonable by AMETEK's management.
The statement of operations of the Water Filtration Business were prepared
in contemplation of the Merger.
(b) The pro forma adjustments do not reflect any operating efficiencies or
cost savings that may result from the merged business. Also, a final
determination of the required purchase accounting adjustments has not been
made, and the earnings results will vary from those pro forma earnings
shown based on the final adjustments.
(c) To eliminate November and December 1995 sales of $827 and cost of goods
sold of $359 and selling, general and administrative expenses of $367
related to APIC International S.A., a wholly owned subsidiary of the Water
Filtration Business, that were included in the Water Filtration Business
results for the year ended December 31, 1996.
(d) To reclassify research and development expenses of $618 and $160 included
in the costs of goods sold of the Water Filtration Business to selling,
general and administrative expenses for the year ended December 31, 1996
and the three months ended March 31, 1997, respectively. These expenses
are reclassed to selling, general and administrative expenses in order to
present the statement of operations of the Water Filtration Business on a
basis consistent with Culligan.
(e) To reclassify depreciation expense of the Water Filtration Business to
cost of goods sold by $1,856 and $505; and selling, general and
administrative expenses by $63 and $22 for the year ended December 31,
1996 and the three months ended March 31, 1997, respectively, in order to
present the statement of operations of the Water Filtration Business on a
basis consistent with Culligan.
(f) To capitalize tooling costs expensed by the Water Filtration Business, net
of additional depreciation expense related to such capitalized amounts.
The adjustment results in a net decrease of $45 and $239 to cost of goods
sold of the Water Filtration Business for the year ended December 31, 1996
and the three months ended March 31, 1997, respectively. The adjustment is
necessary to present the statement of operations of the Water Filtration
Business in accordance with the accounting policies that will be used
after the Merger.
(g) To record amortization expense of $2,966 and $741 for the year ended
January 31, 1997 and the three months ended April 30, 1997, respectively,
for goodwill resulting from the excess of the purchase price paid by
Culligan over the sum of identifiable assets acquired and liabilities
assumed. The amortization period for goodwill is 40 years. Amortization
expense also includes $160 and $40 for the year ended January 31, 1997 and
the three months ended April 30, 1997, respectively, for identifiable
trademarks which are being amortized over 20 years. Also see Note (c) to
the Pro Forma Condensed Balance Sheet.
(h) To record interest expense of $1,609 and $391, reflecting one year's and
three months', respectively, estimated interest expense for the debt of
$25,000 assumed in the Merger. Also see Note (e) to the Culligan Unaudited
Condensed Pro Forma Combined Balance Sheet.
The effect of a 1/8 percent change in the interest rate on the $25,000 debt
assumed in the Merger would be approximately $31 for the year ended January
31, 1997 and $8 for the three months ended April 30, 1997.
(i) To record the tax effect (at 40%) of all pro forma adjustments except
goodwill, which is not tax deductible.
(j) To adjust the shares of common stock outstanding to reflect the issuance
of 3,466,667 shares of Culligan common stock as if the shares were issued
on February 1, 1996. Also see Note (f) to the Culligan Unaudited Condensed
Pro Forma Combined Balance Sheet.
67
CULLIGAN UNAUDITED CONDENSED PRO FORMA
COMBINED BALANCE SHEET
APRIL 30, 1997
WATER
FILTRATION
CULLIGAN BUSINESS
APRIL MARCH 31, MERGER
30, 1997 1997 ADJUSTMENTS PRO FORMA
-------- ---------- ----------- ---------
(DOLLARS IN THOUSANDS)
CURRENT ASSETS:
Cash and cash equivalents.... $ 13,244 $ 938 $ -- (a) $ 14,182
Accounts and notes
receivable, net allowance
for doubtful accounts....... 93,263 12,244 -- (a) 105,507
Inventories.................. 50,616 6,848 -- (a) 57,464
Prepaid and other current as-
sets........................ 18,119 814 -- (a) 18,933
-------- ------- -------- ---------
Total current assets....... 175,242 20,844 -- (a) 196,086
-------- ------- -------- ---------
Property, plant and
equipment, net of
accumulated depreciation.... 91,738 17,600 752 (b) 110,090
Intangible assets, net of ac-
cumulated amortization...... 100,790 3,216 121,825 (c) 225,831
Other noncurrent assets...... 22,114 -- -- (a) 22,114
-------- ------- -------- ---------
Total assets............... $389,884 $41,660 $122,577 $ 554,121
======== ======= ======== =========
CURRENT LIABILITIES:
Accounts payable and accrued
expenses..................... $ 81,793 $ 8,231 $ 1,163 (d) $ 91,187
Notes payable and current ma-
turities of long-term debt.. 17,905 363 -- (a) 18,268
-------- ------- -------- ---------
Total current liabilities.. 99,698 8,594 1,163 109,455
-------- ------- -------- ---------
LONG-TERM LIABILITIES:
Long-term debt............... 34,227 -- 25,000 (e) 59,227
Deferred income taxes and
other noncurrent liabili-
ties........................ 58,428 2,006 -- (a) 60,434
-------- ------- -------- ---------
Total long-term liabili-
ties...................... 92,655 2,006 25,000 119,661
-------- ------- -------- ---------
STOCKHOLDERS' EQUITY:
Common stock................. 214 -- 35 (f) 249
Additional paid-in capital... 236,477 -- 127,439 (f) 363,916
Retained earnings (deficit).. (35,187) 32,230 (32,230)(g) (35,187)
Foreign currency translation
adjustment.................. (3,973) (1,170) 1,170 (g) (3,973)
-------- ------- -------- ---------
Total stockholders' equity. 197,531 31,060 96,414 325,005
-------- ------- -------- ---------
Total liabilities and
stockholders' equity...... $389,884 $41,660 $122,577 $ 554,121
======== ======= ======== =========
68
NOTES TO CULLIGAN UNAUDITED CONDENSED PRO FORMA COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(a) It is assumed that the historical valuation of the assets and liabilities
of the Water Filtration Business approximates the new book basis for the
merged business, based on the preliminary allocation of the purchase price
using the purchase method of accounting. Also see Note (c) regarding the
preliminary allocation of the purchase price.
(b) The $752 adjustment to property, plant and equipment results from the
capitalization of the Water Filtration Business's tooling costs to be
consistent with the accounting policies of Culligan. These costs were
previously expensed by the Water Filtration Business. Also see Note (c)
regarding the preliminary allocation of the purchase price.
(c) The intangible assets amount of $121,825 represents goodwill of $118,625
and identifiable trademarks of $3,200. Goodwill represents the excess of
the purchase price (see Note (f)) paid by Culligan over the sum of
identifiable assets acquired less liabilities assumed. Under purchase
accounting, the purchase cost will be allocated to acquired assets and
liabilities based on their relative fair values at the acquisition date
based on valuations and other studies which are not yet complete. The
identifiable trademarks of $3,200 will be amortized over 20 years, the
expected life of the assets. The difference has been allocated to goodwill
which will be amortized over forty years. Such allocations are subject to
final determination based on real estate, leasehold, identifiable
trademarks and equipment, valuation studies and a review of the books,
records and accounting policies of the Water Filtration Business. These
studies are expected to be completed after the acquisition date but before
the end of fiscal 1998. Accordingly, the final allocations will be
different from the amount reflected herein. However, based on current
information, management does not presently expect the final allocations to
differ materially from the amounts presented.
(d) To record a financial advisory fee of $1,163 to be paid in connection with
the purchase.
(e) To record issuance of $25,000 of long-term debt in connection with the
purchase (also see Note (f) below). It is assumed the $25,000 will be
obtained through additional borrowings on the Culligan Credit Facility.
(f) To record the issuance of 3,466,667 shares of Culligan's common stock at
$36.85 a share for the purchase of the Water Filtration Business. The
number of shares is based on a purchase price of $155,000, less assumed
debt of $25,000, divided by $37.50 (as provided in the Merger Agreement).
The market price of the Culligan Common Stock used to prepare this pro
forma adjustment is based on the average of the closing price of Culligan
Common Stock for a period of five days, beginning two days before the
Merger announcement and ending two days following the Merger announcement.
The estimated total market value of the common stock of $127,747 has been
reduced by $273 which is the estimated direct costs of registration. The
net market value of the common stock of $127,474 plus the face value of the
long-term debt described in Note (e) and the financial advisory fee of
$1,163 described in Note (d) equals the aggregate Merger consideration of
$153,637.
The aggregate Merger consideration may increase for Culligan stock options
issued in substitution for stock options to purchase AMETEK Common Stock
held by Water Filtration Business Employees. Culligan does not expect,
however, the number of potential options issued, if any, to be material.
The final purchase price is also subject to adjustment based on adjusted
net worth of the Water Filtration Business to be determined upon an audit
of the closing balance sheet.
(g) To eliminate the equity of the Water Filtration Business.
69
THE COMPANIES
A more detailed description of the business of Culligan is contained in the
Culligan 10-K incorporated herein by reference. See "AVAILABLE INFORMATION"
and "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
CULLIGAN
Culligan serves the household and consumer market, including the bottled
water market, and the commercial and industrial markets, including PDS,
operate and maintain ("O&M"), build, own and operate and other markets,
offering a broad range of products and services. Culligan's product lines
include filtration devices, reverse osmosis systems, desalination facilities,
bottled water, water softeners, deionizers and ultrafiltration products.
Product sizes range from small devices for residential customers to large
multi-process systems that are custom engineered and manufactured for
industrial customers. Through its independent dealers, company-owned dealers
and international distributors, Culligan also offers a full line of
accessories, replacement parts and services. In addition, Culligan is a major
provider of PDS both domestically and internationally.
Culligan conducts its activities in two principal areas: household and
consumer and commercial and industrial.
Household and Consumer
Culligan is the leading manufacturer and distributor of water purification
and treatment products to residential customers in the United States.
Culligan's domestic and international household and consumer products and
services address residential water problems, including the removal of lead,
cysts and other health-related contaminants, the elimination of chlorine and
unpleasant odors and tastes from water, and the softening of water by removing
minerals.
Culligan, through its independent and Culligan-owned dealers, sells,
installs and services a broad range of filters, reverse osmosis units and
water softeners that address household water problems. Culligan's strong brand
recognition, popularized by its famous "Hey Culligan Man!"(R) commercials, as
well as its extensive dealer network, have combined to give Culligan a leading
position in the residential water treatment market.
Culligan produces and sells mechanical filtration systems and point-of-use
filters in the household and consumer market designed to improve the quality
of drinking water. In 1988, Culligan became the first to receive certification
from the independent National Sanitation Foundation ("NSF") under NSF's
standard for residential reverse osmosis drinking water systems. Since that
time, Culligan has developed many proprietary reverse osmosis systems to
improve the quality of drinking water, including Culligan's latest model of
its Aqua-Cleer(R) Drinking Water System that utilizes the reverse osmosis
process to filter tap water three times before it comes out of the faucet.
Culligan also offers a wide array of water softening and conditioning
equipment and products for household use. Household automatic softeners and
portable exchange conditioners have constituted a large portion of Culligan's
household business since its inception.
In fiscal 1997, Culligan, through its newly-formed Consumer Markets
Division, launched a line of water filtration products for sale through
department stores and do-it-yourself outlets and entered into several
marketing partnerships for the co-branding of products with partners that are
expected to provide rapid channel access and recurring revenue from
replacement filter sales. The first products introduced by the division,
faucet mount filters, were shipped to department stores in the second quarter
of fiscal 1997. By the end of the year, the division had expanded its product
offerings with the introduction of three new Culligan(R) home water filtration
product lines designed for the "do-it-yourself" market, consisting of under-
counter systems, refrigerator water/ice maker filter systems and a sediment
and rust reduction whole house filtration system and had announced the
introduction of
70
a designer glass pitcher filtration system and two new monitored faucet mount
systems that are being rolled out to the high-end department store channels in
fiscal 1998. In fiscal 1997, Culligan also entered into a marketing
partnership with Health-o-meter, the parent of Mr. Coffee, for plastic pour
through pitchers and with a major appliance manufacturer to provide a
refrigerator water/ice maker filtration system as well as a long-term
corporate partnering agreement with Moen Incorporated to develop Moen(R)
products incorporating Culligan water filtration assemblies.
Through its Everpure subsidiary, Culligan also serves the residential market
by providing point-of-use filtration systems for homes and apartments as well
as recreational vehicles such as Winnebago, Fleetwood and Airstream products.
Everpure's filtration systems reduce or remove off-tastes, odors, chlorine,
dirt, rust, asbestos fibers and parasitic protozoan cysts from the water
supply.
Utilizing its distribution network and product technology, Culligan entered
the bottled water market in 1987 by licensing the sale of five-gallon
containers of bottled water under the Culligan name. Because of growing
consumer concern over the quality of water and its health effects, the bottled
water market has grown substantially in recent years and is expected to
continue to expand. Culligan's licensed bottled water sales now rank fourth in
the five-gallon bottled water market in the United States with an annual
growth rate of approximately 21% in fiscal 1997 and is the only brand in the
five-gallon bottled water business with a nationwide distribution network.
Bottled water under the Culligan name is produced at over 100 company-owned,
franchised or licensed bottling locations and sold through over 500 company-
owned and franchised dealers in the United States. Culligan receives royalty
payments from its licensed producers and dealers based on the volume of sales.
Culligan's dealers typically deliver the five-gallon bottles to a customer's
home or office on a route basis, and the customer rents the dispenser console.
The dealers also pick up the empty bottles which are then cleaned and refilled
at the bottling location. Culligan generally does not participate in any other
segment of the bottled water market.
Commercial and Industrial
Culligan designs, manufactures and, primarily through its distribution
network, sells, installs and services a wide range of products to solve the
complex water problems of its commercial and industrial customers. These
products include filtration systems, reverse osmosis units, water softeners,
desalination systems, deionizers and high quality ultrafiltration and
microfiltration products capable of producing ultrapure water. Culligan
believes that its dealer network provides it with a competitive advantage in
the commercial and industrial markets because the dealers are able to service
systems on a national and international basis.
Commercial
Commercial users require water treatment systems that remove dissolved
minerals, such as calcium, magnesium, iron or manganese, and health-related
contaminants from the available water supply and are capable of treating large
quantities of water on a cost effective basis. Culligan's commercial products
use technologies similar to its residential products, but afford greater
capacity, durability and effectiveness and allow customers increased
flexibility for customization. For example, Culligan's filters, deionizers and
softeners provide food and beverage manufacturers with consistently high
quality water enabling them to preserve uniformity of taste and appearance in
their products, reduce health-related contaminants and minimize equipment
maintenance costs.
Other commercial enterprises such as airlines, hotels, restaurants, car
washes, laundromats, office buildings and apartment complexes use Culligan
products to condition, filter, deionize and otherwise treat large quantities
of water. Unique features of Culligan's commercial water softeners include
high quality Cullex(R) resins, the Dubl-Safe(TM) brine system and a full range
of system controls that minimize salt usage, such as Culligan's solid state
Aqua-Sensor(R) regeneration control.
71
Through Everpure, Culligan supplies water filtration products to commercial
businesses which require consistently high quality water. Everpure is the
leading supplier of water filtration products to the food service industry.
Sales to the food service industry constituted approximately 75% of Everpure's
revenues in its last fiscal year. Everpure's line of food service water
filtration products includes systems for post-mix beverage dispensers, ice
machines, coffee makers, steamers and vending machines that are designed to
treat all levels of water contamination and to ensure that consumer products
such as coffee, soups or ice are of the highest quality. Everpure systems also
decrease maintenance costs and extend the life of water-using equipment by
removing dirt and other abrasive particles that can damage the internal
workings of such equipment.
Everpure complements Culligan's other operations by providing a presence in
selected markets where the Culligan's dealer network does not generally
participate. Everpure products are used extensively in many major fast-food
restaurants, including McDonald's(R) Burger King(R) and Starbucks(R) as well
as convenience store chains around the world, including 7-Eleven(R) and
Circle-K(R). In 1979, Everpure received NSF certification for its filtration
cartridges, and today substantially all of the Everpure systems carry the
highest NSF rating for both aesthetic and health effects. Everpure's principal
family of filter cartridges uses its proprietary precoat filtration process
using unique MicroPure(R) filtering media. Everpure's filtration and
disinfection products are also used in the airline, marine, offshore oil and
military markets.
Everpure operates in most western European countries and Japan. In recent
years, Everpure has expanded internationally by following its customers into
developing countries where the water supply is of questionable quality. Its
market outside the United States is primarily the food service industry,
including fast-food chains, restaurants and offices. Everpure's products are
sold directly to equipment manufacturers, fast-food chains and convenience
store chains as well as to individual locations by Everpure's licensed
distributors.
Culligan's newly acquired Bruner operation designs and manufactures water
softeners, filters, deionizers, dealkalizers, demineralizers, degasifiers and
reverse osmosis systems in standard and custom design configurations for
commercial and industrial applications worldwide. Bruner products are sold
through an extensive network of sales representatives supported by sales and
service locations in the United States and internationally.
Industrial
Industrial companies also require the removal of dissolved minerals and
contaminants from water before the water can be used in manufacturing
processes. A typical treatment system for these applications will combine
multiple processes, including clarification, depth filtration, carbon
filtration, softening, reverse osmosis, deionization, submicron cartridge
filtration and ultraviolet light disinfection. Through Bruner, Culligan also
designs and manufactures systems for industrial large volume process water
users including packaged systems utilizing multi-cell filters to reduce or
remove turbidity, iron, hydrogen sulfide, color and other particulates from
the water supply. Its industrial operations are also supported internationally
by its recent acquisition of Dewplan Limited, one of the UK's leading
specialist design contractors for high-purity and ultra-high purity industrial
water treatment systems.
Culligan's and Bruner's products and technologies are used to remove
dissolved minerals and contaminants from water in numerous industrial
applications, including manufacturing operations, laboratories, research, food
processing, chemical processing, pharmaceutical facilities and printing
plants. In addition, Culligan and its dealers have substantial experience in
configuring systems used by manufacturers of prescription and non-prescription
drugs. Culligan and Bruner ultrapure water systems are also used by
manufacturers of products such as integrated circuits and compact discs.
PDS
Culligan and its dealer network also provide PDS to commercial and
industrial customers in the United States and Europe. Culligan's network
includes over 380 outlets and approximately 250 regeneration facilities. In
this growing business, Culligan provides portable water deionization treatment
equipment that uses resins as the filtration medium to produce ultrapure
water. Resin is retrieved and transported by a dealer service
72
representative to a dealer's regeneration plant for chemical recharging when
it is exhausted. Unlike many permanent systems, PDS requires no chemical
handling or maintenance by the customer. PDS is a widely used technology among
industrial and commercial companies and provides Culligan and its dealer
network with a recurring source of revenues and the opportunity to market its
systems and other services to its existing PDS customers.
Medical
Medical-related products often require ultrapure water free from certain
minerals and contaminants to operate effectively. Culligan is a leading
manufacturer of reverse osmosis units and comprise an integral part of the
kidney dialysis equipment used by hospitals, hemodialysis centers and other
health service providers. Culligan's reverse osmosis unit is one of a limited
number of such units registered by the United States Food and Drug
Administration as a medical device approved for this purpose.
Desalination
Culligan has produced major desalination systems throughout the world.
Culligan has supplied Egypt with fourteen desalination plants along the Red
Sea and in the southern Sinai region and, in the Arab Emirate of Umm-Al
Quwayn, Culligan supplied a 9,000 cubic meter per day desalination plant to
serve the potable water needs of the 15,000 inhabitants. In addition, its
recently acquired Culligan-Enerserve operation builds, owns and operates
desalination and other water and wastewater treatment systems in the
Caribbean. Since its acquisition in July 1996, that operation has expanded
significantly, obtaining an additional contract with the government of the
island of St. Maarten that is expected to generate revenues of approximately
$25,000,000 over the five-year term to own and operate a recently completed
2.6 million gallon per day desalination facility to produce water for the
island's residents.
Municipal
Although historically the municipal market has not represented a large
portion of the Culligan industrial business, Culligan believes that with the
re-enactment of the Safe Drinking Water Act there is significant growth
potential in this market. Culligan, through the efforts of its technical and
sales personnel, designs and manufactures and, through its dealer network,
sells, installs and services equipment and plants to chlorinate and remove
contaminants from water supplies. In the United States, Culligan typically
provides surface water treatment systems for of small municipalities, mobile
home parks and other residential groups with populations under 3,300 people.
Culligan's Multi-Tech(R) filtration system is a low-cost, pre-engineered,
packaged plant that contains all the steps used in a conventional water
treatment plant, such as coagulation, flocculation, clarification, filtration
and disinfection. Culligan currently has in place in North America, Europe and
Middle East over 700 pre-engineered, packaged Multi-Tech(R) and similar non-
U.S. OFSY Omnifiltration(R) systems to help communities meet their needs for
clean water. In addition, Culligan's Bruner operation offers self-contained
Bruner packaged water treatment plants in the municipal market. The Bruner
plants are custom engineered to produce potable water from almost any surface
water source and typically provide automated controls programmed to regulate
rapid or "flash" mixing, flocculation, settling and gravity filtration.
Through Culligan Operating Services, Culligan also provides O&M services for
water and wastewater treatment facilities for municipalities and other large
users primarily in Florida and elsewhere in the Southeastern United States.
Dealer and Distribution Network
Culligan believes that the size and scope of its dealer and distributor
network make it uniquely positioned in the water purification and treatment
industry. Today there are over 1,100 independent Culligan dealers and
distributors and 45 company-owned dealers who distribute and service Culligan
products throughout the United States, Canada and Western Europe as well as
other foreign markets. In addition, there are over 350 distributors and
authorized agents in the United States and Western Europe as well as in other
foreign markets that distribute water filtration products of Culligan's
Everpure subsidiary for the food service industry and other commercial
businesses. Culligan's newly-acquired Bruner operation has approximately 93
sales representatives that distribute its products in the United States and
internationally. Culligan believes that this diverse geographical distribution
network allows it to react rapidly to changing customer needs as well as to
market conditions.
73
As part of its distribution system, Culligan currently owns 26 Culligan
dealers in North America which had total revenues of approximately $70.5
million in the last fiscal year. The company-owned dealers are primarily
located in major metropolitan markets. Such markets include the New York
City/New Jersey, Los Angeles, Chicago, Houston, San Diego and San Francisco
metropolitan areas. Since the beginning of 1997, the company-owned Dealer
division has made eleven acquisitions with aggregate revenues of over
$19,000,000. Such acquisitions include dealerships in Elkhart, Indiana,
Glendale, Riverside, Santa Ana and San Diego, California, and Waukegan,
Illinois; bottled water operations in Houston, Texas, Omaha, Nebraska, and San
Diego, California; and a portable deionization service business in Santa
Clara, California. In addition, since the beginning of fiscal 1997, Culligan's
international division has acquired seven dealerships having aggregate
annualized revenues of approximately $7,000,000. Such dealerships are located
in Bordeaux, Lorraine, Somme-Oise and Cote-Opale, France; Lausanne,
Switzerland; and Florence, Italy, and Eau Water Treatment Company, an
independent French company specializing in commercial applications and
technical service support. In addition, Culligan Operating Services has made
eight acquisitions of complementary operations since being acquired by
Culligan in January 1996.
Culligan-owned dealer operations generally have a high percentage of
revenues which are derived from sources believed to be recurring in nature
(estimated to be approximately 70% of total company-owned dealer revenues),
such as servicing equipment, sales of replacement parts, filters and other
consumables, equipment rental and royalties. Culligan's dealer and
distribution network enables it to offer complete solutions to pre-use water
problems for residential, commercial and industrial customers through a
combination of testing, product selection, installation, monitoring and
service. Culligan is continuously upgrading and expanding its dealer network
coverage. Culligan also has utilized its dealer network and distributors to
introduce new product lines and enter new markets.
Typically, a dealer's territory covers a local community or metropolitan
area and the dealer sells or rents a significant portion of its products to
residential users.
The size of dealerships range from small local operations involving only a
few employees to large multiple site dealerships. Generally, approximately
one-half of a dealer's revenues are derived from rental and service income
from existing customers. Certain dealers, including many large dealers, are
capable of providing standard and special-order commercial and industrial
products and services. Culligan's laboratories in Northbrook, Illinois;
Barcelona, Spain; and Bologna, Italy test water samples for dealers to help
them to identify a customer's water treatment needs.
Dealers generally purchase all their requirements for water treatment
products from Culligan. Culligan assigns each dealer a primary area of
geographic responsibility and generally expects the dealer to cover the needs
of customers in this area, although the dealer has no exclusive right to this
territory. Virtually all of the Culligan sales of household products in North
America have been made through the dealer network. Dealers purchase equipment
from Culligan for sale, rental or use in their portable exchange service
programs. In addition, Culligan receives royalties from the sale of bottled
water and certain supplies that bear the Culligan name.
Culligan provides dealers with a variety of services, including training,
education and technical assistance. It offers the dealers management, sales
and service seminars at the time of start-up and throughout their careers.
Culligan also employs technical service engineers who travel throughout the
United States aiding dealers with water quality needs. One of the unique
advantages Culligan supplies to its dealers, as an aid in commercial and
industrial sales, is Culligan's proprietary CAAP(R) pc software.
Commercial and industrial job specifications and proposals are supported by
application and technical engineers located in Northbrook, Illinois. In
addition, Culligan provides the dealers with significant marketing services
and support, including an extensive co-operative advertising program. A
finance subsidiary of Culligan provides intermediate-term loans to franchised
dealers for equipment placed on rental or lease.
CULLIGAN MERGER SUB
Culligan Merger Sub is a newly formed Delaware corporation and a wholly
owned subsidiary of Culligan. Culligan Merger Sub was organized for the
purpose of effecting the Merger pursuant to the Merger Agreement.
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Culligan Merger Sub has no material assets and has not engaged in any
activities except in connection with the Merger. The principal executive
offices of Culligan Merger Sub are located at One Culligan Parkway,
Northbrook, Illinois 60062 and its telephone number is (847) 205-6000.
AMETEK
A more detailed description of the business of AMETEK is contained in the
AMETEK 10-K incorporated herein by reference. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
The present businesses of AMETEK are comprised of the activities New Ametek
will undertake after the Spin-Off and the Water Filtration Business.
NEW AMETEK
New Ametek was incorporated on May 8, 1986 and has been a wholly owned
subsidiary of AMETEK since August 1989. To date, New Ametek's business has
consisted entirely of manufacturing aerospace instrumentation. Prior to the
Spin-Off, AMETEK will transfer or cause to be transferred to New Ametek all of
its assets other than those which are part of the Water Filtration Business,
and New Ametek will assume all of AMETEK's liabilities, except for certain
liabilities relating to the Water Filtration Business and certain indebtedness
of AMETEK. The principal executive offices of New Ametek are located at
Station Square, Paoli, Pennsylvania 19301 and its telephone number is (610)
647-2121.
THE WATER FILTRATION BUSINESS
The Water Filtration Business is currently comprised of an operating
division of AMETEK, the Plymouth Products Division, and three foreign
subsidiaries of AMETEK: Ametek Filters, Limited; APIC International S.A., and
AFIMO S.A.M. The Water Filtration Business is a leader engaged in the design,
manufacture and marketing of point-of-use filtration products for the
separation, clarification and purification of liquids, primarily water. The
Water Filtration Business's strategy is to be a leader in the global
residential water filtration market and has opportunistically pursued selected
specialty filtration markets.
In May 1967, AMETEK acquired Plymouth Industrial Products, a plastic
injection molding company, and named it Plymouth Plastics Division. In 1972,
AMETEK purchased the present Sheboygan, Wisconsin plant site. As the
division's focus on water and fluid filtration products increased, the
division name was changed in May 1974 to Plymouth Products.
In 1991, AMETEK acquired Ametek Filters, Limited, a manufacturer of
industrial filtration products, located in Billingham, U.K., providing a base
for expansion into European markets. The acquisition of APIC and AFIMO, a
French producer of filtration devices, in November 1995 added new markets,
products, technology, and complementary customers.
The Water Filtration Business's manufacturing is vertically integrated at
two of its three manufacturing sites, where it employs proprietary and
patented processes to manufacture and assemble the major components of its
filtration units. The primary raw materials are carbon, various resins,
plastics, and metals. The Water Filtration Business has not experienced a
shortage of raw materials in the past three years and expects an adequate
supply of raw materials at competitive prices to be available from multiple
suppliers.
The Water Filtration Business's products include fluid filtration cartridges
for consumer, commercial, and industrial customers in the United States and
over 100 other countries. It offers a broad line of point-of-use cartridge
filters, ranging from whole-house to countertop water filtration systems, as
well as special-purpose filter housings and replacement cartridges that
significantly improve the quality and taste of water. The Water Filtration
Business has been a leader in water filtration products and technology for
over 25 years. It is known worldwide for quality products sold with the
following recognized brand names: AMETEK, Kleen-Plus(R), American Plumber,
APIC and Fluid-O.
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Point-of-use drinking water filters are designed to enhance taste and remove
specific items, including hazardous chemicals, bacteria, particles and heavy
metals. For example, the Water Filtration Business's countertop filter with a
chemical metal removal cartridge is designed to remove unpleasant taste and
odor, including chlorine, dissolved lead and mercury, 99.95% of disease-
causing Giardia and Cryptosporidium cysts; certain pesticides and chemicals;
sediment and sand particles as small as 0.5 microns (nominal). After
processing 400 gallons of water, this cartridge filter is removed from the
filter housing and replaced. Sales of replacement products are an important
source of recurring revenues. The residential point-of-use countertop water
filters are completely portable and fit most standard faucets with an aerator;
installation requires no tools other than pliers.
Filter cartridges and housings also are used in such applications as
commercial food and beverage dispensing, and cosmetic, chemical production,
the electronics industry and medical applications. Other products include
under-sink, icemaker, pitcher, recreational vehicle, reverse osmosis and
whole-house water filters, each offering a range of features for specialized
and general applications.
The Water Filtration Business's sales and marketing strategy focuses on
comprehensive programs to address a broad range of customer needs. These
include sales, marketing and promotional programs, product packaging and
display, and pricing programs.
The Water Filtration Business's markets include residential, commercial, and
industrial segments. Distribution channels include major hardware chains,
national home centers, water treatment distributors and private label products
for original equipment manufacturers and mass merchandisers. The Water
Filtration Business also has a branded line of filters, housings, and
cartridges designed for residential and commercial installation by plumbing
professionals. The five largest customers accounted for 18% and 19% of the
Water Filtration Business's sales for the three-month periods ended March 31,
1997 and in 1996, respectively, with the three largest customers, Home Depot,
Ace Hardware and Cotter & Co., accounting for 8.7%, 3.2% and 2.3%,
respectively, of the first quarter 1997 sales, and 6.7%, 3.9% and 3.3%,
respectively, of 1996 sales.
Driving the commercial market segment is an increasing global need for
consistent water product quality for such uses as food service, fountain
beverages, steam ovens, coffee and tea. Industrial markets cover a wide range
of applications where component products and systems are used.
The Water Filtration Business continues to grow at a faster rate than the
general filtration market. The Water Filtration Business's global markets are
highly competitive, including many domestic and international companies. No
one company has a significant presence in all markets. The principal methods
of competition are new product development, product performance and quality,
innovation, and distribution. Technical, and after market service and products
are also important competitive advantages.
At March 31, 1997, the Water Filtration Business employed 409 people, of
which 261 were covered by a union. The Water Filtration Business has four
operating plants in one state and three foreign countries. Of these
facilities, two are owned and two are leased. The owned properties consist of
12 acres in Sheboygan, Wisconsin, of which 259,000 square feet are under roof,
and four acres in Teeside, England, of which 29,000 square feet are under
roof. The leases on the leased properties expire over a range of years from
1997 to 2003, with renewal options for varying terms contained in the leases.
The Water Filtration Business's machinery, plants and offices are in
satisfactory operating condition and are adequate for their respective uses.
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DESCRIPTION OF CULLIGAN CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The authorized capital stock of Culligan consists of 60,000,000 shares of
Culligan Common Stock, and 2,000,000 shares of preferred stock, par value $.01
per share ("Culligan Preferred Stock"). As of June 27, 1997, there were
21,391,201 shares of Culligan Common Stock issued and outstanding. Although no
shares of Culligan Preferred Stock have been issued as the date hereof, an
aggregate of 300,000 shares have been reserved for issuance in connection with
Culligan's stockholder rights plan described below under "Culligan Stockholder
Rights Plan."
COMMON STOCK
The holders of Culligan Common Stock are entitled to one vote for each share
held of record on all matters submitted to a vote of Culligan stockholders.
Subject to preferences that may be applicable to any outstanding Culligan
Preferred Stock, holders of Culligan Common Stock are entitled to receive
ratably such dividends as may from time to time be declared by the Culligan
Board out of funds legally available therefor. In the event of a liquidation,
dissolution or winding up of Culligan, holders of Culligan Common Stock would
be entitled to share ratably in all assets of Culligan available for
distribution to holders of Culligan Common Stock remaining after payment of
liabilities and liquidation preference of any outstanding Culligan Preferred
Stock. Holders of Culligan Common Stock have no preemptive rights and have no
rights to convert their Culligan Common Stock into any other securities and
there are no redemption provisions with respect to such shares. All of the
outstanding shares of Culligan Common Stock are fully paid and nonassessable.
PREFERRED STOCK
The Culligan Board has the authority to issue Culligan Preferred Stock in
one or more classes or series and to fix the designations, powers, preferences
and rights of the shares of each such class or series, including dividend
rates, conversion rights, voting rights, terms of redemption and liquidation
preferences and the number of shares constituting each such class or series,
without any further vote or action by Culligan stockholders. Although no
shares of Culligan Preferred Stock have been issued as of the date hereof, an
aggregate of 300,000 shares of junior participating preferred stock have been
reserved for issuance in connection with Culligan's stockholder rights plan
described below under "Culligan Stockholder Rights Plan." Culligan has no
other present plans to issue any shares of Culligan Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for Culligan Common Stock is The First
National Bank of Boston.
CULLIGAN STOCKHOLDER RIGHTS PLAN
On September 13, 1996, Culligan declared a dividend distribution of one
right (a "Culligan Right") for each outstanding share of Culligan Common Stock
to stockholders of record at the close of business on September 26, 1996 (the
"Rights Record Date"). Each Culligan Right entitles the registered holder to
purchase from Culligan one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $0.01 per share (the "Series A
Preferred Stock"), at a purchase price of $78, subject to adjustment. The
description and terms of the Culligan Rights are set forth in a Rights
Agreement (the "Culligan Rights Agreement") between Culligan and The First
National Bank of Boston, as Culligan Rights Agent. Culligan Rights also attach
to all other shares of Culligan Common Stock, including the shares issuable in
the Merger, issued prior to the Distribution Date (as defined below) or the
earlier expiration of the Culligan Rights Agreement.
Initially, the Culligan Rights will be attached to all Culligan Common Stock
certificates representing shares then outstanding, and no separate Culligan
Rights Certificates will be distributed. The Culligan Rights will separate
from Culligan Common Stock and a Distribution Date will occur upon the earlier
of (i) ten (10) business days following public announcement that a person or
group of affiliated or associated persons (an "Acquiring
77
Person") has acquired beneficial ownership of 15% or more of the outstanding
shares of Culligan Common Stock, other than an Exempted Person (the "Stock
Acquisition Date"), or (ii) ten (10) business days (or such later date as the
Culligan Board shall determine) following commencement of a tender offer or
exchange offer that would result in a person or group becoming an Acquiring
Person. "Exempted Person" indicates any person who was the beneficial owner,
on September 3, 1996, of 15% or more of the outstanding shares of Culligan
Common Stock and such person's affiliates and associates, provided that such
person, and such person's affiliates and associates, do not increase their
percentage ownership of Culligan Common Stock by more than five percentage
points over their percentage ownership on such date.
Until the Distribution Date, (i) Culligan Rights will be evidenced by
Culligan Common Stock certificates and will be transferred with and only with
such Culligan Common Stock certificates, (ii) new Culligan Common Stock
certificates issued after the Record Date will contain a notation
incorporating the Culligan Rights Agreement by reference and (iii) the
surrender for transfer of any certificates for Culligan Common Stock
outstanding will also constitute the transfer of the Culligan Rights
associated with the Culligan Common Stock represented by such certificate.
Pursuant to the Culligan Rights Agreement, Culligan reserves the right to
require prior to the occurrence of a Triggering Event (as defined below) that,
upon any exercise of rights, a certain number of Culligan Rights be exercised
so that only whole shares of Series A Preferred Stock will be issued.
Culligan Rights are not exercisable until the Distribution Date and will
expire at the close of business on September 13, 1997, unless earlier redeemed
or extended by Culligan as described below.
As soon as practicable after the Distribution Date, Culligan Rights
Certificates will be mailed to holders of record of Culligan Common Stock as
of the close of business on the Distribution Date and, thereafter, the
separate Culligan Rights Certificates alone will represent the Culligan
Rights.
In the event that a person becomes an Acquiring Person (except pursuant to
an offer for all outstanding shares of Culligan Common Stock that the
disinterested directors of Culligan determine not to be inadequate and to
otherwise be in the best interest of Culligan and its stockholders), each
holder of a Culligan Right will thereafter have the right to receive, upon
exercise, Culligan Common Stock (or, in certain circumstances, cash, property
or other securities of Culligan) having a value equal to two times the
exercise price of the Right. Notwithstanding any of the foregoing, following
the occurrence of the event set forth in this paragraph, all Culligan Rights
that are, or (under certain circumstances specified in the Culligan Rights
Agreement) were, beneficially owned by any Acquiring Person will be null and
void. However, Culligan Rights are not exercisable following the occurrence of
the event set forth above until such time as Culligan Rights are no longer
redeemable by Culligan as set forth below.
For example, at an exercise price of $78 per Culligan Right, each Culligan
Right not owned by an Acquiring Person (or by certain related parties)
following an event set forth in the preceding paragraph would entitle its
holder to purchase $156 worth of Culligan Common Stock (or other
consideration, as noted above) for $78. Assuming that Culligan Common Stock
had a per share value of $39 at such time, the holder of each valid Culligan
Right would be entitled to purchase four shares of Culligan Common Stock for
$78.
In the event that, at any time following the Stock Acquisition Date, (i)
Culligan is acquired in a merger or other business combination transaction
(other than a merger which follows an offer described in the second preceding
paragraph), or (ii) fifty percent (50%) or more of Culligan's assets, cash
flow or earning power is sold or transferred, each holder of a Culligan Right
(except Culligan Rights which previously have been voided as set forth above)
will thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the exercise price of the
Culligan Right. The events set forth in this paragraph and in the second
preceding paragraph are referred to as the "Triggering Events."
At any time until ten (10) business days following the Stock Acquisition
Date, Culligan may redeem the Culligan Rights in whole, but not in part, at a
price of $.005 per Culligan Right (payable in cash, Culligan Common Stock or
other consideration deemed appropriate by the Culligan Board). Immediately
upon the action
78
of the Culligan Board ordering redemption of the Culligan Rights, the Culligan
Rights will terminate and the only right of the holders of Culligan Rights
will be to receive the $.005 redemption price.
Until a Culligan Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of Culligan, including, without limitation, the
right to vote or to receive dividends. While the distribution of Culligan
Rights will not be taxable to stockholders or to Culligan, stockholders may,
depending upon the circumstances, recognize taxable income in the event that
Culligan Rights become exercisable for Culligan Common Stock (or other
consideration) or for common stock of the acquiring company as set forth
above.
Any of the provisions of the Culligan Rights Agreement may be amended by the
Culligan Board prior to the Distribution Date. After the Distribution Date,
the provisions of the Culligan Rights Agreement may be amended by the Culligan
Board in order to cure any ambiguity, to make changes which do not adversely
affect the interests of holders of Culligan Rights, or to shorten or lengthen
any time period under the Culligan Rights Agreement; provided, however, that
no amendment to lengthen a time period relating to when the Culligan Rights
may be redeemed may be made at such time as the Culligan Rights are not
redeemable.
Culligan Rights have certain anti-takeover effects. Culligan Rights will
cause substantial dilution to a person or group that attempts to acquire
Culligan on terms not approved by the Culligan Board. The Culligan Rights
should not interfere with any merger or other business combination approved by
the Culligan Board since Culligan Rights may be redeemed by Culligan at any
time until ten (10) business days following the Stock Acquisition Date.
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COMPARISON OF RIGHTS OF STOCKHOLDERS
The rights of holders of AMETEK Common Stock are presently governed by
Delaware corporate law, the AMETEK Certificate and the AMETEK By-Laws. As a
result of the Merger, holders of AMETEK Common Stock will become stockholders
of Culligan, also a Delaware corporation. Accordingly, such holders' rights
will be governed by Delaware corporate law, the Culligan Certificate and the
Culligan By-Laws. Certain differences in the rights of stockholders arise from
distinctions between the AMETEK Certificate and the Culligan Certificate and
between the AMETEK By-Laws and the Culligan By-Laws. The following is a brief
description of the material differences. This description does not purport to
be a complete statement of all differences between the rights of the
stockholders of AMETEK and the stockholders of Culligan, and the
identification of specific differences is not meant to indicate that other
differences do not exist. The following description is qualified in its
entirety by reference to the AMETEK Certificate, the AMETEK By-Laws, the
Culligan Certificate and the Culligan By-Laws. For information on how to
obtain copies of any of these documents, see "AVAILABLE INFORMATION."
COMMON STOCK CLASSIFICATION
AMETEK and Culligan have issued and outstanding just one class of shares of
common stock. Each holder of Culligan Common Stock and each holder of AMETEK
Common Stock has one vote for each share registered in such stockholder's
name. See "DESCRIPTION OF CULLIGAN CAPITAL STOCK."
DIRECTORS
The AMETEK Certificate and AMETEK By-Laws provide that the AMETEK Board
shall consist of no fewer than 6 nor more than 12 directors, as determined by
the AMETEK Board or AMETEK's stockholders, and be elected for a one-year term
at the annual meeting of holders of AMETEK Common Stock. The AMETEK By-Laws
provide that the number of directors of AMETEK may be increased or decreased
by holders of AMETEK Common Stock at any annual or special meeting and may be
increased or decreased by the affirmative vote of not less than 75% of
directors then in office. The Culligan Certificate and Culligan By-Laws
provide that the Culligan Board shall consist of no fewer than 3 nor more than
15 members as determined by the Culligan Board, such number of directors to be
divided into three classes (Class I, Class II and Class III), each class
having a three-year term and consisting, as nearly as possible, of one-third
of the total number of directors. At each annual meeting of stockholders of
Culligan, successors to the class of directors whose terms expire will be
elected for a three-year term of office, with the three-year term of each
class of the directors expiring at successive annual meetings of the
stockholders, so that one class will be elected each year.
The purpose of a classified board is to promote conditions of continuity and
stability in the composition of a board of directors and in the policies
formulated by a board of directors, by guaranteeing that in the ordinary
course at least two-thirds of the directors will at all times have had at
least one year's experience as directors of a corporation. However, for
similar reasons, a classified board may deter certain mergers, tender offers
or other takeover attempts which some or a majority of the holders of a
corporation's stock may deem to be in their best interest, since it would take
two annual meetings of stockholders to elect a majority of the board of
directors of such corporation. Similarly, a classified board structure would
delay stockholders who do not like the policies of a board of directors from
removing a majority of a board of directors at a single annual meeting.
None of the AMETEK Certificate, the AMETEK By-Laws, the Culligan Certificate
or Culligan By-Laws provides for the removal of directors. Accordingly, the
removal of directors of both AMETEK and Culligan is governed by the DGCL,
which provides that any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of shares
entitled to vote for the election of directors, except (i) unless the
certificate of incorporation otherwise provides, in the case of a corporation
having a classified board, stockholders may effect such removal only for cause
and (ii) in the case of a corporation having cumulative
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voting, if less than the entire board is to be removed, no director may be
removed without cause if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the
entire board of directors, or, if there are classes of directors, at an
election of the class of directors of which he is a part.
The term "cause" is not defined in the DGCL. Consequently, any question
concerning the legal standard for "cause" would have to be judicially
determined.
ADVANCE NOTICE OF NOMINATIONS FOR THE ELECTION OF DIRECTORS AND STOCKHOLDERS
PROPOSALS
The Culligan By-Laws establish an advance notice procedure for stockholders
to make nominations of candidates for election as directors, or bring other
business before an annual meeting of stockholders of Culligan (the
"Stockholder Notice Procedure"). The Stockholder Notice Procedure provides
that only persons who are nominated by, or at the direction of, the Culligan
Board, or by a stockholder who has given timely written notice to the
Secretary of Culligan prior to the meeting at which directors are to be
elected, will be eligible for election as directors of Culligan. The
Stockholder Notice Procedure provides that at an Annual Meeting only such
business may be conducted as has been specified in the notice of the meeting
given by or at the direction of the Culligan Board (or any duly authorized
committee thereof) or brought before the meeting by, or at the direction of,
the Culligan Board (or any duly authorized committee thereof) or by a
stockholder who has given timely written notice to the Secretary of Culligan
of such stockholder's intention to bring such business before such meeting.
Under the Stockholder Notice Procedure, for notice of stockholder
nominations to be made or business to be conducted at an annual meeting to be
timely, such notice must be received by Culligan not less than sixty (60) days
nor more than ninety (90) days prior to the date of the annual meeting or, in
the event that less than seventy (70) days' notice or prior public disclosure
of the date of the Annual Meeting is given or made to stockholders, not later
than the close of business on the 10th day following the day on which such
notice was mailed or such public disclosure was made, whichever first occurs.
Under the Stockholder Notice Procedure, for notice of a stockholder nomination
to be made at a special meeting at which directors are to be elected to be
timely, such notice must be received by Culligan not later than the close of
business on the 10th day following the day on which such notice of the date of
the special meeting was mailed or public disclosure of the date of the special
meeting was made, whichever first occurs.
In addition, under the Stockholder Notice Procedure, a stockholder's notice
to Culligan proposing to nominate a person for election as a director or
conduct certain business at an annual meeting must contain certain specified
information. If the Chairman of the Board of Directors of Culligan presiding
at a meeting determines that a person was not nominated, or other business was
not brought before the meeting, in accordance with the Stockholder Notice
Procedure, such person will not be eligible for election as a director, or
such business will not be conducted at such meeting, as the case may be.
The AMETEK By-Laws do not contain a similar advance notice provision.
Accordingly, except as provided in Regulation 14A under the Exchange Act,
holders of AMETEK Common Stock are able to nominate candidates for election as
directors at stockholders' meetings or to submit proposals without advance
notice to AMETEK. Consequently, holders of AMETEK Common Stock can more easily
submit director nominees and other matters for stockholder consideration as
compared to Culligan stockholders.
ACTION BY WRITTEN CONSENT
The Culligan By-Laws allow stockholders to take action without a meeting,
without prior notice and without a vote, upon the written consent of
stockholders having not less than the minimum number of votes that would be
necessary to authorize a proposed action at a meeting at which all shares
entitled to vote were present and voted. The AMETEK By-Laws permit holders of
AMETEK Common Stock to act by written consent without a meeting, provided that
such action must be authorized by unanimous written consent signed by all of
the holders of outstanding voting stock. However, under the DGCL, unless a
corporation's certificate of incorporation provides otherwise, stockholders
may take action without a meeting, without prior notice and without a vote,
81
upon the written consent of stockholders having not less than the minimum
number of votes that would be necessary to authorize the proposed action at a
meeting at which all shares entitled to vote were present and voted.
Accordingly, since the AMETEK Certificate does not provide for requirements
for action by written consent that are different than the DGCL, the DGCL
requirements outlined in the previous sentence would most likely control any
action by written consent taken by holders of AMETEK Common Stock.
MEETINGS OF STOCKHOLDERS
The AMETEK By-Laws provide that a special meeting of the stockholders of
AMETEK may be called by the President of AMETEK. The President or Secretary of
AMETEK is required to call a special meeting whenever requested in writing to
do so by a majority of the AMETEK Board or by stockholders owning not less
than twenty percent of the shares of AMETEK then issued and outstanding and
entitled to vote at such meeting.
The Culligan By-laws provide that a special meeting of the stockholders of
Culligan may be called by the Chairman, the President, any Vice President, the
Secretary or any Assistant Secretary of Culligan, and any such officer is
required to call a special meeting at the request in writing of a majority of
the Culligan Board.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Under the DGCL, a certificate of incorporation of a Delaware corporation may
be amended by approval of the amendment by the board of directors of such
corporation and the affirmative vote of the holders of a majority of the
outstanding shares of stock entitled to vote thereon unless the certificate of
incorporation prescribes a higher requirement. Neither the AMETEK Certificate
nor the Culligan Certificate prescribes a higher requirement.
AMENDMENT OF BY-LAWS
The AMETEK By-Laws may be altered, amended or repealed or new by-laws may be
adopted by the stockholders of AMETEK or by the AMETEK Board at any regular
meeting of the stockholders or of the AMETEK Board or at any special meeting
of the stockholders of AMETEK or of the AMETEK Board if notice of such
alteration, amendment, repeal or adoption or new By-Laws be contained in the
notice of such special meeting and such amendment is approved by a majority of
the Directors of AMETEK or the affirmative vote of the holders of a majority
of outstanding shares of AMETEK Common Stock. The Culligan By-Laws may be
altered, amended or repealed, in whole or in part, or new by-laws may be
adopted by Culligan stockholders or by the Culligan Board, provided that
notice of such alteration, amendment, repeal or adoption of new By-Laws is
contained in the notice of such meeting of stockholders or the Culligan Board
and such amendments are approved by either a majority of the Directors of
Culligan or the affirmative vote of the holders of a majority of the
outstanding shares of Culligan Common Stock.
APPROVALS OF MERGERS AND ASSETS SALES
Under the DGCL, unless required by its certificate of incorporation, no vote
of the stockholders of a constituent corporation surviving a merger is
necessary to authorize such merger if: (i) the agreement of merger does not
amend the certificate of incorporation of such constituent corporation; (ii)
each share of stock of such constituent corporation outstanding prior to such
merger is to be an identical outstanding or treasury share of the surviving
corporation after such merger; (iii) either no shares of common stock of the
surviving corporation and no shares, securities or obligations convertible
into such common stock are to be issued under such agreement of merger, or the
number of shares of common stock issued or so issuable does not exceed 20% of
the number thereof outstanding immediately prior to such merger; and (iv)
certain other conditions are satisfied. In addition, the DGCL provides that a
parent corporation that is the record holder of at least 90% of the
outstanding shares of each class of stock of a subsidiary may merge such
subsidiary into such parent corporation or other subsidiary owned by it
without the approval of such subsidiary's stockholders or board of directors.
Whenever the approval of the stockholders of a corporation is required for an
agreement of merger or consolidation or for a sale, lease
82
or exchange of all or substantially all of its assets, such agreement, sale,
lease or exchange must be approved by the affirmative vote of the holders of a
majority of outstanding shares of such corporation entitled to vote thereon.
None of the AMETEK Certificate, the AMETEK By-Laws, the Culligan Certificate
or the Culligan By-Laws contains supermajority voting provisions relating to
the approval of business combinations by stockholders.
STATE ANTI-TAKEOVER STATUTES
Section 203, a statutory provision restricting business combinations with
certain stockholders who acquire 15% or more of a Delaware corporation's
voting stock, is applicable to AMETEK but not to Culligan because the Culligan
Certificate provides that Section 203 shall not apply to Culligan. Section 203
prohibits certain "business combinations" transactions (defined broadly to
include mergers, consolidations, sales or other disposition of assets having
an aggregate value in excess of 10% of the consolidated assets of the
corporation, and certain transactions that would increase the interested
stockholder's proportionate share ownership in the corporation) between a
publicly held Delaware corporation and any "interested stockholder" for a
period of three years after the date on which the interested stockholder
became an interested stockholder unless (a) prior to that date the
corporation's board of directors approved either the proposed business
combination or the transaction which resulted in the interested stockholder
becoming an interested stockholder, (b) upon consummation of the transaction
which resulted in the interested stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding those
shares owned (i) by persons who are directors and also officers and (ii) by
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer, or (c) on or subsequent to such date
the business combination is approved by the corporation's board of directors
and authorized at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least two-thirds of the
outstanding voting stock which is not owned by the interested stockholders.
Section 203 would not prevent the holders of a controlling interest from
exercising control over AMETEK or Culligan and would not prevent a hostile
takeover or hostile acquisition of control of AMETEK or Culligan. Section 203
may, however, discourage or make more difficult a hostile takeover or
acquisition of control.
LIMITATION OF LIABILITY
Section 102(b)(7) of the DGCL allows a Delaware corporation to limit or
eliminate the personal liability of directors to a corporation and its
stockholders for monetary damages for breach of fiduciary duty as a director
subject to certain limitations. The Culligan Certificate and the AMETEK
Certificate provide for the limitation of liability as permitted by Section
102(b)(7).
While these provisions provide directors with protection from awards for
monetary damages for breaches of their duty of care, they do not eliminate
such duty. Accordingly, these provisions will have no effect on the
availability of equitable remedies such as an injunction or rescission based
on a director's breach of his or her duty of care. Also, these provisions do
not eliminate or limit the liability of a director for breach of the duty of
loyalty, acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law, unlawful dividends or stock
repurchases, or any transaction from which the director derived an improper
personal benefit. The provisions described above apply to an officer of a
corporation only if he or she is a director of such corporation and is acting
in his or her capacity as director, and do not apply to officers of the
corporation who are not directors.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the DGCL provides that a Delaware corporation may indemnify
its officers and directors who are a party, or threatened to be made a party,
to any threatened, pending or completed action, suit or
83
proceeding by reason of the fact that he or she is or was a director, officer
or employee of the corporation by, among other things, a majority vote of
directors who were not parties to such action, suit or proceeding (whether or
not a quorum), provided that such officers and directors acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation. The Culligan Certificate and Culligan By-laws
and AMETEK Certificate and AMETEK By-laws each provides for indemnification of
officers and directors as permitted by Section 145.
Culligan has entered into indemnification agreements with each of Culligan's
directors and officers. The indemnification agreements require, among other
things, Culligan to indemnify the officers and directors to the fullest extent
permitted by law, and to advance such directors and officers all related
expenses, subject to reimbursement, if it is subsequently determined that
indemnification is not permitted. Culligan will also indemnify and advance all
expenses incurred by such directors and officers seeking to enforce their
rights under the indemnification agreements, and cover directors and officers
under Culligan directors' and officers' liability insurance. Although such
indemnification agreements offer substantially the same scope of coverage
afforded by the Culligan Certificate and Culligan By-Laws, they provide
greater assurance to directors and officers that indemnification will be
available because, as a contract, it cannot be modified unilaterally in the
future by the Culligan Board or by Culligan stockholders to eliminate the
rights provided therein.
STOCKHOLDER RIGHTS PLANS
The terms and provisions of the Culligan Rights Plan, the AMETEK Rights Plan
and the New Ametek Rights Plan are substantially similar, except for
differences relating to (i) the definition of an "Acquiring Person", (ii) the
"Purchase Price" of the rights, (iii) the "Redemption Price" of the rights,
(iv) the expiration date of the rights, and (v) the exception of certain
stockholders from certain provisions of the rights plans. For information on
the Culligan Rights Plan and the New Ametek Rights Plan, see "DESCRIPTION OF
CULLIGAN CAPITAL STOCK--Culligan Stockholder Rights Plan" (included herein)
and "DESCRIPTION OF NEW AMETEK CAPITAL STOCK--Description of Stockholders'
Rights Plan" in the New Ametek Information Statement which is included as
Appendix E hereto.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Culligan Common
Stock to be issued in connection with the Merger are being passed upon for
Culligan by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
EXPERTS
The consolidated financial statements and schedule of Culligan as of January
31, 1997 and 1996 and for each of the years in the three-year period ended
January 31, 1997, have been incorporated by reference in this Joint Proxy
Statement/Prospectus and in the registration statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
The combined financial statements of the Water Filtration Business and the
consolidated financial statements of AMETEK appearing or incorporated by
reference in this Joint Proxy Statement/Prospectus and registration statement
have been audited by Ernst & Young LLP, independent auditors, to the extent
indicated in their reports thereon also appearing elsewhere herein and in the
registration statement or incorporated by reference herein. Such combined
financial statements and consolidated financial statements have been included
herein or incorporated herein by reference in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
84
PROPOSAL (2)
ELECTION OF DIRECTORS OF AMETEK
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES
The entire AMETEK Board of eight directors is proposed to be elected at the
Special Meeting to hold office until the next annual meeting of stockholders
and until their respective successors have been duly elected and qualified.
These directors will resign as directors of AMETEK at the Effective Time but
will continue as the directors of New Ametek. See "MANAGEMENT" in the New
Ametek Information Statement which is included as Appendix E for additional
information concerning the New Ametek Board. All proxies received by the
AMETEK Board will be voted for the election, as directors, of the nominees
listed below if no direction to the contrary is given. Each nominee who
receives a plurality vote by ballot of the shares present in person or
represented by proxy and entitled to vote at the Special Meeting will be
elected as a director. In the event that any nominee is unable or declines to
serve, the proxy solicited herewith may be voted for the election of another
person in his or her stead. The AMETEK Board knows of no reason to anticipate
that this will occur.
85
INFORMATION AS TO NOMINEES FOR ELECTION OF DIRECTORS
PRINCIPAL OCCUPATION DIRECTOR
OR POSITION, CONTINUOUSLY
NAME OF NOMINEE AGE OTHER DIRECTORSHIPS(1) SINCE
--------------- --- ---------------------- ------------
WALTER E. BLANKLEY++.......... 61 Chairman of the Board and 1990
Chief Executive Officer of
AMETEK since April 1993.(2)
LEWIS G. COLE*,**............. 66 Senior Partner, Stroock & 1987
Stroock & Lavan LLP,
Attorneys.
HELMUT N. FRIEDLAENDER.,*..... 83 Private Investor. 1955
SHELDON S. GORDON*,+,++,**.... 61 Chairman of Union Bancaire 1989
Privee International, Inc.
since May 1996.(3)
CHARLES D. KLEIN+,.,++........ 59 A Managing Director of 1980
American Securities, L.P.
and an executive officer of
the corporate general
partner of several
affiliated entities.
JAMES R. MALONE+,.,**......... 54 Chairman of the Board of HMI 1994
Industries, Inc. since
December 1996, Chairman of
the Board of Anchor
Resolution Corp. (formerly
Anchor Glass Container
Corp.) from January 1996 to
February 1997 and Chairman
of the Board of Intek
Capital Corporation since
September 1990.(4)
DAVID P. STEINMANN*........... 56 A Managing Director of 1993
American Securities, L.P.
and an executive officer of
the corporate general
partner of several
affiliated entities.
ELIZABETH R. VARET+,++........ 53 A Managing Director of 1987
American Securities, L.P.
and chairman of the
corporate general partner
of several affiliated
entities.
- --------
* Member of the Audit Committee.
+ Member of the Compensation Committee.
. Member of the Nominating Committee.
++ Member of the Executive Committee.
** Member of the Pension Investment Committee.
(1) Except as noted, each nominee has held his or her present occupation for a
period in excess of five years.
(2) Mr. Blankley has been Chief Executive Officer since April 1990. From April
1990 to April 1993, He also served as President of AMETEK. Mr. Blankley is
also a Director of AMCAST Industrial Corporation and CDI Corporation.
(3) Mr. Gordon was a General Partner of The Blackstone Group, L.P. from April
1991 to May 1995 and was a Limited Partner until May 1996. He is also a
director of Anangel-American Shipholdings Limited, and Energy Ventures,
Inc.
(4) Mr. Malone was President and Chief Executive Officer of Anchor Glass
Container Corp. from May 1993 to January 1996 and was Chairman, President
and Chief Executive Officer of Grimes Aerospace Co. from September 1990 to
May 1993. He is also a director of AmSouth Bank N.A.
AMETEK has an Audit Committee, a Compensation Committee, a Nominating
Committee and a Pension Investment Committee, all of which are comprised of
non-employee directors.
86
In addition, AMETEK has an Executive Committee comprised of two or more
Directors which meets on an as needed basis when the Board is not in session.
This Committee may exercise all the power of the AMETEK Board in the
management of the business and affairs of AMETEK except the power to fill
vacancies of the AMETEK Board or to change members of or fill vacancies in the
committee or to make or amend the By-Laws of AMETEK. The functions of the
Audit Committee include: reviewing with independent auditors the plan and
results of the audit engagement; reviewing the scope and results of AMETEK's
procedures for internal auditing; and reviewing the adequacy of AMETEK's
system of internal accounting controls.
The functions of the Compensation Committee's non-employee directors
include: study and analysis of and recommendations to the AMETEK Board
concerning specific and general matters of management compensation; periodic
review of management compensation policies and practices; recommendations to
the AMETEK Board regarding incentive compensation awards and officers' salary
adjustments; and administrative oversight of stock option plans and other
incentive and compensation plans.
The functions of the Nominating Committee include: determining an
appropriate size and composition of the AMETEK Board; considering
qualifications of prospective AMETEK Board member candidates; conducting
research to identify and recommend nomination of suitable candidates; and
reviewing the experience, background, interests, ability and availability of
prospective nominees to meet time commitments of the AMETEK Board and
committee responsibilities.
The Pension Investment Committee reviews the administration of AMETEK's
retirement plans, including compliance, investment manager and trustee
performance and results of independent audits of the plans.
During 1996, there were 6 meetings of the AMETEK Board, 2 meetings of the
Audit Committee, 8 meetings of the Compensation Committee, 1 meeting of the
Nominating Committee, 3 meetings of the Pension Investment Committee and 7
meetings of the Executive Committee.
87
STOCK OWNERSHIP
The following table sets forth the number of shares of Common Stock of
AMETEK beneficially owned as of April 30, 1997 by each director, by each of
the executive officers included in the Summary Compensation Table, and by all
directors and executive officers of AMETEK as a group, and the percentage of
the outstanding shares of Common Stock so owned by each such person and such
group.
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP(1)
--------------------------------------------------
(NUMBER OF SHARES)
SOLE SHARED
VOTING AND VOTING OR PERCENT
INVESTMENT INVESTMENT RIGHT TO OF
NAME POWER(2) POWER(3) ACQUIRE(4) TOTAL CLASS
---- ---------- ---------- ---------- --------- -------
WALTER E. BLANKLEY.......... 84,952 48,567 248,750 382,269 *
LEWIS G. COLE............(5) 10,000 514,588 -- 524,588 1.6%
HELMUT N. FRIEDLAENDER...(6) 48,500 30,400 -- 78,900 *
SHELDON S. GORDON........... 30,000 -- -- 30,000 *
FRANK S. HERMANCE........... 20,000 -- 122,500 142,500 *
CHARLES D. KLEIN.....(7)(10) 50,000 6,600 -- 56,600 *
JAMES R. MALONE..........(8) 20,000 -- -- 20,000 *
GEORGE E. MARSINEK.......... 5,218 -- 85,000 90,218 *
JOHN J. MOLINELLI........... 22,892 -- 87,500 110,392 *
ALBERT J. NEUPAVER.......... 9,847 -- 71,750 81,597 *
DAVID P. STEINMANN...(9)(10) 34,700 94,264 -- 128,964 *
ELIZABETH R. VARET......(11) 65,800 1,071,808 -- 1,137,608 3.5%
All directors and executive
officers as a group,
consisting of 17 persons,
including individuals named
above..................(10) 428,323 1,162,319 669,125 2,259,967 6.9%
- --------
*Represents less than 1% of the outstanding shares of AMETEK Common Stock.
(1) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared
voting power (including the power to vote or direct the vote) and/or sole
or shared investment power (including the power to dispose or direct the
disposition) with respect to the security through any contract,
arrangement, understanding, relationship or otherwise. Unless otherwise
indicated, beneficial ownership disclosed consists of sole voting and
investment power.
(2) Reported in this column are shares (including certain restricted shares)
with respect to which directors and officers have sole voting and
investment power.
(3) Reported in this column are other shares with respect to which directors
and officers have or share voting and/or investment power, including
shares directly owned by certain relatives with whom they are presumed to
share voting and/or investment power; however, beneficial ownership may
be disclaimed. Although shared beneficial ownership is included in each
of the individual totals, these shares are only reported once in the
total for all directors and executive officers as a group.
(4) Reported in this column are shares which executive officers have a
present right to acquire or are acquirable within 60 days of April 30,
1997 through the exercise of stock options awarded under AMETEK, Inc.
Stock Option Plans.
(5) Mr. Cole has shared voting and investment power with respect to 514,588
shares, as to 4,000 shares of which such power is shared with Messrs.
Klein and Steinmann and others, and as to 510,588 shares of which such
power is shared with Ms. Varet and others.
(6) Mr. Friedlaender has shared voting and investment power with respect to
30,400 shares. Of these, 15,200 shares are owned by a trust of which Mr.
Friedlaender is a trustee; Mr. Friedlaender disclaims beneficial
ownership of such shares.
(7) Mr. Klein has shared voting and investment power with respect to 6,600
shares, as to 4,000 shares of which such power is shared with Messrs.
Cole and Steinmann and others and as to 2,600 shares of which such power
is shared with Mr. Steinmann and others.
88
(8) Includes 6,667 shares held pursuant to a restricted stock award under the
1991 Stock Incentive Plan.
(9) Mr. Steinmann has shared voting and investment power with respect to
94,264 shares, as to 82,720 shares of which such power is shared with Ms.
Varet and others, as to 2,600 shares of which such power is shared with
Mr. Klein and others, as to 4,944 shares of which such power is shared
with others and as to 4,000 shares of which such power is shared with
Messrs. Cole, Klein and others.
(10) Mr. Steinmann is an executive officer and a director, and Mr. Klein is a
portfolio manager of Oak Hall Capital Advisors, L.P., an investment
manager of (i) the AMETEK, Inc. Employees' Master Retirement Trust, which
holds among its assets 571,400 shares, and (ii) AMETEK Foundation, Inc.,
which holds among its assets 55,800 shares; none of these shares has been
included in the above table. Oak Hall Capital Advisors, L.P. is an
affiliate of American Securities, L.P.
(11) Includes 10,000 shares owned by a trust of which Ms. Varet's husband is a
beneficiary and as to which Ms. Varet disclaims any beneficial ownership.
Ms. Varet has shared voting and investment power with respect to
1,061,808 shares, as to 510,588 shares of which such power is shared with
Mr. Cole and others, as to 468,500 shares of which such power is shared
with others and as to 82,720 shares of which such power is shared with
Mr. Steinmann and others.
The following table sets forth the only entities known to AMETEK to be
beneficial owners of more than five percent of the outstanding AMETEK Common
Stock as of April 30, 1997:
NAME AND ADDRESS OF PERCENT
BENEFICIAL OWNER AMOUNT OF NATURE OF BENEFICIAL OWNERSHIP OF CLASS
------------------- ------------------------------------------- --------
FMR Corp......................... Sole dispositive, but no
82 Devonshire Street voting power for(1).... 3,982,100 shares
Boston, MA 02109-3614 Sole voting and
dispositive power for.. 76,200 shares
----------------
TOTAL(1)................ 4,058,300 shares 12.4%
================
Gabelli Asset Management Company
International Advisory Services Sole voting and
Ltd. ............................ dispositive power for.. 3,500 shares
c/o Appleby, Spurling & Kempe
Cedar House, 41 Cedar Avenue
Hamilton, HM12, Bermuda
Gabelli Funds, Inc. ............. Sole voting and
One Corporate Center dispositive power for.. 810,000 shares
Rye, NY 10580-1434
GAMCO Investors, Inc. ........... Sole voting power for
One Corporate Center 3,495,400 shares but
Rye, NY 10580-1434 sole dispositive power
for.................... 3,384,000 shares
----------------
TOTAL(2)................ 4,197,500 shares 12.8%
================
- --------
(1) Based on Schedule 13(G) filed on February 14, 1997.
(2) Based on Schedule 13(D) filed on March 27, 1997. Mr. Mario J. Gabelli is
deemed to have beneficial ownership of these shares. However, based upon a
Schedule 13(D) filed on June 13, 1997, Gabelli Funds, Inc. and Gabelli
Asset Management Company have sole voting and dispositive power for
780,000 shares and 3,500 shares, respectively, GAMCO Investors, Inc. has
sole voting power for 2,949,300 shares but sole dispositive power for
3,055,300 shares and Mr. Mario J. Gabelli is deemed to have beneficial
ownership of 3,838,800 shares, or 11.7% of outstanding AMETEK Common
Stock.
89
COMPENSATION OF DIRECTORS
The annual rate of compensation for services as a non-employee director of
AMETEK was revised effective January 1, 1996, to $35,000 per year plus $2,500
for each meeting attended. Mr. Blankley, the only employee director of AMETEK
in 1996, did not receive any compensation for his services as a director.
Pursuant to a Retirement Plan for Directors (the "Directors Plan"), AMETEK
has agreed to provide retirement benefits and death benefits to those
directors who have not accrued benefits under the Employees' Retirement Plan
of AMETEK, Inc. and who have completed at least three years of service as a
director or officer of AMETEK. Effective January 1, 1997, the Directors Plan
was amended to limit participation to those Directors who became members of
the AMETEK Board prior to January 1, 1997. The retirement benefit payable
under the Directors Plan is an annual amount equal to 100% of the highest
annual rate of compensation for directors during the director's period of
service on the AMETEK Board; however, the benefit is reduced proportionately
if the participant has less than five years of service. AMETEK shall satisfy
its obligations arising under the Directors Plan exclusively from its general
assets. All of the current directors other than Mr. Blankley are participants
in the Directors Plan and each of these participants, other than Messrs.
Malone and Steinmann, has accrued an annual retirement benefit of $50,000. Mr.
Steinmann has accrued an annual retirement benefit of $40,000, and Mr. Malone
has accrued an annual retirement benefit of $30,000
Pursuant to a Death Benefit Program for Directors (the "Directors Program"),
AMETEK has entered into individual agreements with certain directors. The
agreements require AMETEK to pay death benefits to directors' designated
beneficiaries and to pay benefits to the directors under certain
circumstances. The Directors Program currently provides for a benefit, payable
for ten years, in an annual amount equal to 100% of the highest annual rate of
compensation during the director's period of service on the AMETEK Board,
commencing at death or the later of age 70 or retirement; however, with
respect to directors who became participants after January 1, 1989, the
directors must complete at least five years of service as a director before
they become eligible to receive a benefit upon the later of age 70 or
retirement. Active directors also have a group term life insurance benefit of
$50,000. To fund benefits under the Directors Program, AMETEK has purchased
individual life insurance policies on the lives of certain of the covered
directors. AMETEK retains the right to terminate any or all of the Directors
Program agreements under certain circumstances. All of the current directors
other than Mr. Blankley are participants in the Directors Program.
EXECUTIVE OFFICERS OF AMETEK
Officers are appointed by the AMETEK Board to serve for the ensuing year and
until their successors have been elected and qualified. Information on
executive officers of AMETEK is shown below:
NAME AGE PRESENT POSITION WITH AMETEK
---- --- ----------------------------
Walter E. Blankley...... 61 Chairman of the Board and Chief Executive Officer
Frank S. Hermance....... 48 President and Chief Operating Officer
John. J. Molinelli...... 50 Senior Vice President--Chief Financial Officer
Albert J. Neupaver...... 46 President of the Electromechanical and Industrial Materials Groups
Robert W. Chlebek....... 53 President of the Precision Instruments Group
George E. Marsinek...... 60 Senior Vice President--Electromechanical Group
Philip A. Goodrich...... 40 Senior Vice President--Corporate Development
Robert R. Mandos, Jr.... 38 Comptroller
Deirdre D. Saunders..... 49 Treasurer and Assistant Secretary
Donna F. Winquist....... 48 Corporate Counsel and Corporate Secretary
WALTER E. BLANKLEY'S employment history with AMETEK and other directorships
currently held are included under the section "INFORMATION AS TO NOMINEES FOR
ELECTION OF DIRECTORS."
90
FRANK S. HERMANCE was elected President and Chief Operating Officer on
November 21, 1996. He previously had been Executive Vice President and Chief
Operating Officer since January 1, 1996 and most recently he served as
President of the Precision Instruments Group, a position he was elected to on
September 23, 1994. He joined AMETEK as a Group Vice President in November
1990. Mr. Hermance is also a Director of CTB, Inc., a poultry farming, feeding
equipment and housing company.
JOHN J. MOLINELLI was named Senior Vice President--Chief Financial Officer
on April 29, 1994. Previously he had served as Vice President and Comptroller
of AMETEK since April 1993. He was elected Comptroller in 1991.
ALBERT J. NEUPAVER was elected President of the Electromechanical Group on
January 10, 1997, and was elected President of the Industrial Materials Group
on September 23, 1994. Previously he served as a Group Vice President since
May 1994. He was elected Vice President of AMETEK in 1991.
ROBERT W. CHLEBEK joined AMETEK as President of the Precision Instruments
Group on March 1, 1997. Prior to joining AMETEK, Mr. Chlebek had been
President of Philips Components North America, a subsidiary of Philips
Electronics, N.V. ("Philips") since 1993. Previously, he held general
management positions with Philips.
GEORGE E. MARSINEK became Senior Vice President--Electromechanical Group
effective January 10, 1997. For health reasons, he stepped aside from his
previous position as President of the Electromechanical Group which he had
held since September 23, 1994, before which he had been a Group Vice President
since April 1990.
PHILIP A. GOODRICH joined AMETEK as Senior Vice President--Corporate
Development on August 28, 1996. Prior to joining AMETEK, Mr. Goodrich had been
Vice President of Corporate Development at General Signal Corporation for
seven years.
ROBERT R. MANDOS, JR. was elected Comptroller of AMETEK effective April 1,
1996. Mr. Mandos's more than 15 years of experience with AMETEK includes
various financial positions; most recently he had served as Director of
Financial Information at corporate headquarters and Division Vice President--
Finance for the multiplant operations of the U.S. Gauge Division.
DEIRDRE D. SAUNDERS has served as Treasurer and Assistant Secretary since
April 1993. Ms. Saunders joined AMETEK in 1987 as Assistant Treasurer.
Previously, she served in financial and treasury positions with Exide
Corporation and Buckeye Pipe Line Company.
DONNA F. WINQUIST became Corporate Secretary effective May 1, 1997. She
retained her responsibilities as Corporate Counsel to which position she was
appointed in December 1994. She joined AMETEK as Manager of Legal Services in
1991 and became Director of Legal Services in 1992.
91
EXECUTIVE COMPENSATION
The following table sets forth certain information for the fiscal years
ended December 31 in each of 1996, 1995 and 1994 concerning compensation paid
or accrued for the Chairman of the Board and Chief Executive Officer and the
four other most highly compensated executive officers of AMETEK.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------- -----------------------
OTHER RESTRICTED SECURITIES ALL OTHER
NAME AND SALARY BONUS ANNUAL STOCK UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) COMPENSATION AWARDS OPTIONS/SARS ($)(1)
------------------ ---- ------- ------- ------------ ---------- ------------ ------------
Walter E. Blankley...... 1996 487,000 440,000 -- -- 80,000 2,736
Chairman of the Board
and Chief 1995 472,000 400,000 -- -- 75,000 1,752
Executive Officer 1994 457,500 335,000 -- -- 125,000 1,656
Frank S. Hermance....... 1996 300,000 225,000 -- -- 100,000 1,776
President and Chief Op-
erating 1995 228,000 152,000 -- -- 30,000 1,332
Officer 1994 220,000 125,000 -- -- 50,000 1,326
George E. Marsinek...... 1996 225,000 150,000 -- -- 30,000 3,096
Senior Vice President-- 1995 215,000 165,000 -- -- 30,000 1,620
Electromechanical Group 1994 205,500 150,000 -- -- 50,000 1,554
John J. Molinelli....... 1996 200,000 140,000 -- -- 30,000 1,872
Senior Vice President-- 1995 182,500 125,000 -- -- 25,000 1,356
Chief Financial Officer 1994 157,933 100,000 -- -- 40,000 1,350
Albert J. Neupaver ..... 1996 197,500 140,000 -- -- 25,000 1,680
President of the
Electromechanical 1995 180,000 110,000 -- -- 25,000 1,302
and Industrial Materi-
als Groups 1994 170,000 75,000 -- -- 40,000 1,284
- --------
(1) The amounts reported represent AMETEK's contributions ($1,200 each) to The
AMETEK Savings and Investment Plan for each of the individuals listed
above and the dollar value of premiums paid by AMETEK with respect to term
life insurance for the benefit of each of the named executive officers.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table provides details regarding stock options granted to the
named executive officers in 1996. In addition, the table provides the
hypothetical gains and "option spreads" that would result for the respective
options based on assumed rates of annual compounded stock price appreciation
of 5% and 10% from the date the options were granted through their expiration
dates. No stock appreciation rights ("SARs") were granted to the named
executive officers in 1996.
STOCK OPTION/SAR GRANTS IN 1996
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (2)
----------------------------- -------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED (1) FISCAL YEAR PRICE ($/SH) DATE 5%($) 10%($)
---- ------------ ---------------- ------------ ---------- --------- ---------
Walter E. Blankley...... 80,000 11.35 17.375 04/08/2006 874,164 2,215,302
Frank S. Hermance....... 100,000 14.18 17.375 04/08/2006 1,092,704 2,769,128
George E. Marsinek...... 30,000 4.25 17.375 04/08/2006 327,811 830,738
John J. Molinelli....... 30,000 4.25 17.375 04/08/2006 327,811 830,738
Albert J. Neupaver...... 25,000 3.55 17.375 04/08/2006 273,176 692,282
- --------
(1) The options granted in 1996 to Messrs. Blankley, Hermance, Marsinek,
Molinelli, and Neupaver are exercisable after the first anniversary of the
date of the grant (April 8, 1996) during each of the four succeeding
twelve-month periods only to the extent of twenty-five percent of the
total number of shares optioned. In all cases, optioned shares that may
have been but were not purchased during any one twelve-month period may be
purchased during any one or more succeeding twelve-month periods up to the
expiration date of the option. Options generally become fully exercisable
in the event of the holder's death, retirement or termination of
employment in connection with a change in control.
(2) The amounts represent certain assumed rates of appreciation. Actual gains,
if any, on stock option exercises are dependent on future performance of
AMETEK's Common Stock. There can be no assurance that the rates of
appreciation reflected in this table will be achieved.
92
The following table illustrates stock option and SARs exercised by the named
executive officers during 1996 and the aggregate amounts realized by each such
officer. In addition, the table shows the aggregate number of unexercised
options and SARs that were exercisable and unexercisable as of December 31,
1996, and the values of "in-the-money" stock options and SARs on December 31,
1996, which represent the positive difference between the market price of
AMETEK's Common Stock and the exercise price of such options/SARs.
AGGREGATED OPTIONS/SARS EXERCISED IN 1996 AND OPTION/SAR VALUES AT DECEMBER
31, 1996
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES OPTIONS/SARS THE-MONEY OPTIONS/SARS
ACQUIRED ON AT DECEMBER 31, 1996 (#) AT DECEMBER 31, 1996 ($)
EXERCISE VALUE ------------------------- -------------------------
NAME (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------ ----------- ------------- ----------- -------------
Walter E. Blankley...... 93,750 761,719 201,250 211,250 1,463,281 1,203,750
Frank S. Hermance....... 20,000 151,719 77,500 147,500 611,562 743,750
George E. Marsinek...... 0 0 57,500 77,500 417,187 428,750
John J. Molinelli....... 6,000 44,000 63,750 68,750 515,468 373,281
Albert J. Neupaver...... 12,000 102,000 53,250 63,750 413,656 350,781
DEFINED BENEFIT AND ACTUARIAL PLANS
The Employees' Retirement Plan of AMETEK (the "Retirement Plan") is a
noncontributory defined benefit pension plan under which contributions are
actuarially determined. The following table sets forth the estimated annual
benefits, expressed as a single life annuity, payable upon retirement
(assuming normal retirement at age 65) under the Retirement Plan for
individuals with the indicated years of service and at the indicated
compensation levels (without taking into account statutory restrictions
incorporated in the Retirement Plan and described below):
PENSION PLAN TABLE
ANNUAL BENEFITS BASED ON
YEARS OF SERVICE AT NORMAL RETIREMENT
AGE (1)
AVERAGE ---------------------------------------
COMPENSATION 15 20 25 30 35
------------ ------- ------- ------- ------- -------
$150,000............................ 58,800 62,600 66,500 66,500 66,500
200,000............................. 79,200 84,300 89,400 89,400 89,400
250,000............................. 99,600 106,000 112,400 112,400 112,400
300,000............................. 120,000 127,700 135,300 135,300 135,300
350,000............................. 140,400 149,300 158,300 158,300 158,300
400,000............................. 160,800 171,000 181,200 181,200 181,200
450,000............................. 181,200 192,700 204,200 204,200 204,200
500,000............................. 201,600 214,400 227,100 227,100 227,100
550,000............................. 222,000 236,000 250,100 250,100 250,100
600,000............................. 242,400 257,700 273,000 273,000 273,000
650,000............................. 262,800 279,400 296,000 296,000 296,000
700,000............................. 283,200 301,100 318,900 318,900 318,900
- --------
(1) Benefit amounts assume a participant reaches age 65 in 1997; for younger
participants, the benefit amounts are less than the amounts indicated
above.
At December 31, 1996, the executives named in the Summary Compensation Table
had the following years of credited service under the Retirement Plan: Mr.
Blankley-37; Mr. Hermance-6; Mr. Marsinek-32; Mr. Molinelli-28, and Mr.
Neupaver-20.
The annual compensation taken into account for any plan year is generally
equal to the participant's salary and any bonus accrued during the plan year
as reported in the Summary Compensation Table. Compensation in excess of
certain amounts prescribed by the Secretary of the Treasury ($160,000 for
1997) cannot be taken into account under the Retirement Plan. The individuals
named in the Summary Compensation Table are subject to
93
this limitation. However, in accordance with a nonqualified supplemental
pension arrangement that, as of the Spin-Off Date, New Ametek will assume,
AMETEK has agreed to provide to Mr. Blankley a benefit in an amount equal to
the excess of the annual pension benefit that would be payable to him under
the terms of the Retirement Plan in the absence of statutory restrictions over
the amount actually payable under the Retirement Plan. The benefit is limited
to the projected excess payable at age 65 determined as of May 21, 1991,
taking into account the statutory restrictions as of such date. Pursuant to an
agreement entered into with Mr. Blankley, a restricted stock award was granted
under the 1991 Stock Incentive Plan of AMETEK, Inc. for a number of shares of
AMETEK Common Stock having a fair market value on the day of grant equal to
50% of the then present value of Mr. Blankley's projected benefit under the
supplemental pension arrangement. Effective with the Spin-Off and the Merger,
shares of New Ametek Common Stock and Culligan Common Stock will be
substituted for the AMETEK Common Stock in amounts consistent with the terms
of the Spin-Off and the Merger. The remaining portion of the benefit will be
payable in cash directly out of New Ametek's general assets. Under this
arrangement, Mr. Blankley does not receive an amount sufficient to provide him
with his full benefit under the Retirement Plan, since the amount of
compensation that can be taken into account under the statutory restrictions
in effect in 1991 has been subsequently reduced.
In addition, pursuant to the AMETEK, Inc. Supplemental Executive Retirement
Plan ("SERP") that, as of the Spin-Off Date, New Ametek will assume, AMETEK
has agreed, beginning in 1997, to credit to the account of certain executives,
including executives named in the Summary Compensation Table, an amount equal
to 13% of the executive's compensation in excess of the statutory restrictions
for each plan year, in order to compensate them for the loss of retirement
income under the Retirement Plan resulting from those restrictions. The
contribution for Mr. Blankley under the SERP will be limited to 13% of his
compensation that is not taken into account under the agreement described in
the preceding paragraph. The credited amounts shall be deemed to be invested
in AMETEK Common Stock and, upon retirement, shall be distributed in kind. In
addition, a one-time credit shall also be made to each such executive's
account equal to the value of the shares of common stock, if any, that would
have been credited to the executive's account had the SERP been in effect
since January 1, 1989. An executive's right to a benefit under the SERP will
become non-forfeitable at the same time as the executive's right to an accrued
benefit under the Retirement Plan (or the retirement feature of The AMETEK
Savings and Investment Plan) becomes non-forfeitable.
For retirements occurring in 1997, the maximum annual pension benefit
payable at normal retirement age is restricted, by law, to the greater of
$125,000 or the amount of such benefit determined under the Retirement Plan
and prior existing law as of December 31, 1982. The $125,000 limit is adjusted
annually by the Secretary of the Treasury to reflect increases in the cost of
living.
Persons joining AMETEK after January 1, 1997 are not eligible to participate
in the Retirement Plan, but instead are eligible to participate in a new
defined contribution feature of AMETEK's 401(k) Plan.
94
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following report, submitted by the Compensation Committee of the AMETEK
Board of Directors (the "Compensation Committee"), provides information
regarding policies and practices concerning compensation of the Chairman of
the Board and Chief Executive Officer and the other executive officers of
AMETEK.
COMPENSATION OVERVIEW
The functions performed by the Compensation Committee include recommending
to the Board of Directors (a) remuneration arrangements for senior management
and directors and (b) compensation plans in which officers and employees are
eligible to participate. Members of the Compensation Committee are directors
who are not employees of AMETEK. The current members of the Compensation
Committee are Messrs. Gordon, Klein and Malone and Ms. Varet.
Executive compensation consists of three principal elements: (a) salary; (b)
annual bonus and (c) grants of stock options and stock appreciation rights and
restricted stock awards under AMETEK plans. Additional retirement and other
benefits are provided for AMETEK's executives similar to those typically
provided by other major corporations.
Decisions about executive officers' salary and bonus are made under the
supervision of the Compensation Committee, while decisions concerning
compensation in the form of stock options, SARs and restricted stock awards
are made under the supervision of the committee of the Board of Directors
designated for the appropriate plan. The members of each of these plan
committees currently are the same as the members of the Compensation
Committee; thus, references in this report to the "Compensation Committee"
should be read where appropriate, as references to the various plan
committees.
Underlying the Compensation Committee's decisions with respect to executive
officers' compensation is the belief that it is fundamentally important that
AMETEK attract, retain, motivate and benefit from the guidance and experience
of talented and qualified individuals so that AMETEK's short-term and long-
term success will continue and its profitability and worldwide reputation for
quality, and thus stockholder value, will grow. AMETEK also believes that its
officers and executives have been encouraged to acquire a larger equity
interest in AMETEK, thereby having additional incentives, corresponding to the
interests of stockholders, to put forth their maximum efforts for the success
and profitability of AMETEK's businesses and the achievement of increased
stockholder value. Information regarding similarly situated executive officers
at comparable companies was drawn from publicly available information for
certain of the companies included in the index of companies used in the
Performance Graphs set forth on page 98 and for certain other companies
identified by an independent employee benefits consulting firm retained by
AMETEK. It is the current intention of the AMETEK Board and the Compensation
Committee to continue the above practices.
SALARY
Salary levels for AMETEK's executive officers are established principally on
the basis of the executive's responsibilities. In each case, consideration is
given both to personal factors such as the individual's experience and record
and the responsibility associated with his or her position and to external
factors such as salaries paid to similarly situated executive officers by
comparable companies and prevailing conditions in the geographic area where
the executives' principal services will be performed. Comparable companies
were identified as described above. Annual adjustments to each executive
officer's salary are determined based on the foregoing factors but with due
consideration also being given to prevailing economic conditions, to the
relationship of such adjustments to those being given to other employees
within AMETEK, to the performance of the executive's duties and
responsibilities and to other individual performance-related criteria that may
be relevant with respect to such executive officer at the time. In evaluating
the salaries paid to similarly situated executive officers, consideration is
given to the full range of such salaries and to the experience and records of
those executives who received salaries at the high, medium and low points of
such range. In determining executive salaries, the Compensation Committee has
generally targeted the median level of the compensation range for comparable
companies. In addition, in establishing salary levels, consideration is given
to the competitiveness of the total annual compensation received by AMETEK's
executive officers as compared to the total compensation received by other
similarly situated executive officers.
95
ANNUAL BONUS
Bonuses are viewed as a reward for individual contributions to AMETEK's
performance, based not only on AMETEK's short-term results but also on the
investments made by AMETEK for the future growth of AMETEK's profits. In
addition, consideration is given to the achievement of selected financial
goals (i.e., operating performance, asset management and business growth
development) and progress in meeting other long-term objectives, as well as
the executive officers' leadership role in these activities. Bonus decisions
generally are made toward the end of each year. Pursuant to AMETEK's
Additional Compensation Plan, each year an aggregate amount, generally equal
to five percent of income before federal income taxes exclusive of capital
gains and certain non-recurring charges, is accrued for the purposes of paying
bonuses to executive officers and certain other employees. As a result of
overall performance in 1996, which met or exceeded the targeted financial
goals referred to above, the bonus pool for 1996 increased compared to 1995.
The Chairman of the Board and Chief Executive Officer reviews performance by
AMETEK and the individual contributions of each executive officer to AMETEK's
performance and makes recommendations to the Compensation Committee with
respect to the suitable bonus amount to be awarded to such individual for that
year based on such review. The Compensation Committee then meets with the
Chairman of the Board and Chief Executive Officer to consider such
recommendations, makes any changes that may be deemed appropriate, and
presents its recommendations to the Board of Directors which then discusses
and votes upon the bonuses. The principal financial performance measures
considered by the Compensation Committee are earnings, return on assets and
cash flow, with the relative weight of each of these factors being roughly
equal. However, the significance of any one of these factors may vary from one
executive officer to another depending upon whether that officer has been
assigned other long-term goals, such as reorganizing a business line,
developing new products or increasing market penetration for current products.
STOCK OPTIONS, SARS AND RESTRICTED STOCK AWARDS
Awards of stock options, SARs and shares of restricted stock are considered
an important complement to the cash elements of AMETEK's executive officers'
compensation described above and have the purpose of aligning the executives'
interests with the stockholders' interests. The plans under which such awards
are made have been approved by AMETEK's stockholders. AMETEK stock options and
SARs generally require the executive to be employed by AMETEK on the exercise
date and become exercisable in stages over a period of years following the
date of grant. The exercise price of options generally equals the mean market
price of AMETEK's stock on the grant date; accordingly, such options will only
yield income to the executive if the market price of AMETEK's stock is
greater, at the time of exercise, than it was when the option was granted.
Although AMETEK has not yet done so, it could grant options with average
prices greater than the market price of AMETEK's stock on the grant date in
order to vary the long-term incentive being created for the option recipient.
It is believed that a principal factor influencing the market price of
AMETEK's stock is AMETEK's performance as reflected in its sales, earnings,
cash flow and other results; thus, by granting stock options and SARs to
AMETEK's executive officers, such individuals are encouraged to achieve
consistent improvements in AMETEK's performance. Awards of shares of
restricted stock are subject to forfeiture restrictions which prohibit the
recipient from selling such shares until the specified period of restriction
following the date the award lapses. Such awards provide inducements to the
executive officers to remain with AMETEK over the long term and to work to
enhance corporate performance and, correspondingly, stockholder value. When
considering whether to make grants of stock options and SARs or awards of
restricted stock, the Compensation Committee reviews practices of other
comparable companies (which are identified as described above) as well as
individual performance-related criteria such as those already described, and
takes into consideration the effect such awards might have on AMETEK's
performance and stockholder value. The measures of AMETEK's performance that
are considered in making such awards, and the relative weight of each of these
factors, are the same as those used in determining bonus levels, which are
described above. The long-term objectives that an officer has been assigned
are also considered. However, in determining to grant options or SARs or award
restricted stock, the Compensation Committee has generally placed greater
emphasis on long-term objectives than it has in its determination of bonus
awards.
96
The Compensation Committee believes that stock ownership by executive
officers can help strengthen the alignment of interests between AMETEK's
management and shareholders. Upon the suggestion of and in consultation with
AMETEK's Chief Executive Officer, the Compensation Committee has established
guidelines for stock ownership by its executive management. Although these
guidelines are non-binding, it is expected that each executive officer of
AMETEK will work toward achieving the target levels. It is assumed that such
levels can be reached by an executive officer within a 5 year period. To reach
his or her target level, an executive officer must own AMETEK shares having a
market value at least equal to a specified multiple of such executive
officer's base salary. The multiples established by the Compensation Committee
are 5 in the case of the Chief Executive Officer, 4 in the case of the Chief
Operating Officer, 3 in the case of a Senior Vice President and 2 in the case
of any other executive officer. In its awarding of future option grants, the
Compensation Committee intends to take account of the progress made by an
executive officer in reaching the target ownership level.
MR. BLANKLEY'S 1996 COMPENSATION
In determining the appropriate levels for Mr. Blankley's 1996 base salary,
bonus and stock option grant, the Compensation Committee considered the same
factors that it considered when fixing compensation levels for AMETEK's other
executive officers and sought to achieve the same corporate goals. The
Compensation Committee also considered the major initiatives and programs
which, in 1996, were commenced or furthered under Mr. Blankley's leadership,
such as: (a) recognition of additional cost benefits resulting from AMETEK's
plan to enhance stockholder value adopted in November 1993, together with
substantial progress in implementing the operating strategies called for by
such plan; (b) continued development of a deeper and more experienced senior
management team; (c) continued improvements in asset management throughout
AMETEK, including the reduction of inventory levels and cycle time resulting
from the introduction of flow management as part of AMETEK's TQM effort; (d)
establishment of a majority owned joint venture operation in Shanghai, PRC for
the production of electric motors; (e) substantial progress in establishing
operations and pursuing other opportunities in various Eastern European and
other emerging market locations, including the opening of production
facilities for electric motors in the Czech Republic and Mexico and (f)
continued progress in expanding its international sales activities. Certain
personal criteria also were reviewed, such as the fact that 1996 was the
fourth year of Mr. Blankley's service as Chairman of the Board and Chief
Executive Officer after more than 37 years of service with AMETEK in many
positions including the position of President. The Compensation Committee also
evaluated data regarding CEO compensation practices of other comparable
companies (which are identified as described above) so that Mr. Blankley's
total compensation package would be in line with that of CEOs in such other
companies. A major factor in fixing Mr. Blankley's bonus was the fact that
AMETEK achieved essentially all of its financial goals established for 1996,
including earnings per share, return on assets and cash flow.
SECTION 162(M)
Section 162(m) of the Code generally limits the deductibility by a publicly-
held corporation of compensation paid in a taxable year to the Chief Executive
Officer and any other executive officer whose compensation is required to be
reported in the Summary Compensation Table to $1,000,000. For the 1996 taxable
year, AMETEK did not exceed, and therefore was not affected by, this
limitation.
Mr. Sheldon S. Gordon
Mr. Charles D. Klein
Mr. James R. Malone
Ms. Elizabeth R. Varet
97
STOCK PERFORMANCE GRAPHS
AMETEK re-evaluated the composition of its Industry Performance Peer Group
as of December 31, 1996, and determined that a change was appropriate. The new
Industry Performance Peer Group is the Dow Jones Electrical Components and
Equipment Industry Group ("DJEE"). The former Industry Performance Peer Group
consisted of two separate industry groups published by Business Week as the
"Electrical Products" and "Instrument" groups. Through investor
communications, AMETEK has learned that the investing public cannot easily
access the cumulative total return performance of AMETEK's former Performance
Peer Group. For these reasons, AMETEK believes the change is appropriate.
AMETEK believes its new Industry Performance Peer Group will provide current
and potential investors with information that is more readily available and
with an industry group that is a more relevant comparison for purposes of
evaluating stock performance and AMETEK's executive compensation.
Assuming an initial investment of $100 invested on December 31, 1991, and
the reinvestment of all dividends, the following graphs compare AMETEK's
cumulative total return plotted on an annual basis, with the S&P 500 Index and
the new and former Performance Peer Groups. The first graph compares AMETEK's
cumulative total return for the previous five years to the new Performance
Peer Group (DJEE). As required by the Commission, a second graph has also been
provided which compares AMETEK's cumulative total return for the same five-
year period to the former Performance Peer Group.
NEW PERFORMANCE PEER GROUP
LOGO
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -------
AMETEK.......................... $100.00 $124.46 $101.56 $136.56 $153.77 $184.69
S&P 500......................... 100.00 107.62 118.46 120.03 165.13 203.05
DJEE............................ 100.00 101.41 111.33 115.71 150.26 181.84
98
FORMER PERFORMANCE PEER GROUP
LOGO
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- -------
AMETEK.......................... $100.00 $124.46 $101.56 $136.56 $153.77 $184.69
S&P 500......................... 100.00 107.62 118.46 120.03 165.13 203.05
Published Industry.............. 100.00 101.44 112.79 109.92 148.15 185.08
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Sheldon S. Gordon, Charles D. Klein, James R. Malone and Elizabeth R. Varet
have comprised the Compensation Committee. Mr. Klein and Ms. Varet are
managing directors of American Securities, L.P., an investment banking firm.
The law firm of Stroock & Stroock & Lavan LLP, of which Mr. Cole is a
member, rendered during 1996 and continues to render services as General
Counsel for AMETEK and its subsidiaries. The investment banking firm of
American Securities, L.P., and affiliates of American Securities, L.P.,
including Oak Hall Capital Advisors, L.P., rendered during 1996 and continues
to render financial advisory, investment management and other services to
AMETEK. American Securities, L.P. is controlled, indirectly, through family
trusts of which Ms. Varet and Mr. Cole are co-trustees, by Ms. Varet and
members of her family and by Messrs. Steinmann and Klein.
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires AMETEK's directors and officers
to file with the Commission and the New York Stock Exchange initial reports of
ownership and reports of changes in ownership of AMETEK's Common Stock. Copies
of all such Section 16(a) reports are required to be furnished to AMETEK.
99
These filing requirements also apply to holders of more than ten percent of
AMETEK's Common Stock; to AMETEK's knowledge, such holders are those listed in
the table in "--Stock Ownership." To AMETEK's knowledge, based solely on a
review of the copies of Section 16(a) reports furnished to AMETEK and written
representations that no other reports were required, during the fiscal year
ended December 31, 1996, AMETEK's officers and directors were in compliance
with all Section 16(a) filing requirements.
EMPLOYMENT CONTRACTS AND TERMINATION, SEVERANCE AND
CHANGE-IN-CONTROL ARRANGEMENTS
AMETEK has entered into change of control agreements with most of its
executive officers, including the executives listed in the Summary
Compensation Table, which agreements New Ametek will assume effective as of
the Spin-Off Date. The purpose of the agreements is to assure the continued
attention and dedication of key executives when AMETEK is faced with a
potential change of control by providing for some continuation of the
executive's compensation and benefits. Under the agreements, the sum of the
executive's prior year's salary, plus the greater of (a) the current year's
bonus, or (b) the average of the two prior years' bonuses (as limited under
Section 280G of the Code) will be continued for a period of one, two or three
years (as defined in each executive's agreement), and health benefits will be
continued until Medicare eligibility, coverage under another group health
plan, or ten years or the executive's death, whichever is earlier, in the
event that the executive's employment is terminated by AMETEK without cause or
by the executive for good reason within two years after a Change of Control.
For purposes of the agreements, a "Change of Control" means that the
acquisition of 20% or more of the voting stock of New Ametek by a party other
than AMETEK (or its affiliates), or a merger or consolidation after which the
stockholders of AMETEK do not own or control at least 50% or more of the
voting stock of AMETEK, or any sales or other disposition of all or
substantially all of AMETEK's assets, or a plan of liquidation is approved.
None of the events related to the Spin-Off or the Merger will be deemed to
constitute a Change of Control.
Pursuant to a Supplemental Senior Executive Death Benefit Program (the
"Program"), AMETEK has entered into individual agreements with certain
executives. The agreements require AMETEK to pay death benefits to their
designated beneficiaries and to pay benefits to the executives under certain
circumstances. If a covered executive dies before retirement or before age 65
while on disability retirement, the executive's beneficiary will receive
monthly payments from the date of the executive's death until the date he or
she would have attained age 80, but not less than for 15 years (the 15-year
minimum guarantee does not apply to executives whose inclusion in the Program
is approved after December 31, 1986). The specified dollar amount of the
payments is determined on the basis of the executive's salary and age. In
addition, the standard death benefit payable for participants in the Program
from AMETEK's group term life insurance policy was revised effective January
1, 1996, to two times the executive's annual salary, limited to $200,000. If a
covered executive retires, or reaches age 65 while on disability retirement,
the Program provides for an annual benefit of one-tenth of an amount equal to
the lesser of (a) twice the executive's average annual base salary for the
last five full years of service, rounded off to the next highest multiple of
$50,000 or (b) a maximum amount specified in the agreement. The highest
maximum amount specified in the existing agreements is $1,000,000. The benefit
is payable monthly over a period of 10 years to the executive or the
executive's beneficiary. The payments will commence for retirees at age 70 or
death, whichever is earlier. However, if the executive retires after age 70,
the payments commence on retirement.
To fund benefits under the Program, AMETEK has purchased individual life
insurance policies on the lives of certain of the covered executives. AMETEK
retains the right to terminate all of the Program agreements under certain
circumstances. Messrs. Blankley, Hermance, Marsinek, Molinelli and Neupaver
are participants in the Program.
100
PROPOSAL (3)
APPOINTMENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THIS PROPOSAL
The Board of Directors has appointed the firm of Ernst & Young LLP, which
has audited the accounts of AMETEK since 1930, as independent auditors for the
year 1997. The stockholders are requested to signify their approval of the
appointment.
Ernst & Young LLP will continue as the independent auditors for New Ametek.
It is expected that a representative of Ernst & Young LLP will be present at
the Special Meeting. The representative will have an opportunity to make a
statement and is expected to be available to respond to appropriate questions.
OTHER MATTERS
As of this date the AMETEK Board is not aware of any matters which may come
before the meeting other than those hereinabove set forth, but the proxy
solicited herewith confers discretionary authority to vote with respect to any
other business that may properly come before the meeting.
Proposals of stockholders intended to be presented at AMETEK's 1998 Annual
Meeting must be received by AMETEK at its executive offices shown on page 9 of
this Joint Proxy Statement/Prospectus on or prior to November 10, 1997 (which
is 120 days prior to the anticipated mailing date of proxy materials for the
1998 Annual Meeting) to be eligible for inclusion in the proxy material to be
used in connection with the 1998 Annual Meeting.
By order of the Board of Directors
Donna F. Winquist
Corporate Secretary
Dated: Paoli, Pennsylvania, June 27, 1997
101
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
INDEX TO COMBINED FINANCIAL STATEMENTS
PAGE
----
AUDITED COMBINED FINANCIAL STATEMENTS
- -------------------------------------
Report of Independent Auditors............................................ F-2
Combined Statement of Income for the years ended December 31, 1996, 1995
and 1994.................................................................. F-3
Combined Balance Sheet at December 31, 1996 and 1995...................... F-4
Combined Statement of Cash Flows for the years ended December 31, 1996,
1995 and 1994............................................................. F-5
Notes to Combined Financial Statements.................................... F-6
UNAUDITED COMBINED FINANCIAL STATEMENTS
- ---------------------------------------
Combined Statement of Income for the three months ended March 31, 1997 and
1996...................................................................... F-15
Combined Balance Sheet at March 31, 1997.................................. F-16
Condensed Combined Statement of Cash Flows for the three months ended
March 31, 1997 and 1996................................................... F-17
Notes to Unaudited Combined Financial Statements.......................... F-18
Management's Discussion and Analysis of Financial Condition and Results of
Operations
of the Water Filtration Business......................................... F-19
F-1
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of AMETEK, Inc.
We have audited the accompanying combined balance sheets of The Water
Filtration Business (a wholly owned business of AMETEK, Inc.) as of December
31, 1996 and 1995, and the related combined statements of income and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of AMETEK's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of The Water
Filtration Business (a wholly owned business of AMETEK, Inc.) at December 31,
1996 and 1995, and the combined results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 14, 1997
F-2
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------
1996 1995 1994
------- ------- -------
Net sales............................................. $68,650 $55,643 $54,086
------- ------- -------
Expenses:
Cost of sales, excluding depreciation............... 44,039 35,768 33,563
Selling, general and administrative................. 10,332 7,477 7,071
Depreciation........................................ 1,919 1,575 1,528
------- ------- -------
Total expenses.................................... 56,290 44,820 42,162
------- ------- -------
Operating income...................................... 12,360 10,823 11,924
Other income (expense), net........................... (9) 32 17
------- ------- -------
Income before income taxes............................ 12,351 10,855 11,941
Provision for income taxes............................ 4,188 3,857 4,210
------- ------- -------
Net income............................................ $ 8,163 $ 6,998 $ 7,731
======= ======= =======
See accompanying notes.
F-3
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
DECEMBER 31,
---------------
1996 1995
------- -------
ASSETS
------
Current assets:
Cash and cash equivalents.................................... $ 697 $ 367
Receivables, net............................................. 9,030 6,800
Inventories.................................................. 7,882 7,256
Deferred income taxes........................................ 79 86
Other current assets......................................... 482 219
------- -------
Total current assets....................................... 18,170 14,728
Property, plant and equipment, net............................. 17,548 16,650
Intangibles and other assets................................... 3,539 6,144
------- -------
$39,257 $37,522
======= =======
LIABILITIES AND NET WORTH
-------------------------
Current liabilities:
Notes payable................................................ $ 343 $ --
Accounts payable............................................. 3,827 3,047
Income taxes payable......................................... 79 2
Accrued liabilities.......................................... 3,295 2,176
------- -------
Total current liabilities.................................. 7,544 5,225
Long-term notes payable........................................ -- 311
Deferred income taxes.......................................... 1,606 1,656
Other long-term liabilities.................................... 400 462
Net worth...................................................... 29,707 29,868
------- -------
$39,257 $37,522
======= =======
See accompanying notes.
F-4
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER
31,
----------------------
1996 1995 1994
------ ------ ------
CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
Net income........................................... $8,163 $6,998 $7,731
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization...................... 2,247 1,657 1,625
Deferred income taxes.............................. (43) 32 80
Changes in working capital:
(Increase) decrease in receivables............... (440) (1,230) 57
(Increase) decrease in inventories and other
current assets................................... 341 (635) (96)
Increase (decrease) in payables, accruals and
income taxes..................................... 296 150 (981)
Other.............................................. (16) 40 (28)
------ ------ ------
Total operating activities..................... 10,548 7,012 8,388
------ ------ ------
INVESTING ACTIVITIES:
Additions to property, plant and equipment........... (2,169) (2,404) (2,434)
Purchase of business................................. -- (5,699) --
Other................................................ (142) -- --
------ ------ ------
Total investing activities..................... (2,311) (8,103) (2,434)
------ ------ ------
FINANCING ACTIVITIES:
Change in notes payable.............................. -- -- 313
Cash transfer (to) from AMETEK, Inc.................. (7,907) 1,020 (6,086)
------ ------ ------
Total financing activities..................... (7,907) 1,020 (5,773)
------ ------ ------
Increase (decrease) in cash and cash equivalents....... 330 (71) 181
CASH AND CASH EQUIVALENTS:
Beginning of year.................................... 367 438 257
------ ------ ------
End of year.......................................... $ 697 $ 367 $ 438
====== ====== ======
See accompanying notes.
F-5
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Basis of Presentation
The accompanying combined financial statements present the financial
position, results of operations and cash flows of the Water Filtration
Business (the "Water Filtration Business") owned directly or indirectly by
AMETEK, Inc. ("AMETEK") and its subsidiaries. The accompanying combined
financial statements have been prepared on a historical cost basis and present
financial information for the Water Filtration Business as derived from
AMETEK's historical cost financial accounts. All significant intercompany
accounts and transactions of the Water Filtration Business have been
eliminated.
Description of Business
The Water Filtration Business is primarily in the business of manufacturing
water filtration products for retail, residential, commercial and industrial
customers in the United States and many foreign countries worldwide. The Water
Filtration Business sells its products through both retail and wholesale
distribution channels. It has a broad line of cartridge filtration products,
offering whole-house, countertop and other complete water filtration systems.
The Water Filtration Business's point-of-use drinking water filters and
cartridges are designed for the removal of objectionable taste, odor,
hazardous chemicals and bacteria. In addition, the Water Filtration Business
produces filters, housings and cartridges for use in food and beverage
dispensing, cosmetics and chemical production applications; as well as for use
by plumbing professionals to serve their residential and commercial customers.
The Water Filtration Business's operations consist of Plymouth Products, a
United States division of AMETEK, and three wholly owned foreign subsidiaries:
AMETEK Filters, Limited; APIC International S.A.("APIC"); and AFIMO S.A.M.
("AFIMO").
2. THE WATER FILTRATION BUSINESS MERGER
On February 5, 1997, AMETEK announced that it will separate all of its other
businesses from the Water Filtration Business and a wholly owned subsidiary of
Culligan Water Technologies, Inc. ("Culligan") will be merged with and into
the Water Filtration Business for a total purchase price to Culligan of
approximately $155 million. The purchase price, less assumed debt, is payable
to AMETEK's stockholders in Culligan common stock valued at $37.50 per share.
Following the merger, Culligan will assume $25 million of AMETEK's debt. Based
on the assumption of $25 million of AMETEK's debt, Culligan will distribute
3,466,667 shares of its common stock to AMETEK's stockholders, or 0.11 shares
of Culligan common stock for each outstanding share of AMETEK common stock
(based on shares outstanding at December 31, 1996).
The transaction is subject to certain conditions, including receipt of a
favorable ruling from the Internal Revenue Service to the effect that the
merger and distribution will be tax-free for federal income tax purposes, and
approval by AMETEK's stockholders.
In connection with the merger of the Water Filtration Business into
Culligan, AMETEK will enter into certain contractual agreements with Culligan.
Such agreements include an Indemnification Agreement, a Tax Allocation
Agreement, a Trademark Agreement and a Transition Services Agreement. The
agreements will provide, among other things, each party's rights and
obligations with respect to tax matters, use of trade names, certain
indemnification matters, and support services to facilitate an orderly
transition as they relate to the Water Filtration Business.
F-6
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue Recognition
The Water Filtration Business's revenues are recorded when products are
shipped and services are rendered. The policy with respect to sales returns
and allowances generally provides that the customer may not return the
products, or be given allowances, except at the Water Filtration Business's
option. The provision for estimated warranty costs (not material in amount) is
recorded at the time of sale and periodically adjusted to reflect actual
experience.
Cash Management
AMETEK uses a centralized cash management system for all of its domestic
operations, including that of the Water Filtration Business. Cash and cash
equivalents, consisting of highly liquid investments with maturities of three
months or less when purchased, reflected in the combined balance sheet,
represents balances maintained by the Water Filtration Business's foreign
operations.
Inventories
Inventories are stated at lower of cost or market, cost being determined on
a first-in, first-out (FIFO) basis. Reserves are provided for obsolete
inventory and for slow moving inventory based on historical and projected
usage.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of property,
plant and equipment is calculated principally on the straight-line method
(accelerated methods for tax purposes) over the useful lives of the assets.
Expenditures for maintenance and repairs, which do not materially extend the
lives of the assets, as well as expenditures for tools and dies, are included
in operations as incurred.
Financial Accounting Standards Board Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
which established new accounting standards for measuring the impairment of
long-lived assets, was adopted by the Water Filtration Business in the first
quarter of 1996. The adoption of this new Statement did not have any impact on
the Water Filtration Business's combined financial position or results of
operations.
Advertising Costs
Costs incurred for producing and communicating advertising are expensed when
incurred, including costs incurred under the Water Filtration Business's
cooperative advertising programs with its dealers and mass merchandisers.
F-7
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Intangible Assets
Intangible assets consists of goodwill, and other acquired intangibles. For
financial reporting purposes, goodwill is being amortized on a straight-line
basis over 20 to 30 years. The other acquired intangibles are being amortized
over their estimated useful lives of five to seven years. The Water Filtration
Business reviews the carrying value of intangibles for impairment whenever
events or changes in circumstances indicate that the carrying amount may not
be recoverable.
Foreign Currency Translation
Results of operations of foreign subsidiaries are translated to U.S. dollars
by using the average exchange rates during the year. The assets and
liabilities of those subsidiaries are translated into U.S. dollars using the
exchange rates in effect at the balance sheet date. The related foreign
currency translation adjustments are recorded in a separate component of net
worth.
Income Taxes
The results of the Water Filtration Business's U.S. operations are included
in AMETEK's consolidated United States federal and state income tax returns.
The provision for income taxes included in these combined financial statements
represents the Water Filtration Business's allocated share of AMETEK's
domestic income tax expense (including a credit attributable to U.S. export
sales), which approximates the net expense that the Water Filtration Business
would have incurred on a separate tax return basis, along with the actual
income tax provisions of its foreign subsidiaries.
As part of the plan of the merger, AMETEK and Culligan have entered into a
Tax Matters Agreement. This agreement generally provides that for periods
prior to the merger the two companies will retain the liability for any unpaid
taxes attributable to their respective operations.
Research and Development
Water Filtration Business-funded research and development costs are charged
to operations as incurred. The amounts charged to operations during the years
ended December 31, 1996, 1995 and 1994 were $600,000, $500,000 and $300,000,
respectively.
4. ACQUISITION
On November 1, 1995, the Water Filtration Business purchased APIC and AFIMO,
a French- and Monaco-based manufacturer of water filtration products, for $5.7
million cash. Accounting for this acquisition was completed in early 1996 upon
the determination of fair values of the assets acquired and the liabilities
assumed. The acquisition was accounted for by the purchase method and the
results of APIC's and AFIMO's operations are included in the Water Filtration
Business's combined results from the date of acquisition.
Assuming that the acquisition was made as of January 1, 1994, pro forma
unaudited net sales would have been $63.0 million for 1995 and $60.6 million
for 1994. Pro forma operating income and net income for 1995 and 1994 would
not have been materially different from the amounts reported.
5. TRANSACTIONS WITH AMETEK
Net worth as shown in the combined balance sheet primarily represents
AMETEK's cumulative net investment in the combined business of the Water
Filtration Business. AMETEK's practice is to incur indebtedness for its
domestic operations at the parent company level, or at a limited number of
foreign
F-8
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
subsidiaries, and to centrally manage various cash functions for its domestic
operations. The Water Filtration Business's financing requirements have,
therefore, been substantially satisfied by transactions with AMETEK. There are
no material intercompany purchase or sale transactions between AMETEK and the
Water Filtration Business. Advances from AMETEK and excess cash sent to AMETEK
are reflected as net transactions with AMETEK and are included in net worth.
No interest is charged, or has been otherwise allocated to the Water
Filtration Business on outstanding balances due AMETEK.
The following table sets forth the changes in net worth.
DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -------
Beginning balance.............................. $29,868 $21,868 $20,159
Cash from operations........................... (10,367) (8,687) (9,436)
Working capital transfers, net................. (527) 1,784 839
Additions to property, plant and equipment..... 2,169 2,402 2,434
Purchase of business........................... -- 5,699 --
Net income..................................... 8,163 6,998 7,731
Other.......................................... 401 (196) 141
------- ------- -------
Ending balance................................. $29,707 $29,868 $21,868
======= ======= =======
Average balance................................ $29,788 $25,868 $21,014
======= ======= =======
Cumulative losses from foreign currency translation adjustment included in
the net worth shown above at December 31 are as follows: 1996--$647,000;
1995--$533,000; 1994--$519,000.
At December 31, 1996, the Water Filtration Business's U.K. subsidiary,
Ametek Filters, Limited, had non-interest bearing notes payable to a
subsidiary of AMETEK totaling $343,000. The notes are payable in 2002, but are
being accelerated for payment in 1997, prior to the merger. The amount due is
shown as notes payable in the accompanying combined balance sheet.
The Plymouth Products Division participates with other AMETEK Divisions in a
number of risk management, insurance and employee benefit programs, some of
which are self insured directly by AMETEK, or insured through its captive
insurance subsidiary. An estimate of the expense attributable to the Plymouth
Products Division for such programs is reflected in the combined statement of
income. The combined balance sheet includes accruals for specific workers'
compensation and product liability claims of the Plymouth Products Division
which were transferred through the intercompany account with AMETEK (see note
6).
Certain operating expenses, capital expenditures, general corporate
expenses, and other cash requirements of the Water Filtration Business were
paid or accrued by AMETEK and charged directly or allocated to the Water
Filtration Business. Amounts included in the combined statement of income
related to the services provided to the Water Filtration Business by AMETEK
amounted to approximately $1.7 million in 1996, $1.4 million in 1995, and $1.3
million in 1994.
These charges and allocations include amounts for consulting, legal and
other support services and were based on direct charges and an estimate of the
proportion of such corporate expenses related to the Water Filtration Business
for the periods presented and, in the opinion of management, have been made on
a reasonable basis.
F-9
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. OTHER BALANCE SHEET INFORMATION
(IN THOUSANDS)
----------------
1996 1995
------- -------
INVENTORIES
Finished goods......................................... $ 5,155 $ 5,644
Work in process........................................ 198 202
Raw materials.......................................... 2,529 1,410
------- -------
$ 7,882 $ 7,256
======= =======
PROPERTY, PLANT AND EQUIPMENT, at cost
Land................................................... $ 195 $ 188
Buildings.............................................. 12,909 12,612
Machinery and equipment................................ 19,426 16,836
------- -------
32,530 29,636
Less accumulated depreciation.......................... (14,982) (12,986)
------- -------
$17,548 $16,650
======= =======
INTANGIBLES AND OTHER ASSETS
Acquired intangibles, at cost:
Goodwill............................................. $ 3,210 $ 27
Non-compete agreements............................... 623 372
Other acquired intangibles........................... 129 129
------- -------
3,962 528
Less accumulated amortization........................ (644) (318)
------- -------
3,318 210
Intangible pension asset............................... 221 235
Investment in acquired business........................ -- 5,699
------- -------
$ 3,539 $ 6,144
======= =======
ACCRUED LIABILITIES
Accrued employee compensation and benefits............. $ 1,254 $ 1,068
Real estate, personal property, social and other non
income taxes.......................................... 307 337
Accrued workers compensation and product liability
insurance.............................................. 640 161
Other.................................................. 1,094 610
------- -------
$ 3,295 $ 2,176
======= =======
The allowance for uncollectible accounts receivable at December 31 was
as follows: 1996--$0 and 1995--$15.
F-10
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES
The details of the provision for (benefit from) income taxes are as follows:
(IN THOUSANDS)
---------------------
1996 1995 1994
------ ------ ------
Provision for income taxes:
Current:
Federal........................................... $3,836 $3,571 $3,907
Foreign........................................... 76 4 --
State............................................. 302 262 221
------ ------ ------
Total current................................... 4,214 3,837 4,128
------ ------ ------
Deferred:
Federal........................................... (24) 4 45
State............................................. (2) 16 37
------ ------ ------
Total deferred.................................. (26) 20 82
------ ------ ------
Total provision............................... $4,188 $3,857 $4,210
====== ====== ======
Significant components of the Water Filtration Business's deferred tax
(asset) liability as of December 31 are as follows:
(IN
THOUSANDS)
--------------
1996 1995
------ ------
Current deferred tax (asset) liability:
Reserves not currently deductible...................... $ (76) $ (82)
Other.................................................. (3) (4)
------ ------
Net current deferred tax asset......................... (79) (86)
------ ------
Long-term deferred tax (asset) liability:
Differences in basis of property and accelerated
depreciation........................................... 1,729 1,592
Reserves not currently deductible...................... (224) (57)
Other.................................................. 101 121
------ ------
Net long-term deferred tax liability................... 1,606 1,656
------ ------
Net deferred tax liability........................... $1,527 $1,570
====== ======
The effective rate of the provision for income taxes reconciles to the
statutory rate as follows:
1996 1995 1994
---- ---- ----
Statutory rate.......................................... 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit... 1.6 1.7 1.4
Foreign Sales Corporation credits....................... (1.0) (1.0) (0.8)
Effect of foreign operations and other.................. (1.7) (0.2) (0.3)
---- ---- ----
33.9% 35.5% 35.3%
==== ==== ====
Undistributed earnings of the Water Filtration Business's foreign
subsidiaries at December 31, 1996, are considered to be indefinitely
reinvested and are not significant. Accordingly, no provision has been
recorded for U.S. deferred income taxes.
F-11
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. PENSION PLANS
The Water Filtration Business maintains a noncontributory defined benefit
pension plan for eligible U.S. hourly employees. Additionally, eligible U.S.
salaried employees participate in AMETEK's salaried pension plan. Benefits are
generally based on years of service and average compensation. Pension costs
under these plans are funded through a trust established in connection with
the plans, which is maintained by AMETEK. Assets of the trust are principally
invested in a variety of equity and debt instruments. Pension expenses
(excluding administrative expenses) associated with these plans are charged
directly to the Water Filtration Business and are shown in the table below.
AMETEK's funding policy with respect to these plans is to contribute amounts
determined annually on an actuarial basis that provide for current and future
benefits in accordance with funding requirements of federal law and
regulation. In connection with the Merger, AMETEK will transfer to New Ametek
all liabilities with respect to pension benefits of the Water Filtration
Business's U.S. salaried employees. Accordingly, no pension-related assets or
liabilities associated with the salaried U.S. employees are included in the
accompanying combined balance sheet. Employees of the foreign operations are
covered by pension arrangements in their individual country of operation and
no liabilities associated with these arrangements are included in the balance
sheets.
Net pension expense consists of the following components:
(IN THOUSANDS)
-------------------
1996 1995 1994
----- ----- -----
Service cost for benefits
earned during the period. $ 227 $ 192 $ 193
Interest cost on projected
benefit obligation....... 314 287 240
Actual return on plans
assets.................... (361) (326) (294)
Net amortization and
deferrals................. 10 6 (33)
----- ----- -----
Net pension expense..... $ 190 $ 159 $ 106
===== ===== =====
Net pension expense reflects an expected long-term rate of return on plan
assets of 9 1/4% for 1996, 1995 and 1994. The actual return has been adjusted
to defer gains and losses that differ from the expected return. The present
value of the projected benefit obligation was determined by using an assumed
discount rate of 7 3/4% in 1996, 7 1/2% in 1995 and 7 3/4% in 1994. The
balance sheet reflects an additional long-term pension liability of $400,000
($462,000 in 1995), a long-term intangible asset of $221,000 ($235,000 in
1995), and a change in net worth (net of deferred taxes) of $116,000 in 1996
($148,000 in 1995).
The following table sets forth the funded status of the hourly plan:
(IN
THOUSANDS)
--------------
1996 1995
------ ------
Actuarial present value of benefit obligations:
Vested benefit obligation............................... $ 922 $ 784
====== ======
Accumulated benefit obligation.......................... $1,128 $1,053
====== ======
Projected benefit obligation............................ $1,128 $1,053
Plan assets at fair value............................... 954 689
------ ------
Plan assets less than projected benefit obligation...... (174) (364)
Unrecognized prior service cost......................... 193 205
Unrecognized net loss................................... 179 228
Unrecognized net transition obligation, net of amortiza-
tion................................................... 28 30
------ ------
Prepaid pension expense................................. $ 226 $ 99
====== ======
F-12
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Water Filtration Business provides benefits to eligible U.S. employees
through participation in the AMETEK Saving and Investment Plan, a defined
contribution plan. Expenses relating to this plan in 1996, 1995, and 1994 were
not material.
The Water Filtration Business does not provide significant postretirement or
postemployment benefits other than pensions.
9. LEASES
Future minimum lease payments under non-cancelable leases with remaining
terms of more than one year amounted to $1,637,000, consisting of annual
payments of $442,000 in 1997, and decreasing amounts thereafter.
Rent expense under operating leases of $761,000 was charged to income in
1996, $244,000 in 1995, and $202,000 in 1994.
10. STOCK OPTIONS
AMETEK has certain Stock Option Plans under which incentive stock options,
stock appreciation rights, restricted stock awards and phantom stock awards
may be granted to officers and key employees. In connection with the
separation of the water filtration business, employees of the Water Filtration
Business with options in the Plans that are not exercised prior to the
effective date, will either be converted into their cash value or Culligan
options, at the election of the employee, based on a formula that preserves
the inherent economic value and vesting terms and provisions of such AMETEK
options. Stock options for 113,140 shares of AMETEK common stock at prices
ranging from $11.69 to $19.19 were outstanding at December 31, 1996. Stock
options for 50,590 shares were exercisable at December 31, 1996.
F-13
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
11. GEOGRAPHIC INFORMATION
Net sales, income before income taxes and identifiable assets by geographic
area for the year ended December 31 are as follows:
(IN THOUSANDS)
-----------------------
1996 1995 1994
------- ------- -------
Net sales (based on destination):
United States................................. $49,341 $44,410 $44,573
International (including United States exports
shown below):
Europe...................................... 12,214 4,810 3,171
Other....................................... 7,095 6,423 6,342
------- ------- -------
Total combined............................ $68,650 $55,643 $54,086
======= ======= =======
Income before income taxes
United States................................. $11,544 $10,800 $11,817
Europe........................................ 807 55 124
------- ------- -------
Total combined............................ $12,351 $10,855 $11,941
======= ======= =======
Identifiable assets
United States................................. $29,685 $29,204 $26,625
Europe........................................ 9,572 8,318 2,537
------- ------- -------
Total combined............................ $39,257 $37,522 $29,162
======= ======= =======
United States export sales (reported in
international sales above)
Europe........................................ $ 3,229 $ 2,082 $ 1,923
Asia.......................................... 3,014 2,765 2,167
Canada........................................ 1,017 1,009 1,013
Other......................................... 2,388 2,138 1,759
------- ------- -------
Total combined............................ $ 9,648 $ 7,994 $ 6,862
======= ======= =======
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
(IN THOUSANDS)
------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER(A) YEAR
------- ------- ------- ---------- -------
1996
- ----
Net sales.......................... $18,499 $18,036 $17,877 $14,238 $68,650
Operating income................... $ 3,644 $ 3,728 $ 3,139 $ 1,849 $12,360
Net income......................... $ 2,344 $ 2,410 $ 2,135 $ 1,274 $ 8,163
1995
- ----
Net sales.......................... $14,553 $13,913 $14,344 $12,833 $55,643
Operating income................... $ 3,066 $ 2,431 $ 2,675 $ 2,651 $10,823
Net income......................... $ 2,027 $ 1,537 $ 1,733 $ 1,701 $ 6,998
- --------
(a) Fourth quarter 1996 reflects the short-term impacts of a soft economy in
Europe, the impact of changes in foreign currency exchange rates, and the
residual effects of a two week truckers' strike in France. The fourth
quarter of 1996 also reflects the recognition of higher than normal
charges related to advertising and sales promotion programs in the Water
Filtration Business's retail water filtration market.
F-14
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
COMBINED STATEMENT OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
------------------------------
1997 1996
-------------- --------------
Net sales....................................... $ 18,721 $ 18,499
-------------- --------------
Expenses:
Cost of sales, excluding depreciation......... 12,045 11,944
Selling, general & administrative............. 2,882 2,441
Depreciation.................................. 527 470
-------------- --------------
Total expenses.............................. 15,454 14,855
-------------- --------------
Operating income................................ 3,267 3,644
Other expenses, net............................. (5) (1)
-------------- --------------
Income before income taxes...................... 3,262 3,643
Provision for income taxes...................... 1,048 1,299
-------------- --------------
Net income...................................... $ 2,214 $ 2,344
============== ==============
See accompanying notes.
F-15
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
COMBINED BALANCE SHEET (UNAUDITED)
MARCH 31, 1997
(DOLLARS IN THOUSANDS)
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 938
Receivables, net.................................................... 12,244
Inventories......................................................... 6,848
Deferred income taxes............................................... 94
Other current assets................................................ 720
--------
Total current assets.............................................. 20,844
--------
Property, plant and equipment......................................... 33,051
Less accumulated depreciation....................................... (15,451)
--------
17,600
--------
Intangibles and other assets.......................................... 3,216
--------
$ 41,660
========
LIABILITIES AND NET WORTH
Current liabilities:
Notes payable....................................................... $ 363
Accounts payable.................................................... 4,396
Income taxes payable................................................ 107
Accrued liabilities................................................. 3,728
--------
Total current liabilities......................................... 8,594
Deferred income taxes................................................. 1,606
Other long-term liabilities........................................... 400
Net worth............................................................. 31,060
--------
$ 41,660
========
See accompanying notes.
F-16
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
CONDENSED COMBINED STATEMENT OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
THREE MONTHS
ENDED MARCH 31,
----------------
1997 1996
------- -------
CASH PROVIDED BY (USED FOR):
OPERATING ACTIVITIES:
Net income.................................................. $ 2,214 $ 2,344
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization............................. 595 545
Deferred income taxes..................................... (15) (11)
Net change in operating working capital................... (1,538) (1,179)
Other..................................................... (56) 361
------- -------
Total operating activities.............................. 1,200 2,060
------- -------
INVESTING ACTIVITIES:
Additions to property, plant and equipment.................. (675) (283)
------- -------
Total investing activities.............................. (675) (283)
------- -------
FINANCING ACTIVITIES:
Cash transfer to AMETEK, Inc................................ (322) (1,140)
Change in notes payable..................................... 38 --
------- -------
Total financing activities.............................. (284) (1,140)
------- -------
Increase in cash and cash equivalents......................... 241 637
CASH AND CASH EQUIVALENTS:
As of January 1............................................. 697 367
------- -------
As of March 31.............................................. $ 938 $ 1,004
======= =======
See accompanying notes.
F-17
THE WATER FILTRATION BUSINESS
(A WHOLLY OWNED BUSINESS OF AMETEK, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying combined financial statements are unaudited. AMETEK's
management believes that all adjustments (which consist of normal recurring
accruals) necessary for a fair presentation of the combined financial position
of the Water Filtration Business at March 31, 1997, and the combined results
of its operations and cash flows for the three month periods ended March 31,
1997 and 1996 have been included. Quarterly results of operations are not
necessarily indicative of results for the full year.
2. INVENTORIES
The estimated components of inventory stated at lower of FIFO cost or market
at March 31, 1997 are (in thousands):
Finished goods and parts.......................................... $4,031
Work in process................................................... 308
Raw materials and purchased parts................................. 2,509
------
$6,848
======
F-18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE WATER FILTRATION BUSINESS
Management's discussion and analysis of the Water Filtration Business's
financial condition and results of operations set forth below should be read
in conjunction with the Selected Combined Historical Financial Data of the
Water Filtration Business and the Combined Financial Statements of the Water
Filtration Business and the notes thereto.
BUSINESS OVERVIEW
The Water Filtration Business of AMETEK consists of a United States
division, the Plymouth Products Division, and three foreign subsidiaries,
Ametek Filters, Limited, APIC International S.A. ("APIC") and AFIMO S.A.M.
("AFIMO"). All of AMETEK's businesses other than the Water Filtration Business
are to be separated from AMETEK, and Culligan Merger Sub is to be merged with
and into AMETEK. See "The Water Filtration Business Merger" in Note 2 to the
audited Combined Water Filtration Business Financial Statements.
The Water Filtration Business's primary business is the manufacturing of
water filtration cartridge products for retail, residential, commercial, and
industrial markets in the United States and many countries worldwide. The
Water Filtration Business sells its products to both the retail and wholesale
distribution channels, including direct sales to the plumbing industry to
serve their residential and commercial customers. It is a leader in point-of-
use drinking water filters and cartridges designed for the removal of
objectionable taste, odor, hazardous chemicals and bacteria from water. Its
products also include filter cartridges and housings which are used in diverse
applications such as food and beverage dispensing, cosmetics, and chemical
production applications. For the three months ended March 31, 1997 and for
years 1996 and 1995, sales to commercial and industrial markets accounted for
approximately 50% of the Water Filtration Business's net sales. In all
periods, sales to retail and residential markets were about 40% of the Water
Filtration Business's net sales and utility and turf irrigation products
accounted for the remainder of the sales.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
Results of Operations
Sales for the first quarter of 1997 were $18.7 million, relatively unchanged
from $18.5 million of sales recorded for the same quarter of 1996. Higher
exports by the Water Filtration Business's U.S. operation were largely offset
due to lower sales by the European operations. Sales performance also varied
by market segment, with higher sales in the water treatment, industrial and
utility/turf irrigation markets and by lower sales to the retail and
commercial markets.
Selling, general and administrative expenses were $2.9 million in the first
quarter of 1997, compared with $2.4 million in the first quarter of 1996, an
increase of 18.1%. Selling expenses as a percentage of sales increased to
15.4% of sales in the 1997 first quarter, compared with 12.8% of sales in the
same quarter of 1996. The increased proportion of selling expenses was due
partially to higher advertising and sales commission expenses in the retail
business of the U.S. operation, and from a relatively higher proportion of
selling expenses from the APIC and AFIMO French and Monaco operations.
Operating income for the first quarter of 1997 was $3.3 million, compared
with $3.6 million in the 1996 first quarter, a decrease of 10.3%. Operating
income as a percentage of sales was 17.5% in the 1997 first quarter, compared
with 19.7% in the first quarter of 1996. The lower operating margin was due to
higher raw material cost in the current first quarter and to the higher
proportion of selling expenses mentioned above.
The effective tax rate for the first quarter of 1997 was 32.1%, compared
with 35.7% for the same quarter of 1996. The lower 1997 rate was due partly to
a lower state tax provision for the U.S. operation, and to lower taxes on
foreign earnings.
F-19
The effects of the above items resulted in net income for the first quarter
of 1997 of $2.2 million, compared with $2.3 million in the same quarter of
1996, a decrease of $.1 million or 5.5%.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Results of Operations
For 1996, sales were $68.6 million, compared to $55.6 million in 1995, an
increase of $13.0 million or 23.4%. Increased market penetration into the
worldwide water treatment and retail markets, and the introduction of new
products into the industrial filtration markets by the Water Filtration
Business's United States operations, plus the full year's sales contribution
from the November 1995 acquisition of APIC and AFIMO, contributed almost
equally to the sales increase. Export shipments from the U.S. continued an
increasing trend, growing $1.6 million or 20.7% to $9.6 million in 1996.
Selling, general and administrative expenses were $10.3 million in 1996,
compared to $7.5 million in 1995, an increase of $2.9 million or 38.2%.
Selling expenses as a percentage of sales increased to 14.7% of sales in 1996
compared to 13.0% of sales in 1995. The increased proportion of selling
expenses was due partially to higher advertising and sales commission expenses
related to penetration of highly competitive U.S. channels, including mass
merchandisers and national home center chains, and from a relatively higher
proportion of selling expenses from the APIC and AFIMO acquisition.
Operating income for 1996 was $12.4 million, compared to $10.8 million in
1995, an increase of $1.5 million or 14.2%. The profit increase reflected the
higher sales volume, including the full year profit contribution of the APIC
and AFIMO acquisition. Operating income as a percentage of sales was 18.0% in
1996, compared with 19.5% in 1995. The lower operating margin was due to the
higher proportion of selling expenses in 1996, and a lower proportion of
earnings from the APIC and AFIMO acquisition.
The effective tax rate for 1996 was 33.9%, compared to 35.5% for 1995. The
lower 1996 rate was due primarily to lower foreign taxes, mostly from the
Water Filtration Business's United Kingdom ("U.K.") operation, which benefited
from net operating loss carryforwards.
The effects of the above items resulted in net income for 1996 of $8.2
million, compared to $7.0 million in 1995, an increase of $1.2 million or
16.6%.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Results of Operations
For 1995, sales were $55.6 million, an increase of $1.6 million or 2.9%
compared to 1994 totals. The sales increase came primarily from the Water
Filtration Business's United States operation, resulting from expansion into
worldwide industrial and water treatment filtration markets, and to higher
sales of new industrial filtration products by the Water Filtration Business's
U.K. operation. Export sales from the Water Filtration Business's United
States operation increased $1.1 million to $8.0 million in 1995, an increase
of 16.5%. The overall sales increase however, was largely offset by lower
domestic sales in the retail and commercial markets. Sales to the Walter
Filtration Business's retail markets declined in 1995 from 1994 levels,
primarily due to adverse winter weather conditions, which had a diminishing
effect on consumer buying in early 1995.
Operating profit margins decreased to 19.5% in 1995 from 22.0% in 1994, due
to reduced operating efficiencies, primarily from the United States operation.
Higher engineering, product development and new product introduction costs
were absorbed in 1995 in preparation for sales growth in 1996. The effects of
the above items more than offset the profit contribution from the sales
increase, resulting in operating income for 1995 of $10.8 million, a decrease
of $1.1 million or 9.2% from 1994.
Net income for 1995 was $7.0 million, compared to $7.7 million in 1994, a
decrease of $.7 million or 9.5%, reflecting the lower operating margins
discussed above.
F-20
LIQUIDITY AND CAPITAL RESOURCES
March 31, 1997 Compared to December 31, 1996
Working capital at March 31, 1997 amounted to $12.2 million, an increase of
$1.6 million from December 31, 1996. The increase was largely due to an
increase in receivables, which was relatively proportionate to the higher
sales levels in the first quarter of 1997 compared to the last quarter of
1996. The ratio of current assets to current liabilities at March 31, 1997 was
2.43 to 1, compared to 2.41 to 1 at December 31, 1996.
Cash provided by operating activities totaled $1.2 million in the first
quarter of 1997, compared to $2.1 million in the same quarter of 1996, a
decrease of $.9 million. The decrease was due primarily to an increase in
overall working capital requirements and to the reduced level of earnings in
the 1997 quarter.
Cash used for investing activities totaled $.7 million in the first quarter
of 1997, compared to $.3 million in the first quarter of 1996. The total use
of cash for investing activities in both periods was for additions to
property, plant and equipment.
Financing activities used cash totaling $.3 million in the first quarter of
1997, compared to cash used totaling $1.1 million in the first quarter of
1996, representing the net cash transferred to AMETEK.
December 31, 1996 Compared to December 31, 1995
Working capital at December 31, 1996 amounted to $10.6 million, an increase
of $1.1 million from year-end 1995, largely due to the international water
filter business acquired in November 1995. Accounting for this acquisition was
completed in early 1996. The ratio of current assets to current liabilities at
December 31, 1996 was 2.41 to 1, compared to 2.82 to 1 at December 31, 1995.
Cash provided by operating activities totaled $10.5 million in 1996,
compared to $7.0 million in 1995, an increase of $3.5 million. The increase
was due to higher earnings and lower overall working capital requirements.
Cash used for investing activities totaled $2.3 million in 1996, compared to
$8.1 million in 1995. The primary use of cash in 1996 was for additions to
property, plant, and equipment, which totaled $2.2 million, compared to $2.4
million in 1995. Investing activities in 1995 also included a $5.7 million
cash outlay for the business acquisition mentioned above.
Financing activities used cash totaling $7.9 million in 1996, representing
the remittance of operating cash to AMETEK. Net cash transfers from AMETEK
were $1.0 million in 1995.
NEW ACCOUNTING STANDARDS
In the first quarter of 1996, the Water Filtration Business adopted
Financial Accounting Standards Board ("FASB") Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of. Statement No. 121 establishes new accounting standards for
measuring the impairment of long-lived assets The adoption of this new
statement did not have any impact on the Water Filtration Business's combined
financial position or results of operations.
INTERNAL REINVESTMENT
Capital Expenditures
Capital expenditures were $.7 million for the three months ended March 31,
1997 and $2.2 million in 1996, essentially unchanged from $2.4 million in
1995. Approximately 71% of the expenditures for the first quarter of 1997 and
89% of the 1996 expenditures were for additional manufacturing equipment to
increase production efficiencies, and to expand production capacity. The Water
Filtration Business expects 1997 capital spending to exceed the 1996 level,
with continued emphasis on increasing production efficiencies and expansion,
primarily in the United States operation.
F-21
Product Development and Engineering
Product development and engineering expenses totaled $.4 million for the
first quarter of 1997, $1.5 million in 1996, $1.2 million in 1995, and $1.0
million in 1994. Such expenditures were directed toward the development of new
products and processes, and improvement of existing products and processes,
primarily related to the Water Filtration Business's U.S. operations.
ENVIRONMENTAL MATTERS
The Water Filtration Business is subject to environmental laws and
regulations regarding its operating locations and the environmental effects of
doing business at these sites. Currently, the Water Filtration Business is not
the subject of any government-mandated clean-ups at any of its operating
sites. Provisions for environmental clean-up and maintenance for the Water
Filtration Business were not material for 1996, 1995, and 1994. The Water
Filtration Business believes that, based on past experience and current
evaluations, any future environmental actions are not likely to have a
materially adverse effect on future combined results of operations, financial
position, or cash flows of the Water Filtration Business.
IMPACT OF INFLATION AND FOREIGN OPERATIONS
The Water Filtration Business attempts to minimize the impact of inflation
through cost reduction programs and by improving productivity. In general, the
Water Filtration Business believes programs are in place that are designed to
monitor the impact of inflation and to take necessary steps to minimize
inflation's effect on domestic and foreign operations.
A portion of the Water Filtration Business's sales come from its foreign
operations. Although these operations are geographically dispersed, which
partially mitigates the risks associated with operating in particular
countries, the Water Filtration Business is subject to the usual risks
associated with international operations, including the exposure to
fluctuation in foreign currency exchange rates. The Water Filtration Business
believes that the economic risk associated with its foreign operations is
minimized because most of the products sold within the foreign markets are
sourced and distributed locally. In addition, except for a limited amount of
dividends and other payments to AMETEK, the Water Filtration Business
reinvests profits in the country where the profits are derived.
F-22