-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, pZlMcz8qJ7znHFxIWpjUrk/smKxpezmeBkG0AuUKKDKCFdlWQUiKyrLRNxgiHQMo 3ccHYv10Pilo8hn+Tqb68g== 0000950152-95-000775.txt : 19950428 0000950152-95-000775.hdr.sgml : 19950428 ACCESSION NUMBER: 0000950152-95-000775 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 19950427 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINCOLN ELECTRIC CO CENTRAL INDEX KEY: 0000059527 STANDARD INDUSTRIAL CLASSIFICATION: METALWORKING MACHINERY & EQUIPMENT [3540] IRS NUMBER: 340359955 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-58881 FILM NUMBER: 95532186 BUSINESS ADDRESS: STREET 1: 22801 ST CLAIR AVE CITY: CLEVELAND STATE: OH ZIP: 44117 BUSINESS PHONE: 2164818100 S-3 1 THE LINCOLN ELECTRIC COMPANY S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 1995 REGISTRATION NO. 33- =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ THE LINCOLN ELECTRIC COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) OHIO 34-0359955 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR IDENTIFICATION NUMBER) ORGANIZATION) 22801 ST. CLAIR AVENUE CLEVELAND, OHIO 44117 (216) 481-8100 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ FREDERICK G. STUEBER, ESQ. VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY THE LINCOLN ELECTRIC COMPANY 22801 ST. CLAIR AVENUE CLEVELAND, OHIO 44117 (216) 481-8100 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: DAVID P. PORTER, ESQ. JONES, DAY, REAVIS & POGUE 901 LAKESIDE AVENUE CLEVELAND, OHIO 44114 (216) 586-3939 DAVID A. SCHUETTE, ESQ. MAYER, BROWN & PLATT 190 SOUTH LASALLE STREET CHICAGO, ILLINOIS 60603 (312) 701-7363 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement has become effective. ------------------------ If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. / / CALCULATION OF REGISTRATION FEE ============================================================================================================
PROPOSED PROPOSED MAXIMUM MAXIMUM AGGREGATE TITLE OF EACH CLASS AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF OF SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(3) PRICE(3) REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------ Class A Common Shares, without par value.... (2) $(2) $130,000,000 $44,828 ============================================================================================================
(1) Includes shares to cover over-allotment options granted by the Company and Selling Shareholders to the Underwriters. (2) To be filed by amendment following shareholder approval of the Class A Common Shares to be registered hereby. (3) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a). ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. =============================================================================== 2 THE RECAPITALIZATION THE COMPANY IS PURSUING A RECAPITALIZATION AUTHORIZING A NEW CLASS OF NON-VOTING COMMON SHARES (THE "CLASS A COMMON SHARES") THAT WILL INCLUDE THE CLASS A COMMON SHARES CONTAINED IN THE OFFERING TO WHICH THIS REGISTRATION STATEMENT APPLIES. THE AUTHORIZATION OF THE CLASS A COMMON SHARES IS SUBJECT TO SHAREHOLDER APPROVAL, WHICH IS BEING SOLICITED IN CONNECTION WITH THE COMPANY'S ANNUAL MEETING SCHEDULED TO BE HELD ON MAY 23, 1995. THE RECAPITALIZATION ANTICIPATES A DISTRIBUTION SHORTLY BEFORE THE CONSUMMATION OF THE OFFERING TO WHICH THIS REGISTRATION STATEMENT APPLIES OF A DIVIDEND OF ONE CLASS A COMMON SHARE FOR EACH OUTSTANDING SHARE OF THE COMPANY'S VOTING COMMON STOCK. UNLESS OTHERWISE SPECIFIED, THE FORM OF PROSPECTUS CONTAINED HEREIN ASSUMES THAT THE AUTHORIZATION OF THE CLASS A COMMON SHARES HAS OCCURRED. [NOT PART OF THE PROSPECTUS] 3 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED APRIL 27, 1995 PROSPECTUS [ ] SHARES [LOGO] THE LINCOLN ELECTRIC COMPANY CLASS A COMMON SHARES ------------------------ Of the Class A Common Shares, without par value, offered hereby, are being sold by The Lincoln Electric Company, an Ohio corporation (the "Company"), and are being sold by certain selling shareholders (the "Selling Shareholders"). The Company will not receive any of the proceeds from the sale of Class A Common Shares by the Selling Shareholders. See "Selling Shareholders." Prior to the Offering, there has been only a limited public market for securities of the Company, and no public market for the Class A Common Shares. It is currently estimated that the initial public offering price will be between $ and $ per share. See "Underwriting" for a discussion of the factors considered in determining the initial public offering price. The Class A Common Shares are a newly created class of non-voting shares. The Class A Common Shares are substantially identical to the voting common shares of the Company, except that holders of Class A Common Shares have no voting rights other than upon the occurrence of certain events described in the Company's Amended and Restated Articles of Incorporation ("Articles of Incorporation") and as required by Ohio law. See "Description of Capital Stock." The Company has applied to have the Class A Common Shares approved for quotation, subject to official notice of issuance, on the NASDAQ National Market under the symbol "LECOA." SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON SHARES OFFERED HEREBY. ------------------------ THESE SECURITIES HAVE NOT 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 PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
========================================================================================================= PROCEEDS TO PRICE TO UNDERWRITING PROCEEDS TO SELLING PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS(2) - --------------------------------------------------------------------------------------------------------- Per Share................. $ $ $ $ - --------------------------------------------------------------------------------------------------------- Total(3).................. $ $ $ $ =========================================================================================================
(1) The Company and the Selling Shareholders have agreed to indemnify the several Underwriters against certain liabilities under the Securities Act of 1933. See "Underwriting." (2) Before deducting expenses estimated at $ and $ payable by the Company and by the Selling Shareholders, respectively. (3) The Company and the Selling Shareholders have granted to the several Underwriters options, exercisable within 30 days of the date hereof, to purchase up to an additional Class A Common Shares from the Company and an additional Class A Common Shares from the Selling Shareholders solely to cover over-allotments, if any. If such options are exercised in full, the total Price to Public, Underwriting Discount, Proceeds to Company and Proceeds to Selling Shareholders will be $ , $ , $ and $ , respectively. See "Underwriting." ------------------------ The Class A Common Shares are offered by the several Underwriters, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of certain legal matters by counsel for the Underwriters and certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the Class A Common Shares will be made in New York, New York on or about , 1995. ------------------------ MERRILL LYNCH & CO. J.P. MORGAN SECURITIES INC. MCDONALD & COMPANY SECURITIES, INC. ------------------------ THE DATE OF THIS PROSPECTUS IS , 1995. 4 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON SHARES AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may be obtained at prescribed rates by writing the Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. The Company has filed with the Commission a registration statement (the "Registration Statement," which term shall include any amendments thereto) on Form S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Class A Common Shares offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto, certain parts of which are omitted in accordance with the rules and regulations of the Commission, and to which reference is hereby made. For further information, reference is hereby made to the Registration Statement and the exhibits and schedules thereto. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents heretofore filed by the Company with the Commission pursuant to the Exchange Act are incorporated by reference in this Prospectus and shall be deemed to be a part hereof: 1. The Company's Annual Report on Form 10-K for the year ended December 31, 1994. 2. The description of the Company's Class A Common Shares set forth in the Company's Registration Statement on Form 8-A filed under Section 12 of the Exchange Act on . All documents filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the Offering shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from their respective dates of filing. Any statement contained herein or in any document incorporated or deemed to be incorporated shall be deemed to be modified or superseded for all purposes of this Prospectus to the extent that a statement contained in this Prospectus or in any subsequently filed document which also is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY AND ALL OF THE INFORMATION THAT HAS BEEN INCORPORATED BY REFERENCE IN THIS PROSPECTUS (OTHER THAN EXHIBITS TO THE INFORMATION THAT ARE INCORPORATED BY REFERENCE UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO THE INFORMATION THAT THIS PROSPECTUS INCORPORATES). REQUESTS SHOULD BE DIRECTED TO FREDERICK G. STUEBER, ESQ., VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY, THE LINCOLN ELECTRIC COMPANY, AT THE COMPANY'S PRINCIPAL EXECUTIVE OFFICES, 22801 ST. CLAIR AVENUE, CLEVELAND, OHIO 44117, TELEPHONE NUMBER (216) 481-8100. PERSONS REQUESTING COPIES OF EXHIBITS TO SUCH DOCUMENTS THAT WERE NOT SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS WILL BE CHARGED THE COSTS OF REPRODUCTION AND MAILING. 2 5 [Photos to come] 6 [Photos to come] 7 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and the consolidated financial statements and related notes thereto appearing elsewhere in this Prospectus. All share amounts and per share financial information presented in this Prospectus (except within the consolidated financial statements and related notes and as expressly indicated otherwise) have been adjusted to assume the reclassification of the Company's voting common shares, the creation of the Class A Common Shares and the issuance of a dividend of one Class A Common Share for each outstanding share of the Company's voting common shares. Such dividend will have the same effect on the total number of common shares outstanding as a two-for-one share split. Unless otherwise indicated, the information in this Prospectus assumes that the Underwriters' over-allotment options are not exercised. See "Underwriting." THE COMPANY The Lincoln Electric Company is one of the world's largest designers and manufacturers of arc welding products, manufacturing a full line of arc welding equipment and consumable welding products. The Company, now entering its second century of operations, also manufactures a broad line of integral horsepower industrial electric motors. The Company's welding products are used in a wide range of industrial applications, including the manufacturing of automobiles, trucks, heavy machinery, railcars and ships, and the construction of buildings, bridges, oil platforms and pipelines. The Company distributes its products through a large, technically trained sales force and a broad distribution network. According to market estimates, the Company believes that it maintains a market leading 42% share of the United States arc welding consumables business and a top-tiered share of the United States arc welding equipment business. The Company also believes that it is the low-cost full line producer in the approximately $750 million United States arc welding consumable products business. To retain its leading position in the United States, the Company has made substantial investments in facilities and equipment to improve production efficiencies and further achieve manufacturing cost reductions. The Company's welding products business, which in 1994 contributed over 93% of the Company's net sales, primarily involves the design, manufacture and distribution of arc welding equipment and consumable welding products. Arc welding, which today is the most common industrial welding process, uses the concentrated heat of an electric arc to join metal by fusion with a deposit of molten metal, typically from a consumable electrode. The Company's arc welding equipment products include welding machines, power sources and automated welding systems and range from basic units used for light manufacturing and maintenance to highly sophisticated machines used in robotic applications, high production welding and fabrication. The Company's consumable products, designed for use with arc welding equipment, include a full line of manual electrodes, fluxes and wires. The Company also participates in businesses that are closely related to its arc welding business, including the manufacture of oxy-fuel welding and cutting torches, gas flow control devices (regulators) and industrial gases. The Company also designs, manufactures and sells a broad line of steel, aluminum and cast iron frame integral horsepower electric motors for use in industrial applications. In 1992, the Company acquired the industrial electric motor operations of the Delco division of General Motors Corporation in Dayton, Ohio, substantially expanding its market position and broadening its product line. Presently, the Company's line of steel and aluminum frame industrial electric motors ranges from 1/3 to 250 horsepower and up to 1,250 horsepower for cast iron motors. The Company expects to build on its position as a leader in the domestic arc welding industry with continued market penetration facilitated by a broad range of new product offerings and further capacity additions. Furthermore, management believes that long-term growth requires a strong global presence. From 1985 to 1992, the Company expanded its international business by completing 12 acquisitions with operations in 13 foreign countries. In 1992, the Company, under the leadership of newly promoted chief executive and chief operating officers, refocused and redirected its global strategy and initiated a major restructuring to downsize and streamline certain unprofitable operations in Europe, South America and Japan. While in 1992 and 1993 the Company experienced losses, primarily as the result of restructuring charges, the Company's domestic arc welding operations maintained strong net sales and operating profitability. In 1994, the Company reported the highest net sales, net income and net income per common share in its history. In that same year, the Company's foreign operations returned to profitability. 3 8 The Company was founded in 1895 by John C. Lincoln and originally manufactured electric motors and generators. The Company entered the arc welding business, then in its infancy, in 1911. The Company is widely recognized for its implementation of the "incentive management system" developed by John C. Lincoln's brother, James F. Lincoln, who headed the Company from 1914 to 1965. Current practices of the system include an emphasis on piecework and an annual bonus system based on individual performance and Company results, with employee stock ownership plans and guaranteed employment as described herein. The Company believes that the corporate culture resulting from its incentive management system has increased productivity, led to enhanced operating flexibility and contributed to the Company's industry leadership position. The Company's business strategy is to continue to strengthen its operations in the United States and internationally, and to exploit opportunities for growth. Key elements of the Company's business strategy include: - Manufacturing High Quality Products. The Company enjoys a worldwide reputation for manufacturing consistently high quality, state of the art products that are robust and rugged. Manufacturing efficiencies, flexibility and quality are enhanced by the Company's high degree of vertical integration. All of the Company's worldwide consumable manufacturing facilities and its domestic machine and motor facilities meet ISO 9002 standards. A key element of the Company's incentive management system is the individual employee's responsibility for the quality of the product produced. - Highly Productive and Motivated Workforce. The Company believes its incentive management system has increased productivity, led to enhanced operating flexibility and contributed to the Company's industry leadership position. In the core United States operations, absenteeism of less than 2%, and turnover rates among employees with more than 180 days of service of approximately 4%, help drive productivity, while management's ability to reassign employees to where they are most needed provides greater operating flexibility. - Advanced Engineering Expertise. The Company is a leader in the development of innovative, value added products. The efforts of its engineers, many of whom have been granted patents and awards for their contributions to welding technology, have helped the Company gain a global leadership role in the design of welding products for such critical applications as gas and oil pipelines, offshore drilling platforms and nuclear submarines. - Strong Distribution Network. In the United States, the Company supports the most extensive distribution network in the domestic welding industry. The Company's domestic distribution network includes 1,000 welding distributors, 1,050 motor distributors, and seven strategically located distribution centers designed to deliver 95 percent of all standard products within 48 hours. The Company and its foreign subsidiaries have approximately 1,250 distributors outside the United States. - Large, Technically Trained Sales Force. The Company's domestic sales force primarily consists of engineers experienced in welding who, with support from the Company's Welding Technology Center and Research and Development and Engineering departments, can provide the customer with practical, timely and cost-saving solutions to problems. Located in 34 district offices, the Company's highly trained domestic sales force numbers approximately 260 individuals, each with the ability to conduct welding demonstrations and train distributor personnel in the use of the Company's products. The Company's foreign subsidiaries have a sales force that totals more than 265 individuals, with approximately 130 operating out of the Company's various European subsidiaries. - Focused Growth in New Markets. The Company believes that international markets will provide expanded opportunities for increased sales of both basic and advanced technology products. Part of the Company's growth strategy is focused on marketing its existing products into Central Europe, Asia, Latin America and other developing economies to take advantage of the significant number of infrastructure projects planned in these economies in the next decade. The Company's strategy to gain entry in new markets includes formation of joint ventures with local partners and the use of licensing or private labeling arrangements to build market share before engaging in capital intensive projects such as construction of local manufacturing facilities. Also as part of its growth strategy, the Company is expanding its integral horsepower industrial electric motor facility and anticipates continued development of this business. 4 9 THE RECAPITALIZATION The Company is pursuing a recapitalization plan (the "Recapitalization") that includes the authorization of the Class A Common Shares, which is a new class of non-voting common shares (the "Class A Common Shares"). The Recapitalization anticipates a distribution payable on [ , 1995] (the "Distribution Date"), to holders of record of the Company's outstanding voting common shares as of , 1995, of a dividend of one Class A Common Share for each outstanding share of the Company's voting common shares (the "Distribution"). Prior to the adoption of the Recapitalization, the Company had two authorized and outstanding classes of voting common shares. Following the Recapitalization, the Company's authorized capital consists of two voting classes, the Common Shares, without par value (the "Common Shares"), and the Class B Common Shares, without par value (the "Class B Common Shares"), and one non-voting class, the Class A Common Shares. The Common Shares, the Class A Common Shares and the Class B Common Shares are collectively referred to herein as the "Common Equity." See "Description of Capital Stock." The Lincoln Family (as defined herein) owns approximately 48% of the Company's Common Equity. In addition, as the Company's incentive management system has strongly favored employee stock ownership, the Employee Constituency (as defined herein) beneficially owns approximately 28% of the Company's Common Equity. The remaining 24% of the Company's outstanding Common Equity is held by the public. THE OFFERING Class A Common Shares offered by the Company...................... x,xxx,xxx shares Class A Common Shares offered by the Selling Shareholders......... x,xxx,xxx shares Common Equity outstanding after the Offering: Common Shares................. xx,xxx,xxx Class A Common Shares......... xx,xxx,xxx Class B Common Shares......... x,xxx,xxx ---------- Total Common Equity......... xx,xxx,xxx Rights of Class A Common Shares.... The Class A Common Shares offered hereby have no voting rights, other than upon the occurrence of certain events described in the Company's Articles of Incorporation and as required by Ohio law; the Common Shares and Class B Common Shares each have one vote per share. Each Class A Common Share has rights equal to those of the Common Shares and Class B Common Shares with respect to cash dividends, stock splits, consideration payable in a merger or consolidation and distributions upon liquidation. See "Dividend Policy" and "Description of Capital Stock." Class A Common Share Protection Feature.......................... Holders of Class A Common Shares will have the opportunity to participate in any premium paid in the future for a significant block (15% or more) of the voting Common Shares by a buyer who has not acquired a proportionate share of the Class A Common Shares (unless such acquiror forgoes voting rights with respect to all Common Shares held by such acquiror). See "Description of Capital Stock -- Class A Protection." Use of Proceeds.................... The proceeds of the Offering to be received by the Company will be used to reduce outstanding indebtedness and for general corporate and working capital purposes. See "Use of Proceeds." Proposed NASDAQ National Market symbols:(1) Common Shares................. LECO Class A Common Shares......... LECOA - --------------- (1) The Class B Common Shares do not trade on any organized market.
5 10 SUMMARY CONSOLIDATED FINANCIAL INFORMATION Set forth below is summary financial data of the Company for the years 1990 through 1994 derived from the Company's audited consolidated financial statements for those years. All share and per share information is adjusted for the Recapitalization. The information presented below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Capitalization," and the consolidated financial statements and related notes thereto included elsewhere in this Prospectus.
YEAR ENDED DECEMBER 31, -------------------------------------------------------- 1994 1993 1992 1991 1990 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA: Net sales....................................... $906,604 $845,999 $853,007 $833,892 $796,671 Gross profit.................................... 350,345 313,204 299,904 312,063 286,176 Operating income before restructuring........... 88,664 36,201 709 40,348 26,965 Restructuring charges (income).................. (2,735) 70,079 23,897 -- -- Operating income (loss)......................... 91,399 (33,878) (23,188) 40,348 26,965 Income (loss) before income taxes and cumulative effect of accounting change................... 80,168 (46,950) (34,430) 34,411 30,360 Net income (loss)............................... 48,008 (38,068) (45,800) 14,365 $ 11,052 Net income (loss) per common share.............. 2.19 (1.75) (2.12) .67 .52 Weighted average number of common shares outstanding (000's)........................... 21,940 21,704 21,593 21,580 21,389 PRO FORMA OPERATING RESULTS:(1) Net income per common share..................... Weighted average number of common shares outstanding (000's)........................... OPERATING DATA: Net sales: United States................................. $641,607 $543,458 $487,145 $459,768 $494,016 Non-United States............................. 264,997 302,541 365,862 374,124 302,655 Pre-tax profit (loss): United States................................. $ 71,650 $ 42,570 $ 24,860 $ 45,742 $ 36,946 Non-United States............................. 9,465 (91,768) (60,011) (11,474) (6,396)
DECEMBER 31, 1994 --------------------------------- AS ADJUSTED ACTUAL (2) -------------- -------------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Working capital.................................................. $169,310 Total assets..................................................... 556,857 Total debt....................................................... 212,946 Total liabilities................................................ 362,724 Shareholders' equity............................................. 194,133 Ratio of total debt to total capitalization...................... 52.3% - --------------- (1) The unaudited pro forma net income per common share gives effect to the Offering and the application of the estimated net proceeds therefrom as set forth under "Use of Proceeds" as if the same had occurred on January 1, 1994. The pro forma net income per common share does not purport to be indicative of the results of operations that actually would have been achieved if the transactions described above had actually occurred on January 1, 1994, or that may be achieved in the future. (2) The unaudited as adjusted balance sheet data gives effect to the Offering and the application of the estimated net proceeds therefrom as set forth under "Use of Proceeds" as if the same had occurred on December 31, 1994.
6 11 INVESTMENT CONSIDERATIONS Prospective investors should consider, in addition to the information set forth elsewhere in this Prospectus, the following matters in evaluating the Company and the Class A Common Shares offered hereby. CYCLICALITY AND MATURITY OF THE WELDING INDUSTRY The arc welding industry in the United States is a mature industry that is cyclical in nature. The substitution of plastic, concrete and other materials impacts the use of fabricated metal parts in many products and structures. Increased offshore manufacturing by United States companies has contributed to slow growth rates in the domestic manufacturing industry and in turn has led to slower growth in the United States arc welding industry. During periods of economic expansion the welding industry has grown at double digit rates but has experienced contraction during periods of slowing industrial activity. There can be no assurance that during future periods of economic expansion the welding industry will experience the same double digit growth rates as it has in the past. Based on market estimates, the United States arc welding industry as a whole has grown at a compound annual nominal rate of approximately 3.4 percent over the past five years. Although the Company believes that its exposure to cyclical downturns is moderated by its broad customer base and the diversity of the industries it serves, cyclical downturns could have an adverse effect on period-to-period results. INTERNATIONAL MARKETS Due to the limited long-term growth potential of the overall United States arc welding market, the Company's growth strategy is to increase the marketing of existing products into Central Europe, Asia, Latin America and other developing economies, and to increase its share in its current international markets. However, there can be no certainty that the Company will be successful in its expansion efforts. Manufacturing expansion by the Company in the last decade in Germany, Brazil, Venezuela and Japan did not prove successful, and resulted in losses, including restructuring charges of $70.1 million in 1993 and $23.9 million in 1992. Although the Company's foreign operations returned to profitability in 1994, there can be no assurance that such profitability will continue. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Approximately 36% of the Company's net sales in 1994 (including its United States third party export sales) were made to purchasers located in foreign countries. Because of its foreign operations, the Company's business is subject to the currency risks of doing business abroad, including exchange rate fluctuations and limits on repatriation of funds. Further, many developing economies have a significant degree of political and economic uncertainty. Social unrest, the absence of trained labor pools and the uncertainty of entering into joint ventures or other partnership arrangements with local organizations have slowed business activities in some large developing economies. The political and economic uncertainties present in these promising growth markets may adversely impact the Company's ability to implement and achieve its foreign growth objectives. COMPETITION The arc welding industry is highly competitive. While the Company believes it is one of only a few worldwide broad line manufacturers of both arc welding equipment and consumable products, the Company competes in each of its businesses with other broad line manufacturers and numerous smaller competitors specializing in particular products. In recent years, the United States arc welding industry has been subject to increased levels of foreign competition. While the Company believes that it is the leader in the domestic consumable welding products business, this business has become more competitive, primarily in the commodity-type consumables segment, as low cost imports are occasionally available depending upon market conditions. The intensity of foreign competition is substantially affected by fluctuations in the value of the United States dollar against other currencies. The attractiveness of the United States welding marketplace to foreign exporters may be diminished by the recent substantial decline in the value of the United States dollar relative to certain foreign 7 12 currencies. However, foreign exchange rates are subject to substantial fluctuations and there can be no assurance that this condition will continue to exist. Steel manufacturers have not traditionally been significant competitors in the domestic arc welding industry. There is competition in the arc welding consumables business in some foreign countries, such as Japan, from integrated steel producers who manufacture selected consumable products. If this practice were to occur in countries in which the Company is a more active participant, the Company could be adversely affected by increased competition from such integrated steel producers. The Company's expansion into some foreign countries also could be adversely affected if steel manufacturers in those countries become more active in the arc welding consumables business. NON-VOTING SHARES The Class A Common Shares have no voting rights other than upon the occurrence of certain events described in the Company's Articles of Incorporation and as required by Ohio law, generally relating to proposals that would change the par value of the Class A Common Shares, alter or change the express terms of those shares, or otherwise affect them in a substantially prejudicial manner. Consequently, holders of Class A Common Shares will not be entitled to elect directors or vote on other matters customarily decided by shareholders, such as mergers, consolidations or the sale of all or substantially all of the Company's assets. See "Description of Capital Stock." CONTROL BY LINCOLN FAMILY AND EMPLOYEES Upon completion of the Offering (assuming no exercise of the Underwriters' over-allotment options), the Lincoln Family (as defined herein) will beneficially own approximately % of the Company's outstanding shares, including % of the Company's voting shares. In addition, the Company estimates that the Employee Constituency (as defined herein) will beneficially own approximately % of the Company's outstanding shares, including % of the Company's voting shares. Under Ohio law and the Company's Articles of Incorporation, certain transactions, including certain mergers or consolidations, and amendments to the Company's Articles of Incorporation, require the approval of at least two-thirds of the voting power of the Company. Consequently, in the event the Lincoln Family and/or the Employee Constituency vote together, they will have the effective ability to direct the affairs of the Company or to block approval of certain transactions. Holders of Common Shares who also hold Class A Common Shares can sell Class A Common Shares without adversely affecting their voting power. See "Selling Shareholders" and "Description of Capital Stock." As used herein, the term "Lincoln Family" means any person who is a descendant of, or who is related by blood or marriage to a descendant of, James F. Lincoln or John C. Lincoln, any trusts or similar arrangements for any of the foregoing, any foundations established by any of the foregoing, the Estate of Helen C. Lincoln (and any executor or administrator thereof) and any corporation (other than the Company) or partnership in which a majority of the outstanding shares or partnership interests are owned by any of the foregoing. As used herein, the term "Employee Constituency" means current and former employees of the Company and their relatives (including the Company's Employee Stock Ownership Plan, the "ESOP"). SHARES ELIGIBLE FOR FUTURE SALE Future sales of Common Shares or Class A Common Shares by the Company or its existing shareholders could adversely affect the prevailing market price of the Class A Common Shares. The Company, its directors and executive officers, the Selling Shareholders and certain other of its existing shareholders have agreed that they will not for a period of 180 days following the date of this Prospectus, without the prior written consent of the representatives of the Underwriters, offer, sell, contract to sell or otherwise dispose of any Common Shares or Class A Common Shares or any security convertible or exchangeable into or exercisable for Common Shares or Class A Common Shares. Following the Offering, the Company's directors and executive officers, the Selling Shareholders and such other of its existing shareholders will hold in the aggregate approximately % of the Company's Common Shares and % of the Company's Class A Common Shares. 8 13 Although there is only a limited trading market for the Common Shares, virtually all of the Common Shares, other than Common Shares held by affiliates of the Company, are freely tradable. The Class B Common Shares are only issued to the ESOP and are not freely tradable. In addition to the Class A Common Shares offered hereby, the Board of Directors has declared a dividend consisting of one Class A Common Share for each outstanding Common Share and Class B Common Share. All of such Class A Common Shares, other than those held by affiliates of the Company, a small number subject to certain contractual transfer restrictions and those covered by agreements described in the preceding paragraph, will be freely tradable. Shares held by affiliates of the Company are subject to certain restrictions on resale under the Securities Act, but may be resold in accordance with the volume and manner of sale restrictions of Rule 144 under the Securities Act. Accordingly, sales of substantial amounts of Class A Common Shares or Common Shares in the public market, or the perception that such sales may occur, may adversely affect the trading price of the Class A Common Shares. ANTI-TAKEOVER PROVISIONS AND STATE ANTI-TAKEOVER LAWS Certain provisions of the Company's Articles of Incorporation and Code of Regulations, as well as provisions of Ohio law, may have the effect of deterring hostile takeovers or delaying or preventing changes in control or management of the Company. As a result, shareholders may be denied an otherwise available opportunity to receive a premium for their shares. See "Description of Capital Stock -- Anti-Takeover Provisions and State Anti-Takeover Laws." ABSENCE OF PUBLIC TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE Prior to the Offering, there has been no public market for the Class A Common Shares and only a limited trading market for the Common Shares. The Company has applied for listing of the Class A Common Shares and the Common Shares for quotation on the NASDAQ National Market. However, there can be no assurances that an active trading market for either class of shares will develop or be sustained after the Offering. Accordingly, no assurance can be given as to the liquidity of the market for the Class A Common Shares or the price at which any sales may occur, which price will depend upon the number of holders thereof, the interest of securities dealers in maintaining a market in the Class A Common Shares and other factors beyond the control of the Company. The initial public offering price was determined solely by negotiations among the Company and the representatives of the Underwriters based on several factors and does not necessarily reflect the market price of the Class A Common Shares after the Offering. The market price of the Class A Common Shares could be subject to significant fluctuations in response to the Company's operating results and other factors, and there can be no assurance that the market price of the Class A Common Shares will not decline below the initial public offering price. See "Underwriting." The Class A Common Shares may trade at prices above, below or the same as the prices at which the Common Shares trade. It is currently anticipated that there will be a greater number of Class A Common Shares available in the market than Common Shares; however, there can be no certainty that such will always be the case and a substantial increase in the number of Common Shares available in the market may adversely affect the trading price of the Class A Common Shares. 9 14 THE COMPANY The Company was founded in 1895 by John C. Lincoln and originally manufactured electric motors and generators. The Company entered the arc welding business, then in its infancy, in 1911. The Company is widely recognized for its implementation of the "incentive management system" developed by John C. Lincoln's brother, James F. Lincoln, who headed the Company from 1914 to 1965. This system currently extends to substantially all full-time employees at the Company's core United States operations (consisting of its arc welding products and industrial electric motors production facilities located near Cleveland, Ohio) as well as to employees in its long established operations in Canada and Australia. The system is based on several key concepts including (i) shared benefits from increased productivity and performance-based pay; (ii) fair treatment for all constituents, including valuing the employee as an individual, open communications between employees and managers, and service to the customer as a primary constituent; and (iii) displaying the highest integrity and ethics in all aspects of doing business. The Company currently implements these principles through several practices: - Piece Rate Pay -- Production employees receive no base salary but are instead compensated on a piecework basis (i.e., the number of quality units produced times a per unit price). There is no limit to the amount of piecework compensation that can be earned. - Guaranteed Employment -- The Company guarantees that each employee who has been employed by the Company's core United States operations for at least three years and who continues to maintain a satisfactory performance level will have the opportunity to work a minimum of 75 percent (or 30 hours) of a normal work week, but does not guarantee the rate of compensation. The Company has the right to transfer employees to other jobs as needed and to require them to work overtime as required, which contributes to a flexible response to production needs. The Company has reserved the right to terminate the guarantee by giving notice of such termination not less than six months prior to the end of any given year. - Open Communications -- Employees are encouraged to bring new ideas forward and, through the bonus, share in the rewards of producing better products. Open communications are furthered by a formal advisory board that focuses on increasing Company productivity, efficiency and quality control. The advisory board meets semi-monthly with the Chairman of the Board or President, maintaining a tradition started in 1914. - Promotion From Within -- The Company maintains a policy of promotion from within for qualified applicants. Any employee is entitled to apply for open jobs that are posted on employee bulletin boards. - Merit Rating System -- Employees are rated semiannually on four categories: ideas and cooperation, output, dependability and quality. An employee's rating determines his/her share of any results-based bonus money available. This system provides incentive for individual achievement while recognizing the value of teamwork. - Bonus -- Employees share in the results of increased operating efficiency. Since 1934, workers have received year-end bonuses based on their performance and Company results. During the last ten years these bonuses have in the aggregate averaged 70 percent of pay. The Company believes that the incentive management system results in many benefits to overall Company performance, including high quality products, higher productivity, substantial employee participation in manufacturing decisions, flexibility to assign employees where they are most needed, retention of employees, low employee absenteeism and improved control of expenditures in a business downturn. The Company's principal executive offices are located at 22801 St. Clair Avenue, Cleveland, Ohio 44117. 10 15 USE OF PROCEEDS The net proceeds to be received by the Company from the Offering, after deducting the underwriting discount and estimated offering expenses, are estimated to be approximately $ million (approximately $ million if the over-allotment option granted by the Company to the Underwriters is exercised in full), assuming an initial public offering price of $ per share. The Company will not receive any proceeds from the sale of Class A Common Shares by the Selling Shareholders. The Company expects to apply all of the net proceeds to reduce its outstanding indebtedness including amounts outstanding under the existing multi-currency credit agreement ("Credit Agreement") and various short-term bank obligations. Borrowings under the Credit Agreement and the various short-term bank obligations have been used for a variety of general corporate purposes, including capital expenditures and working capital. The Credit Agreement permits borrowings of up to $200 million on a revolving basis and currently expires on October 1, 1997, unless extended. Interest on such borrowings can range from LIBOR (as defined in the Credit Agreement) plus .375% to LIBOR plus 1.125%, depending on the defined leverage rate. At March 31, 1995, borrowings under the Credit Agreement had a weighted average interest rate of 6.8%. At March 31, 1995, borrowings under these short-term bank obligations had a weighted average interest rate of %. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and Note D of Notes to Consolidated Financial Statements. DIVIDEND POLICY The Company has paid an annual dividend since 1915. Payment of future dividends, however, will be at the discretion of the Company's Board of Directors after taking into account various factors, including the Company's financial condition, operating results, current and anticipated cash needs and plans for expansion. A total of $8.1 million in dividends was paid in 1994, including a special dividend of $.02 per share ($0.2 million in the aggregate) in the fourth quarter of 1994. Management has expressed its intention of not continuing the practice of declaring special dividends in the future. The Company's existing long-term debt agreements contain financial covenants that place restrictions on the payments of dividends. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and Note D of Notes to Consolidated Financial Statements. 11 16 CAPITALIZATION The following table sets forth the capitalization of the Company at December 31, 1994, and as adjusted to give effect to the Recapitalization and the Offering and the application of the estimated net proceeds therefrom. See "Use of Proceeds." The information presented below should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
DECEMBER 31, 1994 ------------------------ ACTUAL AS ADJUSTED -------- ----------- (DOLLARS IN THOUSANDS) Short-term debt: Notes payable to banks............................................ $ 15,843 Current portion of long-term debt................................. 2,272 -------- ----------- Total short-term debt.......................................... 18,115 Long-term debt: Multi-currency Credit Agreement................................... 100,947 8.98% Senior Note due 2003........................................ 75,000 Other borrowings due through 2023, interest at 2.00% to 13.74%.... 21,156 Less current portion of long-term debt............................ (2,272) -------- ----------- Total long-term debt........................................... 194,831 -------- Total debt..................................................... 212,946 Shareholders' equity: Common Shares (1)................................................. 2,103 Class A Common Shares............................................. -- Class B Common Shares (2)......................................... 100 Additional paid-in capital........................................ 25,447 Retained earnings................................................. 176,965 Cumulative translation adjustments................................ (10,482) -------- ----------- Total shareholders' equity..................................... 194,133 -------- Total capitalization......................................... $407,079 $ ======== =========== - --------------- (1) Formerly designated as Common Stock. (2) Formerly designated as Class A Common Stock.
12 17 SELECTED CONSOLIDATED FINANCIAL DATA Set forth below are selected financial data of the Company for fiscal years 1990 through 1994, which have been derived from the Company's audited consolidated financial statements for these years. All share and per share information is adjusted for the Recapitalization. This information presented below should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
YEAR ENDED DECEMBER 31, ------------------------------------------------------------ INCOME STATEMENT DATA: 1994 1993 1992 1991 1990 -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Net sales..................................... $906,604 $845,999 $853,007 $833,892 $796,671 Cost of goods sold............................ 556,259 532,795 553,103 521,829 510,495 -------- -------- -------- -------- -------- Gross profit................................ 350,345 313,204 299,904 312,063 286,176 Distribution cost/selling, general & administrative expenses..................... 261,681 277,003 299,195 271,715 259,211 -------- -------- -------- -------- -------- Operating income before restructuring....... 88,664 36,201 709 40,348 26,965 Restructuring charges (income)................ (2,735) 70,079 23,897 -- -- -------- -------- -------- -------- -------- Operating income (loss)..................... 91,399 (33,878) (23,188) 40,348 26,965 Interest income............................... 1,442 1,627 3,061 5,992 11,359 Other income.................................. 3,067 2,922 4,433 3,803 3,128 Interest expense.............................. (15,740) (17,621) (18,736) (15,732) (11,092) -------- -------- -------- -------- -------- Income (loss) before income taxes and cumulative effect of accounting change.... 80,168 (46,950) (34,430) 34,411 30,360 Income taxes (benefit)........................ 32,160 (6,414) 11,370 20,046 19,308 -------- -------- -------- -------- -------- Income (loss) before cumulative effect of accounting change......................... 48,008 (40,536) (45,800) 14,365 11,052 Cumulative effect of accounting change........ -- 2,468 -- -- -- -------- -------- -------- -------- -------- Net income (loss)........................... $ 48,008 $(38,068) $(45,800) $ 14,365 $ 11,052 ========= ========= ========= ========= ========= Net income (loss) per common share.......... $ 2.19 $ (1.75) $ (2.12) $ .67 $ .52 ========= ========= ========= ========= ========= Weighted average number of common shares outstanding (000's)......................... 21,940 21,704 21,593 21,580 21,389 PRO FORMA OPERATING RESULTS:(1) Net income per common share................... Weighted average number of common shares outstanding (000's)......................... OPERATING DATA: Net sales: United States............................... $641,607 $543,458 $487,145 $459,768 $494,016 Non-United States........................... 264,997 302,541 365,862 374,124 302,655 Pre-tax profit (loss): United States............................... $ 71,650 $ 42,570 $ 24,860 $ 45,742 $ 36,946 Non-United States........................... 9,465 (91,768) (60,011) (11,474) (6,396)
13 18
DECEMBER 31, 1994 --------------------------------- ACTUAL AS ADJUSTED(2) -------------- -------------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Working capital.................................................... $169,310 Total assets....................................................... 556,857 Total debt......................................................... 212,946 Total liabilities.................................................. 362,724 Shareholders' equity............................................... 194,133 Ratio of total debt to total capitalization........................ 52.3% - --------------- (1) The unaudited pro forma net income per common share gives effect to the Offering and the application of the estimated net proceeds therefrom as set forth under "Use of Proceeds" as if the same had occurred on January 1, 1994. The pro forma net income per common share does not purport to be indicative of the results of operations that would have been achieved if the transactions described above had actually occurred on January 1, 1994, or that may be achieved in the future. (2) The unaudited as adjusted balance sheet data gives effect to the Offering and the application of the estimated net proceeds therefrom as set forth under "Use of Proceeds" as if the same had occurred on December 31, 1994.
14 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company is engaged primarily in the design, manufacture and sale of arc welding and other welding products, which represented 93% of the Company's 1994 net sales. The Company is one of the world's largest manufacturers of arc welding products. The Company also designs, manufactures and sells integral horsepower industrial electric motors. In 1994, the Company reported the highest net sales, net income and net income per common share in its history. This sales increase was broadly based and was primarily attributable to increased volume, higher selling prices and improved economic conditions in the United States, Canada and Europe. The Company believes that the high quality of its products, advanced engineering expertise and strong distributor network coupled with its large technically trained sales force, has permitted the Company to increase global market share. The Company's 1992 and 1993 earnings were negatively affected by restructuring charges taken by the Company to consolidate and reorganize foreign operations. In 1992, the Company recorded a restructuring charge of $23.9 million (without tax benefit, or $2.21 per share) as a result of decisions at that time by management to downsize and streamline certain non-United States operations (principally in Europe). The 1992 restructuring charge was primarily for severance pay, redundancies and other liabilities relating to the reorganization of the sales and distribution operations. The Company decided in late 1993 to further restructure its European, South American and Far Eastern operations. This resulted in the decision in early 1994 to terminate the operations of its Messer Lincoln subsidiary in Germany (the "German Subsidiary") as well as manufacturing operations in Brazil, Venezuela and Japan. Sales, marketing and distribution activities continue to be carried on in these countries, other than Venezuela, by other affiliates of the Company. The 1993 restructuring resulted in a charge of $70.1 million ($40.9 million after-tax, or $3.77 per share). The elements of this charge were: (i) asset writedowns in the amount of $45.9 million including goodwill of $8.9 million; (ii) severance and other redundancy costs of $27.5 million; and (iii) a net credit of $3.3 million comprised of a claim settlement and other restructuring liabilities including estimated losses through the final facility closing dates in 1994. To date, approximately 1,400 employees have been terminated as a result of the 1992 and 1993 restructuring programs. The remaining cash outlays to complete the restructuring are expected to be incurred in 1995 and 1996. Management believes it has adequately provided for costs and expenses of the restructuring. Although European sales and profitability remained constrained in 1994, the 1992 and 1993 restructuring programs have returned the Company's European operations to profitability. Research and development expenditures by the Company, excluding the German Subsidiary expenditures, increased approximately 16.5% to $17.6 million in 1993 and increased 5.2% to $18.5 million in 1994. The Company believes that, over the past three years, expenditures for research and development activities have been adequate to maintain the Company's product lines and to introduce new products at an appropriate rate to sustain future growth. Expenditures on research and development are expected to increase in 1995. 15 20 RESULTS OF OPERATIONS The following table shows the Company's results of operations for the years ended December 31, 1994, 1993 and 1992:
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1994 1993 1992 --------------- --------------- --------------- % OF % OF % OF AMOUNT SALES AMOUNT SALES AMOUNT SALES ------ ----- ------ ----- ------ ----- (IN MILLIONS OF DOLLARS) Net Sales........................................ $906.6 100.0% $846.0 100.0% $853.0 100.0% Cost of Goods Sold............................... 556.2 61.3% 532.8 63.0% 553.1 64.8% ------ ----- ------ ----- ------ ----- Gross Profit................................... 350.4 38.7% 313.2 37.0% 299.9 35.2% Distribution Cost/Selling General & Administrative Expenses.............. 261.7 28.9% 277.0 32.7% 299.2 35.1% ------ ----- ------ ----- ------ ----- Operating Income before Restructuring.......... 88.7 9.8% 36.2 4.3% 0.7 0.1% Restructuring Charges (income)................... (2.7 ) -0.3% 70.1 8.3% 23.9 2.8% ------ ----- ------ ----- ------ ----- Operating Income (loss)........................ 91.4 10.1% (33.9 ) -4.0% (23.2 ) -2.7% Other Income..................................... 3.1 0.3% 2.9 0.3% 4.4 0.5% Interest Expense, Net............................ (14.3 ) -1.6% (16.0 ) -1.9% (15.6 ) -1.8% ------ ----- ------ ----- ------ ----- Income (loss) before Income Taxes.............. 80.2 8.8% (47.0 ) -5.6% (34.4 ) -4.0% Income Taxes (benefit)........................... 32.2 3.5% (6.4 ) -0.8% 11.4 1.3% Income (loss) before Cumulative effect of Accounting Change............................ $48.0 5.3% $(40.6) -4.8% $(45.8) -5.3% Cumulative effect to January 1, 1993 of change in method of accounting for income taxes.......... 2.5 .3% ------ ----- ------ ----- ------ ----- Net Income (loss)................................ $48.0 5.3% $(38.1) -4.5% $(45.8) -5.3% ======== ===== ======== ===== ======== =====
1994 COMPARED TO 1993 Net Sales. Net sales for 1994 were $906.6 million, an increase of $60.6 million or 7.2% from $846.0 million for 1993. Net sales for 1993 include the sales of manufacturing operations (principally in Germany) that were closed in early 1994. Excluding the 1993 sales of the closed operations, sales for 1994 increased 17.0%. A portion of this increase was due to the absorption by the Company's other manufacturing operations of the sales formerly made by the closed operations. Sales from the Company's United States operations were $641.6 million in 1994 or 18.1% higher than 1993 sales of $543.5 million, attributable to volume and price increases. Non-United States sales in 1994 were $265.0 million compared to $302.5 million in 1993, a decrease of 12.4%. Excluding the 1993 sales of the closed operations, non-United States sales for 1994 increased 14.7% over non-United States sales for 1993 reflecting improved economic conditions in Europe and elsewhere in the world. A portion of this increase was also due to the absorption by the Company's other manufacturing operations of the sales formerly made by the Company's closed German Subsidiary. Total United States export sales were $105.3 million in 1994, an increase of $18.1 million or 20.8% from $87.2 million in 1993. This increase in export sales largely reflects improved worldwide economic conditions. In 1994, sales of certain new products were restricted by capacity limitations inherent in tooling up production which have now been resolved. Gross Profit. Gross profit increased to $350.4 million in 1994 as compared with $313.2 million in 1993. Gross profit as a percentage of sales improved to 38.7% in 1994 from 37.0% in 1993. This improvement in gross profit is largely attributable to a greater percentage of total sales coming from the higher margin United States operations in 1994. In addition, 1993 gross profit was unfavorably affected as it included lower gross profit levels for the manufacturing operations that were closed in early 1994. Gross profit for the Company's United States operations in 1994 remained substantially consistent with 1993 at 40.2%. Distribution Cost/Selling, General & Administrative Expenses. Distribution cost/selling, general & administrative expenses were $261.7 million in 1994, or 28.9% of sales (28.6% at the Company's United States 16 21 operations), as compared to $277.0 million, or 32.7% of sales in 1993 (29.9% at the Company's United States operations). The decrease in these expenses as a percentage of sales evidences the effects of the closing of the German Subsidiary, the Company's restructuring program and management's initiatives to control operating costs throughout the Company. The higher expense level in 1993 was principally due to the inclusion of the operating results of the Company's closed German Subsidiary. Included in distribution cost/selling, general & administrative expenses are the costs ($68.4 million in 1994 and $61.9 million in 1993) related to the Company's discretionary employee bonus program. Interest Expense, Net. Interest expense, net was $14.3 million in 1994 as compared with $16.0 million in 1993, a decrease which reflects the effect of lower debt levels offset partially by higher interest rates. Income Taxes. Income taxes in 1994 were $32.2 million on income before income taxes of $80.2 million, an effective rate of 40.1%, as compared to a tax benefit of $6.4 million on a loss before income taxes of $47.0 million in 1993. The 1993 tax benefit principally reflects the tax benefits attributable to the plant closure and liquidation of the German Subsidiary. Results from 1993 also benefited from the cumulative effect of a change in accounting for income taxes, which decreased the net loss by $2.5 million or $0.23 per share. Net Income. As a result of the restructuring programs in 1992 and 1993 and the improvement in economic conditions in Europe, the United States and Canada, net income for 1994 was $48.0 million as compared to a net loss of $38.1 million in 1993. Results in 1993 were adversely affected by a $40.9 million net-of-tax restructuring charge. 1994 results benefited from a net reversal of $2.7 million of restructuring charges recorded previously. 1993 COMPARED TO 1992 Net Sales. Net sales for 1993 were $846.0 million, a decrease of $7.0 million or less than 1.0% from 1992 sales of $853.0 million. Excluding the 1993 and 1992 sales of the operations closed in early 1994, sales increased 5.7%. Sales from the Company's United States operations in 1993 were $543.5 million or 11.6% higher than 1992 sales of $487.1 million, attributable to volume and price increases. Non-United States sales in 1993 were $302.5 million compared to $365.9 million in 1992, a decrease of 17.3%. Excluding the sales of operations closed in early 1994, non-United States sales for 1993 decreased 5.8% from 1992 non-United States sales. Currency translation adversely affected these 1993 sales by $23.5 million. Total United States export sales were $87.2 million in 1993, a decrease of $10.4 million or 10.6% from $97.6 million in 1992. This decrease in export sales reflects the depressed economic conditions in Europe and lower intercompany export sales due to inventory reductions at the Company's foreign subsidiaries. Gross Profit. Gross profit increased to $313.2 million in 1993 as compared with $299.9 million in 1992. Gross profit as a percentage of sales improved to 37.0% in 1993 (40.3% at the Company's United States operations) from 35.2% in 1992 (37.1% at the Company's United States operations). This improvement in gross profit was largely attributable to United States sales volume increases and improved absorption of manufacturing costs. Gross profit in 1993 was also favorably impacted by reduced overhead costs as a result of restructurings in 1992 and reduced price pressures in Europe. In 1992, gross profit was adversely affected by inventory adjustments as a result of management's decisions to reduce certain inventory. Distribution Cost/Selling, General & Administrative Expenses. Distribution cost/selling, general & administrative expenses were $277.0 million in 1993, or 32.7% of sales (29.9% at the Company's United States operations), as compared to $299.2 million, or 35.1% of sales in 1992 (31.3% at the Company's United States operations). Expenses for 1993 include $3.7 million for asset disposals and other non-recurring costs as compared to expenses for 1992 which include $18.9 million relating to certain one-time costs at the Company's closed German Subsidiary, asset disposals and certain other non-recurring costs. Included in distribution cost/selling, general & administrative expenses are the costs ($61.9 million in 1993 and $55.3 million in 1992) related to the Company's discretionary employee bonus program. Interest Expense, Net. Interest expense, net was $16.0 million in 1993 as compared with $15.6 million in 1992, reflecting the use of credit facilities with more favorable terms in 1993, offset by lower interest income in 1993. 17 22 Income Taxes. The 1993 tax benefit of $6.4 million on a loss before income taxes of $47.0 million compares to the 1992 provision for income taxes of $11.4 million on a loss before income taxes of $34.4 million. The 1993 tax benefit principally reflects the tax benefits attributable to the plant closure and liquidation of the German Subsidiary. The higher effective rate experienced in 1992 was principally due to losses from non-United States subsidiaries that were in net operating loss carryover positions. Results from 1993 also benefited from the cumulative effect of a change in accounting for income taxes, which decreased the net loss by $2.5 million or $0.23 per share. Net Loss. The net loss for 1993 was $38.1 million as compared to a net loss of $45.8 million in 1992. Results were adversely affected by restructuring charges of $40.9 million net-of-tax and $23.9 million without tax benefit in 1993 and 1992, respectively. LIQUIDITY AND CAPITAL RESOURCES During the three years ended December 31, 1994, the Company has relied primarily on cash flow from operations and borrowings to finance working capital, investments, capital expenditures and the payment of dividends. Cash provided from operating activities during 1994 amounted to $68.7 million, an increase of $40.0 million over 1993. This increase in cash flow resulted primarily from the Company's increase in net income; partially offset by increased working capital requirements associated with increased sales volume. Cash provided from operating activities amounted to $28.7 million in 1993 and $23.6 million in 1992 despite net losses of $38.1 million and $45.8 million, respectively. In 1993, the Company acquired the outstanding minority interest in its subsidiary in Spain for $8.5 million. In 1992, the Company acquired the outstanding minority interest in its subsidiary Lincoln Norweld and a small Mexican Company for a total of $37.3 million. In October 1994, the Company amended its unsecured, multi-currency Credit Agreement and reduced its committed line under the Credit Agreement from $230.0 million to $200.0 million. The amended Credit Agreement also permits the establishment of an accounts receivable facility of up to $50 million. See Note D to the consolidated financial statements for additional information regarding the terms and financial covenants of the Company's borrowing arrangements. Under such covenants, the Company's ability to borrow under the Credit Agreement at December 31, 1994 was limited to aggregate borrowings of $176.9 million. At December 31, 1994, $100.9 million was outstanding under the Credit Agreement. Total debt at December 31, 1994 was $212.9 million compared to $250.3 million at December 31, 1993 reflecting the significantly improved 1994 financial results and cash flow from operating activities. At December 31, 1994, total debt was 52.3% of total capitalization compared with 63.6% at year end 1993. Capital expenditures for property, plant and equipment totaled $37.4 million in 1994 and $19.1 million in 1993. These expenditures for property, plant and equipment represent the Company's continued commitment to support and develop advanced technologies, support new products, expand current capacity and reduce future manufacturing costs. The Company is continuing the modernization and expansion of its motor division, has established a separate facility in Cleveland dedicated to motor manufacturing and is increasing its testing and design capacity to be able to reduce costs, increase output, and meet scheduled higher industry efficiency standards. The Company continues to closely monitor its capital expenditures and is adding to capacity and modernizing facilities as necessary. While the financial covenants of the Company's debt agreements place limitations on capital expenditures, capital expenditures for 1995 are expected to increase over 1994 expenditures. A total of $8.1 million in dividends, including a special dividend, was paid in 1994. Although the Company paid a special dividend of $.02 per share in the fourth quarter of 1994, management expressed its intention of not continuing such a practice in the future. The Company's Credit Agreement and 8.98% Senior Note Agreement contain various financial covenants that place limitations on the payments of dividends, the purchase of unrestricted stock, capital expenditures, and the incurrence of additional indebtedness. The losses of 1993 and 1992 placed constraints on the Company's financial flexibility, the impact of which was reduced, but not eliminated, by the strong 1994 performance. 18 23 BUSINESS GENERAL The Company is one of the world's largest designers and manufacturers of arc welding products, manufacturing a full line of arc welding equipment and consumable welding products. The Company, now entering its second century of operations, also manufactures a broad line of integral horsepower industrial electric motors. The Company's welding products are used in a wide range of industrial applications, including the manufacturing of automobiles, trucks, heavy machinery, railcars and ships, and the construction of buildings, bridges, oil platforms and pipelines. The Company distributes its products through a large, technically trained sales force and a broad distribution network. According to market estimates, the Company believes that it maintains a market leading 42% share of the United States arc welding consumables business and a top-tiered share of the United States arc welding equipment business. The Company also believes that it is the low-cost full line producer in the approximately $750 million United States arc welding consumable products business. To retain its leading position in the United States, the Company has made substantial investments in facilities and equipment to improve production efficiencies and further achieve manufacturing cost reductions. The Company expects to build on its position as a leader in the domestic arc welding industry with continued market penetration facilitated by a broad range of new product offerings and further capacity additions. Furthermore, management believes that long-term growth requires a strong global presence. From 1985 to 1992, the Company expanded its international business by completing 12 acquisitions with operations in 13 foreign countries. In 1992, the Company, under the leadership of newly promoted chief executive and chief operating officers, refocused and redirected its global strategy and initiated a major restructuring to downsize and streamline certain unprofitable operations in Europe, South America and Japan. While in 1992 and 1993 the Company experienced losses, primarily as the result of restructuring charges, the Company's domestic arc welding operations maintained strong net sales and operating profitability. In 1994, the Company reported the highest net sales, net income and net income per common share in its history. In that same year, the Company's foreign operations returned to profitability. BUSINESS STRATEGY The Company's business strategy is to continue to strengthen its operations in the United States and internationally, and to exploit opportunities for growth. Key elements of the Company's business strategy include: - Manufacturing High Quality Products. The Company enjoys a worldwide reputation for manufacturing consistently high quality, state of the art products that are robust and rugged. Manufacturing efficiencies, flexibility and quality are enhanced by the Company's high degree of vertical integration. All of the Company's worldwide consumable manufacturing facilities and its domestic machine and motor facilities meet ISO 9002 standards. A key element of the Company's incentive management system is the individual employee's responsibility for the quality of the product produced. To support this quality accountability system, the Company has established a sophisticated procedure to track product output and quality at its plants. - Highly Productive and Motivated Workforce. The Company's employees and incentive management system are essential components of the Company's century of success. The Company believes its incentive management system has increased productivity, led to enhanced operating flexibility and contributed to the Company's industry leadership position. In the core United States operations, absenteeism of less than 2%, and turnover rates among employees with more than 180 days of service of approximately 4%, help drive productivity, while management's ability to reassign employees to where they are most needed provides greater operating flexibility. All employees are encouraged and empowered to make suggestions for improvements in quality, safety and cost reduction. - Advanced Engineering Expertise. The Company is a leader in the development of innovative, value added products. An example of the Company's emphasis on advanced technology is its Consumables Research and Development Department, which employs 61 engineers and technicians in the design of manual electrodes, submerged arc electrodes and fluxes, self-shielded cored electrodes, and gas- 19 24 shielded solid and cored electrodes. All of the Company's research and development departments provide technical support to the Company's domestic and foreign operations. The efforts of its engineers, many of whom have been granted patents and awards for their contributions to welding technology, have helped the Company gain a global leadership role in the design of welding products for such critical applications as gas and oil pipelines, offshore drilling platforms and nuclear submarines. - Strong Distribution Network. In the United States, the Company supports the most extensive distribution network in the domestic welding industry. The Company's domestic distribution network includes 1,000 welding distributors, 1,050 motor distributors, and seven strategically located distribution centers designed to deliver 95 percent of all standard products within 48 hours. The Company has two distribution centers in Canada that are fully integrated into the domestic sales and distribution system. Although the Company restructured certain of its international operations beginning in 1992, the Company has a substantial international presence and a broad distribution network. The Company and its foreign subsidiaries have approximately 1,250 distributors outside the United States. - Large, Technically Trained Sales Force. The Company's domestic sales force primarily consists of engineers experienced in welding who, with support from the Company's Welding Technology Center and Research and Development and Engineering Departments, can provide the customer with practical, timely and cost-saving solutions to problems. Located in 34 district offices, the Company's highly trained domestic sales force numbers approximately 260 individuals, each with the ability to conduct welding demonstrations and train distributor personnel in the use of the Company's products. The Company utilizes this technical expertise to present to end users its Guaranteed Cost Reduction Program in which the Company guarantees that the user will save money in its manufacturing process when it utilizes the Company's products. This close relationship between the technical sales force and the end users, together with the Company's supportive relationship with its distributors, who are particularly interested in handling the Company's broad line of products, is an important element of the Company's market success and a valuable asset of the Company. The Company's foreign subsidiaries have a sales force that totals more than 265 individuals, with approximately 130 operating out of the Company's various European subsidiaries. In addition, the Company has an international export sales force that functions overseas in more than 86 countries, primarily where the Company does not have foreign subsidiaries. The Company maintains 20 international sales offices located in 17 countries. - Focused Growth in New Markets. The Company believes that international markets will provide expanded opportunities for increased sales of both basic and advanced technology products. The Company recently received the President's "E" Award for excellence in exporting. Part of the Company's growth strategy is focused on marketing its existing products into Central Europe, Asia, Latin America and other developing economies to take advantage of the significant number of infrastructure projects planned in these economies in the next decade. The Company believes that the restructuring of its continuing European operations has provided it a sound base for current and future distribution and sales growth in the European market, including expansion into new markets in Central Europe. The Company also believes that its long established presence in Australia will continue to facilitate growing export sales to Indonesia and Southeast Asia. While the Company maintains a sales organization in Brazil, the Company's strong North American presence, including manufacturing facilities in Canada and Mexico as well as the core United States operations, will serve as the Company's principal base for expansion into Latin America. The Company's strategy to gain entry in new markets includes formation of joint ventures with local partners and the use of licensing or private labeling arrangements to build market share before engaging in capital intensive projects such as construction of local manufacturing facilities. Also as part of its growth strategy, the Company is expanding its integral horsepower industrial electric motor facility and anticipates continued development of this business. The Company is continuing the modernization and expansion of its motor division, has established a separate, world-class facility dedicated to motor manufacturing, and is increasing its testing and design capacity to be able to reduce costs, increase output, and meet scheduled higher industry efficiency standards. 20 25 INDUSTRY BACKGROUND Welding Welding is a technique used for joining metallic parts usually through applying intense heat supplied by electricity or by gas flame. Virtually any two metal items can be joined by welding. There are many welding processes, with the most common being arc welding, oxy-fuel welding and resistance welding. Arc welding, which was first introduced at the end of the 19th century and today is the most common industrial welding process, uses the concentrated heat of an electric arc to join metal by fusion with a deposit of molten metal, typically from a consumable electrode. The Company believes it is a worldwide leader among arc welding manufacturers. As part of the arc welding process, it is necessary to shield the molten metal supplied by the electrode from oxygen or other gases in the atmosphere that might otherwise react with the molten metal, creating undesirable weaknesses in the weld. Process variations using different types of electrodes have been developed to accomplish this objective, including "stick" electrodes (the oldest form of arc electrode), metal inert gas ("MIG") wire electrodes, tungsten inert gas ("TIG") wire electrodes, and submerged arc electrodes and flux cored wire electrodes. The MIG process, which may be the most utilized process in the United States today involves a continuous, small diameter, consumable, metallic electrode wire fed through a gun into the electric arc. An inert gas contained in a high-pressure cylinder is also introduced by the gun and creates a shield around the weld to prevent contamination. The gas pressure is limited with a regulator that feeds a controlled amount of gas through a separate hose integrated into the wire-feed tube. The process limits heat input to the specific welding area to prevent distortion. MIG welding is especially useful when joining sheetmetal as it limits distortion and warpage. Power for the arc is provided by a power source integrated with electronic controls that allow the user to adjust both wire speed and arc length. The thickness of the material to be welded and the size of the weld dictate the amount of current to be used. Arc welding is commonly used in light and heavy industry. Oxy-fuel welding is more commonly used in maintenance repairs and in home workshops. The Company's welding products are used in a wide range of industrial applications, including the manufacturing of automobiles, trucks, heavy machinery, railcars and ships, and the construction of buildings, bridges, oil platforms and pipelines, and are also sold widely for non-industrial uses such as construction and equipment repairs. The Company believes the world market for welding and cutting equipment, consumables and accessories was in excess of $8 billion in 1994. The United States, Western Europe and Japan, as the three largest areas, account for roughly 45% of that total market. Newly industrialized or developing areas represent sizable welding products markets. For example, China's total welding products market is believed to be rapidly approaching the size of the United States welding products market. The United States welding market in 1994 was estimated to exceed $1.5 billion, with approximately $1.4 billion constituting the arc welding business. Of this amount, consumables represent $750 million and arc welding equipment represents $620 million. The Company believes that, based on industry estimates, it maintains a market leading 42% share of the United States consumables business and a top-tiered share of the United States arc welding equipment business. Cutting Virtually all users of welding products also utilize one or more processes to cut and shape metal. Cutting processes include plasma, oxy-fuel and laser cutting systems. The plasma cutting process involves a stream of ionized gas that carries an electric arc through a small opening, resulting in high concentrations of heat at the cut. The oxy-fuel process is a low-cost and highly versatile process in which steel is preheated and a concentrated, high-velocity stream of oxygen is introduced which can cut steel of unlimited thicknesses via the exothermic process of oxidation. The Company participates in the cutting industry in arc and plasma cutting equipment, and through its Harris Calorific Division ("Harris") designs, manufactures and sells equipment and accessories for the oxy-fuel cutting business. 21 26 Industrial Electric Motors The Company's Electric Motor Division operates in a $2.0 billion industrial motor market. The Company estimates that it competes in a business segment of $1.3 billion within this larger market. The industrial motor market will be significantly impacted by federally legislated efficiency requirements which go into effect at the end of 1997. The Company is currently redesigning its entire product line in order to meet these federal efficiency standards. PRODUCTS Welding and Cutting The Company's full line of arc welding equipment includes welding machines, power sources and automated welding systems and ranges from basic units used for light manufacturing, maintenance and farm use to highly sophisticated or heavy duty machines used in robotic applications, high production welding and fabrication. The Company manufactures arc welding products at facilities located in the United States (2), Australia, Canada, Mexico, England, France, the Netherlands, Norway (2) and Spain. The Company is a leader in the development of welding equipment with sophisticated applications. New welding equipment produced by the Company provides end users with better control of the welding process, is easier for less-experienced welders to operate and provides greater versatility, in many cases at reduced cost. For example, high power solid state electronic switching circuits for use in static welding power sources permit the control of the welding current to produce optimum arc characteristics. New advanced computer-based circuits now control the output of welding power sources to develop customized welding wave shapes, making machines such as the Company's Power Wave(TM) more user-friendly by storing specific applications in memory and assisting the operator in selecting the proper process and welding procedure. Certain of the Company's recently developed products have enabled the use of the welding process in applications that were not previously feasible. For example, the Company recently introduced the surface-tension-transfer ("STT(TM)") power source which was developed to enable the welding of light-gauge materials that were not suited for the traditional welding process. The Company is currently the only manufacturer to offer the technology provided by the STT in a reliable form. Such technology is the result of the Company's commitment to product development and its strategy to be on the leading-edge of welding technology with broad customer application. This strategy has also resulted in an increased focus on welding automation, including the increasing growth of the Company's robot welding systems. The Company offers automation systems through its worldwide sales and distribution network. The Company's consumable products, designed for use in conjunction with arc welding equipment, include a full line of manual electrodes, fluxes and wires. The Company's consumable products are used in light to heavy fabrication of mild and alloy steels and in hardfacing applications. Hardfacing involves coating metal surfaces with alloys to increase durability. Three primary types of arc welding electrodes are produced: (i) coated manual or stick electrodes, (ii) solid wire electrodes produced in coil form for continuous feeding in mechanized welding, and (iii) cored wire electrodes produced in coil form for continuous feeding in mechanized welding. Cored electrodes are used with no external shielding (self-shielded), with gas shielding or with a granular flux for submerged arc applications. The Company is the recognized leader in the development of the self-shielded cored electrodes (Innershield(R)) which require no external gas shielding. The unique technology embodied in these electrode designs is used to great advantage in applications ranging from the high speed welding of sheet metal for automotive applications to the fabrication of offshore drilling platforms. In building construction, the Innershield process is widely used because of its productivity and because the process is not affected by wind conditions. Low cost imports, when they are available due to market conditions, are a threat in commodity-type consumables, such as MIG wire electrodes. See "Investment Considerations -- Competition." The Company, therefore, is focused on the development, manufacturing and marketing of value added products. The Company's current consumables focus centers on premium MIG products while long-term efforts will stress flux-cored wire and hardfacing. The Company anticipates that premium MIG wire and flux-cored wire consumables will generate continued growth, while stick and submerged arc products are expected to 22 27 decrease, particularly in established economies such as the United States and Western Europe. Stick arc technology is still prevalent in developing economies. Focusing on higher technology products such as flux-cored wires and certain welding subarc fluxes will offer the Company greater export opportunities as the Company currently holds a significant technology advantage over local producers in the target developing countries markets. The Company also manufactures and sells regulators and torches used in oxy-fuel welding and cutting, principally through its Harris division which has been a recognized leader in the industry since 1905. Products offered by Harris include regulators used in industrial and medical gas applications, torches used in oxy-fuel welding and cutting and gas seals. Harris manufactures its products domestically at facilities located in Gainesville, Georgia and Monterey Park, California and internationally in Ireland and Italy. Harris' business in North America has grown 30% since 1992. The Company attributes this growth to several factors: (i) market penetration due to the synergy with the Company's core marketing strength, since Harris and the Company share largely the same markets and virtually 100% of the distribution channels, (ii) Harris regulator products which are used in all of the gas-shielded arc welding processes, and (iii) continuing improvements in quality and productivity through the sharing of manufacturing technology and the incorporation of the Company's incentive management principles. The Company believes that Harris' growth will largely parallel that of the arc welding business. Industrial Electric Motors The Company designs, manufactures and sells a broad line of steel, aluminum and cast iron frame integral horsepower electric motors for use in industrial applications. In 1992, the Company acquired the industrial electric motor operations of the Delco division of General Motors Corporation in Dayton, Ohio, substantially expanding its market position and broadening its product line. Presently, the Company's line of steel and aluminum frame industrial electric motors ranges from 1/3 to 250 horsepower and up to 1,250 horsepower for cast iron motors. The Company is continuing the modernization and expansion of its motor division, has established a separate, world-class facility near Cleveland, Ohio dedicated to motor manufacturing, and is increasing its testing and design capacity to reduce costs, increase output and meet scheduled higher industry efficiency standards. The Company anticipates that the growth of its industrial motor business will reduce the impact of downturns in the arc welding industry. The industrial electric motor industry's emphasis on increased system efficiencies and lower maintenance costs has led to greater demand for AC motor drives and variable speed motors. The Company is actively participating in the AC motor business and seeks to expand its business in AC motor drives. Custom designing value added products to meet particular applications, especially with larger motors, is also a priority of the Company. Historically, the Company participated primarily in that portion of the industrial motor market that was the most competitive, with fairly standard products. The addition of a cast iron product line in 1992, together with the recent addition of new plant capacity and engineering expertise, has increased the Company's ability to compete in a broader range of these value added products. RESEARCH AND DEVELOPMENT While arc welding has been used industrially since the late 19th century, both equipment and consumables continue to experience technological advances that improve the efficiency of welding equipment and processes, resulting in improved quality and user savings on gas, energy, welding time and manpower needs. The Company introduces a variety of new or updated products each year. Special applications have created a market for value-engineered products that can create a competitive advantage in markets, such as the United States, where some welding products are reaching commodity status. The Company anticipates continued growth in sales of automated welding systems as well as continuing refinements to basic units. The Company views excellence in product development as a continuing key factor in its future success. The Company has greatly expanded the size of its engineering staff at its core United States operations over the last ten years. The Company invested approximately $18.5 million in research and development in 1994. These activities were primarily related to the development of new products utilizing the latest available 23 28 technology. As of December 31, 1994, the number of engineering employees engaged full-time in these research and development activities was 113, supported by more than 320 additional engineers and technical staff who assist in developing new products through the manufacturing process. SALES AND DISTRIBUTION; MARKETING The Company's products are sold in both domestic and international markets. Domestically, they are sold by distributors as well as directly by the Company's own sales organization. The Company has an extensive arc welding distribution network in the United States. In 1994, approximately 85% of the Company's arc welding sales were through the Company's 1,000 distributors. The Company maintains 34 district sales offices, all of which include training centers, and seven distribution centers to provide for expedited delivery to customers. The Company's highly trained domestic sales force numbers approximately 260 individuals, each with the ability to conduct welding demonstrations and train distributor personnel in the use of the Company's products. The Company believes its welding products have particular value because of its highly trained technical sales force and the support of its research and development staff which allow it to assist the consumers of its welding products in solving their welding application problems. The Company utilizes this technical expertise to present to end users its Guaranteed Cost Reduction Program, in which the Company guarantees that the user will save money in its manufacturing process when it utilizes the Company's products. The Company evaluates a customer's current manufacturing operation as it relates to welded fabrication. Based on the analysis of these details and the production targets of the customer, a variety of cost reduction opportunities are presented. If the customer implements these cost reduction ideas, the Company will "guarantee" a specific dollar savings to be achieved on an annualized basis. If the customer does not realize these savings, the Company will pay the customer for the difference between the savings actually achieved and the "guarantee." In 1994, the program contributed $14.8 million in new domestic sales without any claims under the guarantee. The Guaranteed Cost Reduction Program allows the Company to introduce its products to new users and to establish and maintain close relationships with the consumers. This close relationship between the technical sales force and the end users, together with the Company's supportive relationship with its distributors, who are particularly interested in handling the Company's broad line of products, is an important element of the Company's market success and a valuable asset of the Company. Although the Company restructured certain of its international operations beginning in 1992, the Company has a substantial international presence and a broad distribution network. The Company and its foreign subsidiaries have approximately 1,250 distributors outside the United States. The Company's foreign subsidiaries have a sales force that totals more than 265 individuals, with approximately 130 operating out of the Company's various European subsidiaries. In addition, the Company has an international export sales force that functions overseas in more than 86 countries, primarily where the Company does not have foreign subsidiaries. The Company maintains 20 international sales offices located in 17 countries. The Company enjoys substantial name brand recognition in its worldwide markets. Much of its product recognition may be attributed to the Company's active role in training welding operators and supervisors. Since 1917, the Company's welding school has trained over 70,000 students, and its training publications on welding are broadly distributed. The industrial motor business is divided roughly equally between sales to original equipment manufacturers ("OEMs") and to distributors. The Company's domestic distribution network includes 1,050 motor distributors. In 1994, approximately 60% of the Company's motor sales were through distributors and 40% were sold directly to OEMs. Because over 50% of the Company's sales are for replacement motors, the Company believes that its sales are less subject to an economic downturn. The Company markets its industrial electric motors to small and medium size companies, while many of the Company's larger competitors focus on sales to the larger OEMs. The Company believes it is well positioned to serve small and medium size companies because of its large field sales force and distribution system. Concentrating sales to specific targeted segments of the industrial motor business is consistent with the Company's strategy of developing a niche for offering high quality industrial motors with an emphasis on value engineering. 24 29 CUSTOMERS The Company sells its products to a broad range of end users. Approximately 85% of its domestic sales are made through distributors and 15% by direct sales to customers. The Company is not dependent on a single end-use customer. The loss of any one end-use customer would not have a material adverse effect on its business. The Company's business is not seasonal. COMPETITION Conditions in the arc welding industry are highly competitive. The Company believes that it is one of only a few worldwide broad line manufacturers of both arc welding equipment and consumables products. The industry also includes numerous smaller competitors specializing in particular products. Competition in the electric arc welding industry is on the basis of price, brand preference, product quality and performance, warranty, delivery, service and technical support. The Company believes that its position as an industry leader demonstrates that it competes effectively in these areas. See "Investment Considerations -- Competition." The marketplace for industrial electric motors is also very competitive. The Company competes domestically with approximately nine other manufacturers. According to industry sources, four competitors (Baldor, Reliance Electric, Emerson/United States and General Electric) command approximately 60% of the business. The remaining 40% is believed to be divided among the remaining six companies, including the Company. EMPLOYEES As of December 31, 1994, the Company had 5,693 employees. None of the employees at the Company's Australian, Canadian or United States operations are unionized. Employees at the operations of the Company's Mexico and European subsidiaries are unionized or are members of local work councils. The Company's incentive management system today applies to substantially all full-time employees at the Company's United States operations and in Canada and Australia. Harris' domestic operations and the Company's operations in Mexico have adopted portions of the system, and the Company is exploring methods to bring the system to its operations in Europe, where workplace rules impede adoption of certain aspects of the system. LEGAL PROCEEDINGS The Company is involved in various civil lawsuits and administrative hearings arising in the ordinary course of business. Current litigation involving the Company includes the following cases, in which claimants seek recovery for injuries allegedly resulting from exposure to fumes and gases in the welding environment. In management's opinion, the outcome of these matters will not have a material adverse effect on the Company's financial condition, liquidity or results of operations. The Company is a co-defendant in nineteen cases alleging that exposure to manganese contained in arc welding electrode products caused the plaintiffs to develop a neurological condition known as manganism. The total number of claimants in these cases is 27. The complaint in one of the cases pending in Illinois was amended in late March 1995 to include class action allegations, which the Company intends to contest. The plaintiffs seek compensatory and, in most instances, punitive damages, usually for unspecified sums. Two similar cases have been tried, both to defense verdicts. The Company is also a defendant in one case, and one of several co-defendants in four other cases, alleging that exposure to welding fumes generally impaired the respiratory system of the plaintiffs. The plaintiffs seek compensatory and punitive damages, in most cases for unspecified sums. During the preceding five years, 38 similar cases have resulted in ten voluntary dismissals, seven defense verdicts or summary judgments and 21 settlements for immaterial amounts. Claims pending against the Company alleging asbestos induced illness total 9,798; in each instance, the Company is one of a large number of defendants. Approximately 4,407 of these asbestos claims are pending in 25 30 Orange County, Texas and a motion to certify a class action, which is being contested vigorously, is pending. The asbestos claimants seek compensatory and punitive damages, in most cases for unspecified sums. 20 cases have been tried, all to defense verdicts. Voluntary dismissals on such claims total 13,921; summary judgments for the defense total 71. The Company, together with the hundreds of co-defendants, is a defendant in state court in Morris County, Texas, in litigation on behalf of 3,026 claimants, all prior employees of a local pipe fabricator, alleging that occupational exposures caused a wide variety of illnesses. The prayers seek compensatory and punitive damages of unspecified sums. The Company bears the costs of defending those of its product liability cases arising and filed after 1990. In many cases where there are multiple defendants, cost sharing efficiencies are arranged. Subject to the Company's per claim retention under its insurance coverage, the Company has tendered the manganese, fume, asbestos and Morris County, Texas cases to its insurance carrier which has accepted such tender for all situations except those where liability would result solely from asbestos; no such situations have arisen to date. 26 31 MANAGEMENT DIRECTORS The Company's Board of Directors currently consists of 15 members elected for terms of three years, classified into three classes. See "Investment Considerations -- Anti-Takeover Provisions and State Anti-Takeover Laws" and "Description of Capital Stock -- Anti-Takeover Provisions and State Anti-Takeover Laws." The following table sets forth certain information regarding the Company's directors.
NAME AGE POSITION - ------------------------- --- -------------------------------------------------------- Harry Carlson 60 Vice Chairman of the Company since 1987 -- term expires 1997. David H. Gunning 52 Director since 1987 -- term expires 1996. Chairman, President and Chief Executive Officer of Capitol American Financial Corp. (insurance company). Donald F. Hastings 66 Chairman of the Board and Chief Executive Officer of the Company since 1992; President of the Company 1987-1992 -- term expires 1996. Edward E. Hood, Jr. 64 Director since 1993 -- term expires 1996. Former Vice Chairman of the Board and Executive Officer of The General Electric Company. Paul E. Lego 64 Director since 1993 -- term expires 1996. President of Intelligent Enterprises (consulting). Former Chairman and Chief Executive Officer of Westinghouse Corp. Hugh L. Libby 69 Director since 1985 -- term expires in 1997. Chairman of the Board and Chief Executive Officer of Libby Corp. (manufacturer of diesel/gas turbine generator sets and aircraft ground power units). David C. Lincoln 69 Director since 1958 -- term expires in 1997. Chairman of the Board and Chief Executive Officer of Lincoln Laser Co. (manufacturer of laser scanning equipment). Emma S. Lincoln 72 Director since 1989 -- term expires 1996. Retired from the practice of law for the past five years. G. Russell Lincoln 48 Director since 1989 -- term expires 1997. Chairman of the Board and Chief Executive Officer of Algan, Inc. (manufacturer of industrial coatings and chemicals for the printing industry). Kathryn Jo Lincoln 40 Director -- term expires 1998. Vice Chair of The Lincoln Institute of Land Policy and Vice President of The Lincoln Foundation, Inc. (non-profit corporations for educational purposes). Frederick W. Mackenbach 64 President and Chief Operating Officer of the Company since 1992; President of Lincoln Latin America 1991-1992; District Manager 1976-1991 -- term expires 1998. Henry L. Meyer, III 45 Director since 1994 -- term expires 1997. Chairman of the Board and Chief Executive Officer of Society National Bank. Lawrence O. Selhorst 62 Director since 1992 -- term expires 1998. Chairman of the Board and Chief Executive Officer of American Spring Wire Corporation (manufacturer of specialty wires). Craig R. Smith 69 Director since 1992 -- term expires 1998. Former Chairman and Chief Executive Officer of Ameritrust Corporation (banking). Frank L. Steingass 55 Director since 1971 -- term expires 1997. Chairman of the Board and President of Buehler/Steingass, Inc. (commercial printers).
27 32 EXECUTIVE OFFICERS (EXCLUDING DIRECTORS) The following table sets forth certain information about the Company's executive officers (excluding Messrs. Hastings, Carlson and Mackenbach):
NAME AGE POSITION - ------------------------- --- -------------------------------------------------------- David J. Fullen 63 Senior Vice President, Machine and Motor Division since 1994; Vice President -- Machine and Motor Division 1989-1994. John M. Stropki 44 Senior Vice President, Sales since 1994; General Sales Manager 1992-1994; District Manager 1986-1992. Richard C. Ulstad 55 Senior Vice President, Consumable Division since 1994; Vice President -- Manufacturing Electrode Division 1992-1994; Superintendent -- Electrode Division 1984-1992. Frederick W. Anderson 42 Vice President, Manufacturing -- Machine and Motor Division since 1994; Plant Manager Machine and Motor Division 1993-1994; Plant Superintendent 1989-1993. Paul J. Beddia 61 Vice President, Human Resources since 1989. Dennis D. Crockett 52 Vice President, Consumable Research and Development since 1993; Chief Engineer, Consumables Research and Development 1987-1993. James R. Delaney 46 Corporate Vice President and President Lincoln Latin America since 1994; President Lincoln South America 1993-1994; Vice President of Lincoln Latin America 1992; Vice President of Lincoln Mexicana 1988-1992. H. Jay Elliott 53 Vice President, Chief Financial Officer, and Treasurer since 1994; International Chief Financial Officer 1993-1994; prior thereto, Assistant Comptroller of The Goodyear Tire & Rubber Company responsible at various times for Corporate Strategic Planning, Finance Director of North American Tires and International Vice President-Finance. Paul F. Fantelli 50 Vice President, Business Development since 1994; Assistant to the Chief Executive Officer 1992-1994; President and Chief Executive Officer of the Company's subsidiary, Harris Calorific 1990-1992. Anthony Massaro 51 Corporate Vice President and President Lincoln Europe since 1994; Director of International Operations 1993-1994; prior thereto, as a corporate officer with Westinghouse Electric Corporation, served as Vice President and then as President and a Member of the Management Committee with responsibilities worldwide. Ronald A. Nelson 45 Vice President, Machine Research and Development since 1994; Chief Engineer -- Machine and Motor Division 1993-1994; Service Manager 1989-1993. Richard J. Seif 47 Vice President, Marketing since 1994; Director of Marketing 1991-1994; Project Manager 1989-1991. Frederick G. Stueber 41 Vice President, General Counsel and Secretary since February 1995; prior thereto, partner in the law firm of Jones, Day, Reavis and Pogue. John H. Weaver 56 Vice President, Export Sales since 1994; International Sales Manager 1987-1994.
28 33 SELLING SHAREHOLDERS The Selling Shareholders listed in the following table are offering the number of Class A Common Shares shown opposite their names, and have granted to the several Underwriters options, exercisable within 30 days of the date hereof, to purchase up to Class A Common Shares solely to cover over- allotments, if any. The amounts shown as being beneficially owned by the Selling Shareholders prior to the Offering are as of March 31, 1995.
CLASS A COMMON SHARES COMMON SHARES NUMBER OF NUMBER OF BENEFICIALLY OWNED BENEFICIALLY OWNED CLASS A COMMON SHARES CLASS A AFTER THE OFFERING(1) AFTER THE OFFERING BENEFICIALLY OWNED COMMON SHARES ------------------------ ------------------------ NAME OF BENEFICIAL OWNER PRIOR TO THE OFFERING OFFERED NUMBER PERCENTAGE NUMBER PERCENTAGE - ------------------------ ------------------------- ------------- --------- ---------- --------- ---------- - --------------- * Less than one percent (1) If the over-allotment options are exercised by the Underwriter in full, the number and percentage of Class A Common Shares beneficially owned after the Offering will be: .
29 34 DESCRIPTION OF CAPITAL STOCK COMMON EQUITY The Company is authorized to issue up to a maximum of sixty-two million (62,000,000) shares of Common Equity, consisting of thirty million (30,000,000) Common Shares, thirty million (30,000,000) Class A Common Shares and two million (2,000,000) Class B Common Shares. Following the Offering, the Company will have outstanding Common Shares, Class A Common Shares and Class B Common Shares. The shares of each class have the express terms set forth in Article Fourth of the Company's Articles of Incorporation. The powers, preferences and rights of the Common Shares, Class A Common Shares and Class B Common Shares, and the qualifications, limitations and restrictions thereof, will in all respects be identical, except as otherwise required by law or as expressly provided in the Company's Articles of Incorporation. Voting. The holders of Class A Common Shares are entitled to vote only under those circumstances set forth in the Ohio General Corporation Law, generally relating to proposals that would change the par value of the Class A Common Shares, alter or change the express terms of those shares, or otherwise affect them in a substantially prejudicial manner. The non-voting status of the Class A Common Shares is subject to the convertibility provisions described below. Subject to the Class A Protection provision described below, each Common Share entitles the holder thereof to vote on all matters on which shareholders are entitled to vote, including the election of directors. Similarly, each Class B Common Share entitles the holder thereof to vote on all matters on which shareholders are entitled to vote, including the election of directors. Except as otherwise required by the Ohio General Corporation Law, the holders of Common Shares and Class B Common Shares vote together as one class on all matters. The holders of Common Shares and Class B Common Shares are entitled to elect the entire Board of Directors. In addition, the holders of the Common Shares and Class B Common Shares could vote to amend the Articles of Incorporation in order to increase or decrease the number of authorized Class A Common Shares (but not below the number of such shares outstanding). Convertibility. None of the Common Shares, the Class A Common Shares or the Class B Common Shares are convertible into another class of Common Equity or any other security of the Company, except that all then outstanding Class A Common Shares will convert into Common Shares on a share-for-share basis (i) automatically on , 2005 (the date ten years from the date of first distribution of the Class A Common Shares, which is anticipated to be the payment date of the Distribution), unless the Board of Directors, acting by a two-thirds majority and no earlier than 30 months and no later than 24 months prior to the initial or any subsequently established conversion date, elects to extend the conversion of the Class A Common Shares for five years from and after such conversion date, and any new conversion date and all subsequently extended conversion dates which may be extended in a like manner and for a like period; (ii) automatically at any time when the number of outstanding Common Shares and Class B Common Shares falls below 20% of the aggregate number of outstanding Common Shares, Class A Common Shares and Class B Common Shares; and (iii) upon resolution of the Board of Directors if, as a result of the existence of the Class A Common Shares, either the Common Shares or Class A Common Shares are, or both are, excluded from quotation on the NASDAQ National Market and all other national quotation systems then in existence and are excluded from trading on all principal national securities exchanges then in existence. To the extent that the market price of the Common Shares is higher or lower than the market price of the Class A Common Shares immediately prior to such conversion, the market price of the shares held by particular holders may be adversely affected by the conversion. Dividends. The Articles of Incorporation provide that no dividend will be paid on any of the three classes of Common Equity unless an equal dividend is paid on all three classes, subject to the following (i) if a cash dividend is paid on one class of Common Equity, the dividend paid on the other two classes will also be in cash; (ii) stock dividends on Class A Common Shares will be paid only in shares of Class A Common Shares; 30 35 (iii) a stock dividend on Class B Common Shares will be paid in the same class of Common Equity as the stock dividend on Common Shares; and (iv) subject to the limitations in (ii) and (iii), a stock dividend on Class A Common Shares paid in Class A Common Shares will be considered equal to a stock dividend on Common Shares and Class B Common Shares paid in any of the other classes of Common Equity as long as the proportion is the same and regardless of any differences in fair market value among the classes. Mergers and Consolidations. In the event of a merger, consolidation or combination of the Company with another entity (whether or not the Company is the surviving entity) or in the event of dissolution of the Company, the holders of Class A Common Shares will be entitled to receive the same per share consideration as the per share consideration, if any, received by holders of Common Shares and Class B Common Shares in that transaction. Accordingly, if holders of Common Shares and Class B Common Shares receive shares of voting stock as consideration in a merger, the holders of Class A Common Shares will also be entitled to receive shares of such voting stock. Stock Splits and Combinations. If the Company in any manner splits, subdivides or combines the outstanding Common Shares, Class A Common Shares or Class B Common Shares, the outstanding shares of the other such classes will be proportionately split, subdivided or combined in the same manner and on the same basis as the outstanding shares of the other classes that have been split, subdivided or combined. Class A Protection. It is possible that voting rights disproportionate to equity ownership could be acquired through acquisitions of Common Shares without corresponding purchases of Class A Common Shares. In order to reduce somewhat the likelihood of Common Shares and Class A Common Shares trading at significantly different market prices and to give holders of Class A Common Shares the opportunity to participate in any premium paid in the future relating to the acquisition of 15% or more of the Common Shares by a buyer who has not acquired a proportionate number of Class A Common Shares, the Articles of Incorporation include a "Class A Protection" feature, as described below. The Class A Protection feature might have an anti-takeover effect by making the Company a less attractive target for a takeover bid. See "Investment Considerations -- Anti-Takeover Provisions and State Anti-Takeover Laws." (Although Class B Common Shares have voting rights, Article Fourth of the Articles of Incorporation contains restrictions on transfer of such shares. The lack of an organized trading market in Class B Common Shares is therefore likely to continue, making it unlikely that a significant number of Class B Common Shares could be acquired in the market. Therefore, the Class A Protection feature does not apply to acquisitions of Class B Common Shares.) If any person or group, as defined below (excluding the Company, but including members of the Lincoln Family), acquires beneficial ownership of 15% or more of the then outstanding Common Shares, other than the Excluded Shares (defined below), after , 1995, and such person or group (a "Significant Shareholder") does not then own an equal or greater percentage of all then outstanding Class A Common Shares, the Class A Protection provision requires such Significant Shareholder to commence within a 90-day period beginning the day after becoming a Significant Shareholder a public cash tender offer to acquire additional Class A Common Shares, as described below (a "Class A Protection Transaction"). The 15% ownership threshold of the number of Common Shares which triggers a Class A Protection Transaction may not be waived by the Board of Directors, nor may the Board of Directors amend this threshold in the Articles of Incorporation without shareholder approval, including, under current Ohio law, a two-thirds vote of the outstanding Class A Common Shares voting separately as a class. For purposes of determining the shares owned by a Significant Shareholder, but not for the purposes of determining shares outstanding, the following Common Shares will be excluded: (i) shares beneficially owned at , 1995; (ii) shares acquired by will, by laws of descent and distribution, by gift, or by foreclosure of a bona fide loan; (iii) shares acquired from the Company; (iv) shares acquired by operation of law (including a merger or consolidation effected for the purpose of recapitalizing or reincorporating such person but not for the purpose of acquiring another Person); (v) Common Shares received in exchange for Class A Common Shares if the Class A Common Shares were acquired by the exchanging party directly from the Company as a dividend on Common Shares; and (vi) shares acquired by or from a qualified employee benefit plan of the Company (collectively, (i) through (vi), "Excluded Shares"). 31 36 In a Class A Protection Transaction, the Significant Shareholder must offer to acquire from holders of the Class A Common Shares at least that number of additional Class A Common Shares (the "Additional Shares") determined by (i) multiplying the percentage of the number of outstanding Common Shares that are beneficially owned by such Significant Shareholder, and were acquired after , 1995, by the total number of Class A Common Shares outstanding on the date such Person or group became a Significant Shareholder; and (ii) subtracting therefrom the excess (if any) of the number of Class A Common Shares beneficially owned on such date over the number of Class A Common Shares beneficially owned on , 1995, the date of the Distribution. The Significant Shareholder must acquire all Class A Common Shares validly tendered or, if the number of shares tendered exceeds the number determined pursuant to such formula, a pro-rata number from each tendering holder (based on the number of shares tendered by each tendering shareholder). The offer price for any shares required to be purchased by the Significant Shareholder pursuant to this provision would be the greatest of: (i) the highest price per share paid by the Significant Shareholder for any Common Share or Class A Common Share in the six-month period ending on the date such Person or group became a Significant Shareholder; (ii) the highest sale price of a Common Share or Class A Common Share on the NASDAQ National Market (or such other securities exchange or quotation system as is then the principal trading market for such class of Common Equity) during the thirty-day period preceding the date such person or group became a Significant Shareholder; or (iii) the highest reported sale price for a Common Share or Class A Common Share on the NASDAQ National Market (or such other securities exchange or quotation system constituting the principal trading market for such class of Common Equity) on the business day preceding the date the Significant Shareholder commences the required tender offer. If a Significant Shareholder fails to undertake a Class A Protection Transaction within the time provided therefor, the voting rights of all of the Common Shares beneficially owned by such Significant Shareholder, regardless of when such shares were acquired, would be automatically suspended until completion of a Class A Protection Transaction or until divestiture of the excess Common Shares that triggered such requirement. To the extent that the voting power of any Common Shares is so suspended, such shares will not be included in the determination of aggregate voting shares for any purpose. A Class A Protection Transaction would also be required of any Significant Shareholder that acquires (other than any Excluded Shares) an amount equal to or greater than the next highest integral multiple of 5% (e.g., 20%, 25%, 30%, etc.) of the outstanding Common Shares after , 1995 and such Significant Shareholder does not own an equal or greater percentage of all then outstanding Class A Common Shares that such Significant Shareholder acquired after , 1995, the date of the Distribution. Such Significant Shareholder would be required to offer to buy that number of Additional Shares prescribed by the formula set forth above; provided that, for purposes of such formula, the date on which the Significant Shareholder acquired the next highest integral multiple of 5% of the outstanding Common Shares will be deemed to be the date on which such person or group became a Significant Shareholder. The requirement to engage in a Class A Protection Transaction will be satisfied by making the requisite offer and purchasing validly tendered shares, even if the number of shares tendered is less than the number of shares included in the required offer. If any Significant Shareholder fails to make the required tender offer, or to purchase shares validly tendered (after proration, if any), the voting rights of all Common Shares owned by such Significant Shareholder will be automatically suspended until consummation of an offer as required by the terms of the Class A Protection feature or until divestiture of the excess Common Shares that triggered the tender offer requirement. Neither the Class A Protection Transaction requirement nor the related possibility of suspension of voting rights applies to any increase in percentage ownership of Common Shares resulting solely from a change in the total number of Common Shares outstanding. All calculations with respect to percentage ownership of outstanding shares of either class of Common Equity are to be based upon the number of outstanding shares reflected in either the records of or a certificate from the Company's stock transfer agent or reported in the last to be filed of the Company's Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K, Form 10-C or definitive proxy statement. 32 37 Since the definition of Significant Shareholder is based on the beneficial ownership percentage of Common Shares acquired after , 1995, a person or group who is a shareholder of the Company at , 1995 will not become a Significant Shareholder unless such person or group acquires an additional 15% of the then outstanding Common Shares, regardless of the number of Common Shares owned prior to , 1995. The Class A Protection provision does not prevent any person or group from acquiring a significant or controlling interest in the Company, provided such person or group acquires a proportionate percentage of the Class A Common Shares, undertakes a Class A Protection Transaction or incurs suspension of the voting rights of Common Shares as provided by the Class A Protection feature. If a Class A Protection Transaction is required, the purchase price to be paid in such offer may be higher than the price at which a Significant Shareholder might otherwise be able to acquire an identical number of Class A Common Shares. Such requirement could make an acquisition of a significant or controlling interest in the Company more expensive and, if the Class A Protection Transaction is required, more time consuming, than if such requirement did not exist. Consequently, a person or group might be deterred from acquiring a significant or controlling interest in the Company as a result of such requirement. Moreover, by restricting the ability of an acquiror to acquire a significant interest in the Common Shares by paying a "control premium" for such shares without acquiring, or paying a similar premium for, Class A Common Shares, the Class A Protection feature is designed to help reduce or eliminate any discount on either of these classes of Common Equity. There can be no assurance that a person or group will be readily identifiable as a Significant Shareholder. Although the Federal securities laws currently require persons or groups holding 5% or more of the Common Shares or the Class A Common Shares to file reports with the Commission and the Company specifying the level of their ownership, there can be no assurance that a person or group will comply with such laws or that alternative methods of identifying such holders will be available. Accordingly, the benefits of the Class A Protection feature may be difficult to enforce. Preemptive Rights. None of the Common Shares, the Class A Common Shares or the Class B Common Shares will carry any preemptive rights enabling a holder to subscribe for or receive shares of the Company of any class or any other securities convertible into any class of the Company's shares. Sales and Repurchases. The Articles of Incorporation expressly permit the Board of Directors to authorize the sale of a class of shares even though a higher price could be obtained by selling shares of another class. The Articles of Incorporation also expressly permit the Board of Directors to repurchase shares of any class even though a lower price could be obtained by repurchasing the shares of another class. Transferability. The Common Shares and the Class A Common Shares will be freely transferable, subject to the existing Incentive Equity Plan ("IEP") restrictions on shares issued pursuant to such plan (and to certain contractual restrictions with respect to 15,000 Common Shares and a like number of Class A Common Shares to be received with respect thereto, held by a former officer of the Company). There is no established trading market for the Class B Common Shares because such shares are subject to the Company's right to repurchase contained in the Articles of Incorporation in the event of the death of the holder of Class B Common Shares or upon certain determinations by a holder of Class B Common Shares to dispose of such shares. Shareholder Information. The Company will deliver to the holders of Class A Common Shares the same proxy statements (without proxies except as required by law), annual reports and other information and reports as it delivers to holders of Common Shares and Class B Common Shares. Class B Repurchase Provision. The Articles of Incorporation grant the Company a first right to purchase Class B Common Shares from any holder of Class B Common Shares who makes certain determinations to dispose of or in any manner encumber such shares or upon the death of any holder. No sale, assignment, transfer, pledge, encumbrance or any other disposition of any Class B Common Shares may be made unless such Class B Common Shares are first offered to the Company. Class B Common Shares may be freely disposed of by the holder only if the Company does not exercise its option to purchase any or all of the 33 38 Class B Common Shares offered to it. Any Class B Common Shares disposed of pursuant to this procedure continue to be subject to the terms and conditions of the Class B Repurchase Provision contained in the Company's Articles of Incorporation. ANTI-TAKEOVER PROVISIONS AND STATE ANTI-TAKEOVER LAWS Control of the Company by the Lincoln Family and employees of the Company, as well as certain statutory provisions of Ohio law and the Company's Articles of Incorporation and Code of Regulations may have the effect of deterring hostile takeovers or delaying or preventing changes in control or management of the Company, including transactions in which shareholders might otherwise receive a premium for their shares over the then current market prices. In particular, Article Eighth of the Company's Articles of Incorporation, which contains requirements for approval of certain business combinations by "Disinterested Shareholders," and the Class A Protection feature contained in Article Fourth of the Company's Articles of Incorporation, which requires any person or group who acquires beneficial ownership of 15% or more of the outstanding Common Shares after , 1995, acquire an equal or greater percentage of all then outstanding Class A Common Shares, might have an anti-takeover effect by making the Company a less attractive target for a takeover bid. Also, the Company's Board of Directors is classified, so that only one-third of the Directors are subject to election at any one annual meeting of the shareholders. In addition to having a potential anti-takeover effect, classification reduces the ability to alter the composition of the Board of Directors. Further, Ohio law prohibits any person who owns 10% or more of a company's stock from engaging in mergers, consolidations, majority share acquisitions, asset sales, loans and certain other transactions with the corporation for a three-year period after acquiring the 10% ownership, unless approval is first obtained from the corporation's board of directors. After the three-year waiting period, the 10% shareholder can complete the transaction only if, among other things: (i) approval is received from two-thirds of all voting shares and from a majority of shares not held by the 10% shareholder or certain affiliated persons; or (ii) the transaction meets certain criteria designed to ensure fairness to all remaining shareholders. In addition, the acquisition of shares entitling the holder to exercise certain levels of voting power of the Company (one-fifth or more, one-third or more, or a majority) can be made only with the prior authorization of (i) the holders of at least a majority of the total voting power and (ii) the holders of at least a majority of the total voting power held by shareholders other than the proposed acquirer, officers of the Company elected or appointed by the Directors, and Directors of the Company who are also employees and excluding certain shares that are transferred after the announcement of the proposed acquisition and prior to the vote with respect to the proposed acquisition. In light of the fact that, upon completion of the Offerings, the current shareholders of the Company will own % of the Company's outstanding Common Shares and Class B Common Shares, acquisitions of the foregoing levels of voting power by third parties may not be possible unless the current shareholders of the Company vote in favor thereof. TRANSFER AGENT AND REGISTRAR KeyCorp Shareholder Services, Inc., Cleveland, Ohio, serves as the Transfer Agent and Registrar for the Common Shares, and is expected to be the Transfer Agent and Registrar for the Class A Common Shares. 34 39 UNDERWRITING Subject to the terms and conditions set forth in a purchase agreement (the "Purchase Agreement"), the Company and the Selling Shareholders have agreed to sell to each of the Underwriters named below, and each of the Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), J.P. Morgan Securities Inc. and McDonald & Company Securities, Inc. are acting as representatives (the "Representatives"), have severally agreed to purchase from the Company and the Selling Shareholders, the respective number of Class A Common Shares set forth opposite its name below at the initial public offering price less the underwriting discount set forth on the cover page of this Prospectus. In the Purchase Agreement, the several Underwriters have agreed, subject to the terms and conditions set forth therein, to purchase all of the Class A Common Shares offered hereby if any of such shares are purchased. In the event of default by an Underwriter, the Purchase Agreement provides that, in certain circumstances, the purchase commitments of the nondefaulting Underwriters may be increased or the Purchase Agreement may be terminated.
NUMBER OF UNDERWRITER SHARES ----------- --------- Merrill Lynch, Pierce, Fenner & Smith Incorporated......................................... J.P. Morgan Securities Inc........................................ McDonald & Company Securities, Inc................................ --------- Total................................................ ==========
The Representatives have advised the Company and the Selling Shareholders that the Underwriters propose initially to offer the Class A Common Shares to the public at the initial public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the initial public offering, the offering price and other selling terms may be changed by the Representatives. The Company and the Underwriters have agreed to reserve up to of the Class A Common Shares offered hereby for sale by the Underwriters to certain eligible employees and other designees of the Company at the initial public offering price set forth on the cover page of this Prospectus. Any reserved Class A Common Shares not purchased by such persons will be offered by the Underwriters to the public on the same basis as the other Class A Common Shares offered hereby. Participants in the reserved share program have agreed not to make any disposition of such Class A Common Shares for a period of days after the date of this Prospectus without the consent of Merrill Lynch. The Company and the Selling Shareholders have each granted to the Underwriters options, exercisable for 30 days after the date of this Prospectus, to purchase up to an additional Class A Common Shares from the Company and Class A Common Shares from the Selling Shareholders at the initial public offering price set forth on the cover page hereof, less the underwriting discount. The Underwriters may exercise such options only to cover over-allotments, if any, made in connection with the sale of Class A Common Shares offered hereby. To the extent that the Underwriters exercise these options, each Underwriter will have a firm commitment, subject to certain conditions, to purchase approximately the same percentage of such shares that the number of Class A Common Shares to be purchased by it shown in the foregoing table bears to the total number of Class A Common Shares initially offered by the Underwriters hereby. If purchased, the Underwriters will offer such additional shares on the same terms as those on which the initial shares are being offered. The Company and the Selling Shareholders have agreed to indemnify the Underwriters against certain liabilities, including certain liabilities under the Securities Act. 35 40 The Company, its directors and executive officers, the Selling Shareholders and certain other of its existing shareholders have agreed that they will not for a period of 180 days from the date of this Prospectus, without the prior written consent of the Representatives, offer, sell, contract to sell or otherwise dispose of any Common Shares or Class A Common Shares, or any security convertible or exchangeable into or exercisable for Common Shares or Class A Common Shares, except that the Company may, without such consent, issue Common Shares or Class A Common Shares pursuant to reservations, agreements or employee benefit plans referred to herein. Following the Offering, the Company's directors and executive officers, the Selling Shareholders and such other of its existing shareholders will hold in the aggregate approximately % of the Company's Common Shares and % of the Company's Class A Common Shares. Prior to the offering, there has been no public market for the Class A Common Shares. Consequently, the initial public offering price for a Class A Common Share has been determined by negotiations between the Company and the Representatives. Among the factors considered in such negotiations were prevailing market conditions, the results of operations of the Company in recent periods, the market capitalizations of other companies which the Company and the representatives believe to be comparable to the Company, estimates of the business potential of the Company, the prospects for earnings, and other factors deemed relevant. Morgan Guaranty Trust Company of New York, an affiliate of J. P. Morgan Securities Inc., is a participant under the Credit Agreement. LEGAL MATTERS The validity of the Class A Common Shares offered hereby will be passed upon for the Company by Jones, Day, Reavis & Pogue, Cleveland, Ohio. Certain legal matters will be passed upon for the Underwriters by Mayer, Brown & Platt, Chicago, Illinois. EXPERTS The consolidated financial statements of The Lincoln Electric Company at December 31, 1994 and 1993, and for each of the three years in the period ended December 31, 1994, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein which, as to the years 1994, 1993 and 1992, are based in part on the reports of Price Waterhouse, independent auditors, and as to the year 1992, are based in part on the reports of KPMG Accountants N.V., independent auditors, and KPMG Klynveld Peat Marwick Goerdeler, independent auditors. The consolidated financial statements referred to above are included in reliance upon such reports given upon the authority of such firms as experts in accounting and auditing. 36 41 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ----- The Lincoln Electric Company and Subsidiaries: Independent Auditors' Reports....................................................... F-2 Statements of Consolidated Financial Condition as of December 31, 1994 and 1993................................................. F-6 Statements of Consolidated Operations for the year ended December 31, 1994, 1993 and 1992........................................... F-8 Statements of Consolidated Shareholders' Equity for the year ended December 31, 1994, 1993 and 1992.................................. F-9 Statements of Consolidated Cash Flows for the year ended December 31, 1994, 1993 and 1992...................................... F-10 Notes to Consolidated Financial Statements.......................................... F-11
F-1 42 REPORT OF INDEPENDENT AUDITORS Shareholders and Board of Directors The Lincoln Electric Company We have audited the accompanying statements of consolidated financial condition of The Lincoln Electric Company and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the consolidated financial statements of The Lincoln Electric Company (Australia) Proprietary Limited and subsidiaries and, for 1992, the consolidated financial statements of Lincoln Norweld B.V. and subsidiaries and the consolidated financial statements of Messer Lincoln GmbH and subsidiary, all consolidated subsidiaries, which statements reflect total assets constituting 7% in 1994 and 5% in 1993 and total revenues constituting 5% in 1994 and 1993 and 36% in 1992 of the related consolidated totals. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to data included for The Lincoln Electric Company (Australia) Proprietary Limited and subsidiaries and, for 1992, Lincoln Norweld B.V. and subsidiaries and Messer Lincoln GmbH and subsidiary, is based solely on the reports of the other auditors. 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 and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Lincoln Electric Company and subsidiaries at December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note A to the consolidated financial statements, effective January 1, 1993, the Company changed its method of accounting for income taxes. ERNST & YOUNG LLP Cleveland, Ohio March 3, 1995 F-2 43 To the Board of Directors of The Lincoln Electric Company REPORT OF INDEPENDENT ACCOUNTANTS In our opinion, the consolidated balance sheets and the related consolidated statements of income and retained earnings and of cash flows (none of which are presented separately herein) present fairly, in all material respects, the financial position of The Lincoln Electric Company (Australia) Proprietary Limited and its subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE Parramatta, Australia March 27, 1995 F-3 44 INDEPENDENT AUDITORS' REPORT The Board of Directors of Messer Lincoln GmbH We have audited the consolidated balance sheet of Messer Lincoln GmbH and its subsidiary as of December 31, 1992 and the balance sheet of Messer Lincoln GmbH as of December 31, 1991 and the related (consolidated) statements of income, retained earnings, and cash flows for the year ended December 31, 1992 and the period ended December 31, 1991. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements (none of which are presented separately herein) 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. The Company is a subsidiary of The Lincoln Electric Company based in Cleveland, Ohio, USA, which is responsible for management of the Company. The financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered considerable losses in 1992 and 1991 and is dependent on the continued support of The Lincoln Electric Company for the continuance of its operations. The Lincoln Electric Company has confirmed that it will provide financial and other support to enable the Company to continue to trade as a viable and solvent business entity at least through December 31, 1993. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Messer Lincoln GmbH and its subsidiary as of December 31, 1992 and of Messer Lincoln GmbH as of December 31, 1991, and the results of its operations and its cash flows for the year ended December 31, 1992 and the period ended December 31, 1991 in conformity with generally accepted accounting principles. Dusseldorf, March 12, 1993 KPMG KLYNVELD PEAT MARWICK GOERDELER Gesellschaft mit beschrankter Haftung Wirtschaftsprufungsgesellschaft W. Schweiger T. te Dorsthorst F-4 45 To the board of directors of Lincoln-Norweld B.V. INDEPENDENT AUDITORS' REPORT We have audited the consolidated balance sheet of Lincoln-Norweld B.V. and subsidiaries as of December 31, 1992, and the related consolidated statement of income, retained earnings and cash flows for the year ended December 31, 1992 (none of which are presented separately herein). These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet and statement of income 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Lincoln-Norweld B.V. and subsidiaries as of December 31, 1992, and the results of its operations and its cash flows for the year then ended in conformity with United States generally accepted accounting principles. KPMG Accountants N.V. Arnhem, The Netherlands March 23, 1993 F-5 46 STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
DECEMBER 31 1994 1993 -------- -------- (IN THOUSANDS OF DOLLARS) ASSETS CURRENT ASSETS Cash and cash equivalents............................................ $ 10,424 $ 20,381 Accounts receivable (less allowances of $4,251 in 1994; $6,258 in 1993)............................................................. 126,007 110,504 Inventories Raw materials and in-process...................................... 72,302 66,987 Finished goods.................................................... 82,974 76,698 -------- -------- 155,276 143,685 Deferred income taxes -- Note E...................................... 11,601 42,960 Prepaid expenses..................................................... 2,899 3,241 Other current assets................................................. 7,220 4,937 -------- -------- TOTAL CURRENT ASSETS................................................... 313,427 325,708 OTHER ASSETS Notes receivable from employees...................................... 3,151 4,747 Goodwill -- Note C................................................... 39,213 39,732 Other................................................................ 16,855 19,665 -------- -------- 59,219 64,144 PROPERTY, PLANT AND EQUIPMENT Land................................................................. 12,655 12,802 Buildings............................................................ 118,903 113,927 Machinery, tools and equipment....................................... 312,957 279,933 -------- -------- 444,515 406,662 Less allowances for depreciation and amortization.................... 260,304 236,971 -------- -------- 184,211 169,691 -------- -------- TOTAL ASSETS........................................................... $556,857 $559,543 ======== ========
F-6 47 STATEMENTS OF CONSOLIDATED FINANCIAL CONDITION THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
DECEMBER 31, 1994 1993 -------- -------- (IN THOUSANDS OF DOLLARS) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Trade accounts payable............................................... $ 54,766 $ 43,471 Notes payable to banks -- Note D..................................... 15,843 23,198 Salaries, wages and amounts withheld................................. 12,405 12,779 Taxes, including income taxes -- Note E.............................. 21,783 23,061 Dividend payable..................................................... 2,203 1,959 Current portion of long-term debt -- Note D.......................... 2,272 10,200 Accrued restructuring charges -- Note C.............................. 8,968 29,618 Other current liabilities............................................ 25,877 31,569 -------- -------- TOTAL CURRENT LIABILITIES.............................................. 144,117 175,855 LONG-TERM DEBT, less current portion -- Note D......................... 194,831 216,915 DEFERRED INCOME TAXES -- Note E........................................ 6,631 6,128 OTHER LONG-TERM LIABILITIES............................................ 10,337 9,221 MINORITY INTEREST IN SUBSIDIARIES...................................... 6,808 7,929 SHAREHOLDERS' EQUITY Common Stock, without par value -- at stated capital amount -- Note B: Authorized -- 15,000,000 shares Outstanding -- 10,514,324 shares in 1994 and 10,381,450 shares in 1993, exclusive of 4,346,516 shares in 1994 and 4,479,390 shares in 1993 held in treasury................................ 2,103 2,076 Class A Common Stock, without par value -- at stated capital amount -- Note B: Authorized -- 2,000,000 Outstanding -- 499,840 shares................................... 100 100 Additional paid-in capital........................................... 25,447 22,926 Retained earnings.................................................... 176,965 137,307 Cumulative translation adjustments................................... (10,482) (18,914) -------- -------- 194,133 143,495 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $556,857 $559,543 ======== ======== See notes to consolidated financial statements.
F-7 48 STATEMENTS OF CONSOLIDATED OPERATIONS THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
YEAR ENDED DECEMBER 31 1994 1993 1992 -------- -------- -------- (IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA) Net sales.................................................. $906,604 $845,999 $853,007 Cost of goods sold......................................... 556,259 532,795 553,103 -------- -------- -------- Gross Profit............................................... 350,345 313,204 299,904 Distribution cost/selling, general & administrative expenses................................................. 261,681 277,003 299,195 Restructuring charges (income) -- Note C................... (2,735) 70,079 23,897 -------- -------- -------- Operating income (loss).................................... 91,399 (33,878) (23,188) Other income (expense): Interest income.......................................... 1,442 1,627 3,061 Other income............................................. 3,067 2,922 4,433 Interest expense......................................... (15,740) (17,621) (18,736) -------- -------- -------- (11,231) (13,072) (11,242) -------- -------- -------- Income (loss) before income taxes and cumulative effect of accounting change........................................ 80,168 (46,950) (34,430) Income taxes (benefit) -- Note E........................... 32,160 (6,414) 11,370 -------- -------- -------- Income (loss) before cumulative effect of accounting change................................................... 48,008 (40,536) (45,800) Cumulative effect to January 1, 1993 of change in method of accounting for income taxes -- Note A.................... 2,468 -------- -------- -------- Net income (loss).......................................... $ 48,008 $(38,068) $(45,800) ======== ======== ======== Per share: Income (loss) before cumulative effect of accounting change................................................ 4.38 (3.74) (4.24) Cumulative effect of accounting change................... .23 -------- -------- -------- Net income (loss)........................................ $ 4.38 $ (3.51) $ (4.24) ======== ======== ======== See notes to consolidated financial statements.
F-8 49 STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES YEAR ENDED DECEMBER 31, 1994, 1993 AND 1992
CLASS A COMMON COMMON STOCK STOCK ADDITIONAL CUMULATIVE ------------------- ---------------- PAID IN RETAINED TRANSLATION SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS TOTAL ---------- ------ ------- ------ ---------- -------- ----------- ----------- (IN THOUSANDS OF DOLLARS) Balance, January 1, 1992............. 1,039,142 $ 208 35,794 $ 7 $ 20,845 $238,412 $ 4,664 $ 264,136 Net loss........................... (45,800) (45,800) Cash dividends declared -- $.72 per share............................ (7,762) (7,762) Purchases of Common Stock.......... (16,841) (3) (2,473) (1,667) (4,143) Shares sold to employees........... 9,979 2 2,373 2,375 Shares issued to ESOP.............. 9,268 2 2,058 2,060 Shares issued under Incentive Equity Plan...................... 1,066 264 264 Adjustment for the year............ (12,407) (12,407) ---------- ------ ------- ------ ---------- -------- ----------- ----------- Balance December 31, 1992............ 1,033,346 207 45,062 9 23,067 183,183 (7,743) 198,723 Net loss........................... (38,068) (38,068) Cash dividends declared -- $.72 per share............................ (7,808) (7,808) Shares sold to employees........... 3,648 1 678 679 Shares issued under Incentive Equity Plan...................... 1,151 224 224 Ten-for-one stock split............ 9,343,305 1,868 405,558 81 (1,949) Shares issued to ESOP.............. 49,220 10 906 916 Adjustment for the year............ (11,171) (11,171) ---------- ------ ------- ------ ---------- -------- ----------- ----------- Balance December 31, 1993............ 10,381,450 2,076 499,840 100 22,926 137,307 (18,914) 143,495 Net income......................... 48,008 48,008 Cash dividends declared -- $.76 per share............................ (8,350) (8,350) Shares sold to employees........... 107,520 22 2,063 2,085 Shares issued under Incentive Equity Plan...................... 25,354 5 458 463 Adjustment for the year............ 8,432 8,432 ---------- ------ ------- ------ --------- -------- ---------- ---------- Balance December 31, 1994............ 10,514,324 $2,103 499,840 $100 $ 25,447 $176,965 $ (10,482) $ 194,133 ========== ====== ======= ====== ========= ======== ========= ========== See notes to consolidated financial statements.
F-9 50 STATEMENTS OF CONSOLIDATED CASH FLOWS THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
YEAR ENDED DECEMBER 31 1994 1993 1992 -------- -------- -------- (IN THOUSANDS OF DOLLARS) OPERATING ACTIVITIES Net income (loss).......................................... $ 48,008 $(38,068) $(45,800) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization....................... 27,960 30,545 31,511 Deferred income taxes............................... 31,862 (32,501) 538 Cumulative effect of accounting change.............. (2,468) Foreign exchange loss (gain)........................ 4,047 (348) 957 Employee Stock Ownership Plan....................... 916 2,060 Minority interest................................... 416 (358) (2,158) Provision for restructuring......................... (2,735) 68,370 18,356 Changes in operating assets and liabilities net of effects from acquisitions: (Increase) in accounts receivable.............. (14,003) (6,228) (739) (Increase) decrease in inventories............. (6,476) 10,654 22,939 (Increase) decrease in other current assets.... (1,447) (1,331) 695 Increase in accounts payable................... 9,929 2,856 171 (Decrease) in other current liabilities........ (31,026) (2,928) (4,060) Gross change in other noncurrent assets........ 1,368 (3,112) (2,699) Other--net..................................... 763 2,734 1,853 -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES.................. 68,666 28,733 23,624 INVESTING ACTIVITIES Purchases of property, plant and equipment............... (37,366) (19,090) (34,847) Sales of property, plant and equipment................... 5,099 2,599 4,448 Acquisitions, net of cash acquired....................... (8,518) (37,288) -------- -------- -------- NET CASH USED BY INVESTING ACTIVITIES...................... (32,267) (25,009) (67,687) FINANCING ACTIVITIES Proceeds from the sale of Common Stock................... 2,085 679 2,375 Purchase of Common Stock................................. (4,143) Proceeds from short-term borrowings, maturities greater than three months..................................... 56,405 305 11,674 Payments on short-term borrowings, maturities greater than three months..................................... (59,293) (12,736) Notes payable to banks--net.............................. (5,122) (9,470) (33,416) Proceeds from long-term borrowings....................... 317,669 603,405 287,317 Payment on long-term borrowings.......................... (351,793) (576,445) (212,111) Dividends paid........................................... (8,106) (7,791) (7,756) Other.................................................... 838 (210) 321 -------- -------- -------- NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES........... (47,317) (2,263) 44,261 Effect of exchange rate changes on cash and cash equivalents.............................................. 961 (1,707) 170 -------- -------- -------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........... (9,957) (246) 368 Cash and cash equivalents at beginning of year............. 20,381 20,627 20,259 -------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR................... $ 10,424 $ 20,381 $ 20,627 ======== ======== ======== See notes to consolidated financial statements.
F-10 51 THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA) DECEMBER 31, 1994 NOTE A -- ACCOUNTING POLICIES Principles of Consolidation: The consolidated financial statements include the accounts of The Lincoln Electric Company and its subsidiaries (the "Company") after elimination of all significant intercompany accounts, transactions and profits. Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Inventories: Inventories are valued at the lower of cost or market. For domestic inventories, cost is determined principally by the last-in, first-out (LIFO) method, and for foreign inventories cost is determined by the first-in, first-out (FIFO) method. At December 31, 1994 and 1993, approximately 62% and 60%, respectively, of total inventories were valued using the LIFO method. The excess of current cost over LIFO cost amounted to $51,739 at December 31, 1994 and $48,876 at December 31, 1993. During 1992, certain LIFO inventories were reduced, resulting in liquidations of LIFO inventory quantities carried at the lower costs of prior years, as compared with their 1992 costs. The effect of these liquidations was to reduce the 1992 net loss after tax, by $1,018 ($.09 per share). Property, Plant and Equipment: Property, plant and equipment, including facilities and equipment under capital leases (not material), are stated at cost and include improvements which significantly extend the useful lives of existing plant and equipment. Depreciation and amortization are computed by both accelerated and straight-line methods. Research and Development: Research and development costs, which are expensed as incurred, were $18,473 in 1994, $19,210 in 1993 and $19,364 in 1992. Goodwill: The excess of the purchase price over the fair value of net assets acquired (goodwill) is amortized by the straight-line basis over periods not exceeding 40 years. Amounts are stated net of accumulated amortization of $5,784 and $2,363 in 1994 and 1993, respectively. The carrying value of goodwill is reviewed if facts and circumstances indicate a potential impairment of carrying value utilizing relevant cash flow and profitability information. Translation of Foreign Currencies: For subsidiaries in countries which do not have highly inflationary economies, asset and liability accounts are translated into U.S. dollars using exchange rates in effect at the balance sheet date and revenue and expense accounts are translated at average monthly exchange rates. Translation adjustments are reflected as a component of shareholders' equity. For subsidiaries in countries with highly inflationary economies (Venezuela and Brazil) inventories, property, plant and equipment and related depreciation are translated into U.S. dollars at historical exchange rates. Other asset and liability accounts are translated at exchange rates in effect at the balance sheet date and revenues and expenses, excluding depreciation, are translated at average monthly exchange rates. Translation adjustments for these subsidiaries, as well as transaction gains and losses of all other subsidiaries, are included in the statements of consolidated operations in distribution cost/selling, general & administrative expenses. The Company recorded transaction losses of $3,746 in 1994, $228 in 1993 and $859 in 1992. The increase in transaction losses in 1994 is attributable to the effect of the devaluation of the Mexican peso on a U.S. dollar denominated debt obligation. F-11 52 THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE A -- ACCOUNTING POLICIES -- (CONTINUED) Financial Instruments: The Company on a limited basis has used forward exchange contracts to hedge exposure to exchange rate fluctuations on anticipated future purchase and sales transactions and certain intercompany transactions. Any contracts that are entered into are written on a short-term basis, are not held for trading purposes, and are not held for purposes of speculation. Gains and losses on forward exchange contracts described herein are recognized in the statements of consolidated operations in the periods the exchange rates change. At December 31, 1994, the Company had no outstanding forward exchange contracts. Accounting Change: Effective January 1, 1993, the Company adopted FASB Statement No. 109, "Accounting for Income Taxes." Under Statement No. 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Prior to the adoption of Statement No. 109, income tax expense was determined using the deferred method under which deferred tax expense was based on items of income and expense that were reported in different years in the financial statements and tax returns and were measured at the tax rate in effect in the year the difference originated. As permitted by Statement No. 109, the Company elected not to restate the financial statements of any prior year. The cumulative effect of the change decreased the net loss for 1993 by $2,468 or $.23 per share. Net Income (Loss) per Share: Net income (loss) per share is based on the average number of all shares outstanding during the year (10,969,991 in 1994; 10,851,991 in 1993 and 10,796,410 in 1992). Other: Included in Distribution cost/selling, general & administrative expenses are the costs related to the Company's discretionary employee bonus ($68,370 in 1994; $61,883 in 1993; and $55,282 in 1992.) Notes receivable from employees are secured by Company Common Stock owned by the employee. Reclassification: Certain reclassifications have been made to prior year financial statements to conform to current year classifications. NOTE B -- SHAREHOLDERS' EQUITY The Lincoln Electric Company Employees' Stock Purchase Plan ("Plan") which provided that employees could purchase shares of the Company's Common Stock, when offered, at its estimated fair value, was terminated by the Board of Directors in February 1995 effective March 30, 1995. Under the Plan, the Company had the option to repurchase the shares, but in 1992 the Company suspended the repurchase of all shares and the employees were permitted to sell their shares on the open market. Upon termination of the Plan, all shares issued under the Plan (1,639,686) became unrestricted shares. The Lincoln Electric Company 1988 Incentive Equity Plan ("Incentive Equity Plan") provides for the award or sale of Common Stock to officers and other key employees of the Company and its subsidiaries. Distribution of shares is based on certain specified performance and other conditions being satisfied. As a result of conditions being fulfilled in 1991 with respect to certain of the Company's subsidiaries, the Company awarded 32,524 shares (including 524 shares issued for dividends accrued during the deferral period) of which 10,660 shares were distributed in 1992, 11,510 shares in 1993, and 10,354 shares in 1994. These shares, along with 15,000 shares issued to a former officer of the Company, are restricted as to resale rights with the Company having a right of first refusal at a purchase price based on the book value of the shares. Additionally, in 1994, 15,000 shares were issued to certain officers of the Company. Such shares vest equally over a three-year period, commencing in 1995 and ending in 1997. At December 31, 1994, there were no other outstanding awards under the Plan, and 952,476 shares are reserved for future issuance under the Incentive Equity Plan. F-12 53 THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE B -- SHAREHOLDERS' EQUITY -- (CONTINUED) The Lincoln Electric Company Employee Stock Ownership Plan (the "ESOP") is a non-contributory profit-sharing plan established to provide deferred compensation benefits for all eligible employees. The cost of the plan is borne by the Company through contributions to an employee stock ownership trust as determined annually by the Board of Directors. In May 1989, shareholders authorized 2,000,000 shares of Class A Common Stock ("Class A Common Stock"), without par value. The Company's Common Stock and Class A Common Stock are identical in all respects, except that holders of Class A Common Stock are subject to certain transfer restrictions and the Class A Common Stock is only issued to the ESOP. In 1994, no shares of stock were issued to the ESOP. In 1993, the Company issued 49,220 shares (92,680 shares in 1992) to the ESOP with an estimated fair value of $916 ($2,060 in 1992) which was recorded as compensation expense. The difference between the total stated capital amount of $.20 per share and the estimated fair value was recorded as additional paid-in-capital. At December 31, 1994 and 1993, 1,500,160 authorized but unissued shares are available for future issuance to the ESOP. NOTE C -- RESTRUCTURING CHARGES In 1993, the Company substantially completed the formulation of its plan, which was subsequently implemented principally in 1994, to downsize and streamline its foreign operations (primarily in Europe) and close manufacturing facilities in Germany, Japan and South America. Management's decisions resulted in a restructuring charge for 1993 of $70,100 ($40,900 after tax or $3.77 per share) which was comprised of (1) asset write-downs in the amount of $45,900 including goodwill of $8,900; (2) severance and other redundancy costs of $27,500; and (3) a net credit of $3,300 comprised of a claim settlement and other restructuring liabilities including estimated losses through the final facility closing dates in 1994. In 1992, the Company recorded a restructuring charge of $23,900 (without tax benefit, or $2.21 per share) as a result of decisions by management at that time to downsize and streamline certain foreign operations (principally in Europe). This charge was primarily for severance pay, redundancies and other liabilities relating to the reorganization of the sales and distribution operations in Europe. In 1994, all of the planned facility closings were completed and one of the facilities was disposed of. In total, approximately 1,400 employees were terminated as a result of the 1992 and 1993 restructuring programs. In 1994 the restructuring accruals were adjusted to reflect management's current cost estimates to complete the program which resulted in a credit to income of $2,735. Included in property, plant and equipment, are facilities held for sale with a net carrying value of $4,700. The remaining expenditures, which include costs related to the sale of real estate and holding costs to be incurred through the estimated date of disposal, are anticipated to be incurred in 1995 and 1996. F-13 54 THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE D -- SHORT-TERM AND LONG-TERM DEBT
1994 1993 -------- -------- Short-term debt: Notes payable to banks at interest rates from 5.6625% to 11.25% (4.125% to 23.25% in 1993)........................ $ 15,843 $ 23,198 ======== ======== Long-term debt: Multi-currency Credit Agreement, due October 1, 1997........ $100,947 $126,457 8.98% Senior Note due 2003 (equal annual principal payments commencing in 1996)...................................... 75,000 75,000 Other borrowings due through 2023, interest at 2.00% to 13.74% (3.00% to 13.74% in 1993)......................... 21,156 25,658 -------- -------- $197,103 $227,115 Less current portion........................................ 2,272 10,200 -------- -------- Total .............................................. $194,831 $216,915 ======== ========
In October 1994, the Company amended its unsecured, multi-currency Credit Agreement with ten banks and reduced its committed line under the Credit Agreement from $230,000 to $200,000 which the Company believes is sufficient to meet future financing needs. Under the terms of the amended agreement which expires October 1, 1997, but provides for a mechanism for annual extensions, the interest rate on outstanding borrowings is determined based upon defined leverage rates for the pricing option selected. The interest rate can range from the LIBOR plus .375% to LIBOR plus 1.125% depending upon the defined leverage rate. The agreement also provides for commitment fees ranging from .2% to .375% per annum on the unused credit lines based upon the defined leverage rate. Prior to the amendment, the interest rates ranged from LIBOR plus 1% to LIBOR plus 2%, and the commitment fees were from .375% to .5%. Simultaneously, with the signing of the Credit Agreement, the $75,000 8.98% Senior Note due in 2003 was amended to change the financial covenants to conform with the financial covenants of the amended Credit Agreement, which requires a 1.35 to 1 consolidated current ratio and the maintenance of consolidated tangible net worth of $125,000 plus 50% of net income subsequent to January 1, 1995. In addition, there are requirements with respect to interest coverage and funded debt to capital ratios (.60 to 1 decreasing to .50 to 1 after December 31, 1995), and limitations on capital expenditures. Purchases of unrestricted stock and the payment of dividends are limited to 50% of cumulative net income from January 1, 1993, plus $25,000. At December 31, 1994, the Company was in compliance with all of its financial covenants and $13,800 was available for dividends and the purchase of unrestricted stock. The limitations on capital expenditures, purchases of unrestricted common stock and payment of dividends can be waived based on the achievement of a certain interest coverage ratio for three consecutive quarters. Maturities of long-term debt for the five years succeeding December 31, 1994 are $2,272 in 1995, $10,652 in 1996, $120,884 in 1997, $9,861 in 1998; $9,612 in 1999 and $43,822 thereafter. At December 31, 1994, certain loans ($7,900) were collateralized by property and equipment. Interest expense capitalized to property, plant and equipment was $244 in 1994, $71 in 1993 and $320 in 1992. Total interest paid was $17,400 in 1994, $19,000 in 1993 and $17,500 in 1992. Weighted average interest rates on notes payable to banks at December 31, 1994 and 1993 were 6.8% and 9.1%, respectively. In 1992, the Company terminated an interest rate swap agreement with a notional borrowing amount of $75,000 and received $2,586 which was amortized ($904 in 1994; $986 in 1993 and $696 in 1992) over the original swap term as a yield adjustment to interest expense on the underlying $75,000 debt. F-14 55 THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE D -- SHORT-TERM AND LONG-TERM DEBT -- (CONTINUED) In connection with the expansion of its motor plant, the Company received in 1994 $6,000 of low interest rate loans from certain governmental entities. The Company also received in 1994 $1,750 of government grants which were recorded as a reduction in property, plant and equipment. NOTE E -- INCOME TAXES The components of income (loss) before income taxes and cumulative effect of accounting change are as follows:
1994 1993 1992 ------- -------- -------- U.S.................................................. $70,703 $ 43,345 $ 24,120 Non-U.S.............................................. 9,465 (90,295) (58,550) ------- -------- -------- Total...................................... $80,168 $(46,950) $(34,430) ======= ======== ========
Components of income tax expense (benefit) are as follows:
DEFERRED LIABILITY METHOD METHOD -------------------- -------- 1994 1993 1992 -------- -------- -------- Current: Federal........................................... $ (8,379) $ 21,032 $ 8,295 Non-U.S........................................... 4,143 2,227 1,310 State and local................................... 4,534 2,828 1,227 -------- -------- -------- 298 26,087 10,832 Deferred: Federal........................................... 31,223 (32,980) 1,232 Non-U.S........................................... 639 479 (694) -------- -------- -------- 31,862 (32,501) 538 -------- -------- -------- Total..................................... $ 32,160 $ (6,414) $ 11,370 ======== ======== ========
The components of the provision for deferred income taxes for 1992 were as follows: Inventory adjustments........................................... $ 201 Incentive equity plan........................................... 87 Depreciation.................................................... 204 Other asset adjustments......................................... (88) Pension adjustments............................................. (299) Employee stock ownership plan................................... (149) Other........................................................... 582 ----- Total................................................. $ 538 =====
F-15 56 THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE E -- INCOME TAXES -- (CONTINUED) The differences between total income tax expense (benefit) and the amount computed by applying the statutory Federal income tax rate to income (loss) before income taxes and cumulative effect of accounting change are as follows:
DEFERRED LIABILITY METHOD METHOD ------------------- -------- 1994 1993 1992 ------- -------- -------- Statutory rate applied............................... 35% 35% 34% to pre-tax income (loss)........................... $28,059 $(16,432) $(11,706) Effect of state and local income taxes, net of Federal tax benefit................................ 2,947 1,838 810 Differences in income taxes on non-U.S. earnings and remittances........................................ (1,158) 336 (502) Non-U.S. losses and unrecognized tax benefits........ 2,113 8,308 22,650 Foreign Sales Corporation............................ (838) (703) (630) Other -- net......................................... 1,037 239 748 ------- -------- -------- Total...................................... $32,160 $ (6,414) $ 11,370 ======= ======== ========
Total income tax payments, net of refunds, were $6,115 in 1994, $19,400 in 1993 and $16,500 in 1992. At December 31, 1994, the Company's foreign subsidiaries have net operating loss carryforwards of approximately $61,100 which expire in various years from 1995 through 2002, except for $5,000 for which there is no expiration date. Significant components of the Company's deferred tax assets and liabilities at December 31, 1994 and 1993, are as follows:
1994 1993 -------- -------- Deferred tax assets: Net operating loss carryforwards........................... $ 20,015 $ 15,709 Restructuring activities................................... 33,446 Inventory adjustments...................................... 3,274 2,772 Other accrual accounts..................................... 4,273 1,685 Employee benefits.......................................... 1,269 (172) Other asset adjustments.................................... 3,350 3,245 Pension adjustments........................................ 2,417 2,085 Other deferred tax assets.................................. 2,844 7,406 -------- -------- 37,442 66,176 Valuation allowance........................................ (18,987) (15,709) -------- -------- 18,455 50,467 Deferred tax liabilities: Depreciation............................................... (8,136) $ (3,390) Pension adjustments........................................ (2,690) (618) Other deferred tax liabilities............................. (2,659) (9,627) -------- -------- (13,485) (13,635) -------- -------- Total.............................................. $ 4,970 $ 36,832 ======== ========
F-16 57 THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE E -- INCOME TAXES -- (CONTINUED) Income taxes currently payable amounted to approximately $10,100 and $12,200 at December 31, 1994 and 1993, respectively. The Company does not provide deferred income taxes on unremitted earnings of foreign subsidiaries as such funds are deemed permanently reinvested to finance foreign expansion and meet operational needs on an ongoing basis. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes subject to an adjustment for foreign tax credits and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its calculation; however, unrecognized non-U.S. tax credits and non-U.S. withholding taxes paid upon distribution would be available to reduce some portion of the U.S. liability. NOTE F -- RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS The Company and its subsidiaries maintain a number of defined benefit and defined contribution plans to provide retirement benefits for their employees in the United States as well as their employees in foreign countries. These plans are maintained and contributions are made in accordance with the Employee Retirement Income Security Act of 1974, local statutory law or as determined by the Board of Directors. The plans generally provide benefits based upon years of service and compensation. Pension costs accrued are funded except for the cost associated with a supplemental employee retirement plan for certain key employees. A summary of the components of total pension expense is as follows:
1994 1993 1992 -------- -------- -------- U.S. Plans: Service cost -- benefits earned during the year.......... $ 7,155 $ 6,115 $ 5,571 Interest cost on projected benefit obligation............ 19,601 18,158 17,207 Actual return on plan assets............................. (18,795) (19,569) (16,812) Net amortization and deferral............................ (528) 1,441 (1,404) -------- -------- -------- Net pension cost of defined benefit plans................ 7,433 6,145 4,562 Defined contribution plans............................... 258 193 225 -------- -------- -------- Total U.S. plans................................. 7,691 6,338 4,787 Non-U.S. Plans: Service cost -- benefits earned during the year.......... 1,524 1,422 1,555 Interest cost on projected benefit obligation............ 2,207 2,253 2,472 Actual return on plan assets............................. (932) (4,506) (2,800) Net amortization and deferral............................ (1,717) 2,000 289 -------- -------- -------- Net pension cost of defined benefit plans................ 1,082 1,169 1,516 Defined contribution plans............................... 702 1,326 905 -------- -------- -------- Total Non-U.S. plans............................. 1,784 2,495 2,421 -------- -------- -------- Total pension expense............................ $ 9,475 $ 8,833 $ 7,208 ======== ======== ========
F-17 58 THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE F -- RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS -- (CONTINUED) The funded status of the U.S. and Non-U.S. plans at December 31, 1994 and 1993 is as follows:
U.S. NON-U.S. --------------------- --------------------- 1994 1993 1994 1993 -------- -------- -------- -------- Actuarial present value of accumulated benefit obligations: Vested..................................... $218,754 $222,588 $ 24,902 $ 23,881 Nonvested.................................. 9,797 8,463 881 1,136 -------- -------- -------- -------- $228,551 $231,051 $ 25,783 $ 25,017 ======== ======== ======== ======== Actuarial present value of projected benefit obligations................................... $258,661 $254,295 $ 29,020 $ 28,396 Plan assets at fair value....................... 243,802 228,014 32,272 28,191 -------- -------- -------- -------- Excess of projected benefit obligations over plan assets................................... (14,859) (26,281) 3,252 (205) Unrecognized net (gain) loss............... 155 13,788 (1,410) (1,593) Unrecognized prior service cost............ 13,839 10,835 389 540 Unrecognized net assets at January 1, 1994 and 1993, net of amortization............ (2,910) (3,239) (1,519) (1,449) Minimum Liability.......................... (2,183) (480) (351) -------- -------- -------- -------- Accrued retirement annuity expense recognized in the balance sheet.......... $ (5,958) $ (4,897) $ 232 $ (3,058) ======== ======== ======== ========
The decrease in the actuarial present value of accumulated benefit obligations ("ABO") for the U.S. plans is largely due to the change in the discount rate from 7.5% to 8.25%, offset by the addition of a new non-qualified Supplemental Executive Retirement Plan, as well as the normal one year's additional accrual of benefit under all plans. In addition, the increase in the ABO for the foreign plans is largely due to the restructuring of some of the plans, as well as the normal one year's accrual of additional benefits, offset by a change in the weighted average discount rate from 7.5% to 8.2% in 1994. Assumptions used in accounting for the defined benefit plans as of December 31, 1994 and 1993 for both the U.S. and Non-U.S. plans were as follows:
U.S. NON-U.S. PLANS PLANS ------------- ------------- 1994 1993 1994 1993 ---- ---- ---- ---- Weighted-average discount rates............................... 8.25% 7.5 % 8.2 % 7.5 % Projected rates of increase in compensation................... 5.50% 4.1 % 4.8 % 4.2 % Expected rates of return on plan assets....................... 9.00% 9.0 % 8.5 % 9.1 %
Plan assets for the U.S. plans consist principally of deposit administration contracts and an investment contract with an insurance company. Other assets held by the U.S. plans not under insurance contracts are invested in equity and fixed income securities. Plan assets for the non-U.S. plans are invested in non-U.S. insurance contracts and non-U.S. equity and fixed income securities. The Company does not have and does not provide for any postretirement or postemployment benefits other than pensions. F-18 59 THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE F -- RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS -- (CONTINUED) The Cleveland, Ohio area operations have a Guaranteed Continuous Employment Plan covering substantially all employees, which, in general, provides that the Company will provide work for at least 75% of every standard work week (presently 40 hours). This plan does not guarantee employment when the Company's ability to continue normal operations is seriously restricted by events beyond the control of the Company. The Company has reserved the right to terminate this plan effective at the end of a calendar year by giving notice of such termination not less than six months prior to the end of such year. NOTE G -- INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION The Company's primary business is the design, manufacture and sale, in the domestic and international markets of arc and other welding products and related gases used in the welding process. The Company also designs, manufactures and sells integral horsepower industrial electric motors. Financial information by geographic areas follows:
UNITED OTHER STATES EUROPE COUNTRIES ELIMINATIONS TOTAL -------- -------- --------- ------------ -------- 1994: Net sales to unaffiliated customers................. $641,607 $156,803 $108,194 $ $906,604 Inter-geographic sales....... 40,876 10,558 7,060 (58,494) -- -------- -------- --------- ------------ -------- Total................ $682,483 $167,361 $115,254 $(58,494) $906,604 ======== ======== ======== =========== ======== Pre-tax profit (loss)........ $ 71,650 $ 3,945 $ 5,520 $ (947) $ 80,168 Identifiable assets.......... 350,012 165,722 76,129 (35,006) 556,857 1993: Net sales to unaffiliated customers................. $543,458 $211,268 $ 91,273 $ $845,999 Inter-geographic sales....... 29,077 6,663 4,806 (40,546) -- -------- -------- --------- ------------ -------- Total................ $572,535 $217,931 $ 96,079 $(40,546) $845,999 ======== ======== ======== =========== ======== Pre-tax profit (loss)........ $ 42,570 $(68,865) $(22,903 ) $ 2,248 $(46,950) Identifiable assets.......... 389,247 172,136 69,871 (71,711) 559,543 1992: Net sales to unaffiliated customers................. $487,145 $275,520 $ 90,342 $ $853,007 Inter-geographic sales....... 30,466 6,811 4,944 (42,221) -- -------- -------- --------- ------------ -------- Total................ $517,611 $282,331 $ 95,286 $(42,221) $853,007 ======== ======== ======== =========== ======== Pre-tax profit (loss)........ $ 24,860 $(52,828) $ (7,183 ) $ 721 $(34,430) Identifiable assets.......... 294,730 246,457 86,839 (24,679) 603,347
Intercompany sales between geographic regions are accounted for at prices comparable to normal, customer sales and are eliminated in consolidation. Export sales (excluding intercompany sales) from the United States were $64,400 in 1994, $58,100 in 1993 and $67,100 in 1992. F-19 60 THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE H -- ACQUISITIONS In June 1993, the Company purchased the outstanding minority interest in its subsidiary in Spain for approximately $8,500. In January and May of 1992, respectively, the Company purchased the remaining 29 percent interest in Lincoln Norweld and a small Mexican company for an aggregate of $37,300. These transactions were accounted for as purchases and their results of operations and the increased interest in their results of operations, were included in the consolidated statements of operations from the respective transaction dates. NOTE I -- FAIR VALUES OF FINANCIAL INSTRUMENTS The Company has various financial instruments, including cash, cash equivalents and short and long-term debt. The Company has determined the estimated fair value of these financial instruments by using available market information and appropriate valuation methodologies which require judgment. Accordingly, the use of different market assumptions or estimation methodologies could have a material effect on the estimated fair value amounts. The Company believes the carrying values of its financial instruments approximate their fair value. NOTE J -- OPERATING LEASES The Company leases sales offices, warehouses, office equipment and data processing equipment. Such leases, some of which are noncancellable, and in many cases, include renewals, expire at various dates. The Company pays most maintenance, insurance and tax expenses relating to leased assets. Rental expense was $9,226 in 1994, $9,864 in 1993 and $9,840 in 1992. At December 31, 1994, total minimum lease payments for noncancellable operating leases are as follows: 1995 $ 8,624 1996 6,855 1997 4,626 1998 3,887 1999 2,723 Thereafter 4,176 ------- Total $30,891 =======
NOTE K -- CONTINGENCIES The Company and its subsidiaries are involved in various litigation in the ordinary conduct of its business. Based on information known to the Company, Management believes the outcome of all pending litigation will not have a material effect upon the financial position of the Company. F-20 61 THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE L -- QUARTERLY FINANCIAL DATA (UNAUDITED)
1994 MAR 31 JUN 30 SEP 30 DEC 31 - --------------------------------------------- -------- -------- -------- --------- Net sales.................................... $210,525 $234,173 $230,752 $ 231,154 Gross profit................................. 81,966 90,316 89,904 88,159 Income before income taxes................... 17,785 21,494 21,499 19,390(a) Net income................................... 10,407 12,307 11,669 13,625(a) Net income per share......................... $ 0.96 $ 1.12 $ 1.06 $ 1.24 1993 MAR 31 JUN 30 SEP 30 DEC 31 - --------------------------------------------- -------- -------- -------- --------- Net sales.................................... $211,168 $215,441 $209,173 $ 210,217 Gross profit................................. 79,756 79,415 80,300 73,733 Income (loss) before income taxes and cumulative effect of accounting change..... 10,106 7,167 10,459 (74,682)(c) Income (loss) before cumulative effect of accounting change.......................... 4,806 995 3,706 (50,043)(c) Net income (loss)............................ 7,274(b) 995 3,706 (50,043)(c) Per share data: Income (loss) before cumulative effect of accounting change.......................... $ 0.44 $ 0.09 $ 0.34 $ (4.61) Net income (loss)............................ $ 0.67 $ 0.09 $ 0.34 $ (4.61) - --------------- (a) - Includes $2,500 of net adjustments to various expense accruals and $3,140 for the devaluation of the Mexican peso, offset partially by net favorable inventory adjustments of $1,900 and adjustments to restructuring accruals of $3,235. Also includes a favorable $2,000 adjustment to income taxes to reflect the annual effective income tax rate. (b) - The first quarter of 1993 includes an increase in net income of $2,468 ($.23 per share) for the cumulative effect on prior years for a change in accounting principle effective January 1, 1993. (c) - Includes a $70,100 ($40,900 after tax or 3.77 per share) charge for restructuring and other pretax adjustments of $6,365.
F-21 62
============================================================================== NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS, OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE CLASS A COMMON SHARES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN A CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ------------------------ TABLE OF CONTENTS PAGE ---- Available Information................... 2 Incorporation of Certain Documents by Reference................ 2 Prospectus Summary...................... 3 Investment Considerations............... 7 The Company............................. 10 Use of Proceeds......................... 11 Dividend Policy......................... 11 Capitalization.......................... 12 Selected Consolidated Financial Data.... 13 Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 15 Business................................ 19 Management.............................. 27 Selling Shareholders.................... 29 Description of Capital Stock............ 30 Underwriting............................ 35 Legal Matters........................... 36 Experts................................. 36 Index to Consolidated Financial Statements............................ F-1 ============================================================================== ============================================================================== SHARES [LOGO] THE LINCOLN ELECTRIC COMPANY CLASS A COMMON SHARES ------------------------ PROSPECTUS ------------------------ MERRILL LYNCH & CO. J.P. MORGAN SECURITIES INC. MCDONALD & COMPANY SECURITIES, INC. , 1995 ==============================================================================
63 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following is a list of the estimated expenses to be incurred by the Company in connection with the issuance and distribution of the Class A Common Shares being registered hereby, other than underwriting discounts and commissions. Such expenses will be borne by the Company and the Selling Shareholders in proportion to the number of Class A Common Shares offered by each. Securities and Exchange Commission registration fee............. $44,828 National Association of Securities Dealers, Inc. filing fee..... 13,500 Transfer Agent's and Registrar's fees........................... * Printing and engraving costs.................................... * Accounting fees and expenses.................................... * Legal fees and expenses (not including Blue Sky)................ * Blue Sky fees and expenses...................................... * Miscellaneous expenses.......................................... * ------- Total........................................................... $ * ======= - --------------- * To be filed by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Under certain circumstances provided in Article IV of the Company's Amended and Restated Code of Regulations, as amended, and subject to Section 1701.13 of the Ohio Revised Code (which sets forth certain conditions and limitations governing the indemnification of officers, directors and other persons), the Company will indemnify any director or officer or any former director or officer of the Company to the fullest extent permitted by Ohio law for claims arising because he is or was such director or officer of the Company or served in certain capacities at the request of the Company in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative. A copy of Article IV of the Company's Amended and Restated Code of Regulations, as amended, is included herein as Exhibit 4.2. The Company has entered into indemnity agreements (the "Indemnity Agreements") with the current directors of the Company and expects to enter into similar agreements with any director elected or appointed in the future at the time of their election or appointment. Pursuant to the Indemnity Agreements, the Company will, upon the authorization by either a majority of disinterested directors (or a legal opinion in the absence of a quorum), shareholders or a judicial body, indemnify a director of the Company (the "Indemnitee") if the Indemnitee is a party to any threatened, completed or pending legal proceeding by reason of the fact that the Indemnitee is or was a director of the Company, or is or was serving at the request of the Company in certain capacities with another entity, against all expenses, judgments, settlements and fines, actually and reasonably incurred by the Indemnitee in connection with the defense or settlement of such proceeding. Indemnification will not be available if it is proved by clear and convincing evidence that the Indemnitee's action or failure to act involved an act or omission undertaken with deliberate intent to cause injury to the Company or undertaken with reckless disregard for the best interests of the Company. Indemnification in criminal actions will only be available if the Indemnitee had no reasonable cause to believe his conduct was unlawful. The same coverage is provided whether or not the suit or proceeding is brought by or in the right of the Company, except that no II-1 64 indemnification will be made for any action in which the only liability asserted against the Indemnitee is pursuant to Section 1701.95 of the Ohio Revised Code. The Indemnity Agreements provide that in addition to the indemnification provisions in the proceeding paragraph the Company will, absent a procedural determination by a majority of the directors that the Indemnitee is not entitled to indemnification, indemnify the Indemnitee against any amount which he is or becomes obligated to pay relating to or arising out of any claim against him because of an act, failure to act or neglect or breach of duty, including any actual or alleged error, misstatement or misleading statement, which he commits, suffers, permits or acquiesces in while acting in his capacity as a director. The Company will not be obligated to make any payment in connection with any claim against the Indemnitee to the extent of any fine or similar governmental imposition which the Company is prohibited by law from paying or to the extent such claim is based upon the Indemnitee having actually realized a personal gain or profit to which he was not legally entitled, including without limitation profit from transactions which are recoverable or effected by Sections 16(b) and 10(b) of the Exchange Act, or Rule 10b-5 promulgated thereunder. The Indemnity Agreements mandate advancement of expenses to the Indemnitee if the Indemnitee provides the Company with a written promise to repay the advanced amounts in the event that it is determined that the conduct of the Indemnitee has not met the applicable standard of conduct. In addition, the Indemnity Agreements provide various procedures and presumptions in favor of the Indemnitee's right to receive indemnification under the Indemnity Agreement. Reference is made to Section 6 of the Underwriting Agreements (Exhibit 1 to this Registration Statement) which provides for indemnification of the Company's officers, directors and controlling persons by the Underwriters against certain civil liabilities, including liabilities under the Securities Act. Under the Company's director and officer liability insurance policy, each director and certain officers of the Company are insured against certain liabilities. II-2 65 ITEM 16. EXHIBITS. The following Exhibits are filed herewith and made a part hereof:
PAGINATION BY EXHIBIT SEQUENTIAL NUMBER DESCRIPTION OF EXHIBIT NUMBERING SYSTEM - ------ ----------------------------------------------------------------- ----------------- 1 Form of the Purchase Agreement. 4.1 Form of Amended and Restated Articles of Incorporation of The Lincoln Electric Company, as amended. 4.2 Form of Amended and Restated Code of Regulations of The Lincoln Electric Company, as amended. 4.3 Note Agreement dated November 20, 1991 between The Prudential Insurance Company of America and the Company (filed as Exhibit 4 to Form 10-K of The Lincoln Electric Company for the year ended December 31, 1991, SEC File No. 0-1402 and incorporated by reference and made a part hereof), as amended by letter dated March 18, 1993; 8.98% Senior Note Due November 26, 2003 (filed as Exhibit 4(a) to Form 10-K of The Lincoln Electric Company for the year ended December 31, 1992, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof); as further amended by letter dated as of November 19, 1993; 8.98% Senior Note Due November 26, 2003 (filed as Exhibit 4(a) to Form 10-K of The Lincoln Electric Company for the year ended December 31, 1993, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof), and as further amended by letter dated October 31, 1994 (filed as Exhibit 4(a) to Form 10-Q of The Lincoln Electric Company for the period ended September 30, 1994, SEC File No. 0-1402 and incorporated herein by reference and made a part of hereof). 4.4 Credit Agreement dated March 18, 1993 among the Company, the Banks listed on the signature page thereof, and Society National Bank, as Agent (filed as Exhibit 4(b) to Form 10-K of The Lincoln Electric Company for the year ended December 31, 1992, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof), as amended by Amendment No. 1 to Credit Agreement dated November 19, 1993; 8.98% Senior Note Due November 26, 2003 (filed as Exhibit 4(b) to Form 10-K of The Lincoln Electric Company for the year ended December 31, 1993, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof), and as further amended by Amendment No. 2 to Credit Agreement dated October 31, 1994 (filed as Exhibit 4(b) to Form 10-Q of The Lincoln Electric Company for the period ended September 30, 1994, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof). *5 Opinion of Jones, Day, Reavis & Pogue. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of Price Waterhouse. 23.3 Consent of KPMG Klynveld Peat Marwick Goerdeler. 23.4 Consent of KPMG Accountants N.V. *23.5 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5). 24 Powers of Attorney. - --------------- * To be filed by Amendment
II-3 66 ITEM 17. UNDERTAKINGS. The undersigned Company hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Company's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Company hereby undertakes that: (1) For the purpose of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide public offering thereof. II-4 67 SIGNATURES Pursuant to the requirements of the Securities Act, the Company certifies that it has reasonable grounds to believe that it meets the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cleveland, State of Ohio, on April 27, 1995. THE LINCOLN ELECTRIC COMPANY By: /s/ H. JAY ELLIOTT -------------------------------- H. Jay Elliott Vice President, Chief Financial Officer and Treasurer Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE ----------- ------- ------ * DONALD F. HASTINGS Chairman of the Board, President April 27, 1995 - ---------------------------------------- and Chief Executive Officer Donald F. Hastings (Principal Executive Officer) * FREDERICK W. MACKENBACH President, Chief Operating Officer, April 27, 1995 - ---------------------------------------- and Director Frederick W. Mackenbach * HARRY CARLSON Vice Chairman April 27, 1995 - ---------------------------------------- Harry Carlson * DAVID H. GUNNING Director April 27, 1995 - ---------------------------------------- David H. Gunning * EDWARD E. HOOD, JR. Director April 27, 1995 - ---------------------------------------- Edward E. Hood, Jr. * PAUL E. LEGO Director April 27, 1995 - ---------------------------------------- Paul E. Lego * HUGH L. LIBBY Director April 27, 1995 - ---------------------------------------- Hugh L. Libby * DAVID C. LINCOLN Director April 27, 1995 - ---------------------------------------- David C. Lincoln * EMMA S. LINCOLN Director April 27, 1995 - ---------------------------------------- Emma S. Lincoln * G. RUSSELL LINCOLN Director April 27, 1995 - ---------------------------------------- G. Russell Lincoln II-5 68 SIGNATURE TITLE DATE ----------- -------- ------- * HENRY L. MEYER III Director April 27, 1995 - ------------------------------------------ Henry L. Meyer III * LAWRENCE O. SELHORST Director April 27, 1995 - ------------------------------------------ Lawrence O. Selhorst * CRAIG R. SMITH Director April 27, 1995 - ------------------------------------------ Craig R. Smith * FRANK STEINGASS Director April 27, 1995 - ------------------------------------------ Frank Steingass /s/ H. JAY ELLIOTT Vice President, Chief Financial April 27, 1995 - ------------------------------------------ Officer and Treasurer (principal H. Jay Elliott financial and accounting officer) * The undersigned, by signing his name hereto, does hereby sign and execute this Registration Statement pursuant to the Powers of Attorney executed by the above-named officers and directors of the Company and which have been filed with the Securities and Exchange Commission on behalf of such officers and directors. /s/ H. JAY ELLIOTT April 27, 1995 - ------------------------------------------ Attorney-in-Fact
II-6 69 EXHIBIT INDEX
PAGINATION BY EXHIBIT SEQUENTIAL NUMBER DESCRIPTION OF EXHIBIT NUMBERING SYSTEM - ------ ----------------------------------------------------------------- ----------------- 1 Form of the Purchase Agreement. 4.1 Form of Amended and Restated Articles of Incorporation of The Lincoln Electric Company, as amended. 4.2 Form of Amended and Restated Code of Regulations of The Lincoln Electric Company, as amended. 4.3 Note Agreement dated November 20, 1991 between The Prudential Insurance Company of America and the Company (filed as Exhibit 4 to Form 10-K of The Lincoln Electric Company for the year ended December 31, 1991, SEC File No. 0-1402 and incorporated by reference and made a part hereof), as amended by letter dated March 18, 1993; 8.98% Senior Note Due November 26, 2003 (filed as Exhibit 4(a) to Form 10-K of The Lincoln Electric Company for the year ended December 31, 1992, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof); as further amended by letter dated as of November 19, 1993; 8.98% Senior Note Due November 26, 2003 (filed as Exhibit 4(a) to Form 10-K of The Lincoln Electric Company for the year ended December 31, 1993, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof), and as further amended by letter dated October 31, 1994 (filed as Exhibit 4(a) to Form 10-Q of The Lincoln Electric Company for the period ended September 30, 1994, SEC File No. 0-1402 and incorporated herein by reference and made a part of hereof). 4.4 Credit Agreement dated March 18, 1993 among the Company, the Banks listed on the signature page thereof, and Society National Bank, as Agent (filed as Exhibit 4(b) to Form 10-K of The Lincoln Electric Company for the year ended December 31, 1992, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof), as amended by Amendment No. 1 to Credit Agreement dated November 19, 1993; 8.98% Senior Note Due November 26, 2003 (filed as Exhibit 4(b) to Form 10-K of The Lincoln Electric Company for the year ended December 31, 1993, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof), and as further amended by Amendment No. 2 to Credit Agreement dated October 31, 1994 (filed as Exhibit 4(b) to Form 10-Q of The Lincoln Electric Company for the period ended September 30, 1994, SEC File No. 0-1402 and incorporated herein by reference and made a part hereof). *5 Opinion of Jones, Day, Reavis & Pogue. 23.1 Consent of Ernst & Young LLP. 23.2 Consent of Price Waterhouse. 23.3 Consent of KPMG Klynveld Peat Marwick Goerdeler. 23.4 Consent of KPMG Accountants N.V. *23.5 Consent of Jones, Day, Reavis & Pogue (included in Exhibit 5). 24 Powers of Attorney. - --------------- * To be filed by Amendment
EX-1 2 EXHIBIT 1 1 Exhibit 1 DRAFT 4/25/95 __________ Shares THE LINCOLN ELECTRIC COMPANY (an Ohio corporation) Class A Common Shares (Without Par Value) PURCHASE AGREEMENT ------------------ __________, 1995 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated J.P. MORGAN SECURITIES INC. MCDONALD & COMPANY SECURITIES, INC. as Representatives of the several Underwriters c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated Merrill Lynch World Headquarters North Tower World Financial Center New York, New York 10281 Dear Sirs: The Lincoln Electric Company, an Ohio corporation (the "Company"), and each of the Shareholders of the Company as named in Schedule B hereto (the "Sellers"), confirm their respective agreements with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc., McDonald & Company Securities, Inc., and each of the other Underwriters named in Schedule A hereto (collectively, the "Underwriters," which term shall also include any underwriter substituted as hereinafter provided in Section 10), for whom Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc. and McDonald & Company Securities, Inc.. are acting as representatives (in such capacity, the "Representatives"), with respect to (i) the sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective number of Class A Common Shares, without par value, of the Company (the "Class A 1 42091330 2 Common Shares") set forth in said Schedule A, (ii) the sale by the Sellers, acting severally and not jointly, and the purchase by the Underwriters, acting severally and not jointly, of the respective number of Class A Common Shares set forth opposite such Seller's name in Schedule B; and (iii) the grant by the Company and the Sellers, acting severally and not jointly, to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of _______ additional Class A Common Shares to cover over-allotments, in each case except as may otherwise be provided in the Pricing Agreement, as hereinafter defined. The aforesaid ____________ Class A Common Shares (the "Initial Securities") to be purchased by the Underwriters and all or any part of the _________ Class A Common Shares subject to the option described in Section 2(b) hereof (the "Option Securities") are collectively hereinafter called the "Securities". Prior to the purchase and public offering of the Securities by the several Underwriters, the Company, the Sellers and the Representatives, acting on behalf of the several Underwriters, shall enter into an agreement substantially in the form of Exhibit A hereto (the "Pricing Agreement"). The Pricing Agreement may take the form of an exchange of any standard form of written telecommunication among the Company, the Sellers and the Representatives and shall specify such applicable information as is indicated in Exhibit A hereto. The offering of the Securities will be governed by this Agreement, as supplemented by the Pricing Agreement. From and after the date of the execution and delivery of the Pricing Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement. The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 33- _____) and a related preliminary prospectus for the registration of the Securities under the Securities Act of 1933 (the "1933 Act"), has filed such amendments thereto, if any, and such amended preliminary prospectuses as may have been required to the date hereof, and will file such additional amendments thereto and such amended prospectuses as may hereafter be required. Such registration statement (as amended, if applicable) and the prospectus constituting a part thereof (including in each case the information, if any, deemed to be part thereof pursuant to Rule 430A(b) of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations")), as from time to time amended or supplemented pursuant to the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act") or otherwise, are hereinafter referred to as the "Registration Statement" and the "Prospectus", respectively, except that if any revised prospectus shall be provided to the Underwriters by the Company for use in connection with the offering of the Securities which differs from the 2 42091330 3 Prospectus on file at the Commission at the time the Registration Statement becomes effective (whether or not such revised prospectus is required to be filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations), the term "Prospectus" shall refer to such revised prospectus from and after the time it is first provided to the Underwriters for such use. All references in this Agreement to financial statements and schedules and other information which is "contained," "included" or "stated" in the Registration Statement or the Prospectus (and all other references of like import) shall be deemed to mean and include all such financial statements and schedules and other information which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be; and all references in this Agreement to amendments or supplements to the Registration Statement or the Prospectus shall be deemed to mean and include the filing of any document under the 1934 Act which is or is deemed to be incorporated by reference in the Registration Statement or the Prospectus, as the case may be. The Company and the Sellers understand that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after the Registration Statement becomes effective and the Pricing Agreement has been executed and delivered. The Company and the Underwriters agree that up to _________ shares of the Securities to be purchased by the Underwriters (the "Reserved Shares") shall be reserved for sale by the Underwriters to certain eligible employees of the Company, as part of the distribution of the Securities by the Underwriters, in accordance with the terms of this Agreement, the applicable rules, regulations and interpretations of the National Association of Securities Dealers, Inc. ("NASD") and all other applicable laws, rules and regulations. To the extent that such Reserved Shares are not so purchased by such eligible employees, such Reserved Shares may be offered to the public as part of the public offering contemplated hereby. SECTION 1. REPRESENTATIONS AND WARRANTIES. (a) The Company represents and warrants to each Underwriter as of the date hereof and as of the date of the Pricing Agreement (such latter date being hereinafter referred to as the "Representation Date") as follows: (i) At the time the Registration Statement becomes effective and at the Representation Date, the Registration Statement will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and will not contain an untrue statement of a material fact 3 42091330 4 or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus, at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been provided to the Underwriters by the Company for use in connection with the offering of the Securities which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective, in which case at the time it is first provided to the Underwriters for such use) and at Closing Time referred to in Section 2 hereof, will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; PROVIDED, HOWEVER, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by any Underwriter through the Representatives expressly for use in the Registration Statement or Prospectus. (ii) The accountants who certified the financial statements and supporting schedules included in the Registration Statement are independent public accountants as required by the 1933 Act and the 1933 Act Regulations. (iii) The financial statements included in the Registration Statement and the Prospectus present fairly the financial position of the Company and its consolidated subsidiaries as of the dates indicated and the results of their operations for the periods specified; except as otherwise stated in the Registration Statement, said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis; and the supporting schedules included in the Registration Statement present fairly the information required to be stated therein. (iv) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, (B) there have been no transactions entered into by the Company or any of its subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its subsidiaries considered as one enterprise, and (C) there 4 42091330 5 has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (v) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Ohio with corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under this Agreement and the Pricing Agreement; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise. (vi) Each subsidiary of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify would not have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise; all of the issued and outstanding capital stock of each such subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and, except as disclosed in the Registration Statement, is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity. (vii) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus under "Capitalization" (except for subsequent issuances, if any, pursuant to this Agreement or pursuant to reservations, agreements or employee benefit plans referred to in the Prospectus); all of the issued and outstanding shares of capital stock of the Company (including the Securities to be sold by the Sellers) have been duly authorized and validly issued and are fully paid and non-assessable; the Securities 5 42091330 6 to be sold by the Company have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth in the Pricing Agreement, will be validly issued and fully paid and non- assessable; the capital stock of the Company conforms to all statements relating thereto contained in the Prospectus; and the issuance of the Securities to be sold by the Company is not subject to preemptive or other similar rights. (viii) Neither the Company nor any of its subsidiaries is in violation of its charter or by-laws or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its subsidiaries is subject; and the execution, delivery and performance of this Agreement and the Pricing Agreement and the consummation of the transactions contemplated herein and therein and compliance by the Company with its obligations hereunder and thereunder have been duly authorized by all necessary corporate action and will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action result in any violation of the provisions of the charter or by-laws of the Company or any applicable law, administrative regulation or administrative or court decree. (ix) No labor dispute with the employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company, is imminent; and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its principal suppliers, manufacturers or contractors which might be expected to result in any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise. (x) There is no action, suit or proceeding before or by any court or governmental agency or body, domestic or 6 42091330 7 foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or any of its subsidiaries, which is required to be disclosed in the Registration Statement (other than as disclosed therein), or which might result in any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, or which might materially and adversely affect the properties or assets thereof or which might materially and adversely affect the consummation of this Agreement; all pending legal or governmental proceedings to which the Company or any subsidiary is a party or of which any of their respective property or assets is the subject which are not described in the Registration Statement, including ordinary routine litigation incidental to the business, are, considered in the aggregate, not material; and there are no contracts or documents of the Company or any of its subsidiaries which are required to be filed as exhibits to the Registration Statement by the 1933 Act or by the 1933 Act Regulations which have not been so filed. (xi) The Company and its subsidiaries own or possess, or can acquire on reasonable terms, the patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks and trade names (collectively, "patent and proprietary rights") presently employed by them in connection with the business now operated by them, and neither the Company nor any of its subsidiaries has received any notice or is otherwise aware of any infringement of or conflict with asserted rights of others with respect to any patent or proprietary rights, or of any facts which would render any patent and proprietary rights invalid or inadequate to protect the interest of the Company or any of its subsidiaries therein, and which infringement or conflict (if the subject of any unfavorable decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would result in any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise. (xii) No authorization, approval or consent of any court or governmental authority or agency is necessary in connection with the offering, issuance or sale of the Securities hereunder, except such as may be required under the 1933 Act or the 1933 Act Regulations or state securities laws. 7 42091330 8 (xiii) The Company and its subsidiaries possess such certificates, authorities or permits issued by the appropriate state, federal or foreign regulatory agencies or bodies necessary to conduct the business now operated by them, and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would materially and adversely affect the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise. (xiv) This Agreement has been, and, at the Representation Date, the Pricing Agreement will have been, duly authorized, executed and delivered by the Company. (xv) There are no persons with registration or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the 1933 Act. (xvi) The Company has obtained and delivered to the Representatives the agreements of the persons named in Schedule C annexed hereto to the effect that each such person will not, for a period of 180 days from the date of the Prospectus, without the prior written consent of the Representatives, sell, offer to sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any of the Company's Common Shares, without par value, or Class A Common Shares (collectively, "Common Equity") or any security convertible or exchangeable into or exercisable for any shares of Common Equity owned by such person or entity or with respect to which such person has the power of disposition. (xvii) The documents incorporated or deemed to be incorporated by reference in the Prospectus, at the time they were or hereafter are filed with the Commission, complied and will comply in all material respects with the requirements of the 1934 Act and the rules and regulations of the Commission under the 1934 Act (the "1934 Act Regulations"), and, when read together with the other information in the Prospectus, at the time the Registration Statement become effective and at the Closing Time, will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 8 42091330 9 (xviii) The Company and its subsidiaries (A) are in compliance with any and all applicable federal, state, local or foreign or other laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants ("Environmental Laws"), (B) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (C) are in compliance with all terms and conditions of any such permit, license or approval, except where such noncompliance with Environmental Law, failure to receive required permits, licenses or other approvals or failure to comply with the terms and conditions of such permits, licenses or approvals would not, singly or in the aggregate, have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise. (xix) The Company has not taken and will not take, directly or indirectly, any action which is designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale of the Securities; and the Company has not distributed and will not distribute any prospectus (as such term is defined in the 1933 Act and the 1933 Act Regulations) in connection with the offering and sale of the Securities other than any preliminary prospectus filed with the Commission or the Prospectus or other material permitted by the 1933 Act or the 1933 Act Regulations. (xx) Neither the Company nor any of its subsidiaries has violated any federal or state law relating to discrimination in the hiring, promotion or pay of employees nor any applicable federal or state wages and hours laws, nor any provisions of the Employee Retirement Income Security Act or the rules and regulations promulgated thereunder, which in each case might have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise. (xxi) The Class A Common Shares have been approved for listing on the National Association of Securities Dealers Automated Quotation System-National Market System. (b) Each of the Sellers, severally and not jointly, represents and warrants to, and agrees with, each Underwriter as of the date hereof and as of the Representation Date, as follows: 9 42091330 10 (i) The execution, delivery and performance of this Agreement and the Pricing Agreement and the consummation of the transactions contemplated herein and therein and compliance by such Seller with its obligations hereunder and thereunder have been duly authorized, where appropriate, by all necessary corporate action and will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of such Seller pursuant to, any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which such Seller is a party or by which it may be bound, or to which any of the property or assets of such Seller is subject, nor will such action result in any violation of the provisions of the charter or by-laws of such Seller or any applicable law, judgement, order, administrative regulation or administrative or court decree. (ii) Such Seller has and will have, at the Closing Time referred to in Section 2(c), good and marketable title to the Securities to be sold by such Seller hereunder, free and clear of any pledge, lien, security interest, encumbrance, claim or equity, created by or arising through the Seller other than pursuant to this Agreement; such Seller has full right, power and authority to sell, transfer and deliver the Securities to be sold by such Seller hereunder; and upon delivery of the Securities to be sold by such Seller hereunder and payment of the purchase price therefor as herein contemplated, each of the Underwriters will receive good and marketable title to its ratable share of the Securities purchased by it from such Seller, free and clear of any pledge, lien, security interest, encumbrance, claim or equity. (iii) Such Seller has duly executed and delivered in the form heretofore furnished by the Underwriters, a power of attorney and custody agreement (the "Power of Attorney and Custody Agreement") with _______________________, as the attorney-in-fact and the custodian (the "Attorney-in-Fact" and the "Custodian", respectively); the Attorney-in-Fact is authorized to execute and deliver this Agreement, the Pricing Agreement and the certificates referred to in Section 5(d) or that may be required pursuant to Section 5(h) on behalf of such Seller, to determine the purchase price to be paid by the Underwriters to such Seller as provided in Section 2(a) hereof, to authorize the delivery of the Securities to be sold by such Seller hereunder, to duly endorse (in blank or otherwise) the certificate or certificates representing such Securities, to accept payment therefor, and otherwise to act on behalf of such Seller in connection with this Agreement and the Pricing Agreement. 10 42091330 11 (iv) All authorizations, approvals and consents necessary for the execution and delivery by such Seller of the Power of Attorney and Custody Agreement, the execution and delivery by or on behalf of such Seller of this Agreement, and the Pricing Agreement, and the sale and delivery of the Securities to be sold by such Seller hereunder and thereunder (other than, at the time of the execution hereof, the issuance of the order of the Commission declaring the Registration Statement effective and such authorizations, approvals or consents as may be necessary under state securities laws), have been obtained and are in full force and effect; and such Seller has the full right, power and authority to enter into this Agreement and the Pricing Agreement and such Power of Attorney and Custody Agreement and to sell, transfer and deliver the Securities to be sold by such Seller hereunder. (v) For a period of 180 days from the date of the Prospectus, such Seller will not, without the prior written consent of the Representatives, sell, offer to sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any shares of Common Equity or any security convertible or exchangeable into or exercisable for Common Equity owned by such Seller or with respect to which such Seller has the power of disposition, other than to the Underwriters pursuant to this Agreement. (vi) Such Seller has not taken, and will not take, directly or indirectly, any action which is designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale of the Securities; and such Seller has not distributed and will not distribute any prospectus (as such term is defined in the 1933 Act and the 1933 Act Regulations) in connection with the offering and sale of the Securities other than any preliminary prospectus filed with the Commission or the Prospectus or other material permitted by the 1933 Act or the 1933 Act Regulations. (vii) Such Seller is not prompted to sell the Class A Common Shares by any information concerning the Company or its subsidiaries that is not set forth in the Prospectus or other documents filed by the Company with the Commission pursuant to the periodic reporting and other information requirements of the 1934 Act. (viii) When the Registration Statement shall become effective, and at all times subsequent thereto up to the Closing Time, such parts of the Registration Statement and any amendments and supplements thereto as specifically refer 11 42091330 12 to the Sellers will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make statements therein, in light of the circumstances under which they were made, not misleading. (ix) Neither such Seller nor any of its affiliates directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, or has any other association with (within the meaning of Article 1, paragraph (m) of the By-laws of the NASD), any member firm of the NASD. (x) Such Seller agrees to deliver to the Representatives at or prior to the Closing Time a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof). [(xii) Certificates in negotiable form for all Securities to be sold by such Seller hereunder have been placed in custody with the Custodian by or for the benefit of such Seller for the purposes or effecting delivery by such Seller hereunder.] (c) Any certificate signed by any officer of the Company and delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Company to each Underwriter as to the matters covered thereby; and any certificate signed by or on behalf of any Seller and delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by such Seller to each Underwriter as to matters covered thereby. SECTION 2. SALE AND DELIVERY TO UNDERWRITERS: CLOSING. (a) On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, (i) the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at the price per share set forth in the Pricing Agreement, that proportion of the number of Initial Securities set forth in Schedule B opposite the name of the Company which the number of Initial Securities, set forth in Schedule A opposite the name of such Underwriter (plus any additional number of Initial Securities that such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof), bears to the total number of Initial Securities; and (ii) each of the Sellers, severally and not jointly, agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from each of the Sellers, severally and not 12 42091330 13 jointly, at such price per share to be paid by the Underwriters to the Company, that proportion of the number of Initial Securities being sold by such Seller set forth in Schedule B opposite the name of such Seller which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter (plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof) bears to the total number of Initial Securities, subject, in each case, to such adjustments as the Underwriters in their discretion shall make to eliminate any sales or purchases of fractional securities. (1) If the Company has elected not to rely upon Rule 430A under the 1933 Act Regulations, the initial public offering price and the purchase price per share to be paid by the several Underwriters for the Securities have each been determined and set forth in the Pricing Agreement, dated the date hereof, and an amendment to the Registration Statement and the Prospectus containing such information will be filed before the Registration Statement becomes effective. (2) If the Company has elected to rely upon Rule 430A under the 1933 Act Regulations, the initial public offering price and the purchase price per share to be paid by the several Underwriters for the Securities shall be determined by agreement among the Representatives, the Company and the Sellers. The initial public offering price and the purchase price, when so determined, shall be set forth in the Pricing Agreement. In the event that such prices have not been agreed upon and the Pricing Agreement has not been executed and delivered by all parties thereto by the close of business on the fourth business day following the date of this Agreement, this Agreement shall terminate forthwith, without liability of any party to any other party, unless otherwise agreed to by the Company, the Sellers and the Representatives. (b) In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company and the Sellers, acting severally and not jointly, hereby grant an option to the Underwriters, severally and not jointly, to purchase up to an additional _________ shares of Common Stock at the price per share set forth in the Pricing Agreement. The option hereby granted will expire 30 days after (i) the date the Registration Statement becomes effective, if the Company has elected not to rely on Rule 430A under the 1933 Act Regulations, or (ii) the Representation Date, if the Company has elected to rely on Rule 430A under the 1933 Act Regulations, and may be exercised in whole or in part from time to time only for the purpose of 13 42091330 14 covering over-allotments which may be made in connection with the offering and distribution of the Initial Securities upon notice by the Representatives to the Company and the Sellers setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date of delivery (a "Date of Delivery") shall be determined by the Representatives, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Time, as hereinafter defined, unless otherwise agreed by the Representatives, the Company and the Sellers. If the option is exercised as to all or any portion of the Option Securities, the Option Securities to be sold by the Company and the Sellers shall be in proportion to the number of Initial Securities being sold by the Company and the Sellers and each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total number of Initial Securities (except as otherwise provided in the Pricing Agreement), subject in each case to such adjustments as the Representatives in their discretion shall make to eliminate any sales or purchases of fractional shares. (c) Payment of the purchase price for, and delivery of certificates for, the Initial Securities shall be made at the office of ______________________, or at such other place as shall be agreed upon by the Company, the Sellers and the Representatives, at 10:00 A.M. on the [fifth] business day (unless postponed in accordance with the provisions of Sections 10 or 11) following the date the Registration Statement becomes effective (or, if the Company has elected to rely upon Rule 430A of the 1933 Act Regulations, the fifth business day after execution of the Pricing Agreement), or such other time not later than ten business days after such date as shall be agreed upon by the Company, the Sellers and the Representatives (such time and date of payment and delivery being herein called "Closing Time"). In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates for, such Option Securities shall be made at the above-mentioned offices of ________________, or at such other place as shall be agreed upon by the Representatives, the Company and the Sellers, on each Date of Delivery as specified in the notice from the Representatives to the Company and the Sellers. Payment shall be made to the Company and the Sellers by certified or official bank check or checks drawn in New York Clearing House funds or similar next day funds payable to the order of the Company and the Custodian pursuant to each Seller's Power of Attorney and Custody Agreement, or directly to each of the Sellers, if so instructed by the Custodian against delivery to the Representatives, for the 14 42091330 15 respective accounts of the Underwriters of certificates for the Securities to be purchased by them. Certificates for the Initial Securities and the Option Securities, if any, shall be in such denominations and registered in such names as the Representatives may request in writing at least two business days before the Closing Time or the relevant Date of Delivery, as the case may be. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and the Option Securities, if any, which it has agreed to purchase. Merrill Lynch, Pierce, Fenner & Smith Incorporated, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be purchased by any Underwriter whose check has not been received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder. The certificates for the Initial Securities and the Option Securities, if any, will be made available for examination and packaging by the Representatives not later than 10:00 A.M. on the last business day prior to the Closing Time or the relevant Date of Delivery, as the case may be. SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with each Underwriter as follows: (a) The Company will notify the Representatives immediately, and confirm the notice in writing, (i) of the effectiveness of the Registration Statement and any amendment thereto (including any post-effective amendment), (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any order preventing or suspending the use of any preliminary prospectus, or the initiation of any proceedings for that purpose, and (v) of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or the initiation or threatening of any proceeding for any such purpose. The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) The Company will give the Representatives notice of its intention to file or prepare any amendment to the Registration Statement (including any post-effective amendment) or any amendment or supplement to the Prospectus 15 42091330 16 (including any revised prospectus which the Company proposes for use by the Underwriters in connection with the offering of the Securities which differs from the prospectus on file at the Commission at the time the Registration Statement becomes effective, whether or not such revised prospectus is required to be filed pursuant to Rule 424(b) of the 1933 Act Regulations), whether pursuant to the 1933 Act, the 1934 Act or otherwise, will furnish the Representatives with copies of any such amendment or supplement a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file any such amendment or supplement or use any such prospectus to which the Representatives or counsel for the Underwriters shall reasonably object. (c) The Company will deliver to the Representatives as many signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein and documents incorporated or deemed to be incorporated by reference therein) as the Representatives may reasonably request and will also deliver to the Representatives a conformed copy of the Registration Statement as originally filed and of each amendment thereto (without exhibits) for each of the Underwriters. (d) The Company will furnish to each Underwriter, from time to time during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request for the purposes contemplated by the 1933 Act or the 1934 Act or the respective applicable rules and regulations of the Commission thereunder. (e) If any event shall occur as a result of which it is necessary, in the opinion of counsel for the Underwriters, to amend or supplement the Prospectus in order to make the Prospectus not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if for any other reason it shall be necessary to amend or supplement the Prospectus in order to comply with the 1933 Act or 1933 Act Regulations, the Company will forthwith amend or supplement the Prospectus (in form and substance satisfactory to counsel for the Underwriters) so that, as so amended or supplemented, the Prospectus will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at the time it is delivered to a purchaser, not misleading, and the Company will furnish to the Underwriters 16 42091330 17 a reasonable number of copies of such amendment or supplement. (f) The Company will endeavor, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as the Representatives may designate; PROVIDED, HOWEVER, that the Company shall not be obligated to qualify as a foreign corporation in any jurisdiction in which it is not so qualified. In each jurisdiction in which the Securities have been so qualified, the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for a period of not less than one year from the effective date of the Registration Statement. (g) The Company will make generally available to its security holders as soon as practicable, but not later than 60 days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 of the 1933 Act Regulations) covering a twelve month period beginning not later than the first day of the Company's fiscal quarter next following the "effective date" (as defined in said Rule 158) of the Registration Statement. (h) The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectus under "Use of Proceeds". (i) If, at the time that the Registration Statement becomes effective, any information shall have been omitted therefrom in reliance upon Rule 430A of the 1933 Act Regulations, then immediately following the execution of the Pricing Agreement, the Company will prepare, and file or transmit for filing with the Commission in accordance with such Rule 430A and Rule 424(b) of the 1933 Act Regulations, copies of an amended Prospectus, or, if required by such Rule 430A, a post-effective amendment to the Registration Statement (including an amended Prospectus), containing all information so omitted. (j) The Company, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to Section 13, 14 or 15 of the 1934 Act within the time periods required by the 1934 Act and the 1934 Act Regulations. (k) The Company will file with the NASD all documents and notices required by the NASD of companies that have 17 42091330 18 issued securities that are traded in the over-the-counter market and quotations for which are reported by the National Association of Securities Dealers Automated Quotation System-National Market System. (l) During a period of 180 days from the date of the Prospectus, the Company will not, without the Representatives' prior written consent, sell, offer to sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any shares of Common Equity or any security convertible or exchangeable into or exercisable for Common Equity (except for Common Equity issued pursuant to reservations, agreements or employee benefit plans referred to in Section 1(a)(vii) hereof). (m) If the Company has elected to rely upon Rule 430A, it will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) under the 1933 Act was actually received for filing by the Commission and, in the event that they were not, it will promptly file such prospectus. SECTION 4. PAYMENT OF EXPENSES. The Company will pay all expenses incident to the performance of the obligations of the Company and the Sellers under this Agreement, including (i) the printing and filing of the Registration Statement as originally filed and of each amendment thereto, (ii) the reproduction of this Agreement and the Pricing Agreement, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriters, including any stock transfer taxes payable upon the issuance, sale and delivery of certificates for the Securities to the Underwriters, (iv) the fees and disbursements of the Company's counsel and accountants, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(f) hereof, including filing fees and the fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto, (vi) the printing and delivery to the Underwriters of copies of the Registration Statement as originally filed and of each amendment thereto, of each preliminary prospectus, and of the Prospectus and any amendments or supplements thereto, (vii) the printing and delivery to the Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii) the fee of the National Association of Securities Dealers, Inc., (ix) the fees and expenses incurred in connection with the listing of the Securities on the National Association of Securities Dealers Automated Quotation System-National Market System, and (x) the fee and disbursements of counsel for the Underwriters in connection with matters related to Securities which are 18 42091330 19 designated by the Company for sale to employees and others having a business relationship with the Company. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5, Section 9(a)(i) or Section 11 hereof, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company and the Sellers herein contained, to the performance by the Company and the Sellers of their obligations hereunder, and to the following further conditions: (a) The Registration Statement shall have become effective not later than 5:30 P.M. on the date hereof, or with the consent of the Representatives, at a later time and date, not later, however, than 5:30 P.M. on the first business day following the date hereof, or at such later time and date as may be approved by a majority in interest of the Underwriters; and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. If the Company has elected to rely upon Rule 430A of the 1933 Act Regulations, the price of the Securities and any price-related information previously omitted from the effective Registration Statement pursuant to such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 424(b) of the 1933 Act Regulations within the prescribed time period and prior to Closing Time the Company shall have provided evidence satisfactory to the Representatives of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A of the 1933 Act Regulations. (b) At Closing Time the Representatives shall have received: (1) The favorable opinion, dated as of Closing Time, of Jones, Day, Reavis & Pogue, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, to the effect that: (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Ohio. 19 42091330 20 (ii) The Company has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and to enter into and perform its obligations under this Agreement and the Pricing Agreement. (iii) To the best of their knowledge and information, the Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required. (iv) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus under "Capitalization" (except for subsequent issuances, if any, pursuant to reservations, agreements or employee benefit plans referred to in the Prospectus), all the issued and outstanding shares of capital stock of the Company (including the Securities to be sold by the Sellers) have been duly authorized and validly issued and are fully paid and non-assessable. (v) The Securities to be sold by the Company have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth in the Pricing Agreement, will be validly issued and fully paid and non-assessable. (vi) The issuance of the Securities to be sold by the Company is not subject to preemptive or other similar rights arising by operation of law, under the charter or by-laws of the Company or, to the best of their knowledge and information, otherwise. (vii) Each subsidiary of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and, to the best of their knowledge and information, is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is 20 42091330 21 required; all of the issued and outstanding capital stock of each such subsidiary has been duly authorized and validly issued, is fully paid and non-assessable and, to the best of their knowledge and information and other than as disclosed in the Registration Statement, is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity. (viii) This Agreement and the Pricing Agreement have each been duly authorized, executed and delivered by the Company. (ix) The Registration Statement is effective under the 1933 Act and, to the best of their knowledge and information, no stop order suspending the effectiveness of the Registration Statement has been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. (x) At the time the Registration Statement became effective and at the Representation Date, the Registration Statement (other than the financial statements and supporting schedules included therein, as to which no opinion need be rendered) complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. (xi) The capital stock of the Company conforms to the description thereof contained in the Prospectus, and the form of certificate used to evidence the Class A Common Shares is in due and proper form and complies with all applicable statutory requirements. (xii) To the best of their knowledge and information, there are no legal or governmental proceedings pending or threatened which are required to be disclosed in the Registration Statement, other than those disclosed therein, and all pending legal or governmental proceedings to which the Company or any subsidiary is a party or to which any of their property is subject which are not described in the Registration Statement, including ordinary routine litigation incidental to the business, are, considered in the aggregate, not material. 21 42091330 22 (xiii) The information in the Prospectus under "Description of Capital Stock," "Legal Proceedings," and "Patents and Trademarks," to the extent that it constitutes matters of law, summaries of legal matters, documents or proceedings, or legal conclusions, has been reviewed by them and is correct in all material respects. (xiv) To the best of their knowledge and information, there are no contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed as exhibits thereto, the descriptions thereof or references thereto are correct, and no default exists in the due performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument so described, referred to or filed. (xv) No authorization, approval, consent or order of any court or governmental authority or agency is required in connection with the offering, issuance or sale of the Securities to the Underwriters, except such as may be required under the 1933 Act or the 1933 Act Regulations or state securities law; and, to the best of their knowledge and information, the execution, delivery and performance of this Agreement and the Pricing Agreement and the consummation of the transactions contemplated herein and therein and compliance by the Company with its obligations hereunder and thereunder will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action result in any violation of the provisions of the charter or by-laws of the Company, or any applicable law, administrative regulation or administrative or court decree. 22 42091330 23 (xvi) To the best of their knowledge and information, there are no persons with registration or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the 1933 Act. (xvii) Each document filed pursuant to the 1934 Act (other than the financial statements and supporting schedules included therein, as to which no opinion need be rendered) and incorporated or deemed to be incorporated by reference in the Prospectus complied when so filed as to form in all material respects with the 1934 Act and the 1934 Act Regulations. (2) The favorable opinion, dated as of Closing Time, of ____________________________, counsel for the Sellers, in form and substance satisfactory to counsel for the Underwriters, to the effect that: (i) This Agreement and the Pricing Agreement each have been duly authorized, executed and delivered by or on behalf of each of the Sellers. (ii) The Power of Attorney and Custody Agreement has been duly authorized, executed and delivered by each of the Sellers and constitutes the valid and binding obligations of each such Seller in accordance with its terms. (iii) Each of the Sellers has good and marketable title to the Securities to be sold by such Seller hereunder and full power, right and authority to sell such Securities as herein contemplated, and each of the Underwriters will receive good and marketable title to the Securities purchased by it from the Sellers, free and clear of any mortgage, pledge, lien, security interest, encumbrance, claim or equity created by or arising through the Seller. In rendering such opinion, counsel may assume that the Underwriters are without notice of any defect in the title of the Sellers to the Securities being purchased from the Sellers. (iv) No authorization, approval, consent, or order of any court or governmental authority or agency is required in connection with the sale of the Securities from each of the Sellers to the Underwriters, except such as may be required under 23 42091330 24 the 1933 Act of the 1933 Act Regulations or state securities law; and, to the best of their knowledge and information, the execution, delivery and performance of this Agreement and the Pricing Agreement and the consummation of the transactions contemplated herein and therein and compliance by each Seller with its obligations hereunder and thereunder will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of such Seller pursuant to, any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which such Seller is a party or by which it may be bound, or to which any of the property or assets of such Seller is subject, nor will such action result in any violation of the provisions of the charter or by-laws of such Seller, or any applicable law, judgment, order, administrative regulation or administrative or court decree. (3) The favorable opinion, dated as of Closing Time, of Mayer, Brown & Platt, counsel for the Underwriters, with respect to the matters set forth in (i), (ii), (v), (vi) (solely as to preemptive rights arising by operation of law or under the charter or by-laws of the Company) and (viii) to (xi), inclusive, of subsection (b)(1) of this Section. In rendering such opinion, Mayer, Brown & Platt may rely as to matters of Ohio law upon the opinion of Jones, Day, Reavis & Pogue set forth in subsection (b)(1) of this Section. (4) In giving their opinions required by subsections (b)(1) and (b)(3), respectively, of this Section, Jones, Day, Reavis & Pogue and Mayer, Brown & Platt shall each additionally state that nothing has come to their attention that would lead them to believe that the Registration Statement (except for financial statements and schedules and other financial or statistical data included therein, as to which counsel need express no opinion), at the time it became effective or at the Representation Date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus (except for financial statements and schedules and other financial or statistical data included therein, as to which counsel need express no opinion), at the Representation Date (unless the term "Prospectus" refers to a prospectus which has been 24 42091330 25 provided to the Underwriters by the Company for use in connection with the offering of the Securities which differs from the Prospectus on file at the Commission at the time the Registration Statement becomes effective, in which case at the time it is first provided to the Underwriters for such use) or at Closing Time, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (c) At Closing Time there shall not have been, since the date hereof or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the Representatives shall have received a certificate of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company, dated as of Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties of the Company contained in Section 1(a) are true and correct with the same force and effect as though expressly made at and as of Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been initiated or threatened by the Commission. As used in this Section 5(c), the term "Prospectus" means the Prospectus in the form first used to confirm sales of the Securities. (d) At Closing Time the Representatives shall have received a certificate of the Attorney-in-Fact for each of the Sellers, dated as of Closing Time, to the effect that (i) the representations and warranties of each Seller contained in Section 1(b) are true and correct with the same force and effect as though expressly made at and as of Closing Time and (ii) each Seller has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to Closing Time. The Attorney-in-Fact shall be entitled to rely upon certificates of the Sellers in giving its certificate. (e) At the time of the execution of this Agreement, the Representatives shall have received from Ernst & Young 25 42091330 26 LLP a letter dated such date, in form and substance satisfactory to the Representatives, to the effect that (i) they are independent public accountants with respect to the Company and its subsidiaries within the meaning of the 1933 Act and the 1933 Act Regulations; (ii) it is their opinion that the financial statements and supporting schedules included in the Registration Statement and covered by their opinions therein comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the 1933 Act Regulations; (iii) based upon limited procedures set forth in detail in such letter, nothing has come to their attention which causes them to believe that (A) the unaudited financial statements and supporting schedules of the Company and its subsidiaries included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the 1933 Act Regulations or are not presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements included in the Registration Statement, (B) the unaudited amounts of revenues, net income and net income per share set forth under "[Selected Financial Information]" in the Prospectus were not determined on a basis substantially consistent with that used in determining the corresponding amounts in the audited financial statements included in the Registration Statement, or (C) at a specified date not more than five days prior to the date of this Agreement, there has been any change in the capital stock of the Company or any increase in the consolidated long term debt of the Company and its subsidiaries or any decrease in consolidated net current assets or net assets as compared with the amounts shown in the March 31, 1995 balance sheet included in the Registration Statement or, during the period from March 31, 1995 to a specified date not more than five days prior to the date of this Agreement, there were any decreases, as compared with the corresponding period in the preceding year, in consolidated revenues, net income or net income per share of the Company and its subsidiaries, except in all instances for changes, increases or decreases which the Registration Statement and the Prospectus disclose have occurred or may occur; and (iv) in addition to the examination referred to in their opinions and the limited procedures referred to in clause (iii) above, they have carried out certain specified procedures, not constituting an audit, with respect to certain amounts, percentages and financial information which are included in the Registration Statement and Prospectus and which are specified by the Representatives, and have found such amounts, percentages and financial information to be in agreement with the 26 42091330 27 relevant accounting, financial and other records of the Company and its subsidiaries identified in such letter. (f) At Closing Time the Representatives shall have received from Ernst & Young LLP a letter, dated as of Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (e) of this Section, except that the specified date referred to shall be a date not more than five days prior to Closing Time and, if the Company has elected to rely on Rule 430A of the 1933 Act Regulations, to the further effect that they have carried out procedures as specified in clause (iv) of subsection (d) of this Section with respect to certain amounts, percentages and financial information specified by the Representatives and deemed to be a part of the Registration Statement pursuant to Rule 430(A)(b) and have found such amounts, percentages and financial information to be in agreement with the records specified in such clause (iv). (g) At the time of the execution of this Agreement and at Closing Time, the Representatives shall have received from Price Waterhouse LLP, letters dated as of such respective dates, covering such specified financial statement items and procedures as the Representatives may reasonably request, in form and substance satisfactory to the Representatives. (h) At Closing Time and at each Date of Delivery, if any, counsel for the Underwriters shall have been furnished with such documents and opinions as they may require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated and related proceedings, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company and the Sellers in connection with the issuance and sale of the Securities as herein contemplated shall be satisfactory in form and substance to the Representatives and counsel for the Underwriters. (i) In the event that the Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Company and the Sellers contained herein and the statements in any certificates furnished by the Company and the Sellers hereunder shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Representatives shall have received: 27 42091330 28 (1) Certificates, dated such Date of Delivery, of (x) the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company and (y) the Attorney-in-Fact for each of the Sellers confirming that the certificates delivered at the Closing Time pursuant to Section 5(c) and 5(d) hereof, respectively, remain true and correct as of such Date of Delivery. (2) The favorable opinion of Jones, Day, Reavis & Pogue, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Sections 5(b)(1) and 5(b)(4) hereof. (3) The favorable opinion of _______________ counsel for the Sellers, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(b)(2) hereof. (4) The favorable opinion of Mayer, Brown & Platt, counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Sections 5(b)(2) and 5(b)(4) hereof. (5) A letter from Ernst & Young LLP, in form and substance satisfactory to the Representatives and dated such Date of Delivery, substantially the same in form and substance as the letter furnished to the Representatives pursuant to Section 5(e) hereof, except that the "specified date" in the letter furnished pursuant to this Section 5(i)(5) shall be a date not more than five days prior to such Date of Delivery. (6) A letter from Price Waterhouse LLP, in form and substance satisfactory to the Representatives and dated such Date of Delivery, substantially the same in form and substance as the letter furnished to the Representatives pursuant to Section 5(g) hereof. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Representatives by notice to the Company and the Sellers at any time at or prior to Closing Time, and such termination shall be without liability of any party to any other party except as provided in Section 4 hereof. 28 42091330 29 SECTION 6. INDEMNIFICATION. (a) The Company and the Sellers agree to jointly and severally indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the information deemed to be part of the Registration Statement pursuant to Rule 430A(b) of the 1933 Act Regulations, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage or expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company; and (iii) against any and all expense whatsoever, as incurred (including, subject to Section 6(c) hereof, the fees and disbursements of counsel chosen by the Representatives), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto). Without limiting any obligation of the 29 42091330 30 Company, the liability of each Seller under this Section 6 shall not exceed the product of the number of Securities sold by such Seller times the initial public offering price per share appearing on the cover page of the Prospectus. (b) Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act and each Seller against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (c) Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of any such action. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. SECTION 7. CONTRIBUTION. In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in Section 6 hereof is for any reason held to be unenforceable by the indemnified parties although applicable in accordance with its terms, the Company, the Sellers and the Underwriters shall contribute to the aggregate losses, liabilities, claims, damages and expenses of the nature contemplated by said indemnity agreement incurred by the Company, the Sellers and one or more of the Underwriters, as incurred, in such proportions that the Underwriters are responsible for that portion represented by the percentage that the underwriting discount appearing on the cover page of the Prospectus bears to the initial public offering price appearing thereon and the Company and the Sellers are jointly and severally responsible for the balance; PROVIDED, HOWEVER, that no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any 30 42091330 31 person who was not guilty of such fraudulent misrepresentation. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amounts in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public exceeds the amount of any damages of the kind described in Section 6(a) which such Underwriter has otherwise paid in respect of such losses, liabilities, claims, damages and expenses. For purposes of this Section, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act shall have the same rights to contribution as the Company and the Sellers. SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. All representations, warranties and agreements contained in this Agreement and the Pricing Agreement, or contained in certificates of officers of the Company or the Sellers submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or controlling person, or by or on behalf of the Company or the Sellers, and shall survive delivery of the Securities to the Underwriters. SECTION 9. TERMINATION OF AGREEMENT. (a) The Representatives may terminate this Agreement, by notice to the Company and the Sellers, at any time at or prior to Closing Time (i) if there has been, since the date of this Agreement or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or elsewhere or any outbreak of hostilities or escalation thereof or other calamity or crisis the effect of which is such as to make it, in the judgment of the Representatives, impracticable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in the Class A Common Shares has been suspended by the Commission, or if trading generally on the New York Stock Exchange has been suspended, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices for securities have been required, by said Exchange or by order of the Commission or any other governmental authority, or if a banking moratorium has been declared by either Federal, New York or Ohio authorities. As used in this Section 9(a), the term "Prospectus" means the Prospectus in the form first used to confirm sales of the Securities. 31 42091330 32 (b) If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof. Notwithstanding any such termination, the provisions of Sections 6 and 7 hereof shall remain in effect. SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS. If one or more of the Underwriters shall fail at Closing Time to purchase the Initial Securities which it or they are obligated to purchase under this Agreement and the Pricing Agreement (the "Defaulted Securities"), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the number of Initial Securities, the non-defaulting Underwriters shall be obligated to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the number of Initial Securities, this Agreement shall terminate without liability on the part of any non-defaulting Underwriter. No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement, either the Representatives or the Company shall have the right to postpone Closing Time for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. SECTION 11. DEFAULT BY ONE OR MORE SELLERS OR THE COMPANY. If one or more of the Sellers shall fail at Closing Time to sell and deliver the number of Securities which such Seller or Sellers are obligated to sell hereunder, then the Representatives may, at their option, by notice to the Company and the non-defaulting Sellers, either (a) terminate this Agreement without liability on the part of any non-defaulting party or (b) elect to purchase the Securities which the Company and the non-defaulting Sellers, if any, have agreed to sell hereunder. In the event of a default by any Seller as referred to in this Section 11, the Underwriters, the Company and the non-defaulting Sellers, if any, shall have the right to postpone 32 42091330 33 Closing Time for a period not exceeding seven days in order to effect any required changes in the Registration Statement or the Prospectus or in any other documents or arrangements. If the Company shall fail at Closing Time or at the Date of Delivery to sell and deliver the number of Securities that it is obligated to sell hereunder, then this Agreement shall terminate without any liability on the part of any non-defaulting party. No action taken pursuant to this Section 11 shall relieve the Company or any Seller from liability, if any, in respect of such default. SECTION 12. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representatives at Merrill Lynch World Headquarters, North Tower, World Financial Center, New York, New York 10281-1201, attention of ____________, Vice President; notices to the Company shall be directed to it at 22801 St. Clair Ave., Cleveland, Ohio, attention of Frederick G. Stueber, Esq., Vice President, General Counsel and Secretary; and, notices to the Sellers shall be directed to ______________, ____________________, ______________________. SECTION 13. PARTIES. This Agreement and the Pricing Agreement shall each inure to the benefit of and be binding upon the Underwriters, the Company and the Sellers and their respective successors[, heirs and legal representatives]. Nothing expressed or mentioned in this Agreement or the Pricing Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters, the Company and the Sellers and their respective successors[, heirs and legal representatives] and the controlling persons and officers and directors referred to in Sections 6 and 7 and their respective successors, heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or the Pricing Agreement or any provision herein or therein contained. This Agreement and the Pricing Agreement and all conditions and provisions hereof and thereof are intended to be for the sole and exclusive benefit of the Underwriters, the Company and the Sellers and their respective successors[, heirs and legal representatives,] and said controlling persons and officers and directors and their respective successors, heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 14. GOVERNING LAW AND TIME. This Agreement and the Pricing Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to 33 42091330 34 agreements made and to be performed in said State. Specified times of day refer to New York City time. 34 42091330 35 If the foregoing is in accordance with your understanding of our agreement, please sign and return to each of the Company and the Attorney-in-Fact a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Underwriters, the Company and each Seller in accordance with its terms. Very truly yours, THE LINCOLN ELECTRIC COMPANY By:______________________________ Title: THE SELLERS By:____________________________ As Attorney-in-Fact, acting on behalf of each of the Sellers named in Schedule B hereto. CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated J.P. MORGAN SECURITIES INC. MCDONALD & COMPANY SECURITIES, INC. By: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By:____________________________ Authorized Signatory For themselves and as Representatives of the other Underwriters named in Schedule A hereto. 35 42091330 36 SCHEDULE A
Number Name of Underwriter of Securities ------------------- ------------- Merrill Lynch, Pierce, Fenner & Smith Incorporated. . . . . . . . . . J.P. Morgan Securities Inc . . . . . . . . McDonald & Company Securities, Inc. . . . . _____________ Total. . . . . . . . . . . . . . . . . _____________
Sch A - 1 42091330 37 SCHEDULE B
Maximum Number of Number of Initial Option Securities Securities Name to be sold to be sold ---- ---------- ---------- The Lincoln Electric Company . . . . . . . [Sellers] Total. . . . . . . . . . . . . . . . ---------- ----------
Sch B - 1 42091330 38 SCHEDULE C Shareholders who have agreed to 180-day lock-up pursuant to Section 1(a)(xvi): Sch C - 1 42091330 39 Exhibit A _________ Shares THE LINCOLN ELECTRIC COMPANY (an Ohio corporation) Class A Common Shares (Without Par Value) PRICING AGREEMENT ----------------- _____________, 1995 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated J.P. MORGAN SECURITIES INC. MCDONALD & COMPANY SECURITIES, INC. as Representatives of the several Underwriters c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated Merrill Lynch World Headquarters North Tower World Financial Center New York, New York 10281-1209 Dear Sirs: Reference is made to the Purchase Agreement dated , 1995 (the "Purchase Agreement") relating to the purchase by the several Underwriters named in Schedule A thereto, for whom Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc. and McDonald & Company Securities, Inc. are acting as representatives (the "Representatives"), of the above Class A Common Shares (the "Securities"), of The Lincoln Electric Company, an Ohio corporation (the "Company"). Pursuant to Section 2 of the Purchase Agreement, the Company and each of the Sellers named in Schedule B to the Purchase Agreement (the "Sellers"), severally and not jointly, agree with each Underwriter as follows: 1. The initial public offering price per share for the Securities, determined as provided in said Section 2, shall be $ . 1 42091330 40 2. The purchase price per share for the Securities to be paid by the several Underwriters shall be $ , being an amount equal to the initial public offering price set forth above less $ per share. If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company and the Attorney-in-Fact for the Sellers a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Underwriters, the Company and the Sellers in accordance with its terms. Very truly yours, THE LINCOLN ELECTRIC COMPANY By:_______________________________ Title: THE SELLERS By:____________________________ As Attorney-in-Fact, acting on behalf of each of the Sellers named in Schedule B hereto. CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated J.P. MORGAN SECURITIES INC. MCDONALD & COMPANY SECURITIES, INC. By:________________________________ Authorized Signatory For themselves and as Representatives of the other Underwriters named in the Purchase Agreement 2 42091330 EX-4.1 3 EXHIBIT 4.1 1 EXHIBIT 4.1 FORM OF THE LINCOLN ELECTRIC COMPANY AMENDED AND RESTATED ARTICLES OF INCORPORATION AS PROPOSED TO BE AMENDED ARTICLE FIRST: The name of the Corporation shall be THE LINCOLN ELECTRIC COMPANY. ARTICLE SECOND: The place in the State of Ohio where its principal office is located is the City of Cleveland, Cuyahoga County. ARTICLE THIRD: The Corporation is formed for the purpose of manufacturing, repairing, buying, selling and dealing in all varieties and kinds of electrical machinery, tools and appliances, and doing all things necessary and incident thereto. ARTICLE FOURTH: Section 1. The maximum number of shares which the Corporation is authorized to have outstanding is sixty-two million (62,000,000), consisting of thirty million (30,000,000) Common Shares, without par value ("Common Shares"), thirty million (30,000,000) Class A Common Shares, without par value ("Class A Common Shares") and two million (2,000,000) Class B Common Shares, without par value ("Class B Common Shares"). The shares of each class shall have the express terms set forth in this Article Fourth. Upon the Certificate of Amended and Restated Articles of Incorporation setting forth these amendments becoming effective pursuant to the Ohio General Corporation Law (the "Effective Time"), and without any further action on the part of the Corporation or its shareholders, (i) each whole share of Common Stock, without par value ("Old Common Stock") then issued shall automatically be changed and converted into one fully paid and nonassessable Common Share, (ii) each whole share of Class A Common Stock, without par value ("Old Class A Common Stock") then issued shall automatically be changed and converted into one fully paid and nonassessable Class B Common Share, (iii) certificates representing Old Common Stock outstanding prior to the Effective Time shall be deemed to represent the same number of Common Shares, and (iv) certificates representing Old Class A Common Stock outstanding prior to the Effective Time shall be deemed to represent the same number of Class B Common Shares. The powers, preferences and rights of the Common Shares, Class A Common Shares and Class B Common Shares (collectively, from and after the Effective Time, the "Common Equity") and the qualifications, limitations and restrictions thereof, shall in all respects be identical, except as otherwise required by law or as expressly provided in these Amended and Restated Articles of Incorporation. 2 Page 2 Section 2. Voting. Section 2.1. Each shareholder of the Corporation shall be entitled to one vote for each Common Share and each Class B Common Share standing in such shareholder's name on the books of the Corporation. Except as otherwise required by statute, the holders of Common Shares and Class B Common Shares shall vote together as one class on all matters. Section 2.2. The holders of Class A Common Shares shall not be entitled to vote on any matter submitted to shareholders for their vote, consent, waiver, release or other action except as required by statute. Section 3. Dividends. Dividends may be declared and paid to the holders of Common Shares, Class A Common Shares and Class B Common Shares in cash, property, or other securities of the Corporation (including shares of any class whether or not shares of such class are already outstanding) out of funds legally available therefor. No dividend shall be paid on the outstanding Common Shares, Class A Common Shares or Class B Common Shares unless an equal dividend per share is paid on each of the outstanding Common Shares, Class A Common Shares and Class B Common Shares subject to the following: (a) no cash dividend shall be declared or paid on one class of Common Equity unless a cash dividend of the same amount per share is simultaneously declared and paid on the other classes of Common Equity; (b) dividends payable on the Common Equity in capital stock shall be made to all holders of Common Equity provided that: (i) such a dividend on Class A Common Shares shall be paid or made only in Class A Common Shares; (ii) such a dividend on Class B Common Shares shall be paid or made only in the same class of Common Equity as paid on the Common Shares; and (iii) a dividend on Class A Common Shares paid or made in Class A Common Shares and a dividend on Common Shares and Class B Common Shares paid or made in either Common Shares, Class A Common Shares or Class B Common Shares (consistent with (ii) above) shall be deemed an equal dividend per share within the meaning of this Section 3 if paid in the same proportion regardless of the fair market value of such shares received in payment of such dividend. 3 Page 3 Section 4. Merger, Consolidation, Combination or Dissolution of the Corporation. In the event of merger, consolidation or combination of the Corporation with another entity (whether or not the Corporation is the surviving entity) or in the event of dissolution of the Corporation, holders of Class A Common Shares shall be entitled to receive in respect of each Class A Common Share the same indebtedness, other securities, cash, rights, or any other property, or any combination of shares, evidences of indebtedness, securities, cash, rights or any other property, as holders of Common Shares and Class B Common Shares shall be entitled to receive in respect to each share. Section 5. Splits or Combinations of Shares. If the Corporation shall in any manner split, subdivide or combine the outstanding Common Shares, Class A Common Shares or Class B Common Shares, the outstanding shares of the other such classes shall be proportionately split, subdivided or combined in the same manner and on the same basis as the outstanding shares of the other classes that have been split, subdivided or combined. Section 6. Change in Number of Authorized Class A Common Shares. The number of authorized Class A Common Shares may be increased or decreased (but not below the number then outstanding) by the affirmative vote of the holders of a majority of the aggregate number of outstanding Common Shares and Class B Common Shares entitled to vote in the election of directors voting as a single class. Section 7. No Preemptive Rights. No shareholder of the Corporation shall have any preemptive right as such shareholder to subscribe for or purchase shares of the Corporation. Section 8. Restrictions on Transfer of Class B Common Shares. Section 8.1. No sale, assignment, transfer, pledge, encumbrance or any other disposition of any Class B Common Shares may be made, except upon compliance with the provisions of Sections 8.1 through 8.4 of this Article Fourth (or the exception set forth in Section 8.2(b) below). Any purported or attempted disposition of the Class B Common Shares other than as permitted by this Article Fourth shall be void, and the last shareholder of record who acquired such shares in a manner not contrary to this Article Fourth shall be recognized as the holder of such shares for all purposes. Section 8.2. The Corporation shall have the sole, exclusive and unrestricted right, option and privilege to purchase, upon the occurrence of any of the events set forth below, any or all of the Class B Common Shares in a manner and at 4 Page 4 a price per share current at the time of the purchase of said shares as determined pursuant to the terms and provisions of Section 8.3 and 8.4 of this Article Fourth. The events are: (a) the death of a holder of Class B Common Shares; and (b) the determination of a holder of Class B Common Shares to sell, assign, transfer, pledge, give, encumber or in any other way dispose of all or any of said shares, except for any such disposition in the form of a distribution from The Lincoln Electric Company Employee Stock Ownership Plan ("Plan") pursuant to the terms and conditions of the Plan. Section 8.3. Upon the occurrence of either of the events specified in Section 8.2 above, the holder of Class B Common Shares, or the personal representative of said holder's estate, as the case may be, shall notify the Corporation in writing of the occurrence of any such event. If the Corporation shall elect to exercise any such right, option or privilege, it shall, not later than ninety (90) days after it shall have received written notice from the holder of Class B Common Shares or the personal representative of said holder's estate, as the case may be, of the occurrence of any such event, send written notice thereof to said holder or the personal representative of said holder's estate, as the case may be, of such shares at his or her last address as shown on the stock transfer records of the Corporation, or, in the event of the death of said holder, to such other address as may be so specified in the notice. The Corporation shall pay the purchase price (as determined pursuant to the terms and provisions of Section 8.4 of this Article Fourth) to the holder of such shares, or in the event of the death of said holder, to the personal representative of said holder's estate, immediately upon the delivery to the Corporation of the certificate or certificates representing the Class B Common Shares, duly endorsed for transfer and delivery to the Corporation, its successors, assigns or nominees. Upon delivery of the Corporation's written notice, all rights in and to the Class B Common Shares shall be vested solely in the Corporation, its successors, assigns or nominees. If the Corporation does not exercise its right to purchase any or all of the Class B Common Shares pursuant to the terms and provisions of this Article Fourth, such shares may be freely disposed of by the holder thereof or the personal representative of said holder's estate, as the case may be, not more than ninety (90) days after the expiration of the Corporation's repurchase period; provided, however, that any such Class B Common Shares so disposed of shall continue to be subject to the terms and provisions of this Article Fourth. Any Class B Common Shares not so disposed of 5 Page 5 shall continue to be subject in all respects to the restrictions and provisions contained in this Article Fourth. Section 8.4. The price, rounded to the nearest dollar, at which any Class B Common Share shall be bought or sold pursuant to the terms and provisions of this Article Fourth shall be: (a) the book value of such share in effect on the date of receipt by the Corporation of the above-described written notice, plus (b) the accrued unpaid dividends with respect to such share which were considered liabilities in determining book value. The book value used for this purpose shall be established each April 30 for the 12-month period, May 1 - April 30, following that date and shall be the book value as of the immediately preceding December 31 as shown in the Corporation's Audited Consolidated Financial Statements. Section 8.5. Any Class B Common Shares purchased by the Corporation pursuant to this Article Fourth shall be retired and restored to the status of authorized and unissued shares. Section 8.6. All share certificates representing Class B Common Shares shall contain a reference to the restrictions and provisions contained in this Article Fourth. Section 9. Class A Common Shares Protection Provisions. Section 9.1. If, after the Effective Time, a Person or group, as defined in Section 9.11, acquires beneficial ownership of shares representing 15% or more of the number of then outstanding Common Shares and such Person or group (a "Significant Shareholder") does not then beneficially own an equal or greater percentage of all then outstanding Class A Common Shares, all of which Class A Common Shares must have been acquired by such Significant Shareholder after the first issuance by the Corporation of Class A Common Shares (the "Distribution Date"), such Significant Shareholder must, within a ninety (90) day period beginning the day after becoming a Significant Shareholder, make a public cash tender offer in compliance with all applicable laws and regulations to acquire additional Class A Common Shares as provided in this Section 9 of Article Fourth (a "Class A Protection Transaction"). Section 9.2. In each Class A Protection Transaction, the Significant Shareholder must make a public tender offer to acquire that number of additional Class A Common Shares 6 Page 6 determined by (i) multiplying the percentage of the number of outstanding Common Shares beneficially owned and acquired after the Effective Time by such Significant Shareholder by the total number of Class A Common Shares outstanding on the date such Person or group became a Significant Shareholder, and (ii) subtracting therefrom the excess (if any) of the number of Class A Common Shares beneficially owned by such Significant Shareholder on the date such Person or group became a Significant Shareholder (including shares acquired at or prior to the time such Person or group became a Significant Shareholder) over the number of Class A Common Shares beneficially owned on the Distribution Date (as adjusted for stock splits, stock dividends and similar recapitalization). The Significant Shareholder must acquire all shares validly tendered; or if the number of Class A Common Shares tendered to the Significant Shareholder exceeds the number of shares required to be acquired pursuant to this Section 9.2, the number of Class A Common Shares acquired from each tendering holder shall be pro rata based on the percentage that the number of shares tendered by such shareholder bears to the total number of shares tendered by all tendering holders. Section 9.3. The offer price for any Class A Common Shares required to be purchased by the Significant Shareholder pursuant to this Section 9 shall be the greatest of (i) the highest price per share paid by the Significant Shareholder for any Common Shares or Class A Common Shares during the six-month period ending on the date such Person or group became a Significant Shareholder, (ii) the highest reported sale price of a Common Share or Class A Common Share on the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") National Market System (or such other securities exchange or quotation system as is then the principal trading market for such shares) during the 30 day period preceding such Person or group becoming a Significant Shareholder, and (iii) the highest reported sale price of a Common Share or Class A Common Share on the NASDAQ National Market System (or such other securities exchange or quotation system as is then the principal trading market for such shares) on the business day preceding the date the Significant Shareholder makes the tender offer required by this Section 9. For purposes of Section 9.4, the applicable date for each calculation required by clauses (i) and (ii) of the preceding sentence shall be the date on which the Significant Shareholder becomes required to engage in the subsequent Class A Protection Transaction for which such calculation is required. In the event that the Significant Shareholder has acquired Common Shares or Class A Common Shares in the six month period ending on the date such Person or group becomes a Significant Shareholder for consideration other than cash, the value of such consideration per Common Share or Class A Common Share shall be as determined in good faith by the Board of Directors. 7 Page 7 Section 9.4. A Class A Protection Transaction shall also be required to be effected by any Significant Shareholder each time that the Significant Shareholder acquires after the Effective Time beneficial ownership of additional Common Shares equal to or greater than the next higher integral multiple of 5% in excess of 15% (e.g., 20%, 25%, 30%, etc.) of the number of outstanding Common Shares if such Significant Shareholder does not then own an equal or greater percentage of the Class A Common Shares (all of which Class A Common Shares must have been acquired by such Significant Shareholder after the Distribution Date). Such Significant Shareholder shall be required to make a public cash tender offer to acquire that number of Class A Common Shares prescribed by the formula set forth in Section 9.2, and must acquire all shares validly tendered or a pro rata portion thereof, as specified in Section 9.2, at the price determined pursuant to Section 9.3, even if a previous Class A Protection Transaction resulted in fewer Class A Common Shares being tendered than required in the previous offer. Section 9.5. If any Significant Shareholder fails to make an offer required by this Section 9, or to purchase shares validly tendered and not withdrawn (after proration, if any), such Significant Shareholder shall not be entitled to vote any Common Shares beneficially owned by such Significant Shareholder unless and until such requirements are complied with or unless and until all Common Shares causing such offer requirement to be effective are no longer beneficially owned by such Significant Shareholder. The requirement to engage in a Class A Protection Transaction is satisfied by the making of the requisite offer and purchasing validly tendered shares pursuant to this Section 9, even if the number of shares tendered is less than the number of shares included in the required offer. Section 9.6. The Class A Protection Transaction requirement shall not apply to any increase in percentage beneficial ownership of Common Shares resulting solely from a change in the aggregate number of Common Shares outstanding, provided that any acquisition after such change which results in any Person or group beneficially owning fifteen percent (15%) or more of the number of outstanding Common Shares (or an additional 5% or more of the number of Common Shares after the last acquisition which triggered the requirement for a Class A Protection Transaction) shall be subject to any Class A Protection Transaction requirement that would be imposed pursuant to this Section 9. Section 9.7. In connection with Sections 9.1 through 9.4 of this Section 9, the following Common Shares shall be excluded for the purpose of determining the shares beneficially owned by such Person or group but not for the purpose of determining shares outstanding: 8 Page 8 (a) shares beneficially owned by such Person or group at the Effective Time; (b) shares acquired by will or by the laws of descent and distribution, or by gift that is made in good faith and not for the purpose of circumventing this Section 9 or by foreclosure of a bona fide loan; (c) shares acquired upon issuance or sale by the Corporation; (d) shares acquired by operation of law (including a merger or consolidation effected for the purpose of recapitalizing such Person or reincorporating such Person in another jurisdiction but excluding a merger or consolidation effected for the purpose of acquiring another Person); (e) shares acquired in exchange for Class A Common Shares by a holder of Class A Common Shares (or by a parent, lineal descendant or donee of such holder of Class A Common Shares who received such Class A Common Shares from such holder) if the Class A Common Shares so exchanged were acquired by such holder directly from the Corporation as a dividend on Common Shares; and (f) shares acquired by a plan of the Corporation qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended, or any successor provision thereto, or acquired by reason of a distribution from such a plan. Section 9.8. In connection with Sections 9.1 through 9.4 of this Section 9, for purposes of calculating the number of Class A Common Shares beneficially owned by any Persons or group: (a) Class A Common Shares acquired by gift shall be deemed to be beneficially owned by such Person or member of a group if such gift was made in good faith and not for the purpose of circumventing the operations of this Section 9; and (b) only Class A Common Shares owned of record by such Person or member of a group or held by others as nominees of such Person or member of a group and identified as such to the Corporation shall be deemed to be beneficially owned by such Person or group (provided that Class A Common Shares with respect to which such Person or member of a group 9 Page 9 has sole investment and voting power shall be deemed to be beneficially owned thereby). Section 9.9. To the extent that the voting power of any Common Share cannot be exercised pursuant to this Section 9, that Common Share shall not be included in the determination of the voting power of the Corporation for any purpose under these Amended and Restated Articles of Incorporation or the Ohio Revised Code. Section 9.10. All calculations with respect to percentage beneficial ownership of issued and outstanding shares of either Common Shares or Class A Common Shares will be based upon the numbers of issued and outstanding shares reflected in either the records of or a certificate from the Corporation's stock transfer agent or reported by the Corporation on the last to be filed of (i) the Corporation's most recent Annual Report on Form 10-K, (ii) its most recent Quarterly Report on Form 10-Q, (iii) its most recent Current Report on Form 8-K, (iv) its most recent report on Form 10-C, and (v) its most recent definitive proxy statement filed with the Securities and Exchange Commission. Section 9.11. For purposes of this Section 9, the term "Person" means any individual, partnership, corporation, association, trust, or other entity (other than the Corporation). Subject to Sections 9.7 and 9.8, "beneficial ownership" shall be determined pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the "1934 Act"), or any successor regulation and the formation or existence of a "group" shall be determined pursuant to Rule 13d-5(b) under the 1934 Act or any successor regulation, subject to the following qualifications: (a) relationships by blood or marriage between or among any Persons will not constitute any of such Persons as a member of a group with such other Person, absent affirmative attributes of concerted action; and (b) any Person acting in his official capacity as a director or officer of the Corporation shall not be deemed to beneficially own shares where such ownership exists solely by virtue of such Person's status as a trustee (or similar position) with respect to shares held by plans or trusts for the general benefit of employees or former employees of the Corporation, and actions taken or agreed to be taken by a Person in such Person's official capacity as an officer or director of the Corporation will not cause such Person to become a member of a group with any other Person. 10 Page 10 Section 10. Conversion of Class A Common Shares. Each outstanding Class A Common Share (whether or not then issued) shall convert automatically into one Common Share upon the earliest to occur of: (a) any time the aggregate of the outstanding Common Shares and Class B Common Shares as reflected on the stock transfer records of the Corporation is less than 20% of the aggregate number of outstanding Common Shares, Class A Common Shares and Class B Common Shares. For purposes of the immediately preceding sentence, any Common Shares, Class A Common Shares or Class B Common Shares repurchased by the Corporation and held as treasury shares or cancelled by the Corporation shall not be deemed "outstanding" from and after the date of repurchase; (b) the date ("Conversion Date") which shall be ten years from the Distribution Date of the Class A Common Shares as defined in Section 9.1; provided, however, that the Board of Directors by resolution adopted by two-thirds of the entire number of Directors then in office no earlier than thirty months and no later than twenty-four months prior to the initial or any subsequently established Conversion Date may extend the Conversion Date for an additional five years. Any such new Conversion Date and all subsequently extended Conversion Dates may be extended in like manner and for a like period; and (c) upon resolution by the Board of Directors if, as a result of the existence of the Class A Common Shares, either the Common Shares or Class A Common Shares is, or both are, excluded from quotation on the NASDAQ National Market System, and all other national quotation systems then in existence and are excluded from trading on all the principal national securities exchanges then in existence. Upon such conversion, the total number of Common Shares the Corporation shall have authority to issue shall be 60,000,000 shares, and the total number of Class A Common Shares shall be zero (0) shares and all references to Class A Common Shares shall be of no further force or effect. In making the determination referred to in (a) or (c) of this Section 10, the Board of Directors may conclusively rely on any information or documentation available to it, including but not limited to filings made with the United States Securities and Exchange Commission, any stock exchange, the National Association of Securities Dealers, Inc. or any national quotation system or any 11 Page 11 other government or regulatory agency, or the records of or certification from the Corporation's stock transfer agent. At such time as set forth in (a), (b) or (c) of this Section 10, the Class A Common Shares shall be deemed to be automatically converted into Common Shares and stock certificates formerly representing Class A Common Shares shall thereupon and thereafter be deemed to represent a like number of Common Shares. The determination of the Board of Directors that either (a) or (c) of this Section 10 has occurred shall be conclusive and binding and the conversion of each Class A Common Share into one Common Share shall remain effective regardless of whether either (a) or (c) has occurred in fact. ARTICLE FIFTH: The Board of Directors of the Corporation is hereby authorized to fix in its discretion at any time and from time to time the amount of consideration for which the Corporation may from time to time issue its shares whether now or hereafter authorized, and whether or not greater consideration could be received upon the issue and sale of the same number of shares of another class and as otherwise permitted by law. ARTICLE SIXTH: The Corporation may from time to time pursuant to authorization by the Board of Directors and without action by the shareholders, purchase or otherwise acquire shares of the Corporation of any class or classes in such manner, upon such terms and in such amounts as the Board of Directors shall determine without regard to whether less consideration could be paid upon the purchase of the same number of shares of another class, subject, however, to such limitation or restriction, if any, as is contained in the express terms of any class of shares of the Corporation outstanding at the time of the purchase or acquisition in question. ARTICLE SEVENTH: The holders of shares of the Corporation shall not be entitled to cumulative voting rights in elections of Directors. ARTICLE EIGHTH: Section 1. A higher than majority shareholder vote for certain Business Combinations (as defined below) shall be required as follows: A. In addition to any affirmative vote required by law or these Articles or the terms of any series of Preferred Stock or any other securities of the Corporation and except as otherwise expressly provided in Section 2 of this Article Eighth: (1) any merger or consolidation of the Corporation or any Subsidiary with (i) any Interested Shareholder or with (ii) any other corporation (whether or not itself an Interested 12 Page 12 Shareholder) which is, or after such merger or consolidation would be, an Affiliate or Associate of an Interested Shareholder; (2) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions whether or not related) to an Interested Shareholder (or an Affiliate or Associate of an Interested Shareholder) of any assets of the Corporation or a Subsidiary having an aggregate Fair Market Value of $1,000,000 or more; (3) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions whether or not related) to or with the Corporation or a Subsidiary of any assets of an Interested Shareholder (or an Affiliate or Associate of an Interested Shareholder) having an aggregate Fair Market Value of $1,000,000 or more; (4) the issuance or sale by the Corporation or any Subsidiary (in one transaction or a series of transactions whether or not related) of any securities of the Corporation or of any Subsidiary to an Interested Shareholder or any Affiliate or Associate of an Interested Shareholder in exchange for cash, securities or other consideration (or a combination thereof) having an aggregate Fair Market Value of $1,000,000 or more except an issuance of securities upon conversion of convertible securities of the Corporation or of a Subsidiary which were not acquired by such Interested Shareholder (or such Affiliate or Associate) from the Corporation or a Subsidiary; (5) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of an Interested Shareholder or an Affiliate or Associate of an Interested Shareholder; or (6) any reclassification of securities (including any reverse stock split) or recapitalization of the Corporation or a Subsidiary or any other transaction (whether or not with or into or otherwise involving an Interested Shareholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity securities or securities convertible into equity 13 Page 13 securities of the Corporation or a Subsidiary which is directly or indirectly owned by any Interested Shareholder or an Affiliate or Associate of an Interested Shareholder; shall require the affirmative vote of (i) the holders of at least two-thirds of the combined voting power of the then outstanding shares of capital stock of the Corporation entitled to vote generally in an annual election of Directors or entitled by law or by the terms of the capital stock to vote on the transaction in question (the "Voting Shares") and (ii) the holders of at least two-thirds of the combined voting power of the then outstanding Voting Shares held by Disinterested Shareholders, in each case voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law, by any other provisions of these Articles or by the terms of any series of Preferred Stock or any other securities of the Corporation. B. The term "Business Combination" as used in this Article Eighth shall mean any transaction which is referred to in any one or more of clauses (1) through (6) of paragraph A of Section 1 of this Article Eighth. Section 2. The provisions of Section 1 of this Article Eighth shall not be applicable to any Business Combination, and such Business Combination shall require only such affirmative vote (if any) as is required by law, any other provisions of these Articles, the terms of any of the classes or series of Common Equity of the Corporation or of any of the classes or series of capital stock of the Corporation entitled to a preference over the Common Equity as to dividends or upon liquidation, or the terms of any other securities of the Corporation, if all of the conditions specified in either of the following paragraphs A or B are met: A. The Business Combination shall have been approved by a majority of the Disinterested Directors; or B. All the following six conditions shall have been met: (1) The transaction constituting the Business Combination shall provide for a consideration to be received by holders of Common Equity in exchange for their Common Equity, and the aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than 14 Page 14 cash to be received per share by holders of Common Equity in such Business Combination shall be at least equal to the highest of the following: (a) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of Common Equity beneficially owned by the Interested Shareholder which were acquired (x) within the two-year period immediately prior to the first public announcement of the proposed Business Combination (the "Announcement Date") or (y) in the transaction in which it became an Interested Shareholder, whichever is higher; (b) the Fair Market Value per share of Common Equity on the Announcement Date or on the date on which the Interested Shareholder became an Interested Shareholder (the "Determination Date"), whichever is higher; and (c) (if applicable) the price per share equal to the Fair Market Value per share of Common Equity determined pursuant to clause (b) immediately preceding, multiplied by the ratio of (x) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of Common Equity beneficially owned by the Interested Shareholder which were acquired within the two-year period immediately prior to the Announcement Date to (y) the Fair Market Value per share of Common Equity on the first day in such two-year period on which the Interested Shareholder beneficially owned any shares of Common Equity, whether or not such Shareholder was an Interested Shareholder on that day. (2) If the transaction constituting the Business Combination shall provide for a consideration to be received by holders of any class of outstanding Voting Shares other than Common Equity, the aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of such Voting Shares shall be at least equal to the 15 Page 15 highest of the following (it being intended that the requirements of this clause B(2) shall be required to be met with respect to every class of outstanding Voting Shares, whether or not the Interested Shareholder beneficially owns any shares of a particular class of Voting Shares): (a) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of such class of Voting Shares beneficially owned by the Interested Shareholder which were acquired (x) within the two-year period immediately prior to the Announcement Date or (y) in the transaction in which it became an Interested Shareholder, whichever is higher; (b) (if applicable) the highest preferential amount per share to which the holders of shares of such class of Voting Shares are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (c) the Fair Market Value per share of such class of Voting Shares on the Announcement Date or on the Determination Date, whichever is higher; and (d) (if applicable) the price per share equal to the Fair Market Value per share of such class of Voting Shares determined pursuant to clause (c) immediately preceding, multiplied by the ratio of (x) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid in order to acquire any shares of such class of Voting Shares beneficially owned by the Interested Shareholder which were acquired within the two-year period immediately prior to the Announcement Date to (y) the Fair Market Value per share of such class of Voting Shares on the first day in such two-year period on which the Interested Shareholder beneficially owned any shares of such class of Voting Shares, whether or not such Shareholder was an Interested Shareholder on that day. 16 Page 16 (3) The consideration to be received by holders of a particular class of Voting Shares or Common Equity shall be in cash or in the same form as was previously paid in order to acquire shares of such class of shares which are beneficially owned by the Interested Shareholder and, if the Interested Shareholder beneficially owns shares of any class of shares which were acquired with varying forms of consideration, the form of consideration to be received by the holders of such class of shares shall be either cash or the form used to acquire the largest number of shares of such class of Voting Shares beneficially owned by it. The prices determined in accordance with clauses (1) and (2) of paragraph B of this Section 2 shall be subject to an appropriate adjustment in the event of any stock dividend, stock split, subdivision, combination of shares or similar event. (4) After such Interested Shareholder has become an Interested Shareholder and prior to the consummation of such Business Combination: (a) except as approved by a majority of the Disinterested Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding Preferred Stock or other capital stock entitled to a preference over the Common Equity as to dividends or upon liquidation; (b) except as approved by a majority of the Disinterested Directors, there shall have been (x) no reduction in the annual amount of dividends paid on the Common Equity (except as necessary to reflect any subdivision of the Common Equity) and (y) no failure to increase the annual amount of dividends as necessary to prevent any such reduction in the event of any reclassification (including any reverse stock split), recapitalization, reorganization or similar transaction which has the effect of reducing the number of outstanding shares of the Common Equity; (c) such Interested Shareholder shall not have become the beneficial owner of any additional Voting Shares except as part of the transaction in which it became an Interested Shareholder; and 17 Page 17 (d) there shall have always been at least four (4) Disinterested Directors on the Board of Directors. (5) After such Interested Shareholder has become an Interested Shareholder, such Interested Shareholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise. (6) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to shareholders at least thirty (30) days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act, rules, regulations or subsequent provisions). Section 3. For purposes of this Article Eighth: A. A "person" shall mean any individual, a partnership, a corporation, an association, a trust or other entity. B. "Interested Shareholder" at any particular time shall mean any person (other than the Corporation or any Subsidiary or any employee benefit plan or trust of the Corporation or any Subsidiary) who or which: (1) is at such time the beneficial owner, directly or indirectly, of five percent (5%) or more of the voting power of the Voting Shares; (2) is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of five percent (5%) or more of the voting power of the Voting Shares; or (3) is at such time an assignee of or has otherwise succeeded to the beneficial ownership of any Voting Shares which were at any time within 18 Page 18 the two-year period immediately prior to the date in question beneficially owned by an Interested Shareholder (as defined in (1) and (2) above), if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. C. "Disinterested Shareholder" shall mean a shareholder of the Corporation who is not an Interested Shareholder (or an Affiliate or an Associate of an Interested Shareholder) who is involved, directly or indirectly, in the proposed Business Combination in question, except that as used in Section 6 of this Article Eighth, the term "Disinterested Shareholder" shall mean a shareholder of the Company who is not an Interested Shareholder. D. A person shall be a "beneficial owner" of any Voting Shares: (1) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; (2) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether or not such right is exercisable immediately) pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options or otherwise or (ii) the right to vote pursuant to any agreement, arrangement or understanding; or (3) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any Voting Shares. E. For the purpose of determining whether a person is an Interested Shareholder pursuant to paragraph B of this Section 3, the number of Voting Shares deemed to be outstanding shall include shares deemed owned by an Interested Shareholder through application of paragraph D of this Section 3 but shall not include any other Voting Shares which may be issuable pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options or otherwise. 19 Page 19 F. "Affiliate" means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. "Associate", which is used to indicate a relationship with any person, means (1) any corporation or organization (other than the Corporation or a majority-owned subsidiary of the Corporation) of which such person is an officer or partner or is, directly or indirectly, the beneficial owner of ten percent (10%) or more of any class of equity securities, (2) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity, and (3) any relative or spouse of such person, or any relative of such spouse, who has the same home as such person or who is a director or officer of the Corporation or any of its parents or subsidiaries. G. "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Shareholder set forth in paragraph B of this Section 3, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. H. "Disinterested Director" means any member of the Board of Directors who is unaffiliated with, and not a representative or nominee of, the Interested Shareholder who is involved, directly or indirectly, in the proposed Business Combination in question, and was (a) a member of the Board prior to the time that such Interested Shareholder became an Interested Shareholder or (b) recommended to succeed a Disinterested Director by a majority of the Disinterested Directors then on the Board. I. "Fair Market Value" means: (a) in the case of stock, the highest closing sale price (or closing bid price for any day on which a closing sale price is not available) during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or if such stock is not listed on any 20 Page 20 such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the NASDAQ or any other system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Disinterested Directors in good faith; and (b) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by a majority of the Disinterested Directors in good faith. If different classes of Common Equity of the Corporation have different Fair Market Values based on the determinations to be made under subsection (a), then the term "Fair Market Value" of Common Equity shall mean the highest value then ascribed to a share of any of the various classes of Common Equity. J. In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash to be received" as used in paragraph B of Section 2 of this Article Eighth shall include the shares of Common Equity and the shares of any other class of outstanding Voting Shares retained by the holders of such shares. Section 4. A majority of the Disinterested Directors of the Corporation shall have the power and duty to determine for the purpose of this Article Eighth, on the basis of information known to them after reasonable inquiry, (1) whether a person is an Interested Shareholder, (2) the number of Voting Shares beneficially owned by any person, (3) whether a person is an Affiliate or Associate of another, (4) whether the requirements of Section 2 of this Article Eighth have been met with respect to any Business Combination, and (5) whether the assets which are subject to any Business Combination have, or the consideration to be received for the issuance or transfer of securities by this Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $1,000,000 or more. Any such determination made in good faith shall be binding and conclusive on all parties. Section 5. Nothing contained in this Article Eighth shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law. Section 6. In addition to any requirements of law and any other provisions of these Articles or the terms of any class or series of capital stock of the Corporation entitled to a preference over the Common Equity as to dividends or upon liquidation, or the terms of any other securities of the Corporation (and notwithstanding the fact that a lesser 21 Page 21 percentage may be specified by law, these Articles or any such terms), the affirmative vote of A. the holders of two-thirds or more of the combined voting power of the Voting Shares, voting together as a single class, and B. two-thirds of the combined voting power of the Voting Shares held by the Disinterested Shareholders, voting together as a single class, shall be required to amend, alter or repeal or adopt any provision inconsistent with, this Article Eighth. ARTICLE NINTH: The foregoing Amended and Restated Articles of Incorporation hereby supersede existing Amended Articles of Incorporation as heretofore amended. EX-4.2 4 EXHIBIT 4.2 1 EXHIBIT 4.2 FORM OF ------- T H E L I N C O L N E L E C T R I C C O M P A N Y ------------------------------------------------------- AMENDED AND RESTATED CODE OF REGULATIONS ------------------- AS PROPOSED TO BE AMENDED ARTICLE I --------- SHARES ------ 1. REGISTRATION AND TRANSFER OF CERTIFICATES. Each shareholder of the Corporation whose shares have been fully paid for shall be entitled to a certificate or certificates showing the number of shares registered in his name on the books of the Corporation. Each certificate shall be signed by the Chairman of the Board or the President or Vice-President of the Corporation and the Secretary or Assistant Secretary or the Treasurer or an Assistant Treasurer. Shares shall be transferred only on the books of the Corporation by the holder thereof, in person or by Attorney, upon surrender and cancellation of certificates for a like number of shares. 2. SUBSTITUTED CERTIFICATES. The Board of Directors may authorize the issuance of a new certificate in place of any certificate theretofore issued by the Corporation alleged to have been lost or destroyed; in its discretion requiring the owner of the lost or destroyed certificate, or the legal representative, to give the Corporation a bond in such sum as the Board of Directors may direct as indemnity against any claim that may be made against the Corporation; or, if in the judgment of the Board it is proper to do so, a new certificate may be issued without requiring any bond. 2 2 3. SHAREHOLDERS ENTITLED TO NOTICE AND TO VOTE. The Board of Directors may fix a time not exceeding forty-five (45) days preceding the date of any meeting of shareholders, or any dividend payment date, or any date for the allotment of rights, as a record date for the determination of the shareholders entitled to notice of such meeting, or to vote thereat, or to receive such dividends or rights, as the case may be, or in lieu thereof, the Board of Directors may close the books of the Corporation against the transfer of shares during the whole or any part of such period. ARTICLE II ---------- MEETINGS OF SHAREHOLDERS ------------------------ 1. ANNUAL MEETING. The Annual Meeting of shareholders shall be held on the fourth Tuesday of the month of May each year at the principal office of the Corporation, if not a legal holiday, and if a legal holiday, then on the next day not a legal holiday, for the election of Directors and the consideration of reports to be laid before the meeting. Upon due notice there may also be considered and acted upon at the Annual Meeting any matter which can properly be considered and acted upon at a special meeting, in which case and for which purpose the Annual Meeting shall also be considered as, and shall be, a special meeting. When an Annual Meeting is not held or Directors are not elected thereat, they may be elected at a special meeting called for that purpose. 3 3 2. SPECIAL MEETINGS. Special meetings of the shareholders may be called by the President, or a Vice-President, or the Chairman of the Board of Directors, or by the Executive Committee, or by a majority of the Board of Directors, acting with or without a meeting, or by persons who hold twenty-five percent of all the shares outstanding and entitled to vote thereat, at such place or places as may be designated in the call therefore, and notice thereof; provided, however, that a meeting for the election of Directors may be held only within the State of Ohio. 3. NOTICE OF MEETINGS. Notice of meetings of shareholders shall be given in writing by the Secretary, or in his absence by the Chairman of the Board or President or a Vice-President, and such notice shall state the purpose or purposes for which the meeting is called, and the time and place where it is to be held, and shall be served or mailed to each shareholder of record entitled to vote at such meeting or entitled to notice thereof, at least ten (10) days prior to the meeting. If mailed, it shall be directed to the shareholder at his address as it appears upon the records of the Corporation. In the event of the transfer of shares after notice has been given and prior to the holding of the meeting, it shall not be necessary to serve notice upon the transferee. Notice of the time, place and purpose of any meeting of shareholders may be waived by the written assent of every shareholder entitled to notice, filed with 4 4 or entered upon the records of the meeting, either before or after the holding thereof. 5. QUORUM. The holders of a majority of the shares issued and outstanding, entitled to vote, present either in person or by proxy, shall constitute a quorum, unless a larger number is required by the laws of Ohio, in which case the number required by the laws of Ohio, present either in person or by proxy, shall constitute a quorum, but any less number may adjourn the meeting from time to time, until a quorum is obtained, and no further notice of such adjourned meeting need be given other than by announcement at the meeting at which such adjournment is taken. 6. PROXIES. Each shareholder entitled to vote shall be entitled to one vote, either in person or by proxy, for each share of the Corporation standing in his name at the time of the closing of the books for such meeting. No proxy shall be valid after the expiration of eleven (11) months from the date thereof, unless a longer time be specified therein. Proxies shall be in writing but need not be sealed, witnessed or acknowledged and shall be filed with the Secretary at or before the meeting. 5 5 ARTICLE III ----------- BOARD OF DIRECTORS ------------------ 1. NUMBER AND ELECTION. The powers and authority of the Corporation shall be exercised and its business managed and controlled by a Board of Directors. The election of Directors shall be by ballot and shall be held at the Annual Meeting of shareholders or at a special meeting called for that purpose. The maximum number of the Directors of the Corporation shall be eighteen. Subject to such maximum, the number of Directors may be fixed or changed (a) at a meeting of the shareholders called for the purpose of electing Directors at which a quorum is present, by the affirmative vote of the holders of a majority of the shares that are represented at the meeting and entitled to vote on the proposal, and (b) by the Directors, by the vote of a majority of their number, who may also fill any Director's office that is created by an increase in the number of Directors. The Directors shall be divided into three classes, as nearly equal in number as possible, as determined by the Board of Directors of the Corporation. A separate election shall be held for each class of Directors as hereinafter provided. Directors elected at the first election for the first class shall hold office for the term of one year from the date of their election and until the election of their successors, Directors elected at the first election for the second class shall hold office for the term of two years from the date of their election and until the election of their successors, and Directors elected at the 6 6 first election for the third class shall hold office for the term of three years from the date of their election and until the election of their successors. At each annual election, the successors to the Directors of each class whose terms shall expire in that year shall be elected to hold office for the term of three years from the date of their election and until the election of their successors. In case of any increase in the number of Directors of any class, any additional Directors elected to such class shall hold office for a term which shall coincide with the term of such class. 2. VACANCY AND REMOVAL. All Directors, for whatever terms elected, shall hold office subject to applicable statutory provisions as to the creation of vacancies and removal; provided, however, that all Directors, all the Directors of a particular class or any individual Director may be removed from office, without assigning any cause, only by the affirmative vote of the holders of at least two-thirds of the voting power of the outstanding shares of stock entitled to vote generally on the election of Directors. 3. RESIGNATION. Any Director may resign at any time. Such resignation shall be made in writing and shall take effect at the time specified therein. If no time is specified, it shall become effective from the time of its receipt by the Corporation, and the Secretary shall record such resignation, noting the day, hour and minute of its 7 7 reception. The acceptance of a resignation shall not be necessary to make it effective. 4. MEETINGS. Directors may meet at such times and at such places within or without the State of Ohio as they may determine. A majority of the Board of Directors shall be necessary to constitute a quorum for the transaction of business, and the act of a majority of Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. 5. BY-LAWS. The Board of Directors may adopt By-Laws for its own government not inconsistent with the Articles of Incorporation or Regulations of the Corporation. ARTICLE IV ---------- INDEMNIFICATION AND INSURANCE ----------------------------- 1. INDEMNIFICATION. (a) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, trustee, officer, employee or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust or other enterprise, to the full extent permitted from time to time under the laws 8 8 of the State of Ohio; provided, however, that the Corporation shall indemnify any such agent (as opposed to any Director, officer or employee) of the Corporation to an extent greater than that required by law only if and to the extent that the Directors may, in their discretion, so determine. (b) The indemnification authorized by this Article shall not be exclusive of, and shall be in addition to, any other rights granted to those seeking indemnification hereunder or under the Articles or any agreement, vote of shareholders or disinterested Directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a Director, trustee, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (c) No amendment, termination or repeal of this Article IV shall affect or impair in any way the rights of any Director or officer of the Corporation to indemnification under the provisions hereof with respect to any action, suit or proceeding arising out of, or relating to, any actions, transactions or facts occurring prior to the final adoption of such amendment, termination or repeal. 2. LIABILITY INSURANCE. The Corporation may purchase and maintain insurance or furnish similar protection, including but not limited to trust funds, letters of credit or self-insurance, on behalf of or for any person who is or was a 9 9 Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, trustee, officer, employee or agent of another corporation, domestic or foreign, nonprofit or for profit, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under this Article. Insurance may be purchased from or maintained with a person in which the Corporation has a financial interest. ARTICLE V --------- NOMINATION OF DIRECTOR CANDIDATES --------------------------------- 1. NOTIFICATION OF NOMINEES. Nominations for the election of Directors may be made by the Board of Directors or a committee appointed by the Board of Directors or by any shareholder entitled to vote in the election of Directors generally. However, any shareholder entitled to vote in the election of Directors generally may nominate one or more persons for election as Directors at a meeting only if written notice of such shareholder's intent to make such nomination or nominations has been received by the Secretary of the Corporation not less than 80 days in advance of such meeting; provided, however, that in the event that the date of the meeting was not publicly announced by the Corporation by mail, press release or otherwise more than 90 days prior to the meeting, notice by the shareholder to be timely must 10 10 be delivered to the Secretary of the Corporation not later than the close of business on the tenth day following the day on which such announcement of the date of the meeting was communicated to shareholders. Each such notice shall set forth: (a) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the shareholder is a holder of record of stock of the Corporation entitled to vote for the election of Directors on the date of such notice and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (d) such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated, or intended to be nominated, by the Board of Directors; and (e) the consent of each nominee to serve as a Director of the Corporation if so elected. 2. SUBSTITUTION OF NOMINEES. In the event that a person is validly designated as a nominee in accordance with paragraph 1 above, and shall thereafter become unable or unwilling to stand for election to the Board of Directors, the Board of 11 11 Directors or the shareholder who proposed such nominee, as the case may be, may designate a substitute nominee upon delivery, not fewer than five days prior to the date of the meeting for the election of such nominee of a written notice to the Secretary setting forth such information regarding such substitute nominee as would have been required to be delivered to the Secretary pursuant to paragraph 1 above had such substitute nominee been initially proposed as a nominee. Such notice shall include a signed consent to serve as a Director of the Corporation, if elected, of each such substitute nominee. 3. COMPLIANCE WITH PROCEDURES. If the chairman of the meeting for the election of Directors determines that a nomination of any candidate for election as a Director at such meeting was not made in accordance with the applicable provisions of paragraphs 1 and 2 above, such nomination shall be void. ARTICLE VI ---------- COMMITTEES ---------- 1. CREATION AND ELECTION. The Board of Directors may create, from time to time and from its own number, an Executive Committee or any other committee or committees of the Board of Directors to act in the intervals between meetings of the Board of Directors and may delegate to such committee or committees any of the authority of the Board of Directors other than that of filling vacancies among the Board of 12 12 Directors or in any committee of the Board of Directors. No committee shall consist of less than three Directors. The Board of Directors may appoint one or more Directors as alternate members of any such committee, who may take the place of any absent member or members at a meeting of such committee. Except as above provided and except to the extent that its powers are limited by the Directors, the Executive Committee during the intervals between meetings of the Directors shall possess and may exercise, subject to the control and direction of the Directors, all of the powers of the Directors in the management and control of the business of the Corporation, regardless of whether such powers are specifically conferred by these Regulations. All action taken by the Executive Committee shall be reported to the Directors at their first meeting thereafter. 2. QUORUM AND ACTION. Unless otherwise ordered by the Board of Directors, a majority of the members of any committee appointed by the Board of Directors pursuant to this section shall constitute a quorum at any meeting thereof, and the act of a majority of the members present at a meeting at which a quorum is present shall be the act of such committee. Action may be taken by any such committee without a meeting by a writing or writings signed by all of its members. Any such committee shall prescribe its own rules for calling and holding meetings and its method of procedure, subject to any rules prescribed by the Board of 13 13 Directors, and shall keep a written record of all action taken by it. ARTICLE VII ----------- OFFICERS -------- 1. OFFICERS. The Corporation may have a Chairman of the Board and shall have a President (both of whom shall be Directors), a Secretary and a Chief Financial Officer (who shall serve as Treasurer under Ohio law). The Corporation may also have one or more Vice Presidents and such other officers and assistant officers as the Board of Directors may deem necessary. All of the officers and assistant officers shall be elected by the Board of Directors. 2. AUTHORITY AND DUTIES OF OFFICERS. The officers of the Corporation shall have such authority and shall perform such duties as are customarily incident to their respective offices, or as may be specified from time to time by the Board of Directors regardless of whether such authority and duties are customarily incident to such office. ARTICLE VIII ------------ COMPENSATION OF DIRECTORS AND OFFICERS -------------------------------------- The compensation of the Directors and officers of the Corporation shall be such as the Board of Directors may from time to time designate. 14 14 ARTICLE IX ---------- AMENDMENTS ---------- These regulations may be altered, changed, amended or repealed by the written consent of the holders of record of shares entitling them to exercise not less than two-thirds of the voting power of the Corporation, or at a meeting called and held for that purpose, by the affirmative vote of the holders of record of shares entitling them to exercise not less than a majority of the voting power of the Corporation; provided, however, that paragraphs 1 and 2 of Article III and all of Article V shall not be altered, changed, amended or repealed, nor shall any provision inconsistent with such provisions be adopted, without the affirmative vote of the holders of record of shares entitling them to exercise not less than two-thirds of the voting power of the Corporation entitled to vote generally in the election of Directors. EX-23.1 5 EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "EXPERTS" in the Registration Statement (Form S-3) and related Prospectus of The Lincoln Electric Company for the registration of its Class A Common Shares and to the incorporation by reference therein of our report dated March 3, 1995, with respect to the consolidated financial statements and schedule of The Lincoln Electric Company and subsidiaries included in its Annual Report (Form 10-K) for the year ended December 31, 1994, filed with the Securities and Exchange Commission. ERNST & YOUNG LLP Cleveland, Ohio April 27, 1995 EX-23.2 6 EXHIBIT 23.2 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of this Registration Statement on Form S-3 of our report dated March 27, 1995 relating to the consolidated financial statements of The Lincoln Electric Company (Australia) Proprietary Limited and subsidiaries (not presented separately herein) appearing on page 18 of The Lincoln Electric Company's Annual Report on Form 10-K for the year ended December 31, 1994. We also consent to the reference to us under the heading "Experts" in such Prospectus. Price Waterhouse Parramatta, Australia April 25, 1995 EX-23.3 7 EXHIBIT 23.3 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in Form S-3 of our independent auditors' report dated March 12, 1993 on the consolidated financial statements and schedules of Messer Lincoln GmbH and its subsidiary as at December 31, 1992 referred to in the annual report on Form 10-K of The Lincoln Electric Company for the year ended December 31, 1994, and to the reference to our firm under the heading "EXPERTS" in the prospectus. Dusseldorf, April 27, 1995 KPMG KLYNVELD PEAT MARWICK GOERDELER Gesellschaft mit beschrankter Haftung Wirtschaftsprufungsgesellschaft W. Schweiger T. te Dorsthorst EX-23.4 8 EXHIBIT 23.4 1 EXHIBIT 23.4 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in Form S-3 of our independent auditors' report dated March 23, 1993 on the consolidated financial statements and schedules of Lincoln-Norweld B.V. and its subsidiaries as at December 31, 1992 referred to in the annual report on Form 10-K of The Lincoln Electric Company for the year ended December 31, 1994, and to the reference to our firm under the heading "EXPERTS" in the prospectus. Arnhem, The Netherlands KPMG Accountants N.V. April 27, 1995 EX-24 9 EXHIBIT 24 1 Exhibit 24 DIRECTOR AND/OR OFFICER OF THE LINCOLN ELECTRIC COMPANY REGISTRATION STATEMENT ON FORM S-3 POWER OF ATTORNEY The undersigned director and/or officer of The Lincoln Electric Company, an Ohio corporation (the "Corporation"), hereby constitutes and appoints Donald F. Hastings, H. Jay Elliott and Frederick G. Stueber, or any of them, with full power of substitution and resubstitution, as attorneys or attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Act of 1933 one or more Registration Statement(s) on Form S-3 relating to the registration for sale of the Corporation's proposed class of nonvoting Common Shares (tentatively known as the Class A Common Shares), and any and all amendments, supplements and exhibits thereto, including pre-effective and post-effective amendments or supplements, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such registration(s), with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorneys and any of them and any such substitute. EXECUTED as of March 30, 1995. /s/ Donald F. Hastings ___________________________________________________ Signature Chairman of the Board, President and Chief Executive Officer Donald F. Hastings (Principal Executive Officer) _______________________________________________________ Name and Title 2 Exhibit 24 DIRECTOR AND/OR OFFICER OF THE LINCOLN ELECTRIC COMPANY REGISTRATION STATEMENT ON FORM S-3 POWER OF ATTORNEY The undersigned director and/or officer of The Lincoln Electric Company, an Ohio corporation (the "Corporation"), hereby constitutes and appoints Donald F. Hastings, H. Jay Elliott and Frederick G. Stueber, or any of them, with full power of substitution and resubstitution, as attorneys or attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Act of 1933 one or more Registration Statement(s) on Form S-3 relating to the registration for sale of the Corporation's proposed class of nonvoting Common Shares (tentatively known as the Class A Common Shares), and any and all amendments, supplements and exhibits thereto, including pre-effective and post-effective amendments or supplements, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such registration(s), with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorneys and any of them and any such substitute. EXECUTED as of March 30, 1995. /s/ Frederick W. Mackenbach ___________________________________________________ Signature President, Chief Operating Frederick W. Mackenbach Officer, and Director ______________________________________________________ Name and Title 3 Exhibit 24 DIRECTOR AND/OR OFFICER OF THE LINCOLN ELECTRIC COMPANY REGISTRATION STATEMENT ON FORM S-3 POWER OF ATTORNEY The undersigned director and/or officer of The Lincoln Electric Company, an Ohio corporation (the "Corporation"), hereby constitutes and appoints Donald F. Hastings, H. Jay Elliott and Frederick G. Stueber, or any of them, with full power of substitution and resubstitution, as attorneys or attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Act of 1933 one or more Registration Statement(s) on Form S-3 relating to the registration for sale of the Corporation's proposed class of nonvoting Common Shares (tentatively known as the Class A Common Shares), and any and all amendments, supplements and exhibits thereto, including pre-effective and post-effective amendments or supplements, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such registration(s), with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorneys and any of them and any such substitute. EXECUTED as of March 30, 1995. /s/ Harry Carlson ___________________________________________________ Signature Harry Carlson Vice Chairman ___________________________________________________ Name and Title 4 Exhibit 24 DIRECTOR AND/OR OFFICER OF THE LINCOLN ELECTRIC COMPANY REGISTRATION STATEMENT ON FORM S-3 POWER OF ATTORNEY The undersigned director and/or officer of The Lincoln Electric Company, an Ohio corporation (the "Corporation"), hereby constitutes and appoints Donald F. Hastings, H. Jay Elliott and Frederick G. Stueber, or any of them, with full power of substitution and resubstitution, as attorneys or attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Act of 1933 one or more Registration Statement(s) on Form S-3 relating to the registration for sale of the Corporation's proposed class of nonvoting Common Shares (tentatively known as the Class A Common Shares), and any and all amendments, supplements and exhibits thereto, including pre-effective and post-effective amendments or supplements, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such registration(s), with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorneys and any of them and any such substitute. EXECUTED as of March 30, 1995. /s/ David H. Gunning ___________________________________________________ Signature David H. Gunning Director ___________________________________________________ Name and Title 5 Exhibit 24 DIRECTOR AND/OR OFFICER OF THE LINCOLN ELECTRIC COMPANY REGISTRATION STATEMENT ON FORM S-3 POWER OF ATTORNEY The undersigned director and/or officer of The Lincoln Electric Company, an Ohio corporation (the "Corporation"), hereby constitutes and appoints Donald F. Hastings, H. Jay Elliott and Frederick G. Stueber, or any of them, with full power of substitution and resubstitution, as attorneys or attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Act of 1933 one or more Registration Statement(s) on Form S-3 relating to the registration for sale of the Corporation's proposed class of nonvoting Common Shares (tentatively known as the Class A Common Shares), and any and all amendments, supplements and exhibits thereto, including pre-effective and post-effective amendments or supplements, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such registration(s), with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorneys and any of them and any such substitute. EXECUTED as of March 30, 1995. /s/ Edward E. Hood, Jr. ___________________________________________________ Signature Edward E. Hood, Jr. Director ___________________________________________________ Name and Title 6 Exhibit 24 DIRECTOR AND/OR OFFICER OF THE LINCOLN ELECTRIC COMPANY REGISTRATION STATEMENT ON FORM S-3 POWER OF ATTORNEY The undersigned director and/or officer of The Lincoln Electric Company, an Ohio corporation (the "Corporation"), hereby constitutes and appoints Donald F. Hastings, H. Jay Elliott and Frederick G. Stueber, or any of them, with full power of substitution and resubstitution, as attorneys or attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Act of 1933 one or more Registration Statement(s) on Form S-3 relating to the registration for sale of the Corporation's proposed class of nonvoting Common Shares (tentatively known as the Class A Common Shares), and any and all amendments, supplements and exhibits thereto, including pre-effective and post-effective amendments or supplements, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such registration(s), with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorneys and any of them and any such substitute. EXECUTED as of March 30, 1995. /s/ Paul E. Lego ___________________________________________________ Signature Paul E. Lego Director ___________________________________________________ Name and Title 7 Exhibit 24 DIRECTOR AND/OR OFFICER OF THE LINCOLN ELECTRIC COMPANY REGISTRATION STATEMENT ON FORM S-3 POWER OF ATTORNEY The undersigned director and/or officer of The Lincoln Electric Company, an Ohio corporation (the "Corporation"), hereby constitutes and appoints Donald F. Hastings, H. Jay Elliott and Frederick G. Stueber, or any of them, with full power of substitution and resubstitution, as attorneys or attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Act of 1933 one or more Registration Statement(s) on Form S-3 relating to the registration for sale of the Corporation's proposed class of nonvoting Common Shares (tentatively known as the Class A Common Shares), and any and all amendments, supplements and exhibits thereto, including pre-effective and post-effective amendments or supplements, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such registration(s), with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorneys and any of them and any such substitute. EXECUTED as of March 30, 1995. /s/ Hugh L. Libby ___________________________________________________ Signature Hugh L. Libby Director ___________________________________________________ Name and Title 8 Exhibit 24 DIRECTOR AND/OR OFFICER OF THE LINCOLN ELECTRIC COMPANY REGISTRATION STATEMENT ON FORM S-3 POWER OF ATTORNEY The undersigned director and/or officer of The Lincoln Electric Company, an Ohio corporation (the "Corporation"), hereby constitutes and appoints Donald F. Hastings, H. Jay Elliott and Frederick G. Stueber, or any of them, with full power of substitution and resubstitution, as attorneys or attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Act of 1933 one or more Registration Statement(s) on Form S-3 relating to the registration for sale of the Corporation's proposed class of nonvoting Common Shares (tentatively known as the Class A Common Shares), and any and all amendments, supplements and exhibits thereto, including pre-effective and post-effective amendments or supplements, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such registration(s), with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorneys and any of them and any such substitute. EXECUTED as of March 30, 1995. /s/ David C. Lincoln ___________________________________________________ Signature David C. Lincoln Director ___________________________________________________ Name and Title 9 Exhibit 24 DIRECTOR AND/OR OFFICER OF THE LINCOLN ELECTRIC COMPANY REGISTRATION STATEMENT ON FORM S-3 POWER OF ATTORNEY The undersigned director and/or officer of The Lincoln Electric Company, an Ohio corporation (the "Corporation"), hereby constitutes and appoints Donald F. Hastings, H. Jay Elliott and Frederick G. Stueber, or any of them, with full power of substitution and resubstitution, as attorneys or attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Act of 1933 one or more Registration Statement(s) on Form S-3 relating to the registration for sale of the Corporation's proposed class of nonvoting Common Shares (tentatively known as the Class A Common Shares), and any and all amendments, supplements and exhibits thereto, including pre-effective and post-effective amendments or supplements, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such registration(s), with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorneys and any of them and any such substitute. EXECUTED as of March 30, 1995. /s/ Emma S. Lincoln ___________________________________________________ Signature Emma S. Lincoln Director ___________________________________________________ Name and Title 10 Exhibit 24 DIRECTOR AND/OR OFFICER OF THE LINCOLN ELECTRIC COMPANY REGISTRATION STATEMENT ON FORM S-3 POWER OF ATTORNEY The undersigned director and/or officer of The Lincoln Electric Company, an Ohio corporation (the "Corporation"), hereby constitutes and appoints Donald F. Hastings, H. Jay Elliott and Frederick G. Stueber, or any of them, with full power of substitution and resubstitution, as attorneys or attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Act of 1933 one or more Registration Statement(s) on Form S-3 relating to the registration for sale of the Corporation's proposed class of nonvoting Common Shares (tentatively known as the Class A Common Shares), and any and all amendments, supplements and exhibits thereto, including pre-effective and post-effective amendments or supplements, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such registration(s), with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorneys and any of them and any such substitute. EXECUTED as of March 30, 1995. /s/ G. Russell Lincoln ___________________________________________________ Signature G. Russell Lincoln Director ___________________________________________________ Name and Title 11 Exhibit 24 DIRECTOR AND/OR OFFICER OF THE LINCOLN ELECTRIC COMPANY REGISTRATION STATEMENT ON FORM S-3 POWER OF ATTORNEY The undersigned director and/or officer of The Lincoln Electric Company, an Ohio corporation (the "Corporation"), hereby constitutes and appoints Donald F. Hastings, H. Jay Elliott and Frederick G. Stueber, or any of them, with full power of substitution and resubstitution, as attorneys or attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Act of 1933 one or more Registration Statement(s) on Form S-3 relating to the registration for sale of the Corporation's proposed class of nonvoting Common Shares (tentatively known as the Class A Common Shares), and any and all amendments, supplements and exhibits thereto, including pre-effective and post-effective amendments or supplements, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such registration(s), with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorneys and any of them and any such substitute. EXECUTED as of March 30, 1995. /s/ Henry L. Meyer III ___________________________________________________ Signature Henry L. Meyer III Director ___________________________________________________ Name and Title 12 Exhibit 24 DIRECTOR AND/OR OFFICER OF THE LINCOLN ELECTRIC COMPANY REGISTRATION STATEMENT ON FORM S-3 POWER OF ATTORNEY The undersigned director and/or officer of The Lincoln Electric Company, an Ohio corporation (the "Corporation"), hereby constitutes and appoints Donald F. Hastings, H. Jay Elliott and Frederick G. Stueber, or any of them, with full power of substitution and resubstitution, as attorneys or attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Act of 1933 one or more Registration Statement(s) on Form S-3 relating to the registration for sale of the Corporation's proposed class of nonvoting Common Shares (tentatively known as the Class A Common Shares), and any and all amendments, supplements and exhibits thereto, including pre-effective and post-effective amendments or supplements, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such registration(s), with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorneys and any of them and any such substitute. EXECUTED as of March 30, 1995. /s/ Lawrence O. Selhorst ___________________________________________________ Signature Lawrence O. Selhorst Director ___________________________________________________ Name and Title 13 Exhibit 24 DIRECTOR AND/OR OFFICER OF THE LINCOLN ELECTRIC COMPANY REGISTRATION STATEMENT ON FORM S-3 POWER OF ATTORNEY The undersigned director and/or officer of The Lincoln Electric Company, an Ohio corporation (the "Corporation"), hereby constitutes and appoints Donald F. Hastings, H. Jay Elliott and Frederick G. Stueber, or any of them, with full power of substitution and resubstitution, as attorneys or attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Act of 1933 one or more Registration Statement(s) on Form S-3 relating to the registration for sale of the Corporation's proposed class of nonvoting Common Shares (tentatively known as the Class A Common Shares), and any and all amendments, supplements and exhibits thereto, including pre-effective and post-effective amendments or supplements, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such registration(s), with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorneys and any of them and any such substitute. EXECUTED as of March 30, 1995. /s/ Craig R. Smith ___________________________________________________ Signature Craig R. Smith Director ___________________________________________________ Name and Title 14 Exhibit 24 DIRECTOR AND/OR OFFICER OF THE LINCOLN ELECTRIC COMPANY REGISTRATION STATEMENT ON FORM S-3 POWER OF ATTORNEY The undersigned director and/or officer of The Lincoln Electric Company, an Ohio corporation (the "Corporation"), hereby constitutes and appoints Donald F. Hastings, H. Jay Elliott and Frederick G. Stueber, or any of them, with full power of substitution and resubstitution, as attorneys or attorney of the undersigned, for him or her and in his or her name, place and stead, to sign and file under the Securities Act of 1933 one or more Registration Statement(s) on Form S-3 relating to the registration for sale of the Corporation's proposed class of nonvoting Common Shares (tentatively known as the Class A Common Shares), and any and all amendments, supplements and exhibits thereto, including pre-effective and post-effective amendments or supplements, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining to such registration(s), with full power and authority to do and perform any and all acts and things whatsoever required and necessary to be done in the premises, hereby ratifying and approving the act of said attorneys and any of them and any such substitute. EXECUTED as of March 30, 1995. /s/ Frank Steingass ___________________________________________________ Signature Frank Steingass Director ___________________________________________________ Name and Title -----END PRIVACY-ENHANCED MESSAGE-----