<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____ to ____
Commission file number 1-14182
TB Wood's Corporation
(Exact name of registrant as specified in its charter)
Delaware 25-1771145
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
440 North Fifth Avenue, Chambersburg, PA 17201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (717) 264-7161
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each Exchange on
Which Registered
Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant based on the closing price on February 11, 2000, was $50,238,873. On
February 15, 2000, there were 5,467,403 shares of the registrant's common stock
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2000 Annual Meeting of Shareholders are
incorporated by reference into Part III hereof. Only those specific portions so
incorporated are to be deemed filed as part of this Form 10-K.
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TB WOOD'S CORPORATION
FISCAL YEAR 1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I................................................................................................................... 4
Item 1. Business.................................................................................................4
Item 2. Properties...............................................................................................9
Item 3. Legal Proceedings........................................................................................9
Item 4. Submission of Matters to a Vote of Security Holders......................................................9
PART II..................................................................................................................10
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters...................................10
Item 6. Selected Financial Data.................................................................................10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation....................11
Item 8. Financial Statements and Supplementary Data.............................................................15
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure....................38
PART III.................................................................................................................39
Item 10. Directors and Executive Officers of the Registrant.....................................................39
Item 11. Executive Compensation.................................................................................39
Item 12. Security Ownership of Certain Beneficial Owners and Management.........................................39
Item 13. Certain Relationships and Related Transactions.........................................................39
PART IV..................................................................................................................40
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................................40
SIGNATURES...............................................................................................................43
</TABLE>
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PART I
Item 1. Business.
General
TB Wood's Corporation (the "Company" or "TB Wood's") is an established
designer, manufacturer and marketer of electronic and mechanical industrial
power transmission products. The Company's products are sold to North American
and international manufacturers and users of industrial equipment. Headquartered
in Chambersburg, Pennsylvania, the 143 year-old business operates 11 production
facilities with over 1,100 employees in the United States, Canada, Mexico,
Germany, India and Italy. The Company has a network of more than 1,000 select
independent distributors with over 3,000 locations in North America.
History
TB Wood's Incorporated was founded in 1857, and entered the power
transmission industry at the turn of the century. The Company was incorporated
in 1995. In January 1996, a subsidiary of the Company merged with TB Wood's
Incorporated ("TBW"), the original Pennsylvania Corporation that was formed in
1857, with TBW as the surviving corporation in the merger.
Since 1992, the Company has introduced 25 new electronic products or
product line extensions, including seven such introductions in the most recent
two years. These include a new line of full-featured drives which improve motor
performance; extension to 20 horsepower of the Company's successful line of
micro-inverters; and drives for motor sizes up to 700 horsepower. The Company
introduced a unique and high performance integrated motor-drive combination; and
a line of customizable, cost-effective drives targeted for industrial Original
Equipment Manufacturer ("OEM") applications. Since 1992, the company has
introduced nine new mechanical products and product line extensions, including
three mechanical belted drive products and four new coupling products.
The Company uses acquisitions and strategic alliances to enhance
product offerings, gain access to technology and products, leverage fixed costs,
and extend the Company's global reach. Since 1993 the Company has completed
eight acquisitions. In the electronics business the Company acquired Plant
Engineering Consultants, Inc., an established supplier of integrated drive
systems for the fibers industry; Ambi-Tech Industries, Inc., a leading
manufacturer of electronic brakes; and Graseby Controls Inc., a supplier of
high-frequency drives for machine tool applications. In December 1997, the
Company acquired Berges electronic GmbH in Germany, and its subsidiary Berges
electronic S.r.l. in Italy. The Berges companies are well-established drive
developers, manufacturers and marketers, and are located in the two most
important machinery markets in Europe. The Company's mechanical business
acquisitions include several lines of flexible couplings and variable speed
drives from Dana Corporation; Grupo Blaju S.A. de C.V., the leading Mexican
manufacturer and marketer of belted drives; and Deck Manufacturing, a producer
of gear couplings. During July, 1999, the Company entered into a joint venture
with Electron, located in Littleton, Colorado in the belted drive business to
leverage fixed costs, provide additional foundry capacity, and open new customer
opportunities. The Company has strategic alliances with companies in Finland,
France, Switzerland, Australia, New Zealand and Japan.
Industry Overview
The power transmission industry provides electronic and mechanical
products used in manufacturing and material processing activities that transfer
controlled power from a motor or engine to a machine. The power transmission
industry consists of three product categories: mechanical power transmission
components, gear boxes and electronic drives. The Company competes in the
electronic drives and mechanical power transmission component's product
categories.
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Products
The products manufactured by the Company are classified into two
segments, mechanical business and electronics business. The mechanical business
segment includes belted drives and couplings. The electronics business segment
includes electronic drives and electronic drive systems. Products of these
segments are sold to distributors, original equipment manufacturers, and end
users for manufacturing and commercial applications.
For further product information, refer to the consolidated financial
statements and footnote No. 9 included in this Form 10-K.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Net Sales % Net Sales % Net Sales %
--------- ----- --------- ----- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Electronic Power $49.7 40.2% $57.0 42.6% $44.0 35.5%
Transmission
Products
Mechanical Power 74.0 59.8% 76.9 57.4% 80.0 64.5%
Transmission
Products
$123.7 100.0% $133.9 100.0% $124.0 100.0%
</TABLE>
Electronic Product Offering
The Company designs and manufactures Alternating Current ("AC") and
Direct Current ("DC") electronic drives and integrated electronic drive systems
that are marketed throughout North America and internationally. These products
are used to control the speed, acceleration, and other operating characteristics
of electric motors in manufacturing processes. The Company's standard AC
electronic drive products, which represent most of its net sales of electronic
drive product offering, are programmable to meet the needs of specific
applications with particular strengths in food processing, materials handling,
packaging and general machinery applications. The Company's electronic products
are designed to meet both North American and European standards. The Company's
integrated electronic drive systems consist of uniquely configured AC and/or DC
electronic drives, programmable logic controllers and in-house designed custom
software. These systems are packaged in custom enclosures to meet the
requirements of specific applications.
Mechanical Product Offering
The Company's mechanical product offering includes a full line of stock
and made-to-order products including V-belt drives, synchronous drives, open
belted variable speed drives and a broad line of flexible couplings, as well as
hydrostatic drives, clutches and brakes. These products are used in a variety of
industrial applications to transmit power from motors and engines to machines.
The primary markets for these products are the construction, oil field and
specialized industrial machinery, food processing, material handling, pumps,
compressors, mining, pulp and paper and agricultural equipment industries.
Marketing and Distribution
The Company's products are sold principally throughout North America
and, to a lesser extent, internationally. In North America, the Company sells to
selected, authorized, industrial distributors who resell the Company's products
to industrial consumers and Original Equipment Manufacturers ("OEMs"). The
Company also sells directly to approximately 1,300 OEMs. The Company's marketing
alliances include licensing agreements and distribution agreements with
distributors and manufacturers who, in some cases, market the Company's products
under private label agreements. In North America, the Company has its own
technical sales force of more than 40 people and several specialized
manufacturers' representatives.
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The Company operates central distribution centers in Chambersburg,
Pennsylvania; Stratford, Ontario and Mexico City, Mexico and regional
distribution centers in Atlanta, Georgia; Elk Grove, Illinois; Dallas, Texas;
Los Angeles, California; Portland, Oregon; Littleton, Colorado; Montreal,
Quebec; Orlando, Florida; Edmonton, Alberta; Marienheide, Germany; Bangalore,
India; and Naturns, Italy.
The Company's products are manufactured to maintain stock inventories
and on-time delivery is important. Order backlogs are generally less than one
month's customer shipments and are not considered to be material in amount.
Customers
The Company's products are consumed principally by industrial users.
The Company's OEM customers include a number of Fortune 500 companies. The
Company's distributor customers include, among others, Motion Industries and
Kaman Industrial Technologies who are among the largest distributors in the
power transmission industry. In addition, the Company's distributors also sell
to OEMs. Management believes that the Company is one of the leading suppliers of
power transmission products, based on sales volume, to its distributors. The
Company's five largest customers accounted for approximately 29% of the
Company's net sales in 1999.
Competition
The power transmission industry is highly competitive. Competition in
the AC and DC electronic drive product categories is based on product
performance, physical size of the product, tolerance for hostile environments,
application support, availability and price. The Company's competitors in these
electronic product categories include large multi-national companies in North
America, Europe and Asia, as well as many small, domestic niche manufacturers.
The integrated electronic drive system market is driven by increased demand from
end users for greater speed and process control. This market includes sales of
products used in the maintenance and replacement of existing systems, upgrades
to existing systems and new capacity expansion. Competition is based on process
knowledge and engineering, software design, product durability and price. Major
systems competitors include Asea Brown Boveri, Allen Bradley and Siemens Corp.
The Company competes with several divisions of large industrial companies as
well as many small to mid-sized independent companies in the mechanical product
category. Competition in the mechanical product offering is based on
availability, quality, price, size capability, engineering and customer support.
The Company's most significant competitors in the mechanical product category
include Rockwell, Emerson Electric Co. Inc., Martin Sprocket and Gear, Rexnord
Corp. and Lovejoy Industries Inc. Management believes that there are no
significant foreign competitors in the North American mechanical product market
because of a fragmented customer base, prohibitive freight costs as compared to
selling price and difficult access to existing distribution channels.
Research and Development
The Company's research and development efforts include the development
of new products, the testing of products, and the enhancement of manufacturing
techniques and processes. The Company's annual expenditures for research and
development (including royalties and payments to third parties) as a percent of
net sales during the last three fiscal years have been 3.0% for 1999, 2.6% for
1998, and 3.0% for 1997. The Company is completing a new Technology Center at
the Chambersburg facility which is designed to make the research and development
investment more productive by making it easier for engineers to share insights
and collaborate on projects.
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Raw Materials
The Company uses standard purchased components in all of its
electronics products. The Company also purchases specialized components designed
by its engineers. Purchased components include power transistors, capacitors,
printed circuit boards, aluminum heat sinks, plastic enclosures and sheet metal
stampings. These electronic parts and components are purchased from a number of
suppliers and management has taken steps to qualify multiple sources for key
items. The principal raw materials used in the Company's mechanical
manufacturing operations are various types of steel, including pig iron, metal
stampings, castings, forging and powdered metal components. The Company also
designs, tools and out-sources special components made of aluminum, powdered
metal and polymers. The Company purchases the materials used in its mechanical
manufacturing operations from a number of suppliers and management believes that
the availability of its materials is adequate.
Patents and Trademarks
The Company owns patents relating to its coupling, composite,
synchronous drive, open belted variable speed drive electronic drive and
clutch/brake product lines. The Company also owns several patents relating to
the design of its products. From time to time, the Company will grant licenses
to others to use certain of its patents and will obtain licenses under the
patents of others. In addition, the Company owns or has the right to use
registered United States trademarks for the following principal products:
Sure-Flex(R), Formflex(R), Ultra-V(R), Roto-Cone(R), Var-A-Cone(TM), True
Tube(TM), E-trAC(R), Ultracon(R), Fiberlink(TM), Dura-Flex, Disc-O-Torque, DST,
E-Trol, HST, IST, NLS, Roto-Cam, Softron, and Sure-Grip.
Employees
As of December 31, 1999, the Company employed over 1,100 people. Over
30 of the Company's hourly employees located at its Stratford, Ontario, Canada
facility are represented by the United Steelworkers of Canada pursuant to a
collective bargaining agreement dated January 20, 1998 that expires on January
19, 2001. Over 110 of the Company's employees located at its Mexico City, Mexico
facility are represented by the National Metal Workers' Union of Mexico pursuant
to a collective bargaining agreement that expires on January 31, 2001. The
Company has created the TB Wood's Institute, which offers training programs to
improve employees' operating, management and team-building skills.
Environmental Matters
As with most industrial companies, the Company's operations and
properties are required to comply with, and are subject to liability under,
federal, state, local and foreign laws, regulations and ordinances relating to
the use, storage, handling, generation, treatment, emission, release, discharge
and disposal of certain materials, substances and wastes. The nature of the
Company's operations exposes it to the risk of claims with respect to
environmental matters and there can be no assurance that material costs will not
be incurred in connection with such liabilities or claims.
Both the Mt. Pleasant, Michigan (the "Mt. Pleasant Facility") and the
Chambersburg, Pennsylvania (the "Chambersburg Facility") facilities had been
listed on the Comprehensive Environmental Response, Compensation, and Liability
Information System ("CERCLIS") (a list of sites maintained by the United States
Environmental Protection Agency ("USEPA") for which a determination was to be
made concerning whether investigation or remediation under CERCLA would be
required). Both have been designated by USEPA as requiring no further action
under CERCLA; therefore, the Company does not believe that material expenditures
for these sites will be incurred under the CERCLA program. However, this does
not assure that such expenditures would not be required under other federal
and/or state programs.
The Mt. Pleasant Facility is currently listed on Michigan's inactive
hazardous waste site list pursuant to the Michigan version of CERCLA (formerly
known as "Act 307", amended and recodified on June 5, 1995 as Part 201 of the
Natural Resources and Environmental Protection Act ("Part 201")). The Mt.
Pleasant Facility was first placed on the Michigan hazardous waste site list in
1991, when the Facility was owned by Dana Corporation. When the Company acquired
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the Mt. Pleasant Facility from Dana Corporation, the Asset Purchase Agreement
dated March 31, 1993 (the "Asset Purchase Agreement") included an environmental
indemnity provision. Pursuant to this provision, Dana Corporation agreed to
indemnify the Company with respect to any environmental liabilities to the
extent they arose out of environmental conditions first occurring on or before
the closing date, including the presence or release of any hazardous substances
at, in, or under the Mt. Pleasant Facility and with respect to the
identification of the Mt. Pleasant Facility on the Michigan list of inactive
hazardous waste sites. The Dana Corporation is conducting a limited remediation
with respect to volatile organic compounds found in soils and groundwater. The
Company has not been notified by the Michigan Department of Natural Resources or
any other governmental agency or person that it has any responsibility for
investigating or remediating such environmental conditions. Although the Company
has no reason to believe Dana Corporation cannot fulfill its remediation and
indemnification obligations under the Asset Purchase Agreement, if Dana
Corporation is unable to fulfill such commitments, then the Company may incur
additional costs.
The Company believes that its facilities are in substantial compliance
with current regulatory standards applicable to air emissions under the Clean
Air Act Amendments of 1990 ("CAAA"). At this time, the Company cannot estimate
when other new air standards will be imposed or what technologies or changes in
processes the Company may have to install or undertake to achieve compliance
with any applicable new requirements at its facilities. The Company has no
reason to believe that such expenditures are likely to be material.
Similarly, based upon the Company's experience to date, the Company
believes that the future cost of currently anticipated compliance with existing
environmental laws relating to wastewater, hazardous waste and employee and
community right-to-know should not have a material adverse effect on the
Company's financial condition.
Recent Developments
Self-Tender Offer
On December 17, 1999, the Company completed a "Dutch Auction"
self-tender offer. On November 12, 1999, the Company commenced the tender offer
for up to 400,000 shares of its Common Stock, or approximately 6.8% of its
then-outstanding shares, at a purchase price not greater than $12.50 nor less
than $9.00 per share. A total of 424,398 shares were tendered at $9.00 per
share. Due to the over-subscription, shares tendered were pro-rated. The Company
purchased 400,000 shares at $9.00 per share, resulting in a final pro-ration
factor of 94%. Following the purchase of shares of Common Stock tendered, the
Company had approximately 5,462,228 shares of Common Stock issued and
outstanding. The funds required to complete the offer and pay related expenses
were provided from borrowings incurred by the Company under its $52,500,000
unsecured revolving credit facility (the "Credit Facility") arranged by PNC
Bank, N.A. ("PNC") bearing a variable interest rate that is currently at LIBOR
plus 112.5 basis points and maturing October 2003.
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Item 2. Properties.
The Company owns and operates the following facilities:
<TABLE>
<CAPTION>
Location Operations Sq. Feet
-------- ---------- --------
<S> <C> <C>
Chambersburg, Foundry production of iron, and manufacturing and engineering 440,000
Pennsylvania of mechanical products. Central distribution, administrative
offices and corporate headquarters.
Scotland, Pennsylvania Manufacturing and engineering of electronic products. 51,300
Trenton, Tennessee Manufacturing of mechanical products. 60,000
Stratford, Ontario Manufacturing of mechanical products. Central distribution and 46,000
administrative offices for Canada.
San Marcos, Texas Manufacturing and engineering of mechanical products. 51,000
Mt. Pleasant, Michigan Manufacturing of mechanical products. 30,000
Chattanooga, Tennessee Manufacturing, engineering and sales of integrated electronic 60,000
drive systems. Headquarters of PEC.
Marienheide, Germany Manufacturing, engineering and sales of electronic products. 9,800*
Central distribution and administrative offices for Berges
electronic GmbH.
Naturns, Italy Manufacturing of electrical products. 19,500*
Elk Grove, Illinois Distribution center. 21,700
Bangalore, India Manufacturing, engineering and sales of integrated electronic 4,500*
drive systems.
</TABLE>
- ------------------------------
*Includes certain leased space
In addition, the Company leases manufacturing facilities in Mexico
City, Mexico. The Company also has distribution facilities in: Atlanta, Georgia;
Dallas, Texas; Montreal, Quebec; Edmonton, Alberta; Los Angeles, California;
Portland, Oregon; Littleton, Colorado; and Orlando, Florida.
Item 3. Legal Proceedings.
The Company is a party to various legal actions arising in the ordinary
course of business. The Company does not believe that the outcome of any of
these actions will have a materially adverse affect on the consolidated
financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted for a vote of the security holders during the
fiscal quarter ended December 31, 1999.
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PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
The Company consummated the Initial Public Offering ("IPO") of its
common stock on February 8, 1996 and its Common Stock is listed on the New York
Stock Exchange. The high and low prices for the Common Stock, and dividends paid
on Common Stock, during the period from January 2, 1998 through December 31,
1999 were as follows:
<TABLE>
<CAPTION>
Sales Price Dividends
----------- ---------
High Low Declared Paid in Cash
---- --- -------- ------------
<S> <C> <C> <C> <C> <C>
Fiscal Year 1998
----------------
1st quarter $23.12 $20.50 $.08 $.08
2nd quarter 24.50 20.81 .09 .09
3rd quarter 21.06 14.56 .09 .09
4th quarter 14.81 11.75 .09 .09
Fiscal Year 1999
----------------
1st quarter $12.75 $10.88 $.09 $.09
2nd quarter 12.00 10.63 .09 .09
3rd quarter 11.00 9.63 .09 .09
4th quarter 10.50 8.25 .09 .09
</TABLE>
On February 11, 2000 there were 166 registered shareholders of the
Company's Common Stock, and the high and low sales prices for the Common Stock
were both $9.19. During fiscal year 1999, the Company declared and paid total
dividends of $.36 on the shares of its Common Stock. The Company declared a $.09
dividend on January 7, 2000 and paid it on January 31, 2000. The declaration of
any dividend, including the amount thereof, will be at the discretion of the
Board of Directors of the Company, and will depend on the Company's then current
financial condition, results of operations and capital requirements, and such
other factors as the Board of Directors deems relevant.
There were no sales of unregistered securities during the period of
January 2, 1999 through December 31, 1999.
Item 6. Selected Financial Data.
The following tables set forth selected historical financial and
operating data for the Company for each of the five years through fiscal year
1999 and have been derived from the Company's financial statements which have
been audited by the Company's independent public accountants. The information
set forth below should be read in conjunction with the Company's Consolidated
Financial Statements and notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operation."
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Effective fiscal year 1995, the Company changed its year-end to the
Friday closest to the last day of December. Fiscal year-ends are as follows:
1999 December 31, 1999
1998 January 1, 1999
1997 January 2, 1998
1996 January 3, 1997
1995 December 29, 1995
1994 & prior December 31 of calendar year.
<TABLE>
<CAPTION>
Selected Financial Data
(in thousands, except per share data) Fiscal Year
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Revenue and Income:
Net sales $123,737 $133,949 $124,027 $102,505 $102,307
Gross profit 44,357 47,589 45,012 37,747 36,111
Operating income 12,108 15,566 16,951 12,573 12,593
Minority interest 808 0 0 0 0
Operating income after minority interest 11,300 15,566 16,951 12,573 12,593
Net income 5,367 7,890 8,689 4,640 4,599
-------------- -------------- ------------ ------------ -----------
Cash Flow
Cash provided by operations $10,050 $6,228 $16,829 $9,090 $9,214
Capital expenditures 8,316 7,481 5,824 3,762 4,531
-------------- -------------- ------------ ------------ -----------
Assets and Liabilities:
Working capital* $34,245 $34,644 $27,682 $26,962 $26,160
Total assets 102,866 96,025 89,617 73,395 66,631
Total debt 36,924 32,469 26,539 22,227 41,463
Shareholders' equity (deficit) 27,692 28,515 23,606 16,875 (7,488)
-------------- -------------- ------------ ------------ -----------
Per Share Data
Net income $0.91 $1.33 $1.47 $0.83 $1.21
Cash dividends paid .36 .35 .32 .24 -
Book value 4.72 4.81 3.99 3.01 (1.97)
-------------- -------------- ------------ ------------ -----------
Weighted average shares outstanding 5,910 5,932 5,921 5,600 3,810
</TABLE>
* Working capital is defined as the sum of accounts receivable, inventory, and
other current assets, less accounts payable and accrued expenses.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Year Ended December 31, 1999 Compared to Year Ended January 1, 1999
Net sales for fiscal 1999 decreased to $123.7 million from $133.9
million in 1998, a decrease of $10.2 million, or 7.6%. Based on data received
from industry trade associations, this reduction compares to, and management
believes was caused by, changes in the marketplace caused by overall economic
conditions.
Gross profit for 1999 decreased to $44.4 million from $47.6 million in
1998, a decrease of $3.2 million, or 6.7%. Gross profit as a percent of net
sales increased to 35.9% from 35.5%, due primarily to activities to reduce raw
materials and component costs, benefits from the belted drives joint venture,
lower machine set-up costs, increased output per man hour of wage costs, and
closing the Greensboro, North Carolina facility. These favorable results were
partially offset by wage inflation and lower fixed cost absorption, which
resulted in the decrease of gross profit.
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Selling, general, and administrative ("SG&A") expense for fiscal 1999
increased to $32.2 million from $32.0 million in 1998, an increase of $0.2
million or 0.6%. SG&A expense as a percent of net sales increased to 26.1% from
23.9%, primarily as a result of lower sales. The major challenge in 1999 was to
control SG&A expenses in absolute dollars while spending on new product projects
which may generate benefits in future years.
Other expense (excluding minority interest) for fiscal 1999 increased
to $2.6 million from $2.4 million in 1998, an increase of $0.2 million or 8.3%.
Other expense for 1999 included $350 thousand of one-time charges to terminate
the proposed acquisition of Lincoln Motors. Interest expense, a component of
total other expense, decreased to $1.9 million in 1999 from $2.0 million in
1998. This decrease was due primarily to lower interest rates. The effective tax
rate for 1999 was 38.5%. Details of the provision for income taxes are discussed
in Note 5 to the financial statements.
Net income for fiscal 1999 decreased to $5.4 million from $7.9 million
in 1998, a decrease of $2.5 million, or 31.6%. The primary reason for this
reduction was the lower sales volume.
Year Ended January 1, 1999 Compared to Year Ended January 2, 1998
Net sales for fiscal 1998 increased to $133.9 million from $124.0
million in 1997, an increase of $9.9 million, or 8.0%. The increase in sales was
primarily due to increased electronics business sales resulting from the
acquisition of Berges electronic GmbH on December 1, 1997. The year 1998 started
off with record sales in the first quarter, but beginning in the second quarter,
a softening in our North American market resulted in lower sales levels for the
remainder of the year.
Gross profit for 1998 increased to $47.6 million from $45.0 million in
1997, an increase of $2.6 million, or 5.7%. Gross profit as a percent of net
sales decreased to 35.5% from 36.3%, due primarily to lower margins in the
mechanical business resulting from expenditures for tooling and start-up costs
related to new business, training of new employees, and consolidation of the
gear coupling product line in our San Marcos facility.
Selling, general, and administrative expense for fiscal 1998 increased
to $32.0 million from $28.1 million in 1997, an increase of $3.9 million or
14.1%. SG&A expense as a percent of net sales increased to 23.9% from 22.6%,
primarily as a result of higher SG&A expense as a percent of sales at Berges
electronic GmbH which was not included in 1997 operating results.
Other expense for fiscal 1998 decreased to $2.4 million from $2.5
million in 1997, a decrease of $0.1 million or 1.9%. Interest expense, a
component of total other expense, increased to $2.0 million in 1998 from $1.7
million in 1997. This increase was due primarily to higher debt levels in 1998,
offset by lower interest rates. The effective tax rate for 1998 was 40.0%.
Details of the provision for income taxes are discussed in Note 5 to the
financial statements.
Net income for fiscal 1998 decreased to $7.9 million from $8.7 million
in 1997, a decrease of $.8 million, or 9.2%.
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Year Ended January 2, 1998 Compared to Year Ended January 3, 1997
Net sales for fiscal 1997 increased to $124.0 million from $102.5
million in 1996, an increase of $21.5 million or 21.0%. The improvement was
broad-based with sales from existing businesses increasing $15.8 million or
15.4% and sales from businesses acquired in late 1996 and 1997 contributing an
additional $5.7 million.
Gross profit increased to $45.0 million from $37.7 million in 1996, an
increase of $7.3 million or 19.2%. Gross profit as a percent of net sales
decreased to 36.3% from 36.8%, due primarily to shifts in product mix and higher
costs of sales in the mechanical business resulting from the integration of the
gear coupling acquisition.
SG&A expense for fiscal 1997 increased to $28.1 million from $25.2
million in 1996, an increase of $2.9 million or 11.5%. SG&A expense as a percent
of net sales decreased to 22.6% from 24.6%, primarily as a result of the
significantly higher sales volume and implementation of cost reduction
initiatives.
Other expense, excluding extraordinary items, for fiscal 1997 decreased
to $2.5 million from $2.6 million in 1996, a decrease of $0.1 million or 4.2%.
Interest expense, a component of total other expense, decreased to $1.7 million
in 1997 from $2.0 million in 1996. This decrease was due primarily to lower
borrowings in the first part of 1997. The effective tax rate for 1997 was 40.0%.
Details of the provision for income taxes are discussed in Note 5 to the
financial statements. In 1996, an extraordinary item of $1.3 million, net of
tax, was related to early repayment of debt with the proceeds from the Initial
Public Offering ("IPO").
Net income for fiscal 1997 increased to $8.7 million from $6.3 million
in 1996, before one-time charges, an increase of $2.4 million, or 38.1%.
Liquidity and Capital Resources
The Company's principal sources of funds are cash flows from operations
and borrowings under the Company's revolving credit agreement. Cash provided
from operations in 1999 was $10.1 million, an increase of $3.9 million from the
prior year. Net cash used for investing activities during fiscal years 1999,
1998, and 1997 was $7.8 million, $7.7 million and $16.7 million, respectively.
The Company's investing activities in 1999 and 1998 were primarily capital
expenditures. In 1997, the Company acquired Graseby Controls, Inc. through a
purchase of stock, and acquired the assets of Berges electronic GmbH for a total
of $9.9 million, net of acquired cash.
Capital expenditures for fiscal years 1999, 1998, and 1997 were $8.3
million, $7.5 million, and $5.8 million, respectively. During the last three
fiscal years, the Company has made significant capital investments in computer
controlled surface mount production ("SMT") lines for populating semiconductors
onto circuit boards, test and production equipment at the Company's foundry in
Chambersburg, and other equipment to improve and modernize production
facilities. In 1999, the Company completed the new San Marcos, Texas facility
and upgraded some of the machine tool equipment base for mechanical product
business. In 1998, the Company initiated two major facility projects: 1) an
engineering center in Chambersburg scheduled for completion in mid-2000 and 2) a
new plant in San Marcos, Texas to manufacture flexible couplings, which was
operational in the first quarter of 1999. In 1997, the Company purchased a $2.1
million facility for its electronics systems business in Chattanooga, Tennessee.
These capital expenditures are intended to reduce costs, improve product
quality, and provide additional capacity for meeting the Company's growth
objectives.
In March 1999, the Company borrowed $3.0 million by using Variable Rate
Demand Revenue Bonds, under the authority of the Industrial Development
Corporation City of San Marcos, Texas to finance a new facility for the
mechanical products business.
In April 1997, the Company borrowed $2.6 million by issuing Variable
Rate Demand Revenue Bonds, under the authority of The Industrial Revenue Board
of the City of Chattanooga, Tennessee, to finance a new facility for the
electronics systems business.
13
<PAGE>
The Company paid $2.1 million in dividends during 1999. The Company
paid a $0.09 per share dividend in the first, second, third, and fourth quarters
of 1999, and declared a $0.09 dividend on January 7, 2000 and paid it on January
31, 2000. The Company paid $2.1 million in dividends during 1998. The Company
paid an $0.08 per share dividend in the first quarter and a $0.09 per share
dividend in the second, third, and fourth quarters of 1998.
The Company believes that it will have sufficient cash flows from
operations and available borrowings to meet its future short-term and long-term
cash needs for interest, operating expenses, and capital expenditures.
Derivative Financial Instruments
Market risk is the potential change in an instrument's value caused,
for example, by fluctuations in interest and currency exchange rates. The
Company's primary market risk exposures are interest rate and unfavorable
movements in exchange rates between the U.S. dollar and each of the Mexican
peso, Canadian dollar, German deutsche mark, Indian rupee and Italian lira.
Monitoring and managing these risks is a continual process carried out by senior
management. Market risk is managed based on an ongoing assessment of trends in
interest rates, foreign exchange rates, and economic developments, giving
consideration to possible effects on both total return and reported earnings.
The Company's financial advisors, both internal and external, provide ongoing
advice regarding trends that affect management's assessment.
Interest Rate Derivatives at 1999 2000 2001
---------------------------------------------------------------------
Interest Rate Swap:
Variable to Fixed
Fixed Rate U.S. $.................... 10,000 10,000 10,000
Average Pay Rate..................... 5.75% 5.75% 5.75%
Year 2000
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
two-digit year is commonly referred to as the Year 2000 compliance issue. The
Company implemented a five-step process to evaluate the impact of the Year 2000
compliance issue. These steps involve an inventory of Company systems, an
evaluation and analysis of systems regarding the Year 2000 compliance impact,
implementation of modifications to specified systems, unit testing, and finally,
systems or integration testing to validate compliance. The Company relies upon
third-party vendors which supply goods and services to the Company and, although
the Company has consulted with various vendors in order to minimize the risk of
the Year 2000 compliance issue, such third parties may be affected by the Year
2000 compliance issue. While the Company believes its actions have ameliorated
the Year 2000 risk, there can be no assurance that the Company's internal
systems or equipment or those of third parties on which the Company relies will
be Year 2000 compliant or that the Company's or third parties' contingency plans
will mitigate the effects of noncompliance. No problems have been experienced as
of yet because of this issue. There is still uncertainty regarding the scope of
the Year 2000 compliance issue and, at this time, the Company is unable to
quantify the impact of potential Year 2000 compliance failures. As of the date
of this filing, the Company has not experienced any material Year 2000 problems
in any of the Company's facilities or operations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133), effective for fiscal years beginning
after June 15, 1999. SFAS No. 133 requires derivatives to be recorded on the
balance sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in values of derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge accounting. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of SFAS No. 133." SFAS
No. 137 delays the standard effective date to the beginning of the first quarter
of the fiscal year beginning after June 15, 2000. Adoption of this statement is
not expected to have a material effect on the Company's financial statements.
Safe Harbor Statement
Under the Private Securities Litigation Reform Act of 1995, except for
the historical information contained herein, this annual report contains
forward-looking statements about matters which involve risks and uncertainties,
including but not limited to economic, competitive, governmental and
technological factors affecting the Company's operations, markets, products,
services and prices, and other factors discussed in the Company's filings with
the Securities and Exchange Commission.
14
<PAGE>
Item 8. Financial Statements and Supplementary Data.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants..................................................................... 16
Consolidated Balance Sheets as of December 31, 1999 and January 1, 1999...................................... 17
Consolidated Statements of Operations for the Years Ended December 31, 1999, January 1, 1999,
and January 2, 1998 ................................................................................. 18
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 1999,
January 1, 1999, and January 2, 1998................................................................. 18
Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1999,
January 1, 1999, and January 2, 1998 ................................................................ 19
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, January 1, 1999,
and January 2, 1998 ................................................................................. 20
Notes to Consolidated Financial Statements................................................................... 21
</TABLE>
15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
TB Wood's Corporation:
We have audited the accompanying consolidated balance sheets of TB
Wood's Corporation (a Delaware corporation) and Subsidiaries as of December 31,
1999 and January 1, 1999 and the related consolidated statements of operations,
comprehensive income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. 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 in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of TB Wood's
Corporation and subsidiaries as of December 31, 1999 and January 1, 1999 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 11, 2000
16
<PAGE>
TB Wood's Corporation And Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(in thousands, except per share and share amounts) 1999 1998
- -------------------------------------------------------------------------------------- ----------- ---------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,245 $ 2,521
Accounts receivable, less allowances for doubtful accounts, discounts,
and claims of $402 and $414 in 1999 and 1998, respectively 18,593 17,428
Inventories:
Finished goods 22,970 21,433
Work in process 9,708 8,370
Raw materials 7,465 5,982
LIFO reserve (5,983) (5,930)
----------- ---------------
34,160 29,855
Other current assets 1,834 2,705
----------- ---------------
Total current assets 55,832 52,509
----------- ---------------
Property, Plant, and Equipment:
Machinery and equipment 50,280 43,131
Land, buildings, and improvements 13,653 12,118
----------- ---------------
63,933 55,249
Less accumulated depreciation 32,326 27,553
----------- ---------------
31,607 27,696
----------- ---------------
Other Assets:
Deferred income taxes (Note 5) 3,454 3,570
Goodwill, net of accumulated amortization of
$1,672 and $1,418 in 1999 and 1998, respectively 9,805 10,059
Other 2,168 2,191
----------- ---------------
Total other assets 15,427 15,820
----------- ---------------
$102,866 $96,025
=========== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt (Note 4) $ 273 $ 378
Accounts payable 12,407 6,332
Checks outstanding 1,003 1,705
Accrued expenses (Note 3) 7,935 9,012
Deferred income taxes (Note 5) 1,034 1,589
----------- ---------------
Total current liabilities 22,652 19,016
----------- ---------------
Long-term debt, less current maturities (Note 4) 36,651 32,091
Postretirement benefit obligation, less current portion 15,134 16,403
Minority interest 737 0
Commitments and Contingencies (Note 7)
Shareholders' Equity :
Preferred stock, $.01 par value; 5,000,000 shares
authorized, no shares issued or outstanding 0 0
Common stock, $.01 par value; 40,000,000 shares authorized, 5,887,698
issued and 5,465,814 outstanding in 1999, and 5,909,286 issued and
5,899,168 outstanding in 1998 59 59
Common stock in treasury at cost; 421,884 in 1999 and 10,118 in 1998 (3,811) (158)
Additional paid-in capital 29,086 28,821
Retained Earnings 4,001 1,136
Accumulated other comprehensive income (1,643) (1,343)
----------- ---------------
Total shareholders' equity 27,692 28,515
----------- ---------------
$102,866 $96,025
=========== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE>
TB Wood's Corporation And Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
(in thousands, except per share amounts) 1999 1998 1997
- ----------------------------------------- ---- ---- ----
<S> <C> <C> <C>
Net sales $123,737 $133,949 $124,027
Cost of sales 79,380 86,360 79,015
----------------- --------------- ---------------
Gross profit 44,357 47,589 45,012
Selling, general, and administrative expenses 32,249 32,023 28,061
----------------- --------------- ---------------
Operating income 12,108 15,566 16,951
Other (expense) income:
Minority Interest 808 0 0
----------------- --------------- ---------------
Operating income after minority interest 11,300 15,566 16,951
----------------- --------------- ---------------
Interest expense and other finance charges (1,915) (2,040) (1,695)
Other, net (657) (380) (773)
----------------- --------------- ---------------
Other expense, net (2,572) (2,420) (2,468)
----------------- --------------- ---------------
Income before provision for income taxes 8,728 13,146 14,483
Provision for income taxes (Note 5) 3,361 5,256 5,794
----------------- --------------- ---------------
Net income $ 5,367 $ 7,890 $ 8,689
================= =============== ===============
Per share of common stock:
Basic:
Net income per common share $ 0.91 $ 1.34 $ 1.49
================= =============== ===============
Weighted average shares of common stock and
equivalents outstanding 5,896 5,874 5,833
================= =============== ===============
Diluted:
Net income per common share $ 0.91 $ 1.33 $ 1.47
================= =============== ===============
Weighted average shares of common stock
and equivalents outstanding 5,910 5,932 5,921
================= =============== ===============
</TABLE>
Statements of Comprehensive Income
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Income $5,367 $7,890 $8,689
Other comprehensive income, net of tax:
Foreign currency translation adjustment, net of tax of
$188, $760, and $122 in 1999, 1998, and 1997, respectively (300) (1,140) (168)
-------------- --------------- ---------------
Comprehensive income $5,067 $6,750 $8,521
================= =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
TB Wood's Corporation And Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
<TABLE>
<CAPTION>
Retained Accumulated
Additional Earnings Other
Common Treasury Paid-In (Accumulated Comprehensive
(in thousands) Stock Stock Capital Deficit) Income (Loss)
- -------------- ----- ----- ------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 3, 1997 $ 58 $ 0 $ 28,158 $ (11,306) $ (35)
Net income 0 0 0 8,689 0
Stock issuance for 401(k) plan 0 0 100 0 0
Dividends declared 0 0 0 (1,400) 0
Stock option compensation and proceeds
from
Options exercised 0 95 82 0 0
Treasury stock, net 0 (276) 0 (391) 0
Foreign currency translation adjustment 0 0 0 0 (168)
- ----------------------------------------- ------------ ----------- -------------- -------------- -----------------
Balance, January 2, 1998 58 (181) 28,340 (4,408) (203)
Net income 0 0 0 7,890 0
Dividends declared 0 0 0 (2,056) 0
Stock option compensation and proceeds
from
Options exercised 1 467 481 (257) 0
Treasury stock, net 0 (444) 0 (33) 0
Foreign currency translation adjustment 0 0 0 0 (1,140)
- ----------------------------------------- ------------ ----------- -------------- -------------- -----------------
Balance January 1, 1999 59 (158) 28,821 1,136 (1,343)
Net income 0 0 0 5,367 0
Stock issuance for 401(k) plan 0 323 0 (35) 0
Dividends declared 0 0 0 (2,120) 0
Stock option compensation and proceeds
from
Options exercised 0 426 265 (329) 0
Treasury stock, net 0 (4,402) 0 (18) 0
Foreign currency translation adjustment 0 0 0 0 (300)
- ----------------------------------------- ------------ ----------- -------------- -------------- -----------------
Balance December 31, 1999 $ 59 $(3,811) $29,086 $ 4,001 $(1,643)
============ =========== ============== ============== =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
TB Wood's Corporation And Subsidiaries
Consolidated Statements Of Cash Flows
<TABLE>
<CAPTION>
(in thousands) 1999 1998 1997
- -------------------------------------------------------------------------- ---------------- --------------- ---------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $5,367 $7,890 $8,689
---------------- --------------- ---------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 4,706 4,687 4,097
Change in deferred income taxes, net (439) 1,892 837
Stock option compensation and employee stock benefit expense 648 1,222 101
Net (gain) loss on sale of assets (99) 5 10
Minority interest 808 0 0
Other, net (43) (28) 0
Changes in working capital, net of effects of acquisitions:
Accounts receivable (1,165) 2,746 (173)
Inventories (4,305) (4,157) 1,876
Other current assets 871 (2,402) (227)
Accounts payable 6,075 (2,278) 1,531
Accrued and other liabilities (2,374) (3,349) 88
---------------- --------------- ---------------
Total adjustments 4,683 (1,662) 8,140
---------------- --------------- ---------------
Net cash provided by operating activities 10,050 6,228 16,829
---------------- --------------- ---------------
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired 0 0 (9,914)
Capital expenditures (8,316) (7,481) (5,824)
Proceeds from sales of fixed assets 791 414 65
Other, net (257) (658) (1,003)
---------------- --------------- ---------------
Net cash used in investing activities (7,782) (7,725) (16,676)
---------------- --------------- ---------------
Cash Flows from Financing Activities:
Change in checks outstanding (702) 90 83
Proceeds from (repayments of) long-term debt, net 2,633 (357) 2,003
Proceeds from the PNC revolving credit facility, net (Note 4) 2,200 6,287 2,300
Payment of dividends (2,120) (2,056) (1,866)
Proceeds from issuance of stock upon option exercise 250 70 17
Purchase of Treasury Stock, net (4,994) (754) (276)
Other (511) (674) 0
---------------- --------------- ---------------
Net cash (used in) provided by financing activities (3,244) 2,606 2,261
---------------- --------------- ---------------
Effect of changes in foreign exchange rates (300) (1,140) (168)
---------------- --------------- ---------------
(Decrease) increase in cash and cash equivalents (1,276) (31) 2,246
Cash and cash equivalents at beginning of year 2,521 2,552 306
---------------- --------------- ---------------
Cash and cash equivalents at end of year $1,245 $2,521 $2,552
================ =============== ===============
Income taxes paid during the year $2,052 $3,819 $6,307
================ =============== ===============
Interest paid during the year $1,915 $2,040 $1,573
================ =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
20
<PAGE>
TB Wood's Corporation And Subsidiaries
Notes To Consolidated Financial Statements
(in thousands, except per share amounts)
1. NATURE OF BUSINESS AND PRINCIPLES OF CONSOLIDATION
TB Wood's Corporation and subsidiaries (collectively, "Wood's" or the
"Company") is an established designer, manufacturer, and marketer of electronic
and mechanical industrial power transmission products which are sold to
distributors, domestic and international manufacturers and users of industrial
equipment. Principal products of the Company include electronic drives,
integrated electronic drive systems, mechanical belted drives, and flexible
couplings. The Company has operations throughout the United States, Canada,
Mexico, Germany, Italy and India. The accompanying consolidated financial
statements include the accounts of TB Wood's Corporation, its wholly owned
subsidiaries and its majority-owned joint venture. All inter company accounts
have been eliminated in consolidation.
Year-End
Fiscal year-ends are as follows:
1999......................December 31, 1999
1998......................January 1, 1999
1997......................January 2, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Restricted Cash
At December 31, 1999, $1,091 of cash is restricted under the Variable
Rate Demand Revenue Bonds (Note 4). This cash may be used for building
renovations, improvements, or other capital expenditures related to new
production facilities for the electronics systems business and a new production
facility for the mechanical division.
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Property, Plant, and Equipment
The Company depreciates its property, plant, and equipment principally
using the straight-line method over the estimated useful lives of the assets.
Equipment under capital leases is depreciated over the asset's estimated useful
life and is included in machinery and equipment. Maintenance and repair costs
are charged to expense as incurred, while major renewals and improvements are
capitalized. When property and equipment are retired or otherwise disposed of,
the related carrying value and accumulated depreciation are removed from the
accounts and any resulting gain or loss is reflected in income. The depreciable
lives of the major classes of property, plant and equipment are summarized as
follows:
Asset Type Lives
------------------------------------------ ----------------------------
Machinery and equipment 3 - 15 years
Buildings and improvements 10 - 40 years
21
<PAGE>
Inventories
Inventories are stated at the lower of cost or market primarily using
the last-in, first-out ("LIFO") method. Market is defined as net realizable
value. Cost includes raw materials, direct labor, and manufacturing overhead.
Approximately 79% and 77% of total inventories in years ending December 31, 1999
and January 1, 1999, respectively, were valued using the LIFO method. TB
Wood's-Canada, TB Wood's-Mexico and TB Wood's-Berges inventories are stated at
the lower of cost or market using the first-in, first-out ("FIFO") method.
Self-Insurance
The Company maintains workers' compensation insurance policies which
have the potential for retrospective premium adjustments and a partially
self-insured group health insurance policy which is subject to specific
retention levels. Insurance administrators assist the Company in estimating the
fully developed workers' compensation liability and group health insurance
reserves which are accrued by the Company. In the opinion of management,
adequate provision has been made for all incurred claims. At December 31, 1999
the Company has issued letters of credit totaling $735 to cover incurred claims
and other costs related to the workers' compensation.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries have
been translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation."
Translation adjustments, which result from the process of translating financial
statements into U.S. dollars, are accumulated as a separate component of other
comprehensive income. Exchange gains and losses resulting from foreign currency
transactions, primarily intercompany sales of products, are included in other
expense in the accompanying statements of operations and are not material.
Goodwill
The excess of cost over the net assets acquired ("Goodwill") is being
amortized on a straight-line basis over a period of 40 years. Goodwill relates
to the acquisition of TB Wood's Incorporated ("Wood's-US") in 1986 and the
acquisition of certain other businesses and product lines (Note 8).
Long-Lived Assets and Intangible Assets
The Company reviews the carrying values assigned to long-lived assets
and certain identifiable intangible assets based on expectations of undiscounted
future cash flows and operating income generated by the long-lived assets or the
tangible assets underlying certain identifiable intangible assets in determining
whether the carrying amount of such assets is recoverable.
Shareholders' Equity
In 1996, the board of directors authorized, subject to certain business
and market conditions, the purchase of up to 200,000 of the Company's common
shares. At December 31, 1999 the number of treasury shares purchased under this
authorization was 162,432. The number of treasury shares issued to employees
under option and purchase plans was 12,456 and under the 401(k) profit-sharing
plan was 21,557 for 1999. The Board of Directors authorized a self-tender "Dutch
Auction" for 400,000 of the Company's common shares at a price not to exceed
$12.50 per share and not lower than $9.00 per share. On December 17, 1999, the
Company accepted 400,000 shares at $9.00 per share and incurred related costs.
22
<PAGE>
Fair Value of Financial Instruments
The fair value of financial instruments classified as current assets or
liabilities, including cash and cash equivalents, accounts receivable, and
accounts payable, approximate carrying value due to the short-term maturity of
the instruments. The fair value of short-term and long-term debt and deferred
compensation amounts approximate carrying value and are based on their effective
interest rates compared to current market rates.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities, the
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cyclical Industry
The markets for some of the Company's products are cyclical, generally
following changes in the overall economy. Consequently, during periods of
economic expansion, the Company has experienced increased demand for its
products, and during periods of economic contraction, the Company has
experienced decreased demand for its products. Such changes in the general
economy affect the Company's results of operations in the relevant fiscal
periods.
Research and Development Costs
Research and development costs consist substantially of projects
related to new product development within the electronics business and are
expensed as incurred. Total research and development costs are $3,659 in 1999,
$3,482 in 1998, and $3,733 in 1997.
Major Customers
The Company's five largest customers accounted for approximately 29%,
25%, and 30% of net sales for fiscal years 1999, 1998, and 1997, respectively.
Of these customers, one accounted for close to 20% of net sales for the year
ended December 31, 1999. The loss of one or more of these customers would have
an adverse effect on the Company's performance and operations. Foreign and
export sales accounted for 23% and 22% of total sales in fiscal years 1999 and
1998, respectively. Inter company transactions are consummated on terms
equivalent to those that prevail in arms-length transactions.
Supply of Electronic Raw Materials and Purchased Components
Historically, the electronics component industry, which supplies
components for the Company's electronic products, has from time to time
experienced heavy demand for certain components during periods of growth in the
consumer electronic industry. The rapid growth of the AC electronic drive market
has also created heavy demand for power control electronics. While certain of
the Company's components are obtained from a single or limited number of
sources, the Company has potential alternate suppliers for most of the specialty
components used in its manufacturing operations. There can be no assurance,
however, that the Company will not experience shortages of raw materials or
components essential to the production of its products or be forced to seek
alternative sources of supply, which may increase costs or adversely affect the
Company's ability to obtain and fulfill orders for its products.
23
<PAGE>
Net Income Per Share
In March 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share", which the Company adopted for the year ended
January 2, 1998. Basic earnings per share ("EPS") is computed by dividing
reported earnings available to common shareholders by weighted average shares
outstanding. No dilution for any potentially dilutive securities is included in
basic EPS. Diluted EPS is computed by dividing reported earnings available to
common shareholders by weighted average shares and common equivalent shares
outstanding. The difference between primary and fully diluted net income per
share is not material for any of the periods presented and has therefore been
excluded.
The computation of weighted average shares outstanding and net income
per share is as follows for fiscal years 1999, 1998, and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common shares outstanding for basic EPS......................................... 5,896 5,874 5,833
Shares issued upon assumed exercise of outstanding stock options................ 14 58 88
-------------------------------------
Weighted average number of common and common equivalent
shares outstanding........................................................... 5,910 5,932 5,921
=====================================
</TABLE>
Recent Accounting Pronouncements
Effective fiscal 1997, the Company adopted SFAS No. 129, "Disclosure of
Information and Capital Structure." SFAS No. 129 requires disclosure of the
pertinent rights and privileges of all securities other than ordinary common
stock. The Company has disclosed such information in its annual reports filed in
Form 10-K.
In July 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", effective for fiscal years beginning after December 15, 1997. The
statement addresses the reporting and display of changes in equity that result
from transactions and other economic events, excluding transactions with owners.
The Company adopted SFAS No. 130 in 1998.
Effective fiscal 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." The Company has
disclosed such information in Note 9 to the consolidated financial statements.
Effective January 3, 1998, the Company adopted SFAS No. 132,
"Employers' Disclosure about Pension and Other Postretirement Benefits." (See
Note 6).
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities", effective for fiscal years beginning after
June 15, 1999. SFAS No. 133 requires derivatives to be recorded on the balance
sheet as assets or liabilities, measured at fair value. Gains or losses
resulting from changes in values of derivatives would be accounted for depending
on the use of the derivative and whether it qualifies for hedge accounting. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of SFAS No. 133." SFAS
No. 137 delays the standard effective date to the beginning of the first quarter
of the fiscal year beginning after June 15, 2000. Adoption of this statement is
not expected to have a material effect on the Company's financial statements.
24
<PAGE>
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current period presentation.
3. ACCRUED EXPENSES
Components of accrued expenses were as follows:
1999 1998
- --------------------------------------------------------- ----------- ----------
Accrued payroll and other compensation $2,311 $1,987
Accrued workers' compensation 404 934
Other accrued liabilities 5,220 6,091
----------- ----------
Total $7,935 $9,012
=========== ==========
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations as at the end of each
fiscal period consist of the following:
1999 1998
- --------------------------------------------------------- ---------- ----------
Unsecured Revolving Line of Credit $30,777 $28,954
Capital lease obligations 597 965
Industrial revenue bonds 5,550 2,550
---------- ----------
36,924 32,469
Less current maturities (273) (378)
---------- ----------
$36,651 $32,091
========== ==========
Aggregate future maturities of long-term debt and capital lease obligations as
of December 31, 1999 are as follows:
2000 273
2001 241
2002 62
2003 30,798
2004 0
Thereafter 5,550
---------------
$36,924
===============
The Company has a $52,500 unsecured revolving credit facility arranged
by PNC Bank, N.A. ("PNC") bearing variable interest of LIBOR plus 112.5 basis
points, maturing October 2003. The credit facility contains numerous restrictive
financial covenants which require the Company to comply with certain financial
tests including, among other things, maintaining minimum tangible net worth, as
defined, and maintaining certain specified ratios. The credit facility also
contains other restrictive covenants that include, among other things,
restrictions on outside investments and restrictions on capital expenditures.
In April 1997, the Company borrowed approximately $2.6 million by
issuing Variable Rate Demand Revenue Bonds under the authority of the Industrial
Revenue Board of the City of Chattanooga, bearing variable interest of 5.65% at
December 31, 1999 maturing April 2022. The bonds were issued to finance the new
production facility for the electronics systems business.
25
<PAGE>
In August 1998, the Company entered into an interest rate swap
agreement that effectively converted the underlying variable rate debt in the
unsecured revolving credit facility to fixed rate debt. The notional principal
amount of the swap agreement is $10,000 with an effective fixed rate of 5.75%.
The swap agreement is settled each month and will expire in July 2001.
In February 1999, the Company borrowed approximately $3.0 million by
issuing Variable Rate Demand Revenue Bonds under the authority of the Industrial
Development Corporation City of San Marcos, bearing variable interest of 5.65%
at December 31, 1999, maturing April 2024. The bonds were issued to finance a
new production facility for the mechanical division.
The gross proceeds from (repayments of) the revolving credit facilities
are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------- ---------------- --------------- ---------------
<S> <C> <C> <C>
Proceeds from revolving credit facility 47,400 40,300 46,400
Repayments of revolving credit facility (45,200) (34,013) (44,100)
---------------- --------------- ---------------
</TABLE>
5. INCOME TAXES
The components of the provision (benefit) for income taxes are shown
below:
<TABLE>
<CAPTION>
1999 1998 1997
- --------------------------------------------------- ---------------- --------------- ---------------
<S> <C> <C> <C>
Current:
Federal and state $2,105 $2,300 $4,365
Foreign 817 1,064 592
---------------- --------------- ---------------
2,922 3,364 4,957
---------------- --------------- ---------------
Deferred:
Federal and state 439 1,892 837
Foreign 0 0 0
---------------- --------------- ---------------
439 1,892 837
---------------- --------------- ---------------
Provision for income taxes $3,361 $5,256 $5,794
================ =============== ===============
</TABLE>
Under SFAS No. 109, deferred tax assets or liabilities at the end of
each period are determined by applying the current tax rate to the difference
between the financial reporting and income tax bases of assets and liabilities.
The deferred tax benefit is determined based on changes in deferred tax items
exclusive of deferred tax implications of the early extinguishment of debt and
reclassifications between deferred and current taxes.
26
<PAGE>
The components of deferred income taxes are as follows:
1999 1998
- --------------------------------------------------- ----------- ----------------
Deferred income tax liabilities:
Book basis in property over tax basis $(2,709) $(2,337)
LIFO inventory basis differences (2,680) (3,042)
Other (604) (1,337)
--------- ----------------
Total deferred income tax liabilities (5,993) (6,716)
--------- ----------------
Deferred income tax assets:
Postretirement benefits not
currently deductible 6,019 6,772
Accrued liabilities not currently deductible 821 1,050
Allowance for doubtful accounts and
inventory reserves 861 742
Other 712 133
--------- ----------------
Total deferred income tax assets 8,413 8,697
--------- ----------------
Net deferred income tax asset $2,420 $1,981
========= ================
A reconciliation of the provision for income taxes at the statutory
federal income tax rate to the Company's tax provision as reported in the
accompanying statements of operations is shown below:
1999 1998 1997
- ---------------------------------- ----------- --------------- ----------------
Federal statutory income tax $2,966 $4,470 $4,924
State income taxes, net of
federal income tax benefit 139 592 651
Foreign taxes and other, net 256 194 219
--------- --------------- ----------------
$3,361 $5,256 $5,794
========= =============== ================
In 1999, 1998, and 1997 earnings before income taxes included $2,541,
$2,862, and $1,259, respectively, of earnings generated by the Company's foreign
operations. No federal or state income taxes have been provided on such
earnings, since undistributed earnings have been reinvested and are not expected
to be remitted to the parent company.
In September 1997, the Internal Revenue Service completed its review of
the Company's 1995, 1994, and 1993 federal income tax returns. The review did
not have a material effect on the Company's operations. The Internal Revenue
Service is currently in review of the Company's 1996 federal income tax return.
6. BENEFIT PLANS
Compensation Plans
Wood's maintains a discretionary compensation plan for its salaried and
hourly employees which provides for incentive awards based on certain levels of
earnings, as defined. Amounts awarded under the plan and charged to expense in
the accompanying statements of operations were $709, $1,238, and $2,002, for
fiscal years 1999, 1998, and 1997 respectively.
27
<PAGE>
Profit-Sharing Plans
Since January 1, 1988, the Company has maintained a separate defined
contribution 401(k) profit-sharing plan covering all domestic employees. Under
this plan, the Company matches a specified percentage of each eligible
employee's contribution and 50% of the match is invested in funds designated by
the employee and 50% of the match is used to purchase company common shares on
the open market. The Company contributed 21,557 shares of common stock held in
treasury in 1999, 35,990 in 1998, and 5,797 in 1997. Amounts contributed by the
Company under this profit-sharing plan were approximately $249, $580, and $530
for fiscal years 1999, 1998, and 1997, respectively. In addition, the Company
has a noncontributory profit-sharing plan covering its Canadian employees for
which $38, $17, and $37 were charged to expense for the fiscal years 1999, 1998,
and 1997, respectively.
Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan ("ESPP") enables employees
of the Company to subscribe for shares of common stock on quarterly offering
dates, at a purchase price which is the lesser of 90% of the fair value of the
shares on the first or last day of the quarterly period. Employee contributions
to the ESPP were $124, $152 and $63 for 1999, 1998, and 1997 respectively.
Pursuant to the ESPP, 12,456 shares were issued to employees during 1999, 8,775
during 1998 and 4,436 shares during 1997. At the annual meeting on April 11,
1997, the Company's shareholders approved the reservation of 500,000 shares to
be issued under the ESPP. As of December 31, 1999, 474,333 shares are available
for future issuance.
Stock Options
In March 1991, the Company granted nonqualified stock options to the
president of the Company to purchase 157,893 shares of the Company's common
stock at an option price of $6.33 per share. The options vested 30% in January
1993, 15% in each of January 1994, 1995, 1996, and 1997, and 10% in January
1998. The option agreement was amended on March 30, 1992 to set the option price
at $1.58 per share plus an amount equal to the average yield on the 30-year U.S.
Treasury bond maturing on the day closest to the fifteenth anniversary of the
option measurement date as defined in the agreement. The options are exercisable
on or after the seventh anniversary of the measurement date and expire one year
thereafter. During 1992, the controlling shareholder granted an additional
47,367 options on the controlling shareholder's shares to a director, with terms
similar to the 1991 options, as amended. Also in 1992, the Company granted an
additional 30,000 options to an employee with terms similar to the 1991 options,
as amended, with vesting beginning in 1994. The options are exercisable
beginning on the seventh anniversary of the measurement date, as defined, and
expire on the eighth anniversary of the measurement date. The option agreements
contain various fair value puts and calls, with fair value to be determined by
the board of directors or an independent appraiser. All of the above options
have expired or have been exercised as of December 31, 1999.
As a result of the above amendment, beginning in March 1992, the
Company began accounting for the options under variable plan accounting, whereby
increases in the value of the Company's common stock above the option price
resulted in the recording of compensation expense by the Company. Through
December 31, 1994, the Company recorded no compensation expense related to the
options as, in the opinion of management, the fair value of the Company's common
stock was equal to or below the option price, as adjusted. Due to increases in
the estimated fair value of the Company's common stock, as determined by an
independent appraiser, the Company recorded stock option compensation expense of
$675 for the year ended December 29, 1995. Additional stock option compensation
expense of approximately $230 will be recorded in future periods based on the
vesting schedule of options. In July 1995, the option agreements were amended to
remove features of the options that resulted in variable plan accounting.
Accordingly, subsequent to July 1, 1995, the options are being accounted for as
fixed options whereby future increases in the value of the Company's common
stock will not result in additional stock option compensation expense.
28
<PAGE>
In February 1994, the Company granted an additional 105,000 options
with terms similar to those discussed above, except that the February 1994
options do not have a put feature and have an option price which escalates
during the vesting period at a fixed rate of 6% per year. The February 1994
options are exercisable at a fixed exercise price for a one-year period
following the vesting period. The Company accounts for the February 1994 options
as fixed options whereby future increases in the value of the Company's common
stock do not result in the recording of compensation expense by the Company. The
option agreements contain various fair value puts and calls, with fair value to
be determined by the board of directors or an independent appraiser.
In December 1994, the controlling shareholder of the Company granted
89,004 options on the controlling shareholder's shares to certain members of
management which contain terms similar to the February 1994 options, except that
the option price escalates during the vesting period at a fixed rate of 7.86%
per year.
The Company adopted a 1996 stock-based incentive compensation plan (the
"1996 Plan"), the purpose of which is to assist the Company in attracting and
retaining valued personnel by offering them a greater stake in the Company's
success and a closer identity with the Company, and to encourage ownership of
the Company's common stock by such personnel.
The 1996 Plan is administered by a committee (the "Committee")
designated by the board of directors. The aggregate maximum number of shares of
common stock available for awards under the 1996 Plan is 500,000, subject to
adjustment to reflect changes in the Company's capitalization. Awards under the
1996 Plan may be made to all officers and key employees of the Company. No
awards can be made under the 1996 Plan after January 31, 2006.
The Committee may grant shares of common stock in the form of either
deferred stock or restricted stock, as defined in the 1996 Plan. Options granted
under the 1996 Plan may be either incentive stock options ("ISOs") or
nonqualified stock options. ISOs are intended to qualify as incentive stock
options within the meaning of Section 422 of the Internal Revenue Code. Unless
an option is specifically designated at the time of grant as an ISO, options
under the 1996 Plan will be nonqualified. The exercise price of the options will
be determined by the Committee. The maximum term of an option or Stock
Appreciation Right ("SAR") granted under the 1996 Plan shall not exceed ten
years from the date of grant or five years from the date of grant if the
recipient on the date of grant owns, directly or indirectly, shares possessing
more than 10% of the total combined voting power of all classes of stock of the
Company. No option or SAR may be exercisable sooner than six months from the
date the option or SAR is granted.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", for its stock options. SFAS No. 123 requires companies to
estimate the value of all stock-based compensation using a recognized pricing
model. However, it also allows an entity to continue to measure compensation
cost for those plans using the method of accounting prescribed by Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Entities electing to remain with the method of accounting in APB No.
25 must make pro forma disclosures of net income and, if presented, earnings per
share, as if the fair value-based method of accounting defined in the statement
had been applied. The Company has elected to continue to account for options
under APB No. 25.
In June 1997, the Company granted options to purchase 46,250 shares of
common stock at an option price of $14 per share and 92,500 at an option price
of $23. The options vest evenly over a three-year period from the grant date.
The options may be exercised as they vest. The $14 options expire ten years from
the grant date, and the $23 options expire five years from the grant date.
In February and August 1998, the Company granted options to purchase
50,550 and 25,000 shares of common stock, respectively, at an option price of
$21 and $17.88 per share, respectively, and 101,100 and 50,000 options,
respectively, at $28 per share. The options vest evenly over a three-year period
from the grant date. The options may be exercised as they vest. The $21 and
$17.88 options expire ten years from the grant date and the $28 options expire
five years from the grant date. No compensation expense was incurred in 1998
because the strike price was higher than the market price.
29
<PAGE>
In January 1999, the Company granted options to purchase 53,250 shares
of common stock at an option price of $12 per share and 106,500 options at $18
per share. The options vest evenly over a three-year period from the grant date.
The options may be exercised as they vest. The $12 options expire ten years from
the grant date and the $18 options expire five years from the grant date. No
compensation expense was incurred in 1999 because the strike price was higher
than the market price.
In February 2000, the Company granted options to purchase 79,250 shares
of common stock at an option price of $9.50 per share and 158,500 options at
$14.25 per share. The options vest evenly over a three-year period from the
grant date. The options may be exercised as they vest. The $9.50 options expire
in ten years from the grant date and the $14.25 options expire five years from
the grant date. No compensation expense was incurred in 2000 because the strike
price was higher than the market price.
The Company has elected to account for its stock-based compensations
plan under APB No. 25 using the Black-Scholes option pricing model with the
following weighted-average assumptions used for grants in 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Risk free interest rate 5.5% 5.5% 5.5%
Expected lives 5 & 10 years 5 &10 years 10 years
Expected volatility 9.5% 25.7% 31.3%
Dividend yield 4.0% 2.4% 2.3%
</TABLE>
If the Company had accounted for these plans in accordance with SFAS
No. 123, the Company's reported pro forma net income and pro forma net income
per share for the fiscal years from 1997 to 1999 would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income as reported $5,367 $7,890 $8,689
Pro Forma 5,235 7,715 8,646
EPS as reported
Basic 0.91 1.34 1.49
Diluted 0.91 1.33 1.47
Pro forma
Basic 0.89 1.31 1.48
Diluted 0.89 1.30 1.46
</TABLE>
30
<PAGE>
Stock option activity for the years ended December 31, 1999, January 1,
1999, and January 2, 1998 is as follows:
Number of shares Weighted average
subject to option exercise price
- --------------------------------------------------------------------------------
Options outstanding at
January 3, 1997 280,918 $ 3.56
Granted 138,750 20.00
Canceled 0 0.00
Exercised (58,166) 2.94
Options outstanding at
January 2, 1998 361,502 9.88
Granted 226,650 25.67
Canceled (6,000) 25.67
Exercised (80,887) 3.18
Options outstanding at
January 1, 1999 501,265 17.92
Granted 159,750 16.00
Canceled (43,977) 4.69
Exercised (78,227) 6.28
Options outstanding at
December 31, 1999 538,811 $ 20.20
The following table sets forth the range of exercise price, number of
shares, weighted average exercise price, and remaining contractual lives by
groups of similar price and grant date at December 31, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Range of average average Average
exercise Number exercise contractual Number Exercise
price of shares price life of shares Price
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 3.87 - $ 7.74 34,961 $ 5.53 1.6 years 34,961 $ 5.53
$ 12.00 - $28.00 503,850 $ 21.22 4.9 years 159,650 $22.58
----------- -----------
538,811 194,611
=========== ===========
</TABLE>
Postretirement Benefits
The Company sponsors a defined benefit postretirement medical plan that
provides coverage for retirees and their dependents. A portion of the plan is
paid for by retiree cost sharing. The accounting for the plan anticipates future
cost sharing increases to keep pace with health care inflation. The plan is
unfunded. The Company adopted the provisions of SFAS No. 132, "Employers
Disclosure About Pensions and Other Postretirement Benefits" effective January
3, 1998.
31
<PAGE>
The following table summarizes the Company's postretirement benefit
obligations and the assumptions used in determining postretirement benefit cost:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------- ------------------- ------------------------ --------------------
<S> <C> <C> <C>
Benefit obligation at beginning of year $16,992 $18,031 $19,128
Service cost 138 205 185
Interest cost 343 503 483
Amortization (1,535) (1,501) (1,521)
Retiree benefits (305) (246) (244)
------------------- ------------------------ --------------------
Benefit obligation at end of year $15,633 $16,992 $18,031
=================== ======================== ====================
Discount rate 7.75% 7.75% 7.75%
------------------- ------------------------ --------------------
Initial health care cost trend 6.50% 8.00% 8.00%
------------------- ------------------------ --------------------
Ultimate health care cost trend rate 5.00% 5.00% 5.00%
------------------- ------------------------ --------------------
Year ultimate health care cost
trend rate reached 2004 2004 2004
------------------- ------------------------ --------------------
</TABLE>
Net periodic postretirement benefit includes the following components:
1999 1998 1997
------------- ------------- ------------------
Service cost $ 138 $ 205 $ 185
Interest cost 343 503 483
Amortization (1,535) (1,501) (1,521)
------------- ------------- ------------------
Net benefit $(1,054) $(793) $(853)
============= ============= ==================
In 1997, the Company changed the remaining amortization period for the
unrecognized prior service cost from 14.4 years to 5.4 years.
7. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is subject to a number of legal actions arising in the
ordinary course of business. In management's opinion, the ultimate resolution of
these actions will not materially affect the Company's financial position or
results of operations.
Environmental Risks
The Company's operations and properties are subject to federal, state,
and local laws, regulations, and ordinances relating to certain materials,
substances, and wastes. The nature of the Company's operations exposes it to the
risk of claims with respect to environmental matters. Based on the Company's
experience to date, management believes that the future cost of compliance with
existing environmental requirements will not have a material adverse effect on
the Company's operations or financial position.
32
<PAGE>
Operating Lease Commitments
The Company leases office space, office equipment, and other items
under non-cancelable operating leases. The expense for non-cancelable operating
leases was approximately $520, $385, and $642, for fiscal years 1999, 1998, and
1997, respectively. At December 31, 1999, future minimum lease payments under
non-cancelable operating leases are as follows:
2000 $ 401
2001 274
2002 201
2003 197
2004 and thereafter 363
----------------------
$1,436
======================
8. ACQUISITIONS AND JOINT VENTURES
Acquisitions
In February 1996, the Company exercised an option to purchase the
outstanding shares of Grupo Blaju, S.A., de C.V. (subsequently renamed TB Wood's
Mexico, S.A., de C.V.) and its subsidiaries for approximately $458, including
legal and professional fees. There was no goodwill associated with the purchase.
In October 1996, the Company purchased the assets of Ambi-Tech
Industries, Inc., a leading manufacturer of electronic brakes for electric
motors, for approximately $991 cash, including legal and professional fees, and
an $800 note payable at 7% interest. Principal is due in five annual
installments of $160 beginning September, 1997. Goodwill associated with the
purchase is being amortized over 40 years using the straight-line method (Note
2).
In November 1996, the Company acquired certain assets of Deck
Manufacturing Corp. ("Deck"), an established designer and manufacturer of
industrial disc and gear couplings, for approximately $1,471 of cash, including
legal and professional fees. Goodwill associated with the purchase is being
amortized over 40 years using the straight-line method (Note 2). The Company
also loaned Deck $400 which is secured by the excess accounts receivable and the
inventory not acquired. The note receivable is included in other assets.
In May 1997, the Company purchased the stock of TB Wood's North
Carolina ("Wood's-NC"), formerly Graseby Controls Inc., a subsidiary of Graseby
plc, for cash of approximately $5,000. Wood's-NC manufactures and sells
industrial AC drives, including the Volkmann(TM) brand of high-frequency AC
drives, electronic brakes, and Soft Starts. Goodwill associated with the
purchase is being amortized over 40 years using the straight-line method (Note
2).
In November 1997, the Company purchased the stock of Berges electronic
GmbH ("Berges") for cash of approximately $1,480 and assumed liabilities of
$4,765. Berges designs, manufactures, and markets its own line of AC inverters
for the European market and sells TB Wood's inverters on a private-label basis.
Goodwill associated with the purchase is being amortized over 40 years using the
straight-line method (Note 2).
Joint Ventures
In December 1997, the Company purchased a 65% ownership in a joint
venture with TB Wood's (India) Private Limited ("TBWI") for $91. In November
1999, the Company increased its ownership percentage to 85.5% for $71. TBWI
distributes domestically manufactured electrical components and performs system
integration design in the India market. TBWI was not included in the 1997
financial statements as its impact was immaterial.
33
<PAGE>
In July 1999, the Company entered into a joint venture agreement with
Electron Corporation ("Electron"), forming a Pennsylvania limited partnership
under the name TBWE Belt Drive Components LP (the "Joint Venture"). The parties
also formed a Pennsylvania limited liability company under the name TBWE Belt
Drive Systems LLC which serves as the general partner of the Joint Venture. The
Company and Electron hold a limited partner interest in the Joint Venture of
75.35% and 24.15%, respectively. The general partner holds a 0.5% interest in
the Joint Venture. The Company and Electron hold an interest in the general
partnership of 75.6% and 24.4%, respectively. The operations of the Joint
Venture have been consolidated with the Company as the Company has a controlling
interest in the Joint Venture.
The sole purpose of the Joint Venture is to manufacture, machine,
market, distribute and engineer belted drive components and such other products
having similar uses which may be developed by either the Company or Electron in
the future.
Operating income attributed to the Joint Venture from its inception
through the year ending December 31, 1999 was $3,246; $808 of this amount is the
minority partner's share.
9. BUSINESS SEGMENT INFORMATION
Description of the Types of Products from which Each Segment Derives its
Revenues
The Company is engaged principally in the design, manufacture and sale
of power transmission products. The products manufactured by the Company are
classified into two segments, mechanical business and electronics business. The
mechanical business segment includes belted drives and couplings. The
electronics business segment includes electronic drives and electric drive
systems. Products of these segments are sold to distributors, original equipment
manufacturers and end users for manufacturing and commercial applications.
Measurement of Segment Profit or Loss and Segment Assets
The Company evaluates performance and allocates resources based on
profit or loss from operations before income taxes. The accounting policies of
the reportable segments are the same as described in the summary of significant
accounting policies. Intersegment sales are not material.
Factors Management Used to Identify the Company's Reportable Segments
The Company's reportable segments are business units that manufacture
and market separate and distinct products and are managed separately because
each business requires different processes, technologies, and market strategies.
34
<PAGE>
The following table summarizes revenues, operating income, total assets
and expenditures for long-lived assets by business segment for fiscal years
1999, 1998, and 1997:
<TABLE>
<CAPTION>
Mechanical Electronics
Business Business Total
- --------------------------------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C>
1999:
Revenues from external customer $73,990 $49,747 $123,737
Operating profit after minority interest 8,734 2,566 11,300
Depreciation 2,844 1,464 4,308
Segment assets 55,290 40,990 96,280
Expenditures for long-lived assets 6,989 1,327 8,316
1998:
Revenues from external customers $76,909 $57,040 $133,949
Operating profit 9,485 6,081 15,566
Depreciation 2,900 1,474 4,374
Segment assets 49,403 38,924 88,327
Expenditures for long-lived assets 5,359 2,122 7,481
1997:
Revenues from external customers $79,988 $44,039 $124,027
Operating profit 11,925 5,026 16,951
Depreciation 2,860 1,021 3,881
Segment assets 44,108 32,040 76,148
Expenditures for long-lived assets 2,050 3,774 5,824
</TABLE>
The following table reconciles segment profit to consolidated income
before income taxes and extraordinary items for fiscal years 1999, 1998 and
1997:
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------- ----------------- ---------------- ------------------
<S> <C> <C> <C>
Total operating profit for reportable segments $ 11,300 $ 15,566 $ 16,951
Interest, net (1,915) (2,040) (1,695)
Other unallocated amounts (657) (380) (773)
----------------- ---------------- -------------------
Income before income taxes $ 8,728 $ 13,146 $ 14,483
================= ================ ===================
</TABLE>
The following table reconciles segment assets to consolidated total
assets as of December 31, 1999 and January 1, 1999:
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------- ---------------- -----------------
<S> <C> <C>
Total assets for reportable segments $96,280 $ 88,327
Cash 1,245 2,521
Corporate fixed assets 1,749 1,351
Deferred tax 3,340 3,570
Other unallocated assets 252 256
---------------- -----------------
Consolidated total $102,866 $ 96,025
================ =================
</TABLE>
35
<PAGE>
Information regarding the Company's domestic and foreign operations is as
follows:
Net Long-Lived
Sales Assets
- --------------------------- ----------------------- ---------------------
1999:
United States $ 94,873 $36,703
Canada 9,059 1,111
Germany 6,679 1,998
Italy 8,865 512
Mexico 3,675 990
India 586 98
----------------------- ---------------------
Consolidated $123,727 $41,412
======================= =====================
1998:
United States $103,906 $33,206
Canada 8,739 869
Germany 7,708 2,105
Italy 9,979 525
Mexico 3,482 966
India 135 84
----------------------- ---------------------
Consolidated $133,949 $37,755
======================= =====================
1997:
United States $107,186 $29,689
Canada 14,135 1,062
Germany 0 1,248
Italy 0 462
Mexico 2,706 749
----------------------- ---------------------
Consolidated $124,027 $33,210
======================= =====================
10. QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Quarters
1999 First Second Third Fourth
- --------------------------------------- -------------- ------------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Sales $30,058 $30,723 $32,293 $30,663
Gross profit 11,080 10,517 11,536 11,224
Gross profit % 36.9% 34.2% 35.7% 36.6%
Net income 1,176 1,287 1,495 1,409
Basic net income per share 0.20 0.22 0.25 0.24
Diluted net income per share 0.20 0.22 0.25 0.24
Dividends declared 0.09 0.09 0.09 0.09
Dividends paid 0.09 0.09 0.09 0.09
- --------------------------------------- -------------- ------------------- ---------------- ------------------
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Fiscal Quarters
1998 First Second Third Fourth
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $36,051 $34,161 $34,150 $29,587
Gross profit 13,376 12,252 11,838 10,123
Gross profit % 37.1% 35.9% 34.7% 34.2%
Net income 2,383 2,259 1,759 1,489
Basic net income per share .41 .39 .30 .25
Diluted net income per share .40 .38 .30 .25
Dividends declared .08 .09 .09 .09
Dividends paid .08 .09 .09 .09
</TABLE>
<TABLE>
<CAPTION>
Fiscal Quarters
1997 First Second Third Fourth
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $30,489 $31,739 $31,257 $30,542
Gross profit 10,951 11,507 11,487 11,067
Gross profit % 35.9% 36.3% 36.8% 36.2%
Net income 2,137 2,145 2,199 2,208
Basic net income per share 0.37 0.37 0.38 0.38
Diluted net income per share 0.36 0.36 0.37 0.37
Dividends declared .08 .08 .08 .08
Dividends paid .08 .08 .08 .08
======================================================================
</TABLE>
37
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
38
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information called for by this Item regarding directors and
executive officers is set forth in the Company's definitive Proxy Statement for
the 2000 Annual Meeting in the Sections entitled "Election of Directors,"
"Management" and "Section 16(a) Beneficial Ownership Reporting Compliance" and
is incorporated herein by reference.
Item 11. Executive Compensation.
The information called for by this Item is set forth in the Company's
definitive Proxy Statement for the 2000 Annual Meeting in the Section entitled
"Executive Compensation" and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information called for by this Item is set forth in the Company's
definitive Proxy Statement for the 2000 Annual Meeting in the Section entitled
"Security Ownership of Certain Beneficial Owners and Management" and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information called for by this Item is set forth in the Company's
definitive Proxy Statement for the 2000 Annual Meeting in the Section entitled
"Certain Relationships and Related Transactions" and is incorporated herein by
reference.
39
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
(1) All financial statements;
The consolidated financial statements of the Company and its
subsidiaries on pages 15 through 37 hereof and the report thereon of
Arthur Andersen LLP appearing on page 16 hereof.
(2) Financial Statement Schedule
Schedule II for the fiscal year ended December 31, 1999 and the report
thereon of Arthur Andersen LLP appearing on page 16 hereof. All other
schedules have been omitted because they are not applicable or are not
required. All other required schedules are included in the Consolidated
Financial Statements or notes therein.
(3) Exhibits
Number Description
- ------ -----------
3.1 Amended Certificate of Incorporation of the Company (incorporated by
reference to TB Wood's Corporation Registration Statement filed on Form
S-1, as amended, File No. 33-96498 ("Form S-1") Exhibit 3.1).
3.2 Amended and Restated By-laws of the Company (incorporated by reference
to Form S-1 Exhibit 3.2).
4.1 Shareholders' Agreements by and among T. B. Wood's Sons Company, Thomas
C. Foley and Gifford P. Foley, Barton J. Winokur, Kurt A. Herwald,
Michael L. Hurt, Michael H. Iversen, David H. Halleen, Stanley L. Mann,
Lee J. McCullough, Carl R. Christenson, Harold L. Coder, III, James E.
Williams, Joseph S. Augustine, Bernard M. Goldsmith, Harvey R. Heller,
Robert Patterson Saltsman, F. Philip Handy, F. Philip Handy, as
Guardian of the Property of Kate Elizabeth Handy, F. Philip Handy, as
Guardian of the Property of Philip Breckenridge Handy and F. Philip
Handy, as Guardian of the Property of Abigail Slocum Handy
(incorporated by reference to Form S-1 Exhibit 4.1).
4.2 Amendments to Shareholders' Agreements by and among TB Wood's
Incorporated (formerly known as "T. B. Wood's Sons Company"), Thomas C.
Foley and Gifford P. Foley, Barton J. Winokur, Kurt A. Herwald, Michael
L. Hurt, Michael H. Iversen, David H. Halleen, Stanley L. Mann, Lee J.
McCullough, Carl R. Chistenson, Harold L. Coder, III, James E.
Williams, Joseph S. Augustine (incorporated by reference to Form S-1
Exhibit 4.2).
9.1 Voting Trust Agreement dated March 31, 1989, among T. B. Wood's Son's
Company and Bernard M. Goldsmith, Harvey R. Heller, Robert Patterson
Saltsman, F. Philip Handy, F. Philip Handy, as Guardian of the Property
of Abigail Slocum Handy, Kate Elizabeth Handy, Philip Breckenridge
Handy and F. Philip Handy, as Trustee (incorporated by reference to
Form S-1 Exhibit 9.1).
10.1 Stock Purchase Agreement dated January 7, 1994 by and among T. B.
Wood's Sons Company, Plant Engineering Consultants, Inc. and John
Morris, Jesse Batten, Ralph Pedigo, Ronald Bingham, Walter Taeubel and
Cook Family Trust (incorporated by reference to Form S-1 Exhibit 10.1).
10.2 Asset Purchase Agreement dated May 12, 1994 by and between T. B. Wood's
Sons Company and Magnetic Power Systems, Inc. (incorporated by
reference to Form S-1 Exhibit 10.2).
40
<PAGE>
10.3 Non-Qualified Stock Option Agreements between T. B. Wood's Sons Company
and Joseph S. Augustine, Michael H. Iversen, David H. Halleen, Stanley
L. Mann, Lee J. McCullough, Carl R. Christenson, Harold L. Coder, III
and James E. Williams (incorporated by reference to Form S-1 Exhibit
10.36).
10.4 Non-Qualified Stock Option Agreement dated as of March 15, 1991 between
T. B. Wood's Sons Company and Michael L. Hurt, together with Addendum
dated as of March 30, 1992 (incorporated by reference to Form S-1
Exhibit 10.37).
10.5 Asset Purchase Agreement between T. B. Wood's Sons Company and Dana
Corporation dated March 31, 1993 (includes Schedule 7.11 On-Site
Environmental Procedures) (incorporated by reference to Form S-1
Exhibit 10.38).
10.6 TB Wood's Corporation 1996 Stock-Based Incentive Compensation Plan
(incorporated by reference to Form S-1 Exhibit 10.39).
10.7 Amendments to the Non-Qualified Stock Option Agreements between TB
Wood's Incorporated (formerly known as "T. B. Wood's Sons Company") and
Joseph S. Augustine, Michael H. Iversen, David H. Halleen, Stanley L.
Mann, Lee J. McCullough, Carl R. Christenson, Harold L. Coder, III and
James E. Williams (incorporated by reference to Form S-1 Exhibit
10.40).
10.8 Second Addendum dated July 1, 1995 to the Non-Qualified Stock Option
Agreement dated as of March 15, 1991 between TB Wood's Incorporated
(formerly known as "T. B. Wood's Sons Company") and Michael L. Hurt
(incorporated by reference to Form S-1 Exhibit 10.41).
10.9 Stock Purchase Agreement by and among TB Wood's Incorporated and Grupo
Blaju, S.A. de C.V. and Jorge R. Kiewek, Ninfa D. de Callejas and
Marcela Kiewek G., dated February 14, 1996 (incorporated by reference
to Form 10-K, for fiscal year 1995, Exhibit 10.43).
10.10 Revolving Credit Agreement by and among TB Wood's Incorporated, Plant
Engineering Consultants, Inc., Grupo Blaju, S.A., de C.V., TB Wood's
Canada, Ltd. and the Banks Party thereto and PNC Bank, National
Association, as Agent, dated October 10, 1996 (incorporated by
reference to Form 10-K, for fiscal year 1996, Exhibit 10.44).
10.11 TB Wood's Employee Stock Purchase Plan, dated March 1, 1997
(incorporated by reference to Form 10-K, for fiscal year 1996, Exhibit
10.45).
10.12 Stock Purchase Agreement by and between TB Wood's Incorporated and
Graseby Electro-Optics Inc. dated May 8, 1997 (incorporated by
reference to Form 10-K, for fiscal year 1997, Exhibit 10.46).
10.13 Translated Stock Purchase Agreement by and among TB Wood's Incorporated
and Berges Antriebstechnic GmbH and Karen Sarstedt, dated October 23,
1997 (incorporated by reference to Form 10-K, for fiscal year 1997,
Exhibit 10.47).
10.14 Form of the Non-Qualified Stock Option Agreements between TB Wood's
Corporation and Thomas C. Foley, Michael L. Hurt, Carl R. Christenson,
Michael H. Iversen, Willard C. Macfarland, Jr., and other key employees
dated June 17, 1997 and between TB Wood's Corporation and Robert J.
Dole dated July 29, 1997 issued under the 1996 Plan (incorporated by
reference to Form 10-K, for fiscal year 1997, Exhibit 10.48).
41
<PAGE>
10.15 Form of the Non-Qualified Stock Option Agreements between TB Wood's
Corporation and Thomas C. Foley, Michael L. Hurt, Carl R. Christenson,
Michael H. Iversen, Willard C. Macfarland, Jr., and other key employees
dated January 29, 1998 issued under the 1996 Plan (incorporated by
reference to Form 10-K, for fiscal year 1997, Exhibit 10.49).
10.16 Employment Agreement between TB Wood's Incorporated and Michael L. Hurt
dated April 14, 1998 (incorporated by Form 10-K, for fiscal year 1998.
10.17 Supplemental Executive Retirement Plan between TB Wood's Corporation
and Thomas C. Foley, Michael L. Hurt, Carl R. Christenson, Michael H.
Iversen and other key employees dated May 7, 1998 (incorporated by
reference to Form 10-K, for fiscal year 1998).
10.18 Form of the Non-Qualified Stock Option Agreements between TB Wood's
Corporation and Thomas C. Foley, Michael L. Hurt, Carl R. Christenson,
Michael H. Iversen, Willard C. Macfarland, Jr., and other key employees
dated January 26, 1999 issued under the 1996 Plan (incorporated by
reference to Form 10-K, for fiscal year 1998).
10.19 Form of the Non-Qualified Stock Option Agreements between TB Wood's
Corporation and Thomas C. Foley, Michael L. Hurt, Carl R. Christenson,
Michael H. Iversen, Willard C. Macfarland, Jr., and other key employees
dated January 26, 1999 issued under the 1996 Plan (incorporated by
reference to Form 10-K, for fiscal year 1998).
10.20 Form of the Non-Qualified Stock Option Agreements between TB Wood's
Corporation and Thomas C. Foley, Michael L. Hurt, Carl R. Christenson,
Michael H. Iversen, Willard C. Macfarland, Jr. and other key employees
dated February 8, 2000 issued under the 1996 Plan.
10.21 Form of the Non-Qualified Stock Option Agreements between TB Wood's
Corporation and Thomas C. Foley, Michael L. Hurt, Carl R. Christenson,
Michael H. Iversen, Willard C. Macfarland, Jr. and other key employees
dated February 8, 2000 issued under the 1996 Plan.
10.50 Joint Venture Agreement dated July 3, 1999 by and between TB Wood's
Incorporated and The Electron Corp.
10.51 Operating Agreement of TBWE Belt Drive Systems LLC dated July 3, 1999
by and between TB Wood's Incorporated and The Electron Corp.
11.1 Statement regarding Computation of Per Share Earnings.
21.2 Subsidiaries and Joint Ventures of Registrant.
23.2 Consent of Independent Public Accountants.
(b) Reports on Form 8-K.
There were no reports on Form 8-K by the Registrant during the fourth
quarter of fiscal year 1999.
27.0 Financial Data Schedule
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Chambersburg and Commonwealth of Pennsylvania, on March 30, 2000.
TB WOOD'S CORPORATION
By: /s/ MICHAEL L. HURT
-------------------
Michael L. Hurt
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
/s/ THOMAS C. FOLEY Chairman of the Board March 30, 2000
- ------------------- (Principal Executive Officer)
Thomas C. Foley
/s/ MICHAEL L. HURT President and Director March 30, 2000
- ------------------- (Principal Executive Officer)
Michael L. Hurt
/s/ JEAN-PIERRE L. CONTE Director March 30, 2000
- ------------------------
Jean-Pierre L. Conte
/s/ ROBERT DOLE Director March 30, 2000
- ---------------
Senator Robert Dole
/s/ CRAIG R. STAPLETON Director March 30, 2000
- ----------------------
Craig R. Stapleton
/s/ THOMAS F. TATARCZUCH Vice President-Finance, March 30, 2000
- ------------------------ (Principal Financial Officer and
Thomas F. Tatarczuch Principal Accounting Officer)
43
<PAGE>
TB Wood's Corporation And Subsidiaries
Schedule II
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
---------
Deductions (write-offs of bad
Balance at Charged to debts, discounts and
beginning of costs Charged to claims in excess Balance at
Description period and expenses other accounts of provision)(1) end of period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended January 2, 1998:
Allowance for doubtful accounts $366 26 (58) $334
Allowance for discounts and 71 71 142
claims
------------------------------------------------------------------------------------------------
437 97 0 (58) 476
================================================================================================
Year ended January 1, 1999:
Allowance for doubtful accounts $334 2 (74) $262
Allowance for discounts and 142 10 152
claims
------------------------------------------------------------------------------------------------
476 12 (74) 414
================================================================================================
Year ended December 31, 1999:
Allowance for doubtful accounts $262 (30) $232
Allowance for discounts and 152 18 170
claims
------------------------------------------------------------------------------------------------
414 18 (30) 402
================================================================================================
</TABLE>
- --------------
Note:
(1) Represents write-off of accounts determined to be uncollectible, less
recoveries of amounts previously written off.
44
<PAGE>
Exhibit 10.20
TB WOOD'S CORPORATION
GRANT OF FAIR MARKET VALUE (FMV) NON-QUALIFIED STOCK OPTION
1. Grant of Option and Exercise Price. Subject to the terms and
conditions set forth herein and in the TB Wood's Corporation 1996 Stock-Based
Incentive Compensation Plan (the "Plan"), TB Wood's Corporation (the "Company")
hereby grants to ___________________, (the "Optionee"), a stock option (the
"Option") to purchase up to _______ shares of Common Stock of the Company, par
value $.01 per share (the "Common Stock"), at an exercise price of $______ per
share (the "Exercise Price"). The Option is a non-qualified stock option.
2. Vesting of Options. One-third of the shares of Common Stock subject
to the option shall vest on the first anniversary of the date of grant of the
Option (the "Grant Date"), an additional one-third of the shares of Common Stock
subject to the option shall vest on the second anniversary of the Grant Date,
and the final one-third of the shares of Common Stock subject to the option
shall vest on the third anniversary of the Grant Date.
3. Time of Exercise. The Option may be exercised from time to time with
respect to shares for which the Option has vested but no later than the tenth
anniversary of the Grant Date. Upon the tenth anniversary of the Grant Date, the
Optionee's right to exercise the Option shall terminate absolutely.
4. Payment for Shares of Common Stock. Upon exercise of an Option and
before delivery of the shares of Common Stock, full payment for shares of Common
Stock purchased upon the exercise of the Option shall be made in cash or,
subject to the approval of the Company committee administering the Plan (the
"Committee"), in whole or in part in shares of Common Stock valued at the fair
market value on the date of exercise.
5. Manner of Exercise. The Option shall be exercised by giving written
notice of exercise to the Company (Attn: Chief Financial Officer) at the
Company's main office at 440 North Fifth Avenue, Chambersburg, Pennsylvania
17201-1778. Such notice of exercise must include a statement of preference as to
the manner in which payment to the Company shall be made. Such notice shall be
deemed to have been given when hand-delivered, telecopied or mailed, first-class
postage prepaid, and shall be irrevocable once given.
6. Issuance of Certificates. As promptly as is reasonably practicable
after the exercise of the Option as determined by the Company, a certificate for
the shares of Common Stock issuable on the exercise of the Option shall be
delivered to Optionee or to his personal representative, heir or legatee.
7. Nontransferability of Option. The Option may not be transferred or
assigned by Optionee otherwise than by will or the laws of descent and
distribution or be exercised other than by Optionee or, in the case of his
death, by his personal representative, heir or legatee.
8. Taxes. Optionee shall be responsible to make appropriate provision
for all taxes required to be withheld in connection with any Option, the
exercise thereof and the transfer of the shares of Common Stock. Such
responsibility shall extend to all applicable federal, state, local or foreign
withholding taxes. In the case of exercise of the Option, the Company shall, at
the election of Optionee, have the right to retain the number of shares of
Common Stock whose aggregate fair market value equals the amount to be withheld
in satisfaction of the applicable withholding taxes.
<PAGE>
9. Termination of Employment. If the Optionee's employment by the
Company (or a subsidiary thereof) is terminated for any reason, all unvested
Options shall be forfeited and the Optionee shall have no further right to
exercise such Options. If the Optionee's employment by the Company (or a
subsidiary thereof) is terminated by reason of disability or retirement, all
unexercised, vested Options may be exercised pursuant to the terms of the Option
for a period of three months from the date of such termination of employment or
until the expiration of the term of the Option, whichever period is shorter;
provided, however, that if the Optionee's employment is terminated by death, all
unexercised, vested Options may be exercised pursuant to the terms of the Option
for a period of six months from the date of such termination of employment or
until the expiration of the term of the Option, whichever period is shorter. If
the Optionee's employment by the Company (or a subsidiary thereof) is terminated
for any reason other than death, disability or retirement, all unexercised,
vested options shall terminate three months from the date of such termination of
employment.
10. Rights Prior to Exercise. Neither Optionee nor his personal
representative, heir or legatee shall have any of the rights of a stockholder
with respect to any Common Stock until the date of the issuance to him or her of
a certificate for such Common Stock as provided herein.
11. Amendments. The Committee may from time to time amend the terms of
this Option to the extent it deems appropriate to carry out the terms and
provisions of the Plan.
12. Interpretation. The Committee shall have sole power to resolve any
dispute or disagreement arising out of this Agreement. The interpretation and
construction of any provision of this Option or the Plan made by the Committee
shall be final and conclusive and, insofar as possible, shall be consistent with
the requirements of a non-qualified stock option.
13. Option Not to Affect Employment. The Option granted hereunder shall
not confer upon Optionee any right to continue in the employment of the Company
or any Subsidiary.
TB WOOD'S CORPORATION
By:____________________________
Michael L. Hurt, President
Dated as of February 8, 2000
<PAGE>
Exhibit 10.21
TB WOOD'S CORPORATION
GRANT OF PREMIUM PRICED NON-QUALIFIED STOCK OPTION
1. Grant of Option and Exercise Price. Subject to the terms and
conditions set forth herein and in the TB Wood's Corporation 1996 Stock-Based
Incentive Compensation Plan (the "Plan"), TB Wood's Corporation (the "Company")
hereby grants to _______________, (the "Optionee"), a stock option (the
"Option") to purchase up to _________ shares of Common Stock of the Company, par
value $.01 per share (the "Common Stock"), at an exercise price of $______ per
share (the "Exercise Price"). The Option is a non-qualified stock option.
2. Vesting of Options. One-third of the shares of Common Stock subject
to the option shall vest on the first anniversary of the date of grant of the
Option (the "Grant Date"), an additional one-third of the shares of Common Stock
subject to the option shall vest on the second anniversary of the Grant Date,
and the final one-third of the shares of Common Stock subject to the option
shall vest on the third anniversary of the Grant Date.
3. Time of Exercise. The Option may be exercised from time to time with
respect to shares for which the Option has vested but no later than the fifth
anniversary of the Grant Date. Upon the fifth anniversary of the Grant Date, the
Optionee's right to exercise the Option shall terminate absolutely.
4. Payment for Shares of Common Stock. Upon exercise of an Option and
before delivery of the shares of Common Stock, full payment for shares of Common
Stock purchased upon the exercise of the Option shall be made in cash or,
subject to the approval of the Company committee administering the Plan (the
"Committee"), in whole or in part in shares of Common Stock valued at the fair
market value on the date of exercise.
5. Manner of Exercise. The Option shall be exercised by giving written
notice of exercise to the Company (Attn: Chief Financial Officer) at the
Company's main office at 440 North Fifth Avenue, Chambersburg, Pennsylvania
17201-1778. Such notice of exercise must include a statement of preference as to
the manner in which payment to the Company shall be made. Such notice shall be
deemed to have been given when hand-delivered, telecopied or mailed, first-class
postage prepaid, and shall be irrevocable once given.
6. Issuance of Certificates. As promptly as is reasonably practicable
after the exercise of the Option as determined by the Company, a certificate for
the shares of Common Stock issuable on the exercise of the Option shall be
delivered to Optionee or to his personal representative, heir or legatee.
7. Nontransferability of Option. The Option may not be transferred or
assigned by Optionee otherwise than by will or the laws of descent and
distribution or be exercised other than by Optionee or, in the case of his
death, by his personal representative, heir or legatee.
<PAGE>
8. Taxes. Optionee shall be responsible to make appropriate provision
for all taxes required to be withheld in connection with any Option, the
exercise thereof and the transfer of the shares of Common Stock. Such
responsibility shall extend to all applicable federal, state, local or foreign
withholding taxes. In the case of exercise of the Option, the Company shall, at
the election of Optionee, have the right to retain the number of shares of
Common Stock whose aggregate fair market value equals the amount to be withheld
in satisfaction of the applicable withholding taxes.
9. Termination of Employment. If the Optionee's employment by the
Company (or a subsidiary thereof) is terminated for any reason, all unvested
Options shall be forfeited and the Optionee shall have no further right to
exercise such Options. If the Optionee's employment by the Company (or a
subsidiary thereof) is terminated by reason of disability or retirement, all
unexercised, vested Options may be exercised pursuant to the terms of the Option
for a period of three months from the date of such termination of employment or
until the expiration of the term of the Option, whichever period is shorter;
provided, however, that if the Optionee's employment is terminated by death, all
unexercised, vested Options may be exercised pursuant to the terms of the Option
for a period of six months from the date of such termination of employment or
until the expiration of the term of the Option, whichever period is shorter. If
the Optionee's employment by the Company (or a subsidiary thereof) is terminated
for any reason other than death, disability or retirement, all unexercised,
vested options shall terminate three months from the date of such termination of
employment.
10. Rights Prior to Exercise. Neither Optionee nor his personal
representative, heir or legatee shall have any of the rights of a stockholder
with respect to any Common Stock until the date of the issuance to him or her of
a certificate for such Common Stock as provided herein.
11. Amendments. The Committee may from time to time amend the terms of
this Option to the extent it deems appropriate to carry out the terms and
provisions of the Plan.
12. Interpretation. The Committee shall have sole power to resolve any
dispute or disagreement arising out of this Agreement. The interpretation and
construction of any provision of this Option or the Plan made by the Committee
shall be final and conclusive and, insofar as possible, shall be consistent with
the requirements of a non-qualified stock option.
13. Option Not to Affect Employment. The Option granted hereunder shall
not confer upon Optionee any right to continue in the employment of the Company
or any Subsidiary.
TB WOOD'S CORPORATION
By:____________________________
Michael L. Hurt, President
Dated as of February 8, 2000
<PAGE>
Exhibit 10.50
JOINT VENTURE AGREEMENT
This Joint Venture Agreement is made as of this 1st day of July, 1999,
by and between TB WOOD'S INCORPORATED, a Pennsylvania business corporation
having offices at 440 North Fifth Avenue, Chambersburg, Pennsylvania 17201
("TBW") and THE ELECTRON CORP., a Colorado corporation having offices at 5101
South Rio Grande Street, PO Box 318, Littleton, Colorado 80160 ("Electron"). TBW
and Electron are referred to herein collectively as the "Venturers" and
separately as a "Venturer".
RECITALS:
A. TBW and Electron have agreed to form a joint venture for the purpose
of manufacturing and selling Belted Drive Components as defined herein.
B. It is the intention of the Venturers that Electron will become the
exclusive supplier of certain castings as identified in Schedule 1.1 (a) and,
together with TBW, the exclusive supplier of certain castings as identified on
Schedule 1.1 (b) for Belted Drive Components to the Venture pursuant to a
requirements contract with TBW, the payment obligations of which will be assumed
by the Venture and guaranteed by TBW.
C. The Venturers agree that TBW will become the exclusive provider to
the Venture of management, machining, sales, marketing, distribution and
engineering services; the exclusive supplier to the Venture of certain finished
components as described on Schedule 1.1 (c), and, together with Electron, the
exclusive supplier of finished components as described in Schedules 1.1 (a) and
1.1 (b) pursuant to (i) a marketing and administrative services agreement; and
(ii) a requirements contract with the Venture; and (iii) an assumption of the
payment obligations under the Electron requirements contract by the Venture,
which shall be guaranteed by TBW.
D. The Venturers agree that certain products manufactured by them shall
be sold in the Restricted Territory, as defined herein, only on behalf of and
through the Venture.
AGREEMENT:
NOW, THEREFORE, in consideration of the forgoing recitals, which are
made part of this Agreement, and the covenants, representations and warranties
set forth herein, and intending to be legally bound hereby, the Venturers agree
as follows:
1. Definitions. Capitalized terms used herein and not otherwise defined
shall have the following meanings:
1.1 "Belted Drive Components" shall mean power transmission
products of the types described on Schedule 1.1.
<PAGE>
1.2 "Corrective Action Report(s)" shall mean written reports
issued by or on behalf of the Venture to the Venturers (i) stating, in
reasonable detail, the manner in which a casting produced by either
Venturer or machining performed by TBW is defective, substandard or not
otherwise in conformance with the product specifications adopted by or
on behalf of the Venture; and (ii) proposing a plan of correction and a
timetable within which the corrective action must be concluded.
1.3 "Cost of Goods Sold" shall mean the aggregate transfer
costs of the items sold by the Venture as stated on Schedule 1.1
1.4 "Effective Date" shall mean July 1, 1999.
1.5 "Fail(s) to Perform" or "Failure to Perform" shall mean
failure by either TBW or Electron to satisfy the criteria for
dimensional and cosmetic specifications for Belted Drive Components
established by the Venture or the failure to deliver Belted Drive
Components as and when required by the Venture pursuant to the
requirements contracts executed by each of TBW and Electron which
failure, in either event, when annualized as of the time of such
Failure to Perform, can reasonably be anticipated to result in a loss
of business to the Venture of more than $500,000 in Net Sales per
annum.
1.6 "G S and A Expenses" shall mean the general, sales and
administrative expenses charged to the Venture by TBW through the M &
AS Agreement as defined in Section 5.3 plus any uncollectible accounts
receivable (as determinated in accordance with Sections 8.6 and 8.7
hereinafter).
1.7 "General Partner" shall mean TBWE Belt Drive Systems LLC.
1.8 "Initial Inventory" shall mean all of the Belted Drive
Components held in the inventory of each of the Venturers as of the
Effective Date.
1.9 "Interest(s)" shall mean the equity interest in each of
the Venture and the General Partner held by each of the Venturers.
1.10 "Major Decisions" shall mean a decision of the Venture
requiring the unanimous consent of the Managers of the General Partner
pursuant to Section 15.6 of this Agreement.
1.11 "Manufacturing Rationalization" shall mean the
integration of the Belted Drive Components operations of the Venturers
and the Venture pursuant to the terms of Section 12 of this Agreement.
<PAGE>
1.12 "M & AS Agreement" shall have the meaning ascribed to the
term in Section 5.3 hereinafter.
1.13 "Net Sales" shall mean to be invoiced sales minus
allowances, discounts, rebates and returns.
1.14 "Operating Income" shall mean Net Sales less (i) Cost of
Goods Sold and (ii) G S and A Expenses.
1.15 "Quality Audit Committee" shall mean a committee
organized by the Managers of the General Partner consisting of TBW's
Vice President and General Manager of its Mechanical Division, TBW's
Vice President of Quality and Electron's President and Chief Operating
Officer which shall have the authority and responsibility stated in
Section 11 of this Agreement.
1.16 "Restricted Territory" shall mean a territory comprising
the United States, Mexico, Central America, South America and Canada.
1.17 "TBW Call Price" shall mean the purchase price for the
acquisition by TBW of the Interest of Electron determined in accordance
with Section 16.4.
1.18 "TBW Put Price" shall mean the purchase price for the
acquisition by TBW of the Interest of Electron determined in accordance
with Section 16.5.
1.19 "Trade Accounts Payable Balance" shall mean the unpaid
balance of the payment obligations of the Venture to Electron for
Initial Inventory and non-Initial Inventory for purposes of the
calculations in Section 16.
2. Formation of Joint Venture and General Partner. The parties will
form the Venture as a Pennsylvania limited partnership under the name TBWE Belt
Drive Components LP. The parties will also form a Pennsylvania limited liability
company under the name TBWE Belt Drive Systems LLC which shall serve as the
general partner of the Venture. The registered office of the Venture and the
General Partner shall be at 440 North Fifth Avenue, Chambersburg, Pennsylvania,
or at such other office location as the Venturers may agree from time to time.
3. Purpose. The sole purpose of the Venture shall be to manufacture,
machine, market, distribute and engineer Belted Drive Components and such other
products having similar uses which may be developed by either TBW or Electron in
the future and as may be approved, from time to time, by the Venturers acting in
their reasonable discretion in the Restricted Territory.
4. Effective Date. The Venture and the General Partner shall be formed
as of the Effective Date.
<PAGE>
5. Exclusive Manufacture and Sales. All Belted Drive Components cast,
manufactured, machined, marketed, distributed or engineered by either TBW or
Electron in the Restricted Territory shall be marketed on behalf of and through
the Venture, and, except as otherwise expressly provided herein, none of the
Belted Drive Components shall be manufactured or sold independently of the
Venture or to any third party in the Restricted Territory. For purposes of this
Agreement, Belted Drive Components shall include the products identified on
Schedule 1.1 and future products of the same type as the products described on
Schedule 1.1 which may be developed by either TBW or Electron in the future.
5.1 Electron as Exclusive Supplier of Castings to TBW. From
and after the Effective Date, Electron shall become the exclusive
supplier of castings for Belted Drive Components to TBW, as set forth
on Schedules 1.1 (a) and 1.1 (b), pursuant to a requirements contract
entered into by and between Electron and TBW. The ultimate benefit and
payment obligations of the Electron requirements contract shall be
assigned by TBW to the Venture to enable TBW to satisfy its commitments
to the Venture as provided in Section 5.2 hereinafter, and TBW shall
guarantee the Venture's payment obligations after such assignment.
5.2 TBW as Exclusive Supplier of Certain Finished Products to
the Venture. From and after the Effective Date, TBW will become the
exclusive provider of certain finished products comprising Belted Drive
Components to the Venture as set forth on Schedules 1.1 (b) and 1.1 (c)
pursuant to a requirements contract entered into by and between the
Venture and TBW.
5.3 TBW as Exclusive Provider of Marketing and Administrative
Services. From and after the Effective Date, TBW will become the
exclusive provider of administrative, internal accounting, routine
legal, sales, marketing, distribution and certain engineering services
to the Venture pursuant to a marketing and administrative services
agreement (the "M&AS Agreement") entered into by and between TBW and
the Venture. The M&AS Agreement shall provide for payment to TBW of a
fee in an amount equivalent to 18.9% of Net Sales made by the Venture,
provided that the dollar volume of Net Sales is no less than Forty-Four
Million Sixty-One Thousand and 00/100 Dollars ($44,061,000.00) and no
more than Fifty-Nine Million Six Hundred Eleven Thousand and 00/100
Dollars ($59,611,000.00). In the event that the Venture's Net Sales
either are less than Forty-Four Million Sixty-One Thousand and 00/100
Dollars ($44,061,000.00) or exceed Fifty-Nine Million Six Hundred
Eleven Thousand and 00/100 Dollars ($59,611,000.00), TBW's
administrative fee shall be determined by unanimous vote of the
Managers of the General Partner; provided, however, that the
administrative fee shall not be less than fifteen percent (15%) nor
more than twenty-three percent (23%) of Net Sales of the Venture. The
Venturers hereby agree and acknowledge that the administrative fee
being paid to TBW will be in lieu of any reimbursement of expenses
incurred by TBW in performing its obligations under the M&AS Agreement,
including expenses related to management supervision, internal
accounting, computing, internal engineering and routine legal costs and
expenses.
<PAGE>
6. Transfer of Inventory to Venture. Electron agrees to sell finished
goods and casting inventory to TBW and TBW agrees to sell finished goods and
casting inventory to the Venture as follows:
6.1 Physical Audit and Verification of Inventory. On or before
the Effective Date, Electron shall cause to be performed a physical
audit of its Initial Inventory. TBW shall be entitled to monitor,
attend and receive the results from the audit. TBW shall not be
required to perform a physical inventory, but historically has made and
shall continue to make regular periodic adjustments to its inventory
based on daily reviews of its inventory. Electron shall be entitled to
verify TBW's Initial Inventory.
6.2 Sale of Initial Inventory. The Initial Inventory shall be
sold and transferred by TBW and Electron to the Venture for the
transfer costs stated on Schedules 1.1 (a), 1.1 (b) and 1.1 (c). TBW
and Electron shall be paid for their transfer of Initial Inventory as
provided in Subsections 8.1 and 8.4 7.5 hereinafter. All of Electron's
raw casting inventory items will be converted to finished goods and
shall be available for sale by the Venture as soon as practicable after
the Effective Date based on a schedule mutually acceptable to both
Venturers. TBW will include Electron's inventory in TBW's inventory
systems before sales of inventory are made by the Venture.
6.3 Location of Electron's Inventory. Upon written notice from
TBW, Electron shall transfer all of its inventory of Belted Drive
Components to its warehouse in Littleton, Colorado, and close its
remaining warehouses. Electron will maintain its existing warehouse in
Littleton, Colorado, for a period of one year after the Effective Date.
6.4 Return of Excess and Obsolete Initial Inventory. Any of
the Initial Inventory transferred by TBW and Electron to the Venture
that is (i) not sold by the Venture as of the first anniversary of the
Effective Date and (ii) is determined by the General Partner to be
excess or obsolete inventory (using TBW's customary methodology for
determining excess and obsolete inventory) shall be returned by the
Venture to TBW and, if appropriate based on which Venturer initially
transferred such Initial Inventory, by TBW to Electron for the transfer
costs stated on Schedules 1.1 (a), 1.1 (b) and 1.1 (c).
<PAGE>
6.5 Reserve for Obsolete Inventory. The Venture shall
establish and maintain a reserve for obsolete inventory in the amount
of seventy-seven hundredths of one percent (0.77%) of the transfer cost
of Initial Inventory and one-half of one percent (0.5%) of Net Sales of
both Initial Inventory and non-Initial Inventory as stated on Schedules
1.1 (a), 1.1 (b) and 1.1 (c).
7. Purchase Price for Inventory. Except for the Initial Inventory, the
Venture shall pay TBW and Electron for Belted Drive Components sold to the
Venture as follows:
7.1 Price for Products Sold to TBW by Electron. The Venture
shall pay Electron for castings sold by it to TBW and sold by TBW to
the Venture at the transfer costs set forth on Schedules 1.1 (a) and
1.1 (b), plus a scrap and pig iron surcharge which will be reviewed
each calendar quarter based on the change in the Chicago Market for
plate and structural steel 2 feet and under.
7.2 Price for Products Sold to Venture by TBW. The Venture
shall pay TBW for finished products manufactured by TBW and sold to the
Venture and for the machining of all of the Venture's castings at the
transfer costs set forth on Schedules 1.1 (b) and 1.1 (c), plus a scrap
and pig iron surcharge which will be reviewed each calendar quarter
based on the change in the Chicago Market for plate and structural
steel 2 feet and under and the Chicago Market for pig iron.
7.3 Sale of Additional Products by TBW and/or Electron. Any
new products not included in the initial Belted Drive Component product
group shall be added only by the mutual agreement of both Venturers for
a price and method of costing determined jointly by both of the
Venturers.
7.4 Term of Cost Schedule. The transfer costs listed on
Schedules 1.1 (a), 1.1 (b) and 1.1 (c) shall remain fixed for a period
of three (3) years. After the third anniversary of the Effective Date
the Managers of the General Partner will convene to review the cost
schedule and make appropriate changes. In considering changes to the
cost schedule, the Managers of the General Partner shall consider
relevant indices published by the United States Department of Commerce
and by industry manufacturing groups. The transfer costs on the cost
schedule will not be changed or revised without a unanimous vote of all
Managers of the General Partner.
8. Payment of Venture's Accounts Payable to TBW and Electron. The
Venture shall pay TBW and Electron for the Initial Inventory and subsequent
sales of non-Initial Inventory as follows:
8.1 Allocation of Payments During First Three Months: For the
first three (3) months following the Effective Date, the Venture shall
pay TBW and Electron for Initial Inventory and subsequent non-Initial
Inventory sold by the Venture in the following percentages:
(i) to TBW 75%
(ii) to Electron 25%
<PAGE>
8.2 Priority of Payments: Beginning on the first day of the
fourth month following the Effective Date, all payments by the Venture
to TBW and Electron for inventory sold to the Venture (or to TBW by
Electron) shall be allocated (i) first to non-Initial Inventory and
(ii) then to Initial Inventory.
8.3 Payment after the Third Month for non-Initial Inventory:
Beginning on the first day of the fourth month following the Effective
Date, the Venture shall pay TBW and Electron on account of their
respective invoices (and in Electron's case for the invoices with
respect to castings sold by Electron to TBW) for non-Initial Inventory
in proportion to the accounts payable balances of the Venture owed to
each of them as compared to the Venture's total accounts payable each
month.
8.4 Payment after the third month for Initial Inventory:
Beginning on the first day of the fourth month following the Effective
Date, the Venture will pay TBW and Electron for Initial Inventory sold
by the Venture in the following percentages of Net Sales:
(i) to TBW 75.6%
(ii) to Electron 24.4%
8.5 Time of Payment to TBW and Electron: The Venture shall pay
TBW and Electron on account of their respective invoices on or before
the last day of each month commencing on the last day of the third
calendar month following the Effective Date for Belted Drive Components
sold by the Venture during the period beginning on the sixteenth day of
the second preceding month and ending on the 15th day of the
immediately preceding month. Payment for any sales made before
commencement of the first sixty day payment cycle shall be made on the
last day of the second calendar month following the Effective Date.
All payments to TBW and Electron pursuant to this Section 7 are subject to the
creation of reserves pursuant to Sections 6.5 and 8.6 hereof.
8.6 Reserves for Uncollectible Accounts. The Venture shall
establish a reserve for uncollectible accounts in the amount of two
tenths of one percent (0.2%) of Net Sales made by the Venture. Accounts
which are determined to be uncollectible in accordance with Section 8.7
shall be charged to the reserve, and, to the extent uncollectible
accounts exceed the amount of the reserve, shall then be charged back
to the Venturers.
<PAGE>
8.7 Adjustments for Bad Debts. The Venture shall writeoff
accounts determined by TBW, in accordance with its customary practices,
not to be collectible in the normal course.
9. Product Characteristics. TBW shall determine the acceptable
dimensional and cosmetic characteristics of all castings included in the Belted
Drive Components and the physical specifications of the iron used in the
production of such castings. TBW, in its reasonable discretion, shall determine
whether castings included in the Belted Drive Components meet the dimensional
and cosmetic characteristics established by TBW. All castings of Belted Drive
Components produced by Electron shall conform to the physical specifications
established by TBW.
10. Quality Assurance. The Venture shall charge back scrap and
nonconforming, substandard or defective parts to each of TBW and Electron, as
the case may be, by the issuance of Corrective Action Reports. The amounts
charged back to either TBW or Electron, as the case may be, shall be determined
as follows:
10.1 Initial Inventory. If a casting included in the Initial
Inventory does not conform to the required specifications or if the
machining of an item of Initial Inventory is not performed in
accordance with specifications established by the Venture in accordance
with Section 9 hereof, the party casting or machining the component
shall be charged back an amount equivalent to the attributable transfer
cost set forth on Schedules 1.1 (a), 1.1 (b) and 1.1 (c).
10.2 Nonconforming Castings. A casting produced after the
Effective Date which does not conform to specifications established by
the Venture, shall be charged back to the Venturer which produced the
casting in an amount equivalent to the transfer cost established on
Schedules 1.1 (a), 1.1 (b) and 1.1 (c) .
10.3 Nonconforming Machining. A conforming casting which is
not machined in conformity with the Venture's specifications, shall be
charged back to TBW at the transfer cost established on Schedule 1.1
(a), 1.1 (b) and 1.1 (c). In the event that TBW performs machining on a
casting which does not conform to the Venture's specifications, the
party who produced the casting will be charged back for both machining
and casting at the transfer costs established on Schedules 1.1 (a), 1.1
(b) and 1.1 (c). TBW, in its reasonable discretion, may decline to
perform machining on any casting it believes not to conform to the
Venture's specifications.
10.4 Unattributed Nonconformity. If the Venture is unable to
determine to whom the nonconformity of a product is attributable, TBW
and Electron shall each be responsible for one-half of the cost of the
charge back as determined by this Section 10.
<PAGE>
11. Quality Audit Committee. The Venture shall form a Quality Audit
Committee on the Effective Date which will review the manufacturing operations
of each Venturer annually and make recommendations to the Venture to insure
continuous improvement.
12. Manufacturing Rationalization. TBW and Electron shall use best
efforts to complete the "Manufacturing Rationalization" as defined hereinafter
on or before the first anniversary of the Effective Date. "Manufacturing
Rationalization" shall mean and include the following components:
12.1 Electron will become the exclusive source to TBW for the
castings to be produced by Electron as established in Schedules 1.1 (a)
and 1.1 (b).
12.2 TBW will become the exclusive source to the Venture for
the castings to be produced by TBW as established in Schedules 1.1 (b)
and 1.1 (c).
12.3 The Venture may elect to use TBW's patterns relating to
Belted Drive Components. The Venture shall reimburse the Venturers for
the costs incurred by either Venturer in transferring or altering TBW's
patterns in accordance with Schedule 12.3. Electron shall maintain
TBW's patterns in good working condition. All TBW patterns used by
Electron shall remain the property of TBW. Routine pattern maintenance
will be the responsibility of the Venturer actually using the pattern.
Pattern replacement costs will be billed to the Venture, subject to
approval of the General Partner of the Venture. Charges to the Venture
for pattern transfers and alterations shall be limited to those
patterns transferred by TBW to Electron and alterations specifically
required by the Venture because of casting design requirements.
12.4 Electron shall finish machining any castings that it is
contributing to the Initial Inventory based on a schedule mutually
agreeable to the Venturers.
12.5 In the event TBW elects to operate a machine shop in
Littleton, Colorado, Electron shall enter into a lease for its
Littleton machine shop at a fair market rental rate actually received
by lessors of comparable space in the metropolitan Denver, Colorado
area, and TBW shall have an option to purchase the machining equipment
owned by Electron at its then current fair market value.
12.6 The costs of Manufacturing Rationalization shall be borne
by the Venture. For purposes of this Agreement, costs of Manufacturing
Rationalization shall include the following:
(i) costs to prepare all drawings and remount
and gate any patterns transferred to
Electron by TBW and costs to alter patterns
where TBW specifications require
alterations;
<PAGE>
(ii) incremental transportation costs to
transport castings from Blackwell, Oklahoma,
to Chambersburg, Pennsylvania, and from
Littleton, Colorado, to Stratford, Ontario,
Canada and Chambersburg, Pennsylvania;
(iii) tooling costs required due to changes in
castings from TBW standard castings design
to Electron castings design to manufacture
the Belted Drive Components;
(iv) costs associated with relocating equipment
(including disassembly, transportation,
reassembly and operator training, if
required); and
(v) one time expenses related to modifying or
adding hardware and software.
13. Title to Fixed Assets and Other Items. Title to all fixed assets,
plant, equipment and, except as provided in Section 17 hereinafter, intellectual
property rights, patterns and tooling of each of TBW and Electron shall remain
the property of TBW and Electron, respectively.
14. Insurance. TBW and Electron shall each name the other Venturer, the
General Partner and the Venture as additional insureds on their respective
product liability and public liability insurance policies which shall be in
amounts commercially reasonable for the types of manufacturing activities
conducted by the Venture. Initially, the limits of liability coverage shall not
be less than One Million Dollars ($1,000,000.00) for product liability insurance
and Three Million Dollars ($3,000,000.00) for public liability insurance per
occurrence.
15. Salient Terms of Venture's Limited Partnership Agreement. The terms
and conditions governing the Venture, including, without limitation, management,
allocation of income and losses, distribution of profits, limitations on
ownership and disposition of equity interests, financial reporting, meetings and
term of existence will be addressed in the Venture's Limited Partnership
Agreement which shall be executed by TBW and Electron on or before July 1, 1999.
The Limited Partnership Agreement shall contain the following terms and
conditions:
15.1 Ownership. The Interests in the Venture shall be held as
follows:
General Partner .50% Interest as general partner
TBW 75.35% Interest as limited partner
Electron 24.15% Interest as limited partner
TBW shall hold a 75.6% Interest in the General Partner and Electron
shall hold a 24.4% Interest in the General Partner.
<PAGE>
15.2 Capital Accounts. TBW and Electron will each have capital
accounts in both the General Partner and the Venture which will be
established and maintained in accordance with the requirements of the
Internal Revenue Code and the Regulations of the Internal Revenue
Service. The initial capital account balance on the Effective Date in
the General Partner will be Zero Dollars ($0.00) and in the Venture
will be One Hundred Dollars ($100.00).
15.3 Allocation of Taxable Income and Tax Losses and Profits.
The taxable income and tax losses of the Venture for each fiscal year
shall be allocated, and all distributions of profits shall be made, as
follows:
(i) taxable income and tax losses of the Venture
shall be allocated to each of the General
Partner, TBW and Electron in proportion to
their Interests; and
(ii) all distributions of profits shall be made
to each of the General Partner, TBW and
Electron in proportion to their respective
Interests and shall be made at the end of
each calendar month or as soon as
practicable thereafter. The cash account
balance of the Venture, after provision for
bad debt and obsolete inventory reserves,
shall be brought to zero at the end of each
calendar month.
15.4 General Partner. The general partner of the Venture shall
be TBWE Belt Drive Systems LLC, whose managers shall be the following
individuals and their successors:
(i) President and Chief Operating Officer of
Electron;
(ii) Vice President/General Manager of TBW's
Mechanical Division; and
(iii) a senior executive of TBW selected, in its
sole discretion, by TBW.
15.5 Meetings of Managers of the General Partner. During the
first year following the Effective Date, the managers of the General
Partner shall meet quarterly in person. After the first anniversary of
the Effective Date, the managers of the General Partner shall meet no
fewer than two (2) times per year. The managers shall hold an annual
meeting which the Chairman and Chief Executive Officer of Electron and
the President of TBW shall be invited. The Chairman and Chief Executive
Officer of Electron and the President of TBW shall be given at least
two (2) weeks notice of the annual meeting. In the event that either
the Chairman and Chief Executive Officer of Electron or the President
of TBW are unable to attend the annual meeting of the Managers of the
General Partner, reasonable efforts shall be made to reschedule the
meeting to accommodate the attendance of such persons.
<PAGE>
15.6 Major Decisions. All "Major Decisions", as defined
hereinafter, shall only be made by unanimous vote of all managers of
the General Partner. TBW shall manage the daily affairs of the Venture
pursuant to the M&AS Agreement in form and substance acceptable to both
TBW and Electron. "Major Decisions" which shall be made only by
unanimous agreement of all managers of the General Partner, and shall
be limited to the following:
(i) mortgaging, pledging or subjecting to a
security interest on any portion of the
Venture's assets, except for customary liens
contained in or arising under any purchase
money security interests or similar
agreements binding the Venture's assets;
(ii) admission of an additional or substitute
joint venture member (except an assignee of
a Venturer as permitted on Section 25
hereinafter);
(iii) any transaction with an affiliate of either
TBW or Electron, unless expressly permitted
in this Joint Venture Agreement;
(iv) merger or combination of the Venture with
any other person;
(v) binding the Venture to any contract or
agreement regarding any matter beyond the
scope of the Venture;
(vi) any action regarding the assets or business
of the Venture which benefits either
Venturer or its respective affiliates to the
detriment of the other Venturer or the
Venture, including, without limitation,
appropriation or use of proprietary
information, business opportunities, funds
or other assets;
(vii) changing the transfer costs of Belted Drive
Components to an amount different from the
transfer costs set forth on Schedules 1.1
(a), 1.1 (b) and 1.1 (c); and
(viii) borrowing any funds on behalf of the Venture
on an unsecured basis, except trade debt
incurred in the ordinary course of business
and funds borrowed from either Venturer for
working capital purposes.
<PAGE>
15.7 Inability to Achieve Unanimous Agreement on Major
Decisions. In the event that the managers of the General Partner are
unable to achieve unanimous agreement on a Major Decision within thirty
(30) days after the date of the meeting at which the issue requiring
the Major Decision was presented for vote, the President of TBW and the
Chairman and Chief Executive Officer of Electron shall have a period of
sixty (60) days to deliberate and reach consensus. If the President of
TBW and the Chairman and Chief Executive Officer of Electron are not
able to reach consensus within ninety (90) days after the issue
requiring a Major Decision was presented for vote, then either of the
Venturers shall have the option of submitting the issue to binding
arbitration, subject to the following limitations:
(i) in the event the President of TBW and the
Chairman and Chief Executive Officer of
Electron agree to terminate the Venture
rather than to proceed to arbitration, TBW
shall have the option to acquire Electron's
Interest in the Venture and in the General
Partner for an aggregate purchase price
equal to the average of the Call Price and
the Put Price as determined in accordance
with Sections 16.4 and 16.5 hereinafter;
(ii) in the event Electron elects to submit the
issue to arbitration and TBW declines to
participate in the arbitration proceeding,
TBW shall purchase Electron's Interest in
the Venture and in the General Partner for
an aggregate purchase price equal to the
Call Price as determined in accordance with
Section 16.4 hereinafter; and
(iii) in the event TBW elects to submit the issue
to arbitration and Electron declines to
participate in the arbitration proceeding,
TBW shall be entitled to acquire Electron's
Interest in the Venture and in the General
Partner for an aggregate purchase price
equal to the Put Price as determined in
accordance with Section 16.5 hereinafter.
15.8 Termination of Venture. The Venture and the General
Partner shall terminate upon the occurrence of the earliest of the
following events: (i) the Venturers agree to a termination of the
Venture; (ii) all of the Venturers' interests in the Venture and in the
General Partner are held by one of the Venturers; or (iii) the Venture
is terminated unilaterally pursuant to Section 16 below. The Venture
may be terminated at the election of either Venturer if the other
Venturer Fails to Perform (as defined herein) and the defaulting
Venturer has not implemented an acceptable corrective action plan
within ten (10) days after issuance of a Corrective Action Report by or
on behalf of the Venture.
<PAGE>
15.9 Books and Records. The Venture shall maintain complete
and accurate books of all transactions, expenses and income which shall
be available to each of the Venturers at any time upon reasonable
notice for review and copying. Either Venturer shall have the right to
audit the books and records of the Venture at any reasonable time upon
ten (10) days prior written notice to the Venture and the other
Venturer. Any such audit requested by one of the Venturers shall be at
the expense of the Venturer requesting the audit. Notwithstanding the
foregoing sentence and as provided in Section 22 below, the Venture
shall cause an annual audit to be performed by the Venture's
independent accounting firm at the cost of the Venture.
16. Unilateral Termination of Joint Venture. Except as provided in
Section 16.1 hereinafter, either Venturer may elect unilaterally to terminate
the Venture. In the event that either Venturer should elect to terminate the
Venture, the Interest of Electron in the Venture and in the General Partner
shall be purchased by TBW as follows:
16.1 Unilateral Termination by TBW before First Anniversary of
Effective Date. If TBW elects to terminate the Venture before the first
anniversary of the Effective Date, TBW shall acquire Electron's
Interest in the Venture and in the General Partner for a purchase price
equivalent to the sum of Seven Million Twelve Thousand and 00/100
Dollars ($7,012,000.00) plus any Trade Accounts Payable Balance owed by
the Venture to Electron. Electron shall not be entitled to terminate
the Venture unilaterally during the first year after the Effective
Date, except as provided in Section 16.2.1 below.
16.2 Termination by Either Venturer for Failure of Other
Venturer to Perform before First Anniversary of Effective Date. If
either Venturer shall elect to terminate the Venture because of the
Failure to Perform of the other Venturer commencing before the First
Anniversary of the Effective Date, TBW shall purchase Electron's
Interest in the Venture and in the General Partner for the following
purchase prices:
16.2.1 Failure of TBW to Perform: The Trade Accounts
Payable Balance owed by the Venture to Electron plus
ninety-seven and six-tenths percent (97.6%) of the operating
income of the Venture from the Effective Date to the
commencement date of TBW's Failure to Perform plus the product
of Seven Million Twelve Thousand and 00/100 Dollars
($7,012,000.00) multiplied by a fraction having as a numerator
the difference between the number 365 less the days elapsed
between the Effective Date and the commencement date of TBW's
Failure to Perform divided by the number 365.
16.2.2 Failure of Electron to Perform: The Trade
Accounts Payable Balance owed by the Venture to Electron plus
seventy-three and two-tenths percent (73.2%) of the Operating
Income of the Venture from the Effective Date to the
commencement date of Electron's Failure to Perform plus the
product of Five Million Two Hundred Fifty-Nine Thousand and
00/100 Dollars ($5,259,000.00) multiplied by a fraction having
as a numerator the difference between the number 365 less the
days elapsed between the Effective Date and the commencement
date of Electron's Failure to Perform divided by the number
365.
<PAGE>
16.3 Unilateral Termination by TBW after the First Anniversary
of the Effective Date but Before the Third Anniversary of the Effective
Date. If TBW elects to terminate the Venture after the first
anniversary of the Effective Date but before the third anniversary of
the Effective Date, TBW shall acquire Electron's interest in the
Venture and in the General Partner for a purchase price equivalent to
the Trade Accounts Payable Balance owed by the Venture to Electron plus
the greater of (i) Seven Million Twelve Thousand and 00/100 Dollars
($7,012,000.00) or (ii) ninety-seven and six-tenths percent (97.6%) of
the Venture's Operating Income for the most recent period of twelve
(12) consecutive calendar months.
16.4 Unilateral Termination by TBW after the Third Anniversary
of the Effective Date. If TBW elects to terminate the Venture after the
third anniversary of the Effective Date, TBW shall acquire Electron's
Interest in the Venture and in the General Partner for a purchase price
equivalent to ninety-seven and six-tenths percent (97.6%) of the
Venture's Operating Income for the prior twelve (12) calendar months
plus any Trade Accounts Payable Balance owed by the Venture to Electron
(collectively the "Call Price").
16.5 Unilateral Termination by Electron after the First
Anniversary of the Effective Date. If Electron elects to terminate the
Venture, TBW shall acquire Electron's interest in the Venture and in
the General Partner for the sum of seventy-three and two-tenths percent
(73.2%) of the Venture's Operating Income for the prior twelve (12)
calendar months plus any Trade Accounts Payable Balance owed by the
Venture to Electron (collectively the "Put Price").
For purposes of the purchase price calculations of this Section 16, the Trade
Accounts Payable Balance allocable to Electron's Initial Inventory shall not
exceed a sum equivalent to the dollar volume of Net Sales in calendar year 1998
of each such item of Initial Inventory multiplied by two (2).
17. Disposition of Assets Upon Termination of Venture. In the event the
Venture is terminated by agreement of the Venturers, unilateral termination by
either Venturer as provided for in Section 15.8 and 16 of this Agreement or
otherwise ceases to exist , all assets of the Venture, including, but not
limited to, intellectual property rights (if any), patterns, tooling (if any),
inventory and accounts receivable, and all intellectual property rights,
patterns and tooling of Electron required for or utilized in the manufacture of
Belted Drive Components will become the exclusive property of TBW.
<PAGE>
18. Electron's Agreement Not to Compete.
18.1 Agreement Not To Compete. Except as otherwise
specifically provided in Subsection 18.2 hereinafter, Electron agrees
that,
18.1.1 with respect to castings for Belted Drive
Components, for a period of three (3) years after termination
of the Venture (provided that termination is the result of
unilateral termination by Electron, termination by mutual
agreement or termination because of Electron's Failure to
Perform); and
18.1.2 with respect to finished goods comprising
Belted Drive Components, for a period of ten (10) years after
termination of the Venture (provided that termination is the
result of unilateral termination by Electron, termination by
mutual agreement or termination because of Electron's Failure
to Perform),
Electron will not compete with either TBW or the Venture, either directly or
indirectly, in the production, manufacture and sale of Belted Drive Components
in the Restricted Territory.
18.2 Agreement Upon Unilateral Termination by TBW. Electron
agrees that, in the event TBW terminates the Venture pursuant to
Sections 16.1, 16.2.1, 16.3 or 16.4 above, Electron will not compete
with either TBW or the Venture, either directly or indirectly, in the
production, manufacture and sale of Belted Drive Components in the
Restricted Territory with respect to finished goods comprising Belted
Drive Components, for a period of ten (10) years after termination of
the Venture. TBW acknowledges that should TBW terminate the Venture
pursuant to Section 16.1, 16.2.1, 16.3 or 16.4 above, Electron shall be
allowed to compete with TBW or the Venture, either directly or
indirectly, in the production, manufacture and sale of castings for
Belt Drive Components in the Restricted Territory provided that such
sales by Electron are solely to customers who are not related persons,
affiliates or under common control with Electron.
19. Ownership of Interest in Competing Business. TBW and Electron
covenant, represent and warrant that, with the exception of Groupo Blaju, TBW's
Mexican subsidiary, neither TBW nor Electron, nor any of their respective
affiliates, currently own or will acquire, either directly or indirectly, an
interest in any entity, division or person which shall manufacture and sell
products substantially similar to the Belted Drive Components. In the event that
either TBW or Electron in the future seeks to acquire a business or entity
(other than Groupo Blaju) which manufactures and sells products substantially
similar to the Belted Drive Components, either Venturer may acquire such
operation, business or entity provided that the other Venturer is offered an
equity interest proportionate to its share of the Venture. Except as expressly
provided in Section 20.2 hereinafter, Groupo Blaju, and the manufacture and sale
by it of any products competitive with the Venture, shall not be deemed part of
the Venture, nor will sales by Groupo Blaju into the Restricted Territory be
considered part of the Venture or subject to the limitations on competing
businesses contained in this section.
<PAGE>
20. Transactions With or Involving Groupo Blaju.
20.1 Sales to Groupo Blaju. The Venture shall sell Belted
Drive Components to, and as required by, Groupo Blaju at a price of One
hundred Twenty Percent (120%) of the cost of such Belted Drive
Components to the Venture.
20.2 United States Designed Products Sold in Restricted
Territory (Excluding Mexico) by Groupo Blaju. All Belted Drive
Components designed in the United States, manufactured by Groupo Blaju
and sold directly or indirectly in the Restricted Territory (with the
exception of Mexico) shall be deemed to be Belted Drive Components
manufactured by TBW for purposes of this Agreement.
20.3 Belted Drive Components Designed Elsewhere and Sold by
Groupo Blaju. Except as provided in Section 20.2 above, all Belted
Drive Components designed, manufactured and sold by Groupo Blaju
(including, without limitation, IBSA and TIBSA brands) shall not be
subject to the terms of this Agreement and may be sold by Groupo Blaju
without restriction.
21. Corrective Action Plan. Either Venturer who is alleged to have
Failed to Perform shall submit a corrective action of plan to the Venture within
ten (10) days after issuance of a Corrective Action Report by the other Venturer
on behalf of the Venture which shall state in reasonable detail the proposed
corrective action.
22. Alternate Sources of Supply of Product. TBW, under its obligations
under the M&AS Agreement and on behalf of the Venture, shall have the right to
purchase castings from an alternate source or to manufacture castings comprising
Belted Drive Components in the event that Electron Fails to Perform. Upon the
occurrence of a Failure to Perform by Electron, and if either TBW (on behalf of
the Venture) or the Venture purchases castings comprising Belted Drive
Components from an alternate source, the Venture shall be reimbursed by Electron
in an amount equivalent to (i) the difference between the cost to the Venture of
acquiring substitute castings and the price listed on Schedules 1.1 (a) and 1.1
(b); plus (ii) a management fee in the amount of ten percent (10%) of the price
listed on Schedules 1.1 (a) and 1.1 (b). In the event that Electron Fails to
Perform and TBW manufactures replacement castings to be sold to the Venture,
Electron shall reimburse TBW for the actual costs to TBW of producing the
castings plus a management fee in the amount of ten percent (10%) of such costs.
In the event TBW Fails to Perform, the Venture shall have the right to have
castings machined by an alternate source, and TBW shall reimburse the Venture in
an amount equivalent to (i) the difference between the actual costs to the
Venture of machining and the price listed on Schedules 1.1 (b) and 1.1 (c); plus
(ii) a management fee in the amount of ten percent (10%) of the costs of such
machining.
<PAGE>
23. TBW Marketing and Administrative Services Agreement. TBW shall
enter into the M&AS Agreement with the Venture providing, among other things,
for the following reporting services:
(i) within thirty (30) days after the end of each
calendar month, a product sales analysis for Belted
Drive Components reporting, in reasonable detail, the
Venture's sales for such month and any forecast of
sales activity for the current month;
(ii) within thirty (30) days after the end of each
calendar month, a monthly profit and loss statement,
balance sheet, statement of cash flows and accounts
receivable aging for the Venture;
(iii) (a) within thirty (30) days after the end of each
calendar quarter unaudited financial statements as of
the end of the such period, including a balance sheet
and statement of income and interest holder's equity,
prepared in accordance with generally accepted
accounting principles and a schedule reflecting, for
such period, the Venture's capital expenditures and a
schedule showing the capital account balance of each
partner of the Venture; and (b) within seventy-five
(75) days after the end of each calendar year,
audited financial statements as of the end of the
such period, including a balance sheet and statement
of income and Interest holder's equity, prepared in
accordance with generally accepted accounting
principles and accompanied by a report of the
Venture's independent certified public accounting
firm, a schedule reflecting, for such period, the
Venture's capital expenditures and a schedule showing
the capital account balance of each partner of the
Venture;
(iv) not less than fifteen (15) days before the date on
which the Venture files its federal income tax return
or any state or local income tax returns, a copy of
the income tax returns proposed to be filed for the
Venture; and
(v) a monthly 12-month rolling sales forecast for the
Venture.
The Venture's independent certified public accounting firm shall be a nationally
recognized accounting firm approved jointly by TBW and Electron.
24. Indemnification of Venturers. The Venture and the General Partner
shall defend, indemnify and hold harmless TBW, Electron and their respective
affiliates, officers, directors, partners, stockholders, employees or other
agents from and against all claims, demands and liabilities (including attorneys
fees) arising in connection with the Venture and the General Partner; provided,
however, that the Venture and the General Partner shall not be obligated to
defend, indemnify and hold harmless the Venturers with respect to any claim,
demand or liability arising out of the Venturer's gross negligence, willful
misconduct or intentional violation of applicable law or breach of this
Agreement or breach of any requirements, management services or administrative
services agreement between the Venturer and both the Venture and the General
Partner. The agreement of indemnity is between each Venturer and the Venture,
and neither Venturer shall be liable to indemnify the other Venturer except (i)
for the material breach of any covenant, representation or warranty contained in
this Agreement; or (ii) a material breach of any other term or condition of this
Agreement.
<PAGE>
25. Limitations on Assignability. The Venturers shall be entitled to
assign their Interests in the Venture and the General Partner, provided that the
proposed assignee has the financial strength, ability and industry experience
necessary to perform competently and efficiently the obligations of the
assigning Venturer under this Agreement. Except as expressly provided in the
foregoing sentence, neither Venturer shall have the right to mortgage, pledge,
assign, transfer or sell its Interest in the Venture and the General Partner
without the consent of the other Venturer or delegate its duties in connection
with the operation of the Venture without the consent of the other Venturer, and
any attempted assignment, or any attempt to assign, convey or otherwise transfer
or sell any interest in the Venture or the General Partner not in accordance
with this Agreement, shall be null and void.
26. Termination of Venture. The Venture shall continue until
terminated. In the event the Venture is terminated, TBW shall purchase the
Interest of Electron in the Venture and in the General Partner for a purchase
price determined in accordance with the formula stated in Section 15.7 (i)
hereof. Upon termination, the Venture shall be dissolved and immediately
commence to wind up its business and affairs, liquidate all assets and pay all
debts and liabilities first owing to other than the Venturers, then those owing
to the Venturers, and finally distribute equally to the Venturers any net
proceeds, assets or funds remaining in the Venture. The Venturers agree to
proceed with due diligence to complete dissolution, liquidation and distribution
in a prompt manner. Notwithstanding anything to the contrary contained herein,
this Agreement may be terminated immediately by either Venturer by written
notice upon the occurrence of any of the following events:
(i) the other Venturer seeks protection under the bankruptcy
or insolvency laws of the United States of America or any other
jurisdiction,
(ii) a petition for bankruptcy or the appointment of a
receiver or similar action is filed against the other Venturer and is
not dismissed within ninety (90) days thereafter, or
(iii) the other Venturer makes any assignment for the benefit
of its creditors.
Additionally, if either party hereto shall be dissolved an its business
terminated, this Agreement shall automatically terminate upon the effectiveness
of such dissolution.
<PAGE>
27. Representations and Warranties of TBW. TBW represents and warrants
to Electron as follows:
27.1 Corporate Authority and Approvals.
27.1.1 Organization and Standing of TBW. TBW is a
corporation duly organized, validly existing under the laws of
the Commonwealth of Pennsylvania, and has full corporate power
to own its properties and to carry on its business as now
being conducted. TBW is duly qualified, licensed, or
domesticated and in good standing as a foreign corporation and
authorized to do business in each jurisdiction in which the
character of its properties or the nature of its business
requires such license, qualification or authorization, and a
list of those states where TBW is so licensed, qualified, or
domesticated is set forth in Schedule 27.1.1.
27.1.2 Corporate Approvals. TBW has obtained all
corporate authorizations and approvals required for the
execution and delivery of this Agreement as well as the
execution and delivery of all other documents, agreements,
certificates or instruments which are to be executed by TBW in
connection with this transaction (the "Other TBW Instruments")
and the consummation of the transactions contemplated by this
Agreement. This Agreement and the Other TBW Instruments have
been duly executed and delivered by TBW are the valid and
binding obligations of TBW, enforceable against TBW in
accordance with their respective terms, except to the extent
that enforceability may be limited or affected by bankruptcy,
insolvency, reorganization, fraudulent transfer, moratorium or
other laws relating to or affecting generally the enforcement
of debtor's or contracting parties' rights, and to the extent
that the availability of the remedy of specific performance or
of injunctive relief or other equitable relief with respect to
the enforceability of such obligations is subject to the
discretion of the court before which any proceeding therefor
may be brought.
27.1.3 No Violation of Other TBW Instruments. Neither
the execution and delivery of this Agreement or the Other TBW
Instruments by TBW nor the consummation of the transactions
contemplated hereby will conflict with, result in a breach of
or constitute a default under the corporate charter or by-laws
of TBW or any contract, instrument, agreement or understanding
to which TBW is a party or by which it or any of its
properties is bound, nor will it result in acceleration in the
time for performance of any obligation under any contract or
instrument, nor will it result in the creation or imposition
of any lien, charge or encumbrance upon any asset transferred
under this Agreement, nor give rise to any right of
determination, nor will it result in the violation of any law,
statute, ordinance, rule or regulation applicable to TBW.
<PAGE>
27.2 Description and Condition of Inventory. TBW's inventories
of Belted Drive Components are (i) usable and saleable in the ordinary
course of business at prevailing market prices without discount; and
(ii) owned free and clear of all liens, claims, charges and
encumbrances of any kind or nature.
27.3 Litigation. There is no action, proceeding, governmental
investigation or other legal or administrative proceeding pending or,
to the knowledge of TBW, threatened, against or relating to TBW, or its
officers or employees, or its properties, assets or business or the
transactions contemplated by this Agreement or that would interfere
with the performance by TBW of this Agreement.
27.4 Taxes. TBW has no tax deficiency or claim outstanding,
proposed or, to its knowledge, assessed against it with respect to any
taxes, including, without limitation, income, property, sales, use,
franchise, added value, employee's income withholding and social
security taxes, imposed by the United States or by any foreign country
or by any state, municipality, subdivision or instrumentality of the
United States or of any foreign country, or by any other taxing
authority, and TBW has made timely filings of all tax returns due to
all such taxing authorities.
27.5 Permits; Governmental Approvals. TBW possesses all
material franchises, licenses, permits and other authority as are
necessary for the conduct of TBW's business and is not in default in
any material respect under any of such franchises, permits, licenses or
other authority. No approval, consent, authorization or other order of,
and no consent, designation, filing, registration, qualification or
recordation with, any governmental authority is required in connection
with the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby.
27.6 Operations in Conformity With Law. TBW's operations, as
presently conducted, are not in material violation of any law or
regulation, including, without limitation, any applicable building
code, zoning ordinance, law relating to the employment of labor
(including provisions thereof relating to wages, hours, equal
opportunity, collective bargaining, age, pregnancy, disability and sex
discrimination and the payment of social security and other taxes),
regulation of the Federal Occupational Safety and Health
Administration, or any law regarding protection of the environment or
the use, storage or disposal of hazardous wastes.
<PAGE>
Neither the warranties and representations made by TBW in this Agreement and the
Other TBW Instruments, nor the financial statements furnished by TBW, nor any
certificate or memorandum furnished or to be furnished by TBW, or on its behalf,
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the statements herein or
therein not misleading. All representations and warranties of TBW shall be true
on and as of the Closing Date with substantially the same effect as if made on
and as of such date.
28. Covenants of TBW. TBW shall hold in strict confidence all
confidential data and information obtained from Electron, or any officer, agent
or representative of Electron:
28.1 Expenses of Acquisition Transaction. TBW shall pay all of
its expenses in connection with the transactions contemplated by this
Agreement, including, without limitation, the fees and expenses of its
legal counsel and accountants.
28.2 Notice of Breach of Representation or Warranty. Promptly
upon TBW becoming aware of the occurrence of, or the impending or
threatened occurrence of, any event which would cause or constitute a
breach, or would have caused or constituted a breach had such event
occurred prior to the date hereof, of any of the representations and
warranties of TBW contained in or referred to in this Agreement, TBW
shall give detailed written notice thereof to Electron.
29. Representations and Warranties of Electron. Electron represents and
warrants that:
29.1 Corporate Authority and Approvals.
29.1.1 Organization and Standing of Electron.
Electron is a corporation duly organized, validly existing
under the laws of the State of Colorado, and has full
corporate power to own its properties and to carry on its
business as now being conducted. Electron is duly qualified,
licensed, or domesticated and in good standing as a foreign
corporation and authorized to do business in each jurisdiction
in which the character of its properties or the nature of its
business requires such license, qualification or
authorization, and a list of those states where Electron is so
licensed, qualified, or domesticated is set forth in Schedule
29.1.1.
29.1.2 Corporate Approvals. Electron has obtained all
corporate authorizations and approvals required for the
execution and delivery of this Agreement as well as the
execution and delivery of all other documents, agreements,
certificates or instruments which are to be executed by
Electron in connection with this transaction (the "Other
Electron Instruments") and the consummation of the
transactions contemplated by this Agreement. This Agreement
and the Other Electron Instruments have been duly executed and
delivered by Electron and are the valid and binding
obligations of Electron enforceable against Electron in
accordance with their respective terms, except to the extent
that enforceability may be limited or affected by bankruptcy,
insolvency, reorganization, fraudulent transfer, moratorium or
other laws relating to or affecting generally the enforcement
of debtor's or contracting parties' rights, and to the extent
that the availability of the remedy of specific performance or
of injunctive relief or other equitable relief with respect to
the enforceability of such obligations is subject to the
discretion of the court before which any proceeding therefor
may be brought.
<PAGE>
29.1.3 No Violation of Other Electron Instruments.
Neither the execution and delivery of this Agreement or the
Other Electron Instruments by Electron nor the consummation of
the transactions contemplated hereby will conflict with,
result in a breach of or constitute a default under the
corporate charter or by-laws of Electron or any contract,
instrument, agreement or understanding to which Electron is a
party or by which it or any of its properties is bound, nor
will it result in acceleration in the time for performance of
any obligation under any contract or instrument, nor will it
result in the creation or imposition of any lien, charge or
encumbrance upon any asset transferred under this Agreement,
nor give rise to any right of determination, nor will it
result in the violation of any law, statute, ordinance, rule
or regulation applicable to Electron.
29.2 Description and Condition of Inventory. Electron's
inventories of Belted Drive Components are (i) usable and saleable in
the ordinary course of business at prevailing market prices without
discount; and (ii) owned free and clear of all liens, claims, charges
and encumbrances of any kind or nature.
29.3 Litigation. There is no action, proceeding, governmental
investigation or other legal or administrative proceeding pending or,
to the knowledge of Electron, threatened, against or relating to
Electron, or its officers or employees, or its properties, assets or
business or the transactions contemplated by this Agreement or that
would materially interfere with the performance by Electron of this
Agreement.
29.4 Taxes. Electron has no tax deficiency or claim
outstanding, proposed or, to its knowledge, assessed against it with
respect to any taxes, including, without limitation, income, property,
sales, use, franchise, added value, employee's income withholding and
social security taxes, imposed by the United States or by any foreign
country or by any state, municipality, subdivision or instrumentality
of the United States or of any foreign country, or by any other taxing
authority, and Electron has made timely filings of all tax returns due
to all such taxing authorities.
<PAGE>
29.5 Permits; Governmental Approvals. Electron possesses all
material franchises, licenses, permits and other authority as are
necessary for the conduct of Electron's business and is not in default
in any material respect under any of such franchises, permits, licenses
or other authority. No approval, consent, authorization or other order
of, and no consent, designation, filing, registration, qualification or
recordation with, any governmental authority is required in connection
with the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby.
29.6 Operations in Conformity With Law. Electron's operations,
as presently conducted, are not in material violation of any law or
regulation, including, without limitation, any applicable building
code, zoning ordinance, law relating to the employment of labor
(including provisions thereof relating to wages, hours, equal
opportunity, collective bargaining, age, pregnancy, disability and sex
discrimination and the payment of social security and other taxes),
regulation of the Federal Occupational Safety and Health
Administration, or any law regarding protection of the environment or
the use, storage or disposal of hazardous wastes.
<PAGE>
Neither the warranties and representations made by Electron in this Agreement
and the Other Electron Instruments, nor the financial statements furnished by
Electron , nor any certificate or memorandum furnished or to be furnished by
Electron, or on its behalf, contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary to make
the statements herein or therein not misleading. All representations and
warranties of the Electron shall be true on and as of the Closing Date with
substantially the same effect as if made on and as of such date.
30. Covenants of Electron. Electron shall hold in strict confidence all
confidential data and information obtained from TBW, or any officer, agent or
representative of TBW.
30.1 Expenses of Acquisition Transaction. Electron shall pay
all of its expenses in connection with the transactions contemplated by
this Agreement, including, without limitation, the fees and expenses of
its legal counsel and accountants.
30.2 Notice of Breach of Representation or Warranty. Promptly
upon Electron becoming aware of the occurrence of, or the impending or
threatened occurrence of, any event which would cause or constitute a
breach, or would have caused or constituted a breach had such event
occurred prior to the date hereof, of any of the representations and
warranties of Electron contained in or referred to in this Agreement,
Electron shall give detailed written notice thereof to TBW.
31. Notices. All notices or other communications required or to be
given hereunder shall be in writing and shall be deemed duly given when received
or presented for delivery to the person entitled thereto at the addresses set
forth above, or at such other address as the Venturer may notify the other
Venturer from time to time by written notice.
32. Modification. This agreement may not be amended, modified or
rescinded, or any term or provision hereof waived, except by written agreement
signed by all of the Venturers, or, in the case of a waiver, signed by the
Venturer sought to be charged therewith.
33. Binding Effect. This agreement shall be binding upon and shall
inure to the benefit of and be enforceable by the Venturers and their respective
representatives, heirs, successors and permitted assigns, if any.
34. Governing Laws. This agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania.
35. Integration. This agreement and the Schedules and Exhibits hereto
set forth the entire agreement and understanding among the Venturers relating to
the subject matter hereof and all prior agreements, understandings and
discussions relating to same are hereby made null and void.
<PAGE>
36. Partial Invalidity. If any term or provision of this agreement is
held by a court of competent jurisdiction to be invalid or unenforceable, in
whole or in part, the rest and remainder of this agreement and the application
of such provision to other circumstances and/or persons, shall remain valid and
enforceable to the fullest extent permitted by law.
37. Arbitration of Disputes. Any action, dispute, claim, or
controversy, whether sounding in contract, tort, or otherwise arising with
respect to this Agreement or relating to the other agreements contemplated by
this Agreement (the "Dispute" or "Disputes"), may, but is not required to, be
resolved by arbitration as set forth below. If taken to arbitration, such
disputes shall be resolved by binding arbitration in accordance with Title 9 of
the United States Code and the Commercial Arbitration Rules of the American
Arbitration Association ("AAA"). In the event of any inconsistency between such
Rules and these arbitration provisions, these provisions shall supersede such
Rules. All statutes of limitation which would otherwise be applicable shall
apply to any arbitration proceeding. In any arbitration proceeding subject to
these provisions, the arbitrator is specifically empowered to decide pre-hearing
motions which are substantially similar to pre-hearing motions to dismiss and
motions for summary adjudication. Judgment upon the award rendered may be
entered in any court having jurisdiction. A judgment entered on an arbitrator's
award shall not be appealable by either of The Venturers or the Venture.
Whenever an arbitration is elected, the parties shall select an arbitrator in
the manner provided in subsection 37.1.
37.1 Whenever an arbitration is elected under Section 37 of
this Agreement, the arbitrator shall be selected in accordance with the
Commercial Arbitration Rules of the AAA. Any arbitrator selected under
this subsection shall be knowledgeable in the subject matter of this
Dispute.
37.2 In the event of any Dispute governed by this section, the
party who does not prevail with respect to such Dispute shall pay all
of its own expenses, the arbitrator's fees and all costs and fees
(including attorneys' fees, administrative fees, arbitrator's fees, and
court costs) of and to the prevailing party.
38. Consent to Jurisdiction and Venue. With regard to any matters not
subject to arbitration as provided in Section 37 above, TBW and Electron hereby
consent to the exclusive jurisdiction of the courts designated in this Section
38 hereinafter in any and all actions or proceedings arising hereunder or
pursuant hereto, and irrevocably agree to service of process by personal service
upon them or by certified or registered mail, return receipt requested, directed
to the Venturers at their respective last know addresses.
<PAGE>
38.1 Actions or Proceedings Commenced by TBW: TBW and Electron
consent to the exclusive jurisdiction of the federal and state courts
sitting in Colorado in any and all actions or proceedings commenced by
TBW against Electron and arising hereunder or pursuant hereto.
38.2 Actions or Proceedings Commenced by Electron: TBW and
Electron consent to the exclusive jurisdiction of the federal and state
courts sitting in Pennsylvania in any and all actions or proceedings
commenced by Electron against TBW and arising hereunder or pursuant
hereto.
39. Headings. The headings and subheadings contained in the titling of
this Agreement are intended to be used for convenience only and do not
constitute part of this Agreement or a basis for the interpretation hereof.
40. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Venturers have executed this Joint Venture
Agreement on the day and year first above written intending to be legally bound
hereby.
ATTEST: TB WOOD'S INCORPORATED
_______________________________ By:________________________________
Emma K. Gross, Corporate Secretary Carl R. Christenson, Vice President
and General Manager,
Mechanical Division
ATTEST: THE ELECTRON CORP.
_______________________________ By:_________________________________
, Secretary Michael Norwood, President and
Chief Operating Officer
<PAGE>
Exhibit 10.51
OPERATING AGREEMENT
OF
TBWE BELT DRIVE SYSTEMS LLC
A PENNSYLVANIA LIMITED LIABILITY COMPANY
EFFECTIVE AS OF JULY 3, 1999
OPERATING AGREEMENT OF TBWE BELT DRIVE SYSTEMS LLC
THIS Operating Agreement is made and entered into as of this 3rd day of
July, 1999, by and between the Members whose signatures appear on the signature
page hereof. For and in consideration of the mutual agreements and provisions
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
ARTICLE
DEFINITIONS
-----------
The following terms used in this Operating Agreement shall have the
following meanings (unless otherwise expressly provided herein);
1.1 "Act" shall mean the Pennsylvania Limited Liability Company Law of
1994, codified at 15 Pa.C.S.A.ss.8901 et seq.
1.2 "Assignee" shall mean the owner of an Economic Interest who is not
a Member.
1.3 "Certificate of Organization" shall mean the Certificate of
Organization of TBWE Belt Drive Systems LLC as filed with the Secretary of the
Commonwealth of Pennsylvania as the same may be amended from time to time.
1.4 "Company" shall refer to TBWE Belt Drive Systems LLC.
1.5 "Distributable Cash" means all cash, revenues and funds received by
the Company, less the sum of the following to the extent paid or set aside by
the Company: (i) all principal and interest payments on indebtedness of the
Company and all other sums paid to lenders; (ii) all cash expenditures incurred
incident to the normal operation of the Company's business; and (iii) such
reserves as the Managers deem necessary to the proper operation of the Company's
business.
82
<PAGE>
1.6 "Economic Interest" shall mean a Member's or Assignee's share of
the Company's Net Profits, Net Losses and distributions of the Company's assets
pursuant to this Operating Agreement and the Act, but shall not include any
right to participate in the management or affairs of the Company, including, the
right to vote on, consent to or otherwise participate in any decision of the
Members or Managers.
1.7 "Electron" shall mean The Electron Corp., a Colorado corporation.
1.8 "Gifting Member" shall mean any Member or Assignee who gifts,
bequeaths or otherwise transfers for no consideration (by operation of law or
otherwise, except with respect to bankruptcy) all or any part of its Membership
Interest or Economic Interest.
1.9 "Joint Venture Agreement" shall mean the Agreement dated as of July
3, 1999, between TB Wood's Incorporated and The Electron Corp. to form "TBWE
Belt Drive Components LP."
1.10 "Majority Interest" shall mean one or more interests of Members
which taken together exceed 80% of the aggregate of all interests in Net Profits
pursuant to Section 9.1.
1.11 "Manager" shall mean one or more managers and any other persons
who succeed in that capacity. References to the Manager in the singular or as
him, her, it, itself, or other like references shall also, where the context so
requires, be deemed to include the plural or the masculine or feminine
reference, as the case may be.
1.12 "Member" shall mean each of the parties who executes a counterpart
of this Operating Agreement as a Member and each of the parties who may
hereafter become Members. To the extent a Manager has purchased Membership
Interests in the Company, such Manager will have all the rights of a Member with
respect to such Membership Interests, and the term "Member" as used herein shall
include a Manager to the extent such Manager has purchased such Membership
Interests in the Company. If a Person is a Member immediately prior to the
purchase or other acquisition by such Person of an Economic Interest, such
Person shall have all the rights of a Member with respect to such purchased or
otherwise acquired Membership Interest or Economic Interest, as the case may be.
"Membership Interest" shall mean a Member's entire interest in the
Company including such Member's Economic Interest and such other rights and
privileges that the Member may enjoy by being a Member.
1.14 "Net Profits and Net Losses" shall mean for each taxable year of
the Company an amount equal to the Company's net taxable income or tax loss, as
the case may be, for the year as determined for federal income tax purposes in
accordance with the accounting method and rules used by the Company.
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1.15 "Operating Agreement" shall mean this Operating Agreement as
originally executed and as amended from time to time.
1.16 "Person" shall mean any individual or Entity, and the heirs,
executors, administrators, legal representatives, successors, and assigns of
such "Person" where the context so permits.
1.17 "Selling Member" shall mean any Member or Assignee which sells,
assigns, or otherwise transfers for consideration all or any portion of its
Membership Interest or Economic Interest.
1.18 "TBW" shall mean TB Wood's Incorporated, a Pennsylvania
corporation.
1.19 "Venture" shall mean TBWE Belt Drive Components LP.
1.20 "Venturer" shall mean either Electron or TBW.
ARTICLE 2
FORMATION OF COMPANY
--------------------
2.1 Formation. On July 3, 1999, TBW and Electron formed a Pennsylvania
limited liability company by executing and delivering the Certificate of
Organization for the Company to the Pennsylvania Secretary of the Commonwealth
in accordance with and pursuant to the Act.
2.2 Name. The name of the Company is TBWE Belt Drive Systems LLC. All
Company business must be conducted in that name or such other names that comply
with applicable law as the Managers may select from time to time.
2.3 Principal Place of Business. The principal place of business of the
Company shall be 440 North Fifth Avenue, Chambersburg, Pennsylvania 17201. The
Company may locate its places of business and registered office at any other
place or places as the Managers may from time to time deem advisable.
2.4 Registered Office and Registered Agent. The Company's initial
registered office shall be 440 North Fifth Avenue, Chambersburg, Pennsylvania
17201. The registered office may be changed from time to time by filing the
address of the new registered office with the Secretary of the Commonwealth
pursuant to the Act.
2.5 Foreign Qualification. Prior to the Company conducting business in
any jurisdiction other than the Commonwealth of Pennsylvania, the Managers shall
cause the Company to comply, to the extent procedures are available and those
matters are reasonably within the control of the Managers, with all requirements
necessary to qualify the Company as a foreign limited liability company in such
jurisdiction. At the request of the Managers, each Member shall execute,
acknowledge, swear to, and deliver all certificates and other instruments
conforming with this Operating Agreement that are necessary or appropriate to
qualify, continue and terminate the Company as a foreign limited liability
company in all such jurisdictions in which the Company may conduct business.
2.6 Term. The Company shall be in existence until terminated by the
Venturers in accordance with either the provisions of this Operating Agreement,
the Joint Venture Agreement or the Act.
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ARTICLE 3
BUSINESS OF COMPANY
3.1 Permitted Businesses. The business of the Company shall be:
a. To acquire, improve, manage, operate and dispose of real
and personal property and to accomplish any lawful business whatsoever,
or which shall at any time appear conducive to or expedient for the
protection or benefit of the Company and its assets, so long as such
activities are within the scope of acting as the general partner of the
Venture.
b. To exercise all other powers necessary to or reasonably
connected with the Company's business which may be legally exercised by
limited liability companies under the Act, so long as such activities
are within the scope of acting as the general partner of the Venture.
c. To engage in all activities necessary, customary,
convenient, or incident to any of the foregoing.
ARTICLE 4
NAMES AND ADDRESSES OF MEMBERS
------------------------------
The names of the Members are as listed on Schedule 4 attached hereto.
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ARTICLE 5
RIGHTS AND DUTIES OF MANAGERS
-----------------------------
5.1 Management. The business and affairs of the Company shall be
managed by its Managers. Except for situations in which the approval of the
Members is expressly required by this Operating Agreement or by non-waivable
provisions of applicable law, and except in the event that the Managers are
unable to reach a unanimous agreement on a Major Decision as more fully set
forth below, in which case the provisions of Section 15.7 of the Joint Venture
Agreement shall apply, the Managers shall have full and complete authority,
power and discretion to manage and control the business, affairs and properties
of the Company, to make all decisions regarding those matters and to perform any
and all other acts or activities customary or incident to the management of the
Company's business of acting as the general partner of the Venture. At any time
when there is more than one Manager, any one Manager may take any action
authorized to be taken by the Managers holding a Majority Interest unless a
greater percentage vote is required by the Act or this Operating Agreement.
5.2 Number, Tenure and Qualifications. The Company shall initially have
three (3) Managers consisting of the following individuals and their successors:
(i) President and Chief Operating Officer of Electron;
(ii) Vice President/General Manager of TBW Mechanical Division;
and
(iii) a senior executive of TBW selected, in its sole
discretion, by TBW.
The number of Managers of the Company shall be changed from time to time by the
unanimous vote of all Members, but in no instance shall there be less than one
Manager. Each Manager shall hold office until he is removed pursuant to Section
5.10. Managers shall be appointed and removed by the affirmative vote of all
Members.
5.3 Major Decisions. By way of limiting the generality of Section 5.1,
all Major Decisions, as defined hereinafter, affecting the Company or the
Venture shall only be made by unanimous vote of all Managers. Major Decisions
shall be limited to the following:
(i) Mortgaging, pledging or subjection to a security interest
on any portion of the Venture's assets, except for
customary liens contained in or arising under any purchase
money security interests or similar agreements binding the
Venture's assets;
(ii) admission of an additional or substitute joint venture
member (except an assignee by TBW or Electron as permitted
in Section 25 of the Joint Venture Agreement;
(iii) any transaction with an affiliate of either TBW or
Electron, unless specifically permitted in the Joint
Venture Agreement;
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(iv) merger or combination of the Venture with any other
person;
(v) binding the Venture to any contract or agreement
beyond the scope of the Venture;
(vi) any action regarding the assets or business of the
Venture which benefits either Venturer or its
respective affiliates to the detriment of the other
Venturer or the Venture, including, without
limitation, appropriation or use of proprietary
information, business opportunities, funds or other
assets;
(vii) Changing the transfer costs of Belted Drive
Components (as that term is defined in Section 1.1 of
the Joint Venture Agreement) to an amount different
from the prices set forth on Schedules 1.1 (a), 1.1
(b) and 1.1 (c) of the Joint Venture Agreement;
(viii) borrowing any funds on behalf of the Venture on an
unsecured basis, except trade debt incurred in the
ordinary course of business and funds borrowed from
either of the Venturers for working capital purposes.
5.4 Inability to Achieve Unanimous Agreement on Major Decisions. In the
event the Managers are unable to unanimously agree on a Major Decision within
thirty (30) days after the date of the meeting at which the issue requiring the
Major Decision was presented, the procedure for resolving the impasse, as set
forth in Section 15.7 of the Joint Venture Agreement and the Unilateral
Termination provisions in Section 16 of the Joint Venture Agreement, shall be
followed.
5.5 Additional Powers of Managers. Notwithstanding the provisions of
Section 5.3, and without limiting the generality of Section 5.1, the Managers
shall have power and authority, on behalf of the Company:
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a. Subject to the limitations in Section 5.3, to execute on
behalf of the Company all instruments and documents, including, but not
limited to checks; drafts; notes and other negotiable instruments;
mortgages or deeds of trust; security agreements; financing statements;
documents providing for the acquisition, mortgage or disposition of the
Company's property; assignments; bills of sale; leases; and any other
instruments or documents necessary, in the opinion of the Managers, to
the business of the Company;
b. To enter into any and all other agreements on behalf of the
Company as contemplated by the Joint Venture Agreement, with any other
Person for any purpose, in such forms as the Managers may approve; and
c. To do and perform all other acts as may be necessary or
appropriate to the conduct of the Company's business.
Unless authorized to do so by this Operating Agreement or by the
Managers of the Company, no attorney-in-fact, employee or other agent of the
Company shall have any power or authority to bind the Company in any way, to
pledge its credit or to render it liable pecuniarily for any purpose. No Member
shall have any power or authority to bind the Company unless the Member has been
authorized by the Managers to act as an agent of the Company in accordance with
the previous sentence.
5.6 Liability for Certain Acts. The Managers shall not be liable to the
Company or to any Member or Assignee for any loss or damage sustained by the
Company or any Member or Assignee, unless the loss or damage shall have been the
result of fraud, deceit, gross negligence, willful misconduct, breach of this
Operating Agreement or a wrongful taking by the Manager.
5.7 Managers and Members Have No Exclusive Duty to Company. The
Managers shall not be required to manage the Company as their sole and exclusive
function and they may have other business interests and may engage in other
activities in addition to those relating to the Company. Neither the Company nor
any Member or Assignee shall have any right, by virtue of this Operating
Agreement, to share or participate in such other investments or activities of
the Managers and/or Members or Assignee or to the income or proceeds derived
therefrom. Neither the Managers nor any Members or Assignee shall incur any
liability to the Company or to any of the Members or Assignees as a result of
engaging in any other business or venture.
5.8 Indemnity of the Managers, Employees and Other Agents. Subject to
Section 5.6, the Company shall indemnify the Managers and make advances for
expenses to the maximum extent permitted under the Act. Notwithstanding any
other provision of this Operating Agreement, no Manager shall be liable to any
Member or Assignee or the Company with respect to any act performed or neglected
to be performed in good faith in compliance with such Manager's duty of loyalty
to the Company or its Members and in a manner which such Manager believed to be
necessary or appropriate in connection with the ordinary and proper conduct of
the Company's business or the preservation of its property, and consistent with
the provisions of this Agreement and applicable law. The Company shall indemnify
the Managers for and hold them harmless from any liability, whether civil or
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criminal, and any loss, damage, or expense, including reasonable attorneys'
fees, incurred in connection with the ordinary and proper conduct of the
Company's business and the preservation of its business and property, or by
reason of the fact that such person is or was a Manager; provided the Manager to
be indemnified acted in good faith and in a manner such Manager believed to be
consistent with the provisions of this Agreement; and provided further that with
respect to any criminal action or proceeding, the Manager to be indemnified had
no reasonable cause to believe the conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent shall not of itself create a
presumption that indemnification is not available hereunder. The obligation of
the Company to indemnify any Manager hereunder shall be satisfied out of Company
assets only, and if the assets of the Company are insufficient to satisfy its
obligation to indemnify any Manager, such Manager shall not be entitled to
contribution from any Member.
5.9 Removal. At a meeting called expressly for that purpose, all or any
lesser number of Managers may be removed at any time, with or without cause, by
the unanimous vote of all Members determined without regard to any interest held
by the Manager or an Affiliate of the Manager.
5.10 Vacancies. Any vacancy of a Manager's position occurring for any
reason including an increase in the number of Managers, may be filled by the
unanimous vote of all Members (determined without regard to any interest owned
by a Manager who was removed pursuant to Section 5.9 during the preceding
24-month period).
5.11 Compensation, Reimbursement, Organization Expenses. No Member or
Manager shall be entitled to compensation from the Company for services rendered
to the Company in such capacity. Upon the submission of appropriate
documentation each Manager shall be reimbursed by the Company for reasonable
out-of-pocket expenses incurred by such Manager on behalf of the Company or at
the Company's request.
ARTICLE 6
RIGHTS AND OBLIGATIONS OF MEMBERS AND ASSIGNEES
-----------------------------------------------
6.1 Limitation of Liability. Each Member's or Assignee's liability
shall be limited as set forth in this Operating Agreement, the Act and other
applicable law.
6.2 Company Debt Liability. A Member or Assignee will not be personally
liable for any debts or losses of the Company beyond his respective capital
contributions and any obligation of the Member or Assignee under Section 8.1 or
8.2 to make capital contributions, except as otherwise required by law.
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ARTICLE 7
MEETINGS OF MANAGERS AND MEMBERS
--------------------------------
7.1 Meetings. During the first year following the execution of this
Operating Agreement, the Managers shall meet quarterly in person within or
without the Commonwealth of Pennsylvania. After the first anniversary of this
Agreement, the Managers shall meet no fewer than two (2) times per year. The
Managers shall hold an annual meeting to which the Chairman and Chief Executive
Officer of Electron and the President of TBW shall be invited to attend. The
Chairman and Chief Executive Officer of Electron and the President of TBW shall
be given at least two (2) weeks notice of the annual meeting. In the event that
either the Chairman and Chief Executive Officer of Electron or the President of
TBW are unable to attend the annual meeting of the Managers of the General
Partner, reasonable efforts shall be made to reschedule the meeting to
accommodate the attendance of such persons. The Members may meet at such other
times and places within or without the Commonwealth of Pennsylvania as they
shall mutually agree.
7.2 Manner of Acting. If a quorum is present, the affirmative vote of
Members holding a Majority Interest shall be the act of the Members, unless the
vote of a greater or lesser proportion or number is otherwise required by the
Act, by the Certificate of Organization, or by this Operating Agreement. Unless
otherwise expressly provided herein or required under applicable law, Members
who have an interest (economic or otherwise) in the outcome of any particular
matter upon which the Members vote or consent may vote or consent upon any such
matter and their interest, vote or consent, as the case may be, shall be counted
in the determination of whether the requisite matter was approved by the
Members. A quorum shall consist of no less than one-half in number of all
Members
7.3 Proxies. At all meetings of Members a Member may vote in person or
by proxy executed in writing by the Member or by a duly authorized
attorney-in-fact. Such proxy shall be filed with the Managers of the Company
before or at the time of the meeting. No proxy shall be valid after eleven
months from the date of its execution, unless otherwise provided in the proxy.
7.4 Actions by Consent. Any act required or permitted to be taken at
any meeting of the Members may be taken without a meeting, without prior notice
and without a vote, if a consent or consents in writing, setting forth the
action so taken, is signed by the Members having not fewer than the minimum
number of votes that would be necessary to take the action at a meting at which
all Members entitled to vote on the action were present and voted. Subject to
the provisions required or permitted by the Act, the Members may participate in
and hold a meeting of the Members by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting may hear each other. Participation in such a meeting shall constitute
presence in person at the meeting except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
ARTICLE 8
CONTRIBUTIONS TO THE COMPANY AND CAPITAL ACCOUNTS
-------------------------------------------------
8.1 Members' Capital Contributions. Each Member or Assignee shall
contribute such amount as is set forth in Schedule 4 hereto as its share of the
initial capital contribution.
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8.2 Additional Contributions. Except as set forth in Section 8.1, no
Member or Assignee shall be required to make any capital contributions. To the
extent unanimously approved by the Managers, from time to time, the Members and
Assignees may be permitted to make additional capital contributions if and to
the extent they so desire, and if the Managers determine that such additional
Capital Contributions are necessary or appropriate in connection with the
conduct of the Company's business (including without limitation, expansion or
diversification). In such event, the Members and Assignees shall have the
opportunity (but not the obligation) to participate in such additional capital
contributions on a pro rata basis in accordance with their interests in net
profits.
8.3 Capital Accounts.
a. A separate capital account will be maintained for each
Member and Assignee. The manner in which capital accounts are to be maintained
pursuant to this Section 8.3(a) shall comply with the requirements of Section
704(b) of the Internal Revenue Code of 1986, as amended, and the Treasury
Regulations promulgated thereunder.
b. Upon liquidation of the Company, liquidating distributions
will be made in accordance with the positive capital account balances of the
Members and Assignees, as determined after taking into account all capital
account adjustments for the Company's taxable year during which the liquidation
occurs. Liquidation proceeds will be paid in accordance with Section 11.2.
Except as otherwise required in the Act (and subject to Section 8.1 and 8.2), no
Member or Assignee shall have any liability to restore all or any portion of a
deficit balance in such Member's or Assignee's capital account.
ARTICLE 9
ALLOCATIONS, INCOME TAX, DISTRIBUTIONS, ELECTIONS AND REPORTS
-------------------------------------------------------------
9.1 Allocations of Profits and Losses from Operations. The Net Profits
and Net Losses of the Company for each Fiscal Year will be allocated as follows:
9.2 Distributions. All distributions of Distributable Cash shall be
made to the Members and Assignees in proportion to their respective capital
account balances at the end of each calendar month or as soon as practicable
thereafter.
9.3 Accounting Principles. The profits and losses of the Company shall
be determined in accordance with accounting principles applied on a consistent
basis using the accrual method of accounting.
9.4 Interest On and Return of Capital Contributions. No Member or
Assignee shall be entitled to interest on its capital contribution or to return
of its capital contribution, except as otherwise specifically provided for
herein.
9.5 Loans to Company. Nothing in this Operating Agreement shall prevent
any Member or Assignee from making secured or unsecured loans to the Company by
agreement with the Company, subject to the restrictions in Section 5.3 hereof.
9.6 Accounting Period. The Company's accounting period shall be the
calendar year.
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ARTICLE 10
TRANSFERABILITY
---------------
10.1 General. Except as otherwise specifically provided herein neither
a Member nor an Assignee shall have the right to:
a. sell, assign, transfer, exchange or otherwise transfer for
consideration, (collectively, "sell" or "sale"),
b. gift, bequeath or otherwise transfer for no consideration
whether or not by operation of law, except in the case of bankruptcy
(collectively "gift")
all or any part of its Membership Interest or Economic Interest; provided,
however that the Members shall be entitled to assign their respective interests
in the Company to a person who or which has the financial strength, ability and
industry experience necessary to perform competently and efficiently the
obligations of the assigning Member pursuant to this Agreement and the Joint
Venture Agreement without the consent of all the other members. Each Member and
Assignee hereby acknowledges the reasonableness of the restrictions on sale and
gift of Membership Interests and Economic Interests imposed by this Operating
Agreement in view of the Company purposes and the relationship of the Members
and Assignees. Accordingly, the restrictions on sale and gift contained herein
shall be specifically enforceable and any attempted assignment or any attempt to
assign, convey or otherwise transfer or sell any interest in the Company not in
accordance with this Agreement and the Joint Venture Agreement shall be null and
void. In the event that any Member or Assignee pledges or otherwise encumbers
any of its Membership Interest or Economic Interest as security for repayment of
a liability, any such pledge or hypothecation shall be made pursuant to a pledge
or hypothecation agreement that requires the pledgee or secured party to be
bound by all the terms and conditions of this Article X.
10.2 Transferee Not Member in Absence of Consent.
a. Notwithstanding anything contained herein to the contrary,
if a proposed sale or gift of the Transferring Member's Membership
Interest or Economic Interest to a transferee or donee which is not a
Member immediately prior to the sale or gift is not authorized under
Section 10.1 above, then the proposed transferee or donee shall have no
right to participate in the management of the business and affairs of
the Company or to become a Member. Such transferee or donee shall be
merely an Assignee. No transfer of a Member's interest in the Company
(including any transfer of the Economic Interest or any other transfer
which has not been approved as provided herein) shall be effective
unless and until written notice (including the name and address of the
proposed, transferee or donee and the date of such transfer) has been
provided to the Company and the non-transferring Member(s).
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b. Upon and contemporaneously with any sale or gift of a
Transferring Member's Economic Interest in the Company which does not
at the same time transfer the balance of the rights associated with the
Economic Interest transferred by the Transferring Member (including,
without limitation, the rights of the Transferring Member to
participate in the management of the business and affairs of the
Company), the Company shall purchase from the Transferring Member, and
the Transferring Member shall sell to the Company for a purchase price
of $100.00, all remaining rights and interests retained by the
Transferring Member which immediately prior to such sale or gift were
associated with the transferred Economic Interest.
ARTICLE 11
DISSOLUTION AND TERMINATION
---------------------------
11.1 Dissolution. The Company shall be dissolved upon the occurrence of
any of the following events:
a. the Members unanimously agree to a termination of the Company;
b. all of the interest in the Company are held by one of the
Members; or
c. the Company is terminated pursuant to Sections 15.8 or 16 of
the Joint Venture Agreement.
Notwithstanding anything to the contrary contained herein, this Agreement may be
terminated immediately by either Member by written notice upon the occurrence of
any of the following events:
(i) other Member seeks protection under the bankruptcy or
insolvency laws of the United States of America or any other
jurisdiction,
(ii) a petition for bankruptcy or the appointment of a
receiver or similar action filed against the other Member and is not
dismissed within ninety (90) days thereafter, or
(iii) other Member makes any assignment for the benefit of its
creditors.
Additionally, if the other Member shall be dissolved and its business
terminated, this Agreement shall automatically terminate upon the effectiveness
of such disposition.
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11.2 Winding Up, Liquidation and Distribution of Assets.
Upon dissolution, an accounting shall be made by the Company's
independent accountants of the accounts of the Company and of the Company's
assets, liabilities and operations, from the date of the last previous
accounting until the date of dissolution. The Manager(s) shall immediately
proceed to wind up the affairs of the Company.
a. If the Company is dissolved and its affairs are to be wound
up, the Manager(s) shall:
(i) Sell or otherwise liquidate all of the Company's
assets as promptly as practicable (except to the extent the
Manager(s) may determine to distribute any assets to the
Members and Assignees in kind),
(ii) Allocate any net profit or net loss resulting from
such sales to the Members' and Assignees' capital accounts in
accordance with Article 9 hereof,
(iii) Discharge all liabilities of the Company,
paying first those debts and liabilities owing to persons
other than the members, the those including liabilities to
Members and Assignees who are also creditors, to the extent
otherwise permitted by law, other than liabilities to Members
and Assignees for distributions and the return of capital, and
establish such reserves as may be reasonably necessary to
provide for contingent liabilities of the Company (for
purposes of determining the capital accounts of the Members
and Assignees, the amounts of such reserves shall be deemed to
be an expense of the Company),
(iv) Distribute to the Members and Assignees the
remaining assets in accordance with the positive balance (if
any) of each Member's and Assignee's capital account (as
determined after taking into account all capital account
adjustments for the Company's taxable year during which the
liquidation occurs), either in cash or in kind, as determined
by the Manager(s), with any assets distributed in kind being
valued for this purpose at their fair market value. Any such
distributions to the Members and Assignees in respect of their
capital accounts shall be made in accordance with the time
requirements set forth in Section 1.704-1(b)(2)(ii)(b)(2) of
the Treasury Regulations.
b. Notwithstanding anything to the contrary in this Operating
Agreement, upon a liquidation within the meaning of Section
1.704-1(b)(2)(ii)(g) of the Treasury Regulations, if any Member or
Assignee has a deficit capital account (after giving effect to all
contributions, distributions, allocations and other capital account
adjustments for all taxable years, including the year during which such
liquidation occurs), such Member or Assignee shall have no obligation
to make any capital contribution, and the negative balance of such
Member's or Assignee's capital account shall not be considered a debt
owed by such Member or Assignee to the Company or to any other Person
for any purpose whatsoever.
c. Upon completion of the winding up, liquidation and
distribution of the assets, the Company shall be deemed terminated.
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d. The Manager(s) shall comply with any applicable
requirements of applicable law pertaining to the winding up of the
affairs of the Company and the final distribution of its assets.
11.3 Return of Contribution Nonrecourse to Other Members. Except as
provided by law or as expressly provided in this Operating Agreement, upon
dissolution, each Member and Assignee shall look solely to the assets of the
Company for the return of its capital contribution. If the Company property
remaining after the payment or discharge of the debts and liabilities of the
Company is insufficient to return the cash contribution of one or more Members
and Assignees, such Members or Assignees shall have no recourse against any
other Member or Assignee.
ARTICLE 12
MISCELLANEOUS PROVISIONS
------------------------
12.1 Notices. Any notice, demand, or communication required or
permitted to be given by any provision of this Operating Agreement shall be
deemed to have been sufficiently given or served for all purposes if delivered
personally to the party or to an executive officer of the party to whom the same
is directed or, if sent by registered or certified mail, postage and charges
prepaid, addressed to the Member's, Assignee's and/or Company's address, as
appropriate, which is set forth below:
If to Electron: Michael Norwood
President and Chief Operating Officer
The Electron Corp.
5101 South Rio Grande Street
PO Box 318
Littleton, Colorado 80160
If to TBW: Carl R. Christenson
Vice President and General Manager,
Mechanical Division
440 North Fifth Avenue
Chambersburg, Pennsylvania 17201
Except as otherwise provided herein, any such notice shall be deemed to be given
three (3) business days after the date on which the same was deposited in a
regularly maintained receptacle for the deposit of United States mail, addressed
and sent as aforesaid.
12.2 Amendments. This Operating Agreement may not be amended except by
the unanimous written agreement of all of the Members.
12.3 Heirs, Successors and Assigns. Each and all of the covenants,
terms, provisions and agreements herein contained shall be binding upon and
inure to the benefit of the parties hereto and, to the extent permitted by this
Operating Agreement, their respective heirs, legal representatives, successors
and assigns.
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12.4 Creditors. None of the provisions of this Operating Agreement
shall be for the benefit of or enforceable by any creditors of the Company.
12.5 Controlling Law. This Company is created and established under and
in accordance with the Act, as amended, and to the extent matters are not
provided for herein the provisions of the Act shall control. This Agreement
shall be construed and interpreted in accordance with, and be controlled by, the
laws of the Commonwealth of Pennsylvania.
12.6 Arbitration of Disputes.
12.6.1 Arbitration:
-----------
Any action, dispute, claim, or controversy, whether sounding
in contract, tort, or otherwise arising with respect to this Agreement or
relating to the other agreements contemplated by this Agreement (the "Dispute"
or "Disputes"), may, but is not required to, be resolved by arbitration as set
forth below. If taken to arbitration, such disputes shall be resolved by binding
arbitration in accordance with Title 9 of the United States Code and the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"). In
the event of any inconsistency between such Rules and these arbitration
provisions, these provisions shall supersede such Rules. All statutes of
limitation which would otherwise be applicable shall apply to any arbitration
proceeding. In any arbitration proceeding subject to these provisions, the
arbitrator is specifically empowered to decide pre-hearing motions which are
substantially similar to pre-hearing motions to dismiss and motions for summary
adjudication. Judgment upon the award rendered may be entered in any court
having jurisdiction. A judgment entered on an arbitrator's award shall not be
appealable by either of the Members or the Company. Whenever an arbitration is
elected, the parties shall select an arbitrator in the manner provided in
subsection 12.6.2.
12.6.2 Selection of Arbitration:
------------------------
Whenever an arbitration is elected under Section 12.6.1 of
this Agreement, the arbitrator shall be selected in accordance with the
Commercial Arbitration Rules of the AAA. Any arbitrator selected under this
subsection shall be knowledgeable in the subject matter of this Dispute.
12.6.3 Fees and Expenses:
-----------------
In the event of any Dispute governed by this section, the
party who does not prevail with respect to such Dispute shall pay all of its own
expenses, the arbitrator's fees and all costs and fees (including attorneys'
fees, administrative fees, arbitrator's fees, and court costs) of and to the
prevailing party.
12.7 Consent to Jurisdiction and Venue. With regard to any matters not
subject to arbitration as provided in Section 12.6 above, each of the Members
hereby consent to the exclusive jurisdiction of the courts designated in this
Section 12.7 hereinafter in any and all actions or proceedings arising hereunder
or pursuant hereto, and irrevocably agree to service of process by personal
service upon them or by certified or registered mail, return receipt requested,
directed to the Members at their respective last know addresses.
96
<PAGE>
12.7.1 Actions or Proceedings Commenced by TBW: TBW and
Electron consent to the exclusive jurisdiction of the federal and state
courts sitting in Colorado in any and all actions or proceedings
commenced by TBW against Electron and arising hereunder or pursuant
hereto.
12.7.2 Actions or Proceedings Commenced by Electron: TBW and
Electron consent to the exclusive jurisdiction of the federal and state
courts sitting in Pennsylvania in any and all actions or proceedings
commenced by Electron against TBW and arising hereunder or pursuant
hereto.
12.8 Counterparts. This Operating Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
97
<PAGE>
CERTIFICATE
The undersigned, with intent to be legally bound hereby, agree,
acknowledge and certify that the foregoing Operating Agreement, consisting of 16
pages, excluding the Title Page and attached Schedule, constitutes the Operating
Agreement of TBWE Belt Drive Systems LLC adopted by the Members of the Company
as of July 3, 1999.
Attest: THE ELECTRON CORP.
_____________________ By__________________________________________
Michael Norwood, President and
Chief Operating Officer
Attest TB WOOD'S INCORPORATED
_____________________ By__________________________________________
Emma K. Gross Carl R. Christenson, Vice President and
Corporate Secretary General Manager, Mechanical Division
98
<PAGE>
Schedule 4
<TABLE>
<CAPTION>
Initial Member Initial Capital Contribution Initial Share of Total Capital
- -------------- ---------------------------- ------------------------------
<S> <C> <C>
TB Wood's Incorporated $0.00 75.6%
440 North Fifth Avenue
Chambersburg, PA 17201
The Electron Corporation $0.00 24.4%
5101 South Rio Grande Street
PO Box 318
Littleton, CO 80160
</TABLE>
99
<PAGE>
Exhibit 11.1
Statement Regarding Computation of Per Share Earnings
TB Wood's Corporation and Subsidiaries
December 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998 1997
--------------------------------------------------------------------------------------
Net income $5,367 $7,890 $8,689
Basic:
Net income per common share $0.91 $1.34 $1.49
Weighted average shares of common stock and
equivalents outstanding $5,896 $5,874 $5,833
Diluted:
Net income per common share $0.91 $1.33 $1.47
Weighted average shares of common stock and
equivalents outstanding $5,910 $5,932 $5,921
</TABLE>
<PAGE>
EXHIBIT 21.2
Subsidiaries and Joint Ventures of Registrant
TB Wood's Corporation, Subsidiaries, and Joint Ventures
December 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Registrant: TB Wood's Corporation
Delaware
Subsidiary: TB Wood's Incorporated
Pennsylvania
Subsidiaries: Plant Engineering Consultants, Incorporated
Tennessee
T. B. Wood's Canada Ltd.
Canada
TB Wood's Mexico, S.A. de C.V.
Mexico
Berges electronic GmbH
Germany
Berges electronic, S.r.l.
Italy
TB Wood's (Deutschland) GmbH
Germany
TB Wood's Foreign Investment Company
Delaware
TB Wood's Foreign Sales Corporation
Delaware
Joint Ventures
TB Wood's (India) Private Ltd.
India
TBWE Belt Drive Components LP
Pennsylvania
TBWE Belt Drive Systems LLC
Pennsylvania
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 333-07231, File No. 333-31785, and File No.
333-31787.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 11, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE YEAR TO DATE PERIOD ENDED DECEMBER 31, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,245
<SECURITIES> 0
<RECEIVABLES> 18,995
<ALLOWANCES> (402)
<INVENTORY> 34,160
<CURRENT-ASSETS> 55,832
<PP&E> 63,933
<DEPRECIATION> (33,326)
<TOTAL-ASSETS> 102,866
<CURRENT-LIABILITIES> 22,652
<BONDS> 36,651
0
0
<COMMON> 59
<OTHER-SE> 27,692
<TOTAL-LIABILITY-AND-EQUITY> 102,866
<SALES> 123,737
<TOTAL-REVENUES><F1> 123,737
<CGS> 79,380
<TOTAL-COSTS> 111,629
<OTHER-EXPENSES> (2,572)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,915
<INCOME-PRETAX> 8,728
<INCOME-TAX> 3,361
<INCOME-CONTINUING> 5,367
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,367
<EPS-BASIC> 0.91
<EPS-DILUTED> 0.91
<FN>
Revenues are reported net of credits in the Statement of Operations
</FN>
</TABLE>
